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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 10, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
KING PHARMACEUTICALS, INC.
(exact name of registrant as specified in its charter)
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TENNESSEE 2834 54-1684963
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
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KING PHARMACEUTICALS, INC.
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
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
KING PHARMACEUTICALS, INC.
501 FIFTH STREET
BRISTOL, TENNESSEE 37620
(423) 989-8000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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WITH COPIES TO:
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RICHARD G. KLEIN, ESQ. JOHN A. A. BELLAMY, ESQ. LINDA M. CROUCH, ESQ.
HOFHEIMER GARTLIER & GROSS KING PHARMACEUTICALS, INC. BAKER, DONELSON, BEARMAN &
530 FIFTH AVENUE 501 FIFTH STREET CALDWELL
NEW YORK, NY 10036 BRISTOL, TN 37620 207 MOCKINGBIRD LANE, SUITE 300
(212) 818-9000 (423) 989-8000 JOHNSON CITY, TN 37604
(423) 928-0181
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE
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Common Stock, no par value, including
Preferred Stock Purchase Rights.......... 9,653,719 shares(1) $34.00(2) $369,254,771(2) $97,483
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(1) Represents the approximate maximum number of shares issuable upon
consummation of the merger as described in the Registration Statement, based
upon the anticipated maximum number of outstanding shares of Medco Research,
Inc. common stock at the merger's effective time assuming the average
trading price for King common stock is less than $30.00 per share, resulting
in the assumed maximum exchange ratio of 0.75 of a King share issued for
each Medco share.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Section 6(b) of the Securities Act of 1933, and Rule
457(f)(1) and 457(c) thereunder on the basis of 12,871,626, the anticipated
maximum number of Medco shares that may be exchanged pursuant to the merger,
multiplied by $28.6875, the last sales price on December 8, 1999.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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MEDCO RESEARCH, INC.
PROXY STATEMENT
-------------------------
KING PHARMACEUTICALS, INC.
PROSPECTUS
UP TO 9,653,719 SHARES OF COMMON STOCK
-------------------------
Dear Shareholders:
You are cordially invited to attend a special meeting of shareholders of
Medco Research, Inc. to be held on , 2000 at . At this
important meeting, you will be asked to vote upon a proposal to merge Medco into
King Pharmaceuticals, Inc.
The Medco Research, Inc. board of directors has unanimously approved a
merger agreement, dated November 30, 1999, which provides for a strategic
business combination of Medco with King Pharmaceuticals, Inc. The Board believes
that the shareholders of Medco would receive greater shareholder value as a part
of King than Medco could achieve alone.
If we complete the merger, holders of Medco common stock will receive
shares of King common stock in exchange for their Medco shares. The exchange
will be tax-free to Medco shareholders. The number of shares received by Medco
shareholders will be determined by an exchange ratio as follows:
- If the average closing price of King shares during the 20 consecutive
trading days ending on the third day preceding Medco's shareholder
meeting is between $49.87 and $33.00 per share, the exchange ratio will
be 0.6818 share of King common stock for each share of Medco common
stock;
- If the average closing price of King shares is greater than $49.87, King
will deliver the number of shares of King common stock necessary to
provide a maximum purchase price of $34.00 per share of Medco common
stock; and
- If the average closing price is less than $33.00, King will deliver the
number of shares of King common stock necessary to provide a minimum
purchase price of $22.50 per share of Medco common stock.
King may elect not to proceed with the transaction if the average closing
price of King common stock falls below $30.00 per share. Based on the closing
price of King common stock on , 1999, the merger values each share of
Medco common stock at $ .
You should consider the matters discussed under the section entitled "Risk
Factors" on page of the enclosed proxy statement/prospectus.
King will issue up to approximately 8.8 million shares of its common stock
to Medco shareholders in the merger. These shares will represent approximately
15.5% of the outstanding King common stock after the merger.
The board of directors recommends that Medco shareholders approve and adopt
the merger agreement and approve the merger. We cannot complete the merger
unless the
<PAGE> 3
holders of a majority of the outstanding shares of Medco common stock vote to
adopt the merger agreement.
Whether or not you plan to attend the special meeting, please be sure to
sign, date and mail the enclosed proxy in the postage-paid envelope as promptly
as possible or take the opportunity to vote electronically by telephone or via
the internet. As the merger requires the approval of a majority of the
outstanding shares of common stock, not voting is the same as voting against the
transaction. Your vote is important regardless of the number of shares you own.
Richard C. Williams
Chairman of the Board
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE SHARES OF KING COMMON STOCK TO BE
ISSUED IN THE MERGER OR DETERMINED IF THIS PROXY STATEMENT/PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES IN ANY JURISDICTION WHERE SUCH AN
OFFER OR SOLICITATION WOULD BE ILLEGAL.
This proxy statement/prospectus is dated , 2000 and first
being mailed to shareholders on , 2000.
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MEDCO RESEARCH, INC.
7001 WESTON PARKWAY, SUITE 300
CARY, NORTH CAROLINA 27513
PHONE: (919) 653-7001
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
Time:
:00 .m.
Date:
, , 2000
Place:
Purpose:
To approve and adopt the merger agreement and approve the merger with King
Pharmaceuticals, Inc., as described in more detail in the accompanying proxy
statement/prospectus and to consider and act upon such other proposals as may
properly be brought before the meeting.
Only shareholders of record on the close of business on , 2000
may vote at the meeting. Only shareholders or their proxy holders and Medco
guests may attend the meeting.
Your vote is important. Please complete, date, sign and return your proxy
card, which is solicited by the board of directors of Medco, in the enclosed
envelope promptly.
By Order of the Board of Directors
Richard C. Williams
Chairman of the Board
Cary, North Carolina
, 2000
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TABLE OF CONTENTS
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PAGE
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QUESTIONS AND ANSWERS ABOUT THE
KING/MEDCO MERGER............ 1
SUMMARY OF THE PROXY
STATEMENT/PROSPECTUS........ 4
The Companies............... 4
Summary of the
Transaction.............. 4
Conditions to Completion of
the Merger............... 4
Vote Required for
Approval................. 5
Termination of the Merger
Agreement................ 6
Termination Fee............. 7
No Other Negotiations
Involving Medco.......... 7
The Stock Option
Agreement................ 7
The Voting Agreement........ 8
Opinion of Financial
Advisor.................. 8
Accounting Treatment of the
Merger................... 8
Interests of Medco's
Directors and Executive
Officers in the Merger... 8
Restrictions on the Ability
to Sell King Stock....... 9
Comparative Market Price
Information.............. 9
THE MEDCO MEETING OF
SHAREHOLDERS................ 10
Date, Time, Place and
Purpose of Medco's
Meeting.................. 10
Record Date and Outstanding
Shares................... 10
Vote and Quorum Required.... 10
Share Ownership of
Management............... 10
Broker Non-Votes;
Abstentions.............. 10
Expenses of Proxy
Solicitation............. 10
Voting of Proxies........... 11
No Appraisal Rights......... 11
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PAGE
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RISK FACTORS................... 12
Risks Relating to the
Merger................... 12
Risks Relating to King's
Business................. 13
KING PHARMACEUTICALS, INC.
UNAUDITED SELECTED PRO FORMA
COMBINED CONDENSED FINANCIAL
DATA........................ 23
KING SELECTED CONSOLIDATED
FINANCIAL DATA.............. 25
MEDCO SELECTED CONSOLIDATED
FINANCIAL DATA.............. 26
THE MERGER..................... 27
The Companies............... 27
Background of the Merger.... 28
Medco's Reasons for the
Merger................... 35
Recommendation of Medco's
Board of Directors....... 37
Opinion of Medco's Financial
Advisor.................. 37
Interests of Medco's
Directors and Executive
Officers in the Merger... 43
Completion and Effectiveness
of the Merger............ 44
Structure of the Merger and
Conversion of Medco
Common Stock............. 45
Exchange of Medco Stock
Certificates for King
Stock Certificates....... 45
Federal Income Tax
Consequences of the
Merger................... 46
Accounting Treatment of the
Merger................... 47
Restrictions on Sales of
Shares by Affiliates of
Medco and King........... 47
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PAGE
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Regulatory Filings and
Approvals Required to Complete
the Merger................... 48
Listing on Nasdaq of King
Common Stock to be Issued
in the Merger............ 48
Operations after the
Merger................... 48
THE MERGER AGREEMENT........... 49
Representations and
Warranties............... 49
Medco's Conduct of Business
Before the Merger's
Completion............... 51
Other Agreements............ 52
No Other Negotiations
Involving Medco.......... 53
Treatment of Medco Stock
Options.................. 54
Conditions to Completion of
the Merger............... 55
Termination of the Merger
Agreement................ 56
Payment of Termination
Fee...................... 57
Extension, Waiver and
Amendment of the Merger
Agreement and Expenses... 58
RELATED AGREEMENTS............. 59
The Stock Option
Agreement................ 59
Medco Shareholders' Voting
Agreement................ 60
COMPARATIVE MARKET PRICE AND
PER SHARE DATA.............. 62
UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL
INFORMATION................. 64
COMPARISON OF SHAREHOLDERS OF
KING COMMON STOCK AND MEDCO
COMMON STOCK................ 74
Authorized Capital Stock.... 74
Removal of Directors........ 75
Conflict-Of-Interest
Transactions............. 75
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Special Meetings of
Stockholders............. 76
Required Vote for
Authorization of Certain
Actions.................. 76
Stockholder Proposals and
Nominations.............. 77
Action by Written Consent... 77
Inspection Rights........... 78
Amendment of Certificate of
Incorporation or Charter
and Bylaws............... 78
Voluntary Dissolution....... 79
Indemnification............. 79
Business Combination
Statute.................. 79
Control Share Acquisition
Act...................... 81
Investor Protection Act..... 81
Authorized Corporation
Protection Act........... 81
Greenmail Act............... 82
Dividends and Other
Distributions............ 82
Dissenters' Rights.......... 83
OTHER MATTERS.................. 83
SHAREHOLDER PROPOSALS.......... 83
DOCUMENTS INCORPORATED BY
REFERENCE IN THIS PROXY
STATEMENT/PROSPECTUS........ 84
WHERE YOU CAN FIND MORE
INFORMATION................. 84
STATEMENTS REGARDING
FORWARD-LOOKING
INFORMATION................. 86
EXPERTS........................ 86
LEGAL MATTERS.................. 87
ANNEX A -- AGREEMENT AND PLAN
OF MERGER................... A-1
ANNEX B -- STOCK OPTION
AGREEMENT................... B-1
ANNEX C -- OPINION OF HAMBRECHT
& QUIST LLC................. C-1
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<PAGE> 7
QUESTIONS AND ANSWERS ABOUT THE KING/MEDCO MERGER
Q: WHAT IS THE MERGER?
A: In the merger, Medco will become a wholly owned subsidiary of King.
Q: WHAT WILL THE SHAREHOLDERS OF MEDCO RECEIVE IN THE MERGER?
A: Medco shareholders will receive shares of King common stock for each
share of common stock of Medco that they own based on an exchange ratio
determined as follows:
- If the average closing price of King shares during the 20 consecutive
trading days ending on the third day preceding Medco's shareholders'
meeting is between $49.87 and $33.00 per share, the exchange ratio
will be 0.6818 share of King common stock for each share of Medco
common stock;
- If the average closing price of King shares is greater than $49.87,
the exchange ratio will be the quotient obtained by dividing $34.00 by
the average closing price of King shares, rounded to the nearest
1/10,000; and
- If the average closing price is less than $33.00, the exchange ratio
will be the quotient obtained by dividing $22.50 by the average
closing price of King shares, rounded to the nearest 1/10,000.
Q: WHAT HAPPENS TO FRACTIONAL SHARES?
A: No fractional shares of common stock of King will be issued in the
merger. Instead, shareholders of Medco who would be entitled to receive
a fractional share of common stock of King will receive a cash payment
based on the closing market price of the common stock of King on the
closing date of the merger.
Q: WHAT HAPPENS TO OPTIONS?
A: At the effective time of the merger, all outstanding options to purchase
shares of Medco common stock will become immediately exercisable and
entitle the optionees to purchase shares of King common stock. The price
for and number of shares of King common stock these holders will be able
to purchase under their options will be adjusted based on the exchange
ratio.
Q: WHAT HAPPENS TO EXISTING KING SHAREHOLDERS?
A: King shareholders will continue to own their shares of King common stock
after the merger.
Q: DOES THE MEDCO BOARD OF DIRECTORS RECOMMEND VOTING IN FAVOR OF THE MERGER?
A: Yes. The board of directors of Medco unanimously recommends that its
shareholders vote in favor of the merger agreement and the merger. For a
more complete description of the recommendations of the Medco board of
directors, see the sections entitled "Medco's Reasons for the Merger" on
page and "Recommendation of Medco's Board of Directors" on page .
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<PAGE> 8
Q: ARE THERE RISKS THAT SHAREHOLDERS OF MEDCO SHOULD CONSIDER IN DECIDING
WHETHER TO VOTE IN FAVOR OF THE MERGER?
A: Yes. For example, the value of the shares of King that shareholders of
Medco will receive in the merger may go up or down as the market price
of King common stock goes up or down. The exchange ratio to determine
the number of shares of King common stock that Medco shareholders will
receive in the merger will be determined three days prior to the Medco
shareholders' meeting. As a result, the value of the King shares on the
closing date of the merger may be different than the value used to
determine the exchange ratio. WE URGE YOU TO OBTAIN CURRENT MARKET
QUOTATIONS OF KING COMMON STOCK AND MEDCO COMMON STOCK.
In evaluating the merger, shareholders of Medco should carefully
consider these and other factors discussed in the section entitled "Risk
Factors" on page .
Q: WHAT DO I NEED TO DO NOW?
A: Even if you plan to attend and vote at the shareholders' meeting, vote
now by marking your proxy card, signing it, and mailing it in the
enclosed return envelope as soon as possible so that your shares may be
represented at the shareholders meeting. If you properly sign and return
your card but do not include instructions on how to vote your shares,
they will be voted "FOR" approval and adoption of the merger agreement
and approval of the merger. For a more complete description of voting,
see the section entitled "Voting of Proxies" on page .
Q: WHAT DO I DO IF I WANT TO CHANGE MY VOTE AFTER I MAIL MY PROXY CARD?
A: If you want to change your vote, send the secretary of Medco a
later-dated, signed proxy card before the meeting or attend the meeting
in person and vote. You may also revoke your proxy by sending written
notice to the secretary of Medco before the meeting.
For a more complete description of how to change your vote, see the
section entitled "Voting of Proxies" on page .
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will vote your shares only if you provide instructions on
how to vote by following the information your broker will provide you.
For a more complete description of voting shares held in "street name,"
see the section entitled "Voting of Proxies" on page .
Q: SHOULD SHAREHOLDERS OF MEDCO SEND IN THEIR STOCK CERTIFICATES NOW?
A: No. After the merger is completed, King will send written instructions
for exchanging Medco stock certificates for King stock certificates.
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Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working toward completing the merger as quickly as possible. We
hope to complete the merger during the first quarter of 2000. If the
merger is not completed by July 27, 2000 (unless the date is extended as
provided in the merger agreement), then both Medco and King have the
right to terminate the merger agreement.
For a more complete description of the conditions to the merger, see the
section entitled "Conditions to Completion of the Merger" on page .
Q: WILL SHAREHOLDERS OF MEDCO RECOGNIZE A GAIN OR LOSS ON THE TRANSACTION?
A: If the merger is completed, shareholders of Medco should not recognize
gain or loss for United States federal income tax purposes, except for
any gain or loss that results from cash received instead of fractional
shares. However, Medco shareholders should consult their own tax
advisors to determine their particular tax consequences.
For a more complete description of the tax consequences, see the section
entitled "Federal Income Tax Consequences of the Merger" on page .
Q: HAS THERE BEEN AN INDEPENDENT DETERMINATION THAT THE TRANSACTION IS FAIR TO
MEDCO SHAREHOLDERS?
A: Yes. In deciding to approve the merger, the Medco board of directors
considered an opinion from its financial advisor, Hambrecht & Quist LLC,
which found that the consideration to be received by holders of Medco's
common stock as a result of the merger is fair from a financial point of
view.
Q: AM I ENTITLED TO DISSENTERS' OR APPRAISAL RIGHTS?
A: You are not entitled to dissenters' or appraisal rights in the merger.
Q: WHOM SHOULD I CALL WITH QUESTIONS ABOUT THE MERGER?
A: Medco shareholders should call Medco Investor Relations at (919)
653-7010.
You may also obtain additional information about King and Medco from
documents each of us files with the Securities and Exchange Commission
by following the instructions in the section entitled "Where You Can
Find More Information" on page .
3
<PAGE> 10
SUMMARY OF THE PROXY STATEMENT/PROSPECTUS
THE COMPANIES
KING. King, headquartered in Bristol, Tennessee, is a vertically
integrated pharmaceutical company that manufactures, markets, and sells
primarily branded prescription pharmaceutical products.
MEDCO. Medco Research, based in North Carolina's Research Triangle Park,
is a pharmaceutical company engaged in the global commercialization of
cardiovascular medicines and adenosine-based products.
SUMMARY OF THE TRANSACTION
In the merger, Medco will become a wholly owned subsidiary of King. We have
attached a copy of the merger agreement to this proxy statement/prospectus as
Annex A. We encourage you to read the merger agreement carefully. We discuss the
merger agreement more fully beginning on page .
We believe the merger will provide us with the opportunity to realize
several benefits, including the following:
- the merger will create a larger, more diverse pharmaceutical company,
enabling us to compete more effectively for promising drug opportunities;
- the merger will combine the pharmaceutical development strengths of Medco
with King's manufacturing and marketing capabilities;
- the merger adds talent and depth to our respective activities;
- the merger is expected to result in the elimination of some duplicative
costs and the achievement of some operating efficiencies; and
- the ease with which the two companies may be integrated.
There are also potential detriments to the merger, including the following:
- potential duplication of some efforts or costs.
- King's strategy with respect to our pipeline of pharmaceutical candidates
may be different from ours.
We believe the merger's potential benefits outweigh the potential
detriments. However, the merger's potential benefits may not be achieved. See
the sections entitled "Risk Factors" on page , "Risks Relating to the
Merger" on page , and "Medco's Reasons for the Merger" on page .
CONDITIONS TO COMPLETION OF THE MERGER
Our respective obligations to complete the merger are subject to the prior
satisfaction or waiver of conditions. The conditions that must be satisfied or
waived before we can complete the merger include the following, subject to
exceptions and qualifications:
- Medco's shareholders must approve and adopt the merger agreement and
approve the merger;
4
<PAGE> 11
- no injunction or order preventing the merger's completion may be in
effect;
- King common stock to be issued in the merger must have been included for
listing on Nasdaq upon official notice of issuance;
- any applicable waiting periods under antitrust laws must have expired or
be terminated;
- All material permits, authorizations, consents and approvals needed to
complete the merger must have been obtained;
- the independent accountants of King and Medco must each have delivered a
letter to the effect that the merger will qualify for
pooling-of-interests accounting treatment;
- Medco and King must have received an opinion of tax counsel to the effect
that the merger will qualify as a tax-free reorganization;
- no material adverse effect may have occurred with respect to Medco or
King;
- King and Medco must have each complied in all material respects with its
respective agreements in the merger agreement;
- Medco must have at least $50.0 million in cash and marketable securities
at the time of the merger after payment of Medco's transaction expenses,
as set forth in the merger agreement; and
- Medco must have obtained written releases from certain oral contracts
with executive officers of Medco.
If Medco waives any conditions, we will then make a determination as to
whether we should resolicit proxies from you.
For a more complete description of the conditions to completion of the
merger, see the section entitled "Conditions to Completion of the Merger" on
page .
VOTE REQUIRED FOR APPROVAL
The holders of a majority of the outstanding shares of Medco common stock
owned as of , 1999, the Medco record date, must approve and adopt the
merger agreement and approve the merger. Medco shareholders are entitled to cast
one vote per share of Medco common stock. Medco affiliates holding approximately
1.0% of Medco common stock as of the Medco record date have already agreed to
vote in favor of the merger.
In the event that the price of King's common stock falls below $26.00 and
King foregoes its option to terminate the merger agreement, then the holders of
a majority of the outstanding shares of King common stock would need to approve
the issuance of the King shares in the merger.
For a more complete description of the votes required for approval of the
merger see the sections entitled "Vote and Quorum Required" on page , and
"Voting of Proxies" on page .
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<PAGE> 12
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated at any time before the completion of
the merger, as summarized below.
The merger agreement may be terminated by our mutual consent.
In addition, subject to qualifications, either of us may terminate the
merger agreement if:
- the other materially breaches any of its representations, warranties,
covenants or agreements contained in the merger agreement such that the
conditions to closing relating to those representations, warranties,
covenants and agreements would not be satisfied, provided, that if a
breach is curable, the non-breaching party may not terminate if the party
in breach is exercising reasonable efforts to cure the breach;
- a final court order prohibiting the merger is issued and is no longer
subject to appeal;
- the merger is not completed by July 27, 2000, without the fault of the
terminating party, unless the date is extended as described in the merger
agreement; or
- the Medco shareholders do not approve the merger or, if required, the
King shareholders do not approve the issuance of the King shares in the
merger.
King may terminate the merger agreement and collect a $12.0 million
termination fee from Medco if:
- Medco's board of directors withdraws or adversely modifies its
recommendation of the merger agreement or fails to reaffirm its
recommendation of the merger agreement if requested to do so by King;
- a person makes a tender offer or exchange offer for 20% or more of
Medco's common stock and the Medco board of directors, within 10 business
days after the offer is made, either (a) does not recommend that the
offer be rejected or (b) takes no position as to the offer; or
- Medco materially breaches the stock option agreement, which we describe
on page .
King may also terminate the merger agreement, without collecting a
termination fee from Medco, if any person, or any group which may be formed,
other than King, Medco and their affiliates, beneficially owns 20% or more of
Medco's outstanding capital stock.
King may also terminate the merger agreement if the average closing price
of King common stock for any 20-day period is less than $30.00 per share, in
which case Medco must pay King an amount, not to exceed $6.0 million, equal to
200% of King's transaction expenses.
Medco may terminate the merger agreement if its board of directors (a)
determines to recommend a superior acquisition proposal to its shareholders, (b)
gives notice to King and (c) pays a $12.0 million termination fee and one half
of the expenses related to the printing, filing and mailing of this proxy
statement/prospectus and one-half of the expenses related to filings to comply
with antitrust laws.
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<PAGE> 13
For a more complete description of the manner in which the merger agreement
may be terminated, see the section entitled "Termination of the Merger
Agreement" on page .
TERMINATION FEE
Medco has agreed to pay King a termination fee of up to $12.0 million in
some cases if the merger agreement is terminated. We describe the circumstances
that will give rise to this payment in the section entitled "Payment of
Termination Fee" on page .
NO OTHER NEGOTIATIONS INVOLVING MEDCO
Until the merger is completed or the merger agreement is terminated, Medco
has agreed not to initiate, solicit, encourage or facilitate any inquiries or
engage in discussions that could be expected to result in a proposal to acquire
a significant portion of the securities or assets of Medco. Medco has agreed to
promptly inform King if it receives any acquisition proposal. Medco has also
agreed to inform King of the status and details of any acquisition proposal.
Generally, if Medco receives a proposal that is superior to the King merger, it
may recommend the superior proposal to its shareholders, provided it gives
notice and makes required payments to King, and would breach its fiduciary
duties by not recommending the superior proposal. Notwithstanding such a
superior proposal to Medco, King will retain its option to purchase Medco common
stock under the option agreement and the termination fees under the merger
agreement will still apply. King's total consideration from the option and
termination fee is limited to $17.0 million.
For a more complete description of these limitations on Medco's actions,
see the sections entitled "Termination of the Merger Agreement" on page ,
"Payment of Termination Fee" on page and "No Other Negotiations Involving
Medco" on page of this proxy statement/prospectus.
THE STOCK OPTION AGREEMENT
Medco granted King an option to buy up to 19.9% of the outstanding shares
of Medco common stock, subject to adjustment. The exercise price of the option
is $30.00 per share. The option is not currently exercisable. Generally, King
may exercise the option in whole or in part at or after the termination of the
merger agreement whenever Medco becomes obligated to pay the $12.0 million
termination fee to King. The circumstances that would require this payment are
described in the section entitled "Payment of Termination Fee" on page .
King required Medco to grant the option as a condition to entering into the
merger agreement. King did this to increase the likelihood that the merger will
be completed. The option may discourage third parties from acquiring a
significant stake in Medco because if the merger agreement is terminated and the
option becomes exercisable, Medco would be unable to account for future
transactions as a pooling-of-interests for a period of two years.
For a more complete description of the stock option agreement, see the
section entitled "The Stock Option Agreement" on page . The stock option
agreement is attached to this proxy statement/prospectus as Annex B, and you are
urged to read it in its entirety.
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THE VOTING AGREEMENT
All of Medco's directors and an executive officer -- who own, on the Medco
record date, 122,320 shares of Medco common stock, or approximately 1% of the
outstanding shares -- have entered into a voting agreement with King. Under the
voting agreement, these persons have given King an irrevocable proxy to vote
their shares in favor of approval and adoption of the merger agreement and
approval of the merger. For a more complete description of the voting agreement,
see the section entitled "Medco Shareholders' Voting Agreement" on page .
OPINION OF FINANCIAL ADVISOR
In deciding to approve the merger, the Medco board of directors considered
an opinion from its financial advisor, Hambrecht & Quist LLC, as to the fairness
of the consideration to be received by holders of Medco's common stock from a
financial point of view.
For a more complete description of the financial advisor's opinion see the
section entitled "Opinion of Medco's Financial Advisor" on page . This opinion
is attached as Annex C. We urge you to read it.
ACCOUNTING TREATMENT OF THE MERGER
King intends to account for the merger as a "pooling-of-interests" for
financial accounting purposes, in accordance with generally accepted accounting
principles and SEC rules. To help ensure that it can account for the merger as a
pooling-of-interests, affiliates of King and Medco have entered into agreements
that restrict their ability to sell or encumber their shares of King or Medco
common stock, as applicable, for a period of time beginning 30 days before the
closing of the merger. For a more complete description of the accounting
treatment of the merger see the section entitled "Accounting Treatment of the
Merger" on page . For a more complete description of the affiliate
agreements, see the section entitled "Restrictions on Sales of Shares by
Affiliates of Medco and King" on page .
INTERESTS OF MEDCO'S DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER
You should note that one director and all executive officers of Medco have
interests in the merger as employees and/or directors that are different from,
or in addition to, the interests of a Medco shareholder. Indemnification
arrangements for directors and officers will be continued. In addition, since
February 1998 all executive officers of Medco have had "change of control"
arrangements which entitle them to receive cash payments in connection with the
closing of the merger. The executive officers also will be entitled to a
"gross-up" payment based on all or a portion of these payments for any excise
tax and related federal, state and local income taxes. The Chairman of the
Board, Richard C. Williams will also be appointed to the King board of directors
and has the right to receive a cash fee at closing based on a percentage of the
value of the King stock issued at closing. Additionally, under Medco's stock
option plan, all outstanding options to purchase Medco common stock, including
options held by its executive officers and/or directors, will vest in full upon
the closing of the merger. For more detailed information on the interests of
Medco's directors and executive officers, see the section entitled "Interests of
Medco's Directors and Executive Officers in the Merger" on page .
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RESTRICTIONS ON THE ABILITY TO SELL KING STOCK
All shares of King common stock received by Medco shareholders in the
merger will be freely transferable unless the holder is considered an affiliate
of either King or Medco under the federal securities laws or the transfer is
restricted by an affiliate letter signed by the holder.
For a more complete description of transfer restrictions applicable to our
affiliates, see the section entitled "Restrictions on Sales of Shares by
Affiliates of Medco and King" on page .
COMPARATIVE MARKET PRICE INFORMATION
Shares of common stock of Medco are listed on the New York Stock Exchange
and shares of common stock of King are listed on Nasdaq. On November 30, 1999,
the last full trading day prior to the public announcement of the merger, King's
common stock closed at $46.09 per share, and Medco's common stock closed at
$27.25 per share. On , 2000, King's common stock closed at
$ per share, and Medco's common stock closed at $ per share.
We urge you to obtain current market quotations.
For a more complete description of market price information, see the
section entitled "Comparative Per Share Market Price Data" on page .
This summary may not contain all of the information that is important to
you. You should read carefully this entire document and the other documents we
reference for a more complete understanding of the merger. In particular, you
should read the documents attached to this proxy statement/prospectus, including
the merger agreement, which is attached as Annex A, the stock option agreement,
which is attached as Annex B, and the opinion of Hambrecht & Quist LLC, which is
attached as Annex C.
In addition, we incorporate by reference important business and financial
information about King and Medco into this proxy statement/prospectus. See
"Documents Incorporated by Reference in this Proxy Statement/Prospectus" on page
. You may obtain the information incorporated by reference into this proxy
statement/prospectus without charge by following the instructions in the section
entitled "Where You Can Find More Information" on page .
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<PAGE> 16
THE MEDCO MEETING OF SHAREHOLDERS
DATE, TIME, PLACE AND PURPOSE OF MEDCO'S MEETING
Medco's special meeting of shareholders will be held at :00
.m., local time, on , , 2000 at the
, , , . At the meeting,
shareholders will be asked to approve and adopt the merger agreement and approve
the merger. The merger agreement is attached to this proxy statement/prospectus
as Annex A.
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of Medco common stock at the close of business on
, 1999, the Medco record date, are entitled to notice of and to vote
at the meeting. As of the close of business on the Medco record date, there were
shares of Medco common stock outstanding and entitled to vote.
These shares were held of record by approximately shareholders,
although Medco has been informed that there are in excess of
beneficial owners.
VOTE AND QUORUM REQUIRED
Holders of a majority of the Medco common stock issued, outstanding and
entitled to vote at the meeting must be present in person or by proxy to
constitute a quorum. If a quorum is not present, the meeting may be adjourned
until a quorum is obtained. Each shareholder is entitled to one vote for each
share of Medco common stock held. The affirmative vote of a majority of the
outstanding shares of Medco common stock is required to approve and adopt the
merger agreement and approve the merger. If no instructions are indicated on an
otherwise properly executed proxy, the shares of common stock represented by the
proxy will be voted as recommended by the board of directors of Medco.
SHARE OWNERSHIP OF MANAGEMENT
All of Medco's directors and an executive officer, who own 122,320 shares
of Medco common stock, or approximately 1.0% of the outstanding shares, on the
Medco record date, have executed a voting agreement with King, under which they
have given King an irrevocable proxy to vote their shares in favor of approval
and adoption of the merger agreement and approval of the merger. See "Medco
Shareholders' Voting Agreement" on page .
BROKER NON-VOTES; ABSTENTIONS
Abstentions and broker non-votes will be counted for purposes of
determining the presence (or absence) of a quorum for the transaction of
business at the special meeting but will not be counted as an affirmative vote
for purposes of determining whether the merger has been approved.
EXPENSES OF PROXY SOLICITATION
Medco will pay the expenses of soliciting proxies to be voted at the
meeting. Following the original mailing of the proxies and other soliciting
materials, Medco and its
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agents also may solicit proxies by mail, telephone, telegraph or in person.
Medco has retained the services of to assist in the solicitation of
proxies and will pay a fee of $ plus reimbursement of expenses for
such services. Following the original mailing of the proxies and other
soliciting materials, Medco will request brokers, custodians, nominees and other
record holders of common stock to forward copies of the proxy and other
soliciting materials to persons for whom they hold shares of common stock and to
request authority for the exercise of proxies. Upon the request of the record
holders, Medco will reimburse them for their reasonable expenses.
VOTING OF PROXIES
The Medco proxy accompanying this proxy statement/prospectus is solicited
on behalf of the Medco board of directors for use at the Medco special meeting.
Please complete, date and sign the accompanying proxy and promptly return it in
the enclosed envelope. All properly signed proxies received by Medco prior to
the vote at the meeting that are not revoked will be voted at the meeting
according to the instructions indicated on the proxies or, if no direction is
indicated, to approve and adopt the merger agreement and approve the merger.
You may revoke your proxy at any time before it is exercised at the
meeting, by taking any of the following actions:
- delivering to the Medco secretary a written notice bearing a date later
than the date of the proxy, stating that the proxy is revoked;
- signing and so delivering a proxy relating to the same shares and bearing
a later date prior to the vote at the meeting; or
- attending the meeting and voting in person, although attendance at the
meeting will not, by itself, revoke a proxy.
Please note, however, that if your shares are held of record by a broker,
bank or other nominee and you wish to vote them at the meeting, you must bring
to the meeting a letter from the broker, bank or other nominee confirming your
beneficial ownership of the shares.
NO APPRAISAL RIGHTS
Holders of Medco common stock are not entitled to dissenters' rights or
appraisal rights with respect to the merger.
HOLDERS OF MEDCO COMMON STOCK SHOULD NOT SEND ANY CERTIFICATES REPRESENTING
MEDCO COMMON STOCK. FOLLOWING THE EFFECTIVE TIME OF THE MERGER, HOLDERS OF MEDCO
COMMON STOCK WILL RECEIVE INSTRUCTIONS FOR THE SURRENDER AND EXCHANGE OF THEIR
STOCK CERTIFICATES.
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RISK FACTORS
The terms of the merger involve certain risk factors. By voting in favor
of the merger, Medco shareholders will also be choosing to invest in King common
stock, which in itself involves risks. In addition to the other information
contained or incorporated by reference in this proxy statement/prospectus, you
should carefully consider the following risk factors in deciding whether to vote
for the merger.
RISKS RELATING TO THE MERGER
YOU WILL NOT KNOW THE NUMBER OF SHARES OF KING COMMON STOCK TO BE ISSUED TO
MEDCO STOCKHOLDERS UNTIL THREE DAYS PRIOR TO THE MEDCO STOCKHOLDERS' MEETING.
You will not know the number of shares of King common stock to be issued to
you until three days prior to the Medco stockholders meeting. Upon the
completion of the merger, stockholders of Medco will be entitled to receive
shares of King common stock based on an exchange ratio which will be determined
based on the price of King common stock prior to the Medco shareholders'
meeting. If the twenty-day average closing price of King's common stock price
for the period ending three days before the stockholders' meeting is between
$33.00 and $49.87 per share, then the exchange ratio will be fixed at 0.6818
share of King common stock for each share of Medco common stock. If the average
closing price of King shares is greater than $49.87, the exchange ratio will be
the quotient obtained by dividing $34.00 by the average closing price, and if
the average closing price of King shares is less than $33.00, the exchange ratio
will be the quotient obtained by dividing $22.50 by the average closing price.
Based on the exchange ratio, each Medco share will have a maximum value of
$34.00 and a minimum value of $22.50 in the form of King common stock. The
exchange ratio is described in more detail under the heading "Structure of the
Merger and Conversion of Medco Common Stock."
THE VALUE OF THE KING COMMON STOCK RECEIVED IN THE MERGER COULD BE REDUCED IF
THE MARKET VALUE OF KING'S COMMON STOCK DECREASES.
Once determined, there will be no adjustment to the exchange ratio if the
market price of either Medco common stock or King common stock subsequently
fluctuates prior to the merger. The share prices of both Medco common stock and
King common stock are subject to price fluctuations in the market for
publicly-traded equity securities and have each experienced significant
volatility. We cannot predict the market prices for either Medco common stock or
King common stock at any time before the completion of the merger or the market
price for King common stock after the completion of the merger. A decrease in
King's stock price after the shareholders' meeting will result in a decrease in
the value that Medco shareholders will receive in the merger. Also, Medco is not
permitted to abandon the merger or resolicit its shareholders' approval solely
because of changes in the market price of King common stock. Accordingly, the
specific value of King common stock that Medco shareholders will receive may
decrease between now, the fixing of the exchange ratio, and completion of the
merger. We encourage you to obtain current market quotations of Medco common
stock and King common stock.
WE MAY NOT REALIZE THE MERGER'S POTENTIAL BENEFITS.
We entered into the merger agreement with the expectation that the merger
will result in benefits including potential cost savings. We can only achieve
these savings if we
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can integrate our culture, operations and personnel timely and efficiently. If
we fail to do this, expected cost savings may not be achieved. This integration
could also divert our attention from operations. We may not be able to integrate
our businesses timely or successfully and may not be able to realize any of the
merger's anticipated benefits or cost savings. If we fail to do these things, it
could effect the value of King's common stock and impair King's finances and
business prospects after the merger.
IF WE FAIL TO COMPLETE THE MERGER, WE MIGHT SUFFER FINANCIAL HARM.
If Medco does not complete the merger, it may be subject to a number of
material risks, including the following:
- Medco may be required to pay King a termination fee of $12.0 million,
depending on the circumstances;
- If the average closing price of King's stock is below $30.00 and King
elects to terminate the merger agreement, Medco will be required to pay
two times the aggregate of documented costs, fees and expenses of King
incurred in connection with the merger and the merger agreement, up to a
maximum of $6.0 million.
- an option granted to King to purchase up to 19.9% of the outstanding
shares of Medco's common stock for $30.00 per share may become
exercisable; and
- the market price of Medco common stock may decline to the extent that its
current market price reflects a market assumption that the merger will be
completed.
Also, the public announcement of our failure to complete the merger could have
an adverse effect on our:
- stock values and
- ability to attract and retain key management and technical personnel.
You should note that we also will have to pay the costs related to the merger,
such as our own legal, accounting, and financial advisor fees, even if we do not
close the merger which could adversely affect our net income.
If the merger is terminated and the Medco board of directors determines to
seek another merger or business combination, because of King's option to acquire
Medco common stock and the termination fee Medco may be required to pay King, we
cannot assure you that Medco will be able to find a partner willing to pay an
equivalent or more attractive price than the merger consideration. In addition,
while the merger agreement is in effect, subject to exceptions, Medco is
prohibited from soliciting, initiating, encouraging, or entering into
extraordinary transactions such as, a merger, sale of assets, or other business
combination with any party other than King. Furthermore, if the merger agreement
is terminated and King's option to purchase Medco common stock becomes
exercisable, Medco will not be able to account for future transactions as a
"pooling-of-interests" for a period of two years. This inability to obtain
pooling-of-interests accounting treatment could adversely affect Medco's ability
to enter into future transactions.
RISKS RELATING TO KING'S BUSINESS
You should carefully consider these risk factors, as well as the other
information contained in this prospectus. The risks described below are not the
only ones facing King.
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<PAGE> 20
Additional risks not presently known to King or that it currently deems
immaterial may also impair business operations.
KING'S SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT ITS FINANCIAL HEALTH.
King has a high level of debt. As of September 30, 1999, King's total debt
was approximately $606 million and its total debt, as a percentage of total
capitalization, was 82%. King's high level of debt could have a significant
adverse future effect on its business. For example:
- King has limited ability to borrow additional amounts for working
capital, capital expenditures, acquisitions, debt service requirements,
execution of its growth strategy, research and development costs or other
purposes;
- a substantial portion of King's cash flow will be used to pay principal
and interest on its debt, which will reduce the funds available for
working capital, capital expenditures, acquisitions and other purposes;
- King's senior credit facility covenants require it to meet certain
financial objectives and impose other significant restrictions on
business operations. These covenants and the covenants contained in the
indenture governing its senior subordinated notes limit its ability to
borrow additional funds or dispose of assets and limit its flexibility in
planning for and reacting to changes in its business;
- As a result of its debt, King may be more vulnerable to adverse changes
in general economic, industry and competitive conditions and adverse
changes in government regulation;
- King's high debt level and the various covenants contained in the
indenture related to its senior subordinated notes and the documents
governing its other existing indebtedness may place it at a relative
competitive disadvantage as compared to certain of its competitors;
- borrowings under King's senior credit facility are at floating rates of
interest, which could result in higher interest expense in the event of
an increase in interest rates;
- King's ability to pay principal of and interest on its senior
subordinated notes, to service its other debt and to refinance
indebtedness when necessary depends on its financial and operating
performance, each of which is subject to prevailing economic conditions
and to financial, business and other factors beyond King's control; and
- King cannot assure you that it will generate sufficient cash flow from
operations or that it will be able to obtain sufficient funding to
satisfy all of its obligations. If King is unable to pay its debts, it
will be required to pursue one or more alternative strategies, such as
selling assets, refinancing or restructuring its indebtedness or selling
additional equity capital. However, King cannot assure you that any
alternative strategies will be feasible at the time or prove adequate.
Also, certain alternative strategies will require the consent of King's
senior secured lenders before it engages in any such strategy.
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<PAGE> 21
IF KING CANNOT ACQUIRE NEW BRANDED PRODUCTS, IT MAY NOT BE ABLE TO INCREASE
SALES OR NET INCOME.
King 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. King's strategy for growth is primarily dependent upon its continued
ability to acquire branded products, or companies with existing products or
pipelines for future products, that can be promoted through existing marketing
and distribution channels and, when appropriate, the enhancement of such
marketing and distribution channels. Because King 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 from other companies or the
acquisition of other companies. Other companies, including those with
substantially greater financial, marketing and sales resources, are competing
with King for the right to acquire such products and companies. King may not be
able to acquire companies or rights to additional products on acceptable terms,
if at all, or be able to obtain future financing for such acquisitions on
acceptable terms, if at all. The inability to effect acquisitions of additional
companies or branded products will have a material adverse effect on King's
future business, financial condition and results of operations. Furthermore,
even if King obtains rights to a pharmaceutical product, King may not be able to
generate sales sufficient to create a profit or otherwise avoid a loss. In
addition, King's marketing strategy, distribution channels and levels of
competition with respect to acquired products may be different than those of its
current products and King cannot assure you that it will be able to compete
favorably in those product categories.
IF SALES OF KING'S MAJOR PRODUCTS DECREASE, KING'S RESULTS OF OPERATIONS COULD
BE ADVERSELY EFFECTED.
Altace accounted for approximately 34.3% of net sales and Altace, Fluogen,
and the Cortisporin product line, collectively, accounted for approximately
51.5% of net sales for the nine months ended September 30, 1999. King believes
that sales of these products will continue to constitute a significant portion
of its net sales for the foreseeable future. Accordingly, any factor adversely
affecting sales of any of these products could also have a material adverse
effect on King's business, financial condition and results of operations.
MUCH OF THE GROWTH OF KING'S MARKET CAPITALIZATION MAY BE DUE TO PROMISING
RESULTS OF A CLINICAL TRIAL ON ITS PRODUCT ALTACE. KING'S BUSINESS COULD SUFFER
IF IT IS UNABLE TO MEET INVESTORS' EXPECTATIONS REGARDING ALTACE.
King believes that much of its growth in market capitalization has been
driven by the announcement of the results of a clinical study called the "HOPE
Study" on its product Altace. Until new indications for Altace are approved by
the Food and Drug Administration (which we call the "FDA"), however, King is
restricted as to the information it can disseminate and the claims it can make
about Altace. If King failed to comply with the governmental regulations
applicable to dissemination of the HOPE Study results or failed to secure new
indications for Altace, or if the number of new prescriptions for Altace failed
to grow, there could be a materially adverse effect on King's business,
financial condition and results of operation.
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<PAGE> 22
KING DOES NOT HAVE PROPRIETARY PROTECTION FOR MOST OF ITS BRANDED PHARMACEUTICAL
PRODUCTS AND ITS SALES COULD SUFFER FROM COMPETITION BY GENERIC SUBSTITUTES.
Most of King's branded pharmaceutical products are subject to competition
from generic equivalents. There is no proprietary protection for most of the
branded pharmaceutical products King sells. Generic substitutes for most of
King's branded pharmaceutical products are sold by other pharmaceutical
companies. In addition, governmental and other pressure to reduce pharmaceutical
costs may result in physicians prescribing products for which there are generic
substitutes. Increased competition from the sale of generic pharmaceutical
products may cause a decrease in revenue from King's branded products and could
have a material adverse effect on King's business, financial condition and
results of operations. While King seeks 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,
King may not be successful in these efforts.
IF KING IS UNABLE TO MANAGE ITS ACQUISITIONS EFFECTIVELY, KING'S BUSINESS MAY
SUFFER.
King anticipates that the integration of newly-acquired products, as well
as other assets, will require significant management attention and expansion of
its sales force. In order to effectively manage its acquisitions, King must
maintain adequate operational, financial and management information systems and
motivate and effectively manage an increasing number of employees. King's recent
acquisitions have significantly expanded its product offerings and operations.
King's future success will depend in part on its ability to retain or hire
qualified employees to operate its facilities efficiently in accordance with
applicable regulatory standards. Similarly, King's success will depend in part
on its ability to maintain and grow an effective and motivated sales force. If
King's management is unable to manage its growth effectively and integrate its
acquisitions successfully, these changes and acquisitions could materially and
adversely affect its business, financial condition and results of operations.
