<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 7, 1998
REGISTRATION NO. 333-38753
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 6
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
KING PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<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:
<TABLE>
<S> <C> <C>
LINDA M. CROUCH, ESQ. JOHN A. A. BELLAMY, ESQ. STEPHEN T. GIOVE, 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 10022
165 MADISON AVENUE (423) 989-8010 (212) 848-4000
MEMPHIS, TENNESSEE 38103
(901) 577-2262
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
---------------------
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 AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MAY , 1998
6,580,000 Shares
[logo] KING PHARMACEUTICALS, INC.
Common Stock
(no par value)
------------------
Of the 6,580,000 shares of Common Stock ("Common Stock") offered hereby (the
"Offering"), 4,000,000 shares are being sold by King Pharmaceuticals, Inc. (the
"Company") and 2,580,000 shares are being sold by the Selling Shareholders named
herein under "Principal and Selling Shareholders" (the "Selling Shareholders").
The Company will not receive any of the proceeds of shares sold by the Selling
Shareholders. Prior to the Offering, there has been no public market for the
Common Stock. It is anticipated that the initial public offering price will be
between $16.50 and $19.50 per share. For information relating to the factors to
be considered in determining the initial public offering price to the public,
see "Underwriting."
The Common Stock has been approved, subject to official notice of issuance, for
quotation on the Nasdaq Stock Market's National Market under the symbol "KING."
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH
AN INVESTMENT IN THE COMMON STOCK, SEE "RISK FACTORS" ON PAGE 8 HEREIN.
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 PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS COMPANY(1) SHAREHOLDERS
-------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Per Share............................................ $ $ $ $
Total(2)............................................. $ $ $ $
</TABLE>
(1) Before deduction of expenses payable by the Company estimated at $2,325,000,
which includes a fee of approximately $654,000. See "Underwriting."
(2) The Company has granted the Underwriters an option, exercisable for 30 days
from the date of this Prospectus, to purchase a maximum of 1,000,000
additional shares solely to cover over-allotments of shares. If the option
is exercised in full, the total Price to Public will be $ ,
Underwriting Discounts and Commissions will be $ , and Proceeds to
Company will be $ . See "Underwriting."
The shares of Common Stock are offered by the several Underwriters when, as
and if delivered to and accepted by the Underwriters and subject to their right
to reject orders in whole or in part. It is expected that the shares of Common
Stock will be ready for delivery on or about , 1998, against payment
in immediately available funds.
CREDIT SUISSE FIRST BOSTON HAMBRECHT & QUIST
Prospectus dated , 1998
<PAGE> 3
The Company markets the products shown below along with its other branded
pharmaceutical products through its wholly-owned subsidiary, Monarch
Pharmaceuticals, Inc.
Photos on inside Front cover top center: stacked tubes, bottles and boxes of
the Cortisporin(R) pharmaceutical products.
AN EXPANDING PRODUCT LINE
In March 1997 the Company acquired from Glaxo Wellcome 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, includes a newly launched product line extension
Cortisporin-TC(TM) otic suspension.
Photo on inside Front cover mid-page right: 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. 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.
Photo on inside cover mid-page left: two bottles of Procanbid(R).
Originally introduced in April of 1996 by Warner-Lambert and purchased by King
Pharmaceuticals, in February of 1998, PROCANBID(R) (procainamide HCI
extended-release tablets) is the only procainamide approved for a 12 hour
interval dosing schedule for cardiac arrhythmia. It utilizes a unique and
patented dual dosing release mechanism also owned by the Company.
Coly-Mycin(R), Fluogen(R), Procanbid(R), Anusol-HC(R), Chloromycetin(R),
Neosporin(R), Polysporin(R), Vira-A(R), Pitocin(R), Adrenalin(R),
Cortisporin(R), Pediotic(R), Thalitone(R), Viroptic(R), Quibron(R),
Proctocort(R), Tussend(R), Nucofed(R), Monafed(TM), Royal Vet(R), and Show
Winner(TM), are registered or pending trademarks of the Company. Anexsia(R) is a
registered trademark of Mallinckrodt Chemical, Inc.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES OFFERED
HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT
COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE 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.
HIGH QUALITY, MULTI-DOSAGE FACILITIES
The Company's facilities are approximately 1.0 million square feet including
manufacturing, laboratory, office and warehouse space located in Bristol,
Tennessee and Rochester, Michigan. The Company manufacturers and packages a
broad range of dosage forms including sterile solutions and injectables,
freeze-dried (lyophylized) products, tablets and capsules, creams and
ointments, liquids and suspensions, suppositories and powers. Key
manufacturing, quality control, quality assurance, regulatory, product
development and sales management personnel have extensive brand-name
pharmaceutical industry experience. The Company's excess manufacturing capacity
provides it with expansion capabilities.
Parkedale Pharmaceuticals (R) logo on bottom left gate-Fold page in blue box
which continues onto adjacent page.
Monarch Pharmaceuticals (R) logo on top right of center gate-Fold page.
A GROWING, DEDICATED U.S. SALES FORCE
Photo at center of center gate-Fold page: map of continental United States with
certain cities designed by circled stars.
The Company's current prescription, brand-name field sales force of 100
representatives in six districts markets the Company's products throughout the
U.S. Its target customer base is current and former prescribers of its brands,
along with larger writers in primary care, internal medicine, and ear, nose and
throat specialities. King intends to expand its sales force coverage of the
U.S. as additional products are acquired.
Photo on top of inside back cover page page: laboratory with workers performing
various tasks.
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> 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." References in this Prospectus to the "Company" include its
wholly-owned subsidiaries, Monarch Pharmaceuticals, Inc. ("Monarch
Pharmaceuticals"), King Pharmaceuticals of Nevada, Inc. and Parkedale
Pharmaceuticals, Inc. ("Parkedale Pharmaceuticals") unless the context requires
otherwise. Unless otherwise indicated, all information in this Prospectus
assumes no exercise of the Underwriters' over-allotment option.
THE COMPANY
The Company is a vertically 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.
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 such
pharmaceutical companies to focus their marketing efforts on drugs with high
volume sales, newer or novel drugs which have the potential for high volume
sales and products which fit within core therapeutic or marketing priorities. As
a result, major pharmaceutical companies increasingly have sought to divest
small or non-strategic product lines, which can be profitable for niche
pharmaceutical companies like the Company to manufacture and market. Since
December 1994 the Company has successfully acquired 30 branded products from
pharmaceutical companies including Warner-Lambert Company ("Warner-Lambert") and
Glaxo Wellcome Inc. ("Glaxo Wellcome").
The Company markets a variety of branded prescription products, including a
broad line of ophthalmic and other anti-infective products (including
Cortisporin, Neosporin and Chloromycetin), cardiovascular products (Thalitone
and Procanbid), proctology products (Anusol-HC and Proctocort), and respiratory
products (including Quibron and Tussend). The Company also markets flu vaccine,
hormonal products and other prescription pharmaceutical products. In addition,
the Company manufactures and markets generic pharmaceutical products and
companion animal health products.
The Company believes that its ability to identify and integrate promising
branded pharmaceutical products and to leverage its marketing and manufacturing
infrastructure uniquely positions the Company to continue to grow through
acquisitions and internal growth. Specifically, the Company will pursue the
following strategies:
- Seek Attractively Priced Product Acquisition Opportunities. 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.
- Enhance Sales Through Focused Marketing Efforts. The Company
currently has 100 sales representatives who market throughout the
United States. This sales force is dedicated to aggressively 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 continues to acquire additional
branded pharmaceutical products.
- Improve Margins Through Integrated Manufacturing. The Company
believes that its broad integrated manufacturing capabilities enhance
its ability to acquire a variety of pharmaceutical
3
<PAGE> 5
products and integrate such products at attractive operating margins,
and to develop product line extensions. The Company operates two
manufacturing plants and 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 produces a broad range of dosage forms, including sterile
solutions, freeze-dried (lyophylized) products, injectables, tablets
and capsules, liquids and suspensions, 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, regulatory
compliance, purchasing, production planning, packaging, distribution
and inventory management. 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.
- Expand Through New Product Development. The Company's product
development efforts are currently focused on developing product line
extensions, which allow the Company to leverage its brand names,
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.
In February 1998, the Company acquired from Warner-Lambert 15 branded
pharmaceutical products, a manufacturing facility located in Rochester, Michigan
(the "Parkedale Facility") and certain manufacturing contracts for third parties
for $125.0 million (the "Sterile Products Acquisition"). The purchase price was
financed through borrowings from a group of financial institutions (the "Credit
Facility"). See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
------------------
The Company was incorporated in the State of Tennessee in 1993. The
Company's principal executive offices are located at 501 Fifth Street, Bristol,
Tennessee 37620. Its telephone and facsimile numbers are (423) 989-8000 and
(423) 274-8677, respectively.
4
<PAGE> 6
THE OFFERING
Common Stock offered by:
The Company................ 4,000,000 shares
The Selling Shareholders... 2,580,000 shares
----------------------------------------
Total............ 6,580,000 shares
----------------------------------------
----------------------------------------
Common Stock to be
outstanding after the
Offering(1).............. 32,000,000 shares
Use of Proceeds............ Repayment of approximately $48.5 million of debt
outstanding pursuant to the Credit Facility 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 and
acquisition of additional branded products. See
"Use of Proceeds."
Nasdaq National Market
Symbol................... KING
- ---------------
(1) Does not include 3,500,000 shares of Common Stock available for future
grants under the Company's 1997 Incentive and Nonqualified Stock Option Plan
for Employees and its 1998 Non-Employee Director Stock Option Plan (the
"Stock Option Plans"). Options for 270,150 shares of Common Stock are
currently outstanding under the Stock Option Plans.
5
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED PRO FORMA ENDED PRO FORMA
DECEMBER 31, AS ADJUSTED MARCH 31, AS ADJUSTED
--------------------------- ------------- ----------------- -----------
1995 1996 1997 1997(1)(2)(3) 1997 1998 1998(1)(3)
------- ------- ------- ------------- ------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................... $25,441 $15,457 $46,727 $121,880 $ 8,786 $22,189 $33,033
Development revenues(4)..................... -- 5,000 558 558 -- 2,658 2,658
------- ------- ------- -------- ------- ------- -------
Total revenue, net.................. 25,441 20,457 47,285 122,438 8,786 24,847 35,691
------- ------- ------- -------- ------- ------- -------
Costs of sales.............................. 12,130 8,782 10,603 58,082 2,063 7,364 11,847
Selling, general and administrative......... 8,605 12,106 20,930 28,952 4,394 6,702 7,776
Depreciation and amortization............... 1,777 982 2,395 9,804 423 1,091 2,137
------- ------- ------- -------- ------- ------- -------
Total costs and expenses............ 22,512 21,870 33,928 96,838 6,880 15,157 21,760
------- ------- ------- -------- ------- ------- -------
Gain on sale of product line, net(5)........ 13,102 -- -- -- -- -- --
------- ------- ------- -------- ------- ------- -------
Operating income (loss)..................... 16,031 (1,413) 13,357 25,600 1,906 9,690 13,931
Total other (expenses) income............... (1,639) 1,066 (2,777) (11,512) (415) (2,679) (3,776)
Income tax benefit (expense)................ (5,058) 107 (3,968) (5,371) (570) (2,650) (3,908)
------- ------- ------- -------- ------- ------- -------
Net income (loss) before extraordinary
item...................................... 9,334 (240) 6,612 8,717 921 4,361 6,247
Extraordinary item(6)....................... 528 -- -- -- -- (286) --
------- ------- ------- -------- ------- ------- -------
Net income (loss)........................... $ 9,862 $ (240) $ 6,612 $ 8,717 $ 921 $ 4,075 $ 6,247
======= ======= ======= ======== ======= ======= =======
Diluted net income (loss) per share(7)...... $ 0.70 $ (0.02) $ 0.25 $ 0.29 $ 0.04 $ 0.15 $ 0.20
======= ======= ======= ======== ======= ======= =======
Weighted average common shares
outstanding(8)............................ 14,167 15,440 26,270 30,270 20,984 28,000 32,000
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
DECEMBER 31, ----------------------
1997 ACTUAL AS ADJUSTED
------------ -------- -----------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 69 $ 4 $ 16,163
Working capital............................................. (424) 7,720 23,879
Total assets................................................ 104,863 271,687 287,846
Long-term debt (excluding current portion).................. 48,289 188,061 139,585
Shareholders' equity........................................ 29,334 33,412 98,047
</TABLE>
- ---------------
(1) The pro forma consolidated information gives effect to the recent
acquisitions of the Company which include (i) the Proctocort product line
on January 22, 1997, (ii) the Viroptic product line on May 15, 1997, (iii)
the Cortisporin product line on March 21, 1997, (iv) the acquisition of
Septra, Proloprim, Mantadil and Kemadrin, as well as the exclusive
licenses, free of royalty obligations, to manufacture and market
prescription formulations of Neosporin and Polysporin from Glaxo Wellcome
on November 14, 1997 (the "Glaxo Acquisition") (collectively, the "Recent
Acquisitions") and (v) the Sterile Products Acquisition on February 27,
1998, in each case as if the acquisitions had occurred on January 1, 1997.
See "Pro Forma Consolidated Financial Statements."
(2) The Sterile Products Acquisition includes Fluogen which had gross sales of
$23.0 million and $22.3 million in 1995 and 1996, respectively, but which
was not sold in 1997. Fluogen was subject to a voluntary recall due to
shelf life potency concerns in 1996. Subsequent testing has established
Fluogen's shelf life potency and the Company intends to market Fluogen in
1998. As a result of Fluogen's being discontinued, cost of goods sold in
1997 included approximately $7.1 million of unabsorbed overhead and
approximately $4.0 million of obsolete inventory. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business -- Strategy," "Business -- Products and Product Development" and
"Pro Forma Consolidated Financial Statements."
(3) As adjusted to reflect net proceeds of $64.6 million from the sale of 4.0
million shares of Common Stock offered by the Company hereby (after
deducting underwriting discounts and commissions and estimated offering
expenses payable by the Company) and the application thereof as set forth
herein. See "Use of Proceeds." The adjustments include a reduction in
interest expense of $4.2 million and $696,000 for the year ended December
31, 1997 and the three months ended March 31, 1998, respectively, and
related
6
<PAGE> 8
tax effects of $1.7 million and $278,000 for the year ended December 31,
1997 and the three months ended March 31, 1998, respectively. These
adjustments resulted in an increase in basic and diluted income per share
by $0.05 for the year ended December 31, 1997 and no change for the three
months ended March 31, 1998.
(4) 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"). 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 and
validation of the process. In 1996 Mallinckrodt paid the Company for two of
these ANDAs and as of March 31, 1998 Mallinckrodt had paid for a third. The
final ANDA was approved by the FDA in April 1998 and payment will be
received upon validation of the process.
(5) 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.
(6) Reflects gain from early extinguishment of debt in connection with the
disposition of the Anexsia Product Line in 1995 and the loss on early
extinguishment of debt in connection with the Credit Facility in February
1998, net of income taxes of $272,000 and $175,000, respectively.
(7) Net income (loss) per share on a diluted basis is the same as basic
earnings per share for all periods presented except in 1995 when basic
earnings per share was $0.75 due to the assumed conversion of preferred
stock outstanding at that time.
(8) Reflects retroactively the effects of (i) a 15.0% stock dividend paid in
1996 and (ii) a 2.8 for 1 stock split.
7
<PAGE> 9
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.
SIGNIFICANT LEVERAGE AND DEBT SERVICE; ADDITIONAL CAPITAL REQUIREMENTS
The Company is highly leveraged. At March 31, 1998, on a pro forma basis
after giving effect to the application of the proceeds of the Offering, the
Company would have had total outstanding indebtedness of $147.6 million. See
"Selected Consolidated Financial Data." In addition, subject to restrictions
contained in instruments governing its indebtedness, the Company may incur
additional indebtedness from time to time to finance acquisitions or capital
expenditures or for general corporate purposes.
The level of the Company's indebtedness could have important consequences
to the business activities of the Company, including the following: (i) a
substantial portion of the Company's cash flow from operations must be dedicated
to debt service and will not be available for other purposes; (ii) the Company's
ability to obtain additional debt financing in the future for other
acquisitions, working capital or capital expenditures may be limited; (iii) the
Company's level of indebtedness could limit its flexibility in reacting to
changes in its industry or economic conditions generally and (iv) the Company's
leverage may be a competitive disadvantage.
The Company's ability to service its debt obligations will depend upon its
future operating performance, which will be affected by prevailing economic
conditions and financial, business, and other factors, certain of which are
beyond its control, as well as the availability of borrowings under the Credit
Facility or any other credit arrangement. The Company will require substantial
amounts of cash to fund scheduled payments of principal and interest on its
outstanding indebtedness, as well as future capital expenditures and any
increased working capital requirements. If the Company is unable to meet its
cash requirements out of cash flow from operations and its available borrowings,
there can be no assurance that it will be able to obtain alternative financing
or that it will be permitted to do so under the terms of the Credit Facility or
its other indebtedness. The Company intends to use approximately $48.5 million
of the net proceeds of the Offering to repay a portion of the outstanding debt
under the Credit Facility. See "Use of Proceeds." Depending upon, among other
things, the product acquisition opportunities available, the Company may need to
raise additional funds. The Company may seek such additional funds through
public offerings or private placements of debt or equity securities, bank loans
or additional capital contributions from new or existing shareholders. Issuance
of additional equity securities by the Company could result in substantial
dilution to shareholders. In the absence of such financing, the Company's
ability to make future acquisitions in accordance with its business strategy, to
absorb adverse operating results, to fund capital expenditures or to respond to
changing business and economic conditions may be adversely affected, all of
which may have a material adverse effect on the Company's business, financial
condition or results of operations. See "-- Dependence on Acquisition of
Products" and "Business -- Strategy." If the Company does not generate
sufficient increases in cash flow from operations to repay its indebtedness at
maturity, it could attempt to refinance such indebtedness; however, no assurance
can be given that such refinancing would be available on terms acceptable to the
Company, if at all.
DEPENDENCE ON ACQUISITION OF PRODUCTS
The Company has increased its sales and net income 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
8
<PAGE> 10
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
acquisitions of additional branded products 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. Any
inability to generate such sufficient sales or any subsequent reduction of sales
may require a write-off of the intangible value allocated to acquired products
resulting in a charge to earnings. 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 -- Strategy."
DEPENDENCE ON CORTISPORIN SALES AND OTHER KEY PRODUCTS
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
approximately 14.2% and 20.4% of net sales during the three months ended March
31, 1998 and the year ended December 31, 1997, respectively, on a pro forma
basis after giving effect to the Recent Acquisitions and the Sterile Products
Acquisition in each case as if the acquisition had occurred on January 1, 1997.
Three products acquired in the Sterile Products Acquisition, Procanbid,
Anusol-HC and Coly-Mycin-M Parenteral, accounted for approximately 31.8% and
34.4% of net sales during the three months ended March 31, 1998 and the year
ended December 31, 1997, respectively, on a pro forma basis after giving effect
to the Recent Acquisitions and the Sterile Products Acquisition in each case as
if the acquisition had occurred on January 1, 1997. The Company believes that
sales of the Cortisporin product line, Procanbid, Anusol-HC and Coly-Mycin-M
Parenteral will continue to constitute a significant portion of net sales for
the foreseeable future. Accordingly, any factor adversely affecting sales of
such products could also have a material adverse effect on the Company's
business, financial condition and results of operations. See "-- Competition;
Uncertainty of Technological Change" "-- 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. Any reduction of revenues may require a write-off of the
intangible value allocated to acquired products resulting in a charge to
earnings. 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," "Business -- Products
and Product Development" and "Business -- Competition."
MANAGING GROWTH OF BUSINESS; INTEGRATION OF ACQUISITIONS
Due to the Company's business strategy to acquire branded pharmaceutical
products, the Company anticipates that the integration of newly-acquired
products, as well as other assets, will require significant management attention
and expansion of its sales force. The Company's ability to manage its
acquisitions 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. The Sterile Products
Acquisition significantly expanded the Company's product offerings and
operations. The Company's future success will depend in part on its ability to
retain or hire qualified employees to operate its facilities and to operate such
facilities efficiently in accordance with applicable regulatory standards. If
the Company's
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management is unable to manage such changes effectively and integrate its future
acquisitions successfully, such changes and acquisitions could materially
adversely affect the Company's business, financial condition and results of
operations. See "-- Attraction and Retention of Key Personnel" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS
The Credit Facility restricts, among other things, the Company's ability to
incur additional indebtedness, incur liens, pay dividends or make certain other
restricted payments, consummate certain asset sales and enter into certain
transactions with affiliates. In addition, the Credit Facility contains other
financial and operating covenants. The Company's ability to meet such financial
ratios and tests may be affected by events beyond its control. There can be no
assurance that the Company will meet such tests. A breach of any of these
covenants could result in a default under the Credit Facility. Upon the
occurrence of any event of default under the Credit Facility, the lenders could
elect to declare all principal amounts, together with accrued interest, to be
immediately due and payable. There can be no assurance that the assets of the
Company would be sufficient to repay in full such indebtedness. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
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. Although the Company had operating income of
approximately $13.4 million for the year ended December 31, 1997, the Company
experienced an operating loss 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
Currently 13 of the Company's product lines, including Cortisporin and five
of the branded pharmaceutical products acquired in the Glaxo Wellcome
Acquisition and four of the products acquired in the Sterile Products
Acquisition, are presently manufactured by third parties until such products can
be moved to the Company's manufacturing facilities. Until such time, there can
be no assurance that the Company's dependence upon third parties for the
manufacture of its products will not adversely affect the Company's profit
margins or its ability to develop and deliver its products on a timely and
competitive basis. These products accounted for 48.5% and 80.9% of net sales
during the three months ended March 31, 1998 and the year ended December 31,
1997, respectively, on a pro forma basis after giving effect to the Recent
Acquisitions and the Sterile Products Acquisition in each case as if the
acquisition had occurred on January 1, 1997. 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. See "-- Dependence on Cortisporin Sales and Other Key Products"
and "Business -- Manufacturing."
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UNCERTAINTIES RELATED TO 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."
CUSTOMER CONCENTRATION; CONSOLIDATION OF DISTRIBUTION NETWORK
The Company is currently dependent upon a small number of customers. For
the year ended December 31, 1997, approximately 43.8% of the Company's sales
were to the following three customers: McKesson Corporation (16.6%),
Cardinal/Whitmire (13.8%), Bergen Brunswig Corporation (13.4%). These customers
are primarily wholesale drug distributors through which the Company distributes
its products. For the year ended December 31, 1996, approximately 69.7% of the
Company's sales were to the following three customers: SmithKline Beecham
Corporation ("SmithKline Beecham") (18.1%), Mallinckrodt (36.7%) and Novartis
Animal Health US, Inc. ("Novartis") (14.9%). 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; CONSENT DECREE
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 U.S. Food
and Drug Administration ("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") as well as by foreign governments. These
activities are also regulated by various agencies of the states and localities
in which the Company's products are sold. The
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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.
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 FDA Modernization Act of
1997 ("FM Act"). The FM Act authorizes the FDA to collect three types of user
fees for prescription drugs through fiscal year 2002. Fees are imposed on: (i)
certain types of applications for approval of drug and biologic products, (ii)
certain establishments where such products are made, and (iii) certain products.
Fees for applications, establishments, and products are determined by the FDA
using criteria delineated in the statute. To date, the Company has paid fees of
approximately $139,000.
Certain pharmaceutical products of biological origin are regulated under
both the FDC Act and the Biological Products provisions of the Public Health
Service Act ("PHS Act"). The PHS Act imposes special additional licensing
requirements, known as Establishment Licenses and Product Licenses, or a new
substitute
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for those two, called a Biologic License. Those licenses impose very specific
requirements upon the facility and the manufacturing and marketing of licensed
products to assure their safety, purity, and potency. Some licensed biological
products are also subject to batch release by the FDA. That is, the products
from a newly manufactured batch cannot be shipped until the FDA has evaluated
either a sample or the specific batch records and given permission to ship the
batch of product. The PHS Act also grants the FDA mandatory product recall
authority and provides for civil and criminal penalties for violations. The
Company has acquired several biological products subject to licensing under the
PHS Act as part of the Sterile Products Acquisition.
Under the FM Act, antibiotic pharmaceutical products are now subject to the
same NDA and ANDA requirements as other pharmaceuticals. Therefore,
manufacturers seeking NDA approvals of antibiotics now can cause a delay in the
approval of generic copies of their products if the products are covered by
patents. Those manufacturers also can obtain up to five years of marketing
exclusivity for new antibiotics and certain new uses or forms of an antibiotic
irrespective of the presence or absence of patent coverage. While these changes
do not have an effect on the Company's current product line, they may affect the
Company's ability to acquire or develop other antibiotic pharmaceutical products
in the future.
The Parkedale Facility is one of six Warner-Lambert facilities subject to a
Consent Decree of Permanent Injunction issued August 1993 in United States of
America v. Warner-Lambert Company and Melvin R. Goodes and Lodewijk J.R. DeVink
(U.S. Dist. Ct., Dist. of N.J.) ("Consent Decree"). The Consent Decree prohibits
the manufacture and delivery of specified drug products produced at any of the
six sites unless, among other things, the products conform to current good
manufacturing regulations and are produced in accordance with an approved ANDA,
NDA or investigational new drug ("IND"). The Parkedale Facility was not the
cause of the Consent Decree but was included as one of the six Warner-Lambert
facilities. Specifically, at the Parkedale Facility, a neutral third party
expert must certify that the laboratories and laboratory personnel are in
compliance with federal regulations and gain FDA authorization to begin
distribution of any new products. Under its terms, a petition for relief from
the Consent Decree may be filed in August 1998, unless the FDA notifies
Warner-Lambert that there has been a significant failure to comply with certain
federal regulations and approved drug applications of certain pharmaceutical
products. The FDA has confirmed to the Company that the FDA does not intend to
seek a court order to amend the Consent Decree to add the Company as a party to
the Consent Decree as a result of the Company's acquisition of the Parkedale
Facility and the Company may petition for, and if appropriate, obtain relief
from the Consent Decree solely with respect to the Parkedale Facility without
regard to the status of Warner-Lambert's remaining facilities and products.
Management of the Company believes the Parkedale Facility is in compliance with
the requirements of the Consent Decree and intends to petition for relief from
the Consent Decree in August 1998. While there can be no assurance that the
Consent Decree will be terminated with respect to the Parkedale Facility,
management of the Company does not believe continuation of the Consent Decree
will have a material adverse effect on its business, financial condition and
results of operations.
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 products 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 products 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
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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."
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 its insurance coverage will
be sufficient to cover fully 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 would not materially adversely
affect the Company's business, financial condition and results of operations.
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. The Company acquired the flu vaccine Fluogen in
the Sterile Products Acquisition. Fluogen had gross sales of $23.0 million and
$22.3 million in 1995 and 1996, respectively, but was not sold in 1997. Fluogen
was subject to a voluntary recall due to shelf life potency concerns in 1996.
Subsequent testing has established Fluogen's shelf life potency and the Company
is currently marketing Fluogen. However, there can be no assurance that the
Company will be able to produce the vaccine successfully, that it will not be
subject to a recall if produced or that, if produced and marketed, sales will
reach previous levels. 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 3.0% of revenues for the
three months ended March 31, 1998, 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," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business -- Products and Product Development" and
"Business -- Litigation."
EARLY TERMINATION OF CERTAIN LICENSES
The Company has exclusive licenses expiring June 2036 for the prescription
formulations of Neosporin and Polysporin and expiring February 2038 for the
prescription formulation of Anusol-HC. Such licenses are subject to early
termination in the event the Company breaches its obligations under the license
agreement related to these branded pharmaceutical products. For example, the
licenses would be subject to early termination if the Company fails to meet
specified quality control standards, including cGMP, with respect to the
products, or commits a material breach of other terms and conditions of the
licenses which would have a significant adverse effect on the uses of the
licensed products retained by the licensor, which would include, among other
things, marketing products under these trade names outside the prescription
field, or undergoes a change in majority ownership. Such early termination could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business -- Patents, Trademarks and Proprietary
Property."
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RISKS RELATED TO AMORTIZATION OF INTANGIBLE ASSETS
The Company's pro forma total assets reflect substantial intangible assets.
At March 31, 1998, pro forma net intangible assets including the Recent
Acquisitions and the Sterile Products Acquisition represent approximately 43.0%
of total assets and 349.6% of total shareholders' equity. The intangible asset
value represents the excess of cost over the fair value of the separate assets
acquired by the Company since it began operation in 1994. There can be no
assurance that the value of such assets will ever be realized by the Company.
These intangible assets are amortized on a straight-line method over 10 to 25
years for certain assets and 25 years for the Glaxo and Sterile Products
Acquisitions. The Company evaluates on a regular basis whether events and
circumstances have occurred that indicate that all or a portion of the carrying
amount of the asset may no longer be recoverable, in which case a charge to
earnings could become necessary. Any determination requiring the write-off of a
significant portion of unamortized intangible assets would adversely affect the
Company's results of operations. See "Pro Forma Consolidated Financial
Statements."
RISKS RELATED TO LITIGATION
Many distributors and marketers of anorexigenic drugs have been subject to
claims relating to the use of these drugs, many of which purport to be class
actions. The Company is a defendant only in the suits described below, but it
expects it will be named in additional lawsuits related to the Company's
production of an anorexigenic drug under contract for SmithKline Beecham.
The actions generally have been brought by individuals in their own right
or on behalf of putative classes of persons who claim to have suffered injury or
who claim that they may suffer injury in the future due to use of one or more
anorexigenic drugs including phentermine. Plaintiffs' allegations of liability
are based on various theories of recovery, including, but not limited to,
product liability, strict liability, negligence, various breaches of warranty,
conspiracy, fraud, misrepresentation and deceit. These lawsuits typically allege
that the short and long-term use of certain anorexigenic drugs, independently or
in combination (including the combination of fenfluramine and phentermine
popularly known as "fen/phen"), causes, among other things, primary pulmonary
hypertension, valvular heart disease and/or neurological dysfunction. In
addition, some lawsuits allege emotional distress caused by the purported
increased risk of injury in the future. Plaintiffs typically seek relief in the
form of monetary damages (including economic losses, medical care and monitoring
expenses, loss of earnings and earnings capacity, other compensatory damages and
punitive damages), generally in unspecified amounts, on behalf of the individual
or the class. In addition, some actions seeking class certification ask for
certain types of purportedly equitable relief, including, but not limited to,
declaratory judgments and the establishment of a research program or medical
surveillance fund. On December 10, 1997, the federal Judicial Panel on
Multidistrict Litigation issued an Order allowing for the transfer or potential
transfer of the federal actions to the Eastern District of Pennsylvania for
coordinated or consolidated pretrial proceedings.
The Company has been named as a co-defendant in six lawsuits in connection
with the Company's manufacture of phentermine, an anorexigenic, under contract
for SmithKline Beecham and its use in combination with other drugs. In October
1997, the Company was named one of many co-defendants in a purported class
action filed in the Superior Court of the State of Washington. The suit does not
demand monetary damages but seeks court-supervised, defendant-funded, medical
monitoring to detect the existence of cardiac valvular disease alleged to have
arisen from the ingestion of the combination of drugs by residents of the State
of Washington. In February 1998, the Company was named as a defendant in an
action in Jefferson Circuit Court, Louisville, Kentucky and a suit in Circuit
Court of Montgomery County, Alabama, both of which demand damages in an
unspecified amount. In March 1998, the Company was named as a co-defendant in
three additional actions. A suit in the Supreme Court of New York, County of
Suffolk, demands compensatory damages of $30.0 million and punitive damages of
$20.0 million. A suit in the Montana Eleventh Judicial District Court, Flathead
County, demands an unspecified amount of general and special compensatory
damages. A suit in the Superior Court of the State of California, County of Los
Angeles, demands damages in an unspecified amount.
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While the Company cannot predict the outcome of these suits, the Company
believes that the claims against it are without merit and intends to vigorously
pursue all defenses available to it. The Company is being indemnified in all of
these suits by SmithKline Beecham for which it manufactures the anorexigenic
product, provided that neither the lawsuit nor the associated liabilities are
based upon the independent negligence or intentional acts of the Company, and
intends to submit a claim for all unreimbursed costs to its product liability
insurance carrier. However, in the event that SmithKline Beecham is unable to
satisfy or fulfill its obligations under the indemnity, the Company would have
to defend the lawsuit and be responsible for damages, if any, which are awarded
against it or for amounts in excess of the Company's product liability coverage.
See "-- Product Liability; Product Recall; Product Returns."
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. In addition, the
Company does not currently have employment agreements with any of its key
employees. See "-- Managing Growth of Business," "Business -- Employees" and
"Management."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the 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 the Offering. The initial public offering price
has been determined by negotiations between the Company and Credit Suisse First
Boston Corporation ("CSFBC") and Hambrecht & Quist LLC 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.
MARKET RISK OF SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of the Company's Common Stock in
the public market following the Offering could adversely affect the market price
for the Common Stock. The Company and certain of its directors, officers and
shareholders have agreed with the Underwriters not to sell or otherwise dispose
of any shares of Common Stock for a period of 180 days after the date of this
Prospectus without the prior written consent of CSFBC (the "Lock-Up"), except
issuance by the Company to optionees pursuant to the exercise of stock options
granted under the Stock Option Plans. Of the approximately 10,100,000 shares of
Common Stock to be outstanding after the Offering that are not subject to the
Lock-Up, other than the 6,580,000 shares of Common Stock sold in the Offering,
(i) approximately 1,520,000 shares will be immediately eligible for resale in
the public market without restriction in reliance on Rule 144(k) under the
Securities Act, and (ii) approximately 2,000,000 shares may be sold subject to
the volume and manner of sales restrictions of Rule 144. Beginning 180 days
after the date of this Prospectus, after the Lock-Ups have expired, (i)
approximately 13,400,000 additional shares of Common Stock will become eligible
for resale into the public market in reliance on Rule 144(k) and (ii)
approximately 8,500,000 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."
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SUBSTANTIAL DILUTION; ABSENCE OF DIVIDENDS
Investors purchasing shares of Common Stock in the Offering will incur
immediate substantial dilution of $18.59 per share in the net tangible book
value of the Common Stock from the initial public offering price. The Company
has never paid 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 cash dividends in the foreseeable future. Furthermore,
the payment of cash dividends from earnings is currently restricted by the
Company's Credit Facility. See "Dilution," "Dividend Policy" and
"-- Restrictions Imposed by Terms of the Company's Indebtedness."
CONCENTRATION OF OWNERSHIP; LACK OF INDEPENDENT DIRECTORS
Following the Offering, the present officers and directors of the Company
and their affiliates will beneficially own approximately 41.8% 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. The Company does not intend to implement
any formal procedures to address any such potential conflicts of interest. See
"Principal and Selling Shareholders."
RISKS RELATED TO YEAR 2000 ISSUES
The approaching year 2000 could result in challenges related to the
Company's computer software, manufacturing equipment, accounting records and
relationships with suppliers and customers. Management of the Company is
studying year 2000 issues and is seeking to avoid such problems. Based on the
Company's review of its business and operating systems, the Company does not
expect to incur material costs with respect to assessing and remediating year
2000 problems; however, there can be no assurance that such problems will not be
encountered or that the costs incurred to resolve such problems will not be
material. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Year 2000 Compliance."
ANTITAKEOVER EFFECT OF 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 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
17
<PAGE> 19
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,"
"expect," "intend" 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." The safe harbor provisions
of the Private Securities Litigation Reform Act of 1995 do not apply to initial
public offerings.
18
<PAGE> 20
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 $64.6 million ($81.4 million if the
Underwriters' over-allotment option is exercised in full), after deducting the
underwriting discounts and estimated offering expenses payable by the Company,
assuming an estimated initial public offering price of $18.00 per share. The net
proceeds of the Offering, together with the Company's existing cash and cash
equivalents, will be used for: (i) repayment of approximately $48.5 million of
debt outstanding pursuant to the Credit Facility, (ii) 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, and (iii)
acquisition of additional branded products. The Company is actively pursuing the
acquisition of rights to several products which may require the use of
substantial capital resources. There are no present agreements or commitments
with respect to any such acquisition. See "Risk Factors -- Dependence on
Acquisition of Products" and "Business -- Strategy."
As required by the Credit Facility, the Company will use approximately
$48.5 million of the net proceeds of this offering to repay a portion of the
outstanding debt under the Credit Facility. The Credit Facility includes a
six-year $20.0 million revolving line of credit, a six-year $90.0 million
amortizing Tranche A term loan facility and an eight-year $85.0 million Tranche
B term loan facility with customary covenants and with a floating interest rate
based on either LIBOR, the prime rate, or the fed funds rate, plus an applicable
margin, selected at the discretion of the Company. At March 31, 1998 interest
rates for the various components of the Credit Facility ranged from
approximately 8.4% to 8.9%. A portion of the proceeds of the Credit Facility
were used to consummate the Sterile Products Acquisition, purchase the Parkedale
Facility and acquire certain contract manufacturing for third parties. Proceeds
of the Credit Facility were also used to pay off outstanding amounts of
approximately $48.2 million under a prior credit facility. The prior credit
facility was used to finance the Glaxo Acquisition and to pay off approximately
$19.0 million of long-term debt which had been outstanding. This credit facility
included a five-year revolving line of credit and term loan in the aggregate
amount of $52.0 million with customary covenants and with a floating interest
rate based on either LIBOR, the prime rate, or the fed funds rate, plus an
applicable margin, selected at the discretion of the Company.
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 the 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 any dividend or other distribution on any shares of the Company's
capital stock is limited by the Credit Facility to an aggregate amount of up to
$1.0 million provided that no event of default under the Credit Facility has
occurred or is continuing. Assuming removal of this limitation, 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 -- Substantial
Dilution; Absence of Dividends" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
19
<PAGE> 21
CAPITALIZATION
The following table sets forth the actual capitalization of the Company as
of March 31, 1998 and as adjusted to reflect the sale of 4,000,000 shares of
Common Stock offered hereby at the assumed initial 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). This table should be read in conjunction with "Summary
Consolidated Financial Information," "Selected Consolidated Financial Data,"
"Pro Forma Consolidated Financial Statements," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and the Consolidated
Financial Statements of the Company and Notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 4 $ 16,163
======== ========
Long-term obligations (including current portion)(1)........ $184,925 $136,449
Line of credit(1)........................................... 10,000 10,000
-------- --------
Shareholders' equity:
Common Stock, no par value; 150,000,000 shares authorized;
28,000,000 issued and outstanding (actual); 32,000,000
shares outstanding (as adjusted)(2)(3)................. 16,455 81,090
Due from related party.................................... (1,668) (1,668)
Retained earnings......................................... 18,625 18,625
-------- --------
Total shareholders' equity...................... 33,412 98,047
-------- --------
Total capitalization............................ $228,337 $244,496
======== ========
</TABLE>
- ---------------
(1) For additional information relating to long-term obligations, see Notes 9
and 10 to the Consolidated Financial Statements.
(2) In November 1997, shareholders of the Company approved an increase in the
number of authorized shares of Common Stock of the Company from 10,000,000
to 150,000,000 shares.
(3) Excludes 3,500,000 shares of Common Stock available for grants under the
Company's Stock Option Plans. Currently options for 270,150 shares are
outstanding pursuant to such Plans.
20
<PAGE> 22
DILUTION
The net tangible book value of the Company as of March 31, 1998, was
approximately $(83.4) million, or $(2.98) per share. "Net tangible book value"
equals total tangible assets less total liabilities 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. After giving effect to the sale of the 4,000,000 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 March 31, 1998
would have been $(18.8) million, or $(0.59) per share. This represents an
effective net increase in net tangible book value of $2.39 per share to existing
shareholders and an immediate dilution of $18.59 per share to new investors
purchasing shares at the initial public offering price. See "Risk
Factors -- Substantial Dilution; Absence of Dividends." The following table
illustrates this per share dilution, after deduction of underwriting discounts
and offering expenses:
<TABLE>
<S> <C> <C>
Price to Public per share................................ $18.00
Net tangible book value per share before Offering(1)..... $(2.98)
Increase per share attributable to price paid by
purchasers in the Offering............................. 2.39
------
Pro forma net tangible book value per share after
Offering(1)............................................ (0.59)
------
Dilution in pro forma net book value per share to new
investors.............................................. $18.59
======
</TABLE>
The following table sets forth, on a pro forma as adjusted basis as of
March 31, 1998, 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 87.5% $14,613,000 16.9% $ 0.52
New investors.................... 4,000,000 12.5% $72,000,000 83.1% 18.00
---------- ----- ----------- -----
Total.................. 32,000,000 100.0% $86,613,000 100.0%
========== ===== =========== =====
</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
25,420,000, or 79.4% (or 77.0% 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 6,580,000 or 20.6% (7,580,000 or 23.0% 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 grants under the Company's
Stock Option Plans. Currently options for 270,150 shares are outstanding
pursuant to such Plans.
21
<PAGE> 23
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected financial data for the years ended December 31,
1995, 1996 and 1997 and as of December 31, 1996 and 1997 are derived from the
Consolidated Financial Statements of the Company, which have been audited by
Coopers & Lybrand L.L.P., independent certified public accountants, and are
included in this Prospectus. The following selected financial data for the year
ended December 31, 1994 and as of December 31, 1994 and 1995 are derived from
the Consolidated Financial Statements of the Company, which have been audited by
Coopers & Lybrand L.L.P. independent certified public accountants, and are not
included in this Prospectus. The following selected financial data for the three
months ended March 31, 1997 and 1998 are derived from unaudited financial
statements prepared by the Company. The unaudited financial statements include
all adjustments, consisting of normal recurring accruals, which the Company
considers necessary for a fair presentation of the Company's financial position
and results of operations for these periods. Operating results for the three
months ended March 31, 1998 are not necessarily indicative of the results that
may be expected for the entire year ending December 31, 1998. The selected
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Pro Forma
Consolidated Financial Statements" and the Consolidated Financial Statements of
the Company and Notes thereto included in this Prospectus. The following
selected financial data as of and for the year ended December 31, 1993 are
derived from unaudited Financial Statements of the Predecessor Company (defined
below).
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY(1) THE COMPANY(1)
----------- --------------------------------------------------------------------------------------
THREE MONTHS ENDED
FISCAL YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------------------- ------------------------------
PRO FORMA PRO FORMA
AS ADJUSTED AS ADJUSTED
1993 1994 1995 1996 1997 1997(2)(3)(4) 1997 1998 1998(2)(4)
----------- ------- ------- ------- ------- ------------- ------ ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales.................. $24,637 $13,311 $25,441 $15,457 $46,727 $121,880 $8,786 $22,189 $ 33,033
Development revenues(5).... -- -- -- 5,000 558 558 -- 2,658 2,658
------- ------- ------- ------- ------- -------- ------ ------- --------
Total revenue,
net.............. 24,637 13,311 25,441 20,457 47,285 122,438 8,786 24,847 35,691
------- ------- ------- ------- ------- -------- ------ ------- --------
Cost of sales.............. 19,373 9,754 12,130 8,782 10,603 58,082 2,063 7,364 11,847
Selling, general and
administrative........... 7,963 1,987 8,605 12,106 20,930 28,952 4,394 6,702 7,776
Depreciation and
amortization............. 489 639 1,777 982 2,395 9,804 423 1,091 2,137
------- ------- ------- ------- ------- -------- ------ ------- --------
Total costs and
expenses......... 27,825 12,380 22,512 21,870 33,928 96,838 6,880 15,157 21,760
------- ------- ------- ------- ------- -------- ------ ------- --------
Gain on disposition of net
assets(6)................ 347 -- -- -- -- -- -- -- --
Sale of product line(7).... -- -- 13,102 -- -- -- -- -- --
------- ------- ------- ------- ------- -------- ------ ------- --------
Operating income (loss).... (2,841) 931 16,031 (1,413) 13,357 25,600 1,906 9,690 (13,931)
Gain on sale of investment
in affiliate(8).......... -- -- -- 1,760 -- -- -- -- --
Interest expense........... (96) (1,069) (2,006) (1,272) (2,749) (11,484) (450) (2,703) (3,800)
Other (expenses) income.... (152) 554 367 578 (28) (28) 35 24 24
------- ------- ------- ------- ------- -------- ------ ------- --------
Net income (loss) before
income taxes and
extraordinary item....... (3,089) 416 14,392 (347) 10,580 14,088 1,491 7,011 10,155
Income tax (benefit)
expense.................. (186) (501) 5,058 (107) 3,968 5,371 570 2,650 3,908
------- ------- ------- ------- ------- -------- ------ ------- --------
Net income (loss) before
extraordinary item....... (2,903) 917 9,334 (240) 6,612 8,717 921 4,361 6,247
Extraordinary item, net of
income taxes(9).......... -- -- 528 -- -- -- -- (286) --
------- ------- ------- ------- ------- -------- ------ ------- --------
Net income (loss).......... $(2,903) $ 917 $ 9,862 $ (240) $ 6,612 $ 8,717 $ 921 $ 4,075 $ 6,247
======= ======= ======= ======= ======= ======== ====== ======= ========
Diluted net income (loss)
per share(10)............ $ N/A $ 0.18 $ 0.70 $ (0.02) $ 0.25 $ 0.29 $ 0.04 $ 0.15 $ 0.20
======= ======= ======= ======= ======= ======== ====== ======= ========
Weighted average common
shares outstanding(11)... N/A 5,210 14,167 15,440 26,270 30,270 20,984 28,000 32,000
</TABLE>
22
<PAGE> 24
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, 1998
------------------------------------------------ ----------------------
1993(1) 1994 1995 1996 1997 ACTUAL AS ADJUSTED
------- ------- ------- ------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............ $ 501 $ 1,028 $10,568 $ 1,392 $ 69 $ 4 $ 16,163
Working capital...................... (714) (2,408) 7,599 7,749 (424) 7,720 23,879
Total assets......................... 3,306 38,447 33,942 39,279 104,863 271,687 287,846
Long-term debt (excluding current
portion)........................... 750 27,065 27,065 13,980 48,289 188,061 139,585
Shareholders' equity................. 571 1,935 1,935 15,693 29,334 33,412 98,047
</TABLE>
- ---------------
(1) Effective December 31, 1993, the Company acquired certain assets and
assumed certain liabilities of RSR Laboratories, Inc. (the "Predecessor
Company"). The 1993 financial data of the Predecessor Company is not
comparable to the Company's financial data for 1994 through 1997 fiscal
years because the 1993 financial data of the Predecessor Company includes
the gross up of customer supplied materials in net sales and cost of sales.
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. The Company believes it is not possible to estimate
accurately the gross up of customer supplied materials in net sales and
cost of sales in 1993 because the amount of customer supplied materials
included in both sales and cost of sales is not known.
(2) The pro forma consolidated information gives effect to the Recent
Acquisitions and the Sterile Products Acquisition, in each case as if the
acquisitions had occurred on January 1, 1997. See "Pro Forma Consolidated
Financial Statements."
(3) The Sterile Products Acquisition includes Fluogen which had gross sales of
$23.0 million and $22.3 million in 1995 and 1996, respectively, but which
was not sold in 1997. Fluogen was subject to a voluntary recall due to
shelf life potency concerns in 1996. Subsequent testing has established
Fluogen's shelf life potency and the Company is currently marketing
Fluogen. As a result of Fluogen's being discontinued, cost of goods sold in
1997 included approximately $7.1 million of unabsorbed overhead and
approximately $4.0 million of obsolete inventory. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business -- Strategy," "Business -- Products and Product Development" and
"Pro Forma Consolidated Financial Statements."
(4) As adjusted to reflect net proceeds of $64.6 million from the sale of 4.0
million shares of Common Stock offered by the Company hereby (after
deducting underwriting discounts and commissions and estimated offering
expenses payable by the Company) and the application thereof as set forth
herein. See "Use of Proceeds." The adjustments include a reduction in
interest expense of $4.2 million and $696,000 for the year ended December
31, 1997 and the three month ended March 31, 1998, respectively, and
related tax effects of $1.7 million and $278,000 for the year ended
December 31, 1997 and the three months ended March 31, 1998, respectively.
These adjustments resulted in an increase in basic and diluted income per
share by $0.05 for the year ended December 31, 1997 and no change for the
three months ended March 31, 1998.
(5) 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 and validation of the process.
In 1996 Mallinckrodt paid the Company for two of these ANDAs and as of
March 31, 1998, Mallinckrodt paid the Company for a third ANDA. The final
ANDA was approved by the FDA in April 1998 and payment will be received
upon validation of the process.
(6) The Predecessor Company sold the net assets of its over-the-counter human
and animal pharmaceutical and health products business to the Company in
December 1993 and early January 1994. The net assets sold had a recorded
book value of $4.2 million.
(7) 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.
(8) 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.
(9) Reflects early extinguishment of debt in connection with the disposition of
the Anexsia Product Line in 1995 and the loss on early extinguishment of
debt in connection with the Credit Facility in February 1998.
(10) Net income (loss) per share on a fully diluted basis is the same as primary
earnings per share for all periods presented, except in 1995 when the basic
earnings per share was $.75 due to the assumed conversion of preferred
stock outstanding at that time.
(11) Reflects retroactively the effects of (i) a 15.0% stock dividend paid in
1996 and (ii) a 2.8 for 1 stock split.
23
<PAGE> 25
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 a vertically 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 began operations in January 1994 after acquiring its
manufacturing facility and assuming contracts to manufacture pharmaceutical
products and companion animal health products for pharmaceutical companies.
Initially, 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.
All four ANDAs have been approved by the FDA. In 1996 Mallinckrodt paid the
Company for two of these ANDAs and as of March 31, 1998, Mallinckrodt paid the
Company for a third ANDA. The final ANDA was approved by the FDA in April 1998
and payment will be received upon validation of the process.
Since December 1994, the Company has acquired 30 branded pharmaceutical
products, developed three products internally, divested one product and
introduced seven product line extensions. Branded pharmaceutical products
represented approximately 70.2% of the net sales of the Company for the three
months ended March 31, 1998, with the Cortisporin product line representing
20.4% 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.
In February 1998, the Company consummated the Sterile Products Acquisition
acquiring 15 branded prescription pharmaceutical products from Warner-Lambert.
The Sterile Products Acquisition includes Fluogen which was not sold in 1997.
Fluogen was subject to a voluntary recall due to shelf life potency concerns in
1996. Subsequent testing has established Fluogen's shelf life potency and the
Company is currently marketing Fluogen in 1998. See "Risk Factors -- Product
Liability; Product Recall; Product Returns."
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 incremental 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
24
<PAGE> 26
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.
The Company has a number of manufacturing contracts with a variety of
pharmaceutical and biotechnology companies which expire at various times within
the next five years. The Company intends to enter into additional manufacturing
contracts in cases where the Company identifies contracts that offer significant
volumes and attractive margins. The Company has not accepted or renewed
manufacturing contracts for third parties where the Company perceived
insignificant volumes or revenues.
The following summarizes approximate net revenues by product categories.
<TABLE>
<CAPTION>
THREE
MONTHS
FISCAL YEAR ENDED DECEMBER 31, PRO FORMA ENDED PRO FORMA
------------------------------------- --------------- MARCH 31, --------------
1994 1995 1996 1997 1997 % 1998 1998 %
------- ------- ------- ------- -------- ---- --------- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Branded pharmaceuticals................. $ 305 $ 5,921 $ 2,938 $37,288 $ 93,441 76.3% $17,439 $24,983 70.0%
Generic pharmaceuticals................. 1,711 7,492 1,572 1,658 1,658 1.4 132 132 0.4
Contract manufacturing.................. 11,295 12,028 10,890 6,982 25,982 21.2 4,518 7,818 21.9
Companion animal health................. -- -- 57 799 799 0.6 100 100 0.3
Development revenues.................... -- -- 5,000 558 558 0.5 2,658 2,658 7.4
------- ------- ------- ------- -------- ---- ------- ------- ----
Total........................... $13,311 $25,441 $20,457 $47,285 $122,438 100% $24,847 $35,691 100%
======= ======= ======= ======= ======== ==== ======= ======= ====
</TABLE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Revenues
Net revenues increased $16.1 million, or 182.8%, to $24.9 million in 1998
from $8.8 million in 1997, due primarily to the acquisition of branded products.
Of these acquired products, the Cortisporin product line contributed $5.1
million in 1998 compared to $3.8 million in 1997, while the acquisition of six
branded products in November 1997 and the Sterile Products Acquisition branded
products contributed $3.7 and $6.7 million in 1998, respectively.
Revenues from contract manufacturing increased $2.5 million, or 129.2%, to
$4.5 million in 1998 from $2.0 million in 1997, due primarily to the increased
contract manufacturing related to the Sterile Products Acquisition offset in
part by the expiration of a contract.
Additionally, the Company recognized $2.7 million in development revenues
primarily as a result of the FDA approval and validation of the process of one
additional ANDA related to the Anexsia Transaction during the three months ended
March 31, 1998.
Operating Costs and Expenses
Total operating costs and expenses increased $8.3 million, or 120.3%, to
$15.2 million in 1998 from $6.9 million in 1997. 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 $5.3 million, or 256.9%, to $7.4 million in 1998
from $2.1 million in 1997. The increase was due primarily to the costs
associated with the newly acquired branded product lines. In 1998, the
percentage increase in cost of sales was greater than the percentage increase in
net revenues due to the additional contract manufacturing related to the Sterile
Products Acquisition, which has lower gross margins than the branded products,
along with $1.1 million of unabsorbed overhead included in cost of sales in
1998, which resulted from lower than expected production of two branded products
and one contract at the Parkedale Facility. The Cortisporin product line
contributed $4.6 million of gross profit in 1998, representing a gross margin
for the Cortisporin product line of 91.6%. Cost associated with the development
revenues in 1998, consisting of an allocation of labor costs associated with the
personnel involved in the development and filing of ANDAs, was estimated by
management to be between $80,000 and $150,000, respectively.
Selling, general and administrative expenses increased $2.3 million, or
52.5%, to $6.7 million in 1998 from $4.4 million in 1997. This increase was
primarily attributable to the hiring of additional sales
25
<PAGE> 27
representatives during 1997, other additional personnel costs and marketing,
promotion and sampling costs associated with the new branded product lines.
Depreciation and amortization expense increased $668,000, or 157.9%, to
$1.1 million in 1998 from $423,000 in 1997. This increase was primarily
attributable to the depreciation and amortization of the intangible and fixed
assets acquired with the branded products acquisitions in 1997 and the Sterile
Products Acquisition in 1998.
Operating Income
Operating income increased $7.8 million, or 408.4% to $9.7 million in 1998
from $1.9 million in 1997. This increase was primarily due to increased revenues
from the acquisition of branded products. As a percentage of net revenues,
operating income increased to 39.0% in 1998 from 21.7% in 1997.
Interest Expense
Interest expense increased $2.3 million, or 500.7% to $2.7 million in 1998
from $450,000 in 1997, as a result of additional term loans used to finance, in
part, the acquisitions of branded products.
Income Tax (Benefit) Expense
The effective tax rate in 1998 of 37.8% and 1997 of 38.2% was higher than
the federal statutory rate of 34.0% primarily due to state income taxes.
Net Income
Due to the factors set forth above, net income increased $3.2 million, or
342.3%, to $4.1 million in 1998 from $921,000 in 1997.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenues
Net revenues increased $26.8 million, or 130.7%, to $47.3 million in 1997
from $20.5 million in 1996. This increase was due primarily to the acquisition
of thirteen branded products since October 1996. Of these acquired products, the
Cortisporin product line contributed $21.7 million in 1997, or 45.9% of total
net sales, while the Company's additional branded products contributed an
additional $15.5 million, or 32.8%. 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 1997 related to this contract, compared
to $5 million recognized in 1996. Revenues from contract manufacturing decreased
$3.9 million, or 35.8%, to $7.0 million in 1997 from $10.9 million in 1996, due
primarily to the expiration of a manufacturing contract.
Operating Costs and Expenses
Total operating costs and expenses increased $12.0 million, or 54.8%, to
$33.9 million in 1997 from $21.9 million in 1996. The increase was due to
increases in the costs of sales, selling, general and administrative expenses
and depreciation and amortization expenses.
Costs of sales increased $1.8 million, or 20.5%, to $10.6 million in 1997
from $8.8 million in 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. The Cortisporin Product Line
contributed $19.8 million of gross profit in 1997, representing a gross margin
for the Cortisporin Product Line of 91.0%. Cost associated with the development
revenues in 1996, consisting of an allocation of labor costs associated with the
personnel involved in the development and filing of ANDAs, was estimated by
management to be between $70,000 and $130,000.
Selling, general and administrative expenses increased $8.8 million, or
72.7%, to $20.9 million in 1997 from $12.1 million in 1996. This increase was
primarily attributable to the hiring of additional field sales
26
<PAGE> 28
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 $1.4 million, or 142.6%, to
$2.4 million in 1997 from $982,000 in 1996. This increase was primarily
attributable to the amortization of the purchase price of the new branded
product lines.
Operating Income
Operating income increased $14.8 million to $13.4 million in 1997 from an
operating loss of $1.4 million in 1996. As a percentage of net revenues,
operating income was 28.3% in 1997. This increase was primarily due to increased
revenues from the acquisition of 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 $1.5 million, or 115.4%, to $2.8 million in 1997
from $1.3 million in 1996, as a result of additional term loans used to finance,
in part, the acquisitions of branded products.
Income Tax (Benefit) Expense
The effective tax rate in 1997 of 37.7% was higher than the federal
statutory rate of 34% due to state income taxes.
Net Income
Due to the factors set forth above, net income increased $6.8 million to
$6.6 million in 1997 from a net loss of $240,000 in 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. In 1996, the Company did not have any branded
pharmaceutical products that accounted for more than 15% of net revenues.
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. Cost associated with the development
revenues in 1996,
27
<PAGE> 29
consisting of an allocation of labor costs associated with personnel involved in
the development and filing of ANDAs was estimated by management to be between
$80,000 and $150,000.
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.
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 was (30.8%) in 1996. In 1995, the effective tax rate
of 35.1% 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.
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 1994 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
28
<PAGE> 30
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.
In November 1997, the purchase price of the Glaxo Acquisition of $23.0
million was financed with a new $40.0 million term loan and a related $12.0
million revolving line of credit, which was also used to refinance all existing
borrowings for product acquisitions. On February 27, 1998, the Company
consummated the Sterile Products Acquisition $125.0 million which was financed
with the Credit Facility. The Company also used a portion of the Credit Facility
to pay off approximately $50.0 million of long-term debt which was then
outstanding, including the borrowings used for the Glaxo Acquisition.
As of March 31, 1998, the Company had available up to $10.0 million under
its revolving line of credit which allows for total borrowing of up to $20.0
million.
THREE MONTHS ENDED MARCH 31, 1998
Net cash used in operating activities was $5.4 million for the three months
ended March 31, 1998. The Company's net use of operating cash was primarily a
result of increases in accounts receivable and inventory of $32.1 million offset
by increases in accounts payable, accrued expenses and income taxes of $22.3
million plus net income and depreciation and amortization.
Cash flows used in investing activities was $125.2 million due principally
to the Sterile Products Acquisition for $126.1 million including the costs, fees
and expenses of acquisition, and other purchases of equipment.
Net cash provided by financing activities was $130.5 million which was a
result of the Credit Facility in the amount of $167.7 million, net of $7.3
million of debt issuance costs, used to finance the Sterile Products Acquisition
and to repay the $40.0 million senior secured term loan. In addition, borrowings
under the revolving line of credit increased $3.8 million to fund increases in
working capital.
YEAR ENDED DECEMBER 31, 1997
Net cash provided by operating activities was $5.0 million for the year
ended December 31, 1997. The Company's net operating cash in 1997 was primarily
the result of $6.6 million in net income resulting from the purchase of
additional branded products, offset by $2.4 million in depreciation and
amortization, additional income taxes and deferred taxes of $1.5 million, and
related increases in accounts receivable, inventories, accounts payable and
accrued expenses of $6.3 million, $4.8 million, $3.6 million and $2.2 million,
respectively.
Net cash used in investing activities for the year ended December 31, 1997
was $54.0 million and was the result of cash of $52.4 million paid for the
acquisition of new branded product lines as well as cash of $1.4 million paid
for purchases of property and equipment.
Net cash provided by financing activities was $47.6 million, which was the
result of (i) aggregate borrowings of $14.0 million to finance the acquisition
of the Cortisporin product line in March 1997, other product acquisitions
totaling $6.6 million financed in 1997, the refinancing of all remaining
acquisition term loans along with the acquisition of six additional products for
$23 million in November 1997, and the net increase in the revolving line of
credit of $6.2 million, offset by payments on long-term debt and capital lease
obligations of $23.8 million, (ii) proceeds from issuance of common shares of $8
million in connection with the acquisition of the Cortisporin product line and
(iii) repayment on shareholder notes receivable of $2.1 million.
As a result of the factors discussed above, cash and cash equivalents
decreased from $1.4 million at December 31, 1996 to $69,000 at December 31,
1997.
29
<PAGE> 31
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
the 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 $2.0
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 and from shareholders and members of
management.
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 consisting primarily of net income of $9.9 million offset by
the gain on sale of product line of $15.6 million. The Company's net use of
operating cash in 1995 was also impacted by 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 $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.
Certain Indebtedness and Other Matters
As of March 31, 1998, the Company had outstanding approximately $184.9
million of long-term debt (including current portion), $1.1 million of
short-term debt and $10.0 million in borrowings under its revolving line of
credit agreement and term loans. Of these amounts, approximately $184.9 million
were at variable rates based on LIBOR and the remainder at fixed rates. The
Company has entered into a $50.0 million interest rate swap hedging transaction
with a commercial bank to exchange its variable LIBOR for fixed rate interest.
The Company does not believe its exposure to changes in interest rates under its
remaining 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.
30
<PAGE> 32
On February 27, 1998, the Company consummated the Sterile Products
Acquisition and, in addition, acquired the Parkedale Facility and certain
contract manufacturing for third parties for $125.0 million. The purchase price
was financed under the Credit Facility. The Company also used a portion of the
Credit Facility to pay off approximately $48.2 million of long-term debt which
was then outstanding. The Credit Facility includes a six-year $20.0 million
revolving line of credit, a six-year $90.0 million amortizing Tranche A term
loan facility and an eight-year $85.0 million Tranche B term loan facility with
customary covenants and with a floating interest rate based on either LIBOR, the
prime rate, or the fed funds rate, plus an applicable margin, selected at the
discretion of the Company. As of March 31, 1998, after drawing down on the new
line of credit for working capital purposes, the Company had approximately $10.0
million of available borrowing capacity under the Credit Facility.
The Company will use approximately $48.5 million of the proceeds from the
Offering to prepay a portion of the borrowings under the Credit Facility and to
fund future acquisitions of branded pharmaceutical products. See "Use of
Proceeds," "Business -- Strategy" and "Business -- Products and Product
Development."
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 the Offering, through additional borrowings or the
issuance of additional debt or equity securities. Adequate funds for these
purposes, whether through the financial markets or from other sources, may not
be available when needed or on terms acceptable to the Company. Insufficient
funds may cause the Company to delay, scale back, or abandon some or all of its
future product acquisition opportunities. See "Risk Factors -- Dependence on
Acquisition of Products." 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.
Capital Expenditures
Capital expenditures, including capital lease obligations, were $73.6
million for the three months ended March 31, 1998 and $1.5 million, $2.2 million
and $1.7 million in 1997, 1996 and 1995, respectively. The principal capital
expenditures included property and equipment purchases and building
improvements. The Company is anticipating total capital expenditures in 1998 to
be approximately $5.0 million primarily to fund additional equipment purchases
and building improvements. As a result of the Sterile Products Acquisition, the
Company expects that it may need to incur additional capital expenditures over
the next few years in connection with the maintenance and operation of the
Parkedale Facility. While the Company currently is not able to estimate the
amount of such capital expenditures, any such amounts could be material. In
addition, 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.
SEASONALITY
Although the Company's business is generally non-seasonal, sales of certain
of its products, such as cough/cold products, increases slightly during the
winter months.
RECENT ACCOUNTING PRONOUNCEMENTS
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,
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<PAGE> 33
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.
32
<PAGE> 34
BUSINESS
COMPANY OVERVIEW
The Company is a vertically 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. Product life cycle
management includes competitive marketing efforts through pricing, placement,
promotion and product positioning; all product development strategies;
manipulation of product packaging; permutations to known or discovered
formulations; extensions to product lines through acquisitions or development;
utilization of intellectual property to maximize pharmaceutical product
exclusivity; identification of new therapeutic indications; and evaluation of
competitors and possible sources for competition.
The Company markets a variety of branded prescription products, including a
broad line of ophthalmic and other anti-infective products (including
Cortisporin, Neosporin and Chloromycetin), cardiovascular products (Thalitone
and Procanbid), proctology products (Anusol-HC and Proctocort), and respiratory
products (including Quibron and Tussend). The Company also markets flu vaccine,
hormonal products and other prescription pharmaceutical products. In addition,
the Company manufactures and markets generic pharmaceutical products and
companion animal health products.
Since December 1994, the Company has acquired 30 branded pharmaceutical
products, developed one product internally, divested one product and introduced
seven product line extensions. In February 1998, the Company consummated the
Sterile Products Acquisition, acquired the Parkedale Facility and certain
manufacturing contracts for third parties for $125.0 million. The purchase price
was financed through borrowings under the Credit Facility. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Branded pharmaceutical products represented 70.0% and 76.3% of the net
sales of the Company during the three months ended March 31, 1998 and the year
ended December 31, 1997, respectively, on a pro forma basis after giving effect
to the Recent Acquisitions and the Sterile Products Acquisition, in each case as
if the acquisition had occurred on January 1, 1997. 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 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.
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
volume sales, newer or
33
<PAGE> 35
novel drugs which have the potential for high volume sales and products which
fit within core therapeutic or marketing priorities. As a result, major
pharmaceutical companies increasingly have sought to divest small or
non-strategic product lines, which can be profitable for niche pharmaceutical
companies like the Company to manufacture and market. Since December 1994 the
Company has successfully acquired 30 branded products from pharmaceutical
companies including Warner-Lambert and Glaxo Wellcome.
STRATEGY
The Company believes that its ability to identify and integrate promising
branded pharmaceutical products and to leverage its marketing and manufacturing
infrastructure uniquely positions the Company to continue to grow through
acquisitions and internal growth. Specifically, the Company will pursue the
following strategies:
- Seek Attractively Priced Product Acquisition Opportunities. 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.
- Enhance Sales Through Focused Marketing Efforts. The Company
currently has 100 sales representatives who market throughout the
United States. This sales force is dedicated to aggressively 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 continues to acquire additional
branded pharmaceutical products.
- Improve Margins Through Integrated Manufacturing. The Company
believes that its broad integrated manufacturing capabilities enhance
its ability to acquire a wide variety of pharmaceutical products, to
integrate such products at attractive operating margins, and to
develop product line extensions. The Company operates two
manufacturing plants and 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 can produce a broad range of dosage forms, including
sterile solutions, freeze-dried (lyophylized) products, injectables,
tablets and capsules, liquids and suspensions, 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, regulatory compliance, 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.
- Expand Through New Product Development. The Company's product
development efforts are currently focused on developing product line
extensions, which allow the Company to leverage its brand names,
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.
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<PAGE> 36
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 30 branded pharmaceutical products, developed one product
internally and divested one product.
While the Company does not intend to limit its acquisition strategy to
specific therapeutic categories, its current branded pharmaceutical products can
be categorized principally as follows: ophthalmic and other anti-infective
products; cardiovascular products; proctology products; and respiratory
products. The Company also markets flu vaccine, hormonal products and other
prescription pharmaceutical products. Certain of the Company's products are:
<TABLE>
<CAPTION>
COMPANY ACQUIRED FROM
PRODUCT AND DATE OF ACQUISITION PRODUCT DESCRIPTION AND INDICATION
- ------- ----------------------- ----------------------------------
<S> <C> <C>
Ophthalmic and Other
Anti-Infective Products
Cortisporin.............. Glaxo Wellcome A full line of prescription antibiotic and
(November 1997) anti-inflammatory formulations of ophthalmic ointments
and suspensions, otic solutions and suspensions, and
topical creams and ointments indicated for the treatment
of corticosteroid-responsive dermatoses with secondary
infections.
Viroptic................. Glaxo Wellcome A sterile solution indicated for the treatment of ocular
(May 1997) Herpes simplex virus, idoxuridine-resistant Herpes and
vidarabine-resistant Herpes. In November 1997, the FDA
approved the expanded use of Viroptic to include
pediatric patients, ages six and above.
Neosporin(1)............. Glaxo Wellcome A prescription strength ophthalmic ointment and solution
(November 1997) indicated for the topical treatment of ocular infections.
It is also formulated as a prescription strength
genito-urinary concentrated sterile irrigant indicated
for short-term use as a continuous irrigant or rinse to
help prevent infections associated with the use of
indwelling catheters.
Polysporin(1)............ Glaxo Wellcome A prescription strength wide range antibacterial sterile
(November 1997) ointment indicated for the topical treatment of
superficial ocular infections.
Vira-A................... Glaxo Wellcome An antiviral ointment indicated for the topical treatment
(May 1997) of ocular infections caused by the Herpes simplex virus
types 1 and 2.
Chloromycetin............ Warner-Lambert A broad spectrum antibiotic ophthalmic ointment and
(February 1998) solution indicated for the treatment of serious bacterial
infections that are not responsive to other antibiotics
or when other antibiotics are contraindicated. This
product is also available in an otic solution and sterile
injectable form for intravenous administration in the
treatment of acute infections caused by salmonella and
meningeal infections.
Cardiovascular Products
Procanbid................ Warner-Lambert A procainamide extended-release tablet indicated for the
(February 1998) treatment of documented ventricular arrhythmia, such as
sustained ventricular tachycardia, that, in the judgment
of a physician, are life-threatening.
Thalitone................ Horus Therapeutics, A hypertension-diuretic tablet indicated for the
Inc. management of hypertension, either alone or in
(December 1996) combination with other antihypertensive drugs, and for
edema associated with congestive heart failure and
various forms of renal dysfunction.
Proctology Products
Anusol-HC(1)............. Warner-Lambert A suppository indicated for the relief of inflammation
(February 1998) accompanying hemorrhoids (piles), post-irradiation
proctitis, cryptitis, and other inflammatory conditions
of the anorectum.
</TABLE>
35
<PAGE> 37
<TABLE>
<CAPTION>
COMPANY ACQUIRED FROM
PRODUCT AND DATE OF ACQUISITION PRODUCT DESCRIPTION AND INDICATION
- ------- ----------------------- ----------------------------------
<S> <C> <C>
Proctocort............... Solvay Pharmaceuticals, A hemorrhoidal preparation cream with hydrocortisone
Inc. acetate which the Company has also developed into a
(January 1997) suppository form.
Respiratory Products
Quibron.................. Roberts Pharmaceutical A respiratory preparation containing theophylline
Corporation produced in capsule, tablet and sustained-release tablet
(October 1996) forms; indicated for the relief, treatment and/or
prevention of asthma, chronic bronchitis, emphysema, and
similar chronic lung diseases.
Nucofed.................. Roberts Pharmaceutical A dye-free cough/cold preparation containing codeine and
Corporation pseudoephedrine hydrochloride produced in syrup and
(October 1996) capsule forms; indicated for the treatment of coughing
and congestion where both are associated with upper
respiratory infections and related conditions, such as
common cold, bronchitis, influenza and sinusitis.
Tussend.................. Not applicable An internally developed cough/cold preparation containing
hydrocodone produced in syrup, tablet and elixir forms;
indicated for the relief and treatment of nonproductive
coughs accompanying respiratory tract congestions due to
colds, acute respiratory infections, bronchitis, and hay
fever.
Histoplasmin............. Warner-Lambert An aqueous solution used as an aid in the diagnosis of
(February 1998) histoplasmosis (a respiratory infection due to a fungus)
and to differentiate histoplasmosis from other myotic or
bacterial respiratory infections.
Monafed.................. Not applicable An internally developed non-narcotic cough/cold
preparation produced in sustained-release tablet form
indicated for the treatment of coughing and related
conditions associated with upper respiratory infections,
common cold, bronchitis, influenza and sinusitis.
Other Key Products
Fluogen.................. Warner-Lambert A trivalent vaccine for immunization against influenza
(February 1998) (flu); composition of the vaccine is determined each year
by the Centers for Disease Control and Center for
Biologics Evaluation and Research.
Septra................... Glaxo Wellcome An antibiotic indicated for the treatment of infectious
(November 1997) diseases, including urinary tract infections, pneumonia,
enteritis and ear infections in adults and children.
Coly-Mycin............... Warner-Lambert An antibiotic sterile parenteral indicated for the
(February 1998) treatment of acute or chronic infections due to sensitive
strains of certain gram-negative bacteria and a sterile
aqueous suspension for the treatment of superficial
bacterial infections of the external auditory canal.
Pitocin.................. Warner-Lambert A sterile hormone solution used to initiate or improve
(February 1998) uterine contractions during labor and to control bleeding
or hemorrhage in the mother after childbirth.
Adrenalin................ Warner-Lambert A sterile solution made from the active principle of the
(February 1998) adrenal medulla used to relieve respiratory distress and
hypersensitivity reactions and restore cardiac rhythm in
cardiac arrest due to various causes.
- ---------------
(1) The Company has an exclusive license, free of royalty obligations to manufacture and market prescription
formulations of these products.
</TABLE>
For the years ended December 31, 1996 and 1997, branded pharmaceutical
products accounted for 14.4% and 78.7%, respectively, of net sales of the
Company. On a pro-forma basis, after giving effect to the Recent Acquisitions
and the Sterile Products Acquisition in each case as if the acquisition had
occurred on January 1, 1997, branded pharmaceutical products would have
represented approximately 76.3% and 70.0% of net sales of the Company for the
year ended December 31, 1997 and the three months ended March 31, 1998,
respectively.
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<PAGE> 38
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, two other generic products which have been approved by the FDA and five
ANDAs on file. The Company intends to continue to add new development projects
as more pharmaceutical products lose their patent protection. For the years
ended December 31, 1996 and 1997, generic products accounted for 7.7% and 2.0%,
respectively, of net sales of the Company. On a pro-forma basis, after giving
effect to the Recent Acquisitions and the Sterile Products Acquisition in each
case as if the acquisition had occurred on January 1, 1997, generic products
would have represented approximately 1.4% and 0.4% of net sales to the Company
for the year ended December 31, 1997 and the three months ended March 31, 1998,
respectively.
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 years ended December 31, 1996 and
1997, companion animal health products accounted for 0.3% and 1.7%,
respectively, of net sales of the Company. On a pro-forma basis, after giving
effect to the Recent Acquisitions and the Sterile Products Acquisition in each
case as if the acquisition had occurred on January 1, 1997, companion animal
health products would have represented approximately 0.6% and 0.3% of net sales
of the Company for the year ended December 31, 1997, and the three months ended
March 31, 1998, respectively.
SALES AND MARKETING
The Company's principal marketing focus is on the sale of branded
pharmaceutical products and it currently has 100 sales representatives who
market throughout the 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. For
the years ended December 31, 1996 and 1997, approximately 69.7% and 43.8%,
respectively, of the Company's sales were attributable 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 and 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
37
<PAGE> 39
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 two manufacturing facilities are the Bristol facility,
located in Bristol, Tennessee (the "Bristol Facility") and the Parkedale
Facility, located in Rochester, Michigan. These facilities have in the aggregate
approximately 1.0 million square feet which include manufacturing, packaging,
laboratory, office and warehouse space. The Company manufactures its products
and products manufactured for third parties 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 five years.
The Company can produce a broad range of dosage formulations, including
sterile solutions, freeze-dried (lyophylized) products, 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. However, currently 13 of its
product lines, including Cortisporin and five of the product lines acquired in
the Glaxo Acquisition and four of the product lines acquired in the Sterile
Products Acquisition, are manufactured in the same facilities in which they were
previously manufactured as the Company has not yet received regulatory approval
for their manufacture at its facilities. Capacity utilization is approximately
50% at the Bristol Facility and is approximately 30% at the Parkedale Facility,
providing the Company with substantial capacity for future growth. 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 and contract manufacturing
requirements are satisfied. See "Risk Factors -- Reliance on Third-Party
Manufacturers."
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 outsource
these services.
The Company manufactures pharmaceutical products for, among others, Amgen,
Inc., Centocor, B.V., Fujisawa Pharmaceutical Company, Genentech, Inc., Genetics
Institute, Inc., Hoffman-LaRoche, Inc., Mallinckrodt, Milex Products, Inc.,
Novartis, Roberts Pharmaceutical Corporation, Santen Incorporated and SmithKline
Beecham. Contract manufacturing represented in the aggregate approximately 21.9%
and 21.2% of the net sales of the Company for the three months ended March 31,
1998 and the year ended December 31, 1997, respectively, on a pro forma basis
after giving effect to the Recent Acquisitions and the Sterile Products
Acquisition, in each case as if the acquisition had occurred on January 1, 1997.
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 renewals thereafter at the option of
Mallinckrodt for up to an additional three years. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Overview."
The Company requires a supply of quality raw materials and components to
manufacture and package pharmaceutical 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 330 suppliers to deliver the necessary raw materials and
components. The loss of any one of these suppliers is not expected to have a
38
<PAGE> 40
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.
BACKLOG
As of March 31, 1998, 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. In addition, 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 and validation of the process. The FDA has approved all four of these
ANDAs.
GOVERNMENT REGULATION
All aspects of the Company and its products 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,
OSHA 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
39
<PAGE> 41
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 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 pharmaceutical products
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 its 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 appropriate licenses and certificates with
40
<PAGE> 42
the States of Tennessee and Michigan in order to engage in pharmaceutical
development, manufacturing and distribution.
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 FDA Modernization Act of
1997 ("FM Act") The FM Act authorizes the FDA to collect three types of user
fees for prescription drugs through fiscal year 2002. Fees are imposed on: (i)
certain types of applications for approval of drug and biologic products, (ii)
certain establishments where such products are made, and (iii) certain products.
Fees for applications, establishments, and products are determined by the FDA
using criteria delineated in the statute. To date, the Company has paid fees of
approximately $139,000.
The Parkedale Facility is one of six Warner-Lambert facilities subject to a
Consent Decree of Permanent Injunction issued August 1993 in United States of
America v. Warner-Lambert Company and Melvin R. Goodes and Lodewijk J.R. DeVink
(U.S. Dist. Ct., Dist. of N.J.) ("Consent Decree"). The Consent Decree prohibits
the manufacture and delivery of specified drug products produced at any of the
six sites unless, among other things, the products conform to current good
manufacturing regulations and are produced in accordance with an approved ANDA,
NDA or IND. The Parkedale Facility was not the cause of the Consent Decree but
was included as one of the six Warner-Lambert facilities. Specifically, at the
Parkedale Facility, a neutral third party expert must certify that the
laboratories and laboratory personnel are in compliance with federal regulations
and gain FDA authorization to begin distribution of any new products. Under its
terms, a petition for relief from the Consent Decree may be filed in August
1998, unless the FDA notifies Warner-Lambert that there has been a significant
failure to comply with certain federal regulations and approved drug
applications of certain pharmaceutical products. The FDA has confirmed to the
Company that the FDA does not intend to seek a court order to amend the Consent
Decree to add the Company as a party to the Consent Decree as a result of the
Company's acquisition of the Parkedale Facility and the Company may petition
for, and if appropriate, obtain relief under and from the Consent Decree solely
with respect to the Parkedale Facility without regard to the status of
Warner-Lambert's remaining facilities and products. Management of the Company
believes the Parkedale Facility is in compliance with the requirements of the
Consent Decree and intends to petition for relief from the Consent Decree as
soon as possible in August 1998.
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; Consent
Decree."
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<PAGE> 43
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 changes 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 and Michigan, have statutes
and regulatory authorities similar to CERCLA and to the EPA. The Company has
hazardous waste hauling agreements 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 clean up at a site to which its waste products were
transported. See "Risk Factors -- Government Regulation; Consent Decree."
COMPETITION
The Company competes with other pharmaceutical companies for product and
product line acquisitions. These competitors include Jones Medical Industries,
Inc., ICN Pharmaceuticals, 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 United States and selected
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foreign countries where deemed appropriate. The Company owns U.S. Patents
covering the raw materials or processes used in the manufacture of Thalitone and
Procanbid. These patents expire in 2007 and 2014, respectively. The Company 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 another product. 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 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, it
may be difficult for the Company to protect its trade secrets.
The Company has exclusive licenses expiring June 2036 for the prescription
formulations of Neosporin(R) and Polysporin(R) and a license expiring February
2038 for the prescription formulation of Anusol-HC(R). Such licenses are subject
to early termination in the event the Company breaches its obligations under the
license agreement related to these branded pharmaceutical products. For example,
the licenses would be subject to early termination if the Company fails to meet
specified quality control standards, including cGMP with respect to the
products, or commits a material breach of other terms and conditions of the
licenses which would have a significant adverse effect on the uses of the
licensed products retained by the licensor, which would include among other
things, marketing products under these trade names outside the prescription
field. See "Risk Factors -- Early Termination of Certain Licenses."
The branded products sold by the Company are sold under a variety of
trademarks. While the Company believes that it has valid proprietary interests
in all currently used trademarks, only certain of the trademarks are registered
with the U.S. government, including those for its principal branded
pharmaceuticals Coly-Mycin-M(R), Fluogen(R), Procanbid(R), Anusol-HC(R),
Cortisporin(R), Neosporin(R), Septra(R), Proctocort(R), Thalitone(R),
Pediotic(R) and Viroptic(R). Additionally, trademark applications for
Monarchpharm(TM), Show Winner(TM) and Monafed(TM) are pending. The Company
intends to market products under the following trademarks: Arthose Chews(TM),
Vetrin(TM), Monahist(TM) and Virtopic(TM). The Company also owns or has pending
the Pro-Kemadrin(R) and Petrin(TM) trademarks and owns the registered service
mark Secure-A-Sample(R).
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<PAGE> 45
EMPLOYEES
As of March 31, 1998, the Company employed 894 full-time and 24 part-time
persons. Of such employees, 352 employed at the Parkedale Facility, representing
approximately 39% of the employees of the Company, are covered by a collective
bargaining agreement with the Oil, Chemical & Atomic Workers, International
Union which expires February 28, 2003. 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
Many distributors and marketers of anorexigenic drugs have been subject to
claims relating to the use of these drugs, many of which purport to be class
actions. The Company is a co-defendant only in the suits described below, but
expects it may be named in additional lawsuits related to the Company's
production of an anorexigenic drug under contract for SmithKline Beecham.
The actions generally have been brought by individuals in their own right
or on behalf of putative classes of persons who claim to have suffered injury or
who claim that they may suffer injury in the future due to use of one or more
anorexigenic drugs including phentermine. Plaintiffs' allegations of liability
are based on various theories of recovery, including, but not limited to,
product liability, strict liability, negligence, various breaches of warranty,
conspiracy, fraud, misrepresentation and deceit. These lawsuits typically allege
that the short and long-term use of certain anorexigenic drugs, independently or
in combination (including the combination of fenfluramine and phentermine
popularly known as "fen/phen"), causes, among other things, primary pulmonary
hypertension, valvular heart disease and/or neurological dysfunction. In
addition, some lawsuits allege emotional distress caused by the purported
increased risk of injury in the future. Plaintiffs typically seek relief in the
form of monetary damages (including economic losses, medical care and monitoring
expenses, loss of earnings and earnings capacity, other compensatory damages and
punitive damages), generally in unspecified amounts, on behalf of the individual
or the class. In addition, some actions seeking class certification ask for
certain types of purportedly equitable relief, including, but not limited to,
declaratory judgments and the establishment of a research program or medical
surveillance fund. On December 10, 1997, the federal Judicial Panel on
Multidistrict Litigation issued an Order allowing for the transfer or potential
transfer of the federal actions to the Eastern District of Pennsylvania for
coordinated or consolidated pretrial proceedings.
Except as described below, the Company has not been a party to litigation
or other legal proceedings. The Company has been named in six lawsuits in
connection with the Company's manufacture of phentermine, an anorexigenic, under
contract for SmithKline Beecham and its use in combination with other drugs. In
October 1997, the Company was named one of many co-defendants in a purported
class action filed in the Superior Court of the State of Washington. The suit
does not demand monetary damages but seeks court-supervised, defendant-funded,
medical monitoring to detect the existence of cardiac valvular disease alleged
to have arisen from the ingestion of the combination of drugs by residents of
the State of Washington. In February 1998, the Company was named as a defendant
in an action in Jefferson Circuit Court, Louisville, Kentucky and a suit in
Circuit Court of Montgomery County, Alabama, both of which demand damages in an
unspecified amount. In March 1998, the Company was named as a co-defendant in
three additional actions. A suit in the Supreme Court of New York, County of
Suffolk, demands compensatory damages of $30.0 million and punitive damages of
$20.0 million. A suit in the Montana Eleventh Judicial District Court, Flathead
County, demands an unspecified amount of general and special compensatory
damages. A suit in the Superior Court of the State of California, County of Los
Angeles, demands damages in an unspecified amount.
While the Company cannot predict the outcome of these suits, the Company
believes that the claims against it are without merit and intends to vigorously
pursue all defenses available to it. The Company is being indemnified in all of
these suits by SmithKline Beecham for which it manufactures the anorexigenic
product, provided that neither the lawsuit nor the associated liabilities are
based upon the independent negligence or intentional acts of the Company, and
intends to submit a claim for all unreimbursed costs to its product liability
insurance carrier. However, in the event that SmithKline Beecham is unable to
satisfy or fulfill its obligations under the indemnity, the Company would have
to defend the lawsuit and be responsible for
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damages, if any, which are awarded against it or for amounts in excess of the
Company's product liability coverage. See "Risk Factors -- Product Liability;
Product Recall; Product Returns."
PROPERTIES
The Company owns its manufacturing facilities in Bristol, Tennessee and
Rochester, Michigan which consist of, in the aggregate, approximately 1.0
million square feet. These facilities include space for manufacturing,
packaging, laboratories, offices and warehouse. The Company believes these
facilities are adequate for the conduct of its operations.
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<PAGE> 47
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)........................ 45 Chairman of the Board of Directors and Chief
Executive Officer
Jefferson J. Gregory...................... 42 President and Chief Operating Officer of King
Pharmaceuticals, Inc. and of Parkedale
Pharmaceuticals and Director
Joseph R. Gregory(1)...................... 44 Vice Chairman of the Board of Directors of the
Company, President and Chief Operating Officer of
Monarch Pharmaceuticals
Brian G. Shrader.......................... 29 Chief Financial Officer
James E. Gregory.......................... 47 Executive Vice President, General Manager (Bristol)
and Production/Administration
R. Henry Richards, M.D.................... 53 Executive Vice President, Medical Affairs
John P. McCoy............................. 49 Executive Vice President, Quality
Terri D. White-Gregory.................... 35 Executive Vice President, Financial Analyst
John A. A. Bellamy........................ 36 Executive Vice President, Legal Affairs and General
Counsel
Ronald C. Siegfried....................... 56 Executive Vice President, Development
Steven M. Samet........................... 48 Executive Vice President, General Manager
(Parkedale)
Kyle P. Macione........................... 34 Executive Vice President, Investor Relations
Michael R. Hilton......................... 51 Vice President, Sales and Marketing
Thomas K. Rogers, III..................... 44 Vice President, Regulatory Affairs
Norman T. Miller.......................... 64 Senior Director, Regulatory Affairs (Compliance)
Ernest C. Bourne.......................... 57 Director
Lois A. Clarke(3)......................... 53 Director
Frank W. DeFriece, Jr.(1)(2)(3)........... 77 Director
D. Greg Rooker(1)(2)(3)................... 50 Director
Ted G. Wood............................... 60 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
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<PAGE> 48
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, has served as a Director since 1993 and as
Vice Chairman of the Board of Directors of the Company since December 1997.
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.
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 as served as Executive Vice President, General Manager
(Bristol) and 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.
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/Financial Analyst and 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 1994 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
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<PAGE> 49
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 Executives Society.
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.
Steven M. Samet has served as Executive Vice President, General Manager
(Parkedale Facility) since its acquisition by the Company in February 1998. For
the 12 years prior, he served as Vice President, General Manager of Parke-Davis
Sterile Products Operations, overseeing both Rochester, Michigan and Dublin,
Ireland operations. From 1973 to 1986, He held various operations positions with
both Elkins-Sinn, Inc. and Sterling Drugs. He received an M.B.A. from the
Michigan State Advanced Management Program in 1989 and a B.S. in Biology from
the State University of New York in 1972.
Kyle P. Macione has served as Executive Vice President, Investor Relations
since January 1998 and as Corporate Counsel since March 1996. He was formerly a
corporate attorney with the law firm of Elliott Lawson & Pomrenke in Bristol,
Virginia from 1992 to 1996. He graduated from Washington & Lee University School
of Law with a Juris Doctor in 1991, University of Alabama with a Masters of
Accountancy in 1987, and University of Mississippi with a Bachelor of
Accountancy in 1986. He is a Certified Public Accountant and licensed to
practice law in Tennessee and Virginia.
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 Vice President, Regulatory Affairs,
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.
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Frank W. DeFriece, 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.
D. 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. From 1992 to 1993, he was President of
Boehringer Mannheim Pharmaceutical Corporation in Rockville, Maryland. From 1993
to 1994 he was President of KV Pharmaceuticals in St. Louis, Missouri. 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 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 members 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, D. Greg Rooker and Frank W. 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 W. DeFriece, Jr. and D. Greg Rooker, is
responsible for reviewing and approving compensation for the executive officers.
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<PAGE> 51
Stock Option Committee. The Stock Option Committee, which currently
consists of Lois A. Clarke, Frank W. DeFriece, Jr. and D. 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 $20.0 million.
EXECUTIVE COMPENSATION
The following table summarizes all compensation earned by the Company's
Chief Executive Officer and by each of the Company's four other most highly
compensated executive officers whose total annual salary and bonus exceeded
$100,000 for services rendered in all capacities to the Company during the year
ended December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($)(1)
--------------------------- ---- --------- -------- ------------------
<S> <C> <C> <C> <C>
John M. Gregory..................................... 1997 360,918 -0- 4,800
Chairman of the Board and Chief Executive Officer
Jefferson J. Gregory................................ 1997 265,854 -0- 4,800
President and Chief Operating Officer, King
Pharmaceuticals, Inc. and Parkedale
Pharmaceuticals
Joseph R. Gregory................................... 1997 242,588 -0- 4,800
President and Chief Operating Officer, Monarch
Pharmaceuticals
Brian G. Shrader.................................... 1997 137,243 101,475 3,978
Chief Financial Officer
R. Henry Richards, M.D.............................. 1997 218,189 4,000 4,800
Executive Vice President, Medical Affairs
</TABLE>
- ---------------
(1) All Other Compensation reflects the Company's matching contributions to the
Company's 401(k) plan.
STOCK OPTION PLANS
Incentive and Nonqualified 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 3,200,000
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.
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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.
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 options outstanding under the Plan for 220,150 shares
of Common Stock which includes options for shares granted in February 1998 to
Mr. Jefferson J. Gregory (10,000), Mr. Joseph R. Gregory (10,000), Mr. Shrader
(10,000) and Dr. Richards (7,500).
Non-Employee Director Plan. The 1998 Non-Employee Director Plan (the
"Director Option Plan") was adopted by the Board of Directors in February 1998
and is subject to approval of the shareholders at the next annual meeting. The
Director Option Plan is intended to encourage stock ownership by directors of
the Company and to provide those individuals with an additional incentive to
manage the Company in the shareholders' best interests and to provide a form of
compensation that will attract and retain highly qualified individuals as
members of the Board. The Director Option Plan will provide for the granting of
options to non-
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<PAGE> 53
employee directors, as defined, covering an aggregate of 300,000 shares of
Common Stock of the Company, subject to certain adjustments reflecting changes
in the Company's capitalization. The full Board is authorized under the Director
Option Plan to make discretionary grants of options and determine the terms and
conditions of such options. Each member of the Board of Directors who is not an
employee of the Company is eligible to participate; however, grants made must be
approved by the full Board of Directors with such member abstaining. The
Director Option Plan requires that the exercise price for each option granted
under the plan must equal 100% of the fair market value of the Company's Common
Stock on the date the option is granted. Nothing contained in the Director
Option Plan or any agreement to be executed pursuant to the Director Option Plan
will obligate the Company, its Board or its shareholders to retain an optionee
as a Director of the Company.
Currently there are options outstanding under the Director Option Plan for
50,000 shares of Common Stock.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors appointed the Compensation Committee in October
1997. For the year ended December 31, 1997, Messrs. John M., Jefferson J.,
Joseph R., James E. Gregory and R. Henry Richards, M.D. participated in
deliberations of the Board of Directors concerning executive officer
compensation.
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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 John M. Gregory, Joseph
R. Gregory, Jefferson J. Gregory, James E. Gregory and R. Henry Richards, M.D.
who are also executive officers of the Company. The Company advanced $700,000 in
1995 and $400,000 in 1997 to the Benevolent Fund which was used for general
operating purposes. The Benevolent Fund has agreed to reimburse the Company for
those payments which totaled approximately $1.1 million, as of April 30, 1998.
The Benevolent Fund is independent of the Company, maintains its own accounting
records and its activities are not directly related to the business of the
Company.
The United Company, a Virginia corporation, and certain of its
shareholders, officers, directors and employees were the beneficial owners of
approximately 30.5% of the Common Stock of the Company as of April 24, 1998.
Currently, two members of the Company's Board of Directors, Lois A. Clarke and
Ted G. Wood, 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 were permitted to purchase shares of the Common Stock of the
Company through either cash payments or regular payroll deductions.
Additionally, certain shareholders and members of management purchased shares of
Common Stock and were permitted to execute promissory notes payable to the
Company. These purchasers included executive officers Joseph R. Gregory, also a
director, Jefferson J. Gregory, also a director, and his spouse, Terri D.
White-Gregory, James E. and his spouse April Gregory, Brian G. Shrader and his
mother Carol Shrader and R. Henry Richards, M.D., also a director, and his
spouse Jean Richards who executed promissory notes payable to the Company in the
amounts of $300,000, $570,000, $165,180, $165,000, $150,000 and $276,000,
respectively. The interest rate charged on these promissory notes was 8% per
annum. All such persons 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
Bourne & Co., Inc., an affiliate of Mr. Bourne, a director. The agreement
provides that Bourne & Co., Inc., will receive, upon consummation of the
Offering, a fee equal to 1.0% of the net proceeds to the Company. 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. Assuming the 4,000,000 shares offered
hereby are priced at $18.00 per share, Bourne & Co., Inc., would receive a fee
of approximately $654,000 offset by the monthly retainer fee described above.
See "Underwriting."
In addition, for the years ended December 31, 1996 and 1997, the Company
had paid Bourne & Co., Inc., approximately $92,000 and $651,000, respectively,
for its advisory services in the acquisition of the Cortisporin product line and
$62,000 for consulting services during the year ended December 31, 1997. During
the three months ended March 31, 1998, the Company paid Bourne & Co., Inc.,
approximately $1.9 million for services it provided the Company in connection
with the Credit Facility. Bourne & Co., Inc., provides consulting services to
the Company in areas such as corporate development, financing alternatives and
strategies, and general business planning.
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<PAGE> 55
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the ownership
of the Common Stock as of April 24, 1998, 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>
SHARES BENEFICIALLY OWNED(1)
-------------------------------------------------------------------------
NUMBER OF PERCENTAGE NUMBER OF NUMBER OF PERCENTAGE
SHARES PRIOR OUTSTANDING SHARES OFFERED SHARES AFTER OUTSTANDING
EXECUTIVE OFFICERS, DIRECTORS AND 5% SHAREHOLDERS TO OFFERING SHARES HEREBY OFFERING SHARES
- ------------------------------------------------- ------------ ----------- -------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
John M. Gregory(2)........................... 8,468,429 30.2% 297,984(3) 8,170,445 25.5%
Joseph R. Gregory(4)......................... 2,943,150 10.5 60,000 2,883,150 9.0
Jefferson J. Gregory(5)...................... 1,081,635 3.9 50,000 1,031,635 3.2
James E. Gregory(6).......................... 196,048 * 42,000 154,048 *
R. Henry Richards, M.D.(7)................... 256,141 * 35,000 221,141 *
Brian G. Shrader(8).......................... 572,510 2.0 65,000 507,510 1.6
John McCoy(9)................................ 42,826 * -0- 42,826 *
Terri D. White-Gregory(5).................... -- -- -- -- --
John A. A. Bellamy........................... 38,643 * -0- 38,643 *
Steven M. Samet.............................. 21,000 * -0- 21,000 *
Kyle P. Macione.............................. 10,733 * -0- 10,733 *
Ernest C. Bourne(10)......................... 148,001 * -0- 148,001 *
Frank W. DeFriece, Jr.(10)................... 10,000 * -0- 10,000 *
Lois A. Clarke(10)(11)(12)................... 105,200 * -0- 105,200 *
D. Greg Rooker(10)(13)....................... 50,000 * -0- 50,000 *
Ted G. Wood(10)(11).......................... 38,000 * -0- 38,000 *
All executive officers and directors
as a group (16 persons)................... 13,932,316 49.8 549,984 13,382,332 41.8
The United Company(14)....................... 5,172,594 18.5 -0- 5,172,594 16.2
OTHER SELLING SHAREHOLDERS:
King Pharmaceuticals Benevolent Fund,
Inc.(15).................................. 211,245 * 175,000 36,245 *
Mary Ann and Herschel P. Blessing(16)........ 471,967 1.7 90,000 381,967 1.2
Mary and Fred Jarvis(17)..................... 119,915 * 29,000 90,915 *
Randal J. Kirk(18)........................... 1,358,863 4.9 1,358,863 -0- *
A. Willard Lester............................ 377,153 1.3 377,153 -0- *
---------
Total shares sold by Selling
Shareholders...................... 2,580,000
=========
</TABLE>
- ---------------
* Less than 1%.
(1) Based on 28,000,000 shares of Common Stock outstanding prior to and
32,000,000 shares outstanding after the offering.
(2) Includes 6,475,660 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; 102,900 shares
registered in the name of The Lazarus Foundation, Inc., a private
foundation controlled by John M. Gregory; and 37,330 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 222,984 shares to be sold by Mr. Gregory and his spouse and 75,000
shares to be sold by The Lazarus Foundation, Inc.
(4) Includes 966,000 shares owned through Kingsway L.L.C., a limited liability
company, as Manager, the primary members of which are Mr. Gregory, his
spouse and his son. Mr. Gregory's address is 501 Fifth Street, Bristol,
Tennessee 37620.
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<PAGE> 56
(5) Includes 967,523 shares jointly beneficially owned by Ms. White-Gregory and
Jefferson J. Gregory and 58,000 shares beneficially owned by Gregory
Investments, L.P., the general partners of which are Mr. Gregory and Ms.
White-Gregory.
(6) All of these shares are jointly owned with Mr. Gregory's spouse.
(7) Includes 243,132 shares jointly owned with Dr. Richards' spouse.
(8) Includes 241,500 shares owned by C.B.B., L.L.C., a limited liability
company, the primary members of which are Mr. Shrader and his parents; and
10,623 shares jointly owned with Mr. Shrader's mother.
(9) All of these shares are jointly owned with Mr. McCoy's spouse.
(10) Includes 10,000 shares issuable upon the exercise of options granted under
the Director Option Plan.
(11) Ms. Clarke and Mr. Wood are affiliates of The United Company.
(12) Includes 16,800 shares held in the name of Ms. Clarke as custodian for
Donald Alan Clarke, a minor.
(13) Includes 20,000 shares held in trust for the benefit of Mr. Rooker's
children.
(14) 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.
(15) King Pharmaceuticals Benevolent Fund, Inc., is a nonprofit charitable
organization. See "Certain Transactions."
(16) Includes 369,068 shares jointly owned by Mr. and Mrs. Blessing; 55,863
shares owned by Mrs. Blessing; 46,934 owned by Mr. Blessing; 34 shares held
in the name of Mrs. Blessing as custodian for Benjamin Blessing, a minor;
34 shares held in the name of Mrs. Blessing as custodian for Gregory C.
Jones, a minor; and 34 shares held in the name of Mrs. Blessing as
custodian for Mary Beth Blessing, a minor. Mrs. 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.
(17) Includes 39,714 shares owned by Mr. Jarvis and 180,201 shares owned by Mrs.
Jarvis. Mrs. Jarvis is the mother of Messrs. John M., Joseph R., Jefferson
J. and James E. Gregory, and of R. Henry Richards, M.D.
(18) 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.
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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<PAGE> 57
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, 32,000,000 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
Common Stock has been approved, subject to official notice of issuance, for
listing 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
Company and may have the effect of maintaining the incumbency of the Board of
Directors. See "Risk Factors--Antitakeover Effect of Certain Charter, Bylaws and
Statutory Provisions; Rights Agreement" and "Management."
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<PAGE> 58
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 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
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<PAGE> 59
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.
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.
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
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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 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 a 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.
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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.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has not been any public market for the Common
Stock of the Company. No prediction can be made as to the effect, if any, that
market sales of shares or the availability of shares for sale will have on the
market price prevailing from time to time. Nevertheless, sales of substantial
amounts of Common Stock in the public market could adversely affect the
prevailing market price.
Upon completion of the Offering, the Company will have outstanding
32,000,000 shares of Common Stock. All 4,000,000 shares of Common Stock
(5,000,000 shares if the Underwriters' over-allotment option is exercised in
full) sold by the Company in the Offering will be freely tradeable without
restriction or further registration under the Securities Act, except that shares
owned by affiliates may generally only be sold in compliance with applicable
provisions of Rule 144. The remaining 28,000,000 shares of Common Stock (the
"Restricted Shares") held by the existing shareholders upon completion of the
Offering will be "restricted" securities within the meaning of Rule 144 and may
not be sold except in compliance with the registration requirements of the
Securities Act or an applicable exemption under the Securities Act, including
sales pursuant to Rule 144.
The Company and certain of its directors, officers and shareholders have
agreed with the Underwriters not to sell or otherwise dispose of any shares of
Common Stock during the Lock-Up, except for issuance by the Company pursuant to
the exercise of stock options granted under the Stock Option Plans where the
person receiving the Common Stock agrees not to sell or otherwise dispose of
such shares until 180 days after the date of this Prospectus. See
"Underwriting." Of the approximately 10,100,000 shares of Common Stock to be
outstanding after the Offering that are not subject to the Lock-Ups, other than
the 6,580,000 shares of Common Stock sold in the Offering, (i) approximately
1,520,000 shares will be immediately eligible for resale in the public market
without restriction in reliance on Rule 144(k) under the Securities Act, and
(ii) approximately 2,000,000 shares may be sold subject to the volume and manner
of sales restrictions of Rule 144. Beginning 180 days after the date of this
Prospectus, after the Lock-Ups have expired, (i) approximately 13,400,000
additional shares of Common Stock will become eligible for resale into the
public market in reliance on Rule 144(k) and (ii) approximately 8,500,000
additional shares may be sold subject to the volume and manner of sales
restrictions of Rule 144. CSFBC may, in its sole discretion and at any time
without notice, waive the provisions of the Lock-Ups.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
Restricted Shares for at least one year (including holding periods of prior
owners) will be entitled to sell in "restricted brokers' transactions" or to
market makers, within any three-month period commencing 90 days after the
Company becomes subject to the reporting requirements of Section 13 of the
Exchange Act, a number of Restricted Shares that does not exceed the greater of
(i) 1% of the then outstanding shares of the Company's Common Stock
(approximately 320,000 shares immediately after the Offering) or (ii) the
average weekly trading volume in the Common Stock during the
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<PAGE> 62
four calendar weeks immediately preceding such sale, subject, generally, to the
filing of a Form 144 with respect to such sales and certain other limitations
and restrictions. In addition, a person (or persons whose shares are
aggregated), who is not deemed to have been an affiliate at any time during the
90 days immediately preceding the sale and who has beneficially owned the
Restricted Shares proposed to be sold for at least two years is entitled to sell
such shares under Rule 144 without regard to the volume limitations described
above.
The Company has granted options exercisable for 220,150 shares under its
Plan, subject to the consummation of the Offering, and options exercisable for
50,000 shares under its Non-Employee Director Plan. Giving effect to the
foregoing option grants, options to purchase an additional 3,229,850 shares of
Common Stock would remain available for issuance pursuant to the Stock Option
Plans. See "Management -- Stock Option Plans." Sales of shares of Common Stock
issuable under the Stock Option Plans are subject to the limitations and
restrictions under Rule 144. The Company intends to file registration statements
under the Securities Act on Form S-8 to register all shares of Common Stock
subject to outstanding options and future grants under the Stock Option Plans.
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, certain U.S.
expatriates, 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.
An individual may, subject to certain exceptions, be deemed to be a
resident alien (as opposed to a nonresident alien) by virtue of being present in
the United States for at least 31 days in the calendar year and for an aggregate
of at least 183 days during a three-year period ending in the current calendar
year (counting for such purposes all of the days present in the current year,
one-third of the days present in the immediately preceding year and one-sixth of
the days present in the second preceding year). Resident aliens are subject to
U.S. federal tax as if they were U.S. citizens.
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
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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, and after December 31, 1998, subject to certain
transition rules, a Form W-8, 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, if a Non-U.S. Holder that is
not a corporation or other exempt recipient meeting certain requirements fails
to supply the Company with a valid Form W-8, the Non-U.S. Holder will be subject
to 31% backup withholding reporting rather than the 30% withholding (or
withholding at a reduced treaty rate) discussed above, unless the payment is
made through a foreign intermediary. For purposes of obtaining a reduced rate
under an income treaty, certain information concerning the Non-U.S. Holder's
country of residence must be provided. 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
an individual Non-U.S. Holder who holds shares of Common Stock as capital
assets, 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; or (iii)
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 USRPHC 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 is not likely to become 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 de 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
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<PAGE> 64
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.
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)
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, dividends paid after December
31, 1998 generally will be subject to backup withholding at a 31% rate, unless
the Non-U.S. Holder provides a valid Form W-8 or is a corporation or other
exempt recipient that meets certain requirements.
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 either (i) the Non-U.S. Holder is a corporation or other
exempt recipient meeting certain requirements or (ii) the Non-U.S. Holder
provides a valid Form W-8. The payment of proceeds from the disposition of
Common Stock to or through a non-U.S. office of a non-U.S. 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 unless such broker has actual knowledge that the
owner is not a Non-U.S. Holder but will be subject to information reporting,
unless such broker has documentary evidence in its files that the owner is a
Non-U.S. Holder and certain other conditions are met. 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.
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UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement, dated the date of this Prospectus (the "Underwriting Agreement")
among the Company, the Selling Shareholders and the underwriters named below
(the "Underwriters"), for whom CSFBC and Hambrecht & Quist LLC are acting as the
representatives (the "Representatives"), the Underwriters have severally, but
not jointly, agreed to purchase from the Company and the Selling Shareholders,
the following respective numbers of shares of Common Stock:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------- ---------
<S> <C>
Credit Suisse First Boston Corporation......................
Hambrecht & Quist LLC.......................................
---------
Total............................................. 6,580,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all of the shares of Common Stock
offered hereby (other than those shares covered by the over-allotment option
described below) if any are purchased. The Underwriting Agreement provides,
that, in the event of a default by an Underwriter, in certain circumstances the
purchase commitments of non-defaulting Underwriters may be increased or the
Underwriting Agreement may be terminated.
The Company has granted to the Underwriters an option exercisable by CSFBC,
expiring at the close of business on the 30th day after the date of this
Prospectus, to purchase up to 1,000,000 additional shares of Common Stock at the
initial public offering price, less the underwriting discounts and commissions,
all as set forth on the cover page of this Prospectus. Such option may be
exercised only to cover over-allotments in the sale of the shares of Common
Stock. To the extent that the option is exercised, each Underwriter will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares of Common Stock as it was obligated to
purchase pursuant to the Underwriting Agreement.
The Company and the Selling Shareholders have been advised by the
Representatives that the Underwriters propose to offer the shares of Common
Stock to the public initially at the public offering price set forth on the
cover page of this Prospectus and, through the Underwriters, to certain dealers
at such price less a concession of $ per share and the Underwriters and
such dealers may allow a discount of $ per share on sales to certain
other dealers. After the Offering, the public offering price and concession and
discount to dealers may be changed by the Representatives.
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.
The Company intends to use more than 10% of the net proceeds from the sale
of shares to repay indebtedness owed by it to Credit Suisse First Boston.
Accordingly, the Offering is being made in compliance with the requirements of
Rule 2710(c)(8) of the National Association of Securities Dealers, Inc. Conduct
Rules. This rule provides generally that if more than 10% of the net proceeds
from the sale of stock, not including underwriting compensation, is paid to the
underwriters or their affiliates, the initial public offering price of the stock
may not be higher than that recommended by a "qualified independent underwriter"
meeting certain standards. Accordingly, Hambrecht & Quist LLC is assuming the
responsibilities of acting as the qualified independent underwriter in pricing
the Offering and conducting due diligence. The initial public offering price of
the shares set forth on the cover page of this Prospectus is no higher than the
price recommended by Hambrecht & Quist LLC.
The Company and certain of its directors, officers and shareholders have
agreed that they will not offer, sell, contract to sell, announce their
intention to sell, pledge or otherwise dispose of, directly or indirectly, or,
in the case of the Company file with the Securities and Exchange Commission (the
"Commission") a registration statement under the Securities Act relating to any
additional shares of the Common Stock or securities convertible into or
exchangeable or exercisable for any shares of the Common Stock, without the
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prior written consent of CSFBC during the Lock-Up, except for issuance by the
Company pursuant to the exercise of stock options granted under the Stock Option
Plans where the person receiving the Common Stock agrees not to sell or
otherwise dispose of such shares until 180 days after the date of this
Prospectus.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including civil liabilities under the
Securities Act, or contribute to payments which the Underwriters may be required
to make in respect thereof.
The Common Stock has been approved, subject to official notice of issuance,
for quotation on the Nasdaq National Market under the symbol "KING."
Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price will be negotiated between the Company
and the Representatives. Among the material factors to be considered in
determining the initial public offering price of the Common Stock, in addition
to the prevailing market conditions, will be 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. There can be no assurance that the initial
public offering price of the Common Stock will correspond to the price at which
the Common Stock will trade in the public market subsequent to the Offering or
that an active public market for the Common Stock will develop or continue after
the Offering. See "Risk Factors -- No Prior Public Market; Possible Volatility
of Stock Price."
The Representatives, on behalf of the Underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions, and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934 (the "Exchange Act"). Over-allotment involves syndicate sales in excess
of the offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the shares of Common Stock in the open market
after the distribution has been completed in order to cover syndicate short
positions. Penalty bids permit the Representatives to reclaim a selling
concession from a syndicate member when the shares of Common Stock originally
sold by such syndicate member are purchased in a syndicate covering transaction
to cover syndicate short positions. Such stabilizing transactions, syndicate
covering transactions and penalty bids may cause the price of the Common Stock
to be higher than it would otherwise be in the absence of such transactions.
These transactions may be effected on the Nasdaq National Market or otherwise
and, if commenced, may be discontinued at any time.
The Company has agreed to pay Bourne & Company, an affiliate of 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. Assuming
the 4,000,000 shares offered hereby are priced at $18.00 per share, Bourne &
Company would receive a fee of approximately $654,000 offset by the monthly
retainer fee described above.
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 December 31,
1996 and 1997 and for each of the three years in the period ended December 31,
1997, the statement of Product Contribution of the Cortisporin Product Line for
each of the two years in the period ended December 31, 1996 and the combined
statement of Product Contribution for the Neosporin, Polysporin, Septra,
Proloprim, Mantadil and Kemadrin
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Product Lines for each of the two years in the period ended December 31, 1996
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.
Warner-Lambert Company's Sterile Products Operations statement of Brand
Contribution for each of the three years in the period ended December 31, 1997
and the statement of fixed assets as of December 31, 1996 and 1997 included in
this Prospectus have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
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.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
King Pharmaceuticals, Inc.
Report of Independent Accountants......................... F-2
Financial Statements:
Consolidated Balance Sheets as of December 31, 1996 and
1997 and March 31, 1998 (unaudited)................... F-3
Consolidated Statements of Operations for the years
ended December 31, 1995, 1996 and 1997 and for the
three months ended March 31, 1997 (unaudited) and 1998
(unaudited)........................................... F-4
Consolidated Statements of Cash Flows for the years
ended December 31, 1995, 1996 and 1997 and for the
three months ended March 31, 1997 (unaudited) and 1998
(unaudited)........................................... F-5
Consolidated Statements of Changes in Shareholders'
Equity for the years ended December 31, 1995, 1996 and
1997 and the three months ended March 31, 1998
(unaudited)........................................... F-7
Notes to Consolidated Financial Statements................ F-8
Cortisporin Product Line
Report of Independent Accountants......................... F-22
Statement of Product Contribution......................... F-23
Notes to Financial Statement.............................. F-24
Glaxo Wellcome Product Line
Report of Independent Accountants......................... F-26
Combined Statement of Product Contribution................ F-27
Notes to the Combined Financial Statement................. F-28
Warner-Lambert Company's Sterile Products Operations
Report of Independent Accountants on Special Purpose
Financial Statements................................... F-30
Statement of Fixed Assets................................. F-31
Statement of Brand Contribution........................... F-32
Notes to Financial Statements............................. F-33
Pro Forma Consolidated Financial Statements................. F-36
Pro Forma Consolidated Statement of Operations for the
year ended December 31, 1997........................... F-37
Pro Forma Consolidated Statement of Operations for the
three months ended March 31, 1998...................... F-38
Notes to Pro Forma Consolidated Financial Statements........ F-39
</TABLE>
F-1
<PAGE> 69
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, 1996 and 1997, and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows for each of the three years in the period ended December 31, 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, 1996 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
Greensboro, North Carolina
April 2, 1998
F-2
<PAGE> 70
KING PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1997 AND MARCH 31, 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1996 1997 1998
------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,392 $ 69 $ 4
Accounts receivable, net of allowance for doubtful
accounts of $93, $638 and $620, respectively........... 2,305 8,561 21,569
Inventories............................................... 6,097 10,850 29,966
Marketable securities..................................... 209 -- --
Deferred income taxes..................................... 499 2,013 2,013
Income taxes receivable................................... 652 -- --
Shareholder notes receivable.............................. 2,093 -- --
Prepaid expenses and other assets......................... 638 1,319 1,618
------- -------- --------
Total current assets.............................. 13,885 22,812 55,170
------- -------- --------
Property, plant and equipment, net.......................... 16,691 17,170 90,157
Intangible assets, net...................................... 8,703 62,783 116,819
Other assets................................................ -- 2,098 9,540
------- -------- --------
Total assets...................................... $39,279 $104,863 $271,686
======= ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes Payable............................................. $ -- $ 916 $ 1,137
Current portion of long-term debt......................... 4,031 8,084 6,864
Accounts payable.......................................... 844 5,871 12,406
Accrued expenses.......................................... 1,261 6,503 22,706
Income taxes payable...................................... -- 1,862 4,337
------- -------- --------
Total current liabilities......................... 6,136 23,236 47,450
------- -------- --------
Long-term debt.............................................. 13,980 48,289 188,061
Deferred income taxes....................................... 3,470 4,004 2,763
------- -------- --------
Total liabilities................................. 23,586 75,529 238,274
------- -------- --------
Commitments and contingencies
Shareholders' equity:
Common shares no par value, 150,000,000 shares authorized,
19,467,406, 28,000,000 and 28,000,000 shares issued and
outstanding, respectively.............................. 8,448 16,455 16,455
Retained earnings......................................... 7,938 14,550 18,625
Due from related party.................................... (677) (1,671) (1,668)
Unrealized loss on marketable securities, net of tax...... (16) -- --
------- -------- --------
Total shareholders' equity........................ 15,693 29,334 33,412
------- -------- --------
Total liabilities and shareholders' equity........ $39,279 $104,863 $271,686
======= ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 71
KING PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
AND THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED) AND 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEARS ENDED MONTHS
DECEMBER 31, ENDED MARCH 31,
--------------------------- -----------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Net sales...................................... $25,441 $15,457 $46,727 $ 8,786 $22,189
Development revenues........................... -- 5,000 558 -- 2,658
------- ------- ------- ------- -------
Total revenues......................... 25,441 20,457 47,285 8,786 24,847
------- ------- ------- ------- -------
OPERATING COSTS AND EXPENSES:
Cost of sales.................................. 12,130 8,782 10,603 2,063 7,364
Selling, general and administrative............ 8,605 12,106 20,930 4,394 6,702
Depreciation and amortization.................. 1,777 982 2,395 423 1,091
------- ------- ------- ------- -------
Total operating costs and expenses,
net.................................. 22,512 21,870 33,928 6,880 15,157
------- ------- ------- ------- -------
GAIN ON SALE OF PRODUCT LINE, NET................ 13,102 -- -- -- --
------- ------- ------- ------- -------
OPERATING INCOME (LOSS).......................... 16,031 (1,413) 13,357 1,906 9,690
------- ------- ------- ------- -------
OTHER (EXPENSES) INCOME:
Gain on sale of investment in affiliate........ -- 1,760 -- -- --
Interest expense............................... (2,006) (1,272) (2,749) (450) (2,703)
Other income, net.............................. 367 578 4 67 24
Loss on sale of stock.......................... -- -- (32) (32) --
------- ------- ------- ------- -------
Total other (expenses) income.......... (1,639) 1,066 (2,777) (415) (2,679)
------- ------- ------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM............................. 14,392 (347) 10,580 1,491 7,011
Income tax expense (benefit)................... 5,058 (107) 3,968 570 2,650
------- ------- ------- ------- -------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM.......... 9,334 (240) 6,612 921 4,361
Extraordinary item net of income taxes of $272
and $175, respectively...................... 528 -- -- -- (286)
------- ------- ------- ------- -------
NET INCOME (LOSS)................................ $ 9,862 $ (240) $ 6,612 $ 921 $ 4,075
======= ======= ======= ======= =======
Basic income (loss) per common share:
Income (loss) before extraordinary item..... $ 0.71 $ (0.02) $ 0.25 $ 0.04 $ 0.15
Extraordinary item.......................... 0.04 -- -- -- --
------- ------- ------- ------- -------
Net income (loss)........................... $ 0.75 $ (0.02) $ 0.25 $ 0.04 $ 0.15
======= ======= ======= ======= =======
Diluted income (loss) per common share:
Income (loss) before extraordinary item..... $ 0.66 $ (0.02) $ 0.25 $ 0.04 $ 0.15
Extraordinary item.......................... 0.04 -- -- -- --
------- ------- ------- ------- -------
Net income (loss)........................... $ 0.70 $ (0.02) $ 0.25 $ 0.04 $ 0.15
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 72
KING PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
AND FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEARS ENDED MONTHS ENDED
DECEMBER 31, MARCH 31,
--------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 9,862 $ (240) $ 6,612 $ 921 $ 4,075
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization........................... 1,777 982 2,395 423 1,091
Loss on sale of marketable securities................... -- 1 32 32 --
Extraordinary item...................................... (800) -- -- -- 461
Gain on sale of product line............................ (15,608) -- -- -- --
Gain on sale of property and equipment.................. -- (54) -- -- --
Gain on sale of investment in affiliate................. -- (1,760) -- -- --
Income from equity in earnings of affiliated company.... (166) -- -- -- --
Deferred income taxes................................... 2,193 410 (980) (9) (1,241)
Changes in operating assets and liabilities:
Accounts receivable..................................... (876) 467 (6,256) (3,202) (13,008)
Inventories............................................. (1,326) (1,895) (4,753) (534) (19,116)
Prepaid expenses and other current assets............... 12 (335) (332) 111 74
Accounts payable........................................ (288) (83) 3,604 899 6,535
Accrued expenses........................................ (220) (138) 2,180 1,595 13,290
Income taxes............................................ 2,855 (3,624) 2,514 579 2,475
--------- --------- --------- -------- ---------
Net cash provided by (used in) operating activities..... (2,585) (6,269) 5,016 815 (5,364)
--------- --------- --------- -------- ---------
Cash flows from investing activities:
Purchases of property and equipment....................... (1,672) (1,069) (1,379) (220) (73,642)
Purchase of intangible assets............................. (60) (2,974) (52,428) (25,243) (51,559)
Acquisition related costs................................. -- -- (373) -- --
Purchases of marketable securities........................ -- (307) -- -- --
Proceeds from sales of marketable securities.............. -- 72 203 203 --
Proceeds from sale of product line........................ 32,000 -- -- -- --
Proceeds from sale of investment in affiliated company.... -- 2,052 -- -- --
Proceeds from sale of property and equipment.............. -- 100 -- -- --
--------- --------- --------- -------- ---------
Net cash provided by (used in) investing
activities........................................ 30,268 (2,126) (53,977) (25,260) (125,201)
--------- --------- --------- -------- ---------
Cash flows from financing activities:
Proceeds from revolving line of credit.................... 200,847 -- 29,599 5,193 17,139
Payments on revolving line of credit...................... (198,405) (3,403) (23,447) (2,081) (13,291)
Proceeds from issuance of common shares, net of expenses
of $743................................................. -- 2,844 8,007 8,007 --
Payments to retire 8% cumulative common shares............ (100) -- -- -- --
Book overdraft............................................ -- -- 1,423 -- --
Repayment on shareholder notes receivable................. -- -- 2,093 600 --
Proceeds from short-term debt............................. -- -- -- 185 --
Payment on short-term debt................................ -- -- -- (52) (118)
Proceeds from long-term debt.............................. 329 2,549 55,923 15,750 175,000
Payments on long-term debt and capital lease
obligations............................................. (20,127) (2,772) (23,798) (467) (40,296)
Dividends on preferred shares............................. (8) -- -- -- --
Due from affiliate........................................ (679) 1 (994) -- 3
Initial public offering costs............................. -- -- (710) -- (602)
Debt Issuance costs....................................... -- -- (458) -- (7,335)
--------- --------- --------- -------- ---------
Net cash (used in) provided by financing
activities........................................ (18,143) (781) 47,638 27,135 130,500
--------- --------- --------- -------- ---------
Increase (decrease) in cash................................. 9,540 (9,176) (1,323) 2,690 (65)
Cash and cash equivalents, beginning of period.............. 1,028 10,568 1,392 1,392 69
--------- --------- --------- -------- ---------
Cash and cash equivalents, end of period.................... $ 10,568 $ 1,392 $ 69 $ 4,082 $ 4
========= ========= ========= ======== =========
Supplemental disclosure of cash paid for:
Interest............................................ $ 2,505 $ 1,170 $ 2,335
========= ========= =========
Taxes............................................... $ 283 $ 3,078 $ 2,445
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 73
KING PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
Supplemental schedule of non-cash investing and financing activities:
During 1997, the Company entered into a financing arrangement to have
certain payments made for machinery and equipment. Deposits of $557 were
outstanding on behalf of the Company at December 31, 1997.
At December 31, 1997, the Company has prepaid insurance of $359 that
was financed with a note payable.
The Company purchased intangible assets financed by the seller of
$5,500 during 1996.
For the years ended December 31, 1996 and 1997, the Company entered
into capital leases totaling $1,082 and $85, respectively.
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.
In connection with its purchases of intangible assets the Company
assumed estimated liabilities of $301 and $3,062 for returns of products
shipped prior to acquisition during 1996 and 1997, respectively.
The Company converted its 40,000 shares of Series B Preferred Stock
into 400,000 common shares during 1995.
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 74
KING PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DUE TOTAL
COMMON PREFERRED UNREALIZED FROM SHARE-
-------------------- ---------------- RETAINED LOSS ON RELATED HOLDERS'
SHARES AMOUNT SHARES AMOUNT EARNINGS SECURITIES PARTY EQUITY
---------- ------- ------- ------ -------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994............. 4,000,000 $ 126 50,000 $ 900 $ 909 $ -- $ -- $ 1,935
Conversion of Series B preferred
shares to common shares............ 400,000 800 (40,000) (800) -- -- -- --
Repurchase of 8% cumulative preferred
shares............................. -- -- (10,000) (100) -- -- -- (100)
Dividends on preferred shares........ -- -- -- -- (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 shares............ 1,386,230 4,159 -- -- -- -- -- 4,159
Issuance of common shares 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 loss............................. -- -- -- -- (240) -- -- (240)
---------- ------- ------- ----- ------- ---- ------- -------
Balance, December 31, 1996............. 6,952,645 8,448 -- -- 7,938 (16) (677) 15,693
Issuance of common shares, net of
$743 of expenses................... 3,047,355 8,007 -- -- -- -- -- 8,007
Realized loss on securities.......... -- -- -- -- -- 16 -- 16
Advances to Benevolent Fund.......... -- -- -- -- -- -- (994) (994)
2.8 to 1 common stock split (Note
16)................................ 18,000,000 -- -- -- -- -- -- --
Net income........................... -- -- -- -- 6,612 -- -- 6,612
---------- ------- ------- ----- ------- ---- ------- -------
Balance, December 31, 1997............. 28,000,000 16,455 -- -- 14,550 -- (1,671) 29,334
Payments from Benevolent Fund
(unaudited)........................ -- -- -- -- -- -- 3 3
Net income (unaudited)............... -- -- -- -- 4,075 -- -- 4,075
---------- ------- ------- ----- ------- ---- ------- -------
Balance, March 31, 1998 (unaudited).... 28,000,000 $16,455 -- $ -- $18,625 $ -- $(1,668) $33,412
========== ======= ======= ===== ======= ==== ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE> 75
KING PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
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.
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 are 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.
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. Product
sales and sales of manufactured products are recognized upon shipment.
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. As of December 31,
1997 the Company has $1,423 of book overdrafts classified as accounts payable.
Marketable Securities -- Marketable securities at December 31, 1996
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 of $32 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. A valuation allowance is recorded when, in
the opinion of management, it is more likely than not that some or all of the
deferred tax assets will not be realized (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
F-8
<PAGE> 76
KING PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
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.
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 fair value.
Other Assets -- Other assets at December 31, 1997 consists of deferred
costs of $710 associated with the Company's proposed initial public offering, a
deposit of $557 for equipment that will be leased back to the Company under an
operating lease, debt issuance costs of $458 and acquisition costs incurred
related to the Warner Lambert Acquisition of $373 (Note 6).
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 to be earned over 4 years. Additionally,
the Company agreed to develop and file four ANDA's with the Food and Drug
Administration ("FDA") on the purchaser's behalf, for $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 $682, $1,298
and $890, for the years ended December 31, 1995, 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. Advertising costs for the years ended December 31,
1995, 1996 and 1997 were $931, $1,283 and $1,583, respectively.
Statement of Accounting Standards Not Yet Adopted -- 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
F-9
<PAGE> 77
KING PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
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:
A significant portion of the Company's sales are to customers in the
pharmaceuticals industry. Approximately 34% and 20% of accounts receivable at
December 31, 1996 and 1997, respectively were due from one customer. At December
31, 1996 and 1997, an additional 39% and 22%, 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 of significant customers
as a percentage of the Company's total revenues:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
McKesson Corporation........................................ n/a n/a 16.6%
Cardinal/Whitmire........................................... n/a n/a 13.8
Bergen Brunswig Corporation................................. n/a n/a 13.4
SmithKline Beecham Corporation.............................. 27.0% 18.1% n/a
Mallinckrodt................................................ n/a 36.7 n/a
Novartis Animal Health US, Inc.............................. 11.8 14.9 n/a
DuPont...................................................... 18.1 n/a n/a
</TABLE>
n/a -- sales were less than 10% for the year.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Land........................................................ $ 306 $ 319
Buildings and improvements.................................. 13,407 13,563
Machinery and equipment..................................... 3,380 4,193
Equipment under capital lease............................... 1,488 1,573
Construction in progress.................................... 189 585
------- -------
18,770 20,233
Less accumulated depreciation............................... (2,079) (3,063)
------- -------
$16,691 $17,170
======= =======
</TABLE>
Depreciation and amortization expense for the years ended December 31,
1995, 1996 and 1997 was $701, $853, and $985, respectively.
F-10
<PAGE> 78
KING PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
5. INVENTORY:
Inventory consists of the following:
<TABLE>
<CAPTION>
1996 1997
------ -------
<S> <C> <C>
Finished goods.............................................. $3,176 $ 7,568
Work-in-process............................................. 525 494
Raw materials............................................... 2,396 2,788
------ -------
$6,097 $10,850
====== =======
</TABLE>
6. ACQUISITIONS/INTANGIBLE ASSETS
On November 14, 1997, the Company acquired the rights, titles and interests
to the Septra(R), Proloprim(R), Mantadil(R), and Kemadrin(R) product lines, as
well as, the exclusive licenses, free of royalty obligations, to manufacture and
market the prescription formulations of Neosporin and Polysporin for $23,000
plus the assumption of an estimated liability of $2,084 for returns of products
shipped prior to the acquisition. The entire purchase price was allocated to
intangible assets and will be amortized over its estimated useful life of 25
years. The purchase price was financed under the Company's Senior Secured
Revolving Credit Facility and Senior Secured Term Loan.
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 of returns for 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 of returns for 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 in
the United States 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
in the United States to the Thalitone(R) product line for $1,000, including
inventory valued at $268 and $832 was allocated to 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.
On February 27, 1998, the Company acquired the rights, titles and interest
to certain product lines, production facilities, and assumed contracts or
manufacturing for third parties from Warner-Lambert Company (the "Sterile
Products Acquisition"). The purchase price, including assumed liabilities of
$2,913, of
F-11
<PAGE> 79
KING PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
$127,913 was allocated to real estate and equipment based on fair values
($44,130 and $28,914, respectively) with the residual ($54,869) being allocated
to intangibles and is being amortized over 5 to 40 years and 25 years,
respectively. The purchase price was financed under the Company's new Credit
Agreement (Note 9).
The following unaudited pro forma summary presents the financial
information as if the acquisitions, including the Sterile Products Acquisition,
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 FOR THE YEAR
ENDED ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
Net revenues......................................... $141,527 $122,438
======== ========
Net income........................................... $ 18,351 $ 6,215
======== ========
Net income per common and common stock equivalent.... $ 1.19 $ 0.24
======== ========
</TABLE>
Intangible assets at December 31 consist of the following:
<TABLE>
<CAPTION>
1996 1997
------ -------
<S> <C> <C>
Septra, Proloprim, Mantadil, Kemadrin....................... $ -- $15,425
Cortisporin................................................. -- 23,694
Neosporin................................................... -- 5,876
Viroptic.................................................... -- 5,229
Nucofed/Quibron............................................. 7,301 7,301
Polysporin.................................................. -- 3,783
Other....................................................... 1,534 3,017
------ -------
8,835 64,325
Less accumulated amortization............................... (132) (1,542)
------ -------
$8,703 $62,783
====== =======
</TABLE>
Amortization expense for the years ended December 31, 1995, 1996, and 1997
was $1,076, $129, and $1,410, 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 December 31, 1997 for leases with initial
or remaining terms in excess of one year are as follows:
<TABLE>
<S> <C>
1998........................................................ $379
1999........................................................ 369
2000........................................................ 341
2001........................................................ 285
2002........................................................ 276
</TABLE>
Rent expense for the years ended December 31, 1995, 1996 and 1997 was
approximately $111, $196, and $138, respectively.
F-12
<PAGE> 80
KING PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
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, 1995, 1996
and 1997 was approximately $87, $86 and $44, respectively. As of December 31,
1997 estimated future minimum rental payments to be received are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 18
1999........................................................ 18
2000........................................................ 16
2001........................................................ 16
2002........................................................ 16
Thereafter.................................................. $184
</TABLE>
Capital lease obligations for certain equipment as of December 31, 1997 are
as follows:
<TABLE>
<S> <C>
1998........................................................ $ 404
1999........................................................ 375
2000........................................................ 387
2001........................................................ 241
2002........................................................ 31
------
Total minimum lease payments................................ 1,438
Less imputed interest....................................... 232
------
Present value of minimum lease payments..................... 1,206
Less current maturities..................................... 302
------
$ 904
======
</TABLE>
8. ACCRUED EXPENSES
Accrued expenses at December 31, consist of the following:
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Payroll and outside personnel services...................... $ 346 $ 555
Returns and chargebacks..................................... 351 4,207
Accrued interest............................................ 110 478
Franchise taxes............................................. 24 146
Incurred but not reported medical claims.................... 108 314
Other....................................................... 322 803
------ ------
$1,261 $6,503
====== ======
</TABLE>
9. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
1996 1997
------ -------
<S> <C> <C>
Senior Secured Revolving Credit Facility, paid in February
1998 (see below).......................................... $ -- $ 6,152
Senior Secured Term Loan, paid in February 1998 (see
below).................................................... -- 40,000
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 (see below)............... 6,842 6,027
Note payable to pharmaceutical company, due in five annual
installments of principal and interest (at a rate of 8%)
of $1,378, paid in November 1997.......................... 5,500 --
</TABLE>
F-13
<PAGE> 81
KING PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1996 1997
------ -------
<S> <C> <C>
Note payable, due in semiannual installments of $588,
through December 1998, plus monthly interest at 8%........ 2,350 1,175
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%, paid in November 1997.............................. 2,014 --
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
Various capital leases with interest rates ranging from 8.3%
to 12.7% and maturing at various times through 2002....... 1,237 1,206
Other notes payable......................................... 68 63
------- -------
18,011 56,373
Less current portion.............................. 4,031 8,084
------- -------
$13,980 $48,289
======= =======
</TABLE>
On November 26, 1997, the Company entered into a $12 million Senior Secured
Revolving Credit Facility ("Revolver") and a $40 million Senior Secured Term
Loan ("Term Loan"), collectively referred to as the "Financing". The Financing
includes a five-year revolving line of credit and term loan with customary
covenants and with a floating interest rate based on LIBOR, plus an applicable
margin. The borrowings under the Revolver are limited to predetermined levels of
trade accounts receivable and inventories. At December 31, 1997, $40,000 was
outstanding under the term loan and $6,152 under the line of credit. The
Financing is collateralized by all existing and after acquired tangible and
intangible assets of the Company. The Company used this Financing to finance the
November 14, 1997 acquisition and repay approximately $19.0 million of long-term
debt which had been outstanding. The Financing was repaid in February 1998.
On February 27, 1998, the Company entered into a $195.0 million credit
agreement ("Credit Agreement"). The Company used the proceeds from the Credit
Agreement to finance the Sterile Products Acquisition (Note 6), and repay the
$40.0 million Term Loan and outstanding borrowings under the Revolver as of
February 27, 1998. The Credit Agreement includes Tranche A Term Loans of $90.0
million with a maturity of December 31, 2003, Tranche B Term Loans of $85.0
million with a maturity of December 31, 2005; and Revolving Loans of $20.0
million with a maturity of February 27, 2004 with a floating interest rate based
on either LIBOR, the prime rate, or the per federal funds rate, plus an
applicable margin, selected at the discretion of the Company. In connection with
this Credit Agreement debt issuance costs of $7.2 million were incurred and are
being amortized over the term of the respective loans.
As a result of the early retirement of borrowings under the Senior Secured
Term loan and Senior Secured Revolver, debt issuance costs associated with this
debt of $461($287 net of tax) has been included as an extraordinary item in the
Consolidated Statement of Operations for the three months ended March 31, 1998.
The Credit Agreement requires the Company to maintain certain maximum
leverage and interest expense coverage ratios and minimum cash flow and net
worth ratios beginning in the first quarter of 1998. The Credit Agreement is
collateralized by all existing and acquired tangible and intangible assets of
the Company.
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
F-14
<PAGE> 82
KING PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
retirement of the note amounted to $800 ($528 net of taxes) and was recorded as
an extraordinary item in the Consolidated Statements of Operations.
The aggregate maturities of long-term debt (including capital lease
obligations at December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998.................................... $ 8,084
1999.................................... 8,401
2000.................................... 6,693
2001.................................... 6,749
2002.................................... 24,386
Thereafter.............................. 2,060
-------
$56,373
=======
</TABLE>
10. LINE OF CREDIT AND NOTES PAYABLE
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. On November 26, 1997 this line of credit was paid off
and the line cancelled. At December 31, 1996 there were no borrowings
outstanding under this line of credit. Interest was payable monthly at a rate of
LIBOR plus 1.75%. Borrowings under the agreement were limited to 85% of eligible
accounts receivable and 60% of eligible inventory as defined in the agreement.
Collateral consisted of accounts receivable, inventory, and certain intangible
assets.
The weighted average interest rate for this line of credit was 8.51% for
the year ended December 31, 1997.
During 1997, the Company entered into an agreement to fund deposits for
machinery and equipment being developed for the Company. As of December 31,
1997, the Company had a demand note payable plus interest at prime plus 0.33%
with $557 outstanding.
During December 1997, the Company entered into an agreement to finance
certain insurance costs with a note payable. The balance of the note payable at
December 31, 1997 is $359. The note payable has an interest rate of 7.8% and is
due September 1998.
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 NOTE PAYABLE -- The carrying amounts of
the Company's line of credit and note payable approximates fair value. The fair
value of the Company's long-term debt including the current portion at December
31, 1996 and 1997 is estimated to be $17.6 million and $56.0 million,
respectively, using discounted cash flow analyses and based on the Company's
incremental borrowing rates for similar types of borrowing arrangements.
F-15
<PAGE> 83
KING PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
12. INCOME TAXES
The net income tax expense (benefit) is summarized as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------ ----- ------
<S> <C> <C> <C>
Current..................................................... $2,865 $(635) $4,948
Deferred.................................................... 2,193 528 (980)
------ ----- ------
Total (benefit) expense........................... $5,058 $(107) $3,968
====== ===== ======
</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>
1995 1996 1997
---- ----- ----
<S> <C> <C> <C>
Federal statutory tax rate.................................. 35.0% (34.0)% 34.0%
State income taxes, net of federal benefit.................. 3.3 -- 3.0
Permanent differences....................................... (1.3) 2.3 .4
Other....................................................... (1.9) .9 .3
---- ----- ----
Effective tax rate.......................................... 35.1% (30.8)% 37.7%
==== ===== ====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liability at December 31 are as follows:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Allowance for doubtful accounts............................. $ 35 $ 238
Uniform cost capitalization................................. -- 117
Accrued expenses............................................ 225 528
State net operating loss carryforward....................... 261 413
Refunds and chargebacks..................................... -- 1,239
------- -------
Total deferred tax assets......................... 521 2,535
------- -------
Property, plant and equipment............................... (2,997) (3,135)
Intangible assets........................................... -- (1,226)
Miscellaneous............................................... (495) (165)
------- -------
Total deferred tax liabilities.................... (3,492) (4,526)
------- -------
Net deferred tax liability........................ $(2,971) $(1,991)
======= =======
</TABLE>
The Company's state net operating loss carryforward of approximately $12.5
million expires at various times through 2012. 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, 1995, 1996 and 1997 were $197, $278 and $307, respectively.
From January 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.
F-16
<PAGE> 84
KING PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
14. COMMITMENTS AND CONTINGENCIES
As of December 31, 1997 the Company has entered into a firm commitment to
provide financing for capital expenditures under an operating lease of
approximately $3,500 for machinery and equipment.
Many distributors and marketers of anorexigenic drugs have been subject to
claims relating to the use of these drugs, many of which purport to be class
actions. The Company is a co-defendant only in the suits described below, but
expects it will be named in additional lawsuits related to the Company's
production of an anorexigenic drug under contract for SmithKline Beecham.
The actions generally have been brought by individuals in their own right
or on behalf of putative classes of persons who claim to have suffered injury or
who claim that they may suffer injury in the future due to use of one or more
anorexigenic drugs including phentermine. Plaintiffs' allegations of liability
are based on various theories of recovery, including, but not limited to,
product liability, strict liability, negligence, various breaches of warranty,
conspiracy, fraud, misrepresentation and deceit. These lawsuits typically allege
that the short and long-term use of certain anorexigenic drugs, independently or
in combination (including the combination of fenfluramine and phentermine
popularly known as "fen/phen"), causes, among other things, primary pulmonary
hypertension, valvular heart disease and/or neurological dysfunction. In
addition, some lawsuits allege emotional distress caused by the purported
increased risk of injury in the future. Plaintiffs typically seek relief in the
form of monetary damages (including economic losses, medical care and monitoring
expenses, loss of earnings and earnings capacity, other compensatory damages and
punitive damages), generally in unspecified amounts, on behalf of the individual
or the class. In addition, some actions seeking class certification ask for
certain types of purportedly equitable relief, including, but not limited to,
declaratory judgments and the establishment of a research program or medical
surveillance fund. On December 10, 1997, the federal Judicial Panel on
Multidistrict Litigation issued an Order allowing for the transfer or potential
transfer of the federal actions to the Eastern District of Pennsylvania for
coordinated or consolidated pretrial proceedings.
Except as described below, the Company has not been a party to litigation
or other legal proceedings. The Company has been named in six lawsuits in
connection with the Company's manufacture of phentermine, an anorexigenic, under
contract for SmithKline Beecham and its use in combination with other drugs. In
October 1997, the Company was named one of many co-defendants in a purported
class action filed in the Superior Court of the State of Washington. The suit
does not demand monetary damages but seeks court-supervised, defendant-funded,
medical monitoring to detect the existence of cardiac valvular disease alleged
to have arisen from the ingestion of the combination of drugs by residents of
the State of Washington. In February 1998, the Company was named as a defendant
in an action in Jefferson Circuit Court, Louisville, Kentucky and a suit in
Circuit Court of Montgomery County, Alabama, both of which demand damages in an
unspecified amount. In March 1998, the Company was named as a co-defendant in
three additional actions. A suit in the Supreme Court of New York, County of
Suffolk, demands compensatory damages of $30.0 million and punitive damages of
$20.0 million. A suit in the Montana Eleventh Judicial District Court, Flathead
County, demands an unspecified amount of general and special compensatory
damages. A suit in the Superior Court of the State of California, County of Los
Angeles, demands damages in an unspecified amount.
While the Company cannot predict the outcome of these suits, the Company
believes that the claims against it are without merit and intends to vigorously
pursue all defenses available to it. The Company is being indemnified in all of
these suits by SmithKline Beecham for which it manufactures the anorexigenic
product, provided that neither the lawsuit nor the associated liabilities are
based upon the independent negligence or intentional acts of the Company, and
intends to submit a claim for all unreimbursed costs to its product liability
insurance carrier. However, in the event that SmithKline Beecham is unable to
satisfy or fulfill its obligations under the indemnity, the Company would have
to defend the lawsuit and be responsible for
F-17
<PAGE> 85
KING PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
damages, if any, which are awarded against it or for amounts in excess of the
Company's product liability coverage.
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.
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 $417, $245 and $994 for the years ended
December 31, 1995, 1996 and 1997, respectively. At December 31, 1996 and 1997,
the Company had receivables from this foundation of approximately $677 and
$1,671, respectively, for expenses paid 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. During the years ended December 31, 1996 and 1997, the Company paid
$92 and $651, respectively to this director's Company for assistance in raising
capital for the Cortisporin product line acquisition. The Company paid $62 to
this director's Company for consulting services during the years ended December
31, 1997. In addition, in connection with the Credit Agreement entered into on
February 27, 1998 (Note 9), approximately $1,950 was paid to this director's
Company for assisting in obtaining the financing.
In 1996, the Company issued 699,711 common shares which were financed by
notes of approximately $2,100 receivable 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.
In October 1996, the Company issued 1,386,230 common shares to shareholders
and members of management of which 699,711 common shares were financed by notes
receivable of approximately $2,100. 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 of director fees to the members of its
Board of Directors. No payments were made in 1996 and 1997.
F-18
<PAGE> 86
KING PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
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. STOCKHOLDERS' EQUITY
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.
Stock Split: On November 15, 1997 the shareholders approved 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.
Stock Option Plans: The 1997 Incentive and Nonqualified Stock Option Plan
for Employees (the "1997 Stock Option Plan") was adopted in December 1997. In
February 1998, the Company adopted the 1998 Non-employee Director Stock Option
Plan (the "1998 Stock Option Plan"). The aggregate number of shares which may be
issued under the 1997 Stock Option Plan and the 1998 Stock Option Plan shall not
exceed 3,200,000 and 300,000, respectively. Under both plans, the option
exercise price and the period of exercisability will be determined by the Stock
Option Committee of the Board of Directors on an individual grant basis. Stock
options granted expire 10 years from the grant date.
The Company granted 215,150 options and 5,000 options under the 1997 Stock
Option Plan in February and April 1998, respectively. The exercise price per
share of the options shall be the offering price per share of the Company's
common stock upon the effectiveness of its Registration Statement on Form S-1
and the options will be exercisable as to the following percentages of the
options on the following anniversaries of the grant date; 25% after six months,
50% after twelve months and 100% after twenty-four months.
In addition, the Company granted 50,000 options under the 1998 Stock Option
Plan, subject to approval by the shareholders at the next annual meeting. The
exercise price per share of the option shall be the initial public offering
price per share of the Company's common stock under the effectiveness of its
Registration Statement on Form S-1 and the options will be 100% exercisable
subject to approval of the shareholders.
The Company plans to account for stock option grants 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.
Other 1997 Equity Transactions: On November 14, 1997 the Company's
shareholders approved:
- 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 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 share of Preferred Stock, subject to
adjustment.
F-19
<PAGE> 87
KING PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
- The Company has filed a Registration Statement with the Securities and
Exchange Commission for an initial public offering (the "Offering") of
4,000,000 common shares. The Company's offering is expected to close in
June 1998.
17. INCOME (LOSS) PER SHARE
In 1997, the Company adopted SFAS No. 128, "Earnings Per Share". The basic
and diluted income (loss) per share was determined as follows:
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Basic income (loss) per share
Income (loss) before extraordinary item....... $ 9,334 $ (240) $ 6,612
Less: Preferred share dividends............... (8) -- --
----------- ----------- -----------
Income (loss) available to common
shareholders............................... $ 9,326 $ (240) $ 6,612
Weighted average common shares................ 13,201,118 15,440,465 26,270,103
----------- ----------- -----------
Basic income (loss) per share before
extraordinary item......................... $ 0.71 $ (0.02) $ 0.25
=========== =========== ===========
Shares:
Weighted average common shares................ 13,201,118 15,440,465 26,270,103
Effect of preferred conversion................ 966,000 -- --
----------- ----------- -----------
Weighted average common shares plus assumed
conversions................................ 14,167,118 15,440,465 26,270,103
----------- ----------- -----------
Diluted income (loss) per share before
extraordinary item......................... $ 0.66 $ (0.02) $ 0.25
=========== =========== ===========
</TABLE>
18. EVENTS SUBSEQUENT TO THE DATE OF THE INDEPENDENT AUDITOR'S REPORT
(UNAUDITED)
The interim consolidated financial data with respect to March 31, 1997 and
1998 have been prepared without audit; however, in the opinion of management,
all adjustments (which are normal and recurring) necessary to prevent fairly the
consolidated financial position at March 31, 1998 and the results of operations
and cash flow for the three months ended March 31, 1998 and 1997, have been
made. The results of operations for the three months ended March 31, 1998 are
not necessarily indicative of the results of operations for a full year. Interim
financial data conforms to the requirements of Article X of Regulation S-X and,
therefore, does not include all the disclosure normally required under generally
accepted accounting principles.
Property, plant and equipment consists of the following at March 31, 1998:
<TABLE>
<S> <C>
Land........................................................ $ 3,949
Buildings and improvements.................................. 54,064
Machinery and equipment..................................... 29,933
Equipment under capital lease............................... 1,573
Construction in progress.................................... 4,356
-------
93,875
Less accumulated depreciation............................... (3,718)
-------
$90,157
=======
</TABLE>
F-20
<PAGE> 88
KING PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
Inventory consists of the following at March 31, 1998:
<TABLE>
<S> <C>
Finished goods.............................................. $16,130
Work-in-process............................................. 9,375
Raw materials............................................... 4,461
-------
$29,966
=======
</TABLE>
Intangible assets consists of the following at March 31, 1998:
<TABLE>
<S> <C>
Septra, Proloprim, Mantadil, Kemadrin....................... $ 15,425
Cortisporin................................................. 23,694
Sterile Products............................................ 54,869
Neosporin................................................... 5,876
Viroptic.................................................... 5,229
Nucofed/Quibron............................................. 7,301
Polysporin.................................................. 3,783
Other....................................................... 3,017
--------
119,194
Less accumulated amortization............................... (2,375)
--------
$116,819
========
</TABLE>
The following unaudited pro forma summary presents the financial
information as if the acquisitions, including the Sterile Products Acquisition,
had occurred on January 1, 1997. These pro forma results have been prepared for
comparative purposes and do not purport to be indicative of what would have
occurred had the acquisition been made on January 1, 1997, nor is it indicative
of future results.
<TABLE>
<CAPTION>
FOR THE THREE FOR THE THREE
MONTHS ENDED MONTHS ENDED
MARCH 31, 1997 MARCH 31, 1998
-------------- --------------
(UNAUDITED)
<S> <C> <C>
Net revenues.............................................. $31,217 $35,691
======= =======
Net income................................................ $ 806 $ 6,247
======= =======
Net income per common and common stock equivalent......... $ 0.04 $ 0.20
======= =======
</TABLE>
Long-term debt consisted of the following at March 31, 1998:
<TABLE>
<S> <C>
Tranche A Term Loans........................................ $ 90,000
Tranche B Term Loans........................................ 84,788
Line of credit.............................................. 10,000
Notes payable to former owners.............................. 6,027
Notes payable............................................... 1,175
Note payable to shareholders................................ 1,750
Various capital leases...................................... 1,134
Other notes payable......................................... 51
--------
194,925
Less current portion........................................ 6,864
--------
$188,061
========
</TABLE>
The Company has entered into an interest rate swap through March 2001 with
a notional principal amount of $50 million whereby the Company pays a fixed rate
and receives a variable rate.
F-21
<PAGE> 89
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Glaxo Wellcome, Inc. and King Pharmaceuticals, Inc.:
We have audited the accompanying Statement of Product Contribution for the
Cortisporin Product Line of Glaxo Wellcome Inc. ("Glaxo Wellcome") for the years
ended December 31, 1995 and 1996. The Statement of Product Contribution 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 Product Contribution is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the Statement of Product Contribution.
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 Product Contribution. We believe that our audit provides a
reasonable basis for our opinion.
The operations covered by the Statement of Product Contribution 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 Product Contribution for 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-22
<PAGE> 90
CORTISPORIN PRODUCT LINE
STATEMENT OF PRODUCT CONTRIBUTION
(NOTE 1)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND FOR THE PERIOD JANUARY 1, 1997 THROUGH MARCH 20, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, JANUARY 1, 1997
------------------ THROUGH
1995 1996 MARCH 20, 1997
------- ------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
Net sales................................................. $14,083 $11,562 $3,342
------- ------- ------
Cost of sales............................................. 2,376 1,445 430
Selling, general and administrative....................... 930 631 188
Distribution.............................................. 80 48 10
------- ------- ------
Total costs and expenses........................ 3,386 2,124 628
------- ------- ------
Product contribution...................................... $10,697 $ 9,438 $2,714
======= ======= ======
</TABLE>
The accompanying notes are an integral part of
the Statement of Product Contribution
F-23
<PAGE> 91
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 SALES
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.
DISTRIBUTION
Distribution costs principally include freight and warehousing charges and
are allocated based on a percentage of gross sales. Such percentage is
determined by dividing total Glaxo Wellcome distribution costs by total Glaxo
Wellcome gross sales.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative costs include expenses for
administrative services, such as finance, human resources, legal, information
systems and other corporate affairs. Such costs are allocated based on a
percentage of gross sales. Such percentage is determined by dividing total Glaxo
Wellcome general and administrative costs by total Glaxo Wellcome gross sales.
Although Glaxo Wellcome incurred direct selling, marketing and advertising
costs, no such costs were allocated to the Cortisporin Product Line because
Glaxo Wellcome did not support the Cortisporin Product Line during the periods
presented.
F-24
<PAGE> 92
CORTISPORIN PRODUCT LINE
NOTES TO THE FINANCIAL STATEMENT -- (CONTINUED)
3. SIGNIFICANT CUSTOMER
The Cortisporin Product Line had net sales to two customers representing
approximately 13% and 10% of net sales for the period January 1, 1997 to March
20, 1997. The Cortisporin Product Line had net sales to four customers
representing approximately 18%, 16%, 11% and 10% of net sales for the year ended
December 31, 1996. The Cortisporin Product Line had net sales to three customers
representing approximately 22%, 20% and 14% of net sales for the year ended
December 31, 1995.
4. ESTIMATES
The preparation of the financial statement of Product Contribution 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 and for the period January
1, 1997 through March 20, 1997. Actual results could differ from those
estimates.
F-25
<PAGE> 93
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Glaxo Wellcome, Inc. and King Pharmaceuticals, Inc.
We have audited the accompanying Combined Statement of Product Contribution
for the Neosporin, Polysporin, Septra, Proloprim, Mantadil and Kemadrin Product
Lines (the "Product Lines") of Glaxo Wellcome, Inc. ("Glaxo Wellcome") for the
years ended December 31, 1995 and 1996. The Combined Statement of Product
Contribution 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 Combined Statement of Product
Contribution is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the Combined
Statement of Product Contribution. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the Combined Statement of Product
Contribution. We believe that our audit provides a reasonable basis for our
opinion.
The operations covered by the Combined Statement of Product Contribution
referred to above have no separate legal status or existence. The accompanying
statement was prepared as described in Note 1 to present the Product Lines and
is not intended to be a complete presentation of the Product Lines. Accordingly,
the resulting statement is not necessarily indicative of the costs and expenses
that would have resulted if the Product Lines had been operated as a separate
entity.
In our opinion, the statement referred to above presents fairly, in all
material respects, the Combined Statement of Product Contribution for the
Product Lines 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
November 17, 1997
F-26
<PAGE> 94
NEOSPORIN, POLYSPORIN, SEPTRA, PROLOPRIM, MANTADIL,
AND KEMADRIN PRODUCT LINES
COMBINED STATEMENT OF PRODUCT CONTRIBUTION
(NOTE 1)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND FOR THE PERIOD JANUARY 1, 1997 THROUGH NOVEMBER 13, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED PERIOD
DECEMBER 31, JANUARY 1, 1997
----------------- THROUGH
1995 1996 NOVEMBER 13, 1997
------- ------- -----------------
(UNAUDITED)
<S> <C> <C> <C>
Net sales.................................................. $18,562 $12,440 $11,171
------- ------- -------
Cost of sales.............................................. 3,665 2,030 4,058
Selling, general and administrative........................ 1,334 848 494
Distribution............................................... 115 64 45
------- ------- -------
Total costs and expenses......................... 5,114 2,942 4,597
------- ------- -------
Product contribution....................................... $13,448 $ 9,498 $ 6,574
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the Combined Statement of Product
Contribution
F-27
<PAGE> 95
NEOSPORIN, POLYSPORIN, SEPTRA, PROLOPRIM, MANTADIL,
AND KEMADRIN PRODUCT LINES
NOTES TO THE COMBINED FINANCIAL STATEMENT
1. OWNERSHIP/BASIS OF PRESENTATION
The Neosporin, Polysporin, Septra, Proloprim, Mantadil and Kemadrin Product
Lines (the "Product Lines") include all rights, title and interest of six
product lines within the United States. Effective November 14, 1997 Glaxo
Wellcome, Inc. ("Glaxo Wellcome") sold the rights, title and interest of these
Product Lines to Monarch Pharmaceuticals, Inc. ("Monarch"), a subsidiary of King
Pharmaceuticals, Inc. Glaxo Wellcome has agreed to continue its current
manufacturing agreement with an outside company until December 31, 1998 or until
current orders expire and charge Monarch for the manufacturing.
Historically, financial statements were not prepared for the Product Lines.
This statement has been developed from the historical accounting records of
Glaxo Wellcome. All of the estimates in the combined financial statement, 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 Product Lines 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 are based on
sales of the Product Lines to total sales of Glaxo Wellcome.
Cost of Sales -- 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 of the
Product Lines to total sales of 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.
Distribution -- Distribution costs principally include freight and
warehousing charges and are allocated based on a percentage of gross sales. Such
percentage is determined by dividing total Glaxo Wellcome distribution costs by
total Glaxo Wellcome gross sales.
Selling, General and Administrative -- Selling, general and administrative
costs include expenses for administrative services, such as finance, human
resources, legal, information systems and other corporate affairs. Such costs
are allocated based on a percentage of gross sales. Such percentage is
determined by dividing total Glaxo Wellcome general and administrative costs by
total Glaxo Wellcome gross sales. Although Glaxo Wellcome incurred direct
selling, marketing and advertising costs, no such costs were allocated to the
Product Lines because Glaxo Wellcome did not support these products during the
periods presented.
3. SIGNIFICANT CUSTOMER
Net sales to four customers represented approximately 17%, 13%, 12% and 11%
for the nine months ended September 30, 1997. Net sales to four customers
represented approximately 18%, 16%, 12% and 11% of net sales for the year ended
December 31, 1996. Net sales to three customers represented approximately 21%,
17% and 12% of net sales for the year ended December 31, 1995.
F-28
<PAGE> 96
NEOSPORIN, POLYSPORIN, SEPTRA, PROLOPRIM, MANTADIL,
AND KEMADRIN PRODUCTS LINES
NOTES TO THE COMBINED FINANCIAL STATEMENT -- (CONTINUED)
4. ESTIMATES
The preparation of the combined financial statement of Gross Profit in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect certain reported amounts of gross
profit for the years ended December 31, 1995 and 1996 and for the period January
1, 1997 through November 13, 1997. Actual results could differ from those
estimates.
F-29
<PAGE> 97
REPORT OF INDEPENDENT ACCOUNTANTS
ON SPECIAL PURPOSE FINANCIAL STATEMENTS
To the Board of Directors and Shareholders
of Warner-Lambert Company
We have audited the accompanying Statement of Fixed Assets of
Warner-Lambert Company's Sterile Products Operations ("Sterile Products
Operations") as of December 31, 1997 and 1996 and the Statement of Brand
Contribution of Sterile Products Operations for each of the three years in the
period ended December 31, 1997. These statements are the responsibility of
Warner-Lambert Company management. Our responsibility is to express an opinion
on these statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Statement of Fixed Assets and Statement
of Brand Contribution are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the Statement of Fixed Assets and Statement of Brand Contribution. 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 Fixed Assets and Statement of Brand Contribution. We believe that our audit
provides a reasonable basis for our opinion.
The accompanying Statement of Fixed Assets and Statement of Brand
Contribution reflect certain assets and brand contribution attributable to the
Sterile Products Operations of Warner-Lambert Company as described in Note 1 and
are not intended to be a complete presentation of the assets or revenues and
expenses of Warner-Lambert Company's Sterile Products Operations.
In our opinion, the Statements referred to above present fairly, in all
material respects, the fixed assets at December 31, 1997 and 1996 and brand
contribution for each of the three years in the period ended December 31, 1997
of Sterile Products Operations, in conformity with generally accepted accounting
principles.
As explained in Note 1 to the financial statements, on February 27, 1998,
Warner-Lambert Company signed the Product Asset Purchase Agreement and the Asset
Purchase Agreement to sell Sterile Products Operations to King Pharmaceutical,
Inc.
/s/ Price Waterhouse LLP
Morristown, New Jersey
March 27, 1998
F-30
<PAGE> 98
WARNER-LAMBERT COMPANY'S STERILE PRODUCTS OPERATIONS
STATEMENT OF FIXED ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ -------------
<S> <C> <C>
Buildings (including land of $8)............................ $38,158 $42,303
Machinery, furniture and fixtures........................... 43,274 53,361
Construction in progress.................................... 15,606 2,731
------- -------
97,038 98,395
Less accumulated depreciation............................... (46,118) (48,639)
------- -------
Property, plant and equipment, net.......................... $50,920 $49,756
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE> 99
WARNER-LAMBERT COMPANY'S STERILE PRODUCTS OPERATIONS
STATEMENT OF BRAND CONTRIBUTION
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Gross sales................................................. $120,554 $120,351 $ 85,929
Sales deductions............................................ 30,765 29,658 27,612
-------- -------- --------
Net sales................................................... 89,789 90,693 58,317
Cost of goods sold.......................................... 55,861 54,564 46,793
-------- -------- --------
Gross profit................................................ 33,928 36,129 11,524
Voluntary severance......................................... -- -- 2,152
Selling, general and administrative......................... 5,362 5,664 3,624
Distribution................................................ 3,170 3,147 1,761
-------- -------- --------
Brand contribution.......................................... $ 25,396 $ 27,318 $ 3,987
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE> 100
WARNER-LAMBERT COMPANY'S STERILE PRODUCTS OPERATIONS
NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS)
NOTE 1 -- DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Warner-Lambert Company's Sterile Products Operations ("Sterile Products")
manufactures, sells and distributes certain sterile and oral pharmaceutical
products in the U.S., primarily to large national wholesalers and retailers.
Sterile Products includes all rights, title and interest in the U.S. to 15
branded product lines, a manufacturing facility in Rochester, Michigan and
contracts for manufacturing for third parties. The 15 branded product lines in
Sterile Products, as defined in the Product Asset Purchase Agreement discussed
below, are Ketalar, Aplisol, Chloromycetin, Coly-Mycin-S Otic, Coly-Mycin-M
Parenteral, Adrenalin, Vira-A, Pitocin, Pitressin, Histoplasmin, Fluogen,
Anusol-HC, Procan SR, Procanbid and Humatin.
Historically, financial statements were not prepared for Sterile Products.
These special purpose statements have been developed from the historical
accounting records of Warner-Lambert Company (W-L). These statements may not
necessarily reflect the property, plant and equipment balances and net sales and
related costs that would have resulted had Sterile Products operated as an
independent entity for the periods presented.
On February 27, 1998, W-L signed a Product Asset Purchase Agreement and the
Asset Purchase Agreement, which together, sell to King Pharmaceuticals, Inc. the
rights, title and interest of the products in Sterile Products, the
manufacturing facility in Rochester, Michigan, and the contracts for
manufacturing for third parties.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Revenue is recognized upon shipment of product to the customer except in
limited instances where Sterile Products contract manufactures for third parties
and bills the customer upon completion of finished goods while awaiting shipping
instructions from the customer. Sterile Products warrants products against
defects and for specific quality standards, permitting the return of products
under certain circumstances.
Sales Deductions
Sales deductions are estimated and recognized at the time the applicable
sale is recognized. These deductions are comprised of sales returns and
allowances, customer rebates and cash discounts as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Sales returns and allowances.............................. $14,141 $12,602 $ 9,869
Customer rebates.......................................... 14,775 15,345 16,437
Cash discounts............................................ 1,849 1,711 1,306
------- ------- -------
Total sales deductions.................................... $30,765 $29,658 $27,612
======= ======= =======
</TABLE>
Cost of Goods Sold
Elements in cost of goods sold include raw materials, direct labor and
plant overhead.
Inventory from period to period is determined principally on the first-in,
first-out basis.
Selling, General and Administrative Costs
Selling, general and administrative costs include expenses for
administrative services, such as credit and collections, risk management, human
resources, information systems and accounting services and are allocated based
on a percentage of net sales. Such percentage is determined by dividing total
W-L general and
F-33
<PAGE> 101
WARNER-LAMBERT COMPANY'S STERILE PRODUCTS OPERATIONS
NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS) -- (CONTINUED)
administrative costs by total W-L net sales. Although W-L incurs direct selling,
advertising and promotion costs, none of these costs are allocated to Sterile
Products because W-L did not support these products during the years ended
December 31, 1997, 1996 or 1995.
Distribution Costs
Distribution costs principally include freight charges and are allocated
based on a percentage of net sales. Such percentage is determined by dividing
total W-L distribution costs by total W-L net sales.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of revenues and expenses. Sterile
Products' actual results in subsequent periods may differ from the estimates and
assumptions used in the preparation of the accompanying financial statements.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost, less accumulated
depreciation. The cost of maintenance, repairs, minor renewals and betterments
and minor equipment items is charged to income, the cost of major renewals and
betterments is capitalized. Depreciation is calculated on the straight-line
method over the estimated useful lives of the following classes of assets:
<TABLE>
<CAPTION>
<S> <C>
Buildings and improvements................................ 10 to 40 years
Machinery, furniture and fixtures......................... 5 to 15 years
</TABLE>
Depreciation expense totaled $4,034, $3,714 and $3,500 for the years ended
December 31, 1997, 1996 and 1995, respectively. Because Sterile Products does
not have borrowings and there is no allocation of W-L debt to Sterile Products'
operations, no interest costs have been capitalized by Sterile Products with
respect to construction in progress.
NOTE 3 -- SIGNIFICANT CONCENTRATIONS
Purchases
All purchases are based on competitive bidding and there are a number of
alternative suppliers. Purchases from three suppliers accounted for
approximately 60% of inventory purchases for each of the periods presented.
Significant Products
For the year ended December 31, 1997 Procanbid, Anusol-HC and Coly-Mycin-M
Parenteral accounted for approximately 17%, 17% and 11% of gross sales,
respectively. For the year ended December 31, 1996, Anusol-HC and Fluogen
accounted for 16% and 19% of gross sales, respectively. For the year ended
December 31, 1995, Anusol-HC, Fluogen and Procan SR accounted for 17%, 19% and
12% of gross sales, respectively.
In 1997, due to issues regarding shelf life potency, management decided not
to sell Fluogen, which as noted above, had significant gross sales in 1996 and
1995. As a result of this decision, cost of goods sold in 1997 included $7,115
of unabsorbed overhead and $4,044 of obsolete inventory.
F-34
<PAGE> 102
WARNER-LAMBERT COMPANY'S STERILE PRODUCTS OPERATIONS
NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS) -- (CONTINUED)
Significant Customers
Sterile Products operates in one industry segment (the manufacture and
distribution of sterile pharmaceutical products) and sells products primarily to
pharmaceutical wholesalers. Sterile Products had sales to four customers each
representing approximately 19%, 17%, 16% and 13% of gross sales for the year
ended December 31, 1997. Sterile Products had significant gross sales in 1996
and 1995 to two of these four customers. Sales to these two customers
represented approximately 12% and 11% of gross sales in 1996 and approximately
11% of gross sales each in 1995.
NOTE 4 -- VOLUNTARY SEVERANCE PROGRAM
In April 1997, Sterile Products offered voluntary severance to its
employees to reduce headcount. Based on the number of employees electing the
severance, Sterile Products recorded a charge of $2,152.
F-35
<PAGE> 103
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following Pro Forma Financial Statements of Operations for the year
ended December 31, 1997 and for the three months ended March 31, 1998 have been
prepared to give effect to the recent acquisitions of the Company which include,
(i) the Proctocort product line on January 22, 1997, (ii) the Viroptic product
line on May 15, 1997, (iii) the Cortisporin Product Line on March 21, 1997 and
(iv) the Glaxo Acquisition on November 14, 1997 and (v) the Sterile Products
Acquisition on February 28, 1998 (collectively, "the Acquisitions"), in all
cases, as if these acquisitions had occurred on January 1, 1997.
The pro forma adjustments are based upon available information and certain
assumptions that the Company believes are reasonable in the circumstances. Pro
forma adjustments are applied to the historical financial statements of the
Company and the Acquisitions. The Acquisitions were accounted for under the
purchase method of accounting. The Company's allocation of purchase price was
based upon the estimated fair value of assets acquired and liabilities assumed
in accordance with Accounting Principles Board Opinion No. 16.
The Pro Forma Consolidated 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 Consolidated 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
Acquisitions been completed on the dates indicated or which may be expected to
occur in the future.
F-36
<PAGE> 104
KING PHARMACEUTICALS, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CORTISPORIN GLAXO
ACQUISITION ACQUISITION OTHER RECENT
FROM FROM ACQUISITIONS STERILE
THE COMPANY JANUARY 1, JANUARY 1, FROM PRODUCTS
FOR THE 1997 1997 JANUARY 1, ACQUISITION FOR
YEAR ENDED THROUGH THROUGH 1997 THE YEAR ENDED
DECEMBER 31, MARCH 20, NOVEMBER 13, THROUGH THE DATE DECEMBER 31, PRO FORMA
1997 1997 1997 OF ACQUISITION 1997 ADJUSTMENTS
------------ ------------ ------------ ----------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues, net..... $ 47,285 $3,342 $11,171 $2,323 $58,317 $ --
---------- ------ ------- ------ ------- --------
Cost of sales........... 10,603 430 4,058 232 46,793(1) (4,034)(6)
Selling, general and
administrative........ 20,930 198 539 150 7,537 (402)(2)
Depreciation and
amortization.......... 2,395 -- -- -- -- 7,409(3)
---------- ------ ------- ------ ------- --------
Total costs and
expenses.............. 33,928 628 4,597 382 54,330 2,973
---------- ------ ------- ------ ------- --------
Operating income........ 13,357 2,714 6,574 1,941 3,987 (2,973)
Interest expense........ (2,749) -- -- -- -- (12,906)(4)
Other income, net....... (28) -- -- -- -- --
---------- ------ ------- ------ ------- --------
Income before income
taxes................. 10,580 2,714 6,574 1,941 3,987 (15,879)
Income tax expense...... 3,968 -- -- -- -- (265)(5)
---------- ------ ------- ------ ------- --------
Net income.............. $ 6,612 $2,714 $ 6,574 $1,941 $ 3,987 $(15,614)
========== ====== ======= ====== ======= ========
Basic and diluted net
income per common
share................. $ 0.25
==========
Weighted average number
of common shares...... 26,270,103
==========
<CAPTION>
AS ADJUSTED
FOR
PRO FORMA THE OFFERING(7)
---------- ---------------
<S> <C> <C>
INCOME STATEMENT DATA:
Total revenues, net..... $ 122,438 $ 122,438
---------- ----------
Cost of sales........... 58,082 58,082
Selling, general and
administrative........ 28,952 28,952
Depreciation and
amortization.......... 9,804 9,804
---------- ----------
Total costs and
expenses.............. 96,838 96,838
---------- ----------
Operating income........ 25,600 25,600
Interest expense........ (15,655) (11,484)
Other income, net....... (28) (28)
---------- ----------
Income before income
taxes................. 9,917 14,088
Income tax expense...... 3,703 5,371
---------- ----------
Net income.............. $ 6,214 $ 8,717
========== ==========
Basic and diluted net
income per common
share................. $ 0.24 $ 0.29
========== ==========
Weighted average number
of common shares...... 26,270,103 30,270,103
========== ==========
</TABLE>
See Notes to Pro Forma Consolidated Financial Statements
F-37
<PAGE> 105
KING PHARMACEUTICALS, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
STERILE
PRODUCTS
THE COMPANY ACQUISITION
FOR THE THREE FROM JANUARY 1,
MONTHS ENDED 1998 THROUGH PRO FORMA AS ADJUSTED FOR
MARCH 31, 1998 FEBRUARY 27, 1998 ADJUSTMENTS PRO FORMA THE OFFERING(7)
-------------- ----------------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues, net........... $ 24,847 $10,844 $ -- $ 35,691 $ 35,691
---------- ------- ------- ---------- ----------
Cost of sales................. 7,364 5,314(1) (831)(6) 11,847 11,847
Selling, general and
administrative.............. 6,702 1,001 73(2) 7,776 7,776
Depreciation and
amortization................ 1,091 -- 1,046(3) 2,137 2,137
---------- ------- ------- ---------- ----------
Total costs and
expenses.......... 15,157 6,315 288 21,760 21,760
Operating income.............. 9,690 4,529 (288) 13,931 13,931
OTHER (EXPENSES) INCOME:
Interest expense.............. (2,703) -- (1,792)(4) (4,495) (3,800)
Other income, net............. 24 -- -- 24 24
---------- ------- ------- ---------- ----------
Income before income taxes and
extraordinary item.......... 7,011 4,529 (2,080) 9,460 10,155
Income tax expense............ 2,650 -- 980(5) 3,630 3,908
---------- ------- ------- ---------- ----------
Income before extraordinary
item........................ 4,361 4,529 (3,060) 5,830 6,247
Extraordinary item............ (286) -- -- (286) --(8)
---------- ------- ------- ---------- ----------
Net income.......... $ 4,075 $ 4,529 $(3,060) $ 5,544 $ 6,247
========== ======= ======= ========== ==========
Basic and diluted
net income per
common share...... $ 0.15 $ 0.20 $ 0.20
========== ========== ==========
Weighted average number of
common shares............... 28,000,000 28,000,000 32,000,000
========== ========== ==========
</TABLE>
See Notes to Pro Forma Consolidated Financial Statements.
F-38
<PAGE> 106
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(1) The products that the Company acquired from Warner-Lambert are branded
prescription pharmaceutical products consisting primarily of biological products
used to elicit immune responses and anti-infective products. Three of these
products accounted for 45% of the total sales of the Warner-Lambert Products in
1997, and one product, Fluogen, had gross sales of $23.0 million and $22.3
million in 1995 and 1996, respectively, but was not sold in 1997 or during the
three months ended March 31, 1998. Fluogen was subject to a voluntary recall due
to shelf life potency concerns in 1996. Subsequent testing has established
Fluogen's shelf life potency and the Company intends to market Fluogen in 1998.
As a result of Fluogen being discontinued, cost of goods sold in 1997 included
approximately $7.1 million of unabsorbed overhead and approximately $4.3 million
of obsolete inventory. If these costs were excluded from cost of sales in 1997,
pro forma earnings per share would have been $0.50. In addition, because the
potency issue related to this product has been resolved the Company intends to
market the product in 1998; however, these pro formas do not reflect any
revenues from the expected sales in the future. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations,"
"Business -- Strategy" and "Business -- Products and Product Development."
(2) The Company believes its existing infrastructure at March 31, 1998 is
adequate to support the Company's operations including all the Acquisitions
consummated as of that date. Therefore, based on actual selling, general and
administrative expenses being incurred, the Company calculated the total
selling, general and administrative costs that would have been required had the
acquisitions been consummated as of January 1, 1997 and compared this to the
amount reflected in the historical financial statements of the Company and the
Acquisitions. The differences between the amount required and the actual amount
in the historical financial statements of $1.8 million, offset by the
elimination of a voluntary charge of $2.2 million from the Sterile Products
Acquisition for the year ended December 31, 1997 and $0.1 million for the three
months ended March 31, 1998 were reflected as a pro forma adjustment. This pro
forma adjustment represents the incremental cost due principally to the
establishment of a sales force, distribution systems, and information systems to
support the Acquisitions offset in part by the elimination of the duplicate
general and administrative costs that result when the individual historical
financial statements are combined.
(3) Includes amortization of intangible assets over 10 to 25 years for the
Other Acquisitions, 25 years for the Glaxo and Sterile Products Acquisitions,
and depreciation of fixed assets from the Sterile Products Acquisition over
periods of 5 to 40 years.
(4) Assumes the additional interest costs on approximately $175.6 million
of additional indebtedness, incurred in connection with the Cortisporin
Acquisition ($14.0 million), the Glaxo Wellcome Acquisition ($23.0 million), the
Sterile Products Acquisition ($125.0 million) and approximately $13.6 million of
additional indebtedness incurred related to the Other Acquisitions at interest
rates ranging from 7.25% to 10.0%. The Company has recognized interest based on
committed rates received in the open market.
(5) Adjustment to reflect a 40% effective tax rate applied to the
incremental pro forma income before income taxes. A reconciliation of the
statutory tax rate to the assumed pro forma tax rate is provided below:
<TABLE>
<S> <C>
Federal statutory rate...................................... 35.0%
State taxes, net of federal benefit......................... 4.0
Other....................................................... 1.0
----
40.0%
====
</TABLE>
(6) Reflects the reclassification of depreciation expense from the Sterile
Products Acquisition to be consistent with the presentation of the Company's
financial statements.
(7) Reflects the sale of 4,000,000 shares of common stock at the assumed
initial 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).
(8) Reflects the elimination of an extraordinary loss of $286,000 for the
three months ended March 31, 1998 in 1996.
F-39
<PAGE> 107
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING SHAREHOLDER, OR ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION. 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 OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH
DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 8
Cautionary Statement Regarding
Forward-Looking Statements.......... 18
Use of Proceeds....................... 19
Dividend Policy....................... 19
Capitalization........................ 20
Dilution.............................. 21
Selected Consolidated Financial
Data................................ 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 24
Business.............................. 33
Management............................ 46
Certain Transactions.................. 53
Principal and Selling Shareholders.... 54
Description of Capital Stock.......... 56
Shares Eligible for Future Sale....... 60
Certain United States Federal Tax
Considerations for Non-U.S. Holders
of Common Stock..................... 61
Underwriting.......................... 64
Legal Matters......................... 65
Experts............................... 65
Additional Information................ 66
Index to Financial Statements......... F-1
</TABLE>
------------------
UNTIL , 1998 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
======================================================
KING
PHARMACEUTICALS,
INC.
[LOGO]
6,580,000 Shares
Common Stock
(no par value)
PROSPECTUS
CREDIT SUISSE FIRST BOSTON
HAMBRECHT & QUIST
- ------------------------------------------------------
<PAGE> 108
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 58,501
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...................................... 375,000
Accounting Fees and Expenses................................ 325,000
Legal Fees and Expenses..................................... 250,000
Advisor Fees................................................ 654,000
Miscellaneous............................................... 618,059
----------
Total............................................. $2,325,000
==========
</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> 109
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
NUMBER DESCRIPTION
- --------- -----------
<C> <C> <S>
1.1 -- Form of Underwriting Agreement.
3.1 -- Amended and Restated Charter of King Pharmaceuticals, Inc.
3.1(a) -- Second Amended and Restated Charter of King Pharmaceuticals,
Inc.
3.2 -- Bylaws of King Pharmaceuticals, Inc., as amended.
3.2(a) -- 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 -- 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> 110
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -----------
<C> <C> <S>
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.
10.12(a) -- Toll Manufacturing Agreement for APAP/Hydrocodone Bitartrate
Tablets by and between Mallinckrodt Chemical, Inc. and King
Pharmaceuticals, Inc.
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.
10.15 -- $52,000,000 Credit Agreement among King Pharmaceuticals,
Inc. and General Electric Capital Corporation, as Agent, for
certain Lenders dated November 26, 1997.
10.16 -- Agreement for Purchase and Sale of Assets Relating to
Cortisporin by and between Glaxo Wellcome Inc. and Monarch
Pharmaceuticals, Inc. dated March 21, 1997.
10.17 -- Agreement for Purchase and Sale of Assets Relating to
Neosporin and Polysporin by and between Glaxo Wellcome Inc.
and Monarch Pharmaceuticals, Inc. dated November 14, 1997.
10.18 -- Agreement for Purchase and Sale of Assets Relating to
Septra, Proloprim, Mantadil and Kemadrin by and between
Glaxo Wellcome Inc. and Monarch Pharmaceuticals, Inc. dated
November 14, 1997.
10.19 -- Manufacture and Supply Agreement with Novartis (Ciba-Geigy
Corporation) dated July 17, 1995.
10.20 -- Manufacture and Supply Agreement with Roberts Laboratories,
Inc. dated October 5, 1995.
10.21 -- Supply Agreement with SmithKline Beecham Corporation dated
July 16, 1996.
10.22 -- Letter of Intent with Warner-Lambert Company dated October
31, 1997.
10.23 -- Trademark, Patent, Copyright and Know-How License Agreement
between Warner-Lambert Company and Glaxo Wellcome Inc. dated
as of June 30, 1996.
10.24 -- [Intentionally Omitted].
*10.25 -- Asset Purchase Agreement by and among Parkedale
Pharmaceuticals, Inc., Warner-Lambert Company, and Parke,
Davis & Company, dated February 27, 1998, for the
acquisition of assets related to the Parkedale Facility,
Rochester, Michigan.
*10.26 -- Product Asset Purchase Agreement between Parkedale
Pharmaceuticals, Inc. and Warner-Lambert Company, dated
February 27, 1998, for the acquisition of Anusol-HC(R) and
other products.
*10.27 -- 1998 King Pharmaceuticals, Inc. Non-Employee Director Stock
Option Plan.
*10.28 -- Credit Agreement by and among King Pharmaceuticals, Inc.,
Credit Suisse First Boston, and Wachovia Bank, N.A., dated
February 27, 1998, in the amount of $175,000,000, plus
associated Revolving Loans of $20,000,000, maximum.
10.29 -- [Intentionally Omitted].
*10.30 -- Product Manufacturing Agreement between Santen Incorporated
and Warner-Lambert Company, dated June 26, 1997, for the
manufacture of Ofloxacin Otic Solution 0.3%.
*10.31 -- License Agreement by and among Warner-Lambert Company, Parke
Davis & Company, and Parkedale Pharmaceuticals, Inc., dated
February 27, 1998, for use of the Anusol Trademark, the
Anusol Mold, and Other Trademarks.
*10.32 -- Distribution and Supply Agreement between Warner-Lambert
Company and Fujisawa Pharmaceutical Company, dated December
4, 1989, for the distribution and supply of Elase, Elase
Ointment, and Elase-Chloromycetin Ointment.
*10.33 -- Processing Services Agreement between Amgen, Inc. and
Parke-Davis Division of Warner-Lambert Company, dated
December 16, 1997, for the processing of Leptin, Epogen(R),
Neupogen(R), Stemgen(R), and other products.
</TABLE>
II-3
<PAGE> 111
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -----------
<C> <C> <S>
*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.
*23.3 -- Consent of Price Waterhouse LLP.
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>
- ---------------
* Filed herewith.
(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-4
<PAGE> 112
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 6 to the 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 May 6, 1998.
KING PHARMACEUTICALS, INC.
By: /s/ JOHN M. GREGORY
------------------------------------
John M. Gregory
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 6 to the 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/ JOHN M. GREGORY Chairman of the Board and Chief May 6, 1998
- ----------------------------------------------------- Executive Officer
John M. Gregory
/s/ BRIAN G. SHRADER Chief Financial Officer May 6, 1998
- -----------------------------------------------------
Brian G. Shrader
* Director May 6, 1998
- -----------------------------------------------------
Joseph R. Gregory
* Director May 6, 1998
- -----------------------------------------------------
Jefferson J. Gregory
* Director May 6, 1998
- -----------------------------------------------------
Ernest C. Bourne
* Director May 6, 1998
- -----------------------------------------------------
Lois A. Clarke
* Director May 6, 1998
- -----------------------------------------------------
D. Greg Rooker
* Director May 6, 1998
- -----------------------------------------------------
Ted G. Wood
* Director May 6, 1998
- -----------------------------------------------------
Frank W. DeFriece, Jr.
* /s/ JOHN M. GREGORY
---------------------------------------------------
John M. Gregory
As Attorney-in-Fact
</TABLE>
II-5
<PAGE> 1
Exhibit 10.25
ASSET PURCHASE AGREEMENT
dated as of February 27, 1998
among
PARKEDALE PHARMACEUTICALS, INC.,
PARKE, DAVIS & COMPANY
and
WARNER-LAMBERT COMPANY
with respect to the assets of
WARNER-LAMBERT COMPANY'S
PARKEDALE STERILE MANUFACTURING OPERATIONS
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I - DEFINITIONS...................................................... 1
1.01 Definitions............................................................ 1
Accounts Receivable......................................................... 1
Actions or Proceedings...................................................... 2
Active Employees............................................................ 2
Affiliate................................................................... 2
Agreement................................................................... 2
Assets ................................................................... 2
Assets and Properties....................................................... 2
Assignment Instruments...................................................... 2
Assumed Liabilities......................................................... 2
Assumption Instruments...................................................... 2
Benefit Plan................................................................ 2
Books and Records........................................................... 2
Business.................................................................... 2
Business Books and Records.................................................. 2
Business Combination........................................................ 3
Business Contracts.......................................................... 3
Business Day................................................................ 3
Business Licenses........................................................... 3
CERCLA ..................................................................... 3
Claim Notices............................................................... 3
Closing..................................................................... 3
Closing Date................................................................ 3
COBRA....................................................................... 3
Code ................................................................... 3
Collective Bargaining Agreement............................................. 3
Condition of the Seller's Business.......................................... 3
Consent Decree.............................................................. 3
Contract.................................................................... 3
Cut-off Date................................................................ 3
DEA ................................................................... 4
Disclosure Schedule......................................................... 4
Discontinued or Withdrawn Products.......................................... 4
Dispute Period.............................................................. 4
Employee.................................................................... 4
Environmental Laws.......................................................... 4
ERISA ................................................................... 4
Establishedment License..................................................... 4
Excluded Assets............................................................. 4
FDA ................................................................... 4
FDA Audit................................................................... 4
General Assignment and Assumption........................................... 4
Governmental or Regulatory Authority........................................ 4
Hazardous Substances........................................................ 4
Hazardous Wastes............................................................ 5
HSR Act..................................................................... 5
Improvements................................................................ 5
Inactive Employees.......................................................... 5
Indebtedness................................................................ 5
Indemnified Party........................................................... 5
Indemnifying Party.......................................................... 5
Indemnity Notice............................................................ 5
Intangible Personal Property................................................ 5
Intellectual Property....................................................... 5
Inventory................................................................... 6
IRS ................................................................... 6
Laws ................................................................... 6
Liabilities................................................................. 6
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Licenses.................................................................... 6
Liens ................................................................... 6
Loss ................................................................... 6
Modifications............................................................... 6
New Hire Date............................................................... 6
OCAW Agreement.............................................................. 6
Operative Agreements........................................................ 6
Order ................................................................... 6
Permits..................................................................... 6
Permitted Lien.............................................................. 7
Person ................................................................... 7
Personal Property Leases.................................................... 7
Petroleum Products.......................................................... 7
Plan ................................................................... 7
Post-Closing Tax Period..................................................... 7
Pre-Closing Tax Period...................................................... 7
Prepaid Expenses............................................................ 7
Purchase Price.............................................................. 7
Purchaser................................................................... 7
RCRA........................................................................ 7
Real Property............................................................... 7
Real Property Leases........................................................ 7
Release..................................................................... 7
Representatives............................................................. 7
Resolution Period........................................................... 8
Retained Liabilities........................................................ 8
Retirement Plan............................................................. 8
Savings Plan................................................................ 8
Security Agreements......................................................... 8
SOPS ................................................................... 8
Tangible Personal Property.................................................. 8
Tax ................................................................... 8
Third Party Claim........................................................... 8
Third Party Consent......................................................... 8
Third Party Product Lot..................................................... 8
Transferred Employees....................................................... 8
Union ................................................................... 8
Vehicles.................................................................... 8
WL Severance Plan........................................................... 8
Year 2000 Issue............................................................. 8
Construction of Certain Terms and Phrases................................... 9
ARTICLE II - SALE OF ASSETS AND CLOSING........................................ 9
2.01 Assets............................................................. 9
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
2.02 Liabilities........................................................ 12
2.03 Purchase Price; Allocation......................................... 13
2.04 Closing............................................................ 13
2.05 Further Assurances; Post-Closing Cooperation....................... 14
2.06 Third Party Consents............................................... 15
2.07 Insurance Proceeds................................................. 15
2.08 Year 2000.......................................................... 16
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF SELLERS........................ 16
3.01 Corporate Existence................................................ 16
3.02 Authority.......................................................... 16
3.03 No Conflicts....................................................... 16
3.04 Governmental Approvals and Filings................................. 17
3.05 Profit and Loss Statements......................................... 17
3.06 Taxes.............................................................. 17
3.07 Legal Proceedings.................................................. 17
3.08 Compliance With Laws and Orders.................................... 18
3.09 Employee Benefit Plans............................................. 18
3.10 Employees.......................................................... 19
3.11 Labor Relations.................................................... 19
3.12 Real Property...................................................... 20
3.13 Tangible Personal Property......................................... 21
3.14 Intellectual Property Rights....................................... 21
3.15 Contracts.......................................................... 22
3.16 Licenses........................................................... 23
3.17 Inventory.......................................................... 23
3.18 Insurance.......................................................... 23
3.19 Affiliate Transactions............................................. 24
3.20 Environmental Matters.............................................. 24
3.21 Vehicles........................................................... 25
3.22 Brokers............................................................ 25
3.23 Suppliers.......................................................... 25
3.24 Conduct of Business................................................ 26
3.25 Compliance with Consent Decree..................................... 26
3.26 Debarment.......................................................... 26
3.27 DEA................................................................ 26
3.28 Disclosure......................................................... 26
ARTICLE IV - REPRSENTATIONS AND WARRANTIES OF PURCHASER........................ 27
4.01 Corporate Existence................................................ 27
4.02 Authority.......................................................... 27
4.03 No Conflicts....................................................... 27
4.04 Governmental Approvals and Filings................................. 28
4.05 Legal Proceedings.................................................. 28
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C>
4.06 Brokers............................................................ 28
4.07 Financing.......................................................... 28
ARTICLE V - COVENANTS OF SELLERS............................................... 28
5.01 Regulatory and Other Approvals..................................... 28
5.02 HSR Filings........................................................ 29
5.03 Investigation by Purchaser........................................ 29
5.04 Conduct of Business................................................ 29
5.05 Use of Trademarks and Trade Names.................................. 29
5.06 Certain Restrictions............................................... 30
5.07 Delivery of Books and Records, etc.; Removal of Property.......... 30
5.08 Fulfillment of Conditions.......................................... 31
5.09 Permits............................................................ 31
5.10 Remedial Actions................................................... 31
5.11 Guaranty........................................................... 31
ARTICLE VI - CONVENANTS OF PURCHASER........................................... 32
6.01 Regulatory and Other Approvals..................................... 32
6.02 HSR Filings........................................................ 32
6.03 Union Negotiations................................................. 32
6.04 FDA Audit.......................................................... 32
6.05 FDA Modifications and Powerhouse Repairs........................... 33
6.06 Third Party Manufacturing Business Responsibility.................. 33
6.07 Fulfillment of Conditions.......................................... 34
6.08 Additional Obligations............................................. 34
6.09 Consent Decree..................................................... 34
6.10 Parkedale Name..................................................... 35
6.11 Establishment License.............................................. 35
ARTICLE VII - CONDITIONS TO OBLIGATIONS OF PURCHASER........................... 36
7.01 Representations and Warranties..................................... 36
7.02 Performance........................................................ 36
7.03 Officers' Certificates............................................. 36
7.04 Orders and Laws.................................................... 37
7.05 Regulatory Consents and Approvals.................................. 37
7.06 Third Party Consents............................................... 37
7.07 Opinion of Counsel................................................. 37
7.08 Deliveries......................................................... 37
ARTICLE VIII - CONDITIONS TO OBLIGATIONS OF SELLERS............................ 37
8.01 Representations and Warranties.................................... 38
8.02 Performance....................................................... 38
</TABLE>
<PAGE> 6
<TABLE>
<S> <C> <C>
8.03 Officers' Certificates............................................ 38
8.04 Orders and Laws................................................... 38
8.05 Regulatory Consents and Approvals................................. 38
8.06 Third Party Consents.............................................. 38
8.07 Opinion of Counsel................................................ 38
8.08 Deliveries........................................................ 38
ARTICLE IX - TAX MATTERS....................................................... 39
9.01 Transfer Tax...................................................... 39
9.02 Allocation of Taxes............................................... 39
9.03 Other Taxes....................................................... 39
ARTICLE X - EMPLOYEE MATTERS................................................... 40
10.01 Definitions....................................................... 40
10.02 Employment of Employees of the Business........................... 40
10.03 Obligation to the Employees....................................... 40
10.04 Severance......................................................... 41
10.05 Medical Coverage.................................................. 41
10.06 Retirement and Savings Plan....................................... 41
10.07 Vacation Pay...................................................... 42
10.08 Records........................................................... 42
10.09 Workers Compensation.............................................. 42
10.10 Union............................................................. 42
ARTICLE XI - SURVIVAL; NO OTHER REPRESENTATIONS................................ 42
11.01 Survival of Representations, Warranties, Covenants and Agreements. 42
11.02 No Other Representations.......................................... 43
ARTICLE XII - INDEMNIFICATION.................................................. 43
12.01 Indemnification................................................... 43
12.02 Method of Asserting Claims........................................ 46
12.03 Exclusivity....................................................... 48
ARTICLE XIII - TERMINATION..................................................... 49
13.01 Termination....................................................... 49
13.02 Effect of Termination............................................. 49
ARTICLE XIV - MISCELLANEOUS.................................................... 49
14.01 Notices........................................................... 49
14.02 Bulk Sales Act.................................................... 50
</TABLE>
<PAGE> 7
<TABLE>
<S> <C> <C>
14.03 Entire Agreement.................................................. 51
14.04 Expenses.......................................................... 51
14.05 Public Announcements.............................................. 51
14.06 Confidentiality................................................... 51
14.07 Waiver............................................................ 52
14.08 Amendment......................................................... 52
14.09 No Third Party Beneficiary........................................ 52
14.10 No Assignment; Binding Effect..................................... 52
14.11 Headings.......................................................... 52
14.12 Invalid Provisions................................................ 53
14.13 Governing Law..................................................... 53
14.14 Counterparts...................................................... 53
</TABLE>
Disclosure Schedule
Exhibits
A General Assignment and Assumption
B Seller's Officers' Certificate
C Seller's Secretary's Certificate
D Seller's Opinion of Counsel
E Product Asset Purchase Agreement
F Manufacturing Agreement (Parkedale Pharmaceuticals, Inc. as Owner)
G Transition Services Agreement
H Manufacturing Agreement (Warner-Lambert Company as Owner)
I Clinical and Toxicology Manufacturing Supply Agreement
J License Agreements
K Guaranty Agreement
L Purchaser's Officers' Certificate
M Purchaser's Secretary's Certificate
N Purchaser's Opinion of Counsel
Schedules
Exhibits
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT dated as of February 27, 1998, is made and
entered into by and among Parkedale Pharmaceuticals, Inc., a Michigan
corporation ("Purchaser"), Warner-Lambert Company, a Delaware corporation
("WL"), and Parke, Davis & Company, a Michigan corporation, which is a
wholly-owned subsidiary of WL ("PD")(PD and WL are identified together as
"Sellers"). Capitalized terms not otherwise defined herein have the meanings set
forth in Section 1.01.
WHEREAS, utilizing certain real and personal property of PD, WL is engaged
in the business of manufacturing, packaging, testing and distributing, certain
pharmaceutical products for third party customers, at or in relation to its
Parkedale sterile manufacturing facility located in Rochester, Michigan (the
"'Facility"). Such business is hereinafter referred to as the "Business";
WHEREAS, PD owns the land, buildings and certain depreciable assets at the
Facility;
<PAGE> 8
WHEREAS, WL and PD each desire to sell, transfer and assign to Purchaser,
and Purchaser desires to purchase and acquire from Sellers, certain of the
assets relating to the operation of the Business (excluding, any assets related
solely to the manufacture, packaging, development, testing, distribution,
marketing and sale of WL products currently being manufactured at the Facility),
and in connection therewith, Purchaser has agreed to assume certain of the
liabilities of Sellers relating to the Business and the Facility, all on the
terms set forth herein; and
WHEREAS, in connection with the transactions contemplated by this
Agreement, WL and Purchaser will enter into that certain Product Asset Purchase
Agreement pursuant to which WL will sell certain assets related to the Products
(as that term is defined in the Product Asset Purchase Agreement) and Purchaser
will assume certain liabilities related to such Products (the "Product Asset
Purchase Agreement"). This Agreement does not address the terms and conditions
of the sale of the Products and the related assets which are being sold pursuant
to the terms of the Product Asset Purchase Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
1.01 Definitions. (a) Defined Terms. As used in this Agreement, the
following defined terms have the meanings indicated below:
"Accounts Receivable" has the meaning ascribed to it in Section
2.01(b)(ix).
"Actions or Proceedings" means any action, suit, proceeding, arbitration or
Governmental or Regulatory Authority investigation.
"Active Employees" has the meaning ascribed to it in Section 10.01.
"Affiliate" means any Person that directly or indirectly through one or
more intermediaries, controls or is controlled by or is under common control
with the Person specified. For purposes of this definition, control of a Person
means ownership of 50% or more of the voting or income interest in such Person.
"Agreement" means this Asset Purchase Agreement and the Exhibits, the
Disclosure Schedule and the Schedules hereto and the certificates delivered in
accordance with Articles VII and VIII, as the same shall be amended from time to
time in accordance with the terms hereof.
<PAGE> 9
"Assets" has the meaning ascribed to it in Section 2.01 (a).
"Assets and Properties" of any Person means all assets and properties of
every kind, nature, character and description (whether real, personal or mixed,
whether tangible or intangible and wherever situated), including the goodwill
related thereto, operated, owned or d by such Person.
"Assignment Instruments" has the meaning ascribed to it in Section 2.04.
"Assumed Liabilities" has the meaning ascribed to it in Section 2.02(a).
"Assumption Instruments" has the meaning ascribed to it in Section 2.04.
"Benefit Plan" means any Plan established by either Seller, or any
predecessor or Affiliate of such Seller, existing at the Closing Date or at any
time within the five (5) year period prior thereto, to which such Seller
contributes or has contributed on behalf of any Employee or former Employee, or
under which any Employee or former Employee of such Seller, or any beneficiary
thereof, is covered, is eligible for coverage or has benefit rights.
"Books and Records" of any Person means, without any limitation, all files,
documents, instruments, papers, books and records (financial or other) relating
to the business, results of operations and Assets and Properties of such Person,
including, without limitation, budgets, pricing guidelines, ledgers, journals,
deeds, title policies, Contracts, Licenses, customer lists, computer files and
programs, retrieval programs, operating data, plans and environmental studies
together with all internal and external correspondence, historical records and
copies of the foregoing.
"Business" has the meaning ascribed to it in the forepart of this
Agreement.
"Business Books and Records" has the meaning ascribed to it in Section
2.01(a)(x).
"Business Combination" means with respect to any Person, any merger,
consolidation or combination to which such Person is a party or any sale,
dividend or other disposition of all or substantially all of the Assets and
Properties of such Person.
"Business Contracts" has the meaning ascribed to it in Section 2.01(a)(vi).
"Business Day" means a day other than Saturday, Sunday or any day on which
banks located in the State of Michigan are authorized or obligated to close.
"Business Licenses" has the meaning ascribed to it in Section
2.01(a)(viii).
<PAGE> 10
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, and the rules and regulations promulgated
thereunder.
"Claim Notice" means written notification pursuant to Section 12.02(a) of a
Third Party Claim as to which indemnity under Section 12.01 is sought by an
Indemnified Party, enclosing a copy of all papers served, if any, and specifying
the nature of and basis for such Third Party Claim and for the Indemnified
Party's claim against the Indemnifying Party under Section 12.01, together with
the amount or, if not then reasonably ascertainable, the estimated amount,
determined in good faith, of such Third Party Claim.
"Closing" means the closing of the transactions contemplated by Section
2.04.
"Closing Date" means (a) March 15, 1998 or (b) such other date as Purchaser
and Sellers mutually agree upon in writing.
"COBRA" means the Consolidated Budget Reconciliation Act of 1985, as
amended.
"Code" means the Internal Revenue Code of 1986, as amended, and the rules
and regulations promulgated thereunder.
"Collective Bargaining Agreement" has the meaning ascribed to it in Section
3.11.
"Condition of the Seller's Business" means, with respect to WL, the
business, financial condition, results of operations and Assets of the Business
and, with respect to PD, the Assets of PD being assigned, sold or transferred by
PD to Purchaser pursuant to this Agreement.
"Consent Decree" has the meaning ascribed to it in Section 3.25.
"Contract" means any agreement, lease, license, evidence of Indebtedness,
mortgage, indenture, security agreement or other contract.
"Cut-off Date" means, with respect to any representation, warranty,
covenant or agreement contained in this Agreement, the date on which such
representation, warranty, covenant or agreement ceases to survive as provided in
clause (b), (c) or (d) of Section 11.01, as applicable.
"DEA" has the meaning ascribed to it in Section 3.27.
"Disclosure Schedule" means the record delivered to Purchaser by Sellers
herewith and dated as of the date hereof, containing all lists, descriptions,
exceptions and
<PAGE> 11
other information and materials as are required to be included therein by
Sellers pursuant to this Agreement.
"Discontinued or Withdrawn Products" means Ophthochlor(R) (chloramphenicol
ophthalmic solution), Ophthocort(R) (chloramphenicol, polymyxin B sulfate and
hydrocortisone acetate ophthalmic ointment), Chloromycetin(R) Hydrocortisone
Ophthalmic Chloromycetin(R) (chloramphenicol capsules), Surital(R), Theelin(R),
Pitocin(R), Procan(R) SR (procainamide hydrochloride extended-release tablets,
500 mg, 750 mg and 1000 mg tablets), Procan(R) capsules, Aplitest(R)
(Tuberculin), Poison Ivy Extract, Fluogen(R), ACTH for injection and Vira-A(R)
for infusion.
"Dispute Period" means the period ending thirty (30) days following receipt
by an Indemnifying Party of either a Claim Notice or an Indemnity Notice.
"Employee" means each employee or officer of a Seller engaged exclusively
in the conduct of the Business and who is located at the Facility.
"Environmental Laws" means any federal, state or local law, regulation,
ordinance or Order, including but not limited to CERCLA, RCRA and the Hazardous
Materials Transportation Act in existence as of the Closing Date which govern:
(i) the existence or remediation of contamination on the Real Property; (ii) the
emission or discharge of Hazardous Substances into the environment; (iii) the
control of Hazardous Wastes; or (iv) the use, generation, transport, treatment,
storage, disposal or removal of Hazardous Substances.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"Establishment License" means Establishment License Number 1 issued by FDA
to Sellers.
"Excluded Assets" has the meaning ascribed to it in Section 2.01(b).
"FDA" means the United States Food and Drug Administration.
"FDA Audit" has the meaning ascribed to it in Section 5.10.
"General Assignment and Assumption" has the meaning ascribed to it in
Section 2.04.
"Governmental or Regulatory Authority" means any court, tribunal,
arbitrator, authority, agency, commission, official or other instrumentality of
any country, or any domestic state, county, city or other political subdivision.
"Hazardous Substances" means (A) any Petroleum Products, flammable
substance, explosives, radioactive materials, hazardous wastes or substances,
toxic wastes
<PAGE> 12
or substances or any other wastes, materials or pollutants which cause the Real
Property or the property subject to the Real Property Leases to be in violation
of any Environmental Law; (B) asbestos which is friable, urea formaldehyde foam
insulation, transformers or other equipment which contain dielectric fluid
containing levels of polychlorinated biphenyls in excess of regulatory
requirements, or radon gas; and (C) any chemical, material or substance defined
as, or included in the definition of "hazardous substances", "hazardous wastes",
"hazardous materials", "extremely hazardous waste", "restricted hazardous waste"
or "toxic substances" or words of similar import under any applicable
Environmental Law.
"Hazardous Wastes" means hazardous wastes as defined by RCRA and the
regulations thereunder.
"HSR Act" means Section 7A of the Clayton Act (Title II of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended) and the rules
and regulations promulgated thereunder.
"Improvements" has the meaning ascribed to it in Section 2.01(a)(i).
"Inactive Employees" has the meaning ascribed to it in Section 10.01.