IF KING HAS PROBLEMS WITH ANY OF THE COMPANIES WHO MANUFACTURE PRODUCTS FOR IT
OR ITS SUPPLIERS OF RAW MATERIALS, KING'S PROFIT MARGIN AND ITS ABILITY TO
DELIVER PRODUCTS COULD BE ADVERSELY AFFECTED.
Fifteen of King's product lines, including Altace, Cortisporin and Lorabid,
are currently manufactured by third parties. Until these products can be moved
to King's manufacturing facilities, its dependence upon third parties for the
manufacture of its products may adversely affect its profit margins and its
ability to develop and deliver its products on a timely and competitive basis.
If for any reason King is unable to obtain or retain third-party manufacturers
on commercially acceptable terms, King may not be able to distribute its
products as planned. If King encounters delays or difficulties with contract
manufacturers in producing or packaging its products, the distribution,
marketing and subsequent sales of these products would be adversely affected,
and King may have to seek alternative sources of supply or abandon or sell a
product line on unsatisfactory terms. King might not be able to enter into
alternative supply arrangements at commercially acceptable rates, if at all.
King also cannot assure you that the manufacturers it utilizes will be able to
provide it with sufficient quantities of its products or that the products
supplied to it will meet its specifications.
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<PAGE> 23
King requires a supply of quality raw materials and components to
manufacture and package pharmaceutical products for it and for third parties
with which it has contracted. Generally, King has not had difficulty obtaining
raw materials and components from suppliers in the past. Currently, King relies
on approximately 350 suppliers to deliver the necessary raw materials and
components. The loss of any one of these suppliers is not expected to have a
material adverse effect on King's ability to acquire raw materials and
components. King has no reason to believe it will be unable to procure adequate
supplies of raw materials and components on a timely basis. However, if King is
unable to obtain sufficient quantities of any of the raw materials or components
required to produce and package its products, King may not be able to distribute
its products as planned. In this case, King's business, financial condition and
results of operations could be materially and adversely affected.
KING'S FAILURE TO BE REIMBURSED BY THIRD-PARTY PAYERS OR PRICING PRESSURES BY
MANAGED CARE ORGANIZATIONS COULD DECREASE ITS SALES.
King's commercial success in producing, marketing and selling products
depends, 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. King cannot assure you that reimbursement will
be available to enable it to achieve market acceptance of its products or to
maintain price levels sufficient to realize an appropriate return on its
investment in product acquisition and development. If adequate reimbursement
levels are not provided, its business, financial condition and results of
operations could be materially and adversely effected. The market for its
products may be limited by actions of third-party payers. For example, many
managed health care organizations are now controlling the pharmaceutical
products 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. King cannot assure you that its 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
its operations. Further, a number of legislative and regulatory proposals aimed
at changing the health care system have been proposed. While King 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 its financial condition or results of operations.
FAILURE TO COMPLY WITH GOVERNMENT REGULATIONS COULD AFFECT KING'S ABILITY TO
OPERATE ITS BUSINESS.
Virtually all aspects of King's activities are regulated by federal and
state statutes and government agencies. The manufacturing, processing,
formulation, packaging, labeling, distribution and advertising of its products,
and disposal of waste products arising from such activities, are subject to
regulation by one or more federal agencies, including the FDA, the Drug
Enforcement Agency, the Federal Trade Commission, the Consumer Product Safety
Commission, the U. S. Department of Agriculture, the Occupational Safety
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<PAGE> 24
and Health Administration and the U. S. Environmental Protection Agency, as well
as by foreign governments.
Noncompliance with applicable FDA policies or requirements could subject
King to possible enforcement actions, such as suspension of manufacturing,
seizure of products, product recalls, fines, criminal penalties, injunctions,
failure to approve pending drug product applications or withdrawal of product
marketing approvals. Similar civil or criminal penalties could be imposed by
other government agencies, such as the Drug Enforcement Agency, the
Environmental Protection Agency or various agencies of the states and localities
in which King's products are manufactured and sold, and could have ramifications
for contracts with government agencies such as the Veteran's Administration.
Such enforcement actions could have a material adverse effect on King's
business, financial condition and results of operations. Noncompliance with
applicable state and federal policies or requirements could have a material
adverse effect on King's business, financial condition or results of operations.
All manufacturers of human pharmaceutical products are subject to
regulation by the FDA under the authority of the Federal Food, Drug, and
Cosmetic Act or the Public Health Service Act or both. New drugs, as defined in
the Federal Food, Drug and Cosmetic Act, and new human biological drugs, as
defined in the Public Health Service Act, must be the subject of an FDA-approved
new drug or biologic license application before they may be marketed in the
United States. Some prescription and other drugs are not the subject of an
approved marketing application but, rather, are marketed subject to the FDA's
regulatory discretion and/or enforcement policies. Any change in the FDA's
enforcement discretion and/or policies, such as any decision by the FDA to
require an approved marketing application for one of King's products not
currently subject to the approved marketing application, could have a material
adverse effect on King's business, financial condition and results of
operations.
King manufactures some pharmaceutical products containing controlled
substances and, therefore, is also subject to statutes and regulations enforced
by the Drug Enforcement Agency and similar state agencies which impose security,
recordkeeping, reporting, and personnel requirements. Additionally, because King
manufactures biological drug products for human use, it is subject to additional
regulatory burdens as a result of these aspects of its business. There are
additional FDA and other regulatory policies and requirements for all its
products covering such issues as advertising, distributing, selling, sampling
and reporting adverse events with which King, like all pharmaceutical
manufacturers, must continuously comply. Noncompliance with any of these
policies or requirements could result in enforcement actions which could have a
material adverse effect on King's business, financial condition and results of
operations.
The FDA has the authority to withdraw existing marketing approvals and to
review the regulatory status of marketed products at any time. For example, the
FDA may withdraw an approved drug application for any drug product marketed if
new information reveals questions about the drug's safety or effectiveness. All
drugs must be manufactured in conformity with current good manufacturing
practices, which are commonly called "cGMPs," and drug products subject to an
approved application must be manufactured, processed, packaged, held and labeled
in accordance with information contained in the approved application.
Pharmaceutical products also must be distributed, sampled and promoted in
accordance with FDA requirements, including the advertising of prescription
drugs.
18
<PAGE> 25
While King believes that all of its current pharmaceutical products are
lawfully marketed in the United States under current FDA enforcement discretion
and/or policies or have received the requisite agency approvals, such marketing
is subject to challenge by the FDA at any time. Through various mechanisms, the
FDA can ensure that drugs are no longer marketed. In addition, modifications,
enhancements, or changes in manufacturing sites 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. King's
manufacturing facilities and those of its third-party manufacturers 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, which could have a material adverse
effect on its business, financial condition and results of operation.
King's Parkedale facility located in Rochester, Michigan was one of six
Warner-Lambert facilities subject to a consent decree issued by the U.S.
District Court of New Jersey in August 1993. The Parkedale facility manufactures
both drug and biological pharmaceutical products. King currently manufactures
pharmaceutical products at its Parkedale facility subject to the consent decree,
but material violations of the consent decree could subject it to significant
monetary penalties, in addition to possible FDA enforcement action, including
the cessation of manufacturing. King plans to petition for relief from the
consent decree with respect to the Parkedale facility when appropriate. There
can be no assurance that its petition, when sought, will be granted. The
Parkedale facility was inspected by the FDA's Team Biologics in March and April
1998. During that inspection, the FDA made cGMP observations in a written report
provided to King. This written report is known as an "FDA Form 483" or simply as
a "483." King provided the FDA with a written response to the 483 including an
action plan to address the observations.
As a continuation of the inspections in March and April 1998, the FDA
inspected the Parkedale facility in May 1999 to verify actions taken in response
to the 1998 inspection and to address compliance with the FDA's cGMP
requirements. At the end of that inspection, the FDA issued another 483 listing
their observations. King submitted a written response to that 483 and met with
FDA representatives to present King's plans for addressing the observations. In
August 1999, the FDA wrote to King asking King to clarify and supplement its
responses to the 483 which resulted from the May 1999 inspection. The FDA also
stated it would require additional product testing for the product Histoplasmin.
King decided that since revenues attributable to Histoplasmin were minimal it
would discontinue the manufacture and distribution of the product and King
subsequently informed the FDA of its decision to that effect. Most, but not all,
of the actions taken by King in response to the May 1999 inspection and the
August 1999 FDA letter have been completed, and King has continued to inform the
FDA in writing of its progress in implementing those actions.
In October 1999, as part of its program for inspection of all manufacturers
of influenza virus vaccine, the FDA's Team Biologics inspected King's production
of Fluogen at the Parkedale facility and issued a 483 listing certain cGMP
observations. In November 1999, King submitted a written response containing its
plan to address the observations. As of December 9, 1999, King has not received
any comments from the FDA on its response. King believes that the actions it is
taking to address the FDA's observations in the May 1999 inspection and the
October 1999 inspection by Team Biologics are adequate; however, there can be no
assurance that these actions will be successfully implemented, will satisfy the
FDA, or that the agency will not take enforcement action that it is
19
<PAGE> 26
empowered to impose. Any such action by the FDA could have a material adverse
effect on King's business and financial condition and on its operations.
King cannot assure you of the outcome of future inspections. If the FDA
finds the Parkedale facility out of compliance with cGMPs, it could take
enforcement actions against it, including the cessation of manufacturing or the
imposition of penalties under the consent decree, which could have a material
adverse effect on King's business, financial condition and results of
operations, or result in a delay of King's efforts to seek relief from the
consent decree.
King cannot determine what effect changes in regulations, enforcement
positions, statutes or legal interpretation, when and if promulgated, adopted or
enacted, may have on its business in the future. Changes could, among other
things, require changes to manufacturing methods or facilities, expanded or
different labeling, new approvals, 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 its business, financial
condition and results of operations.
FAILURE TO KEEP PACE WITH ITS COMPETITION AND TECHNOLOGY COULD HARM ITS
BUSINESS.
King competes with other pharmaceutical companies, including large, global
pharmaceutical companies with financial resources substantially greater than
King's, for products and product line acquisitions. King cannot assure you that
- it will be able to continue to acquire commercially attractive
pharmaceutical products,
- additional competitors will not enter the market, or
- competition for products and product line acquisitions will not have a
material adverse effect on its business, financial condition and results
of operations.
King also competes with pharmaceutical companies in developing, marketing
and selling pharmaceutical products. The selling prices of pharmaceutical
products typically decline as competition increases. Further, other products now
in use, under development or acquired by other pharmaceutical companies may be
more effective or offered at lower prices than King's current or future
products. The industry is characterized by rapid technological change which may
render its products obsolete, and competitors may develop their products more
rapidly than King. Competitors may also be able to complete the regulatory
process sooner and, therefore, may begin to market their products in advance of
King. King believes that competition for sales of its products will be based
primarily on product efficacy, safety, reliability, availability and price.
AN INCREASE IN PRODUCT LIABILITY CLAIMS, PRODUCT RECALLS OR PRODUCT RETURNS
COULD HARM ITS BUSINESS.
King 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. These risks will exist even with respect to
those products that receive regulatory approval for commercial sale. While King
has taken, and will continue to take, what King believes are appropriate
precautions, King may not be able to avoid significant product
20
<PAGE> 27
liability exposure. King currently has product liability insurance in the amount
of $50 million for aggregate annual claims with a $50,000 deductible per
incident and a $500,000 aggregate annual deductible; however, King cannot assure
you that the level or breadth of any insurance coverage will be sufficient to
cover fully all potential claims. Also, adequate insurance coverage might not be
available in the future at acceptable costs, if at all.
Product recalls may be issued at King's discretion or at the discretion of
the FDA, other government agencies or other companies having regulatory
authority for pharmaceutical product sales. In November 1998 the Parke-Davis
division of Warner-Lambert initiated a voluntary Class III recall for one lot of
Procanbid manufactured prior to King's acquisition of Procanbid. In April 1999,
Warner-Lambert initiated a voluntary Class III recall for two additional lots of
Procanbid manufactured prior to King's acquisition of the product. A Class III
recall is one in which use of, or exposure to, the product is not likely to
cause adverse consequences. These recalls were instituted because the lots at
issue failed a dissolution test as part of the routine stability program at the
18-month interval. In October 1999 King notified the FDA that one additional lot
of Procanbid, also manufactured prior to its acquisition of the product line,
had failed the same dissolution test at the 24-month interval. If additional
lots of Procanbid are recalled, the reputation of the product and the value of
the associated trademark could be adversely affected. King cannot assure you
that additional product recalls will not occur in the future. Any product recall
could materially adversely affect its business, financial condition and results
of operations.
Although product returns were approximately 1.7% of gross sales for the
year ended December 31, 1998, King cannot assure you that actual levels of
returns will not increase or significantly exceed the amounts King has
anticipated.
THE LOSS OF ITS KEY PERSONNEL COULD HARM ITS BUSINESS.
King is highly dependent on the principal members of its management staff,
the loss of whose services might impede the achievement of its acquisition and
development objectives. Although King 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, King cannot assure
you that it 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 King, especially in light of
its recent growth. King does not maintain key-person life insurance on any of
its employees. In addition, King does not currently have employment agreements
with any of its key employees.
OWNERSHIP OF KING IS CONCENTRATED IN A FEW INDIVIDUALS WHO CAN INFLUENCE ITS
MANAGEMENT AND POLICIES.
King's present officers and directors and their affiliates beneficially own
% of the outstanding shares of its common stock as of ,
2000. Accordingly, they have the ability to exercise significant influence over
the management and policies of King. Independent directors do not currently, and
may not in the future, constitute a majority of the Board of Directors. In the
absence of a majority of independent directors, King'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
21
<PAGE> 28
King and its shareholders generally and its executive officers or directors.
King does not intend to implement any formal procedures to address any such
potential conflicts of interest.
KING'S RECENTLY ESTABLISHED INTERNATIONAL DIVISION IS NOT YET PROFITABLE, AND
THERE CAN BE NO ASSURANCE THAT IT WILL BE PROFITABLE IN THE FUTURE.
In January, 1999 King established its International Division in Charlotte,
N.C. in order to seek new markets for product lines for which King has
international rights. The marketing and distribution of these products in
foreign countries generally requires the prior registration of the product in
those countries. King does not have a distribution mechanism in place for
distribution outside the United States and Puerto Rico and would need to enter
into distribution agreements with existing entities to distribute the products
effectively. There can be no assurance that King will be successful in securing
the registrations outside the U.S. or that it will do so in a timely manner.
Initial sales results from the International Division may not exceed the
associated costs of its operations. There can be no assurance that King's
International Division will be successful in securing distribution agreements
for its products or that King will be able to secure additional products with
international rights in the future.
22
<PAGE> 29
KING PHARMACEUTICALS, INC.
UNAUDITED SELECTED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
The following tables present unaudited selected pro forma combined
condensed financial data for King after giving effect to the merger with Medco.
The merger with Medco will be accounted for using a pooling of interests method
of accounting. The selected pro forma financial data presented below reflect the
operations of King and Medco for the nine-month periods ended September 30, 1999
and September 30, 1998, and for the years ended December 31, 1998, December 31,
1997, and December 31, 1996. In addition, the information for the year-ended
December 31, 1998 and for the nine-month period ended September 30, 1999 reflect
the acquisition of the Sterile Products on February 27, 1998, the Altace product
line on December 22, 1998 and other lesser significant acquisitions in 1998 and
1999 as if they occurred on January 1, 1998. The unaudited selected pro forma
combined condensed financial data are presented for illustrative purposes only
and are not necessarily indicative of the results that would have been obtained
if the merger had occurred at the beginning of the periods presented (in the
case of statement of operations items) or at the dates of the balance sheet (in
the case of balance sheet items), or that may be obtained in the future. The
selected unaudited pro forma combined condensed financial data should be read in
conjunction with the Unaudited Pro Forma Combined Condensed Financial
Information appearing elsewhere in this proxy statement/prospectus. Pro forma
operating results and balance sheet data do not include estimated merger related
costs of $12.0 million.
<TABLE>
<CAPTION>
FOR THE NINE-
MONTHS ENDED FOR THE YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
-------------------- -------------------------------
1999 1998(1) 1998 1997(1) 1996(1)
-------- -------- -------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED COMBINED STATEMENT OF OPERATIONS
DATA:
Net revenues..................................... $298,424 $132,521 $394,852 $67,909 $33,911
-------- -------- -------- ------- -------
Operating Costs and expenses:
Cost of sales.................................. 84,649 41,933 106,576 13,034 8,782
Selling, general and administrative............ 66,969 26,800 125,553 21,414 14,964
Research and development expense............... 6,373 6,492 9,740 6,328 5,788
Depreciation and amortization.................. 22,752 7,028 29,680 3,071 1,177
Royalty expense................................ 4,718 3,246 7,119 2,985 2,574
-------- -------- -------- ------- -------
Total operating costs and operating
expenses................................. 185,461 85,499 278,668 46,832 33,285
-------- -------- -------- ------- -------
Income from operations......................... 112,963 47,022 116,184 21,077 626
Other income (expense):
Interest and other income.................... 2,335 6,115 6,879 2,782 4,708
Interest expense............................. (46,482) (10,729) (56,774) (2,777) (1,272)
-------- -------- -------- ------- -------
Income before income taxes and extraordinary
item........................................... 68,816 42,408 66,289 21,082 4,062
Income taxes..................................... 25,381 12,247 20,161 4,256 (20)
-------- -------- -------- ------- -------
Income before extraordinary item................. 43,435 30,161 46,128 16,826 4,082
Extraordinary loss on early extinguishment of
debt........................................... -- (286) -- -- --
-------- -------- -------- ------- -------
Net income....................................... $ 43,435 $ 29,875 $ 46,128 $16,826 $ 4,082
======== ======== ======== ======= =======
BASIC INCOME PER COMMON SHARE(2):
Income before extraordinary item............... $ .79 $ 0.59 $ 0.88 $ 0.36 $ 0.13
Extraordinary item............................. -- (0.01) -- -- --
-------- -------- -------- ------- -------
Net income..................................... $ .79 $ 0.58 $ 0.88 $ 0.36 $ 0.13
======== ======== ======== ======= =======
DILUTED INCOME PER COMMON SHARE(2):
Income before extraordinary item............... $ .78 $ 0.58 0.88 0.36 0.13
Extraordinary item............................. -- (0.01) --
-------- -------- -------- ------- -------
Net income..................................... $ .78 $ 0.57 $ 0.88 $ 0.36 $ 0.13
======== ======== ======== ======= =======
WEIGHTED AVERAGE SHARES USED IN COMPUTING(2):
Basic income per share......................... 55,215 51,388 52,371 46,595 30,604
======== ======== ======== ======= =======
Diluted income per share....................... 55,720 51,620 52,638 46,650 30,618
======== ======== ======== ======= =======
</TABLE>
23
<PAGE> 30
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -----------------------------
1999 1998 1997 1996
------------- -------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEETS DATA:
Working capital............................................. $ 89,315 $ 60,900 $ 19,735 $26,122
Total assets................................................ 878,879 732,456 154,476 81,907
Total long-term liabilities................................. 599,559 522,362 49,090 16,245
Total shareholders' equity.................................. 197,071 159,495 74,000 52,192
</TABLE>
- -------------------------
(1) King completed various product purchase acquisitions for which the results
of operations of the acquired products are included in King's consolidated
results of operations from the respective dates of the acquisitions.
(2) Retroactively reflects the 3 for 2 stock split that was effective November
11, 1999.
24
<PAGE> 31
KING SELECTED CONSOLIDATED FINANCIAL DATA
The tables below contain selected historical financial data for King. The
results of operations of King's purchase accounting acquisitions are included in
King's consolidated results of operations from the respective dates of the
acquisitions. This information has been derived from King's consolidated
financial statements, which are incorporated herein by reference.
<TABLE>
<CAPTION>
NINE-MONTH
PERIOD ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- -----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---- -------- -------- ------- ------- ------- ------------
(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Net revenues........................ $240,914 $113,330 $163,463 $47,909 $20,457 $25,441 $13,311
-------- -------- -------- ------- ------- ------- -------
Operating costs and expenses:
Costs of sales.................... 75,055 41,933 64,052 13,034 8,782 12,130 9,754
Selling, general and
administrative.................. 55,270 25,040 34,718 19,123 12,106 8,605 1,987
Depreciation and amortization....... 19,348 6,506 9,255 2,395 982 1,777 639
-------- -------- -------- ------- ------- ------- -------
Total costs and operating
expenses...................... 149,673 73,479 108,025 34,522 21,870 22,512 12,380
-------- -------- -------- ------- ------- ------- -------
Sale of product line................ -- -- -- -- -- 13,102 --
-------- -------- -------- ------- ------- ------- -------
Income (loss) from operations....... 91,241 39,851 55,438 13,357 (1,413) 16,031 931
Other income (expense):
Other income...................... 86 120 145 (28) 2,338 367 554
Interest expense.................. (40,598) (10,729) (14,866) (2,749) (1,272) (2,006) (1,069)
-------- -------- -------- ------- ------- ------- -------
Income (loss) before income taxes
and extraordinary loss.......... 50,729 29,242 40,717 10,580 (347) 14,392 416
Income taxes...................... 19,062 11,183 15,396 3,968 (107) 5,058 (501)
-------- -------- -------- ------- ------- ------- -------
Income (loss) before extraordinary
loss............................ 31,667 18,059 25,321 6,612 (240) 9,334 917
Extraordinary loss on early
extinguishment of debt.......... (705) (286) (4,411) -- -- 528 --
-------- -------- -------- ------- ------- ------- -------
Net income (loss)................... $ 30,962 $ 17,773 $ 20,910 $ 6,612 $ (240) $ 9,862 $ 917
======== ======== ======== ======= ======= ======= =======
Basic and diluted income (loss) per
common share (1):
Income (loss) before extraordinary
item............................ $ 0.66 $ 0.41 $ 0.56 $ 0.17 $ (0.01) $ 0.44 $ 0.12
Extraordinary item................ (0.01) (0.01) (0.10) -- -- 0.02 --
-------- -------- -------- ------- ------- ------- -------
Net income........................ $ 0.65 $ 0.40 $ 0.46 $ 0.17 $ (0.01) $ 0.46 $ 0.12
======== ======== ======== ======= ======= ======= =======
Weighted average common shares
outstanding (1):
Basic............................. 48,160 44,192 45,191 39,405 23,160 21,251 7,815
======== ======== ======== ======= ======= ======= =======
Diluted........................... 48,393 44,192 45,236 39,405 23,160 21,251 7,815
======== ======== ======== ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -------------------------------------------------
1999 1998 1997 1996 1995 1994
------------- -------- -------- ------- ------- -------
(UNAUDITED) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEETS DATA:
Working capital............................. $ 59,972 $ 31,087 $ (424) $ 7,749 $ 7,599 $(2,408)
Total assets............................ 809,196 668,171 104,863 39,279 33,942 38,447
Total long-term liabilities............. 599,559 522,212 48,289 13,980 9,497 27,065
Total shareholders' equity.............. 132,565 101,436 29,344 15,693 11,011 1,935
</TABLE>
- -------------------------
(1) Retroactively reflects the 3 for 2 stock split that was effective November
11, 1999.
25
<PAGE> 32
MEDCO SELECTED CONSOLIDATED FINANCIAL DATA
The table below contains selected consolidated financial data of Medco.
This information has been derived from Medco's consolidated financial statements
which are incorporated herein by reference.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPT. 30 YEARS ENDED DECEMBER 31,
----------------- -----------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------- ------- ------- ------- ------- ------- -------
(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED
STATEMENT OF
OPERATIONS DATA:
Revenues............. $25,713 $19,191 $27,544 $20,000 $13,454 $ 9,770 $ 8,460
Operating profit
(loss)............. 11,927 7,171 9,739 7,720 2,039 (6,670) (6,643)
Income (loss) before
income taxes....... 14,176 13,166 16,473 10,502 4,409 (3,432) (4,415)
Net income (loss).... 9,421 12,102 16,242 10,213 4,322 (3,532) (4,415)
Net income (loss) per
common share:
Basic.............. $ 0.91 $ 1.15 $ 1.54 $ 0.97 $ 0.40 $ (0.32) $ (0.40)
======= ======= ======= ======= ======= ======= =======
Diluted............ $ 0.88 $ 1.11 $ 1.50 $ 0.96 $ 0.40 $ (0.32) $ (0.40)
======= ======= ======= ======= ======= ======= =======
Weighted average
common shares
outstanding:
Basic.............. 10,347 10,554 10,531 10,546 10,918 11,024 11,145
======= ======= ======= ======= ======= ======= =======
Diluted............ 10,747 10,894 10,857 10,621 10,938 11,024 11,145
======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -----------------------------------------------
1999 1998 1997 1996 1995 1994
------------- ------- ------- ------- ------- -------
(UNAUDITED) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Working capital......... $29,343 $29,813 $20,159 $18,373 $27,734 $24,883
Total assets............ 69,783 64,285 49,613 42,628 43,122 44,680
Total long-term
liabilities........... -- 150 801 2,265 3,901 1,950
Total shareholders'
equity................ 64,506 58,059 44,656 36,499 35,100 38,902
</TABLE>
26
<PAGE> 33
THE MERGER
This section of the proxy statement/prospectus briefly describes our
business and that of King and certain aspects of the proposed merger. While we
believe that the description covers the material terms of the merger and the
related transactions, this summary may not contain all of the information that
is important to you. You should read this entire document and the other
documents we refer to carefully for a more complete understanding of the merger.
In addition, we incorporate by reference important business and financial
information about us and about King into this proxy statement/prospectus. See
"Documents Incorporated by Reference in this Proxy Statement/Prospectus" on page
. You may obtain the information incorporated by reference in this proxy
statement/prospectus without charge by following the instructions in the section
entitled "Where You Can Find More Information" on page .
THE COMPANIES
KING PHARMACEUTICALS, INC.
501 Fifth Street
Bristol, Tennessee 37620
Phone: (423) 989-8000
King is a vertically integrated pharmaceutical company that manufactures,
markets and sells primarily branded prescription pharmaceutical products.
Through a national sales force of over 290 representatives, it markets its
branded pharmaceutical products to general/family practitioners and internal
medicine physicians and hospitals across the country. King's business strategy
is to acquire established branded pharmaceutical products and to increase their
sales by focused marketing and promotion and through product life cycle
management. In pursuing acquisitions, King seeks to capitalize on opportunities
in the pharmaceutical industry created by cost containment initiatives and
consolidation among large, global pharmaceutical companies. King also creates
value by developing product line extensions for its branded pharmaceutical
products such as new formulations, dosages or new indications. These product
line extensions are profitable for King because they may have market exclusivity
or sales levels that do not attract significant competition. In addition to
branded pharmaceuticals, King also provides contract manufacturing for a number
of the world's leading pharmaceutical and biotechnology companies, including
Amgen, Inc., Warner-Lambert Company, Mallinckrodt Chemical Inc., Genetics
Institute and Hoffman-LaRoche, Inc.
MEDCO RESEARCH, INC.
7001 Weston Parkway, Suite 300
Cary, North Carolina 27513
Phone: (919) 653-7001
Medco Research, Inc. is a pharmaceutical company dedicated to being a
leader in the global commercialization of cardiovascular medicines and
adenosine-receptor technologies leading to superior growth in shareholder value.
Medco's business approach has been to carefully evaluate and selectively acquire
product candidates, thereby reducing the costs and risks associated with basic
research and drug discovery. These product opportunities and the related
intellectual property rights are typically obtained under license from academic
or corporate sources who have received United States patents which, in the
opinion of Medco's patent counsel, are valid and enforceable. Medco then
sponsors and directs any additional preclinical studies and clinical testing
needed for product registration
27
<PAGE> 34
and marketing approval. These late-stage product development activities are
outsourced to independent clinical research organizations to maximize efficiency
and minimize internal overhead. Historically, Medco has licensed the
manufacturing and marketing rights to its products to a corporate partner in
exchange for licensing fees and royalty payments on future product sales. A
portion of formulation development, as well as microbiology, chemistry,
manufacturing and controls information, are typically provided by Medco's
licensed corporate partner for inclusion in the New Drug Application. Medco then
submits the New Drug Application to the United States Food and Drug
Administration to obtain the FDA's clearance to market the drug.
BACKGROUND OF THE MERGER
King began its operations in 1994 as a private company principally engaged
in contract manufacturing and in manufacturing and marketing generic
pharmaceutical products. King rapidly evolved into a publicly-traded company
focused on the manufacturing, selling and distribution of branded prescription
pharmaceutical products. King's growth has primarily been fueled by the
acquisition of existing branded pharmaceutical products as opposed to the
internal development of new chemical entities or the discovery of new
therapeutic indications for existing compounds. As part of its operations,
King's management regularly scrutinizes the pharmaceutical industry, including
the recent wave of consolidation in the industry, searching for opportunities to
expand and complement its product portfolio and to fill perceived voids in its
vertically integrated structure. For some time, King's senior management has
perceived value in adding a pipeline of products in late stages of development
to King's existing line of approved products. Toward this end, King has
considered, to varying degrees, the possibility of acquisitions or combinations
with several companies and the potential strategic fit with them based on their
lines of businesses, intellectual property assets, existing revenue streams,
potential for revenue growth, existing cash reserves and their management and
employee cultures.
Medco has experienced similar evolutionary growth since its beginnings in
1978 as one of the country's first clinical research organizations. After Medco
acquired the rights to Adenocard, it began its transition toward a drug
development company focused on in-house technology. Medco went public in 1984
and in subsequent years has successfully employed a start-up strategy whereby it
in-licensed, technologies from leading research institutions, out-sourced the
manufacturing operations to third parties, and ultimately out-licenses lead
products to large pharmaceutical companies in exchange for royalties on product
sales. In the past two years Medco has desired to transition from a
royalty-based model to a sales-based one. The merger and integration of Medco
into King represents Medco's execution of its plan to forward integrate and
gives King its desired pipeline of pharmaceutical products in late stages of
development.
In March and April 1999, John M. Gregory, Chief Executive Officer and
Chairman of the Board of King, informally approached Medco's former Chief
Executive Officer and Richard C. Williams, Medco's Chairman of the Board
regarding a potential business combination.
On April 23, 1999, at a regularly scheduled King board of directors
meeting, Mr. Gregory briefly described these discussions with Medco's chief
executive officer and described Medco's structure, financial position, and
business to the board. King's board was apprised of these discussions as well as
opportunities for other potential acquisitions.
28
<PAGE> 35
King's board expressed interest in a business combination with Medco. (On April
23, 1999, Medco stock closed at $24.50.)
Mr. Williams reported the content of his conversations with John Gregory,
to Hambrecht & Quist, Medco's financial advisor, and with Medco's directors
informally and at a regularly scheduled May 26, 1999 Medco board meeting. Mr.
Williams said that King had approached Medco and proposed a merger, and there
were excellent synergies and virtually no redundancies to a Medco/King
combination, which would accelerate Medco's strategy of commercialization
without the inherent risks of building an infrastructure while giving King a
research capability and product pipeline. At the Medco board meeting, analyst
reports about King and the business section of King's 10-K were distributed to
the board. It was noted that in the last 18 months, Hambrecht & Quist had
furnished confidential Medco information to more than 20 potential partners, and
none was interested in pursuing discussions with Medco about any type of
strategic alliance. Medco's directors concluded that Medco should continue to
operate its business in the ordinary course, and Mr. Williams was requested to
pursue discussions with King if they recommenced.
King discontinued discussions with Medco while King considered possible
financing alternatives prepared for and held its annual shareholders meeting in
June 1999, and pursued pharmaceutical product and company acquisitions.
In June and July 1999, Credit Suisse First Boston, one of King's financial
advisors, was informed by King of King's interest in the acquisition of Medco
and began to do its own preliminary research into Medco. Also in June and July
1999, John A. A. Bellamy, King's Executive Vice President and General Counsel,
obtained certain public information regarding Medco. This information was
circulated to some members of King's senior management. On July 23, 1999, John
Gregory advised the King board of directors in a regularly scheduled meeting,
that King was again considering pursuing an acquisition of Medco and that King
would return to its analysis of a potential transaction with Medco. On July 26,
1999, John Gregory spoke to Mr. Williams and told him that King was interested
in renewing discussions about acquiring Medco. John Gregory and Mr. Williams
agreed to meet in Chicago on August 19, 1999. (On July 26, 1999, Medco's stock
closed at $24.63).
On August 19, 1999, John Gregory met with Mr. Williams in Chicago and
discussed the mutual advantages to be realized from a possible merger. Mr.
Williams indicated he thought a price of $35.00 per share to be appropriate and
John Gregory explained that King's initial position was $30.00 per share. The
parties agreed that their respective management teams should make presentations
to the other in September 1999. Mr. Williams shared this conversation with
Hambrecht & Quist, Medco's directors and Hofheimer Gartlir & Gross, its general
counsel. (On August 19, 1999, Medco's stock closed at $24.50).
On August 24, 1999 King engaged Credit Suisse First Boston to act as its
financial advisor with respect to the potential business combination with Medco.
On August 24, 1999 Medco engaged Hambrecht & Quist, LLC to act as its financial
advisor with respect to the potential business combination with King. (On August
24, 1999, Medco's stock closed at $23.94).
King and Medco executed confidentiality agreements dated August 25, 1999
and September 8, 1999.
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On September 2, 1999, Mr. Williams telephoned John Gregory to schedule a
meeting of executive management from both organizations in Atlanta on September
10, 1999. On September 9, 1999, Mr. Williams, Hambrecht & Quist and Medco's
senior management team of Glenn Andrews, Adam Derbyshire, Nils Johannesson and
Terry Willard reviewed Hambrecht & Quist's valuation analysis on King and the
strategic fit of King and Medco. Hambrecht & Quist and Credit Suisse First
Boston exchanged management estimates prior to the September 10 meeting.
On September 10, 1999, King's senior management (i.e., John M. Gregory,
Joseph R. Gregory, Jefferson J. Gregory, Brian G. Shrader, John A. A. Bellamy
and Kyle P. Macione) met with Medco's senior management (i.e., Richard C.
Williams, Glenn Andrews, Adam Derbyshire, Nils Johannessen, and Terry Willard)
in Atlanta. Also in attendance were representatives of Hambrecht & Quist who
were advising Medco. Representatives of Credit Suisse First Boston also attended
on behalf of King. At this meeting, Medco and King made separate presentations
of their business histories and strategies; discussed their respective financial
results and projections; discussed the strategy, cost savings and synergies from
combining the operations; outlined the next steps to be taken; and discussed a
timeline for the transaction. On September 11, 1999, Mr. Williams circulated a
memorandum to the Medco board of directors discussing the September 10 meeting
with King.
On September 13, 1999, there was a strategic discussion and preliminary
financial due diligence conference call among King and its representatives who
attended the September 10 meeting. On September 14, Mr. Williams and Mr. Andrews
met with Hambrecht & Quist to review the September 10 meeting with King, and
Hambrecht & Quist sent financial information to Credit Suisse First Boston in
response to questions he had asked. In the next weeks, King's senior management
team, with the assistance of Credit Suisse First Boston, circulated and revised
an initial due diligence request list to be given to Medco. At its regularly
scheduled board meeting on September 29, 1999, Medco's board and senior
management, and Hambrecht & Quist, reviewed all previous discussions with King,
Hambrecht & Quist's valuation scenarios and risks for King. The directors all
agreed Medco had no current strategic alternatives to a merger with King other
than to remain independent. After a discussion of the positives, negatives and
risk profiles of the alternatives, the board concurred with pursuing a merger
with King at the highest possible price. (On September 29, 1999, Medco's stock
closed at $24.19).
On October 5, 1999, Mr. Williams telephoned John Gregory to confirm the
interest of the Medco's board of directors in a merger. Arrangements were made
for the financial due diligence to begin on October 13, 1999, with clinical and
regulatory due diligence to begin on October 18, 1999. During the week of
October 11, Medco's general counsel began a review of King's filing with the
Securities and Exchange Commission, including its material financing and product
acquisition agreements. On October 18, Medco's general counsel distributed a
summary analysis of King and the associated risks to Medco's senior management,
Mr. Williams and Hambrecht & Quist.
On October 13-15, 1999, King's initial financial due diligence of Medco was
conducted in Research Triangle Park, North Carolina. Representing King were
Brian G. Shrader, Chief Financial Officer of King, a representative of Credit
Suisse First Boston and members of PricewaterhouseCoopers LLC, accountants to
King. Medco was represented by its management team and a representative from
Hambrecht & Quist. On October 18 and 19, 1999, representatives of King conducted
clinical and regulatory due diligence at Medco's offices. On October 19, 1999
there was a business marketing and
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financial due diligence conference call among members of Medco and King's senior
management teams as well as representatives from Credit Suisse First Boston,
Hambrecht & Quist and PricewaterhouseCoopers. Contemporaneously with King's
financial, regulatory and clinical due diligence efforts, Jon Roberts and John
Abokhair of the law firm of Roberts, Abokhair and Mardula conducted due
diligence with respect to Medco's intellectual property assets. On October 19,
1999, Medco sent its general counsel Richard G. Klein, Esq. of Hofheimer Gartlir
& Gross LLP, and its outside patent counsel, Allen R. Baum, Esq. of Burns,
Doane, Swecker & Mathis, L.L.P. to the offices of Roberts, Abokhair & Mardula in
Reston, Virginia, to answer questions concerning such assets. Peter Manso of the
law firm of Akerman, Senterfitt & Eidson also conducted some intellectual
property due diligence in order to advise King of his findings. On October 18,
1999, Mr. Williams instructed Medco's general counsel to accelerate due
diligence with respect to King's product acquisition and credit agreements.
On October 20, 1999, Mr. Williams traveled to King's headquarters in
Bristol, Tennessee. He met with John Gregory and they discussed the basic
structure of the transaction, possible benefits from merging, and general
parameters of the acquisition. (On October 20, 1999, Medco's stock closed at
$21.88).
On October 22, 1999, at a regularly scheduled meeting of King's board of
directors, a detailed presentation was given to the board on Medco. Jefferson
Gregory summarized for the board the results of the reviews of Medco's
regulatory affairs, intellectual property, and clinical matters. Credit Suisse
First Boston presented its financial evaluation of Medco and the merger.
Representatives of PricewaterhouseCoopers discussed accounting issues. Following
extended discussion, the board voted unanimously to authorize management to
proceed with the negotiation of the merger according to the valuation presented
by Credit Suisse First Boston. John Gregory telephoned Mr. Williams and conveyed
the King board's consensus to offer $30.00 per share of Medco's common stock.
On October 22, 1999, subsequent to John Gregory and Mr. Williams'
conversation, Medco held a telephonic board meeting. Mr. Williams advised the
board of the status of and preliminary results of the due diligence
investigation being conducted by Medco's general counsel. A representative from
Hambrecht & Quist advised the directors of the recent events concerning King's
due diligence activities. After discussion, the Board unanimously (with Mr.
Williams abstaining) authorized Mr. Williams to proceed with merger negotiations
with a merger consideration of $30.00 per share for Medco's common stock. (On
October 22, 1999, Medco's stock closed at $21.69).
Over the course of the weekend of October 23, 1999, there were several
calls among John Gregory, Mr. Bellamy and Mr. Williams regarding merger due
diligence and negotiations. On October 25, 1999, there was a follow-up due
diligence call among King's management team and their advisors to clarify
outstanding due diligence items, confirm a timeline, and formulate a plan of
action. There was called a special meeting of King's board of directors on
October 25, 1999, at which meeting John Gregory announced that Mr. Williams told
him that Medco's board had agreed to an acquisition price of $30.00 per share
proposed by King for each share of Medco common stock. (On October 25, 1999,
Medco's stock closed at $21.75).
On October 25, 1999, Medco's general counsel delivered a portion of a
preliminary due diligence report to Mr. Williams, and on October 29, 1999 it
distributed an expanded version of that report to Mr. Williams, Mr. Andrews and
Medco's Executive Committee.
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On October 28 and 29, King's senior management had several internal
meetings to discuss the transaction in light of the downward trend in King's
stock price. On these days, John Gregory and Mr. Bellamy had separate calls with
Mr. Williams to warn him that the transaction might have to be postponed because
King would not have an interest in the transaction until King's stock price
recovered. On the evening of Friday, October 29, 1999, John Gregory called Mr.
Williams to inform him that King would not pursue the transaction unless there
was a recovery to King's stock price. Over the course of the weekend of October
30, 1999, Mr. Bellamy had several calls with Mr. Williams regarding various
negotiation points. Mr. Bellamy also informed Mr. Williams that the Medco due
diligence of King scheduled to begin the following Monday would be postponed
indefinitely. Mr. Williams conveyed this information to Hambrecht & Quist,
Medco's senior management, those Medco directors who he could reach and Medco's
general counsel.
During the week of November 1, 1999, John Gregory, Mr. Williams and Mr.
Bellamy had several phone calls among themselves to discuss proceeding with due
diligence in the expectation that King's stock would recover to a point where
King would agree to proceed with the merger. On November 2, after consultation
with Hambrecht & Quist, Medco's general counsel, and the executive committee of
the board, Mr. Williams telephoned Mr. Gregory and discussed proceeding with
Medco's due diligence and the transaction since King's stock had rebounded. (On
November 2, Medco's common stock closed at $24.38.) They agreed to proceed, and
Messrs. Williams and Bellamy reopened the timetable. King and Medco agreed that
King would produce a draft of the merger agreement for review by Medco over the
weekend of November 6, 1999 and that Medco could proceed with its due diligence
of King on November 8, 1999 in Bristol. King's legal counsel, Hogan & Hartson
L.L.P., distributed to Medco and its legal counsel an initial draft of the
merger agreement on November 5, 1999. On November 6, 1999, Mr. Bellamy had two
conversations with Mr. Williams in which they discussed the exchange ratio and
other material terms of the proposed merger.
On November 8-9, 1999, Medco sent to King's headquarters in Bristol,
Tennessee, a team of Glenn Andrews, Adam Derbyshire, Nils Johannesson, Terry
Willard, Keith Schneider, Kevin Sills and Carla Otterson, plus a representative
of Hambrecht & Quist, and completed corporate, financial, and regulatory due
diligence. Contemporaneously, Medco's general counsel and patent counsel
continued their legal and intellectual property due diligence.
In the afternoon of November 10, 1999, Mr. Williams met with John Gregory
and Mr. Bellamy in Bristol, Tennessee. (On November 10, 1999, Medco's common
stock closed at $25.44.) They discussed Medco's initial reaction to the
preliminary draft of the merger agreement and the ancillary agreements. They
reviewed, among other things, Medco's cash reserves, net of transaction
expenses, possible licensing arrangements, and the option agreement. Mr.
Williams presented Mr. Bellamy with additional due diligence materials in
response to certain outstanding requests of King.
On November 12, 1999, at a special telephonic meeting of Medco's Board of
Directors, Medco's general counsel and senior management and Hambrecht & Quist
reported on Medco's legal, financial, regulatory, business and corporate due
diligence. The board discussed King's Altace drug and the recently reported Hope
Study results. Mr. Williams and Hambrecht & Quist reported on the remaining
issues still being negotiated. After discussion, the Board authorized continued
negotiations for a merger with King. (On November 12, 1999, Medco's stock closed
at $26.75).
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King's legal counsel, Hogan & Hartson L.L.P., distributed to Medco and its
legal counsel additional drafts of the merger agreement and certain ancillary
documents on November 12, November 19 and November 24. After each distribution
the parties and their respective legal counsel had a number of telephone and
electronic communications regarding the draft merger documents and the terms of
the merger, and the drafts were revised principally as a result of the comments
of Medco, its general counsel and Hambrecht & Quist.
On November 17, 1999, King's senior management, and Mr. Williams, again met
in Bristol. They discussed the final outstanding material terms of the agreement
and attempted to arrive at mutually agreeable terms to satisfy, among other
things, Medco's request for a "collar" in light of the recent volatility of
King's common stock. Approaches to the press release and its content were
discussed as well. Following this meeting, King's senior management participated
in a telephonic meeting to discuss the negotiations and the outcome of that
morning's meeting with Mr. Williams. Mr. Williams likewise updated Medco's
Executive Committee, senior management team, general counsel and Hambrecht &
Quist. (On November 17, 1999, Medco's stock closed at $24.75).
On November 22, 1999, representatives of King traveled to Medco's
headquarters to complete the business and legal due diligence. Mr. Bellamy
engaged in brief negotiations with Medco's general counsel about Medco's request
for expanded King warranties and representations in the proposed merger
agreement.