"Indebtedness" of any Person means all obligations of such Person (i) for
borrowed money, (ii) evidenced by notes, bonds, debentures or similar
instruments, (iii) for the deferred purchase price of goods or services (other
than trade payables or accruals incurred in the ordinary course of business),
(iv) under capital leases or (v) in the nature of guarantees of the obligations
described in clauses (i) through (iv) above of any other Person.
"Indemnified Party" means any Person claiming indemnification under any
provision of Article XII, including without limitation, a Person asserting a
claim pursuant to Section 12.02(c).
"Indemnifying Party" means any Person against whom a claim for
indemnification is being asserted under any provision of Article XII, including
without limitation a Person against whom a claim is asserted pursuant to Section
12.02(c).
"Indemnity Notice" means written notification pursuant to Section 12.02(b)
of a claim for indemnity under Article XII by an Indemnified Party, specifying
the nature of and basis for such claim, together with the amount or, if not then
reasonably ascertainable, the estimated amount, determined in good faith, of
such claim.
"Intangible Personal Property" has the meaning ascribed to it in Section
2.01(a)(vii).
"Intellectual Property" means all of the following without limitation and
whether registered, issued, pending or in a draft form: patents, application for
patents,
<PAGE> 13
trademarks and trademark rights, service marks and service mark rights, service
names and service name rights, brand names, inventions, copyrights and copyright
rights, processes, formulae, product names, logos, slogans, trade secrets, trade
dress, processes, designs, methodologies, technical information, technical
drawings and know-how, relating exclusively to the Business, except that WL
shall retain the right to any know-how or trade dress utilized in connection
with any of its other businesses.
"Inventory" has the meaning ascribed to it in Section 2.01(a)(iii).
"IRS" means the United States Internal Revenue Service.
"Laws" means all laws, statutes, rules, regulations, ordinances and other
pronouncements having the effect of law of the United States, any domestic
state, county, city or other political subdivision or of any Governmental or
Regulatory Authority.
"Liabilities" means all Indebtedness, obligations and other liabilities of
a Person (whether absolute, accrued, contingent, fixed or otherwise, or whether
due or to become due).
"Licenses" means all licenses, permits, certificates of authority,
authorizations, approvals, registrations, franchises and similar consents
granted or issued by any Governmental or Regulatory Authority, including all
applications, renewals or extensions therefor.
"Liens" means any mortgage, pledge, assessment, security interest, lease,
lien, adverse claim, levy, charge or other encumbrance of any kind, or any
conditional sale Contract, title retention Contract or other Contract to give
any of the foregoing.
"Loss" means any and all damages, fines, penalties, deficiencies, losses
and expenses (including without limitation interest, court costs, amounts paid
in settlement, reasonable fees of attorneys, accountants and other experts or
other reasonable expenses of litigation or other proceedings or of any claim,
default or assessment).
"Modifications" has the meaning ascribed to it in Section 5.10.
"New Hire Date" has the meaning ascribed to it in Section 10.01.
"OCAW Agreement" has the meaning ascribed to it in Section 6.03.
"Operative Agreements" means, collectively, the General Assignment and
Assumption and the other Assignment Instruments, and the other Assumption
Instruments, the Product Asset Purchase Agreement, those certain Manufacturing
Agreements between WL and Purchaser (the "Manufacturing Agreements"), that
certain
<PAGE> 14
Transition Services Agreement between WL and Purchaser dated the date hereof
(the "Transition Services Agreement"), those certain License Agreements (the
"License Agreements") between WL and Purchaser, that certain Clinical and
Toxicology Product Manufacturing Supply Agreement between WL and Purchaser, that
certain Guaranty Agreement by King Pharmaceuticals, Inc., a Tennessee
corporation, in favor of Sellers and any support or other agreements to be
entered into in connection with the transaction.
"Order" means any writ, judgment, decree, injunction or similar order of
any Governmental or Regulatory Authority (in each such case whether preliminary
or final).
"Permits" has the meaning ascribed to it in Section 3.08.
"Permitted Lien" means (i) any Lien for any Tax not yet due or delinquent
or being contested in good faith by appropriate proceedings for which adequate
reserves have been established, (ii) any statutory Lien arising in the ordinary
course of business by operation of Law with respect to a Liability that is not
yet due or delinquent and (iii) any minor imperfection of title or similar Lien
unknown by Seller or disclosed to Purchaser by Seller in the Disclosure Schedule
or in any title report or title search obtained by Purchaser prior to the date
hereof.
"Person" means any natural person, corporation, general partnership,
limited partnership, proprietorship, other business organization, trust, union,
association or Governmental or Regulatory Authority.
"Personal Property Leases" has the meaning ascribed to it in Section
2.01(a)(v).
"Petroleum Products" means petroleum, gasoline, oil, fuel oil, diesel fuel
and petroleum solvents.
"Plan" means any bonus, incentive compensation, deferred compensation,
pension, profit sharing, retirement, stock purchase, stock option, stock
ownership, stock appreciation rights, phantom stock, leave of absence, layoff,
vacation day, or dependent care, legal services, cafeteria, life, health,
accident, disability, workmen's compensation or other insurance, severance,
separation or other employee benefit plan, practice, policy or arrangement of
any kind, whether written or oral, including, but not limited to, any "employee
benefit plan" within the meaning of Section 3(3) of ERISA.
"Post-Closing Tax Period" means any Tax period (or portion thereof) ending
on or after the Closing Date.
"Pre-Closing Tax Period" means any Tax period (or portion thereof) ending
before the Closing Date.
"Prepaid Expenses" has the meaning ascribed to it in Section 2.01(b)(x).
<PAGE> 15
"Purchase Price" has the meaning ascribed to it in Section 2.03(a) .
"Purchaser" has the meaning ascribed to it in the forepart of this
Agreement.
"RCRA" means the Resources Conservation and Recovery Act and rules and
regulations promulgated thereunder.
"Real Property" has the meaning ascribed to it in Section 2.01(a)(i).
"Real Property Leases" has the meaning ascribed to it in Section
2.01(a)(ii).
"Release" means any release, spill, emission, leaking, pumping, injection,
deposit, disposal, discharge, dispersal, leaching or migration into the indoor
or outdoor environment.
"Representatives" has the meaning ascribed to it in Section 5.03.
"Resolution Period" means the period ending one hundred twenty (120) days
following receipt by an Indemnified Party of a written notice from an
Indemnifying Party stating that it disputes all or any portion of a claim set
forth in a Claim Notice or an Indemnity Notice.
"Retained Liabilities" has the meaning ascribed to it in Section 2.02(b).
"Retirement Plan" has the meaning ascribed to it in Section 10.06(a).
"Savings Plan" has the meaning ascribed to it in Section 10.06(b).
"Security Agreements" means any security arrangements and collateral
securing the repayment or other satisfaction of the Accounts Receivable.
"SOPs" has the meaning ascribed to it in Section 6.08.
"Tangible Personal Property" has the meaning ascribed to it in Section
2.01(a)(iv).
"Tax" means any net income, alternative or add-on minimum tax, gross
income, gross receipts, sales, use, value added, franchise, capital, paid-up
capital, profits, license, withholding, payroll, employment, excise, severance,
stamp, occupation, premium, property, environmental or windfall profit tax,
custom, duty or other tax, governmental fee or other like assessment or charge
of any kind whatsoever, together with any interest or any penalty, addition to
tax or additional amount imposed by any
<PAGE> 16
governmental authority (domestic or foreign) responsible for the imposition of
any such tax.
"Third Party Claim" has the meaning ascribed to it in Section 12.02(a).
"Third Party Consent" has the meaning ascribed to it in Section 2.06.
"Third Party Product Lot" has the meaning ascribed to it in Section
6.06(a).
"Transferred Employees" has the meaning ascribed to it in Section 10.01.
"Union" shall mean the Oil, Chemical and Atomic Workers International
Union, local 7-176.
"Vehicles" has the meaning ascribed to it in Section 2.01(a)(ix).
"WL Severance Plan" has the meaning ascribed to it in Section 10.04.
"Year 2000 Issue" means any error, omission, gap or malfunction in computer
programming, data processing or operations arising from or relating to the
inability or failure of electronic data processing equipment, microprocessors,
computer hardware, computer software, microcontrollers, media, data, microchips
embedded in computer or non-computer equipment or any other computerized or
electronic equipment or components to recognize, interpret, process or
differentiate between years in different centuries; or any other data processing
problems associated with the inability at any time to accurately process data
involving dates on or after January 1, 2000.
(b) Construction of Certain Terms and Phrases. Unless the context of this
Agreement otherwise requires, (i) words of any gender include each other gender;
(ii) words using the singular or plural number also include the plural or
singular number, respectively; (iii) the terms "hereof," "herein," "hereby" and
derivative or similar words refer to this entire Agreement; (iv) the terms
"Article" or "Section" refer to the specified Article or Section of this
Agreement; and (v) the phrase "ordinary course of business" refers to the
business of Sellers in connection with the Business. Whenever this Agreement
refers to a number of days, such number shall refer to calendar days unless
Business Days are specified. Any representation or warranty contained herein as
to the enforceability of a Contract shall be subject to the effect of any
bankruptcy, insolvency, reorganization, moratorium or other similar law
affecting the enforcement of creditors' rights generally and to general
equitable principles (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
<PAGE> 17
ARTICLE II
SALE OF ASSETS AND CLOSING
2.01 Assets. (a) Assets Transferred. On the terms and subject to the
conditions set forth in this Agreement, WL and PD shall each sell, transfer,
convey, assign and deliver to Purchaser, and Purchaser will purchase and pay
for, at the Closing, free and clear of all Liens other than Permitted Liens, all
right, title and interest in, to and under the following Assets and Properties
owned by WL and/or PD, as the case may be, but only to the extent used solely in
connection with the Business, except as otherwise provided in Section 2.01(b),
as the same shall exist on the Closing Date (collectively with any proceeds and
awards referred to in Section 2.07, the "Assets"):
(i) Real Property. The real property described in Section 2.01(a)(i) of the
Disclosure Schedule, and all of the rights arising out of the ownership thereof
or appurtenant thereto (the "Real Property"), together with all buildings,
structures, facilities, fixtures and other improvements thereto (the
"Improvements");
(ii) Real Property Leases. (A) The leases and subleases of real property
described in Section 2.01(a)(ii)(A) of the Disclosure Schedule, copies of which
shall be delivered to Purchaser at or prior to the Closing, as to which a Seller
is the lessor or sublessor and (B) the leases and subleases of real property
described in Section 2.01(a)(ii)(B) of the Disclosure Schedule, copies of which
shall be delivered to Purchaser at or prior to the Closing, as to which a Seller
is the lessee or sublessee, together with any options to purchase the underlying
property and leasehold improvements thereon as described in Section
2.01(a)(ii)(B) of the Disclosure Schedule, copies of which shall be delivered to
Purchaser at or prior to the Closing, and in each case all other rights,
subleases, licenses, permits, deposits and profits appurtenant to or related to
such leases and subleases (the leases and subleases described in subclauses (A)
and (B), the "Real Property Leases");
(iii) Inventory. All inventories of demonstration equipment, office and
other supplies, parts, packaging materials and other accessories related thereto
which are held at, or are in transit from or to, the locations at which the
Business is conducted which are used by a Seller solely in the conduct of the
Business, together with all rights of such Seller against suppliers of such
inventories (the "Inventory");
(iv) Tangible Personal Property. All furniture, fixtures, tools, dies,
molds, industrial models, equipment, machinery, all computer software and
hardware and other accessories related thereto, including any computer equipment
which operates the heating, ventilating, air conditioning and security systems
at the Facility, and other tangible personal property (other than Vehicles) used
solely in the conduct of the Business at the Facility or at any location subject
to a Real Property Lease (including, but not limited to, the items listed in
Section 2.01(a)(iv) of the Disclosure Schedule), (the "Tangible Personal
Property");
(v) Personal Property Leases. (A) The leases or subleases of Tangible
Personal Property described in Section 2.01(a)(v)(A) of the Disclosure Schedule,
copies of which shall be delivered to Purchaser at or prior to the Closing, as
to which a Seller is
<PAGE> 18
the lessor or sublessor and (B) the leases of Tangible Personal Property
described in Section 2.01(a)(v)(B) of the Disclosure Schedule, copies of which
shall be delivered to Purchaser at or prior to the Closing, as to which a Seller
is the lessee or sublessee, together with any options to purchase the underlying
property (the leases and subleases described in subclauses (A) and (B) are
referred to herein as the "Personal Property Leases");
(vi) Business Contracts. To the extent their transfer is permitted under
the terms thereof, all Contracts (other than the Real Property Leases, the
Personal Property Leases and the Collective Bargaining Agreement) to which a
Seller is a party and evidencing transactions relating solely to the conduct of
the Business, including, without limitation, Contracts relating to suppliers'
purchase orders and manufacturing arrangements for amounts individually in
excess of $25,000.00 as described in Section 2.01(a)(vi) of the Disclosure
Schedule. Copies of the Contracts described in Section 2.01(a)(vi) of the
Disclosure Schedule shall be delivered to Purchaser at or prior to Closing (the
"Business Contracts");
(vii) Intangible Personal Property. All Intellectual Property used solely
in the conduct of the Business (including WL's and/or PD's, as the case may be,
goodwill therein, as the case may be) and all other rights, privileges, claims,
causes of action and options relating or pertaining solely to the Business or
the Assets (the "Intangible Personal Property");
(viii) Licenses. To the extent their transfer is permitted under the terms
thereof or under applicable Laws, all Licenses utilized solely in the conduct of
the Business, including, but not limited to, the Licenses listed in Section
2.01(a)(viii) of the Disclosure Schedule (the "Business Licenses"). Copies of
such listed Licenses shall be delivered to Purchaser on or prior to the Closing
Date;
(ix) Vehicles. All motor vehicles owned by a Seller and used solely in the
conduct of the Business, as listed in Section 2.01(a)(ix) of the Disclosure
Schedule, copies of which shall be delivered to Purchaser at or prior to the
Closing, (the "Vehicles");
(x) Books and Records. Except as set forth in Section 5.07(a), all Books
and Records used solely in the conduct of the Business or otherwise relating
solely to the Assets, other than the minute books, stock transfer books and
corporate seal of a Seller, which relate to the conduct of such Business or
Assets for the period beginning January 1, 1993 and with respect to those books
and records which are material to the operation of the Business or the Assets,
and to the extent necessary to the conduct of the Business, any additional Books
and Records requested by Purchaser (the "Business Books and Records"). To the
extent any of the Business Books and Records are items susceptible to
duplication and are either (x) used in connection with any of WL's or PD's
businesses other than the Business or (y) are required by Law to be retained by
WL or
<PAGE> 19
PD, as the case may be, WL and/or PD, as the case may be, may deliver
photostatic copies or other reproductions from which, in the case of Business
Books and Records referred to in clause (x), information solely concerning WL's
or PD's, as the case may be, businesses other than the Business, has been
deleted;
(xi) Litigation Claims. Any rights (including indemnification rights),
claims and recoveries under litigation against third parties arising out of or
relating to events occurring after the Closing Date; and
(xii) Goodwill. All goodwill associated with the Business other than
goodwill associated with any trademark, trade name, service mark, service name,
slogan or logo which was (A) used by Sellers prior to the date hereof and (B)
not transferred to Purchaser pursuant to this Agreement or the Operative
Agreements.
(b) Excluded Assets. Notwithstanding anything in this Agreement to the
contrary, the following Assets and Properties of WL and/or PD, as the case may
be (the "Excluded Assets") shall be excluded from and shall not constitute
Assets:
(i) Cash. Cash, commercial paper, certificates of deposit and other bank
deposits, treasury bills and other cash equivalents, except for the Landlord
Security Deposits pursuant to Section 5.07 of this Agreement;
(ii) Insurance. Life insurance policies of officers and other employees of
WL and PD and all other insurance policies relating to the operation of the
Business;
(iii) Employee Benefit Plans. All assets owned or held by any Benefit
Plans;
(iv) Tax Refunds. All refunds or credits, if any, of Taxes due to or from
WL or PD, as the case may be, which cannot be assigned by Law;
(v) Real and Personal Property.Any real or personal property that is not
described in Sections 2.01(a)(i), (iv), (vii) or (ix);
(vi) Corporate Records. The minute books, stock transfer books and
corporate seal of WL and/or PD;
(vii) Litigation Claims. Any rights (including indemnification), claims and
recoveries under litigation of WL and/or PD, as the case may be, against third
parties arising out of or relating to events occurring prior to the Closing
Date;
(viii) Excluded Obligations. The obligations of WL and/or PD, as the case
may be, in, to and under all Contracts of any nature, which are not assumed by
Purchaser pursuant to Section 2.02(b);
<PAGE> 20
(ix) Accounts Receivable. All trade accounts receivable and all notes,
bonds and other evidences of Indebtedness of and rights to receive payments
arising out of sales occurring in the conduct of the Business prior to the
Closing Date and the Security Agreements related thereto, including any rights
of a Seller with respect to any third party collection procedures or any other
Actions or Proceedings which have been commenced in connection therewith (the
"Accounts Receivable");
(x) Prepaid Expenses. All prepaid expenses relating to the Business,
including, but not limited to, the items listed in Section 2.01(b)(x) of the
Disclosure Schedule (the "Prepaid Expenses"); and
(xi) WL's and PD's rights under this Agreement.
2.02 Liabilities. (a) Assumed Liabilities. In connection with the sale,
transfer, conveyance, assignment and delivery of the Assets pursuant to this
Agreement, on the terms and subject to the conditions set forth in this
Agreement, at the Closing, Purchaser will assume and agree to pay, perform and
discharge when due only the following obligations of WL or PD, as the case may
be, arising solely in connection with the operation of the Business, as the same
shall exist on the Closing Date together with all rights, claims and defenses of
Seller (and the right to assert such rights, claims and defenses) in, to and
against such obligations (the "Assumed Liabilities"), and no others:
(i) Real Property Lease Obligations. All obligations of WL or PD, as the
case may be, under the Real Property Leases arising or to be performed on or
after the Closing Date, and excluding any such obligations arising or to be
performed prior to the Closing Date;
(ii) Personal Property Lease Obligations. All obligations of WL or PD, as
the case may be, under the Personal Property Leases arising or to be performed
on or after the Closing Date, and excluding any such obligations arising or to
be performed prior to the Closing Date;
(iii) Obligations under Contracts and Licenses. All obligations of WL or
PD, as the case may be, under the Business Contracts and Business Licenses
arising or to be performed on or after the Closing Date, and excluding any such
obligations arising and to be performed prior to the Closing Date;
(iv) Permitted Liens. All Permitted Liens attaching to or otherwise
covering the Assets.
(v) Consent Decree. Obligations under the Consent Decree to the extent set
forth in Section 6.09.
<PAGE> 21
(vi) Establishment License. Obligations with respect to the Establishment
License to the extent set forth in Section 6.11.
(b) Retained Liabilities. Except for the Assumed Liabilities, Purchaser
shall not assume by virtue of this Agreement or the transactions contemplated
hereby, and shall have no liability for, any Liabilities of WL or PD, as the
case may be, of any kind, character or description whatsoever (the "Retained
Liabilities"). WL or PD, as the case may be, shall discharge in a timely manner
or shall make adequate provision for all of the Retained Liabilities, provided
that WL or PD, as the case may be, shall have the ability to contest, in good
faith, any such claim of liability asserted in respect thereof by any Person
other than Purchaser and its Affiliates. Without limiting the foregoing, the
Purchaser shall not at the Closing, assume or agree to perform, pay or
discharge, and the Sellers shall remain unconditionally liable for, all
obligations, liabilities and commitments, fixed or contingent, of the Sellers
other than the Assumed Liabilities, including but not limited to: (i) any Union
contract (including, without limitation, the Collective Bargaining Agreement);
(ii) post-retirement benefits owing under any severance policy, union contract
(including, without limitation, the Collective Bargaining Agreement) or
employment agreement to any employees (union or non-union), sales agents,
distributors or independent contractors employed by the Sellers prior to the
Closing, liabilities for any Benefit Plan including but not limited to any
obligations under ERISA or under COBRA; (iii) liabilities for any federal,
state, local or foreign income taxes (including interest, penalties and
additions to such taxes), any deferred income taxes or any single business taxes
owed by or asserted against the Sellers; (iv) liabilities incurred in connection
with violations of occupational safety, wage, health, welfare, employee benefit
laws or regulations or Environmental Laws, which violations occurred prior to
the Closing; (v) any other Liens or liabilities of Sellers of any kind or nature
that are not expressly assumed by the Purchaser under Section 2.02 hereof; and
(vi) deferred expenses.
2.03 Purchase Price; Allocation. (a) Purchase Price. The aggregate purchase
price for the Assets is Seventy-Seven Million Dollars ($77,000,000.00) (the
"Purchase Price").
(b) Allocation of Purchase Price. The Purchase Price shall be allocated
among the Assets in accordance with Section 2.03(b) of the Disclosure Schedule.
Each party hereto agrees (i) that any such allocation shall be consistent with
the requirements of Section 1060 of the Code and the regulations thereunder,
(ii) if required, to complete and to file Form 8594 with its federal income tax
return consistent with such allocation for the tax year in which the Closing
Date occurs and (iii) that it will not and will cause its Affiliates not to take
a position on any income, transfer or gains Tax return, before any Governmental
or Regulatory Authority charged with the collection of any such Tax or in any
judicial proceeding, that is in any manner inconsistent with the terms of any
such allocation, without the consent of the other party.
<PAGE> 22
2.04 Closing. The Closing will take place at the Facility or at such other
place as the parties mutually agree, at 10:00 A.M. local time, on the Closing
Date. At the Closing, Purchaser will pay the Purchase Price by wire transfer of
immediately available funds to such accounts as WL may reasonably direct by
written notice delivered to Purchaser by WL at least two (2) Business Days
before the Closing Date. Simultaneously, (a) each Seller will assign and
transfer to Purchaser good and valid title in and to such Seller's Assets (free
and clear of all Liens, other than Permitted Liens) by delivery of, if
applicable, (i) a General Assignment, Assumption and Irrevocable Bill of Sale
substantially in the form of Exhibit A hereto (the "General Assignment and
Assumption"), duly executed by such Seller, (ii) general warranty deeds in
proper statutory form for recording and otherwise in form and substance
reasonably satisfactory to Purchaser conveying title to the Real Property and
(iii) such other good and sufficient instruments of conveyance, assignment and
transfer, in form and substance reasonably acceptable to Purchaser's counsel, as
shall be effective to vest in Purchaser good and valid title to the Assets (the
General Assignment and Assumption and the other instruments referred to in
clauses (ii) and (iii) being collectively referred to herein as the "Assignment
Instruments"), and (b) Purchaser will assume from each Seller the due payment,
performance and discharge of the Assumed Liabilities assumed from such Seller,
by delivery of (i) the General Assignment and Assumption duly executed by
Purchaser, and (ii) such other good and sufficient instruments of assumption, in
form and substance reasonably acceptable to such Seller's counsel, as shall be
effective to cause Purchaser to assume the Assumed Liabilities as and to the
extent provided in Section 2.02(a) (the General Assignment and Assumption and
such other instruments collectively referred to herein as the "Assumption
Instruments"). At the Closing, there shall also be delivered to each Seller and
Purchaser the opinions, certificates and other Contracts, documents and
instruments required to be delivered under Articles VII and VIII.
2.05 Further Assurances; Post-Closing Cooperation. (a) Subject to the terms
and conditions of this Agreement, at any time or from time to time after the
Closing, at Purchaser's request, WL and PD, as the case may be, shall execute
and deliver to Purchaser such other instruments of sale, transfer, conveyance,
assignment and confirmation, provide such materials and information and take
such other actions as shall be necessary in order more effectively to transfer,
convey and assign to Purchaser, and to confirm Purchaser's title to, all of the
Assets being sold by such party hereunder, and, to the full extent permitted by
Law, to put Purchaser in actual possession and operating control of the Business
and the Assets and to assist Purchaser in exercising all rights with respect
thereto, and otherwise to cause WL or PD, as the case may be, to fulfill its
respective obligations under this Agreement and the Operative Agreements.
(b) Following the Closing, each party will afford each other party, its
counsel and its accountants, during normal business hours, reasonable access to
the books, records and other data relating to the Business in its possession and
the right to make copies and extracts therefrom, to the extent that such access
may be reasonably required by the requesting party in connection with (i) the
preparation of Tax returns, (ii)
<PAGE> 23
the determination or enforcement of rights and obligations under this Agreement
or the Operative Agreements, (iii) compliance with the requirements of any
Governmental or Regulatory Authority, (iv) the determination or enforcement of
the rights and obligations of any Indemnified Party or any Indemnifying Party,
(v) in connection with any actual or threatened Action or Proceeding or (vi) the
operation by Purchaser of the Business, but only with respect to Books and
Records in Sellers' possession, which were necessary for Sellers to operate the
Business prior to the Closing Date, were so used by Sellers and after the
Closing Date remain necessary for Purchaser to operate the Business. Further,
each party agrees for a period extending six (6) years after the Closing Date
not to destroy or otherwise dispose of any such books, records and other data
unless such party shall first offer in writing to surrender such books, records
and other data to the other party and such other party shall not agree in
writing to take possession thereof during the ten (10) day period after such
offer is made.
(c) If, in order properly to prepare its Tax returns, other documents or
reports required to be filed with Governmental or Regulatory Authorities or its
financial statements or to fulfill its obligations hereunder, it is necessary
that a party be furnished with additional information, documents or records
relating to the Business not referred to in paragraph (b) above, and such
information, documents or records are in the possession or control of any other
party, such other party shall use its best efforts to furnish or make available
such information, documents or records (or copies thereof) at the recipient's
request, cost and expense. Any information obtained by such party in accordance
with this paragraph shall be held confidential by such party in accordance with
Section 14.06.
(d) Notwithstanding anything to the contrary contained in this Section, if
the parties are in an adversarial relationship in litigation or arbitration, the
furnishing of information, documents or records in accordance with paragraphs
(b) and (c) of this Section shall be subject to applicable rules relating to
discovery if such information, documents or records relate, directly or
indirectly, to the subject matter of such litigation or arbitration, or could in
any manner assist or be beneficial to the requesting party in such litigation or
arbitration.
2.06 Third Party Consents. To the extent that any Real Property Lease,
Personal Property Lease, Business Contract or Business License is not assignable
without the consent of another party (a "Third Party Consent"), this Agreement
shall not constitute an assignment or an attempted assignment thereof if such
assignment or attempted assignment would constitute a breach thereof. WL or PD,
as the case may be, and Purchaser shall use commercially reasonable efforts to
obtain the consent of such other party to the assignment of any such Real
Property Lease, Personal Property Lease, Business Contract or Business License
to Purchaser in all cases in which such consent is or may be required for such
assignment. If any such Third Party Consent shall not be obtained, WL or PD, as
the case may be, shall cooperate with Purchaser in any reasonable arrangement
designed to provide for Purchaser the benefits intended to be assigned to
Purchaser under the relevant Real Property Lease, Personal Property Lease,
Business Contract or Business License, including, but not limited to,
enforcement at the cost of Sellers and for the account of Purchaser of any and
all rights of WL or PD, as the
<PAGE> 24
case may be, against the other party thereto arising out of the breach or
cancellation thereof by such other party or otherwise. If and to the extent that
such arrangement cannot be made, Purchaser shall have no obligation pursuant to
Section 2.02 or otherwise with respect to any such Real Property Lease, Personal
Property Lease, Business Contract or Business License. If the commercially
reasonable efforts of a Seller, required by this Section 2.06, have failed to
secure any Third Party Consent, and if, in the opinion of Purchaser, the absence
of a Third Party Consent has deprived Purchaser of a material benefit of its
bargain hereunder or under the Operative Agreements, and if Seller and Purchaser
have been unable to agree upon an arrangement designed to provide for Purchaser
the benefits intended to be assigned to it, then the parties agree to negotiate
in good faith an offset to the Purchase Price paid by Purchaser hereunder for
that part of the benefit the parties mutually agree Purchaser has lost. Nothing
in this Section 2.06 shall be deemed to waive the rights of the Purchaser not to
consummate the transactions contemplated by this Agreement or the Operative
Agreements if the condition to its obligations hereunder contained in Section
7.06 have not been fulfilled.
2.07 Insurance Proceeds. If any of the Assets are destroyed or damaged or
taken in condemnation between the date hereof and the Closing Date, the
insurance proceeds or condemnation award with respect thereto shall be an Asset.
At the Closing, WL or PD, as the case may be, shall pay or credit to Purchaser
any such insurance proceeds or condemnation awards received by it on or prior to
the Closing and shall assign to or assert for the benefit of Purchaser, all of
its rights against any insurance companies, Governmental or Regulatory
Authorities and others with respect to such damage, destruction or condemnation.
Nothing in this Section 2.07 shall be deemed to waive the right of the Purchaser
not to consummate the transactions contemplated by this Agreement or the
Operative Agreements if the condition to its obligations hereunder contained in
Section 7.01 have not been fulfilled.
2.08 Year 2000. Purchaser acknowledges and accepts that neither Seller will
have any liability with respect to periods prior to the Closing Date or after
the Closing Date related to any Year 2000 Issue which may affect the Assets, as
a result of the action or inaction of either Seller or any Person. Purchaser
will be responsible for addressing the Year 2000 Issue with respect to the
Business, the Assets and the Facility.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS
Except as otherwise specifically set forth in this Article III, each Seller
hereby represents and warrants to Purchaser as follows:
3.01 Corporate Existence. Such Seller is a corporation duly incorporated,
validly existing and in good standing under the Laws of its respective
jurisdiction of incorporation, and has full corporate power and authority to
conduct its business at the Facility as and to the extent now conducted and to
own, use and lease those Assets currently owned, used and leased by it. The
Sellers are duly qualified to do
<PAGE> 25
business and are in good standing in all jurisdictions in which the failure to
be so qualified could reasonably be expected to have a material adverse effect
upon the Condition of the Seller's Business.
3.02 Authority. Such Seller has full corporate power and authority to
execute and deliver this Agreement and the Operative Agreements to which it is a
party, to perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby, including, without limitation, to
sell and transfer (pursuant to this Agreement) Assets currently owned, used or
leased by it. The execution and delivery by such Seller of this Agreement and
the Operative Agreements to which it is a party have been duly and validly
authorized by the Board of Directors of such Seller and no other corporate
action on the part of such Seller or its stockholders shall be necessary for
such performance. This Agreement has been duly and validly executed and
delivered by such Seller, and constitutes, and upon the execution and delivery
by such Seller of the Operative Agreements to which it is a party, such
Operative Agreements will constitute, legal, valid and binding obligations of
such Seller, enforceable against such Seller, in accordance with their terms.
3.03 No Conflicts. The execution and delivery by such Seller of this
Agreement does not, and the execution and delivery by such Seller of the
Operative Agreements to which it is a party, the performance by it of its
obligations under this Agreement and such Operative Agreements and the
consummation of the transactions contemplated hereby and thereby will not:
(a) conflict with or result in a violation or breach of any of the terms,
conditions or provisions of the articles of incorporation or by-laws of such
Seller;
(b) to the knowledge of Sellers, subject to obtaining the consents,
approvals and actions, making the filings and giving the notices disclosed in
Section 3.03 of the Disclosure Schedule or as required by the Consent Decree,
with respect to such Seller, conflict with or result in a violation or breach of
any term or provision of any Law or Order applicable to such Seller or any of
the Assets; or
(c) to the knowledge of Sellers, except as disclosed in Section 3.03 of the
Disclosure Schedule with respect to such Seller, (i) conflict with or result in
a violation or breach or default of, (ii) require such Seller to obtain any
consent, approval or action of, make any filing with or give any notice to any
Person as a result or under the terms of, or (iii) result in the creation or
imposition of any Lien other than Permitted Liens upon such Seller or any of the
Assets under, any Contract or License to which such Seller is a party or by
which any of the Assets is bound.
3.04 Governmental Approvals and Filings. Except as disclosed in Section
3.04 of the Disclosure Schedule, or as required by the Consent Decree, to the
knowledge of Sellers, no consent, approval or action of, filing with or notice
to any Governmental or Regulatory Authority is required in connection with the
execution, delivery and performance of this Agreement or any of the Operative
Agreements or the
<PAGE> 26
consummation of the transactions contemplated hereby or thereby, except those as
would be required solely as a result of the identity or the legal or regulatory
status of Purchaser or any of its Affiliates or which would be required to be
obtained by Purchaser in order to operate the Business or Facility.
3.05 Profit and Loss Statements. (a) Sellers have provided the Purchaser
with true and complete copies of the unaudited profit and loss statements for
the Business for the fiscal years ending December 31, 1993, 1994, 1995, 1996 and
1997; and (b) since December 31, 1997 there has not been any material adverse
change in the Condition of the Seller's Business except as disclosed in this
Agreement or the Disclosure Schedule. Such profit and loss statements were
prepared in accordance with generally accepted accounting principles
consistently maintained and applied on a basis consistent with prior practice
and are accurate and complete and fairly present, as of their respective dates,
the results of operations of the Business for the periods indicated.
3.06 Taxes. Sellers have timely paid all Taxes and all interest and
penalties due thereon and payable by them for the Pre-Closing Tax Period which
will have been required to be paid on or prior to the Closing Date, the
non-payment of which would result in a Lien on any Asset or would otherwise
adversely affect the Business or would result in Purchaser becoming liable or
responsible therefor.
3.07 Legal Proceedings. Except as disclosed in Section 3.07 of the
Disclosure Schedule with respect to such Seller (with paragraph references
corresponding to those set forth below) and except for the Consent Decree:
(a) there are no Actions or Proceedings pending or, to the knowledge of
such Seller threatened against, relating to or affecting such Seller with
respect to the Business or any of the Assets;
(b) except as disclosed in Section 3.07(b) of the Disclosure Schedule with
respect to such Seller, there are no Orders outstanding against such Seller,
relating to or affecting such Seller with respect to the Business or any of the
Assets; and
(c) to the knowledge of Sellers, there are no facts or circumstances which
could reasonably be anticipated to result in any such claims, demands,
litigation, action, suit, inquiry, investigation, arbitration or other
proceeding related to any of the Assets or the Properties which could
financially impair Purchaser or its Affiliates in their maintenance, use or
enjoyment of any of their rights, title, or interests in and to the Assets as
contemplated under this Agreement or any of the Operative Agreements.
3.08 Compliance With Laws and Orders. The Sellers have all requisite,
Licenses, registrations, permits and certificates from federal, state and local
authorities necessary to conduct the Business and to own and operate the Assets
(collectively, the "Permits"). Section 3.08 of the Disclosure Schedule lists all
such Permits (including any pending new Permits or Permits for which the Sellers
are seeking renewal) copies of which shall be delivered to Purchaser at or prior
to the Closing. To the knowledge of
<PAGE> 27
Sellers, they have not engaged in any activity which would cause or permit
revocation or suspension of any such Permit and no action or proceeding seeking
or contemplating the revocation or suspension of any such Permit is pending or,
to the knowledge of the Sellers, threatened. To the knowledge of Sellers, there
are no existing defaults or events or states of fact which with notice or lapse
of time or both would constitute a default by the Sellers under any Permit. The
Sellers have no knowledge of any default or alleged default or state of facts
which with notice or lapse of time or both would constitute a default in the
performance of any obligation to be performed by them under any Permit. Except
as set forth on Section 3.08 of the Disclosure Schedule, the consummation of the
transactions contemplated by this Agreement or the Operative Agreements will in
no way affect the continuation, validity or effectiveness of the Permits or
require the consent of any third party under any such Permit. The Sellers are
not in violation of any Law (including, without limitation, any Environmental
Law), Order, rule, regulation or ordinance relating to the Real Property. The
Business does not violate in any material respect any federal, state or local
laws, regulations or orders. Except as set forth in Section 3.08 of the
Disclosure Schedule, the Sellers have not received any notice or communication
from any federal, state or local governmental or regulatory authority or
otherwise, of any such violation or noncompliance that has not been cured.
3.09 Employee Benefit Plans.
(a) Section 3.09 of the Disclosure Schedules lists (i) all employee benefit
plans (as defined in Section 3(3) of ERISA) and all bonus, stock option, stock
purchase, restricted stock, incentive, deferred compensation, retiree medical or
life insurance, supplemental retirement, severance or other benefit plans,
programs or arrangements, and all employment, termination, severance or other
Contracts or agreements applicable to the Employees to which either Seller is a
party or with respect to which either Seller has any obligation in connection
with the Employees; (ii) each employee benefit plan applicable to the Employees
for which either Seller could incur liability under Title IV of ERISA in the
event such plan has been or were to be terminated and (iii) any "multiemployer
plan" within the meaning of Section 4001(a)(3) of ERISA applicable to the
Employees in respect of which either Seller could incur liability.
(b) Each of the Plans described in Section 3.09(a) is in compliance with
ERISA and the Code except for such failures to comply which, individually or in
the aggregate, could not reasonably be expected to be materially adverse to the
Condition of the Seller's Business.
(c) All contributions and other payments required to be made by Sellers to
any Plan described in Section 3.09(a) with respect to any period ending before
the Closing Date have been timely made or reserves adequate for such
contributions or other payments have been or will be set aside therefor.
(d) To the knowledge of Sellers, no transaction contemplated by this
Agreement or any of the Operative Agreements will result in liability under
Title IV of
<PAGE> 28
ERISA, or otherwise, with respect to Purchaser or any corporation or
organization controlled by or under common control with Purchaser within the
meaning of Section 4001 of ERISA, except which, individually or in the
aggregate, could not be financially adverse to the condition of the Seller's
Business.
(e) Sellers have delivered to Purchaser prior to the date hereof true and
complete copies of each of the Plans described in Section 3.09(a).
(f) Except as disclosed in Section 3.09(f) of the Disclosure Schedule, none
of the Plans described in Section 3.09(a) is a "multiemployer plan" within the
meaning of Section 4001(a) (3) of ERISA.
(g) Except as disclosed in Section 3.09(g) of the Disclosure Schedule or as
may result from effects bargaining with the Union, the consummation of the
transactions contemplated in this Agreement or the Operative Agreements will not
result in an increase in the amount of compensation or benefits or accelerate
the vesting or timing of payment of any benefits or compensation payable in
respect of any Employee. Sellers shall be responsible for any obligations to the
Union or any Union Employees, embodied in any agreement arising between Sellers
and the Union resulting from such effects bargaining.
(h) Each Plan to which the group health plan continuation coverage
requirements set forth in Part 6 of Subtitle I of ERISA and Section 4980B(f) of
the Code are applicable has been operated in material compliance with such
requirements except for such failures to comply which, individually or in the
aggregate, could not reasonably be expected to be materially adverse to the
Condition of the Seller's Business.
(i) None of the Employees has informed WL's human resources department of
his or her intention to terminate his or her employment upon the consummation of
the transactions contemplated by this Agreement, except for retirements in the
normal course of business.
3.10 Employees. Section 3.10 of the Disclosure Schedule sets forth the
following information for each of the Employees: employee name and job title;
annual rate of compensation as of the date of such Schedule (identifying bonuses
separately); and vacation days provided each year and service credited for
purposes of vesting and eligibility to participate in the Plans.
3.11 Labor Relations. (a) Section 3.11 of the Disclosure Schedule sets
forth each collective bargaining agreement which covers Employees of the
Business (a "Collective Bargaining Agreement"). Except as set forth in Section
3.11 of the Disclosure Schedule or as may arise as a result of effects
bargaining between Sellers and the Union, to the knowledge of Sellers, (i) there
is no union organization activity currently underway at the Facility, (ii)
Sellers are not engaged in, or have not received any written notice during the
current or preceding year of any unfair labor practice, and no such complaint is
pending before the National Labor Relations Board or any other
<PAGE> 29
agency having jurisdiction thereof, (iii) during the immediately preceding
twelve (12) calendar months there has not been any, and, there is no threatened,
labor strike, work stoppage or slowdown by the Union pending against Sellers (to
the extent relating to the Business), and there is no pending lockout by Sellers
(to the extent relating to the Business), (iv) there is no material labor
grievance or arbitration proceedings arising out of or under the Collective
Bargaining Agreement pending or threatened against or affecting the Sellers as
to the Business and (v) there is no pending litigation or other proceeding
against the Sellers as to the Business (with the exception of potential Union
claims as may arise as a result of effects bargaining between Sellers and the
Union) by any employee or group of employees which is based on claims arising
out of any employee's or group of employees' employment relationship with the
Sellers, including, but not limited to, claims for contract, tort,
discrimination, employee benefits, wrongful termination or other claims based on
common law or statutory rights. Sellers have satisfied and performed in all
material respects theirobligations under each Collective Bargaining Agreement
under all applicable federal laws, and under any order, conciliation Contract or
settlement Contract by which either Seller (to the extent relating to the
Business) is bound or to which either Seller (to the extent relating to the
Business) is subject concerning employment related matters (with the exception
of potential Union claims which may arise as a result of effects bargaining
between Sellers and the Union).
(b) The Sellers have deducted and remitted to the relevant Governmental or
Regulatory Authority on a timely basis and in compliance with all applicable
laws and regulations, all income taxes, unemployment insurance contributions,
workers' compensation premiums and contributions and all taxes or other amounts
which they are required by statute to deduct and remit to any Governmental or
Regulatory Authority in connection with any of the Sellers' Employees at the
Business.
3.12 Real Property.
(a) Section 2.01(a)(i) of the Disclosure Schedule contains a true and
correct list of each parcel of the Real Property and Section 2.01(a)(ii)(A) and
(B) of the Disclosure Schedule contains a true and correct list of each parcel
of real property leased by either Seller (as lessor or lessee) and used in
connection with the Business.
(b) Except as disclosed in Section 3.12(b) of the Disclosure Schedule, WL
and/or PD has good and marketable fee simple title to the Real Property, free
and clear of all Liens other than Permitted Liens. Except for the Real Property
subject to Real Property Leases described in Section 2.01(a)(ii)(A) of the
Disclosure Schedule, PD and/or WL is in possession of the Real Property.
(c) PD and/or WL has a valid and subsisting leasehold estate in and the
right to quiet enjoyment of the real properties subject to the Real Property
Leases described in Section 2.01(a)(ii)(B) of the Disclosure Schedule for the
full term thereof. To the knowledge of Sellers each Real Property Lease is a
legal, valid and binding agreement of PD or WL, enforceable in accordance with
its terms and, except as set forth
<PAGE> 30
in Section 3.12(c) of the Disclosure Schedule, to the knowledge of PD and WL,
there is no default (or any condition or event which, after notice or lapse of
time or both, would constitute a default) thereunder.
(d) Sellers have delivered or caused to be delivered to Purchaser prior to
the execution of this Agreement or shall deliver to Purchaser on or prior to the
Closing Date true and complete copies of the following documents in its
possession, all deeds, leases, current mortgages, deeds of trust, current
certificates of occupancy, and similar documents, and all amendments thereof,
with respect to the Real Property, unless required to be attached to or included
in one or more sections of the Disclosure Schedule.
(e) Except as disclosed in Section 3.12(e) of the Disclosure Schedule, the
Improvements and every element thereof and system comprising the Improvements,
including, but not limited to, electrical, plumbing, roofing, support, flooring,
foundation, sewer/septic, mechanical, heating/cooling, ventilating, water
systems, communications wiring, elevators and the like are in all material
respects in good operating condition and in a state of good maintenance and
repair, ordinary wear and tear excepted, to enable the Purchaser to conduct the
Business in the same manner as presently conducted by the Sellers and there are
no condemnation or appropriation proceedings pending or, to the knowledge of
Sellers, threatened against any of the Real Property or the Improvements. With
respect to item 3 of Section 3.12(e) of the Disclosure Schedule, WL will perform
prior to the Closing Date or will reimburse Purchaser for reasonable, necessary
out-of-pocket costs incurred by Purchaser to perform after the Closing Date the
repairs to the foundation of the powerhouse and related utilities as more
specifically described in Section 3.12 of the Disclosure Schedule.
(f) Except as described in Section 3.12(f) of the Disclosure Schedule, to
the knowledge of the Sellers, no work has been performed on or materials
supplied to the Real Property which could give rise to mechanics or
materialmen's liens, all bills and claims for labor performed and materials
furnished to or for the benefit of the Real Property for all periods prior to
the Closing shall be paid in full, and the Sellers have no knowledge of any
mechanic's or materialmen's liens, whether or not perfected, on or affecting any
portion of the Real Property.
(g) The Real Property and to Sellers' knowledge, the real property subject
to the Real Property Lease, is in compliance with applicable building and zoning
Laws.
3.13 Tangible Personal Property. Sellers are in possession of and have good
title to, or have valid leasehold interests in or valid rights under Contract to
use, all the Tangible Personal Property. Except as disclosed in Section 3.13 of
the Disclosure Schedule, all the Tangible Personal Property owned by or leased
to either Seller is free and clear of all Liens, other than Permitted Liens and
is in all material respects in good
<PAGE> 31
working order and condition, ordinary wear and tear excepted, to enable the
Purchaser to conduct the Business in the same manner as presently conducted by
the Sellers.
3.14 Intellectual Property Rights. (a) The Sellers have all right, title
and interest in, or a valid and binding right under Contract to use, the
Intellectual Property used solely in the conduct of the Business. Except as
disclosed in Section 3.14 of the Disclosure Schedule, (i) all registrations with
and applications to Governmental or Regulatory Authorities in respect of
Intellectual Property are valid and in full force and effect and (ii) to the
knowledge of the Sellers, they are not, nor have they received any notice that,
either Seller is in default in any material respect under any Contract to use
such Intellectual Property. Neither Seller has received notice that it is
infringing any Intellectual Property of any other Person in connection with the
conduct of the Business, to the knowledge of either Seller, no claim is pending
or has been made to such effect that has not been resolved and, to the knowledge
of either Seller, it is not infringing any Intellectual Property of any other
Person. Sellers have not granted to any Person any licenses, sublicenses or
other rights under any Intellectual Property;
(b) Sellers have not prepared or caused to be prepared any intent to use
applications with respect to any trademark, trademark right, service mark,
service mark right, service name or service name right included within the
Intellectual Property described in Section 2.01(a)(vii).
3.15 Contracts. (a) With respect to the Business Contracts described in
Section 2.01(a)(vi), Section 3.15(a) of the Disclosure Schedule contains a true
and complete list of each of the following Business Contracts (true and complete
copies or, if none exist, reasonably complete and accurate written descriptions
of which, together with all amendments and supplements thereto, will be
delivered to Purchaser at or prior to Closing) to which either Seller is a party
or by which any of the Assets is bound which in any case involve the payment,
pursuant to the terms of any such Business Contract, by or to such Seller of
more than $25,000.00 annually:
(i) all Business Contracts (excluding Benefit Plans) providing for a
commitment of employment or consultation services for a specified or unspecified
term to, or otherwise relating to employment or the termination of employment
of, any Employee, the name, position and rate of compensation of each Employee
party to such a Business Contract and the expiration date of each such Business
Contract;
(ii) all Business Contracts with any Person containing any provision
or covenant prohibiting or materially limiting the ability of either Seller to
engage in any business activity or compete with any Person in connection with
the Business or prohibiting or materially limiting the ability of any Person to
compete with either Seller in connection with the Business;
(iii) all material partnership, joint venture, shareholders' or other
similar Business Contracts with any Person in connection with the Business;
<PAGE> 32
(iv) all Business Contracts with distributors, dealers, manufacturers'
representatives, sales representatives, sales agencies, suppliers, wholesalers,
customers or any other Person or franchises with whom either Seller deals in
connection with the Business;
(v) all Business Contracts relating to the future disposition or
acquisition of any Assets, other than dispositions or acquisitions of Inventory
in the ordinary course of business;
(vi) all collective bargaining Contracts covering any Employee; and
(vii) all other Business Contracts (other than Benefit Plans, the Real
Property Leases and insurance policies listed in Section 3.18 of the Disclosure
Schedule) with respect to the Business that involve the payment or potential
payment, pursuant to the terms of any such Contract, by or to Sellers of more
than $25,000.00;
(b) With respect to each Business Contract required to be disclosed in
Section 3.15(a) of the Disclosure Schedule, and except as disclosed in Section
3.15(b) of the Disclosure Schedule:
(i) To the knowledge of Sellers, each Business Contract is a valid and
binding agreement, enforceable in accordance with its terms except as such
enforceability may be limited by (a) order of a court of competent jurisdiction
and, to Sellers' knowledge, no such order has been entered into, (b) bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally, and (c) principles of equity (whether considered in a proceeding at
law or in equity) and Sellers' have no knowledge that any Contract is not a
valid and binding agreement of the other parties thereto;
(ii) All material obligations required pursuant to the Business
Contracts to have been performed by Sellers prior to the date hereof have been
fulfilled, and Sellers have no reason to believe that they will not be able to
fulfill, when due, all of their obligations under the Business Contracts which
remain to be performed after the date hereof to the Closing Date;
(iii) To the knowledge of Sellers, neither Seller is in breach of or
default under any Business Contract, and no event has occurred which with the
passage of time or giving of notice or both would constitute such a default,
result in a loss of rights or result in the creation of any lien, charge or
encumbrance, thereunder or pursuant thereto;
(iv) To the knowledge of Sellers, there is no existing breach or
default by any other party to any Business Contract and, to Sellers' knowledge,
no event has occurred which with the passage of time or giving notice of or both
would constitute
<PAGE> 33
a default by such other party, result in a loss of rights or result in the
creation of any lien, charge or encumbrance, thereunder or pursuant thereto; and
(v) Except as set forth in Section 3.15(b) of the Disclosure Schedule,
all such Business Contracts are assignable to the Purchaser without a consent.
3.16 Licenses. (a) To Sellers' knowledge, Section 2.01(a)(viii) of the
Disclosure Schedule contains a true and complete list of all Business Licenses,
copies of which shall be delivered to Purchaser at or prior to the Closing,
setting forth the grantor, the grantee, the function and the expiration and
renewal date of each. Except as disclosed in Section 3.16(a) of the Disclosure
Schedule, to Sellers' knowledge, neither Seller is in default (or with the
giving of notice or lapse of time or both, would be in default) under any
Business License in any material respect.
3.17 Inventory. On the Closing Date, all the Inventory conveyed pursuant to
Section 2.01(a)(iii) of this Agreement will be in good and usable condition.
Sellers represent and warrant that they have used reasonable commercial efforts
to keep such Inventory at levels which do not exceed those normally experienced
by the Sellers during the twelve (12) month period prior to the date of this
Agreement.
3.18 Insurance. Section 3.18 of the Disclosure Schedule contains a true and
complete list of all insurance policies currently in effect that insure the
Business, the Employees or the Assets. Each such insurance policy is valid and
binding and in full force and effect, no premiums due thereunder have not been
paid and neither Seller has received any notice of cancellation or termination
in respect of any such policy or is in default thereunder in any material
respect.
3.19 Affiliate Transactions. Except as disclosed in Section 3.19 of the
Disclosure Schedule with respect to such Seller, (i) no officer, director or
Affiliate of such Seller, provides or causes to be provided any assets, services
or facilities used in connection with the Business, and (ii) the Business does
not provide or cause to be provided any assets, services or facilities to any
such officer, director or Affiliate. Except as disclosed in Section 3.19 of the
Disclosure Schedule with respect to such Seller, each of the transactions listed
in Section 3.19 of the Disclosure Schedule with respect to such Seller is
engaged in on an arm's-length basis.
3.20 Environmental Matters.
(a) Except as set forth in Section 3.20(a) of the Disclosure Schedule, to
the knowledge of Sellers, there have not been any activities on or at the
Facility (including with respect to the actual leased space being leased
pursuant to any Real Property Lease, any activities in such leased space)
involving, directly or indirectly, the use, generation, treatment, storage or
disposal of any Hazardous Substances (i) under, or in the land at the Facility
whether contained in soil, tanks, sumps, ponds, lagoons, drainage areas, barrels
or other containments, structures or equipment, (ii) incorporated in the
buildings, structures or improvements located at the Facility, including any
building
<PAGE> 34
material containing asbestos, or (iii) used in connection with any operation on,
in or at the Facility, except where items (i), (ii), or (iii) were conducted in
accordance with applicable Environmental Laws;
(b) Except as set forth in Section 3.20(b) of the Disclosure Schedule, to
the knowledge of Sellers, there have been no releases of any Hazardous
Substances from the Facility (including with respect to the actual leased space
being leased pursuant to any Real Property Lease, any activities in such leased
space) and the Facility has not been used at any time by any Person as a
landfill or waste disposal site;
(c) Except as set forth in Section 3.20(c) of the Disclosure Schedule, to
the knowledge of Sellers, or except in accordance with applicable Environmental
Laws, there has been no treatment, storage or disposal, as those terms are
defined in RCRA, of any Hazardous Substances at the Facility or, to the
knowledge of Sellers, with respect to the actual leased space being leased
pursuant to any Real Property Lease, in any such leased space;
(d) There are no pesticides, fungicides, insecticides or rodenticides
located in or on the Facility or, with respect to the actual leased space being
leased pursuant to any Real Property Lease, in such leased space, in violation
of any applicable Laws.
(e) To the knowledge of Sellers, they are in full compliance with all
Environmental Laws. The Sellers have all approvals, consents, Licenses, Permits,
registrations and orders necessary to carry out the Business as currently
conducted. There is no pending environmental litigation, enforcement actions,
administrative orders, environmental liens or notices of violation brought under
any Environmental Laws concerning the Facility and, to the knowledge of Sellers,
there are no threats of such litigation, enforcement actions, administrative
orders or notices of violation.
(f) Sellers have delivered or otherwise made available for inspection to
Purchaser true, complete and correct copies and results of all non-privileged
reports, studies, assessments, analyses, evaluations or tests possessed by
Sellers pertaining to compliance with or liability under applicable
Environmental Laws with respect to any of the Assets owned or leased by the
Sellers, all of which shall be included within the definition of Business Books
and Records.
3.21 Vehicles. Section 2.01(a)(ix) of the Disclosure Schedule contains a
true and complete list of all motor vehicles owned by such Seller and used in
the conduct of the Business. Except as disclosed in Section 3.21 of the
Disclosure Schedule, Sellers have good and valid title to each such Vehicle
indicated as being owned by it, free and clear of all Liens other than Permitted
Liens. The parties acknowledge and agree that Purchaser is not acquiring any
interest in any vehicles leased by Sellers and used in the conduct of the
Business.
<PAGE> 35
3.22 Brokers. All negotiations relative to this Agreement and the Operative
Agreements and the transactions contemplated hereby and thereby have been
carried out by Sellers directly with Purchaser without the intervention of any
Person on behalf of Sellers in such manner as to give rise to any valid claim by
any such Person against Purchaser for a finder's fee, brokerage commission or
similar payment.
3.23 Suppliers. (a) Section 3.23(a)(i) of the Disclosure Schedule sets
forth a true, correct and complete list of the names and addresses of the
suppliers of the Sellers as to the Business which accounted for five (5) percent
of the dollar volume of purchases by the Sellers for the fiscal year ended
December 31, 1997. The Sellers are not a party to any requirements contract
relating to the purchase of Inventory or other property used in the conduct of
the Business. None of such suppliers which accounted for five (5) percent of the
dollar volume of purchases by the Sellers for the fiscal year ended December 31,
1997 has discontinued its relationship with the Sellers or notified the Sellers
that it intends to discontinue its relationship with the Sellers nor, except as
disclosed in Section 3.23(a)(ii) of the Disclosure Schedule, to the knowledge of
the Sellers, does there exist any actual or threatened termination, cancellation
or limitation of, or any modification or change in, the business relationship of
the Sellers with any such supplier nor except as disclosed in Section
3.23(a)(iii) of the Disclosure Schedule does there exist a present condition or
state of facts or circumstances known to the Sellers involving any supplier,
whether or not listed in Section 3.23 of the Disclosure Schedule, which could
reasonably be expected to have a material adverse effect on the Condition of
Sellers' Business or prevent the Purchaser from conducting the Business after
the Closing in the same manner as presently conducted by the Sellers.
Section 3.23(b) of the Disclosure Schedule sets forth a list of
suppliers (including Sellers, if applicable) who are the only qualified source
of materials or property used in the conduct of the Business and a description
of the materials or property provided by such supplier.
(c) Section 3.23(c) of the Disclosure Schedule describes all materials and
property supplied by either Seller in the conduct of the Business.
3.24 Conduct of Business. Sellers have used their reasonable commercial
efforts since January 1, 1997, to conduct each and every element and aspect of
the Business in the ordinary course of business. Since January 1, 1997, Sellers
have not suffered any material adverse changes in the Business or the Assets
which materially and adversely affect the value of the Assets, the well-being of
the Business, or the ability of the Purchaser to perform any of its obligations
under this Agreement or the Operative Agreements except to the extent caused by
the voluntary recall and/or suspension of sales of Fluogen(R) and Pitocin(R).
Purchaser hereby acknowledges that Seller is not currently marketing the
Discontinued or Withdrawn Products and makes no representations or warranties in
any manner with respect to the Discontinued or Withdrawn Products.
3.25 Compliance with Consent Decree. Without admission and except as
disclosed in public records or in Sections 3.07(a) or (e) of the Disclosure
Schedule or by
<PAGE> 36
Sellers to Purchaser in writing, Sellers have substantially complied with all
the terms, provisions, and restrictions of the Consent Decree relative to the
Assets, the Business as conducted at the Facility, and/or the Facility itself as
of the date hereof. Sellers have not received any direct written communication
from any court with jurisdiction over the Consent Decree, or from the FDA,
stating that the Consent Decree will be extended beyond August, 1998. For
purposes of this Section 3.25 and elsewhere in this Agreement, "Consent Decree"
shall mean that certain Consent Decree of Permanent Injunction entered into the
United States District Court for the District of New Jersey in Civil Action No.
93-3525 styled as United States of America v. Warner-Lambert Company, a
corporation, and Melvin R. Goodes and Lodewijk J. R. DeVink, individuals.
3.26 Debarment. Except as set forth on Section 3.26 of the Disclosure
Schedule, no Employee of the Facility, nor to Sellers' knowledge any consultant
retained by Sellers for the purpose of performing services related to the
Facility, during the period beginning on January 1, 1997 and ending on the date
hereof, has been debarred under ss.306(a) or ss.306(1) of the 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 which could lead to debarment.
3.27 DEA. During the period commencing on January 1, 1997 and ending on the
date hereof, with respect to Sellers or their Affiliates, to Seller's knowledge
there have been no inspections, inspection reports or other correspondence from
the Drug Enforcement Administration ("DEA") in which the DEA or any other
Governmental or Regulatory Authority has asserted or alleged that the operations
of Sellers with respect to the Facility 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.
3.28 Disclosure. To the knowledge of the Sellers, no representation or
warranty by the Sellers in this Agreement or the Operative Agreements or in any
Schedule or Exhibit hereto or thereto, or in any list, statement, document or
information set forth in or attached to any Schedule or Exhibit delivered or to
be delivered pursuant to this Agreement or the Operative Agreements, contains or
will contain any untrue statement of a material fact or omits or will omit to
state any material fact necessary in order to make the statements contained
herein or therein not misleading. To the knowledge of the Sellers, they have
disclosed to the Purchaser all material facts pertaining to the Business, the
Assets and the transactions contemplated by this Agreement and the Operative
Agreements.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Sellers as follows:
<PAGE> 37
4.01 Corporate Existence. Purchaser is a corporation duly incorporated,
validly existing and in good standing under the Laws of the State of Michigan.
Purchaser has full corporate power and authority to enter into this Agreement
and the Operative Agreements to which it is a party, to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby.
4.02 Authority. The execution and delivery by Purchaser of this Agreement
and the Operative Agreements to which it is a party, and the performance by
Purchaser of its obligations hereunder and thereunder, have been duly and
validly authorized by the Board of Directors of Purchaser, no other corporate
action on the part of Purchaser or its stockholders being necessary. This
Agreement has been duly and validly executed and delivered by Purchaser and
constitutes, and upon the execution and delivery by Purchaser of the Operative
Agreements to which it is a party, such Operative Agreements will constitute,
legal, valid and binding obligations of Purchaser enforceable against Purchaser
in accordance with their terms.
4.03 No Conflicts. The execution and delivery by Purchaser of this
Agreement does not, and the execution and delivery by Purchaser of the Operative
Agreements to which it is a party, the performance by Purchaser of its
obligations under this Agreement and such Operative Agreements and the
consummation of the transactions contemplated hereby and thereby will not:
(a) conflict with or result in a violation or breach of any of the terms,
conditions or provisions of the charter of incorporation or by-laws of
Purchaser;
(b) to the knowledge of Purchaser, subject to obtaining the consents,
approvals and actions, making the filings and giving the notices disclosed in
Section 4.03(b) of the Disclosure Schedule hereto, conflict with or result in a
violation or breach of any term or provision of any Law or Order applicable to
Purchaser or any of its Assets and Properties (other than such conflicts,
violations or breaches which could not in the aggregate reasonably be expected
to adversely affect the validity or enforceability of this Agreement or any of
such Operative Agreements); or
(c) to the knowledge of Purchaser, except as disclosed in Schedule 4.03(c)
of the Disclosure Schedule hereto, or as could not, individually or in the
aggregate, reasonably be expected to adversely affect the ability of Purchaser
to consummate the transactions contemplated hereby or by any such Operative
Agreements or to perform its obligations hereunder or thereunder, (i) conflict
with or result in a violation or breach of, (ii) constitute (with or without
notice or lapse of time or both) a default under or (iii) require Purchaser to
obtain any consent, approval or action of, make any filing with or give any
notice to any Person as a result of, the terms of any Contract or License to
which Purchaser is a party or by which any of its Assets and Properties is
bound.
4.04 Governmental Approvals and Filings. Except as disclosed in Section
4.04 of the Disclosure Schedule hereto, and to the knowledge of Purchaser, no
<PAGE> 38
consent, approval or action of, filing with or notice to any Governmental or
Regulatory Authority on the part of Purchaser is required in connection with the
execution, delivery and performance of this Agreement or the Operative
Agreements to which it is a party or the consummation of the transactions
contemplated hereby or thereby, except where the failure to obtain any such
consent, approval or action, to make any such filing or to give any such notice
could not reasonably be expected to adversely affect the ability of Sellers to
consummate the transactions contemplated by this Agreement or any of such
Operative Agreements or to perform their obligations hereunder or thereunder.
4.05 Legal Proceedings. There are no Actions or Proceedings pending or, to
the knowledge of Purchaser, threatened against, relating to or affecting
Purchaser or any of its Assets and Properties which could reasonably be expected
to result in the issuance of an Order restraining, enjoining or otherwise
prohibiting or making illegal the consummation of any of the transactions
contemplated by this Agreement or any of the Operative Agreements.
4.06 Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by Purchaser directly
with Sellers without the intervention of any Person on behalf of Purchaser in
such manner as to give rise to any valid claim by any such Person against
Sellers for a finder's fee, brokerage commission or similar payment.
4.07 Financing. Purchaser has sufficient cash and/or available credit
facilities (and has provided Sellers with evidence thereof) to pay the Purchase
Price and to make all other necessary payments of fees and expenses in
connection with the transactions contemplated by this Agreement and the
Operative Agreements.
ARTICLE V
COVENANTS OF SELLERS
Each Seller, as the case may be, covenants and agrees with Purchaser that,
at all times from and after the date hereof until the Closing, such Seller, will
comply, to the extent applicable to it, with all covenants and provisions of
this Article V, except to the extent Purchaser may otherwise consent in writing.
5.01 Regulatory and Other Approvals. Such Seller will (a) take all
commercially reasonable steps necessary or desirable, and proceed diligently and
in good faith and use all commercially reasonable efforts, as promptly as
practicable to obtain all consents, approvals or actions of, to make all filings
with and to give all notices to Governmental or Regulatory Authorities or any
other Person required of either WL or PD, as the case may be, to consummate the
transactions contemplated hereby and by the Operative Agreements, including
without limitation those described in Sections 3.03 and 3.04 of the Disclosure
Schedule, (b) provide such other information and communications to such
Governmental or Regulatory Authorities or other Persons as such Governmental or
Regulatory Authorities or other Persons may reasonably request in connection
<PAGE> 39
therewith and (c) provide reasonable cooperation to Purchaser in obtaining all
consents, approvals or actions of, making all filings with and giving all
notices to Governmental or Regulatory Authorities or other Persons required of
Purchaser to consummate the transactions contemplated hereby and by the
Operative Agreements. Such Seller will provide prompt notification to Purchaser
when any such consent, approval, action, filing or notice referred to in clause
(a) above is obtained, taken, made or given, as applicable.
5.02 HSR Filings. In addition to and not in limitation of such Seller's
covenants contained in Section 5.01, such Seller will (a) take promptly all
actions necessary to make the filings required of such Seller or its Affiliates
under the HSR Act, (b) comply at the earliest practicable date with any request
for additional information received by such Seller or its Affiliates from the
Federal Trade Commission or the Antitrust Division of the Department of Justice
pursuant to the HSR Act and (c) cooperate with Purchaser in connection with
Purchaser's filing under the HSR Act and in connection with resolving any
investigation or other inquiry concerning the transactions contemplated by this
Agreement commenced by either the Federal Trade Commission or the Antitrust
Division of the Department of Justice or state attorneys general.
5.03 Investigation by Purchaser. Prior to the execution of this Agreement
and from the date of this Agreement to the Closing, such Seller has or will (a)
provide Purchaser and its officers, employees, counsel, accountants, financial
advisors, consultants and other representatives (collectively,
"Representatives") with full access, upon reasonable prior notice and during
normal business hours, to (i) the officers of such Seller who have primary
responsibility for the conduct of the Business or (ii) the Assets being
transferred by such Seller hereunder, but only to the extent that such access
does not unreasonably interfere with such Seller's business and (b) furnish
Purchaser and such other Representatives with all such information and data,
including copies thereof, concerning the Assets and the Assumed Liabilities
being transferred by such Seller hereunder (including the Plans described in
Section 3.09(a)) as Purchaser or any such other Representative reasonably may
request in connection with such investigation, except to the extent that
furnishing any such information or data would violate any Law, Order, Contract
or License applicable to such Seller, or by which any of its Assets and
Properties is bound.
5.04 Conduct of Business. From the date of this Agreement until the
Closing, Sellers will operate the Business only in the ordinary course. Without
limiting the generality of the foregoing, Sellers will use commercially
reasonable efforts, to the extent the officers of Sellers believe such action to
be in the best interest of the Business, to (a) preserve intact the present
business organization and reputation of the Business in all material respects,
(b) keep available (subject to dismissals and retirements in the ordinary course
of business) the services of key Employees, (c) maintain the Assets in good
working order and condition, ordinary wear and tear excepted, and (d) maintain
the good will of key customers, suppliers, lenders and other Persons with whom
Sellers otherwise have significant business relationships in connection with the
Business.
<PAGE> 40
5.05 Use of Trademarks and Trade Names. After the Closing, Purchaser will
be granted by Sellers a limited right to utilize Sellers' trademarks and trade
names as follows: (i) Purchaser may use, in the same manner used by Sellers
prior to the Closing, all printed matter and materials included in the Assets
and bearing those of Sellers' trademarks and trade names not being assigned,
sold or transferred to Purchaser pursuant to this Agreement or the Operative
Agreements, in the ordinary course of operating the Business until the earlier
of (x) the depletions of such items or (y) six months after the Closing Date,
provided that Purchaser shall destroy all unused supplies of the same within one
month following the expiration of such six month period. Notwithstanding the
foregoing, Purchaser may utilize Sellers' trademarks and tradenames in
conjunction with finished products released by Sellers' quality assurance group
prior to the Closing Date, but only for a period expiring twelve months after
the Closing Date.
5.06 Certain Restrictions. From the date hereof until the Closing, each
Seller will refrain from any of the following, except in the ordinary course of
business:
(a) acquiring or disposing of, or incurring any Lien (other than a
Permitted Lien) on, any Assets being transferred hereunder by such Seller;
(b) entering into, amending, modifying, terminating (partially or
completely), granting any waiver under or giving any consent with respect to any
Business Contract (other than the Collective Bargaining Agreement) or any
Business License;
(c) incurring, purchasing, canceling, prepaying or otherwise providing for
a complete or partial discharge in advance of a scheduled payment date with
respect to, or waiving any right under, any Liability of or owing to such
Seller, in connection with the Business in an aggregate principal amount
exceeding $10,000;
(d) engaging with any Person in any Business Combination, unless such
Person agrees in a written instrument to adopt and comply with each and every
term and condition of this Agreement and the Operative Agreements as though such
Person was an original signatory hereto or thereto;
(e) engaging in any transaction individually or in the aggregate with other
such transactions material to the Condition of the Seller's Business with any
officer, director or Affiliate of such Seller outside the ordinary course of
business other than on an arm's-length basis;
(f) selling, assigning, or transferring any of the Business or the Assets;
(g) unless otherwise required by or contemplated in this Agreement or the
Operative Agreements, making capital expenditures or commitments for additions
to property, plant or equipment constituting capital assets on behalf of the
Business in an aggregate amount exceeding $50,000; or
<PAGE> 41
(h) entering into any Contract to do or engage in any of the foregoing.
5.07 Delivery of Books and Records, etc.; Removal of Property. (a) On the
Closing Date, each of WL and PD, as the case may be, will take all commercially
reasonable steps to deliver or make available to Purchaser at the Facility all
of the Business Books and Records and such other Assets (including Inventory) as
are in such Seller's possession at other locations, and if at any time after the
Closing WL discovers in its possession or under its control any other Business
Books and Records or other Assets it will forthwith deliver such Business Books
and Records or other Assets to Purchaser (provided that Sellers shall have the
right to retain one copy of such Business Books and Records for its archives).
(b) Sellers covenant that they will not, and have not, removed any of the
Assets from the Facility without the prior written consent of Purchaser.
5.08 Fulfillment of Conditions. Each of WL and PD, as the case may be, will
execute and deliver at the Closing each Operative Agreement that either WL or
PD, as the case may be, is required hereby to execute and deliver as a condition
to the Closing, will take all commercially reasonable steps necessary or
desirable and proceed diligently and in good faith to satisfy each other
condition to the obligations of Purchaser contained in this Agreement and
applicable to such Seller and will not take or fail to take any action that
could reasonably be expected to result in the nonfulfillment of any such
condition.
5.09 Permits. At the request of Purchaser, Sellers shall deliver to
Purchaser at the Closing, the originals, if in the Seller's possession, of all
building permits, certificates of occupancy and other governmental licenses,
registrations, permits and approvals, and all plans, blueprints, diagrams, CAD's
and specifications relating to the Real Property or the property subject to the
Real Property Leases not previously delivered to the Purchaser.
5.10 Remedial Actions. (a) If, as a result of the next scheduled FDA audit
of the Facility pursuant to the Consent Decree to occur after January 31, 1998
(the "FDA Audit"), the FDA determines that changes, alterations, improvements,
additions or modifications (including the purchase of new equipment or systems)
to the Facility, the Business or any of the Assets are required to assure
compliance with applicable Laws ("Modifications"), then Sellers shall be
responsible for the out-of-pocket costs incurred by Purchaser in connection with
any such Modifications requested by the FDA, excluding (i) Modifications
relating to conditions that come into existence after the Closing Date, (ii)
Modifications which were identified in FDA 483 observation reports,
Establishment Investigation Reports, similar reports of corresponding
governmental agencies outside the United States, and all responses thereto,
which could be found in public records prior to the FDA Audit or (iii)
Modifications which have been disclosed to
<PAGE> 42
Purchaser in writing. Purchaser shall consult with Sellers and accept reasonable
suggestions of Sellers regarding the planning, coordination and implementation
of any such Modifications, as well as any communications with the FDA relating
to the FDA Audit or the Modifications.
(b) Sellers shall be obligated to pay any amounts charged by the FDA
with respect to such FDA Audit.
(c) Purchaser shall be responsible for all FDA audits, other than the
FDA Audit, which may occur after the Closing Date, pursuant to the Consent
Decree or otherwise.
5.11 Guaranty. WL irrevocably and unconditionally guarantees (i) the full
and punctual performance of all of the obligations of PD contained in or arising
out of this Agreement or the Operative Agreements, including, but not limited
to, payment when due of any amounts owed, when due, to Purchaser or its
Affiliates and (ii) the representations, warranties and covenants of PD herein
or under the Operative Agreements.
ARTICLE VI
COVENANTS OF PURCHASER
Purchaser covenants and agrees with Sellers that, at all times from and
after the date hereof until the Closing, Purchaser will comply with all
covenants and provisions of this Article VI, except to the extent each Seller
may otherwise consent in writing.
6.01 Regulatory and Other Approvals. Purchaser will (a) take all
commercially reasonable steps necessary or desirable, and proceed diligently and
in good faith and use all commercially reasonable efforts, as promptly as
practicable to obtain all consents, approvals or actions of, to make all filings
with and to give all notices to Governmental or Regulatory Authorities or any
other Person required of Purchaser to consummate the transactions contemplated
hereby and by the Operative Agreements, including without limitation those
described in Schedules 4.03 and 4.04 of the Disclosure Schedules hereto, (b)
provide such other information and communications to such Governmental or
Regulatory Authorities or other Persons as such Governmental or Regulatory
Authorities or other Persons may reasonably request in connection therewith and
(c) provide reasonable cooperation to each Seller in obtaining all consents,
approvals or actions of, making all filings with and giving all notices to
Governmental or Regulatory Authorities or other Persons required of Sellers, as
the case may be, to consummate the transactions contemplated hereby and by the
Operative Agreements. Purchaser will provide prompt notification to Sellers, as
the case may be, when any such consent, approval, action, filing or notice
referred to in clause (a) above is obtained, taken, made or given, as
applicable.
<PAGE> 43
6.02 HSR Filings. In addition to and without limiting Purchaser's covenants
contained in Section 6.01, Purchaser will (i) take promptly all actions
necessary to make the filings required of Purchaser or its Affiliates under the
HSR Act, (ii) comply at the earliest practicable date with any request for
additional information received by Purchaser or its Affiliates from the Federal
Trade Commission or the Antitrust Division of the Department of Justice pursuant
to the HSR Act and (iii) cooperate with each of WL and/or PD, as the case may
be, in connection with each of WL's and/or PD's, as the case may be, filings
under the HSR Act and in connection with resolving any investigation or other
inquiry concerning the transactions contemplated by this Agreement commenced by
either the Federal Trade Commission or the Antitrust Division of the Department
of Justice or state attorneys general.
6.03 Union Negotiations. Purchaser shall proceed diligently and in good
faith and use all commercially reasonable efforts, as promptly as practicable to
negotiate a new contract with respect to the Employees covered by the agreement
between Parke-Davis Division of Warner-Lambert Company Rochester Plant and Local
7-176 Oil, Chemical & Atomic Workers, International Union (the "Union") which
expires April 30, 1998 (the "OCAW Agreement").
6.04 FDA Audit. Subsequent to the Closing, Purchaser shall inform Sellers
of any and all contacts and communications from the FDA related to the FDA Audit
described in Section 5.10 herein, in sufficient time for Sellers to participate
in person in any inspections, investigations or meetings by or with the FDA
related to the FDA Audit. To the extent it may do so, Purchaser will not
schedule any audits, inspections, investigations or meetings with the FDA
relating to the FDA Audit without ensuring that a representative of Sellers can
participate in person, if they so choose. Purchaser agrees that Sellers shall,
at their discretion, have the right to fully participate in any such audits,
inspections, investigations and meetings with the FDA and Purchaser which may
obligate Sellers pursuant to Section 5.10. Purchaser agrees that Sellers shall
have the right, at Sellers' discretion, to discuss the terms and conditions of
such obligations with the FDA (and Purchaser shall have the right to take part
in such discussions) and Purchaser shall cooperate in all respects with Sellers
regarding the conduct, results and responses to such audits or inspections and
all such negotiations. Purchaser shall provide Sellers with a copy of any FDA
comments or observations relating to the FDA Audit and shall provide Sellers
with a copy of any draft response to the FDA at least three days prior to
submission. Purchaser agrees to accept and incorporate all reasonable comments
of Sellers thereto.
6.05 FDA Modifications and Powerhouse Repairs. After the Closing Date,
Purchaser agrees to provide WL and its agents necessary access to the Facility
and adequate assistance to allow WL to consult with Purchaser on the planning,
coordination and implementation by Purchaser of any repairs required pursuant to
Section 3.12(e) herein and any Modifications pursuant to Section 5.10 herein.
6.06 Third Party Manufacturing Business Responsibility.
<PAGE> 44
(a) After the Closing Date, Purchaser shall hold, store, manufacture,
package and test any product lot sold or transferred to Purchaser as part of the
Business (including but not limited to its raw materials, excipients and
components) and which was delivered or sold by either Seller prior to the
Closing Date, as well as any product lot that bears a trade name or the
trademark used by either Seller prior to the Closing Date (any such product lot
is referred to herein as a "Third Party Product Lot"), in accordance with (i)
current Good Manufacturing Practices, (ii) the applicable product application or
license, (iii) applicable analytical procedures, material specifications, master
batch records, stability protocols, analytical methods and packaging
instructions and (iv) all other applicable Laws.
(b) The parties shall notify each other in writing in the event that any
party receives a complaint or a report of an adverse drug event relating to any
Third Party Product Lot. In the case of a complaint, such notice must be
provided by the complaint recipient to all other parties (i) within 24 hours if
the complaint involves allegations of suspected or actual product tampering,
mix-up or contamination and (ii) within 4 business days in the case of all other
complaints. In the case of any adverse drug events, such notice must be provided
by the report recipient to all other parties within 4 business days of receipt.
(c) After the Closing Date, Purchaser (or its contract customer) shall be
responsible for investigating and responding to all reported complaints and
adverse drug events and for all communications with any Governmental or
Regulatory Authority or any other third party relating to all Third Party
Product Lots.
(d) After the Closing Date, Purchaser (or its contract customer) shall be
responsible for all required stability testing relating to all Third Party
Product Lots. Purchaser shall notify Sellers within 3 business days of any
initial out-of-specification result relating to any such Third Party Product
Lot. Purchaser (or its contract customer) shall be responsible for investigating
all such out-of-specification results and for any communications with any
Governmental or Regulatory Authority or any other third party.
(e) After the Closing Date, Purchaser (and/or its contract customer) shall
be responsible for all contacts with any Governmental or Regulatory Authority
with respect to all matters relating to the Business, provided that (i)
Purchaser shall notify Sellers immediately and in no event later than 1 business
day after receipt of any contact or communication from any Governmental or
Regulatory Authority that in any way requests the need for recall or withdrawal
of, or otherwise calls into question the quality or safety of a Third Party
Product Lot. Purchaser shall be responsible for investigating any such request
or suggestion and for any communications with any Governmental or Regulatory
Authority or third pary relating thereto.
(f) With regard to any investigation undertaken by Purchaser pursuant to
subsections (c) through (e), the terms of this subsection (f) shall apply.
Purchaser shall provide Sellers with copies of all related investigation reports
and all related communications received from or sent to any Governmental or
Regulatory Authority or
<PAGE> 45
third party within 2 business days of the completion of any such investigation
report or related communication. Purchaser shall consult with Sellers with
respect to any such investigations. Purchaser shall comply with all reasonable
requests and comments by the Sellers with respect to all such investigations.
Unless otherwise required by law, Purchaser shall not communicate with or
respond to any Governmental or Regulatory Authority or any third party
(excluding Purchaser's contract customer) concerning any such investigation
without the prior written consent of Sellers, which consent shall not be
unreasonably withheld. Sellers shall have the right to require Purchaser to
recommend a recall to its contract customer with respect to any Third Party
Product Lot if Sellers determine that a recall is appropriate under 21 C.F.R.
ss. 7.
6.07 Fulfillment of Conditions. Purchaser will execute and deliver at the
Closing each Operative Agreement that Purchaser is hereby required to execute
and deliver as a condition to the Closing, will take all commercially reasonable
steps necessary or desirable and proceed diligently and in good faith to satisfy
each other condition to the obligations of WL and PD, as the case may be, as
shall be contained in this Agreement and will not take or fail to take any
action that could reasonably be expected to result in the nonfulfillment of any
such condition.
6.08 Additional Obligations. Except as otherwise specifically permitted in
Section 5.05, Purchaser shall remove Sellers' name from all documentation,
including without limitation, all standard operating procedures ("SOPs"),
labels, signs, notices, postings and electronic media prior to the first
anniversary of the Closing Date. Purchaser shall not provide any SOPs to any
third party if such SOP contains either Seller's name. Sellers shall have the
right to remove from the Facility all its Assets and Properties, other than the
Assets, and Purchaser shall ship to Sellers, at Sellers' cost, any such Assets
or Properties discovered at the Facility after the Closing Date.
6.09 Consent Decree. (a) Effective as of the date of the Closing, and
subject to the terms and conditions of this Agreement and the Operative
Agreements, Purchaser shall assume sole responsibility for compliance with the
terms, conditions, and requirements of, and all liabilities under, the Consent
Decree to the extent that the Consent Decree applies to the Facility, the
Business or the Assets.
(b) Except as otherwise specifically set forth herein or in the Operative
Agreements, subject to the terms of this Agreement, Sellers shall have no
responsibility for compliance with the terms, conditions and requirements of the
Consent Decree with respect to the Facility, the Business or the Assets, and
Sellers shall not be liable for any failure by Purchaser to comply with the
Consent Decree, or for any liabilities or penalties incurred by Purchaser
thereunder. Purchaser shall indemnify, defend and hold harmless Sellers, their
officers, directors and employees, including any named individual defendants
under the Consent Decree, from and against any Losses and Liabilities arising
out of or relating to (i) actions, matters, or conditions that come into
existence after the Closing Date or actions, matters and conditions that
predated the Closing Date but which could have been mitigated by Purchaser and
(ii) failure of Purchaser to comply with all
<PAGE> 46
the terms of the Consent Decree as it applies to the Facility, the Business or
the Assets. Sellers shall indemnify, defend and hold harmless Purchaser, their
officers, directors and employees, from and against any and all Losses and
Liabilities arising out of or relating to (i) actions, matters, or conditions
that come into existence prior to the Closing Date and (ii) failure of Sellers
to comply with all the terms of the Consent Decree as it applies to anything
other than solely to the Facility, the Business or the Assets.
(c) Subject to applicable law, as of the Closing Date, Sellers shall not,
and shall have no right to, initiate or participate in any communications,
negotiations, or petitions with any third party relating to or pursuant to the
Consent Decree to the extent that such communications, negotiations or petitions
relate solely to the Facility, the Business or the Assets.
(d) Subject to applicable law, Purchaser shall not, and shall have no right
to, initiate or participate in any communications, negotiations or petitions
with any third party relating to or pursuant to the Consent Decree to the extent
that such communications, negotiations or petitions relate solely to anything
other than the Business, the Facility or the Assets.
(e) Subsequent to the date of the Closing, neither Sellers nor Purchaser
shall comment on or discuss the other party's performance, rights,
responsibilities and/or liabilities with respect to the Consent Decree with any
third party unless required to do so by Law or if expressly authorized to do so
in a writing signed by the other party.
(f) Sellers agree that Purchaser may negotiate and/or petition for relief
under the Consent Decree solely with respect to the Business, the Facility
and/or the Assets separately from and without notice to Sellers.
(g) Purchaser agrees that Sellers may negotiate and/or petition for relief
under the Consent Decree with respect to any matter, except matters relating
solely to the Business, the Facility or the Assets, separately from and without
notice to Purchaser.
(h) In the case of any reasonable negotiation or petition for relief
described in subsections (f) or (g) of this Section 6.09, the non-negotiating or
non-petitioning party shall provide reasonable cooperation to the other party as
may be necessary to obtain the relief sought by such negotiation or petition.
6.10 Parkedale Name. Sellers shall not object to Purchaser's use of the
name "Parkedale" in the conduct of its business.
6.11 Establishment License. Sellers hereby grant to Purchaser the right to
use the Establishment License in the operation of the Facility, including in the
manufacture, use, sale, storage or shipment of products on behalf of Purchaser
or pursuant to any Business Contract (such use is hereby referred to as the
"Permitted Use"), subject to the following restrictions:
<PAGE> 47
(i) Purchaser shall use its best efforts to obtain an establishment
license in its own name, as soon as possible, for the Permitted Use, and
Purchaser's rights under the Establishment License shall cease immediately upon
the issuance to Purchaser or any Affiliate of Purchaser of any establishment
license, or equivalent, from FDA;
(ii) All regulatory filings and all communications with all
Governmental and Regulatory Authorities with respect to the Establishment
License shall be the sole responsibility of Sellers. Purchaser shall promptly
notify Sellers of all communications from and all inspections by FDA relating to
the Establishment License and Sellers shall have sole control over the content
and timing of all responses to such communications and all filings with FDA
relating to the Establishment License; and
(iii) Sellers shall have, during the term of the Permitted Use, the
right to be present at the Facility at all times (including, without limitation,
during any FDA inspections), and shall have complete access to all areas of the
Facility and all documents wherever located, to the extent they relate to the
Establishment License or compliance with applicable Laws relating thereto.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF PURCHASER
The obligations of Purchaser hereunder to purchase the Assets and to assume
and pay, perform and discharge the Assumed Liabilities are subject to the
fulfillment, at or before the Closing, of each of the following conditions (all
or any of which may be waived in whole or in part by Purchaser in its sole
discretion):
7.01 Representations and Warranties. The representations and warranties
made by each of WL and PD, as the case may be, in this Agreement or the
Operative Agreements shall be true and correct in all material respects on and
as of the Closing Date as though made on and as of the Closing Date or, in the
case of representations and warranties made as of a specified date earlier than
the Closing Date, on and as of such earlier date.
7.02 Performance. Each of WL and PD, as the case may be, shall have
performed and complied with, in all material respects, the agreements, covenants
and obligations required by this Agreement or the Operative Agreements to be so
performed or complied with by it at or before the Closing.
7.03 Officers' Certificates. Each Seller shall have delivered to Purchaser
a certificate, dated the Closing Date and executed by its Chairman of the Board,
President or any Vice President, authorized by such Seller to execute such
certificate, substantially in the form and to the effect of Exhibit B hereto,
and a
<PAGE> 48
certificate, dated the Closing Date and executed by its Secretary or any
Assistant Secretary, substantially in the form and to the effect of Exhibit C
hereto.
7.04 Orders and Laws. There shall not be in effect on the Closing Date any
Order or Law restraining, enjoining or otherwise prohibiting or making illegal
the consummation of any of the transactions contemplated by this Agreement or
any of the Operative Agreements.
7.05 Regulatory Consents and Approvals. All consents, approvals and actions
of, filings with and notices to any Governmental or Regulatory Authority
necessary to permit Purchaser and WL and PD, as the case may be, to perform
their obligations under this Agreement and the Operative Agreements and to
consummate the transactions contemplated hereby and thereby shall have been duly
obtained, made or given and shall be in full force and effect, and all
terminations or expirations of waiting periods imposed by any Governmental or
Regulatory Authority necessary for the consummation of the transactions
contemplated by this Agreement and the Operative Agreements, including under the
HSR Act, shall have occurred.
7.06 Third Party Consents. The consents (or in lieu thereof written
waivers) listed in Section 7.06 of the Disclosure Schedule which include certain
consents required under Real Property Leases, Personal Property Leases, Business
Contracts and Business Licenses shall have been obtained and shall be in full
force and effect. Copies of each such consents (or in lieu thereof written
waivers) shall be delivered to Purchaser at or prior to the Closing.
7.07 Opinion of Counsel. Purchaser shall have received the opinion of
Gregory L. Johnson, Vice President and General Counsel of WL, dated the Closing
Date, substantially in the form and to the effect of Exhibit D hereto.
7.08 Deliveries. WL and/or PD, as the case may be, shall have executed and
delivered to Purchaser (i) the appropriate Assignment Instruments, (ii) the
Product Asset Purchase Agreement, in substantially the form attached hereto as
Exhibit E; (iii) a Manufacturing Agreement for the Products being sold to
Purchaser pursuant to the Product Asset Purchase Agreement which are currently
not manufactured at the Facility in substantially the form attached hereto as
Exhibit F; (iv) a Transition Services Agreement in substantially the form
attached hereto as Exhibit G; (v) a Manufacturing Agreement in substantially the
form attached hereto as Exhibit H for Products currently manufactured at the
Facility and not being sold to Purchaser pursuant to the Product Asset Purchase
Agreement; (vi) a Clinical and Toxicology Manufacturing Supply Agreement in
substantially the form attached hereto as Exhibit I; (vii) the License
Agreements substantially in the form attached hereto as Exhibit J; (viii) the
Guaranty Agreement substantially in the form attached hereto as Exhibit K; (ix)
all other Operative Agreements; and (x) all other documents, materials, or
information necessary to fulfill each of Sellers' respective obligations under
this Agreement and/or the Operative Agreements.
<PAGE> 49
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF SELLERS
The obligations of Sellers hereunder to sell the Assets are subject to the
fulfillment, at or before the Closing, of each of the following conditions (all
or any of which may be waived in whole or in part by Sellers in their sole
discretion):
8.01 Representations and Warranties. The representations and warranties
made by Purchaser in this Agreement or the Operative Agreements shall be true
and correct in all material respects on and as of the Closing Date as though
made on and as of the Closing Date.
8.02 Performance. Purchaser shall have performed and complied with, in all
material respects, the agreements, covenants and obligations required by this
Agreement or the Operative Agreements to be so performed or complied with by
Purchaser at or before the Closing.
8.03 Officers' Certificates. Purchaser shall have delivered to each Seller
a certificate, dated the Closing Date and executed by the Chairman of the Board,
the President or any Executive Vice President of Purchaser, authorized by
Purchaser to execute such certificate, substantially in the form and to the
effect of Exhibit L hereto, and a certificate, dated the Closing Date and
executed by the Secretary or any Assistant Secretary of Purchaser, substantially
in the form and to the effect of Exhibit M hereto.
8.04 Orders and Laws. There shall not be in effect on the Closing Date any
Order or Law restraining, enjoining or otherwise prohibiting or making illegal
the consummation of any of the transactions contemplated by this Agreement or
any of the Operative Agreements.
8.05 Regulatory Consents and Approvals. All consents, approvals and actions
of, filings with and notices to any Governmental or Regulatory Authority
necessary to permit WL and/or PD, as the case may be, and Purchaser to perform
their obligations under this Agreement and the Operative Agreements and to
consummate the transactions contemplated hereby and thereby shall have been duly
obtained, made or given and shall be in full force and effect, and all
terminations or expirations of waiting periods imposed by any Governmental or
Regulatory Authority necessary for the consummation of the transactions
contemplated by this Agreement and the Operative Agreements, including under the
HSR Act, shall have occurred.
8.06 Third Party Consents. The consents (or in lieu thereof waivers) listed
in Section 8.06 of the Disclosure Schedule shall have been obtained and shall be
in full force and effect and copies of each such consent (or in lieu thereof
written waivers) shall be delivered to Sellers at or prior to Closing.
<PAGE> 50
8.07 Opinion of Counsel. Each Seller shall have received the opinion of
John A. A. Bellamy, General Counsel to Purchaser, dated the Closing Date,
substantially in the form and to the effect of Exhibit N hereto.
8.08 Deliveries. Purchaser shall have executed and delivered to (a) WL the
(i) appropriate Assumption Instruments; (ii) Product Asset Purchase Agreement in
the form of Exhibit E; (iii) the Manufacturing Agreement in the form of Exhibit
F, (iv) the Transition Services Agreement in the form of Exhibit G, (v) the
Manufacturing Agreement in the form of Exhibit H, (vi) the Clinical and
Toxicology Manufacturing Supply Agreement in the form of Exhibit I, (vii) the
License Agreements in the form of Exhibit J, and (viii) the Guaranty Agreement
in the form of Exhibit K and (b) PD the appropriate Assumption Instruments and
(c) the appropriate party all other documents, materials, or information
necessary to fulfill Purchaser's obligations under this Agreement and/or the
Operative Agreements.
ARTICLE IX
TAX MATTERS
9.01 Transfer Tax. All transfer, documentary, sales, excise, use, filing,
value added, recordation or other similar Taxes assessed upon or with respect to
the transfer of the Assets of each of WL and PD, as the case may be, to
Purchaser and any recording or filing fees with respect thereto shall be paid by
Purchaser.
9.02 Allocation of Taxes. Any liability for real property tax, personal
property tax or any similar ad valorem obligation levied with respect to any
Asset being sold by a Seller hereunder for a Post-Closing Tax Period which
includes any date prior to the Closing Date will be apportioned ratably between
such Seller and Purchaser as of the Closing Date based on the number of days of
such taxable period included in the Pre-Closing Tax Period and the number of
days of such taxable period included in the Post-Closing Tax Period. The parties
will determine the amount of reimbursement to which each is entitled under this
Section 9.02 and such total proration amount will be paid by the party owing it
to the other upon the Closing Date. In the event that subsequent to the Closing
Date either WL, PD or Purchaser makes a payment for which it is entitled to
reimbursement under this Section 9.02, the other party liable for reimbursement
under this Section 9.02 will make such reimbursement promptly but in no event
later than thirty (30) days after the presentation of a statement setting forth
the amount of reimbursement to which the presenting party is entitled along with
such supporting evidence as is reasonably necessary to calculate the amount of
reimbursement. Any payment required under this Section 9.02 and not made within
ten (10) days of delivery of the statement will bear interest at the rate per
annum determined, from time to time, under the provisions of Section 6621(a)(2)
of the Code.
9.03 Other Taxes. All income, sales and other Taxes, not otherwise
specifically provided for under Section 9.01 and 9.02 of this Agreement, or as
otherwise
<PAGE> 51
specifically provided for by this Agreement or any of the Operative
Agreements, shall be paid by the Person against whom such Taxes are levied or
assessed.
ARTICLE X
EMPLOYEE MATTERS
10.01 Definitions. As used herein, "Active Employees" shall mean all of the
Employees of the Business who are actively employed at the Closing Date and are
listed on Section 3.10 of the Disclosure Schedule. "Inactive Employees" shall
mean all of the Employees of the Business who, at the Closing Date, (i) are on
an approved leave of absence and are expected to return within 6 months
following the Closing Date and (ii) are listed on Section 3.10 of the Disclosure
Schedule; "Transferred Employees" shall mean each such Active Employee who
receives and accepts an offer of employment of Purchaser pursuant to Section
10.02(a) and each such Inactive Employee who accepts the offer of employment of
Purchaser pursuant to Section 10.02(b); "New Hire Date" shall mean (i) with
respect to any Active Employee who receives and accepts an offer of employment
of Purchaser pursuant to Section 10.02(a), the day following the Closing Date;
and (ii) with respect to any Inactive Employee who receives and accepts an offer
of Purchaser pursuant to Section 10.02(b), the date of hire of such Employee
following the expiration of his or her leave.
10.02 Employment of Employees of the Business. (a) Purchaser in its sole
discretion, may offer employment, as of the Closing Date, on an at-will basis to
the Active and Inactive Employees of the Business. Such offer of employment
extended by Purchaser shall provide for the employment of the Active Employees
accepting such offer at a base salary which is at least equal to the base salary
level being paid to each such Employee by WL.
<PAGE> 52
(b) Purchaser in its sole discretion, may offer employment on an at-will
basis to the Inactive Employees upon the expiration of their applicable leave at
a base salary which is at least equal to the base salary level being paid to
each such Employee by WL provided that such Employee is able to return to work
within six months after the Closing Date or such Employee has a legal right to
return to work.
10.03 Obligation to the Employees. Except as specifically provided herein,
Purchaser shall be responsible for compensation, benefits and other
employment-related matters of the Transferred Employees arising out of service
with the Purchaser on and after the Transferred Employees' applicable New Hire
Dates, and WL shall be responsible for compensation, benefits and other
employment-related matters of the Transferred Employees arising out of service
with WL prior to the Transferred Employees' applicable New Hire Date. WL shall
retain all liabilities and obligations for applicable medical, dental, life and
long-term disability plans, and other employee welfare and benefit plan benefits
in respect of the Transferred Employees arising out of claims incurred prior to
their applicable New Hire Dates to the extent provided under WL's applicable
benefit plan. It is understood by the parties hereto that WL shall not be
obligated for any medical or other benefit which is not covered under the
provisions of the benefit plan in which the Transferred Employee or covered
dependent is enrolled as of the Closing Date. Purchaser shall be responsible for
claims incurred on and after such Transferred Employees' applicable New Hire
Dates to the extent covered under an employee benefit plan of Purchaser. A claim
shall be deemed to have been incurred upon the incurrence of a qualified expense
for which reimbursement or treatment is sought; provided, however, a claim for a
hospitalization stay (and medical treatment during such stay) which begins prior
to a Transferred Employee's New Hire Date and which ends after such Transferred
Employee's Transfer Date shall be deemed to have been incurred prior to such New
Hire Date. WL's applicable benefit plan shall retain all liabilities and
obligations for all health and welfare benefits with respect to any Transferred
Employee who prior to and on his or her New Hire Date is hospitalized, or any
Transferred Employee's dependent who is hospitalized prior to and on the
Transferred Employee's New Hire Date, and shall continue such benefits and be
liable for claims applicable to such hospital confinement and related medical
treatment until such individual has been released from the hospital to the
extent covered under WL's applicable benefit plans.
10.04 Severance. (a) Each Employee who is not offered employment by
Purchaser pursuant to Section 10.02 shall receive severence pay from WL in
accordance with WL's Severance Plan in effect as of the date hereof, as listed
in Section 10.04 of the Disclosure Schedule ("WL Severance Plan"). Purchaser
shall reimburse WL for the amount of such severance pay. Purchaser shall not be
responsible for the payment of any severance payment or similar payments that
arise out of any arrangement other than the WL Severance Plan.
(b) If any Transferred Employee is terminated by Purchaser within six
months following the Closing Date, such Transferred Employee shall receive
severance pay from Purchaser in an amount equal to the severance pay under WL's
Severance Plan based upon the compensation in effect at the time of termination
of employment, with
<PAGE> 53
appropriate credit for accumulated service with both WL and one or more
predecessors, if WL would have taken such service into account under WL's
Severance Plan had the termination occurred prior to the Closing Date. Purchaser
shall not be responsible for payment of any Severance for Transferred Employees
who voluntarily terminate their employment with Purchaser.
(c) Purchaser shall require all Transferred Employees who receive severance
pay under Section 10.04(b) to execute a waiver in favor of WL that waives (i)
all Actions or Proceedings in respect of WL's Severance Plan and (ii) all
matters regarding which such Employee executes a waiver in favor of Purchaser.
(d) Any notification under the Federal Worker Adjustment and Retraining
Notification Act or any similar applicable State or local law on or after the
Closing Date shall be the responsibility of Purchaser. Any notification under
the Federal Worker Adjustment and Retraining Notification Act prior to the
Closing Date shall be the responsibility of WL.
10.05 Medical Coverage. Purchaser agrees to provide coverage under
Purchaser's group health plan to the Transferred Employees and their dependents
as of their applicable New Hire Date.
10.06 Retirement and Savings Plans. (a) With respect to those Transferred
Employees who are participating in the Warner-Lambert Retirement Plan or the
Union pension plan (collectively, the "Retirement Plan") as of the Closing Date,
WL shall cease further accruals in the Retirement Plan in respect of such
employees in accordance with the provisions of the Retirement Plan. WL shall
retain the assets and liabilities under the Retirement Plan in respect of such
benefits, and no assets of the Retirement Plan shall be transferred to Purchaser
or any plan of Purchaser except to the extent of rollovers permitted by the
Retirement Plan and any applicable plan of Purchaser. The Transferred Employees
shall receive benefits under the Retirement Plan at the time and in the manner
set forth in the Retirement Plan.
(b) With respect to those Transferred Employees who are participating in
the Warner-Lambert Savings and Stock Plan (the "Savings Plan") as of the Closing
Date, such employees shall cease further contributions to the Savings Plan and
WL shall cease further contributions in respect of such employees in accordance
with the provisions of the Savings Plan. WL shall retain the assets and
liabilities under the Savings Plan in respect of such benefits, and no assets of
the Savings Plan shall be transferred to Purchaser or any plan of Purchaser
except to the extent of rollovers permitted by the Savings Plan and any
applicable plan of Purchaser.
10.07 Vacation Pay. Purchaser shall be responsible for vacation leave
entitlement earned with respect to all Transferred Employees with WL; provided,
however, that the profit and loss statements for the Business shall reflect, as
a current liability an accrual for all vacation accrued by all Transferred
Employees prior to the Closing Date. Service with WL shall be deemed to be
service with Purchaser for
<PAGE> 54
purposes of determining vacation time entitlements under Purchaser's vacation
policies. Purchaser makes no provisions for providing cash value of unused
vacation leave.
10.08 Records. To the extent that service with either party is relevant
with respect to any Employees or to the extent that any records related to
services with either party are relevant with respect to any Employees, Purchaser
and WL shall keep and provide each other with reasonable records and
notification of such information as may be necessary with respect to such
Employees. Purchaser and WL agree to comply with all federal and state laws
relating to the confidentiality of such information.
10.09 Workers Compensation. WL will be responsible for all workers
compensation claims filed by any Transferred Employee, no matter when it is
filed, when the occurrence giving rise to any such claim (or, in the case of a
claim relating to occupational disease, the majority of the exposure) takes
place prior to the Transferred Employee's applicable New Hire Date. Purchaser
will be responsible for all workers compensation claims filed by any Transferred
Employee when the occurrence giving rise to any such claim (or, in the case of a
claim relating to occupational disease, the majority of the exposure) takes
place on or after the Transferred Employee's applicable New Hire Date.
10.10 Union. Notwithstanding the provisions of Section 10.02, if Purchaser
and the Union agree on the material terms and conditions of a new collective
bargaining agreement then Purchaser intends to offer employment to all Employees
employed within the bargaining unit, who are Active Employees based upon such
new terms and conditions. With respect to Employees within the bargaining unit
who are Inactive Employees, Purchaser shall offer employment based upon such new
terms and conditions upon expiration of their leave of absence provided that
such person is able to return to work within a period of time agreed upon by
Purchaser and the Union.
ARTICLE XI
SURVIVAL; NO OTHER REPRESENTATIONS
11.01 Survival of Representations, Warranties, Covenants and Agreements.
The representations, warranties, covenants and agreements of Sellers and
Purchaser contained in this Agreement will survive the Closing (a) indefinitely
with respect to the representations and warranties contained in Sections 3.01,
3.02, 4.01 and 4.02 and the covenants and agreements contained in Sections 2.05
and 14.04, (b) five (5) years with respect to the covenants and agreements
contained in Section 14.06, (c) until the expiration of all applicable statutes
of limitation (including all periods of extension, whether automatic or
permissive) with respect to matters covered by Section 3.06 and Article X and
(insofar as they relate to ERISA or the Code) Section 3.09, (d) two (2) years
with respect to the representations contained in Section 3.20,and (e) one (1)
year in the case of each other representation and warranty, covenant and
agreement, except that any representation, warranty, covenant or agreement that
would otherwise terminate in accordance with clause (c) or (d) above will
continue to survive if a Claim
<PAGE> 55
Notice or Indemnity Notice (as applicable) shall have been timely given in good
faith based on facts reasonably expected to establish a valid claim under
Article XII on or prior to such termination date, until the related claim for
indemnification has been satisfied or otherwise resolved as provided in Article
XII. This Section shall not limit in any way the survival and enforceability of
any covenant or agreement of the parties hereto which by its terms contemplates
performance after the Closing Date, which shall survive for the respective
periods set forth therein.
11.02 No Other Representations. Notwithstanding anything to the contrary
contained in this Agreement, it is the explicit intent of each party hereto that
neither WL nor PD, as the case may be, is making any representation or warranty
whatsoever, express or implied, including but not limited to any implied
representation or warranty as to condition, merchantability or suitability as to
any of the Assets or other Properties of the Business, except those
representations and warranties contained in Article III of this Agreement, the
Operative Agreements, the Schedules and Exhibits hereto and thereto and in any
certificate delivered pursuant to Section 7.03. In particular, neither Seller
makes any representation or warranty to Purchaser with respect to (i) the
information set forth in the Confidential Offering Memorandum dated April, 1997
provided to the Purchaser by WL or (ii) any financial projection or forecast
relating to the Condition of the Seller's Business or (iii) any presentation by
the Sellers of the Condition of the Seller's Business. With respect to any such
projection or forecast delivered by or on behalf of any Seller to Purchaser,
Purchaser acknowledges that (i) there are uncertainties inherent in attempting
to make such projections and forecasts, (ii) it is familiar with such
uncertainties, (iii) it is taking full responsibility for making its own
evaluation of the adequacy and accuracy of all such projections and forecasts
furnished to it and (iv) it shall have no claim against WL or PD, as the case
may be, with respect to such projections and forecasts prepared in good faith by
WL or PD, as the case may be.
ARTICLE XII
INDEMNIFICATION
12.01 Indemnification. (a) Subject to paragraph (c) of this Section and the
other Sections of this Article XII, each of WL and PD, as the case may be, shall
indemnify Purchaser and its officers, directors, employees, agents and
Affiliates in respect of, and hold each of them harmless from and against, any
and all Losses suffered, incurred or sustained by any of them or to which any of
them becomes subject, resulting from, arising out of or relating to:
(i) Any Retained Liability of the Sellers including, but not limited
to, any claim arising from any liability under or violation of any Environmental
Laws arising from any action taken or omitted to be taken on or prior to the
Closing Date;
(ii) Misrepresentation or breach of warranty or covenant or agreement
by either of the Sellers made or contained in this Agreement, the Operative
<PAGE> 56
Agreements or in any Exhibit, Schedule, certificate or other instrument
furnished or to be furnished to the Purchaser under this Agreement or the
Operative Agreements;
(iii) Failure to comply with any bulk sales or similar laws applicable
to the transactions contemplated by this Agreement;
(iv) Litigation or other claims arising from acts, failures to act or
events relating to the Business or the Assets which occurred prior to the
Closing Date, including without limitation product liability and product
warranty claims for products sold by the Sellers prior to the Closing Date; and
(v) Any acts or omissions to act by the Sellers or their Affiliates,
or any of their employees, agents or representatives, that result in any
violation or alleged violation of any Law, or Order, that in any manner
financially adversely affects the rights and benefits of the Purchaser under
this Agreement or under any of the Operative Agreements.
(vi) The use of the Assets and Properties of the Business or operation
of the Facility or the Business prior to the Closing Date.
Furthermore, the parties agree that in no event will either PD or WL, as
the case may be, be liable to Purchaser for special, consequential, indirect,
punitive or similar damages including, without limitation, lost profits, for
either WL's or PD's, as the case may be, actions or failure to act.
(b) Subject to paragraph (c) of this Section and the other Sections of this
Article XII, Purchaser shall indemnify each of WL and PD, as the case may be,
and their respective officers, directors, employees, agents and Affiliates in
respect of, and hold each of them harmless from and against, any and all Losses
suffered, incurred or sustained by any of them or to which any of them becomes
subject, resulting from, arising out of or relating to:
(i) The Assumed Liabilities;
(ii) Misrepresentation or breach of warranty or covenant or agreement
by the Purchaser made or contained in this Agreement, the Operative Agreements
or in any Exhibit, Schedule, certificate or other instrument furnished or to be
furnished to the Sellers under this Agreement or the Operative Agreements;
(iii) Litigation or other claims arising from acts, failures to act or
events relating to the Business or the Assets which occurred after the Closing
Date, including without limitation product liability and product warranty claims
from products sold after the Closing Date by Purchaser and liability under or
violations of Environmental Laws but excluding Claims to the extent arising from
the existence of liabilities or violations of Environmental Laws which occurred
prior to the Closing Date which could not have been mitigated by Purchaser after
the Closing Date;
<PAGE> 57
(iv) The use of the Assets and Properties of the Business or operation
of the Facility or the Business on and after the Closing Date;
(v) Any acts or omissions to act by the Purchaser or its Affiliates,
or any of their employees, agents or representatives, that result in any
violation or alleged violation of any Law or Order that in any manner adversely
affects the rights and benefits of the Sellers under this Agreement or under any
of the Operative Agreements; and
(vi) The use by Purchaser or any Affiliate or third party of the
Establishment License, in the operation of the Facility or in the manufacture,
use, sale, storage or shipment of any products for itself or any Affiliate or
third party, including, without limitation, any acts or failures to act of any
party other than Sellers, which result in a failure on the part of Sellers to be
in compliance with the requirements of the Establishment License or any laws,
rules or regulations applicable thereto.
(c) Notwithstanding anything to the contrary contained in this Agreement,
no amounts of indemnity shall be payable as a result of any claim in respect of
a Loss arising under paragraph (a) or (b) of Section 12.01:
(i) unless, with respect to any claim, such claim involves Losses in
excess of $50,000;
(ii) unless, until and then only to the extent that the Indemnified
Parties thereunder have suffered, incurred, sustained or become subject to
Losses referred to in such paragraphs in excess of $500,000 in the aggregate;
(iii) with respect to any claim for indemnification thereunder, unless
the Indemnified Party has given the Indemnifying Party a Claim Notice or
Indemnity Notice, as applicable, with respect to such claim, setting forth in
reasonable detail the specific facts and circumstances pertaining thereto, (A)
as soon as practical following the time at which the Indemnified Party
discovered or reasonably should have discovered such claim (except to the extent
the Indemnifying Party is not prejudiced by any delay in the delivery of such
notice) and (B) in any event prior to the applicable Cut-off Date. A Claim for
which notice was timely given pursuant to this Article shall include all costs
associated with the subject matter of the Claim, whether or not evident when the
notice was given;
(iv) with respect to any Loss resulting from a misrepresentation,
breach of warranty or nonfulfillment or failure to perform a covenant or
agreement that is either (A) disclosed in a written notice, setting forth in
reasonable detail the specific facts and circumstances pertaining thereto,
delivered by the Indemnifying Party to the Indemnified Party after the date of
this Agreement and at or prior to the Closing or (B) otherwise actually known to
the Indemnified Party prior to the Closing, if the Indemnified Party
nevertheless elects to close (regardless of whether the Indemnified
<PAGE> 58
Party waives such misrepresentation, breach, nonfulfillment or failure in
writing or otherwise);
(v) with respect to any Loss, to the extent that the Indemnified Party
had a reasonable opportunity, but failed, in good faith to mitigate the Loss,
including but not limited to the failure to use commercially reasonable efforts
to recover under a policy of insurance or under a contractual right of set-off
or indemnity;
(vi) with respect to any Loss suffered, incurred or sustained by any
party or its Affiliates or to which any of them becomes subject to the extent it
arises from or was caused by actions taken or failed to be taken by such party
or any of its Affiliates after the Closing; or
(vii) with respect to any Loss, to the extent that such Loss is caused
by (a) any inaccuracy of a representation or breach of a warranty made by the
Indemnified Party in the Agreement or (b) the negligence or willful misconduct
of such Indemnified Party or any of its officers, directors, employees, agents
or affiliates.
(d) The limitations contained in clauses (i), (ii) and (iii) of Section
12.01(c) shall not apply to Losses arising from breach of (x) the agreements of
WL and/or PD, as the case may be, contained in Sections 3.12(e), 5.10, 5.11,
14.04 and 14.06 and of Purchaser contained in Sections 14.04 and 14.06 and (y)
Purchaser's and WL's and/or PD's, as the case may be, respective obligations
hereunder with respect to Assumed Liabilities and Retained Liabilities
(including, without limitation, any administrative or judicial proceeding
initiated by the United States Environmental Protection Agency under CERCLA or
by any state authority under similar state laws, which are currently pending
against Sellers).
12.02 Method of Asserting Claims. All claims for indemnification by any
Indemnified Party under Section 12.01 will be asserted and resolved as follows:
(a) In the event any claim or demand in respect of which an Indemnified
Party might seek indemnity under Section 12.01 is asserted against or sought to
be collected from such Indemnified Party by a Person other than either Seller,
Purchaser or any Affiliate of either Seller or Purchaser (a "Third Party
Claim"), the Indemnified Party shall deliver a Claim Notice with reasonable
promptness to the Indemnifying Party. The Indemnifying Party will notify the
Indemnified Party as soon as practicable within the Dispute Period whether the
Indemnifying Party disputes its liability to the Indemnified Party under Section
12.01 and whether the Indemnifying Party desires, at its sole cost and expense,
to defend the Indemnified Party against such Third Party Claim.
(i) If the Indemnifying Party notifies the Indemnified Party within
the Dispute Period that the Indemnifying Party desires to defend the Indemnified
<PAGE> 59
Party with respect to the Third Party Claim pursuant to this Section 12.02(a),
then the Indemnifying Party will have the right to defend, at the sole cost and
expense of the Indemnifying Party, such Third Party Claim by all appropriate
proceedings, which proceedings will be vigorously and diligently prosecuted by
the Indemnifying Party to a final conclusion or will be settled at the
discretion of the Indemnifying Party (with the consent of the Indemnified Party,
which consent will not be unreasonably withheld). The Indemnifying Party will
have full control of such defense and proceedings, including (except as provided
in the immediately preceding sentence) any settlement thereof; provided,
however, that the Indemnified Party may, at the sole cost and expense of the
Indemnified Party, at any time prior to the Indemnifying Party's delivery of the
notice referred to in the first sentence of this Section 12.02(a)(i), file any
motion, answer or other pleadings or take any other action that the Indemnified
Party reasonably believes to be necessary or appropriate to protect its
interests and not prejudicial to the Indemnifying Party (it being understood and
agreed that, except as provided in clause (ii) below, if an Indemnified Party
takes any such action that is prejudicial and causes a final adjudication that
is adverse to the Indemnifying Party, the Indemnifying Party will be relieved of
its obligations hereunder with respect to the portion of such Third Party Claim
prejudiced by the Indemnified Party's action); and provided further, that if
requested by the Indemnifying Party, the Indemnified Party will, at the sole
cost and expense of the Indemnifying Party, cooperate with the Indemnifying
Party and its counsel in contesting any Third Party Claim that the Indemnifying
Party elects to contest, or, if appropriate and related to the Third Party Claim
in question, in making any counterclaim against the Person asserting the Third
Party Claim, or any cross-complaint against any Person (other than the
Indemnified Party or any of its Affiliates). Notwithstanding the foregoing, the
Indemnified Party may take over the control of the defense or settlement of a
Third Party Claim at any time if it irrevocably waives its right to indemnity
under Section 12.01 with respect to such Third Party Claim.
(ii) If the Indemnifying Party fails to notify the Indemnified Party
within the Dispute Period that the Indemnifying Party desires to defend the
Third Party Claim pursuant to Section 12.02(a), or if the Indemnifying Party
gives such notice but fails to prosecute vigorously and diligently or settle the
Third Party Claim, or if the Indemnifying Party fails to give any notice
whatsoever within the Dispute Period, then the Indemnified Party will have the
right to defend, at the sole cost and expense of the Indemnifying Party, the
Third Party Claim by all appropriate proceedings, which proceedings will be
vigorously and diligently prosecuted by the Indemnified Party to a final
conclusion or will be settled at the discretion of the Indemnified Party (with
the consent of the Indemnifying Party, which consent will not be unreasonably
withheld). The Indemnified Party will have full control of such defense and
proceedings, including (except as provided in the immediately preceding
sentence) any settlement thereof; provided, however, that if requested by the
Indemnified Party, the Indemnifying Party will, at the sole cost and expense of
the Indemnifying Party, cooperate with the Indemnified Party and its counsel in
contesting any Third Party Claim which the Indemnified Party is contesting, or,
if appropriate and related to the Third Party Claim in question, in making any
counterclaim against the Person asserting the Third Party Claim, or any
cross-complaint against any Person (other than the Indemnified Party or any of
its
<PAGE> 60
Affiliates). Notwithstanding the foregoing provisions of this Section
12.02(a)(ii), if the Indemnifying Party has notified the Indemnified Party
within the Dispute Period that the Indemnifying Party disputes its liability
hereunder to the Indemnified Party with respect to such Third Party Claim and if
such dispute is resolved in favor of the Indemnifying Party in the manner
provided in clause (iii) below, the Indemnifying Party will not be required to
bear the costs and expenses of the Indemnified Party's defense or settlement
pursuant to this Section 12.02(a)(ii) or of the Indemnifying Party's
participation therein at the Indemnified Party's request, and the Indemnified
Party will reimburse the Indemnifying Party in full for all reasonable costs and
expenses incurred by the Indemnifying Party in connection with such litigation.
(iii) If the Indemnifying Party notifies the Indemnified Party that it
does not dispute its liability to the Indemnified Party with respect to the
Third Party Claim under Section 12.01 or fails to notify the Indemnified Party
within the Dispute Period whether the Indemnifying Party disputes its liability
to the Indemnified Party with respect to such Third Party Claim, the Loss in the
amount specified in the Claim Notice will be conclusively deemed a liability of
the Indemnifying Party under Section 12.01 and the Indemnifying Party shall pay
the amount of such Loss to the Indemnified Party on demand. If the Indemnifying
Party has timely disputed its liability with respect to such claim, the
Indemnifying Party and the Indemnified Party will proceed in good faith to
negotiate a resolution of such dispute, and if not resolved through negotiations
within the Resolution Period, such dispute shall be resolved by litigation in a
court of competent jurisdiction.
(b) In the event any Indemnified Party should have a claim under Section
12.01 against any Indemnifying Party that does not involve a Third Party Claim,
the Indemnified Party shall deliver an Indemnity Notice with reasonable
promptness to the Indemnifying Party. If the Indemnifying Party notifies the
Indemnified Party that it does not dispute the claim described in such Indemnity
Notice or fails to notify the Indemnified Party within the Dispute Period
whether the Indemnifying Party disputes the claim described in such Indemnity
Notice, the Loss in the amount specified in the Indemnity Notice will be
conclusively deemed a liability of the Indemnifying Party under Section 12.02
and the Indemnifying Party shall pay the amount of such Loss to the Indemnified
Party on demand. If the Indemnifying Party has timely disputed its liability
with respect to such claim, the Indemnifying Party and the Indemnified Party
will proceed in good faith to negotiate a resolution of such dispute, and if not
resolved through negotiations within the Resolution Period, such dispute shall
be resolved by litigation in a court of competent jurisdiction.
(c) In the event of any Loss resulting from a misrepresentation, breach of
warranty or nonfulfillment or failure to be performed of any covenant or
agreement contained in this Agreement as to which an Indemnified Party would be
entitled to claim indemnity under Section 12.01 but for the provisions of
Section 12.01(c)(ii), such Indemnified Party may nevertheless deliver a written
notice to the Indemnifying Party containing the information that would be
required in a Claim Notice or an Indemnity Notice, as applicable, with respect
to such Loss. In the case of a Claim Notice, the
<PAGE> 61
provisions of Section 12.02(a)(i) will be applicable. If the Indemnifying Party
notifies the Indemnified Party that it does not dispute the claim described
therein or fails to notify the Indemnified Party within the Dispute Period
whether the Indemnifying Party disputes the claim described in such Claim Notice
or Indemnity Notice, as the case may be, the Loss specified in the notice will
be conclusively deemed to have been incurred by the Indemnified Party for
purposes of making the determination set forth in Section 12.01(c)(ii). If the
Indemnifying Party has timely disputed the claim described in such Claim Notice
or Indemnity Notice, as the case may be, the Indemnifying Party and the
Indemnified Party will proceed in good faith to negotiate a resolution of such
dispute, and if not resolved through negotiations within the Resolution Period,
such dispute shall be resolved by litigation in a court of competent
jurisdiction.
(d) In the event of any claim for indemnity under Section 12.01(a),
Purchaser agrees to give Sellers and their respective Representatives reasonable
access to the Business Books and Records and Employees in connection with the
matters for which indemnification is sought to the extent WL reasonably deems
necessary in connection with its rights and obligations under this Article XII.
12.03 Exclusivity. After the Closing, to the extent permitted by Law, the
indemnities set forth in this Article XII shall be the exclusive remedies of
Purchaser, WL and PD, as the case may be, and their respective officers,
directors, employees, agents and Affiliates for any misrepresentation, breach of
warranty or nonfulfillment or failure to perform any covenant or agreement
contained in this Agreement, and the parties shall not be entitled to a
rescission of this Agreement or to any further indemnification rights or claims
of any nature whatsoever in respect thereof, all of which the parties hereto
hereby waive.
ARTICLE XIII
TERMINATION
13.01 Termination. This Agreement may be terminated, and the transactions
contemplated hereby may be abandoned:
(a) at any time before the Closing, by mutual written agreement of WL and
Purchaser;
(b) at any time before the Closing, by either Seller or Purchaser, in the
event that any Order or Law becomes effective restraining, enjoining, or
otherwise prohibiting or making illegal the consummation of any of the
transactions contemplated by this Agreement or any of the Operative Agreements
upon notification of the non-terminating party by the terminating party; or
(c) at any time after March 15, 1998 by either Seller or Purchaser upon
notification of the non-terminating party by the terminating party if the
Closing shall not have occurred on or before such date and such failure to
consummate is not
<PAGE> 62
caused by a delay in the procurement of any approval of any Governmental or
Regulatory Authority set forth in Schedule 4.04 and Schedule 5.01.
13.02 Effect of Termination. If this Agreement is validly terminated
pursuant to Section 13.01, this Agreement will forthwith become null and void,
and there will be no liability or obligation on the part of either WL or PD, as
the case may be, or Purchaser (or any of their respective officers, directors,
employees, agents or other representatives or Affiliates), except that the
provisions with respect to expenses in Section 14.04 and confidentiality in
Section 14.06 will continue to apply following any such termination.
ARTICLE XIV
MISCELLANEOUS
14.01 Notices. All notices, requests and other communications hereunder
must be in writing and will be deemed to have been duly given only if delivered
personally or by facsimile transmission (with the original promptly sent by any
of the other methods herein) or mailed ( certified or registered, return receipt
requested) or by nationally recognized overnight courier service to the parties
at the following addresses or facsimile numbers:
If to Purchaser, to:
King Pharmaceuticals, Inc.
501 Fifth Street
Bristol, Tennessee 37620
Attn: Chairman of the Board
with a copy to:
John A. A. Bellamy, Esq.
Executive Vice President and General Counsel
King Pharmaceuticals, Inc.
501 Fifth Street
Bristol, Tennessee 37620
and to:
Verne C. Hampton II
Dickinson, Wright, Moon, Van Dusen & Freeman
500 Woodward Avenue, Suite 4000
Detroit, Michigan 48226
If to WL or PD, to:
<PAGE> 63
Warner-Lambert Company
201 Tabor Road
Morris Plains, NJ 07950
Facsimile No.: 973-540-4009
Attn: President, Pharmaceutical Sector
with a copy to:
Warner-Lambert Company
201 Tabor Road
Morris Plains, NJ 07950
Facsimile No.: 973-540-3927
Attn: Vice President and General Counsel
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided in this Section, be deemed given upon receipt, and (iii) if delivered
by mail in the manner described above to the address as provided in this
Section, be deemed given upon receipt (in each case regardless of whether such
notice, request or other communication is received by any other Person to whom a
copy of such notice, request or other communication is to be delivered pursuant
to this Section). Any party from time to time may change its address, facsimile
number or other information for the purpose of notices to that party by giving
notice specifying such change to the other party hereto.
14.02 Bulk Sales Act. The parties hereby waive compliance with
the bulk sales act or comparable statutory provisions of each applicable
jurisdiction. WL shall indemnify Purchaser and its officers, directors,
employees, agents and Affiliates in respect of, and hold each of them harmless
from and against, any and all Losses suffered, incurred or sustained by any of
them or to which any of them becomes subject, resulting from, arising out of or
relating to the failure of WL or PD, as the case may be, to comply with the
terms of any such provisions applicable to the transactions contemplated by this
Agreement.
14.03 Entire Agreement. This Agreement and the Operative
Agreements supersede all prior discussions and agreements between the parties
with respect to the subject matter hereof and thereof, including without
limitation that certain nondisclosure agreement between WL and the Purchaser
dated August 21, 1997, and, together with the Exhibits and Schedules attached to
this Agreement or the Operative Agreements, which are hereby deemed to have been
fully incorporated herein or therein by reference hereto or thereto, contain the
sole and entire agreement between the parties hereto with respect to the subject
matter hereof and thereof.
14.04 Expenses. Except as otherwise expressly provided in this
Agreement (including without limitation as provided in Section 13.02), whether
or not the transactions contemplated hereby are consummated, each party will pay
its own costs
<PAGE> 64
and expenses incurred in connection with the negotiation, execution and closing
of this Agreement and the Operative Agreements and the transactions contemplated
hereby and thereby.
14.05 Public Announcements. At all times at or before the Closing, WL, PD
and Purchaser will not issue or make any reports, statements or releases to the
public or generally to the employees, customers, suppliers or other Persons to
whom WL or PD, as the case may be, sells goods or provides services in
connection with the Business or with whom WL or PD, as the case may be,
otherwise has significant business relationships in connection with the Business
with respect to this Agreement or the transactions contemplated hereby without
the consent of the other, which consent shall not be unreasonably withheld. If
either party is unable to obtain the approval of its public report, statement or
release from the other party and such report, statement or release is, in the
opinion of legal counsel to such party, required by Law in order to discharge
such party's disclosure obligations, then such party may make or issue the
legally required report, statement or release and promptly furnish the other
party with a copy thereof. WL, PD and Purchaser will also obtain each party's
prior approval of any press release to be issued immediately following the
Closing announcing the consummation of the transactions contemplated by this
Agreement. Attached hereto as Section 14.05 of the Disclosure Schedule is a
mutually agreed upon press release the publication of which the parties consent
to on the Closing Date upon consummation of the transactions contemplated herein
and in the Operative Agreements. The terms of this Section will not apply in
connection with consents, notices, approvals and filings referred to in Schedule
4.03, 4.04 and 5.04.
14.06 Confidentiality. For a period of five (5) years from the Closing
Date, each party hereto will hold, and will use its best efforts to cause its
Affiliates, and in the case of Purchaser, any Person who has provided, or who is
considering providing, financing to Purchaser to finance all or any portion of
the Purchase Price, and their respective Representatives to hold in strict
confidence from any Person (other than any such Affiliate, Person who has
provided, or who is considering providing, financing or Representative) all
documents and information concerning the other party or any of its Affiliates
furnished to it by the other party or such other party's Representatives in
connection with this Agreement or the transactions contemplated hereby, except
to the extent that such documents or information can be shown to have been (a)
previously known by the party receiving such documents or information, (b) in
the public domain (either prior to or after the furnishing of such documents or
information hereunder) through no fault of such receiving party or (c) later
acquired by the receiving party from another source if the receiving party is
not aware that such source is under an obligation to another party hereto to
keep such documents and information confidential. The foregoing restrictions
shall not apply to documents and information (i) compelled to be disclosed by
judicial or administrative process (including without limitation in connection
with obtaining the necessary approvals of this Agreement and the transactions
contemplated hereby of Governmental or Regulatory Authorities) or by other
requirements of Law or (ii) disclosed in an Action or Proceeding brought by a
party hereto in pursuit of its rights or in the exercise of its remedies
hereunder, or (iii) required
<PAGE> 65
in any document relating to the sale or proposed sale of Purchaser's stock to
the public. In the event the transactions contemplated hereby are not
consummated, upon the request of the other party, each party hereto will, and
will cause its Affiliates, any Person who has provided, or who is providing,
financing to such party and their respective Representatives to, promptly (and
in no event later than five (5) Business Days after such request) redeliver or
cause to be redelivered all copies of confidential documents and information
furnished by the other party in connection with this Agreement or the
transactions contemplated hereby and destroy or cause to be destroyed all notes,
memoranda, summaries, analyses, compilations and other writings related thereto
or based thereon prepared by the party furnished such documents and information
or its Representatives.
14.07 Waiver. Any term or condition of this Agreement may be waived at any
time by the party that is entitled to the benefit thereof, but no such waiver
shall be effective unless set forth in a written instrument duly executed by or
on behalf of the party waiving such term or condition. No waiver by any party of
any term or condition of this Agreement, in any one or more instances, shall be
deemed to be or construed as a waiver of the same or any other term or condition
of this Agreement on any future occasion. All remedies, either under this
Agreement or by Law or otherwise afforded, will be cumulative and not
alternative.
14.08 Amendment. This Agreement may be amended, supplemented or modified
only by a written instrument duly executed by or on behalf of each party hereto.
14.09 No Third Party Beneficiary. The terms and provisions of this
Agreement are intended solely for the benefit of each party hereto and their
respective successors or permitted assigns, and it is not the intention of the
parties to confer third-party beneficiary rights upon any other Person other
than any Person entitled to indemnity under Article XII. This Agreement may be
amended, supplemented, modified or terminated by the parties without notice or
other obligation to any Person not a party hereto and entitled to such
indemnity.
14.10 No Assignment; Binding Effect. Neither this Agreement nor any right,
interest or obligation hereunder may be assigned by any party hereto without the
prior written consent of the other party hereto and any attempt to do so will be
void, except (a) for assignments and transfers by operation of Law and (b) that
Purchaser may assign any or all of its rights, interests and obligations
hereunder to a wholly-owned subsidiary or an Affiliate, provided that any such
assignee agrees in writing to be bound by all of the terms, conditions and
provisions contained herein, but no such assignment referred to in clause (b)
shall relieve Purchaser of its obligations hereunder. Subject to the preceding
sentence, this Agreement is binding upon, inures to the benefit of and is
enforceable by the parties hereto and their respective successors and assigns.
Purchaser may also grant security interests in the Assets at or at or after the
Closing.
<PAGE> 66
14.11 Headings. The headings used in this Agreement have been inserted for
convenience of reference only and do not define or limit the provisions hereof.
14.12 Invalid Provisions. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under any present or future Law, and if the
rights or obligations of any party hereto under this Agreement will not be
materially and adversely affected thereby, (a) such provision will be fully
severable, (b) this Agreement will be construed and enforced as if such illegal,
invalid or unenforceable provision had never comprised a part hereof, (c) the
remaining provisions of this Agreement will remain in full force and effect and
will not be affected by the illegal, invalid or unenforceable provision or by
its severance herefrom and (d) in lieu of such illegal, invalid or unenforceable
provision, there will be added automatically as a part of this Agreement a
legal, valid and enforceable provision as similar in terms to such illegal,
invalid or unenforceable provision as may be possible.
14.13 Governing Law. This Agreement shall be governed by and construed in
accordance with the Laws of the State of Michigan applicable to a Contract
executed and performed in such State, without giving effect to the conflicts of
laws principles thereof.
14.14 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officer of each party as of the date first above written.
PARKEDALE PHARMACEUTICALS, INC.
By:
----------------------------------
Name:
Title:
WARNER-LAMBERT COMPANY
By:
----------------------------------
Name:
Title:
<PAGE> 67
PARKE, DAVIS & COMPANY
By:
----------------------------------
Name:
Title:
<PAGE> 1
Exhibit 10.26
PRODUCT ASSET PURCHASE AGREEMENT
dated as of February 27, 1998
among
PARKEDALE PHARMACEUTICALS, INC.,
PARKE, DAVIS & COMPANY
and
WARNER-LAMBERT COMPANY
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
RECITALS.................................................................................1
ARTICLE 1 - DEFINITIONS..................................................................2
Affiliate.......................................................................2
Agreement.......................................................................2
Anusol .........................................................................2
Assets .........................................................................2
Assets and Properties...........................................................2
Asset Purchase Agreement........................................................2
Assignment Instruments..........................................................2
Assumed Liabilities.............................................................2
Assumption Instruments..........................................................2
Books and Records...............................................................2
Business .......................................................................3
Business Books and Records......................................................3
Business Contracts..............................................................3
Business Day....................................................................3
Business Licenses...............................................................3
CERCLA .........................................................................3
cGMP............................................................................3
Chargebacks.....................................................................3
Claim Notice....................................................................3
Clinical Toxicology Manufacturing Supply Agreement..............................3
Closing ........................................................................3
Closing Date....................................................................3
Closing Date Inventory Level....................................................3
Competetive Product.............................................................3
Condition of Seller's Business..................................................3
Consent Decree..................................................................3
Contract .......................................................................4
Cut-off Date....................................................................4
DEA ............................................................................4
Disclosure Schedule.............................................................4
Discontinued or Withdrawn Products..............................................4
Dispute Period..................................................................4
Environmental Laws..............................................................4
Excluded Assets.................................................................4
Facility........................................................................4
FDA ............................................................................4
General Assignment and Assumption...............................................4
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Governmental or Regulatory Authority............................................5
Guaranty Agreement..............................................................5
Hazardous Substances............................................................5
Hazardous Wastes................................................................5
Indebtedness....................................................................5
Indemnified Party...............................................................5
Indemnifying Party..............................................................5
Indemnity Notice................................................................5
Intellectual Property...........................................................5
Inventory.......................................................................6
January Inventory Level.........................................................6
Laws............................................................................6
License Agreement...............................................................6
Licenses .......................................................................6
Losses .........................................................................6
Manufacturing Agreements........................................................6
Manufacturing Facilities........................................................6
Medicaid Rebates................................................................6
Operative Agreements............................................................6
Order ..........................................................................6
Other Products..................................................................6
Person .........................................................................7
Pre-Closing Product Lots........................................................7
Product Financial Statements....................................................7
Products .......................................................................7
Purchase Price..................................................................7
Purchaser.......................................................................7
Purchaser Assumption Letters....................................................7
RCRA ...........................................................................7
Registrations...................................................................7
Regulatory and Technological Know-How Documents.................................7
Representative..................................................................8
Retained Liabilities............................................................8
Seller .........................................................................8
Seller Assignment Letters.......................................................8
Tax.............................................................................8
Territories.....................................................................8
Third Party Claim...............................................................8
Transition Services Agreement...................................................8
United States Products..........................................................8
U.S. Territory..................................................................8
Worldwide Products..............................................................8
Worldwide Territory.............................................................8
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE II - SALE OF ASSETS, CLOSING AND CERTAIN POST-CLOSING
OBLIGATIONS......................................................................9
2.1 Sale of Assets.........................................................9
2.2 Excluded Assets.......................................................10
2.3 Assumed Liabilities...................................................11
2.4 Purchase Price........................................................11
2.5 Closing...............................................................12
2.6 Third-Party Consents..................................................13
2.7 Fair Market Value of Assets...........................................13
2.8 Delivery of Documentation.............................................13
2.9 Territorial Restriction...............................................14
2.10 Non-competition.......................................................14
2.11 Product Regulatory Obligations........................................14
2.12 Cooperation...........................................................16
2.13 Consent Decree........................................................16
2.14 Right of First Negotiation Regarding Elase............................17
ARTICLE III - CONDITIONS TO OBLIGATIONS OF PURCHASER.....................................18
3.1 Representations and Warranties........................................18
3.2 Performance...........................................................18
3.3 Orders and Laws.......................................................18
3.4 Regulatory Consents and Approvals.....................................18
3.5 Third Party Consents..................................................19
3.6 Deliveries............................................................19
ARTICLE IV - CONDITIONS TO OBLIGATIONS OF SELLER.........................................19
4.1 Representations and Warranties........................................19
4.2 Performance...........................................................19
4.3 Orders and Laws.......................................................20
4.4 Regulatory Consents and Approvals.....................................20
4.5 Third Party Consents..................................................20
4.6 Deliveries............................................................20
ARTICLE V - REPRESENTATIONS AND WARRANTIES...............................................21
5.1 Legal Authority.......................................................21
5.2 No Conflicts..........................................................22
5.3 Title to Assets.......................................................22
5.4 Litigation............................................................22
5.5 Inventory and Inventory Levels........................................22
5.6 Intellectual Property Rights..........................................23
5.7 Contracts.............................................................24
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
5.8 Licenses..............................................................25
5.9 Conduct of Business...................................................26
5.10 Ability to Conduct Business...........................................26
5.11 Relationship with Suppliers and Customers.............................26
5.12 The Products..........................................................26
5.13 Brokers...............................................................27
5.14 Financing.............................................................27
5.15 Compliance with Consent Decree........................................27
5.16 Events Subsequent to December 31, 1997................................28
5.17 Debarment.............................................................28
5.18 DEA...................................................................28
5.19 Environmental Matters ................................................29
5.20 Product and Service Warranties........................................30
5.21 Product Financial Statements..........................................30
5.22 Material Facts........................................................30
5.23 Non-marketed Products.................................................30
5.24 Disclaimer of Warranties..............................................30
ARTICLE VI - INDEMNIFICATION.............................................................31
6.1 Indemnification.......................................................31
6.2 Method of Asserting Claims............................................33
6.3 Exclusivity...........................................................35
ARTICLE VII - MISCELLANEOUS..............................................................36
7.1 Payment of Transaction Expenses.......................................36
7.2 Drug Master Files.....................................................36
7.3 Use of Trademarks and Trade Names.....................................36
7.4 Delivery of Assets and Inventory, etc.; Removal of Property...........37
7.5 Further Assurances and Access.........................................37
7.6 Notices...............................................................37
7.7 Survival of Representations, Warranties, Covenants and Agreements.....39
7.8 No Other Representations..............................................39
7.9 Independent Contractor................................................39
7.10 Entire Agreement......................................................39
7.11 Public Announcements..................................................40
7.12 Confidentiality.......................................................40
7.13 Waiver................................................................40
7.14 Amendment.............................................................41
7.15 No Third Party Beneficiary............................................41
7.16 No Assignment; Binding Effect.........................................41
7.17 Headings..............................................................41
7.18 Invalid Provisions....................................................41
7.19 Governing Law.........................................................41
7.20 Counterparts..........................................................42
</TABLE>
<PAGE> 6
Disclosure Schedule
Schedule 2.3(a)(ii) - Rebates
Exhibits
A Product List
B General Assignment and Assumption
C Seller Assignment Letters
D Purchaser Assumption Letters
PRODUCT ASSET PURCHASE AGREEMENT
THIS PRODUCT ASSET PURCHASE AGREEMENT (the "Agreement"), dated as of
February 27, 1998, is made and entered into by and between Warner-Lambert
Company, a Delaware corporation ("Seller"), and Parkedale Pharmaceuticals, Inc.,
a Michigan corporation ("Purchaser").
RECITALS
WHEREAS, Seller is engaged in the business of manufacturing, packaging,
developing, testing, distributing and selling the Products (the "Business") and
owns certain rights related to (i) the United States prescription product
Anusol-HC(R) ("Anusol"), (ii) the United States products listed in Exhibit A
(together with Anusol, the "United States Products") and (iii) the products
identified in Exhibit A, with respect to the countries specified on Exhibit A
for such products, attached hereto (the "Worldwide Products"). The Worldwide
Products and the United States Products are referred to herein as the
"Products";
WHEREAS, Seller desires to sell, transfer and assign to Purchaser, and
Purchaser desires to purchase and acquire from Seller, certain of the assets of
Seller relating to the Products, and in connection therewith, Purchaser has
agreed to assume certain of the liabilities of Seller relating to the Products,
all on the terms set forth herein; and
WHEREAS, this Agreement is being entered into in connection with the
transactions pursuant to which (i) Purchaser, Parke, Davis & Company, a Michigan
corporation ("Parke"), and Seller have entered into that certain Asset Purchase
Agreement dated of even date herewith (the "Asset Purchase Agreement"), (ii)
Purchaser, Parke and Seller have entered into those certain License Agreements
relating to the Anusol trademark and certain other trademarks dated of even date
herewith (the "License Agreements"), (iii) Purchaser and Seller have entered
into certain Manufacturing Agreements dated of even date herewith (the
"Manufacturing Agreements"), (iv) Purchaser and Seller have entered into that
certain Transition Services Agreement dated of even date herewith (the
"Transition Services Agreement"), (v) King Pharmaceuticals, Inc., a Tennessee
corporation and the sole shareholder of Purchaser has
<PAGE> 7
executed that certain Guaranty Agreement dated of even date herewith (the
"Guaranty") and (vi) Purchaser and Seller have entered into that certain
Clinical and Toxicology Manufacturing Supply Agreement dated of even date
herewith (the "Clinical Toxicology Manufacturing Supply Agreement").
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 (a) Definitions.
As used in this Agreement, the following defined terms have the
meanings indicated below:
"Affiliate" shall mean any Person that directly, or indirectly through
one or more intermediaries, controls or is controlled by or is under common
control with the Person specified. For purposes of this definition, control of a
Person means ownership of fifty percent (50%) or more of the voting or income
interest in such Person.
"Agreement" shall have the meaning set forth in the preamble.
"Anusol" shall have the meaning set forth in the Recitals.
"Assets" shall have the meaning set forth in Section 2.1.
"Assets and Properties" of any Person means all assets and properties
of every kind, nature, character and description (whether real, personal or
mixed, whether tangible or intangible and wherever situated), including the
goodwill related thereto, operated, owned or leased by such Person.
"Asset Purchase Agreement" shall have the meaning set forth in the
Recitals.
"Assignment Instruments" shall have the meaning set forth in
Section 2.5.
"Assumed Liabilities" shall have the meaning set forth in Section 2.3.
"Assumption Instruments" shall have the meaning set forth in
Section 2.5.
<PAGE> 8
"Books and Records" of any Person means, without any limitation, all
files, documents, instruments, papers, books and records (scientific,
developmental, distribution, marketing, financial or other) relating to the
business, results of operations and Assets and Properties of such Person,
including, without limitation, books and records relating to Intellectual
Property, budgets, pricing guidelines, ledgers, journals, Contracts, Licenses,
customer lists, computer files and programs, retrieval programs, operating data,
plans, environmental studies and sales data, target lists, sampling lists,
physician lists, volume prescriber lists, marketing information and strategies,
marketing summaries, program details, promotional materials, training materials
for sales personnel, advertising data, and advertisements related to the
Products in any form or fashion, in and outside the United States, together with
all internal and external correspondence, historical records and copies of all
of the foregoing.
"Business" shall have the meaning set forth in the Recitals.
"Business Books and Records" shall have the meaning set forth in
Section 2.1(vi).
"Business Contracts" shall have the meaning set forth in Section
2.1(iv).
"Business Day" means a day other than Saturday, Sunday or any day on
which banks located in the State of Michigan are authorized or obligated to
close.
"Business Licenses" shall have the meaning set forth in Section
2.1(v).
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, and the rules and regulations promulgated
thereunder.
"cGMP" shall have the meaning set forth in Section 5.12.
"Chargebacks" shall have the meaning set forth in Section 2.3(a)(ii).
"Claim Notice" means written notification pursuant to Section 6.2(a)
of a Third Party Claim as to which indemnity under Section 6.1 is sought by an
Indemnified Party, enclosing a copy of all papers served, if any, and specifying
the nature of and basis for such Third Party Claim and for the Indemnified
Party's claim against the Indemnifying Party under Section 6.1, together with
the amount or, if not then reasonably ascertainable, the estimated amount,
determined in good faith, of such Third Party Claim.
"Clinical Toxicology Manufacturing Supply Agreement" shall have the
meaning set forth in the Recitals.
"Closing" shall mean the consummation of the transactions contemplated
herein.
<PAGE> 9
"Closing Date" shall mean (a) February 27, 1998, or (b) such other
date as Purchaser and Seller mutually agree upon in writing.
"Closing Date Inventory Level" shall have the meaning set forth in
Section 2.4(b).
"Competitive Product" shall have the meaning set forth in Section
2.10.
"Condition of Seller's Business" means with respect to the Business,
the financial condition, results of operations and condition of the Assets.
"Consent Decree" shall mean that certain Consent Decree of Permanent
Injunction entered into in the United States District Court for the District of
New Jersey in Civil Action No. 93-3525 styled as United States of America v.
Warner-Lambert Company, a corporation, and Melvin R. Goodes and Lodewijk J. R.
de Vink, individuals.
"Contract" means any agreement, lease, license, evidence of
Indebtedness, mortgage, indenture, security agreement or other contract.
"Cut-off Date" means, with respect to any representation, warranty,
covenant or agreement contained in this Agreement, the date on which such
representation, warranty, covenant or agreement ceases to survive as provided in
clause (b) or (c) of Section 7.7, as applicable.
"DEA" shall have the meaning set forth in Section 5.18.
"Disclosure Schedule" means the record delivered to Purchaser by
Seller herewith and dated as of the date hereof, containing all lists,
descriptions, exceptions and other information and materials as are required to
be included therein by Seller pursuant to this Agreement.
"Discontinued or Withdrawn Products" means Ophthochlor(R)
(chloramphenicol ophthalmic solution), Ophthocort(R) (chloramphenicol, polymyxin
B sulfate and hydrocortisone acetate opthalmic ointment), Chloromycetin(R)
Hydrocortisone Opthalmic Chloromycetin(R) (chloramphenicol capsules),
Surital(R), Theelin(R), Pitocin(R), Humatin(R) (paromomycin sulfate capsules),
Procan(R) SR (procainamide hydrochloride extended-release tablets, 500 mg, 750
mg and 1000 mg tablets), Procan(R) capsules, Aplitest(R) (Tuberculin), Poison
Ivy Extract and Flougen(R), ACTH for injection and Vira-A(R) for infusion.
"Dispute Period" means the period ending thirty (30) days following
receipt by an Indemnifying Party of either a Claim Notice or an Indemnity
Notice.
"Environmental Laws" means any federal, state or local law,
regulation, ordinance or Order pertaining to the protection of the environment
and the health and safety of the public, including but not limited to CERCLA,
RCRA and the Hazardous
<PAGE> 10
Materials Transportation Act in existence as of the Closing Date which govern
(i) the emission or discharge of Hazardous Substances into the environment; (ii)
the control of Hazardous Wastes; or (iii) the use, generation, transport,
treatment, storage, disposal or removal of Hazardous Substances.
"Excluded Assets" shall have the meaning set forth in Section 2.2.
"Facility" shall mean the facility operated by Seller located at 870
Parkedale Road, Rochester, Michigan.
"FDA" shall mean the United States Food and Drug Administration.
"General Assignment and Assumption" shall have the meaning set forth
in Section 2.5.
"Governmental or Regulatory Authority" shall mean any court, tribunal,
arbitrator, authority, agency, commission, official or other instrumentality of
the United States, any foreign country or any domestic or foreign state, county,
city or other political subdivision.
"Guaranty Agreement" shall have the meaning set forth in the Recitals.
"Hazardous Substances" means (A) asbestos which is friable, urea
formaldehyde foam insulation, transformers or other equipment which contain
dielectric fluid containing levels of polychlorinated biphenyls in excess of
regulatory requirements, or radon gas; and (B) any chemical, material or
substance defined as, or included in the definition of "hazardous substances",
"hazardous wastes", "hazardous materials", "extremely hazardous waste",
"restricted hazardous waste" or "toxic substances" or words of similar import
under any Environmental Law.
"Hazardous Wastes" means hazardous wastes as defined by RCRA or
equivalent state laws, and the regulations thereunder.
"Indebtedness" of any Person means all obligations of such Person (i)
for borrowed money, (ii) evidenced by notes, bonds, debentures or similar
instruments, (iii) for the deferred purchase price of goods or services (other
than trade payables or accruals incurred in the ordinary course of business),
(iv) under capital leases or (v) in the nature of guarantees of the obligations
described in clauses (i) through (iv) above of any other Person.
"Indemnified Party" means any Person claiming indemnification under
any provision of Article VI, including without limitation a Person asserting a
claim pursuant to Section 6.2(c).
<PAGE> 11
"Indemnifying Party" means any Person against whom a claim for
indemnification is being asserted under any provision of Article VI, including
without limitation a Person against whom a claim is asserted pursuant to Section
6.2(c).
"Indemnity Notice" means written notification pursuant to Section
6.2(b) of a claim for indemnity under Article VI by an Indemnified Party,
specifying the nature of and basis for such claim, together with the amount or,
if not then reasonably ascertainable, the estimated amount, determined in good
faith, of such claim.
"Intellectual Property" shall mean, with respect to any Product, all
of the following without limitation and whether registered, issued, pending or
in a draft form: all patents, trademarks and trademark rights, service marks and
service mark rights, service names and service name rights, brand names,
inventions, copyrights and copyright rights, processes, formulae, product names,
logos, slogans, trade secrets, trade dress, processes, designs, methodologies,
technical information and know-how, in each case relating to the manufacture,
packaging, testing, development, distribution, marketing, use or sale of such
Product in the United States, with respect to a United States Product, or in the
Worldwide Territory with respect to a Worldwide Product, except that the term
"Intellectual Property" shall not include (a) any trade dress or know-how
utilized in connection with the manufacture, use or sale of any of the Other
Products and (b) the Anusol trademark and any other Intellectual Property listed
in Section 7.3(b) of the Disclosure Schedule (except as provided in a License
Agreement).
"Inventory" shall have the meaning set forth in Section 2.1(iii).
"January Inventory Level" shall have the meaning set forth in Section
2.4(b).
"Laws" shall mean all laws, statutes, rules, regulations, ordinances
and other pronouncements having the effect of law of the United States, any
foreign country or any domestic or foreign state, county, city or other
political subdivision or of any Governmental or Regulatory Authority.
"License Agreement" shall have the meaning set forth in the Recitals.
"Licenses" means all licenses, Permits, certificates of authority,
authorizations, approvals, registrations, franchises and similar consents
granted or issued by any Governmental or Regulatory Authority, including all
applications, renewals or extensions therefor.
"Losses" shall mean any and all liabilities, debts, obligations,
damages, fines, penalties, deficiencies, losses and expenses (including, without
limitation, interest, court costs, amounts paid in settlement, reasonable fees
of attorneys, accountants and other experts or other reasonable expenses of
litigation or other proceedings or of any claim, default or assessment).
<PAGE> 12
"Manufacturing Agreements" shall have the meaning set forth in the
Recitals.
"Manufacturing Facilities" shall have the meaning set forth in Section
5.19(a).
"Medicaid Rebates" shall have the meaning set forth in Section
2.3(a)(ii).
"Operative Agreements" shall mean, collectively, the General
Assignment and Assumption and the other Assignment Instruments, the Assumption
Instruments, the Asset Purchase Agreement, the Manufacturing Agreements, the
License Agreements, the Transitional Services Agreement, the Clinical and
Toxicology Manufacturing Supply Agreement, the Guaranty Agreement and any
support, collateral or other agreements, consents or approvals to be entered
into or secured in connection with the foregoing or the transactions
contemplated herein and therein.
"Order" shall mean any writ, judgment, decree, injunction or similar
order of any Governmental or Regulatory Authority (in each such case whether
preliminary or final).
"Other Products" shall mean all products of Seller or its Affiliates
other than the Products.
"Person" shall mean any natural person, corporation, general
partnership, limited partnership, proprietorship, other business organization,
trust, union, association or Governmental or Regulatory Authority.
"Pre-Closing Product Lots" shall have the meaning set forth in Section
2.11.
"Product Financial Statements" shall have the meaning set forth in
Section 5.21.
"Products" shall have the meaning set forth in the Recitals.
"Purchase Price" shall have the meaning set forth in Section 2.4.
"Purchaser" shall have the meaning set forth in the preamble.
"Purchaser Assumption Letters" shall have the meaning set forth in
Section 4.6(viii).
"RCRA" means the Resources Conservation and Recovery Act and rules and
regulations promulgated thereunder.
"Registrations" shall have the meaning set forth in Section 2.1(ii).
<PAGE> 13
"Regulatory and Technological Know-How Documents" shall mean without
any limitation, the following documentation created since January 1, 1993,
relating to the Products (or documents otherwise necessary for the manufacture,
use or sale of the Products): (i) the applications and all other Governmental or
Regulatory Authority related documents for the Products, including, but not
limited to, supplements, records, logs, reviews, data, charts, and reports
related to the Products, whether issued, pending, or in draft form, and whether
or not required to be kept or maintained under Laws, together with all internal
and external correspondence, historical records, and copies of all of the
foregoing; (ii) all equipment specifications, all analytical specifications and
all validation reports, all bills of material, all master (and historical)
formulae, all packaging specifications, all approved and rejected vendor lists
and audits, all methodologies, all change control reports, all product
complaints and adverse drug event histories and files, all raw material,
excipient, component and labeling purchasing specifications, all Standard
Operating Procedures ("SOPs"), ladder logic and flow diagrams for PLC operations
related to the Products, whether issued, pending, or in draft form, and whether
or not required to be kept or maintained under Laws, together with all internal
and external correspondence, historical records and copies of all of the
foregoing; and (iii) all scientific research or development data, records,
charts, reports, SOP's, procedures, documents and the like, all stability data,
records, charts, reports, SOP's, procedures, documents and the like, all quality
assurance/control data, records, charts, reports, SOP's, procedures, documents
and the like related specifically to the Products, whether issued, pending, or
in draft form, and whether or not required to be kept or maintained under Laws,
together with all internal and external correspondence, historical records, and
copies of all of the foregoing but in all cases specifically excluding, in the
case of Seller, all level 1 and 2 policies and procedures as well as any other
documents not solely related to the Products or otherwise necessary for
Purchaser to manufacture, use or sell the Products or to comply with the Consent
Decree.
"Representative" shall have the meaning set forth in Section 7.12.
"Retained Liabilities" shall have the meaning set forth in Section
2.3(b).
"Seller" shall have the meaning set forth in the preamble.
"Seller Assignment Letters" shall have the meaning set forth in
Section 3.6(viii).
"Tax" means any net income, alternative or add-on minimum tax, gross
income, gross receipts, sales, use, value added, franchise, capital, paid-up
capital, profits, license, withholding, payroll, employment, excise, severance,
stamp, occupation, premium, property, environmental or windfall profit tax,
custom, duty or other tax, governmental fee or other like assessment or charge
of any kind whatsoever, together with any interest or any penalty, addition to
tax or additional amount imposed by any governmental authority (domestic or
foreign) responsible for the imposition of any such tax.
<PAGE> 14
"Territories" shall mean the U.S. Territory with respect to the United
States Products and the Worldwide Territory with respect to the Worldwide
Products.
"Third Party Claim" has the meaning ascribed to it in Section 6.2(a).
"Transition Services Agreement" shall have the meaning set forth in
the Recitals.
"United States Products" shall have the meaning set forth in the
Recitals.
"U.S. Territory" shall mean the United States, its territories and
possessions the District of Columbia and United States military bases worldwide.
"Worldwide Products" shall have the meaning set forth in the Recitals.
"Worldwide Territory" shall mean the U.S. Territory and all
jurisdictions throughout the world where the Worldwide Products are currently
being sold by Seller or any of its Affiliates.
(b) Construction of Certain Terms and Phrases. Unless the context of
this Agreement otherwise requires, (i) words of any gender include each other
gender; (ii) words using the singular or plural number also include the plural
or singular number, respectively; (iii) the terms "hereof," "herein," "hereby"
and derivative or similar words refer to this entire Agreement; (iv) the terms
"Article" or "Section" refer to the specified Article or Section of this
Agreement; and (v) the phrase "ordinary course of business" refers to the
business of Seller in connection with the Business. Whenever this Agreement
refers to a number of days, such number shall refer to calendar days unless
Business Days are specified. Any representation or warranty contained herein as
to the enforceability of a Contract shall be subject to the effect of any
bankruptcy, insolvency, reorganization, moratorium or other similar law
affecting the enforcement of creditors' rights generally and to general
equitable principles (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
ARTICLE II
SALE OF ASSETS, CLOSING AND CERTAIN POST-CLOSING OBLIGATIONS
2.1 Sale of Assets. Pursuant to the terms and conditions set forth in
this Agreement, Seller agrees to sell, assign and deliver or cause to be sold,
assigned, and delivered to Purchaser, and Purchaser agrees to purchase, assume
and receive from Seller or an Affiliate of Seller, Seller's or such Affiliate's
entire right, title and interest in, to and under the following assets as the
same exist on the Closing Date, but only to the extent used solely in connection
with the Business (collectively, the "Assets"):
<PAGE> 15
(i) Intellectual Property. All rights to the Intellectual Property,
including, without limitation, the Intellectual Property listed in Section
2.1(i) of the Disclosure Schedule;
(ii) Registrations. The regulatory approvals, licenses, applications
and Investigational New Drug applications and all supplements thereto naming the
Products in the Territories listed in Section 2.1(ii) of the Disclosure Schedule
attached hereto (the "Registrations");
(iii) Inventory. All inventories of raw materials, work-in-process,
finished goods, packaging materials and other accessories related thereto which
are held at, or are in transit from or to, the locations at which Seller or its
Affiliates conducts the Business (the "Inventory");
(iv) Business Contracts. All contracts, whether oral or written, to
which Seller is a party and which relate solely to Seller's manufacture,
packaging, marketing, sale and distribution of the Products, including, without
limitation, all purchase orders and contracts relating to suppliers, sales
representatives, distributors, marketing arrangements and manufacturing
arrangements (the "Business Contracts"). Written descriptions of those contracts
with a dollar amount greater than or equal to $25,000.00 are provided in Section
2.1(iv) of the Disclosure Schedule attached hereto;
(v) Licenses. To the extent their transfer is permitted under
applicable Laws, all licenses, permits, certificates, warrants or grants
(including applications, renewals, or extensions therefor) related solely to any
Product or other Asset, including, but not limited to, the licenses listed in
Section 2.1(v) of the Disclosure Schedule (the "Business Licenses");
(vi) Books and Records. All Books and Records used solely in the
conduct of the Business or otherwise relating solely to the Assets, excluding
without limitation, the minute books, stock transfer books and corporate seal of
Seller, which relate to the conduct of such Business or Assets for the period
beginning January 1, 1993 (or otherwise necessary for the manufacture, use or
sale of the Products) and with respect to those books and records which are
material to the operation of the Business or the Assets, and to the extent
necessary to the conduct of the Business, any additional Books and Records
requested by Purchaser (the "Business Books and Records"). To the extent any of
the Books and Records used in the Business are items susceptible to duplication
and are either (x) used in connection with Seller's or any of its Affiliate's
businesses other than the Business or (y) are required by Law to be retained by
Seller, Seller may deliver photostatic copies or other reproductions from which,
in the case of such Books and Records referred to in clause (x), information
solely concerning Seller's or any of its Affiliate's businesses other than the
Business, has been deleted; and
(vii) Regulatory and Technological Know-How Documents. All Regulatory
and Technological Know-How Documents relating to the Products.
<PAGE> 16
(viii) Goodwill. All goodwill associated with the Business other than
goodwill associated with any trademark, trade name, service mark, service name,
slogan or logo used by Seller prior to the date hereof and not transferred to
Purchaser pursuant to this Agreement or the Operative Agreements.
2.2 Excluded Assets. Notwithstanding anything in this Agreement to the
contrary, the following assets of Seller (the "Excluded Assets") shall be
excluded from and shall not constitute Assets:
(i) Accounts Receivable. All trade accounts receivable and all notes,
bonds and other evidences of indebtedness and rights to receive
payments arising out of sales of the Products prior to the Closing
Date, including any rights of Seller with respect to any third party
collection procedures or any contract or any other actions which have
accrued prior to the Closing Date in connection with the manufacture,
sale or use of any Product;
(ii) Insurance. All insurance policies relating to the operation of
the Business;
(iii) Tax Refunds. All refunds or credits, if any, of Taxes due to or
from Seller which cannot be assigned by Law;
(iv) Litigation Claims. Any rights (including indemnification), claims
and recoveries under litigation of Seller against third parties
arising out of or relating to events occurring prior to the Closing
Date;
(v) Excluded Obligations. The obligations of Seller in, to and under
all Contracts of any nature, which are not assumed by Purchaser
pursuant to Section 2.3(a)(i); and
(vi) Seller's Rights. Seller's rights under this Agreement.
2.3 Assumed Liabilities. (a) Purchaser hereby assumes and agrees to pay,
perform and discharge when due the following liabilities and obligations of
Seller arising in connection with the Products (the "Assumed Liabilities"):
(i) Obligations under Contracts, Licenses and Registrations. All
liabilities and obligations under the Business Contracts, Business Licenses and
Registrations arising and to be performed on or after the Closing Date.
(ii) Medicaid and Chargebacks. State and federal Medicaid/Medicare
rebates ("Medicaid Rebates") in connection with Products sold after the Closing
Date; and credits, chargeback rebates, utilization based rebates, reimbursements
and similar payments to wholesalers and other distributors, buying groups,
insurers and other institutions ("Chargebacks") in connection with units of
Products sold after the Closing Date, provided that with respect to the rebates
set forth on Schedule 2.3(a)(ii), Seller shall
<PAGE> 17
pay, until the date indicated on Schedule 2.3(a)(ii) with respect to such
rebate, the rebates claimed by customers of Products, provided that neither
party attempts to influence the speed with which such rebates are processed by
any such customer.
(iii) Recalls. From and after the Closing Date and to the extent more
specifically set forth in this Agreement, all liabilities, obligations and
responsibilities relating to voluntary and involuntary recalls of units of
Products sold by Purchaser after the Closing Date.
(iv) Product Liability. From and after the Closing Date, all
liabilities, obligations and responsibilities relating to product liability
claims or threatened claims relating to Products sold by Purchaser after the
Closing Date.
(v) Research and Development. All liabilities, obligations and
responsibilities for any research and development relating to any of the
Products after the Closing Date.
(vi) Consent Decree. Obligations under the Consent Decree to the
extent set forth in Section 2.13.
(vii) Returns. From and after the Closing Date, all liabilities and
obligations with respect to the returned units of Product provided that Seller
shall reimburse Purchaser for payments made with respect to returns received
regarding units of Product sold prior to the Closing Date.
(b) Retained Liabilities. Except for the Assumed Liabilities,
Purchaser shall not assume by virtue of this Agreement or any of the Operative
Agreements or the transactions contemplated hereby or thereby, and shall have no
liability for, any Losses of Seller of any kind, character or description
whatsoever (the "Retained Liabilities").
2.4 Purchase Price. (a) Subject to the terms and conditions of this
Agreement and the terms and conditions of the Operative Agreements, in
consideration for the sale, assignment and delivery of the Assets, Purchaser
shall on the Closing Date pay as full and fair consideration therefor to Seller
simultaneous with the execution and delivery of this Agreement by both parties,
an amount equal to (i) Forty-Eight Million Dollars ($48,000,000.00) payable by
wire transfer of immediately available funds to an account to be designated by
Seller and (ii) the value of the Inventory transferred to Purchaser pursuant to
the terms of this Agreement, calculated and payable in accordance with
subsection (b) of this Section 2.4. The amounts set forth in Section 2.4(a)(i)
and (ii) is referred to herein as the "Purchase Price".
(b) Seller shall prepare a valuation, including performing a physical
inspection and valuation (based on Seller's normal calculation of book value) of
the Inventory in Seller's possession at the Facility as of January 31, 1998
(such valuation is referred to herein as the "January Inventory Value"). On the
Closing Date, Seller shall prepare a valuation of the Inventory as of the
Closing Date, based on the January
<PAGE> 18
Inventory Value and adding or subtracting therefrom all purchases, sales,
disposals and use of Inventory as shown on Seller's Business Books and Records.
The resulting valuation shall be referred to as the "Closing Date Inventory
Value". In the event Purchaser has a good faith reason to believe the Closing
Date Inventory was not valued in accordance with Seller's normal calculation of
book value, Seller and Purchaser agree to discuss in good faith any such
discrepancy. On December 1, 1998, Purchaser shall pay to Seller by wire transfer
of immediately available funds to an account to be designated by Seller on or
before November 28, 1998, an amount equal to the Closing Date Inventory Value
less (a) $600,000 and (b) the value of any Inventory which Purchaser was unable,
after putting forth reasonable commercial efforts, to sell or trade for value
prior to December 1, 1998, due to the expiration date of such Inventory.
Purchaser shall destroy or donate all such unsalable Inventory promptly after
December 1, 1998.
2.5 Closing. The Closing will take place at the offices ofSeller, or at
such other place as Purchaser and Seller mutually agree, at 10:00 A.M. local
time, on the Closing Date. At the Closing, pursuant to the provisions of Section
2.4 above, Purchaser will pay the Purchase Price. Simultaneously, (a) Seller
will assign and transfer to Purchaser good and valid title in and to the Assets,
free and clear of all liens, claims, charges, or encumbrances of any kind
whatsoever, by delivery of (i) a General Assignment, Assumption and Irrevocable
Bill of Sale substantially in the form of Exhibit B hereto (the "General
Assignment and Assumption"), duly executed by Seller, (ii) an assignment of the
Intellectual Property in form and substance reasonably satisfactory to Purchaser
and (iii) such other good and sufficient instruments of conveyance, assignment
and transfer, in form and substance reasonably acceptable to Purchaser's
counsel, as shall be effective to vest in Purchaser good and valid title to the
Assets, including, without limitation, the Seller's Assignment Letters (the
General Assignment and the other instruments referred to in clauses (ii) and
(iii) being collectively referred to herein as the "Assignment Instruments"),
and (b) Purchaser will assume from Seller the due payment, performance and
discharge of the Assumed Liabilities by delivery of (i) the General Assignment
and Assumption duly executed by Purchaser, and (ii) such other good and
sufficient instruments of assumption, in form and substance reasonably
acceptable to Seller's counsel, as shall be effective to cause Purchaser to
assume the Assumed Liabilities, including, without limitation, the Purchaser's
Assumption Letters (the General Assignment and Assumption and such other
instruments collectively referred to herein as the "Assumption Instruments").
Third-Party Consents. To the extent that any Business Contract or
Business License is not assignable without the consent of another Person, this
Agreement shall not constitute an assignment or an attempted assignment thereof
if such assignment or attempted assignment would constitute a breach thereof.
Seller and Purchaser shall use commercially reasonable efforts before the
Closing Date to obtain the consent of all such other Persons to the assignment
of any such Business Contract or Business License to Purchaser in all cases in
which such consent is or may be required for such assignment. If any such
consent shall not be obtained, Seller shall cooperate with Purchaser in any
reasonable arrangement designed to provide for Purchaser the benefits intended
to be assigned to Purchaser under the relevant Business Contract or
<PAGE> 19
Business License, including, but not limited to, enforcement at the cost of
Seller and for the account of Purchaser of any and all rights of Seller against
the other party thereto arising out of the breach or cancellation thereof by
such other party or otherwise. If and to the extent that such arrangement cannot
be made, Purchaser shall have no obligation or liability pursuant to Section 2.3
or otherwise under this Agreement or the Operative Agreements with respect to
any such Business Contract or Business License. If, in the opinion of Purchaser,
the absence of a third party consent has deprived Purchaser of a material
benefit of its bargain hereunder or under the Operative Agreements, and if
Seller and Purchaser have been unable to agree upon an arrangement designed to
provide for Purchaser the benefits intended to be assigned to it, then the
parties agree to negotiate in good faith an offset to the Purchase Price paid by
Purchaser hereunder for that part of the benefit which the parties agree has
been lost. Nothing in this Section 2.6 shall be deemed to waive the rights of
the Purchaser not to consummate the transactions contemplated by this Agreement
or the Operative Agreements if the conditions to its obligations hereunder
contained in Section 3.5 have not been fulfilled.
2.7 Fair Market Value of Assets. The parties hereto agree that the Purchase
Price represents the fair market value of the Assets. The allocation of the
Purchase Price to the Inventory shall be the amount calculated in accordance
with Section 2.4(b). The amount paid pursuant to Section 2.4(a)(i) shall be
allocated to the Intellectual Property and goodwill associated with the
Business. Such allocations shall be binding on the parties and their Affiliates
for all purposes relating in any fashion to liability for any Tax or assessment.
2.8 Delivery of Documentation. As soon as possible after the Closing Date,
but in no event later than thirty (30) days after the Closing Date, Seller will,
at its expense, deliver to the Facility, or to another location designated by
Purchaser, all Business Books and Records and all Regulatory and Technological
Know-How Documents not otherwise located at the Facility on the Closing Date to
the extent not otherwise necessary for Seller to perform its obligations under
the Transition Services Agreement (provided that Seller shall have the right to
retain one copy of such Business Books and Records and Regulatory and
Technological Know-How Documents for its archival purposes). Additionally,
Seller hereby agrees that it will transfer to Purchaser (or any third parties
designated by Purchaser) as soon as possible on or after the Closing Date all
other manufacturing process technology and regulatory material owned by Seller
and exclusively relating to the Products, determined by Purchaser in good faith
and after consultation with Seller to be necessary or useful to the commercial
manufacture of the same.
2.9 Territorial Restriction. Purchaser hereby agrees that it shall not
directly or indirectly sell any United States Products outside the U.S.
Territory at any time. The restrictions set forth in this Section shall survive
the termination or expiration of this Agreement.
2.10 Non-competition. (a) Seller agrees that for a period of ten (10)
years after the Closing Date, unless acting pursuant hereto or with the prior
written consent of
<PAGE> 20
Purchaser, neither it nor any of its Affiliates will sell (i) in the US
Territory, any prescription product which has as an active ingredient, the same
chemical entity as any United States Product being actively commercialized by
Purchaser and (ii) in any jurisdiction in the world, any prescription product
which has as an active ingredient, the same chemical entity as any Worldwide
Product actively being commercialized by Purchaser in such jurisdiction (any
such product is referred to as a "Competitive Product"). Notwithstanding the
foregoing, Seller and any Affiliate of the Seller may enter into any transaction
pursuant to which it acquires control of a company that manufactures, uses,
sells or markets any Competitive Product, provided, that it divests ownership of
such Competitive Product within eighteen (18) months of the closing date of such
transaction. This provision shall not apply to participation by Seller or any
Affiliate of Seller in the ownership of any such business if such participation
is less than the equivalent of ten percent (10%) of the voting equity securities
of such company. In the event that Seller or any of Seller's Affiliates divests
a Competitive Product pursuant to this Section 2.10, Seller or its Affiliates
will give Purchaser a non-exclusive right to participate as a bidder for the
purchase of such Competitive Product.
(b) The parties hereto agree that the duration, geographic scope and
other provisions of the non-competition provision set forth in this Section 2.10
are reasonable. In the event that any court determines that the duration, the
geographic scope or any other provisions are unreasonable and that such
provision is to that extent unenforceable, the parties hereto agree that the
provision shall remain in full force and effect for the greatest time period and
in the greatest geographic area that would not render it unenforceable. The
Seller agrees that damages are an inadequate remedy for any breach of this
provision and that the Purchaser shall, whether or not it is pursuing any
potential remedies at law, be entitled to equitable relief in the form of
preliminary and permanent injunctions without bond or other security upon any
actual or threatened breach of this non-competition provision. If Seller or any
of its Affiliates shall violate this Section 2.10, the duration of this Section
automatically shall be extended as against such violating party for a period
equal to the period during which such party shall have been in violation of this
Section. The covenants contained in this Section are deemed to be material and
the Purchaser is entering into this Agreement and the Operative Agreements in
reliance upon such covenants.
2.11 Product Regulatory Obligations.
(a) Handling of Inventory and Finished Product. Purchaser shall hold,
store, manufacture, package and test any Inventory consisting of Product lots
(including but not limited to its raw materials, excipients, and components)
bearing a trade name or trademark used by Seller prior to the Closing Date and
which trade name or trademark is not transferred to Purchaser hereunder or
pursuant to the Asset Purchase Agreement (any such Product lot, together with
any Product lot from which Products were sold by Seller prior to the Closing
Date are referred to herein as "Pre-Closing Product Lots") in accordance with
(i) current Good Manufacturing Practices, (ii) the Product application or
license, (iii) applicable analytical procedures, material specifications, master
batch
<PAGE> 21
records, stability protocols, analytical methods and packaging instructions and
(iv) all other applicable Laws.
(b) Complaints And Adverse Drug Events. (i) Each party shall notify
the other in the event that such party receives a complaint or a report of an
adverse drug event relating to a Pre-Closing Product Lot. Each party shall
further notify the other in the event that such party receives a report of an
adverse drug event relating to those United States Products sold in (i) the U.S.
Territory by Purchaser or (ii) outside the U.S. Territory by Seller or any of
its Affiliates. With respect to complaints within the scope of this Section,
notice must be provided by the complaint recipient to the other party (x) within
24 hours if the complaint involves allegations of suspected or actual product
tampering, or contamination and (y) within 4 Business Days in the case of all
other complaints. With respect to adverse drug events within the scope of this
Section, notice must be provided by the reporting recipient to all other parties
within 4 Business Days of receipt. In all cases, the party which owns the
Product at issue shall be responsible for investigating and responding to any
reported complaint or adverse drug event, and for any communications with any
Governmental or Regulatory Authority or any third party, provided that (i) such
party shall provide the other party with copies of all related investigation
reports and all related communications received from or sent to any Governmental
or Regulatory Authority or third party within 3 Business Days of the completion
of the investigation report or the communication, as the case may be, (ii)
Purchaser shall consult with Seller with respect to any investigations, and
prior to any communications with any Governmental or Regulatory Authority or
third party, relating to any Pre-Closing Product Lot, (iii) Purchaser shall
comply with all reasonable requests and comments by Seller with respect to all
such investigations and communications relating to any Pre-Closing Product Lots,
and (iv) unless required by law, Purchaser shall not communicate with any
Governmental or Regulatory Authority or third party without the prior written
consent of Seller in the case of any Pre-Closing Product Lots, which consent
shall not be unreasonably withheld. Seller shall pay Purchaser's reasonable
expenses in connection with any such investigations relating to Pre-Closing lots
sold by Seller.
(c) Stability Testing And Recalls. Purchaser shall be responsible for
all required stability testing relating to Pre-Closing Product Lots. Purchaser
shall notify Seller within one business day of any initial out-of-specification
result relating to any Pre-Closing Product Lot. Purchaser shall be responsible
for investigating all such out-of-specification results and for any
communications with the FDA or other regulatory authority.
(d) Regulatory Contacts. Purchaser shall be responsible for all
contacts with the FDA and any other regulatory authority with respect to all
matters relating to the Products or the Business, provided that (i) Purchaser
shall notify Seller immediately and in no event later than one Business Day
after receipt of any contact or communication from the FDA or any other
Governmental or Regulatory Authority that in any way requests or suggests the
need for recall or withdrawal of a Pre-Closing Product Lot or which otherwise
calls into question the quality or safety of any such Pre-Closing Product
<PAGE> 22
Lot. Purchaser shall be responsible for investigating any such request or
suggestion and for any communications with any Governmental or Regulatory
Authority or third party relating thereto.
(e) Notice and Responsibility. With regard to any investigation
undertaken by Purchaser pursuant to subsections (c) or (d) of this Section, the
terms of this subsection (e) shall apply. Purchaser shall provide Seller with
copies of all related investigation reports and all related communications
received from or sent to any Governmental or Regulatory Authority or third party
within two Business Days of the completion of any such investigation report or
related communication. Purchaser shall consult with Seller with respect to any
such investigations. Purchaser shall comply with all reasonable requests and
comments by the Seller with respect to all such investigations. Unless otherwise
required by law, Purchaser shall not communicate with or respond to any
Governmental or Regulatory Authority or any third party (excluding Purchaser's
contract customer) concerning any such investigation without the prior written
consent of Seller, which consent shall not be unreasonably withheld. Seller
shall have the right to require Purchaser to initiate a recall or withdrawal of
any Product with respect to any Pre-Closing Product Lot if Seller determines
that a recall is appropriate under 21 C.F.R. ss. 7.
2.12 Cooperation. (a) Following the Closing, each party will afford the
other party, its counsel and its accountants, during normal business hours,
reasonable access to the books, records and other data relating to the Business
in its possession and the right to make copies and extracts therefrom, to the
extent that such access may be reasonably required by the requesting party in
connection with (i) the preparation of Tax returns, (ii) the determination or
enforcement of rights and obligations under this Agreement or any of the
Operative Agreements, (iii) compliance with the requirements of any Governmental
or Regulatory Authority, (iv) the determination or enforcement of the rights and
obligations of any Indemnified Party or Indemnifying Party or (v) in connection
with any actual or threatened Action or Proceeding. Further, each party agrees
for a period extending six (6) years after the Closing Date not to destroy or
otherwise dispose of any such books, records and other data unless such party
shall first offer in writing to surrender such books, records and other data to
the other party and such other party shall not agree in writing to take
possession thereof during the ten (10) day period after such offer is made.
(b) If, in order properly to prepare its Tax returns, other documents
or reports required to be filed with Governmental or Regulatory Authorities or
its financial statements or to fulfill its obligations hereunder, it is
necessary that a party be furnished with additional information, documents or
records relating to the Business not referred to in paragraph (a) above, and
such information, documents or records are in the possession or control of the
other party, such other party shall use its best efforts to furnish or make
available such information, documents or records (or copies thereof) at the
recipient's request, cost and expense. Any information obtained by such party in
accordance with this paragraph shall be held confidential by such party in
accordance with Section 7.12.
<PAGE> 23
2.13 Consent Decree. (a) Effective as of the Closing Date, and subject
to the terms and conditions of this Agreement and Operative Agreements,
Purchaser shall assume sole responsibility for compliance with the terms,
conditions and requirements of, and all liabilities under, the Consent Decree
only to the extent that the terms of the Consent Decree are applicable (either
by specific reference or by general reference) to the operation of the Business
or the Assets.
(b) Except as otherwise specifically set forth herein or in the
Operative Agreements, subject to the terms of this Agreement, Seller shall have
no responsibility for compliance with the terms, conditions and requirements of
the Consent Decree with respect to the Business or the Assets, and Seller shall
not be liable for any failure by Purchaser to comply with the Consent Decree, or
for any liabilities or penalties incurred by Purchaser thereunder.
(c) Subject to applicable law, as of the Closing Date, Seller shall
not, and shall have no right to, initiate or participate in any communications,
negotiations, or petitions with any third party relating to or pursuant to the
Consent Decree to the extent that such communications, negotiations or petitions
relate solely to the Business or the Assets.
(d) Subject to applicable law, Purchaser shall not, and shall have no
right to, initiate or participate in any communications, negotiations or
petitions with any third party relating to or pursuant to the Consent Decree to
the extent that such communications, negotiations or petitions relate solely to
anything other than the Business or the Assets.
(e) After the Closing Date, neither Seller nor Purchaser shall comment
on or discuss the other party's performance, rights, responsibilities and/or
liabilities with respect to the Consent Decree with any third party unless
required to do so by law or if expressly authorized to do so in a writing signed
by the other party.
(f) Purchaser may negotiate and/or petition for relief under the
Consent Decree solely with respect to the Business, the Assets or those assets
sold to Purchaser pursuant to the terms of the Asset Purchase Agreement,
separately from and without notice to Seller.
(g) Seller may negotiate and/or petition for relief under the Consent
Decree with respect to any matter, except matters relating to the Business, the
Assets or those assets sold to Purchaser pursuant to the terms of the Asset
Purchase Agreement, separately from and without notice to Purchaser.
(h) In the case of any reasonable negotiation or petition for relief
described in subsections (f) or (g) of this Section 2.13, the non-negotiating or
non-petitioning party shall provide reasonable cooperation to the other party as
may be necessary to obtain the relief sought by such negotiation or petition.
<PAGE> 24
2.14 Right of First Negotiation Regarding Elase. The parties acknowledge
and agree that Seller and/or its Affiliates have entered into a certain
agreement pursuant to which Seller and/or its Affiliates have licensed to a
third party the right to sell certain pharmaceutical products in the United
States under the trademark Elase(R).. In the event Seller and its Affiliates
determine prior to the fifth anniversary date of the Closing Date, in their sole
discretion, to sell or transfer their rights to any such products (other than as
part of a transaction in which other Assets and Properties of Seller may be
transferred), and further determine in their sole discretion that they have the
right to sell and transfer such rights, Purchaser shall have the first right to
negotiate with Seller for the purchase of such rights. Purchaser must exercise
its right to negotiate with Seller by providing Seller with written notice of
its intent to so negotiate within 15 Business Days after receiving written
notice from Seller of its intent to sell or transfer its rights to such
products. Upon Purchaser's exercise of its right, Seller and Purchaser shall
negotiate, in good faith, for the sale and transfer of such rights for a period
of three months from the date of Purchaser's exercise notice to Seller.
ARTICLE III
CONDITIONS TO OBLIGATIONS OF PURCHASER
The obligations of Purchaser hereunder to purchase the Assets and to
assume and pay, perform and discharge the Assumed Liabilities are subject to the
fulfillment, at or before the Closing, of each of the following conditions (all
or any of which may be waived in whole or in part by Purchaser, but only in
writing, in its sole discretion):
3.1 Representations and Warranties. The representations and warranties
made by Seller in this Agreement and the Operative Agreements shall be true and
correct in all respects material on and as of the Closing Date as though made on
and as of the Closing Date or, in the case of representations and warranties
made as of a specified date earlier than the Closing Date, on and as of such
earlier date.
3.2 Performance. Seller shall have performed and complied with, in all
material respects, the agreements and obligations required by this Agreement and
the Operative Agreements to be so performed or complied with by Seller at or
before the Closing.
3.3 Orders and Laws. There shall not be in effect on the Closing Date
any Order or Law restraining, enjoining or otherwise prohibiting or making
illegal the consummation of any of the transactions contemplated by this
Agreement or any of the Operative Agreements.
3.4 Regulatory Consents and Approvals. All consents, approvals and actions
of, filings with and notices to any Governmental or Regulatory Authority
necessary to
<PAGE> 25
permit Purchaser and Seller to perform their obligations under this
Agreement and the Operative Agreements and to consummate the transactions
contemplated hereby and thereby shall have been duly obtained, made or given and
shall be in full force and effect, and all terminations or expirations of
waiting periods imposed by any Governmental or Regulatory Authority necessary
for the consummation of the transactions contemplated by this Agreement and the
Operative Agreements shall have occurred.
3.5 Third Party Consents. The consents (or in lieu thereof written
waivers) listed in Section 3.5 of the Disclosure Schedule which include certain
consents required under Business Contracts and Business Licenses shall have been
obtained and shall be in full force and effect.
3.6 Deliveries. Seller shall have executed and delivered to Purchaser:
(i) the Assignment Instruments;
(ii) the Asset Purchase Agreement;
(iii) the Manufacturing Agreements;
(iv) the License Agreements;
(v) the Transition Service Agreement;
(vi) the Clinical and Toxicology Manufacturing Supply Agreement;
(vii) the Guaranty Agreement; and
(viii) letters from Seller to the FDA or such other appropriate
Governmental or Regulatory Authority transferring all rights to the
Registrations to Purchaser, in the form attached hereto as Exhibit C (the
"Seller Assignment Letters"); and
(ix) such other documents, materials and instruments reasonably
requested by Purchaser as may be necessary to completely sell and assign the
Assets and transfer the Assumed Liabilities to Purchaser.
ARTICLE IV
CONDITIONS TO OBLIGATIONS OF SELLER
The obligations of Seller hereunder to sell the Assets are subject to
the fulfillment, at or before the Closing, of each of the following conditions
(all or any of which may be waived in whole or in part by Seller, but only in
writing, in its sole discretion):
4.1 Representations and Warranties. The representations and warranties
made by Purchaser in this Agreement and the Operative Agreements shall be true
and correct in
<PAGE> 26
all material respects on and as of the Closing Date as though made on and as of
the Closing Date.
4.2 Performance. Purchaser shall have performed and complied with, in all
material respects, the agreements and obligations required by this Agreement and
the Operative Agreements to be so performed or complied with by Purchaser at or
before the Closing.
4.3 Orders and Laws. There shall not be in effect on the Closing Date any
Order or Law restraining, enjoining or otherwise prohibiting or making illegal
the consummation of any of the transactions contemplated by this Agreement or
any of the Operative Agreements.
4.4 Regulatory Consents and Approvals. All consents, approvals and actions
of, filings with and notices to any Governmental or Regulatory Authority
necessary to permit Seller and Purchaser to perform their obligations under this
Agreement and the Operative Agreements and to consummate the transactions
contemplated hereby and thereby shall have been duly obtained, made or given and
shall be in full force and effect, and all terminations or expirations of
waiting periods imposed by any Governmental or Regulatory Authority necessary
for the consummation of the transactions contemplated by this Agreement and the
Operative Agreements shall have occurred.
4.5 Third Party Consents. The consents (or in lieu thereof written waivers)
listed in Section 4.5 of the Disclosure Schedule shall have been obtained and
shall be in full force and effect.
4.6 Deliveries. Purchaser shall have executed and delivered to Seller:
(i) the Assumption Instruments;
(ii) the Asset Purchase Agreement;
(iii) the Manufacturing Agreements;
(iv) the License Agreements;
(v) the Transition Services Agreement;
(vi) the Clinical and Toxicology Manufacturing Supply Agreement;
(vii) the Guaranty Agreement;
(viii) letters from Purchaser to the FDA or such other
appropriate Governmental or Regulatory Authority assuming all obligations of the
Registrations from Seller, in the form attached hereto as Exhibit D (the
"Purchaser Assumption Letters"); and
<PAGE> 27
(ix) such other documents, materials and instruments reasonably
requested by Seller as may be necessary to completely sell and assign the Assets
and transfer the Assumed Liabilities to Seller.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
Legal Authority.
Each party represents and warrants that it has the legal power,
authority and right to enter into this Agreement and each of the
Operative Agreements and to perform its respective obligations
set forth herein and therein.
Seller is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Purchaser is a
corporation duly incorporated, validly existing and in good
standing under the Laws of the State of Michigan. Seller has the
corporate power and authority to own and use the Assets, and to
transact the Business in the manner in which it currently
transacts or plans to transact such Business, including any and
all activities in connection with the Products, 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, where the failure to be so
licensed or qualified could reasonably be anticipated to have a
material adverse effect on the Assets, or the Business. Except as
set forth on Section 5.1 of the Disclosure Schedule, there are no
Persons or Affiliates of Seller who have any ownership interest
or rights of use in and to the Assets.
Each party represents and warrants that the execution and delivery of
this Agreement and the Operative Agreements do not, and the
compliance with and the fulfillment of, and the consummation of
the transactions contemplated by this Agreement and the Operative
Agreements will not, violate or conflict with any provisions of
the Articles of Incorporation or Bylaws of such party 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 such party or its Affiliates is
a party or by which they are bound, or violate any
<PAGE> 28
order, judgment, award or decree to which they are a party or to
which they are subject, which violation, conflict, breach or
default or acceleration could have a material adverse effect on
(a) in the case of Seller, the Assets or the Business, (b) any
interest or right of the other party under this Agreement or the
Operative Agreements or (ic) the consummation of the transactions
contemplated hereby. Each party represents and warrants that
except as disclosed in Sections 3.5 and 4.5 of the Disclosure
Schedule or to the extent of any required approvals of any
Governmental or Regulatory Authority or as described in Sections
3.4 and 4.4 of the Disclosure Schedule, there are no third
parties whose authorization or approval is required with respect
to the execution and performance by such party of this Agreement
or the Operative Agreements. Each party represents that this
Agreement and the Operative Agreements represent the binding and
enforceable obligations of such party.
5.2 No Conflicts. Each party represents and warrants for itself and its
Affiliates that it and they are not a party to any agreement or arrangement with
any third party or under any obligation or restriction, including pursuant to
its or their Articles or Charter of Incorporation or By-Laws, which in any way
limits or conflicts with its or their ability to fulfill any of its or their
obligations set forth herein or under any of the Operative Agreements.
5.3 Title to Assets. Seller hereby represents and warrants that, except as
disclosed in Section 5.3 of the Disclosure Schedule: (i) it has good and
marketable title to the Assets, free and clear of all liens, claims,
encumbrances, security interests, restrictions, or liabilities of any kind; (ii)
there are no adverse claims of ownership to the Assets; and (iii) to Seller's
knowledge, there exists no set of facts or 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 Purchaser's rights in and to any of the Assets.
5.4 Litigation. (a) Except as disclosed in Section 5.4 of the Disclosure
Schedule, Seller hereby represents and warrants for itself and its Affiliates
that there is no claim, demand, litigation, action, suit, inquiry,
investigation, arbitration or other proceeding pending or to its knowledge
threatened against Seller specifically with respect to the manufacture, use,
sale or packaging of the Products or any of the Assets, nor to the knowledge of
Seller or its Affiliates are there any facts or circumstances which could
reasonably be anticipated to result in any such claims, demands, litigation,
action, suit, inquiry, investigation, arbitration or other proceeding related to
any of the Assets or the Products which could financially impair Purchaser or
its Affiliates in their maintenance, use or enjoyment of any of their rights,
title, or interests in and to the Products or the Assets as contemplated under
this Agreement or any of the Operative Agreements.
(b) Purchaser hereby represents and warrants that there is no claim,
demand, litigation, action, suit, inquiry, investigation, arbitration or other
proceeding pending or to
<PAGE> 29
its knowledge threatened against Purchaser or its Affiliates with respect to its
right and ability to consummate the transactions contemplated by this Agreement
or the Operative Agreements.
5.5 Inventory and Inventory Levels. Seller represents and warrants that on
the Closing Date, the Closing Date Inventory Value shall be correct in all
material respects. Except as otherwise disclosed to Purchaser on Section 5.5 of
the Disclosure Schedule, Seller represents and warrants that it has used its
reasonable commercial efforts to keep its Inventories at levels which do not
exceed those normally experienced by it during the twelve (12) month period
prior to the date of this Agreement. Seller further represents that since
January 1, 1997 it has not sold its Inventory to wholesalers or distributors at
prices below its standard selling prices or made any promotions or offers to
wholesalers or distributors outside of its normal course of business. Seller
further represents and warrants that execpt as disclosed in Section 5.5 of the
Disclosure Schedule (i) the Inventories of Seller (whether finished product,
work-in-process or raw materials or components) 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; (ii) it 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; (iii)
with respect to all finished Product Inventory or work-in-process, that such
items meet all applicable specifications (i.e., are not obsolete, would be, if
completed, useable and salable in the ordinary course of business and meet all
requirements of the applicable Registration), have been manufactured in
accordance with all cGMP regulations and all other Laws, and have not been
mislabeled, adulterated or misbranded as to prohibit their introduction into
commerce.
5.6 Intellectual Property Rights. Except as disclosed in Section 5.6 of the
Disclosure Schedule, to Seller's knowledge, Seller has all right, title and
interest in or valid and binding rights under Contract to use the Intellectual
Property. Except as disclosed in Section 5.6 of the Disclosure Schedule, (i) all
registrations with and applications to Governmental or Regulatory Authorities in
respect of Intellectual Property owned by Seller and described in Section 2.1(i)
are valid and in full force and effect and there exists no default by Seller
which would in any way jeopardize the rights of Purchaser or its Affiliates to
any such applications to a Governmental or Regulatory Authority; (ii) title to
the Intellectual Property is held by Seller free and clear of all adverse
claims, liens, security interests, restrictions, and other encumbrances and
there are no circumstances to indicate that there is any reasonable basis to
believe that any Person or Governmental or Regulatory Authority could or would
assert or support a claim of ownership, right of possession or use in any way
adverse to Purchaser's or its Affiliates' rights in and to any of the
Intellectual Property; (iii) with respect to any items of Intellectual Property
used by Seller, but not owned by Seller, Seller is, to its knowledge, in
compliance in all respects with the agreements granting any such rights of use,
such contracts, agreements, or understandings are in full force and effect and
there is no default by any other party to such contracts, agreements or
understandings which would in any way jeopardize the rights of Purchaser or its
Affiliates to any Intellectual Property therein granted or adversely affect in
any manner such Intellectual Property or
<PAGE> 30
Purchaser's rights thereto; (iv) neither Seller nor Seller's Affiliates have
received any written notice that it or they are in default in any respect under
any Business Contract or Business License to use the Intellectual Property; (v)
there are no claims, demands, proceedings or other actions instituted, pending
or, to the knowledge of Seller and its Affiliates threatened, nor to the
knowledge of Seller and its Affiliates 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 Seller or its Affiliates of any
Intellectual Property related to the Assets or the Products, or that the use,
manufacture, or licensing of any item, material, design or process in connection
with the Assets or the Products, infringes any patents or other intellectual
property rights of any Person, or otherwise challenging the right of Seller or
its Affiliates with respect to the Assets or the Products to maintain or use any
Intellectual Property included within the Assets. Seller has not received
written notice that it is infringing any Intellectual Property of any other
Person in connection with the conduct of the Business, to the knowledge of
Seller, no claim is pending or has been made to such effect that has not been
resolved and, to the knowledge of the Seller, it is not infringing any
Intellectual Property of any other Person. Seller has not granted to any Person,
including its Affiliates, any licenses, sublicenses or other rights to, for or
under any Intellectual Property, the Assets or the Products.
5.7 Contracts. (a) Seller represents and warrants as follows: Section
2.1(iv) of the Disclosure Schedule (with paragraph references corresponding to
those set forth below) contains a true and complete list of each of the
following Business Contracts and certain policies and warranties of seller, as
the same may have been amended or supplemented, with a reasonably complete and
accurate written descriptions of same to which Seller is a party or by which any
of the Products or Assets are bound:
(i) all Business Contracts with suppliers (including, but not limited
to, suppliers of raw materials, packaging and labeling components, excipients,
and the like), distributors, dealers, manufacturer's representatives, sales
representatives, sales agencies or franchises with whom Seller deals in
connection with the Business which in any case involve or have historically
within the past calendar year involved the payment or potential payment,
pursuant to the terms of any such Contract, by or to Seller of more than $25,000
annually;
(ii) all Contracts relating to the future disposition or acquisition
of any Assets in an amount in excess of $25,000, other than dispositions or
acquisitions of Inventory in the ordinary course of business;
(iii) all current return policies and product warranties relating to
Products manufactured or distributed by the Seller; and
(iv) all other Business Contracts that (A) involve the payment or
potential payment, pursuant to the terms of any such Business Contract, by or to
the Seller of more than $25,000 annually and (B) cannot be terminated within
thirty (30) days after giving notice of termination without resulting in any
material cost or penalty to the Seller.
<PAGE> 31
(b) With respect to each Business Contract required to be disclosed in
Section 2.1(iv) of the Disclosure Schedule to which Seller is a party, and
except as disclosed in Section 5.7 of the Disclosure Schedule:
(i) To Seller's knowledge, each Business Contract is a valid and
binding agreement, representing a bona fide commercial transaction of Seller
enforceable against Seller in accordance with its terms, no rights thereto have
been assigned or transferred and to Seller's knowledge no one has any adverse
claims with respect to the right of Purchaser to obtain the full benefits
thereunder except as such enforceability may be limited in the future by
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally, and by principles of equity (whether considered in a
proceeding at law or in equity) and Seller has no knowledge that any Business
Contract is not a valid and binding agreement of the other parties thereto;
(ii) Seller has fulfilled all material obligations required
pursuant to the Business Contracts to have been performed by it on its part
prior to the date hereof, and Seller has no reason to believe that it will not
be able to fulfill, when due, all of its obligations under the Business
Contracts which remain to be performed pursuant to any of the Operative
Agreements, including, but not limited to, the Transitional Services Agreement
from the date hereof until the Closing Date;
(iii) Seller is not in breach of or default under any Business
Contract, and to Seller's knowledge, no event has occurred which with the
passage of time or giving of notice or both would constitute such a default,
result in a loss of benefits or rights or result in the creation of any lien,
charge, claim, security interest or encumbrance, thereunder or pursuant thereto;
(iv) To the knowledge of Seller, there is no existing breach or
default by any other party to any Business Contract and, to Seller's knowledge,
no event has occurred which with the passage of time or giving notice of or both
would constitute a default by such other party, result in a loss of rights or
result in the creation of any lien, charge or encumbrance, thereunder or
pursuant thereto; and
(v) Except as set forth in Section 5.7 of the Disclosure
Schedule, the continuation, validity and effectiveness of each Business Contract
would not be affected by the transfer thereof to the Purchaser under this
Agreement and all such Business Contracts are assignable to the Purchaser
without a consent.
5.8 Licenses. Seller represents and warrants that (i) Section 2.1(v) of the
Disclosure Schedule contains a true and complete list of all Business Licenses
material to Seller's Business (and all pending applications, renewals or drafts
for any such Business Licenses), setting forth the grantor, the grantee, the
function and the expiration and renewal date of each and that true and complete
copies of all such Business Licenses will be delivered to the Purchaser on or
prior to the Closing Date; (ii) except as disclosed in Section 5.8 of the
Disclosure Schedule, Seller is not in default (or with the giving of
<PAGE> 32
notice or lapse of time or both, would be in default) under any Business License
in any material respect; (iii) rights and title to the Business Licenses is held
by Seller free and clear of all adverse claims, liens, security interests,
restrictions and other encumbrances and except as disclosed in Section 5.8 of
the Disclosure Schedule, there are no circumstances to indicate that there is
any reasonable basis to believe that any Person or Governmental or Regulatory
Authority could or would assert or support a claim of ownership, right of
possession or use in any way adverse to Purchaser's or its Affiliates' rights in
and to any of the Business Licenses; (iv) with respect to any Business Licenses
used by Seller, but not owned by Seller, Seller is in compliance in all respects
with the agreements granting any such rights of use, such contracts, agreements,
or understandings are in full force and effect and there is no default by any
other party to such contracts, agreements or understandings which would in any
way jeopardize the rights of Purchaser or its Affiliates to any Business License
therein granted or adversely affect in any manner Purchaser's rights thereto;
(v) neither Seller nor Seller's Affiliates have received any written notice that
it or they are, in default in any respect under any Business Contract or with
regard to use of the Business Licenses; (vi) there are no claims, demands,
proceedings or other actions instituted, pending or, to the knowledge of Seller
and its Affiliates, threatened in writing, nor to the knowledge of Seller and
its Affiliates are there any facts or circumstances which could reasonably be
anticipated to result in any such claims, demands or proceedings, alleging that
the use by Seller or its Affiliates of any Business License related to the
Assets or the Products, or that the use, manufacture, or licensing of any item,
material, design or process in connection with the Assets or the Products,
infringes any license or property rights of any Person, or otherwise challenging
the right of Seller or its Affiliates with respect to the Assets or the Products
to maintain or use any Business License, or any application or registration
therefore. Seller further warrants and represents that it has not received
written notice that it is infringing any Business License of any other Person in
connection with the conduct of the Business, to the knowledge of Seller, no
claim is pending or has been made to such effect that has not been resolved and,
to the knowledge of Seller, it is not infringing any License of any other
Person. Seller has not granted to any Person including its Affiliates any
licenses, sublicenses or other rights to, for or under any Business License, the
Assets or the Products.
5.9 Conduct of Business. Seller hereby represents that it has used its
reasonable commercial efforts, since January 1, 1997, to conduct each and every
element and aspect of the Business, including but not limited to the
manufacture, development, promotion, marketing, and sale of the Products, in the
ordinary course of business, such that it has not offered since January 1, 1997
through the date of this Agreement any extraordinary rebates, discounts, or any
other promotion or marketing incentives relative to the Products in any manner
whatsoever other than in the ordinary course of business. Except as disclosed in
writing to Purchaser, since January 1, 1997 Seller has not suffered any material
adverse changes in the Business or the Assets, other than the voluntary Fluogen
recall and suspension (and Purchaser hereby acknowledges that Seller is not
currently marketing Fluogen and does not currently have FDA approval to market
Fluogen), which materially and adversely affect the value of the Assets, the
well-being of
<PAGE> 33
the Business, or the ability of the Purchaser to perform any of its obligations
under this Agreement or the Operative Agreements.
5.10 Ability to Conduct Business. Except as set forth in Section 5.10 of
the Disclosure Schedule, none of Seller, its agents, officers, or 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 would hinder or
prevent the permitted use after the Closing Date by Purchaser of any of the
Products or the Assets or its conduct of a business similar to the Business as
conducted by Seller or interfere in any way with Purchaser's rights under this
Agreement or the Operative Agreements or the Purchaser's rights and/or
obligations hereunder or thereunder.
5.11 Relationship with Suppliers and Customers. Except as disclosed in
Section 5.11 of the Disclosure Schedule, within the twelve (12) months prior to
the date of this Agreement, no customer of the Business has canceled or, to
Seller's knowledge, threatened, any cancellation of its purchase of the Products
(or has materially diminished any of its orders thereunder) and no supplier to
the Business has canceled or, to Seller's knowledge, threatened any cancellation
of any raw material, excipients or components necessary for the manufacture of
the Products (or has materially diminished the level of its supply).
5.12 The Products. Since January 1, 1997, or except as set forth on Section
5.12 to the Disclosure Schedule or as identified in FDA 483 observation reports,
Establishment Investigation Reports, similar reports of corresponding
governmental agencies outside the United States, and all responses thereto,
which may be found in public records, or which has been disclosed in writing to
Purchaser there have been no: (i) Products which have been recalled, (other than
the voluntary Fluogen recall or the current suspension of manufacturing of
Pitocin(R)), withdrawn, seized, replaced or suspended by Seller; (ii)
proceedings pending against Seller or its Affiliates (whether such proceedings
have since been completed or remain pending) seeking the recall, withdrawal,
suspension or seizure of any of the Products or seeking to enjoin Seller or any
of its Affiliates from engaging in any activities pertaining to the Products;
(iii) to Seller's knowledge, set of facts which could reasonably be expected to
furnish a basis for the recall, market replacement, withdrawal, suspension or
seizure of any Product or the suspension of any Registration, Business License,
wholesale dealers license, export license or other governmental license,
approval or consent of any Governmental or Regulatory Authority with respect to
any of the Products or the Facility; (iv) to Seller's knowledge, set of facts
which could reasonably be expected to otherwise cause Seller or its Affiliates
to recall, withdraw or suspend any Product from the market or to cease further
distribution or marketing of commercially available products pending further
approval or authorization from a Governmental or Regulatory Authority, or to
change the marketing classification of any Product or to terminate or suspend
clinical testing of any Product. Since January 1, 1997, the Products have been
manufactured in accordance with the specifications under which such Products
have normally been manufactured and in accordance with the specifications
provided in the appropriate Registration, and
<PAGE> 34
furthermore in accordance with all applicable requirements of law, including
without limitation current Good Manufacturing Practices as defined by the FDA
("cGMP"). Section 5.12 of the Disclosure Schedule describes various validations
performed with respect to certain Products. Purchaser further acknowledges and
agrees that Seller is no longer manufacturing or marketing the Discontinued or
Withdrawn Products and Seller makes no representations or warranties with
respect to the Discontinued or Withdrawn Products. Seller shall provide
Purchaser with a report of sales of the Products for the months ending January
31, 1998 and February 28, 1998 promptly after they become available. Section
2.1(ii) of the Disclosure Schedule lists all regulatory approvals held by Seller
with respect to the Products.
5.13 Brokers. Each party hereby represents that all negotiations relative
to this Agreement and the transactions contemplated hereby have been carried out
by each such party directly with the other party without the intervention of any
Person on behalf of either party in such manner as to give rise to any valid
claim by any Person against either party for a finder's fee, brokerage
commission or similar payment.
5.14 Financing. Purchaser has sufficient cash and or available credit
facilities (and has provided Seller with evidence thereof) to pay the Purchase
Price and to make all other necessary payments of fees and expenses in
connection with the transactions contemplated by this Agreement.
5.15 Compliance with Consent Decree. Without admission, Seller represents
and warrants that, except as identified in FDA 483 observation reports,
Establishment Investigation Reports, similar reports of corresponding
governmental agencies outside the United States, and all responses thereto,
which may be found in public records, or as disclosed in writing to Purchaser by
Seller, Seller has substantially complied with all the terms, provisions and
restrictions of the Consent Decree relative to the Assets as of the date hereof.