On November 24, 1999, the full board of directors of Medco convened a
special telephonic meeting to discuss the progress of the possible merger with
King. Prior to that meeting, the management of Medco furnished the board of
directors of Medco with materials regarding King, including drafts of the merger
agreement and ancillary documents and a report by Hambrecht & Quist. Mr.
Williams reported that King had offered to acquire Medco. Medco's general
counsel described the progress Medco had made in negotiations and explained the
material terms of the merger and stock option agreements, and Hambrecht & Quist
provided an analysis of the financial terms of the merger and summarized its
valuation analysis. Hambrecht & Quist advised Medco that the merger
consideration set forth in the draft merger agreement was fair to Medco's
shareholders from a financial point and said it would deliver a written opinion
to that effect if Medco's board approved the merger and the parties signed a
definitive merger agreement with merger consideration terms substantially
similar to those set forth in the draft merger agreement. The board of directors
of Medco discussed the definitive merger terms and conditions, Hambrecht &
Quist's valuation analysis, Medco's historical inability to attract potential
suitors, the risks to Medco of remaining independent, King and its business and
the potential benefits of a business combination of King and Medco. Following a
review and discussion of the fairness opinion to be subsequently delivered by
Hambrecht & Quist and numerous other relevant factors, the Medco board of
directors, with Mr. Williams abstaining, preliminarily approved the merger by a
vote of 3-1 subject to the resolution of certain issues. The dissenting director
requested additional information on questions raised during the meeting. (On
November 24, 1999, Medco's stock closed at $28.19).
On November 24, 1999, the full board of directors of King convened a
telephone meeting to discuss the status of negotiations with Medco and the terms
of the merger. King's counsel, Hogan & Hartson L.L.P., participated in the board
meeting and answered questions from the board of directors regarding terms of
the merger agreement. Credit Suisse First Boston also reviewed the terms of the
draft merger agreement and provided its
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analyses of the financial terms of the merger. Following a review and discussion
of the definitive terms of the transaction and numerous other relevant factors,
the King board of directors preliminarily approved the merger subject to the
resolution of certain issues.
During the days following the November 24, 1999 board meetings, certain
members of Medco's management and King's management, along with their respective
legal counsel, continued negotiations of the terms of a possible merger and
revised drafts of the merger documents were distributed.
On November 29, 1999, Medco's general counsel received a telephone call
from the general counsel of a foreign corporation regarding whether Medco was
about to be acquired. Counsel advised Mr. Williams of this inquiry, and Mr.
Williams and counsel agreed that Hambrecht & Quist should address the inquiry
with Medco's general counsel. After obtaining an appropriate confidentiality
undertaking from the foreign corporation, counsel then initiated a three-way
conference call and Hambrecht & Quist confirmed that Medco was about to enter
into a merger agreement with a public company in an anticipated tax-free
exchange of shares and asked if the third party was seriously interested in
making a cash offer for Medco above Medco's current market valuation. After
consulting with its senior executives, the third party subsequently advised
Medco's general counsel that it declined to make a cash offer in excess of $300
million, i.e., Medco's then current market valuation. (On November 29, 1999,
Medco's stock closed at $27.50).
On November 30, 1999, the board of directors of Medco convened a special
telephonic meeting. Hambrecht & Quist gave an update on the merger agreement
since November 24, 1999, reporting that the merger consideration terms were
unchanged and that certain final revisions had been obtained. Medco's general
counsel reported on the potential last minute cash bid for Medco which never
materialized. Hambrecht & Quist presented its analysis regarding the fairness of
the merger from a financial point of view. Hambrecht & Quist also rendered its
oral opinion (which was subsequently confirmed in writing) that, as of November
30, 1999, the consideration to be received by holders of Medco common stock was
fair, from a financial point of view, to the holders of Medco common stock. The
director who previously voted against the merger, as well as the other Medco
directors present (excluding Mr. Williams, who abstained), unanimously approved
the merger agreement and related agreements and determined to recommend that the
Medco stockholders vote in favor of approval and adoption of the merger
agreement and the merger. Thereafter, the full Medco board (with Mr. Williams
abstaining) executed as of November 30, 1999 a unanimous written consent in lieu
of meeting to the same effect as the actions taken at the November 30 board
meeting. (On November 30, 1999, Medco's stock closed at $26.63).
On November 30, 1999, the board of directors of King convened a telephonic
meeting to review the merger agreement. Mr. Gregory reviewed the progress of
negotiations and the benefits of the merger to King and its shareholders. The
board of directors unanimously approved the merger agreement and related
agreements and the merger.
On November 30, 1999, each of King and Medco executed the merger agreement
and the other related agreements, including the stock option agreement and the
voting agreement. On December 1, 1999, King and Medco issued separate press
releases announcing the execution of the merger agreement and held a joint
conference call to announce the merger.
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MEDCO'S REASONS FOR THE MERGER
On November 30, 1999, the board of directors of Medco (with Mr. Williams
abstaining) concluded unanimously that the merger, the merger agreement and the
transactions contemplated thereby are advisable and fair to, and in the best
interests of, Medco and its shareholders, and determined to recommend that the
shareholders approve the merger agreement and the merger.
The decision of the board of directors of Medco was based upon several
potential benefits of the merger, including the following:
- the merger will result in greater liquidity for Medco shares because of
the greater capitalization of the combined company;
- the merger is expected to generate strategic benefits for the combined
company;
- the merger is expected to effectively make Medco a vertically integrated
company by giving Medco immediate access to King's manufacturing and
marketing capabilities;
- the merger is expected to result in a combined company with the potential
for a higher blended market valuation and growth rate than Medco as a
stand-alone company; and
- the merger is expected to reduce Medco's shareholders' risk as a result
of the diversification of product offerings and revenue bases.
In its evaluation of the merger, the Medco board reviewed several factors,
including the following:
- the terms and conditions of the merger agreement and the merger,
including the consideration Medco shareholders will receive in the merger
and the fairness of the terms and conditions;
- the complementary characteristics of the respective businesses,
management philosophies and corporate cultures of King and Medco;
- the benefit of King's experienced management and an established
commercial infrastructure;
- an analysis of the potential increase in the value of Medco as an
independent company compared with the potential increase if Medco were
merged with King;
- the historical lack of interest shown by others in acquiring Medco
- as an independent, publicly traded company, Medco would be unable to
maintain recent levels of earnings growth while funding the anticipated
substantial expenses associated with clinical trials for its leading
portfolio drug candidates and establishing, de novo, an effective U.S.
based sales and marketing organization in order to launch the first of
Medco's drug candidates, and otherwise devoting the appropriate level of
resources required to realize the value of its research and drug
discovery capabilities;
- based in part on the opinion of Hambrecht & Quist LLC, the merger
consideration was a fair price to Medco's stockholders and represented a
significant premium over recent valuations of Medco (the maximum merger
consideration of $34.00 per
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share represents a premium of approximately 31%, 47%, and 28% over the
closing price of Medco common stock on December 31, 1998 (the close of
fiscal 1998), October 12, 1999 (when Medco released third quarter 1999
earnings exceeding analyst expectations) and November 30, 1999 (the date
of the merger agreement), respectively;
- King's willingness to commit resources to the development of Medco's
clinical candidates;
- King's interest in retaining Medco's employees and its North Carolina
offices;
- the absence of any other companies interested in acquiring Medco at a
price above its recent stock market valuation prior to November 30, 1999.
- historical information concerning King's and Medco's respective
businesses, financial performance and condition, operations and
management, including reports filed with the SEC;
- current and historical market conditions and market prices, volatility
and trading information;
- reports from management, legal, financial and accounting advisors as to
the results of due diligence investigations of King;
- the presentation delivered by Hambrecht & Quist and opinion of Hambrecht
& Quist that, as of the date of its opinion and subject to the
considerations described in the opinion, the consideration to be received
by the holders of Medco common stock is fair from a financial point of
view;
- the expectation that the merger will qualify as a non-taxable
reorganization; and
- the expectation that the merger will be accounted for as a
pooling-of-interests.
The Medco board also identified and considered a number of potentially
negative factors in its deliberations concerning the merger including the
following:
- the risk that the potential benefits of the merger might not be fully
realized;
- the risk of potential delay or reduction in or cancellation of drug
development programs;
- the risk that the combined company would be unable to sustain King's
current price/earnings multiple and rate of growth;
- the risk that the combined company would experience slow growth relative
to King's prior growth rate;
- the risk that if the merger agreement is terminated and King's option to
purchase Medco common stock becomes exercisable, Medco will not be able
to account for future transactions as a "pooling-of-interests" for a
period of two years (the Medco board of directors also considered that
pooling-of-interests is expected to be eliminated as a method of
accounting for merger transactions in January 2001); and
- the substantial dilution to the Medco stockholders of the potential
benefits of one or more of Medco's leading portfolio drug candidates
being successfully commercialized by Medco;
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- the loss of control over the future operations of Medco following the
merger;
- risks associated with product development and approval; and
- the fixed nature of the exchange ratio within given price ranges of King
common stock, and the resulting risk that, should there be a significant
decrease in the market value of King common stock, the value of the
consideration to be received by Medco stockholders would be reduced and
ultimately could be below Medco's closing price on the date of the merger
agreement;
- the risk that King could terminate the merger if the average closing
price of its stock price falls below $30.00 per share, which could result
in a precipitous decline in the price of Medco's common stock.
- other applicable risks described in this proxy statement/prospectus under
"Risk Factors."
Medco's board believed that certain of these risks were unlikely to occur
or unlikely to have a material impact on the combined company, while others
could be avoided or mitigated by Medco or by King, and that, overall, the risks
associated with the merger were outweighed by the potential benefits.
The discussion of the information and factors considered by the Medco board
is not intended to be exhaustive. In view of the variety of factors considered
in connection with its evaluation of the merger, the Medco board did not find it
practicable to, and did not, quantify or otherwise assign relative weight to the
specific factors considered in reaching its determination.
RECOMMENDATION OF MEDCO'S BOARD OF DIRECTORS
AFTER CAREFULLY EVALUATING THESE FACTORS, BOTH POSITIVE AND NEGATIVE, THE
BOARD OF DIRECTORS OF MEDCO HAS UNANIMOUSLY DETERMINED THAT THE MERGER IS
ADVISABLE AND IN THE BEST INTERESTS OF MEDCO AND ITS SHAREHOLDERS AND
UNANIMOUSLY RECOMMENDS THAT MEDCO SHAREHOLDERS VOTE FOR APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT AND APPROVAL OF THE MERGER.
In considering the recommendation of the Medco board of directors with
respect to the merger, you should be aware that Richard C. Williams, the
Chairman of Medco's Board, who abstained from voting on the merger, has an
interest in the merger that is different from, or is in addition to, the
interests of Medco shareholders generally. Please see the section entitled
"Interests of Medco's Directors and Executive Officers in the Merger" on page
.
OPINION OF MEDCO'S FINANCIAL ADVISOR
Medco engaged Hambrecht & Quist to act as its exclusive financial advisor
in connection with the proposed transaction and to render an opinion as to the
fairness from a financial point of view to the holders of outstanding shares of
common stock of Medco of the consideration to be received by such shareholders
in the proposed transaction. Hambrecht & Quist was selected by the Medco board
of directors based on Hambrecht & Quist's qualifications, expertise and
reputation, as well as Hambrecht & Quist's historic investment banking
relationship and familiarity with Medco and King. On November 24, 1999 Hambrecht
& Quist rendered its oral opinion (subsequently confirmed orally and in
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writing on November 30, 1999) to the Medco board that, as of such date, the
consideration to be received by the holders of Medco common stock in the
proposed transaction is fair from a financial point of view.
The full text of the opinion delivered by Hambrecht & Quist to the Medco
board of directors dated November 30, 1999, which sets forth the assumptions
made, general procedures followed, matters considered, and limitations on the
scope of review undertaken by Hambrecht & Quist in rendering its opinion, is
attached to this proxy statement/prospectus and is incorporated into this
document by reference. Hambrecht & Quist's opinion is directed only to the
fairness, from a financial point of view, of the consideration to be received by
the holders of Medco common stock in the proposed transaction and does not
constitute a recommendation to any Medco shareholder as to how such shareholder
should vote with respect to the proposed transaction. The summary of Hambrecht &
Quist's fairness opinion set forth below is qualified in its entirety by
reference to the full text of its fairness opinion attached to this document as
Annex C. Medco shareholders are urged to read carefully the opinion in its
entirety.
In reviewing the proposed transaction, and in arriving at its opinion
Hambrecht & Quist, among other things:
- Reviewed the publicly available consolidated financial statements of King
for recent years and interim periods to date, including certain
projections and certain other relevant financial and operating data of
King (including its capital structure) made available to Hambrecht &
Quist from published sources;
- Discussed the business, financial condition and prospects of King with
certain members of senior management;
- Reviewed the publicly available consolidated financial statements of
Medco for recent years and interim periods to date, including certain
projections and certain other relevant financial and operating data of
Medco made available to Hambrecht & Quist from published sources;
- Discussed the risk profile, business, financial condition and prospects
of Medco with certain members of senior management;
- Reviewed the recent reported prices and trading activity for the common
stocks of King and Medco and compared such information and certain
financial information for King and Medco with similar information for
certain other companies engaged in businesses Hambrecht & Quist
considered comparable;
- Reviewed the financial terms, to the extent publicly available, of
certain comparable merger and acquisition transactions;
- Reviewed a draft of the merger agreement; and
- Performed such other analyses and examinations and considered such other
information, financial studies, analyses and investigations and
financial, economic and market data as Hambrecht & Quist deemed relevant.
Hambrecht & Quist did not independently verify any of the information
concerning Medco or King in connection with its review of the proposed
transaction and, for purposes of its opinion, Hambrecht & Quist assumed and
relied upon the accuracy and completeness of all such information. In connection
with its opinion, Hambrecht & Quist
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did not prepare or obtain any independent valuation or appraisal of any of the
assets or liabilities of Medco or King, nor did it conduct a physical inspection
of the properties and facilities of Medco or King. With respect to the financial
forecasts and projections used in its analyses, Hambrecht & Quist assumed that
they reflected the best currently available estimates and judgments of the
expected future financial performance of King and Medco. For the purposes of its
opinion, Hambrecht & Quist also assumed that neither Medco nor King was a party
to any pending transactions, including external financings, recapitalizations or
material merger discussions, other than the proposed transaction and those
activities undertaken in the ordinary course of conducting their respective
businesses. For purposes of its opinion, Hambrecht & Quist assumed that the
proposed transaction will qualify as a tax-free reorganization under the
Internal Revenue Code of 1986, as amended, for the shareholders of Medco and
that the proposed transaction will be accounted for as a pooling of interests.
Hambrecht & Quist's opinion is necessarily based upon market, economic,
financial and other conditions as they existed and could be evaluated as of the
date of the opinion and any subsequent change in such conditions would require a
reevaluation of such opinion.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. The summary
of the Hambrecht & Quist analyses set forth below does not purport to be a
complete description of the presentation by Hambrecht & Quist to the Medco
board. In arriving at its opinion, Hambrecht & Quist did not attribute any
particular weight to any analyses or factors considered by it, but rather made
qualitative judgments as to the significance and relevance of each analysis and
factor. Accordingly, Hambrecht & Quist believes that its analyses and the
summary set forth below must be considered as a whole and that selecting
portions of its analyses, without considering all analyses, or portions of the
following summary, without considering all factors and analyses, could create an
incomplete view of the processes underlying the analyses set forth in the
Hambrecht & Quist presentation to the Medco board and its opinion. In performing
its analyses, Hambrecht & Quist made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of Medco and King. The analyses
performed by Hambrecht & Quist (and summarized below) are not necessarily
indicative of actual values or actual future results, which may be significantly
more or less favorable than suggested by such analyses. Additionally, analyses
relating to the values of businesses do not purport to be appraisals or to
reflect the prices at which businesses actually may be acquired.
In performing its analyses, Hambrecht & Quist used published Wall Street
research and management estimates for projections of Medco's and King's calendar
1999, 2000, and 2001 financial performance.
The following is a brief summary of certain financial analyses performed by
Hambrecht & Quist in connection with providing its opinion to the Medco board of
directors. The summary of financial analyses includes information presented in
tabular format. You should read those tables with the text of each summary.
CONTRIBUTION ANALYSES. Hambrecht & Quist analyzed the pro forma
contribution of each of Medco and King to certain financial statement categories
of the pro forma combined company for calendar 2000 and calendar 2001, assuming
operating synergies. Categories compared included revenue, operating income,
pre-tax income and net income. Hambrecht & Quist then compared this contribution
analysis to the pro forma ownership percentages that the shareholders of Medco
and stockholders of King would have in the
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<PAGE> 46
combined company after the proposed transaction. Hambrecht & Quist observed that
on a fully diluted basis, using the closing price of $44.50 per share of King's
common stock on November 23, 1999, King stockholders are expected to own
approximately 86.5% and the Medco shareholders are expected to own approximately
13.5% of the combined company equity following the proposed transaction. The
table below sets forth the percentages that Hambrecht & Quist estimated that
each company would contribute to the revenue, operating income, pre-tax income
and net income of the combined company for the calendar 1999 and calendar 2000
periods.
<TABLE>
<CAPTION>
OPERATING PRE-TAX
REVENUE INCOME INCOME NET INCOME
------- --------- ------- ----------
<S> <C> <C> <C> <C>
2000*
King Pharmaceuticals.................... 88.6% 86.4% 76.9% 73.9%
Medco Research.......................... 11.4% 13.6% 23.1% 26.1%
2001*
King Pharmaceuticals.................... 89.0% 85.3% 77.0% 73.8%
Medco Research.......................... 11.0% 14.7% 23.0% 26.2%
</TABLE>
- -------------------------
* Estimates from King and Medco management.
ANALYSIS OF PUBLICLY TRADED COMPARABLE COMPANIES. Hambrecht & Quist
compared selected historical and projected financial information of Medco to
publicly traded emerging pharmaceutical companies that Hambrecht & Quist deemed
to be comparable to Medco. Companies deemed comparable were:
- Dura Pharmaceuticals;
- Jones Pharmaceuticals;
- Medicis Pharmaceuticals;
- Theragenics; and
- Watson Pharmaceuticals
Such information included the ratio of market value to projected net
earnings as well as the ratio of the enterprise value (market value plus debt
less cash) to historical revenue. Hambrecht & Quist determined that the average
values of the foregoing multiples for the emerging pharmaceutical companies were
6.3 times latest twelve months revenue; 19.4 times calendar 2000 net earnings
and 16.2 times calendar 2001 net earnings. The foregoing multiples compared to
multiples of 9.2 times latest twelve months revenues; 21.8 times calendar 2000
earnings and 20.0 times calendar 2001 earnings implied by the offer in the
proposed transaction.
Hambrecht & Quist applied a representative range of multiples, P/E ratios
and growth rates from the selected comparable companies to Medco's calendar 2000
and 2001 net earnings to determine an implied equity value per share of Medco
common stock from $11.22 to $31.13.
Hambrecht & Quist also compared selected historical and projected financial
information of King to publicly traded high growth emerging pharmaceutical
companies
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<PAGE> 47
that Hambrecht & Quist deemed to be comparable to King. Companies deemed
comparable were:
- Forest Laboratories;
- Jones Pharmaceuticals;
- Medicis Pharmaceuticals; and
- Shire Pharmaceuticals
Such information included the ratio of market value to projected net
earnings as well as the ratio of the enterprise value (market value plus debt
less cash) to historical revenue. Hambrecht & Quist determined that the average
values of the foregoing multiples for the high growth emerging pharmaceutical
companies were 11.9 times latest twelve months revenue, 28.3 times calendar 2000
net earnings and 24.3 times calendar 2001 net earnings.
Hambrecht & Quist applied a representative range of multiples, P/E ratios
and growth rates from the selected comparable companies to King's calendar 2000
and 2001 projected net earnings to determine an implied equity value per share
of King Pharmaceutical common stock from $30.13 to $49.34.
DISCOUNTED FUTURE SHARE PRICE ANALYSIS. Hambrecht & Quist analyzed the
implied present value per share of Medco common stock on a stand-alone basis
based on Medco's projected calendar 2009 net earnings. Hambrecht & Quist
observed the following based on management's projected net earnings of $266
million for calendar 2009:
<TABLE>
<CAPTION>
LATEST TWELVE MONTHS P/E
MULTIPLE RANGE DISCOUNT RATE RANGE IMPLIED EQUITY VALUE PER MEDCO SHARE
------------------------ ------------------- ------------------------------------
<S> <C> <C> <C>
20x - 24x 40% - 45% $11.70 - $19.94
</TABLE>
Hambrecht & Quist also analyzed the implied present value per share of King
common stock on a stand-alone basis on December 31, 1999 based on King's
projected calendar 2001 net earnings. Hambrecht & Quist observed the following
based on management's estimates of projected net earnings of $77 million and
Altace Upside Estimates provided by Credit Suisse First Boston Research, of $104
million for calendar 2001:
Management Estimates:
<TABLE>
<CAPTION>
LATEST TWELVE MONTHS P/E
MULTIPLE RANGE DISCOUNT RATE RANGE IMPLIED EQUITY VALUE PER KING SHARE
------------------------ ------------------- -----------------------------------
<S> <C> <C> <C>
32.5x - 37.5x 15.0% - 17.0% $32.26 - $39.20
</TABLE>
Altace Upside Estimates:
<TABLE>
<CAPTION>
LATEST TWELVE MONTHS P/E
MULTIPLE RANGE DISCOUNT RATE RANGE IMPLIED EQUITY VALUE PER KING SHARE
------------------------ ------------------- -----------------------------------
<S> <C> <C> <C>
32.5x - 37.5x 15.0% - 17.0% $43.58 - $52.95
</TABLE>
M & A COMPARABLE TRANSACTIONS SUMMARY. Hambrecht & Quist compared the
proposed transaction with selected comparable merger and acquisition
transactions. This analysis included seventeen transactions involving companies
in the biotechnology and emerging pharmaceutical industries.
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<PAGE> 48
In examining these transactions, Hambrecht & Quist analyzed, among other
things, the multiples of enterprise value to revenue for the latest twelve-month
period and the one trading day and 20 trading day premiums implied by the office
prices for the acquired companies. The ranges of multiples offered in the
selected transactions were 6.0 to 8.0 times latest twelve months revenue, 26% to
28% premium over the one day price and a 49% to 52% premium over the 20 day
price. Applying a representative range of multiples from the selected
transactions to Medco's latest twelve months revenue, and a representative range
of premium to Medco's one trading day and 20 trading day stock prices, Hambrecht
& Quist determined an implied equity value per share of Medco common stock
ranging from $23.44 to $34.32.
No company or transaction used in the "Analysis of Publicly Traded
Comparable Companies" or "M & A Comparable Transactions Summary" is identical to
Medco or the proposed transaction. Accordingly, an analysis of the results of
the foregoing is not mathematical; rather, it involves complex considerations
and judgments concerning differences in financial and operating characteristics
of the companies, the terms and conditions of the transactions and other factors
that could affect the public trading values of the companies or transactions to
which they are compared.
DISCOUNTED CASH FLOW ANALYSIS. Using a discounted cash flow methodology
("DCF"), Hambrecht & Quist valued Medco by estimating the present value of its
future unlevered free cash flows. Unlevered free cash flow is calculated as
after-tax operating income plus non-cash expenses, adjusted for any cash effects
from changes in working capital and capital expenditures. Hambrecht & Quist
aggregated (x) the present value of the projected unlevered free cash flows over
the ten calendar year period from 2000 to 2009 with (y) the present value of the
range of the terminal values described below. The range of terminal values was
calculated by applying multiples ranging from 18x to 22x to Medco's projected
net earnings for the calendar year 2009. As part of its analysis, Hambrecht &
Quist applied discount rates ranging from 42.5% to 47.5%. Applying these
discount rates and earnings multiples, the DCF analysis resulted in implied
equity values per share for Medco Common Stock of $20.41 to $28.15.
OTHER ANALYSES. Hambrecht & Quist conducted such other analyses as it
deemed necessary, including reviewing historical and projected financial,
operating and trading data for Medco and King and selected Wall Street research
reports on each of the entities, including information pertaining to the
projected revenue and gross profit for each of the entities and assessing growth
opportunities for each of the companies.
The foregoing description of Hambrecht & Quist's opinion is qualified in
its entirety by reference to the full text of such opinions which is attached as
Annex C to this document.
FEE ARRANGEMENTS. Hambrecht & Quist, as part of its investment banking
services, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, strategic transactions,
corporate restructurings, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes. Hambrecht & Quist has acted as a financial advisor to the
board of directors of Medco in connection with the proposed transaction, and it
will receive a fee for its services, which include the rendering of the fairness
opinion.
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<PAGE> 49
In the past, Hambrecht & Quist has provided investment banking and other
financial advisory services to Medco and King, and has received fees for
rendering these services. In the ordinary course of business, Hambrecht & Quist
acts as a market maker and broker in the publicly traded securities of King, and
receives customary compensation in connection with those activities and also
provides Hambrecht & Quist research coverage for Medco and King. In the ordinary
course of business, Hambrecht & Quist actively trades in the equity and
derivative securities of Medco and King for its own account and for the accounts
of its customers and, accordingly, may at any time hold a long or short position
in such securities. Hambrecht & Quist may in the future provide additional
investment banking or other financial advisory services to Medco and King.
INTERESTS OF MEDCO'S DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER
When considering the recommendations of Medco's board of directors, you
should be aware that certain members of management and the board of directors of
Medco have certain interests in the merger that are in addition to the interest
of Medco shareholders generally. All of these interests are described below to
the extent they are material. The Medco board of directors was aware of, and
considered the interests of, its directors and officers when it approved the
merger agreement and the merger.
Transaction Fees. On September 21, 1999, the board of directors of Medco
(with Mr. Williams abstaining) authorized Medco to pay Richard C. Williams, its
Chairman of the Board, a fee equal to 0.75% of the aggregate consideration paid
to Medco or its shareholders in a "strategic alliance" involving Medco. The
board authorized this fee because in light of the July 1, 1999 resignation of
Dr. Roger D. Blevins, Medco had no chief executive officer and Mr. Williams had
extensive experience in negotiating and completing transactions and complemented
Hambrecht & Quist by, without limitation, supervising and analyzing due
diligence, negotiating terms and conditions and otherwise representing Medco's
interests. Based on the maximum consideration payable to Medco shareholders of
$376,400,000, Mr. Williams will receive a maximum of $2,823,000. Based on the
minimum consideration payable to Medco shareholders of $249,088,235, Mr.
Williams will receive a minimum of $1,868,162.
Vesting of options. As is the case with all of Medco's outstanding stock
options, pursuant to the provisions of its stock option plans, the options to
purchase Medco common stock which are held by Medco's directors, executive
officers and other employees will be vested in full at the closing of the
merger.
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<PAGE> 50
Change in Control Arrangements. Pursuant to policies adopted by Medco's
board of directors in February 1998 regarding employee benefits in the event a
"change in control" should occur, and pursuant to a specific additional change
of control benefit the Medco board of directors approved regarding Mr. Andrews,
the following officers of Medco may receive the maximum payments related to the
merger transaction as follows(1):
<TABLE>
<S> <C>
Glenn C. Andrews............................................ $1,359,435(2)
Executive Vice President of Finance and Administration
and Chief Financial Officer
Adam C. Derbyshire.......................................... 358,800
Vice President, Corporate Controller and Secretary
Nils Johannessen............................................ 722,982
Vice President, Research and Development
Terry Willard............................................... 662,167
Vice President, Marketing and Business Development
</TABLE>
- -------------------------
(1) The executive officers will be entitled to "gross-up" payments aggregating
approximately $860,000 based on all or a portion of these payments for any
excise tax and related federal, state and local income taxes.
(2) A portion of the amount to be paid to Glenn C. Andrews is as follows: Mr.
Andrews will receive an amount equal to the difference between $14.25 and
the closing price of Medco's common stock at the effective time of the
merger multiplied by 30,000. Based on a maximum closing price of Medco
common stock of $34 per share, Mr. Andrews will receive $592,500. Based on a
minimum closing price of Medco common stock of $22.50 per share, he will
receive a minimum of $247,500.
Indemnification; Directors' and Officers' Liability Insurance. Under the
merger agreement, all rights to indemnification (for acts or omissions occurring
at or prior to the effective time) existing as of the effective time in favor of
the current or former directors and officers of Medco will be provided for in
the Medco certificate of incorporation and bylaws. All rights to indemnification
in favor of these directors and officers with respect to matters occurring
through the effective time of the merger will survive the merger and continue in
full force at least 6 years from the effective time of the merger. King will
also cause the surviving corporation of the merger to indemnify present and
former officers, directors, and employees of Medco for acts or omissions
occurring at or prior to the effective time. In addition, prior to the merger
Medco may purchase insurance coverage extending for a period of 6 years Medco's
directors' and officers' liability insurance (to the extent that such insurance
provides coverage for events occurring prior to the effective time). Medco may
not pay a premium for this insurance in excess of 125% of the most recent annual
premium rate paid prior to the date the merger agreement was signed.
COMPLETION AND EFFECTIVENESS OF THE MERGER
The merger will be completed when all of the conditions to completion of
the merger are satisfied or waived. This includes approval and adoption of the
merger agreement and approval of the merger by the Medco shareholders. The
merger will become effective upon the filing of a certificate of merger with the
State of Delaware.
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<PAGE> 51
STRUCTURE OF THE MERGER AND CONVERSION OF MEDCO COMMON STOCK
In the merger a newly formed and wholly owned subsidiary of King will be
merged with and into Medco. As a result of the merger, Medco will become a
wholly owned subsidiary of King.
When we complete the merger, each outstanding share of Medco common stock,
will be converted into the right to receive a portion of a share of King common
stock based on an exchange ratio determined as follows:
- If the average closing price of King shares during the 20 consecutive
trading days ending on the third day preceding Medco's shareholder
meeting is between $49.87 and $33.00 per share, the exchange ratio will
be 0.6818 share of King common stock for each share of Medco common
stock;
- If the average closing price of King shares is greater than $49.87, the
exchange ratio will be the quotient obtained by dividing $34.00 by the
average closing price of King shares, rounded to the nearest 1/10,000;
and
- If the average closing price is less than $33.00, the exchange ratio will
be the quotient obtained by dividing $22.50 by the average closing price
of King shares, rounded to the nearest 1/10,000.
The number of shares of King common stock issuable in the merger will be
proportionately adjusted for any stock split, stock dividend or similar event
with respect to Medco common stock or King common stock effected between the
date of the merger agreement and the completion of the merger. Also, options to
purchase shares of Medco common stock outstanding and unexercised immediately
before the closing of the merger will be converted into options to purchase
shares of King common stock equal to the number of shares of Medco common stock
subject to the option multiplied by the exchange ratio with the exercise price
being divided by the exchange ratio.
No certificate or scrip representing fractional shares of King common stock
will be issued in the merger. Instead, shareholders of Medco who would be
entitled to receive a fractional share of common stock of King will receive a
cash payment based on the market price of common stock of King on the closing
date of the merger.
EXCHANGE OF MEDCO STOCK CERTIFICATES FOR KING STOCK CERTIFICATES
When the merger is completed, King's exchange agent will mail to Medco
shareholders a letter of transmittal and instructions for use in surrendering
Medco stock certificates in exchange for King stock certificates. When you
deliver your Medco stock certificates to the exchange agent along with an
executed letter of transmittal and any other required documents, your Medco
stock certificates will be canceled. You will receive King stock certificates
representing the number of full shares of King common stock to which you are
entitled under the merger agreement. Medco shareholders will receive payment in
cash, without interest, in lieu of any fractional shares of King common stock
which would have been otherwise issuable to them in the merger equal to the
closing price of King common stock on the day that the merger is completed
multiplied by such fractional shares.
Medco shareholders are not entitled to any rights as shareholders of King,
including the rights to receive any dividends or other distributions on King
common stock, until the
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<PAGE> 52
merger is completed and they have surrendered their Medco stock certificates in
exchange for King stock certificates.
King will only issue Medco shareholders an King stock certificate or a
check in lieu of a fractional share in a name in which the surrendered Medco
stock certificate is registered. If you wish to have your certificate issued in
another name you must present the exchange agent with all documents required to
show and effect the unrecorded transfer of ownership and show that you paid any
applicable stock transfer taxes and, if requested by King, have your signature
guaranteed by a bank, brokerage firm or other financial intermediary that is a
member of a medallion guarantee program.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The closing of the merger is conditioned upon the delivery of an opinion
from Medco's counsel stating the merger will constitute a reorganization within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended.
The opinion is subject to assumptions, limitations and qualifications, and is
based on the truth and accuracy of factual representations made in the merger
agreement and in exhibits to the registration statement of which this proxy
statement/prospectus is a part. Assuming the merger qualifies as a tax-free
reorganization, then subject to the assumptions, limitations and qualifications
referred to in the opinion, the merger should result in the following federal
income tax consequences:
- No gain or loss will be recognized by the Medco shareholders upon the
exchange of Medco common stock solely for King common stock. The cash
payment to Medco shareholders in lieu of fractional shares of King common
stock will be treated as if the fractional shares were issued as part of
the exchange and then redeemed by King. Under section 302(a) of the Code,
those cash payments will be treated as distributions in full payment in
exchange for the fractional King shares hypothetically redeemed.
Therefore, Medco shareholders receiving cash in lieu of fractional shares
generally will recognize gain (or loss) to the extent that the amount of
cash exceeds (or is exceeded by) the portion of their adjusted tax basis
of Medco common stock that is allocable to the fractional shares;
- Each Medco shareholders' aggregate tax basis in the King common stock
received in the merger will equal the aggregate tax basis of the Medco
common stock it surrendered in the merger. If an exchanging Medco
stockholder recognizes gain or loss upon receiving cash in lieu of
fractional shares in the merger, that stockholder's basis in King common
stock actually received will be reduced. The amount of the reduction will
equal the portion of the stockholder's tax basis in its surrendered stock
that is allocable to the fractional share interest considered to be
exchanged for cash;
- A Medco stockholder's holding period for King common stock received in
the merger will include the time period during which it held the Medco
common stock, provided the Medco common stock is held as a capital asset
at the time of the merger; and
- Neither King nor Medco will recognize gain or loss solely as a result of
the merger.
The Internal Revenue Service has not issued a ruling in connection with the
merger. The tax opinion delivered by Medco's counsel does not bind the IRS and
the IRS is not precluded from asserting a contrary position.
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<PAGE> 53
Medco shareholders will be required to attach a statement to their tax
returns for the year of the merger that contains the information listed in
Treasury Regulation Section 1.368-3(b). The statement must include each
stockholder's tax basis in the stockholder's Medco common stock and a
description of the King common stock received.
This tax discussion does not deal with all tax considerations that may be
relevant to you, such as (a) shareholders who are dealers in securities; (b)
foreign persons; (c) shareholders who acquired their shares in connection with
previous mergers involving Medco or an affiliate; or (d) shareholders who
acquired their shares in connection with stock option or stock purchase plans or
in other compensatory transactions.
This tax discussion also does not address the tax consequences of other
transactions effectuated before or after the merger (whether or not these
transactions are in connection with the merger). The discussion does not address
foreign, state or local tax considerations. ACCORDINGLY, MEDCO SHAREHOLDERS
SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE
MERGER, INCLUDING APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES
TO THEM.
This tax discussion is based on the interpretation of the Code, applicable
Treasury Regulations, judicial authority and administrative rulings and
practice, all as of the date of this proxy statement/prospectus. We cannot
assure you that future legislative, judicial or administrative changes or
interpretations will not adversely affect the accuracy of the statements and
conclusions. Any changes or interpretations could be applied retroactively and
could affect the tax consequences of the merger to the Medco shareholders.
ACCOUNTING TREATMENT OF THE MERGER
King intends to account for the merger as a pooling-of-interests for
financial reporting and accounting purposes, under generally accepted accounting
principles. One of the merger's closing conditions is that the independent
accountants of King and Medco must each have delivered to both of us a letter to
the effect that the merger will qualify for pooling-of-interests accounting
treatment. Under the pooling-of-interests method of accounting:
- Medco's recorded assets and liabilities will be carried forward to the
combined company at their recorded amounts;
- the combined company's revenues and expenses will include Medco's
revenues and expenses for the entire fiscal year of the combined company
and Medco in which the merger occurs; and
- Medco's reported revenues and expenses for prior periods will be combined
with those of King, whose financial statements will then be restated.
RESTRICTIONS ON SALES OF SHARES BY AFFILIATES OF MEDCO AND KING
King will register under the Securities Act the shares of the King common
stock to be issued in the merger. These shares will be freely transferable under
the Securities Act, except for shares of King common stock issued to any person
who is an affiliate of either of us. Persons who may be deemed to be affiliates
include individuals or entities that control, are controlled by, or are under
common control with, either of us and may include
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<PAGE> 54
our executive officers and directors, as well as our principal shareholders.
Affiliates may not sell their shares of King common stock acquired in the merger
except under:
- an effective registration statement under the Securities Act covering the
resale of those shares;
- Rule 145 under the Securities Act; or
- an exemption under the Securities Act.
Also, each of us must deliver to the other no later than 31 days before the
closing date, affiliate agreements. Under these agreements, our affiliates may
not dispose of or encumber any of their shares of King common stock until
financial results covering at least 30 days of post-merger combined operations
of our companies are publicly reported. The affiliates are entering these
agreements to help assure that the merger qualifies as a pooling-of-interests.
REGULATORY FILINGS AND APPROVALS REQUIRED TO COMPLETE THE MERGER
The merger is subject to the requirements of the Hart-Scott-Rodino
Antitrust Improvements Act, which prevents certain transactions from being
completed until required information and materials are furnished to the
Antitrust Division of the Department of Justice and the Federal Trade Commission
and the appropriate waiting periods end or expire. We have filed the required
information and materials with the Department of Justice and the Federal Trade
Commission and the applicable waiting period has [has not] terminated.
Neither of us is aware of any other material governmental or regulatory
approval required for completion of the merger.
LISTING ON NASDAQ OF KING COMMON STOCK TO BE ISSUED IN THE MERGER
It is a condition to the closing of the merger that the shares of King
common stock to be issued in the merger be approved for listing on Nasdaq,
subject to official notice of issuance. We expect this to occur upon closing of
the merger.
OPERATIONS AFTER THE MERGER
Following the merger, Medco will operate as a wholly owned subsidiary of
King. Medco's shareholders will become King shareholders. The King charter and
bylaws and Tennessee law govern the rights of shareholders of King. See
"Comparison of Rights of Holders of King Common Stock and Medco Common Stock" on
page .
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<PAGE> 55
THE MERGER AGREEMENT
In this section of the proxy statement/prospectus, we describe the merger
agreement. While we believe that our description covers the merger agreement's
material terms, our summary may not contain all of the information that is
important to you. We have attached the merger agreement to this proxy
statement/prospectus as Annex A. We urge you to read it carefully, in its
entirety.
REPRESENTATIONS AND WARRANTIES
Medco and King each made a number of representations and warranties in the
merger agreement. The representations and warranties cover aspects of each
company's businesses, financial condition, structure and other facts pertinent
to the merger. The representations and warranties in the merger agreement are
complicated and not easily summarized. You are urged to carefully read the
articles of the merger agreement entitled "Representations and Warranties of the
Company" and "Representations and Warranties of Acquiror."
MEDCO'S REPRESENTATIONS AND WARRANTIES
Medco's representations and warranties include representations as to:
- its corporate organization and qualification to do business;
- the effectiveness of, and its compliance with provisions of, its
certificate of incorporation and bylaws;
- its capitalization, including its common stock, its preferred stock and
options to purchase its common stock;
- its board's approval of and authority to enter into the merger and stock
option agreement and the binding obligation on it of those agreements;
- the non-existence of conflicts between the merger agreement's provisions
and (1) its certificate of incorporation and bylaws, (2) other Medco
agreements and (3) applicable law;
- the filing of, and the veracity of the information contained in, its SEC
filings, including its financial statements;
- its disclosure of material liabilities and lack of material adverse
effects having occurred that are not otherwise disclosed in its SEC
filings;
- litigation involving Medco;
- its licenses and permits;
- its compliance with applicable law, no unlawful payments having been made
and the payment of taxes;
- its intellectual property;
- its material contracts;
- its employee benefit plans and labor relations and compliance with
employment and workplace related laws;
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<PAGE> 56
- its title to or right to use the properties it owns and leases, and its
assets;
- its labor relations;
- environmental matters;
- its insurance coverage and policies;
- its board's approval of the merger agreement and its recommendation to
the Medco shareholders;
- Medco's financial advisor and the financial advisor's fairness opinion;
- brokers in connection with the merger;
- the inapplicability of Delaware's anti-takeover statute to the merger;
- its and its affiliates' actions as they pertain to the merger's proposed
accounting and tax treatment;
- information supplied by Medco in this proxy statement/prospectus and the
related registration statement filed by King;
- the inapplicability of the merger to rights distributed under the Rights
Agreement dated April 14, 1998 between us and American Stock Transfer &
Trust Company;
- its regulatory compliance;
- its cash reserves and lack of indebtedness;
- the anticipated transaction expenses in connection with the merger; and
- the veracity of information it provided in connection with the merger.
KING'S REPRESENTATIONS AND WARRANTIES
King's representations and warranties include representations as to:
- its corporate organization and qualification to do business;
- the effectiveness of, and its compliance with provisions of, its articles
of incorporation and bylaws;
- its capitalization, including its common stock and options to purchase
its common stock;
- its board's approval of and authority to enter into the merger and the
binding obligation on it of the merger agreement;
- the non-existence of conflicts between the merger agreement's provisions
and (1) its articles of incorporation and bylaws, (2) other King
agreements and (3) applicable law;
- the filing of, and the veracity of the information contained in, its SEC
filings, including its financial statements;
- its disclosure of its material liabilities and no material adverse effect
having occurred which is not disclosed in its SEC filings;
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- litigation involving King;
- its licenses and permits;
- its compliance with applicable law, no unlawful payments having been made
and the payment of taxes;
- its intellectual property;
- environmental matters;
- brokers in connection with the merger;
- its and its affiliates' actions as they pertain to the merger's proposed
accounting and tax treatment;
- information supplied by King in this proxy statement/prospectus and the
related registration statement it filed;
- the veracity of information it provided in connection with the merger.
MEDCO'S CONDUCT OF BUSINESS BEFORE THE MERGER'S COMPLETION
Medco has agreed that, until the merger closes or unless King consents in
writing, Medco will:
- operate its business in the usual and ordinary course consistent with
past practices and applicable laws and licenses;
- preserve intact its present business organization;
- maintain its rights, franchises and insurance;
- maintain its relationship with its respective principal customers and
suppliers;
- keep its properties and assets in good repair and condition;
- keep its insurance in force;
- use reasonable efforts to cause cash reserves to be at least $56.5
million at the time of the merger;
- provide King information regarding its intellectual property; and
- timely prepare and file tax returns and materially accurate SEC report.
In addition, Medco has agreed that, until the merger closes or unless King
consents in writing, Medco will conduct its business in compliance with specific
restrictions relating to the following:
- declaring or paying dividends or making other distributions;
- splitting, combining, reclassifying, repurchasing and redeeming
securities;
- filing any registration statement related to any of its securities;
- agreeing to acquire an equity interest in another company;
- making or committing to make capital expenditures exceeding $50,000; or
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<PAGE> 58
- selling, leasing or encumbering any of its assets except in the ordinary
course of business,
Medco also agreed that, until the merger closes or unless King consents in
writing, Medco will conduct its business in compliance with specific
restrictions relating to the following:
- taking action with respect to its employees and employee benefits;
- modifying Medco's certificate of incorporation and bylaws;
- changing its methods of accounting;
- changing tax elections;
- borrowing money;
- entering into transactions and agreements with affiliates;
- entering into or amending material contracts;
- issuing and encumbering securities;
- liquidating, dissolving, reorganizing, consolidating, recapitalizing,
restructuring or merging;
- acquiring, disposing of and encumbering assets;
- settling material claims;
- transferring or licensing any rights to its intellectual property to a
third party;
- taking actions which are intended or would likely make the party's
representations and warranties in the merger agreement untrue;
- taking actions that would likely prevent pooling-of-interests accounting
treatment for the merger; and
- accelerating the collection of any accounts receivable.
The agreements related to the conduct of Medco's business in the merger
agreement are complicated and not easily summarized. You are urged to carefully
read the section of the merger agreement entitled "Covenants."