5.16 Events Subsequent to December 31, 1997. Since December 31, 1997,
neither Seller nor any of its Affiliates have, except as set forth in Section
5.16 of the Disclosure Schedule:
(i) mortgaged, pledged or caused to be created a security interest
with respect to any of the Assets;
(ii) suffered any damage, destruction, or loss materially adversely
affecting the Assets or the Business relative to the Products or the ability of
Seller to perform any of its obligations under this Agreement or the Operative
Agreements, sold, transferred or assigned any of the Assets, other than in the
ordinary course of business;
(iii) been involved in any labor dispute which materially and
adversely affected or is likely to materially adversely affect the Assets or the
Business relative to the Products or the ability of Seller to perform any of its
obligations under this Agreement or the Operative Agreements (other than as may
result from the effects
<PAGE> 35
bargaining negotiations currently being undertaken by Seller with regard to the
union employees at the Facility); or
(iv) suffered any material adverse change in the Business or the
Assets which materially and adversely affected the value or utility of the
Assets, the well-being of the Business relative to the Products or the ability
of Seller to perform any of its obligations under this Agreement or the
Operative Agreements (other than the voluntary recall and/or suspension of sales
of Fluogen and Pitocin(R)).
5.17 Debarment. Except as set forth on Section 5.17 of the Disclosure
Schedule, no employee of Seller or its Affiliates at the Facility or involved in
the manufacture, use or sale of the Products, nor, to Seller's knowledge, any
consultant retained by Seller for the purpose of performing services with
respect to the Products during the period beginning on January 1, 1997 and
ending on the date hereof, has been debarred under ss.306(a) or ss.306(1) of the
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 or under any law,
statute or regulation which could lead to debarment.
5.18 DEA. During the period commencing on January 1, 1997 and ending on the
date hereof, with respect to Seller or its Affiliates, to Seller's knowledge,
there have been no inspections, inspection reports or other correspondence from
the Drug Enforcement Administration ("DEA") in which the DEA or any other
Governmental or Regulatory Authority has asserted or alleged that the operations
of Seller or its 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.
5.19 Environmental Matters.
(a) Except as set forth in Section 5.19(a) of the Disclosure Schedule,
to the knowledge of Seller, there have not been any activities on or at the
facilities owned by Seller and used for the manufacture of any Products (for
purposes of this Section 5.19, such facilities are collectively referred to
herein as the "Manufacturing Facilities") involving, directly or indirectly, the
use, generation, treatment, storage or disposal of any Hazardous Substances (i)
under, or in the land at any Manufacturing Facility whether contained in soil,
tanks, sumps, ponds, lagoons, barrels or other containments, structures or
equipment, (ii) incorporated in the buildings, structures or improvements
located at any Manufacturing Facility including any building material containing
asbestos, or (iii) used in connection with any operation on, in or at any
Manufacturing Facility, except where items (i), (ii), or (iii) were conducted in
accordance with applicable Environmental Laws or except as would not have a
financially adverse impact on the manufacture of the Products at such
Manufacturing Facilities;
(b) Except as disclosed in Section 5.19(b) of the Disclosure Schedule,
to the knowledge of Seller and except as otherwise disclosed in writing to
Purchaser during the course of its environmental audit of the Facility, there
have been no releases of
<PAGE> 36
any Hazardous Substances from any Manufacturing Facility and no such facility
has been used at any time by any Person as a landfill or waste disposal site,
except where such use was conducted in accordance with applicable Environmental
Laws or except as would not have a financially adverse impact on the manufacture
of the Products at such Manufacturing Facilities;
(c) There are no pesticides, fungicides, insecticides or rodenticides
located in or on any Manufacturing Facility in violation of any applicable Laws.
(d) To the knowledge of Seller, it is currently in substantial
compliance with all Environmental Laws with respect to the manufacture, use,
treatment, disposal and storage of the Products and raw materials and waste
by-products at the Manufacturing Facilities. Seller has all approvals, consents,
Licenses, Permits, registrations and orders necessary to carry out their
Business as currently conducted. To the knowledge of Seller and with the
exception of litigation regarding offsite disposal of Hazardous Materials
associated with the manufacture, use and storage of the Products, there is no
pending environmental litigation, enforcement actions, administrative orders,
environmental liens or notices of violation brought under any Environmental Laws
concerning the Facility and to the knowledge of Seller there are no threats of
such litigation, enforcement actions, administrative orders or notices of
violation.
(e) Seller has delivered or otherwise made available for inspection to
Purchaser true, complete and correct copies and results of all non-privileged
reports, studies, assessments, analyses, evaluations or tests possessed by
Seller pertaining to compliance with or liability under applicable Environmental
Laws with respect to any of the Assets owned or leased by Seller, all of which
shall be included with the definition of Business Books and Records.
(f) The contents of any privileged reports, studies, assessments,
analyses, evaluations or tests possessed by Seller do not reveal any additional
alleged violations of or noncompliance with applicable Environmental Laws that
have not been previously disclosed to Purchaser or disclosed herein.
5.20 Product and Service Warranties. Seller represents and warrants that it
has delivered to Purchaser all relevant information or given Purchaser access to
all relevant information regarding the current standard forms of product and
service warranties and guarantees utilized by Seller and its Affiliates with
respect to the Products and its Business relative to the Products. Except as set
forth on Section 5.20 of the Disclosure Schedule hereof, during a period
beginning on January 1, 1997 through the date hereof, neither Seller nor its
Affiliates have received written notice of, or become aware of facts or
circumstances that would 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 Seller's Business, which claims would have a
financial adverse effect on the Products, the Business, the Assets or Seller's
compliance with and performance under the terms of this Agreement or any of the
Operative Agreements.
<PAGE> 37
5.21 Product Financial Statements. Attached hereto as Section 5.21 of the
Disclosure Schedule are statements of revenue and net margin associated
specifically with the Products for the year ended December 31, 1997 ("Product
Financial Statements"). Seller represents and warrants that the Product
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 Product
Business for the period indicated.
5.22 Material Facts. To the knowledge of Seller, neither this Agreement nor
any schedule or exhibit hereto (including without limitation the Operative
Agreements or the schedules or exhibits attached thereto), nor any written
statement or certificate furnished in connection herewith or any of the
transactions contemplated hereby or by the Operative Agreements, 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.
5.23 Non-marketed Products. Notwithstanding any terms, conditions,
representations or warranties contained in this Agreement or any of the
Operative Agreements, Seller makes no representations or warranties relating to
the Discontinued Products.
5.24 Disclaimer of Warranties. EXCEPT AS EXPRESSLY PROVIDED HEREIN, SELLER
DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, WITH REGARD TO THE PRODUCTS,
INCLUDING THE WARRANTY OF MERCHANTABILITY AND THE WARRANTY OF FITNESS FOR A
PARTICULAR PURPOSE.
ARTICLE VI
INDEMNIFICATION
6.1 Indemnification. (a) Subject to paragraph (c) of this Section and the
other Sections of this Article VI, Seller shall indemnify Purchaser and its
officers, directors, employees, agents and Affiliates in respect of, and hold
each of them harmless from and against, any and all Losses suffered, incurred or
sustained by any of them or to which any of them becomes subject, resulting
from, arising out of or relating to:
(i) Any Retained Liability of Seller including, but not limited
to, any claim arising from any liability under or violation of any Environmental
Laws arising from any action taken or omitted to be taken on or prior to the
Closing Date;
<PAGE> 38
(ii) Misrepresentation or breach of warranty or covenant or
agreement by Seller made or contained in this Agreement, the Operative
Agreements or in any Exhibit, Schedule, certificate or other instrument
furnished or to be furnished to the Purchaser under this Agreement or the
Operative Agreements;
(iii) Litigation or other claims arising from acts, failures to
act or events relating to the Business or the Assets which occurred prior to the
Closing Date, including, without limitation, product liability claims or
threatened claims.
(iv) Any acts or omissions to act by Seller or its Affiliates, or
any of their employees, agents or representatives, that result in any violation
or alleged violation of any Law or Order that in any manner financially
adversely affects the rights and benefits of the Purchaser under this Agreement
or under any of the Operative Agreements.
Furthermore, the parties agree that in no event will Seller be liable to
Purchaser for special consequential, indirect, punitive or similar damages.
(b) Subject to paragraph (c) of this Section and the other Sections of
this Article VI, Purchaser shall indemnify Seller and its respective officers,
directors, employees, agents and Affiliates in respect of, and hold each of them
harmless from and against, any and all Losses suffered, incurred or sustained by
any of them or to which any of them becomes subject, resulting from, arising out
of or relating to:
(i) The Assumed Liabilities;
(ii) Misrepresentation or breach of warranty or covenant or
agreement by the Purchaser made or contained in this Agreement, the Operative
Agreements or in any Exhibit, Schedule, certificate or other instrument
furnished or to be furnished to Seller under this Agreement or the Operative
Agreements;
(iii) Litigation or other claims arising from acts, failures to
act or events relating to the Business or the Assets which occurred after the
Closing Date, including liability under or violations of Environmental Laws
occurring after the Closing Date.
(iv) The use of the Assets and Properties of the Business on and
after the Closing Date, including, without limitation, product liability claims
or threatened claims; and
(v) Any acts or omissions to act by the Purchaser or its
Affiliates, or any of their employees, agents or representatives, that result in
any violation or alleged violation of any Law or Order that in any manner
financially adversely affects the rights and benefits of Seller under this
Agreement or under any of the Operative Agreements.
<PAGE> 39
(c) Notwithstanding anything to the contrary contained in this
Agreement, no amounts of indemnity shall be payable as a result of any claim in
respect of a Loss arising under paragraph (a) or (b) of Section 6.1:
(i) unless, with respect to any claim, such claim involves Losses
in excess of $ 50,000;
(ii) unless, until and then only to the extent that the
Indemnified Parties thereunder have suffered, incurred, sustained or become
subject to Losses referred to in such paragraphs in excess of $500,000 in the
aggregate;
(iii) with respect to any claim for indemnification thereunder,
unless the Indemnified Party has given the Indemnifying Party a Claim Notice or
Indemnity Notice, as applicable, with respect to such claim, setting forth in
reasonable detail the specific facts and circumstances pertaining thereto, (A)
as soon as practical following the time at which the Indemnified Party
discovered or reasonably should have discovered such claim (except to the extent
the Indemnifying Party is not prejudiced by any delay in the delivery of such
notice) and (B) in any event prior to the applicable Cut-off Date;
(iv) with respect to any Loss resulting from a misrepresentation,
breach of warranty or nonfulfillment or failure to perform a covenant or
agreement that is either (A) disclosed in a written notice, setting forth in
reasonable detail the specific facts and circumstances pertaining thereto,
delivered by the Indemnifying Party to the Indemnified Party after the date of
this Agreement and at or prior to the Closing or (B) otherwise actually known to
the Indemnified Party prior to the Closing, if the Indemnified Party
nevertheless elects to close (regardless of whether the Indemnified Party waives
such misrepresentation, breach, nonfulfillment or failure in writing or
otherwise);
(v) with respect to any Loss, to the extent that the Indemnified
Party had a reasonable opportunity, but failed, in good faith to mitigate the
Loss, including but not limited to the failure to use commercially reasonable
efforts to recover under the Indemnified Party's policy of insurance or under a
contractual right of set-off or indemnity;
(vi) with respect to any Loss suffered, incurred or sustained by
Purchaser or its Affiliates or to which any of them becomes subject to the
extent it arises from or was caused by actions taken or failed to be taken by
Purchaser or any of its Affiliates after the Closing; or
(vii) with respect to any Loss, to the extent that such Loss is
caused by (a) any inaccuracy of a representation or breach of a warranty made by
the Indemnified Party in the Agreement or (b) the negligence or willful
misconduct of such Indemnified Party or any of its officers, directors,
employees, agents or affiliates.
<PAGE> 40
(d) The limitations contained in clauses (i), (ii) and (iii) of
Section 6.1(c) shall not apply to Losses arising from breach of (x) the
agreements of Seller contained in Sections 7.1 and 7.12 and of Purchaser
contained in Sections 7.1 and 7.12 and (y) Purchaser's and Seller's respective
obligations hereunder with respect to Assumed Liabilities and Retained
Liabilities.
6.2 Method of Asserting Claims. All claims for indemnification by any
Indemnified Party under Section 6.1 will be asserted and resolved as follows:
(a) In the event any claim or demand in respect of which an
Indemnified Party might seek indemnity under Section 6.1 is asserted against or
sought to be collected from such Indemnified Party by a Person other than
Seller, Purchaser or any Affiliate of Seller or Purchaser (a "Third Party
Claim"), the Indemnified Party shall deliver a Claim Notice with reasonable
promptness to the Indemnifying Party. The Indemnifying Party will notify the
Indemnified Party as soon as practicable within the Dispute Period whether the
Indemnifying Party disputes its liability to the Indemnified Party under Section
6.1 and whether the Indemnifying Party desires, at its sole cost and expense, to
defend the Indemnified Party against such Third Party Claim.
(i) If the Indemnifying Party notifies the Indemnified Party
within the Dispute Period that the Indemnifying Party desires to defend the
Indemnified Party with respect to the Third Party Claim pursuant to this Section
6.2(a), then the Indemnifying Party will have the right to defend, at the sole
cost and expense of the Indemnifying Party, such Third Party Claim by all
appropriate proceedings, which proceedings will be vigorously and diligently
prosecuted by the Indemnifying Party to a final conclusion or will be settled at
the discretion of the Indemnifying Party (with the consent of the Indemnified
Party, which consent will not be unreasonably withheld). The Indemnifying Party
will have full control of such defense and proceedings, including (except as
provided in the immediately preceding sentence) any settlement thereof;
provided, however, that the Indemnified Party may, at the sole cost and expense
of the Indemnified Party, at any time prior to the Indemnifying Party's delivery
of the notice referred to in the first sentence of this Section 6.2(a)(i), file
any motion, answer or other pleadings or take any other action that the
Indemnified Party reasonably believes to be necessary or appropriate to protect
its interests and not prejudicial to the Indemnifying Party (it being understood
and agreed that, except as provided in clause (ii) below, if an Indemnified
Party takes any such action that is prejudicial and causes a final adjudication
that is adverse to the Indemnifying Party, the Indemnifying Party will be
relieved of its obligations hereunder with respect to the portion of such Third
Party Claim prejudiced by the Indemnified Party's action); and provided further,
that if requested by the Indemnifying Party, the Indemnified Party will, at the
sole cost and expense of the Indemnifying Party, cooperate with the Indemnifying
Party and its counsel in contesting any Third Party Claim that the Indemnifying
Party elects to contest, or, if appropriate and related to the Third Party Claim
in question, in making any counterclaim against the Person asserting the Third
Party Claim, or any cross-complaint against any Person (other than the
Indemnified Party or any of its Affiliates). Notwithstanding the foregoing, the
Indemnified Party may take over the control of the defense or settlement of a
Third Party
<PAGE> 41
Claim at any time if it irrevocably waives its right to indemnity under Section
6.1 with respect to such Third Party Claim.
(ii) If the Indemnifying Party fails to notify the Indemnified
Party within the Dispute Period that the Indemnifying Party desires to defend
the Third Party Claim pursuant to Section 6.2(a), or if the Indemnifying Party
gives such notice but fails to prosecute vigorously and diligently or settle the
Third Party Claim, or if the Indemnifying Party fails to give any notice
whatsoever within the Dispute Period, then the Indemnified Party will have the
right to defend, at the sole cost and expense of the Indemnifying Party, the
Third Party Claim by all appropriate proceedings, which proceedings will be
vigorously and diligently prosecuted by the Indemnified Party to a final
conclusion or will be settled at the discretion of the Indemnified Party (with
the consent of the Indemnifying Party, which consent will not be unreasonably
withheld). The Indemnified Party will have full control of such defense and
proceedings, including (except as provided in the immediately preceding
sentence) any settlement thereof; provided, however, that if requested by the
Indemnified Party, the Indemnifying Party will, at the sole cost and expense of
the Indemnifying Party, cooperate with the Indemnified Party and its counsel in
contesting any Third Party Claim which the Indemnified Party is contesting, or,
if appropriate and related to the Third Party Claim in question, in making any
counterclaim against the Person asserting the Third Party Claim, or any
cross-complaint against any Person (other than the Indemnified Party or any of
its Affiliates). Notwithstanding the foregoing provisions of this Section
6.2(a)(ii), if the Indemnifying Party has notified the Indemnified Party within
the Dispute Period that the Indemnifying Party disputes its liability hereunder
to the Indemnified Party with respect to such Third Party Claim and if such
dispute is resolved in favor of the Indemnifying Party in the manner provided in
clause (iii) below, the Indemnifying Party will not be required to bear the
costs and expenses of the Indemnified Party's defense or settlement pursuant to
this Section 6.3(a)(ii) or of the Indemnifying Party's participation therein at
the Indemnified Party's request, and the Indemnified Party will reimburse the
Indemnifying Party in full for all reasonable costs and expenses incurred by the
Indemnifying Party in connection with such litigation.
(iii) If the Indemnifying Party notifies the Indemnified Party
that it does not dispute its liability to the Indemnified Party with respect to
the Third Party Claim under Section 6.1 or fails to notify the Indemnified Party
within the Dispute Period whether the Indemnifying Party disputes its liability
to the Indemnified Party with respect to such Third Party Claim, the Loss in the
amount specified in the Claim Notice will be conclusively deemed a liability of
the Indemnifying Party under Section 6.1 and the Indemnifying Party shall pay
the amount of such Loss to the Indemnified Party on demand. If the Indemnifying
Party has timely disputed its liability with respect to such claim, the
Indemnifying Party and the Indemnified Party will proceed in good faith to
negotiate a resolution of such dispute, and if not resolved through negotiations
within the Resolution Period, such dispute shall be resolved by litigation in a
court of competent jurisdiction.
<PAGE> 42
(b) In the event any Indemnified Party should have a claim under
Section 6.1 against any Indemnifying Party that does not involve a Third Party
Claim, the Indemnified Party shall deliver an Indemnity Notice with reasonable
promptness to the Indemnifying Party. If the Indemnifying Party notifies the
Indemnified Party that it does not dispute the claim described in such Indemnity
Notice or fails to notify the Indemnified Party within the Dispute Period
whether the Indemnifying Party disputes the claim described in such Indemnity
Notice, the Loss in the amount specified in the Indemnity Notice will be
conclusively deemed a liability of the Indemnifying Party under Section 6.2 and
the Indemnifying Party shall pay the amount of such Loss to the Indemnified
Party on demand. If the Indemnifying Party has timely disputed its liability
with respect to such claim, the Indemnifying Party and the Indemnified Party
will proceed in good faith to negotiate a resolution of such dispute, and if not
resolved through negotiations within the Resolution Period, such dispute shall
be resolved by litigation in a court of competent jurisdiction.
(c) In the event of any Loss resulting from a misrepresentation,
breach of warranty or nonfulfillment or failure to be performed of any covenant
or agreement contained in this Agreement as to which an Indemnified Party would
be entitled to claim indemnity under Section 6.1 but for the provisions of
Section 6.1(c)(ii), such Indemnified Party may nevertheless deliver a written
notice to the Indemnifying Party containing the information that would be
required in a Claim Notice or an Indemnity Notice, as applicable, with respect
to such Loss. In the case of a Claim Notice, the provisions of Section 6.1(c)(i)
will be applicable. If the Indemnifying Party notifies the Indemnified Party
that it does not dispute the claim described therein or fails to notify the
Indemnified Party within the Dispute Period whether the Indemnifying Party
disputes the claim described in such Claim Notice or Indemnity Notice, as the
case may be, the Loss specified in the notice will be conclusively deemed to
have been incurred by the Indemnified Party for purposes of making the
determination set forth in Section 6.1(c)(ii). If the Indemnifying Party has
timely disputed the claim described in such Claim Notice or Indemnity Notice, as
the case may be, the Indemnifying Party and the Indemnified Party will proceed
in good faith to negotiate a resolution of such dispute, and if not resolved
through negotiations within the Resolution Period, such dispute shall be
resolved by litigation in a court of competent jurisdiction.
(d) In the event of any claim for indemnity under Section 6.1(a),
Purchaser agrees to give Seller and its Representatives reasonable access to the
Business Books and Records and Employees in connection with the matters for
which indemnification is sought to the extent WL reasonably deems necessary in
connection with its rights and obligations under this Article VI.
6.3 Exclusivity. After the Closing, to the extent permitted by Law, the
indemnities set forth in this Article VI shall be the exclusive remedies of
Purchaser and Seller and their respective officers, directors, employees, agents
and Affiliates for any misrepresentation, breach of warranty or nonfulfillment
or failure to perform any covenant or agreement contained in this Agreement, and
the parties shall not be entitled
<PAGE> 43
to a rescission of this Agreement or to any further indemnification rights or
claims of any nature whatsoever in respect thereof, all of which the parties
hereto hereby waive.
ARTICLE VII
MISCELLANEOUS
7.1 Payment of Transaction Expenses. All sales taxes, use taxes, transfer
taxes, filing fees (including Intellectual Property assignment fees) and similar
taxes (other than taxes on Seller's income), fees, charges and expenses required
to be paid in connection with the sale of the Assets to Purchaser and the
assumption of the Business Contracts and the Assumed Liabilities by Purchaser
will be borne and paid by Purchaser. All legal fees and other expenses incurred
on behalf of Seller in connection with the negotiation of this Agreement will be
borne by Seller; and all legal fees and other expenses incurred on behalf of
Purchaser in connection with the negotiation of this Agreement will be borne by
Purchaser.
7.2 Drug Master Files. For each Product, Seller, shall, on or immediately
after the Closing Date, send a letter in form and substance satisfactory to
Purchaser to each of Seller's suppliers that are the holders of referenced Drug
Master Files with respect to the Products, in order to notify such suppliers of
the transfer of the Products from Seller to Purchaser and to obtain appropriate
Drug Master File reference authorizations from such suppliers. Additionally, for
those Products where the underlying application references the manufacture of
the bulk drug substance, Seller shall, as soon as practicable after the Closing
Date, file with the FDA a Type 3 Drug Master File relative to the manufacture of
those drug substances with appropriate references to Purchaser and to the
Products.
7.3 Use of Trademarks and Trade Names. With respect to the trademarks and
tradenames listed in Section 7.3(a) of the Disclosure Schedule, after the
Closing, Purchaser will be granted a limited right to utilize Seller's and its
Affiliates' trademarks and trade names as follows: (i) Purchaser may sell
finished products approved for release by Seller and included in the Inventory
utilizing packaging or labeling bearing such trademarks and trade names for one
year after the Closing Date or until such Inventory is depleted whichever occurs
first; (ii) Purchaser may sell other products included in the Inventory
utilizing packaging or labeling bearing such trademarks and trade names for six
months after the Closing Date or until such Inventory is depleted, (iii)
Purchaser may manufacture and sell products using the same packaging and
labeling bearing such trademarks and trade names for a period of six months from
the Closing Date and (iv) Purchaser may use, in the same manner used prior to
the Closing, all other marketing materials and other printed matter and
materials included in the Assets and bearing Seller's or its Affiliates'
trademarks and trade names in the ordinary course of operating the Business
until the earlier of the (x) depletion of such items or (y) one year after the
Closing Date. In all cases set forth in this Section 7.3, Purchaser shall
destroy all unused supplies of the same within one month following the
expiration of the applicable permitted period of use. Subject to the foregoing,
Purchaser shall exercise diligent efforts, including the making of any
regulatory filings, to change, as soon as practical
<PAGE> 44
after the Closing Date, the packaging and labeling for Products to delete
trademarks and trade names owned by Seller or its Affiliates.
With respect to the trademarks and tradenames listed in Section 7.3(b) of
the Disclosure Schedule, Purchaser's rights to utilize such trademarks and
tradenames shall be set forth in the License Agreement.
With respect to the trademarks and tradenames listed in Section 7.3(c) of
the Disclosure Schedule, Seller's rights to utilize such trademarks and
tradenames shall be set forth in the Chloromycetin License Agreement.
7.4 Delivery of Assets and Inventory; Removal of Property. (a) On the
Closing Date, Seller will take all commercially reasonable steps to deliver or
make available to Purchaser at the Facility or at such other locations as the
Assets may be held, the Assets (excluding Inventory) in Seller's possession, and
if at any time after the Closing Date, Seller discovers in its possession or in
the possession of its Affiliates or under its control or the control of its
Affiliates any other such Assets, it will forthwith deliver same at its expense
to Purchaser.
(b) On or promptly after the Closing Date, Seller will take all
commercially reasonable steps to deliver to Purchaser finished Product Inventory
which is not located at the Facility to a common carrier designated by
Purchaser, at shipping docks at Seller's facilities for shipment to Purchaser.
Purchaser shall bear all costs and risk of loss for such Inventory after it is
delivered to such common carrier.
7.5 Further Assurances and Access. Seller, at any time after the Closing
Date, at the request of Purchaser shall execute, acknowledge and deliver any
further assignments and other assurances, documents and instruments of transfer,
and will take any action consistent with the terms of this Agreement or the
Operative Agreements, that may be reasonably necessary for the purpose of
assigning and granting to Purchaser all Assets free and clear of all liens,
claims, encumbrances or security interests of any kind to be sold pursuant to
the terms and provisions of this Agreement or the Operative Agreements.
Furthermore, Seller will provide Purchaser access to all historic documentation
necessary for Purchaser to satisfy its obligations to the FDA by virtue of its
ownership of the Registrations.
7.6 Notices. All notices, requests and other communications hereunder must
be in writing and will be deemed to have been duly given only if delivered
personally or by facsimile transmission or mailed (first class postage prepaid)
or by nationally recognized overnight courier service to the parties at the
following addresses or facsimile numbers:
If to Purchaser, to:
Parkedale Pharmaceuticals, Inc.
501 Fifth Street
<PAGE> 45
Bristol, Tennessee 37620
Attn: Chairman of the Board
facsimile: 423-989-6282
with a copy to:
John A.A. Bellamy, Esq.
Executive Vice President and
General Counsel
King Pharmaceuticals, Inc.
501 Fifth Street
Bristol, Tennessee 37620
facsimile: 423-989-6282
and to:
Verne C. Hampton II
Dickinson, Wright, Moon, Van Dusen & Freeman
500 Woodward Avenue, Suite 4000
Detroit, Michigan 48226
facsimile: 734-223-3598
If to Seller to:
Warner-Lambert Company
201 Tabor Road
Morris Plains, NJ 07950
Attn: President, Pharmaceutical Sector
facsimile: 973-540-4009
with a copy to:
Warner-Lambert Company
201 Tabor Road
Morris Plains, NJ 07950 Facsimile No.: 973-540-3927
Attn: Vice President and General Counsel
facsimile: 973-540-3927
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided in this Section, be deemed given upon receipt, and (iii) if delivered
by mail in the manner described above to the address as provided in this
Section, be deemed given upon receipt (in each case regardless of whether such
notice, request or other communication is received by any other Person to whom a
copy of such notice, request or other communication is to be delivered pursuant
to this Section). Any party from time to time may change its address,
<PAGE> 46
facsimile number or other information for the purpose of notices to that party
by giving notice specifying such change to the other party hereto.
7.7 Survival of Representations, Warranties, Covenants and Agreements. The
representations, warranties, covenants and agreements of Seller and Purchaser
contained in this Agreement will survive the Closing (a) indefinitely with
respect to the representations and warranties contained in Sections 5.1(i) and
5.1(ii) and the covenants and agreements contained in Sections 2.10 and 7.1, (b)
five (5) years with respect to the covenants and agreements contained in Section
7.12 and (c) for a period of one (1) year following the Closing in the case of
each other representation and warranty, covenant and agreement, except that any
representation, warranty, covenant or agreement that would otherwise terminate
in accordance with clause (c) above will continue to survive if a Claim Notice
or Indemnity Notice (as applicable) shall have been timely given in good faith
based on facts reasonably expected to establish a valid claim under Article VI
on or prior to such termination date, until the related claim for
indemnification has been satisfied or otherwise resolved as provided in Article
VI. This Section shall not limit in any way the survival and enforceability of
any covenant or agreement of the parties hereto which by its terms contemplates
performance after the Closing Date, which shall survive for the respective
periods set forth therein.
7.8 No Other Representations. Notwithstanding anything to the contrary
contained in this Agreement, it is the explicit intent of each party hereto that
Seller is not making any representation or warranty whatsoever, express or
implied, including but not limited to any implied representation or warranty as
to condition, merchantability or suitability as to any of the Assets or other
Properties of the Business, except those representations and warranties
contained in Article V of this Agreement and the Operative Agreements, the
Schedules and Exhibits hereto and thereto. In particular, Seller does not make
any representation or warranty to Purchaser with respect to (i) the information
set forth in the Confidential Offering Memorandum dated April, 1997 provided to
the Purchaser by Seller or (ii) any financial projection or forecast relating to
the Condition of Seller's Business or (iii) any presentation by Seller of the
Condition of Seller's Business. With respect to any projection or forecast
delivered by or on behalf of any Seller to Purchaser, Purchaser acknowledges
that (i) there are uncertainties inherent in attempting to make such projections
and forecasts, (ii) it is familiar with such uncertainties, (iii) it is taking
full responsibility for making its own evaluation of the adequacy and accuracy
of all such projections and forecasts furnished to it and (iv) it shall have no
claim against Seller with respect to such projections and forecasts prepared in
good faith by Seller.
7.9 Independent Contractor. Nothing in this Agreement shall be construed to
create a partnership, agency, joint venture or employer-employee relationship.
Neither party has the authority to assume or create any obligation, express or
implied, on behalf of the other.
7.10 Entire Agreement. This Agreement supersedes all prior discussions and
agreements between the parties with respect to the subject matter hereof,
including
<PAGE> 47
without limitation that certain nondisclosure agreement between the parties
dated August 21, 1997, and, together with the exhibits and schedules attached
hereto which are herein deemed to have been fully incorporated herein by
reference thereto, contains the sole and entire agreement between the parties
hereto with respect to the subject matter hereof and thereof, except as set
forth in the Operative Agreements.
7.11 Public Announcements. At all times at or before the Closing, Seller
and Purchaser will not issue or make any reports, statements or releases to the
public or generally to the employees, customers, suppliers or other Persons to
whom Seller sells goods or provides services in connection with the Business or
with whom Seller otherwise has significant business relationships in connection
with the Business with respect to this Agreement or the transactions
contemplated hereby without the consent of the other, which consent shall not be
unreasonably withheld. If either party is unable to obtain the approval of its
public report, statement or release from the other party and such report,
statement or release is, in the opinion of legal counsel to such party, required
by Law in order to discharge such party's disclosure obligations, then such
party may make or issue the legally required report, statement or release and
promptly furnish the other party with a copy thereof. Seller and Purchaser will
also obtain each party's prior approval of any press release to be issued
immediately following the Closing announcing the consummation of the
transactions contemplated by this Agreement.
7.12 Confidentiality. For a period of five (5) years from the Closing Date,
each party hereto will hold, and will cause its Affiliates, and in the case of
Purchaser, any Person who has provided, or who is considering providing,
financing to Purchaser to finance all or any portion of the Purchase Price, and
their respective Representatives to hold in strict confidence from any Person
(other than any such Affiliate, Person who has provided, or who is considering
providing, financing or Representative) all documents and information concerning
the other party or any of its Affiliates furnished to it by the other party or
such other party's Representatives in connection with this Agreement or the
transactions contemplated hereby, except to the extent that such documents or
information can be shown to have been (a) previously known by the party
receiving such documents or information, (b) in the public domain (either prior
to or after the furnishing of such documents or information hereunder) through
no fault of such receiving party or (c) later acquired by the receiving party
from another source if the receiving party is not aware that such source is
under an obligation to another party hereto to keep such documents and
information confidential. The foregoing restrictions shall not apply to
documents and information (i) compelled to be disclosed by judicial or
administrative process (including without limitation in connection with
obtaining the necessary approvals of this Agreement and the transactions
contemplated hereby of Governmental or Regulatory Authorities) or by other
requirements of Law or (ii) disclosed in an Action or Proceeding brought by a
party hereto in pursuit of its rights or in the exercise of its remedies
hereunder, or (iii) required in any document relating to the sale or proposed
sale of Purchaser's stock to the public. In the event the transactions
contemplated hereby are not consummated, upon the request of the other party,
each party hereto will, and will cause its Affiliates, any Person who has
provided, or who is providing, financing to such party and their respective
Representatives to, promptly (and in no event later than five (5)
<PAGE> 48
Business Days after such request) redeliver or cause to be redelivered all
copies of confidential documents and information furnished by the other party in
connection with this Agreement or the transactions contemplated hereby and
destroy or cause to be destroyed all notes, memoranda, summaries, analyses,
compilations and other writings related thereto or based thereon prepared by the
party furnished such documents and information or its Representatives.
7.13 Waiver. Any term or condition of this Agreement may be waived at any
time by the party that is entitled to the benefit thereof, but no such waiver
shall be effective unless set forth in a written instrument duly executed by or
on behalf of the party waiving such term or condition. No waiver by any party of
any term or condition of this Agreement, in any one or more instances, shall be
deemed to be or construed as a waiver of the same or any other term or condition
of this Agreement on any future occasion. All remedies, either under this
Agreement or by Law or otherwise afforded, will be cumulative and not
alternative.
7.14 Amendment. This Agreement may be amended, supplemented or modified
only by a written instrument duly executed by or on behalf of each party hereto.
7.15 No Third Party Beneficiary. The terms and provisions of this Agreement
are intended solely for the benefit of each party hereto and their respective
successors or permitted assigns, and it is not the intention of the parties to
confer third-party beneficiary rights upon any other Person other than any
Person entitled to indemnity under Article VI. This Agreement may be amended,
supplemented, modified or terminated by the parties without notice or other
obligation to any person entitled to such indemnity.
7.16 No Assignment; Binding Effect. Neither this Agreement nor any right,
interest or obligation hereunder may be assigned by any party hereto without the
prior written consent of the other party hereto and any attempt to do so will be
void, except (a) for assignments and transfers by operation of Law and (b) that
Purchaser may assign any or all of its rights, interests and obligations
hereunder to a wholly-owned subsidiary or an Affiliate, , provided that any such
assignee agrees in writing to be bound by all of the terms, conditions and
provisions contained herein. Subject to the preceding sentence, this Agreement
is binding upon, inures to the benefit of and is enforceable by the parties
hereto and their respective successors and assigns. Purchaser may also grant
security interests in the Assets at or after the Closing.
7.17 Headings. The headings used in this Agreement have been inserted for
convenience of reference only and do not define or limit the provisions hereof.
7.18 Invalid Provisions. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under any present or future Law, and if the
rights or obligations of any party hereto under this Agreement will not be
materially and adversely affected thereby, (a) such provision will be fully
severable, (b) this Agreement will be construed and enforced as if such illegal,
invalid or unenforceable provision had never
<PAGE> 49
comprised a part hereof, (c) the remaining provisions of this Agreement will
remain in full force and effect and will not be affected by the illegal, invalid
or unenforceable provision or by its severance herefrom and (d) in lieu of such
illegal, invalid or unenforceable provision, there will be added automatically
as a part of this Agreement a legal, valid and enforceable provision as similar
in terms to such illegal, invalid or unenforceable provision as may be possible.
7.19 Governing Law. This Agreement shall be governed by and construed in
accordance with the Laws of the State of Michigan applicable to a contract
executed and performed in such State, without giving effect to the conflicts of
laws principles thereof.
7.20 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
WARNER-LAMBERT COMPANY PARKEDALE
PHARMACEUTICALS, INC.
By: /s/ Melvin R. Goodes By: /s/ John M. Gregory
------------------------------- ------------------------------
Name: Melvin R. Goodes Name: John M. Gregory
Title: Chairman of the Board Title: Chairman of the Board
and Chief Executive Officer and C.E.O
<PAGE> 1
Exhibit 10.27
KING PHARMACEUTICALS, INC.
1998 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
----------------------------
1. NAME AND PURPOSE. This plan shall be called the King Pharmaceuticals,
Inc. Non-Employee Director Stock Option Plan (the "Plan"). The Plan is intended
to encourage stock ownership by Non-Employee Directors (as such term is defined
under Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of King Pharmaceuticals, Inc., a Tennessee corporation (the
"Company"), to provide such directors with an additional incentive to manage the
Company effectively and to contribute to its success, and to provide a form of
compensation which will attract and retain highly qualified individuals as
members of the Board of Directors of the Company.
2. EFFECTIVE DATE AND TERM OF THE PLAN. The Plan shall become effective on
the date of the adoption of the Plan by the Board of Directors; however, 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 of
the adoption of the Plan by the Board. Options may not be granted under the Plan
after the tenth (10th) anniversary of the Effective Date (the "Term"); provided,
however, that all options outstanding as of that date shall remain or become
exercisable pursuant to their terms and the terms of the Plan.
3. ADMINISTRATION. The Plan shall be administered by the Board of Directors
of the Company (the "Board"). Each non-employee member of the Board shall be
eligible to participate in the Plan; however, grants made to a non-employee
member of the Board must be approved by a majority of the full Board with such
member abstaining. Subject to the express provisions of the Plan, the Board
shall have discretionary authority to interpret the Plan, to prescribe, amend
and rescind rules and regulations relating to it, to determine the details and
provisions of each stock option agreement, and to make all the determinations
necessary or advisable in the administration of the Plan. The interpretation and
construction by the Board of any provisions of the Plan or of any option granted
pursuant to the Plan shall be final and binding upon the Company and any
optionee. No member of the Board shall be liable for any action or determination
made in good faith with respect to the Plan or any option granted pursuant
thereto.
4. STOCK AVAILABLE FOR OPTIONS. Subject to the adjustments as provided in
Subsection 7(f), the aggregate number of shares of Common Stock, no par value
per share, of the Company (the "Common Stock") reserved for purposes of the Plan
shall be 300,000 shares of authorized and unissued shares or issued shares
reacquired by the Company.
Determinations as to the number of shares that remain available for
issuance under the Plan shall be made in accordance with such rules and
procedures as the Board shall determine from time to time. If any outstanding
option under the Plan expires or is terminated for any reason before the end of
the Term of the Plan, the shares allocable to the unexercised portion of such
option shall
<PAGE> 2
become available for the grant of other options under the Plan. No shares
delivered to the Company in full or partial payment upon exercise of an option
pursuant to Subsection 7(c) or in full or partial payment of any withholding tax
liability permitted under Section 10 shall become available for the grant of
other options under the Plan.
5. PARTICIPATION. Subject to the limitations contained in this Section 5,
any director of the Company who is not a contractual nor common law employee of
the Company or any of its subsidiaries (a "Non-Employee Director") will be
eligible to be granted options to purchase shares of the issued or issuable
Common Stock in accordance and consistent with the terms and conditions of the
Plan. An optionee may hold more than one option, but only on the terms and
subject to the restrictions hereafter set forth. Except as provided herein,
terms and conditions of options granted to a director at any given time need not
be the same for any other grant of options.
6. OPTION GRANTS.
(a) Discretionary Grants. The Board shall determine from time to time
the directors (among the Non-Employee Directors) to be granted options, the
number of shares of Common Stock subject to such options, and the terms and
conditions of the options to be granted.
(b) Non-Statutory Stock Options. All options granted under the Plan
shall be non-statutory options not intended to qualify under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). Each option granted
under the Plan shall provide that such option will not be treated as an
"incentive stock option," as that term is defined in Section 422(b)of the Code.
7. TERMS AND CONDITIONS OF OPTIONS OF THE PLAN. Options granted under this
Plan shall be evidenced by agreements in such form as the Board shall from time
to time approve, which agreements shall comply with and be subject to the
following conditions:
(a) Term of Options. The term of each option shall be for a period of
not greater than ten (10) years from the date of grant of the option.
(b) Option Price. The exercise price of each option shall be equal to
100% of the Fair Market Value of the shares of Common Stock on the date of the
grant of the option. If the shares are traded in the over-the-counter market,
the Fair Market Value per share shall be the closing price on the Nasdaq
National Market ("Nasdaq") on the day the option is granted or if no sale of
shares is reflected on Nasdaq on that day, on the next preceding day on which
there was a sale of shares reflected on Nasdaq. If the shares are not traded in
the over-the-counter market but are listed upon an established stock exchange or
exchanges, such Fair Market Value shall be deemed to be the closing price of the
shares on such stock exchange or exchanges on the day the option is granted or
if no sale of the shares shall have been made on any stock exchange on that day,
on the next preceding day on which there was a sale of the shares.
- 2 -
<PAGE> 3
(c) Medium of Payment. The option price shall be payable to the
Company either (i) in United States dollars in cash or by check, bank draft, or
money order payable to the order of the Company or (ii) if permitted by the
Board, through the delivery of shares of the Common Stock with a Fair Market
Value on the date of the exercise equal to the option price, provided such
shares are utilized as payment to acquire at least 100 shares of Common Stock,
or (iii) by a combination of (i) and (ii) above. Fair Market Value will be
determined in the manner specified in Subsection 7(b) except as to the date of
determination.
(d) Exercise of Options. Except as provided herein, the Board shall
have the authority to determine, at the time of grant of each option pursuant to
Subsection 6(a), the times at which an option may be exercised and any
conditions precedent to the exercise of an option. An option shall be
exercisable upon written notice to the Secretary or Assistant Secretary of the
Company, as to any or all shares covered by the option, until its termination or
expiration in accordance with its terms or the provisions of the Plan.
Notwithstanding the foregoing, an option shall not at any time be exercisable
with respect to less than 100 shares unless the remaining shares covered by an
option are less than 100 shares. The purchase price of the shares purchased
pursuant to an option shall be paid in full upon delivery to the optionee of
certificates for such shares. Exercise by an optionee's heir, personal
representative or permitted transferee shall be accompanied by evidence of his
or her authority to act, in a form reasonably satisfactory to the Company.
(e) Termination of Service as Director.
(i) Termination of Service for any Reason Other than Death or
Permanent Disability. In the event an optionee shall cease to serve the
Company as a director for any reason other than such optionee's death
or Permanent Disability, each option held by such optionee shall, to
the extent rights to purchase shares under the option have become
vested at the time such optionee ceases to serve as a director, remain
exercisable, in whole or in part, by the optionee, subject to prior
expiration according to its terms and other limitations imposed by the
Plan, for a period of one (1) year following the optionee's cessation
of service as a director of the Company. If the optionee dies after
such cessation of service, the optionee's options shall be exercisable
in accordance with Subsection 7(e)(ii) hereof.
(ii) Termination of Service for Death or Permanent Disability. If
an optionee ceases to be a director by reason of death or Permanent
Disability, each option held by such optionee shall immediately become
exercisable and shall remain exercisable, in whole or in part, by (in
the case of Permanent Disability) the optionee or the optionee's
guardian or attorney-in-fact or (in the case of death) the personal
representative of the optionee's estate or by any person or persons who
have acquired the option directly from the optionee during the shorter
of the following periods: (i) the term of the option, or (ii) a period
of two (2) years from the death or Permanent Disability of such
optionee. If an optionee dies or a Permanent Disability occurs during
the extended exercise period following cessation of service specified
in Subsection 7(e)(i) above, such option may be exercised any time
within the longer of such extended period or one (1) year after death
or Permanent Disability, subject to the prior
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<PAGE> 4
expiration of the term of the option. For purposes of this Subsection
7(e)(ii), "Permanent Disability" shall mean a determination by the
Social Security Administration or any similar successor agency that an
optionee is "permanently disabled," and the date on which a Permanent
Disability is deemed to have occurred shall be the date on which such
determination by such agency shall have been made.
(f) Adjustment in Shares Covered by Option. The number of shares
covered by each outstanding option, and the purchase price per share thereof,
shall be proportionately adjusted for any increase or decrease in the number of
issued and outstanding shares resulting from a split in or combination of shares
or the payment of a stock dividend on the shares or any other increase or
decrease in the number of such shares effected without receipt of consideration
by the Company.
If the Company shall be the surviving corporation in any merger or
consolidation or if the Company is merged into a wholly-owned subsidiary solely
for purposes of changing the Company's state of incorporation, each outstanding
option shall pertain to and apply to the securities to which a holder of the
number of shares subject to the option would have been entitled to receive in
such transaction.
In the event of a Change in Control, only if provided in the option
agreement, any option awarded under this Plan to the extent not previously
exercisable shall immediately become fully exercisable. The Board in its sole
discretion may direct the Company to cash out all outstanding options on the
basis of the Change in Control Price as of the date a Change in Control occurs
or such other date as the Committee may determine prior to the Change in
Control. For purposes of this Plan, a "Change in Control" means the occurrence
of any of the following: (i) when any "person" as defined in Section 3(a)(9) of
the Exchange Act and as used in Sections 13(d) and 14(d) thereof, including a
"group" as defined in Section 13(d) of the Exchange Act but excluding the
Company and any subsidiary, any of the Company's existing shareholders prior to
the Effective Date and any employee benefit plan sponsored or maintained by the
Company or any subsidiary (including any trustee of such plan acting as
trustee), directly or indirectly, becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act, as amended from time to time), after the
Effective Date, of securities of the Company representing 20% or more of the
combined voting power of the Company's then outstanding securities; (ii) when,
during any period of 24 consecutive months during the existence of the Plan, the
individuals who, at the beginning of such period, constitute the Board of
Directors of the Company (the "Incumbent Directors") cease for any reason other
than death to constitute at least a majority thereof; provided, however, that a
director who was not a director at the beginning of such 24-month period shall
be deemed to have satisfied such 24-month requirement (and be an Incumbent
Director) if such director was elected by, or on the recommendation of or with
the approval of, at least two-thirds of the directors who then qualified as
Incumbent Directors either actually (because they were directors at the
beginning of such 24 month period) or by prior operation of this provision; or
(iii) the approval by the shareholders of the Company of a transaction involving
the acquisition of the Company by an entity other than the Company or a
subsidiary through purchase of assets, by merger, or otherwise. For purposes of
this Plan, "Change in Control Price" means the highest price per share of Common
Stock paid in any transaction reported on Nasdaq or paid or
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<PAGE> 5
offered in any bona fide transaction related to a Change in Control at any time
during the 60-day period immediately preceding the occurrence of the Change in
Control, in each case as determined by the Committee.
In the event of a change in the shares as presently constituted, which
is limited to a change of all of its authorized shares with par value into the
same number of shares with a different par value or without par value, the
shares resulting from any such change shall be deemed to be the shares within
the meaning of the Plan.
To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the Board, whose
determination in that respect shall be final, binding and conclusive. Any such
adjustment may provide for the elimination of any fractional share which might
otherwise become subject to an option.
Except as expressly provided in this Subsection 7(f), the optionee
shall have no rights by reason of any split or combination of shares of stock of
any class or the payment of any stock dividend or any other increase or decrease
in the number of shares of stock of any class or by reason of any dissolution,
liquidation, merger, or consolidation or spinoff of assets or stock of another
corporation, and any issue by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number or
price of shares of stock subject to the option.
The grant of an option pursuant to the Plan shall not affect in any way
the right or power of the Company to make adjustments, reclassifications,
reorganizations, or changes of its capital or business structure, or to merge or
to consolidate or to dissolve, liquidate or sell, or transfer all or any part of
its business or assets.
(g) Rights of a Shareholder. An optionee shall have no rights as a
shareholder with respect to any shares covered by his or her option until the
date on which the optionee becomes the holder of record of such shares. No
adjustment shall be made for dividends, distributions, or other rights for which
the record date is prior to the date on which he or she shall have become the
holder of record thereof, except as provided in Subsection 7(f).
(h) Postponement of Delivery of Shares and Representations. The
Company, in its discretion, may postpone the issuance and/or delivery of shares
upon any exercise of an option until completion of the registration or other
qualification of such shares under any state and/or federal law, rule or
regulation as the Company may consider appropriate, and may require any person
exercising an option to make such representations, including a representation
that it is the optionee's intention to acquire shares for investment and not
with a view to distribution thereof, and furnish such information as it may
consider appropriate in connection with the issuance or delivery of the shares
in compliance with applicable laws, rules, and regulations. In such event no
shares shall be issued to such holder unless and until the Company is satisfied
with the accuracy of any such representations.
- 5 -
<PAGE> 6
(i) Transferability. All options shall be nontransferable except (i)
upon the optionee's death, by the optionee's will or the laws of descent and
distribution or (ii) on a case-by-case basis as may be approved by the Board in
its discretion, in accordance with the terms provided below. Each option
agreement shall provide the optionee may, during his or her lifetime and subject
to the prior approval of the Boar at the time of proposed transfer, transfer all
or part of the option to a Permitted Transferee (as defined below), provided
that such transfer is made by the optionee for estate and tax planning purposes
or donative purposes and no consideration (other than nominal consideration) is
received by the optionee therefor. The transfer of an option shall be subject to
such other terms and conditions as the Board may in its discretion impose from
time to time, including a condition that the portion of the option to be
transferred be vested and exercisable by the optionee at the time of the
transfer. Subsequent transfer of an option transferred under this Subsection
7(i) shall be prohibited other than by will or the laws of descent and
distribution upon the date of the transferee.
For purposes hereof, a "Permitted Transferee" shall be any member of
the optionee's immediate family or a charitable institution (each defined
below), or a trust for the exclusive benefit of such immediate family members
and/or charitable institution, or a partnership or limited liability company the
equity interests of which are owned exclusively by the optionee and/or one or
more members of his or her immediate family. For purposes of the preceding
definition, (i) the "immediate family" of the optionee shall mean and include
the optionee's spouse, any descendant of the optionee or his or her spouse
(including descendants by adoption), and any descendant of either parent of the
optionee (including descendants by adoption), and (ii) "charitable institution"
shall mean and include any organization described in each of section
170(b)(1)(A), 170(c), 2055(a) and 2522(a) of the Code, as well as any charitable
remainder trust created under section 664 of the Code, the income beneficiary of
which is a member of the optionee's immediate family or a trust or other entity
described above in this Subsection 7(i).
No transfer of an option by the optionee by will or by laws of descent
and distribution shall be effective to bind the Company unless the Company shall
have been furnished with written notice thereof and an authenticated copy of the
will and/or such other evidence as the Board may deem necessary to establish the
validity of the transfer. During the lifetime of an optionee, the option shall
be exercisable only by him, except that, in the case of an optionee who is
legally incapacitated, the option shall be exercisable by his guardian or legal
representative.
(j) Other Provisions. The option agreements authorized under the Plan
shall contain such other provisions, including, without limitation, restrictions
upon the exercise of the option, as the Board shall deem advisable.
8. ADJUSTMENTS IN SHARES AVAILABLE FOR OPTIONS. The adjustments in number
and kind of shares and the substitution of shares, affecting outstanding options
in accordance with Subsection 7(f) hereof, shall also apply to the number and
kind of shares issuable upon the exercise of options to be granted pursuant to
Section 6 and the number and kind of shares reserved for issuance pursuant to
the Plan, but not yet covered by options.
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<PAGE> 7
9. AMENDMENT OF THE PLAN. The Board, insofar as permitted by law, shall
have the right from time to time, with respect to any shares at the time not
subject to options, to suspend or discontinue the Plan or revise or amend it in
any respect whatsoever. So long as the Common Stock is eligible for trading on
Nasdaq, the Board shall obtain shareholder approval for those revisions or
amendments of the Plan required to be so approved pursuant to the By-laws of the
National Association of Securities Dealers. If the Plan is amended so that the
exemption provided by Rule 16b-3 as a result of the Plan being approved by the
shareholders of the Company is no longer available for options granted under
Subsections 6(b) or 6(c) hereof, all options subsequently granted thereunder
must be approved by the Board prior to such grant.
10. WITHHOLDING OF TAXES. The Company shall have the right to deduct from
any payment to be made pursuant to this Plan, or to otherwise require, prior to
the issuance or delivery of any shares of Common Stock, payment by the optionee
of any federal, state, or local taxes required by law to be withheld. Unless
otherwise prohibited by the Board, an optionee may satisfy any such withholding
tax obligation by any of the following means or by a combination of such means:
(a) tendering a cash payment;
(b) authorizing the Company to withhold from the shares otherwise
issuable to the optionee a number of shares having a Fair Market Value
as of the "Tax Date," less than or equal to the amount of withholding
tax obligation; or
(c) delivering to the Company unencumbered shares owned by the optionee
having a Fair Market Value, as of the Tax Date, less than or equal to
the amount of the withholding tax obligation.
The "Tax Date" shall be the date that the amount of tax to be withheld
is determined. Fair Market Value shall be determined in the manner
specified in Subsection 7(b), except as to the date of determination.
An optionee's election to pay the withholding tax obligation by either
of (b) or (c) above shall be irrevocable, may be disapproved by the
Board, and must be made either six (6) months prior to the Tax Date or
during the period beginning on the third business day following the
date of release of the Company's quarterly or annual summary statement
of sales and earnings and ending on the twelfth business day following
such date.
11. RIGHT OF BOARD OF DIRECTORS OR SHAREHOLDERS TO TERMINATE DIRECTOR'S
SERVICE. Nothing in this Plan or in the grant of any option hereunder shall
inany way limit or affect the right of the Board of Directors or the
shareholders of the Company to remove any director or otherwise terminate his or
her service as a director, pursuant to the law, the Second Amended and Restated
Charter, or Amended and Restated By-laws of the Company.
12. APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of stock pursuant to options will be used for general corporate purposes.
- 7 -
<PAGE> 8
13. NO OBLIGATION TO EXERCISE OPTION. The granting of an option shall
impose no obligation on the optionee to exercise such option.
14. CONSTRUCTION. This Plan shall be construed under the laws of the
State of Tennessee.
- 8 -
<PAGE> 1
EXHIBIT 10.28
- --------------------------------------------------------------------------------
CREDIT AGREEMENT
Dated as of February 27, 1998,
among
KING PHARMACEUTICALS, INC.,
THE LENDERS NAMED HEREIN,
CREDIT SUISSE FIRST BOSTON,
as Administrative Agent,
as Collateral Agent and
as Swingline Lender,
and
WACHOVIA BANK, N.A.,
as Issuing Bank
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I
Definitions
<S> <C> <C>
SECTION 1.01. Defined Terms .............................................. 2
SECTION 1.02. Terms Generally ............................................ 22
ARTICLE II
The Credits
SECTION 2.01. Commitments ................................................ 23
SECTION 2.02. Loans ...................................................... 23
SECTION 2.03. Borrowing Procedure ........................................ 25
SECTION 2.04. Evidence of Debt; Repayment of Loans ....................... 25
SECTION 2.05. Fees ....................................................... 26
SECTION 2.06. Interest on Loans .......................................... 27
SECTION 2.07. Default Interest ........................................... 27
SECTION 2.08. Alternate Rate of Interest ................................. 27
SECTION 2.09. Termination and Reduction of Commitments ................... 27
SECTION 2.10. Conversion and Continuation of Borrowings .................. 28
SECTION 2.11. Repayment of Term Borrowings ............................... 29
SECTION 2.12. Prepayment ................................................. 31
SECTION 2.13. Mandatory Prepayments ...................................... 32
SECTION 2.14. Reserve Requirements; Change in Circumstances .............. 33
SECTION 2.15. Change in Legality ......................................... 35
SECTION 2.16. Indemnity .................................................. 35
SECTION 2.17. Pro Rata Treatment ......................................... 36
SECTION 2.18. Sharing of Setoffs ......................................... 36
SECTION 2.19. Payments ................................................... 37
SECTION 2.20. Taxes ...................................................... 37
SECTION 2.21. Assignment of Commitments Under Certain Circumstances;
Duty to Mitigate......................................... 38
SECTION 2.22. Swingline Loans ............................................ 39
SECTION 2.23. Letters of Credit .......................................... 41
ARTICLE III
Representations and Warranties
SECTION 3.01. Organization; Powers ....................................... 44
SECTION 3.02. Authorization .............................................. 45
SECTION 3.03. Enforceability ............................................. 45
SECTION 3.04. Governmental Approvals ..................................... 45
SECTION 3.05. Financial Statements ....................................... 45
</TABLE>
<PAGE> 3
Contents, p. 2
<TABLE>
<S> <C> <C>
SECTION 3.06. No Material Adverse Change ................................. 46
SECTION 3.07. Title to Properties; Possession Under Leases ............... 46
SECTION 3.08. Subsidiaries ............................................... 46
SECTION 3.09. Litigation; Compliance with Laws ........................... 46
SECTION 3.10. Agreements ................................................. 47
SECTION 3.11. Federal Reserve Regulations ................................ 47
SECTION 3.12. Investment Company Act; Public Utility Holding Company
Act...................................................... 48
SECTION 3.13. Use of Proceeds ............................................ 48
SECTION 3.14. Tax Returns ................................................ 48
SECTION 3.15. No Material Misstatements .................................. 48
SECTION 3.16. Employee Benefit Plans ..................................... 48
SECTION 3.17. Environmental Matters ...................................... 48
SECTION 3.18. Insurance .................................................. 49
SECTION 3.19. Security Documents ......................................... 49
SECTION 3.20. Location of Real Property and Leased Premises .............. 50
SECTION 3.21. Labor Matters .............................................. 50
SECTION 3.22. Solvency ................................................... 50
ARTICLE IV
Conditions of Lending
SECTION 4.01. All Credit Events .......................................... 51
SECTION 4.02. First Credit Event ......................................... 51
ARTICLE V
Affirmative Covenants
SECTION 5.01. Existence; Businesses and Properties ....................... 54
SECTION 5.02. Obligations and Taxes ...................................... 54
SECTION 5.03. Financial Statements, Reports, etc ......................... 55
SECTION 5.04. Litigation and Other Notices ............................... 56
SECTION 5.05. Employee Benefits .......................................... 56
SECTION 5.06. Maintaining Records; Access to Properties and Inspections .. 56
SECTION 5.07. Use of Proceeds ............................................ 56
SECTION 5.08. Compliance with Environmental Laws ......................... 57
SECTION 5.09. Preparation of Environmental Reports ....................... 57
SECTION 5.10. Audits ..................................................... 57
SECTION 5.11. Further Assurances ......................................... 57
SECTION 5.12. Real Estate ................................................ 57
</TABLE>
<PAGE> 4
Contents, p. 3
ARTICLE VI
Negative Covenants
<TABLE>
<S> <C> <C>
SECTION 6.01. Indebtedness ............................................... 58
SECTION 6.02. Liens....................................................... 59
SECTION 6.03. Sale and Lease-Back Transactions ........................... 60
SECTION 6.04. Investments, Loans and Advances ............................ 60
SECTION 6.05. Mergers, Consolidations, Sales of Assets and Acquisitions .. 60
SECTION 6.06. Dividends and Distributions; Restrictions on Ability of
Subsidiaries to Pay Dividends ........................... 61
SECTION 6.07. Transactions with Affiliates ............................... 61
SECTION 6.08. Business of Borrower and Subsidiaries ...................... 61
SECTION 6.09. Fiscal Year ................................................ 61
SECTION 6.10. Leverage Ratio ............................................. 62
SECTION 6.11. Consolidated Interest Expense Coverage Ratio ............... 62
SECTION 6.12. Consolidated Net Worth ..................................... 62
SECTION 6.13. Consolidated Fixed Charge Coverage Ratio ................... 62
SECTION 6.14. Amendment of Material Documents ............................ 62
SECTION 6.15. Prepayments, Redemptions and Repurchases of Debt ........... 63
ARTICLE VII
Events of Default ............................... 63
ARTICLE VIII
The Administrative Agent and the Collateral Agent ............... 65
ARTICLE IX
Miscellaneous
SECTION 9.01. Notices ........................................................ 68
SECTION 9.02. Survival of Agreement .......................................... 68
SECTION 9.03. Binding Effect ................................................. 68
SECTION 9.04. Successors and Assigns ......................................... 69
SECTION 9.05. Expenses; Indemnity ............................................ 72
SECTION 9.06. Right of Setoff ................................................ 72
SECTION 9.07. Applicable Law ................................................. 73
SECTION 9.08. Waivers; Amendment ............................................. 73
SECTION 9.09. Interest Rate Limitation ....................................... 74
SECTION 9.10. Entire Agreement ............................................... 74
SECTION 9.11. WAIVER OF JURY TRIAL ........................................... 74
SECTION 9.12. Severability ................................................... 75
SECTION 9.13. Counterparts ................................................... 75
</TABLE>
<PAGE> 5
Contents, p. 4
<TABLE>
<S> <C> <C>
SECTION 9.14. Headings ............................................. 75
SECTION 9.15. Jurisdiction; Consent to Service of Process .......... 75
SECTION 9.16. Confidentiality ...................................... 76
Schedule 1.01(a) Existing Letters of Credit
Schedule 1.01(b) Guarantors
Schedule 1.01(c) Mortgaged Properties
Schedule 2.01 Commitments
Schedule 3.07(a) Certain Encumbrances
Schedule 3.07(c) Condemnation Proceeds
Schedule 3.08 Subsidiaries
Schedule 3.09 Litigation
Schedule 3.17 Environmental Matters
Schedule 3.18 Insurance
Schedule 3.19(d) Mortgage Filing Offices
Schedule 3.20(a) Owned Property
Schedule 3.20(b) Leased Property
Schedule 6.01 Existing Indebtedness
Schedule 6.02 Existing Liens
Schedule 6.04(a) Existing Investments
Schedule 6.04(b) Existing Loans
Exhibit A Form of Administrative Questionnaire
Exhibit B Form of Assignment and Acceptance
Exhibit C Form of Borrowing Request
Exhibit D Form of Guarantee Agreement
Exhibit E Form of Indemnity, Subrogation and
Contribution Agreement
Exhibit F Form of Pledge Agreement
Exhibit G Form of Security Agreement
Exhibit H-1 Form of Opinion of Corporate Counsel of
the Borrower
Exhibit H-2 Form of Opinion of Local Counsel for the
Borrower and the Subsidiaries
Exhibit I Form of Borrowing Base Certificate
Exhibit J-1 Form of Mortgage
Exhibit J-2 Form of Deed of Trust
Exhibit K Form of Escrow Agreement
</TABLE>
<PAGE> 6
CREDIT AGREEMENT dated as of February 27,
1998, among KING PHARMACEUTICALS, INC., a Tennessee
corporation (the "Borrower"), the Lenders (as defined
in Article I), CREDIT SUISSE FIRST BOSTON, a bank
organized under the laws of Switzerland, acting
through its New York Branch, as administrative agent
(in such capacity, the "Administrative Agent"), as
collateral agent (in such capacity, the "Collateral
Agent") and as swingline lender (in such capacity,
the "Swingline Lender") for the Lenders, and WACHOVIA
BANK, N.A., a national banking association, as
issuing bank (in such capacity, the "Issuing Bank")
for the Lenders.
Parkedale Pharmaceuticals, Inc., a Wholly Owned Subsidiary (such term
and each other capitalized term used but not defined herein having the meaning
assigned to such term in Article I), Warner-Lambert Company ("W-L") and Parke
Davis & Company, a wholly owned subsidiary of WL, have entered into an Asset
Purchase Agreement dated as of February 27, 1998 (the "Asset Purchase Agreement
"), pursuant to which the Borrower has agreed to purchase the assets described
therein (such purchase being called the "Acquisition" and the assets so
purchased being called the "Purchased Assets").
The Borrower has requested the Lenders to extend credit in the form of
(a) Tranche A Term Loans on the Closing Date, in an aggregate principal amount
not in excess of $90,000,000, (b) Tranche B Term Loans on the Closing Date, in
an aggregate principal amount not in excess of $85,000,000, and (c) Revolving
Loans at any time and from time to time prior to the Revolving Credit Maturity
Date, in an aggregate principal amount at any time outstanding not in excess of
$20,000,000. The Borrower has requested the Swingline Lender to extend credit,
at any time and from time to time prior to the Revolving Credit Maturity Date,
in the form of Swingline Loans in an aggregate principal amount at any time
outstanding not in excess of $5,000,000. The Borrower has requested the Issuing
Bank to issue letters of credit, in an aggregate face amount at any time
outstanding not in excess of $5,000,000, to support payment obligations incurred
in the ordinary course of business by the Borrower and the Subsidiaries. The
proceeds of the Term Loans are to be used by the Borrower on the Closing Date
solely (i) to finance the Acquisition, (ii) to refinance certain existing
indebtedness of the Borrower and (iii) to pay the fees and expenses related to
the Acquisition, and the proceeds of the Revolving Loans and the Swingline Loans
are to be used by the Borrower and the Subsidiaries to provide working capital
for use in the ordinary course of their businesses and for other general
corporate purposes.
The Lenders and the Swingline Lender are willing to extend such credit
to the Borrower and the Issuing Bank is willing to issue Letters of Credit for
the account of the
<PAGE> 7
2
Borrower or any Wholly Owned Subsidiary on the terms and subject to the
conditions set forth herein. Accordingly, the parties hereto agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Defined Terms. As used in this Agreement, the following
terms shall have the meanings specified below:
"ABR Loan" shall mean any ABR Term Loan, ABR Revolving Loan or
Swingline Loan.
"ABR Revolving Loan" shall mean any Revolving Loan bearing interest at
a rate determined by reference to the Alternate Base Rate in accordance with the
provisions of Article II.
"ABR Term Loan" shall mean any Term Loan bearing interest at a rate
determined by reference to the Alternate Base Rate in accordance with the
provisions of Article II.
"Account" shall mean any right to payment for goods sold or leased or
for services rendered, whether or not earned by performance.
"Account Debtor" shall mean, with respect to any Account, the obligor
with respect to such Account.
"Acquisition" shall have the meaning assigned to such term in the
preamble to this Agreement.
"Adjusted LIBO Rate" shall mean, with respect to any Eurodollar
Borrowing for any Interest Period, an interest rate per annum equal to the
product of (a) the LIBO Rate in effect for such Interest Period and (b)
Statutory Reserves.
"Administrative Agent Fees" shall have the meaning assigned to such
term in Section 2.05(b).
"Administrative Questionnaire" shall mean an Administrative
Questionnaire in the form of Exhibit A.
"Affiliate" shall mean, when used with respect to a specified person,
another person that directly, or indirectly through one or more intermediaries,
Controls or is Controlled by or is under common Control with the person
specified.
"Aggregate Revolving Credit Exposure" shall mean the aggregate amount
of the Lenders' Revolving Credit Exposures.
"Alternate Base Rate" shall mean, for any day, a rate per annum equal
to the greater of (a) the Prime Rate in effect on such day and (b) the Federal
Funds Effective Rate in effect on such day plus 1/2 of 1%. If for any reason the
Administrative Agent shall have
<PAGE> 8
3
determined (which determination shall be conclusive absent manifest error) that
it is unable to ascertain the Federal Funds Effective Rate for any reason,
including the inability of the Administrative Agent to obtain sufficient
quotations in accordance with the terms of the definition thereof, the Alternate
Base Rate shall be determined without regard to clause (b) of the preceding
sentence until the circumstances giving rise to such inability no longer exist.
Any change in the Alternate Base Rate due to a change in the Prime Rate or the
Federal Funds Effective Rate shall be effective on the effective date of such
change in the Prime Rate or the Federal Funds Effective Rate, respectively.
"Applicable Percentage" shall mean, for any day, with respect to any
Eurodollar Loan or ABR Loan which constitutes part of a Revolving Credit
Borrowing or a Tranche A Term Borrowing, or with respect to the Commitment Fees,
as the case may be, the applicable percentage set forth below under the caption
"Eurodollar Spread", "ABR Spread" or "Fee Percentage", as the case may be, based
upon the Leverage Ratio as of the most recent Determination Date:
<TABLE>
<CAPTION>
Eurodollar ABR Fee
Leverage Ratio Spread Spread Percentage
Category 1
<S> <C> <C> <C>
Greater than or equal to 3.50 to 1.00 2.75% 1.75% 0.50%
Category 2
- ----------
Less than 3.50 to 1.00 but greater
than or equal to 3.25 to 1.00 2.50% 1.50% 0.50%
Category 3
- ----------
Less than 3.25 to 1.00 but greater
than or equal to 3.00 to 1.00 2.25% 1.25% 0.50%
Category 4 2.00% 1.00% 0.50%
- ----------
Less than 3.00 to 1.00
</TABLE>
; provided that until the Determination Date next following September 30, 1998,
the Applicable Percentage shall be determined by reference to Category 1.
Notwithstanding the foregoing, at any time when the Borrower has failed to
deliver the financial statements and certificates required by Section 5.03(a) or
(b), and at any time after the occurrence and during the continuance of an Event
of Default, the Applicable Percentage shall be determined by reference to
Category 1.
"Asset Purchase Agreement" shall have the meaning assigned to such term
in the preamble to this Agreement.
"Asset Sale" shall mean the sale, transfer or other disposition (by way
of merger or otherwise, and including any casualty event or condemnation that
results in the receipt of any insurance or condemnation proceeds) by any Loan
Party or any of the Subsidiaries to any person (other than a sale or transfer to
any Loan Party) of (a) any capital stock of any of the Subsidiaries or (b) any
other assets (other than inventory, obsolete or worn out assets, scrap and
Permitted Investments, in each case disposed of in the ordinary course or
business) of the Borrower or any of the Subsidiaries; provided that the
following shall not be deemed an
<PAGE> 9
4
"Asset Sale" for purposes of this Agreement: (i) any asset sale or series of
related asset sales described in clause (b) above resulting in Net Cash Proceeds
not in excess of $100,000, (ii) the sale of any asset encumbered by Liens of
third-party creditors permitted under Section 6.02(a) and (iii) sales of any
brand name pharmaceutical product lines in an aggregate amount not to exceed
$25,000,000 during any calendar year if (w) the Borrower advises the
Administrative Agent in writing that it will utilize the Net Cash Proceeds of
each such sale within six months of the date of closing of such sale to purchase
additional brand name pharmaceutical product lines, (x) after giving pro forma
effect to each such sale as if it had occurred at the beginning of the most
recent period of four fiscal quarters for which financial statements shall have
been delivered pursuant to Section 5.03(a) or (b), as applicable, the Borrower
is in compliance with the financial covenants set forth in Sections 6.10, 6.11,
6.12 and 6.13, (y) the Net Cash Proceeds of such sale are promptly deposited in
an escrow account with the Administrative Agent, pursuant to an escrow agreement
substantially in the form of Exhibit K, and held in such account pending any
such purchase during such six-month period, and (z) the Borrower in fact uses
such Net Cash Proceeds to purchase additional brand name pharmaceutical product
lines within such six-month period, provided that the aggregate amount held in
the account referred to in clause (y) above shall not exceed $25,000,000 at any
time, and any amount in such account in excess of $25,000,000 will be deemed to
constitute Net Cash Proceeds of an Asset Sale and promptly applied as provided
in Section 2.13(d).
"Assignment and Acceptance" shall mean an assignment and acceptance
entered into by a Lender and an assignee, and accepted by the Administrative
Agent, in the form of Exhibit B or such other form as shall be approved by the
Administrative Agent.
"Board" shall mean the Board of Governors of the Federal Reserve System
of the United States of America.
"Borrowing" shall mean a group of Loans of a single Type made by the
Lenders on a single date and as to which a single Interest Period is in effect.
"Borrowing Base" shall mean an amount equal to the sum, without
duplication, of (i) 80% of Eligible Accounts Receivable, and (ii) 60% of the
Eligible Inventory Value. The Borrowing Base shall be computed monthly in
accordance with Section 5.03(e). The Borrowing Base at any time in effect shall
be determined by reference to the Borrowing Base Certificate most recently
delivered hereunder. If any amount to be included in the computation of the
Borrowing Base is denominated in a currency other than dollars, such amount
shall be converted to a dollar amount using the spot rate (as reported in The
Wall Street Journal on the Business Day prior to determination of the Borrowing
Base) for purchases of dollars with such currency.
"Borrowing Base Certificate" shall have the meaning assigned to such
term in Section 5.03(e).
"Borrowing Request" shall mean a request by the Borrower in accordance
with the terms of Section 2.03 and substantially in the form of Exhibit C.
"Business Day" shall mean any day other than a Saturday, Sunday or day
on which banks in New York City, New York and Atlanta, Georgia are authorized or
required by law to close; provided, however, that when used in connection with a
Eurodollar Loan, the term
<PAGE> 10
5
"Business Day" shall also exclude any day on which banks are not open for
dealings in dollar deposits in the London interbank market.
"Capital Expenditures" shall mean, for any period, (a) additions to
property, plant and equipment and other capital expenditures of the Borrower and
its consolidated Subsidiaries that are (or would be) set forth in a consolidated
statement of cash flows of the Borrower for such period prepared in accordance
with GAAP and (b) Capital Lease Obligations incurred by the Borrower and its
consolidated Subsidiaries during such period.
"Capital Lease Obligations" of any person shall mean the obligations of
such person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such person under GAAP,
and the amount of such obligations shall be the capitalized amount thereof
determined in accordance with GAAP.
A "Change in Control" shall be deemed to have occurred if (a) any
person or group (within the meaning of Rule 13d-5 of the Securities Exchange Act
of 1934, as amended, as in effect on the date hereof) shall own directly or
indirectly, beneficially or of record, shares representing more than 20% of the
aggregate ordinary voting power represented by the issued and outstanding
capital stock of the Borrower (other than the ownership of shares of the
Borrower's capital stock, directly or indirectly, beneficially or of record, by
The United Company, a Virginia corporation; provided that any such capital stock
ownership by The United Company shall not result in The United Company or any
group of which The United Company is a member, directly or indirectly,
Controlling the Borrower); (b) a majority of the seats (other than vacant seats)
on the board of directors of the Borrower shall at any time be occupied by
persons who were neither (i) nominated by the board of directors of the
Borrower, nor (ii) appointed by directors so nominated; (c) any change in
control (or similar event, however denominated) with respect to the Borrower or
any of the Subsidiaries shall occur under and as defined in any indenture or
agreement in respect of Indebtedness to which the Borrower or any of the
Subsidiaries is a party; (d) the Permitted Holders shall not beneficially own,
directly or indirectly, shares representing at least 30% of the aggregate
ordinary voting power represented by the outstanding capital stock of the
Borrower; or (e) any person or group shall otherwise directly or indirectly
Control the Borrower.
"Closing Date" shall mean the date of the first Credit Event.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Collateral" shall mean all the "Collateral" as defined in any Security
Document and shall include the Mortgaged Properties.
"Collateral Requirement" shall mean, at any time, that (a) the Pledge
Agreement (or a supplement referred to in Section 23 thereof) shall have been
duly executed by the Borrower and each Subsidiary (other than any Foreign
Subsidiary), existing from time to time, owning any outstanding capital stock or
Indebtedness of the Borrower or any other Subsidiary, shall have been delivered
to the Collateral Agent and shall be in full force and effect, and all the
outstanding capital stock of the Subsidiaries shall have been duly and validly
pledged thereunder to the Collateral Agent for the ratable benefit of the
Secured Parties and certificates representing such shares, accompanied by
instruments of transfer and
<PAGE> 11
6
stock powers endorsed in blank, shall be in the actual possession of the
Collateral Agent; provided that the Borrower and the Subsidiaries shall not be
required to pledge more than 65% of the capital stock of any Foreign Subsidiary;
(b) the Security Agreement (or a supplement referred to in Section 7.15 thereof)
shall have been duly executed by the Borrower and each Subsidiary (other than
any Foreign Subsidiary), existing from time to time, and shall have been
delivered to the Collateral Agent and shall be in full force and effect, and
each document (including each Uniform Commercial Code financing statement)
required by law or reasonably requested by the Administrative Agent to be filed,
registered or recorded in order to create in favor of the Collateral Agent for
the benefit of the Secured Parties a valid, legal and perfected first-priority
security interest in and lien on the Collateral subject to the Security
Agreement (subject to any Lien expressly permitted by Section 6.02) shall have
been so filed, registered or recorded and evidence thereof delivered to the
Collateral Agent; and (c) the Indemnity, Subrogation and Contribution Agreement
(or a supplement referred to in Section 12 thereof) shall have been executed by
the Borrower and each other Loan Party, shall have been delivered to the
Collateral Agent and shall be in full force and effect.
"Commitment" shall mean, with respect to any Lender, such Lender's
Revolving Credit Commitment, Term Loan Commitment and Swingline Commitment.
"Commitment Fee" shall have the meaning assigned to such term in
Section 2.05(a).
"Confidential Information Memorandum" shall mean the Confidential
Information Memorandum of the Borrower dated January 1998.
"Consolidated EBITDA" shall mean, for any period, Consolidated Net
Income for such period, plus, without duplication and to the extent deducted
from revenues in determining Consolidated Net Income, the sum of (a) the
aggregate amount of Consolidated Interest Expense for such period, (b) the
aggregate amount of letter of credit fees paid during such period, (c) the
aggregate amount of income tax expense for such period, (d) all amounts
attributable to depreciation and amortization for such period, (e) all
extraordinary charges during such period, (f) all other non-cash charges and (g)
all non-recurring cash charges related to (i) an initial public offering of
common stock of the Borrower registered with the Securities and Exchange
Commission in an aggregate amount not to exceed $1,000,000, (ii) the Acquisition
in an aggregate amount not to exceed $500,000 and (iii) any severance costs and
restructuring charges related to severance that the Borrower may incur from time
to time in an aggregate amount not to exceed $500,000, and minus, without
duplication and to the extent added to revenues in determining Consolidated Net
Income for such period, all extraordinary gains during such period, all as
determined on a consolidated basis with respect to the Borrower and the
Subsidiaries in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" shall mean, for any period,
the ratio of (a) Consolidated EBITDA for such period, minus Capital Expenditures
during such period to (b) the sum of (i) Consolidated Interest Expense for such
period, (ii) the aggregate amount of cash taxes paid by the Borrower and the
Subsidiaries during such period, (iii) cash dividends on capital stock declared
by the Borrower or any of the Subsidiaries during such period (other than any
such dividend payable to the Borrower or any of its Wholly Owned Subsidiaries)
and (iv) scheduled principal payments of Indebtedness made by the Borrower or
any of the Subsidiaries during such period (other than any such payment made to
the Borrower or any of its Wholly Owned Subsidiaries).
<PAGE> 12
7
"Consolidated Interest Expense" shall mean, for any period, the
interest expense, both expensed and capitalized (including the interest
component in respect of Capital Lease Obligations), accrued or paid by the
Borrower and the Subsidiaries during such period, determined on a consolidated
basis in accordance with GAAP. For purposes of the foregoing, interest expense
shall be determined exclusive of deferred financing costs and the amortization
thereof and after giving effect to any net payments made or received by the
Borrower and the Subsidiaries with respect to Hedging Agreements.
"Consolidated Interest Expense Coverage Ratio" shall mean, for any
period, the ratio of (a) Consolidated EBITDA for such period to (b) Consolidated
Interest Expense for such period.
"Consolidated Net Income" shall mean, for any period, net income or
loss of the Borrower and the Subsidiaries for such period, as determined on a
consolidated basis in accordance with GAAP, provided that there shall be
excluded (a) the income of any person in which any other person (other than the
Borrower or any of the Subsidiaries or any director holding qualifying shares in
compliance with applicable law) has a joint interest, except to the extent of
the amount of dividends or other distributions actually paid to the Borrower or
any of the Subsidiaries by such person during such period, (b) the loss of any
person in which any other person (other than the Borrower and any of the
Subsidiaries or any director holding qualifying shares in compliance with
applicable law) has a joint interest, except to the extent of the aggregate
investment of the Borrower and any of the Subsidiaries in such person during
such period, and (c) the income (or loss) of any person accrued prior to the
date it becomes a Subsidiary or is merged into or consolidated with the Borrower
or any of the Subsidiaries or the date that person's assets are acquired by the
Borrower or any of the Subsidiaries.
"Consolidated Net Worth" shall mean, as at any date of determination,
the consolidated stockholders' equity of the Borrower and the Subsidiaries, as
determined on a consolidated basis in accordance with GAAP.
"Control" shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a
person, whether through the ownership of voting securities, by contract or
otherwise, and the terms "Controlling" and "Controlled" shall have meanings
correlative thereto.
"Credit Event" shall have the meaning assigned to such term in Section
4.01.
"Default" shall mean any event or condition which upon notice, lapse of
time or both would constitute an Event of Default.
"Determination Date" shall mean each day that is the 45th day after the
end of any of the first three fiscal quarters, or the 90th day after the end of
the final fiscal quarter, in any fiscal year of the Borrower.
"dollars" or "$" shall mean lawful money of the United States of
America.
"Domestic Subsidiaries" shall mean all Subsidiaries incorporated or
organized under the laws of the United States of America, any State thereof or
the District of Columbia.
<PAGE> 13
8
"Eligible Accounts Receivable" shall mean, at the time of any
determination thereof, the total outstanding balance of accounts of the Borrower
and the Subsidiaries created in the ordinary course of business ("Accounts") (a)
which are legally enforceable obligations of the account debtor in respect
thereof, (b) which do not contravene, or arise from sales which contravene, any
requirement of law applicable thereto (including, without limitation, usury laws
and laws, rules and regulations relating to truth in lending, fair credit
billing, fair credit reporting, equal credit opportunity, fair debt collect
practices and privacy), (c) with respect to which all required consents,
licenses, approvals or other authorizations of, or registrations or declarations
with, any Governmental Authority have been duly obtained, effected or given, are
in full force and effect and do not subject such Accounts or the Borrower's or
the Subsidiaries' rights with respect thereto to any materially adverse
limitation, (d) which have not been and are not required to be charged off or
written off as uncollectible in accordance with GAAP or the customary business
practice of the Borrower and the Subsidiaries, (e) which have not remained
unpaid for more than 60 days after the due dates thereof, (f) which are not owed
by an obligor which (i) is an Affiliate of the Borrower or (ii) is organized
under the laws of a jurisdiction outside the United States, unless such Account
is supported by a letter of credit in form and amount, and issued by a bank,
acceptable to the Administrative Agent, (g) which arose from a completed sales
of goods by the Borrower or a Subsidiary and do not represent a consignment
sale, guaranteed sale, bill and hold or any similar arrangement, (h) which are
not owed by an Account Debtor (x) which is an Account Debtor in respect of
Accounts more than 50% of the aggregate amount of which are more than 60 days
past due or (y) as to which any case, proceeding or other action under any law
relating to bankruptcy, insolvency, reorganization or relief of debtors has been
commenced, (i) which are denominated in U.S. dollars and payable only in U.S.
dollars in the United States of America, (j) which are owned solely by the
Borrower or a Subsidiary free and clear of all Liens or other rights or claims
of any other person (other than the Administrative Agent, the Collateral Agent
or the Lenders), (k) which are subject to a perfected first priority security
interest in favor of the Collateral Agent for the benefit of the Lenders
pursuant to the Security Agreement, (l) which are not Accounts owed by any
Governmental Authority unless the Borrower or the applicable Subsidiary has
complied, in the opinion of the Collateral Agent, with the Assignment of Claims
Act of 1940, as amended, in respect of such Accounts (in the case of Accounts
owed by the United States Government or any agency or instrumentality thereof),
(m) which constitute an "account" or "chattel paper" within the meaning of the
Uniform Commercial Code of the state in which the chief executive office of the
Borrower or the applicable Subsidiary is located, (n) which conform in all other
respects to the representations and warranties contained in the Security
Agreement, (o) with respect to which the related Account Debtor has not asserted
that such Account is, and neither the Borrower nor any of the Subsidiaries is
aware of any basis upon which such Account could be, subject to any defense,
offset, deduction, credit or dispute and (p) with an Account Debtor whose credit
standing is satisfactory to the Collateral Agent.
"Eligible Inventory" shall mean, at the time of any determination
thereof, without duplication, all inventory (defined to include only raw
materials, finished goods and work-in-process) (a) which is owned solely by the
Borrower or a Subsidiary free and clear of all Liens or other rights or claims
of any other person (other than the Administrative Agent, the Collateral Agent
or the Lenders) and is not subject to any patent, copyright or trademark
disputes that may prevent sale, (b) which is subject to a perfected first
priority security interest in favor of the Collateral Agent for the benefit of
the Lenders pursuant to the Security Agreement, (c) which is located at a
storage, manufacturing or public facility owned or leased by the Borrower or a
Subsidiary in the United States or is in-transit inventory which is fully
insured in amounts and by an insurer satisfactory to the Collateral Agent under
<PAGE> 14
9
policies as to which the Collateral Agent is named as loss payee, (d) which is
not damaged, (e) which has not been returned or rejected by any prospective
buyer thereof unless such inventory is resalable in the ordinary course of
business, (f) which is not obsolete or unmerchantable, (g) which is not
inventory allocable to contracts with any Governmental Authority, unless the
Borrower or the applicable Subsidiary has complied, in the opinion of the
Collateral Agent, with the Assignment of Claims Act of 1940, as amended, in
respect of such Accounts (in the case of inventory allocable to contracts with
the United States Government or any agency or instrumentality thereof), (h)
which conforms in all other respects to the representations and warranties
contained in the Security Agreement, plus the aggregate undrawn amount of
Letters of Credit outstanding and issued to support the purchase of inventory by
the Borrower and the Subsidiaries (other than inventory excluded from the
definition of "Eligible Inventory" by any of the foregoing clauses); provided,
however, that no inventory which is located at a storage, manufacturing or
public facility leased by the Borrower or a Subsidiary shall be considered
"Eligible Inventory" unless the Borrower or the applicable Subsidiary shall have
obtained a written waiver from the lessor of such property of any statutory or
common law landlord's lien with respect to such inventory.
"Eligible Inventory Value" shall mean at the time of any determination
thereof the lower of cost (less any appropriate reserve for obsolete inventory
and any profits accrued in connection with transfers of inventory between the
Borrower and the Subsidiaries or between Subsidiaries of the Borrower) and fair
market value of the Eligible Inventory at such time, in dollars, determined on a
basis consistent with the financial statements of the Borrower referred to in
Section 3.05.
"environment" shall mean ambient air, surface water and groundwater
(including potable water, navigable water and wetlands), the land surface or
subsurface strata, the workplace or as otherwise defined in any Environmental
Law.
"Environmental Claim" shall mean any written accusation, allegation,
notice of violation, claim, demand, order, directive, cost recovery action or
other cause of action by, or on behalf of, any Governmental Authority or any
person for damages, injunctive or equitable relief, personal injury (including
sickness, disease or death), Remedial Action costs, tangible or intangible
property damage, natural resource damages, nuisance, pollution, any adverse
effect on the environment caused by any Hazardous Material, or for fines,
penalties or restrictions, resulting from or based upon (a) the existence, or
the continuation of the existence, of a Release (including sudden or non-sudden,
accidental or non-accidental Releases), (b) exposure to any Hazardous Material,
(c) the presence, use, handling, transportation, storage, treatment or disposal
of any Hazardous Material or (d) the violation or alleged violation of any
Environmental Law or Environmental Permit.
"Environmental Law" shall mean any and all applicable present and
future treaties, laws, rules, regulations, codes, ordinances, orders, decrees,
judgments, injunctions, notices or binding agreements issued, promulgated or
entered into by any Governmental Authority, relating in any way to the
environment, preservation or reclamation of natural resources, the management,
Release or threatened Release of any Hazardous Material or to health and safety
matters, including, but not limited to, the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended by the Superfund
Amendments and Reauthorization Act of 1986, 42 U.S.C. ss.ss. 9601 et seq.
(collectively "CERCLA"), the Solid Waste Disposal Act, as amended by the
Resource Conservation and Recovery Act of 1976 and the Hazardous and Solid Waste
Amendments of 1984, 42 U.S.C. ss.ss. 6901 et seq., the
<PAGE> 15
10
Federal Water Pollution Control Act, as amended by the Clean Water Act of 1977,
33 U.S.C. ss.ss. 1251 et seq., the Clean Air Act of 1970, as amended 42 U.S.C.
ss.ss. 7401 et seq., the Toxic Substances Control Act of 1976, 15 U.S.C. ss.ss.
2601 et seq., the Occupational Safety and Health Act of 1970, as amended, 29
U.S.C. ss.ss. 651 et seq., the Emergency Planning and Community Right-to-Know
Act of 1986, 42 U.S.C. ss.ss. 11001 et seq., the Safe Drinking Water Act of
1974, as amended, 42 U.S.C. ss.ss. 300(f) et seq., the Hazardous Materials
Transportation Act, 49 U.S.C. ss.ss. 5101 et seq., and any similar or
implementing state or local law, and all amendments or regulations promulgated
under any of the foregoing.
"Environmental Permit" shall mean any permit, approval, authorization,
certificate, license, variance, filing or permission required by or from any
Governmental Authority pursuant to any Environmental Law.
"Equity Issuance" shall mean any issuance and sale by the Borrower, or
by any Subsidiary to a person other than the Borrower or another Subsidiary, of
any capital stock or any rights, warrants or options in respect thereof.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as the same may be amended from time to time.
"ERISA Affiliate" shall mean any trade or business (whether or not
incorporated) that, together with the Borrower, is treated as a single employer
under Section 414(b) or (c) of the Code, or solely for purposes of Section 302
of ERISA and Section 412 of the Code, is treated as a single employer under
Section 414 of the Code.
"ERISA Event" shall mean (a) any "reportable event", as defined in
Section 4043 of ERISA or the regulations issued thereunder, with respect to a
Plan; (b) the adoption of any amendment to a Plan that would require the
provision of security pursuant to Section 401(a)(29) of the Code or Section 307
of ERISA; (c) the existence with respect to any Plan of an "accumulated funding
deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA),
whether or not waived; (d) the filing pursuant to Section 412(d) of the Code or
Section 303(d) of ERISA of an application for a waiver of the minimum funding
standard with respect to any Plan; (e) the incurrence of any liability under
Title IV of ERISA with respect to the termination of any Plan or the withdrawal
or partial withdrawal of the Borrower or any of its ERISA Affiliates from any
Plan or Multiemployer Plan; (f) the receipt by the Borrower or any ERISA
Affiliate from the PBGC or a plan administrator of any notice relating to the
intention to terminate any Plan or Plans or to appoint a trustee to administer
any Plan; (g) the receipt by the Borrower or any ERISA Affiliate of any notice
concerning the imposition of Withdrawal Liability or a determination that a
Multiemployer Plan is, or is expected to be, insolvent or in reorganization,
within the meaning of Title IV of ERISA; (h) the occurrence of a "prohibited
transaction" with respect to which the Borrower or any of the Subsidiaries is a
"disqualified person" (within the meaning of Section 4975 of the Code) or with
respect to which the Borrower or any such Subsidiary could otherwise be liable;
and (i) any other event or condition with respect to a Plan or Multiemployer
Plan that could reasonably be expected to result in liability of the Borrower.
"Eurodollar Borrowing" shall mean a Borrowing comprised of Eurodollar
Loans.
"Eurodollar Loan" shall mean any Eurodollar Revolving Loan or
Eurodollar Term Loan.
<PAGE> 16
11
"Eurodollar Revolving Loan" shall mean any Revolving Loan bearing
interest at a rate determined by reference to the Adjusted LIBO Rate in
accordance with the provisions of Article II.
"Eurodollar Term Loan" shall mean any Term Loan bearing interest at a
rate determined by reference to the Adjusted LIBO Rate in accordance with the
provisions of Article II.
"Event of Default" shall have the meaning assigned to such term in
Article VII.
"Excess Cash Flow" shall mean, for any fiscal year, the sum (without
duplication) of:
(a) Consolidated Net Income, adjusted to exclude any gains or
losses attributable to any Asset Sale and any sale by the Borrower of a
brand name pharmaceutical product line excluded from the definition of
"Asset Sale" in Section 1.01 pursuant to the conditions set forth
therein; plus
(b) depreciation, amortization and other non-cash charges or
losses deducted in determining Consolidated Net Income for such period;
plus
(c) the sum of (i) the amount, if any, by which Net Working
Capital decreased during such period, plus (ii) the amount, if any, by
which the consolidated deferred revenues of the Borrower and its
consolidated Subsidiaries increased during such period, plus (iii) the
aggregate principal amount of Capital Lease Obligations and other
Indebtedness incurred during such period to finance Capital
Expenditures, to the extent that mandatory principal payments in
respect of such Indebtedness would not be excluded from clause (f)
below when made; minus
(d) the sum of (i) any non-cash gains included in determining
such consolidated net income (or loss) for such period, plus (ii) the
amount, if any, by which Net Working Capital increased during such
period, plus (iii) the amount, if any, by which the consolidated
deferred revenues of the Borrower and its consolidated Subsidiaries
decreased during such period; minus
(e) Capital Expenditures for such period; minus
(f) the aggregate principal amount of Indebtedness repaid or
prepaid by the Borrower and its consolidated Subsidiaries during such
period, excluding (i) Indebtedness in respect of Revolving Loans and
Letters of Credit or in respect of other revolving credit or similar
facilities, (ii) mandatory prepayments of Term Loans, (iii) repayments
or prepayments of Indebtedness financed by incurring other
Indebtedness, to the extent that mandatory principal payments in
respect of such other Indebtedness would, pursuant to this clause (f),
be deducted in determining Excess Cash Flow when made, (iv)
Indebtedness referred to in clauses (c), (d), (e) and (f) of Section
6.01 and (v) voluntary prepayments of Indebtedness other than Term
Loans.
"Excluded Taxes" shall mean, with respect to the Administrative Agent,
any Lender, the Issuing Bank or any other recipient of any payment to be made by
or on account of any obligation of the Borrower hereunder, (a) income or
franchise taxes imposed on (or measured
<PAGE> 17
12
by) its net income by the United States of America, or by the jurisdiction under
the laws of which such recipient is organized or in which its principal office
is located or, in the case of any Lender, in which its applicable lending office
is located (provided, however, that no Lender, the Issuing Bank or any other
recipient shall be deemed to be located in any jurisdiction solely as a result
of receiving any payments under, or taking any other action related to, any loan
under this or any other agreement), (b) any branch profits taxes imposed by the
United States of America or any similar tax imposed by any other jurisdiction in
which the Borrower is located and (c) in the case of a Foreign Lender (other
than an assignee pursuant to a request by the Borrower under Section 2.21(a)),
any withholding tax that (i) is in effect and would apply to amounts payable to
such Foreign Lender at the time such Foreign Lender becomes a party to this
Agreement (or designates a new lending office), except to the extent that such
Foreign Lender (or its assignor, if any) was entitled, at the time of
designation of a new lending office (or assignment), to receive additional
amounts from the Borrower with respect to any withholding tax pursuant to
Section 2.20(a) or (ii) is attributable to such Foreign Lender's failure to
comply with Section 2.20(e).
"Existing Letter of Credit" shall mean each Letter of Credit previously
issued for the account of the Borrower that (a) is outstanding on the Closing
Date and (b) is listed on Schedule 1.01(a).
"Federal Funds Effective Rate" shall mean, for any day, the weighted
average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day that is a Business Day, the average (rounded upwards, if
necessary, to the next 1/100 of 1%) of the quotations for the day for such
transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it.
"Fee Letter" shall mean the Fee Letter dated January 20, 1998, between
the Borrower and the Administrative Agent.
"Fees" shall mean the Commitment Fees, the Administrative Agent Fees,
the L/C Participation Fees and the Issuing Bank Fees.
"Financial Officer" of any corporation shall mean the chief financial
officer, principal accounting officer, Treasurer or Controller of such
corporation.
"Foreign Lender" shall mean any Lender that is organized under the laws
of a jurisdiction other than in which the Borrower is located. For purposes of
this definition, the United States of America, each State thereof and the
District of Columbia shall be deemed to constitute a single jurisdiction.
"Foreign Subsidiary" shall mean any Subsidiary that is not a Domestic
Subsidiary.
"GAAP" shall mean United States generally accepted accounting
principles applied on a consistent basis.
"Governmental Authority" shall mean any Federal, state, local or
foreign court or governmental agency, authority, instrumentality or regulatory
body.
<PAGE> 18
13
"Guarantee" of or by any person shall mean any obligation, contingent
or otherwise, of such person guaranteeing or having the economic effect of
guaranteeing any Indebtedness of any other person (the "primary obligor") in any
manner, whether directly or indirectly, and including any obligation of such
person, direct or indirect, (a) to purchase or pay (or advance or supply funds
for the purchase or payment of) such Indebtedness or to purchase (or to advance
or supply funds for the purchase of) any security for the payment of such
Indebtedness, (b) to purchase or lease property, securities or services for the
purpose of assuring the owner of such Indebtedness of the payment of such
Indebtedness or (c) to maintain working capital, equity capital or any other
financial statement condition or liquidity of the primary obligor so as to
enable the primary obligor to pay such Indebtedness; provided, however, that the
term "Guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business.
"Guarantee Agreement" shall mean the Guarantee Agreement, substantially
in the form of Exhibit D, made by the Guarantors in favor of the Collateral
Agent for the benefit of the Secured Parties.
"Guarantee Requirement" shall mean, at any time, that the Guarantee
Agreement (or a supplement referred to in Section 20 thereof) shall have been
executed by each Subsidiary (other than any Foreign Subsidiary) existing from
time to time, shall have been delivered to the Collateral Agent and shall be in
full force and effect.
"Guarantors" shall mean each person listed on Schedule 1.01(b) and each
other person that becomes party to a Guarantee Agreement as a Guarantor, and the
permitted successors and assigns of each such person.
"Hazardous Materials" shall mean all explosive or radioactive
substances or wastes, hazardous or toxic substances or wastes, pollutants,
solid, liquid or gaseous wastes, including petroleum or petroleum distillates,
asbestos or asbestos containing materials, polychlorinated biphenyls ("PCBs") or
PCB-containing materials or equipment, radon gas, infectious or medical wastes
and all other substances or wastes of any nature regulated pursuant to any
Environmental Law.
"Hedging Agreement" shall mean any interest rate protection agreement,
foreign currency exchange agreement, commodity price protection agreement or
other interest or currency exchange rate or commodity price hedging arrangement.
"Indebtedness" of any person shall mean, without duplication, (a) all
obligations of such person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such person
upon which interest charges are customarily paid, (d) all obligations of such
person under conditional sale or other title retention agreements relating to
property or assets purchased by such person, (e) all obligations of such person
issued or assumed as the deferred purchase price of property or services
(excluding trade accounts payable and accrued obligations incurred in the
ordinary course of business), (f) all Indebtedness of others secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien on property owned or acquired by such
person, whether or not the obligations secured thereby have been assumed, (g)
all Guarantees by such person of Indebtedness of others, (h) all Capital Lease
Obligations of such person, (i) all obligations of such person in respect of
Hedging Agreements and (j) all obligations of such person as an account party in
respect of letters of credit and bankers'
<PAGE> 19
14
acceptances. The Indebtedness of any person shall include the Indebtedness of
any partnership in which such person is a general partner.
"Indemnified Taxes" shall mean Taxes other than Excluded Taxes.
"Indemnitee" shall have the meaning assigned to such term in Section
9.05(b).
"Indemnity, Subrogation and Contribution Agreement" shall mean the
Indemnity, Subrogation and Contribution Agreement, substantially in the form of
Exhibit E, among the Borrower, the Guarantors and the Collateral Agent.
"Interest Payment Date" shall mean, with respect to any Loan, each day
that is the last day of an Interest Period applicable to the Borrowing of which
such Loan is a part and the date of any prepayment of such Borrowing or
conversion of such Borrowing to a Borrowing of a different Type.
"Interest Period" shall mean (a) as to any Eurodollar Borrowing, the
period commencing on the date of such Borrowing or on the last day of the
preceding Interest Period applicable thereto and ending on the numerically
corresponding day (or, if there is no numerically corresponding day, on the last
day) in the calendar month that is 1, 2, or 3 months thereafter, as the Borrower
may elect, (b) as to any ABR Borrowing (other than a Swingline Loan), the period
commencing on the date of such Borrowing or on the last day of the preceding
Interest Period applicable thereto and ending on the earliest of (i) the next
succeeding March 31, June 30, September 30 or December 31, (ii) the Revolving
Credit Maturity Date, Tranche A Maturity Date or Tranche B Maturity Date, as
applicable, and (iii) the date such Borrowing is converted to a Borrowing of a
different Type in accordance with Section 2.10 or repaid or prepaid in
accordance with Section 2.11 or 2.12 and (c) as to any Swingline Loan, the
period commencing on the date of such Loan and ending on the fifth Business Day
thereafter; provided, however, that if any Interest Period would end on a day
other than a Business Day, such Interest Period shall be extended to the next
succeeding Business Day unless, in the case of a Eurodollar Borrowing only, such
next succeeding Business Day would fall in the next calendar month, in which
case such Interest Period shall end on the next preceding Business Day. Interest
shall accrue from and including the first day of an Interest Period to but
excluding the last day of such Interest Period.
"Issuing Bank Fees" shall have the meaning assigned to such term in
Section 2.05(c).
"L/C Commitment" shall mean the commitment of the Issuing Bank to issue
Letters of Credit pursuant to Section 2.23.
"L/C Disbursement" shall mean a payment or disbursement made by the
Issuing Bank pursuant to a Letter of Credit.
"L/C Exposure" shall mean at any time the sum of (a) the aggregate
undrawn amount of all outstanding Letters of Credit at such time plus (b) the
aggregate principal amount of all L/C Disbursements that have not yet been
reimbursed at such time. The L/C Exposure of any Revolving Credit Lender at any
time shall mean its Pro Rata Percentage of the aggregate L/C Exposure at such
time.
"L/C Participation Fee" shall have the meaning assigned to such term in
Section 2.05(c).
<PAGE> 20
15
"Lenders" shall mean (a) the financial institutions listed on Schedule
2.01 (other than any such financial institution that has ceased to be a party
hereto pursuant to an Assignment and Acceptance) and (b) any financial
institution that has become a party hereto pursuant to an Assignment and
Acceptance. Unless the context clearly indicates otherwise, the term "Lenders"
shall include the Swingline Lender.
"Letter of Credit" shall mean any letter of credit issued pursuant to
Section 2.23 and any Existing Letter of Credit.
"Leverage Ratio" shall mean, at any time, the ratio of (a) Total Debt
at such time to (b) Consolidated EBITDA for the most recently ended period of
four fiscal quarters, all as determined on a consolidated basis in accordance
with GAAP; provided that for purposes of calculating the Leverage Ratio, the
Borrower's Consolidated EBITDA for the four-fiscal-quarter periods ending on
March 31, 1998, June 30, 1998 and September 30, 1998, shall be deemed to equal
the Borrower's Consolidated EBITDA for the period commencing on January 1, 1998
and ending on (i) March 31, 1998, multiplied by 4, (ii) June 30, 1998,
multiplied by 2, and (iii) September 30, 1998, multiplied by 4/3, as applicable.
"LIBO Rate" shall mean, with respect to any Eurodollar Borrowing for
any Interest Period, the rate per annum determined by the Administrative Agent
at approximately 11:00 a.m., London time, on the date which is two Business Days
prior to the beginning of such Interest Period by reference to the British
Bankers' Association Interest Settlement Rates for deposits in dollars (as set
forth by any service selected by the Administrative Agent which has been
nominated by the British Bankers' Association as an authorized information
vendor for the purpose of displaying rates) for a period equal to such Interest
Period, provided that, to the extent that an interest rate is not ascertainable
pursuant to the foregoing provisions of this definition, the "LIBO Rate" shall
be the interest rate per annum determined by the Administrative Agent equal to
the average of the rates per annum (rounded upwards, if necessary, to the next
1/16 of 1%) at which deposits in dollars are offered for such Interest Period by
two major banks selected by the Administrative Agent in the London interbank
market in London, England at approximately 11:00 a.m., London time, on the date
which is two Business Days prior to the beginning of such Interest Period. In
the event that such rate is not available at such time for any reason, then the
"LIBO Rate" with respect to such Eurodollar Borrowing for such Interest Period
shall be the rate (rounded upwards, if necessary, to the next 1/16 of 1%) at
which dollar deposits of an amount equal to the applicable Loans and for a
maturity comparable to such Interest Period are offered by the principal London
office of the Administrative Agent in immediately available funds in the London
interbank market at approximately 11:00 a.m., London time, two Business Days
prior to the commencement of such Interest Period.
"Lien" shall mean, with respect to any asset, (a) any mortgage, deed of
trust, lien, pledge, encumbrance, charge or security interest in or on such
asset, (b) the interest of a vendor or a lessor under any conditional sale
agreement, capital lease or title retention agreement (or any financing lease
having substantially the same economic effect as any of the foregoing) relating
to such asset and (c) in the case of securities, any purchase option, call or
similar right of a third party with respect to such securities.
"Loan Documents" shall mean this Agreement, the Letters of Credit, the
Guarantee Agreement, the Security Documents and the Indemnity, Subrogation and
Contribution Agreement.
<PAGE> 21
16
"Loan Parties" shall mean the Borrower and each Subsidiary that is, or
is required by this Agreement to be, a party to the Guarantee Agreement or any
Security Document.
"Loans" shall mean the Revolving Loans, the Term Loans and the
Swingline Loans.
"Margin Stock" shall have the meaning assigned to such term in
Regulation U.
"Material Adverse Effect" shall mean the result of one or more events,
changes or effects which, individually or in the aggregate, could have a
materially adverse effect on (a) the business, assets, results of operations,
financial condition or prospects of the Borrower and the Subsidiaries, taken as
a whole, (b) the validity or enforceability of any of Loan Documents or any
other documents entered into in connection with the Transactions or the other
transactions contemplated thereby or the rights, remedies and benefits available
to the parties thereunder.
"Moody's" shall mean Moody's Investors Service, Inc.
"Mortgaged Properties" shall mean the real properties and leasehold and
subleasehold interests in real properties of the Loan Parties specified on
Schedule 1.01(c) and all other real properties and leasehold and subleasehold
interests in real properties hereafter acquired by any of the Loan Parties.
"Mortgages" shall mean mortgages, deeds of trust, leasehold mortgages,
assignments of leases and rents, modifications and other security documents
satisfactory to the Collateral Agent, delivered pursuant to Section 5.12. Each
mortgage shall be substantially in the form of Exhibit J-1 and each deed of
trust shall be substantially in the form of Exhibit J-2.
"Multiemployer Plan" shall mean a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.
"Net Cash Proceeds" shall mean (a) with respect to any Asset Sale, the
cash proceeds thereof, including any cash received in respect of any non-cash
proceeds, but only as and when received, and any insurance or condemnation
proceeds, net of (i) costs of sale (including payment of the outstanding
principal amount of, premium or penalty, if any, interest and other amounts on
any Indebtedness (other than Loans) required to be repaid under the terms
thereof as a result of such Asset Sale), (ii) taxes paid or payable in the year
such Asset Sale occurs or in the following year as a direct result thereof and
(iii) amounts provided as a reserve, in accordance with GAAP, against any
liabilities under any indemnification obligations associated with such Asset
Sale (provided that, to the extent and at the time any such amounts are released
from such reserve, such amounts shall constitute Net Cash Proceeds), and (b)
with respect to any Equity Issuance or any issuance or other disposition of
Indebtedness for borrowed money, the cash proceeds thereof net of underwriting
commissions or placement fees and expenses directly incurred in connection
therewith.
<PAGE> 22
17
"Net Working Capital" shall mean, at any date, (a) the consolidated
current assets of the Borrower and its consolidated Subsidiaries as of such date
(excluding cash and Permitted Investments) minus (b) the consolidated current
liabilities of the Borrower and its consolidated Subsidiaries as of such date
(excluding current liabilities in respect of Indebtedness). Net Working Capital
at any date may be a positive number or negative number. Net Working Capital
increases when it becomes more positive or less negative and decreases when it
becomes less positive or more negative.
"Obligations" shall mean all obligations defined as "Obligations" in
the Guarantee Agreement and the Security Documents.
"Other Taxes" shall mean any and all present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies arising from any payment made hereunder or from the execution, delivery
or enforcement of, or otherwise with respect to, this Agreement.
"PBGC" shall mean the Pension Benefit Guaranty Corporation referred to
and defined in ERISA.
"Perfection Certificate" shall mean the Perfection Certificate
substantially in the form of Annex 1 to the Security Agreement.
"Permitted Holders" shall mean John M. Gregory, Joan P. Gregory,
Jefferson J. Gregory, Terri D. White-Gregory, Joseph R. Gregory, Hershel P.
Blessing, Mary Ann Blessing, James E. Gregory, Dr. R. Henry Richards, Jeanie
Richards, Fred Jarvis and Mary Gregory-Jarvis their respective estates, spouses,
ancestors and lineal descendants, the legal representatives of any of the
foregoing and the trustees of any bona fide trusts of which the foregoing are
the sole beneficiaries or the grantors, or any person of which the foregoing
"beneficially owns" (as defined in Rules 13d-3 and 13d-5 under the Securities
Exchange Act of 1934) voting securities representing at least 66-2/3% of the
total voting power of all classes of ordinary voting stock of such person
(exclusive of any matters as to which class voting rights exist), including S.J.
L.L.C. and Kingsway L.L.C. to the extent such entities adhere to the
aforementioned minimum beneficial ownership requirements.
"Permitted Investments" shall mean:
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States
of America (or by any agency thereof to the extent such obligations are
backed by the full faith and credit of the United States of America),
in each case maturing within one year from the date of acquisition
thereof;
(b) investments in commercial paper maturing within 180 days
from the date of acquisition thereof and having, at such date of
acquisition, the highest credit rating obtainable from S&P or Moody's;
(c) investments in certificates of deposit, banker's
acceptances and time deposits maturing within 180 days of the date of
acquisition thereof issued or guaranteed by or placed with, and money
market deposit accounts issued or offered by, any domestic office of
any commercial bank organized under the laws of the
<PAGE> 23
18
United States of America or any State thereof that has a combined
capital and surplus and undivided profits of not less than
$500,000,000; and
(d) other investment instruments approved in writing by the
Required Lenders and offered by financial institutions which have a
combined capital and surplus and undivided profits of not less than
$500,000,000.
"person" shall mean any natural person, corporation, business trust,
joint venture, association, company, partnership or government, or any agency or
political subdivision thereof.
"Plan" shall mean any employee pension benefit plan (other than a
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Code or Section 307 of ERISA, and in respect of which the Borrower or
any ERISA Affiliate is (or, if such plan were terminated, would under Section
4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of
ERISA.
"Pledge Agreement" shall mean the Pledge Agreement, substantially in
the form of Exhibit F, between the Borrower, each Subsidiary owning capital
stock or Indebtedness of the Borrower or any other Subsidiary and the Collateral
Agent for the benefit of the Secured Parties.
"Prime Rate" shall mean the rate of interest per annum publicly
announced from time to time by the Administrative Agent as its prime rate in
effect at its principal office in New York City, New York; each change in the
Prime Rate shall be effective on the date such change is publicly announced as
being effective.
"Pro Rata Percentage" of any Revolving Credit Lender at any time shall
mean the percentage of the Total Revolving Credit Commitment represented by such
Lender's Revolving Credit Commitment. In the event the Revolving Credit
Commitments shall have been terminated, the Pro Rata Percentages of the
Revolving Credit Lenders shall be determined by reference to the Revolving
Credit Commitments most recently in effect (giving effect to any assignments
pursuant to Section 9.04).
"Register" shall have the meaning assigned to such term in Section
9.04(d).
"Regulation G" shall mean Regulation G of the Board as from time to
time in effect and all official rulings and interpretations thereunder or
thereof.
"Regulation U" shall mean Regulation U of the Board as from time to
time in effect and all official rulings and interpretations thereunder or
thereof.
"Regulation X" shall mean Regulation X of the Board as from time to
time in effect and all official rulings and interpretations thereunder or
thereof.
"Related Fund" shall mean, with respect to any Lender that is a fund
that invests in loans, any other fund that invests in loans and is managed by
the same investment advisor as such Lender or by an Affiliate of such investment
advisor.
<PAGE> 24
19
"Release" shall mean any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, disposing,
depositing, dispersing, emanating or migrating of any Hazardous Material in,
into, onto or through the environment.
"Remedial Action" shall mean (a) "remedial action" as such term is
defined in CERCLA, 42 U.S.C. Section 9601(24), and (b) all other actions
required by any Governmental Authority or voluntarily undertaken to: (i) clean
up, remove, treat, abate or in any other way address any Hazardous Material in
the environment; (ii) prevent the Release or threat of Release, or minimize the
further Release of any Hazardous Material so it does not migrate or endanger or
threaten to endanger public health, welfare or the environment; or (iii) perform
studies and investigations in connection with, or as a precondition to, clause
(i) or (ii) above.
"Required Lenders" shall mean, at any time, Lenders having Loans
(excluding Swingline Loans), L/C Exposures, Swingline Exposures and unused
Revolving Credit and Term Loan Commitments representing at least 66-2/3% of the
sum of all Loans outstanding (excluding Swingline Loans), L/C Exposures,
Swingline Exposures and unused Revolving Credit and Term Loan Commitments at
such time.
"Responsible Officer" of any corporation shall mean any executive
officer or Financial Officer of such corporation and any other officer or
similar official thereof responsible for the administration of the obligations
of such corporation in respect of this Agreement.
"Revolving Credit Borrowing" shall mean a Borrowing comprised of
Revolving Loans.
"Revolving Credit Commitment" shall mean, with respect to each Lender,
the commitment of such Lender to make Revolving Loans hereunder as set forth on
Schedule 2.01, or in the Assignment and Acceptance pursuant to which such Lender
assumed its Revolving Credit Commitment, as applicable, as the same may be (a)
reduced from time to time pursuant to Section 2.09 and (b) reduced or increased
from time to time pursuant to assignments by or to such Lender pursuant to
Section 9.04.
"Revolving Credit Exposure" shall mean, with respect to any Lender at
any time, the aggregate principal amount at such time of all outstanding
Revolving Loans of such Lender, plus the aggregate amount at such time of such
Lender's L/C Exposure, plus the aggregate amount at such time of such Lender's
Swingline Exposure.
"Revolving Credit Lender" shall mean a Lender that has a Revolving
Credit Commitment (or that had such a Commitment at the time the Revolving
Credit Commitments were terminated).
"Revolving Credit Maturity Date" shall mean February 27, 2004.
"Revolving Loans" shall mean the revolving loans made by the Lenders to
the Borrower pursuant to clause (c) of Section 2.01. Each Revolving Loan shall
be a Eurodollar Revolving Loan or an ABR Revolving Loan.
"S&P" shall mean Standard & Poor's.
<PAGE> 25
20
"Secured Parties" shall have the meaning assigned to such term in the
Security Agreement.
"Security Agreement" shall mean the Security Agreement, substantially
in the form of Exhibit G, between the Borrower, the Subsidiaries (other than any
Foreign Subsidiary) and the Collateral Agent for the benefit of the Secured
Parties.
"Security Documents" shall mean the Mortgages, the Security Agreement,
the Pledge Agreement and each of the security agreements, mortgages and other
instruments and documents executed and delivered pursuant to any of the
foregoing or pursuant to Section 5.11.
"Statutory Reserves" shall mean a fraction (expressed as a decimal),
the numerator of which is the number one and the denominator of which is the
number one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board for Eurocurrency Liabilities (as defined in Regulation
D of the Board). Such reserve percentages shall include those imposed pursuant
to such Regulation D. Eurodollar Loans shall be deemed to constitute
Eurocurrency Liabilities and to be subject to such reserve requirements without
benefit of or credit for proration, exemptions or offsets that may be available
from time to time to any Lender under such Regulation D. Statutory Reserves
shall be adjusted automatically on and as of the effective date of any change in
any reserve percentage.
"subsidiary" shall mean, with respect to any person (herein referred to
as the "parent"), any corporation, partnership, association or other business
entity (a) of which securities or other ownership interests representing more
than 50% of the equity or more than 50% of the ordinary voting power or more
than 50% of the general partnership interests are, at the time any determination
is being made, owned, controlled or held, or (b) that is, at the time any
determination is made, otherwise Controlled, by the parent or one or more
subsidiaries of the parent or by the parent and one or more subsidiaries of the
parent.
"Subsidiary" shall mean any subsidiary of the Borrower.
"Swingline Commitment" shall mean the commitment of the Swingline
Lender to make loans pursuant to Section 2.22, as the same may be reduced from
time to time pursuant to Section 2.09 .
"Swingline Exposure" shall mean at any time the aggregate principal
amount at such time of all outstanding Swingline Loans. The Swingline Exposure
of any Revolving Credit Lender at any time shall equal its Pro Rata Percentage
of the aggregate Swingline Exposure at such time.
"Swingline Loan" shall mean any loan made by the Swingline Lender
pursuant to Section 2.22.
"Taxes" shall mean any and all present or future taxes, levies,
imposts, duties, deductions, charges or withholdings imposed by any Governmental
Authority.
"Term Borrowing" shall mean a Borrowing comprised of Tranche A Term
Loans or Tranche B Term Loans.
<PAGE> 26
21
"Term Loan Commitments" shall mean the Tranche A Commitments and the
Tranche B Commitments.
"Term Loan Repayment Dates" shall mean the Tranche A Term Loan
Repayment Dates and the Tranche B Term Loan Repayment Dates as set forth in
Section 2.11(a).
"Term Loans" shall mean the Tranche A Term Loans and the Tranche B Term
Loans.
"Total Debt" shall mean, as of any date of determination, without
duplication, the aggregate principal amount of Indebtedness of the Borrower and
the Subsidiaries outstanding as of such date, determined on a consolidated basis
in accordance with GAAP (other than Indebtedness of the type referred to in
clause (j) of the definition of the term "Indebtedness", except to the extent of
any unreimbursed drawings thereunder).
"Total Revolving Credit Commitment" shall mean, at any time, the
aggregate amount of the Revolving Credit Commitments, as in effect at such time.
"Tranche A Commitment" shall mean, with respect to each Lender, the
commitment of such Lender to make Tranche A Term Loans as set forth on Schedule
2.01 or in the Assignment and Acceptance pursuant to which such Lender shall
have assumed its Tranche A Commitment, as applicable, as the same may be (a)
reduced from time to time pursuant to Section 2.09 and (b) reduced or increased
from time to time pursuant to assignments by or to such Lender pursuant to
Section 9.04.
"Tranche A Lender" shall mean a Lender with a Tranche A Commitment or
with outstanding Tranche A Term Loans.
"Tranche A Maturity Date" shall mean December 31, 2003.
"Tranche A Term Borrowing" shall mean a Borrowing comprised of Tranche
A Term Loans.
"Tranche A Term Loan Repayment Date" shall have the meaning assigned to
such term in Section 2.11(a)(i).
"Tranche A Term Loans" shall mean the term loans made by the Lenders to
the Borrower pursuant to clause (a) of Section 2.01. Each Tranche A Term Loan
shall be either a Eurodollar Term Loan or an ABR Term Loan.
"Tranche B Commitment" shall mean, with respect to each Lender, the
commitment of such Lender to make Tranche B Term Loans as set forth on Schedule
2.01 or in the Assignment and Acceptance pursuant to which such Lender shall
have assumed its Tranche B Commitment, as applicable, as the same may be (a)
reduced from time to time pursuant to Section 2.09 and (b) reduced or increased
from time to time pursuant to assignments by or to such Lender pursuant to
Section 9.04.
"Tranche B Lender" shall mean a Lender with a Tranche B Commitment or
with outstanding Tranche B Term Loans.
"Tranche B Maturity Date" shall mean December 31, 2005.
<PAGE> 27
22
"Tranche B Term Borrowing" shall mean a Borrowing comprised of Tranche
B Term Loans.
"Tranche B Term Loan Repayment Date" shall have the meaning assigned to
such term in Section 2.11(a)(ii).
"Tranche B Term Loans" shall mean the term loans made by the Lenders to
the Borrower pursuant to clause (b) of Section 2.01. Each Tranche B Term Loan
shall be either a Eurodollar Term Loan or an ABR Term Loan.
"Transactions" shall have the meaning assigned to such term in Section
3.02.
"Type", when used in respect of any Loan or Borrowing, shall refer to
the Rate by reference to which interest on such Loan or on the Loans comprising
such Borrowing is determined. For purposes hereof, the term "Rate" shall include
the Adjusted LIBO Rate and the Alternate Base Rate.
"Wholly Owned Subsidiary" shall mean a Subsidiary of which securities
(except for directors' qualifying shares) or other ownership interests
representing 100% of the equity or 100% of the ordinary voting power or 100% of
the general partnership interests are, at the time any determination is being
made, owned, controlled or held, directly or indirectly, by the Borrower or one
or more wholly owned subsidiaries of the Borrower.
"Withdrawal Liability" shall mean liability to a Multiemployer Plan as
a result of a complete or partial withdrawal from such Multiemployer Plan, as
such terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Terms Generally. The definitions in Section 1.01 shall
apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
All references herein to Articles, Sections, Exhibits and Schedules shall be
deemed references to Articles and Sections of, and Exhibits and Schedules to,
this Agreement unless the context shall otherwise require. Except as otherwise
expressly provided herein, (a) any reference in this Agreement to any Loan
Document shall mean such document as amended, restated, supplemented or
otherwise modified from time to time and (b) all terms of an accounting or
financial nature shall be construed in accordance with GAAP, as in effect from
time to time; provided, however, that, if the Borrower notifies the
Administrative Agent that the Borrower requests an amendment to any provision
hereof to eliminate the effect of any change occurring after the date hereof in
GAAP or in the application thereof on the operation of such provision (or if the
Administrative Agent notifies the Borrower that the Required Lenders request an
amendment to any provision hereof for such purpose), regardless of whether any
such notice is given before or after such change in GAAP or in the application
thereof, then such provision shall be interpreted on the basis of GAAP as in
effect and applied immediately before such change shall have become effective
until such notice shall have been withdrawn or such provision amended in
accordance herewith.
<PAGE> 28
23
ARTICLE II
The Credits
SECTION 2.01. Commitments. Subject to the terms and conditions and
relying upon the representations and warranties herein set forth, each Lender
agrees, severally and not jointly, (a) to make a Tranche A Term Loan to the
Borrower on the Closing Date in a principal amount not to exceed its Tranche A
Commitment, (b) to make a Tranche B Term Loan to the Borrower on the Closing
Date in a principal amount not to exceed its Tranche B Commitment and (c) to
make Revolving Loans to the Borrower, at any time and from time to time on or
after the Closing Date and until the earlier of the Revolving Credit Maturity
Date and the termination of the Revolving Credit Commitment of such Lender in
accordance with the terms hereof, in an aggregate principal amount at any time
outstanding that will not result in (i) such Lender's Revolving Credit Exposure
exceeding (ii) the lesser of (x) such Lender's Revolving Credit Commitment and
(y) such Lender's Pro Rata Percentage of the Borrowing Base in effect at such
time. Within the limits set forth in clause (c) of the preceding sentence and
subject to the terms, conditions and limitations set forth herein, the Borrower
may borrow, pay or prepay and reborrow Revolving Loans. Amounts paid or prepaid
in respect of Term Loans may not be reborrowed.
SECTION 2.02. Loans. (a) Each Loan (other than Swingline Loans) shall
be made as part of a Borrowing consisting of Loans made by the Lenders ratably
in accordance with their applicable Commitments; provided, however, that the
failure of any Lender to make any Loan shall not in itself relieve any other
Lender of its obligation to lend hereunder (it being understood, however, that
no Lender shall be responsible for the failure of any other Lender to make any
Loan required to be made by such other Lender). Except for Loans deemed made
pursuant to paragraph (f) below, the Loans comprising any Borrowing shall be in
an aggregate principal amount that is (i) an integral multiple of $1,000,000 and
not less than $1,000,000 or (ii) equal to the remaining available balance of the
applicable Commitments.
(b) Subject to Sections 2.08 and 2.15, each Borrowing shall be
comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may request
pursuant to Section 2.03. Notwithstanding anything to the contrary contained
herein, all Borrowings made on the Closing Date shall be ABR Borrowings. Each
Swingline Loan shall be an ABR Loan. Each Lender may at its option make any
Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such
Lender to make such Loan; provided that any exercise of such option shall not
affect the obligation of the Borrower to repay such Loan in accordance with the
terms of this Agreement. Borrowings of more than one Type may be outstanding at
the same time; provided, however, that the Borrower shall not be entitled to
request any Borrowing that, if made, would result in more than ten Eurodollar
Borrowings outstanding hereunder at any time. For purposes of the foregoing,
Borrowings having different Interest Periods, regardless of whether they
commence on the same date, shall be considered separate Borrowings.
(c) Except with respect to Loans made pursuant to paragraph (f) below,
each Lender shall make each Loan to be made by it hereunder on the proposed date
thereof by wire transfer of immediately available funds to such account in New
York City as the Administrative Agent may designate not later than 12:00 (noon),
New York City time, and the Administrative Agent shall promptly credit the
amounts so received to an account in the
<PAGE> 29
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name of the Borrower designated by the Borrower in the applicable Borrowing
Request or, if a Borrowing shall not occur on such date because any condition
precedent herein specified shall not have been met, return the amounts so
received to the respective Lenders.
(d) Unless the Administrative Agent shall have received notice from a
Lender prior to the date of any Borrowing that such Lender will not make
available to the Administrative Agent such Lender's portion of such Borrowing,
the Administrative Agent may assume that such Lender has made such portion
available to the Administrative Agent on the date of such Borrowing in
accordance with paragraph (c) above and the Administrative Agent may, in
reliance upon such assumption, make available to the Borrower on such date a
corresponding amount. If the Administrative Agent shall have so made funds
available then, to the extent that such Lender shall not have made such portion
available to the Administrative Agent, such Lender and the Borrower severally
agree to repay to the Administrative Agent forthwith on demand such
corresponding amount together with interest thereon for each day from the date
such amount is made available to the Borrower until the date such amount is
repaid to the Administrative Agent at (i) in the case of the Borrower, the
interest rate applicable at the time to the Loans comprising such Borrowing and
(ii) in the case of such Lender, a rate determined by the Administrative Agent
to represent its cost of overnight or short-term funds (which determination
shall be conclusive absent manifest error). If such Lender shall repay to the
Administrative Agent such corresponding amount, such amount shall constitute
such Lender's Loan as part of such Borrowing for purposes of this Agreement.
(e) Notwithstanding any other provision of this Agreement, the Borrower
shall not be entitled to request any Borrowing if the Interest Period requested
with respect thereto would end after the Revolving Credit Maturity Date.
(f) If the Issuing Bank shall not have received from the Borrower the
payment required to be made by Section 2.23(e) in respect of any L/C
Disbursement within the time specified in such Section, the Issuing Bank will
promptly notify the Administrative Agent of the amount of such L/C Disbursement
and the Administrative Agent will promptly notify each Revolving Credit Lender
of such amount and its Pro Rata Percentage thereof. Each Revolving Credit Lender
shall pay by wire transfer of immediately available funds to the Administrative
Agent not later than 2:00 p.m., New York City time, on such date (or, if such
Revolving Credit Lender shall have received such notice later than 12:00 (noon),
New York City time, on any day, not later than 11:00 a.m., New York City time,
on the immediately following Business Day), an amount equal to such Lender's Pro
Rata Percentage of such L/C Disbursement (it being understood that such amount
shall be deemed to constitute an ABR Revolving Loan of such Lender and such
payment shall be deemed to have reduced the L/C Exposure), and the
Administrative Agent will promptly pay to the Issuing Bank amounts so received
by it from the Revolving Credit Lenders. The Administrative Agent will promptly
pay to the Issuing Bank any amounts received by it from the Borrower pursuant to
Section 2.23(e) prior to the time that any Revolving Credit Lender makes any
payment pursuant to this paragraph (f); any such amounts received by the
Administrative Agent thereafter will be promptly remitted by the Administrative
Agent to the Revolving Credit Lenders that shall have made such payments and to
the Issuing Bank, as their interests may appear. If any Revolving Credit Lender
shall not have made its Pro Rata Percentage of such L/C Disbursement available
to the Administrative Agent as provided above, such Lender and the Borrower
severally agree to pay interest on such amount, for each day from and including
the date such amount is required to be paid in accordance with this paragraph to
but excluding the date such amount is paid, to the Administrative Agent for the
account of the Issuing Bank at (i) in the case of the Borrower, a rate per annum
equal to the interest rate
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applicable to ABR Revolving Loans pursuant to Section 2.06(a), and (ii) in the
case of such Lender, for the first such day, the Federal Funds Effective Rate,
and for each day thereafter, the Alternate Base Rate.
SECTION 2.03. Borrowing Procedure. In order to request a Borrowing
(other than a Swingline Loan or a deemed Borrowing pursuant to Section 2.02(f),
as to which this Section 2.03 shall not apply), the Borrower shall hand deliver
or telecopy to the Administrative Agent a duly completed Borrowing Request (a)
in the case of a Eurodollar Borrowing, not later than 12:00 (noon), New York
City time, three Business Days before a proposed Borrowing, and (b) in the case
of an ABR Borrowing, not later than 11:00 a.m., New York City time, on the
Business Day of a proposed Borrowing. Each Borrowing Request shall be
irrevocable, shall be signed by or on behalf of the Borrower and shall specify
the following information: (i) whether the Borrowing then being requested is to
be a Tranche A Term Borrowing, a Tranche B Term Borrowing or a Revolving Credit
Borrowing, and, subject to the second sentence of Section 2.02(b), whether such
Borrowing is to be a Eurodollar Borrowing or an ABR Borrowing; (ii) the date of
such Borrowing (which shall be a Business Day), (iii) the number and location of
the account to which funds are to be disbursed (which shall be an account that
complies with the requirements of Section 2.02(c)); (iv) the amount of such
Borrowing; and (v) if such Borrowing is to be a Eurodollar Borrowing, the
Interest Period with respect thereto; provided, however, that, notwithstanding
any contrary specification in any Borrowing Request, each requested Borrowing
shall comply with the requirements set forth in Section 2.02. If no election as
to the Type of Borrowing is specified in any such notice, then the requested
Borrowing shall be an ABR Borrowing. If no Interest Period with respect to any
Eurodollar Borrowing is specified in any such notice, then the Borrower shall be
deemed to have selected an Interest Period of one month's duration. The
Administrative Agent shall promptly advise the applicable Lenders of any notice
given pursuant to this Section 2.03 (and the contents thereof), and of each
Lender's portion of the requested Borrowing.
SECTION 2.04. Evidence of Debt; Repayment of Loans. (a) The Borrower
hereby unconditionally promises to pay to the Administrative Agent for the
account of each Lender (i) the then unpaid principal amount of each Revolving
Loan on the Revolving Credit Maturity Date, (ii) the then unpaid principal
amount of each Swingline Loan on the last day of the Interest Period applicable
to such Loan or, if earlier, on the Revolving Credit Maturity Date and (iii) the
principal amount of each Term Loan of such Lender as provided in Section 2.11.
(b) Each Lender shall maintain in accordance with its usual practice an
account or accounts evidencing the indebtedness of the Borrower to such Lender
resulting from each Loan made by such Lender from time to time, including the
amounts of principal and interest payable and paid such Lender from time to time
under this Agreement.
(c) The Administrative Agent shall maintain accounts in which it will
record (i) the amount of each Loan made hereunder, the Type thereof and the
Interest Period applicable thereto, (ii) the amount of any principal or interest
due and payable or to become due and payable from the Borrower to each Lender
hereunder and (iii) the amount of any sum received by the Administrative Agent
hereunder from the Borrower or any Guarantor and each Lender's share thereof.
(d) The entries made in the accounts maintained pursuant to paragraphs
(b) and (c) above shall be prima facie evidence of the existence and amounts of
the obligations therein
<PAGE> 31
26
recorded; provided, however, that the failure of any Lender or the
Administrative Agent to maintain such accounts or any error therein shall not in
any manner affect the obligation of the Borrower to repay the Loans in
accordance with their terms.
(e) Notwithstanding any other provision of this Agreement, in the event
any Lender shall request and receive a promissory note payable to such Lender
and its registered assigns, the interests represented by such note shall at all
times (including after any assignment of all or part of such interests pursuant
to Section 9.04) be represented by one or more promissory notes payable to the
payee named therein or its registered assigns.
SECTION 2.05. Fees. (a) The Borrower agrees to pay to each Lender,
through the Administrative Agent, on the last business day of March, June,
September and December in each year and on the date on which the last of the
Commitments of such Lender shall expire or be terminated as provided herein, a
commitment fee (a "Commitment Fee") equal to the Applicable Percentage per annum
in effect from time to time on the average daily unused amount of the
Commitments of such Lender (other than the Swingline Commitment) during the
preceding quarter (or other period commencing with the date hereof or ending
with the date on which the last of the Commitments of such Lender shall expire
or be terminated). All Commitment Fees shall be computed on the basis of the
actual number of days elapsed in a year of 365 days. The Commitment Fee due to
each Lender shall commence to accrue on the date hereof and shall cease to
accrue on the date on which the last of the Commitments of such Lender shall
expire or be terminated as provided herein. For purposes of calculating
Commitment Fees only, no portion of the Revolving Credit Commitments shall be
deemed utilized by virtue of any Swingline Loan being outstanding.
(b) The Borrower agrees to pay to the Administrative Agent, for its own
account, the administrative fees set forth in the Fee Letter at the times and in
the amounts specified therein (the "Administrative Agent Fees").
(c) The Borrower agrees to pay (i) to each Revolving Credit Lender,
through the Administrative Agent, on the last business day of March, June,
September and December of each year and on the date on which the Revolving
Credit Commitment of such Lender shall be terminated as provided herein, a fee
(an "L/C Participation Fee") calculated on such Lender's Pro Rata Percentage of
the average daily aggregate L/C Exposure (excluding the portion thereof
attributable to unreimbursed L/C Disbursements) during the preceding quarter (or
shorter period commencing with the date hereof or ending with the Revolving
Credit Maturity Date or the date on which all Letters of Credit have been
canceled or have expired and the Revolving Credit Commitments of all Lenders
shall have been terminated) at a rate equal to the Applicable Percentage from
time to time used to determine the interest rate on Revolving Credit Borrowings
comprised of Eurodollar Loans pursuant to Section 2.06, and (ii) to the Issuing
Bank with respect to each Letter of Credit the standard fronting, issuance and
drawing fees specified from time to time by the Issuing Bank (the "Issuing Bank
Fees"). All L/C Participation Fees and Issuing Bank Fees shall be computed on
the basis of the actual number of days elapsed in a year of 360 days.
All Fees shall be paid on the dates due, in immediately available
funds, to the Administrative Agent for distribution, if and as appropriate,
among the Lenders, except that the Issuing Bank Fees shall be paid directly to
the Issuing Bank. Once paid, none of the Fees shall be refundable under any
circumstances; provided, however, that the foregoing shall in no event
constitute a waiver of or otherwise affect any claims the Borrower may have
against any other party to this Agreement.
<PAGE> 32
27
SECTION 2.06. Interest on Loans. (a) Subject to the provisions of
Section 2.07, the Loans comprising each ABR Borrowing, including each Swingline
Loan, shall bear interest (computed on the basis of the actual number of days
elapsed over a year of 365 or 366 days, as the case may be, when the Alternate
Base Rate is determined by reference to the Prime Rate and over a year of 360
days at all other times) at a rate per annum equal to the Alternate Base Rate
plus (x) in the case of Revolving Loans and Tranche A Term Loans, the Applicable
Percentage in effect from time to time and (y) in the case of Tranche B Term
Loans, 2.25%.
(b) Subject to the provisions of Section 2.07, the Loans comprising
each Eurodollar Borrowing shall bear interest (computed on the basis of the
actual number of days elapsed over a year of 360 days) at a rate per annum equal
to the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing
plus (x) in the case of Revolving Loans and Tranche A Term Loans, the Applicable
Percentage in effect from time to time and (y) in the case of Tranche B Term
Loans, 3.25%.
(c) Interest on each Loan shall be payable on the Interest Payment
Dates applicable to such Loan except as otherwise provided in this Agreement.
The applicable Alternate Base Rate or Adjusted LIBO Rate for each Interest
Period or day within an Interest Period, as the case may be, shall be determined
by the Administrative Agent, and such determination shall be conclusive absent
manifest error.
SECTION 2.07. Default Interest. If the Borrower shall default in the
payment of the principal of or interest on any Loan or any other amount becoming
due hereunder, by acceleration or otherwise, or under any other Loan Document,
the Borrower shall on demand from time to time pay interest, to the extent
permitted by law, on such defaulted amount to but excluding the date of actual
payment (after as well as before judgment) (a) in the case of overdue principal,
at the rate otherwise applicable to such Loan pursuant to Section 2.06 plus 2%
per annum and (b) in all other cases, at the rate per annum applicable at such
time to ABR Loans plus 2% per annum.
SECTION 2.08. Alternate Rate of Interest. In the event and on each
occasion that on the day two Business Days prior to the commencement of any
Interest Period for a Eurodollar Borrowing the Administrative Agent shall have
determined that dollar deposits in the principal amounts of the Loans comprising
such Borrowing are not generally available in the London interbank market, or
that the rates at which such dollar deposits are being offered will not exceed
the cost to any Lender of making or maintaining its Eurodollar Loan during such
Interest Period, or that reasonable means do not exist for ascertaining the
Adjusted LIBO Rate, the Administrative Agent shall, as soon as practicable
thereafter, give written or telecopy notice of such determination to the
Borrower and the Lenders. In the event of any such determination, until the
Administrative Agent shall have advised the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist, any request by the
Borrower for a Eurodollar Borrowing pursuant to Section 2.03 or 2.10 shall be
deemed to be a request for an ABR Borrowing. Each determination by the
Administrative Agent hereunder shall be conclusive absent manifest error.
SECTION 2.09. Termination and Reduction of Commitments. (a) The Term
Loan Commitments shall automatically terminate at 5:00 p.m., New York City time,
on the Closing Date. The Revolving Credit Commitments, the Swingline Commitment
and the L/C Commitment shall automatically terminate at 5:00 p.m., New York City
time, on the Revolving Credit Maturity Date. Notwithstanding the foregoing, all
the Commitments shall
<PAGE> 33
28
automatically terminate at 5:00 p.m., New York City time, on March 15, 1998, if
the initial Credit Event shall not have occurred by such time.
(b) Upon at least three Business Days' prior irrevocable written or
telecopy notice to the Administrative Agent, the Borrower may at any time in
whole permanently terminate, or from time to time in part permanently reduce,
the Tranche A Commitments, the Tranche B Commitments or the Revolving Credit
Commitments; provided, however, that (i) each partial reduction of the Tranche A
Commitments, the Tranche B Commitments or the Revolving Credit Commitments shall
be in an integral multiple of $1,000,000 and in a minimum amount of $1,000,000
and (ii) the Total Revolving Credit Commitment shall not be reduced to an amount
that is less than the sum of the Aggregate Revolving Credit Exposure at the
time.
(c) Each reduction in the Tranche A Commitments, the Tranche B
Commitments or the Revolving Credit Commitments hereunder shall be made ratably
among the Lenders in accordance with their respective applicable Commitments.
The Borrower shall pay to the Administrative Agent for the account of the
applicable Lenders, on the date of each termination or reduction, the Commitment
Fees on the amount of the Commitments so terminated or reduced accrued to but
excluding the date of such termination or reduction.
SECTION 2.10. Conversion and Continuation of Borrowings. The Borrower
shall have the right at any time upon prior irrevocable notice to the
Administrative Agent (a) not later than 12:00 (noon), New York City time, one
Business Day prior to conversion, to convert any Eurodollar Borrowing into an
ABR Borrowing, (b) not later than 12:00 (noon), New York City time, three
Business Days prior to conversion or continuation, to convert any ABR Borrowing
(other than a Swingline Loan) into a Eurodollar Borrowing or to continue any
Eurodollar Borrowing as a Eurodollar Borrowing for an additional Interest
Period, and (c) not later than 12:00 (noon), New York City time, three Business
Days prior to conversion, to convert the Interest Period with respect to any
Eurodollar Borrowing to another permissible Interest Period, subject in each
case to the following:
(i) each conversion or continuation shall be made pro rata
among the Lenders in accordance with the respective principal amounts
of the Loans comprising the converted or continued Borrowing;
(ii) if less than all the outstanding principal amount of any
Borrowing shall be converted or continued, then each resulting
Borrowing shall satisfy the limitations specified in Sections 2.02(a)
and (b) regarding the principal amount and maximum number of Borrowings
of the relevant Type;
(iii) each conversion shall be effected by each Lender and the
Administrative Agent by recording for the account of such Lender the
new Loan of such Lender resulting from such conversion and reducing the
Loan (or portion thereof) of such Lender being converted by an
equivalent principal amount; accrued interest on any Eurodollar Loan
(or portion thereof) being converted shall be paid by the Borrower at
the time of conversion;
(iv) if any Eurodollar Borrowing is converted at a time other
than the end of the Interest Period applicable thereto, the Borrower
shall pay, upon demand, any amounts due to the Lenders pursuant to
Section 2.16;
<PAGE> 34
29
(v) any portion of a Borrowing maturing or required to be
repaid in less than one month may not be converted into or continued as
a Eurodollar Borrowing;
(vi) any portion of a Eurodollar Borrowing that cannot be
converted into or continued as a Eurodollar Borrowing by reason of the
immediately preceding clause shall be automatically converted at the
end of the Interest Period in effect for such Borrowing into an ABR
Borrowing;
(vii) no Interest Period may be selected for any Tranche A
Term Borrowing or Tranche B Term Borrowing that is a Eurodollar
Borrowing that would end later than a Term Loan Repayment Date
occurring on or after the first day of such Interest Period if, after
giving effect to such selection, the aggregate outstanding amount of
(A) the Tranche A Term Borrowings or Tranche B Term Borrowings, as the
case may be, that are Eurodollar Borrowings with Interest Periods
ending on or prior to such Term Loan Repayment Date and (B) the Tranche
A Term Borrowings or Tranche B Term Borrowings, as the case may be,
that are ABR Borrowings would not be at least equal to the principal
amount of Tranche A Term Borrowings or Tranche B Term Borrowings to be
paid on such Term Loan Repayment Date; and
(viii) upon notice to the Borrower from the Administrative
Agent given at the request of the Required Lenders, after the
occurrence and during the continuance of a Default or Event of Default,
no outstanding Loan may be converted into, or continued as, a
Eurodollar Loan.
Each notice pursuant to this Section 2.10 shall be irrevocable and
shall refer to this Agreement and specify (i) the identity and amount of the
Borrowing that the Borrower requests be converted or continued, (ii) whether
such Borrowing is to be converted to or continued as a Eurodollar Borrowing or
an ABR Borrowing, (iii) if such notice requests a conversion, the date of such
conversion (which shall be a Business Day) and (iv) if such Borrowing is to be
converted to or continued as a Eurodollar Borrowing, the Interest Period with
respect thereto. If no Interest Period is specified in any such notice with
respect to any conversion to or continuation as a Eurodollar Borrowing, the
Borrower shall be deemed to have selected an Interest Period of one month's
duration. The Administrative Agent shall advise the Lenders of any notice given
pursuant to this Section 2.10 and of each Lender's portion of any converted or
continued Borrowing. If the Borrower shall not have given notice in accordance
with this Section 2.10 to continue any Borrowing into a subsequent Interest
Period (and shall not otherwise have given notice in accordance with this
Section 2.10 to convert such Borrowing), such Borrowing shall, at the end of the
Interest Period applicable thereto (unless repaid pursuant to the terms hereof),
automatically be continued into a new Interest Period as an ABR Borrowing.
SECTION 2.11. Repayment of Term Borrowings. (a) (i) The Borrower shall
pay to the Administrative Agent, for the accounts of the Lenders, on the dates
set forth below, or if any such date is not a Business Day, on the next
preceding Business Day (each such date being a "Tranche A Term Loan Repayment
Date"), a principal amount of the Tranche A Term Loans equal to the amount set
forth below for such date (subject to adjustment from time to time pursuant to
Sections 2.11(b), 2.12 and 2.13(h)), together in each case with accrued and
unpaid interest on the principal amount to be paid to but excluding the date of
such payment:
<PAGE> 35
30
<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C>
September 30, 1998 $2,250,000
December 31, 1998 2,250,000
March 31, 1999 2,812,500
June 30, 1999 2,812,500
September 30, 1999 2,812,500
December 31, 1999 2,812,500
March 31, 2000 3,375,000
June 30, 2000 3,375,000
September 30, 2000 3,375,000
December 31, 2000 3,375,000
March 31, 2001 3,937,500
June 30, 2001 3,937,500
September 30, 2001 3,937,500
December 31, 2001 3,937,500
March 31, 2002 5,625,000
June 30, 2002 5,625,000
September 30, 2002 5,625,000
December 31, 2002 5,625,000
March 31, 2003 5,625,000
June 30, 2003 5,625,000
September 30, 2003 5,625,000
December 31, 2003 5,625,000
</TABLE>
(ii) The Borrower shall pay to the Administrative Agent, for the
accounts of the Lenders, on the dates set forth below or, if any such date is
not a Business Day, on the next preceding Business Day (each such date being a
"Tranche B Term Loan Repayment Date"), a principal amount of the Tranche B Term
Loans equal to the amount set forth below for such date (subject to adjustment
from time to time pursuant to Sections 2.11(b), 2.12 and 2.13(h)), together in
each case with accrued and unpaid interest on the principal amount to be paid to
but excluding the date of such payment:
<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C>
March 31, 1998 $ 212,500
June 30, 1998 212,500
September 30, 1998 212,500
December 31, 1998 212,500
March 31, 1999 212,500
June 30, 1999 212,500
September 30, 1999 212,500
December 31, 1999 212,500
March 31, 2000 212,500
June 30, 2000 212,500
</TABLE>
<PAGE> 36
31
<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C>
September 30, 2000 212,500
December 31, 2000 212,500
March 31, 2001 212,500
June 30, 2001 212,500
September 30, 2001 212,500
December 31, 2001 212,500
March 31, 2002 212,500
June 30, 2002 212,500
September 30, 2002 212,500
December 31, 2002 212,500
March 31, 2003 212,500
June 30, 2003 212,500
September 30, 2003 212,500
December 31, 2003 212,500
March 31, 2004 9,987,500
June 30, 2004 9,987,500
September 30, 2004 9,987,500
December 31, 2004 9,987,500
March 31, 2005 9,987,500
June 30, 2005 9,987,500
September 30, 2005 9,987,500
December 31, 2005 9,987,500
</TABLE>
(b) In the event and on each occasion that any Term Loan Commitments
shall be reduced or shall expire or terminate other than as a result of the
making of a Term Loan, the installments payable on each Term Loan Repayment Date
shall be reduced pro rata by an aggregate amount equal to the amount of such
reduction, expiration or termination.
(c) To the extent not previously paid, all Tranche A Term Loans and
Tranche B Term Loans shall be due and payable on the Tranche A Maturity Date and
Tranche B Maturity Date, respectively, together with accrued and unpaid
interest on the principal amount to be paid to but excluding the date of
payment.
(d) All repayments pursuant to this Section 2.11 shall be subject to
Section 2.16, but shall otherwise be without premium or penalty.
SECTION 2.12. Prepayment. (a) The Borrower shall have the right at any
time and from time to time to prepay any Borrowing, in whole or in part, upon at
least three Business Days' prior written or telecopy notice (or telephone notice
promptly confirmed by written or telecopy notice) to the Administrative Agent
before 11:00 a.m., New York City time; provided, however, that each partial
prepayment shall be in an amount that is an integral multiple of $1,000,000 and
not less than $1,000,000.
(b) Optional prepayments of Term Loans shall be allocated pro rata
between the then-outstanding Tranche A Term Loans and Tranche B Term Loans and
applied pro rata against the remaining scheduled installments of principal due
in respect of the Tranche A Term Loans and Tranche B Term Loans under Sections
2.11(a)(i) and (ii), respectively.
(c) Each notice of prepayment shall specify the prepayment date and the
principal amount of each Borrowing (or portion thereof) to be prepaid, shall be
irrevocable and shall commit the Borrower to prepay such Borrowing by the amount
stated therein on the date stated therein. All prepayments under this Section
2.12 shall be subject to Section 2.16 but
<PAGE> 37
32
otherwise without premium or penalty. All prepayments under this Section 2.12
shall be accompanied by accrued interest on the principal amount being prepaid
to the date of payment.
SECTION 2.13. Mandatory Prepayments. (a) In the event of any
termination of all the Revolving Credit Commitments, the Borrower shall repay or
prepay all its outstanding Revolving Credit Borrowings and all outstanding
Swingline Loans on the date of such termination. In the event of any partial
reduction of the Revolving Credit Commitments, then (i) at or prior to the
effective date of such reduction, the Administrative Agent shall notify the
Borrower and the Revolving Credit Lenders of the Aggregate Revolving Credit
Exposure after giving effect thereto and (ii) if the Aggregate Revolving Credit
Exposure would exceed the Total Revolving Credit Commitment after giving effect
to such reduction or termination, then the Borrower shall, on the date of such
reduction or termination, repay or prepay Revolving Credit Borrowings or
Swingline Loans (or a combination thereof) in an amount sufficient to eliminate
such excess.
(b) If on any date the Aggregate Revolving Credit Exposure shall exceed
the Borrowing Base, the Borrower shall on such date apply an amount equal to
such excess first, to prepay the then outstanding Revolving Loans (if any) and
Swingline Loans (if any) and second, to the extent of any remaining excess
(after the prepayment of Revolving Loans and Swingline Loans), to replace
outstanding Letters of Credit and deposit an amount in cash in a cash collateral
account established with the Collateral Agent for the benefit of the Secured
Parties.
(c) Not later than the third Business Day following the completion of
any Asset Sale, the Borrower shall apply 100% of the Net Cash Proceeds received
with respect thereto to prepay outstanding Term Loans in accordance with
paragraph (h) below.
(d) In the event that, at any time, (i) the Borrower does not use any
or all of the Net Cash Proceeds (deposited in an account with the Administrative
Agent pursuant to clause (iii) of the proviso contained in the definition of
"Asset Sale" in Section 1.01) from the sale of a brand name pharmaceutical
product line to purchase additional brand name pharmaceutical product lines
within six months of the date of closing of such sale or (ii) the aggregate
amount deposited in all such accounts exceeds $25,000,000 (any such amounts
described in clause (i) or (ii) above being called "Excess Proceeds"), the
Borrower shall apply 100% of the Excess Proceeds to prepay outstanding Term
Loans in accordance with paragraph (h) below.
(e) In the event and on each occasion that an Equity Issuance occurs,
the Borrower shall, substantially simultaneously with (and in any event not
later than the third Business Day next following) the occurrence of such Equity
Issuance, apply 75% of the Net Cash Proceeds therefrom to prepay outstanding
Term Loans in accordance with paragraph (h) below.
(f) Not later than the earlier of (i) 90 days after the end of each
fiscal year of the Borrower, commencing with the fiscal year ending December 31,
1998, and (ii) the date on which the financial statements with respect to such
fiscal year are delivered pursuant to Section 5.03(a), the Borrower shall prepay
outstanding Term Loans in accordance with paragraph (h) below in an aggregate
principal amount equal to 75% of Excess Cash Flow for such fiscal year.
<PAGE> 38
33
(g) In the event that the Borrower or any Subsidiary shall receive Net
Cash Proceeds from the incurrence or disposition of any Indebtedness (other than
Indebtedness permitted under clauses (b), (c), (e) and (f) of Section 6.01), the
Borrower shall, substantially simultaneously with (and in any event not later
than the third Business Day next following) the receipt of such Net Cash
Proceeds, apply an amount equal to 100% of such Net Cash Proceeds to prepay
outstanding Term Loans in accordance with paragraph (h) below.
(h) Mandatory prepayments of outstanding Term Loans under this
Agreement shall, subject to paragraph (k) below, be allocated pro rata between
the then-outstanding Tranche A Term Loans and Tranche B Term Loans and applied
pro rata against the remaining scheduled installments of principal due in
respect of Tranche A Term Loans or Tranche B Term Loans under Section 2.11(a)(i)
and (ii), respectively.
(i) The Borrower shall deliver to the Administrative Agent, at the time
of each pre payment required under this Section 2.13, (i) a certificate signed
by a Financial Officer of the Borrower setting forth in reasonable detail the
calculation of the amount of such pre payment and (ii) to the extent
practicable, at least three days prior written notice of such prepayment. Each
notice of prepayment shall specify the prepayment date, the Type of each Loan
being prepaid and the principal amount of each Loan (or portion thereof) to be
prepaid. All prepayments of Borrowings under this Section 2.13 shall be subject
to Section 2.16, but shall otherwise be without premium or penalty.
(j) Amounts to be applied pursuant to this Section 2.13 to the
prepayment of Term Loans and Revolving Loans shall be applied first to reduce
outstanding ABR Term Loans or ABR Revolving Loans, as the case may be, and then
to prepay Eurodollar Term Loans or Eurodollar Revolving Loans, as the case may
be.
(k) Any Tranche B Lender may elect, by notice to the Administrative
Agent in writing (or by telephone or telecopy promptly confirmed in writing) at
least one Business Day prior to any prepayment of Tranche B Term Loans required
to be made by the Borrower for the account of such Lender pursuant to this
Section 2.13, to cause all or a portion of such prepayment to be applied instead
to prepay Tranche A Term Loans in accordance with paragraph (h) above; provided
that no Tranche B Lender shall be entitled to make such election if at the time
thereof no Tranche A Term Loans are outstanding.
SECTION 2.14. Reserve Requirements; Change in Circumstances. (a)
Notwithstanding any other provision of this Agreement, if after the date of this
Agreement any change in applicable law or regulation or in the interpretation or
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof (whether or not having the force of
law) shall change the basis of taxation of payments to any Lender or the Issuing
Bank of the principal of or interest on any Eurodollar Loan made by such Lender
or any Fees or other amounts payable hereunder (other than changes in respect of
taxes imposed on the overall net income of such Lender or the Issuing Bank by
the jurisdiction in which such Lender or the Issuing Bank has its principal
office or by any political subdivision or taxing authority therein), or shall
impose, modify or deem applicable any reserve, special deposit or similar
requirement against assets of, deposits with or for the account of or credit
extended by any Lender or the Issuing Bank (except any such reserve requirement
which is reflected in the Adjusted LIBO Rate) or shall impose on such Lender or
the Issuing Bank or the London interbank market any other condition affecting
this Agreement or Eurodollar Loans made by such Lender or any Letter of Credit
or participation therein, and the result of any of the foregoing shall be to
increase the cost to
<PAGE> 39
34
such Lender or the Issuing Bank of making or maintaining any Eurodollar Loan or
increase the cost to any Lender of issuing or maintaining any Letter of Credit
or purchasing or maintaining a participation therein or to reduce the amount of
any sum received or receivable by such Lender or the Issuing Bank hereunder
(whether of principal, interest or otherwise) by an amount deemed by such Lender
or the Issuing Bank to be material, then the Borrower will pay to such Lender or
the Issuing Bank, as the case may be, upon demand such additional amount or
amounts as will compensate such Lender or the Issuing Bank, as the case may be,
for such additional costs incurred or reduction suffered.
(b) If any Lender or the Issuing Bank shall have determined that the
adoption after the date hereof of any law, rule, regulation, agreement or
guideline regarding capital adequacy, or any change after the date hereof in any
such law, rule, regulation, agreement or guideline (whether such law, rule,
regulation, agreement or guideline has been adopted) or in the interpretation or
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof, or compliance by any Lender (or any
lending office of such Lender) or the Issuing Bank or any Lender's or the
Issuing Bank's holding company with any request or directive regarding capital
adequacy (whether or not having the force of law) of any Governmental Authority
has or would have the effect of reducing the rate of return on such Lender's or
the Issuing Bank's capital or on the capital of such Lender's or the Issuing
Bank's holding company, if any, as a consequence of this Agreement or the Loans
made or participations in Letters of Credit purchased by such Lender pursuant
hereto or the Letters of Credit issued by the Issuing Bank pursuant hereto to a
level below that which such Lender or the Issuing Bank or such Lender's or the
Issuing Bank's holding company could have achieved but for such applicability,
adoption, change or compliance (taking into consideration such Lender's or the
Issuing Bank's policies and the policies of such Lender's or the Issuing Bank's
holding company with respect to capital adequacy) by an amount deemed by such
Lender or the Issuing Bank to be material, then from time to time the Borrower
shall pay to such Lender or the Issuing Bank, as the case may be, such
additional amount or amounts as will compensate such Lender or the Issuing Bank
or such Lender's or the Issuing Bank's holding company for any such reduction
suffered.
(c) A certificate of a Lender or the Issuing Bank setting forth the
amount or amounts necessary to compensate such Lender or the Issuing Bank or its
holding company, as applicable, as specified in paragraph (a) or (b), together
with supporting documentation or computations, above shall be delivered to the
Borrower and shall be conclusive absent manifest error. The Borrower shall pay
such Lender or the Issuing Bank the amount shown as due on any such certificate
delivered by it within 10 days after its receipt of the same.
(d) Failure or delay on the part of any Lender or the Issuing Bank to
demand compensation for any increased costs or reduction in amounts received or
receivable or reduction in return on capital shall not constitute a waiver of
such Lender's or the Issuing Bank's right to demand such compensation. The
protection of this Section shall be available to each Lender and the Issuing
Bank regardless of any possible contention of the invalidity or inapplicability
of the law, rule, regulation, agreement, guideline or other change or condition
that shall have occurred or been imposed.
SECTION 2.15. Change in Legality. (a) Notwithstanding any other
provision of this Agreement, if, after the date hereof, any change in any law or
regulation or in the interpretation thereof by any Governmental Authority
charged with the administration or
<PAGE> 40
34
interpretation thereof shall make it unlawful for any Lender to make or maintain
any Eurodollar Loan or to give effect to its obligations as contemplated hereby
with respect to any Eurodollar Loan, then, by written notice to the Borrower and
to the Administrative Agent:
(i) such Lender may declare that Eurodollar Loans will not
thereafter (for the duration of such unlawfulness) be made by such
Lender hereunder (or be continued for additional Interest Periods and
ABR Loans will not thereafter (for such duration) be converted into
Eurodollar Loans), whereupon any request for a Eurodollar Borrowing (or
to convert an ABR Borrowing to a Eurodollar Borrowing or to continue a
Eurodollar Borrowing for an additional Interest Period) shall, as to
such Lender only, be deemed a request for an ABR Loan (or a request to
continue an ABR Loan as such for an additional Interest Period or to
convert a Eurodollar Loan into an ABR Loan, as the case may be), unless
such declaration shall be subsequently withdrawn; and
(ii) such Lender may require that all outstanding Eurodollar Loans
made by it be converted to ABR Loans, in which event all such
Eurodollar Loans shall be automatically converted to ABR Loans as of
the effective date of such notice as provided in paragraph (b) below.
In the event any Lender shall exercise its rights under (i) or (ii) above, all
payments and prepayments of principal that would otherwise have been applied to
repay the Eurodollar Loans that would have been made by such Lender or the
converted Eurodollar Loans of such Lender shall instead be applied to repay the
ABR Loans made by such Lender in lieu of, or resulting from the conversion of,
such Eurodollar Loans.
(b) For purposes of this Section 2.15, a notice to the Borrower by any
Lender shall be effective as to each Eurodollar Loan made by such Lender, if
lawful, on the last day of the Interest Period currently applicable to such
Eurodollar Loan; in all other cases such notice shall be effective on the date
of receipt by the Borrower.
SECTION 2.16. Indemnity. The Borrower shall indemnify each Lender
against any loss or expense that such Lender may sustain or incur as a
consequence of (a) any event, other than a default by such Lender in the
performance of its obligations hereunder, which results in (i) such Lender
receiving or being deemed to receive any amount on account of the principal of
any Eurodollar Loan prior to the end of the Interest Period in effect therefor,
(ii) the conversion of any Eurodollar Loan to an ABR Loan, or the conversion of
the Interest Period with respect to any Eurodollar Loan, in each case other than
on the last day of the Interest Period in effect therefor, or (iii) any
Eurodollar Loan to be made by such Lender (including any Eurodollar Loan to be
made pursuant to a conversion or continuation under Section 2.10) not being made
after notice of such Loan shall have been given by the Borrower hereunder (any
of the events referred to in this clause (a) being called a "Breakage Event") or
(b) any default in the making of any payment or prepayment required to be made
hereunder. In the case of any Breakage Event, such loss shall include an amount
equal to the excess, as reasonably determined by such Lender, of (i) its cost of
obtaining funds for the Eurodollar Loan that is the subject of such Breakage
Event for the period from the date of such Breakage Event to the last day of the
Interest Period in effect (or that would have been in effect) for such Loan over
(ii) the amount of interest likely to be realized by such Lender in redeploying
the funds released or not utilized by reason of such Breakage Event for such
period. A certificate of any Lender setting forth any amount or amounts which
such Lender
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36
is entitled to receive pursuant to this Section 2.16, together with supporting
documentation or computations, shall be delivered to the Borrower and shall be
conclusive absent manifest error.
SECTION 2.17. Pro Rata Treatment. Except as provided below in this
Section 2.17 with respect to Swingline Loans and as required under Sections
2.13(k) and 2.15, each Borrowing, each payment or prepayment of principal of any
Borrowing, each payment of interest on the Loans, each payment of the Commitment
Fees, each reduction of the Term Loan Commitments or the Revolving Credit
Commitments and each conversion of any Borrowing to or continuation of any
Borrowing as a Borrowing of any Type shall be allocated pro rata among the
Lenders in accordance with their respective applicable Commitments (or, if such
Commitments shall have expired or been terminated, in accordance with the
respective principal amounts of their outstanding Loans). For purposes of
determining the available Revolving Credit Commitments of the Lenders at any
time, each outstanding Swingline Loan shall be deemed to have utilized the
Revolving Credit Commitments of the Lenders (including those Lenders which shall
not have made Swingline Loans) pro rata in accordance with such respective
Revolving Credit Commitments. Each Lender agrees that in computing such Lender's
portion of any Borrowing to be made hereunder, the Administrative Agent may, in
its discretion, round each Lender's percentage of such Borrowing to the next
higher or lower whole dollar amount.
SECTION 2.18. Sharing of Setoffs. Each Lender agrees that if it shall,
through the exercise of a right of banker's lien, setoff or counterclaim against
the Borrower or any other Loan Party, or pursuant to a secured claim under
Section 506 of Title 11 of the United States Code or other security or interest
arising from, or in lieu of, such secured claim, received by such Lender under
any applicable bankruptcy, insolvency or other similar law or otherwise, or by
any other means, obtain payment (voluntary or involuntary) in respect of any
Loan or Loans or L/C Disbursement as a result of which the unpaid principal
portion of its Tranche A Term Loans, Tranche B Term Loans and Revolving Loans
and participations in L/C Disbursements shall be proportionately less than the
unpaid principal portion of the Tranche A Term Loans, Tranche B Term Loans and
Revolving Loans and participations in L/C Disbursements of any other Lender, it
shall be deemed simultaneously to have purchased from such other Lender at face
value, and shall promptly pay to such other Lender the purchase price for, a
participation in the Tranche A Term Loans, Tranche B Term Loans and Revolving
Loans and L/C Exposure, as the case may be, of such other Lender, so that the
benefit of all such payments shall be shared by the Lenders ratably in
accordance with the aggregate unpaid principal amount of the Tranche A Term
Loans, Tranche B Term Loans and Revolving Loans and L/C Exposure and
participations in Tranche A Term Loans, Tranche B Term Loans and Revolving Loans
and L/C Exposure held by all the Lenders; provided, however, that (i) if any
such participations are purchased pursuant to this Section 2.18 and the payment
giving rise thereto shall thereafter be recovered, such participations shall be
rescinded to the extent of such recovery and the purchase price restored without
interest, and (ii) the provisions of this paragraph shall not be construed to
apply to any payment made by the Borrower pursuant to and in accordance with the
express terms of this Agreement or any payment obtained by a Lender as
consideration for the assignment of or sale of a participation in any of its
Loans or participations in L/C Disbursements to any assignee or participant,
other than to the Borrower or any of the Subsidiaries or any Affiliate thereof
(as to which the provisions of this paragraph shall apply). The Borrower
expressly consents to the foregoing arrangements and agrees that any Lender
holding a participation in a Term Loan or Revolving Loan or L/C Disbursement
deemed to have been so purchased may exercise any and all rights of banker's
lien, setoff or
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37
counterclaim with respect to any and all moneys owing by the Borrower to such
Lender by reason of such participation as fully as if such Lender had made a
Loan directly to the Borrower in the amount of such participation.
SECTION 2.19. Payments. (a) The Borrower shall make each payment
(including principal of or interest on any Borrowing or any L/C Disbursement or
any Fees or other amounts) hereunder and under any other Loan Document not later
than 1:00 p.m., New York City time, on the date when due in immediately
available dollars, without setoff, defense or counterclaim. Any amounts received
after such time on any date may, in the discretion of the Administrative Agent,
be deemed to have been received on the next succeeding Business Day for purposes
of calculating interest thereon. Each such payment (other than (i) Issuing Bank
Fees, which shall be paid directly to the Issuing Bank, (ii) principal of and
interest on Swingline Loans, which shall be paid directly to the Swingline
Lender except as otherwise provided in Section 2.22(e) and (iii) payments
pursuant to Sections 2.14, 2.16, 2.20 and 9.05 shall be made directly to the
persons entitled thereto and payments pursuant to other Loan Documents shall be
made to the persons specified therein) shall be made to the Administrative Agent
at its offices at Eleven Madison Avenue, New York, New York 10010, or as
otherwise directed.
(b) The Administrative Agent shall distribute any such payments
received by it for the account of any other person to the appropriate recipient
promptly following receipt thereof. Whenever any payment (including principal of
or interest on any Borrowing or any Fees or other amounts) hereunder or under
any other Loan Document shall become due, or otherwise would occur, on a day
that is not a Business Day, such payment may be made on the next succeeding
Business Day, and such extension of time shall in such case be included in the
computation of interest or Fees, if applicable.
(c) If at any time insufficient funds are received by and available to
the Administrative Agent to pay fully all amounts of principal, unreimbursed L/C
Disbursements, interest and fees then due hereunder, such funds shall be applied
(i) first, towards payment of interest and fees then due hereunder, ratably
among the parties entitled thereto in accordance with the amounts of interest
and fees then due to such parties, and (ii) second, towards payment of principal
and unreimbursed L/C Disbursements then due hereunder, ratably among the parties
entitled thereto in accordance with the amounts of principal and unreimbursed
L/C Disbursements then due to such parties.
SECTION 2.20. Taxes. (a) Any and all payments by or on account of any
obligation of the Borrower hereunder shall be made free and clear of and without
deduction for any Indemnified Taxes or Other Taxes; provided that if the
Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from
such payments, then (i) the sum payable shall be increased as necessary so that
after making all required deductions (including deductions applicable to
additional sums payable under this Section) the Administrative Agent, Lender or
Issuing Bank, as the case may be, receives an amount equal to the sum it would
have received had no such deductions been made, (ii) the Borrower shall make
such deductions and (iii) the Borrower shall pay the full amount deducted to the
relevant Governmental Authority in accordance with applicable law.
(b) In addition, the Borrower shall pay any Other Taxes to the relevant
Governmental Authority in accordance with applicable law.
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(c) The Borrower shall indemnify the Administrative Agent, each Lender
and the Issuing Bank, within 10 days after written demand therefor, for the full
amount of any Indemnified Taxes or Other Taxes paid by the Administrative Agent,
such Lender or the Issuing Bank, as the case may be, on or with respect to any
payment by or on account of any obligation of the Borrower hereunder (including
Indemnified Taxes or Other Taxes imposed or asserted on or attributable to
amounts payable under this Section) and any penalties, interest and reasonable
expenses arising therefrom or with respect thereto, whether or not such
Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted
by the relevant Governmental Authority. A certificate as to the amount of such
payment or liability delivered to the Borrower by a Lender or the Issuing Bank,
or by the Administrative Agent on its own behalf or on behalf of a Lender or the
Issuing Bank, shall be conclusive absent manifest error.
(d) As soon as practicable after any payment of Indemnified Taxes or
Other Taxes by the Borrower to a Governmental Authority, the Borrower shall
deliver to the Administrative Agent the original or a certified copy of a
receipt issued by such Governmental Authority evidencing such payment, a copy of
the return reporting such payment or other evidence of such payment reasonably
satisfactory to the Administrative Agent.
(e) Any Foreign Lender that is entitled to an exemption from or
reduction of withholding tax under the law of the jurisdiction in which the
Borrower is located, or any treaty to which such jurisdiction is a party, with
respect to payments under this Agreement shall, after having received from the
Borrower notice of the availability of such exemptions from or reductions of
withholding tax, as well as all such appropriate documentation prescribed by
applicable law, deliver to the Borrower (with a copy to the Administrative
Agent), at the time or times prescribed by applicable law, such properly
completed and executed documentation prescribed by applicable law or reasonably
requested by the Borrower as will permit such payments to be made without
withholding or at a reduced rate.
SECTION 2.21. Assignment of Commitments Under Certain Circumstances;
Duty to Mitigate. (a) In the event (i) any Lender or the Issuing Bank delivers a
certificate requesting compensation pursuant to Section 2.14, (ii) any Lender or
the Issuing Bank delivers a notice described in Section 2.15 or (iii) the
Borrower is required to pay any amount to any Lender or the Issuing Bank or any
Governmental Authority on account of any Lender or the Issuing Bank pursuant to
Section 2.20, the Borrower may, at its sole expense and effort (including with
respect to the processing and recordation fee referred to in Section 9.04(b)),
upon notice to such Lender or the Issuing Bank and the Administrative Agent,
require such Lender or the Issuing Bank to transfer and assign, without recourse
(in accordance with and subject to the restrictions contained in Section 9.04),
all of its interests, rights and obligations under this Agreement to an assignee
that shall assume such assigned obligations (which assignee may be another
Lender, if a Lender accepts such assignment); provided that (w) such assignment
will result in a reduction in the claim for compensation under Section 2.14 or
in the withdrawal of the notice under Section 2.14 or in the reduction of
payments under Section 2.20, as the case may be, (x) such assignment shall not
conflict with any law, rule or regulation or order of any court or other
Governmental Authority having jurisdiction, (y) the Borrower shall have received
the prior written consent of the Administrative Agent (and, if a Revolving
Credit Commitment is being assigned, of the Issuing Bank and the Swingline
Lender), which consent shall not unreasonably be withheld, and (z) the Borrower
or such assignee shall have paid to the affected Lender or the Issuing Bank in
immediately available funds an amount equal to the sum of the principal of and
interest accrued to the date
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of such payment on the outstanding Loans or L/C Disbursements of such Lender or
the Issuing Bank, respectively, plus all Fees and other amounts accrued for the
account of such Lender or the Issuing Bank hereunder (including any amounts
under Section 2.14 and Section 2.16); provided further that, if prior to any
such transfer and assignment the circumstances or event that resulted in such
Lender's or the Issuing Bank's claim for compensation under Section 2.14 or
notice under Section 2.15 or the amounts paid pursuant to Section 2.20, as the
case may be, cease to cause such Lender or the Issuing Bank to suffer increased
costs or reductions in amounts received or receivable or reduction in return on
capital, or cease to have the consequences specified in Section 2.15, or cease
to result in amounts being payable under Section 2.20, as the case may be
(including as a result of any action taken by such Lender or the Issuing Bank
pursuant to paragraph (b) below), or if such Lender or the Issuing Bank shall
waive its right to claim further compensation under Section 2.14 in respect of
such circumstances or event or shall withdraw its notice under Section 2.15 or
shall waive its right to further payments under Section 2.20 in respect of such
circumstances or event, as the case may be, then such Lender or the Issuing Bank
shall not thereafter be required to make any such transfer and assignment
hereunder.
(b) If (i) any Lender or the Issuing Bank shall request compensation
under Section 2.14, (ii) any Lender or the Issuing Bank delivers a notice
described in Section 2.15 or (iii) the Borrower is required to pay any amount to
any Lender, the Issuing Bank or any Governmental Authority on account of any
Lender or the Issuing Bank, pursuant to Section 2.20, then such Lender or the
Issuing Bank shall use reasonable efforts (which shall not require such Lender
or the Issuing Bank to incur an unreimbursed loss or unreimbursed cost or
expense or otherwise take any action inconsistent with its internal policies or
legal or regulatory restrictions or suffer any disadvantage or burden deemed by
it to be significant) (x) to file any certificate or document reasonably
requested in writing by the Borrower or (y) to assign its rights and delegate
and transfer its obligations hereunder to another of its offices, branches or
affiliates, if such filing or assignment would reduce its claims for
compensation under Section 2.14 or enable it to withdraw its notice pursuant to
Section 2.15 or would reduce amounts payable pursuant to Section 2.20, as the
case may be, in the future. The Borrower hereby agrees to pay all reasonable
costs and expenses incurred by any Lender or the Issuing Bank in connection with
any such filing or assignment, delegation and transfer.
SECTION 2.22. Swingline Loans. (a) Swingline Commitment. Subject to the
terms and conditions and relying upon the representations and warranties herein
set forth, the Swingline Lender agrees to make loans to the Borrower at any time
and from time to time on and after the Closing Date and until the earlier of the
Revolving Credit Maturity Date and the termination of the Revolving Credit
Commitments in accordance with the terms hereof, in an aggregate principal
amount at any time outstanding that will not result in (i) the aggregate
principal amount of all Swingline Loans exceeding $5,000,000 or (ii) the
Aggregate Revolving Credit Exposure, after giving effect to any Swingline Loan,
exceeding the lesser of (x) the Total Revolving Credit Commitment and (y) the
Borrowing Base in effect at such time. Each Swingline Loan shall be in a
principal amount that is an integral multiple of $500,000. Within the foregoing
limits, the Borrower may borrow, pay or prepay and reborrow Swingline Loans
hereunder, subject to the terms, conditions and limitations set forth herein.
(b) Swingline Loans. The Borrower shall notify the Administrative Agent
by telecopy, or by telephone (confirmed by telecopy), not later than 10:00 a.m.,
New York City time, on the day of a proposed Swingline Loan. Such notice shall
be delivered on a Business Day, shall be irrevocable and shall refer to this
Agreement and shall specify the requested
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date (which shall be a Business Day) and amount of such Swingline Loan. The
Administrative Agent will promptly advise the Swingline Lender of any notice
received from the Borrower pursuant to this paragraph (b). The Swingline Lender
shall make each Swingline Loan available to the Borrower by means of a credit to
the general deposit account of the Borrower with the Swingline Lender by 3:00
p.m., New York City time, on the day such Swingline Loan is so requested.
(c) Prepayment. The Borrower shall have the right at any time and from
time to time to prepay any Swingline Loan, in whole or in part, upon giving
written or telecopy notice (or telephone notice promptly confirmed by written,
or telecopy notice) to the Swingline Lender and to the Administrative Agent
before 12:00 (noon), New York City time, on the date of prepayment at the
Swingline Lender's address for notices specified on Schedule 2.01. All principal
payments of Swingline Loans shall be accompanied by accrued interest on the
principal amount being repaid to the date of payment.
(d) Interest. Each Swingline Loan shall be an ABR Loan and, subject to
the provisions of Section 2.07, shall bear interest as provided in Section
2.06(a).
(e) Participations. The Swingline Lender may, by written notice given
to the Administrative Agent not later than 10:00 a.m., New York City time, on
any Business Day, require the Revolving Credit Lenders to acquire participations
on such Business Day in all or a portion of the Swingline Loans outstanding.
Such notice shall specify the aggregate amount of Swingline Loans in which
Revolving Credit Lenders will participate. The Administrative Agent will,
promptly upon receipt of such notice, give notice to each Revolving Credit
Lender, specifying in such notice such Lender's Pro Rata Percentage of such
Swingline Loan or Loans. In furtherance of the foregoing, each Revolving Credit
Lender hereby irrevocably, absolutely and unconditionally agrees, upon receipt
of notice as provided above, to pay to the Administrative Agent, for the account
of the Swingline Lender, such Revolving Credit Lender's Pro Rata Percentage of
such Swingline Loan or Loans. Each Lender acknowledges and agrees that its
obligation to acquire participations in Swingline Loans pursuant to this
paragraph is irrevocable, absolute and unconditional and shall not be affected
by any circumstance whatsoever, including the occurrence and continuance of a
Default or an Event of Default or the termination of the Revolving Credit
Commitments, and that each such payment shall be made without any offset,
abatement, withholding or reduction whatsoever. Each Lender shall comply with
its obligation under this paragraph by wire transfer of immediately available
funds, in the same manner as provided in Section 2.02(c) with respect to Loans
made by such Lender (and Section 2.02(c) shall apply, mutatis mutandis, to the
payment obligations of the Lenders) and the Administrative Agent shall promptly
pay to the Swingline Lender the amounts so received by it from the Lenders. The
Administrative Agent shall notify the Borrower of any participations in any
Swingline Loan acquired pursuant to this paragraph and thereafter payments in
respect of such Swingline Loan shall be made to the Administrative Agent and not
to the Swingline Lender. Any amounts received by the Swingline Lender from the
Borrower in respect of a Swingline Loan after receipt by the Swingline Lender of
the proceeds of a sale of participations therein shall be promptly remitted to
the Administrative Agent; any such amounts received by the Administrative Agent
shall be promptly remitted by the Administrative Agent to the Lenders that shall
have made their payments pursuant to this paragraph and to the Swingline Lender,
as their interests may appear. The purchase of participations in a Swingline
Loan pursuant to this paragraph shall not relieve the Borrower of any default in
the payment thereof.
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SECTION 2.23. Letters of Credit. (a) General. The Borrower may request
the issuance of a Letter of Credit for its own account or for the account of any
Wholly Owned Subsidiary, in a form reasonably acceptable to the Administrative
Agent and the Issuing Bank, at any time and from time to time while the
Revolving Credit Commitments remain in effect. This Section shall not be
construed to impose an obligation upon the Issuing Bank to issue any Letter of
Credit that is inconsistent with the terms and conditions of this Agreement.
(b) Notice of Issuance; Certain Conditions. In order to request the
issuance of a Letter of Credit, the Borrower shall hand deliver or telecopy to
the Issuing Bank and the Administrative Agent (reasonably in advance of the
requested date of issuance) a notice requesting the issuance of a Letter of
Credit and setting forth the date of issuance, the date on which such Letter of
Credit is to expire (which shall comply with paragraph (c) below), the amount of
such Letter of Credit, the name and address of the beneficiary thereof and such
other information as shall be necessary to prepare such Letter of Credit. A
Letter of Credit shall be issued only if, and upon issuance of each Letter of
Credit the Borrower shall be deemed to represent and warrant that, after giving
effect to such issuance (A) the L/C Exposure shall not exceed $5,000,000 and (B)
the Aggregate Revolving Credit Exposure shall not exceed the lesser of (x) the
Total Revolving Credit Commitment and (y) the Borrowing Base in effect at such
time.
(c) Expiration Date. Each Letter of Credit shall expire at the close of
business on the earlier of the date one year after the date of the issuance of
such Letter of Credit and the date that is five Business Days prior to the
Revolving Credit Maturity Date, unless such Letter of Credit expires by its
terms on an earlier date.
(d) Participations. By the issuance of a Letter of Credit and without
any further action on the part of the Issuing Bank or the Lenders, the Issuing
Bank hereby grants to each Revolving Credit Lender, and each such Lender hereby
acquires from the applicable Issuing Bank, a participation in such Letter of
Credit equal to such Lender's Pro Rata Percentage of the aggregate amount
available to be drawn under such Letter of Credit, effective upon the issuance
of such Letter of Credit. In consideration and in furtherance of the foregoing,
each Revolving Credit Lender hereby irrevocably, absolutely and unconditionally
agrees to pay to the Administrative Agent, for the account of the Issuing Bank,
such Lender's Pro Rata Percentage of each L/C Disbursement made by the Issuing
Bank and not reimbursed by the Borrower forthwith on the date due as provided in
Section 2.02(f). Each Revolving Credit Lender acknowledges and agrees that its
obligation to acquire participations pursuant to this paragraph in respect of
Letters of Credit is irrevocable, absolute and unconditional and shall not be
affected by any circumstance whatsoever, including the occurrence and
continuance of a Default or an Event of Default or the termination of the
Revolving Credit Commitments, and that each such payment shall be made without
any offset, abatement, withholding or reduction whatsoever.
(e) Reimbursement. If the Issuing Bank shall make any L/C Disbursement
in respect of a Letter of Credit, the Borrower shall pay to the Administrative
Agent an amount equal to such L/C Disbursement not later than two hours after
the Borrower shall have received notice from the Issuing Bank that payment of
such draft will be made, or, if the Borrower shall have received such notice
later than 10:00 a.m., New York City time, on any Business Day, not later than
10:00 a.m., New York City time, on the immediately following Business Day.
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(f) Obligations Absolute. The Borrower's obligations to reimburse L/C
Disbursements as provided in paragraph (e) above shall be absolute,
unconditional and irrevocable, and shall be performed strictly in accordance
with the terms of this Agreement, under any and all circumstances whatsoever,
and irrespective of:
(i) any lack of validity or enforceability of any Letter of
Credit or any Loan Document, or any term or provision therein;
(ii) any amendment or waiver of or any consent to departure
from all or any of the provisions of any Letter of Credit or any Loan
Document;
(iii) the existence of any claim, setoff, defense or other
right that the Borrower, any other party guaranteeing, or otherwise
obligated with, the Borrower, any Subsidiary or other Affiliate thereof
or any other person may at any time have against the beneficiary under
any Letter of Credit, the Issuing Bank, the Administrative Agent or any
Lender or any other person, whether in connection with this Agreement,
any other Loan Document or any other related or unrelated agreement or
transaction;
(iv) any draft or other document presented under a Letter of
Credit proving to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein being untrue or inaccurate in any
respect;
(v) payment by the Issuing Bank under a Letter of Credit
against presentation of a draft or other document that does not comply
with the terms of such Letter of Credit; and
(vi) any other act, or omission to act, or delay of any kind
of the Issuing Bank, the Lenders, the Administrative Agent or any other
person or any other event or circumstance whatsoever, whether or not
similar to any of the foregoing, that might, but for the provisions of
this Section, constitute a legal or equitable discharge of the
Borrower's obligations hereunder.
Without limiting the generality of the foregoing, it is expressly
understood and agreed that the absolute and unconditional obligation of the
Borrower hereunder to reimburse L/C Disbursements will not be excused by the
gross negligence or wilful misconduct of the Issuing Bank. However, the
foregoing shall not be construed to excuse the Issuing Bank from liability to
the Borrower to the extent of any direct damages (as opposed to consequential
damages, claims in respect of which are hereby waived by the Borrower to the
extent permitted by applicable law) suffered by the Borrower that are caused by
the Issuing Bank's gross negligence or wilful misconduct in determining whether
drafts and other documents presented under a Letter of Credit comply with the
terms thereof; it is understood that the Issuing Bank may accept documents that
appear on their face to be in substantial compliance with the terms of a Letter
of Credit, without responsibility for further investigation, and make payment
under such Letter of Credit, unless, in the Issuing Bank's judgment, it has
received information that proves any such documents to be forged or fraudulent;
provided that the Issuing Bank shall not be liable in any respect for any error
made as a result of, or damages resulting from, the exercise of its judgment
with regard to any such documents if such judgment is made in good faith. The
parties hereto expressly agree that (i) the Issuing Bank's exclusive reliance on
the documents presented to it under such Letter of Credit as to any and all
matters set forth therein, including reliance on the amount of any draft
presented under such Letter of Credit, whether or not the amount due to
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the beneficiary thereunder equals the amount of such draft and whether or not
any document presented pursuant to such Letter of Credit proves to be
insufficient in any respect, if such document on its face appears to be in
substantial compliance with the term of a Letter of Credit, and whether or not
any other statement or any other document presented pursuant to such Letter of
Credit proves to be forged, fraudulent or invalid or any statement therein
proves to be inaccurate or untrue in any respect whatsoever and (ii) any
noncompliance in any immaterial respect of the documents presented under such
Letter of Credit with the terms thereof shall, in each case, be deemed not to
constitute wilful misconduct or gross negligence of the Issuing Bank.
(g) Disbursement Procedures. The Issuing Bank shall, promptly following
its receipt thereof, examine all documents purporting to represent a demand for
payment under a Letter of Credit. The Issuing Bank shall as promptly as possible
give telephonic notification, confirmed by telecopy, to the Administrative Agent
and the Borrower of such demand for payment and whether the Issuing Bank has
made or will make an L/C Disbursement thereunder; provided that any failure to
give or delay in giving such notice shall not relieve the Borrower of its
obligation to reimburse the Issuing Bank and the Revolving Credit Lenders with
respect to any such L/C Disbursement. The Administrative Agent shall promptly
give each Revolving Credit Lender notice thereof.
(h) Interim Interest. If the Issuing Bank shall make any L/C
Disbursement in respect of a Letter of Credit, then, unless the Borrower shall
reimburse such L/C Disbursement in full on such date, the unpaid amount thereof
shall bear interest for the account of the Issuing Bank, for each day from and
including the date of such L/C Disbursement, to but excluding the earlier of the
date of payment by the Borrower or the date on which interest shall commence to
accrue thereon as provided in Section 2.02(f), at the rate per annum that would
apply to such amount if such amount were an ABR Loan.
(i) Resignation or Removal of the Issuing Bank. The Issuing Bank may
resign at any time by giving 180 days' prior written notice to the
Administrative Agent, the Lenders and the Borrower, and may be removed at any
time by the Borrower by notice to the Issuing Bank, the Administrative Agent and
the Lenders. Subject to the next succeeding paragraph, upon the acceptance of
any appointment as the Issuing Bank hereunder by a Lender that shall agree to
serve as a successor Issuing Bank, such successor shall succeed to and become
vested with all the interests, rights and obligations of the retiring Issuing
Bank and the retiring Issuing Bank shall be discharged from its obligations to
issue additional Letters of Credit hereunder. At the time such removal or
resignation shall become effective, the Borrower shall pay all accrued and
unpaid fees pursuant to Section 2.05(c)(ii). The acceptance of any appointment
as the Issuing Bank hereunder by a successor Lender shall be evidenced by an
agreement entered into by such successor, in a form satisfactory to the Borrower
and the Administrative Agent, and, from and after the effective date of such
agreement, (i) such successor Lender shall have all the rights and obligations
of the previous Issuing Bank under this Agreement and the other Loan Documents
and (ii) references herein and in the other Loan Documents to the term "Issuing
Bank" shall be deemed to refer to such successor or to any previous Issuing
Bank, or to such successor and all previous Issuing Banks, as the context shall
require. After the resignation or removal of the Issuing Bank hereunder, the
retiring Issuing Bank shall remain a party hereto and shall continue to have all
the rights and obligations of an Issuing Bank under this Agreement and the other
Loan Documents with respect to Letters of Credit issued by it prior to such
resignation or removal, but shall not be required to issue additional Letters of
Credit.
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(j) Cash Collateralization. If any Event of Default shall occur and be
continuing, the Borrower shall, on the Business Day it receives notice from the
Administrative Agent or the Required Lenders (or, if the maturity of the Loans
has been accelerated, Revolving Credit Lenders holding participations in
outstanding Letters of Credit representing greater than 50% of the aggregate
undrawn amount of all outstanding Letters of Credit) thereof and of the amount
to be deposited, deposit in an account with the Collateral Agent, for the
benefit of the Revolving Credit Lenders, an amount in cash equal to the L/C
Exposure as of such date. Such deposit shall be held by the Collateral Agent as
collateral for the payment and performance of the Obligations. The Collateral
Agent shall have exclusive dominion and control, including the exclusive right
of withdrawal, over such account. Other than any interest earned on the
investment of such deposits in Permitted Investments, which investments shall be
made at the option and sole discretion of the Collateral Agent, such deposits
shall not bear interest. Interest or profits, if any, on such investments shall
accumulate in such account. Moneys in such account shall (i) automatically be
applied by the Administrative Agent to reimburse the Issuing Bank for L/C
Disbursements for which it has not been reimbursed, (ii) be held for the
satisfaction of the reimbursement obligations of the Borrower for the L/C
Exposure at such time and (iii) if the maturity of the Loans has been
accelerated (but subject to the consent of Revolving Credit Lenders holding
participations in outstanding Letters of Credit representing greater than 50% of
the aggregate undrawn amount of all outstanding Letters of Credit), be applied
to satisfy the Obligations. If the Borrower is required to provide an amount of
cash collateral hereunder as a result of the occurrence of an Event of Default,
such amount (to the extent not applied as aforesaid) shall be returned to the
Borrower within three Business Days after all Events of Default have been cured
or waived.
(k) Reporting Requirements of Issuing Bank. Within two Business Days
following the last day of each calendar month and on the last day of each March,
June, September and December, the Issuing Bank shall deliver to the
Administrative Agent a report detailing all activity during the preceding
calendar month with respect to any Letters of Credit issued by the Issuing Bank,
including the face amount, the account party, the beneficiary and the expiration
date of such Letters of Credit and any other information with respect thereto as
may be requested by the Administrative Agent.
ARTICLE III
Representations and Warranties
The Borrower represents and warrants to the Administrative Agent, the
Collateral Agent, the Issuing Bank and each of the Lenders that:
SECTION 3.01. Organization; Powers. The Borrower and each of the
Subsidiaries (a) is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization, (b) has all
requisite power and authority to own its property and assets and to carry on its
business as now conducted and as proposed to be conducted, (c) is qualified to
do business in, and is in good standing in, every jurisdiction where such
qualification is required, except where the failure so to qualify could not
reasonably be expected to result in a Material Adverse Effect, and (d) has the
corporate power and authority to execute, deliver and perform its obligations
under each of the Loan
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Documents and each other agreement or instrument contemplated hereby to which it
is or will be a party and, in the case of the Borrower, to borrow hereunder.
SECTION 3.02. Authorization. The execution, delivery and performance by
each Loan Party of each of the Loan Documents, the Borrowings hereunder and the
completion of the Acquisition (collectively, the "Transactions") (a) have been
duly authorized by all requisite corporate and, if required, stockholder action
and (b) will not (i) violate (A) any provision of law, statute, rule or
regulation, or of the certificate or articles of incorporation or other
constitutive documents or by-laws of the Borrower or any of the Subsidiaries,
(B) any order of any Governmental Authority or (C) any provision of any
indenture, agreement or other instrument to which the Borrower or any of the
Subsidiaries is a party or by which any of them or any of their property is or
may be bound, (ii) be in conflict with, result in a breach of or constitute
(alone or with notice or lapse of time or both) a default under, or give rise to
any right to accelerate or to require the prepayment, repurchase or redemption
of any obligation under any such indenture, agreement or other instrument or
(iii) result in the creation or imposition of any Lien upon or with respect to
any property or assets now owned or hereafter acquired by the Borrower or any of
the Subsidiaries (other than any Lien created hereunder or under the Security
Documents).
SECTION 3.03. Enforceability. This Agreement has been duly executed and
delivered by the Borrower and constitutes, and each other Loan Document when
executed and delivered by each Loan Party thereto will constitute, a legal,
valid and binding obligation of the Borrower or such Loan Party enforceable
against the Borrower or such Loan Party in accordance with its terms.
SECTION 3.04. Governmental Approvals. No action, consent or approval
of, registration or filing with or any other action by any Governmental
Authority is or will be required in connection with the Transactions, except for
(a) the filing of Uniform Commercial Code financing statements and filings with
the United States Patent and Trademark Office and the United States Copyright
Office, (b) recordation of the Mortgages and (c) such as have been made or
obtained and are in full force and effect.
SECTION 3.05. Financial Statements. The Borrower has heretofore
furnished to the Lenders its consolidated and consolidating balance sheets and
statements of income, stockholders' equity and cash flows (a) as of the end of
and for each fiscal year in the three-fiscal year period ended December 31,
1996, and (b) as of the end of and for the fiscal quarter and the portion of the
fiscal year ended September 30, 1997, each audited by and accompanied by the
opinion of Coopers & Lybrand, independent public accountants. Such financial
statements present fairly the financial condition and results of operations and
cash flows of the Borrower and its consolidated Subsidiaries as of such dates
and for such periods. Such balance sheets and the notes thereto disclose all
material liabilities, direct or contingent, of the Borrower and its consolidated
Subsidiaries as of the dates thereof. Such financial statements were prepared in
accordance with GAAP applied on a consistent basis.
(b) The Borrower has heretofore delivered to the Lenders its unaudited
pro forma consolidated balance sheet and statements of income, stockholders'
equity and cash flows as of the end of and for the fiscal year ended December
31, 1997, prepared giving effect to the Transactions as if they had occurred on
such date. Such financial statements have been prepared in good faith by the
Borrower, based on the assumptions used to prepare the pro forma financial
information contained in the Confidential Information Memorandum (which
assumptions are believed by the Borrower on the date hereof and on the Closing
Date to be
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46
reasonable), are based on the best information available to the Borrower as of
the date of delivery thereof, accurately reflect all adjustments required to be
made to give effect to the Transactions and present fairly on a pro forma basis
the estimated consolidated financial position of the Borrower and its
consolidated Subsidiaries as of such dates, assuming that the Transactions had
actually occurred at such dates.
SECTION 3.06. No Material Adverse Change. There has been no material
adverse change in the business, assets, results of operations, financial
condition or prospects of the Borrower and the Subsidiaries including the assets
acquired by the Borrower as part of the Acquisition, taken as a whole, since
September 30, 1997.
SECTION 3.07. Title to Properties; Possession Under Leases. (a) The
Borrower and each of the Subsidiaries has good and marketable title to, or valid
leasehold interests in, all its material properties and assets (including all
Mortgaged Properties), except for minor defects in title that do not interfere
with its ability to conduct its business as currently conducted or to utilize
such properties and assets for their intended purposes. All such material
properties and assets are free and clear of Liens, other than Liens expressly
permitted by Section 6.02, and no material portion of any Mortgaged Property is
subject to any lease, license, sublease or other agreement granting to any
person any right to use, occupy or enjoy the same, except as set forth on
Schedule 3.07(a).
(b) The Borrower and each Subsidiary has complied with all obligations
under all material leases to which it is a party and all such leases are in full
force and effect. The Borrower and each Subsidiary enjoys peaceful and
undisturbed possession under all such material leases.
(c) Except as set forth on Schedule 3.07(c), the Borrower has not
received any notice of, and has no knowledge of, any pending or contemplated
condemnation proceeding affecting any Mortgaged Property or any sale or
disposition thereof in lieu of condemnation.
(d) Neither the Borrower nor any of the Subsidiaries is obligated under
any right of first refusal, option or other contractual right to sell, assign or
otherwise dispose of any Mortgaged Property or any interest therein.
SECTION 3.08. Subsidiaries. Schedule 3.08 sets forth as of the Closing
Date a list of all Subsidiaries and the direct or indirect ownership interest of
the Borrower therein. The shares of capital stock or other ownership interests
so indicated on Schedule 3.08 are fully paid and non-assessable and are owned by
the Borrower, directly or indirectly, free and clear of all Liens.
SECTION 3.09. Litigation; Compliance with Laws. (a) Except as set forth
on Schedule 3.09, there are not any actions, suits or proceedings at law or in
equity or by or before any Governmental Authority now pending or, to the
knowledge of the Borrower, threatened against or affecting the Borrower or any
of the Subsidiaries or any business, property or rights of any such person (i)
that involve any Loan Document or the Transactions, (ii) as to which there is a
reasonable possibility of an adverse determination and that, if adversely
determined, could reasonably be expected, individually or in the aggregate, to
result in a Material Adverse Effect, (iii) that could materially and adversely
effect the ability of the Borrower to fully and timely perform its obligations
under the documents executed in connection with the Transactions or the ability
of the parties to consummate the Transactions
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47
or (iv) that have or would have, individually or in the aggregate, a reasonable
likelihood of restraining, preventing or imposing burdensome conditions on the
Transactions.
(b) The Borrower and each Subsidiary is in compliance with all laws,
regulations, consent decrees (including the Consent Decree of Permanent
Injunction entered into the United States District Court for the District of New
Jersey in Civil Action No. 93-3525 styled as United States of America v.
Warner-Lambert Company, a corporation, and Melvin R. Goodes and Lodewijk J.R. De
Vink, individuals) and orders of any Governmental Authority applicable to it
(including, without limitation, employee health and safety, margin regulations
and Environmental Laws) or its property and all indentures, agreements and other
instruments binding upon it or its property, except where the failure to comply,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect. No Default has occurred and is continuing.
(c) None of the Borrower or any of the Subsidiaries or any of their
respective material properties or assets is in violation of, nor will the
continued operation of their material properties and assets as currently
conducted violate, any law, rule or regulation (including any zoning, building,
Environmental Law, ordinance, code or approval or any building permit) or any
restrictions of record or agreements affecting the Mortgaged Property, or is in
default with respect to any judgment, writ, injunction, decree or order of any
Governmental Authority, where such violation or default could reasonably be
expected to result in a Material Adverse Effect.
(d) Certificates of occupancy and permits are in effect for each
Mortgaged Property as currently constructed, and true and complete copies of
such certificates of occupancy have been delivered to the Collateral Agent as
mortgagee with respect to each Mortgaged Property.
SECTION 3.10. Agreements. (a) Neither the Borrower nor any of the
Subsidiaries is a party to any agreement or instrument or subject to any
corporate restriction that has resulted or could reasonably be expected to
result in a Material Adverse Effect.
(b) Neither the Borrower nor any of the Subsidiaries is in default in
any manner under any provision of any indenture or other agreement or instrument
evidencing Indebtedness, or any other material agreement or instrument to which
it is a party or by which it or any of its properties or assets are or may be
bound, where such default could reasonably be expected to result in a Material
Adverse Effect.
SECTION 3.11. Federal Reserve Regulations. (a) Neither the Borrower nor
any of the Subsidiaries is engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of buying or
carrying Margin Stock.
(b) No part of the proceeds of any Loan or any Letter of Credit will be
used, whether directly or indirectly, and whether immediately, incidentally or
ultimately, for any purpose that entails a violation of, or that is inconsistent
with, the provisions of the Regulations of the Board, including Regulation G, U
or X.
SECTION 3.12. Investment Company Act; Public Utility Holding Company
Act. Neither the Borrower nor any of the Subsidiaries is (a) an "investment
company" as defined in, or subject to regulation under, the Investment Company
Act of 1940 or (b) a "holding
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company" as defined in, or subject to regulation under, the Public Utility
Holding Company Act of 1935.
SECTION 3.13. Use of Proceeds. The Borrower will use the proceeds of
the Loans and will request the issuance of Letters of Credit only for the
purposes specified in the preamble to this Agreement.
SECTION 3.14. Tax Returns. Each of the Borrower and the Subsidiaries
has filed or caused to be filed all Federal, state, local and foreign tax
returns or materials required to have been filed by it and has paid or caused to
be paid all taxes due and payable by it and all assessments received by it,
except taxes that are being contested in good faith by appropriate proceedings
and for which the Borrower or such Subsidiary, as applicable, shall have set
aside on its books adequate reserves.
SECTION 3.15. No Material Misstatements. None of (a) the Confidential
Information Memorandum or (b) any other information, report, financial
statement, exhibit or schedule furnished by or on behalf of the Borrower to the
Administrative Agent or any Lender in connection with the negotiation of any
Loan Document or included therein or delivered pursuant thereto contained,
contains or will contain any material misstatement of fact or omitted, omits or
will omit to state any material fact necessary to make the statements therein,
in the light of the circumstances under which they were, are or will be made,
not misleading; provided that to the extent any such information, report,
financial statement, exhibit or schedule was based upon or constitutes a
forecast or projection, the Borrower represents only that it acted in good faith
and utilized reasonable assumptions and due care in the preparation of such
information, report, financial statement, exhibit or schedule.
SECTION 3.16. Employee Benefit Plans. Each of the Borrower and its
ERISA Affiliates is in compliance in all material respects with the applicable
provisions of ERISA and the Code and the regulations and published
interpretations thereunder. No ERISA Event has occurred or is reasonably
expected to occur that, when taken together with all other such ERISA Events,
could reasonably be expected to result in material liability of the Borrower or
any of its ERISA Affiliates. The present value of all benefit liabilities under
each Plan (based on those assumptions used for purposes of Statement of
Financial Accounting Standards No. 87) did not, as of the last annual valuation
date applicable thereto, exceed the fair market value of the assets of such
Plan, and the present value of all benefit liabilities of all underfunded Plans
(based on those assumptions used to fund each such Plan) did not, as of the last
annual valuation dates applicable thereto, exceed the fair market value of the
assets of all such underfunded Plans.
SECTION 3.17. Environmental Matters. Except as set forth in Schedule
3.17:
(a) The properties owned, leased or operated by the Borrower and the
Subsidiaries (the "Properties") do not contain any Hazardous Materials in
amounts or concentrations which (i) constitute, or constituted a violation of,
(ii) require Remedial Action under, or (iii) could reasonably be expected to
give rise to liability under, Environmental Laws, which violations, Remedial
Actions and liabilities, in the aggregate, could result in a Material Adverse
Effect;
(b) The Properties and all operations of the Borrower and the
Subsidiaries are in compliance, and in the last five years have been in
compliance, with all Environmental Laws and all necessary Environmental Permits
have been obtained and are in effect, except to the
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49
extent that such non-compliance or failure to obtain any necessary permits, in
the aggregate, could not result in a Material Adverse Effect;
(c) There have been no Releases or threatened Releases at, from, under
or proximate to the Properties or otherwise in connection with the operations of
the Borrower or the Subsidiaries, which Releases or threatened Releases, in the
aggregate, could result in a Material Adverse Effect;
(d) Neither the Borrower nor any of the Subsidiaries has received any
notice of an Environmental Claim in connection with the Properties or the
operations of the Borrower or the Subsidiaries or with regard to any person
whose liabilities for environmental matters the Borrower or the Subsidiaries has
retained or assumed, in whole or in part, contractually, by operation of law or
otherwise, which, in the aggregate, could result in a Material Adverse Effect,
nor do the Borrower or the Subsidiaries have reason to believe that any such
Environmental Claim is being threatened; and
(e) Hazardous Materials have not been transported from the Properties,
nor have Hazardous Materials been generated, treated, stored or disposed of at,
on or under any of the Properties in a manner that could give rise to liability
under any Environmental Law, nor have the Borrower or the Subsidiaries retained
or assumed any liability, contractually, by operation of law or otherwise, with
respect to the generation, treatment, storage or disposal of Hazardous
Materials, which transportation, generation, treatment, storage or disposal, or
retained or assumed liabilities, in the aggregate, could result in a Material
Adverse Effect.
SECTION 3.18. Insurance. Schedule 3.18 sets forth a true, complete and
correct description of all insurance maintained by the Borrower or by the
Borrower for the Subsidiaries as of the date hereof and the Closing Date. As of
each such date, such insurance is in full force and effect and all premiums have
been duly paid. The Borrower and the Subsidiaries have insurance in such amounts
and covering such risks and liabilities as are in accordance with normal
industry practice.
SECTION 3.19. Security Documents. (a) The Pledge Agreement is effective
to create in favor of the Collateral Agent, for the ratable benefit of the
Secured Parties, a legal, valid and enforceable security interest in the
Collateral (as defined in the Pledge Agreement), and when the Collateral is
delivered to the Collateral Agent the Pledge Agreement will constitute a fully
perfected first priority Lien on and security interest in all right, title and
interest of each pledgor thereunder in such Collateral, in each case prior and
superior in right to any other person.
(b) The Security Agreement is effective to create in favor of the
Collateral Agent, for the ratable benefit of the Secured Parties, a legal, valid
and enforceable security interest in the Collateral (as defined in the Security
Agreement), and when financing statements in appropriate form are filed in the
offices specified on Schedule 6 to the Perfection Certificate the Security
Agreement will constitute a fully perfected Lien on and security interest in all
right, title and interest of the grantors thereunder in such Collateral (other
than the Intellectual Property, as defined in the Security Agreement), in each
case prior and superior in right to any other person, other than with respect to
Liens expressly permitted by Section 6.02.