OTHER AGREEMENTS
Medco and King have also reached additional agreements regarding
- providing reasonable access to one another's personnel, advisors,
properties and information;
- confidentiality;
- holding the special meeting of Medco's shareholders;
- filing documents to comply with the Hart-Scott-Rodino Act;
- making public announcements regarding the merger;
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<PAGE> 59
- indemnification of Medco's officers and shareholders after the merger;
- using commercially reasonable efforts and taking further action to
complete the merger;
- listing King common stock issued in the merger on Nasdaq;
- restricting the transfer of King common stock by both affiliates of Medco
and King;
- notifying each other of events which are likely to cause the merger not
to happen;
- complying with the conditions of the stock option agreement;
- causing the merger to qualify as a tax-free reorganization;
- causing the merger to be accounted for as a "pooling of interest";
- taking necessary actions to cause Richard C. Williams to be appointed to
the King board of directors until King's annual meeting in 2001;
- taking actions to render the Medco rights agreement inapplicable to the
merger;
- taking action to make the issuance of King common stock to Medco insiders
exempt from liability pursuant to Rule 16b-3 of the Exchange Act;
- if King's shareholder action is required, King has agreed, if it elects
not to terminate the merger agreement, to call a special meeting of its
shareholders; and
- complying with state securities laws.
NO OTHER NEGOTIATIONS INVOLVING MEDCO
Until the merger is completed or the merger agreement is terminated, Medco
has agreed not to directly or indirectly take any of the following actions:
- initiate, solicit, encourage or facilitate any inquiries or proposals
that constitute or may lead to an Acquisition Proposal (as defined
below);
- participate in any discussions or negotiations regarding any Acquisition
Proposal; or
- agree to, approve, recommend or endorse any Acquisition Proposal.
Medco has also agreed promptly to (a) inform King of any inquiries and proposals
related to these matters, (b) provide to King copies of any written Acquisition
Proposal and a summary of its material terms and (c) keep King informed as to
any discussions or negotiations regarding any activities relating to any
Acquisition Proposal.
Under the merger agreement, if Medco's board of directors receives an
unsolicited bona fide written Acquisition Proposal, the board may (a) furnish
information to, or discuss or negotiate with, the person who made the proposal,
or (b) recommend this type of Acquisition Proposal to Medco's shareholders if
and only to the extent that the Medco board of directors:
- concludes in good faith after consulting with its financial advisor that
the proposal is a Superior Proposal (as defined below);
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<PAGE> 60
- determines in good faith after consulting with its outside legal counsel
that it would breach its fiduciary duties to its shareholders if it did
not recommend the proposal to them;
- provides prompt written notice to King, prior to negotiating or
discussing the proposal with, or providing information to, the proposal's
proponent; and
- enters a confidentiality agreement no less favorable to Medco than the
confidentiality agreement we have regarding the merger, prior to
providing information to the proposal's proponent.
Under the merger agreement, the term:
- "Acquisition Proposal" means an inquiry, offer or proposal regarding any
of the following (other than the transactions contemplated by the merger)
involving Medco or its subsidiaries: (a) any merger, reorganization,
consolidation, share exchange, recapitalization, business combination,
liquidation, dissolution, or other similar transaction involving, or, any
sale, lease, exchange, mortgage, pledge, transfer or other disposition
of, all or any significant portion of the assets or 10% or more of the
equity securities of, Medco or any of its subsidiaries, in a single
transaction or series of related transactions which could reasonably be
expected to interfere with the completion of the merger; (b) any tender
offer or exchange offer for 20% or more of the outstanding shares of
capital stock of Medco or any of its subsidiaries or the filing of a
registration statement under the Securities Act in connection therewith;
or (c) any public announcement of a proposal, plan or intention to do any
of the foregoing or any agreement to engage in any of the foregoing; and
- "Superior Proposal" means a bona fide Acquisition Proposal made by any
person that the Medco board of directors determines in its good faith
judgment to be more favorable to the Medco shareholders than the merger
(after consideration of, among other information, the written opinion,
with only customary qualifications, of Medco's independent financial
advisor that the value of the consideration to Medco shareholders
provided for in the proposal exceeds the value of the consideration to
the shareholders provided for in the merger) and for which financing, to
the extent required, is then committed or which, in the good faith
judgment of the board of directors (based on the advice of Medco's
independent financial advisor), is reasonably capable of being obtained
by such person.
TREATMENT OF MEDCO STOCK OPTIONS
When we complete the merger, each option to purchase Medco common stock
will be converted, in accordance with its terms, into an option to purchase King
common stock. Upon conversion, each option will be exercisable for a number of
shares of King common stock equal to the number of shares of Medco common stock
which could have been obtained upon exercise of the option before the merger
multiplied by the exchange ratio. After conversion and upon exercise, holders of
these options will receive cash in lieu of fractional shares in each case as
provided in the applicable option. The exercise price will be equal to the
exercise price per share of Medco common stock subject to the option before
conversion divided by the exchange ratio, rounded to the nearest whole cent. The
other terms of each option and the Medco option plans, under which the options
were granted, will continue to apply.
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After the merger is completed, King will register on Form S-8 the sale by
King of the shares of King common stock issuable with respect to options granted
under the Medco stock option plans. King will use reasonable efforts to maintain
the effectiveness of that registration statement for as long as any of the
options remain outstanding and cause the securities to be approved for quotation
on Nasdaq.
CONDITIONS TO COMPLETION OF THE MERGER
The respective obligations of Medco and King to complete the merger and the
other transactions contemplated by the merger agreement are subject to the
satisfaction or waiver of each of the following conditions before completion of
the merger:
- the merger agreement must be approved and adopted and the merger must be
approved by the holders of a majority of the outstanding shares of Medco
common stock;
- King's registration statement must be effective, no stop order suspending
its effectiveness may be in effect and no proceedings for suspension of
its effectiveness may be pending before or threatened by the SEC;
- no law, regulation or order may be enacted or issued which has the effect
of preventing or prohibiting completion of the merger;
- the shares of King common stock to be issued in the merger must have been
authorized for listing on Nasdaq, upon official notice of issuance;
- all applicable waiting periods under applicable antitrust laws must have
expired or been terminated;
- the independent accountants of King and Medco must have each delivered a
letter to the effect that the merger will qualify for
pooling-of-interests accounting treatment.
- Medco and King must have received from Medco's tax counsel an opinion to
the effect that the merger will constitute a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code;
- If the approval of King's shareholders becomes necessary, that approval
will have been obtained;
The obligation of King to complete the merger and the other transactions
contemplated by the merger agreement are subject to the satisfaction or waiver
of each of the following conditions before completion of the merger:
- Medco must have obtained all material permits, authorizations, consents
and approvals needed to complete the merger;
- Medco must have no litigation pending or threatened which would impede
the merger's closing, seek damages that may be material to King,
materially adversely affect the combined company's operations or would
have a material adverse effect on either Medco or King;
- Immediately following the merger, Medco shall have no indebtedness;
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- Immediately following the merger, Medco shall have, after payment net of
all transaction expenses paid or payable by Medco as set forth in the
merger agreement, at least $50.0 million in the aggregate of cash on hand
and liquid investments with a maturity of three months or less. The
merger agreement provides that the following amounts shall be included
toward the $50.0 million amount: up to $200,000 in losses realized from
liquidating Medco's bond portfolio; outstanding fourth quarter 1999
royalty payments from Medco's two largest licensees; if the closing
occurs after March 31, 2000, outstanding first quarter 2000 royalty
payments from Medco's two largest licensees; and any other amounts
permitted to be included in writing by King;
- Medco must have obtained executed releases to certain oral agreements
with certain executives.
If the closing has not occurred by February 29, 2000 and all of the
conditions to closing have been satisfied during the month of March 2000 except
for the cash reserve requirement described above, then Medco may extend the
closing for 35 days.
Medco's and King's obligations to complete the merger and the other
transactions contemplated by the merger agreement is subject to the satisfaction
by the other or the waiver of each of the following additional conditions before
completion of the merger:
- all representations and warranties must have been true and correct as of
November 30, 1999 and at and as of the date the merger is to be completed
at and as if made as of such time, except to the extent the
representations and warranties address matters only as of a particular
date or time, in which case they must be true and correct as of that date
or time;
- all respective obligations under agreements and covenants in the merger
agreement must be performed; and
- no material adverse effect shall have occurred, or be reasonably likely
to occur, since November 30, 1999.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated at any time prior to the merger's
completion, whether before or after Medco's shareholders approve the proposals
at the special meeting, in the circumstances we have listed below.
The merger agreement may be terminated by both King and Medco if both
companies consent in writing.
The merger agreement may be terminated by either King or Medco if any of
the following events occurs:
- the other materially breaches any of its representations, warranties,
covenants or agreements contained in the merger agreement and causes the
conditions to closing relating to those representations, warranties,
covenants and agreements to be unsatisfied, provided, that if a breach is
curable, the non-breaching party may not terminate if the party in breach
is exercising reasonable efforts to cure the breach;
- there exists any final and nonappealable order preventing the merger,
provided, the party seeking to terminate the merger agreement has used
reasonable efforts to vacate or lift the order;
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- without the fault of the terminating party, the merger is not completed
by July 27, 2000 or by no later than September 25, 2000 if additional
information is required by regulatory authorities reviewing the merger;
- the merger is not completed by a date that is 120 days from the date of
written notice to Medco that a meeting of King's shareholders is required
for approval of the merger;
- the Medco shareholders, or the King shareholders if their approval is
required, do not approve and adopt the merger agreement and approve the
merger; or
- if there is an material adverse effect on the other party which cannot be
cured within 30 days.
King may terminate the agreement if:
- the board of directors of Medco withdraws, or modifies in a manner
adverse to King, its recommendation of the merger agreement or resolves,
or publicly announces or discloses to a third party its intention, to do
any of the same;
- the board of directors of Medco recommends or resolves to recommend to
Medco's shareholders an Acquisition Proposal;
- the board of directors of Medco fails to reconfirm its recommendation of
the merger agreement within 5 business days of a written request of King
to do so;
- a person makes a tender offer or exchange offer for 20% or more of
Medco's common stock and the Medco board of directors, within 10 business
days after the offer is made, either (a) does not recommend that the
offer be rejected or (b) takes no position as to the offer;
- Medco materially breaches the option agreement;
- any person, or any group which may be formed, other than King, Medco and
their affiliates, beneficially owns 20% or more of Medco's outstanding
capital stock; or
- if the average closing price of King's stock is less than $30.00 for 20
consecutive trading days.
Medco may terminate the merger agreement if its board of directors (a)
determines to recommend a Superior Proposal to its shareholders, (b) gives
notice to King and (c) pays a $12.0 million termination fee and one half of the
expenses related to the merger.
PAYMENT OF TERMINATION FEE
Medco will pay King a termination fee of $12 million:
(a) immediately upon termination of the merger agreement by King
because
- Medco has materially breached any covenant or agreement contained in
the merger agreement, or any representation or warranty made by Medco
has become untrue,
- Medco's board of directors withdraws or modifies its recommendation to
Medco's shareholders of the merger agreement or the merger, or the
board of
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directors resolves or publicly announces or discloses to any third
party its intention to do any of these things,
- Medco's board of directors recommends, or resolves to recommend, to
Medco's shareholders any acquisition proposal,
- Medco's board of directors fails to confirm its recommendation of the
merger agreement to Medco's shareholders within 5 business days of a
written request by King to do so,
- a person makes a tender offer or exchange offer for 20% or more of
Medco's outstanding common stock or a registration statement with
respect to such an offer is filed and the Medco board of directors,
within 10 business days after the offer is made or the registration
statement is filed, either (a) does not recommend that the offer be
rejected or (b) takes no position as to the offer, or
- Medco materially breaches the option agreement;
or
(b) immediately upon termination of the merger agreement by Medco
because Medco's board of directors recommends or resolves to recommend to
Medco's shareholders an acquisition proposal that constitutes a superior
proposal.
If King terminates the agreement because King's average closing share price
for any 20-trading day period is less than $30 per share, then in addition to
the $12 million termination fee that might subsequently become payable in the
circumstances described below, Medco will pay King upon such termination a fee
equal to twice King's documented transaction expenses (with the total payment
not to exceed $6 million).
Medco will pay King a termination fee of $12 million if:
- either Medco or King terminates the merger agreement because the
stockholders of Medco fail to approve the merger and the merger
agreement,
- King terminates the agreement because King's average closing share price
for any twenty-trading day period is less than $30 per share,
- if the merger has not been consummated within 240 days of the execution
of the merger agreement (or 300 days in certain circumstances)
and Medco consummates an acquisition proposal or enters into a definitive
agreement with respect to an acquisition proposal within 12 months after the
termination of the merger agreement. This termination fee will be paid at or
prior to the consummation of the acquisition proposal or immediately upon the
effective date of the definitive agreement, whichever is earlier.
EXTENSION, WAIVER AND AMENDMENT OF THE MERGER AGREEMENT AND EXPENSES
Medco and King may amend the merger agreement before completing the merger
provided we comply with applicable law.
Either Medco or King may extend the other's time for the performance of any
of the obligations or other acts under the merger agreement, waive any
inaccuracies in the other's
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representations and warranties and waive compliance by the other with any of the
agreements or conditions contained in the merger agreement.
Each of Medco and King will pay our own costs and expenses including
attorney's fees, accounting fees and expenses. However, we will share equally
costs and expenses related to printing, filing and mailing this proxy
statement/prospectus, the registration statement of which it is a part and
regulatory applications.
RELATED AGREEMENTS
This section describes agreements related to the merger agreement,
including the stock option agreement and the voting agreements. While we believe
that these descriptions cover the material terms of these agreements, these
summaries may not contain all of the information that is important to you. The
stock option agreement is attached as Annex B. We urge you to read it carefully.
THE STOCK OPTION AGREEMENT
The stock option agreement grants King the option to buy up to 19.9% of the
issued and outstanding shares of Medco common stock at an exercise price of
$30.00 per share. The number of shares issuable upon exercise of the option and
the exercise price of the option are subject to adjustment to prevent dilution.
King required Medco to grant this stock option as a prerequisite to entering
into the merger agreement.
The option is intended to increase the likelihood that the merger will be
completed. The stock option agreement may have the effect of discouraging
persons who might now or in the future be interested in acquiring all of, or a
significant interest in, Medco's securities or its assets before the completion
of the merger. If the merger agreement is terminated and King's option to
purchase Medco common stock becomes exercisable, Medco will not be able to
account for future transactions as a "pooling-of-interests" for a period of two
years. This inability to obtain pooling-of-interests accounting treatment could
adversely affect Medco's ability to enter into future transactions.
Subject to conditions, King may exercise the option in whole or in part if
the merger agreement is terminated due to the occurrence of an event which
requires payment of the termination fee by Medco.
Generally, King may exercise the option within 18 months following the
occurrence of any event which would require the payment of a termination fee.
The option terminates (a) at the effective time of the merger, (b) if King
terminates the agreement because of King's average closing share price for any
twenty-trading day period is less than $30 per share, or (c) the merger
agreement is terminated under circumstances other than those which would or
could require payment of the termination fee by Medco under the merger
agreement.
If, after the option becomes exercisable but before the option terminates,
any person or group:
(a) makes a bona fide proposal regarding:
(1) a tender offer or exchange offer for 50% or more of the then
outstanding shares of Medco common stock,
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(2) a merger, consolidation or other business combination with
Medco, or
(3) an acquisition of a material portion of Medco's assets;
or
(b) acquires 50% or more of the then outstanding shares of Medco
common stock;
then King, instead of exercising the option, may request that Medco pay King an
amount of cash equal to the Cancellation Amount, as defined below. If Medco pays
King the Cancellation Amount in full, the option will be canceled.
The "Cancellation Amount" is an amount equal to:
the excess over $30.00 of the greater of:
- the last sale price of a share of Medco common stock as reported on
the New York Stock Exchange on the day prior to the day on which King
requests that Medco pay the Cancellation Amount, or
- the highest price per share of Medco common stock offered or proposed
to be paid or paid by any person or group in connection with a
proposal under (a)(1), (a)(2) or (b) above; or
- the aggregate consideration offered to be paid or paid in any
transaction or proposed transaction under (a)(3) above, divided by the
number of shares of Medco common stock then outstanding;
multiplied by the number of shares then covered by the option. King's
"Total Profit" from the option is limited to $17.0 million. "Total Profit"
includes the amount realized by the sale of option shares to a third party
(reduced by the option price) plus the amount of any Cancellation Amount
paid by Medco to King, plus any termination fee paid by Medco to King.
Total Profit is reduced by any payments made by King to Medco and by the
value of any canceled option shares.
The Cancellation Amount and the amount of any profit King receives from
selling shares of Medco common stock underlying the option will be reduced by an
amount equal to any termination fee Medco pays to King.
The stock option agreement grants registration rights to King with respect
to the shares of Medco common stock covered by the option.
MEDCO SHAREHOLDERS' VOTING AGREEMENT
In connection with the merger, King required the Medco directors and
officers who are shareholders to enter into a voting agreement. The voting
agreement gives King an irrevocable proxy to vote all of the shares of Medco's
common stock owned by these shareholders in favor of the merger.
As of the Medco record date, the Medco shareholders who entered into the
voting agreement collectively owned 122,320 shares of Medco common stock. Their
share ownership represented approximately 1.0% of the outstanding Medco common
stock. None of the Medco shareholders who are parties to the voting agreement
were paid additional consideration for entering into the agreement. Subject to
restrictions in the affiliate
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agreements, these Medco shareholders may sell any of their shares of Medco
common stock before the Medco special meeting.
The Medco shareholders' voting agreement will terminate upon the earliest
to occur of:
- the date and time that the merger becomes effective;
- the date the merger agreement is terminated; or
- if the merger agreement is terminated under certain circumstances and
Medco is obligated to pay King a termination fee, the date the fee is
paid.
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COMPARATIVE MARKET PRICE AND PER SHARE DATA
King common stock has been traded on Nasdaq under the symbol KING since
June 25, 1998, when King completed its initial public offering. Medco common
stock is traded on the New York Stock Exchange under the symbol MRE.
The following table sets forth, for the quarters indicated, the high and
low sale prices per share of King common stock on Nasdaq and Medco on the NYSE.
<TABLE>
<CAPTION>
KING(1) MEDCO
------------------ -------
QUARTER ENDED: HIGH LOW HIGH LOW
- -------------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997
March 31.............................. N/A N/A 13 3/8 7 3/4
June 30............................... N/A N/A 9 13/16 7 3/4
September 30.......................... N/A N/A 14 9 5/8
December 31........................... N/A N/A 17 1/8 12 3/4
1998
March 31.............................. N/A N/A 19 5/8 13 3/16
June 30............................... 9 1/2 9 3/16 25 1/2 17 1/8
September 30.......................... 14 1/4 8 1/2 26 5/8 15 5/8
December 31........................... 19 3/16 7 1/16 26 3/16 17 1/2
1999
March 31.............................. 19 7/8 12 7/8 27 1/4 21 1/2
June 30............................... 21 3/4 15 13/16 26 1/4 20 1/2
September 30.......................... 27 13/16 16 5/16 26 1/4 22 1/2
</TABLE>
- -------------------------
(1) All King share data reflects the 3 for 2 stock split that was effective
November 11, 1999. King commenced its initial public offering on June 25,
1998 at a price of $9.33 per share ($14.00 per share before the stock
split). Prior to such date, there was no public market for King common
stock.
The following table sets forth per share closing prices of King's and
Medco's common stock on Nasdaq and the NYSE, respectively, as of the dates
specified and the pro forma equivalent market value of the King common stock to
be issued for the Medco common stock in the Merger.
<TABLE>
<CAPTION>
MEDCO
COMMON STOCK
LAST REPORTED SALE PRICE Pro Forma
--------------------------- -----------------
KING MEDCO EQUIVALENT MARKET
DATE COMMON STOCK COMMON STOCK VALUE(A)
- ---- ------------ ------------ -----------------
<S> <C> <C> <C>
November 30, 1999(b)................ $46.09 $26.63 $31.44(a)
December 9, 1999(c)................. $56.00 $28.75 $34.00(d)
</TABLE>
- -------------------------
(a) Determined by multiplying the closing sales prices of King common stock, as
reported in the Wall Street Journal, on the date specified by 0.6818, the
assumed exchange ratio.
(b) Last trading date prior to announcement of the execution of the merger
agreement.
(c) The most recent practicable date prior to the date of this proxy
statement/prospectus.
(d) Under the merger agreement, if the average closing price is greater than
$49.87, King will deliver the number of shares of King common stock
necessary to provide a maximum purchase price of $34.00 per share of Medco
common stock.
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Medco shareholders are advised to obtain current market quotations for King
common stock and Medco common stock. We cannot give you any assurance as to the
market prices of King common stock or Medco common stock at any time before the
merger closes or the market price of King common stock at any time after the
merger. Because the exchange ratio is fixed only within a given price ranges of
King common stock, the exchange ratio may be adjusted to compensate Medco
shareholders for decreases in the market price of King's common stock which
could occur before the merger closes. If the market price of King common stock
decreases or increases before the merger closes, the value of the King common
stock to be received in the merger in exchange for Medco common stock would
correspondingly decrease or increase.
Neither of us has ever paid cash dividends on our respective shares of
capital stock. Under the merger agreement, each of us has agreed not to pay cash
dividends before the closing of the merger, without written consent of the
other. If the merger is not completed, Medco board intends to continue its
policy of retaining all earnings to finance the expansion of its business. The
King board intends to retain all earnings for use in its business and has no
present intention to pay cash dividends before or after the merger.
The table below presents comparative selected historical per share data of
King and Medco, pro forma combined per share data for King and Medco and
equivalent pro forma per share data of Medco. The financial data is based on,
and should be read in conjunction with, the historical consolidated financial
statements and the notes to those financial statements of King and Medco. All
per share data of King, Medco and pro forma are presented on a diluted basis.
The pro forma data is not necessarily indicative of results which will be
obtained on a combined basis. Medco equivalent pro forma per share amounts are
calculated by multiplying the pro forma combined amounts by an exchange ratio of
.
<TABLE>
<CAPTION>
AT OR FOR
THE NINE-MONTH AT OR FOR THE YEAR ENDED
PERIOD ENDED DECEMBER 31,
------------------ ------------------------------
SEPTEMBER 30, 1999 1998 1997 1996
------------------ -------- -------- --------
<S> <C> <C> <C> <C>
NET INCOME PER DILUTED COMMON
SHARE:
King -- Historical............. $ 0.65 $ 0.46 $ 0.17 $ (0.01)
Medco -- Historical............ 0.88 1.50 0.96 0.40
Pro Forma Combined(a).......... 0.78 0.88 0.36 0.13
Medco Equivalent Pro Forma(b).. 0.53 0.60 0.25 0.09
BOOK VALUE PER COMMON SHARE:
King -- Historical............. $ 2.75 $ 2.10 $ 0.70 $ 0.54
Medco -- Historical............ 6.23 5.58 4.25 3.40
Pro Forma Combined(a).......... 3.56 2.89 1.50 1.43
Medco Equivalent Pro Forma(b).. 2.42 1.96 1.02 0.97
</TABLE>
- -------------------------
(a) Pro forma combined amounts shown above reflect the proposed merger with
Medco on a "pooling-of-interests" basis for each period shown as if the
merger had occurred as of January 1, 1996.
(b) Medco equivalent pro forma per share amounts are calculated by multiplying
the pro forma combined amounts by the assumed exchange ratio of 0.6818.
(c) All King share data reflects the 3 for 2 stock split that was effective
November 11, 1999.
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UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma combined condensed financial information
gives effect to the proposed merger between King and Medco. We will account for
the merger as a pooling-of-interests, and the historical financial position and
operating results of King and Medco will be combined. The pro forma combined
condensed financial information reflects the financial position of King and
Medco as of September 30, 1999 and the operating results of King and Medco for
the nine-month periods ended September 30, 1999 and 1998 and for the years ended
December 31, 1998, 1997 and 1996.
The unaudited pro forma combined condensed statements of operations assume
that the merger occurred at the beginning of the periods presented. The
unaudited pro forma combined condensed balance sheet assumes the merger occurred
as of September 30, 1999. The historical financial information of King as of
September 30, 1999 and for the nine-month periods ended September 30, 1999 and
1998, and the years ended December 31, 1998, 1997 and 1996 has been derived from
King's historical consolidated financial statements which are incorporated by
reference. The pro forma historical purchase adjustments for the nine-month
period ended September 30, 1999 and the year ended December 31, 1998 reflect the
acquisition of Sterile Products on February 27, 1998, the Altace product line on
December 22, 1998 and other lesser significant acquisitions in 1998 and 1999 as
if they occurred on January 1, 1998.
The historical financial information of Medco as of September 30, 1999 and
for the nine-month periods ended September 30, 1999 and 1998 and for the years
ended December 31, 1998, 1997 and 1996 has been derived from Medco's historical
consolidated financial statements, which are incorporated by reference.
Pro Forma weighted average common shares outstanding for all periods
presented represent the historical average shares for King combined with the
historical average shares for Medco after giving effect to the conversion of all
outstanding shares of Medco into King common stock by the on assumed exchange
ratio of 0.6818 contemplated in the merger. Pro Forma operating results do not
include estimated merger related costs of $12.0 million. The historical
financial information of Medco has been re-classified to conform to King's
historical presentation. The unaudited pro forma combined condensed financial
information should be read in conjunction with the historical consolidated
financial statements of King and Medco incorporated by reference.
The unaudited pro forma combined condensed financial information has been
included for comparative purposes only and does not purport to show what the
financial position or operating results would have been if the merger had been
consummated as of the dates indicated, nor should it be construed as
representative of future financial position or operating results.
64
<PAGE> 71
KING PHARMACEUTICALS, INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1999
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
PRO FORMA KING POOLING
HISTORICAL 1999 PURCHASE PRO HISTORICAL RECLASSIFI- PRO
KING(1) ACQUISITION (2) ADJUSTMENTS FORMA MEDCO CATIONS FORMA
---------- --------------- ----------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues.............. $240,914 $31,797 -- $272,711 $ 25,713 $ -- $298,424
-------- ------- -------- -------- -------- ------- --------
Operating costs and
expenses:
Cost of sales........... 75,055 9,594 -- 84,649 -- -- 84,649
Selling, general and
administrative........ 55,270 9,617 -- 64,887 2,232 (150) 66,969
Depreciation and
amortization.......... 19,348 -- 2,791(3) 22,139 -- 613 22,752
Research and
development........... -- -- -- -- 6,836 (463) 6,373
Royalty expense......... -- -- -- -- 4,718 -- 4,718
-------- ------- -------- -------- -------- ------- --------
Total costs and
operating
expenses............ 149,673 19,211 2,791 171,675 13,786 -- 185,461
-------- ------- -------- -------- -------- ------- --------
Income (loss) from
operations............ 91,241 12,586 (2,791) 101,036 11,927 -- 112,963
Other income (expenses):
Interest and other
income................ 86 -- -- 86 2,249 -- 2,335
Interest expense........ (40,598) -- (5,884)(4) (46,482) -- -- (46,482)
-------- ------- -------- -------- -------- ------- --------
Income (loss) before
income taxes............ 50,729 12,586 (8,675) 54,640 14,176 -- 68,816
Income taxes.............. 19,062 -- 1,564(5) 20,626 4,755 -- 25,381
-------- ------- -------- -------- -------- ------- --------
Income (loss) before
extraordinary loss...... 31,667 12,586 (10,239) 34,014 9,421 -- 43,435
Extraordinary item, net... (705) -- 705(6) -- -- -- --
-------- ------- -------- -------- -------- ------- --------
Net income (loss)......... $ 30,962 $12,586 $ (8,987) $ 34,014 $ 9,421 -- $ 43,435
======== ======= ======== ======== ======== ======= ========
Basic income (loss) per
common share(1):
Income (loss) before
extraordinary item.... $ 0.65 $ 0.71 $ 0.91 $ 0.79
Extraordinary item...... (0.01) -- -- --
-------- -------- -------- --------
Income (loss)........... $ 0.64 $ 0.71 $ 0.91 $ 0.79
======== ======== ======== ========
Diluted income (loss) per
common share(1):
Income (loss) before
extraordinary item.... $ 0.65 $ 0.70 $ 0.88 $ 0.78
Extraordinary item...... (0.01) -- --
-------- -------- -------- --------
Income (loss)........... $ 0.64 $ 0.70 $ 0.88 $ 0.78
======== ======== ======== ========
Weighted average common
shares(1):
Basic................... 48,160 48,160 10,347 55,215
======== ======== ======== ========
Diluted................. 48,393 48,393 10,747 55,720
======== ======== ======== ========
</TABLE>
65
<PAGE> 72
KING PHARMACEUTICALS, INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1998
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA
KING MEDCO POOLING RECLASSIFICATIONS PRO FORMA
---------- ---------- ------------------------- ---------
<S> <C> <C> <C> <C>
Net Revenues.................. $113,330 $19,191 $132,521
-------- ------- --------
Costs and expenses:
Costs of sales.............. 41,933 -- 41,933
Selling, general and
administrative........... 25,040 1,832 (72) 26,800
Royalty expense............. -- 3,246 3,246
Depreciation and
amortization............. 6,506 -- 522 7,028
Research and development
expense.................. -- 6,942 (450) 6,492
-------- ------- ---- --------
Total costs and operating
expenses............... 73,479 12,020 -- 85,499
-------- ------- ---- --------
Income from operations...... 39,851 7,171 47,022
Other income (expenses):
Interest and other income... 120 5,995 6,115
Interest expense............ (10,729) -- (10,729)
-------- ------- --------
Income before income taxes
and extraordinary item... 29,242 13,166 42,408
Income taxes.................. 11,183 1,064 12,247
-------- ------- --------
Income before extraordinary
item........................ 18,059 12,102 30,161
Extraordinary item............ (286) -- (286)
-------- ------- --------
Net income.................... $ 17,773 $12,102 $ 29,875
======== ======= ========
Basic income per common
share(1):
Income before extraordinary
item..................... $ 0.41 $ 1.15 $ 0.59
Extraordinary item.......... (0.01) -- (0.01)
-------- ------- --------
Net income.................. $ 0.40 $ 1.15 $ 0.58
======== ======= ========
Diluted income per common
share(1):
Income before extraordinary
item..................... $ 0.41 $ 1.11 $ 0.58
Extraordinary item.......... (0.01) -- (0.01)
-------- ------- --------
Net income.................. $ 0.40 $ 1.11 $ 0.57
======== ======= ========
Weighted average common
shares(1):
Basic....................... 44,192 10,554 51,388
======== ======= ========
Diluted..................... 44,192 10,894 51,620
======== ======= ========
</TABLE>
66
<PAGE> 73
KING PHARMACEUTICALS, INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO
FORMA
PRO FORMA POOLING
HISTORICAL STERILE PURCHASE KING HISTORICAL RECLASSIFI-
KING PRODUCTS(7) HMR(8) OTHER(9) ADJUSTMENTS PRO FORMA MEDCO CATIONS
---------- ----------- ------- -------- ----------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues......... $163,463 $10,844 $94,198 $98,803 $ -- $367,308 $27,544 $ --
-------- ------- ------- ------- -------- -------- ------- ------
Costs and expenses:
Cost of sales....... 64,052 5,314 6,917 29,426 867(10) 106,576 -- --
Selling, general and
administrative.... 34,718 1,001 44,619 65,329 (22,598)(11)(12) 123,069 2,584 (100)
Depreciation and
amortization...... 9,255 -- -- -- 19,717(3) 28,972 -- 708
Royalty............. -- -- 2,246 -- -- 2,246 4,873 --
Research and
development
expense........... -- -- -- -- -- -- 10,348 (608)
-------- ------- ------- ------- -------- -------- ------- ------
Total costs and
operating
expenses........ 108,025 6,315 53,782 94,755 (2,014) 260,863 17,805 --
-------- ------- ------- ------- -------- -------- ------- ------
Income from
operations........ 55,438 4,529 40,416 4,048 2,014 106,445 9,739 --
Other income
(expenses):
Interest and other
income............ 145 -- -- -- -- 145 6,734 --
Interest expense.... (14,866) -- -- -- (41,908)(4) (56,774) --
-------- ------- ------- ------- -------- -------- ------- ------
Income before taxes
and extraordinary
item................ 40,717 4,529 40,416 4,048 (39,894) 49,816 16,473 --
Income taxes......... 15,396 -- -- -- 4,534(5) 19,930 231 --
-------- ------- ------- ------- -------- -------- ------- ------
Income before
extraordinary
item................ 25,321 4,529 40,416 4,048 (44,428) 29,886 16,242 --
Extraordinary item... (4,411) -- -- -- 4,411(6) -- -- --
-------- ------- ------- ------- -------- -------- ------- ------
Net income (loss).... $ 20,910 $ 4,529 $40,416 $ 4,048 $(40,017) $ 29,886 $16,242 --
======== ======= ======= ======= ======== ======== ======= ======
Basic income per
common share(1):
Income before
extraordinary
item.............. $ 0.56 $ 0.66 $ 1.54
Extraordinary
item.............. (0.10) -- --
-------- -------- -------
Net income.......... $ 0.46 $ 0.66 $ 1.54
======== ======== =======
Diluted income per
common share(1):
Income before
extraordinary
item.............. $ 0.56 $ 0.66 $ 1.50
Extraordinary
item.............. (0.10) -- --
-------- -------- -------
Net income.......... $ 0.46 $ 0.66 $ 1.50
======== ======== =======
Weighted average
common shares(1):
Basic............... 45,191 45,191 10,531
======== ======== =======
Diluted............. 45,236 45,236 10,857
======== ======== =======
<CAPTION>
PRO FORMA
---------
<S> <C>
Net revenues......... $394,852
--------
Costs and expenses:
Cost of sales....... 106,576
Selling, general and
administrative.... 125,553
Depreciation and
amortization...... 29,680
Royalty............. 7,119
Research and
development
expense........... 9,740
--------
Total costs and
operating
expenses........ 278,668
--------
Income from
operations........ 116,184
Other income
(expenses):
Interest and other
income............ 6,879
Interest expense.... (56,774)
--------
Income before taxes
and extraordinary
item................ 66,289
Income taxes......... 20,161
--------
Income before
extraordinary
item................ 46,128
Extraordinary item... --
--------
Net income (loss).... $ 46,128
========
Basic income per
common share(1):
Income before
extraordinary
item.............. $ 0.88
Extraordinary
item.............. --
--------
Net income.......... $ 0.88
========
Diluted income per
common share(1):
Income before
extraordinary
item.............. $ 0.88
Extraordinary
item.............. --
--------
Net income.......... $ 0.88
========
Weighted average
common shares(1):
Basic............... 52,371
========
Diluted............. 52,638
========
</TABLE>
67
<PAGE> 74
KING PHARMACEUTICALS, INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA POOLING
KING MEDCO(1) RECLASSIFICATIONS PRO FORMA
---------- ---------- ----------------- ---------
<S> <C> <C> <C> <C>
Net revenues...................... $47,909 $20,000 $67,909
------- ------- -------- -------
Operating costs and expenses:
Costs of sales.................. 13,034 -- 13,034
Selling, general and
administrative............... 19,123 2,393 (102) 21,414
Depreciation and amortization
expense...................... 2,395 -- 676 3,071
Royalty expense................. -- 2,985 -- 2,985
Research and development
expense...................... -- 6,902 (574) 6,328
------- ------- -------- -------
Total costs and operating
expenses................... 34,552 12,280 46,832
------- ------- -------- -------
Income from operations.......... 13,357 7,720 21,077
Other income (expenses):
Interest and other income....... -- 2,782 2,782
Interest expense................ (2,777) -- (2,777)
------- ------- -------- -------
Income before taxes............. 10,580 10,502 21,082
Income taxes...................... 3,968 288 4,256
------- ------- -------- -------
Net Income........................ $ 6,612 $10,214 -- $16,826
======= ======= ======== =======
Basic income per common share(1):
Income before extraordinary
item......................... $ 0.17 $ 0.97 $ 0.36
Extraordinary item.............. -- -- --
------- ------- -------
Net income...................... $ 0.17 $ 0.97 $ 0.36
======= ======= =======
Diluted income per common
share(1):
Income before extraordinary
item......................... $ 0.17 $ 0.96 $ 0.36
Extraordinary item.............. -- -- --
------- ------- -------
Net income...................... $ 0.17 $ 0.96 $ 0.36
======= ======= =======
Weighted average common shares(1):
Basic........................... 39,405 10,546 46,595
======= ======= =======
Diluted......................... 39,405 10,621 46,650
======= ======= =======
</TABLE>
68
<PAGE> 75
KING PHARMACEUTICALS, INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA POOLING
KING MEDCO(1) RECLASSIFICATIONS PRO FORMA
---------- ---------- ----------------- ---------
<S> <C> <C> <C> <C>
Net revenues...................... $20,457 $13,454 $33,911
------- ------- -------- -------
Operating costs and expenses:
Cost of sales................... 8,782 -- 8,782
Selling, general and
administrative............... 12,106 3,002 (144) 14,964
Depreciation and amortization... 982 -- 195 1,177
Royalty expense................. -- 2,574 -- 2,574
Research and development........ -- 5,839 (51) 5,788
------- ------- -------- -------
Total operating costs and
operating expenses......... 21,870 11,415 -- 33,285
------- ------- -------- -------
Income (loss) from operations... (1,413) 2,039 626
Other income (expenses):
Interest and other income....... 2,338 2,370 4,708
Interest expense................ (1,272) -- (1,272)
------- ------- -------- -------
Income (loss) before income
taxes........................ (347) 4,409 4,062
Income taxes...................... (107) 87 (20)
------- ------- -------- -------
Net income (loss)................. (240) 4,322 -- 4,082
======= ======= ======== =======
Basic and diluted income per
common share(1):
Income before extraordinary
item......................... $ (0.01) $ 0.40 $ 0.13
Extraordinary item.............. -- -- --
------- ------- -------
Net income...................... $ (0.01) $ 0.40 $ 0.13
======= ======= =======
Weighted average common shares(1):
Basic........................... 23,160 10,918 30,604
======= ======= =======
Diluted......................... 23,160 10,938 30,618
======= ======= =======
</TABLE>
69
<PAGE> 76
KING PHARMACEUTICALS, INC.
PRO FORMA COMBINED CONDENSED BALANCE SHEET
SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA POOLING PRO
KING MEDCO RECLASSIFICATIONS FORMA
---------- ---------- ----------------- ---------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............. $ 10,917 $ 4,407 -- $ 15,324
Short-term investments................ -- 18,508 -- 18,508
Accounts receivable, net.............. 76,178 -- -- 76,178
Royalty receivable.................... -- 9,699 -- 9,699
Inventory............................. 42,474 -- -- 42,474
Deferred income taxes................. 5,717 458 -- 6,175
Prepaid expenses and other current
assets.............................. 1,758 1,548 -- 3,306
-------- ------- ------ --------
Total current assets................ 137,044 34,620 -- 171,664
-------- ------- ------ --------
Property and equipment, net........... 94,968 607 -- 95,575
-------- ------- ------ --------
Other assets.......................... 20,182 -- -- 20,182
Investments help to maturity.......... -- 32,162 -- 32,162
Deferred asset........................ -- 1,228 -- 1,228
Goodwill, net......................... 557,002 1,166 -- 558,168
-------- ------- ------ --------
Total assets........................ $809,196 $69,783 -- $878,979
======== ======= ====== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable...................... $ 21,905 $ 3,013 -- $ 24,918
Accrued expenses and other
liabilities......................... 37,174 2,264 -- 39,438
Income taxes payable.................. 4,917 -- -- 4,917
Current portion of long term debt..... 13,076 -- -- 13,076
-------- ------- ------ --------
Total current liabilities........... 77,072 5,277 -- 82,349
Long-term liabilities................. 599,559 -- -- 599,559
-------- ------- ------ --------
Total liabilities................... 676,631 5,277 -- 681,908
Shareholders' equity.................. 132,565 64,506 -- 197,071
-------- ------- ------ --------
Total liabilities and shareholders'
equity........................... $809,196 $69,783 -- $878,979
======== ======= ====== ========
</TABLE>
70
<PAGE> 77
NOTES TO UNAUDITED PRO FORMA
COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS
(1) Weighted average common shares available and income per share for King
reflects the retroactive treatment of the 3 for 2 stock split which was
effective November 11, 1999.
(2) Represents the historical results for the Lorabid product line purchase
acquisition for the period prior to the acquisition on August 19, 1999.
(3) For 1998, includes amortization of intangible assets over periods of 15
years for the Sterile Products Acquisition, the acquisition of Menest, the
Altace acquisition and the Lorabid product line acquisition and
depreciation of fixed assets from the Sterile Products Acquisition over
periods of 5 to 40 years. For the nine months ended September 30, 1999,
includes the amortization of the 1999 Lorabid product line acquisition over
periods of 15 to 25 years.
(4) Adjustment to reflect the increase in interest expense as a result of the
financing the product acquisitions, including Sterile Products, Altace and
Lorabid (in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE NINE
ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------- --------------
<S> <C> <C>
Revolving credit facility ($91.65 million
at 8.56%)(a)............................. $ 7,845 $5,884
Tranche A loan ($132.4 million at
8.56%)(a)................................ 11,333 --
Tranche B loan ($242.6 million at
9.06%)(a)................................ 21,980 --
Senior Notes ($150.0 million at
10.75%)(a)............................... 16,125 --
Amortization of finance costs on related
debt..................................... 3,082 --
Adjustment to net interest from assumed
retirement of existing debt.............. (18,457) --
-------- ------
$ 41,908 $5,884
======== ======
</TABLE>
- -------------------------
a. The interest rates shown above for the revolving credit facility, the Tranche
A and B loans under the Senior Credit Facility and the Senior Notes were the
rates in effect immediately following the Altace Acquisition on December 22,
1998. A change in the interest rates of one-eighth of one percent (0.125%)
would change interest expense by $1,994 and $85 for the 1998 and 1999 periods
above, respectively.
(5) Adjustment to reflect a 40% effective tax rate applied to the incremental
pro forma net income before income taxes.
(6) Reflects the elimination of an extraordinary loss of approximately $4,411
million and $705 million for the year ended December 31, 1998 and for the
nine months ended September 30, 1999, respectively, related to the
write-off of certain debt issuance costs.
(7) Represents the historical results for the product lines included in the
Sterile Products Acquisition for the period prior to the acquisition on
February 27, 1998.
71
<PAGE> 78
NOTES TO UNAUDITED PRO FORMA
COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS -- (CONTINUED)
(8) Represents the historical results of the product lines included in the
acquisition of Altace (other than the historical international results of
Silvadene and AVC) for the periods prior to such Acquisition on December
22, 1998.
(9) Represents the historical results for the Lorabid product line and the
Menest product line for the period prior to their acquisition on August 19,
1999 and June 30, 1998, respectively. In addition, the historical
international results of Silvadene and AVC for the periods prior to the
acquisition on December 22, 1998. These results have been determined by
King solely based upon information provided to it by Hoechst Marion
Roussel, Inc., from whom King acquired the product.
(10) Reflects additional costs of approximately $1.7 million for the year ended
December 31, 1998, based upon the five-year agreement with Hoechst Marion
Roussel to supply King with Altace at a fixed contract cost, offset by the
reclassification of depreciation expense of approximately $0.8 million from
the Sterile Products Acquisition to be consistent with the presentation of
King's financial statements for the year ended December 31, 1998.
(11) King calculated the total selling, general and administrative costs that
would have been required had the Sterile Products acquisition been
consummated as of January 1, 1998 and compared this to the amount reflected
in the historical financial statements of King and the above acquisition.
There were additional costs of $0.1 million for the year ended December 31,
1998.