(c) When the Security Agreement is filed in the United States Patent
and Trademark Office and the United States Copyright Office, the Security
Agreement will constitute a fully
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50
perfected Lien on, and security interest in, all right, title and interest of
the grantors thereunder in the Intellectual Property (as defined in the Security
Agreement), in each case prior and superior in right to any other person (it
being understood that subsequent recordings in the United States Patent and
Trademark Office and the United States Copyright Office may be necessary to
perfect a lien on registered trademarks, trademark applications and copyrights
acquired by the grantors after the date hereof).
(d) The Mortgages are effective to create in favor of the Collateral
Agent, for the ratable benefit of the Secured Parties, a legal, valid and
enforceable Lien on all of the Loan Parties' right, title and interest in and to
the Mortgaged Properties and the proceeds thereof, and when the Mortgages are
filed in the offices specified on Schedule 3.19(d), the Mortgages shall
constitute a fully perfected Lien on, and security interest in, all right, title
and interest of the Loan Parties in the Mortgaged Properties and the proceeds
thereof, in each case prior and superior in right to any other person, other
than with respect to the rights of persons pursuant to Liens expressly permitted
by Section 6.02.
SECTION 3.20. Location of Real Property and Leased Premises.
(a) Schedule 3.20(a) lists completely and correctly as of the Closing Date all
real property owned by the Borrower and the Subsidiaries and the addresses
thereof. The Borrower and the Subsidiaries own in fee all the real property set
forth on Schedule 3.20(a).
(b) Schedule 3.20(b) lists completely and correctly as of the Closing
Date all real property leased by the Borrower and the Subsidiaries and the
addresses thereof. The Borrower and the Subsidiaries have valid leases in all
the real property set forth on Schedule 3.20(b).
SECTION 3.21. Labor Matters As of the date hereof and the Closing Date,
there are no strikes, lockouts or slowdowns against the Borrower or any of the
Subsidiaries pending or, to the knowledge of the Borrower, threatened. The hours
worked by and payments made to employees of the Borrower and the Subsidiaries
have not been in violation of the Fair Labor Standards Act or any other
applicable Federal, state, local or foreign law dealing with such matters. All
payments due from the Borrower or any of the Subsidiaries, or for which any
claim may be made against the Borrower or any of the Subsidiaries, on account of
wages and employee health and welfare insurance and other benefits, have been
paid or accrued as a liability on the books of the Borrower or the applicable
Subsidiary. The consummation of the Transactions will not give rise to any right
of termination or right of renegotiation on the part of any union under any
collective bargaining agreement to which the Borrower or any of the Subsidiaries
is bound.
SECTION 3.22. Solvency. (a) Immediately after the consummation of the
Transactions to occur on the Closing Date and immediately following the making
of each Loan made on the Closing Date and after giving effect to the application
of the proceeds of such Loans, (i) the fair value of the assets of each Loan
Party, at a fair valuation, will exceed its debts and liabilities, subordinated,
contingent or otherwise; (ii) the present fair saleable value of the property of
each Loan Party will be greater than the amount that will be required to pay the
probable liability of its debts and other liabilities, subordinated, contingent
or otherwise, as such debts and other liabilities become absolute and matured;
(iii) each Loan Party will be able to pay its debts and liabilities,
subordinated, contingent or otherwise, as such debts and liabilities become
absolute and matured; and (iv) each Loan Party will not have unreasonably small
capital with which to conduct the business in which it is engaged as such
business is now conducted and is proposed to be conducted following the Closing
Date.
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ARTICLE IV
Conditions of Lending
The obligations of the Lenders to make Loans and of the Issuing Bank to
issue Letters of Credit hereunder are subject to the satisfaction of the
following conditions:
SECTION 4.01. All Credit Events. On the date of each Borrowing,
including each Borrowing of a Swingline Loan, and on the date of each issuance
of a Letter of Credit (each such event being called a "Credit Event"):
(a) The Administrative Agent shall have received a notice of such
Borrowing as required by Section 2.03 (or such notice shall have been deemed
given in accordance with Section 2.03) or, in the case of the issuance of a
Letter of Credit, the Issuing Bank and the Administrative Agent shall have
received a notice requesting the issuance of such Letter of Credit as required
by Section 2.23(b) or, in the case of the Borrowing of a Swingline Loan, the
Swingline Lender and the Administrative Agent shall have received a notice
requesting such Swingline Loan as required by Section 2.22(b).
(b) The representations and warranties set forth in Article III shall
be true and correct in all material respects on and as of the date of such
Credit Event with the same effect as though made on and as of such date, except
to the extent such representations and warranties expressly relate to an earlier
date.
(c) The Borrower and each other Loan Party shall be in compliance with
all the terms and provisions set forth herein and in each other Loan Document on
its part to be observed or performed, and at the time of and immediately after
such Credit Event, no Event of Default or Default shall have occurred and be
continuing.
Each Credit Event shall be deemed to constitute a representation and
warranty by the Borrower on the date of such Credit Event as to the satisfaction
of the conditions set forth in paragraphs (b) and (c) of this Section 4.01. In
the case of the Credit Events occurring on the Closing Date, the conditions set
forth in paragraphs (b) and (c) of this Section 4.01 shall be construed giving
effect to the Acquisition and to the acquisition by the Borrower of any
Subsidiaries acquired by it pursuant thereto.
SECTION 4.02. First Credit Event. On the Closing Date:
(a) The Administrative Agent shall have received, on behalf of
itself, the Lenders and the Issuing Bank, a favorable written opinion
of Kyle P. Macione, corporate counsel for the Borrower, substantially
to the effect set forth in Exhibit H- 1, (A) dated the Closing Date,
(B) addressed to the Issuing Bank, the Administrative Agent and the
Lenders, and (C) covering such other matters relating to the Loan
Documents and the Transactions as the Administrative Agent shall
reasonably request, and the Borrower hereby requests such counsel to
deliver such opinions.
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(b) The Administrative Agent shall have received (i) a copy of
the certificate or articles of incorporation, including all amendments
thereto, of each Loan Party, certified as of a recent date by the
Secretary of State of the state of its organization, and a certificate
as to the good standing of each Loan Party as of a recent date, from
such Secretary of State; (ii) a certificate of the Secretary or
Assistant Secretary of each Loan Party dated the Closing Date and
certifying (A) that attached thereto is a true and complete copy of the
by-laws of such Loan Party as in effect on the Closing Date and at all
times since a date prior to the date of the resolutions described in
clause (B) below, (B) that attached thereto is a true and complete copy
of resolutions duly adopted by the Board of Directors of such Loan
Party authorizing the execution, delivery and performance of the Loan
Documents to which such person is a party and, in the case of the
Borrower, the Borrowings hereunder, and that such resolutions have not
been modified, rescinded or amended and are in full force and effect,
(C) that the certificate or articles of incorporation of such Loan
Party have not been amended since the date of the last amendment
thereto shown on the certificate of good standing furnished pursuant to
clause (i) above, and (D) as to the incumbency and specimen signature
of each officer executing any Loan Document or any other document
delivered in connection herewith on behalf of such Loan Party; (iii) a
certificate of another officer as to the incumbency and specimen
signature of the Secretary or Assistant Secretary executing the
certificate pursuant to (ii) above; and (iv) such other documents as
the Lenders, the Issuing Bank or Cravath, Swaine & Moore, counsel for
the Administrative Agent, may reasonably request.
(c) The Administrative Agent shall have received a
certificate, dated the Closing Date and signed by a Financial Officer
of the Borrower, confirming compliance with the conditions precedent
set forth in paragraphs (b) and (c) of Section 4.01.
(d) The Administrative Agent shall have received all Fees and
other amounts due and payable on or prior to the Closing Date,
including, to the extent invoiced, reimbursement or payment of all
out-of-pocket expenses required to be reimbursed or paid by the
Borrower hereunder or under any other Loan Document.
(e) The Collateral Requirement shall have been satisfied.
(f) The Collateral Agent shall have received the results of a
search of the Uniform Commercial Code (or equivalent) filings made with
respect to the Loan Parties in the states (or other jurisdictions) in
which the chief executive office of each such person is located, any
offices of such persons in which records have been kept relating to
Accounts and the other jurisdictions in which Uniform Commercial Code
filings (or equivalent filings) are to be made pursuant to clause (b)
of the definition of "Collateral Requirement", together with copies of
the financing statements (or similar documents) disclosed by such
search, and accompanied by evidence satisfactory to the Collateral
Agent that the Liens indicated in any such financing statement (or
similar document) would be permitted under Section 6.02 or have been
released.
(g) The Collateral Agent shall have received a Perfection
Certificate dated the Closing Date and duly executed by a Responsible
Officer of the Borrower.
(h) The Guarantee Requirement shall have been satisfied.
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(i) The Administrative Agent shall have received a Borrowing
Base Certificate dated the Closing Date and executed by a Financial
Officer of the Borrower.
(j) The Administrative Agent shall have received a copy of, or
a certificate as to coverage under, the insurance policies required by
applicable provisions of the Security Documents, each of which shall be
endorsed or otherwise amended to include a "standard" or "New York"
lender's loss payable endorsement and to name the Collateral Agent as
additional insured, in form and substance satisfactory to the
Administrative Agent.
(k) The Administrative Agent shall have received an
environmental assessment report in form, scope and substance reasonably
satisfactory to the Lenders from NTH Consultants, Ltd. ("NTH"), with
respect to the property owned by the Borrower, after giving effect to
the Acquisition, in Rochester, Michigan, and Tysinger, Hampton &
Partners, with respect to the property owned by the Borrower in
Bristol, Tennessee, as to any environmental hazards, liabilities or
Remedial Action to which the Borrower or any of the Subsidiaries may be
subject and the Lenders shall be reasonably satisfied with the nature
and cost of any such hazards, liabilities or Remedial Action and with
the Borrower's plans with respect thereto.
(l) All requisite Governmental Authorities and other third
parties shall have approved or consented to the Transactions and the
other transactions contemplated in connection therewith to the extent
required, in each case to the extent failure to obtain such consent or
approval could have a Material Adverse Effect or could materially and
adversely affect the rights or remedies of the Lenders, the
Administrative Agent, the Issuing Bank or the Swingline Lender and
there shall be no action by any Governmental Authority, actual or
threatened, that has a reasonable likelihood of restraining, preventing
or imposing burdensome conditions on the Transactions or the other
transactions contemplated in connection therewith.
(m) The Administrative Agent shall be reasonably satisfied
with (i) the material terms and conditions of each agreement entered
into in connection with the Acquisition, including without limitation,
the indemnification provisions of the Asset Purchase Agreement, and
(ii) all material legal, tax and accounting matters related to the
Acquisition.
(n)The Acquisition shall have been, or substantially
simultaneously with the initial Credit Event shall be, consummated in
accordance with the Asset Purchase Agreement and applicable law,
without any amendment to or waiver of any material terms or conditions
of the Asset Purchase Agreement not approved by the Lenders. The
Lenders and the Issuing Bank shall have received executed copies of the
Asset Purchase Agreement and all certificates, opinions and other
documents delivered in connection therewith, all certified by a
Financial Officer as complete and correct.
(o) The Administrative Agent shall be reasonably satisfied
with the nature and scope of, and the potential liabilities allocated
with, or arising out of, the environmental matters (i) identified in
the phase I report prepared by NTH and (ii) investigated in connection
with the phase II report prepared by NTH; provided, however, that the
completion of such phase II report shall not be a condition to closing.
<PAGE> 59
54
ARTICLE V
Affirmative Covenants
The Borrower covenants and agrees with each Lender that so long as
this Agreement shall remain in effect and until the Commitments have been
terminated and the principal of and interest on each Loan, all Fees and all
other expenses or amounts payable under any Loan Document shall have been paid
in full and all Letters of Credit have been canceled or have expired and all
amounts drawn thereunder have been reimbursed in full, unless the Required
Lenders shall otherwise consent in writing, the Borrower will, and will cause
each of the Subsidiaries to:
SECTION 5.01. Existence; Businesses and Properties. (a) Do or cause to
be done all things necessary to preserve, renew and keep in full force and
effect its legal existence, except as otherwise expressly permitted under
Section 6.05.
(b) Do or cause to be done all things necessary to obtain, preserve,
renew, extend and keep in full force and effect the rights, licenses, permits,
franchises, authorizations, patents, copyrights, trademarks and trade names
material to the conduct of its business; maintain and operate such business in
substantially the manner in which it is presently conducted and operated;
comply in all material respects with all applicable laws, rules, regulations
(including any zoning, building, Environmental Law, ordinance, code or approval
or any building permits or any restrictions of record or agreements affecting
the Mortgaged Properties) and decrees and orders of any Governmental Authority,
whether now in effect or hereafter enacted; and at all times maintain and
preserve all property material to the conduct of such business and keep such
property in good repair, working order and condition and from time to time
make, or cause to be made, all needful and proper repairs, renewals, additions,
improvements and replacements thereto necessary in order that the business
carried on in connection therewith may be properly conducted at all times.
SECTION 5.02. Obligations and Taxes. Pay its Indebtedness and other
obligations promptly and in accordance with their terms and pay and discharge
promptly when due all taxes, assessments and governmental charges or levies
imposed upon it or upon its income or profits or in respect of its property,
before the same shall become delinquent or in default, as well as all lawful
claims for labor, materials and supplies or otherwise that, if unpaid, might
give rise to a Lien upon such properties or any part thereof; provided,
however, that such payment and discharge shall not be required with respect to
any such tax, assessment, charge, levy or claim so long as the validity or
amount thereof shall be contested in good faith by appropriate proceedings and
the Borrower shall have set aside on its books adequate reserves with respect
thereto in accordance with GAAP and such contest operates to suspend collection
of the contested obligation, tax, assessment or charge and enforcement of a
Lien and, in the case of a Mortgaged Property, there is no risk of forfeiture
of such property.
<PAGE> 60
55
SECTION 5.03. Financial Statements, Reports, etc. In the case of the
Borrower, furnish to the Administrative Agent and each Lender:
(a) within 90 days after the end of each fiscal year, its
consolidated and consolidating balance sheets and related statements
of operations, stockholders' equity and cash flows showing the
financial condition of the Borrower and its consolidated Subsidiaries
as of the close of such fiscal year and the results of its operations
and the operations of such Subsidiaries during such year, all audited
by Coopers & Lybrand or other independent public accountants of
recognized national standing acceptable to the Required Lenders and
accompanied by an opinion of such accountants (which shall not be
qualified in any material respect) to the effect that such
consolidated financial statements fairly present the financial
condition and results of operations of the Borrower and its
consolidated Subsidiaries on a consolidated basis in accordance with
GAAP consistently applied;
(b) within 45 days after the end of each of the first three
fiscal quarters of each fiscal year, its consolidated and
consolidating balance sheets and related statements of operations,
stockholders' equity and cash flows showing the financial condition of
the Borrower and its consolidated Subsidiaries as of the close of such
fiscal quarter and the results of its operations and the operations of
such Subsidiaries during such fiscal quarter and the then elapsed
portion of the fiscal year, all certified by one of its Financial
Officers as fairly presenting the financial condition and results of
operations of the Borrower and its consolidated Subsidiaries on a
consolidated basis in accordance with GAAP consistently applied,
subject to normal year-end audit adjustments;
(c) concurrently with any delivery of financial statements
under sub-paragraph (a) or (b) above, a certificate of the accounting
firm or Financial Officer opining on or certifying such statements
(which certificate, when furnished by an accounting firm, may be
limited to accounting matters and disclaim responsibility for legal
interpretations) (i) certifying that no Event of Default or Default
has occurred or, if such an Event of Default or Default has occurred,
specifying the nature and extent thereof and any corrective action
taken or proposed to be taken with respect thereto and (ii) setting
forth computations in reasonable detail satisfactory to the
Administrative Agent demonstrating compliance with the covenants
contained in Sections 6.10, 6.11, 6.12 and 6.13;
(d) on or prior to each date of delivery of the Borrower's
year-end financial statements pursuant to Section 5.03(a), the
Borrower shall provide to each Lender a business plan for the
following five years, in a form satisfactory to the Administrative
Agent;
(e) within 10 days after the end of each calendar month a
certificate in the form of Exhibit I (a "Borrowing Base Certificate")
showing the Borrowing Base as of the close of business on the last day
of such calendar month, each such Certificate to be certified as
complete and correct on behalf of the Borrower by a Financial Officer
of the Borrower;
(f) promptly after the same become publicly available, copies
of all periodic and other reports, proxy statements and other
materials filed by the Borrower or any of the Subsidiaries with the
Securities and Exchange Commission, or any Govern-
<PAGE> 61
56
mental Authority succeeding to any or all of the functions of said
Commission, or with any national securities exchange, or distributed
to its shareholders, as the case may be; and
(g) promptly, from time to time, such other information
regarding the operations, business affairs and financial condition of
the Borrower or any of the Subsidiaries, or compliance with the terms
of any Loan Document, as the Administrative Agent or any Lender may
reasonably request.
SECTION 5.04. Litigation and Other Notices. Furnish to the
Administrative Agent, the Issuing Bank and each Lender prompt written notice of
the following:
(a) any Event of Default or Default, specifying the nature
and extent thereof and the corrective action (if any) taken or
proposed to be taken with respect thereto;
(b) the filing or commencement of, or any threat or notice of
intention of any person to file or commence, any action, suit or
proceeding, whether at law or in equity or by or before any
Governmental Authority, against the Borrower or any Affiliate thereof
that could reasonably be expected to result in a Material Adverse
Effect; and
(c) any other development that has resulted in, or could
reasonably be expected to result in, a Material Adverse Effect.
SECTION 5.05. Employee Benefits. (a) Comply in all material respects
with the applicable provisions of ERISA and the Code and (b) furnish to the
Administrative Agent as soon as possible after, and in any event within 10 days
after any Responsible Officer of the Borrower or any ERISA Affiliate knows or
has reason to know that, any ERISA Event has occurred that, alone or together
with any other ERISA Events that have occurred could reasonably be expected to
result in liability of the Borrower and/or the Subsidiaries in an aggregate
amount exceeding $1,000,000 or requiring payments exceeding $500,000 in any
year, a statement of a Financial Officer of the Borrower setting forth details
as to such ERISA Event and the action, if any, that the Borrower proposes to
take with respect thereto.
SECTION 5.06. Maintaining Records; Access to Properties and
Inspections. Keep proper books of record and account in which full, true and
correct entries in conformity with GAAP and all requirements of law are made of
all dealings and transactions in relation to its business and activities.
Subject to the provisions of Section 9.16, each Loan Party will, and will cause
each of the Subsidiaries to, permit any representatives designated by the
Administrative Agent or any Lender to visit and inspect the financial records
and the properties of the Borrower or any of the Subsidiaries at reasonable
times and as often as reasonably requested and to make extracts from and copies
of such financial records, and permit any representatives designated by the
Administrative Agent or any Lender to discuss the affairs, finances and
condition of the Borrower or any of the Subsidiaries with the officers thereof
and independent accountants therefor.
SECTION 5.07. Use of Proceeds. Use the proceeds of the Loans and
request the issuance of Letters of Credit only for the purposes set forth in
the preamble to this Agreement.
<PAGE> 62
57
SECTION 5.08. Compliance with Environmental Laws. Comply, and cause
all lessees and other persons occupying its Properties to comply, in all
material respects with all Environmental Laws and Environmental Permits
applicable to its operations and Properties; obtain and renew all Environmental
Permits necessary for its operations and Properties; and conduct any Remedial
Action in accordance with Environmental Laws; provided, however, that neither
the Borrower nor any of the Subsidiaries shall be required to undertake any
Remedial Action to the extent that its obligation to do so is being contested
in good faith and by proper proceedings and appropriate reserves are being
maintained with respect to such circumstances.
SECTION 5.09. Preparation of Environmental Reports. If a Default
caused by reason of a breach of Section 3.17 or 5.08 shall have occurred and be
continuing, at the request of the Required Lenders through the Administrative
Agent, provide to the Lenders within 45 days after such request, at the expense
of the Borrower, an environmental site assessment report for the Properties
which are the subject of such default prepared by an environmental consulting
firm acceptable to the Administrative Agent and indicating the presence or
absence of Hazardous Materials and the estimated cost of any compliance or
Remedial Action in connection with such Properties.
SECTION 5.10. Audits. (a) Upon the request of the Collateral Agent or
the Required Lenders through the Administrative Agent, but in no event more
frequently than on an annual basis unless an Event of Default shall have
occurred and be continuing and then at any time, permit the Collateral Agent or
the Lenders or professionals (including investment bankers, consultants,
accountants, lawyers and appraisers) retained by the Collateral Agent or the
Lenders to conduct evaluations and appraisals of (i) the Borrower's practices
in the computation of the Borrowing Base and (ii) the assets included in the
Borrowing Base, and pay the reasonable fees and expenses of such professionals.
(b) In connection with any evaluation and appraisal relating to the
computation of the Borrowing Base, agree to maintain such additional reserves
(for purposes of computing the Borrowing Base) in respect of Eligible Accounts
Receivable and Eligible Inventory and make such other adjustments to its
parameters for including Eligible Accounts Receivable and Eligible Inventory in
the Borrowing Base as the Collateral Agent or the Required Lenders through the
Administrative Agent shall require based upon the results of such evaluation
and appraisal.
SECTION 5.11. Further Assurances. Execute any and all further
documents, financing statements, agreements and instruments, and take all
further action (including filing Uniform Commercial Code and other financing
statements, mortgages and deeds of trust) that may be required under applicable
law, or that the Required Lenders, the Administrative Agent or the Collateral
Agent may reasonably request, in order to cause the Guarantee Requirement and
the Collateral Requirement to be satisfied at all times.
SECTION 5.12. Real Estate. Within 90 days following the Closing Date,
(i) each of the Security Documents, in form and substance satisfactory to the
Lenders, relating to each of the Mortgaged Properties shall have been duly
executed by the parties thereto and delivered to the Collateral Agent and shall
be in full force and effect, (ii) each of such Mortgaged Properties shall not
be subject to any Lien other than those permitted under Section 6.02, (iii)
each of such Security Documents shall have been filed and recorded in the
recording office as specified on Schedule 3.19(d) (or a lender's title
insurance policy, in form and substance acceptable to the Collateral Agent,
insuring such Security Document as a first
<PAGE> 63
58
lien on such Mortgaged Property (subject to any Lien permitted by Section 6.02)
shall have been received by the Collateral Agent) and, in connection therewith,
the Collateral Agent shall have received evidence satisfactory to it of each
such filing and recordation, (iv) the Collateral Agent shall have received such
other documents, including a policy or policies of title insurance issued by a
nationally recognized title insurance company, together with such endorsements,
coinsurance and reinsurance as may be requested by the Collateral Agent and the
Lenders, insuring the Mortgages as valid first liens on the Mortgaged
Properties, free of Liens other than those permitted under Section 6.02,
together with such surveys, abstracts, appraisals and legal opinions required
to be furnished pursuant to the terms of the Mortgages or as reasonably
requested by the Collateral Agent or the Lenders, (v) the Administrative Agent
shall have received, on behalf of itself, the Lenders and the Issuing Bank, a
favorable written opinion of local counsel in each jurisdiction in which any
Mortgaged Property is located, substantially to the effect set forth in Exhibit
H-2, in each case addressed to the Issuing Bank, the Administrative Agent and
the Lenders, (vi) the Administrative Agent shall have received endorsements or
other amendments to each of the insurance policies required by the applicable
provisions of the Security Documents to include a "standard" or "New York"
lender's loss payable endorsement and to name the Collateral Agent as
additional insured, in form and substance satisfactory to the Administrative
Agent.
ARTICLE VI
Negative Covenants
The Borrower covenants and agrees with each Lender that, so long as
this Agreement shall remain in effect and until the Commitments have been
terminated and the principal of and interest on each Loan, all Fees and all
other expenses or amounts payable under any Loan Document have been paid in
full and all Letters of Credit have been canceled or have expired and all
amounts drawn thereunder have been reimbursed in full, unless the Required
Lenders shall otherwise consent in writing, the Borrower will not, and will not
cause or permit any of the Subsidiaries to:
SECTION 6.01. Indebtedness. Incur, create, assume or permit to exist
any Indebtedness, except:
(a) Indebtedness for borrowed money existing on the date
hereof and set forth in Schedule 6.01, but not any extensions,
renewals or replacements of such Indebtedness;
(b) Indebtedness created hereunder and under the other Loan
Documents;
(c) Indebtedness of the Borrower to any Wholly Owned
Subsidiary and of any Wholly Owned Subsidiary to the Borrower or any
other Wholly Owned Subsidiary;
(d) Guarantees by the Borrower of the Indebtedness of any
Wholly Owned Subsidiary and by any Wholly Owned Subsidiary of the
Borrower or any other Wholly Owned Subsidiary;
(e) Indebtedness consisting of purchase money Indebtedness or
Capital Lease Obligations incurred in the ordinary course of business
after Closing Date to finance
<PAGE> 64
59
Capital Expenditures; provided that the aggregate principal amount of
any Indebtedness or Capital Lease Obligations incurred pursuant to
this clause (e) at any time shall not exceed $3,000,000; and
(f) other Indebtedness in an aggregate principal amount not
exceeding $1,000,000; provided that all such Indebtedness shall be
unsecured; and
(g) Indebtedness of the Borrower created under Hedging
Agreements entered into in the ordinary course of business to hedge or
mitigate risks to which the Borrower or any Subsidiary is exposed in
the conduct of its business or the management of its liabilities and
not for speculative purposes.
SECTION 6.02. Liens. Create, incur, assume or permit to exist any Lien
on any property or assets (including stock or other securities of any person,
including any Subsidiary) now owned or hereafter acquired by it or on any
income or revenues or rights in respect thereof, or assign or transfer any such
income or revenues or rights in respect thereof except:
(a) Liens on property or assets of the Borrower and the
Subsidiaries existing on the date hereof and set forth in Schedule
6.02; provided that such Liens shall extend only to those assets to
which they extend on the date hereof and shall secure only those
obligations which they secure on the date hereof;
(b) any Lien created under the Loan Documents;
(c) any Lien existing on any property or asset prior to the
acquisition thereof by the Borrower or any of the Subsidiaries;
provided that (i) such Lien is not created in contemplation of or in
connection with such acquisition, (ii) such Lien does not apply to any
other property or assets of the Borrower or any of the Subsidiaries
and (iii) such Lien does not (A) materially interfere with the use,
occupancy and operation of any asset or property subject thereto, (B)
materially reduce the fair market value of such asset or property but
for such Lien or (C) result in any material increase in the cost of
operating, occupying or owning or leasing such asset or property;
(d) Liens for taxes not yet due or which are being contested
in compliance with Section 5.02;
(e) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of
business and securing obligations that are not due and payable or that
are being contested in compliance with Section 5.02;
(f) pledges and deposits made in the ordinary course of
business in compliance with workmen's compensation, unemployment
insurance and other social security laws or regulations;
(g) deposits to secure the performance of bids, trade
contracts (other than for Indebtedness), leases (other than Capital
Lease Obligations), statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature incurred in
the ordinary course of business;
<PAGE> 65
60
(h) zoning restrictions, easements, rights-of-way,
restrictions on use of real property and other similar encumbrances
incurred in the ordinary course of business which, in the aggregate,
are not substantial in amount and do not materially detract from the
value of the property subject thereto or interfere with the ordinary
conduct of the business of the Borrower or any of the Subsidiaries;
and
(i) purchase money security interests in real property,
improvements thereto or equipment hereafter acquired (or, in the case
of improvements, constructed) by the Borrower or any of the
Subsidiaries; provided that (i) such security interests secure
Indebtedness permitted by Section 6.01, (ii) such security interests
are incurred, and the Indebtedness secured thereby is created, within
90 days after such acquisition (or construction), (iii) the
Indebtedness secured thereby does not exceed 80% of the lesser of the
cost or the fair market value of such real property, improvements or
equipment at the time of such acquisition (or construction) and (iv)
such security interests do not apply to any other property or assets
of the Borrower or any of the Subsidiaries.
SECTION 6.03. Sale and Lease-Back Transactions. Enter into any
arrangement, directly or indirectly, with any person whereby it shall sell or
transfer any property, real or personal, used or useful in its business,
whether now owned or hereafter acquired, and thereafter rent or lease such
property or other property which it intends to use for substantially the same
purpose or purposes as the property being sold or transferred; provided,
however, that the Borrower may enter into any such arrangement to the extent
that the aggregate fair market value of the property thereafter rented or
leased shall not exceed $500,000.
SECTION 6.04. Investments, Loans and Advances. Purchase, hold or
acquire any capital stock, evidences of indebtedness or other securities of,
make or permit to exist any loans or advances to, or make or permit to exist
any investment or any other interest in, any other person, except:
(a) investments by the Borrower existing on the date hereof
as set forth on Schedule 6.04(a) or resulting from the Acquisition in
the capital stock of Subsidiaries;
(b) loans by the Borrower to the King Pharmaceuticals
Benevolent Fund, Inc., a Virginia corporation and an Affiliate of the
Borrower, existing on the date hereof and set forth on Schedule
6.04(b); and
(c) Permitted Investments.
SECTION 6.05. Mergers, Consolidations, Sales of Assets and
Acquisitions. Merge into or consolidate with any other person, or permit any
other person to merge into or consolidate with it, or sell, transfer, lease or
otherwise dispose of (in one transaction or in a series of transactions) all or
any substantial part of its assets (whether now owned or hereafter acquired) or
any capital stock of any Subsidiary, or purchase, lease or otherwise acquire
(in one transaction or a series of transactions) all or any substantial part of
the assets of any other person, except that (a) the Borrower and any of the
Subsidiaries may purchase and sell inventory in the ordinary course of
business, (b) the Borrower or any of the Subsidiaries may purchase brand name
pharmaceutical product lines from any third party pursuant to clause (iii) of
the proviso contained in the definition of "Asset Sale" in Section 1.01
pursuant
<PAGE> 66
61
to the conditions set forth therein and (c) if at the time thereof and
immediately after giving effect thereto no Event of Default or Default shall
have occurred and be continuing (i) any Wholly Owned Subsidiary may merge into
the Borrower in a transaction in which the Borrower is the surviving
corporation and (ii) any Wholly Owned Subsidiary may merge into or consolidate
with any other Wholly Owned Subsidiary in a transaction in which the surviving
entity is a Wholly Owned Subsidiary and no person other than the Borrower or a
Wholly Owned Subsidiary receives any consideration.
SECTION 6.06. Dividends and Distributions; Restrictions on Ability of
Subsidiaries to Pay Dividends. (a) Declare or pay, directly or indirectly, any
dividend or make any other distribution (by reduction of capital or otherwise),
whether in cash, property, securities or a combination thereof, with respect to
any shares of its capital stock or directly or indirectly redeem, purchase,
retire or otherwise acquire for value (or permit any Subsidiary to purchase or
acquire) any shares of any class of its capital stock or set aside any amount
for any such purpose; provided, however, that (i) (x) any Subsidiary may
declare and pay dividends or make other distributions on its capital stock and
(y) the Borrower may declare and pay dividends or make other distributions on
its capital stock in an aggregate amount up to $1,000,000; provided that no
Event of Default shall have occurred and be continuing, and (ii) the Borrower
may grant options, and distribute shares of capital stock upon the exercise
thereof, pursuant to the terms of the 1997 Incentive and Nonqualified Stock
Option Plan for Employees of King Pharmaceuticals, Inc. and the 1998
Non-Employee Director Stock Option Plan.
(b) Permit any Subsidiary to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any such Subsidiary to (i) pay any dividends or
make any other distributions on its capital stock or any other equity interest
or (ii) make or repay any loans or advances to the Borrower or to any other
Subsidiary.
SECTION 6.07. Transactions with Affiliates. Sell or transfer any
property or assets to, or purchase or acquire any property or assets from, or
otherwise engage in any other transactions with, any of its Affiliates (other
than the Borrower or any Subsidiary), except that the Borrower or any
Subsidiary may engage in any of the foregoing transactions in the ordinary
course of business at prices and on terms and conditions not less favorable to
the Borrower or such Subsidiary than could be obtained on an arm's-length basis
from unrelated third parties.
SECTION 6.08. Business of Borrower and Subsidiaries. Engage at any
time in any business or business activity other than the business currently
conducted by it and business activities reasonably incidental thereto.
SECTION 6.09. Fiscal Year. Change the end of its fiscal year from
December 31 to any other date.
SECTION 6.10. Leverage Ratio. Permit the Leverage Ratio at any time
during any of the periods set forth below to be in excess of the ratio set
forth below opposite such period:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Closing Date to March 31, 1998 N/A
April 1, 1998 to June 30, 1998 6.00 to 1.00
</TABLE>
<PAGE> 67
62
<TABLE>
<S> <C>
July 1, 1998 to September 30, 1998 4.25 to 1.00
October 1, 1998 to December 31, 1998 4.00 to 1.00
January 1, 1999 to March 31, 1999 3.75 to 1.00
April 1, 1999 to September 30, 1999 3.50 to 1.00
Thereafter 3.00 to 1.00
</TABLE>
For purposes of calculating the Leverage Ratio, the Borrower's Consolidated
EBITDA for the four-fiscal-quarter periods ending on March 31, 1998, June 30,
1998 and September 30, 1998, shall be deemed to equal the Borrower's
Consolidated EBITDA for the period commencing on January 1, 1998 and ending on
(i) March 31, 1998, multiplied by 4, (ii) June 30, 1998, multiplied by 2, and
(iii) September 30, 1998, multiplied by 4/3, as applicable.
SECTION 6.11. Consolidated Interest Expense Coverage Ratio. Permit the
Consolidated Interest Expense Coverage Ratio for any four-fiscal-quarter period
(or such lesser number of fiscal quarters as shall have elapsed since December
31, 1997) ending on any date set forth below to be less than the ratio set
forth below opposite such date.
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
March 31, 1998 2.00 to 1.00
June 30, 1998 2.00 to 1.00
September 30, 1998 2.50 to 1.00
December 31, 1998 3.00 to 1.00
March 31, 1999 3.00 to 1.00
June 30, 1999 3.00 to 1.00
September 30, 1999 3.25 to 1.00
December 31, 1999 3.50 to 1.00
Thereafter 4.00 to 1.00
</TABLE>
SECTION 6.12. Consolidated Net Worth. Permit Consolidated Net Worth on
the last day of any fiscal quarter ending after March 31, 1998, to be less than
the sum of (i) $25,000,000 plus (ii) 75% of the cumulative Consolidated Net
Income for each fiscal quarter ending after March 31, 1998 (excluding any
fiscal quarter for which Consolidated Net Income is negative).
SECTION 6.13. Consolidated Fixed Charge Coverage Ratio. Permit the
Consolidated Fixed Charge Coverage Ratio for any four fiscal-quarter period (or
such lesser number of fiscal quarters as shall have elapsed since December 31,
1997), beginning with the period ending on June 30, 1998, to be less than 1.10
to 1.00.
SECTION 6.14 Amendment of Material Documents. Amend, modify or waive
any of its rights under (a) the Asset Purchase Agreement or (b) any other
material agreements or instruments of the Borrower or the Subsidiaries,
including any agreements or instruments evidencing or governing Indebtedness,
if any such amendment, modification or waiver could reasonably be expected to
result in a Material Adverse Effect or to be adverse to the rights or interests
of the Lenders.
SECTION 6.15 Prepayments, Redemptions and Repurchases of Debt. Make
any payment, whether in cash, property, securities or a combination thereof,
other than scheduled (or with respect to senior indebtedness held by a person
that is not an Affiliate of the obligor, mandatory) payments of principal and
interest as and when due (to the extent not prohibited
<PAGE> 68
63
by applicable subordination provisions), in respect of, or pay, or offer or
commit to pay, or otherwise directly or indirectly redeem, repurchase, retire
or otherwise acquire for consideration or defease, or set apart any sum for the
aforesaid purposes, any Indebtedness for borrowed money (other than
Indebtedness under the Loan Documents and intercompany Indebtedness) of the
Borrower or any of the Subsidiaries.
ARTICLE VII
Events of Default
In case of the happening of any of the following events ("Events of
Default"):
(a) any representation or warranty made or deemed made in or
in connection with any Loan Document or the Borrowings or issuances of
Letters of Credit hereunder, or any representation, warranty,
statement or information contained in any report, certificate,
financial statement or other instrument furnished in connection with
or pursuant to any Loan Document, shall prove to have been false or
misleading in any material respect when so made, deemed made or
furnished;
(b) default shall be made in the payment of any principal of
any Loan or any reimbursement with respect to any L/C Disbursement
when and as the same shall become due and payable, whether at the due
date thereof or at a date fixed for prepayment thereof or by
acceleration thereof or otherwise;
(c) default shall be made in the payment of any interest on
any Loan or any Fee or L/C Disbursement or any other amount (other
than an amount referred to in (b) above) due under any Loan Document,
when and as the same shall become due and payable, and such default
shall continue unremedied for a period of three Business Days;
(d) default shall be made in the due observance or
performance by the Borrower or any of the Subsidiaries of any
covenant, condition or agreement contained in Section 5.01(a), 5.04,
5.06 or 5.07 or in Article VI;
(e) default shall be made in the due observance or
performance by the Borrower or any of the Subsidiaries of any
covenant, condition or agreement contained in any Loan Document (other
than those specified in (b), (c) or (d) above) and such default shall
continue unremedied for a period of 30 days after notice thereof from
the Administrative Agent or any Lender to the Borrower;
(f) (i) the Borrower or any of the Subsidiaries shall fail to
pay any principal or interest, regardless of amount, due in respect of
any Indebtedness in a principal amount in excess of $1,000,000, when
and as the same shall become due and payable, or (ii) the Borrower or
any of the Subsidiaries shall fail to observe or perform any other
term, covenant, condition or agreement contained in any agreement or
instrument evidencing or governing any such Indebtedness, or any other
event or condition shall occur, if the effect of any failure or other
event or condition referred to in this clause (ii) is to cause, or to
permit the holder or holders of such Indebtedness or a trustee on its
or their behalf (with or without the giving of notice,
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64
the lapse of time or both) to cause, such Indebtedness to become due
or to be required to be repurchased or redeemed prior to its stated
maturity;
(g) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent
jurisdiction seeking (i) relief in respect of the Borrower or any of
the Subsidiaries, or of a substantial part of the property or assets
of the Borrower or a Subsidiary, under Title 11 of the United States
Code, as now constituted or hereafter amended, or any other Federal,
state or foreign bankruptcy, insolvency, receivership or similar law,
(ii) the appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for the Borrower or any of the
Subsidiaries or for a substantial part of the property or assets of
the Borrower or a Subsidiary or (iii) the winding-up or liquidation of
the Borrower or any of the Subsidiaries; and such proceeding or
petition shall continue undismissed for 60 days or an order or decree
approving or ordering any of the foregoing shall be entered;
(h) the Borrower or any of the Subsidiaries shall (i)
voluntarily commence any proceeding or file any petition seeking
relief under Title 11 of the United States Code, as now constituted or
hereafter amended, or any other Federal, state or foreign bankruptcy,
insolvency, receivership or similar law, (ii) consent to the
institution of, or fail to contest in a timely and appropriate manner,
any proceeding or the filing of any petition described in (g) above,
(iii) apply for or consent to the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for the
Borrower or any of the Subsidiaries or for a substantial part of the
property or assets of the Borrower or any of the Subsidiaries, (iv)
file an answer admitting the material allegations of a petition filed
against it in any such proceeding, (v) make a general assignment for
the benefit of creditors, (vi) become unable, admit in writing its
inability or fail generally to pay its debts as they become due or
(vii) take any action for the purpose of effecting any of the
foregoing;
(i) one or more judgments for the payment of money in an
aggregate amount in excess of $1,000,000 shall be rendered against the
Borrower, any of the Subsidiaries or any combination thereof and the
same shall remain undischarged for a period of 30 consecutive days
during which execution shall not be effectively stayed, or any action
shall be legally taken by a judgment creditor to levy upon assets or
properties of the Borrower or any of the Subsidiaries to enforce any
such judgment;
(j) an ERISA Event shall have occurred that, in the opinion
of the Required Lenders, when taken together with all other such ERISA
Events, could reasonably be expected to result in liability of the
Borrower and its ERISA Affiliates in an aggregate amount exceeding
$2,500,000 or to require payments exceeding $1,000,000 in any year;
(k) any Guarantee purported to be created by the Guarantee
Agreement shall cease to be, or shall be asserted by the Borrower or
any other Loan Party not to be, a valid and enforceable Guarantee of
the Obligations, or any security interest purported to be created by
any Security Document shall cease to be, or shall be asserted by the
Borrower or any other Loan Party not to be, a valid, perfected, first
priority (except as otherwise expressly provided in this Agreement or
such Security Document) security interest in the securities, assets or
properties covered thereby, except to the extent that any such loss of
perfection or priority results from the failure
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of the Collateral Agent to maintain possession of certificates
representing securities pledged under the Pledge Agreement and except
to the extent that such loss is covered by a lender's title insurance
policy and the related insurer promptly after such loss shall have
acknowledged in writing that such loss is covered by such title
insurance policy; or
(l) there shall have occurred a Change in Control;
then, and in every such event (other than an event with respect to the Borrower
described in paragraph (g) or (h) above), and at any time thereafter during the
continuance of such event, the Administrative Agent may, and at the request of
the Required Lenders shall, by notice to the Borrower, take either or both of
the following actions, at the same or different times: (i) terminate forthwith
the Commitments and (ii) declare the Loans then outstanding to be forthwith due
and payable in whole or in part, whereupon the principal of the Loans so
declared to be due and payable, together with accrued interest thereon and any
unpaid accrued Fees and all other liabilities of the Borrower accrued hereunder
and under any other Loan Document, shall become forthwith due and payable,
without presentment, demand, protest or any other notice of any kind, all of
which are hereby expressly waived by the Borrower, anything contained herein or
in any other Loan Document to the contrary notwithstanding; and in any event
with respect to the Borrower described in paragraph (g) or (h) above, the
Commitments shall automatically terminate and the principal of the Loans then
outstanding, together with accrued interest thereon and any unpaid accrued Fees
and all other liabilities of the Borrower accrued hereunder and under any other
Loan Document, shall automatically become due and payable, without presentment,
demand, protest or any other notice of any kind, all of which are hereby
expressly waived by the Borrower, anything contained herein or in any other
Loan Document to the contrary notwithstanding.
ARTICLE VIII
The Administrative Agent and the Collateral Agent
In order to expedite the transactions contemplated by this Agreement,
Credit Suisse First Boston is hereby appointed to act as Administrative Agent
and Collateral Agent on behalf of the Lenders and the Issuing Bank (for
purposes of this Article VIII, the Administrative Agent and the Collateral
Agent are referred to collectively as the "Agents"). Each of the Lenders and
each assignee of any such Lender, hereby irrevocably authorizes the Agents to
take such actions on behalf of such Lender or assignee or the Issuing Bank and
to exercise such powers as are specifically delegated to the Agents by the
terms and provisions hereof and of the other Loan Documents, together with such
actions and powers as are reasonably incidental thereto. The Administrative
Agent is hereby expressly authorized by the Lenders and the Issuing Bank,
without hereby limiting any implied authority, (a) to receive on behalf of the
Lenders and the Issuing Bank all payments of principal of and interest on the
Loans, all payments in respect of L/C Disbursements and all other amounts due
to the Lenders hereunder, and promptly to distribute to each Lender or the
Issuing Bank its proper share of each payment so received; (b) to give notice
on behalf of each of the Lenders to the Borrower of any Event of Default
specified in this Agreement of which the Administrative Agent has actual
knowledge acquired in connection with its agency hereunder; and (c) to
distribute to each Lender copies of all notices, financial statements and other
materials delivered by the Borrower or any other Loan Party pursuant to this
Agreement or the other Loan Documents as received by the Administrative Agent.
Without
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limiting the generality of the foregoing, the Agents are hereby expressly
authorized to execute any and all documents (including releases) with respect
to the Collateral and the rights of the Secured Parties with respect thereto,
as contemplated by and in accordance with the provisions of this Agreement and
the Security Documents.
Neither the Agents nor any of their respective directors, officers,
employees or agents shall be liable as such for any action taken or omitted by
any of them except for its or his own gross negligence or wilful misconduct, or
be responsible for any statement, warranty or representation herein or the
contents of any document delivered in connection herewith, or be required to
ascertain or to make any inquiry concerning the performance or observance by
the Borrower or any other Loan Party of any of the terms, conditions, covenants
or agreements contained in any Loan Document. The Agents shall not be
responsible to the Lenders for the due execution, genuineness, validity,
enforceability or effectiveness of this Agreement or any other Loan Documents,
instruments or agreements. The Agents shall in all cases be fully protected in
acting, or refraining from acting, in accordance with written instructions
signed by the Required Lenders and, except as otherwise specifically provided
herein, such instructions and any action or inaction pursuant thereto shall be
binding on all the Lenders. Each Agent shall, in the absence of knowledge to
the contrary, be entitled to rely on any instrument or document believed by it
in good faith to be genuine and correct and to have been signed or sent by the
proper person or persons. Neither the Agents nor any of their respective
directors, officers, employees or agents shall have any responsibility to the
Borrower or any other Loan Party on account of the failure of or delay in
performance or breach by any Lender or the Issuing Bank of any of its
obligations hereunder or to any Lender or the Issuing Bank on account of the
failure of or delay in performance or breach by any other Lender or the Issuing
Bank or the Borrower or any other Loan Party of any of their respective
obligations hereunder or under any other Loan Document or in connection
herewith or therewith. Each of the Agents may execute any and all duties
hereunder by or through agents or employees and shall be entitled to rely upon
the advice of legal counsel selected by it with respect to all matters arising
hereunder and shall not be liable for any action taken or suffered in good
faith by it in accordance with the advice of such counsel.
The Lenders hereby acknowledge that neither Agent shall be under any
duty to take any discretionary action permitted to be taken by it pursuant to
the provisions of this Agreement unless it shall be requested in writing to do
so by the Required Lenders.
Subject to the appointment and acceptance of a successor Agent as
provided below, either Agent may resign at any time by notifying the Lenders
and the Borrower. Upon any such resignation, the Required Lenders shall have
the right to appoint a successor. If no successor shall have been so appointed
by the Required Lenders and shall have accepted such appointment within 30 days
after the retiring Agent gives notice of its resignation, then the retiring
Agent may, on behalf of the Lenders, appoint a successor Agent which shall be a
bank with an office in New York, New York, having a combined capital and
surplus of at least $500,000,000 or an Affiliate of any such bank. Upon the
acceptance of any appointment as Agent hereunder by a successor bank, such
successor shall succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Agent and the retiring Agent shall be
discharged from its duties and obligations hereunder. After the Agent's
resignation hereunder, the provisions of this Article and Section 9.05 shall
continue in effect for its benefit in respect of any actions taken or omitted
to be taken by it while it was acting as Agent.
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With respect to the Loans made by it hereunder, each Agent in its
individual capacity and not as Agent shall have the same rights and powers as
any other Lender and may exercise the same as though it were not an Agent, and
the Agents and their Affiliates may accept deposits from, lend money to and
generally engage in any kind of business with the Borrower or any of the
Subsidiaries or other Affiliate thereof as if it were not an Agent.
Each Lender agrees (a) to reimburse the Agents, on demand, in the
amount of its pro rata share (based on its Commitments hereunder) of any
expenses incurred for the benefit of the Lenders by the Agents, including
counsel fees and compensation of agents and employees paid for services
rendered on behalf of the Lenders, that shall not have been reimbursed by the
Borrower and (b) to indemnify and hold harmless each Agent and any of its
directors, officers, employees or agents, on demand, in the amount of such pro
rata share, from and against any and all liabilities, taxes, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever that may be imposed on, incurred
by or asserted against it in its capacity as Agent or any of them in any way
relating to or arising out of this Agreement or any other Loan Document or any
action taken or omitted by it or any of them under this Agreement or any other
Loan Document, to the extent the same shall not have been reimbursed by the
Borrower or any other Loan Party; provided that no Lender shall be liable to an
Agent or any such other indemnified person for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements that are determined by a court of competent
jurisdiction by final and nonappealable judgment to have resulted from the
gross negligence or wilful misconduct of such Agent or any of its directors,
officers, employees or agents. Each Revolving Credit Lender agrees to reimburse
each of the Issuing Bank and its directors, officers, employees and agents, in
each case, to the same extent and subject to the same limitations as provided
above for the Agents.
Each Lender acknowledges that it has, independently and without
reliance upon the Agents or any other Lender and based on such documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Lender also acknowledges that it
will, independently and without reliance upon the Agents or any other Lender
and based on such documents and information as it shall from time to time deem
appropriate, continue to make its own decisions in taking or not taking action
under or based upon this Agreement or any other Loan Document, any related
agreement or any document furnished hereunder or thereunder.
ARTICLE IX
Miscellaneous
SECTION 9.01. Notices. Notices and other communications provided for
herein and in the other Loan Documents shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:
(a) if to the Borrower, to it at 501 Fifth Street, Bristol,
TN 37620, Attention of John Gregory (Telecopy No. (423) 989-8006),
with a copy to Kyle P. Macione at the above address (Telecopy No.
(423) 274-8677);
(b) if to the Administrative Agent, to Credit Suisse First
Boston, Eleven Madison Avenue, New York, NY 10010, Attention of David
Dodd (Telecopy No.
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(212) 325-8304), with a copy to Robert Finney at the above address
(Telecopy No. (212) 325-9038); and
(c) if to a Lender, to it at its address (or telecopy number)
set forth on Schedule 2.01 or in the Assignment and Acceptance
pursuant to which such Lender shall have become a party hereto.
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if delivered by hand or overnight courier service or sent by
telecopy or on the date five Business Days after dispatch by certified or
registered mail if mailed, in each case delivered, sent or mailed (properly
addressed) to such party as provided in this Section 9.01 or in accordance with
the latest unrevoked direction from such party given in accordance with this
Section 9.01.
SECTION 9.02. Survival of Agreement. All covenants, agreements,
representations and warranties made by the Borrower herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the Lenders and the Issuing Bank and shall survive the
making by the Lenders of the Loans and the issuance of Letters of Credit by the
Issuing Bank, regardless of any investigation made by the Lenders or the
Issuing Bank or on their behalf, and shall continue in full force and effect as
long as the principal of or any accrued interest on any Loan or any Fee or any
other amount payable under this Agreement or any other Loan Document is
outstanding and unpaid or any Letter of Credit is outstanding and so long as
the Commitments have not been terminated. The provisions of Sections 2.14,
2.16, 2.20 and 9.05 shall remain operative and in full force and effect
regardless of the expiration of the term of this Agreement, the consummation of
the transactions contemplated hereby, the repayment of any of the Loans, the
expiration of the Commitments, the expiration of any Letter of Credit, the
invalidity or unenforceability of any term or provision of this Agreement or
any other Loan Document, or any investigation made by or on behalf of the
Administrative Agent, the Collateral Agent, any Lender or the Issuing Bank.
SECTION 9.03. Binding Effect. This Agreement shall become effective
when it shall have been executed by the Borrower and the Administrative Agent
and when the Administrative Agent shall have received counterparts hereof
which, when taken together, bear the signatures of each of the other parties
hereto, and thereafter shall be binding upon and inure to the benefit of the
parties hereto and their respective permitted successors and assigns.
SECTION 9.04. Successors and Assigns. (a) Whenever in this Agreement
any of the parties hereto is referred to, such reference shall be deemed to
include the permitted successors and assigns of such party; and all covenants,
promises and agreements by or on behalf of the Borrower, the Administrative
Agent, the Issuing Bank or the Lenders that are contained in this Agreement
shall bind and inure to the benefit of their respective successors and assigns.
(b) Each Lender may assign to one or more assignees all or a portion
of its interests, rights and obligations under this Agreement (including all or
a portion of any or all of its Commitments and the Loans at the time owing to
it); provided, however, that (i) except in the case of an assignment to another
Lender or an Affiliate or Related Fund of the assigning
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Lender or another Lender, (x) the Borrower, unless an Event of Default shall
have occurred and be continuing, and the Administrative Agent (and, in the case
of any assignment of a Revolving Credit Commitment, the Issuing Bank and the
Swingline Lender) must give their prior written consent to such assignment
(which consent shall not be unreasonably withheld) and (y) the amount of the
Revolving Credit Commitment and the Term Loan Commitment or outstanding Term
Loans of the assigning Lender subject to each such assignment (determined as of
the date the Assignment and Acceptance with respect to such assignment is
delivered to the Administrative Agent) shall not be less than $5,000,000 in the
aggregate (or, if less, the entire remaining amount of such Lender's Commitment
or outstanding Term Loans) and (ii) the assignee, if it shall not be a Lender,
shall deliver to the Administrative Agent an Administrative Questionnaire and
any tax form as required by the Internal Revenue Service. Upon acceptance and
recording pursuant to paragraph (e) of this Section 9.04, and payment from and
after the effective date specified in each Assignment and Acceptance, which
effective date shall be at least five Business Days after the execution
thereof, (A) the assignee thereunder shall be a party hereto and, to the extent
of the interest assigned by such Assignment and Acceptance, have the rights and
obligations of a Lender under this Agreement and (B) the assigning Lender
thereunder shall, to the extent of the interest assigned by such Assignment and
Acceptance, be released from its obligations under this Agreement (and, in the
case of an Assignment and Acceptance covering all or the remaining portion of
an assigning Lender's rights and obligations under this Agreement, such Lender
shall cease to be a party hereto but shall continue to be entitled to the
benefits of Sections 2.14, 2.16, 2.20 and 9.05, as well as to any Fees accrued
for its account and not yet paid).
(c) By executing and delivering an Assignment and Acceptance, the
assigning Lender thereunder and the assignee thereunder shall be deemed to
confirm to and agree with each other and the other parties hereto as follows:
(i) such assigning Lender warrants that it is the legal and beneficial owner of
the interest being assigned thereby free and clear of any adverse claim and
that its Term Loan Commitment and Revolving Credit Commitment, and the
outstanding balances of its Term Loans and Revolving Loans, in each case
without giving effect to assignments thereof which have not become effective,
are as set forth in such Assignment and Acceptance, (ii) except as set forth in
(i) above, such assigning Lender makes no representation or warranty and
assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with this Agreement, or the execution,
legality, validity, enforceability, genuineness, sufficiency or value of this
Agreement, any other Loan Document or any other instrument or document
furnished pursuant hereto, or the financial condition of the Borrower or any of
the Subsidiaries or the performance or observance by the Borrower or any of the
Subsidiaries of any of its obligations under this Agreement, any other Loan
Document or any other instrument or document furnished pursuant hereto; (iii)
such assignee represents and warrants that it is legally authorized to enter
into such Assignment and Acceptance; (iv) such assignee confirms that it has
received a copy of this Agreement, together with copies of the most recent
financial statements referred to in Section 3.05(a) or delivered pursuant to
Section 5.03 and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (v) such assignee will independently and without
reliance upon the Administrative Agent, the Collateral Agent, such assigning
Lender or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions
in taking or not taking action under this Agreement; (vi) such assignee
appoints and authorizes the Administrative Agent and the Collateral Agent to
take such action as agent on its behalf and to exercise such powers under this
Agreement as are delegated to the Administrative Agent
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and the Collateral Agent, respectively, by the terms hereof, together with such
powers as are reasonably incidental thereto; and (vii) such assignee agrees
that it will perform in accordance with their terms all the obligations which
by the terms of this Agreement are required to be performed by it as a Lender.
(d) The Administrative Agent, acting for this purpose as an agent of
the Borrower, shall maintain at one of its offices in The City of New York a
copy of each Assignment and Acceptance delivered to it and a register for the
recordation of the names and addresses of the Lenders, and the Commitment of,
and principal amount of the Loans owing to, each Lender pursuant to the terms
hereof from time to time (the "Register"). The entries in the Register shall be
conclusive and the Borrower, the Administrative Agent, the Issuing Bank, the
Collateral Agent and the Lenders may treat each person whose name is recorded
in the Register pursuant to the terms hereof as a Lender hereunder for all
purposes of this Agreement, notwithstanding notice to the contrary. The
Register and any Assignments and Acceptances delivered to the Administrative
Agent pursuant to this Section 9.04(d) shall be available for inspection by the
Borrower, the Issuing Bank, the Collateral Agent and any Lender, at any
reasonable time and from time to time upon reasonable prior notice.
(e) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an assignee, an Administrative
Questionnaire completed in respect of the assignee (unless the assignee shall
already be a Lender hereunder) and any tax form required by the Internal
Revenue Service, a processing and recordation fee of $3,500 and, if required,
the written consent of the Borrower, the Swingline Lender, the Issuing Bank and
the Administrative Agent to such assignment, the Administrative Agent shall (i)
accept such Assignment and Acceptance, (ii) record the information contained
therein in the Register and (iii) give prompt notice thereof to the Borrower,
Lenders, the Issuing Bank and the Swingline Lender. No assignment shall be
effective unless it has been recorded in the Register as provided in this
paragraph (e).
(f) Each Lender may without the consent of the Borrower, the Swingline
Lender, the Issuing Bank or the Administrative Agent sell participations to one
or more banks or other entities in all or a portion of its rights and
obligations under this Agreement (including all or a portion of its Commitment
and the Loans owing to it); provided, however, that (i) such Lender's
obligations under this Agreement shall remain unchanged, (ii) such Lender shall
remain solely responsible to the other parties hereto for the performance of
such obligations, (iii) the participating banks or other entities shall be
entitled to the benefit of the cost protection provisions contained in Sections
2.14, 2.16 and 2.20 to the same extent as if they were Lenders and (iv) the
Borrower, the Administrative Agent, the Issuing Bank and the Lenders shall
continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement, and such Lender shall
retain the sole right to enforce the obligations of the Borrower relating to
the Loans or L/C Disbursements and to approve any amendment, modification or
waiver of any provision of this Agreement (other than amendments, modifications
or waivers decreasing any fees payable hereunder or the amount of principal of
or the rate at which interest is payable on the Loans, extending any scheduled
principal payment date or date fixed for the payment of interest on the Loans,
increasing or extending the Commitments or releasing all or substantially all
the Guarantors or the Collateral).
(g) Any Lender or participant may, in connection with any assignment
or participation or proposed assignment or participation pursuant to this
Section 9.04, disclose to the assignee or participant or proposed assignee or
participant any information relating to
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the Borrower furnished to such Lender by or on behalf of the Borrower; provided
that, prior to any such disclosure of information designated by the Borrower as
confidential, each such assignee or participant or proposed assignee or
participant shall execute an agreement whereby such assignee or participant
shall agree (subject to customary exceptions) to preserve the confidentiality
of such confidential information on terms no less restrictive than those
applicable to the Lenders pursuant to Section 9.16 and, in the case of any
assignee, the Administrative Agent shall provide the Borrower with an execution
copy of such agreement.
(h) Any Lender may at any time assign all or any portion of its rights
under this Agreement to a Federal Reserve Bank to secure extensions of credit
by such Federal Reserve Bank to such Lender; provided that no such assignment
shall release a Lender from any of its obligations hereunder or substitute any
such Bank for such Lender as a party hereto. In order to facilitate such an
assignment to a Federal Reserve Bank, the Borrower shall, at the request of the
assigning Lender, duly execute and deliver to the assigning Lender a promissory
note or notes evidencing the Loans made to the Borrower by the assigning Lender
hereunder.
(i) The Borrower shall not assign or delegate any of its rights or
duties hereunder without the prior written consent of the Administrative Agent,
the Issuing Bank and each Lender, and any attempted assignment without such
consent shall be null and void.
(j) In the event that S&P, Moody's and Thompson's BankWatch (or
InsuranceWatch Ratings Service, in the case of Lenders that are insurance
companies (or Best's Insurance Reports, if such insurance company is not rated
by Insurance Watch Ratings Service)) shall, after the date that any Lender
becomes a Revolving Credit Lender, downgrade the long-term certificate deposit
ratings of such Lender, and the resulting ratings shall be below BBB-, Baa3 and
C (or BB, in the case of a Lender that is an insurance company (or B, in the
case of an insurance company not rated by InsuranceWatch Ratings Service)),
then the Issuing Bank shall have the right, but not the obligation, at its own
expense, upon notice to such Lender and the Administrative Agent, to replace
(or to request the Borrower to use its reasonable efforts to replace) such
Lender with an assignee (in accordance with and subject to the restrictions
contained in paragraph (b) above), and such Lender hereby agrees to transfer
and assign without recourse (in accordance with and subject to the restrictions
contained in paragraph (b) above) all its interests, rights and obligations in
respect of its Revolving Credit Commitment to such assignee; provided, however,
that (i) no such assignment shall conflict with any law, rule and regulation or
order of any Governmental Authority and (ii) the Issuing Bank or such assignee,
as the case may be, shall pay to such Lender in immediately available funds on
the date of such assignment the principal of and interest accrued to the date
of payment on the Loans made by such Lender hereunder and all other amounts
accrued for such Lender's account or owed to it hereunder.
SECTION 9.05. Expenses; Indemnity. (a) The Borrower agrees to pay all
out-of-pocket expenses incurred by the Administrative Agent, the Collateral
Agent, the Issuing Bank and the Swingline Lender in connection with the
syndication of the credit facilities provided for herein and the preparation
and administration of this Agreement and the other Loan Documents or in
connection with any amendments, modifications or waivers of the provisions
hereof or thereof (whether or not the transactions hereby or thereby
contemplated shall be consummated) or incurred by the Administrative Agent, the
Collateral Agent or any Lender in connection with the enforcement or protection
of its rights in connection with this Agreement and the other Loan Documents or
in connection with the Loans made or Letters of Credit issued hereunder,
including the fees, charges and disbursements of Cravath,
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Swaine & Moore, counsel for the Administrative Agent and the Collateral Agent,
local real estate counsel retained by the Collateral Agent in connection with
the Mortgages and, in connection with any such enforcement or protection, the
fees, charges and disbursements of any other counsel for the Administrative
Agent, the Collateral Agent or any Lender.
(b) The Borrower agrees to indemnify the Administrative Agent, the
Collateral Agent, each Lender and the Issuing Bank, each Affiliate of any of
the foregoing persons and each of their respective directors, officers,
employees, agents and controlling persons (each such person being called an
"Indemnitee") against, and to hold each Indemnitee harmless from, any and all
losses, claims, damages, liabilities and related expenses, including reasonable
counsel fees, charges and disbursements, incurred by or asserted against any
Indemnitee arising out of, in any way connected with, or as a result of (i) the
execution or delivery of this Agreement or any other Loan Document or any
agreement or instrument contemplated thereby, the performance by the parties
thereto of their respective obligations thereunder or the consummation of the
Transactions and the other transactions contemplated thereby, (ii) the use of
the proceeds of the Loans or issuance of Letters of Credit, (iii) any claim,
litigation, investigation or proceeding relating to any of the foregoing,
whether or not any Indemnitee is a party thereto, or (iv) any actual or alleged
presence or Release of Hazardous Materials on any property owned, leased or
operated by the Borrower or any of the Subsidiaries, or any Environmental Claim
related in any way to the Borrower or the Subsidiaries; provided that such
indemnity shall not, as to any Indemnitee, be available to the extent that such
losses, claims, damages, liabilities or related expenses are determined by a
court of competent jurisdiction by final and nonappealable judgment to have
resulted from the gross negligence or wilful misconduct of such Indemnitee.
(c) The provisions of this Section 9.05 shall remain operative and in
full force and effect regardless of the expiration of the term of this
Agreement, the consummation of the transactions contemplated hereby, the
repayment of any of the Loans, the expiration of the Commitments, the
expiration of any Letter of Credit, the invalidity or unenforceability of any
term or provision of this Agreement or any other Loan Document, or any
investigation made by or on behalf of the Administrative Agent, the Collateral
Agent, any Lender or the Issuing Bank. All amounts due under this Section 9.05
shall be payable on written demand therefor.
SECTION 9.06. Right of Setoff. If an Event of Default shall have
occurred and be continuing, each Lender is hereby authorized at any time and
from time to time, except to the extent prohibited by law, to set off and apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held and other indebtedness at any time owing by such Lender to or
for the credit or the account of the Borrower against any of and all the
obligations of the Borrower now or hereafter existing under this Agreement and
other Loan Documents held by such Lender, irrespective of whether or not such
Lender shall have made any demand under this Agreement or such other Loan
Document and although such obligations may be unmatured. The rights of each
Lender under this Section 9.06 are in addition to other rights and remedies
(including other rights of setoff) which such Lender may have.
SECTION 9.07. Applicable Law. THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS (OTHER THAN LETTERS OF CREDIT AND AS EXPRESSLY SET FORTH IN OTHER
LOAN DOCUMENTS) SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS
OF THE STATE OF NEW YORK. EACH LETTER OF CREDIT SHALL BE GOVERNED BY, AND SHALL
BE CONSTRUED IN ACCORDANCE WITH, THE LAWS OR RULES DESIGNATED IN
<PAGE> 78
73
SUCH LETTER OF CREDIT, OR IF NO SUCH LAWS OR RULES ARE DESIGNATED, THE UNIFORM
CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS (1993 REVISION), INTERNATIONAL
CHAMBER OF COMMERCE, PUBLICATION NO. 500 (THE "UNIFORM CUSTOMS") AND, AS TO
MATTERS NOT GOVERNED BY THE UNIFORM CUSTOMS, THE LAWS OF THE STATE OF NEW YORK.
SECTION 9.08. Waivers; Amendment. (a) No failure or delay of the
Borrower, the Administrative Agent, the Collateral Agent, any Lender or the
Issuing Bank in exercising any power or right hereunder or under any other Loan
Document shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right or power, or any abandonment or discontinuance of
steps to enforce such a right or power, preclude any other or further exercise
thereof or the exercise of any other right or power. The rights and remedies of
the Borrower, the Administrative Agent, the Collateral Agent, the Issuing Bank
and the Lenders hereunder and under the other Loan Documents are cumulative and
are not exclusive of any rights or remedies that they would otherwise have. No
waiver of any provision of this Agreement or any other Loan Document or consent
to any departure by the Borrower or any other Loan Party therefrom shall in any
event be effective unless the same shall be permitted by paragraph (b) below,
and then such waiver or consent shall be effective only in the specific
instance and for the purpose for which given. No notice or demand on the
Borrower in any case shall entitle the Borrower to any other or further notice
or demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to an agreement or agreements in writing
entered into by the Borrower and the Required Lenders; provided, however, that
no such agreement shall (i) decrease the principal amount of, or extend the
maturity of or any scheduled principal payment date or date for the payment of
any interest on any Loan or any date for reimbursement of an L/C Disbursement,
or waive or excuse any such payment or any part thereof, or decrease the rate
of interest on any Loan or L/C Disbursement, without the prior written consent
of each Lender affected thereby, (ii) change or extend the Commitment or
decrease or extend the date for payment of the Commitment Fees of any Lender
without the prior written consent of such Lender, (iii) amend or modify the
provisions of Section 2.17 or 9.04(i), the provisions of this Section, the
definition of the term "Borrowing Base", the definition of the term "Required
Lenders" or release all or substantially all the Guarantors or all or any
substantial part of the Collateral without the prior written consent of each
Lender, (iv) waive or change the allocation between Tranche A Term Loans and
Tranche B Term Loans of any prepayment pursuant to Section 2.12 or 2.13 without
the prior written consent of (A) Lenders holding at least 66-2/3% of the
aggregate outstanding principal amount of the Tranche A Term Loans and (B)
Lenders holding at least 66-2/3% of the aggregate outstanding principal amount
of the Tranche B Term Loans or (v) amend Section 2.13(k) without the prior
written consent of the Lenders holding a majority of the aggregate outstanding
principal amount of the Tranche B Term Loans; provided further that (i) no such
agreement that by its terms adversely affects the rights of the Revolving
Credit Lenders, the Tranche A Lenders or the Tranche B Lenders in a manner
different from its effect on the other classes of Lenders shall not become
effective unless approved by a majority in interest of the class or classes of
Lenders so adversely affected (voting as a single group) and (ii) no such
agreement shall amend, modify or otherwise affect the rights or duties of the
Administrative Agent, the Collateral Agent, the Issuing Bank or the Swingline
Lender hereunder or under any other Loan Document without the prior written
consent of the Administrative Agent, the Collateral Agent, the Issuing Bank or
the Swingline Lender.
<PAGE> 79
74
SECTION 9.09. Interest Rate Limitation. Notwithstanding anything
herein to the contrary, if at any time the interest rate applicable to any Loan
or participation in any L/C Disbursement, together with all fees, charges and
other amounts which are treated as interest on such Loan or participation in
such L/C Disbursement under applicable law (collectively the "Charges"), shall
exceed the maximum lawful rate (the "Maximum Rate") which may be contracted
for, charged, taken, received or reserved by the Lender holding such Loan or
participation in accordance with applicable law, the rate of interest payable
in respect of such Loan or participation hereunder, together with all Charges
payable in respect thereof, shall be limited to the Maximum Rate and, to the
extent lawful, the interest and Charges that would have been payable in respect
of such Loan or participation but were not payable as a result of the operation
of this Section 9.09 shall be cumulated and the interest and Charges payable to
such Lender in respect of other Loans or participations or periods shall be
increased (but not above the Maximum Rate therefor) until such cumulated
amount, together with interest thereon at the Federal Funds Effective Rate to
the date of repayment, shall have been received by such Lender.
SECTION 9.10. Entire Agreement. This Agreement, the Fee Letter and the
other Loan Documents constitute the entire contract between the parties
relative to the subject matter hereof. Any other previous agreement among the
parties with respect to the subject matter hereof is superseded by this
Agreement and the other Loan Documents. Nothing in this Agreement or in the
other Loan Documents, expressed or implied, is intended to confer upon any
party other than the parties hereto and thereto any rights, remedies,
obligations or liabilities under or by reason of this Agreement or the other
Loan Documents.
SECTION 9.11. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT
OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE
BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS
APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN
THIS SECTION 9.11.
SECTION 9.12. Severability. In the event any one or more of the
provisions contained in this Agreement or in any other Loan Document should be
held invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein and therein
shall not in any way be affected or impaired thereby (it being understood that
the invalidity of a particular provision in a particular jurisdiction shall not
in and of itself affect the validity of such provision in any other
jurisdiction). The parties shall endeavor in good-faith negotiations to replace
the invalid, illegal or unenforceable provisions with valid provisions the
economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
SECTION 9.13. Counterparts. This Agreement may be executed in
counterparts (and by different parties hereto on different counterparts), each
of which shall constitute an original but all of which when taken together
shall constitute a single contract, and shall
<PAGE> 80
75
become effective as provided in Section 9.03. Delivery of an executed signature
page to this Agreement by facsimile transmission shall be as effective as
delivery of a manually signed counterpart of this Agreement.
SECTION 9.14. Headings. Article and Section headings and the Table of
Contents used herein are for convenience of reference only, are not part of
this Agreement and are not to affect the construction of, or to be taken into
consideration in interpreting, this Agreement.
SECTION 9.15. Jurisdiction; Consent to Service of Process. (a) The
Borrower hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or the other Loan Documents, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. Each of the parties hereto agrees that
a final judgment in any such action or proceeding shall be conclusive and may
be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law. Nothing in this Agreement shall affect any right that
the Administrative Agent, the Collateral Agent, the Issuing Bank or any Lender
may otherwise have to bring any action or proceeding relating to this Agreement
or the other Loan Documents against the Borrower or its properties in the
courts of any jurisdiction.
(b) The Borrower hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection 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 the other Loan Documents in any
New York State or Federal court. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 9.01. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
SECTION 9.16. Confidentiality. The Administrative Agent, the
Collateral Agent, the Issuing Bank and each of the Lenders agrees to keep
confidential (and to use its best efforts to cause its respective agents and
representatives to keep confidential) the Information (as defined below) and
all copies thereof, extracts therefrom and analyses or other materials based
thereon, except that the Administrative Agent, the Collateral Agent, the
Issuing Bank or any Lender shall be permitted to disclose Information (a) to
such of its respective officers, directors, employees, agents, affiliates and
representatives as need to know such Information, (b) to the extent requested
by any regulatory authority, including the National Association of Insurance
Commissioners or any successor entity thereto, (c) to the extent otherwise
required by applicable laws and regulations or by any subpoena or similar legal
process, (d) in connection with any suit, action or proceeding (i) relating to
the enforcement of its rights hereunder or under the other Loan Documents or
(ii) for purposes of establishing a "due diligence" defense or (e) to the
extent such Information (i) becomes publicly available other than as a result
of a breach of this Section 9.16 or (ii) becomes available to the
Administrative Agent, the Issuing Bank, any Lender or the Collateral Agent on a
nonconfidential basis from a source other than the Borrower; provided, however,
that the
<PAGE> 81
76
Administrative Agent, the Collateral Agent, the Issuing Bank and/or any Lender,
as the case may be, shall provide the Borrower, to the extent practicable, with
advance notice of any disclosure of information referred to in clauses (c) and
(d) above. For the purposes of this Section, "Information" shall mean all
financial statements, certificates, reports, agreements and information
(including all analyses, compilations and studies prepared by the
Administrative Agent, the Collateral Agent, the Issuing Bank or any Lender
based on any of the foregoing) that are received from the Borrower and related
to the Borrower, any shareholder of the Borrower or any employee, customer or
supplier of the Borrower, other than any of the foregoing that were available
to the Administrative Agent, the Collateral Agent, the Issuing Bank or any
Lender on a nonconfidential basis prior to its
<PAGE> 82
disclosure thereto by the Borrower, and that are in the case of Information
provided after the date hereof, clearly identified at the time of delivery as
confidential. The provisions of this Section 9.16 shall remain operative and in
full force and effect regardless of the expiration and term of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
KING PHARMACEUTICALS, INC.,
by /s/ John M. Gregory
-------------------------
Name: John M. Gregory
Title: Chief Executive Officer
CREDIT SUISSE FIRST BOSTON, individually
and as Administrative Agent, Collateral
Agent and Swingline Lender,
by /s/ Robert N. Finney
-------------------------
Name: Robert N. Finney
Title: Managing Director
by /s/ Thomas G. Midio
-------------------------
Name: Thomas G. Midio
Title: Vice President
WACHOVIA BANK, N.A.,
individually and as Issuing Bank,
by /s/ Monica H. Cole
-------------------------
Name: Monica H. Cole
Title: Assistant Vice
President
BANK POLSKA KASA OPIEKI S.A., -PEKAO S.A.
GROUP, NEW YORK BRANCH,
by /s/ Harvey Winter
-------------------------
Name: Harvey Winter
Title: Vice President
<PAGE> 83
FIRST TENNESSEE BANK NATIONAL
ASSOCIATION,
by /s/ Kevin L. Jessie
-------------------------
Name: Kevin L. Jessie
Title: Community Bank
President
FIRST UNION NATIONAL BANK,
by /s/ Laurence M. Levy
-------------------------
Name: Laurence M. Levy
Title: Vice President
THE GCB INVESTMENT PORTFOLIO,
by Citibank, N.A.,
by /s/ Steven D. Kaufman
-------------------------
Name: Steven D. Kaufman
Title: Vice President
ING HIGH INCOME PRINCIPAL
PRESERVATION FUND HOLDINGS, LDC,
by /s/ Kathleen A. Lenarcic
-------------------------
Name: Kathleen A. Lenarcic
Title: Vice President &
Portfolio Manager
METROPOLITAN LIFE INSURANCE
COMPANY,
by /s/ James R. Dingler
-------------------------
Name: James R. Dingler
Title: Director
<PAGE> 84
OSPREY INVESTMENTS PORTFOLIO,
by Citibank, N.A., as Manager,
by /s/ Hans Christensen
-------------------------
Name: Hans Christensen
Title: Vice President
SOCIETE GENERALE, SOUTHWEST
AGENCY,
by /s/ Ralph Saheb
-------------------------
Name: Ralph Saheb
Title: Vice President, Manager
TORONTO DOMINION (TEXAS), INC.,
by /s/ Debbie A. Greene
-------------------------
Name: Debbie A. Greene
Title: Vice President
UNION BANK OF CALIFORNIA, N.A.,
by /s/ Martin Valencia
-------------------------
Name: Martin Valencia
Title: Vice President
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST,
by /s/ Jeffrey W. Maillet
-------------------------
Name: Jeffrey W. Maillet
Title: Senior Vice President
and Director
<PAGE> 1
EXHIBIT 10.30
PRODUCT MANUFACTURING AGREEMENT
BETWEEN
SANTEN INCORPORATED
AND
WARNER-LAMBERT COMPANY
FOR OFLOXACIN OTIC SOLUTION 0.3%
<PAGE> 2
PRODUCT MANUFACTURING AGREEMENT
This Product Manufacturing Agreement is made as of June 26, 1997 by and
between Santen Incorporated, a California corporation with its principal place
of business located 555 Gateway Drive, Napa, California 94558 ("Santen"), and
Warner-Lambert Company, a Delaware corporation, with offices located at 870
Parkdale Road, Rochester, Michigan 48307 ("Warner-Lambert").
RECITALS:
A. Warner-Lambert has the knowledge, expertise, personnel, equipment and
the facilities to manufacture certain raw materials into pharmaceutical
products in conformance with detailed instructions, and in a manner which
complies with all applicable United States legal requirements.
B. Santen desires to engage Warner-Lambert, on a non-exclusive basis,
and Warner-Lambert agrees to accept Santen's non-exclusive agreement to perform
the product manufacturing services described in this Agreement, in accordance
with the terms and conditions set forth below.
Accordingly, with the intent to be bound hereby, the parties hereby agree
as follows:
1. DEFINITIONS.
When used in this Agreement, the capitalized terms listed in this Section
1 shall have the following meanings:
1.1 "AAI" means Applied Analytical Industries, Inc.
1.2 "Affiliate" means any entity controlling, controlled by or under
common control with a party to this Agreement. For purposes of this definition,
the term "control" shall mean the direct or indirect beneficial ownership of
50% or more of the voting or income interest in such entity.
1.3 "Agreement" means this Product Manufacturing Agreement, including any
exhibits or schedules hereto, as such may be amended from time to time, in
writing, by mutual agreement of the parties.
1.4 "BPS" means the bulk pharmaceutical substance known as "ofloxacin",
which is to be obtained by Warner-Lambert, only from Santen's vendors, solely
for use in the processing and testing of the Products hereunder.
<PAGE> 3
1.5 "BPS Lot" means the quantity of BPS produced by Santen's
vendor from one complete synthesis or manufacturing process.
1.6 "BPS Specifications" means the specifications set forth in
Exhibit A, which specifications may be amended by Santen and furnished to
Warner-Lambert, in writing, from time to time during the Term.
1.7 "Business Day" means Monday, Tuesday, Wednesday, Thursday or
Friday of any week other than such day which constitutes an official Japanese
or United States federal government holiday or such days which are part of
Warner-Lambert's annual shutdown periods.
1.8 "Certificate of Analysis" means a certificate provided by
Santen's vendor for each BPS Lot, certifying that the BPS Lot meets the BPS
Specifications.
1.9 "Confidential Information" means the Santen Technical
Information and any other information or data disclosed by one party to the
other (including without limitation, information disclosed to Santen by Daiichi
Pharmaceutical Co., Ltd. ("DSK") or Daiichi Pharmaceutical Corporation ("DPC"))
that (i) is in written form and marked "Confidential" or (ii) if communicated
other than in written form, is described to be confidential and reduced to a
writing which is marked confidential and delivered to the receiving party
within thirty (30) days of disclosure.
1.10 "Effective Date" shall have the meaning specified in Section
16.1.
1.11 "Equipment" means the equipment to be provided by Santen to
Warner-Lambert during the Term, pursuant to the terms hereof, as more
particularly described on Exhibit B.
1.12 "FDA" means the United States Food and Drug Administration.
1.13 "Facility" means the manufacturing facility and the real
property underlying such manufacturing facility operated by Warner-Lambert
located at 870 Parkdale Road, Rochester, Michigan 48307.
1.14 "Good Manufacturing Practices" shall have the meaning
specified in 21 C.F.R. Parts 210 and 211, as amended from time to time.
1.15 "Hazardous Substances" means any chemical, waste, compound,
element, material or substance, (i) which is or becomes defined as "extremely
hazardous", "hazardous", "toxic", "dangerous", or as "pollutant" or
"contaminant" or which otherwise is or becomes listed or regulated under any
applicable federal, state or local laws, regulatory or other requirements
pertaining to health safety or the environment; or (ii) the presence, release
or threatened release of which requires any investigation, containment,
removal, remediation or other response action of any kind whatsoever, such
Hazardous
2
<PAGE> 4
Substances to include, without limitation, gasoline, diesel fuel or other
petroleum hydrocarbons.
1.16 "Legal Label Text" means the exact wording and graphics set
forth in Exhibit D, provided, however, that the parties hereto acknowledge that
the Legal Label Text will be included in Exhibit D, following FDA approval of
the Product.
1.17 "Legal Requirements" means the MBR and any present and future
national, state or local laws (whether under statute, rule, regulation or
otherwise), requirements under permits, orders, decrees, judgments or
directives, requirements of the FDA or any other applicable governmental
authority, including without limitation, Good Manufacturing Practices.
1.18 "Master Batch Record or "MBR" shall mean the master batch
record provided by Santen to Warner-Lambert, as may be modified by Santen from
time to time, which shall include without limitation, instructions for
manufacturing, packaging, Legal Label Text and in process testing for the
Products.
1.19 "NDA" means the new drug application for the Product, approved
by the FDA.
1.20 "Process" or "Processing" means the act of compounding,
component preparation, filing, packaging, testing and any other pharmaceutical
manufacturing procedures, or any part thereof, involved in manufacturing the
Product from the BPS.
1.21 "Product Forecasts" shall have the meaning specified in
Section 6.1.
1.22 "Product" or Products" means the product in finished dosage
form commonly known as "Ofloxacin Otic Solution 0.3%, as specified in the
approved NDA and as more particularly described on Exhibit C.
1.23 "Product Lot" shall mean one production lot of Product based
on a starting input of BPS, as stated in the MBR (which the parties anticipate
shall be an average of 22,000 units and not in excess of 25,000 units, unless
efficiencies of Processing so permits).
1.24 "Product Specifications" means the manufacturing and quality
specification, including without limitation Legal Label Text and unit
descriptions, which the Product must meet in order for Santen to release the
Product for distribution, as approved by the FDA and set forth in Exhibit D,
which specifications may be amended by Santen and furnished to Warner-Lambert,
in writing, from time to time during the Term.
1.25 "Purchase Orders" shall have the meaning specified in Section
6.2.
3
<PAGE> 5
1.26 "Raw Materials" means those raw materials, including packaging
materials and other materials (other than BPS) listed in Exhibit E, together
with the quality designation therefor, to be used by Warner-Lambert for the
Processing hereunder, which list may be amended, in writing, by Santen from time
to time during the Term.
1.27 "Santen Technical Information" means all know-how of Santen related to
the Processing and the Products.
1.28 "Term" means the period of time as set forth in Section 16.2 below.
2. GENERAL SCOPE OF SERVICES.
Warner-Lambert shall, in accordance with this Agreement:
(a) Perform Processing services at the Facility, using the BPS, the Raw
Materials and the Equipment in accordance with applicable Legal
Requirements; and
(b) Cooperate fully with Santen, at Santen's cost, to permit AAI to
perform the quality control testing and analysis of the Products and
to permit Santen to perform quality assurance review of the Products
and of the Processing.
3. BPS SUPPLY.
3.1 Santen Delivery. Santen shall supply or shall arrange for third party
vendors chosen by Santen to supply to Warner-Lambert, at Santen's expense, such
quantities of BPS which are sufficient for Warner-Lambert to Process the number
of batches set forth in any Purchase Orders placed by Santen, in accordance with
Section 6. Santen shall be responsible for the performance of, and quality of
materials delivered by all such third party vendors. Santen shall ensure that
its vendors provide BPS that is manufactured according to Good Manufacturing
Practices. Santen shall ensure that its vendors provide a material data safety
sheet for each BPS Lot.
3.2 Warranty: Inspection Period. Upon delivery of a BPS Lot, Santen or
Santen's vendor shall provide Warner-Lambert with an original Certificate of
Analysis with respect to such BPS Lot. Warner-Lambert shall sample and analyze
each BPS Lot in the manner prescribed by Santen for identification, appearance
and packaging integrity, within thirty (30) days after receipt thereof.
Warner-Lambert shall provide written notice to Santen of any shortage of BPS,
any failure of such BPS Lot to pass such testing, immediately upon becoming
aware thereof, but in any event within such thirty (30) day period.
4
<PAGE> 6
3.3 Shortages; Nonconforming BPS. Upon receipt of a written notice from
Warner-Lambert under Section 3.2, together with evidence satisfactory to Santen
of the alleged shortage, failure to pass the identification testing or other
damage, Santen shall, at Santen's expense, promptly arrange for the delivery of
additional BPS. Warner-Lambert shall, in accordance with Santen's instructions,
and at Santen's expense, ship any nonconforming BPS to a place designated by
Santen.
3.4 BPS Storage. Warner-Lambert shall maintain, at its expense, secure
storage areas for the BPS at the Facility. Such areas shall comply with Good
Manufacturing Practices and shall fully maintain the quality of the BPS.
Warner-Lambert shall take such other steps as shall be commercially reasonable
to fully maintain the BPS in the quality in which it was received.
3.5 Exclusive Use. Warner-Lambert shall not use the BPS for any purpose
other than for the Processing performed for Santen hereunder and the testing
conducted pursuant to Section 3.2. Without limiting the generality of the
foregoing, Warner-Lambert shall not sell or otherwise supply the BPS or a
product containing the BPS except as directed by Santen hereunder.
3.6 Retention of BPS Samples. Warner-Lambert shall retain and make
available to Santen or AAI, upon request by Santen, reserve samples of each BPS
Lot received, as specified by Santen in accordance with applicable Legal
Requirements. Warner-Lambert also shall retain and make available to Santen and
AAI, upon request by Santen, records of each shipment of BPS samples for a
period of five (5) years after receipt.
4. RAW MATERIALS.
Warner-Lambert shall, from time to time during the Term, procure from third
party suppliers a sufficient amount of Raw Materials, meeting the specifications
of Exhibit E, as necessary to meet Purchase Orders placed by Santen pursuant to
Section 6.
Warner-Lambert shall not use any Raw Materials which do not meet the
specifications of Exhibit E and shall not use any suppliers of Raw Materials who
have not been approved in advance by Santen.
5. EQUIPMENT.
5.1 Delivery and Installation. Upon commencement of the Term, Santen shall
arrange and pay for the delivery of the Equipment, as described in Exhibit B, at
the Facility. Warner-Lambert shall arrange for the installation and validation
of the Equipment at the Facility, at Santen's cost.
5.2 Maintenance; Sole Use. Warner-Lambert shall keep and maintain the
Equipment in a manufacture-ready state and in good service and repair.
Warner-Lambert shall maintain written documentation of all use, repair, service
and maintenance of the
5
<PAGE> 7
Equipment and shall perform such tests as may be requested by Santen following
each use of the Equipment at Santen's cost. Santen shall reimburse
Warner-Lambert for any repairs of the Equipment approved in advance by Santen,
promptly upon receiving satisfactory documentation from Warner-Lambert
regarding the costs incurred (provided that Warner-Lambert shall be responsible
for repair costs incurred due to Warner-Lambert's negligence or willful acts).
The Equipment shall be used solely to perform the Processing hereunder, except
as otherwise directed by Santen.
5.3 Ownership; Return of Equipment. Santen shall at all times retain
title to the Equipment. Warner-Lambert shall not impose or permit to be imposed
any liens or encumbrances of any kind on the Equipment. Upon termination of this
Agreement, Warner-Lambert shall, at Santen's sole expense, deliver the Equipment
to its dock for shipping to Santen.
5.4 Notice of Ownership. Upon Santen's request, Warner-Lambert shall
sign and deliver to Santen a UCC financing statement or similar documents, as
requested by Santen, indicating that Santen is the owner of the Equipment, for
filing with appropriate governmental authorities.
6. PRODUCT FORECASTS AND PURCHASE ORDERS.
6.1 Forecasts.
On or before the first day of each calendar quarter during the Term,
Santen will provide Warner-Lambert with a written twelve (12) month rolling
forecast of the quantities of Product that Santen expects to order during each
of the next twelve (12) months. On or before the fifteenth (15) day of each
month of each calendar year during the Term, Santen will provide Warner-Lambert
with a written three-month rolling forecast of the quantities of Product that
Santen expects to purchase during each of the next three (3) months. The
three-month rolling forecast is firm and may not be changed, and shall be used
by Warner-Lambert, among other things, to determine the quantities of Raw
Materials to order to prepare for Processing the Product. Santen shall be
obligated to reimburse Warner-Lambert for any Raw Materials purchased in
reliance on such three-month forecast (all such forecasts are collectively
referred to herein as the "Product Forecasts").
6.2 Purchase Orders.
Santen shall submit a purchase order to Warner-Lambert referencing
this Agreement each month, at least twenty-eight (28) days prior to the
proposed start date of manufacture for the Product, and subject to the terms of
this Agreement, setting forth the number of Product Lots to be Processed, the
time upon which such Processing must be completed, and the amount to be paid by
Santen for such Processing (the "Purchase Order"). The Purchase Order shall be
in accordance with the three-month forecast set forth in Section 6.1. Upon
acceptance by Warner-Lambert, it shall be binding and
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become part of this Agreement; provided, however, that any additional terms and
conditions set forth on the Purchase Orders shall not become part of this
Agreement.
6.3 Minimum Order Size.
The minimum size of any order for Product shall be on Product Lot with
larger orders being in whole number increments of additional Product Lots.
7. PROCESSING.
7.1 Processing Standard.
Warner-Lambert shall perform Processing as necessary to fulfill all
Purchase Orders accepted by Warner-Lambert under Section 6.2, on a timely basis
in accordance with Article 6. The Processing shall be performed solely at the
Facility in accordance with applicable Legal Requirements. Warner-Lambert
warrants to Santen that the Products shall be Processed in accordance with the
MBR and other Legal Requirements. Warner-Lambert shall not, without Santen's
prior written approval, make any changes in the Processing, or in any equipment
(including the Equipment) which might affect the quality of the Product or
which would require submissions to or approvals from any regulatory authorities
regarding the Product.
7.2 Reports.
Warner-Lambert shall prepare, maintain and submit all documents or
reports required under applicable Legal Requirements or as requested by Santen
concerning the Processing or the Products, including a completed batch record,
which shall include, without limitation, audited Product Lot records, records of
environmental data, excursion reports, deviations, and other documents as
required by applicable Legal Requirements. Santen shall be provided a right of
prior review and approval prior to any submittal by Warner-Lambert of a report
or document to a governmental authority directly regarding the Processing or
the Products, except in such cases in which a governmental regulator demands
instant delivery of such report or document. Warner-Lambert will provide Santen
with notice of any applicable governmental deadline for the submission of a
particular report as soon as Warner-Lambert receives a request to provide such
report and will deliver a draft thereof for Santen's review as quickly as
possible. Santen will use its best efforts to review such draft report within
the time frame necessary to meet the applicable deadline. Warner-Lambert also
shall provide Santen with any reports, notices, documents, inspection requests
or other correspondence received from a third party, including any
governmental authority, regarding the Processing or the Products.
Warner-Lambert also shall fully cooperate with Santen in connection with any
regulatory inspection or products recall or similar event. Warner-Lambert
shall immediately (i.e., as soon as reasonably possible, but in no event later
than the earliest to occur of two (2) Business Days or one (1) Business Day
prior to the occurrence of such regulatory inspection) provide Santen with
notice of any upcoming regulatory inspections of the Facility regarding the
Product and shall provide Santen and representative of DSK and
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DPC with an opportunity to observe such inspections. Warner-Lambert shall
immediately (i.e., as soon as reasonably possible, but in no event later than
two (2) Business Days after Warner-Lambert receives notice thereof) forward to
Santen and DSK and DPC information on any adverse event or complaint related to
the Product, which is received by Warner-Lambert from any source.
7.3 Quality Assurance and Control.
7.3.1 Santen and AAI Roles. Warner-Lambert acknowledges that AAI has
been retained by Santen to perform quality control testing and analysis
regarding the Processing of Products performed by Warner-Lambert hereunder.
Warner-Lambert further acknowledges that, notwithstanding AAI's activities,
Warner-Lambert shall remain fully responsible for its obligations hereunder.
Santen and representatives of DSK and DPC shall be permitted to observe all
aspects of the Processing and to inspect the Facility where the Product is
being Processed, during reasonable business hours. Warner-Lambert shall at its
expense, reasonably cooperate with requests made by Santen regarding quality
control and quality assurance matters related to batch record deviations,
regulatory investigations or recalls. Without limiting the generality of the
foregoing, Warner-Lambert shall perform the testing required in the MBR and
will provide samples of Product and any documentation requested by Santen to
AAI, at AAI's place of business, so that AAI may perform quality control
testing and analysis on such samples.
7.3.2 Release of Products. Warner-Lambert shall now release any
Product Lot for shipment until Santen has confirmed in writing that (i) such
Product Lot has met the Product Specifications; and (ii) Santen has released
such Product Lot for distribution. Warner-Lambert shall store a Product Lot for
up to 45 days after Warner-Lambert's quality assurance department approves such
Product Lot for shipment. After such 45-day period, Warner-Lambert shall
continue to store such Product Lot, provided that Santen shall pay storage fees
in the amount of $60.00 per pallet, per month.
7.3.3 Product Failure. Warner-Lambert shall immediately notify Santen
of any test results indicating a failure to meet the Product Specifications or
irregularities, deviations, environmental excursions or other problems
encountered while Processing Products hereunder and shall reasonably cooperate
with Santen in reaching a resolution of such matters. In the event that any
Product Lot is not Processed in accordance with the MBR or other applicable
Legal Requirements, Warner-Lambert shall, at Santen's request, perform new
Processing as necessary to fulfill any then outstanding Purchase Orders.
Warner-Lambert shall be fully responsible for the costs of any BPS or Raw
Materials required for such new Processing, subject to the limitation in
Section 15.3. Warner-Lambert shall retain and make available to Santen such
reserve samples of each Product Lot, as specified by Santen, in accordance with
applicable Legal Requirements. In addition, whether or not required by
applicable Legal Requirements, Warner-Lambert shall retain and make available
to Santen the foregoing samples of each Product Lot, for a period of five (5)
years after the expiration date of the Product Lot concerned.
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8. PRODUCT DELIVERY.
8.1 Product Delivery; Risk of Loss. Santen shall ensure that DSK arranges
for the shipment of Products from the Facility as soon as possible, via a
carrier selected by DSK, following Santen's release of such Product Lot, as
provided in Section 7.3.2. Title and risk of loss shall pass to Santen upon
Santen's release of the particular Product Lot, as provided in Section 7.3.2,
provided, however, that Warner-Lambert's insurance under Section 10 shall
provide coverage so long as the Product remains at the Facility.
8.2 Packaging; Labeling. Warner-Lambert shall ensure that all Products are
properly packaged in accordance with the MBR. Warner-Lambert agrees that its
name may be used on a Product label, to the extent required by applicable Legal
Requirements.
9. PRICE AND PAYMENT.
9.1 Price. The total purchase price for each unit of Product purchased
hereunder, including applicable cost reimbursements, is as specified on Exhibit
C. To the extent of any future change in the Product, Warner-Lambert will
prescribe a corresponding change in the purchase price.
9.2 Method of Invoicing and Payment. The purchase price for each shipment
of Product Lot shall be paid by Santen in United Sates dollars within forty-five
(45) days of receipt of an invoice therefor from Warner-Lambert, which invoice
shall be provided when Warner-Lambert's quality assurance department approves
the Product Lot concerned. Santen shall not be obligated to pay the applicable
invoice within such forty-five (45) day period if the batch record for the
applicable Product Lot is rejected or is being held pending further review or
investigation, prior to release by Santen. The batch records must be provided to
Santen at the same time that Warner-Lambert's quality assurance department has
approved the Product Lot concerned, pursuant to Warner-Lambert's Form 1880. The
batch records shall be accepted as accurate unless Santen notifies
Warner-Lambert in writing within forty-five (45) days after the delivery of such
batch records that Santen has determined that either the Product was not
Processed in accordance with the MBR or that the batch records are not complete.
If Santen rejects the Product due to a deficient batch record within the
foregoing time period, Santen shall provide Warner-Lambert with written notice
of such rejection and setting forth the basis for such rejection. If
Warner-Lambert fails to correct the deficiency within ten (10) days of the
notice or if Santen rejects the correction because the batch record remains
deficient, Santen, may at its option and in its sole discretion, either reject
the Product Lot in its entirety or request that Warner-Lambert correct the
deficiency. If Santen rejects the Product Lot, Warner-Lambert shall reimburse
Santen for one hundred percent (100%) of Santen's cost of the BPS contained in
such Product, subject to the limitation in Section 15.3.
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10. INSURANCE
1.01 Insurance Requirements. Warner-Lambert shall, at its expense,
maintain the following insurance policies during the Term and for such period
to provide coverage for loss or damage to the Equipment, BPS or Products and
for activities conducted by Warner-Lambert during the Term:
(a) Workers compensation and employers liability
insurance for Warner-Lambert employees, as prescribed
by applicable law, in an amount not less than the
applicable statutory requirements;
(b) Fire and casualty insurance to cover all BPS, Raw
Materials, Products and Equipment located at the
Facility and to cover Products (including any samples
thereof) while in transit, pursuant to this Agreement
(which policies shall name Santen as an additional
insured), in the amount of $1,000,000;
(c) Comprehensive general liability insurance, in the
amount of $1,000,000; and
(d) Errors and Omissions Insurance, in the amount of
$1,000,000.
10.2 Evidence of Insurance. Upon request, Warner-Lambert shall
provide Santen with certificates or other documentary evidence of the above
insurance.
11. CONFIDENTIAL INFORMATION.
11.1 Sole Use. Santen agrees to provide Warner-Lambert with
Confidential Information during the Term, solely to permit Warner-Lambert to
perform the Processing hereunder and for no other purpose. The parties shall
receive and maintain Confidential Information in accordance with this Section
11.
11.2 Maintain Confidentiality. Confidential Information received
by a party hereunder will be maintained in confidence by such party (a
"Receiving Party"), and the Receiving Party will exercise reasonable commercial
efforts to avoid disclosure of all or any portion of Confidential Information
except (a) in the case of Warner-Lambert, which shall have the right to
disclose Confidential Information to such of its employees who need access to
Confidential Information to perform the Processing under this Agreement and who
are bound to Warner-Lambert by written obligations and assurances at least as
stringent as those to which Warner-Lambert is bound under this Agreement or as
necessary to fulfill any governmental disclosure requirements; and (b) in the
case of Santen, to DSK or to DPC, or to the extent necessary to fulfill any
governmental disclosure requirements. The parties' confidentiality obligations
hereunder shall survive for a period of five (5) years following termination of
this Agreement.
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11.3 No Copies. The Receiving Party shall not make copies of
Confidential Information provided to it, or any portion thereof, except as
required to perform its obligations hereunder or to the extent necessary to
fulfill any governmental disclosure requirements and the Receiving Party shall,
upon the request of the other party, return to the other party all Confidential
Information furnished to the Receiving Party in written form, including
diagrams, charts, formulae, drawings. Notwithstanding the foregoing, the
Receiving Party may retain in its legal files, one copy of any Confidential
Information received from the other party.
11.4 Exceptions. The obligations of Sections 11.1, 11.2 and 11.3,
above, shall not apply with respect to any portion of Confidential Information,
(i) which was developed by the Receiving Party and was in the Receiving Party's
possession, prior to the first receipt thereof, directly or indirectly, from
the other party, as evidenced by written records, or (ii) which is now, or
hereafter becomes through no act or failure to act on the Receiving Party's
part, part of the public knowledge or is disclosed in a printed publication
available to the public; (iii) otherwise lawfully becomes available to the
Receiving Party from sources other than the other party; or (iv) which is
developed by the Receiving Party without the benefit of Confidential
Information, as evidenced by written records, or (v) which is required to be
disclosed by applicable law; provided, however, that the occurrence of any or
all of (i), (ii), (iii), (iv) or (v) shall not be construed to grant any
rights, express or implied, under any patent licensable by the other party.
Confidential Information shall not be deemed to be within one of the foregoing
exceptions if it is merely embraced by more general information available on a
non-confidential basis or in Warner-Lambert's possession.
11.5 Provisional Remedies. The parties acknowledge that any breach
by the Receiving Party of its obligations under this Section 11 may result in
irreparable harm for which the other party may not have an adequate remedy at
law. Accordingly, if the Receiving Party breaches or threatens to breach any of
such obligations, the other party shall be entitled, without showing or proving
any actual damage sustained, to a temporary restraining order, preliminary
injunction, permanent injunction or other order compelling specific performance
or other appropriate remedies.
12. PROPRIETARY RIGHTS; LICENSE.
12.1 Santen Ownership. Santen owns all rights in and to all Santen
Technical Information. Warner-Lambert shall, at Santen's request, take such
actions and execute such documents as necessary or desirable, in Santen's sole
judgment, to create, maintain, enforce or defend Santen's rights in such Santen
Technical Information.
13. ENVIRONMENTAL COMPLIANCE.
13.1 Waste. All wastes from the Processing shall be recycled or
disposed only at duly licensed facilities. Transportation of wastes also shall
be conducted only by duly licensed entities. Santen shall provide applicable
MSDS and shall advise Warner-Lambert regarding the technical constituents of the
BPS and the Products as relevant to
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the selection of appropriate disposal options. Warner-Lambert shall dispose of
waste in accordance with its applicable environmental impact assessment for the
Facility. Warner-Lambert shall not, without Santen's prior written consent,
resell any used or unused BPS to any third party.
14. Representations and Warranties.
14.1 Warner-Lambert. Warner-Lambert warrants and represents that:
14.1.1 Corporate Authority. It has full power and authority
to execute, deliver and perform this Agreement. Warner-Lambert is a corporation
duly organized, validly existing and in good standing under the laws governing
its incorporation and has full corporate power and authority to execute,
deliver and perform this Agreement.
14.1.2 Due Execution; Enforceability. The execution,
delivery and performance of this Agreement have been duly authorized by all
necessary action of Warner-Lambert. Warner-Lambert is qualified to do business
in all jurisdictions where such qualification is required for its performance
hereunder. This Agreement constitutes a legal, valid and binding agreement of
Warner-Lambert, enforceable against Warner-Lambert in accordance with its
terms, except as limited by bankruptcy, insolvency, receivership and similar
creditor's rights, laws in effect from time to time.
14.1.3 Compliance with Legal Requirements. Warner-Lambert
possesses and will during the Term possess the requisite skill, experience,
knowledge, personnel and Facility to perform the Processing and other
obligations of Warner-Lambert hereunder. Warner-Lambert further possesses and
is and will during the Term possess and be in compliance with all necessary
licenses, permits and approvals required for Warner-Lambert to perform the
Processing and its other obligations under this Agreement, other than the NDA
approval required to be obtained by Santen or any other third party.
Warner-Lambert has obtained and will at all times during the Term obtain and
maintain all such licenses, permits and approvals required by the FDA and
other governmental authorities for the operation of the Facility. The Facility
has been and will during the Term be in compliance with Good Manufacturing
Practices. Warner-Lambert is not in actual or alleged violation of any Legal
Requirements; nor is it or has it been the subject of any debarment action
under 21 CFR ss 335(a) or (b). Neither Warner-Lambert nor the Facility is or
has been the subject of any audit, inspection, suspension or enforcement action
under applicable Legal Requirements which could prevent Warner-Lambert from
fulfilling its obligations under this Agreement.
14.2 Santen. Santen warrants and represents that:
14.2.1 Corporate Authority. It has full power and authority
to execute, deliver and perform this Agreement; it is a corporation duly
organized, validly existing and in good standing under the laws governing its
incorporation and has full corporate power and authority to execute, deliver
and perform this Agreement; and
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14.2.2 Due Execution; Enforceability. The execution,
delivery and performance of this Agreement have been duly authorized by all
necessary action of Santen; this Agreement constitutes a legal, valid and
binding agreement of Santen, enforceable against Santen in accordance with its
terms, except as limited by bankruptcy, insolvency, receivership and similar
creditor's rights, laws in effect from time to time.
14.2.3 NDA. An NDA for the Product has been filed.
14.2.4 Intellectual Property. To the best of Santen's
knowledge (i) the Processing required under the Master Batch Record does not
infringe upon any known patent, (ii) all trademarks used in the Legal Label
Text are owned by or can be legally used by DSK or DPC, and Santen will not
sell the Product to any other party; and (iii) the Legal Label Text complies
with the requirements of applicable governmental authorities.
15. Indemnity.
15.1 Warner-Lambert Indemnity. Warner-Lambert shall defend,
indemnify, save and hold harmless Santen and its customer, vendor, agents,
employees, shareholders, parent companies, Affiliates, directors and officers
and such parties' respective successors and permitted assigns ("Santen
Indemnitees"), from and against any and all damages, penalties, deficiencies,
suits, proceedings, actions, costs and expenses (including without limitation,
the fees and disbursements of attorneys and any consultants), which are
asserted against or incurred by any of the Santen Indemnitees as a result of a
claim or threatened claim by a third party, by reason of, arising out of, or in
connection with, in whole or in part, any of the following (except to the
extent arising from the negligence or willful misconduct of Santen):
(i) any actual or alleged breach of any representation,
warranty, or covenant of Warner-Lambert under this
Agreement (including without limitation, any failure
of Warner-Lambert to process the Product in
accordance with the MBR or other applicable Legal
Requirements);
(ii) any failure of Warner-Lambert to comply with
applicable Legal Requirements;
(iii) any loss, damage, degradation or contamination to any
Equipment, BPS or Products while such materials are
in the custody or control of Warner-Lambert prior to
delivery of the Products to a common carrier, as
provided in Section 8, or while in the custody or
control of any entity which ships the Products to
AAI;
(iv) any actual or alleged presence of Hazardous
Substances, on, under, within or migrating from, or
into the Facility and any adjacent property; and
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(v) any actual or alleged liability or responsibility for
any investigation, remediation, or other cleanup
activity arising from any Hazardous Substances which
Warner-Lambert, or any of its Affiliates by contract,
agreement, or otherwise arranged for disposal or
treatment or for transport for disposal or treatment,
whether at the Facility or any off-site facility.
15.2 Santen Indemnity. Santen shall defend, indemnify, save and
hold harmless Warner-Lambert and its agents, employees, shareholders, parent
companies, Affiliates, directors and officers and such parties' respective
successors and permitted assigns ("Warner-Lambert Indemnitees") from and against
any and all damages, losses, claims, liabilities, obligations, demands,
judgments, awards, settlements, expenses (including without limitation, the fees
and disbursements of attorneys and any consultants), which are asserted against
or incurred by any of the Warner-Lambert Indemnitees, as a result of a claim or
threatened claim by a third party, by reason of, arising out of, or in
connection with, in whole or in part, except as otherwise limited under this
Agreement, any of the following (except to the extent arising from the
negligence or willful misconduct of Warner-Lambert), (i) any actual or alleged
breach of any representation, warranty or covenant of Santen hereunder; (ii) the
sale, distribution, or use of the Product following delivery thereof to a common
carrier, as provided in Section 8; (iii) any claims for patent, copyright or
trademark infringement arising out of the Processing described in the MBR; and
(iv) any failure of the Legal Label Text to comply with applicable Legal
Requirements.
15.3 Limitation of Liability. Notwithstanding the provisions of
Section 15.2, in no event shall Warner-Lambert's indemnification obligation to a
Santen Indemnitee hereunder exceed two hundred thousand dollars ($200,000) per
calender year of the Term.
15.4 Procedure for Idemnification. An indemnitee under this Section
15 shall promptly notify an indemnifying party of any matter for which the
indemnitee seeks indemnification. Upon receiving a demand for indemnification
from an indemnitee, the idemnifying party shall notify the indemnitee, within
fifteen (15) days, as to whether the idemnifying party shall defend the claim,
as provided in the preceding sentence, the indemnifying party shall have the
sole right to defend or settle the claim (subject to the provisions of the
succeeding sentences hereof) and the indemnitees shall not take any action or
incur any expense, retain its own counsel to monitor the indemnifying party's
defense of such claim, and provided further that the indemnitee shall have the
right to retain its own counsel, with the fees and expenses to be paid by the
idemnifying party if representation of the indemnitees by the counsel retained
by the indemnifying party would be inappropriate due to actual or potential
conflict of interest (as defined in the code of ethics of the state bar
applicable to such counsel) between the indemnitees and any other party
represented by such counsel in such proceedings. The idemnifying
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party shall consult with the indemnitee and keep it informed with respect to the
defense of such claim and, upon request, will provide indemnitee with a copy of
relevant documentation (at indemnitee's expense). The indemnitee shall cooperate
fully with the indemnifying party and its legal representatives in the
investigation of any claim for which the indemnitee has assumed the defense
thereof. The indemnifying party may not enter into any settlement without the
indemnitee's prior written consent, which shall not be unreasonably withheld. In
the event the indemnitee rejects a settlement which provides for a complete
release of liability in favor of the indemnitee, the indemnifying party shall
not be liable for any settlement amount in excess of the settlement so proposed.
If the indemnifying party fails to timely assume or diligently defend
any claim, the indemnitees shall have the right to assume control over such
defense or settlement, with the fees and expenses paid by the indemnifying
party, provided that no settlement, shall be entered into without
the indemnifying party's prior written consent, which shall not be unreasonably
withheld. In the event the indemnifying party rejects such a settlement, it
shall be liable to the indemnitee for the amount of the settlement so proposed
and any other losses or damages arising out of the refusal to so settle.
16. Terms of Agreement.
16.1 Effective Date. This Agreement shall become effective and
binding upon the parties as of the date first written above (the "Effective
Date").
16.2 Initial Term. Unless earlier terminated pursuant to Sections
16.4 or 16.5, this Agreement shall have an initial term of five (5) years (the
"Initial Term"). Thereafter, this Agreement shall be automatically renewed for
additional one year periods, in accordance with Section 16.3.
16.3 Renewal Term. Unless either party has provided the other with
written notice, no later than eighteen (18) months prior to the expiration of
the then existing term, that such party desires to terminate this Agreement
effective as of the date of expiration of such then existing term, the term of
this Agreement shall be deemed automatically renewed for an additional one-year
period (a "Renewal Term"). All Renewal Terms shall be upon the terms and
conditions set forth in this Agreement, except as otherwise agreed by the
parties in writing. All references to "Term" in this Agreement shall apply to
the Initial Term and any Renewal Term.
16.4 Termination for Breach. Notwithstanding any other provisions
of this Agreement, and subject to the procedures of Section 16.4.1, either party
may, without waiver of, or prejudice to any of its other rights and remedies
under this Agreement, under applicable law or otherwise, effect a termination of
this Agreement by written notice, at any time, if the other party breaches any
of its obligations under this Agreement.
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16.4.1. In the event of any alleged breach under Section 16.4, the
party declaring the breach shall provide the other party with written notice
setting forth the nature of the breach, and the recipient shall have a period of
thirty (30) days (or such shorter period if required under the circumstances and
specified in such notice) to cure such breach, provided however, that if the
nature of the alleged breach is such that it cannot reasonably be cured within
such time period, the non-breaching party may elect, in its sole discretion, and
without waiver of, or prejudice to any of its other rights and remedies under
this Agreement under applicable law or otherwise, to grant the breaching party
an additional extension of time to cure such breach. If the breaching party
fails to cure the breach within the applicable time period the non-breaching
party may terminate this Agreement, by written notice to the breaching party
which notice shall be effective immediately upon receipt.
16.5 Other Termination Rights This Agreement also may be terminated:
16.5.1. By mutual assent of the parties
16.5.2. By either party, in the event that a force majeure event as
provided in Section 17 has occurred and has continued for a period of one
hundred eighty (180) days;
16.5.3. By either party, upon the other party's filing of a
voluntary petition for bankruptcy, reorganization or arrangement under any state
statue, or upon assignment for the benefit of creditors, or upon the appointment
of a receiver or trustee with respect to such party or its assets, or upon the
filing of a petition of the kind referenced above, against a party or its assets
by a third party, which filing is made without the agreement of the subject
party and is not removed or dismissed within sixty (60) days of the date of such
filing.
16.5.4. By Santen, upon one hundred eight (180) days written
notice.
16.6 Actions Upon Termination.
16.6.1. Warner-Lambert Actions. Upon termination of this Agreement
Warner-Lambert shall, at Santen's request, deliver to Santen, at Santen's cost
(i) the Confidential Information; (ii) the Equipment; and (iii) any unused BPS.
Warner-Lambert also shall take all steps, as directed by Santen and at Santen's
cost, to effectuate an expeditious transfer of Processing operations to a new
entity and/or facility.
16.6.2. Santen Actions. Santen shall pay Warner-Lambert for any
Products ordered by Santen and processed by Warner-Lambert hereunder, on or
prior to the expiration of the Term, which have been Processed in accordance
with the MBR and shall pay for Products subject to binding Purchase Orders for
which Processing is scheduled to commence within the next succeeding thirty day
period, and shall pay for
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any Raw Materials purchased by Warner-Lambert in reliance on the three-month
forecast described in Article 6.
17. FORCE MAJEURE.
Either party shall be excused for the period of any suspension in the
performance of its obligations hereunder, when such party is prevented from
performing by cause or causes which are beyond such party's reasonable control
and which could not have been reasonably foreseen or prevented, including
without limitation, acts of God, civil commotion, war, invasion, rebellion,
hostilities, unavailability of BPS (subject to Section 3), strikes, delays in
the FDA review process or orders of FDA or other governmental authorities
pertaining to the subject matter of this Agreement (excluding, in each case, any
such events caused in whole or in part by the party claiming a force majeure
hereunder). The party making a claim of a force majeure event hereunder (an
"Affected Party") shall provide prompt written notice to the other party
describing the particulars of the occurrence, including an estimate of its
expected duration and the probable impact on the performance of the Affected
Party's obligations. The Affected Party also shall furnish periodic reports with
respect thereto. Notwithstanding the foregoing, (i) the permitted suspension of
the Affected Party's performance shall be of no greater scope and of no longer
duration than is reasonably required by the force majeure event; (ii) no
liability of either party which arose prior to the occurrence of the force
majeure event shall be excused because of such occurrence; (iii) the Affected
Party shall use reasonable efforts to continue to perform its obligations
hereunder and to cure or correct the force majeure event and to limit or
mitigate damages to the other party.
18. WAIVER.
The waiver by either party hereto of any breach of any provision hereof
shall not be deemed to be a waiver of any prior or subsequent breach of the same
or other provision of this Agreement.
19. ASSIGNMENT.
Neither this Agreement nor any of the rights or obligations of
Warner-Lambert hereunder may be assigned or subcontracted, whether by operation
of law or otherwise, without Santen's prior written consent. Any purported
assignment or subcontracting without such written consent shall be void and
unenforceable. Notwithstanding the foregoing, (i) Santen may assign this
Agreement or any of its rights and obligations hereunder to an Affiliate or in
connection with a merger of Santen into another entity or a sale of all or
substantially all of Santen's assets to a third party, and (ii) Warner-Lambert
may assign this Agreement in connection with a sale of all or substantially all
of its Sterile Products Division, provided, in each case, that the assignor and
assignee parties execute appropriate documentation satisfactory to the
non-assigning party regarding the full assumption of liabilities hereunder.
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20. PARTIES BOUND.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors in interest and permitted
assigns.
21. INDEPENDENT CONTRACTOR.
Nothing in this Agreement shall be construed to establish Santen or
Warner-Lambert as a partner, joint venturer, agent or other representative of
the other. Each is an independent company retaining complete control over and
complete responsibility for its own operations and employees. Nothing in this
Agreement shall be construed to grant either party any right or authority to
assume or create any obligation on behalf or in the name of the other; to
accept summons or legal process for the other; or to bind the other in any
manner whatsoever.
22. ENTIRETY OF AGREEMENT.
This Agreement constitutes the entire agreement between the parties hereto
pertaining to the subject matter hereof and supersedes all prior and
contemporaneous agreements, understandings, negotiations and discussions of the
parties, whether oral or written, and there are no warranties, representations
or other agreements between the parties in connection with the subject matter
hereof, except as specifically set forth herein. No supplement, modification,
waiver or termination of this Agreement shall be implied from any conduct of
the parties or trade custom or usage, but to be binding must be executed in
writing by the party to be bound thereby.
23. SURVIVAL.
The representations and warranties of the parties shall survive for a
period of three years following termination of this Agreement. Sections 3.6,
5.3, 7.3.3 (last sentence) 11 (except as limited therein) and 15 shall survive
termination of this Agreement.
24. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
25. SEVERABILITY.
If any provision of this Agreement shall be determined to be void or
unenforceable, the remaining provisions of this Agreement shall not be affected
thereby, and every other provision of this Agreement shall remain in full force
and effect and enforceable to the fullest extent permitted by law.
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<PAGE> 20
26. HEADINGS.
The headings appearing in this Agreement are inserted only as a matter of
convenience and in no way define or limit the scope or intent of any section of
this Agreement.
27. NOTICES.
27.1 Form of Notice. Notices under this Agreement shall be given in writing
and delivered:
If to Santen to: Dr. Michael Delmage
Santen Incorporated
555 Gateway Drive
Napa, CA 94558
With a copy to: Alexander D. Calhoun, Esq.
Graham & James LLP
One Maritime Plaza, Suite 300
San Francisco, CA 94111
If to Warner-Lambert to: Warner-Lambert Sterile Products Operations
Parkdale Road
Rochester, MI 48307
Attn: Vice President
With a copy to: Warner-Lambert Company
2800 Plymouth Road
Ann Arbor, Michigan 48105
Attn: Counsel, Pharmaceutical Research
Division
or to such other address as may be designated by such party.
27.2 TIMING. Notices shall be deemed to have been given:
(a) On the same Business Day if the notice has been delivered by
hand or sent by facsimile with confirmation of receipt on or
prior to 5:00 p.m. as of the place of receipt, or on the
next succeeding Business Day if so delivered or sent after
5:00 p.m.; or
(b) On the next succeeding Business Day following receipt of a
notice sent by registered or certified U.S. mail, return
receipt requested or by a nationally recognized overnight
courier service, as evidenced by the return receipt card, or
other similar receipt properly endorsed by the receiving
party.
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<PAGE> 21
28. FURTHER ASSURANCES.
The parties each agree to execute additional instruments and documents and
to do all such further things as the other party may reasonably require in
order to carry out the intent of this Agreement. In addition, the parties agree
to reasonably cooperate with one another in connection with the execution of
the other parties' obligations hereunder.
29. GOVERNING LAW.
The validity, construction and enforceability of this Agreement shall be
governed in all respects by the laws of the State of Michigan, applicable to
agreements negotiated, executed and performed in Michigan by Michigan parties.
THIS AGREEMENT HAS BEEN DULY EXECUTED AND DELIVERED BY THE UNDERSIGNED
AUTHORIZED OFFICERS OF BOTH PARTIES AS OF THE DATE FIRST WRITTEN ABOVE.
WARNER-LAMBERT COMPANY SANTEN INCORPORATED
By: /s/ By: /s/ J. Michael Delmage
---------------------------------- -------------------------------
Title: Vice President, G.M., PDSPO Title: Vice President, BC-D
------------------------------ ---------------------------
20
<PAGE> 1
EXHIBIT 10.31
EXECUTION COPY
LICENSE AGREEMENT
THIS LICENSE AGREEMENT ("Agreement") is entered into and effective as
of February 27, 1998 (the "Effective Date") in duplicate originals and is by and
among WARNER-LAMBERT COMPANY, a corporation organized and existing under the
laws of the State of Delaware, and having an office and place of business at 201
Tabor Road, Morris Plains, NJ 07950 ("WL"), PARKE, DAVIS & COMPANY, a
corporation organized and existing under the laws of the State of Michigan and
having an office and place of business at 201 Tabor Road, Morris Plains, New
Jersey 07950 ("PD"), and PARKEDALE PHARMACEUTICALS, INC., a corporation
organized and existing under the laws of the State of Michigan, and having an
office and place of business at 870 Parkdale Road, Rochester, Michigan 48307
("Licensee"). Capitalized terms not otherwise defined herein have the meanings
ascribed to them in Article I. For purposes of this Agreement, the term
"Licensor" shall refer to WL as to all matters contained herein relating to the
Anusol Trademark, the Anusol Mold and the Steri-Dose Trademark and shall refer
to PD as to all matters contained herein relating to the Steri-Vial Trademark.
RECITALS
A. WL is engaged in developing, manufacturing and marketing, among
other things, pharmaceutical and over-the-counter consumer healthcare products
in the United States and throughout the world. WL is the owner of the Anusol
Trademark, the Steri-Dose Trademark in the Territory and the Anusol Mold. PD is
the owner of the Steri-Vial Trademark.
B. The Anusol Trademark and the Anusol Mold are used in connection with
the Anusol Products and the Other Trademarks are used in connection with certain
prescription products of WL. Licensee desires to use the Anusol Trademark in
connection with the Anusol Products in the Territory, the Anusol Mold in
connection with Anusol Products and the Other Trademarks in connection with the
Other Products.
NOW THEREFORE, in consideration of the mutual promises and covenants
contained herein, and for good and valuable consideration, it is agreed as
follows:
ARTICLE I - DEFINITIONS
1.1 As used in this Agreement, the following defined terms have the
meanings indicated below:
"Advertising Materials" shall mean all materials used in connection
with the advertising, marketing, sale and promotion of any Products
bearing the Anusol Trademark or the Other Trademarks in any form or
media.
"Affiliate" shall mean any person that directly, or indirectly through
one or more intermediaries, controls or is controlled by or is under
common control with the person specified. For purposes of this
definition, control of a person means ownership of fifty percent (50%)
or more of the voting or income interest in such person.
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<PAGE> 2
"Anusol Mold" shall mean the mold used to manufacture the tips of the
applicator sold with the Anusol antipruritic hydrocortisone cream
pharmaceutical product and the over the counter consumer healthcare
product as of February 26, 1998.
"Anusol Products" shall mean the prescription antipruritic
hydrocortisone cream and prescription hemorrhoidal suppository
products marketed by WL under the Anusol Trademark as of February 26,
1998 and any prescription product extensions or reformulations thereof.
"Anusol Trademark" shall mean the ANUSOL-HC(R) trademark, U.S.
Registration No. 811621.
"Business Materials" shall mean all stationery, letterheads,
envelopes, business cards, invoices and all other business materials
used by Licensee which bear the Anusol Trademark or any of the Other
Trademarks.
"Licensed Right" shall mean Licensee's right to use each of the Anusol
Trademark, the Anusol Mold, and the Other Trademarks (each a Licensed
Right and collectively the Licensed Rights).
"Other Products" shall mean any product marketed by WL, as of February
26, 1998, under any of the Other Trademarks and which are used in
connection with trademarks that will be assigned to Licensee in
accordance with the terms of the PAPA and any prescription product
extensions or reformulations thereof.
"Other Trademarks" shall mean the Steri-Dose Trademark and the
Steri-Vial Trademark.
"Packaging Materials" shall mean all tags, labels, cartons,
containers, wrapping and other materials used in connection with the
Products.
"PAPA" shall mean the Product Asset Purchase Agreement dated as of the
date hereof between WL and Licensee.
"Products" shall mean, collectively, the Anusol Products and the Other
Products.
"Territory" shall mean the United States of America, its territories
and possessions, the District of Columbia and United States military
bases worldwide.
"Steri-Dose Trademark" shall mean the Steri-Dose(R) trademark, U.S.
Registration No. 986792.
"Steri-Vial Trademark" shall mean the Steri-Vial(R) trademarks, U.S.
Registration Nos. 375423 and 549403.
"Style Sheet" shall mean a document containing the specifications
(i.e., style, appearance, distinctness) with respect to Licensee's use
of the Anusol Trademark and the Other Trademarks.
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<PAGE> 3
1.2 The definitions in this Article I shall apply equally to both the
singular and plural forms of the terms defined. The words "include",
"includes" and "including" shall be deemed to be followed by the
phrase "without limitation". All references herein to Articles,
Sections, paragraphs and clauses shall be deemed references to
Articles, Sections, paragraphs and clauses of this Agreement unless
the context shall otherwise require.
ARTICLE II - GRANT OF LICENSE
2.1 Licensor hereby grants to Licensee an exclusive, royalty-free right
and license to use the Anusol Trademark in connection with the
development, manufacture, distribution, advertising, promotion and
sale of any Anusol Products in the Territory for the term and under
the terms and conditions hereinafter set forth. Except as set forth in
Section 13.5, Licensee shall not have the right to transfer or assign
this License to any person. Licensee agrees that unless authorized or
required by Licensor, it will not make, or authorize to be made, any
use, directly or indirectly, of the Anusol Trademark outside of the
Territory or on or in connection with any other articles of any
description or in any other manner other than as provided for herein.
2.2 Licensor hereby grants to Licensee an exclusive, royalty-free right
and license to use the Other Trademarks solely in connection with the
development, manufacture, distribution, advertising, promotion and
sale of any Other Products for the term and under the terms and
conditions hereinafter set forth. Except as set forth in Section 13.5,
Licensee shall not have the right to transfer or assign this License
to any person. Licensee agrees that unless authorized or required by
Licensor, it will not make, or authorize to be made, any use, directly
or indirectly, of the Other Trademarks outside of the Territory or on
or in connection with any other articles of any description or in any
other manner other than as provided for herein.
2.3 Licensor hereby grants to Licensee an exclusive, royalty-free right
and license to use the Anusol Mold solely in connection with the
manufacture of applicator tips for use with any Anusol Product and the
sale of any Anusol Product together with such applicator tips in the
Territory for the term and under the terms and conditions hereinafter
set forth. Except as set forth in Section 13.5, Licensee shall not
have the right to transfer or assign this License to any person.
Licensee agrees that unless authorized or required by Licensor, it
will not make or authorize to be made, any use, directly or
indirectly, of the Anusol Mold outside of the Territory or with
respect to any other product.
2.4 Unless authorized by Licensor, Licensee may not use the Anusol
Trademark or Other Trademarks as part of a corporate name or as part
of the composite name of a division or related company of Licensee.
However, Licensee may use the Anusol Trademark and Other Trademarks on
invoices, order forms, stationery and telephone directory listings, in
compliance with the requirements of the Style Sheet, which shall be
prepared by WL and agreed to by the parties no later than sixty (60)
days after the date hereof. Licensee may not use the Anusol Trademark
or Other Trademarks as a domain name on the Internet. Any use of the
Anusol Trademark or Other Trademarks in any content material contained
with other materials of Licensee on the Internet must be reviewed and
approved in writing by Licensor.
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<PAGE> 4
ARTICLE III - TERM
3.1 This Agreement shall become effective on the Effective Date and shall
continue for a term of forty (40) years, unless sooner terminated as
provided for herein. Following the initial forty-year term, this
Agreement shall be automatically renewed for successive five (5) year
periods.
ARTICLE IV - QUALITY CONTROL
4.1 Licensee agrees that the Products and the Packaging Materials,
Business Materials and Advertising Materials bearing the Anusol
Trademark and the Other Trademarks shall be of the highest standard
and of such style, appearance, distinctiveness and quality and that
the manufacture, use and sale of the Products and the applicator tips
made from the Anusol Mold will adhere to all standards required by any
applicable governmental laws, regulations or rules, including all
current good manufacturing practices.
4.2 Licensee agrees that the Anusol Trademark and the Other Trademarks
have an established prestige and goodwill, and are well recognized by
the trade and purchasing public. In addition, Licensee acknowledges
that Licensor owns other trademarks containing the word "Anusol" and
permutations thereof which are used in over-the-counter products in
the Territory and in prescription and over-the-counter products
outside of the Territory. Accordingly, Licensee agrees that its use
thereof shall be in a commercially acceptable and responsible manner
and style to protect and enhance the prestige of Licensor.
4.3 When requested, but in no event more than on a quarterly basis,
Licensee shall submit to Licensor samples of the Packaging Materials,
Business Materials, Advertising Materials, Products and the applicator
tips made from the Anusol Mold to allow Licensor to confirm Licensee's
performance of its obligations hereunder. All such materials shall be
deemed approved if Licensor has not responded within thirty (30) days
after receipt of such item. Any material changes to the Packaging
Materials, Business Material or Advertising Materials shall be
submitted to Licensor in writing and shall not be used without
Licensor's prior written consent, which shall not be unreasonably
withheld. If Licensor has not responded within thirty (30) days after
receipt of such item, it shall be deemed approved.
4.4 Licensee shall not voluntarily recall any Products without first
notifying Licensor sufficiently in advance of such recall and then
discussing with Licensor the reasons for and the manner and timing of
such recall. Licensee shall provide Licensor with written notice
immediately after it becomes aware of any facts or circumstances from
which it could reasonably be calculated that a recall may occur or be
required by any governmental or regulatory agency, including, without
limitation, any significant adverse events. Licensee shall further
provide Licensor with a copy of all summaries of adverse events
required to be submitted to any regulatory or governmental agency.
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<PAGE> 5
ARTICLE V - BEST EFFORTS & DISTRIBUTION
5.1 Licensee covenants and agrees that, during the term of this Agreement,
it will give and devote its reasonable commercial efforts consistent
with accepted pharmaceutical industry business practices to the
diligent promotion, sale and distribution of Products in the
Territory.
5.2 Licensee agrees that the Products shall be sold only through channels
of trade that are consistent with the prestige and reputation of the
Anusol Trademark and the Other Trademarks, as the case may be, and
will enhance and protect Licensor's goodwill therein.
ARTICLE VI - PROPERTY OF LICENSOR
6.1 Licensee recognizes and acknowledges that the Anusol Trademark and the
Other Trademarks and the goodwill associated therewith are the
property of Licensor and are not transferred pursuant to this
Agreement. Upon ninety (90) days prior written notice, Licensee may
request that Licensor register a trademark which adds a suffix to the
Anusol Trademark, in connection with any prescription line extension or
reformulation of the Anusol Product by Licensee. Licensor may grant
Licensee's request if the trademark requested by Licensee does not
conflict with any registered trademark or trademark application of
Licensor or its Affiliates which has been filed in any jurisdiction at
the time of such request. All costs associated with the registration
of a trademark which adds a suffix to the Anusol Trademark as provided
in this Section 6.1 shall be borne by Licensee. Licensee shall be
responsible for the initial determination of the availability of the
trademark related to such line extension and all associated costs.
ARTICLE VII - TRADEMARK PROTECTION
7.1 Licensee agrees to assist Licensor at Licensor's cost and expense, to
the extent reasonably necessary, or as otherwise agreed upon, to
protect any of Licensor's rights in and to the Anusol Trademark, the
Anusol Mold and the Other Trademarks. Licensor may prosecute any
claims or suits to protect the Anusol Trademark, the Anusol Mold and
the Other Trademarks in the name of Licensee or join Licensee as a
party (at Licensor's expense), and Licensor is entitled to retain the
full sum of any settlement, judgment or jury award.
7.2 Each party shall promptly notify the other in writing of any uses in
the Territory which may come to such party's attention which may
constitute infringement or imitation by others of the Anusol Trademark
or the Other Trademarks. Licensor shall have the right to determine
whether or not any action shall be taken against any such infringement
or imitation, and Licensee shall not institute any suit or take any
action on account of such infringement or imitation on its own. If
Licensor does not pursue a notification by Licensee of a use in the
Territory which may constitute infringement or imitation by others of
the Anusol Trademark or the Other Trademarks, within sixty (60) days
of such written notification, then Licensee shall have the right to
take any action on account of such infringement or imitation on its
own and at its own expense, provided, however, that Licensor shall
have the right to participate in any such action.
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<PAGE> 6
ARTICLE VIII - WARRANTIES AND REPRESENTATIONS
8.1 Licensor warrants and represents to Licensee that it owns and/or has
the rights to the Anusol Trademark, the Anusol Mold and the Other
Trademarks in the Territory, and that it has the right to grant the
license granted herein. To the best of Licensor's knowledge, title to
the Anusol Trademark, Anusol Mold and the Other Trademarks is held by
Licensor free and clear of all adverse claims, liens, security
interests, restrictions, and other encumbrances and there are no
circumstances to indicate that there is any reasonable basis to
believe that any person or governmental or regulatory authority could
or would assert or support a claim of ownership, right of possession
or use in any way adverse to Licensee's or its Affiliates' rights in
and to the Licensed Rights. Licensor agrees to indemnify and hold
Licensee harmless against any losses incurred by Licensee as a result
of any claim by a third party that Licensee's use of the Licensed
Rights in accordance with the provisions hereof infringes the rights
of such third party. Licensee shall advise Licensor of any such claims
and Licensor shall have sole control over the defense and settlement
of any such allegations through counsel of its own choosing.
8.2 Licensor agrees not to disclose to any third party any proprietary
information of Licensee obtained pursuant to this Agreement.
ARTICLE IX - [INTENTIONALLY OMITTED]
ARTICLE X - [INTENTIONALLY OMITTED]
ARTICLE XI - TERMINATION FOR BREACH OR CHANGE OF OWNERSHIP OR CONTROL OF
LICENSEE
11.1 If Licensee shall violate any of the material obligations under this
Agreement, Licensor shall have the right to terminate this Agreement
by giving Licensee written notice of such breach and its intent to
terminate this Agreement with respect to the Licensed Right which is
the subject of such breach and any other Licensed Right. Unless
Licensee shall cure such breach within sixty (60) days after receipt
of such written notice of breach and termination from Licensor, this
Agreement shall automatically terminate on the sixtieth (60th) day
from such written notice of breach with respect to the Licensed Right
which is the subject of such breach and any other Licensed Right.
Termination of this Agreement shall be without prejudice to any rights
or remedies which Licensor may otherwise have against Licensee.
11.2 [Intentionally Omitted].
11.3 In the event of a change of majority ownership in or majority control
of Licensee, Licensee shall be obligated to inform Licensor
immediately of any such change, and Licensor shall have the option to
terminate this Agreement in whole or in part by giving written notice
of such termination to Licensee within ninety (90) days after
receiving such notice of change in ownership or control from Licensee.
Such termination shall take effect thirty (30) days after receipt by
Licensee of such notice.
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<PAGE> 7
11.4 Licensee may terminate this Agreement with respect to any Licensed
Right upon sixty (60) days written notice of such termination to
Licensor or if Licensor shall violate any of the material obligations
under this Agreement, Licensee shall have the right to terminate this
Agreement with respect to the Licensed Right which is the subject of
such breach and any other Licensed Right by giving Licensor written
notice of such breach and its intent to terminate this Agreement.
Unless Licensor shall cure such breach within sixty (60) days after
receipt of such written notice of breach and termination from
Licensee, this Agreement shall automatically terminate on the sixtieth
(60th) day from such written notice of breach with respect to the
Licensed Right which is the subject of such breach and any other
Licensed Right.
ARTICLE XII - CONSEQUENCES OF EXPIRATION OR TERMINATION OF THIS AGREEMENT
12.1 Upon and after the expiration or termination of this Agreement for
whatever reason, all rights granted to Licensee hereunder to use the
Licensed Rights shall cease immediately.
12.2 Upon and after the expiration or termination of this Agreement, all
rights granted to Licensee hereunder shall forthwith revert to
Licensor.
12.3 Upon and after the expiration or termination of this Agreement,
Licensee will refrain from any further use of the Licensed Rights or
of anything deemed by Licensor to be confusingly similar to, the
Anusol Trademark or the Other Trademarks.
12.4 In the event of expiration or termination of this Agreement, Licensor
shall have the prior right and option to purchase any or all of the
Products bearing the Anusol Trademark or the Other Trademarks, and
Packaging Materials, Business Materials and Advertising Materials used
in connection therewith (the "Assets") at Licensee's cost as carried
on its books of account. Upon such termination or expiration, the
parties hereto shall jointly and immediately cause physical
inventories to be taken of:
(1) Products bearing the Anusol Trademark or the Other Trademarks
on hand;
(2) All Packaging Materials bearing the Anusol Trademark or the
Other Trademarks; and
(3) All Business Materials and Advertising Materials used on or
in connection with said merchandise;
which physical inventories shall be reduced to writing in a form
acceptable to Licensor and copies thereof shall be signed by each
party.
If Licensor exercises its option to purchase the Assets, Licensor
shall pay for such Assets no later than thirty (30) days after receipt
of such Assets accompanied by an appropriate invoice.
7
<PAGE> 8
12.5 Licensee recognizes that any sale of the Products, upon termination or
expiration of this Agreement, through other than primary channels of
distribution would cause irreparable damage to the prestige of
Licensor, to the Anusol Trademark and the Other Trademarks, and the
related goodwill. Accordingly, Licensee covenants and agrees that the
Products sold by Licensee, upon termination or expiration as provided
below, will be offered for sale or sold only in accordance with the
following terms and conditions:
In the event Licensor does not exercise the option stated in paragraph
12.4, upon the termination or expiration of this Agreement, Licensee
shall have six (6) months to sell off any merchandise bearing the
Anusol Trademark or the Other Trademarks. Thereafter, Licensee will
not sell or offer for sale any merchandise bearing the Anusol
Trademark or Other Trademarks, or any trademarks similar thereto.
Licensee agrees to remove all tags and labels bearing the Anusol
Trademark or the Other Trademarks from such merchandise and to destroy
all remaining Packaging Materials or, if Licensor so requests, to
deliver said Packaging Materials, Business Materials and Advertising
Materials to Licensor at Licensor's expense at the end of such six (6)
month period.
ARTICLE XIII - MISCELLANEOUS
13.1 All notices, requests, consents, approvals or other communications
shall be deemed to have been duly given, made or served if in writing
and delivered personally or sent by overnight courier, or by telex or
telecopier with receipt confirmed, to the respective parties to this
Agreement as follows:
If to WL:
Warner-Lambert Company
201 Tabor Road
Morris Plains, New Jersey 07950
U.S.A.
Attn: Vice President, Corporate Development and Licensing
If to PD:
Parke, Davis & Company
201 Tabor Road
Morris Plains, New Jersey 07950
U.S.A.
Attn: Vice President, Corporate Development and Licensing
Copies of all notices to WE and PD shall be sent to:
Warner-Lambert Company
201 Tabor Road
Morris Plains, New Jersey 07950
U.S.A
Attn: Vice President and General Counsel
8
<PAGE> 9
If to Licensee:
Parkedale Pharmaceuticals, Inc.
870 Parkdale Road
Rochester, Michigan 48307
Attn: President
With a copy to:
King Pharmaceuticals, Inc.
501 Fifth Street
Bristol, Tennessee 37620
Attn: Executive Vice President and General Counsel
13.2 The parties shall not be liable for failure of performance hereunder
if occasioned by war, declared or undeclared, fire, flood,
interruption of transportation, embargo, accident, explosion,
inability to procure or shortage of supply of materials, equipment or
production facilities, prohibition of import or export of the
Products, governmental orders, regulations, restrictions, strikes,
lockouts, or other labor troubles or any other cause beyond the
control of the parties. Any suspension of performance by reason of
this paragraph shall be limited to the period during which such cause
of failure exists, but such suspension shall not affect the running of
the term of this Agreement.
13.3 Nothing herein contained shall be construed to place the parties in a
relationship of partners or joint venturers and Licensee shall have no
power to obligate or bind Licensor in any manner whatsoever.
13.4 Licensee hereby indemnifies Licensor and undertakes to defend and hold
Licensor harmless from any claims, suits, loss and damage (including
reasonable attorneys' fees) arising out of any allegedly unauthorized
use by Licensee of the Licensed Rights, which indemnification shall
survive the termination of this Agreement.
13.5 (a) This Agreement is personal to Licensee and, except as set forth in
this Section 13.5, neither this Agreement nor any of the rights or
duties hereunder may be assigned, sublicensed or otherwise encumbered
by Licensee or by operation of law, nor may Licensee give up any
control over the subject matter of this Agreement except that Licensee
may assign any or all of its rights, interests and obligations
hereunder to an Affiliate of Licensee, provided that any such
Affiliate agrees in writing to be bound by all of the terms,
conditions and provisions contained herein, but in the event of any
such assignment referred to herein Licensee's ultimate parent entity,
King Pharmaceuticals Inc., a Tennessee corporation, shall guaranty the
fulfillment of all obligations of Licensee and its assignees
hereunder.
(b) Notwithstanding the provisions of Section 13.5(a), Licensee shall
have the right to grant a security interest in this Agreement to any
financial institution that is a lender to Licensee. Any such lender to
Licensee or any trustee, receiver, administrator or representative in
bankruptcy (whether voluntary or involuntary) of Licensee, who holds
an interest in this Agreement shall be permitted a one time right to
sublicense or assign this Agreement with the consent of Licensor,
which consent shall not be unreasonably withheld. No such sublicensee
or assignee shall have the right to sublicense or assign this
Agreement to any other person.
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(c) Subject to the terms of this Section 13.5, this Agreement is
binding upon, inures to the benefit of and is enforceable by the
parties hereto and their respective successors and assigns.
13.6 None of the terms of this Agreement shall be deemed to be waived or
modified, nor shall this Agreement be renewed, extended, terminated or
discharged except as set forth in Section 3.1 or by an agreement in
writing signed by or on behalf of both parties. There are no
representations, promises, warranties, covenants or undertakings,
other than those contained in this Agreement, which Agreement
represents the entire understanding of the parties.
13.7 Any provision or provisions of this Agreement which are held to be
invalid or unenforceable in any way, shall be deemed separable and
shall not affect any other provision of this Agreement.
13.8 This Agreement is made pursuant to and shall be governed by and
construed in accordance with the laws of the State of New York.
13.9 The failure of any party at any time to require performance by the
other of any provision hereof shall in no way affect the full right to
require such performance at any time thereafter. Nor shall the waiver,
indulgence or toleration by one party of a breach of any provision
hereof by the other be taken or held to be a waiver, indulgence or
toleration of the breach itself. The termination for any reason or
expiration of this Agreement shall be without prejudice to the rights
of either party to any remedies of a party in respect of any previous
breach of any of the covenants contained herein.
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<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed and effective as of the date first written above.
WARNER-LAMBERT COMPANY PARKE, DAVIS & COMPANY
By: /s/ Richard B. Van Dvyne By: /s/ Richard B. Van Dvyne
----------------------------- ----------------------------
Name: Richard B. Van Dvyne Name: Richard B. Van Dvyne
Title: Vice President Corporate Title: Power of Attorney
Development and Licensing
PARKEDALE PHARMACEUTICALS, INC.
By: /s/ Jefferson J. Gregory
------------------------------
Name: Jefferson J. Gregory
Title: President
11
<PAGE> 1
Exhibit 10.32
DISTRIBUTION AND SUPPLY AGREEMENT
Distribution and Supply Agreement dated as of December 4, 1989, between
Warner-Lambert Company, a Delaware corporation ("Warner-Lambert") and Fujisawa
Pharmaceutical Company, a Delaware corporation ("Fujisawa").
WITNESSETH
WHEREAS, Warner-Lambert manufactures, distributes and sells the
products, in finished form, set forth on Exhibit A hereto (the "Products").
WHEREAS, Warner-Lambert desires to appoint Fujisawa the exclusive
distributor of the Products in the Territory (hereinafter defined) and Fujisawa
desires to accept such appointment all on the terms and conditions set forth
herein.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants contained herein, Warner-Lambert and Fujisawa hereby agree as
follows:
<PAGE> 2
-2-
Terms and Conditions
1. Purchase and Sale. Commencing March 1, 1990 or such other date
as the parties may mutually agree upon (the "Effective Date"), and throughout
the term of this Agreement, Warner-Lambert hereby appoints Fujisawa as the
exclusive distributor of the Products in the United States, but excluding Puerto
Rico and the other United States territories and possessions (the "Territory").
Under no circumstances shall Fujisawa distribute any Product outside of the
Territory. Warner-Lambert shall supply, and Fujisawa shall purchase, all of
Fujisawa's requirement for the Products for the term of this Agreement.
Promptly following the Effective Date, Warner-Lambert and Fujisawa shall
jointly provide a communication to the trade and Warner-Lambert shall inform all
potential purchasers of the Product which contact Warner-Lambert that Fujicawa
is the exclusive distributor of the Products in the Territory.
2. Product Standards.
(a) Warner-Lambert shall use its best efforts to supply
Fujisawa's requirements for the Products from one of Warner-Lambert's Food and
Drug Administration approved facilities (currently expected to be
Warner-Lambert's Rochester, Michigan facility). Fujisawa shall be treated at
least as favorably as Warner-Lambert treats its own affiliates in assuring a
supply of the Products. The Products shall be manufactured in accordance with
the specifications and procedures attached as Exhibit B hereto (the
"Specifications"). Warner-Lambert represents and
<PAGE> 3
-3-
warrants that the Specifications comply in all material respects with FDA rules
and regulations. Subject to Section 2(c) hereof or as required by any
appropriate governmental agency, such specifications shall remain the same
throughout the term of this Agreement unless any change thereof is mutually
agreed to in writing by both parties hereto and approved by the Federal Food and
Drug Administration (the "FDA") and all other appropriate governmental agencies.
(b) Warner-Lambert shall be responsible for handling all
complaints, inquiries and reports of adverse reactions relating to the Products,
including the expense of investigation thereof. Warner-Lambert shall keep
Fujisawa informed with respect to such matters and Fujisawa shall cooperate with
Warner-Lambert with respect to the investigation and disposition of such
matters. Fujisawa shall promptly notify Warner-Lambert of any adverse reaction,
complaint or investigation promptly upon receipt of any of the foregoing and, in
any event, no later than three (3) business days following such receipt.
(c) Fujisawa acknowledges that it has been informed of the
matters described in Exhibit C hereto. In connection therewith, if it becomes
appropriate at any time for Warner-Lambert to reformulate any of the Products,
Warner-Lambert shall inform Fujisawa of the reformulation and furnish Fujisawa
with the appropriate specifications for such reformulated product(s) and a base
purchase price for such reformulated product(s). Warner-Lambert's decisions in
such regard shall be binding upon Fujisawa and Fujisawa shall cooperate with
<PAGE> 4
-4-
Warner-Lambert with respect to such matters. Any reformulated Product shall be
deemed a "Product" for purposes of this Agreement.
Fujisawa agrees that all communications with respect to the
matter described in Exhibit C or any other regulatory matter with the FDA or any
other governmental agency will be controlled by Warner-Lambert and Fujisawa
shall cooperate with Warner-Lambert with respect to such matters and shall not
make any contact relating to the Product with the FDA or any other governmental
or regulatory agency without the prior written consent of Warner-Lambert.
3. Purchase Price. Fujisawa's purchases of each Product shall be
at (i) forty percent (40%) of Fujisawa'a catalog list price for each Product as
of the date of the invoice relating to such Product, or (ii) forty percent (40%)
of the sales price set forth on Exhibit A hereto, whichever is greater. Any
applicable sales or other tax (except for tax on the income of Warner-Lambert)
shall be added to such purchase price. Fujisawa shall provide Wamer-Lambert with
thirty (30) days prior written notice of any change in the catalog list price
for any of the Products.
Notwithstanding the foregoing, Fujisawa shall be entitled to
request and purchase from Warner-Lambert amounts of the Elase 10 gram tube at
(i) thirty-two percent (32%) of Fujisawa's catalog list price or (ii) thirty-two
percent (32%) of the sales price set forth on Exhibit A hereto, whichever is
<PAGE> 5
-5-
greater. Fujisawa acknowledges that such ordered amounts shall be marked on the
tube and/or the package with words to the effect "Sample - Not for resale" and
must be ordered in minimum lot sizes of 5,000 units. Forecasts for such Products
shall be included in the forecasts as described in Section 5 hereof.
4. Packaging and Labeling; Returns. At the Effective Date, the
Products shall be packaged in the same manner as Warner-Lambert heretofore
packaged the Products (an example of which has been seen and accepted by
Fujisawa). Fujisawa shall furnish labeling specifications and any necessary
artwork to Warner-Lambert and Warner-Lambert shall label the Products
accordingly, provided that such specifications are reasonably satisfactory to
Warner-Lambert and approved by the FDA. It is understood that the labeling
specifications shall call for a statement such as "Manufactured by Parke-Davis
for distribution by Fujisawa".
Fujisawa shall purchase, for the purchase price referred to in Section
3 hereof, all of the finished goods inventory in the possession of
Warner-Lambert as of the Effective Date and allow for the depletion of all
existing labeling and packaging inventory; provided, however that Fujisawa shall
not be required to purchase any more than a four months supply (based on sales
for the corresponding months in the prior year plus l0%) of each Product and
Fujisawa shall not be required to purchase any inventory with a shelf life of
less than fifteen months as of the Effective Date.
<PAGE> 6
-6-
Any Products which are returned to Fujisawa after the Effective Date
shall be for the account of and handled by Fujisawa; provided, however, that for
the first three (3) months following the Effective Date, if the value of returns
(based on the catalog list price when such Products were sold) of the Products
in the aggregate exceed $104,710, Warner-Lambert shall reimburse Fujisawa for
the excess above $104,710 of unusable returned Products. Any returns received by
Warner-Lambert after the Effective Date shall be handled by Warner-Lambert and
Warner-Lambert shall be entitled to charge Fujisawa for the cost of such
returns, except as set forth above.
5. Forecasting. Four (4) months before the commencement of each
calendar quarter, Fujisawa will give to Warner-Lambert (A) a forecast of
Fujisawa's approximate twelve (12) months requirements of each Product
commencing four (4} months after the date of such forecast and (B) a forecast of
its requirements of each Product during the first quarter of said twelve (12)
months period. The forecast referred to in (A) above shall represent Fujisawa's
reasonable estimates of the quantity of each Product that Fujisawa will require
for stock production and sales during the twelve (12) month period to which much
forecast applies and the forecast referred to in (B) above shall be considered a
firm order. Without the prior written consent of Warner-Lambert which shall not
be unreasonably withheld, no firm order for any amount of units of any Product
may exceed the most recent forecast for such quarter by more than fifteen
percent (l5%) and no forecast for any quarter may exceed the forecast for the
prior quarter by
<PAGE> 7
-7-
more than fifteen percent (15%). Notwithstanding the foregoing, it shall not be
unreasonable for Warner-Lambert to withhold its consent if it believes increased
orders for any Products are due to anticipated future Product price increases by
Fujisawa.
6. Title and Risk of Loss. Title and risk of loss to the Products
shall remain with Warner-Lambert until delivery within the United States to a
common carrier for shipment to Fujisawa to the destination specified in its firm
order for such Products. Delivery to such common carrier shall constitute
delivery to Fujisawa and Fujisawa shall bear all risk of loss, delay, damage in
transit as well as all transportation expenses. Such Products shall not be
shipped outside of the United States by Fujisawa for any purpose whatsoever.
Warner-Lambert shall invoice Fujisawa for the Products shipped
pursuant to this Agreement and Fujisawa shall pay each invoice within thirty
(30) days of the date of such invoice or the delivery date, whichever is later.
In ordering and delivering the Products, Warner-Lambert and
Fujisawa may use their standard forms, but nothing in such forms shall be
construed to amend or modify the terms of this Agreement and in case of conflict
herewith, the terms of this Agreement shall control.
<PAGE> 8
-8-
7. Advertising and Promotion.
(a) Fujisawa agrees that it shall use its best efforts to
ensure that the Products shall be as actively promoted with the same intensity
and frequency as Fujisawa would promote one of its own pharmaceutical products
of equal gross profits. Fujisawa shall promote the Products by making medical
details and sales representative calls and distributing suitable advertising and
promotional materials. The Products shall be promoted at all times in accordance
with the FDA regulations concerning advertising and promotional labeling. All
advertising and promotional materials shall be submitted to Warner-Lambert for
its prior review and approval which shall not be unreasonably withheld.
Warner-Lambert shall inform Fujisawa of its rejection or approval of advertising
and promotional material within thirty (30) days of receipt of such materials by
Warner-Lambert. Fujisawa shall not use any materials which Warner-Lambert shall
advise do not meet Warner-Lambert's approval and Fujisawa shall discontinue the
use of any materials which Warner-Lambert may at any time advise do not meet
Warner-Lambert's approval due to regulatory concerns.
(b) Any dispute or challenge to the promotion or advertising
of any of the Products by the FDA, a competitor or otherwise shall be handled by
Warner-Lambert (and Fujisawa shall promptly notify Warner-Lambert within
twenty-four (24) hours of any each dispute or challenge to which it becomes
aware) and all decisions made by Warner-Lambert relating thereto shall be
binding on Fujisawa.
<PAGE> 9
-9-
8. Warranty; Inspection. Warner-Lambert warrants that
each production lot of the Products delivered to Fujisawa under this Agreement
shall, at the time of delivery, meet the Specifications, shall be in good,
usable and merchantable condition reasonably fit for use if used in accordance
with label directions and Shall not consist of or contain any product or article
which, at the time of shipment, (A) is adulterated or misbranded within the
meaning of the Federal Food, Drug and Cosmetic Act, as amended (the "Act") or
(B) may not, under the provisions of Section 404 or 505 of the Act, be
introduced into interstate commence.
Fujisawa shall have a period of thirty (30) days from date of
receipt of the Products to inspect and reject any shipment on the grounds that
it does not comply with the foregoing. Fujisawa shall notify Warner-Lambert in
writing of Fujisawa'a claims on account of quality of any Product or failure to
meet Specifications within thirty (30) days of the receipt of each shipment.
Fujisawa'a failure to notify Warner-Lambert within the stipulated thirty (30)
day period will be deemed for purposes of this Agreement as acceptance by
Fujisawa of such shipment. All Products which are defective hereunder shall be
returned to Warner-Lambert at Warner-Lambert's expense and shall be replaced by
Warner-Lambert at no charge to Fujisawa. The preceding sentence sets forth
Fujisawa's sole remedy for nonconforming shipments, except as set forth in
Section 13(a) hereof. Warner-Lambert shall not be liable to Fujisawa for any
damages, including but not limited to, direct, special,
<PAGE> 10
-10-
incidenta1 or consequential damages (including, without limitation, loss of
business, profits, or goodwill), arising therefrom (whether in contract, tort,
negligence or otherwise) or in connection with its performance under this
Agreement. Any dispute between Warner-Lambert and Fujisawa as to whether or not
any Product is defective shall, if not resolved by the good faith negotiations
of Warner-Lambert and Fujisawa, be submitted for conclusive determination to a
mutually acceptable independent testing laboratory, the fees of which shall be
paid by Fujisawa if the applicable Product is determined to be not defective and
by Warner-Lambert if such Product is determined to be defective.
9. Representations and Warranties.
(a) Fujisawa represents and warrants that it is duly
incorporated in the State of Delaware and is licensed to do business in each
State in which it is required to be so licensed as a result of its activities in
such State and pursuant to this Agreement.
(b) Fujisawa acknowledges that Warner-Lambert has not made
any representations or warranties of any kind, either express or implied, except
as expressly set forth in this Agreement. FUJISAWA AGREES THAT THE
REPRESENTATIONS AND WARRANTIES GIVEN HEREIN BY WARNER-LAMBERT ARE IN LIEU OF,
AND FUJISAWA HEREBY EXPRESSLY WAIVES ALL RIGHTS TO, ANY IMPLIED WARRANTIES WHICH
MAY OTHERWISE BE APPLICABLE BECAUSE OF THE PROVISIONS OF THE UNIFORM COMMERCIAL
CODE OR ANY OTHER STATUTE,
<PAGE> 11
-11-
INCLUDING, WITHOUT LIMITATION, THE WARRANTIES OF MERCHANTABILITY OR FITNESS FOR
A PARTICULAR PURPOSE.
10. Further Covenants of Fujisawa.
(a) Fujisawa shall comply in all respects with all statutes,
rules and regulations (including, without limitation, the "Prescription Drug
Marketing Act of 1987") applicable to it in connection with the performance of
its obligations under this Agreement and the distribution of the Products.
(b) Fujisawa shall not take any action or omit to take any
action which might negatively affect the regulatory status of any of the
Products.
(c) Fujisawa shall cooperate with Warner-Lambert in
attempting to obtain all appropriate licenses and registrations in order that
Fujisawa may distribute the Products pursuant to this Agreement, it being
understood that all communications with the FDA and any other governmental or
regulatory authority shall be made by Warner-Lambert.
(d) In the event that Fujisawa plans during the term of this
Agreement to introduce in the Territory any product for topical use which may be
directly competitive with any of the Products, Fujisawa shall inform and consult
with Warner-Lambert reasonably in advance of such introduction and Fujisawa
shall ensure that the sales of the Products shall not be jeopardized by the
introduction of such product.
<PAGE> 12
-12-
(e) Fujisawa shall not submit for governmental approval,
promote or sell any line extensions to the Products without the prior written
consent of Warner-Lambert.
(f) Fujisawa shall only use the trademark "Elase" on
materials approved by Warner-Lambert. Fujisawa shall, at no time during the term
of this Agreement, use any trademark confusingly similar to the trademark
"Ease" and, after the termination of this Agreement, Fujisawa shall not use the
trademark Elase or any trademark confusingly similar therewith. Fujisawa shall
not acquire any rights of ownership to the tradename "Elase" under this
Agreement.
(g) Fujisawa shall not sell or distribute any of the Products
to any third person if Fujisawa knows or has reason to believe that such third
person will sell or distribute any of the Products outside of the Territory.
(h) Fujisawa shall continue to be licensed to do business in
each State in which it is required to be so licensed during the term of this
Agreement.
11. Confidentiality. Warner-Lambert will at all times maintain as
confidential any know-how or technical or financial information disclosed to
Warner-Lambert by Fujisawa during the term of this Agreement. Fujisawa will at
all times maintain as confidential any know-how or technical or financial
information as disclosed to Fujisawa by Warner-Lambert during the term of
<PAGE> 13
-13-
this Agreement. However, no such know-how or technical or financial information
shall be considered of a confidential nature if (A) it shall have been known to
the party alleging nonconfidentiality prior to the date of this Agreement and
that fact can be established from such party's records; or (B) it shall have
been in the public domain other than by breach of the confidentiality
contemplated by this Agreement; or (C) it is disclosed to the receiving party by
a third party which is not in breach of any confidentiality obligation to the
other party. The party asserting that any disclosed information is proprietary
shall have the burden of establishing the proprietary nature of such
information.
12. Force Majeure. In the event that strikes, riots, war, acts of
God, invasion, fire, explosion, floods, delay of carrier, shortage or failure in
the supply of materials, energy shortage, acts of government or governmental
agencies or instrumentalities, or other contingencies beyond the control of
Warner-Lambert, interfere with, or prevent, Warner-Lambert's production of the
Products for Fujisawa hereunder, Warner-Lambert's obligation to carry out such
production for Fujisawa shall be suspended until such time as such contingency
or contingencies have terminated.
13. Indemnification
(a) Except as set forth in Section 13(b), Warner-Lambert will
indemnify and hold Fujisawa harmless against any and all liability, damage,
lose, cost or expense resulting from any third party claims made or suits
brought against Warner-Lambert
<PAGE> 14
-14-
and/or Fujisawa which may be sustained or suffered by Fujisawa by virtue of the
distribution and sale of the Products. Upon the filing of any such claim or
suit, Fujisawa shall immediately notify Warner-Lambert thereof and shall permit
Warner-Lambert to handle and control such claim or suit. The obligations set
forth in this Section 13(a) shall survive the termination of this Agreement.
(b) Fujisawa will indemnify and hold Warner-Lambert harmless
against any and all liability, damage, loss, cost or expense resulting from any
third party claims made or suits brought against Fujisawa and/or Warner-Lambert
which arise out of (A) the breach of any representation, warranty or covenant
contained in this Agreement, (B) any violations of the Prescription Drug
Marketing Act of 1987 as a result of the activities contemplated hereunder, or
(C) the negligence or willful misconduct of Fujisawa in the distribution and
sale of the Products in the Territory. Upon the filing of any such claim or
suit, Warner-Lambert shall immediately notify Fujisawa thereof and shall permit
Fujisawa at its cost to handle and control such claim or suit, except with
respect to any claims or suits which may impact the regulatory status of any of
the Products, which claims or suits shall be handled and controlled by
Warner-Lambert at Fujisawa's expense. The obligations set forth in this Section
13(b) shall survive the termination of this Agreement.
14. Assignment. Fujisawa shall not be entitled to assign any of
its rights or delegate any of its duties hereunder without
<PAGE> 15
-15-
the prior written consent of Warner-Lambert. Warner-Lambert may assign its
rights or delegate its duties to any third person or entity without the consent
of Fujisawa. Warner-Lambert shall give Fujisawa thirty (30) days prior written
notice in the event it intends to assign any or all of its rights or delegate
any or all of its duties as aforesaid.
15. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New Jersey (except for
those provisions governing conflicts of law). Each party hereby irrevocably
submits to the Jurisdiction of any court in the State of New Jersey to resolve
any disputes arising out of or in any way relating to this Agreement.
16. Term: Termination. This Agreement shall become effective as of
the Effective Date, and shall remain in full force and effect for a period of
five (5) years from such date. This Agreement shall be automatically renewed for
additional periods of two (2) years unless Fujisawa or Warner-Lambert shall have
given the other party written notice of termination at least one hundred eighty
(180) days prior to the then-relevant expiration date of this Agreement;
provided, however, that Warner-Lambert may not terminate this Agreement as set
forth above unless, in its reasonable opinion, Fujisawa failed to adequately
support the Products during the prior two-year period.
Notwithstanding the foregoing, this Agreement may
be terminated by Warner-Lambert effective as of September 1, 1992 or
<PAGE> 16
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any date thereafter in the event that the option granted to Warner-Lambert under
Article II of the Option and License Agreement dated the date hereof, between
Fujisawa and Warner-Lambert is not exercised. Warner-Lambert shall give
Fujisawa three (3) months notice of any such termination.
This Agreement may be terminated at any time by either party:
(A) Upon breach of this Agreement by the other party, on
sixty (60) days' prior written notice to the breaching party, the notice to
become effective at the end of such sixty (60) day period unless the breach is
sooner cured by the breaching party;
(B) Upon bankruptcy or insolvency of the other party or
placing of the business of such party in receivership.
Upon any expiration or termination of this Agreement,
Warner-Lambert shall repurchase, at the price paid by Fujisawa to Warner-Lambert
for such Products, any usable current (expiration date not to be more than one
(1) year from the date of such purchase) remaining inventory of the Products
(shipping costs to be borne by Fujisawa). Any nonusable inventory (expiration
date being less than one year from the date of purchase) shall be destroyed at
Fujisawa's expense.
17. Notices. Any notice required or permitted to be given under
this Agreement shall be mailed by registered or certified
<PAGE> 17
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air mail, postage prepaid, addressed to the party to be notified at its address
stated below, or at such other address as may hereafter be furnished in writing
to the notifying party.
If to Fujisawa:
Fujisawa Pharmaceutical Company
Suite 300
401 City Avenue
Balla Cynwyd, Pennsylvania 19004
Attention: Chairman of the Board
If to Warner-Lambert:
Warner-Lambert Company
201 Tabor Road
Morris Plains, New Jeracy 07950
Attention: Vice President, Corporate Licensing and
Technology Transfer
with a copy to:
Vice President and General Counsel
18. Waiver. The failure on the part of Fujisawa or Warner-Lambert
to exercise or enforce any rights conferred upon it hereunder shall not be
deemed to be a waiver of any such rights nor operate to bar the exercise or
enforcement thereof at any time thereafter.
19. Independent Contractor. At all times during the term of this
Agreement, and any renewals hereof, the parties shall be considered independent
contractors, and neither the making of this Agreement nor the performance of any
of the provisions hereof shall be construed to make either party an agent,
employee or legal representative of the other, nor shall this Agreement be
deemed to establish a joint venture or partnership.
<PAGE> 18
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20. Public Announcements. Warner-Lambert and Fujisawa shall
consult with each other before issuing any press releases or otherwise making
any public statements with respect to this Agreement and neither of them shall
issue any press release or make any public statement prior to obtaining the
other party's approval, which approval shall not be unreasonably withheld,
except that no such approval shall be necessary to the extent disclosure may be
required by law.
21. Integration. This Agreement contains all of the
representations, warranties, covenants and agreements between the parties
relating to the subject matter hereof. Any amendment to this Agreement must be
in writing and signed by both parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized officers as of the day and year first above
written.
WARNER-LAMBERT COMPANY
By:/s/
--------------------------
Title
FUJISAWA PHARMEUTICAL COMPANY
By:/s/
-----------------------------------
Title:
<PAGE> 1
EXHIBIT 10.33
PROCESSING SERVICES AGREEMENT
PROCESSING SERVICES AGREEMENT (the "Agreement") made and effective as of
December 16, 1997 by and between Amgen Inc. ("Amgen"), Amgen Center, 1840
DeHavilland Drive, Thousand Oaks, California 91320-1789 and Parke-Davis Division
of Warner-Lambert Company ("PD"), 870 Parkedale Road, Rochester, Michigan 48307.
WITNESSETH:
WHEREAS, Amgen is engaged in the development and commercialization of
pharmaceutical products.
WHEREAS, PD possesses suitable facilities to formulate, sterile filter,
aseptically fill, lyophilize, label and package pharmaceutical products
according to the Amgen specifications set forth herein and in accordance with
the terms of this Agreement.
WHEREAS, Amgen and PD now desire to contract for the Processing (as
hereinafter defined) by PD of certain quantities of Amgen products on the terms
and conditions set forth herein.
NOW THEREFORE, in consideration of the foregoing premises and the mutual
covenants which are recited herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 "ACTUAL YIELD" shall mean the actual number of Vials in compliance with
all Specifications resulting from the Processing of a given quantity of
Product.
1.2 "BATCH" shall mean a single lot of Product.
1
<PAGE> 2
1.3 "CONFIDENTIAL INFORMATION" shall mean all confidential information
disclosed by one party to this Agreement to the other party at any time
prior to or during the term of this Agreement which disclosure is
pursuant to or in furtherance of this Agreement, except that which the
party receiving such Proprietary Information can establish by competent
evidence:
(i) was known to the receiving party at the time of disclosure; or
(ii) was generally available to the public or was otherwise part of
the public domain at the time of disclosure; or
(iii) became generally available to the public or became otherwise
part of the public domain after disclosure and other than
through any act or omission of the receiving party, its agents
or employees, in breach of this Agreement; or
(iv) was independently developed by the receiving party without the
aid, application or use of the Proprietary Information
disclosed; or
(v) became known to the receiving party after disclosure from a
source who had the lawful right to disclose such information,
other than the disclosing party, and other than from a third
party who had an obligation to the disclosing party not to
disclose such information to others.
(vi) legal counsel to the receding party has determined is required
by law to be disclosed, provided however, prior to disclosure
by the receiving party the receiving party shall notify the
disclosing party and provide the disclosing party with the
opportunity to seek an appropriate protective order.
1.4 "EXPECTED YIELD" shall mean (i) with respect to formulated bulk Product
the quantity of finished Vials that can reasonably be achieved in PD's
judgment from the Processing of a Batch in accordance with the
Specifications in light of fluid losses due to filtration, overfills,
etc. and vial losses due to container or product defects and (ii) with
respect to unformulated bulk Product shall be as agreed by the parties
and shall be based on PD's specific experiences at the Facility with
Product
2
<PAGE> 3
and PD's experience with other products of similar fill and product
characteristics. This yield is to be acceptable to both parties.
1.5 "FACILITY" shall mean Parke-Davis' facility located at 870 Parkedale
Rd., Rochester, Michigan 48307.
1.6 "FINISHED PRODUCT" shall mean Product Processed in accordance with the
Specifications.
1.7 "MATERIALS" shall mean bulk Product (formulated and/or unformulated)
and Processing Materials.
1.8 "ORTHO BIOTECH" shall mean Ortho Biotech Division of Ortho
Pharmaceutical Corporation.
1.9 "PROCESSING MATERIALS" shall mean filling and/or packaging components
as are reasonably necessary for utilization in the Processing,
including, without limitation, vials, filters, seals, stoppers,
silicone and silicone tubing, labels, unit cartons, shelf cartons,
packaging inserts and plastic trays.
1.10 "PROCESS" shall mean with respect to any Product, receive, store,
filter, formulate, sterile filter, aseptically fill, lyophilize (if
applicable), inspect, label, package and ship Product according to the
Specifications. "Processing" and "Processed" shall have comparable
meanings.
1.11 "PROCESSING FEE" SHALL mean the fee for Processing calculated as set
forth in Exhibit B and payable as set forth in Section 2.8.
1.12 "PRODUCT" shall mean EPOGEN(R) (epoetin alfa), NEUPOGEN(R)
(filgrastim), STEMGEN(R) (ancestim), BDNF, GDNF, NT-3, KGF, Leptin and
any other biological or chemical product intended for human
pharmaceutical use provided by Amgen to PD for Processing.
3
<PAGE> 4
1.13 "RESERVATION FEE" shall mean the annual reservation fee as set forth in
Section 2.8.
1.14 "REWORK" shall mean with respect to any Batch of Product which
following Processing fails to meet Specifications, the recovery,
sterile filtration and filling of such Product into Finished Product.
Rework methodology shall be prepared by Amgen and be subject to
approval by PD Quality Assurance. Reworked Product will be processed in
accordance with the requirements of Section 2.3 and the Specifications.
1.15 "SPECIFICATIONS" shall mean the procedures, test results, requirements,
standards and other data and shall include the services set forth
herein and made part hereof as Exhibit A, as such Exhibit may be
revised from time to time upon mutual agreement of the parties.
1.16 "THEORETICAL YIELD" shall mean that quantity of vials that is
achievable by dividing the amount of Product supplied by Amgen by the
target fill weight or volume agreed upon by the parties.
1.17 "Vial" shall mean single chamber vials of between two (2) and twenty
(20) milliliter volumes.
ARTICLE II
SUPPLY AND PROCESSING OF MATERIALS AND WARRANTIES
2.0 AMGEN AUTHORIZED REPRESENTATIVES.
(a) Exhibit C lists the Amgen representatives authorized to act on
Amgen's behalf during interactions with Parke-Davis pursuant to this
Agreement.
(b) The Amgen Contract Manufacturing representatives set forth on
Exhibit C are the sole authorized Amgen representatives for
4
<PAGE> 5
delivering Processing requests, production information and scheduling
information ("Production Information").
(c) Production Information which does not originate from an Amgen
Contract Manufacturing representative are for information only and
non-binding. All such production information must be confirmed with
an Amgen Contract Manufacturing representative.
(d) PD will deliver all invoices hereunder to an Amgen Contract
Manufacturing representative for approval.
(e) Amgen Contract Manufacturing may modify Exhibit C from time to
time.
2.1 PRODUCT FORECAST ESTIMATES.
(a) Forecast Estimates. Exhibit D, attached hereto and incorporated
herein, sets forth a good faith estimate of Amgen's requirements for
Processing of commercial and clinical Batches for the calendar year
1998. No less than thirty (30) days before January 1, 1998 and by the
tenth (l0th) of each month thereafter, Amgen will be required to
provide PD with a written rolling six (6) month estimate of Amgen's
requirements for Processing for commercial and clinical Batches. With
respect to commercial Batches, the first two (2) months of this rolling
schedule will be binding upon Amgen plus or minus twenty-five percent
(+/- 25%) such that if Amgen fails to order the quantities specified,
it shall be obligated to pay PD the difference between seventy-five
percent (75%) of the number of Batches set forth in the estimate and
the number of Batches actually Processed. The first two (2) months of
this rolling schedule will be also be binding upon PD plus twenty-five
percent (+ 25%) and PD commits to make the Facility and appropriate PD
personnel available in order to comply with the estimate.
(b) Guarantee. Notwithstanding anything stated in this Agreement to the
contrary, in the event circumstances arise in which Amgen's ability to
finish and fill Product (clinical or commercial) at its own
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facilities is materially impaired as determined in good faith by Amgen,
PD agrees to guarantee Amgen up to four (4) days (wherein one (1) day
consists of twenty-four (24) consecutive hours) of Processing per one
(1) week period on PD's Filling Line 6 or other such Filling Line
(including a Lyophilization Unit as required) mutually agreed to by the
parties, upon fifteen (15) days advance written notice from any
authorized representative of Amgen.
2.2 PROCESSING SCHEDULE. PD will provide Amgen with a proposed Processing
schedule for (i) commercial Batches for the first two (2) months of
Amgen's rolling six (6) month estimate within ten (10) days of receipt
of the estimate and (ii) for clinical Batches for those Batches with
respect to which Amgen shall have submitted a Purchase Order as set
forth in Section 2.2 below within three (3) days of receipt of the
Purchase Order. The parties shall promptly finalize the Processing
schedules. PD agrees to exercise its best efforts to meet the
Processing schedule set forth below.
(a) PD will ship test samples of quantities of Finished Product
specified by Amgen to Amgen within three (3) working days after the
completion of fill or lyophilization.
(b) PD will inspect Vials of Finished Product within five (5) calendar
days after the completion of fill or lyophilization for all Batches.
(c) PD Quality Assurance will send by overnight mail, telecopy or
facsimile, Batch disposition to Amgen within twenty-eight (28) calendar
days of completion of fill or lyophilization.
(d) PD will have Finished Product available for shipment to Amgen
within fourteen (14) calendar days following fill or lyophilization.
Except to the extent set forth in Section 2.1, PD shall not be required
to give preference to Processing Materials over processing of other
products at the Facility. PD shall Process as close to the schedule
(established pursuant to this Section 2.2) as possible, but, in no
event shall PD commence Processing of liquid vial fills later than
fourteen
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(14) days beyond the schedule for commencement of Processing. In the
event that PD Processes liquid vial fills later than the fourteen (14)
days beyond such scheduled completion date of Processing, for reasons
other than sterility or force majeure, in which case PD shall have no
liability for any such delay or failure to process as scheduled, PD's
sole liability shall be to reduce the applicable Processing Fee (as
hereinafter defined) by fifty percent (50%) except that repeated
failure to Process on schedule, for reasons other than sterility or
force majeure, will constitute the basis for termination of this
Agreement by Amgen, repeated failure being defined as during any
successive two (2) month period the failure to Process fifty percent
(50%) or more of Products as scheduled.
2.3 PURCHASE ORDERS. Amgen shall place purchase orders, upon the terms
mutually agreed upon, with PD at least fourteen (14) days prior to the
time scheduled for Processing and PD shall promptly accept such orders
in writing. The terms of this Agreement shall govern any such Purchase
Order and in the event a Purchase Order shall include terms beyond
Product, quantity and date for Processing, none of such other terms
will be enforceable. PD shall use its best efforts to accommodate
Amgen's scheduling requirements taking into due account its own
scheduling requirements. PD will use its best efforts to accommodate
Amgen's request to amend a purchase order to increase or decrease the
number of Batches to be Processed, provided that if Amgen requests
reduced production less than fifteen (15) days prior to the Processing
date, then PD shall not be obliged to comply unless it can reasonably
schedule replacement production with product which had not already been
scheduled for production. If PD is not able to comply, Amgen shall be
obligated to pay PD one-half (1/2) of the Processing Fee(s) which would
otherwise be payable for scheduled Processing which is not undertaken
as scheduled.
2.4 MATERIALS.
(a) Supply. Amgen shall (i) deliver bulk Product intended for
Processing to the Facility at least seven (7) days in advance of
scheduled Processing and (ii) supply approved label text for Amgen
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Product in accordance with the Processing schedule. PD shall provide
all Processing Materials unless otherwise agreed by the parties. Bulk
Product delivered to PD shall have at least fourteen (14) days of shelf
life remaining at 9:00 a.m. on the date such Product is scheduled for
Processing.
(b) Warranty. Amgen warrants that the Product and any Materials
approved and provided by Amgen shall meet the applicable Product and
Material specifications and shall have been produced in compliance with
applicable federal, state and local laws and regulations including,
without limitation, the Good Manufacturing Practices Regulations of the
United States Food and Drug Administration in effect at the time of
Processing ("GMPs").
(c) Conditional Release. Notwithstanding subsection (b) above, Amgen
may ship Materials under conditional release. If Amgen ships Materials
to PD under conditional release, PD shall Process said Materials at
Amgen's written request. PD shall have no liability for such Materials
(other than to store such Materials in a reasonable manner) until PD
has received written notice from Amgen that such Materials comply with
all applicable quality standards or specifications. In the event such
notice is not received by PD within (i) twenty-eight (28) days of
receipt by PD of commercial Materials or (ii) ninety (90) days of
receipt by PD of clinical Materials or if Amgen notifies PD that the
Materials (commercial or clinical) fail to comply with such standards
and specifications, PD shall return such Materials to Amgen at Amgen's
cost. In no event will Amgen deliver to PD materials under conditional
release which may cause damage to the Facility.
2.5 PROCESSING.
(a) Specifications and Applicable Law. PD warrants that Processing
shall be performed in accordance with the Specifications and applicable
federal, state and local laws and regulations, including without
limitation, the GMPs and in the case of clinical/research Materials any
labeling shall include any required cross-references to
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PD's internal production control system. Before, during and after each
Processing, PD shall, with respect to such Processing, obtain samples,
monitor the Processing and Processing environment and keep such records
as all of the foregoing are required by the Specifications and/or Batch
card. PD hereby disclaims any express or implied warranties whatsoever
not expressly set forth in this Agreement with respect to Processing or
performing any other obligations pursuant to this Agreement. The
parties agree that the only remedies of Amgen at law or equity with
respect to damages or losses arising from failure of PD to Process
Batches in accordance with Specifications or as otherwise arising out
of this Agreement shall be as set forth in Sections 2.4, 2.4, 2.7 and
article V of this Agreement.
(b) Yields. A Theoretical Yield will be calculated and an Expected
Yield will be estimated for each Batch and shall be provided to Amgen
prior to Processing of the applicable Batch. If Amgen does not agree
with the PD estimated Expected Yield, the parties shall in good faith
agree, upon a third party to review the data in which PD determined the
Expected Yield and to review PD records and other relevant data
developed by both parties relating thereto. The findings of such third
party shall be binding on both parties. In the event that the Actual
Yield of any commercial Batch is less than ninety-five percent (95%) of
the Expected Yield, Amgen shall be entitled to an investigation of the
reason(s) for the reduced yield of the commercial Batch and, Amgen
shall be entitled to an equitable reduction in the Processing Fee
credited towards the Reservation Fee, if appropriate.
(c) Improvements. Upon the written request of Amgen, PD under the
assistance and direction of Amgen personnel as required, shall
implement any request made by Amgen for the purpose of increasing the
efficiency of Processing ("Improvements") if the requested Improvements
are reasonable and will not adversely affect other operations of PD.
Improvements shall apply but not be limited, to any equipment
operational qualifications, performance qualifications and process
validations. Expenditures made by PD hereunder shall be
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billed directly to Amgen and shall be payable within thirty (30) days
of date of invoice from PD.
2.6 STORAGE, HANDLING, SHIPMENT.
(a) Storage. PD shall store and handle Materials and Finished Product
as required by the Specifications. In addition, PD shall take such
actions as are reasonably necessary to protect Materials from damage
and deterioration.
(b) Shipment. Upon PD quality assurance written release of a Processed
Batch, PD shall promptly ship Finished Product to Amgen or, at Amgen's
discretion, warehouse Finished Product for a maximum of sixty (60) days
at no cost, and thereafter at charges to be mutually agreed upon, to
the extent warehousing space is available. Furthermore under normal
circumstances, PD shall provide Amgen with properly completed Batch
records, prepared in conformance with the Specifications, within five
(5) days following PD's quality control written release of such Batch
but, in no event more than four (4) weeks from the date the Processing
run is completed (i.e., the date the filling or lyophilization is
completed). Amgen shall promptly accept tender of delivery of Finished
Product, either through Amgen employees or authorized shipping agents.
(b) Risk of Loss. Amgen shall retain title to and risk of loss of
Materials supplied by it and shall be responsible for any losses to
such Materials and Finished Product, except for losses directly
attributable to the sole and gross negligence or intentional
malfeasance of PD or its agents or employees and except as expressly
set forth in the other terms of this Agreement.
(c) Shipment to Ortho Biotech. Amgen hereby authorized PD to package
and deliver to Ortho Biotech (pursuant to the Agreement between PD and
Ortho Biotech) such Batches of EPOGEN(R), or portions thereof, as shall
be designated orally or in writing by Amgen. Amgen shall retain title,
risk of loss and be responsible for any losses relating thereto until
such time as labeling is complete on such
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Batches and the FDA releases and Amgen approves the vialed EPOGEN(R)
designated for Ortho Biotech. Amgen will notify PD of any event or
change in circumstance resulting in the withdrawal by the FDA of Ortho
Biotech's ability to receive and distribute EPOGEN(R).
2.7 BATCH TESTING: REJECTION.
(a) Testing. Within sixty (60) days following Amgen's receipt of PD
Quality Assurance written approval of a Batch, Amgen shall complete
testing of such Batch in accordance with the test procedures set forth
in the Specifications.
(b) Rejection. Amgen may reject any Batch of Finished Product failing
to meet any of the Specifications by giving written notice of rejection
to PD within sixty-seven (67) days, following receipt by Amgen of PD
Quality Assurance written approval of such Batch and the applicable
Batch Records. Any claim by Amgen submitted to PD pursuant to this
Section 2.7 shall be accompanied by a report of analysis (including a
product sample from the Batch analyzed), and shall be handled as set
forth below. Amgen's failure to reject Finished Product in the manner
set forth above shall constitute acceptance thereof except to the
extent that any defect in the Batch, which defect substantially impairs
the value of the Batch to Amgen and which would have otherwise
permitted Amgen to reject such Batch pursuant to this Section, was not
discovered by Amgen after exercising due diligence and using customary
testing procedures accepted in the industry and provided that Amgen
notifies PD of any such defect within a reasonable time after Amgen
discovers or should have discovered the defect and before any
substantial change in the condition of the Batch which is not caused by
such defect.
(c) Credits. Should Amgen reject any Batch pursuant to this Section and
PD shall agree that such rejection was justified, PD shall promptly
credit Amgen's account for the Processing Fee paid pursuant to Section
2.8 and for the cost of Materials, (other than Product used in such
Batch), or at Amgen's option, Rework the Batch, at no additional cost
to Amgen, on a priority basis, as mutually agreed to by both
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parties. Should Amgen reject any Batch pursuant to this Section and
should PD, after good faith negotiation, fail to agree that such
rejection was justified, the parties shall mutually agree, such
agreement not to be unreasonably withheld, upon a third party to test
samples of such Batch and to review records and test data and other
relevant information developed by both parties relating thereto to
ascertain liability for the breach. The findings of such third party
shall be binding on both parties. If Amgen is found liable, Amgen shall
pay the costs of such tests and shall be deemed to have accepted the
affected Batch. If PD is found liable, PD shall pay the costs of such
tests and shall promptly credit Amgen's account for the Processing Fee
paid pursuant to Section 2.8 and for the cost of Materials (other than
Product) used in such Batch, or at Amgen's option, Rework the Batch, at
no additional cost to Amgen, on a priority basis, as mutually agreed to
by both parties. Notwithstanding anything to the contrary stated in
this Section, if Amgen and PD are found to be comparatively at fault,
each shall pay the costs of such tests and for the cost of Materials
(other than Product) used in such Batch according to the percentage of
the respective Party's fault.
2.8 PROCESSING FEE AND RESERVATION FEE.
(a) Processing Fees. Amgen shall pay to PD Processing Fees at the rates
set forth in Exhibit B for each Batch of Product Processed. Within
thirty (30) days after the completion of Processing for a Batch, PD
will provide to Amgen an invoice setting forth the Processing Fees for
the Batch. Processing for a Batch will be considered complete for
invoicing purposes when the Batch card has been delivered to Amgen.
(b) Guaranteed Minimum. In consideration of PD's commitment to reserve
for Amgen sufficient Facility capacity to conduct Processing for Amgen
as set forth in the six (6) month rolling forecast delivered by Amgen
to PD in accordance with Section 2.1, Amgen will guarantee to pay PD a
minimum of eight million dollars ($8,000,000) in for Product Processing
hereunder in 1998.
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(c) Payments. In the event Amgen does not incur Processing Fees
hereunder equal to or greater than the Guaranteed Minimum Payment, any
shortfall between the actual Processing Fees for the year and the
Guaranteed Minimum Payment will be payable at year end thirty (30) days
following Amgen's receipt of PD's invoice for all Processing Fees
payable for the year.
2.9 ADDITIONAL COSTS.
(a) Media Fill. In the event that PD's standard media fill, as set
forth in Exhibit A, Number 16, does not fulfill Amgen's requirements or
in the event a media fill of greater than 10,000 Vials per quarter is
required, then Amgen shall be obligated to pay for such media fill at a
rate that does not exceed fifty percent (50%) of the filling and
labeling fee per unit in effect at that time.
(b) Processing Materials. Amgen shall pay for PD's actual costs of all
Processing Materials provided by PD for Product Processing thirty (30)
days of date of invoice from PD.
2.10 INVOICES. All invoices for Processing Services, Processing Materials or
any other costs accruing hereunder shall be delivered to an Amgen
Authorized Representative.
2.11 RECORDS. The parties shall maintain all records and accounts pertaining
to the Processing services performed for a period of at least two (2)
years after final payment. Either Party shall have the right to audit,
copy and inspect said records and accounts at all reasonable times
during the course of the services and for the above two (2) year period
for the purpose of verifying costs incurred and Processing Fees
credited towards the Reservation Fee.
2.12 FACILITIES. PD will provide secure basic office facilities at PD's
Facility including but not limited to, a desk, computer, telephone and
facsimile access, for use by Amgen personnel.
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2.13 PD PERSONNEL. PD shall provide such training of its appropriate
personnel as may be required to Process Batches in a professional
manner, consistent with the Specifications.
ARTICLE III
INDEMNIFICATION
3.1 INDEMNIFICATION BY AMGEN.
(a) Amgen agrees to indemnify, defend and hold harmless
Warner-Lambert Company, its divisions and affiliates and their
officers, directors, agents and employees, from and against
all costs, claims, suits, expenses (including attorneys' fees)
and damages arising out of or resulting from the use, sale
and/or distribution of any Finished Product unless such costs,
claims, suits, expenses or damages result from the gross
negligence or willful misconduct of PD. Amgen agrees that in
the event of a personal injury of an Amgen employee in the
course of his/her employment, Amgen will waive and/or cause
its insurance carrier to waive its rights of subrogation to
recover Workmen's Compensation payments made to such employee,
if due to Amgen negligence.
(b) Amgen will defend at its expense any claim brought against
Wamer-Lambert Company, its divisions, affiliates and their
officers, directors, agents and employees to the extent, based
on a claim, that any Product Amgen produces and delivers to PD
for Processing infringes a United States patent or that PD's
Processing of such Product is an infringing use by PD under
such United States patent(s). Amgen will indemnify the above
entitles and persons for any expenses incurred and directly
attributable to any such claim, but only on condition that:
(i) Amgen is promptly notified in writing of any such
claim;
(ii) Amgen shall have sole control of the defense: and
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(iii) PD gives Amgen reasonable information and assistance
for such defense at Amgen's cost.
The foregoing states the entire liability of Amgen concerning
infringement with respect to a Product.
(c) Amgen will indemnify, hold harmless and defend Warner Lambert
Company, its divisions, affiliates and their officers,
directors, agents and employees from and against any claim,
demand, action or proceeding which may be brought or asserted
against such persons or entitles to the extent such claim is
based on or arises out of or relates to the sale of EPOGEN(R)
by Amgen to Ortho Biotech.
3.2 LIMITATION OF LIABILITY. Neither Party shall be liable to the other for
indirect, incidental or consequential damages arising out of any terms
or conditions in this agreement or with respect to the performance
thereto. Except as otherwise specifically set forth herein, PD shall in
no event be liable for any costs, expenses, damages, liability of any
kind aggregating more than $200,000 in any one contract year resulting
from or arising out of the services performed hereunder (excluding
Processing Fees for Batches rejected by Amgen pursuant to Section 2.7)
unless there was gross negligence or intentional misconduct by a PD
employee in which case PD's liability will not exceed $500,000 per
occurrence. In the event costs, expenses, damages, liability of any
kind resulting from or arising out of the services performed hereunder
exceed the amounts set forth above, Amgen shall, upon written notice to
PD be entitled to terminate this Agreement.
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ARTICLE IV
CONFIDENTIAL INFORMATION
4.1 NONDISCLOSURE OF CONFIDENTIAL INFORMATION. Except to the extent expressly
authorized by this Agreement, during the term of this Agreement and for
five (5) years after the expiration or termination of this Agreement,
neither Party shall:
(a) disclose, publish or make available any Confidential Information
disclosed to it by the other to any third party, including employees
who do not need to know or have access to such Propriety Information;
(b) sell, transfer or otherwise use or exploit any such Confidential
Information.
4.2 ANNOUNCEMENTS. During the term of this Agreement, neither party shall make
any press release or other disclosure of the terms of this Agreement
without the prior written consent of the other party, except as required by
a court of competent jurisdiction or pursuant to the disclosure
requirements of federal or state regulatory agencies including the
Securities and Exchange Commission.
ARTICLE V
TERM: TERMINATION
5.1 TERM. The initial term of the Agreement shall start on January 1, 1998 and
shall expire on December 31, 1998. Upon written notice to PD no less than
six (6) months prior to December 31, 1998, Amgen shall have the option to
extend this Agreement for an additional one (1) year on the terms and
conditions set forth herein and, in such case, this Agreement will
terminate on December 31, 1999.
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5.2 TERMINATION.
(a) Amgen. Amgen may terminate this Agreement immediately
upon giving notice to PD if (i) PD fails to provide Processing in accordance
with Section 2.1 or (ii) Amgen property rejects, pursuant to Section 2.7, two
(2) consecutive Batches or four (4) Batches within two (2) months for other than
force majeure causes. To be effective, Amgen shall provide notice of termination
within seventy-five (75) days after (i) the end of the quarter in which PD has
failed to provide Processing in accordance with Section 2.1 or (ii) the date of
notice of rejection of the Batch which gives rise to the right of termination.
Upon the termination of this Agreement by Amgen pursuant to this subsection (a),
PD shall within thirty (30) days refund to Amgen any portions of the Reservation
Fee which have not been applied to Processing services hereunder prior to the
date of termination.
(b) Either Party. Either party may terminate this Agreement upon giving sixty
(60) days prior notice to the other if the other party commits or permits a
material breach of any of the terms of this Agreement and if such breaching
party does not remedy such breach within the sixty (60) days following receipt
of notice from the nonbreaching party. Upon the termination of this Agreement by
Amgen pursuant to this subsection (b), PD shall within thirty (30) days refund
to Amgen any portions of the Reservation Fee which have not been applied to
Processing services hereunder prior to the date of termination. Upon the
termination of this Agreement by PD pursuant to this subsection (b), Amgen shall
within thirty (30) days pay PD for all Processing services hereunder prior to
the date of termination which have not been credited against the Reservation
Fee.
(c) Bankruptcy. Either party may terminate this Agreement, effective
immediately upon the giving of written notice, if the other party shall file a
petition for bankruptcy, or shall be adjudicated as bankrupt, or shall take
advantage of the insolvency laws of any state of the United States, or shall
make an assignment for the benefit of creditors, or shall have a receiver,
whether appointed by private instrument or court officer appointed for its
property. Upon the
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termination of this Agreement by Amgen pursuant to this subsection (c),
PD shall within thirty (30) days refund to Amgen any portions of the
Reservation Fee which have not been applied to Processing services
hereunder prior to the date of termination. Upon the termination of
this Agreement by PD pursuant to this subsection (c), Amgen shall
within thirty (30) days pay PD for all Processing services hereunder
prior to the date of termination which have not been credited against
the Reservation Fee.
5.3 EFFECT OF TERMINATION. The termination of this Agreement shall not
operate to relieve PD from its obligation to Process and deliver all
Finished Product ordered by Amgen prior to receipt of notice of such
termination unless such termination is effected pursuant to Section 5.2
(b) or (c) or of Amgen's obligation to accept delivery of Finished
Product and pay for such Processing, unless such termination is
effected as a result of a breach of this Agreement by PD pursuant to
Section 5.2(b) or (c). In the event of a termination pursuant to this
Agreement, PD shall return to Amgen or its designee all equipment and
unused Materials and equipment theretofore supplied by or on behalf of
Amgen. return shall be at the expense of PD if termination is by Amgen
pursuant to Section 5.2 (a), (b) or (c) and, if not, shall be at
Amgen's expense.
ARTICLE VI
MISCELLANEOUS
6.1 NO WAIVER. Failure of either party to insist upon strict observance of
or compliance with any of the terms of this Agreement in one or more
instances shall not be deemed to be a waiver of its rights to insist
upon such observance or compliance with the other terms hereon with
respect to subsequent failures in the future.
6.2 NOTICES. All notices and demands required or permitted to be given or
made pursuant to this Agreement shall be in writing and given by
certified or registered mail, postage prepaid and properly addressed,
to
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the address of the party to be notified as shown below, except as
otherwise specified in the other terms of this Agreement.
If to Amgen: Amgen Inc.
Amgen Center
1840 DeHavilland Drive
Thousand Oaks, CA 91320-1789
Attn: Dennis Fenton
Sr. Vice President, Operations and
Process Development
If to PD: Parke-Davis Division of Warner-Lambert
Company
870 Parkedale Road
Rochester, Michigan 48307
Attn: Steven Samet
Vice President
With a Copy To: Warner-Lambert Company
201 Tabor Road
Morris Plains, New Jersey 07950
Attn: Vice President, General Counsel
or to such other address as to which either Party may notify the
other. Notice shall be effective on the date it is received.
6.3 ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the parties, their successors and permitted assigns.
Neither party may assign this agreement without the prior written
consent of the non-assigning party, which consent will not be
unreasonably withheld, provided that PD may assign this Agreement to
any purchase of all or substantially all of the assets of the Facility.
6.4 GOVERNING LAW. This Agreement is governed by the laws of the State of
Delaware.
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6.5 FORCE MAJEURE. Neither party shall be liable to the other for loss or
damages, or, except as expressly provided in this Agreement, have any
right to terminate this Agreement for any default or delay preventing
or materially impairing performance by a party to this Agreement and
attributable to any act of God, flood, fire, explosion, breakdown of
plant, strike, lockout, earthquake, labor dispute, casualty, accident,
war, revolution, civil commotion, act of a public enemy, blockade,
embargo injunction, law, order, proclamation, regulation, ordinance,
demand or requirement of any government, or any other cause beyond the
reasonable control of such party. In the event such a default or delay
occurs, the party affected shall notify the other party and shall
exercise diligent efforts to resume performance of its obligation as
soon as possible.
6.6 FURTHER ACTIONS. The parties (but at no out-of-pocket expense to PD)
agree to execute, acknowledge and deliver such further instruments and
to do all such other incidental acts as may be reasonably necessary or
appropriate to carry out the purpose and intent of this Agreement.
6.7 SEVERABILITY. In the event any one or more of the provisions of this
Agreement should for any reason be held by any court or authority
having jurisdiction over either of the parties or this Agreement to be
invalid, illegal or unenforceable, such provision or provisions shall
be validly reformed so as to as nearly approximate the intent of the
parties as possible or, if unreformable, shall be divisible and
deleted in such jurisdiction; elsewhere, this Agreement shall not be
affected.
6.8 INDEPENDENT CONTRACTORS. Nothing in this Agreement is intended or
shall be deemed to constitute a partnership, agency, employer-employee
or joint venture relationship between the parties. All activities by
the parties hereunder shall be performed by them as independent
contractors. Neither party shall incur any debts or make any
commitments for the other party, except to the extent specifically
provided herein.
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6.9 NONSOLICITATION. During the term of this Agreement including renewals
and for one (1) year thereafter, Amgen agrees not to solicit in any
manner directly or indirectly the employment of PD employees who work
at the Facility excepting those employees who have been terminated or
laid off by PD. Similarly, PD agrees during the term of this Agreement
including renewals and for one (1) year thereafter, not to solicit
directly or indirectly the employment of Amgen employees who have
physical contact with the Facility in connection with the performance
of this Agreement. The foregoing limitation shall not apply to general
solicitations through advertising and similar means not specifically
directed to PD or Amgen, as the case may be.
6.10 EXCLUSIVE PROCESSING. PD agrees that it shall not perform Processing
of Product for any other party, not a licensee of Amgen, during the
term of this Agreement.
6.11 PRECEDENCE. In the event of an inconsistency between the terms of the
text of this Agreement and the Specifications or other Exhibits, the
terms of this text of this Agreement shall take precedence and control.
6.12 CAPTIONS. The parties agree that the headings in the Agreement are
used for the convenience of the parties only and are not intended to
be used in the interpretation of this Agreement.
6.13 REFERENCE TO PD. Finished Product shall be marketed without label
reference to PD or any of its subsidiaries or affiliates except to the
extent required by law in which case any label reference shall be to
Warner-Lambert Company as manufacturer only.
6.14 SURVIVAL. The warranties, indemnification and confidentiality
obligations expressly set forth herein shall survive the termination
or expiration of the term of this Agreement.
6.15 AMENDMENTS. The terms of this Agreement represent the entire agreement
of the parties with respect to the subject matter herein and shall not
be amended or supplemented except in a written document
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duly executed by a duly authorized representative of each party. No terms
of any purchase order of Amgen issued pursuant to and in accordance with
the terms of this Agreement and accepted in writing by PD shall be binding
on the parties except for Batch quantities and Batch Processing and
delivery dates set forth in such purchase orders.
6.16 CHANGES IN PD PLANT OPERATING PROCEDURES. In the event that PD, during the
term of this Agreement, makes changes in its plant operating procedures
applicable, in whole or part, to the Facility, which it shall be free to
do, PD shall promptly notify Amgen of the nature and effective date of such
changes on a quarterly basis, the first month of the following calendar
quarter.
6.17 EQUAL EMPLOYMENT/AFFIRMATIVE ACTION. Unless otherwise specifically
exempted, this Agreement must be performed in material compliance with all
applicable equal employment/affirmative action requirements and all
amendments thereto and any applicable federal, state and local regulations,
rules and orders issued thereunder including, without limitation, Title VII
of the Civil Rights Act of 1964, Executive Order No. 11141, Executive Order
No. 11246 as amended by Executive Order 11375, sections (1) and (3) of
Executive Order 11625 relating to the promotion of minority business
enterprises and the implementing rules and regulations of the General
Services Administration, the Americans with Disabilities Act, the Vietnam
Veterans Readjustment Assistance Act of 1974, the Fair Labor Standards Act
and the Rehabilitation Act of 1973, all of which including the contract
clauses required and regulations promulgated thereunder are incorporated
herein by reference.
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<PAGE> 23
IN WITNESS WHEREOF, the parties have executed this Agreement effective on
the date first set forth above.
AMGEN INC. PARKE-DAVIS DIVISION OF
WARNER-LAMBERT
/s/ Dennis Fonda 12/17/97 /s/ Carl Wheeldon
- ------------------------------------ ------------------------------
BY: Dennis Fonda BY: Carl Wheeldon
TITLE: Vice President TITLE: Vice-President
Manufacturing
23
<PAGE> 1
EXHIBIT 11.1
King Pharmacuticals, Inc.
Computation of Per Share Earnings
(Amount in thousands, except for share amounts)
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
------------------------------------------ ---------------------------
1995 1996 1997 1997 1998
---------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Weighted average common shares outstanding(1) 13,201,118 15,440,465 26,270,103 20,984,312 28,000,000
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 966,000 - - - -
----------- ------------ ---------- ----------- -----------
Weighted average number of common and
common stock equivalents 14,167,118 15,440,465 26,270,103 20,984,312 28,000,000
=========== ============ ========== =========== ===========
Net income (loss) 9,334 (240) 6,612 921 4,075
Preferred dividends (8) - - - -
----------- ------------ ---------- ----------- -----------
Net income (loss) available
to common shareholders 9,326 (240) 6,612 921 4,075
=========== ============ ========== =========== ===========
Basic income (loss) per share $ .71 $ (.25) $ .25 $ .04 $ .15
========== ============ ========== =========== ===========
Diluted income (loss) per share $ .66 $ (.02) $ .25 $ .04 $ .15
=========== ============ ========== =========== ===========
</TABLE>
- --------------------
(1) Reflects a 2.8 to 1 stock split issued in November 1997 and a 15% stock
dividend declared in December 1996.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
King Pharmaceuticals, Inc.
We consent to the inclusion in this pre-effective amendment No. 6 to the
registration statement on Form S-1 (Registration No. 333-38753) of our reports
on:
- - Our audits of the consolidated financial statements of King Pharmaceuticals,
Inc. dated April 2, 1998.
- - Our audits of the statement of Product Contribution for the Cortisporin
Product Line dated October 20, 1997.
- - Our audits of the Combined Statement of Product Contribution for the
Neosporin, Polysporin, Septra, Proloprim, Mantadil and Kemadrin Product
Lines dated November 17, 1997.
We also consent to the reference of our firm under the captions "Experts" and
"Selected Consolidated Financial Data."
Coopers & Lybrand L.L.P.
Greensboro, North Carolina
May 6, 1998
Coopers & Lybrand L.L.P. is a member of Coopers & Lybrand International,
a limited liability association incorporated in Switzerland.
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated March 27, 1998, relating
to the statement of brand contribution for each of the three years in the period
ended December 31, 1997 and the statement of fixed assets as of December 31,
1996 and 1997 of Warner-Lambert Company's Sterile Products Operations, which
appears in such Prospectus. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Morristown, New Jersey
May 6, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF KING PHARMACEUTICAL FOR THE YEAR ENDED DECEMBER 31, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 69
<SECURITIES> 0
<RECEIVABLES> 9,199
<ALLOWANCES> 638
<INVENTORY> 10,850
<CURRENT-ASSETS> 22,812
<PP&E> 20,233
<DEPRECIATION> 3,063
<TOTAL-ASSETS> 104,863
<CURRENT-LIABILITIES> 23,236
<BONDS> 0
0
0
<COMMON> 16,455
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 104,863
<SALES> 46,727
<TOTAL-REVENUES> 47,285
<CGS> 10,603
<TOTAL-COSTS> 33,928
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,749
<INCOME-PRETAX> 10,580
<INCOME-TAX> 3,968
<INCOME-CONTINUING> 6,612
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,612
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF KING PHARMACEUTICALS FOR THE 3 MONTHS ENDED MARCH 31,
1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER>1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 4
<SECURITIES> 0
<RECEIVABLES> 22,189
<ALLOWANCES> 620
<INVENTORY> 29,966
<CURRENT-ASSETS> 55,170
<PP&E> 93,875
<DEPRECIATION> 3,718
<TOTAL-ASSETS> 271,686
<CURRENT-LIABILITIES> 47,450
<BONDS> 0
0
0
<COMMON> 16,455
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 271,686
<SALES> 22,189
<TOTAL-REVENUES> 24,847
<CGS> 7,364
<TOTAL-COSTS> 15,157
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,703
<INCOME-PRETAX> 7,011
<INCOME-TAX> 2,650
<INCOME-CONTINUING> 4,361
<DISCONTINUED> 0
<EXTRAORDINARY> 286
<CHANGES> 0
<NET-INCOME> 4,075
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