(12) King has determined that the selling and advertising and promotion expenses
reported in the special purpose statements of product contribution for the
Altace Acquisition would not be reflective of the costs King would have
incurred utilizing its existing infrastructure and marketing approach. As a
result, the adjustment reflects a reduction of approximately $22.6 million
for the year ended December 31, 1998, which consists of $14.3 million of
estimated selling costs savings. The savings in selling costs were
determined as follows (in thousands, except full-time equivalent
representatives):
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED DECEMBER 31,
1998
------------------
<S> <C>
Average selling cost per Hoechst Marion Roussel
representative.................................... $ 170
Average selling cost per King representative....... 75
Savings per representative......................... 95
Full-time equivalent representatives............... 150
-------
Estimated total savings.......................... $14,250
=======
</TABLE>
72
<PAGE> 79
NOTES TO UNAUDITED PRO FORMA
COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS -- (CONTINUED)
King estimated the total advertising and promotion costs, general,
administrative and distribution costs and the costs associated with the
implementation of the transitional services agreement that would have been
required had the Altace Acquisition been consummated as of January 1, 1998
and compared this to the amounts reflected in the special purpose
statements of product contribution for the Altace Acquisition. The
estimated savings is based on utilizing King's current infrastructure and
more limited advertising and promotion as compared to that of Hoechst
Marion Roussel, offset in part by an increase in sampling costs. King has
estimated the savings in general and administrative costs related to the
Altace Acquisition as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED DECEMBER
31, 1998
HOECHST MARION ROUSSEL REPORTED: --------------
<S> <C>
Advertising and promotion as reported in the special
purpose statements of product contribution.......... $19,125
=======
King estimated costs:
Advertising and promotion........................... $ 9,200
General, administrative and distribution............ 500
Transitional services agreement..................... 1,000
Subtotal......................................... 10,700
-------
$ 8,425
=======
</TABLE>
73
<PAGE> 80
COMPARISON OF SHAREHOLDERS OF KING COMMON STOCK
AND MEDCO COMMON STOCK
This section of the proxy statement/prospectus describes differences
between King common stock and Medco common stock. We believe that the
description covers the material differences between the two. However, this
summary may not contain all of the information that is important to you,
including each of our charters and bylaws. You should read this entire document
and the other documents we refer to carefully for a more complete understanding
of the differences between King common stock and Medco common stock. You may
obtain the information incorporated by reference into this proxy
statement/prospectus without charge by following the instructions in the section
entitled "Where You Can Find More Information" on page .
After the merger, the holders of Medco common stock who receive King common
stock will become shareholders of King. Because Medco is a Delaware corporation
and King is a Tennessee corporation, the Tennessee Business Corporations Act, or
TBCA, will govern the rights of Medco shareholders after the merger. The Medco
certificate of incorporation and the Medco bylaws currently govern the rights of
the shareholders of Medco. As shareholders of King, the King charter, as amended
and restated, and the King bylaws, as amended and restated, will instead govern
their rights following the merger. The following paragraphs summarize
differences between the rights of King shareholders and Medco shareholders under
the charter documents and bylaws of King and Medco, as applicable. They also
summarize the material differences between the Delaware General Corporation Law,
or DGCL, and the TBCA.
AUTHORIZED CAPITAL STOCK
Medco's certificate of incorporation authorizes the issuance of up to
40,000,000 shares of Medco common stock and 20,000,000 shares of preferred
stock. As of November 30, 1999:
- 11,757,270 shares of common stock were issued and outstanding; and
- no shares of preferred stock were issued and outstanding.
The board of directors of Medco has authority to determine or alter the
powers, preferences, and rights and the qualifications, limitations or
restrictions granted to or imposed upon any wholly unissued series of preferred
stock. Within the limitations or restrictions originally established for a
series of preferred stock, the board of directors may increase or decrease the
number of shares in the series, determine the designation of the series, and fix
the number of shares in a series.
Under its articles of incorporation, King is authorized to issue up to
150,000,000 shares of common stock and 15,000,000 shares of preferred stock. As
of November 12, 1999:
- 48,234,233 shares of common stock were issued and outstanding; and
- no shares of preferred stock were issued and outstanding.
King's board of directors is authorized, subject to the TBCA's limitations, to:
- authorize the issuance of the shares of preferred stock in series;
74
<PAGE> 81
- determine the dividend rate of each series, the conditions and dates upon
which dividends may be paid, and how dividends may be paid in relation to
other series of stock;
- determine whether the shares shall be subject to redemption by King and
the means of such redemption;
- determine the terms and amount of any sinking fund provided for the
purchase or redemption of shares;
- determine whether the shares are convertible into another sort of King's
capital stock and the means and details of such conversion;
- create restrictions on the issue or reissue of any additional series of
preferred stock;
- establish the rights of the holders of each series of preferred stock
upon the voluntary or involuntary liquidation, dissolution or winding up
of King; and
- determine the provisions as to voting and optional special rights and
preferences, such as the right to elect one or more directors.
REMOVAL OF DIRECTORS
Medco's bylaws provide that any director may be removed from office, with
or without cause, by the holder of a majority of the shares then entitled to
vote at an election of directors; provided, however, that so long as
stockholders of Medco are entitled to cumulative voting, if less than the entire
board of directors is to be removed, no director may be removed without cause if
the votes cast against his or her removal would be sufficient to elect him or
her if then cumulatively voted at an election of the entire board of directors.
King's bylaws provide that any director is subject to removal by a proper
vote of the shareholders. The TBCA provides that a director may be removed with
or without cause if the number of shares voted in favor of removal exceeds the
number of shares voted against removal.
CONFLICT-OF-INTEREST TRANSACTIONS
The DGCL generally permits transactions involving Medco and an interested
director of Medco if
(i) the material facts are disclosed and a majority of disinterested
directors consent,
(ii) the material facts are disclosed and a majority of shares
entitled to vote thereon consents, or
(iii) the transaction is fair to Medco at the time it is authorized by
the Medco board of directors, a committee, or the Medco stockholders.
The TBCA generally permits transactions involving King and an interested
director of King if
(i) the material facts are disclosed and a majority of disinterested
directors or a committee of the King board of directors consents,
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(ii) the material facts are disclosed and a majority of disinterested
shares entitled to vote thereon consents, or
(iii) the transaction is fair to King.
The TBCA prohibits loans to directors by King unless approved by a majority vote
of disinterested shareholders or the King board of directors determines that the
loan benefits King and either approves the specific loan or a general plan of
loans by King.
SPECIAL MEETINGS OF STOCKHOLDERS
Pursuant to Medco's bylaws, a special meeting of Medco's stockholders may
be called for any purpose by the board of directors, the chairman of the board,
the President, the Chief Executive Officer, or one or more stockholders holding
shares in the aggregate entitled to cast not less than ten percent of the votes
at that meeting.
King's bylaws authorize the Chairman of the Board and Chief Executive
Officer, the President or a majority of the King board of directors to call a
special meeting of shareholders for any purpose. Such a call shall state the
purpose or purposes of the proposed meeting.
REQUIRED VOTE FOR AUTHORIZATION OF CERTAIN ACTIONS
The DGCL provides that the recommendation of the Medco board of directors
and the approval of a majority of the outstanding shares of Medco entitled to
vote thereon is required to effect a merger or consolidation or to sell, lease
or exchange substantially all of Medco's assets. With respect to a merger, no
vote of the Medco stockholders would be required if Medco were the surviving
corporation and (i) the related agreement of merger did not amend Medco's
certificate of incorporation, (ii) each share of stock of Medco outstanding
immediately before the merger were an identical outstanding or treasury share of
Medco after the merger and (iii) the number of shares of Medco to be issued in
the merger (or to be issuable upon conversion of any convertible instruments to
be issued in the merger) did not exceed 20% of the shares of Medco common stock
outstanding immediately before the merger.
The TBCA provides that the approval of the King board of directors and of a
majority of the outstanding shares of King entitled to vote thereon would also
generally be required to approve a merger or to sell, lease, exchange or
otherwise dispose of substantially all of King's assets. In accordance with the
TBCA, submission by the King board of directors of any such action may be
conditioned on any basis, including without limitation, conditions regarding a
supermajority voting requirement or that the holders of no more than a certain
number of shares indicate that they will seek dissenters' rights.
With respect to a merger, no vote of the shareholders of King would be
required if King were the surviving corporation and
(i) King's charter would remain unchanged after the merger, subject to
certain exceptions,
(ii) each shareholder of King immediately before the merger would hold
an identical number of shares, with identical rights and preferences, after
the merger,
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(iii) the number of voting shares outstanding immediately after the
merger plus the number of voting shares issuable as a result of the merger
(either by conversion of securities issued pursuant to the merger or the
exercise of rights and warrants issued pursuant to the merger), will not
exceed by more than 20% the number of voting shares of the surviving
corporation outstanding immediately before the merger; and
(iv) the number of participating shares outstanding immediately after
the merger, plus the number of participating shares issuable as a result of
the merger (either by conversion of securities issued pursuant to their
merger or the exercise of rights and warrants issued pursuant to the
merger), will not exceed by more than 20% the total number of participating
shares outstanding immediately before the merger.
With respect to a sale, lease, exchange or other disposition of
substantially all the assets of King, no vote of the shareholders of King would
be required if such transfer were conducted in the regular course of business or
if such transfer were made to a wholly-owned subsidiary of King. No vote of the
shareholders of King would be required for King to mortgage, pledge, encumber or
dedicate to the repayment of indebtedness any or all of its property, whether or
not in the regular course of business.
STOCKHOLDER PROPOSALS AND NOMINATIONS
Medco's bylaws do not address requirements for stockholder proposals and
nominations.
King shareholder proposals must be in writing and received by the Secretary
of King not less than 60 nor more than 90 days prior to the date of a meeting of
shareholders; provided, however, that if fewer than 70 days' notice or prior
public disclosure of the date of the meeting is given or made to shareholders,
notice by the shareholder will be timely if it is delivered or received not
later than the close of businesses on the 10th day following the day on which
such notice of the date of such meeting was mailed or the date on which such
public disclosure was made.
Nominations to King's board of directors by shareholders must be in writing
and received by the Secretary of King not less than 60 nor more than 90 days
prior to the date of the annual meeting of shareholders. If the date of the
annual meeting is changed by more than 30 days from its anniversary date, notice
by the shareholder to be timely must be received not later than the close of
business on the 10th day following the earlier of the day on which notice of the
date of the meeting was mailed or public disclosure of the meeting was made. In
the case of a special meeting at which directors are to be elected, notice must
be received not later than the close of business on the 10th day following the
earlier of the day on which notice of the date of the meeting was mailed or
public disclosure of the meeting was made.
ACTION BY WRITTEN CONSENT
The DGCL provides for action without stockholder meetings if a written
consent setting forth the action to be taken is signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted.
The TBCA provides that action may be taken without a shareholder meeting
and vote if all shareholders entitled to vote on the action consent to taking
such action without a
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meeting. Action by written consent of the King shareholders is impracticable
given the number of holders of King common stock.
INSPECTION RIGHTS
Both the TBCA and the DGCL contain provisions granting shareholders the
right to inspect certain records of each corporation. Under the DGCL, any
stockholder of record, either in person or by attorney or other agent, upon
written demand under oath stating the purpose thereof, has the right to inspect
certain of Medco's records during certain times. This right is limited, however,
to inspection for "a proper purpose," which is defined as "a purpose reasonably
related to such person's interest as a stockholder."
Under the TBCA, King shareholders are also entitled to inspect and copy,
during regular business hours at King's principal office, the minutes of
shareholder meetings, charter, bylaws, annual reports, and certain other records
of the corporation, provided the shareholder gives the corporation written
notice of this demand at least 5 business days before the date on which he
wishes to inspect and copy the records. In addition, a shareholder who makes a
demand in good faith, for a proper purpose, and describes with reasonable
particularity his purpose and the records he desires to inspect, and if the
records are directly connected with his purpose, may also, upon 5 days' written
notice, inspect and copy:
(i) accounting records of the corporation,
(ii) the records of shareholders,
(iii) excerpts from minutes of any meeting of the board of directors,
(iv) records of any action of a committee of the board of directors
while acting in place of the board of directors on behalf of the
corporation,
(v) minutes of any meeting of the shareholders, and
(vi) records of action taken by the shareholders or board of directors
without a meeting.
AMENDMENT OF CERTIFICATE OF INCORPORATION OR CHARTER AND BYLAWS
Medco's Certificate of Incorporation may be amended by (1) the adoption of
a resolution by the board which sets forth the proposed amendment and declaring
its advisability, and (2) the affirmative vote of a majority of all stockholders
entitled to vote and the affirmative vote of a majority of each class of
stockholders entitled to vote. Medco's bylaws provide that they may be adopted,
amended or repealed by the stockholders entitled to vote and Medco's certificate
of incorporation provides for amendment of the bylaws by the board of directors.
King's charter may be amended in minimal ways, such as changing of the
registered office of the corporation, by the board of directors without
shareholder involvement. Other amendments of the charter must be recommended to
the shareholders by the board and approved by a majority of the votes entitled
to be cast. The TBCA may require a greater vote or voting by groups in certain
circumstances. The board of directors may also require a greater vote or voting
by groups, and it may condition on any basis its submission of the proposed
amendment to the shareholders.
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Section 6 of King's bylaws establishes classes of directors and their term
and provides that the number of directors shall be modified by resolution of
King's board of directors. This section may not be altered, amended, or repealed
by the shareholders without the affirmative vote of the shareholders of at least
80% of King's common stock. The same 80% vote is required for the shareholders
to amend portions of the bylaws which provide for special meetings of the
shareholders, the procedures for bringing business before a meeting of the
shareholders, and the nomination of directors.
VOLUNTARY DISSOLUTION
The DGCL provides that Medco may be dissolved by the approval of the Medco
board of directors and a majority of the shares of Medco entitled to vote
thereon. The DGCL also allows all the stockholders of Medco to act unanimously
in writing to effect a dissolution of Medco without the approval of the Medco
board of directors.
The TBCA provides that King may be dissolved if the King board of directors
proposes dissolution and a majority of the shares of King entitled to vote
thereon approves. The King board of directors may condition its submission of a
proposal for dissolution on any basis, including a greater shareholder vote
requirement.
INDEMNIFICATION
Both the DGCL and the TBCA provide in certain situations for mandatory and
permissive indemnification of directors and officers in substantially the same
manner. The TBCA, however, states that statutory indemnification is not to be
deemed exclusive of any other rights to which a director seeking indemnification
may be entitled; provided, however, no indemnification may be made if a final
adjudication adverse to the director or officer establishes his liability
(i) for any breach of loyalty to the corporation or its shareholders;
(ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; or
(iii) for unlawful distributions.
BUSINESS COMBINATION STATUTE
The DGCL regulates business combinations such as mergers, consolidations,
and asset purchases where the business acquired was, or the assets belonged to,
a public corporation, such as Medco, and where the acquiror became an
"interested stockholder" of the public corporation before the date of the
transaction unless (i) prior to the date of the transaction the board of
directors of the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder, or (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned by persons who are directors and also
officers and employee stock plans in which employee participants do not have the
right to determine confidentially whether shares held subject to the plan will
be tendered in a tender or exchange offer, or (iii) on or subsequent to the date
of the transaction the business combination is approved by the board of
directors and authorized
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at an annual or special meeting of stockholders by the affirmative vote of a
least 66 2/3% of the outstanding voting stock of the disinterested stockholders.
In the context of this law, an "interested stockholder" is any person
(other than the corporation and any direct or indirect majority-owned subsidiary
of the corporation) who directly or indirectly, alone or in concert with others,
beneficially owns or controls 15% or more of the voting stock of the public
corporation. The law prohibits business combinations with an unapproved
interested stockholder for a period of 3 years after the date on which the
person became an interested stockholder and requires that any business
combination with an unapproved interested stockholder after such 3 year period
be approved by the board of directors and authorized by the affirmative vote of
66 2/3% of the outstanding shares held by persons other than the interested
stockholders. The law is very broad in scope and is designed to inhibit
unfriendly acquisitions but it does not apply to corporations whose certificate
of incorporation or bylaws contain a provision not to be covered by this
section. Neither Medco's certificate of incorporation nor bylaws contain such a
provision.
Tennessee's Business Combination Act provides that a party owning 10% 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 5 years after the interested shareholder
first acquired 10% or more of the resident domestic corporation, and
(ii) either
(A) is approved by at least 2/3 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 2 years after the vote. King has not adopted a charter or bylaw
amendment removing King 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.
The United States Court of Appeals for the Sixth Circuit has held that the
Tennessee Business Combination Act is unconstitutional as it applies to target
corporations organized under the laws of states other than Tennessee (such as
Medco).
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CONTROL SHARE ACQUISITION ACT
The Tennessee Control Share Acquisition Act 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 1/5, 1/3 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 special
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% 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.
The United States Court of Appeals for the Sixth Circuit, however, has held
that the Tennessee Control Share Acquisition Act is unconstitutional as it
applies to target corporations organized under the laws of states other than
Tennessee (such as Medco).
The DGCL contains no similar provisions with respect to control share
acquisitions.
INVESTOR PROTECTION ACT
Tennessee's Investor Protection Act 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 Investor Protection Act 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
Investor Protection Act 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 Investor Protection Act requires the offeror and the
offeree company to deliver to the Commissioner all solicitation materials used
in connection with the tender offer. The Act prohibits "fraudulent, deceptive,
or manipulative acts or practices" by either side, and gives the Commissioner
standing to apply for equitable relief to the Chancery Court of Davidson County,
Tennessee, or to any other chancery court having jurisdiction whenever it
appears to the Commissioner that the offeror, the offeree company, or any of its
respective affiliates has engaged in or is about to engage in a violation of the
TIPA. Upon proper showing, the Chancery Court may grant injunctive relief. The
Investor Protection Act further provides civil and criminal penalties for
violations.
The United States Court of Appeals for the Sixth Circuit has held that the
Tennessee Investor Protection Act violates the commerce clause of the United
States Constitution to the extent that it applies to target corporations
organized under the laws of states other than Tennessee (such as Medco).
The DGCL contains no similar provisions with respect to investor
protection.
AUTHORIZED CORPORATION PROTECTION ACT
The Tennessee Authorized Corporation Protection Act is the vehicle through
which the Tennessee statutes attempt to permit the Business Combination Act and
the Control
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Share Acquisition Act to govern foreign corporations. The Act provides that an
authorized corporation can adopt a bylaw or a charter provision electing to be
subject to the operative provision of the Business Combination Act and the
Tennessee Control Share Acquisition Act, which then become applicable "to the
same extent as such provisions apply to a resident domestic corporation."
Authorized corporations are those that are required to obtain a Certificate of
Authority form the Tennessee Secretary of State and that satisfy and 2 of
certain tests including having its principal place of business located in
Tennessee; having a significant subsidiary located in Tennessee; having a
majority of such corporation's fixed assets located in Tennessee; having more
than 10% of the beneficial owners of the voting stock or more than 10% of such
corporation's shares of voting stock beneficially owned by residents of
Tennessee; employing more than 250 individuals in Tennessee or having an annual
payroll paid to residents of Tennessee that is in excess of $5,000,000;
producing goods and/or services in Tennessee that result in annual gross
receipts in excess of $10,000,000; or having physical assets and/or deposits
located within Tennessee that exceed $10,000,000 in value.
The United States Court of Appeals for the Sixth Circuit, however, has held
the Tennessee Authorized Corporation Protection Act unconstitutional as it
applies to target corporations organized under the laws of states other than
Tennessee (such as Medco).
The DGCL contains no similar provisions with respect to authorized
corporation protection.
GREENMAIL ACT
The Tennessee Greenmail Act 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 SEC pursuant to Section
12(g) of the Exchange Act. The Greenmail Act 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 Act, from any
person who holds more than 3% of the class of the securities purchased if such
person has held such shares for less than 2 years, unless either
(i) the purchase is first approved by the affirmative vote of a
majority of the outstanding shares of each class of voting stock issued, or
(ii) the corporation makes an offer of at least equal value per share
to all holders of shares of such class.
The DGCL contains no similar provisions with respect to greenmail.
DIVIDENDS AND OTHER DISTRIBUTIONS
The DGCL generally allows dividends to be paid out of surplus of Medco or
out of the net profits of Medco for the current fiscal year and/or the prior
fiscal year. No dividends may be paid if they would result in the capital of
Medco being less than the capital represented by the preferred stock of Medco.
There are no shares of Medco preferred stock outstanding.
The TBCA provides that King generally may make dividends or other
distributions to its shareholders unless after the distribution either (i) King
would not be able to pay its debts as they become due in the usual course of
business or (ii) King's assets would be less than the sum of its liabilities
plus the amount that would be needed to satisfy the
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preferential dissolution rights of its preferred stock. There are no shares of
King preferred stock authorized.
DISSENTERS' RIGHTS
The DGCL provides appraisal rights for certain mergers and consolidations.
Appraisal rights are not available to holders of
(i) shares listed on a national securities exchange or held of record
by more than 2,000 shareholders or
(ii) shares of the surviving corporation of the merger, if the merger
did not require the approval of the shareholders of such corporation,
unless, in either case, the holders of such stock are required pursuant to the
merger to accept anything other than
(i) shares of stock of the surviving corporation,
(ii) shares of stock of another corporation which are also listed on a
national securities exchange or held by more than 2,000 holders, or
(iii) cash in lieu of fractional shares of such stock. Appraisal
rights are not available for a sale of assets or an amendment to the
Certificate of Incorporation.
The TBCA generally provides dissenters' rights for mergers and share
exchanges that would require shareholder approval, sales of substantially all
the assets (other than sales that are in the usual and regular course of
business and certain liquidations and court-ordered sales), and certain
amendments to the charter that materially and adversely affect rights in respect
of a dissenter's shares. Dissenters' rights are not available as to any shares
which are listed on an exchange registered under Section 6 of the Securities
Exchange Act of 1934 or are "national market system" securities as defined in
rules promulgated pursuant to the Exchange Act.
OTHER MATTERS
We do not expect that any matters other than those described in this proxy
statement/prospectus will be brought before the special meeting. If any other
matters are presented, however, it is the intention of the persons named in the
Medco proxy card, to vote proxies in accordance with the determination of a
majority of Medco's board of directors, as applicable, including, without
limitation, a motion to adjourn or postpone the meeting to another time and/or
place for the purpose of soliciting additional proxies in order to approve the
merger agreement or otherwise.
SHAREHOLDER PROPOSALS
If the merger agreement is approved and the merger takes place, Medco will
not have an annual meeting of shareholders in 2000. If the merger does not take
place, Medco anticipates that its 2000 annual meeting will be held in May 2000.
Any proposal intended to be presented by a Medco stockholder for inclusion in
Medco's proxy statement for its 2000 annual meeting must have been received by
Medco at its principal executive offices at 7001 Weston Parkway, Suite 300,
Cary, North Carolina 27513 by , 2000.
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DOCUMENTS INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT/PROSPECTUS
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED IN OR DELIVERED WITH THIS DOCUMENT.
All documents filed by either us or King under Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act, after the date hereof and before the date
of the Medco special meeting are incorporated by reference into and to be a part
of this proxy statement/prospectus from the date of filing of those documents.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR THAT
WE HAVE REFERRED YOU TO. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT.
The following documents, which Medco has filed with the SEC, are
incorporated by reference into this proxy statement/prospectus:
- annual report on Form 10-K for the fiscal year ended December 31, 1998;
- quarterly reports on Form 10-Q for the periods ended March 31, 1999, June
30, 1999, and September 30, 1999, and
- current reports on Form 8-K filed on .
The following documents, which King has filed with the SEC, are
incorporated by reference into this proxy statement/prospectus:
- annual report on Form 10-K for the fiscal year ended December 31, 1998;
- quarterly reports on Form 10-Q for the periods ended March 31, 1999, June
30, 1999, and September 30, 1999; and
- current reports on Form 8-K filed on January 6, 1999; September 28, 1999;
December 10, 1999 and December 10, 1999; and
- description of the common stock of King Pharmaceuticals, Inc. contained
in King's Registration Statement on Form S-1 (Registration No. 333-38753)
filed October 24, 1997.
Any statement contained in a document incorporated or deemed to be
incorporated in this document by reference will be deemed to be modified or
superseded for purposes of this proxy statement/prospectus to the extent that a
statement contained in this document or any other subsequently filed document
that is deemed to be incorporated in this document by reference modifies or
supersedes the statement. Any statement so modified or superseded will not be
deemed, except as so modified or superseded, to constitute a part of this proxy
statement/prospectus.
WHERE YOU CAN FIND MORE INFORMATION
King and Medco file annual, quarterly and special reports, proxy statements
and other information with the Securities and Exchange Commission. You may read
and copy any
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reports, statements or other information that either of us files with the SEC at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549. You may obtain information on the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that
contains reports, proxy and information statements and other information about
issuers that file electronically with the SEC. The address of the SEC's Internet
site is http://www.sec.gov. King can be found on the Internet at
http://www.KingPharm.com. Medco can be found on the Internet at
http://www.MedcoRes.com. King's common stock is traded on the Nasdaq Stock
Market's National Market Tier under the trading symbol KING. Medco's common
stock is traded on the New York Stock Exchange under the trading symbol MRE.
King has filed with the SEC a registration statement on Form S-4 under the
Securities Act of 1933 relating to King's common stock to be issued to Medco's
shareholders in the merger. As permitted by the rules and regulations of the
SEC, this proxy statement/prospectus does not contain all the information set
forth in the registration statement. You can obtain that additional information
from the SEC's principal office in Washington, D.C. or the SEC's Internet site
as described above. Statements contained in this proxy statement/prospectus or
in any document incorporated by reference into this proxy statement/prospectus
about the contents of any contract or other document are not necessarily
complete and, in each instance where the contract or document is filed as an
exhibit to the registration statement, reference is made to the copy of that
contract or document filed as an exhibit to the registration statement, with
each statement of that kind in this proxy statement/prospectus being qualified
in all respects by reference to the document.
The documents incorporated by reference into this proxy
statement/prospectus are available from either King or Medco, as applicable upon
request. We will provide a copy of any and all of the information that is
incorporated by reference in this proxy statement/prospectus not including
exhibits to the information unless those exhibits are specifically incorporated
by reference into this proxy statement prospectus, to you, without charge, upon
written or oral request. YOU SHOULD MAKE ANY REQUEST FOR DOCUMENTS BY
, , 2000 TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS.
THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO PURCHASE, THE KING COMMON STOCK OR THE SOLICITATION OF A PROXY, IN ANY
JURISDICTION TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE
THE OFFER, SOLICITATION OF AN OFFER OR PROXY SOLICITATION IN THAT JURISDICTION.
NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF
SECURITIES MEANS, UNDER ANY CIRCUMSTANCES, THAT THERE HAS BEEN NO CHANGE IN THE
INFORMATION SET FORTH OR INCORPORATED IN THIS DOCUMENT BY REFERENCE OR IN OUR
AFFAIRS SINCE THE DATE OF THIS PROXY STATEMENT/PROSPECTUS. THE INFORMATION
CONTAINED IN THIS DOCUMENT WITH RESPECT TO MEDCO AND ITS SUBSIDIARIES WAS
PROVIDED BY MEDCO AND THE INFORMATION CONTAINED IN THIS DOCUMENT WITH RESPECT TO
KING WAS PROVIDED BY KING.
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STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
This proxy statement/prospectus and the documents incorporated in this
document by reference contain forward-looking statements within the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995 with
respect to our financial condition, results of operations and business, and on
the expected impact of the merger on King's financial performance. Words such as
"anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates"
and similar expressions identify forward-looking statements. These
forward-looking statements are not guarantees of future performance and are
subject to certain risks and uncertainties that could cause actual results to
differ materially from the results contemplated by the forward-looking
statements. These risks and uncertainties include:
- the possibility that the value of the King common stock to be issued to
Medco shareholders in the merger will decrease prior to completion of the
merger and no corresponding adjustment to the number of shares of King
stock to be received by Medco shareholders will be made;
- the possibility that the merger will not be closed;
- the possibility that the anticipated benefits from the merger cannot or
will not be fully realized;
- the possibility that costs or difficulties related to the integration of
our businesses are greater than expected;
- the high cost and uncertainty of research, clinical trials, and other
development activities involving pharmaceutical products, including
Medco's pre-clinical and clinical pharmaceutical product development
projects;
- the unpredictability of the duration and results of the U.S. Food and
Drug Administration's review of new Drug Applications and Investigational
New Drug Applications and/or the review of other regulatory agencies
worldwide;
- the impact of competition on revenues and margins; and
- other risk factors as may be detailed from time to time in Medco's and
King's public announcements and filings with the SEC.
In evaluating the merger, you should carefully consider the discussion of
these and other factors in the section entitled "Risk Factors" on page .
EXPERTS
The consolidated financial statements of King Pharmaceuticals, Inc. as of
December 31, 1997 and 1998 and for each of the three years in the period ended
December 31, 1998, incorporated in this proxy statement/prospectus by reference
have been audited by PricewaterhouseCoopers LLP, independent accountants, as
stated in their report also incorporated herein by reference and are included in
reliance on the reports of such independent accountants given on the authority
of that firm as experts in auditing and accounting.
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The consolidated financial statements of Medco Research, Inc., as of
December 31, 1997 and 1998 and for each of the three years in the period ended
December 31, 1998, incorporated in this proxy statement/prospectus by reference
have been audited by PricewaterhouseCoopers LLP, independent accountants, as
stated in their report also incorporated herein by reference and are included in
reliance on the reports of those independent accountants given on the authority
of that firm as experts in auditing and accounting.
The consolidated statements of operations, stockholders' equity and cash
flows of Medco Research, Inc. and subsidiary for the year ended December 31,
1996, have been incorporated by reference herein in reliance upon the report of
KPMG LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing. The report of KPMG LLP covering the December 31, 1996 consolidated
financial statements contains an explanatory paragraph that states that Medco is
a party to some claims and litigation which outcome cannot presently be
determined. No provisions for liability, if any, that may result from the
resolution of the matters has been recognized in the accompanying consolidated
financial statements.
LEGAL MATTERS
The validity of the King common stock to be issued in the merger has been
passed upon by Baker, Donelson, Bearman & Caldwell, Johnson City, Tennessee.
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ANNEX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
KING PHARMACEUTICALS, INC.,
MEDCO RESEARCH, INC.
AND
MERLIN ACQUISITION I CORP.
DATED AS OF NOVEMBER 30, 1999
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TABLE OF CONTENTS
<TABLE>
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ARTICLE I. THE MERGER
SECTION 1.1. The Merger............................................... A-1
SECTION 1.2. Effective Time........................................... A-2
SECTION 1.3. Effect of the Merger..................................... A-2
SECTION 1.4. Certificate of Incorporation; Bylaws..................... A-2
SECTION 1.5. Directors and Officers................................... A-2
SECTION 1.6. Closing.................................................. A-2
SECTION 1.7. Subsequent Actions....................................... A-3
SECTION 1.8. Tax and Accounting Treatment of the Merger............... A-3
ARTICLE II. CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.1. Conversion of Securities................................. A-3
SECTION 2.2. Exchange of Certificates................................. A-5
SECTION 2.3. Assumption of Obligations to Issue Stock................. A-7
SECTION 2.4. Transfer Books........................................... A-8
SECTION 2.5. Certain Adjustments...................................... A-8
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 3.1. Organization and Qualification; Subsidiaries............. A-9
SECTION 3.2. Certificate of Incorporation and Bylaws.................. A-9
SECTION 3.3. Capitalization........................................... A-9
SECTION 3.4. Authority................................................ A-10
SECTION 3.5. No Conflict; Required Filings and Consents............... A-11
SECTION 3.6. SEC Filings; Financial Statements........................ A-12
SECTION 3.7. No Undisclosed Liabilities............................... A-12
SECTION 3.8. Absence of Certain Changes or Events..................... A-13
SECTION 3.9. Absence of Litigation.................................... A-13
SECTION 3.10. Licenses and Permits; Compliance with Laws............... A-13
SECTION 3.11. Unlawful Payments........................................ A-14
SECTION 3.12. Taxes.................................................... A-14
SECTION 3.13. Intellectual Property.................................... A-14
SECTION 3.14. Material Contracts....................................... A-16
SECTION 3.15. Employee Benefit Plans................................... A-17
SECTION 3.16. Properties; Assets....................................... A-19
SECTION 3.17. Labor Relations.......................................... A-19
SECTION 3.18. Environmental Matters.................................... A-19
SECTION 3.19. Insurance................................................ A-20
SECTION 3.20. Board Approval; Vote Required............................ A-21
SECTION 3.21. Opinion of Financial Advisor............................. A-21
SECTION 3.22. Brokers.................................................. A-21
SECTION 3.23. Takeover Provisions Inapplicable......................... A-21
SECTION 3.24. Pooling; Tax Matters..................................... A-21
SECTION 3.25. Registration Statement; Proxy Statement/Prospectus....... A-22
SECTION 3.26. Rights Agreement......................................... A-22
SECTION 3.27. Regulatory Compliance.................................... A-22
SECTION 3.28. Current Cash Reserves; Indebtedness...................... A-25
SECTION 3.29. Transaction Expenses..................................... A-25
SECTION 3.30. Disclosure............................................... A-25
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ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF MERGER SUB
SECTION 4.1. Organization and Qualification........................... A-26
SECTION 4.2. Certificate of Incorporation and Bylaws.................. A-26
SECTION 4.3. Authority................................................ A-26
SECTION 4.4. No Conflict; Required Filings and Consents............... A-26
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF ACQUIROR
SECTION 5.1. Organization and Qualification; Subsidiaries............. A-27
SECTION 5.2. Certificate of Incorporation and Bylaws.................. A-28
SECTION 5.3. Capitalization........................................... A-28
SECTION 5.4. Authority................................................ A-29
SECTION 5.5. No Conflict; Required Filings and Consents............... A-29
SECTION 5.6. SEC Filings; Financial Statements........................ A-30
SECTION 5.7. No Undisclosed Liabilities............................... A-30
SECTION 5.8. Absence of Certain Changes or Events..................... A-31
SECTION 5.9. Absence of Litigation.................................... A-31
SECTION 5.10. Licenses and Permits; Compliance with Laws............... A-31
SECTION 5.11. Unlawful Payments........................................ A-31
SECTION 5.12. Taxes.................................................... A-31
SECTION 5.13. Intellectual Property.................................... A-32
SECTION 5.14. Environmental Matters.................................... A-32
SECTION 5.15. Brokers.................................................. A-33
SECTION 5.16. Pooling; Tax Matters..................................... A-33
SECTION 5.17. Registration Statement; Proxy Statement/Prospectus....... A-33
SECTION 5.18. Disclosure............................................... A-34
ARTICLE VI. COVENANTS
SECTION 6.1. Affirmative Covenants of the Company..................... A-34
SECTION 6.2. Negative Covenants of the Company........................ A-34
ARTICLE VII. ADDITIONAL AGREEMENTS
SECTION 7.1. Access and Information................................... A-37
SECTION 7.2. Confidentiality.......................................... A-37
SECTION 7.3. Proxy Statement/Prospectus and Registration Statement;
Company Stockholders Meeting............................. A-38
SECTION 7.4. HSR Act Matters.......................................... A-39
SECTION 7.5. Public Announcements..................................... A-39
SECTION 7.6. Indemnification.......................................... A-39
SECTION 7.7. Further Action; Commercially Reasonable Efforts.......... A-40
SECTION 7.8. No Solicitation.......................................... A-41
SECTION 7.9. Nasdaq Listing........................................... A-42
SECTION 7.10. Blue Sky................................................. A-43
SECTION 7.11. Affiliates............................................... A-43
SECTION 7.12. Event Notices............................................ A-43
SECTION 7.13. Option Agreement......................................... A-44
SECTION 7.14. Tax Treatment............................................ A-44
SECTION 7.15. Accountant Letters; Pooling of Interests................. A-44
SECTION 7.16. Board of Directors of Acquiror........................... A-44
SECTION 7.17. Rights Agreement......................................... A-45
SECTION 7.18. Exemption from Liability Under Section 16(b)............. A-45
SECTION 7.19. Requisite Acquiror Approval.............................. A-45
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ARTICLE VIII. CLOSING CONDITIONS
SECTION 8.1. Conditions to Obligations of Acquiror, Merger Sub and the
Company to Effect the Merger............................. A-46
SECTION 8.2. Additional Conditions to Obligations of Acquiror and
Merger Sub............................................... A-47
SECTION 8.3. Additional Conditions to Obligations of the Company...... A-48
SECTION 8.4. Delayed Closing by the Company........................... A-49
ARTICLE IX. TERMINATION, AMENDMENT AND WAIVER
SECTION 9.1. Termination.............................................. A-49
SECTION 9.2. Effect of Termination.................................... A-52
SECTION 9.3. Amendment................................................ A-52
SECTION 9.4. Extension; Waiver........................................ A-52
SECTION 9.5. Fees, Expenses and Other Payments........................ A-52
ARTICLE X. GENERAL PROVISIONS
SECTION 10.1 Effectiveness of Representations, Warranties and
Agreements............................................... A-53
SECTION 10.2. Notices.................................................. A-54
SECTION 10.3. Certain Definitions...................................... A-55
SECTION 10.4. Headings................................................. A-57
SECTION 10.5. Severability............................................. A-57
SECTION 10.6. Entire Agreement......................................... A-57
SECTION 10.7. Specific Performance..................................... A-57
SECTION 10.8. Assignment............................................... A-58
SECTION 10.9. Third Party Beneficiaries................................ A-58
SECTION 10.10. Governing Law............................................ A-58
SECTION 10.11. Counterparts............................................. A-58
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EXHIBITS
Exhibit A Company Affiliate Agreement
Exhibit B Acquiror Affiliate Agreement
SCHEDULES
Schedule 3.1 Subsidiaries and Ownership Interests of the Company
Schedule 3.3 Capitalization of the Company
Schedule 3.5 Filings and Consents
Schedule 3.8 Certain Changes or Events
Schedule 3.9 Litigation
Schedule 3.10 Licenses and Permits
Schedule 3.13 Intellectual Property
Schedule 3.14 Material Contracts
Schedule 3.15 Employee Benefit Plans
Schedule 3.15(f) Other Tax Matters
Schedule 3.19 Insurance
Schedule 3.28 Excepted Encumbrances
Schedule 3.29 Transaction Expenses
Schedule 5.1 Subsidiaries and Ownership Interests of Acquiror
Schedule 5.3 Capitalization of Acquiror
Schedule 5.5 Filings and Consents
Schedule 5.9 Litigation
Schedule 7.11 Affiliates
Schedule 10.3(l) Transaction Expenses
</TABLE>
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<PAGE> 99
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into this
30th day of November, 1999, by and among MEDCO RESEARCH, INC., a Delaware
corporation (the "Company"), KING PHARMACEUTICALS, INC., a Tennessee corporation
("Acquiror"), and MERLIN ACQUISITION I CORP., a Delaware corporation and
wholly-owned subsidiary of Acquiror ("Merger Sub").
WHEREAS, each of the Boards of Directors of the Company, Acquiror and
Merger Sub have each determined that it is advisable, and in the best interests
of, their respective stockholders that Merger Sub, a wholly-owned subsidiary of
Acquiror, be merged with and into the Company, pursuant to and subject to the
terms and conditions of this Agreement and the Delaware General Corporation Law
("Delaware Law");
WHEREAS, concurrently with the execution and delivery of this Agreement and
as a condition and inducement to the willingness of Acquiror and Merger Sub to
enter into this Agreement, certain holders of common stock, par value $.001 per
share, of the Company ("Company Common Stock"), have entered into an agreement
with Acquiror (the "Voting Agreement") pursuant to which, among other things,
such holders have agreed to vote their shares of Company Common Stock in favor
of this Agreement, the Merger (as defined below) and the other transactions
contemplated by this Agreement;
WHEREAS, concurrently with the execution and delivery of this Agreement and
as a condition and inducement to the willingness of Acquiror and Merger Sub to
enter into this Agreement, the Company and Acquiror have entered into a Stock
Option Agreement (the "Option Agreement") pursuant to which the Company has
granted to Acquiror an irrevocable option to purchase from the Company up to a
number of authorized but unissued shares of Company Common Stock representing
19.9% of the outstanding shares of Company Common Stock, upon the terms and
subject to the conditions set forth therein;
WHEREAS, for United States federal income tax purposes, it is intended that
the Merger will qualify as a reorganization within the meaning of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, for accounting purposes, it is intended that the Merger shall be
accounted for as a pooling of interests under United States generally accepted
accounting principles ("GAAP").
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto agree as follows:
ARTICLE I.
THE MERGER
SECTION 1.1. The Merger.
Upon the terms and subject to the conditions set forth in this Agreement,
and in accordance with Delaware Law, at the Effective Time (as defined in
Section 1.2) Merger Sub shall be merged with and into the Company (the
"Merger"). As a result of the Merger, the separate corporate existence of Merger
Sub shall cease and the Company shall
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continue as the surviving corporation of the Merger (sometimes referred to
herein as the "Surviving Corporation") and a wholly-owned subsidiary of
Acquiror.
SECTION 1.2. Effective Time.
As promptly as practicable on the Closing Date (as defined in Section 1.6),
the parties hereto shall cause the Merger to be consummated by filing a
certificate of merger (the "Certificate of Merger") with the Secretary of State
of the State of Delaware, as required by, and executed in accordance with the
relevant provisions of, Delaware Law and in such form as approved by Acquiror
prior to such filing (the time of the filing of the Certificate of Merger or the
time specified therein being the "Effective Time").
SECTION 1.3. Effect of the Merger.
At the Effective Time, the effect of the Merger shall be as provided in the
applicable provisions of Delaware Law. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, except as otherwise
provided herein, all the rights, privileges, powers and franchises of Merger Sub
and the Company shall vest in the Surviving Corporation, and all debts,
liabilities and duties of Merger Sub and the Company shall become the debts,
liabilities and duties of the Surviving Corporation.
SECTION 1.4. Certificate of Incorporation; Bylaws.
At the Effective Time, (a) the certificate of incorporation of Merger Sub,
as in effect immediately prior to the Effective Time and as amended by the
Certificate of Merger, shall be the certificate of incorporation of the
Surviving Corporation, and (b) the bylaws of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the bylaws of the Surviving
Corporation.
SECTION 1.5. Directors and Officers.
The directors of Merger Sub immediately prior to the Effective Time shall
be the initial directors of the Surviving Corporation, each to hold office in
accordance with the certificate of incorporation and bylaws of the Surviving
Corporation; and the officers of Merger Sub immediately prior to the Effective
Time shall be the officers of the Surviving Corporation, in each case until
their respective successors are duly elected or appointed and qualified in
accordance with the certificate of incorporation and bylaws of the Surviving
Corporation.
SECTION 1.6. Closing.
Subject to the terms and conditions of this Agreement, the closing of the
Merger (the "Closing") will take place as promptly as practicable after
satisfaction of the latest to occur or, if permissible, waiver of the conditions
set forth in Article VIII hereof (the "Closing Date"), at the offices of Hogan &
Hartson L.L.P., 8300 Greensboro Drive, Suite 1100, McLean, Virginia 22102,
unless another date or place is agreed to in writing by the parties hereto. It
is the intention of the parties that the Closing shall occur as soon as
practicable after the Company Stockholders Meeting.
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SECTION 1.7. Subsequent Actions.
If, at any time after the Effective Time, the Surviving Corporation shall
consider or be advised that any deeds, bills of sale, assignments, assurances or
any other actions or things are necessary or desirable to continue in, vest,
perfect or confirm of record or otherwise in the Surviving Corporation its
right, title or interest in, to or under any of the rights, properties,
privileges, franchises or assets of either of its constituent corporations
acquired or to be acquired by the Surviving Corporation as a result of, or in
connection with, the Merger or otherwise to carry out this Agreement, the
officers and directors of the Surviving Corporation shall be and hereby are
directed and authorized to execute and deliver, in the name and on behalf of
either of such constituent corporations, all such deeds, bills of sale,
assignments and assurances and to take and do, in the name and on behalf of each
of such corporations or otherwise, all such other actions and things as may be
necessary or desirable to vest, perfect or confirm any and all right, title and
interest in, to and under such rights, properties, privileges, franchises or
assets in the Surviving Corporation or otherwise to carry out this Agreement.
SECTION 1.8. Tax and Accounting Treatment of the Merger.
It is intended by the parties hereto that the Merger shall (a) constitute a
reorganization of Merger Sub and the Company within the meaning of Section
368(a) of the Code, and (b) be accounted for as a pooling of interests under
GAAP. The parties hereby adopt this Agreement as a "plan of reorganization" of
Merger Sub and the Company within the meaning of Sections 1.368-2(g) and
1.368-3(a) of the United States Treasury Regulations.
ARTICLE II.
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.1. Conversion of Securities.
At the Effective Time, by virtue of the Merger and without any action on
the part of Acquiror, Merger Sub, the Company or the holders of any of the
securities referred to in this Section 2.1:
(a) Common Stock. Each share of Company Common Stock (excluding any shares
described in Section 2.1(b)) issued and outstanding immediately prior to the
Effective Time shall cease to be outstanding and shall be converted into and
exchanged for the right to receive a portion of a share of common stock, no par
value, of Acquiror ("Acquiror Common Stock") equal to the Exchange Ratio (as
defined below). The shares of Acquiror Common Stock issuable to the holders of
Company Common Stock pursuant hereto, together with the amount of cash in lieu
of fractional shares payable pursuant to Section 2.1(d), is sometimes referred
to herein, collectively, as the "Merger Consideration". All such shares of
Company Common Stock shall cease to be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each certificate previously
evidencing any such shares shall thereafter represent only the right to receive
the Merger Consideration. Except as otherwise provided herein or by applicable
law, the holders of certificates previously evidencing such shares of Company
Common Stock outstanding immediately prior to the Effective Time shall cease to
have any rights with respect to such shares of Company Common Stock. Each such
certificate previously
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evidencing such shares of Company Common Stock shall be exchanged for the number
of shares previously evidenced by the canceled certificate upon the surrender of
such certificate in accordance with the provisions of Section 2.2 multiplied by
the Exchange Ratio.
The "Exchange Ratio" shall be as follows:
(i) if the Average Closing Price (as defined below) shall be greater
than $49.87, the Exchange Ratio shall be the quotient obtained by dividing
$34.00 by the Average Closing Price, rounded to the nearest 1/10,000;
(ii) if the Average Closing Price shall be (A) less than or equal to
$49.87 and (B) greater than or equal to $33.00, the Exchange Ratio shall be
0.6818; and
(iii) if the Average Closing Price shall be less than $33.00, the
Exchange Ratio shall be the quotient obtained by dividing $22.50 by the
Average Closing Price, rounded to the nearest 1/10,000.
"Average Closing Price" shall mean the average of the reported closing
prices per share of Acquiror Common Stock on the National Association of
Securities Dealers Automated Quotation System/National Market System ("Nasdaq")
(or the last bid price in the absence of a trade) during the twenty (20)
consecutive trading days ending with and including the third trading day
immediately preceding the date of the Company Stockholders Meeting.
(b) Treasury Stock. All shares of capital stock of the Company held in the
treasury of the Company immediately prior to the Effective Time shall be
canceled and extinguished without any conversion thereof and no amount shall be
delivered or deliverable in exchange therefor.
(c) Merger Sub Stock. Each share of common stock, par value $.01 per
share, of Merger Sub issued and outstanding immediately prior to the Effective
Time shall be converted into and exchanged for one (1) duly and validly issued,
fully paid and nonassessable share of common stock of the Surviving Corporation.
(d) No Fractional Shares. No certificate or scrip representing any
fractional shares of Acquiror Common Stock shall be issued pursuant to Section
2.1(a), and other than the right to receive the cash payment pursuant to this
Section 2.1(d), any such fractional interests shall not entitle the owner
thereof to any rights as a securityholder of Acquiror. Notwithstanding any other
provision hereof, all holders of Company Common Stock otherwise entitled to
receive fractional shares of Acquiror Common Stock pursuant to Section 2.1(a)
shall be entitled to receive, in lieu thereof, cash (without interest) in an
amount equal to the product of (i) such fractional part of a share of Acquiror
Common Stock to which the holder of Company Common Stock would otherwise be
entitled under Section 2.1(a) multiplied by the closing price per share of
Acquiror Common Stock on the Closing Date. As promptly as possible after the
determination of the amount of cash to be paid to holders of fractional
interests, the Exchange Agent shall so notify Acquiror, and Acquiror shall cause
the Surviving Corporation to deposit such amount with the Exchange Agent and
shall cause the Exchange Agent to forward payments to holders of such fractional
interests subject to and in accordance with the terms hereof.
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SECTION 2.2. Exchange of Certificates.
(a) Exchange Agent. As soon as reasonably practicable after the Effective
Time, Acquiror shall deposit with Union Planters Bank or an exchange agent
designated by Acquiror and reasonably acceptable to the Company (the "Exchange
Agent"), for the benefit of the former holders of shares of Company Common Stock
(excluding any shares described in Section 2.1(b)), for issuance and payment in
accordance with this Article II (i) the shares of Acquiror Common Stock issuable
pursuant to Section 2.1(a) and (ii) cash in an amount sufficient to make payment
for fractional shares under Section 2.1(d) (such shares of Acquiror Common Stock
and cash being hereinafter referred to as the "Exchange Fund"). Acquiror shall
cause the Exchange Agent, pursuant to irrevocable instructions, to deliver
Acquiror Common Stock (and cash for fractional shares) contemplated to be paid
pursuant to Sections 2.1(a) and (d) out of the Exchange Fund. The Exchange Fund
shall not be used for any purpose other than as set forth in this Section
2.2(a).
(b) Payment Procedures. As soon as reasonably practicable after the
Effective Time, Acquiror shall cause the Exchange Agent to mail to each record
holder, as of the Effective Time, of an outstanding certificate or certificates
(each a "Certificate" and collectively, the "Certificates") that immediately
prior to the Effective Time evidenced outstanding shares of Company Common Stock
(excluding any shares described in Sections 2.1(b)): (i) a form letter of
transmittal and (ii) instructions for use in effecting the surrender of the
Certificates for payment therefor. Upon surrender to the Exchange Agent of a
Certificate, together with such letter of transmittal duly executed and any
other required documents, the holder of such Certificate shall be entitled to
receive in exchange therefor the applicable amount of Merger Consideration
pursuant to Section 2.1(a) and Section 2.1(d) and any dividends or other
distributions to which such holder is entitled pursuant to Section 2.2(j), and
such Certificate shall forthwith be canceled. In the event of a surrender of a
Certificate representing shares of Company Common Stock which are not registered
in the transfer records of the Company under the name of the Person surrendering
such Certificate, a certificate representing the proper number of shares of
Acquiror Common Stock may be issued to a Person other than the Person in whose
name the Certificate so surrendered is registered if (x) such Certificate shall
be properly endorsed or otherwise be in proper form for transfer to the Person
surrendering such Certificate and requesting such issuance, (y) such Person
surrendering such Certificate and requesting such issuance shall pay any
transfer or other Taxes required by reason of the issuance of shares of Acquiror
Common Stock to a Person other than the registered holder of such Certificate or
shall establish to the satisfaction of Acquiror that such Taxes have been paid
or are not applicable, and (z) such Person surrendering such Certificate shall,
if required by Acquiror, have such Person's signature guaranteed by a bank,
brokerage firm or other financial intermediary that is a member of a medallion
guarantee program. Until surrendered in accordance with the provisions of this
Section 2.2, each Certificate shall represent for all purposes only the right to
receive the applicable consideration set forth in Section 2.1, without any
interest thereon.
(c) Issuances to Affiliates. Notwithstanding anything herein to the
contrary, any Certificate surrendered for exchange by any "affiliate" of the
Company (as that term is used in SEC Accounting Series Release Nos. 130 and 135
and Rule 145 of the rules and regulations of the SEC under the Securities Act)
shall not be exchanged until Acquiror shall have received a signed agreement
from such "affiliate" as provided in Section 7.11 hereof.
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(d) No Further Rights in Stock. All shares of Acquiror Common Stock issued
upon the surrender for exchange of Certificates in accordance with the terms of
Sections 2.1 and 2.2 hereof (including any cash paid pursuant to this Article
II) shall be deemed to have been issued (and paid) in full satisfaction of all
rights pertaining to the shares of Company Common Stock theretofore represented
by such Certificates, and there shall be no further registration of transfer on
the stock transfer books of the Surviving Corporation of the shares of Company
Common Stock represented by such Certificates which were outstanding immediately
prior to the Effective Time. If, after the Effective Time, any such Certificates
are presented to Acquiror, the Surviving Corporation or the Exchange Agent for
any reason, they shall be canceled and exchanged as provided in this Article II,
except as otherwise provided by law.
(e) Investment of Exchange Fund. The Exchange Agent shall invest any cash
included in the Exchange Fund, as directed by Acquiror, on a daily basis. Any
interest and other income resulting from such investments shall be paid to
Acquiror.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund that
remains undistributed to the holders of Company Common Stock for one hundred
eighty (180) days after the Effective Time shall be delivered to Acquiror, upon
demand, and any holder of Company Common Stock that have not theretofore
complied with this Article II shall thereafter look only to the Acquiror for the
Merger Consideration to which such holder is entitled pursuant hereto.
(g) No Liability. Neither Acquiror nor the Surviving Corporation shall be
liable to any holder of shares of Company Common Stock for any Acquiror Common
Stock or cash delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
(h) Withholding of Tax. Acquiror or the Exchange Agent shall be entitled
to deduct and withhold from the applicable amount of the Merger Consideration
otherwise issuable to, and any cash payment in lieu of fractional shares
otherwise payable pursuant to this Agreement to, any former holder of Company
Common Stock such amounts as Acquiror (or any Affiliate thereof) or the Exchange
Agent are required to deduct and withhold with respect to the making of such
payment under the Code, or any provision of state, local or foreign Tax law. To
the extent that amounts are so withheld by Acquiror (or any Affiliate thereof)
or the Exchange Agent, such withheld amounts shall be treated for all purposes
of this Agreement as having been paid to the former holder of Company Common
Stock in respect of whom such deduction and withholding was made by Acquiror (or
any Affiliate thereof) or the Exchange Agent.
(i) Lost, Stolen or Destroyed Certificates. In the event any Certificate
evidencing shares of Company Common Stock shall have been lost, stolen or
destroyed, upon the making of an affidavit setting forth that fact by the Person
claiming such lost, stolen or destroyed Certificate and, if required by Acquiror
the posting by such Person of a bond in such reasonable amount as Acquiror may
direct as indemnity against any claim that may be made against Acquiror, the
Surviving Corporation or the Exchange Agent with respect to such Certificate,
Acquiror shall cause the Exchange Agent to pay to such Person the applicable
amount of the Merger Consideration with respect to such lost, stolen or
destroyed Certificate.
(j) Distributions With Respect to Unexchanged Company Common Stock. No
dividends or other distributions declared or made with respect to Acquiror
Common Stock
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with a record date after the Effective Time shall be paid to the holder of any
unsurrendered Certificate with respect to the shares of Acquiror Common Stock
such holder is entitled to receive pursuant to Section 2.1 until such holder
shall surrender such Certificate. Subject to applicable law and the provisions
of this Article II, following the surrender of any such Certificate there shall
be paid to the record holder of the shares of Acquiror Common Stock issued in
exchange for such Certificate, without interest, at the time of such surrender,
the amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such shares of Acquiror Common
Stock.
SECTION 2.3. Assumption of Obligations to Issue Stock.
(a) Company Options. As of the Effective Time, (i) each outstanding option
to purchase or acquire shares of Company Common Stock (an "Option") granted
under the Company's 1989 Stock Option and Stock Appreciation Rights Plan (the
"Company Stock Option Plan") shall be converted into an option to acquire
Acquiror Common Stock as provided for in this Section 2.3(a), and (ii) each such
option shall become vested as provided for in the Company Stock Option Plan and
this Agreement. Following the Effective Time, each Option shall continue to
have, and shall be subject to, the terms and conditions of each agreement
pursuant to which such Option was subject as of the Effective Time (including
the terms and conditions of the Company Stock Option Plan), except that (i) each
Option shall be exercisable for that number of whole shares of Acquiror Common
Stock equal to the product of (A) the aggregate number of shares of Company
Common Stock for which such Option was exercisable at the Effective Time
multiplied by (B) the Exchange Ratio, provided, however, that no fractional
shares of Acquiror Common Stock shall be issued upon the exercise of any Option
converted pursuant to this Section 2.3(a), and the holder of an Option
exercisable for a fractional share of Acquiror Common Stock shall be entitled to
receive, upon exercise thereof, cash (without interest) in an amount equivalent
to the fair market value at the time of exercise of the fractional share of
Acquiror Common Stock to which such holder would otherwise be entitled; and (ii)
the exercise price per share of Acquiror Common Stock issuable pursuant to each
Option shall be equal to the exercise price per share of Company Common Stock
under such Option at the Effective Time divided by the Exchange Ratio, rounded
to the nearest whole cent. Except for changes to the Options, including the
acceleration thereof, provided for in the Company Stock Option Plan by reason of
the consummation of the transactions contemplated hereby, the assumption and
substitution of Options as provided herein shall not give the holders of such
Options additional benefits or additional (or accelerated) vesting rights which
they did not have as of the Effective Time, or relieve the holders of such
Options of any obligations or restrictions applicable to their Options or the
shares obtainable upon exercise of the Options. The adjustment provided for
herein with respect to any Options that are "incentive stock options" (as
defined in Section 422 of the Code) shall be effected in a manner that is
consistent with continued treatment of such Options as "incentive stock options"
under Section 424(a) of the Code. The Company Stock Option Plan shall be assumed
by Acquiror with respect to all outstanding Options granted under the Company
Stock Option Plan, and no further options to purchase or acquire shares of
Company Common stock or other awards or rights shall be granted under the
Company Stock Option Plan after the Effective Time. The duration and other terms
of the new options provided for in this Section 2.3(a) shall be the same as the
original Options except that all references to the Company shall be references
to Acquiror. Acquiror shall take all corporate action reasonably necessary to
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reserve for issuance a sufficient number of shares of Acquiror Common Stock for
delivery upon the exercise of the Options.
(b) Form S-8. Acquiror shall (i) within ten (10) business days after the
Effective Time, file one or more registration statements on Form S-8 (or amend
existing registration statements on Form S-8) to become effective as soon as
practicable after the Effective Time with respect to the shares of Acquiror
Common Stock subject to Options granted under the Company Stock Option Plan (as
converted pursuant to Section 2.3(a)); (ii) use commercially reasonable efforts
to maintain the effectiveness of such registration statement(s) (and maintain
the current status of the prospectus or prospectuses contained therein) for so
long as such Options remain outstanding; and (iii) within ten (10) business days
after the Effective Time, prepare and submit to Nasdaq applications covering the
shares of Acquiror Common Stock subject to such Options and use commercially
reasonable efforts to cause such securities to be approved for listing as soon
as practicable after the Effective Time, subject to official notice of issuance.
SECTION 2.4. Transfer Books.
At the Effective Time, the transfer books of the Company with respect to
all shares of capital stock and other securities of the Company shall be closed
and no further registration of transfers of such shares of capital stock shall
thereafter be made on the records of the Company. On or after the Effective
Time, if any Certificates for shares of Company Common Stock (excluding any
shares described in Section 2.1(b)) are presented to the Exchange Agent, the
Surviving Corporation or Acquiror for any reason, such Certificates shall be
canceled and exchanged as provided in this Article II, except as otherwise
provided by law.
SECTION 2.5. Certain Adjustments.
If between the date hereof and the Effective Time, the outstanding shares
of Company Common Stock or of Acquiror Common Stock shall be changed into a
different number of shares by reason of any reclassification, recapitalization,
split-up, combination or exchange of shares, or any dividend payable in stock or
other securities shall be declared thereon with a record date within such
period, the Exchange Ratio (and any other references herein to a price per share
of Acquiror Common Stock) shall be adjusted accordingly to provide the same
economic effect as contemplated by this Agreement prior to such
reclassification, recapitalization, split-up, combination, exchange or dividend.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Acquiror and Merger Sub,
subject to the exceptions set forth in the Company's disclosure schedule (which
exceptions shall specifically identify a section, subsection or clause of a
single section or subsection hereof, as applicable, to which such exception
relates, it being understood and agreed that each such exception shall be deemed
to be disclosed both under such section, subsection or clause hereof and any
other section, subsection or clause hereof to which such disclosure reasonably
relates) that:
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SECTION 3.1. Organization and Qualification; Subsidiaries.
(a) Each of the Company and each Subsidiary (as defined below) of the
Company (each a "Company Subsidiary" and collectively, the "Company
Subsidiaries") is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization. Each of the
Company and each Company Subsidiary is duly qualified to conduct its business,
and is in good standing, in each jurisdiction where the character of its
properties owned, operated or leased or the nature of its activities makes such
qualification necessary, except for such failures which have not had and would
not be reasonably likely to have a Material Adverse Effect on the Company. Each
of the Company and each Company Subsidiary has the requisite corporate power and
authority and any necessary governmental authority, franchise, license or permit
to own, operate, lease and otherwise to hold and operate its assets and
properties and to carry on its businesses as now being conducted, except for
such failures which have not had and would not be reasonably likely to have a
Material Adverse Effect on the Company. The Company has no Subsidiaries (as
defined below) other than those listed in Schedule 3.1, each of which is
wholly-owned by the Company, or any direct or indirect beneficial ownership of
any securities, equity or other ownership interest in any Person other than
those listed on Schedule 3.1.
(b) For purposes of this Agreement, a "Subsidiary" of any Person means any
corporation, partnership, joint venture or other legal entity of which such
Person (either alone or through or together with any other Subsidiary of such
Person) (i) owns, directly or indirectly, fifty percent (50%) or more of the
capital stock, partnership interests or other equity interests the holders of
which are generally entitled to vote for the election of the board of directors
or other governing body of such corporation, partnership, joint venture or other
legal entity; or (ii) possesses, directly or indirectly, control over the
direction of management or policies of such corporation, partnership, joint
venture or other legal entity (whether through ownership of voting securities,
by agreement or otherwise).
SECTION 3.2. Certificate of Incorporation and Bylaws.
The Company has heretofore delivered to Acquiror a complete and correct
copy of the certificate or articles of incorporation and the bylaws of the
Company and each Company Subsidiary, each as amended to the date of this
Agreement. Each such certificate or articles of incorporation and bylaws is in
full force and effect. Neither the Company nor any Company Subsidiary is in
violation of any of the provisions of its respective certificate or articles of
incorporation or bylaws.
SECTION 3.3. Capitalization.
(a) The authorized capital stock of the Company consists of forty million
(40,000,000) shares of Company Common Stock and twenty million (20,000,000)
shares of preferred stock, par value $.001 per share, of the Company ("Company
Preferred Stock"). As of the date hereof: (i) eleven million seven hundred
fifty-seven thousand two hundred seventy (11,757,270) shares of Company Common
Stock are issued and outstanding; (ii) one million twenty-four thousand three
hundred fifty-six (1,024,356) shares of Company Common Stock have been reserved
for issuance upon the exercise of the options under the Company Stock Option
Plan; (iii) one million seventy-four thousand three hundred (1,074,300) shares
of Company Common Stock are held by the Company in the Company's treasury and
(iv) no shares of Company Preferred Stock are issued or
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outstanding. Schedule 3.3 sets forth a complete and correct list, as of the date
hereof, of the number of shares of Company Common Stock subject to the Options,
including, without limitation, those subject to employee stock options or other
rights to purchase or receive Company Common Stock granted under the Company
Stock Option Plan in each case including the dates of grant and exercise prices
thereof.
(b) All outstanding shares of capital stock of the Company are, and all
shares which may be issued will be, when issued, duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive rights.
Except for the shares of Company Common Stock issuable pursuant to the Option
Agreement and shares of Company Common Stock issuable upon exercise of the
rights (the "Rights") distributed pursuant to the Rights Agreement dated as of
April 14, 1998, between the Company and American Stock Transfer & Trust Company
(the "Rights Agreement") to holders of Company Common Stock pursuant to the
Rights Agreement, (i) there are not issued, reserved for issuance or outstanding
(A) any shares of capital stock or other voting securities of the Company, (B)
any securities of the Company or any Company Subsidiary convertible into or
exchangeable or exercisable for shares of capital stock or voting securities or
ownership interests of the Company or any Company Subsidiary, (C) any warrants,
calls, options or other rights to acquire from the Company or any Company
Subsidiary, and any obligation of the Company or any Company Subsidiary to
issue, any capital stock, voting securities or other ownership interests in, or
securities convertible into or exchangeable or exercisable for capital stock or
voting securities of, or other ownership interests in, the Company or any
Company Subsidiary, (ii) there are no outstanding obligations of the Company or
any Company Subsidiary to repurchase, redeem or otherwise acquire any such
securities or to issue, deliver or sell, or cause to be issued, delivered or
sold, any such securities, including, without limitation, any offer, issuance or
sale in such a manner that would constitute a public offering of securities
under the Securities Act, and (iii) except as contemplated in this Agreement,
the Company is not presently under any obligation, has not agreed or committed,
and has not granted rights, to register under the Securities Act or the Exchange
Act, or otherwise file any registration statement under any such statute
covering, any of its currently outstanding capital stock or other securities or
any of its capital stock or other securities that may be subsequently issued.
(c) Except for the Option Agreement, the option agreements under the
Company Stock Option Plan and the Rights Agreement, neither the Company nor any
Company Subsidiary is a party to any agreement restricting the purchase or
transfer of, relating to the voting of or granting any preemptive or
antidilutive rights with respect to, any securities of the Company or any of the
Company Subsidiaries that are outstanding or that may be subsequently issued
upon the conversion or exercise of any instrument or otherwise.
(d) The Company represents and warrants to Acquiror and Merger Sub that on
the Closing Date, the aggregate number of outstanding shares of Company Common
Stock on a fully diluted basis (assuming full exercise of the Options) shall not
exceed twelve million seven hundred eighty-one thousand six hundred twenty-six
(12,781,626) shares.
SECTION 3.4. Authority.
The Company has the necessary corporate power and authority to enter into
this Agreement and, subject to obtaining the requisite approval of the Agreement
by the Company's stockholders required by Delaware Law ("Company Stockholder
Approval"),
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to perform its obligations hereunder and to consummate the transactions
contemplated hereby. Except for Company Stockholder Approval, the execution and
delivery of this Agreement by the Company and the consummation by the Company of
the transactions contemplated hereby have been duly and validly authorized by
all necessary corporate action and no other corporate proceedings on the part of
the Company are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Company and, assuming the due authorization, execution and
delivery by Acquiror and Merger Sub, constitutes a legal, valid and binding
obligation of the Company, enforceable in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general applicability relating to or
affecting creditors' rights generally and by the application of general
principles of equity.
SECTION 3.5. No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by the Company do not, and
the performance by the Company of its obligations under this Agreement will not,
(i) conflict with or violate the certificate or articles of incorporation or
bylaws of the Company or any Company Subsidiary, (ii) subject to obtaining the
approvals and compliance with the requirements set forth in Section 3.5(b),
conflict with or violate any law, statute, ordinance, rule, regulation, order,
judgment or decree applicable to the Company or any Company Subsidiary or by
which any of their respective properties or assets is bound or affected, or
(iii) except as set forth in Schedule 3.5, result in any breach of or constitute
a default (or an event which with or without notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of an
Encumbrance on any of the properties or assets of the Company or any Company
Subsidiary pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which the Company or any Company Subsidiary is a party or by which the
Company, any Company Subsidiary or any of their respective properties or assets
is bound or affected, except, in the case of clauses (ii) and (iii) above, for
any such conflicts, violations, breaches, defaults or other alterations or
occurrences that (A) would not prevent or delay consummation of the Merger in
any material respect or otherwise prevent the Company from performing its
obligations under this Agreement in any material respect, and (B) have not had
and would not be reasonably likely to have a Material Adverse Effect on the
Company.
(b) The execution and delivery of this Agreement by the Company do not, and
the performance of this Agreement by the Company will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
governmental or regulatory authority, domestic or foreign (each a "Governmental
Entity"), by or with respect to the Company or any Company Subsidiary, except
(i) for (A) applicable requirements, if any, of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), the Securities Act of 1933, as amended
(the "Securities Act"), state securities or "blue sky" laws ("Blue Sky Laws"),
state takeover laws, the New York Stock Exchange ("NYSE") and the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") and
the U.S. Food and Drug Administration (the "FDA"), (B) applicable requirements,
if any, of the consents, approvals, authorizations or permits described in
Schedule 3.5, and (C) filing and recordation of appropriate merger documents as
required by Delaware Law, and (ii) where failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or notifications,
(A) would not prevent or delay consummation of the Merger
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in any material respect or otherwise prevent the Company from performing its
obligations under this Agreement in any material respect, or (B) have not had
and would not be reasonably likely to have a Material Adverse Effect on the
Company.
(c) Except as set forth on Schedule 3.5, the execution and delivery of this
Agreement by the Company do not, the performance of this Agreement by the
Company will not, and the consummation of the transactions contemplated by this
Agreement or the Option Agreement will not, (i) entitle any current or former
employee or officer of the Company or any ERISA Affiliate to severance pay,
unemployment compensation or any other payment, (ii) accelerate the time of
payment or vesting, or increase the amount of compensation, due any such
employee or officer, or (iii) except pursuant to the Company Stock Option Plan
accelerate the vesting of any stock option or of any shares of restricted stock
or other securities of the Company.
SECTION 3.6. SEC Filings; Financial Statements.
(a) The Company has filed all forms, reports, statements and other
documents required to be filed with the Securities and Exchange Commission (the
"SEC") since January 1, 1995, and has heretofore furnished to Acquiror, in the
form filed with the SEC since such date, together with any amendments thereto,
all of its (i) Annual Reports on Form 10-K, (ii) Quarterly Reports on Form 10-Q,
(iii) proxy statements relating to meetings of stockholders (whether annual or
special), (iv) reports on Form 8-K, and (v) other reports or registration
statements filed by the Company (collectively, the "Company SEC Reports"). As of
their respective filing dates, the Company SEC Reports (x) complied as to form
in all material respects with the requirements of the Exchange Act and the
Securities Act, as applicable, and (y) did not at the time they were filed
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
(b) The audited consolidated financial statements and unaudited interim
financial statements of the Company included in the Company SEC Reports complied
in all material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto. The financial
statements, including all related notes and schedules, contained in the Company
SEC Reports (or incorporated by reference therein) present fairly in all
material respects the consolidated financial position of the Company and the
Company Subsidiaries as at the respective dates thereof and the consolidated
results of operations and cash flows of the Company and the Company Subsidiaries
for the periods indicated, in accordance with GAAP applied on a consistent basis
throughout the periods involved (except as may be noted therein) and subject in
the case of interim financial statements to normal year-end adjustments.
SECTION 3.7. No Undisclosed Liabilities.
Neither the Company nor any of the Company Subsidiaries has any liabilities
or obligations of any nature, whether or not accrued, contingent or otherwise,
except (a) liabilities or obligations reflected in the Company SEC Reports
through the date of the filing of the Company's Quarterly Report on Form 10-Q in
respect of the fiscal quarter ending September 30, 1999, (b) liabilities or
obligations incurred in the ordinary course of business consistent with past
practice since September 30, 1999 which have not had, and will not have, a
Material Adverse Effect on the Company and (c) liabilities or obligations
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which have not had and are not reasonably likely to have a Material Adverse
Effect on the Company.
SECTION 3.8. Absence of Certain Changes or Events.
Since September 30, 1999, the Company and the Company Subsidiaries have
conducted their businesses only in the ordinary course consistent with past
practice, and except as set forth on Schedule 3.8, there has not been (i) any
Material Adverse Effect on the Company, (ii) any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to any of the Company's capital stock, (iii) any split,
combination or reclassification of any of the Company's capital stock or any
issuance or the authorization of any issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital stock, (iv) (w) any
granting by the Company or any Company Subsidiary to any current or former
director, officer or employee of the Company or any of the Company Subsidiaries
of any increase in compensation, bonus or other benefits, except for normal
increases in cash compensation and annual stock option awards granted on
November 12, 1999 (as set forth on Schedule 3.8) in the ordinary course of
business consistent with past practice, (x) any granting by the Company or any
of the Company Subsidiaries to any such current or former director, officer or
employee of any increase in severance or termination pay, (y) any entry by the
Company or any of the Company Subsidiaries into, or any amendment of, any
employment, deferred compensation, consulting, severance, termination or
indemnification agreement with any such current or former director, officer or
employee or (z) any amendment to, or modification of, any Option, (v) any
damage, destruction or loss, whether or not covered by insurance, that would be
reasonably likely to have a Material Adverse Effect on the Company, (vi) any
change in accounting methods, principles or practices by the Company materially
affecting its assets, liabilities or businesses, except insofar as may have been
required by a change in GAAP, or (vii) any Tax election that would be reasonably
likely to have a Material Adverse Effect on the Company or any of its tax
attributes or any settlement or compromise of any material income tax liability.
SECTION 3.9. Absence of Litigation.
Except as set forth on Schedule 3.9 and except as set forth in the
Company's annual report on Form 10-K filed with the SEC on March 16, 1999, there
are (a) no claims, actions, suits, investigations, or proceedings pending or, to
the knowledge of the Company, threatened against the Company or any Company
Subsidiary before any court, administrative, governmental, arbitral, mediation
or regulatory authority or body, domestic or foreign, that would be reasonably
likely to have a Material Adverse Effect on the Company or that challenge or
seek to prevent, enjoin, alter or materially delay the transactions contemplated
hereby or by the Option Agreement, and (b) no judgments, decrees, injunctions or
orders of any Governmental Entity or arbitrator outstanding against the Company
or any Company Subsidiary.
SECTION 3.10. Licenses and Permits; Compliance with Laws.
Set forth on Schedule 3.10 is a true and complete list of all permits,
licenses, franchises, authorizations and approvals (none of which has been
modified or rescinded and all of which are in full force and effect) from all
Governmental Entities held by the Company and the Company Subsidiaries (the
"Company Permits"). The Company
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Permits constitute all permits, licenses and approvals of all Governmental
Entities which are necessary for the operation of the businesses of the Company
and the Company Subsidiaries as presently conducted and for the Company and the
Company Subsidiaries to own, lease and operate their respective properties,
except where the failure to have any such permits, licenses or approvals would
not have a Material Adverse Effect on the Company. The Company and the Company
Subsidiaries are in compliance with the terms of the Company Permits and all
applicable statutes, laws, ordinances, rules and regulations, except where the
failure so to comply would not have a Material Adverse Effect on the Company.
SECTION 3.11. Unlawful Payments.
None of the Company, any Company Subsidiary, or any officer, director,
employee, agent or representative of the Company or any Company Subsidiary has
made, directly or indirectly, any bribe or kickback, illegal political
contribution, payment from corporate funds which was incorrectly recorded on the
books and records of the Company or any Company Subsidiary, unlawful payment
from corporate funds to governmental or municipal officials in their individual
capacities for the purpose of affecting their action or the actions of the
jurisdiction which they represent to obtain favorable treatment in securing
business or licenses or to obtain special concessions of any kind whatsoever, or
illegal payment from corporate funds to obtain or retain any business.
SECTION 3.12. Taxes.
The Company and the Company Subsidiaries have prepared and filed on a
timely basis with all appropriate Governmental Entities all material returns,
reports, information statements and other documentation in respect of Taxes that
they are required to file, including extensions, and all such returns, reports,
information statements and other documentation are correct and complete in all
material respects. The Company and the Company Subsidiaries have paid in full
all Taxes due (other than Taxes, the failure of which to pay would not have a
Material Adverse Effect on the Company) and, in the case of material Taxes
accruing but not due, the Company has made adequate provisions in its books and
records and financial statements for such payments. The Company and the Company
Subsidiaries have withheld from payments made to its present or former
employees, contractors, officers and directors, creditor or other third party,
all amounts required by law to be withheld except where the liability for which
would not have a Material Adverse Effect on the Company, and has, where
required, remitted such amounts within the applicable periods to the appropriate
Governmental Entities. In addition, (a) there are no assessments of, or claims
against, the Company or the Company Subsidiaries with respect to Taxes, the
liability for which would have a Material Adverse Effect on the Company, that
are outstanding; (b) no Governmental Entity is conducting an examination or
audit of the Company or any Company Subsidiary in respect of Taxes and neither
the Company nor any Company Subsidiary has received notice of any such
examination or audit from any Governmental Entity; and (c) neither the Company
nor any Company Subsidiary has executed or filed any agreement extending the
period of assessment or collection of any Taxes which remain in effect.
SECTION 3.13. Intellectual Property.
(a) Schedule 3.13 sets forth a list and brief description of all
Intellectual Property owned, utilized or licensed by the Company and the Company
Subsidiaries (all of the
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foregoing items collectively referred to as the "Company Intellectual
Property"). Schedule 3.13 identifies the Company Intellectual Property based on
the following categories: (i) inventions, patents and patent applications, (ii)
trademarks and trade names, (iii) copyrights, (iv) licenses and (v) other
Intellectual Property. The Company has furnished Acquiror with copies of all
license agreements to which the Company or any Company Subsidiary is a party,
either as licensor or licensee, with respect to the Company Intellectual
Property. The Company and the Company Subsidiaries have good title to or, to the
knowledge of the Company after due investigation in accordance with prudent
business practices for a company engaged in a business similar to that of the
Company ("Due Investigation"), the right to use, all the Company Intellectual
Property and all inventions, processes, designs, formulae, trade secrets and
know-how necessary for the conduct of the businesses of the Company and the
Company Subsidiaries, as presently conducted or currently proposed to be
conducted, without the payment of any royalty or similar payment except to the
extent disclosed on Schedule 3.13. To the knowledge of the Company after Due
Investigation, none of the Company or any of the Company Subsidiaries is
infringing on any Intellectual Property right of others, or has knowledge of any
infringement by others of such rights of the Company or any of the Company
Subsidiaries.
(b) All licenses set forth on Schedule 3.13 are valid and binding
obligations of the Company or one or more of the Company Subsidiaries, as the
case may be, and to the knowledge of the Company, of the other parties thereto,
and enforceable against the Company or one or more of the Company Subsidiaries,
as the case may be, and to the knowledge of the Company, the other parties
thereto in accordance with their respective terms. Except as set forth on
Schedule 3.13, the Company and the Company Subsidiaries own and possess all
right, title and interest in and to, or have the right to use pursuant to a
valid license, all the Company Intellectual Property necessary for the operation
of the business of the Company and the Company Subsidiaries as presently
conducted or currently proposed to be conducted.
(c) All personnel, including employees, agents, consultants, and
contractors, who have contributed to or participated in the conception and
development of any Company Intellectual Property have executed nondisclosure
agreements and either (i) have been or are party to a written agreement with the
Company or one or more of the Company Subsidiaries that has accorded the Company
and such Company Subsidiaries full, effective, exclusive and original ownership
of all Company Intellectual Property used or required by the Company and the
Company Subsidiaries in the Company's and the Company Subsidiaries' business, or
(ii) have executed appropriate instruments of assignment in favor of the Company
or one or more of the Company Subsidiaries as assignees that have conveyed to
the Company and such Company Subsidiaries full, effective, and exclusive
ownership of all Company Intellectual Property.
(d) The Company also has delivered to Acquiror correct and complete samples
or copies of all trademarks, service marks, trade names, copyrights, patents,
registrations and, as relate to the foregoing, applications, licenses,
agreements and permissions (as amended to date) held by the Company and the
Company Subsidiaries, and have made available to Acquiror correct and complete
copies of all other written documentation evidencing ownership and prosecution
(if applicable) of each such item. With respect to each item of Company
Intellectual Property necessary for the conduct of the business of the Company
and the Company Subsidiaries as heretofore and as currently conducted, each as
set forth on Schedule 3.13: (i) with respect to each item of Company
Intellectual Property not
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owned by the Company, to the knowledge of the Company after Due Investigation,
the identified owner of such item possesses all right, title, and interest in
and to the item; (ii) the item is not subject to any outstanding judgments,
decrees, injunctions or orders of any Governmental Entity or arbitrator; (iii)
no charge, complaint, action, suit, proceeding, hearing, investigation, claim,
or demand is pending or, to the knowledge of the Company after Due
Investigation, is threatened which challenges the legality, validity,
enforceability, use, or ownership of the item; and (iv) except as set forth on
Schedule 3.13, neither the Company nor any of the Company Subsidiaries has
agreed to indemnify any Person for or against any interference, infringement,
misappropriation, or other conflict with respect to the item.
(e) Except as set forth on Schedule 3.13, all of the computer software,
computer firmware, computer hardware (whether general or special purpose), and
other similar or related items of automated, computerized, and/or software
system(s) that are used or relied on by the Company or any Company Subsidiary in
the administration and conduct of their respective businesses (i) will be able
to process date data (including, but not limited to, calculating, comparing, and
sequencing) in a consistent manner from, into and between the twentieth century
(through 1999), the year 2000 and the twenty-first century, including leap year
calculations, and (ii) will not malfunction, cease to function, generate
incorrect data, or produce incorrect results when processing, providing, and/or
receiving (A) date-related data into and between the twentieth and twenty-first
centuries, and (B) date-related data in connection with any valid date in the
twentieth and twenty-first centuries.
SECTION 3.14. Material Contracts.
(a) Schedule 3.14 sets forth a complete and correct list, as of the date of
this Agreement, of all agreements of the following type to which the Company or
a Company Subsidiary is a party or may be bound (collectively, the "Company
Material Contracts"): (i) agreements filed as an exhibit to the Company SEC
Reports which remain in full force and effect and each agreement that would have
been required to be filed as an exhibit to the Company SEC Reports if such
agreement had been entered into as of the date of filing of any such Company SEC
Report; (ii) employment, severance, termination, consulting and retirement
agreements; (iii) loan agreements, indentures, letters of credit, mortgages,
notes and other debt instruments and guarantees of any of the foregoing; (iv)
agreements that require aggregate annual payments of more than Fifty Thousand
Dollars ($50,000)(unless such agreements are terminable without penalty upon
ninety (90) days (or less) notice); (v) agreements containing any provisions
with respect to a "change in control"; (vi) agreements with any employee,
director, officer or beneficial owner (as determined pursuant to Rule 13d-3
promulgated under the Exchange Act) of five percent (5%) or more of Company
Common Stock; (vii) agreements or arrangements concerning a partnership or joint
venture; (viii) agreements or arrangements requiring confidentiality of the
Company except to the extent that such agreements or arrangements are not
material and have been in effect for at least five (5) years; (ix) agreements
and arrangements requiring noncompetition by the Company; (x) agreements
relating to the manufacturing, packaging, marketing, sale or distribution by the
Company or any Company Subsidiary of any products owned or licensed by the
Company or any Company Subsidiary; (xi) all leases (or subleases) with respect
to real property leased by the Company as lessee or sublessee ("Real Property
Leases"); and (xii) agreements for a remaining term of five (5) years or more
with any customer of the Company or any Company Subsidiary.
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(b) Except as set forth in Schedule 3.14, all the Company Material
Contracts are valid and in full force and effect on the date hereof except to
the extent they have previously expired in accordance with their terms, and
neither the Company nor any Company Subsidiary has (or has any knowledge that
any party thereto has) violated any provision of, or committed or failed to
perform any act which with or without notice, lapse of time or both would
constitute a default under the provisions of, any Company Material Contract,
except for defaults which would not reasonably be expected to have a Material
Adverse Effect on the Company. True and complete copies of all Company Material
Contracts have been delivered to Acquiror.
SECTION 3.15. Employee Benefit Plans.
(a) Schedule 3.15 sets forth a list of all of the pension, retirement,
profit-sharing, deferred compensation, stock option, employee stock ownership,
severance pay, vacation or bonus plans or agreements or other incentive plans or
agreements, all other employee programs, arrangements or agreements and all
other employee benefit plans or fringe benefit plans, including, without
limitation, all "employee benefit plans" as that term is defined in Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")
(collectively, "Benefit Plans"), currently adopted, maintained by, sponsored in
whole or in part by, or contributed to by the Company or any entity required to
be aggregated with the Company which is a member of the "controlled group of
corporations" which includes the Company within the meaning of Section 414(b) or
(c) of the Code (each, a "Company Commonly Controlled Entity") for the benefit
of present and former employees or directors of the Company and of each Company
Subsidiary or their beneficiaries, or providing benefits to such persons in
respect of services provided to any such entity (collectively, the "Company
Benefit Plans"). Any Company Benefit Plan which is an "employee pension benefit
plan", as that term is defined in Section 3(2) of ERISA, is referred to herein
as a "Company ERISA Plan".
(b) Each of the Company Benefit Plans intended to be "qualified" within the
meaning of Section 401(a) of the Code has been determined by the Internal
Revenue Service to be so qualified and no circumstances exist that could
reasonably be expected by the Company to result in the revocation of any such
determination. Each of the Company Benefit Plans is in compliance with the
applicable terms of ERISA and the Code and any other applicable laws, rules and
regulations, the breach or violation of which could result in a Material Adverse
Effect to the Company or any Company Commonly Controlled Entity.
(c) No Company ERISA Plan which is a defined benefit pension plan has any
"unfunded current liability", as that term is defined in Section 302(d)(8)(A) of
ERISA, and the present fair market value of the assets of any such plan equals
or exceeds the plan's "benefit liabilities", as that term is defined in Section
4001(a)(16) of ERISA, when determined under actuarial factors that would apply
if the plan terminated in accordance with all applicable legal requirements.
(d) No Company Benefit Plan is or has been a multiemployer plan within the
meaning of Section 3(37) of ERISA (a "Multiemployer Plan"). Neither the Company
nor any Company Commonly Controlled Entity has completely or partially withdrawn
from any Multiemployer Plan. No termination liability to the Pension Benefit
Guaranty Corporation or withdrawal liability to any Multiemployer Plan that is
material in the aggregate has been or is reasonably expected to be incurred with
respect to any Multiemployer Plan by the Company or any Company Commonly
Controlled Entity.
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(e) The Company has furnished to Acquiror complete copies, as of the date
hereof, of all of the Company Benefit Plans that have been reduced to writing,
together with all documents establishing or constituting any related trust,
annuity contract, insurance contract or other funding instrument, and copies of
all "employee benefit plans" as that term is defined in Section 3(3) of ERISA,
including a summary of such plans that have not been reduced to writing. The
Company has furnished to Acquiror complete copies of all existing current plan
summaries, employee booklets, personnel manuals and other material documents or
written materials concerning the Company Benefit Plans.
(f) Except as set forth in Schedule 3.15(f), no amount that could be
received by (whether in cash or property or the vesting of property), or benefit
provided to, any officer, director or employee of the Company or any of its
Affiliates who is a "disqualified individual" (as such term is defined in
proposed Treasury Regulation Section 1.280G-1) under any employment, severance
or termination agreement, other compensation arrangement or Benefit Plan
currently in effect would be an "excess parachute payment" (as such term is
defined in Section 280G(b)(1) of the Code). Except as set forth in Schedule
3.15(f), no such Person is entitled to receive any additional payment from the
Company, the Surviving Corporation or any other Person (a "Parachute Gross Up
Payment") in the event that the excise tax of Section 4999(a) of the Code is
imposed on such Person. Except as set forth in Schedule 3.15(f), the Board of
Directors of the Company has not granted to any officer, director or employee of
the Company or any Company Subsidiary any right to receive any Parachute Gross
Up Payment. Schedule 3.15(f) sets forth the "base amount" (as such term is
defined in Section 280G(b)(3) of the Code) for each disqualified individual
(defined as set forth above) whose Options will vest pursuant to their terms in
connection with this Agreement or the Merger.
(g) All required reports and descriptions, if any (including Form 5500
Annual Reports, Summary Annual Reports, PBGC 1's and Summary Plan Descriptions)
have been filed or distributed appropriately with respect to each Company
Benefit Plan. The requirements of Part 6 of Subtitle B of Title I of ERISA and
of Section 4980B of the Code ("COBRA"), and the Health Insurance Portability and
Accountability Act of 1996 ("HIPAA") have been met with respect to each Company
Benefit Plan.
(h) No Company Benefit Plan is an ESOP or otherwise invests in "employer
securities" (as such term is defined in Section 409(l) of the Code).
(i) The Company has made all contributions and other payments required by
and due under the terms of each Company Benefit Plan and has taken no action
(including, without limitation, actions required by law) relating to any Company
Benefit Plan that will increase Acquiror's, the Company's or any Company
Commonly Controlled Entity's obligation under any Company Benefit Plan.
(j) No Company Benefit Plan is a "qualified foreign plan" (as such term is
defined in Section 404A of the Code), and no Company Benefit Plan is subject to
the laws of any jurisdiction other than the United States of America or one of
its political subdivisions.
(k) No Company Benefit Plan promises or provides post-retirement medical
life insurance or other benefits due now or in the future to current, former or
retired employees of the Company or any Company Common Controlled Entity other
than benefits required pursuant to COBRA.
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(l) No "pension plans", as such term is defined in Section 3(2) of ERISA,
maintained by the Company or a Company Commonly Controlled Entity, have been
frozen or terminated in the last three (3) calendar years.
SECTION 3.16. Properties; Assets.
Neither the Company nor any of the Company Subsidiaries owns (of record or
beneficially) any real property or has any interest in any real property other
than the leasehold interests granted pursuant to the Real Property Leases. The
Company or one of the Company Subsidiaries is the lessee of all leasehold
estates granted pursuant to the Real Estate Leases and is in possession of the
properties purported to be leased thereunder, and each such Real Property Lease
is valid without default thereunder by the lessee. The assets and properties of
the Company and the Company Subsidiaries, taken as a whole, are in good
operating condition and repair (ordinary wear and tear excepted), and constitute
all of the assets and properties which are required for the businesses and
operations of the Company and the Company Subsidiaries as presently conducted.
SECTION 3.17. Labor Relations.
Neither the Company nor any Company Subsidiary is a party to any collective
bargaining agreement or other contract or agreement with any labor organization
or other representative of any of the employees of the Company or any Company
Subsidiary. The Company and each Company Subsidiary is in compliance in all
material respects with all laws relating to the employment or the workplace,
including, without limitation, provisions relating to wages, hours, collective
bargaining, safety and health, work authorization, equal employment opportunity,
affirmative action plans, immigration and the withholding of income taxes,
unemployment compensation, worker's compensation, employee privacy and right to
know and social security contributions.
SECTION 3.18. Environmental Matters.
(a) Except for matters which would not have a Material Adverse Effect on
the Company, (i) the Company, each Company Subsidiary and, to the knowledge of
the Company, each Product Licensee is in compliance with all applicable
Environmental Laws (as defined below); (ii) none of the Company, any Company
Subsidiary or, to the knowledge of the Company, any Product Licensee has
received any written communication that alleges that the Company, any Company
Subsidiary or any Product Licensee is not in compliance with applicable
Environmental Laws; (iii) all permits and other governmental authorizations
currently held by the Company, each Company Subsidiary and, to the knowledge of
the Company, each Product Licensee pursuant to the Environmental Laws ("Company
Environmental Permits") are in full force and effect, the Company, each Company
Subsidiary and, to the knowledge of the Company, each Product Licensee is in
compliance with all of the terms of such Company Environmental Permits, and no
other permits or other governmental authorizations are required by the Company,
any Company Subsidiary or, to the knowledge of the Company, any Product
Licensee, for the conduct of their respective businesses; and (iv) the
management, handling, storage, transportation, treatment, and disposal by the
Company, each Company Subsidiary and, to the knowledge of the Company, each
Product Licensee of any Hazardous Materials (as defined below) is and has been
in compliance with all applicable Environmental Laws.
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(b) There is no Company Environmental Claim (as defined below) pending or,
to the knowledge of the Company, threatened against or involving the Company,
any of the Company Subsidiaries or against any Person whose liability for any
Environmental Claim the Company or any of the Company Subsidiaries has or may
have retained or assumed either contractually or by operation of law.
(c) Except for matters which would not have a Material Adverse Effect on
the Company, to the knowledge of the Company, there are no past or present
actions or activities by the Company, any Company Subsidiary or any other Person
involving the storage, treatment, release, emission, discharge, disposal or
arrangement for disposal of any Hazardous Materials, that could reasonably form
the basis of any Company Environmental Claim against the Company or any Company
Subsidiary or against any Person whose liability for any Company Environmental
Claim the Company or any Company Subsidiary may have retained or assumed either
contractually or by operation of law.
(d) As used herein, these terms shall have the following meanings:
(i) "Company Environmental Claim" means any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, directives,
claims, liens, investigations, proceedings or notices of noncompliance or
violation (written or oral) by any Person or Governmental Entity alleging
potential liability arising out of, based on or resulting from the
presence, or release or threatened release into the environment of, or any
exposure to, any Hazardous Materials at any property or location owned or
leased by the Company, any Company Subsidiary or any Product Licensee or
other circumstances forming the basis of any violation or alleged violation
of any Environmental Law.
(ii) "Environmental Laws" means all applicable foreign, federal, state
and local laws (including the common law), rules, requirements and
regulations relating to pollution, the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or
subsurface strata) or protection of human health as it relates to the
environment including, without limitation, laws and regulations relating to
releases of Hazardous Materials, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials or relating to management of asbestos in
buildings.
(iii) "Hazardous Materials" means wastes, substances, or materials
(whether solids, liquids or gases) that are deemed hazardous, toxic,
pollutants, or contaminants under any Environmental Laws, including,
without limitation, substances defined as "hazardous substances", "toxic
substances", "radioactive materials, including sources of ionizing and
nonionizing radiation", "petroleum products or wastes" or other similar
designations in, or otherwise subject to regulation under, any
Environmental Law.
SECTION 3.19. Insurance.
Schedule 3.19 contains a list of all insurance policies of director and
officer liability, title, property, fire, casualty, liability, life, workmen's
compensation, libel and slander, and other forms of insurance in force with
respect to the Company and the Company Subsidiaries. All such insurance
policies: (a) insure against such risks, and are in such amounts, as are
appropriate and reasonable, in the judgment of the Company's Board of Directors,
considering the Company and the Company Subsidiaries' properties, businesses and
operations; (b) are in full force and effect; and (c) are valid, outstanding,
and
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enforceable. Neither the Company nor any of the Company Subsidiaries has
received or given notice of cancellation with respect to any such insurance
policies.
SECTION 3.20. Board Approval; Vote Required.
The Board of Directors of the Company has determined that the transactions
contemplated by this Agreement and the Option Agreement are advisable and in the
best interests of the Company and its stockholders and has resolved to recommend
to such stockholders that they vote in favor of this Agreement. The affirmative
vote at the Company Stockholders Meeting of the holders of a majority of all
outstanding shares of Company Common Stock to adopt this Agreement is the only
vote of the holders of any class or series of the Company's capital stock
necessary to approve and adopt this Agreement and the transactions contemplated
hereby, including the Merger.
SECTION 3.21. Opinion of Financial Advisor.
The Board of Directors of the Company has received the written opinion of
Hambrecht & Quist LLC, the Company's financial advisor, that the Merger
Consideration to be received by the Company's stockholders pursuant to this
Agreement is fair from a financial point of view to the holders of shares of
Company Common Stock. A copy of such opinion has been delivered to Acquiror, and
such opinion has not been withdrawn or modified in any material respect.
SECTION 3.22. Brokers.
Except for Hambrecht & Quist LLC, no broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement and the Option Agreement
based upon arrangements made by or on behalf of the Company. Prior to the date
of this Agreement, the Company has provided to Acquiror a complete and correct
copy of all agreements between the Company and Hambrecht & Quist LLC pursuant to
which such firm will be entitled to any payment relating to the transactions
contemplated by this Agreement and the Option Agreement.
SECTION 3.23. Takeover Provisions Inapplicable.
Prior to the date of this Agreement, the Board of Directors of the Company
has taken all requisite action to cause this Agreement and the transactions
contemplated by this Agreement (including those contemplated by the Option
Agreement) to be exempt from Section 203 of the Delaware Law. No other state
takeover statute or similar statute or regulation applies to or purports to
apply to this Agreement, the Option Agreement, the Merger or the other
transactions contemplated by this Agreement or the Option Agreement.
SECTION 3.24. Pooling; Tax Matters.
Neither the Company nor any of its Affiliates has taken or agreed to take
any action or failed to take any action that would prevent the Merger from (a)
being treated for financial accounting purposes as a "pooling of interests" in
accordance with GAAP and the regulations and interpretations of the SEC, or (b)
constituting a reorganization within the meaning of Section 368(a) of the Code.
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SECTION 3.25. Registration Statement; Proxy Statement/Prospectus.
The information supplied by the Company or required to be supplied by the
Company (except to the extent revised or superseded by amendments or
supplements) for inclusion in the registration statement on Form S-4, or any
amendment or supplement thereto, pursuant to which the shares of Acquiror Common
Stock to be issued in the Merger will be registered under the Securities Act
(including any amendments or supplements, the "Registration Statement") shall
not, at the time the Registration Statement (including any amendments or
supplements thereto) is declared effective by the SEC, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The information
supplied by the Company or required to be supplied by the Company (except to the
extent revised or superseded by amendments or supplements) for inclusion in the
proxy statement relating to the Company Stockholders Meeting, such proxy
statement, together with the prospectus relating to the shares of Acquiror
Common Stock to be issued in the Merger, in each case as amended or supplemented
from time to time, the "Proxy Statement/Prospectus") shall not, on the date the
Proxy Statement/Prospectus is first mailed to the Company's stockholders, at the
time of the Company Stockholders Meeting and at the Effective Time, contain any
statement which, at such time, is false or misleading with respect to any
material fact, or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they are
made, not false or misleading, or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies by or on behalf of the Company for the Company
Stockholders Meeting which has become false or misleading. The Proxy
Statement/Prospectus will comply in all material respects with the provisions of
the Exchange Act. Notwithstanding the foregoing, the Company makes no
representation, warranty or covenant with respect to any information supplied or
required to be supplied by Acquiror which is contained in or omitted from any of
the foregoing documents.
SECTION 3.26. Rights Agreement.
The Company has taken all actions necessary to cause the Rights Agreement
to be amended to (a) render the Rights Agreement inapplicable to this Agreement,
the Option Agreement, the Merger and the other transactions contemplated by this
Agreement and the Option Agreement, and (b) ensure that (i) none of Acquiror,
Merger Sub or any other Acquiror Subsidiary is an Acquiring Person (as defined
in the Rights Agreement) pursuant to the Rights Agreement solely by virtue of
the execution of this Agreement and the Option Agreement or the consummation of
the Merger or the other transactions contemplated by this Agreement and the
Option Agreement and (ii) a Distribution Date, a Triggering Event or a Share
Acquisition Date (as such terms are defined in the Rights Agreement) does not
occur by reason of the execution of this Agreement and the Option Agreement, the
consummation of the Merger or the consummation of the other transactions
contemplated by this Agreement and the Option Agreement.
SECTION 3.27. Regulatory Compliance.
(a) As to each product subject to the jurisdiction of the FDA under the
Federal Food, Drug and Cosmetic Act and the regulations thereunder ("FDCA") and
the Public Health Services Act ("PHSA") and the regulations thereunder, and each
product subject to the jurisdiction of the Drug Enforcement Administration
("DEA") under the Controlled
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Substances Act ("CSA") and the regulations thereunder (each such product, a
"Pharmaceutical Product") that is manufactured, packaged, labeled, tested,
distributed, sold, and/or marketed by the Company or any Company Subsidiary, or
any Pharmaceutical Product licensed by the Company to any licensee of the
Company or any Company Subsidiary (a "Product Licensee"), such Pharmaceutical
Product is being manufactured, packaged, labeled, tested, distributed, sold
and/or marketed by the Company, any Company Subsidiary, and, to the knowledge of
the Company after Due Investigation, each Product Licensee in compliance with
all applicable requirements under FDCA, PHSA, CSA, and similar laws, rules and
regulations relating to investigational use, premarket clearance, licensure, or
application approval, good manufacturing practices, good laboratory practices,
good clinical practices, labeling, advertising, record keeping, filing of
reports including but not limited to adverse event reports as required by 21
C.F.R. sec. 314.80, and security, except where the failure to be in compliance
would not have a Material Adverse Effect on the Company. None of the Company,
any Company Subsidiary or, to the knowledge of the Company after Due
Investigation, any Product Licensee has received any notice or other
communication from the FDA, DEA, or any other Governmental Entity (i) contesting
the premarket clearance, licensure, registration, or approval of, the uses of,
the distribution of, the manufacturing or packaging of, the testing of, sale of,
controlled substance scheduling of, or the labeling and promotion of any
Pharmaceutical Product described in this Section 3.27 or (ii) otherwise alleging
any violation of any laws, rules or regulations by the Company, any Company
Subsidiary or any Product Licensee which would have a Material Adverse Effect on
the Company.
(b) No Pharmaceutical Products of the Company or any Company Subsidiary or
Pharmaceutical Products which are licensed by the Company to any Product
Licensee have been recalled, withdrawn, replaced, suspended or discontinued nor
have any DEA registrations been terminated by the Company, any Company
Subsidiary or any Product Licensee in the United States or outside the United
States (whether voluntarily or otherwise) since January 1, 1995. There are no
completed or pending efforts to impose a clinical hold on any clinical
investigation, proceedings seeking the recall, withdrawal, replacement,
suspension or seizure of any such Pharmaceutical Product, or proceedings seeking
the suspension or revocation of any DEA registration including an order to show
cause against the Company, any Company Subsidiary or, to the knowledge of the
Company after Due Investigation, any Product Licensee, nor have any such efforts
or proceedings been pending at any time since January 1, 1995 which would have a
Material Adverse Effect on the Company.
(c) As to each biological drug or other drug of the Company or the Company
Subsidiaries for which a biological license application establishment license
application, product license application, new drug application, investigational
new drug application, abbreviated new drug application, registration issued by
the DEA, or similar state or foreign regulatory application has been approved,
the Company, the Company Subsidiaries and, to the knowledge of the Company after
Due Investigation, the Product Licensees are in compliance with 21 U.S.C. sec.
355, 42 U.S.C. sec. 351, and 21 U.S.C. sec. 822, and 21 C.F.R. Parts 312, 314,
601, and 1301 et seq., respectively, and similar laws and all terms and
conditions of such applications, except where the failure to be in compliance
would not have a Material Adverse Effect on the Company. As to each such
biological drug or other drug, the Company and any relevant Company Subsidiary
and, to the knowledge of the Company after Due Investigation, Product Licensee,
and the officers, employees or agents of the Company, such Company Subsidiary
and, to the knowledge of the Company after Due Investigation, the officers,
employees or agents of any Product Licensee have
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included in the application for such biological drug or other drug, where
required, the certification described in 21 U.S.C. sec. 335a(k)(1) or any
similar law and the list described in 21 U.S.C. sec. 335a(k)(2) or any similar
law, and such certification and such list was in each case true and accurate
when made and remained true and accurate thereafter, except in the case where
the failure of such application to be true and accurate would not have a
Material Adverse Effect on the Company. In addition, the Company, the Company
Subsidiaries and, to the knowledge of the Company after Due Investigation,
Product Licensees are in material compliance with all applicable registration
and listing requirements set forth in 21 U.S.C. sec. 360 and 21 C.F.R. Part 207
and all similar laws.
(d) Each article of any biological drug or other drug manufactured and/or
distributed by the Company, any of the Company Subsidiaries and, to the
knowledge of the Company after Due Investigation, any Product Licensee is not
adulterated within the meaning of 21 U.S.C. sec. 351 (or similar laws) or
misbranded within the meaning of 21 U.S.C. sec. 352 (or similar laws), and is
not a product that is in violation of 21 U.S.C. sec. 355, 42 U.S.C. sec. 351 (or
similar laws), except where such failure in compliance with the foregoing would
not have a Material Adverse Effect on the Company.
(e) Except with respect to Lyphomed and Lyphomed's officers, employees and
agents, none of the Company, any Company Subsidiary or, to the knowledge of the
Company after Due Investigation, any Product Licensee, or any officer, employee
or agent of either the Company, any Company Subsidiary or, to the knowledge of
the Company after Due Investigation, any Product Licensee has made any untrue
statement of a material fact or fraudulent statement to the FDA or other
Governmental Entity, failed to disclose a fact required to be disclosed to the
FDA or any other Governmental Entity, or committed an act, made a statement, or
failed to make a statement that, at the time such disclosure was made, could
reasonably be expected to provide a basis for the FDA or any other Governmental
Entity to invoke its policy respecting "Fraud, Untrue Statements of Material
Facts, Bribery, and Illegal Gratuities", set forth in 56 Fed. Reg. 46191
(September 10, 1991) or any similar policy. Neither the Company, any Company
Subsidiary or, to the knowledge of the Company after Due Investigation, any
Product Licensee, or any officer, employee or agent of the Company, any Company
Subsidiary or, to the knowledge of the Company after Due Investigation, any
Product Licensee, has been convicted of any crime or engaged in any conduct for
which debarment is mandated by 21 U.S.C. sec. 335a(a) or any similar law or
authorized by 21 U.S.C. sec. 335a(b) or any similar law.
(f) None of the Company, any Company Subsidiary or, to the knowledge of the
Company after Due Investigation, any Product Licensee has received any written
notice that the FDA or any other Governmental Entity has commenced, or
threatened to initiate, any action to withdraw its approval of, request the
recall of, or change the controlled substances schedules of any product of the
Company, any Company Subsidiary or Product Licensee, or commenced, or threatened
to initiate, any action to impose a clinical hold on any clinical investigation
by the Company, any Company Subsidiary or Product Licensee, or any action to
enjoin production at, or suspend or revoke the DEA registration or any facility
of, or enter into a Consent Decree of Permanent Injunction with the Company, any
Company Subsidiary or Product Licensee which would have a Material Adverse
Effect on the Company.
(g) The Company, each of the Company Subsidiaries and, to the knowledge of
the Company after due investigation, the Product Licensees are not in violation
of, in any material respect, and are in material compliance with, all applicable
laws, rules and
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regulations regarding the conduct of pre-clinical and clinical investigations,
including, but not limited to, good laboratory practices, good clinical
practices, investigational new drug requirements and requirements regarding
informed consent and Institutional Review Boards designed to ensure the
protection of the rights and welfare of human subjects, including, but not
limited to, the requirements provided in 21 C.F.R. Parts 50, 56, 58 and 312.
(h) To the extent that any biological drugs or other drug is intended for
export from the United States, each of the Company, any Company Subsidiary and,
to the knowledge of the Company after Due Investigation, each Product Licensee
is in full compliance with all of the requirements in 21 U.S.C. sec. 381(e) or
sec. 382, and the Controlled Substances Import and Export Act (21 U.S.C. sec.
951, et. seq.
(i) The Company and each of the Company Subsidiaries and, to the knowledge
of the Company after Due Investigation, Product Licensees are not in violation
of and are in material compliance with all applicable laws, rules and
regulations regarding the manufacture, analysis, distribution and investigation
of controlled substances including, but not limited to, the requirements
provided by 21 U.S.C. sec. 801, et. seq., and 21 C.F.R. sec. 1300 et. seq.
(j) The Company has provided or made available to Acquiror all documents in
its possession, the possession of the Company Subsidiaries or, to the knowledge
of the Company after Due Investigation, the possession of Product Licensees
concerning communication to or from FDA or DEA, or prepared by FDA or DEA which
bear in any material respect on compliance with FDA or DEA regulatory
requirements.
SECTION 3.28. Current Cash Reserves; Indebtedness.
As of the date of this Agreement, the aggregate amount of (i) the Company's
cash on hand, plus (ii) liquid investments of the Company with a maturity of
three years or less ((i) and (ii) "Current Cash Reserves") is at least Sixty
Four Million Dollars ($64,000,000). The Company owns all such Current Cash
Reserves free and clear of all Encumbrances, except as set forth in Schedule
3.28. As of the date of this Agreement, the Company has no Indebtedness.
SECTION 3.29. Transaction Expenses.
As of the date of this Agreement, the aggregate good faith estimate of the
Transaction Expenses to be incurred by the Company in connection with the Merger
are as set forth on Schedule 3.29.
SECTION 3.30. Disclosure.
No representation or warranty of the Company in this Agreement and no
statement in the Company's disclosure schedules contains any statement which is
false or misleading with respect to any material fact or omits to state a
material fact necessary to make the statements herein or therein, in light of
the circumstances in which they were made, not false or misleading.
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ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF MERGER SUB
Acquiror and Merger Sub jointly and severally represent and warrant to the
Company as follows:
SECTION 4.1. Organization and Qualification.
Merger Sub is a corporation duly organized, validly existing and in good
standing under Delaware Law. Merger Sub was formed solely for the purpose of
engaging in the transactions contemplated by this Agreement. As of the date of
this Agreement, except for obligations or liabilities incurred in connection
with its incorporation and organization and otherwise in connection with the
transactions contemplated by this Agreement, Merger Sub has not incurred,
directly or indirectly, any obligations or liabilities or engaged in any
business activities of any type or kind whatsoever or entered into any
agreements or arrangements with any Person.
SECTION 4.2. Certificate of Incorporation and Bylaws.
Merger Sub has heretofore made available to the Company a complete and
correct copy of the certificate of incorporation and the bylaws of Merger Sub,
each as amended to date. Such certificate of incorporation and bylaws are in
full force and effect. Merger Sub is not in violation of any of the provisions
of its certificate of incorporation or bylaws.
SECTION 4.3. Authority.
Merger Sub has the necessary corporate power and authority to enter into
this Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Merger Sub and the consummation by Merger Sub of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action and no other corporate proceedings on the part of Merger Sub
are necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Merger Sub and, assuming the due authorization, execution and delivery of this
Agreement by the Company and Acquiror, constitutes a legal, valid and binding
obligation of Merger Sub, enforceable in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general applicability relating to or
affecting creditors' rights generally and by the application of general
principles of equity.
SECTION 4.4. No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by Merger Sub do not, and
the performance by Merger Sub of its obligations under this Agreement will not,
(i) conflict with or violate the certificate of incorporation or bylaws of
Merger Sub, (ii) subject to compliance with the requirements set forth in
Section 4.4(b) below, conflict with or violate any law, statute, ordinance,
rule, regulation, order, judgment or decree applicable to Merger Sub or by which
any of its properties or assets is bound or affected, or (iii) except as set
forth in Schedule 5.5, result in any breach of or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in
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the creation of any Encumbrance on any of the properties or assets of Merger Sub
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which Merger Sub
is a party or by which Merger Sub or any of its properties or assets is bound or
affected, except, in the case of clauses (ii) and (iii) above, for any such
conflicts, violations, breaches, defaults or other alterations or occurrences
that would not prevent or delay consummation of the Merger in any material
respect, or otherwise prevent Merger Sub from performing its obligations under
this Agreement in any material respect.
(b) The execution and delivery of this Agreement by Merger Sub does not,
and the performance of this Agreement by Merger Sub will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any Governmental Entity, except (i) for (A) applicable requirements, if any,
of the Exchange Act, Securities Act, state takeover laws, the National
Association of Securities Dealers, Inc. (the "NASD"), the HSR Act and the FDA,
(B) applicable requirements, if any, of the consents, approvals, authorizations
or permits described in Schedule 5.5, and (C) filing and recordation of
appropriate merger documents as required by Delaware Law, and (ii) where failure
to obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications, would not prevent or delay consummation of the Merger
in any material respect.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES
OF ACQUIROR
Acquiror represents and warrants to the Company subject to the exceptions
set forth herein and in Acquiror's disclosure schedules (which exceptions shall
specifically identify a Section, Subsection or clause of a single Section or
Subsection hereof, as applicable, to which such exception relates, it being
understood and agreed that each such exception shall be deemed to be disclosed
both under such Section, Subsection or clause hereof and any other Section,
Subsection or clause hereof to which such disclosure reasonably relates) that:
SECTION 5.1. Organization and Qualification; Subsidiaries.
Each of Acquiror and each Subsidiary of Acquiror, (each an "Acquiror
Subsidiary" and collectively, the "Acquiror Subsidiaries") is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization. Acquiror and each Acquiror Subsidiary is duly
qualified to conduct its business, and is in good standing, in each jurisdiction
where the character of its properties owned, operated or leased or the nature of
its activities makes such qualification necessary, except for such failures
which would not have a Material Adverse Effect on Acquiror. Acquiror and each
Acquiror Subsidiary has the requisite power and authority and any necessary
governmental authority, franchise, license or permit to own, operate, lease and
otherwise to hold and operate its assets and properties and to carry on its
business as now being conducted, except for such failures which would not have a
Material Adverse Effect on Acquiror. The Acquiror has no Subsidiaries other than
those listed in Schedule 5.1, each of which is wholly-owned by the Acquiror, or
any direct or indirect beneficial ownership of any securities, equity or other
ownership interest in any Person other than those listed on Schedule 5.1.
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SECTION 5.2. Certificate of Incorporation and Bylaws.
Acquiror has heretofore delivered to the Company a complete and correct
copy of the articles of incorporation and the bylaws of Acquiror, each as
amended to date. Such articles of incorporation and bylaws are in full force and
effect. Acquiror is not in violation of any of the provisions of its articles of
incorporation or bylaws.
SECTION 5.3. Capitalization.
(a) The authorized capital stock of Acquiror consists of one hundred fifty
million (150,000,000) shares of Acquiror Common Stock. As of November 12, 1999:
(i) forty-eight million two hundred thirty-four thousand two hundred
thirty-three (48,234,233) shares of Acquiror Common Stock were issued and
outstanding; (ii) four million eight hundred thousand (4,800,000) shares of
Acquiror Common Stock were reserved for issuance upon the exercise of
outstanding employee stock options or other rights to purchase or receive
Acquiror Common Stock granted under Acquiror's 1997 Incentive and Nonqualified
Stock Option Plan (the "1997 Plan"); (iii) four hundred fifty thousand (450,000)
shares of Acquiror Common Stock were reserved for issuance upon the exercise of
outstanding stock options or other rights to receive Acquiror Common Stock
granted under Acquiror's 1998 Non-employee Director Stock Option Plan (the "1998
Plan", and together with the 1997 Plan, the "Acquiror Stock Option Plans"), and
(iv) no shares of Acquiror Common Stock were held by Acquiror in Acquiror's
treasury. Schedule 5.3 sets forth a complete and correct list, as of November
24, 1999, of the number of shares of Acquiror Common Stock subject to employee
stock options or other rights to purchase or receive Acquiror Common Stock
granted under the Acquiror Stock Option Plans, the dates of grant and exercise
prices thereof.
(b) All outstanding shares of capital stock of Acquiror are, and all shares
which may be issued will be, when issued, duly authorized, validly issued, fully
paid and nonassessable and not subject to preemptive rights. Except as set forth
in this Section 5.3 and except for changes resulting from the issuance of shares
of Acquiror Common Stock pursuant to the Acquiror Stock Option Plans or as
expressly permitted by this Agreement, (i) there are not issued, reserved for
issuance or outstanding (A) any shares of capital stock or other voting
securities of Acquiror, (B) any securities of Acquiror or any Acquiror
Subsidiary convertible into or exchangeable or exercisable for shares of capital
stock or voting securities of or ownership interests in Acquiror or any Acquiror
Subsidiary, (C) any warrants, calls, options or other rights to acquire from
Acquiror or any Acquiror Subsidiary, and any obligation of Acquiror or any
Acquiror Subsidiary to issue, any capital stock, voting securities or other
ownership interests in, or securities convertible into or exchangeable or
exercisable for capital stock or voting securities of or other ownership
interests in, Acquiror or any Acquiror Subsidiary, (ii) there are no outstanding
obligations of Acquiror or any Acquiror Subsidiary to repurchase, redeem or
otherwise acquire any such securities or to issue, deliver or sell, or cause to
be issued, delivered or sold, any such securities, and (iii) except as
contemplated in this Agreement, Acquiror is not presently under any obligation,
has not agreed or committed, and has not granted rights, to register under the
Securities Act or the Exchange Act, or otherwise file any registration statement
under any such statute covering, any of its currently outstanding capital stock
or other securities or any of its capital stock or other securities that may be
subsequently issued.
(c) Except as described in Schedule 5.3, as of the date hereof, neither
Acquiror nor any Acquiror Subsidiary is a party to any agreement granting any
preemptive or
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antidilutive rights with respect to any securities of Acquiror or any Acquiror
Subsidiary that are outstanding as of the date hereof, or with respect to any
securities of Acquiror or any Acquiror Subsidiary that may be subsequently
issued upon the conversion or exercise of any instrument outstanding as of the
date hereof. Other than Acquiror Subsidiaries, Acquiror does not directly or
indirectly beneficially own any securities or other beneficial ownership
interests in any other Person.
SECTION 5.4. Authority.
Acquiror has the necessary corporate power and authority to enter into this
Agreement and, subject to obtaining the requisite approval of the stockholders
of Acquiror of the issuance of Acquiror Common Stock pursuant to this Agreement
if the aggregate number of shares of Acquiror Common Stock to be issued at
Closing will exceed nineteen and nine-tenths percent (19.9%) of the number of
shares of Acquiror Common Stock issued and outstanding as of the Closing Date
(the "Requisite Acquiror Approval"), to perform its obligations hereunder and to
consummate the transactions contemplated hereby. Except to the extent Requisite
Acquiror Approval may be required, the execution and delivery of this Agreement
by Acquiror and the consummation by Acquiror of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate action
and no other proceedings on the part of Acquiror are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby. This Agreement
has been duly executed and delivered by Acquiror and, assuming the due
authorization, execution and delivery by the Company and Merger Sub, constitutes
a legal, valid and binding obligation of Acquiror, enforceable in accordance
with its terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other similar laws of general
applicability relating to or affecting creditors' rights generally and by the
application of general principles of equity. Acquiror, as the sole stockholder
of Merger Sub, has approved the Merger and this Agreement.
SECTION 5.5. No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by Acquiror do not, and
the performance by Acquiror of its obligations under this Agreement will not,
(i) conflict with or violate the articles of incorporation or bylaws of
Acquiror, (ii) subject to obtaining the approvals and compliance with the
requirements set forth in Section 5.5 below, conflict with or violate any law,
statute, ordinance, rule, regulation, order, judgment or decree applicable to
Acquiror or any Acquiror Subsidiary or by which any of their respective
properties or assets are bound or affected, or (iii) except as set forth in
Schedule 5.5, result in any breach of or constitute a default (or an event which
with or without notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of an Encumbrance on any of the
properties or assets of Acquiror or any Acquiror Subsidiary pursuant to any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Acquiror or any Acquiror
Subsidiary is a party or by which Acquiror or any of their respective properties
or assets are bound or affected, except, in the case of clauses (ii) and (iii)
above, for any such conflicts, violations, breaches, defaults or other
alterations or occurrences that would not (A) prevent or delay consummation of
the Merger in any material respect or otherwise prevent Acquiror from performing
its obligations under this Agreement in any material respect, and (B) have a
Material Adverse Effect on Acquiror.
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(b) The execution and delivery of this Agreement by Acquiror does not, and
the performance of this Agreement by Acquiror will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
Governmental Entity by or with respect to Acquiror, except (i) for (A)
applicable requirements, if any, of the Securities Act, Blue Sky Laws, Exchange
Act, state takeover laws, the Nasdaq, the NASD, the HSR Act and the FDA, (B)
applicable requirements, if any, of the consents, approvals, authorizations or
permits described in Schedule 5.5, and (C) filing and recordation of appropriate
merger documents as required by Delaware Law and (ii) where failure to obtain
such consents, approvals, authorizations or permits, or to make such filings or
notifications, would not (A) prevent or delay consummation of the Merger in any
material respect, or otherwise prevent Acquiror from performing its obligations
under this Agreement in any material respect, and (B) have a Material Adverse
Effect on Acquiror.
SECTION 5.6. SEC Filings; Financial Statements.
(a) Acquiror has filed all forms, reports, statements and other documents
required to be filed with the SEC since June 2, 1998, and has heretofore
delivered to the Company, in the form filed with the SEC since such date,
together with any amendments thereto, all of its and their (i) Annual Reports on
Form 10-K, (ii) Quarterly Reports on Form 10-Q, (iii) proxy statements relating
to meetings of stockholders (whether annual or special), (iv) reports on Form
8-K and (v) other reports or registration statements filed by Acquiror and such
Acquiror Subsidiaries (collectively, the "Acquiror SEC Reports"). As of their
respective filing dates, the Acquiror SEC Reports (i) complied as to form in all
material respects with the requirements of the Exchange Act and the Securities
Act, as applicable, and (ii) did not at the time they were filed contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
(b) The audited consolidated financial statements and unaudited interim
financial statements of Acquiror included in the Acquiror SEC Reports complied
in all material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto. The financial
statements, including all related notes and schedules, contained in the Acquiror
SEC Reports (or incorporated by reference therein) present fairly in all
material respects the consolidated financial position of Acquiror and the
Acquiror Subsidiaries as at the respective dates thereof and the consolidated
results of operations and cash flows of Acquiror and the Acquiror Subsidiaries
for the periods indicated, in accordance with GAAP applied on a consistent basis
throughout the periods involved (except as may be noted therein) and subject in
the case of interim financial statements to normal year-end adjustments.
SECTION 5.7. No Undisclosed Liabilities.
Neither Acquiror nor any of the Acquiror Subsidiaries has any liabilities
or obligations of any nature, whether or not accrued, contingent or otherwise,
except (a) liabilities or obligations reflected in the Acquiror SEC Reports
through the date of the filing of Acquiror's Quarterly Report on Form 10-Q in
respect of the fiscal quarter ending September 30, 1999, (b) liabilities or
obligations incurred in the ordinary course of business consistent with past
practice since September 30, 1999 which have not had, and will not have, a
Material Adverse Effect on Acquiror and (c) liabilities or obligations which
have not and will not have, a Material Adverse Effect on Acquiror.
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SECTION 5.8. Absence of Certain Changes or Events.
Except as disclosed in the Acquiror SEC Reports, since September 30, 1999
there has not been any Material Adverse Effect on Acquiror.
SECTION 5.9. Absence of Litigation.
Except as set forth in the Acquiror SEC Reports or on Schedule 5.9, as of
the date hereof there are (a) no claims, actions, suits, investigations, or
proceedings pending or, to Acquiror's knowledge, threatened against Acquiror or
any Acquiror Subsidiary before any court, administrative, governmental,
arbitral, mediation or regulatory authority or body, domestic or foreign, that
would be reasonably likely to have a Material Adverse Effect on Acquiror or that
challenge or seek to prevent, enjoin, alter or materially delay the transactions
contemplated hereby or by the Option Agreement, and (b) no judgments, decrees,
injunctions or orders of any Governmental Entity or arbitrator outstanding
against Acquiror or any Acquiror Subsidiary that would be reasonably likely to
have a Material Adverse Effect on Acquiror.
SECTION 5.10. Licenses and Permits; Compliance with Laws.
Acquiror and the Acquiror Subsidiaries hold all permits, licenses,
franchises, authorizations and approvals from Governmental Entities (the
"Acquiror Permits") which are necessary for the operation of the businesses of
Acquiror and the Acquiror Subsidiaries as presently conducted and for Acquiror
and the Acquiror Subsidiaries to own, lease and operate their respective
properties, except where the failure to have any such permits, licenses or
approvals would not have a Material Adverse Effect on Acquiror. Acquiror and the
Acquiror Subsidiaries are in compliance with the terms of the Acquiror Permits
and all applicable statutes, laws, ordinances, rules and regulations, except
where the failure so to comply would not have a Material Adverse Effect on
Acquiror.
SECTION 5.11. Unlawful Payments.
None of the Acquiror, any Acquiror Subsidiary, or any officer, director,
employee, agent or representative of Acquiror or any Acquiror Subsidiary has
made, directly or indirectly, any bribe or kickback, illegal political
contribution, payment from corporate funds which was incorrectly recorded on the
books and records of Acquiror or any Acquiror Subsidiary, unlawful payment from
corporate funds to governmental or municipal officials in their individual
capacities for the purpose of affecting their action or the actions of the
jurisdiction which they represent to obtain favorable treatment in securing
business or licenses or to obtain special concessions of any kind whatsoever, or
illegal payment from corporate funds to obtain or retain any business.
SECTION 5.12. Taxes.
Acquiror and the Acquiror Subsidiaries have prepared and filed on a timely
basis with all appropriate Governmental Entities all material returns, reports,
information statements and other documentation (including extensions) required
to be filed by Acquiror and the Acquiror Subsidiaries) in respect of Taxes (the
"Tax Returns") and all such Tax Returns are correct and complete in all material
respects. Acquiror and the Acquiror Subsidiaries have paid in full all Taxes due
(other than Taxes, the failure of which to pay have not had and are not
reasonably likely to have a Material Adverse Effect on Acquiror) and, in the
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case of material Taxes accruing but not due, Acquiror has made adequate
provision in its books and records and financial statements for such payment.
SECTION 5.13. Intellectual Property.
(a) Acquiror's disclosure in the Acquiror SEC Reports with respect to all
of the computer software, computer firmware, computer hardware (whether general
or special purpose), and other similar or related items of automated,
computerized, and/or software system(s) that are used or relied on by Acquiror
or any Acquiror Subsidiary in the administration and conduct of their respective
businesses does not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(b) To Acquiror's knowledge, (i) none of Acquiror or any Acquiror
Subsidiary is infringing on any Intellectual Property right of others, and (ii)
no third party is infringing on the Intellectual Property rights of Acquiror or
any Acquiror Subsidiary, except for, in the case of (i) or (ii), any
infringement which would not have a Material Adverse Effect on Acquiror.
SECTION 5.14. Environmental Matters.
(a) Except for matters which would not have a Material Adverse Effect on
Acquiror, (i) Acquiror and each Acquiror Subsidiary is in compliance with all
applicable Environmental Laws; (ii) neither Acquiror nor any Acquiror Subsidiary
has received any written communication that alleges that Acquiror or any
Acquiror Subsidiary is not in compliance with applicable Environmental Laws;
(iii) all permits and other governmental authorizations currently held by
Acquiror and each Acquiror Subsidiary pursuant to the Environmental Laws
("Acquiror Environmental Permits") are in full force and effect, and Acquiror
and each Acquiror Subsidiary is in compliance with all of the terms of such
Acquiror Environmental Permits, and no other permits or other governmental
authorizations are required by Acquiror or any Acquiror Subsidiary for the
conduct of their respective businesses; and (iv) the management, handling,
storage, transportation, treatment, and disposal by Acquiror and each Acquiror
Subsidiary of any Hazardous Materials is and has been in compliance with all
applicable Environmental Laws.
(b) Except for matters which would not have a Material Adverse Effect on
Acquiror, there is no Acquiror Environmental Claim (as defined below) pending
or, to the knowledge of Acquiror, threatened against or involving Acquiror or
any of the Acquiror Subsidiaries or against any Person whose liability for any
Acquiror Environmental Claim Acquiror or any of the Acquiror Subsidiaries has or
may have retained or assumed either contractually or by operation of law.
(c) Except for matters which would not have a Material Adverse Effect on
Acquiror, to the knowledge of Acquiror, there are no past or present actions or
activities by Acquiror or any Acquiror Subsidiary or any other Person involving
the storage, treatment, release, emission, discharge, disposal or arrangement
for disposal of any Hazardous Materials, that could reasonably form the basis of
any Acquiror Environmental Claim against Acquiror or any Acquiror Subsidiary or
against any Person whose liability for any Acquiror Environmental Claim Acquiror
or any Acquiror Subsidiary may have retained or assumed either contractually or
by operation of law.
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(d) As used herein, "Acquiror Environmental Claim" means any and all
administrative, regulatory or judicial actions, suits, demands, demand letters,
directives, claims, liens, investigations, proceedings or notices of
noncompliance or violation (written or oral) by any Person or Governmental
Entity alleging potential liability arising out of, based on or resulting from
the presence, or release or threatened release into the environment of, or any
exposure to, any Hazardous Materials at any property or location owned or leased
by Acquiror or any Acquiror Subsidiary or other circumstances forming the basis
of any violation or alleged violation of any Environmental Law.
SECTION 5.15. Brokers.
Except for Credit Suisse First Boston, no broker, finder or investment
banker is entitled to any brokerage, finder's or other fee or commission in
connection with the transactions contemplated by this Agreement and the Option
Agreement based upon arrangements made by or on behalf of Acquiror.
SECTION 5.16. Pooling; Tax Matters.
Neither Acquiror nor any of its Affiliates has taken or agreed to take any
action or failed to take any action that would prevent the Merger from (a) being
treated for financial accounting purposes as a "pooling of interests" in
accordance with GAAP and the regulations and interpretations of the SEC, or (b)
from constituting a reorganization within the meaning of Section 368(a) of the
Code.
SECTION 5.17. Registration Statement; Proxy Statement/Prospectus.
The information supplied by Acquiror or required to be supplied by Acquiror
(except to the extent revised or superseded by amendments or supplements) for
inclusion in the Registration Statement, or any amendment or supplement thereto,
shall not, at the time the Registration Statement (including any amendments or
supplements thereto) is declared effective by the SEC, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The information
supplied by Acquiror or required to be supplied by Acquiror (except to the
extent revised or superseded by amendments or supplements) for inclusion in the
Proxy Statement/Prospectus shall not, on the date the Proxy Statement/Prospectus
is first mailed to the Company's stockholders and at the Effective Time, contain
any statement which, at such time, is false or misleading with respect to any
material fact, or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they are
made, not false or misleading, or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies by or on behalf of the Company for the Company
Stockholders Meeting which has become false or misleading. The Registration
Statement will comply as to form in all material respects with the provisions of
the Securities Act. Notwithstanding the foregoing, Acquiror makes no
representation, warranty or covenant with respect to any information supplied or
required to be supplied by the Company which is contained in or omitted from any
of the foregoing documents.
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SECTION 5.18. Disclosure.
No representation or warranty of Acquiror in this Agreement and no
statement in Acquiror's disclosure schedules contains any statement which is
false or misleading with respect to any material fact or omits to state a
material fact necessary to make the statements herein or therein, in light of
the circumstances in which they were made, not misleading.
ARTICLE VI.
COVENANTS
SECTION 6.1. Affirmative Covenants of the Company.
The Company hereby covenants and agrees that, prior to the Effective Time,
unless otherwise expressly contemplated by this Agreement or consented to in
writing by Acquiror, the Company shall, and shall cause each Company Subsidiary
to: (a) operate its business in the usual and ordinary course consistent with
past practices; (b) use its commercially reasonable efforts to preserve
substantially intact its business organization, maintain its rights and
franchises, retain the services of its respective officers and employees and
maintain its relationship with its respective customers, suppliers, licensors,
licensees, distributors and others having business dealings with them with the
intention that its goodwill and ongoing business shall be unimpaired at the
Effective Time; (c) use its commercially reasonable efforts to maintain and keep
its properties and assets in as good repair and condition as at present,
ordinary wear and tear excepted; (d) use its commercially reasonable efforts to
keep in full force and effect insurance comparable in amount and scope of
coverage to that currently maintained; (e) prepare and file all Tax Returns
required to be filed in a timely manner, and in a manner consistent with past
practices and applicable laws and regulations; (f) timely file with the SEC all
reports required to be filed under the Exchange Act, which reports (including
the unaudited interim financial statements included in such reports) shall
comply in all material respects with the Exchange Act, the rules and regulations
promulgated thereunder and all applicable accounting requirements; (g) operate
its business in accordance with the terms of its licenses and in all material
respects with all applicable laws, rules and regulations; (h) use reasonable
efforts consistent with prudent business practices and the past practices of the
Company to cause the cash reserves calculated pursuant to Section 8.2(f)(i) to
exceed Fifty Six Million Five Hundred Thousand Dollars ($56,500,000) immediately
following the Effective Time; (i) provide Acquiror with copies of all filings
and correspondence with any Governmental Entities with respect to Company
Intellectual Property with a reasonable period for Acquiror to review and
comment on such filings or correspondence prior to the filing or sending
thereof; and (j) if requested by Acquiror, provide Acquiror with periodic
reports regarding the status of the Company Intellectual Property.
SECTION 6.2. Negative Covenants of the Company.
Except as expressly contemplated by this Agreement or otherwise consented
to in writing by Acquiror, from the date hereof until the Closing Date, the
Company shall not, and shall cause each Company Subsidiary not to, do any of the
following:
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(a) declare or pay any dividend on, or make any other distribution in
respect of, outstanding shares of its capital stock;
(b) (i) redeem, repurchase or otherwise reacquire any shares of its capital
stock or other securities or any securities or obligations convertible into or
exchangeable for any share of its capital stock or other securities, or any
options, warrants or conversion or other rights to acquire any shares of its
capital stock or other securities or any such securities or obligations (except
in connection with the exercise of outstanding Options in accordance with their
respective terms); (ii) effect any merger, consolidation, restructuring,
reorganization or recapitalization, or adopt a plan of complete or partial
liquidation or dissolution; or (iii) adjust, split, combine or reclassify any of
its capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of, or in substitution for, shares of its
capital stock or other securities;
(c) (i) issue, pledge, deliver, award, grant or sell, or register under the
Securities Act or the Exchange Act or otherwise file any registration statement
under any statute covering, or authorize or propose the issuance, pledge,
delivery, award, grant or sale of (including the grant of any Encumbrances on)
or registration of or filing of any registration statement covering any shares
of any class of its capital stock or other securities (including shares held in
treasury), any securities convertible into or exercisable or exchangeable for
any such shares or other securities, or any rights, warrants or options to
acquire any such shares or other securities (except in connection with the
exercise of outstanding Options); or (ii) amend or otherwise modify the terms of
any such rights, warrants or options;
(d) acquire or agree to acquire, by merging or consolidating with, by
purchasing an equity interest in or a portion of the assets of, or by any other
manner, (i) any business or any corporation, partnership, association or other
business organization or division (other than a wholly-owned Subsidiary of the
Company) thereof; (ii) make or commit to make any capital expenditures other
than capital expenditures not exceeding in the aggregate Fifty Thousand Dollars
($50,000.00) and which are solely for equipment, furniture and fixtures incurred
in the ordinary course of business consistent with past practices; or (iii) make
or commit to make any loans, advances or capital contributions to, or
investments in, any other Person.
(e) sell, lease, exchange, mortgage, pledge, transfer or otherwise encumber
or dispose of, or agree to sell, lease, exchange, mortgage, pledge, transfer or
otherwise encumber or dispose of, any of its assets, except for sales of
inventory in the ordinary course of business and consistent with past practices;
(f) (i) except as otherwise contemplated by this Agreement or as required
to comply with applicable law, (ii) adopt, enter into, terminate or amend in any
material respect (A) any Company Benefit Plan or (B) any other agreement, plan
or policy involving the Company or the Company Subsidiaries, and one or more of
its current or former directors, officers or employees; (iii) increase in any
manner the compensation, bonus or fringe or other benefits of, or pay any bonus
to, any current or former officer, director or employee (except for normal
increases of cash compensation or cash bonuses in the ordinary course of
business consistent with past practice that, in the aggregate, do not materially
increase benefits or compensation expenses of the Company or the Company
Subsidiaries); (iv) pay any benefit or amount not required under any Company
Benefit Plan or any other benefit plan or arrangement of the Company or the
Company Subsidiaries as in effect on the date of this Agreement; (v) increase in
any manner the severance or termination pay
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of any current or former director, officer or employee; (vi) enter into or amend
any employment, deferred compensation, consulting, severance, termination or
indemnification agreement, arrangement or understanding with any current or
former employee, officer or director; (vii) grant any awards under any bonus,
incentive, performance or other compensation plan or arrangement or Benefit Plan
(including the grant of stock options, "phantom" stock, stock appreciation
rights, "phantom" stock rights stock based or stock related awards, performance
units or restricted stock or the removal of existing restrictions in any Company
Benefit Plans or agreements or awards made thereunder); (viii) amend or modify
any Option, (ix) take any action to fund or in any other way secure the payment
of compensation or benefits under any employee plan, agreement, contract or
arrangement or Benefit Plan; (x) take any action to accelerate the vesting of
payment of any compensation or benefit under any Company Benefit Plan or (xi)
materially change any actuarial or other assumption used to calculate funding
obligations with respect to any pension plan or change the manner in which
contributions to any pension plan are made or the basis on which such
contributions are determined;
(g) propose or adopt any amendments to its certificate or articles of
incorporation or its bylaws;
(h) (i) make any change in any of its methods of accounting, or (ii) make
or rescind any express or deemed election relating to Taxes, settle or
compromise any claim, action, suit, litigation, proceeding, arbitration,
investigation, audit or controversy relating to Taxes, or change any of its
methods of reporting income or deductions for federal income tax purposes from
those employed in the preparation of the federal income tax returns for the
taxable year ended December 31, 1998, except, in the case of clause (i) or
clause (ii), as may be required by law or GAAP;
(i) incur any Indebtedness, or prepay, before the scheduled maturity
thereof, any long-term debt;
(j) engage in any transaction with, or enter into any agreement,
arrangement, or understanding with, directly or indirectly, any of such entity's
Affiliates which involves the transfer of consideration or has a financial
impact on such entity, other than pursuant to such agreements, arrangements, or
understandings existing on the date of this Agreement;
(k) enter into any contract, agreement, commitment, arrangement, lease
(including with respect to personal property), policy or other instrument which,
had it been entered into as of the date hereof, would have been included as a
Company Material Contract;
(l) enter into any contracts, agreements, binding arrangements or
understandings relating to the distribution, sale, license, marketing or
manufacturing by third parties of the products of the Company or the Company
Subsidiaries, or products licensed by the Company or the Company Subsidiaries,
other than pursuant to any such contracts, agreements, arrangements or
understandings in place as of the date of this Agreement (that have been
disclosed in writing to Acquiror prior to the date hereof) in accordance with
their terms as of the date hereof;
(m) except for transactions in the ordinary course of business, terminate,
or amend or waive any provision of, any Company Material Contract;
(n) (i) pay, discharge, settle or satisfy any claims, liabilities,
obligations or litigation (absolute, accrued, asserted or unasserted, contingent
or otherwise), other than the payment, discharge, settlement or satisfaction in
the ordinary course of business consistent
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with past practice of claims for money damages which do not exceed Fifty
Thousand Dollars ($50,000) in the aggregate or in accordance with their terms or
liabilities disclosed, reflected or reserved against in the most recent
consolidated financial statements (or the notes thereto) of the Company included
in the Company SEC Reports; (ii) cancel any indebtedness; (iii) waive or assign
any claims or rights of material value or (iv) waive any benefits of, or agree
to modify in any respect (A) any standstill or similar agreements to which the
Company or any of the Company Subsidiaries is a party or (B) other than in the
ordinary course of business, any confidentiality or similar agreements to which
the Company or any of the Company Subsidiaries is a party;
(o) transfer or license to any Person or otherwise extend, amend or modify
any rights to the Company Intellectual Property;
(p) take any action that is intended or would reasonably be expected to
result in any of its representations and warranties set forth in this Agreement
being or becoming untrue in any material respect at any time prior to the
Effective Time, or in any of the conditions to the Merger set forth in Article
VIII not being satisfied or in a violation of any provision of this Agreement;
(q) take any action that would be reasonably likely to prevent the Merger
from being accounted for as a "pooling of interests" in accordance with GAAP;
(r) accelerate the collection of any accounts receivable; or
(s) agree in writing or otherwise to do any of the foregoing.
ARTICLE VII.
ADDITIONAL AGREEMENTS
SECTION 7.1. Access and Information.
During the period from the date hereof to the Effective Time (the "Interim
Period"), the Company and Acquiror shall, and shall cause the Company
Subsidiaries and the Acquiror Subsidiaries, respectively, to, afford to each
other and their respective officers, employees, accountants, consultants, legal
counsel and other representatives reasonable access during normal business hours
(and at such other times as the parties may mutually agree) to the properties,
executive personnel and all information concerning the business, properties,
contracts, records and personnel of the Company and the Company Subsidiaries or
Acquiror and the Acquiror Subsidiaries, as the case may be, as such other party
may reasonably request.
SECTION 7.2. Confidentiality.
Acquiror and the Company each acknowledge and agree that: (i) all
information received by it (the "Receiving Party") from or on behalf of the
other party in connection with the transactions contemplated under this
Agreement shall be deemed received pursuant to the confidentiality agreement
previously executed between the Company and Acquiror (the "Confidentiality
Agreement"), (ii) such Receiving Party shall, and shall cause its officers,
directors, employees, Affiliates, financial advisors and agents to comply with
the provisions of the Confidentiality Agreement with respect to such
information, and
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(iii) the provisions of the Confidentiality Agreements are hereby incorporated
herein by reference with the same effect as if fully set forth herein.
SECTION 7.3.Proxy Statement/Prospectus and Registration Statement; Company
Stockholders Meeting.
(a) As soon as practicable following the date of this Agreement, the
Company and Acquiror shall prepare and file with the SEC the Proxy
Statement/Prospectus, and Acquiror shall prepare and file with the SEC the
Registration Statement in which the Proxy Statement/Prospectus will be included
as a prospectus. Each of the Company and Acquiror shall use its best efforts to
have the Registration Statement declared effective under the Securities Act as
promptly as practicable after such filing. The Company shall use its best
efforts to cause the Proxy Statement/Prospectus to be mailed to the Company's
stockholders as promptly as practicable after the Registration Statement is
declared effective under the Securities Act. Acquiror also shall take any action
(other than qualifying to do business in any jurisdiction in which it is not now
so qualified or filing a general consent to service of process) required to be
taken under any applicable state securities laws in connection with the issuance
of Acquiror Common Stock in the Merger, and the Company shall furnish all
information concerning the Company and the holders of Company Common Stock as
may be reasonably requested in connection with any such action. No filing of, or
amendment or supplement to, the Registration Statement or the Proxy
Statement/Prospectus will be made by either Acquiror or the Company without the
other party's prior consent (which shall not be unreasonably withheld, delayed
or conditioned) and without providing the other party the opportunity to review
and comment thereon. Acquiror shall advise the Company, promptly after it
receives notice thereof, of the time when the Registration Statement has become
effective or any supplement or amendment has been filed, the issuance of any
stop order, the suspension of the qualification of Acquiror Common Stock
issuable in connection with the Merger for offering or sale in any jurisdiction,
or any request by the SEC for amendment of the Proxy Statement/Prospectus or the
Registration Statement or comments thereon and responses thereto or requests by
the SEC for additional information. If at any time prior to the Effective Time
any information relating to the Company or Acquiror, or any of their respective
Affiliates, officers or directors, should be discovered by the Company or
Acquiror which should be set forth in an amendment or supplement to any of the
Registration Statement or the Proxy Statement/Prospectus, so that any of such
documents would not include any misstatement of a material fact or omit to state
any material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, the party which
discovers such information shall promptly notify the other parties hereto and an
appropriate amendment or supplement describing such information shall be
promptly filed with the SEC and, to the extent required by law, disseminated to
the stockholders of the Company and Acquiror.
(b) The Company shall, as promptly as practicable after the Registration
Statement is declared effective under the Securities Act, duly call, give notice
of, convene and hold a meeting of its stockholders (the "Company Stockholders
Meeting") in accordance with Delaware Law and its certificate of incorporation
and bylaws for the purpose of obtaining the Company Stockholder Approval and
shall, through its Board of Directors, declare that this Agreement is advisable
and recommend to its stockholders the approval and adoption of this Agreement,
the Merger and the other transactions contemplated hereby; provided, however,
that the Board of Directors of the Company shall submit this Agreement to the
Company's stockholders, whether or not the Board of Directors of the Company at
any
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time subsequent to the date hereof determines that this Agreement is no longer
advisable or recommends that the stockholders of the Company reject it. Unless
the Board of Directors of the Company has withdrawn its recommendation of this
Agreement in compliance herewith, the Company shall use reasonable efforts to
solicit from stockholders of the Company proxies in favor of the approval and
adoption of this Agreement and the Merger and to secure the vote or consent of
stockholders required by Delaware Law and its certificate of incorporation and
bylaws to approve and adopt this Agreement and the Merger.
SECTION 7.4. HSR Act Matters.
Acquiror, Merger Sub and the Company (as may be required pursuant to the
HSR Act) promptly will complete all documents required to be filed with the
Federal Trade Commission and the United States Department of Justice in order to
comply with the HSR Act and, not later than fifteen (15) days after the date
hereof, together with the Persons, if any, who are required to join in such
filings, shall file such documents with the appropriate Governmental Entities.
Acquiror, Merger Sub and the Company shall promptly furnish all materials
thereafter required by any of the Governmental Entities having jurisdiction over
such filings, and shall take all reasonable actions and shall file and use their
best efforts to have declared effective or approved all documents and
notifications with any such Governmental Entity, as may be required under the
HSR Act or other federal or state antitrust laws for the consummation of the
Merger and the other transactions contemplated hereby and by the Option
Agreement. Acquiror and the Company shall each pay one-half (1/2) of all filing
fees related to compliance with the HSR Act in connection with the transactions
contemplated hereby.
SECTION 7.5. Public Announcements.
Acquiror and the Company shall consult with each other before issuing any
press release or otherwise making any public statements with respect to the
transactions contemplated hereunder and shall not issue any such press release
or make any such public statement prior to such consultation, except as may be
required by law or any listing agreement.
SECTION 7.6. Indemnification.
(a) The certificate of incorporation and bylaws of the Surviving
Corporation shall contain the provisions with respect to indemnification set
forth in the certificate of incorporation and bylaws of the Company on the date
of this Agreement, which provisions shall not be amended, repealed or otherwise
modified for a period of six (6) years after the Effective Time in any manner
that would adversely affect the rights thereunder of persons who at any time
prior to the Effective Time were identified as prospective indemnitees under the
certificate of incorporation or bylaws of the Company in respect of actions or
omissions occurring at or prior to the Effective Time (including, without
limitation, the transactions contemplated by this Agreement), unless such
modification is required by applicable law; provided, however, that,
notwithstanding the foregoing and the provisions regarding indemnification set
forth in the certificate of incorporation and bylaws of the Company as of the
date of this Agreement, the certificate of incorporation and bylaws of the
Surviving Corporation may contain provisions prohibiting indemnification in
respect of actions or omissions if the person that would be entitled to such
indemnification shall have
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been adjudged to be grossly negligent or to have committed or engaged in willful
misconduct.
(b) From and after the Effective Time, Acquiror shall cause the Surviving
Corporation to indemnify, defend and hold harmless the present and former
officers, directors and employees of the Company and the Company Subsidiaries
(collectively, the "Indemnified Parties") against all losses, expenses, claims,
damages, liabilities or amounts that are paid in settlement of, with the
approval of Acquiror or otherwise in connection with, any claim, action, suit,
proceeding or investigation (a "Claim"), based in whole or in part on the fact
that such person is or was such a director, officer or employee and arising out
of actions or omissions occurring at or prior to the Effective Time (including,
without limitation, the transactions contemplated by this Agreement), in each
case to the fullest extent permitted under Delaware Law (and shall pay expenses
in advance of the final disposition of any such action or proceeding to each
Indemnified Party to the fullest extent permitted under Delaware Law, upon
receipt from the Indemnified Party to whom expenses are advanced of the
undertaking to repay such advances contemplated by Section 145(e) of Delaware
Law), provided, however, that no Indemnified Party shall be entitled to any
indemnification or expenses pursuant to this Section 7.6 in respect of any
Claim, issue or matter as to which such Indemnified Party shall have been
adjudged to be grossly negligent or to have committed or engaged in willful
misconduct.
(c) Any Indemnified Party wishing to claim indemnification under this
Section 7.6, promptly upon learning of any such Claim, shall notify Acquiror and
the Surviving Corporation (although the failure so to notify Acquiror and the
Surviving Corporation shall not relieve Acquiror and the Surviving Corporation
from any liability which Acquiror and the Surviving Corporation may have under
this Section 7.6, except to the extent such failure prejudices Acquiror and the
Surviving Corporation), and shall deliver to Acquiror and the Surviving
Corporation the undertaking contemplated by Section 145(e) of Delaware Law.
(d) Notwithstanding any contrary provision of this Agreement, prior to the
Effective Time, the Company may purchase insurance coverage extending for a
period of six (6) years the Company's directors' and officers' liability
insurance coverage in effect as of the date hereof (covering past or future
claims with respect to periods prior to and including the Effective Time);
provided that the aggregate premium payable for such insurance shall not exceed
125% of the last annual premium paid for such coverage prior to the date hereof.
SECTION 7.7. Further Action; Commercially Reasonable Efforts.
(a) Each of the parties hereto shall use all commercially reasonable
efforts to take, or cause to be taken, all appropriate action, and do, or cause
to be done, all things necessary, proper or advisable under applicable laws or
otherwise to consummate and make effective the transactions contemplated by this
Agreement as promptly as practicable, including, without limitation, using all
its commercially reasonable efforts to obtain all licenses, permits, consents,
approvals, authorizations, qualifications and orders of Governmental Entities
and parties to contracts with the Company, Acquiror or any Company Subsidiary or
Acquiror Subsidiary as are necessary for the transactions contemplated herein.
In case at any time after the Effective Time any further action is necessary or
desirable to carry out the purposes of this Agreement, the proper officers and
directors of each party to this Agreement shall use all commercially reasonable
efforts to take all such action.
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(b) During the Interim Period, each of the parties hereto shall promptly
notify the other in writing of any pending or, to the knowledge of such party,
threatened action, proceeding or investigation by any Governmental Entity or any
other Person (i) challenging or seeking damages in connection with the Merger or
the conversion of Company Common Stock into the Merger Consideration pursuant to
the Merger, or (ii) seeking to restrain or prohibit the consummation of the
Merger or any of the transactions contemplated by this Agreement or the Option
Agreement or otherwise limit the right of Acquiror to own or operate all or any
portion of the business or assets of the Company.
(c) Each party hereto shall use its commercially reasonable efforts to
refrain from taking any action, or entering into any transaction, which would
cause any of its representations or warranties contained in this Agreement to be
untrue or which would result in a breach of any covenant made by it in this
Agreement.
SECTION 7.8. No Solicitation.
(a) From the date of this Agreement until the Effective Time or the
termination of this Agreement pursuant to the terms of this Agreement, the
Company shall not and shall not permit any of its Subsidiaries, Affiliates,
directors, officers, employees, agents or representatives, including, without
limitation, any investment banker, attorney or accountant of the Company or any
of its Subsidiaries (collectively, "Representatives") directly or indirectly, to
(i) initiate, solicit, encourage or otherwise facilitate (including by way of
furnishing information), any inquiries or the making of any proposal or offer
that constitutes, or may reasonably be expected to lead to, an Acquisition
Proposal (as defined below), (ii) enter into or maintain or continue discussions
or negotiate with any Person in furtherance of such inquiries or to obtain an
Acquisition Proposal, or (iii) agree to, approve, recommend, or endorse any
Acquisition Proposal, or authorize or permit any of its or their Subsidiaries or
Representatives to take any such action and, the Company shall promptly notify
Acquiror of any such inquiries and proposals received by the Company or any of
its Subsidiaries or Representatives, relating to any of such matters; provided,
however, that the foregoing shall not prohibit the Board of Directors of the
Company from (A) furnishing information to, or engaging in discussions or
negotiations with, any Person in response to an unsolicited bona fide written
Acquisition Proposal; or (B) recommending such an unsolicited bona fide written
Acquisition Proposal to the stockholders of the Company, if, and only to the
extent that, (w) the Board of Directors of the Company concludes in good faith
(after consultation with its financial advisors) that such Acquisition Proposal
would constitute a Superior Proposal (as hereinafter defined), (x) the Board of
Directors of the Company determines in good faith (after consultation with
outside legal counsel) that the failure to take such action would result in a
breach by the Board of Directors of the Company of its fiduciary duties to the
Company's stockholders under applicable law, (y) prior to furnishing such
information to, or entering into discussions or negotiations with, such Person
the Company provides prompt written notice to Acquiror to the effect that it is
furnishing information to, or entering into discussions or negotiations with,
such Person (which notice shall identify the nature and material terms of the
proposal), and (z) prior to providing any information or data to any Person in
connection with an Acquisition Proposal by any such Person, the Board of
Directors of the Company receives from such Person an executed confidentiality
agreement with provisions no less favorable to the Company than the
Confidentiality Agreement. The Company agrees that it will immediately cease and
cause to be terminated any existing activities, discussions, or negotiations
with any parties regarding any Acquisition Proposal. The
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Company shall as promptly as practicable provide Acquiror with a copy of any
written Acquisition Proposal received and a written statement with respect to
any nonwritten Acquisition Proposal received, which statement shall include the
identity of the Person making the Acquisition Proposal and the material terms
thereof. The Company shall inform Acquiror as promptly as practicable of any
change in the price, structure, form of consideration or material terms and
conditions regarding the Acquisition Proposal. The Company agrees to keep
Acquiror fully and timely informed of the status of any discussions,
negotiations, furnishing of non-public information, or other activities relating
to an Acquisition Proposal.
(b) For purposes of this Agreement, "Acquisition Proposal" means an
inquiry, offer or proposal regarding any of the following (other than the
transactions contemplated by this Agreement) involving the Company or its
Subsidiaries: (i) any merger, reorganization, consolidation, share exchange,
recapitalization, business combination, liquidation, dissolution, or other
similar transaction involving, or, any sale, lease, exchange, mortgage, pledge,
transfer or other disposition of, all or any significant portion of the assets
or ten percent (10%) or more of the equity securities of, the Company or any of
its Subsidiaries, in a single transaction or series of related transactions
which could reasonably be expected to interfere with the completion of the
Merger; (ii) any tender offer or exchange offer for twenty percent (20%) or more
of the outstanding shares of capital stock of the Company or any Company
Subsidiary or the filing of a registration statement under the Securities Act in
connection therewith; or (iii) any public announcement of a proposal, plan or
intention to do any of the foregoing or any agreement to engage in any of the
foregoing.
(c) For purposes of this Agreement, "Superior Proposal" means a bona fide
Acquisition Proposal made by any Person that the Board of Directors of the
Company determines in its good faith judgment to be more favorable to the
Company's stockholders than the Merger (after consideration of, among other
things, the written opinion, with only customary qualifications, of the
Company's independent financial advisor that the value of the consideration to
the Company's stockholders provided for in such proposal exceeds the value of
the consideration to the Company's stockholders provided for in the Merger) and
for which financing, to the extent required, is then committed or which, in the
good faith judgment of the Board of Directors of the Company (based on the
advice of the Company's independent financial advisor), is reasonably capable of
being obtained by such Person.
(d) Nothing contained in this Section 7.8 shall prohibit the Company from
taking and disclosing to its stockholders a position contemplated by Rule 14e-2
promulgated under the Exchange Act or from making any disclosure to the
Company's stockholders which, in the good faith judgment of the Board of
Directors of the Company based on the advice of outside counsel, is required
under applicable law; provided that in any such cases the Company does not
withdraw or modify, or propose to withdraw or modify, its position with respect
to the Merger or approve or recommend, or propose to approve or recommend, an
Acquisition Proposal unless the Company and its Board of Directors have complied
with all the provisions of this Section 7.8.
SECTION 7.9. Nasdaq Listing.
Acquiror shall use reasonable efforts to cause the Acquiror Common Stock to
be issued pursuant to Section 2.1(a) of this Agreement to be approved for
listing on Nasdaq, subject to official notice of issuance, prior to the
Effective Time.
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SECTION 7.10. Blue Sky.
Acquiror shall use reasonable efforts to obtain prior to the Effective Time
any necessary permits and approvals under all applicable Blue Sky Laws required
to permit the distribution of the shares of Acquiror Common Stock to be issued
in accordance with the provisions of Section 2.1(a) of this Agreement.
SECTION 7.11. Affiliates.
(a) Each of the Company and Acquiror: (i) has disclosed to the other in
Schedule 7.11 hereto all Persons who are, or may be, as of the date hereof its
"affiliates" as that term is used in SEC Accounting Series Release Nos. 130 and
135 and Rule 145 of the rules and regulations of the SEC under the Securities
Act; and (ii) shall use all reasonable efforts to cause each Person who is
identified as an "affiliate" of it in Schedule 7.11 to deliver to the other as
promptly as practicable but in no event later than thirty-one (31) days prior to
the Closing Date, a signed agreement substantially in the form attached hereto
as Exhibit A, in the case of the Company, and Exhibit B, in the case of
Acquiror. The Company and Acquiror shall notify each other from time to time of
all other Persons who then are, or may be, such an "affiliate" and use all
reasonable efforts to cause each additional Person who is identified as an
"affiliate" to execute a signed agreement as set forth in this Section 7.11(a).
(b) Shares of Company Common Stock and shares of Acquiror Common Stock held
by the "affiliates" of the Company or Acquiror set forth in Schedule 7.11, as
the case may be, shall not be transferable during the thirty (30) day period
prior to the Effective Time, and shares of Acquiror Common Stock issued to, or
as of the Effective Time held by, such "affiliates" of the Company and Acquiror
shall not be transferable until such time as financial results covering at least
thirty (30) days of combined operations of the Company and Acquiror have been
published within the meaning of Section 201.01 of the SEC's Codification of
Financial Reporting Policies, regardless of whether each such "affiliate" has
provided the signed agreement referred to in Section 7.11(a), except to the
extent permitted by, and in accordance with, SEC Accounting Series Release 135
and SEC Staff Accounting Bulletins 65 and 76. Any Company Common Stock and any
Acquiror Common Stock held by any such "affiliate" shall not be transferable,
regardless of whether such "affiliate" has provided the applicable signed
agreement referred to in Section 7.11(a), if such transfer, either alone or in
the aggregate with other transfers by "affiliates", would preclude the ability
of the parties to account for the transactions contemplated by this Agreement
and the Option Agreement as a "pooling of interests" in accordance with GAAP,
Accounting Principles Board Opinion No. 16 and all rules, regulations and
policies of the SEC. Acquiror shall not register the transfer of any shares of
Acquiror Common Stock unless such transfer is made in compliance with the
foregoing.
SECTION 7.12. Event Notices.
During the Interim Period, each party hereto will promptly notify the other
parties hereto of (a) the occurrence or nonoccurrence of any event the
occurrence or nonoccurrence of which would be likely to cause any condition to
the obligations of such party to effect the Merger and the other transactions
contemplated by this Agreement or the Option Agreement not to be satisfied and
(b) the failure of such party to comply with any covenant or agreement to be
complied with by it pursuant to this Agreement which would be likely to result
in any condition to the obligations of such party to effect the
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Merger and the other transactions contemplated by this Agreement or the Option
Agreement not to be satisfied. No delivery of any notice pursuant to this
Section 7.12 will cure any breach of any representation or warranty, covenant,
condition or agreement of such party contained in this Agreement or otherwise
limit or affect the remedies available hereunder to the party receiving such
notice.
SECTION 7.13. Option Agreement.
Concurrently with the execution of this Agreement, the Company shall
deliver to Acquiror an executed Option Agreement. The Company agrees to fully
perform to the fullest extent permitted under applicable law its obligations
under the Option Agreement.
SECTION 7.14. Tax Treatment.
Each of Acquiror and the Company shall use reasonable efforts to cause the
Merger to qualify as a reorganization under the provisions of Section 368 of the
Code. The parties will characterize the Merger as such a reorganization for
purposes of all Tax Returns and other filings.
SECTION 7.15. Accountant Letters; Pooling of Interests.
(a) Acquiror shall use reasonable efforts to cause to be delivered to the
Company two letters from Acquiror's independent public accountants, one dated
approximately the date on which the Registration Statement shall become
effective and one dated the Closing Date, each addressed to Acquiror and the
Company, in form reasonably satisfactory to the Company and customary in scope
for comfort letters delivered by independent public accountants in connection
with registration statements similar to the Registration Statement.
(b) The Company shall use reasonable efforts to cause to be delivered to
Acquiror two letters from the Company's independent public accountants, one
dated approximately the date on which the Registration Statement shall become
effective and one dated the Closing Date, each addressed to the Company and
Acquiror, in form reasonably satisfactory to Acquiror and customary in scope for
comfort letters delivered by independent public accountants in connection with
registration statements similar to the Registration Statement.
(c) Each of the Company and Acquiror shall use reasonable efforts to cause
the transactions contemplated by this Agreement, including the Merger, to be
accounted for as a "pooling of interests" in accordance with GAAP, Accounting
Principles Board Opinion No. 16 and all published rules, regulations and
policies of the SEC, and each of the Company and Acquiror agrees that it shall
take no action that would cause such accounting treatment not to be obtained.
SECTION 7.16. Board of Directors of Acquiror.
Promptly following the Effective Time, the Board of Directors of Acquiror
will take all actions necessary such that Richard C. Williams shall be appointed
to Acquiror's Board of Directors as a Vice Chairman of the Company with a term
expiring at the annual meeting of Acquiror's stockholders in 2001.
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SECTION 7.17. Rights Agreement.
The Board of Directors of the Company shall take all further action (in
addition to that referred to in Section 3.26) requested in writing by Acquiror
in order to render the Rights issued pursuant to the Rights Agreement to
purchase Company Common Stock inapplicable to the Merger and the other
transactions contemplated by this Agreement and the Option Agreement and, if
requested by Acquiror, to provide that the Final Expiration Date (as defined in
the Rights Agreement) shall occur immediately prior to the Effective Time.
Except as provided above with respect to the Merger and the other transactions
contemplated by this Agreement and the Option Agreement, the Board of Directors
of the Company shall not, without the prior written consent of Acquiror, (a)
amend the Rights Agreement or (b) take any action with respect to, or make any
determination under, the Rights Agreement, including a redemption of the Rights
or any action to facilitate an Acquisition Proposal.
SECTION 7.18. Exemption from Liability Under Section 16(b).
(a) Provided that the Company delivers to Acquiror the Section 16
Information with respect to the Company prior to the Effective Time, the Board
of Directors of Acquiror, or a committee of Non-Employee Directors thereof (as
such term is defined for purposes of Rule 16b-3(d) under the Exchange Act),
shall adopt a resolution in advance of the Effective Time providing that the
receipt by the Company Insiders of Acquiror Common Stock in exchange for shares
of Company Common Stock, and of options to purchase Acquiror Common Stock upon
assumption and conversion by Acquiror of options to purchase Company Common
Stock, in each case pursuant to the transactions contemplated hereby and to the
extent such securities are listed in the Section 16 Information, are intended to
be exempt from liability pursuant to Rule 16b-3 under the Exchange Act.
(b) "Section 16 Information" shall mean information accurate in all
respects regarding the Company Insiders, the number of shares of Company Common
Stock or other Company equity securities deemed to be beneficially owned by each
such Company Insider and expected to be exchanged for Acquiror Common Stock in
connection with the Merger.
(c) "Company Insiders" shall mean those officers and directors of the
Company who are subject to the reporting requirements of Section 16(a) of the
Exchange Act who are listed in the Section 16 Information.
SECTION 7.19. Requisite Acquiror Approval.
If Requisite Acquiror Approval becomes necessary and Acquiror does not
exercise Acquiror's termination right pursuant to Section 9.1(l), Acquiror shall
(without waving any right to terminate this Agreement pursuant to Section 9.1(l)
or otherwise) use commercially reasonable efforts to duly call, give notice of,
convene and hold a meeting of Acquiror's stockholders in accordance with
Tennessee Business Corporation Act, the Securities Act, the Exchange Act and
Acquiror's articles of incorporation and bylaws, for the purpose of obtaining
Requisite Acquiror Approval. In connection therewith, the Company shall use all
commercially reasonable efforts to take, or cause to be taken, all appropriate
action, and do, or cause to be done, all things necessary, proper and advisable
under applicable laws or otherwise, including, without limitation, making timely
filings with the SEC and other Governmental Entities and, to the extent
necessary, amending and recirculating the Proxy Statement/Prospectus.
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ARTICLE VIII.
CLOSING CONDITIONS
SECTION 8.1. Conditions to Obligations of Acquiror, Merger Sub and the Company
to Effect the Merger.
The respective obligations of Acquiror, Merger Sub and the Company to
effect the Merger and the other transactions contemplated herein shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions, any or all of which may be waived, in whole or in part, to the
extent permitted by applicable law:
(a) Stockholder Approval. The Company Stockholder Approval shall have been
obtained.
(b) Effectiveness of Registration Statement. The Registration Statement
shall have been declared effective by the SEC under the Securities Act prior to
the mailing of the Proxy Statement/Prospectus by each of the Company and
Acquiror to their respective stockholders and no stop order suspending the
effectiveness of such registration statement shall have been issued by the SEC
and no proceedings for that purpose shall have been initiated or, to the
knowledge of Acquiror or the Company, threatened by the SEC.
(c) No Order. No Governmental Entity or federal or state court of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any law, statute, rule, ordinance, regulation, executive order, decree,
judgment, stipulation, injunction or other order (whether temporary, preliminary
or permanent) in any case which is in effect and which prevents or prohibits
consummation of the Merger or any other transactions contemplated in this
Agreement; provided, however, that the parties shall use their reasonable
efforts to cause any such decree, judgment, injunction or order to be vacated or
lifted.
(d) Nasdaq Listing. Acquiror Common Stock issuable to the holders of
Company Common Stock pursuant to Section 2.1(a) of this Agreement shall have
been included for listing on Nasdaq upon official notice of issuance.
(e) HSR Act. Any waiting period with any extensions thereof under the HSR
Act shall have expired or been terminated.
(f) Company Pooling Letter. There shall have been delivered to Acquiror
and the Company a letter from the Company's independent accountants, dated as of
the Closing Date and addressed to Acquiror, the Company and Acquiror's
independent accountants, reasonably satisfactory in form and substance to
Acquiror and Acquiror's independent accountants, to the effect that (i) after
reasonable investigation, the Company's independent accountants are not aware of
any fact concerning the Company or any of the Company's stockholders or
"affiliates" (as defined in Section 7.11) that could preclude Acquiror from
accounting for the Merger as a "pooling of interests" in accordance with GAAP,
Accounting Principles Board Opinion No. 16 and all published rules, regulations
and policies of the SEC, and (ii) the Merger is eligible to be accounted for as
a "pooling of interests" in accordance with GAAP, Accounting Principles Board
Opinion No. 16 and all published rules, regulations and policies of the SEC.
(g) Acquiror Pooling Letter. There shall have been delivered to Acquiror
and the Company a letter from Acquiror's independent accountants, dated as of
the Closing Date
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and addressed to Acquiror, reasonably satisfactory in form and substance to
Acquiror, to the effect that (i) after reasonable investigation, Acquiror's
independent accountants are not aware of any fact concerning Acquiror or any of
Acquiror's stockholders or "affiliates" (as defined in Section 7.11) that could
preclude Acquiror from accounting for the Merger as a "pooling of interests" in
accordance with GAAP, Accounting Principles Board Opinion No. 16 and all
published rules, regulations and policies of the SEC, and (ii) Acquiror's
independent accountants concur in Acquiror's management conclusion that Acquiror
may account for the Merger as a "pooling of interests" in accordance with GAAP,
Accounting Principles Board Opinion No. 16 and all published rules, regulations
and policies of the SEC.
(h) Tax Opinion. The Company and Acquiror shall have received a legal
opinion of the Company's counsel, on or before the date the Registration
Statement shall become effective and subsequently on the Closing Date, to the
effect that the Merger will constitute a reorganization within the meaning of
Section 368 of the Code (it being understood that, (A) in rendering such
opinion, the Company's legal counsel may rely upon tax representation letters
from each of Acquiror, Merger Sub and the Company, in each case, in form and
substance reasonably satisfactory to such tax counsel, and (B) if the Company's
legal counsel does not render such opinion, the condition set forth in this
Section shall nonetheless be deemed to be satisfied if Acquiror's legal counsel
renders such an opinion to Acquiror).
(i) Requisite Acquiror Approval. If Requisite Acquiror Approval becomes
necessary, the Requisite Acquiror Approval shall have been obtained prior to the
Extended Termination Date.
SECTION 8.2. Additional Conditions to Obligations of Acquiror and Merger Sub.
The obligations of Acquiror and Merger Sub to effect the Merger and the
other transactions contemplated in this Agreement are also subject to the
following conditions, any or all of which may be waived by Acquiror, in whole or
in part, to the extent permitted by applicable law:
(a) Representations and Warranties. The representations and warranties of
the Company made in this Agreement shall be true and correct in all material
respects when made and on and as of the Closing Date (except for representations
and warranties that speak as of a specific date or time, which need only be true
and correct in all material respects as of such date or time); provided,
however, that, notwithstanding the foregoing, the representations and warranties
of the Company set forth in Section 3.3 shall be true and correct in all
respects. Acquiror shall have received a certificate of the Chief Executive
Officer or Chief Financial Officer of the Company to that effect.
(b) Agreements and Covenants. The agreements and covenants of the Company
required to be performed on or before the Effective Time shall have been
performed in all material respects. Acquiror shall have received a certificate
of the Chief Executive Officer or Chief Financial Officer of the Company to that
effect.
(c) No Material Adverse Changes. There shall have been no Material Adverse
Effect on the Company since the date of this Agreement.
(d) No Litigation. There shall not be pending or threatened any suit,
action, proceeding or investigation: (i) challenging or seeking to restrain or
prohibit the consummation of the Merger or any of the other transactions
contemplated by this
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Agreement; (ii) relating to the Merger and seeking to obtain from Acquiror or
any Acquiror Subsidiary any damages that may be material to Acquiror, (iii)
seeking to prohibit or limit in any material respect Acquiror's ability to vote,
receive dividends with respect to or otherwise exercise ownership rights with
respect to the stock of the Surviving Corporation; or (iv) which would
materially and adversely affect the right of the Surviving Corporation to own
the assets or operate the business of the Company.
(e) Consents Under Company Agreements. The Company shall have obtained the
consent or approval of any Person whose consent or approval shall be required
under any agreement or instrument in order to permit the consummation of the
transactions contemplated hereby, except those which the failure to obtain would
not have a Material Adverse Effect on the Company.
(f) Minimum Closing Cash Reserves; Indebtedness. Immediately following the
Effective Time, the Company (i) shall have, after payment of all Transaction
Expenses, at least Fifty Million Dollars ($50,000,000) in the aggregate of (A)
cash on hand, plus (B) liquid investments with a maturity of three months or
less, plus (C) with respect to any marketable securities liquidated by the
Company in order to satisfy the condition set forth in clause (i)(B), the amount
by which the Company's book value of such securities immediately prior to such
liquidation exceeds the cash proceeds realized by the Company from such
liquidation; provided, that the amount added pursuant to this clause (i)(C)
shall not exceed Two Hundred Thousand Dollars ($200,000) in the aggregate, plus
(D) the outstanding royalty payments due to the Company from Fujisawa
Healthcare, Inc. ("Fujisawa") for the fiscal quarter ending December 31, 1999,
to the extent not collected; provided, that if the Closing occurs after March
31, 2000, the amount added pursuant to this clause (i)(D) shall include the
outstanding royalty payments due to the Company from Fujisawa for the fiscal
quarter ending March 31, 2000, to the extent not collected, plus (E) the
outstanding royalty payments due from Sanofi Pharma (France) ("Sanofi") to the
Company for the fiscal quarter ending December 31, 1999, to the extent not
collected; provided, that if the Closing occurs after March 3l, 2000, the amount
added pursuant to this clause (i)(E) shall include the outstanding royalty
payments due to the Company from Sanofi for the fiscal quarter ending March 31,
2000, to the extent not collected, plus (F) any amounts paid by the Company
after the date hereof and prior to the Closing which have been specifically
acknowledged in writing by Acquiror as permitted to be included for the purposes
of this Section 8.2(f) as "cash on hand" of the Company as of Closing, and (ii)
shall have no Indebtedness. Acquiror shall have received a certificate of the
Chief Financial Officer of the Company to that effect and all information
reasonably necessary for the Acquiror to determine the Company's satisfaction of
the conditions set forth in this Section 8.1(f), including any releases or
waivers Acquiror deems reasonably necessary from any Persons owed Transactions
Expenses from the Company.
(g) Release of Oral Contracts. The Company shall have obtained executed
releases in form and substance reasonably satisfactory to Acquiror of all oral
agreements set forth on Schedule 3.14.
SECTION 8.3. Additional Conditions to Obligations of the Company.
The obligations of the Company to effect the Merger and the other
transactions contemplated in this Agreement (except the transactions
contemplated in the Option
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Agreement) are also subject to the following conditions any or all of which may
be waived by the Company, in whole or in part, to the extent permitted by
applicable law:
(a) Representations and Warranties. The representations and warranties of
Acquiror and Merger Sub made in this Agreement shall be true and correct in all
material respects when made and on and as of the Closing Date (except for
representations and warranties that speak as of a specific date or time, which
need only be true and correct in all material respects as of such date and time.
The Company shall have received a certificate of the Chief Executive Officer or
Chief Financial Officer of Acquiror to such effect.
(b) Agreements and Covenants. The agreements and covenants of Acquiror and
Merger Sub required to be performed on or before the Effective Time shall have
been performed in all material respects. The Company shall have received a
certificate of the Chief Executive Officer or Chief Financial Officer of
Acquiror to such effect.
(c) No Material Adverse Change. There shall have been no Material Adverse
Effect on Acquiror since the date of this Agreement.
SECTION 8.4. Delayed Closing by the Company.
If the Closing hereunder shall not have occurred on or prior to February
29, 2000, and all of the conditions to Closing hereunder shall have otherwise
been satisfied during the month of March 2000 (except for the requirement of the
Company to satisfy the condition set forth in Section 8.2(f)(i) (the
"Cash-on-Hand Condition")), then the Company, upon prior written notice
delivered to Acquiror at least five (5) business days before the date which
would otherwise be the Closing Date hereunder, shall have a one time right to
delay the Closing Date for a period of up to thirty-five (35) days until the
date on which the Cash-on-Hand Condition shall be satisfied (such notice from
the Company shall designate the date to which the Company delays the Closing).
Nothing in this Section 8.4 shall constitute or be deemed to constitute a waiver
of any rights or conditions set forth in this Agreement and the parties
acknowledge and agree that if the Closing is delayed as contemplated in this
Section 8.4, all of the Closing conditions set forth in this Article VIII must
be satisfied or waived as of such delayed Closing Date.
ARTICLE IX.
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.1. Termination.
This Agreement may be terminated at any time prior to the Effective Time,
whether before or after approval of this Agreement and the Merger by the
stockholders of the Company:
(a) by mutual consent of Acquiror and the Company;
(b) by Acquiror, upon a breach of any covenant or agreement on the part of
the Company set forth in this Agreement, or if any representation or warranty of
the Company shall have become untrue, in either case such that the conditions
set forth in Section 8.2(a) or Section 8.2(b) would not be satisfied (a
"Terminating Company Breach"); provided, that, if such Terminating Company
Breach is curable by the Company through the exercise of reasonable efforts and
for so long as the Company continues to
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exercise such reasonable efforts, Acquiror may not terminate this Agreement
under this Section 9.1(b);
(c) by the Company, upon breach of any covenant or agreement on the part of
Acquiror set forth in this Agreement, or if any representation or warranty of
Acquiror shall have become untrue, in either case such that the conditions set
forth in Section 8.3(a) or Section 8.3(b) would not be satisfied (a "Terminating
Acquiror Breach"); provided, that, if such Terminating Acquiror Breach is
curable by Acquiror through the exercise of their reasonable efforts and for so
long as Acquiror continues to exercise such reasonable efforts, the Company may
not terminate this Agreement under this Section 9.1(c);
(d) by either Acquiror or the Company, if there shall be any decree,
permanent injunction, judgment, order or other action by any court of competent
jurisdiction or any Governmental Entity which is final and nonappealable
preventing the consummation of the Merger; provided, that the party seeking to
terminate this Agreement pursuant to this Section 9.1(d) shall have used
reasonable efforts to cause any such decree, permanent injunction, judgment or
other order to be vacated or lifted;
(e) by either Acquiror or the Company, if the Merger shall not have been
consummated on or before that date which is two hundred forty (240) calendar
days after the date hereof; provided, however, that if a request for additional
information is received from the United States Federal Trade Commission or the
Antitrust Division of the United States Department of Justice pursuant to the
HSR Act, then such date shall be extended to the 30th day following
certification by Acquiror and/or the Company, as applicable, that Acquiror
and/or the Company, as applicable, have substantially complied with such
request, but in any event not later than that date which is three hundred (300)
calendar days after the date hereof; provided, further, that if Requisite
Acquiror Approval becomes necessary, then such date shall be extended to the
earlier of (i) one hundred twenty days after the date of the Company
Stockholders Meeting or (ii) the 120th day following written notice to the
Company from Acquiror that such Requisite Acquiror Approval is required and
delivery by Acquiror to the Company of a voting agreement, in substantially the
same form as the Voting Agreement, executed by the "affiliates" (as defined in
Section 7.11) of Acquiror, pursuant to which such affiliates agree to vote in
favor of the issuance of shares of Acquiror Common Stock in connection with the
Merger (such extended date for the Requisite Acquiror Approval, the "Extended
Termination Date"); provided, further, that the right to terminate this
Agreement under this Section 9.1(e) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause of the
failure of the Merger to occur on or before such date;
(f) by either Acquiror or the Company, if the requisite vote of the
stockholders of the Company in favor of this Agreement shall not have been
obtained at the Company Stockholders Meeting (including any adjournment or
postponement thereof); provided, that the right to terminate this Agreement
under this Section 9.1(f) shall not be available to the Company if the Company
has not complied with its obligations under Section 7.3(b);
(g) by Acquiror, if (i) the Board of Directors of the Company withdraws or
modifies its recommendation of this Agreement or the Merger or shall have
resolved or publicly announced or disclosed to any third party its intention to
do any of the foregoing or the Board of Directors of the Company shall have
recommended to the stockholders of the Company any Acquisition Proposal or
resolved to do so; (ii) the Board of Directors of the
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Company fails to reconfirm its recommendation of this Agreement or the Merger
within five (5) Business Days of a written request by Acquiror to do so; (iii) a
tender offer or exchange offer for twenty percent (20%) or more of the
outstanding shares of Company Common Stock is commenced or a registration
statement with respect thereto shall have been filed and the Board of Directors
of the Company, within ten (10) Business Days after such tender offer or
exchange offer is so commenced or such registration statement is so filed,
either fails to recommend against acceptance of such tender or exchange offer by
its stockholders or takes no position with respect to the acceptance of such
tender or exchange offer by its stockholders, or (iv) the Company breaches in
any material respect the Option Agreement;
(h) by the Company, if the Board of Directors of the Company shall have
determined to recommend an Acquisition Proposal to its stockholders after
determining, pursuant to Section 7.8, that such Acquisition Proposal constitutes
a Superior Proposal, and the Company gives Acquiror at least three (3) Business
Days prior notice of its intention to effect such termination pursuant to this
Section 9.1(h), and the Company makes the payment required pursuant to Section
9.5(b) of this Agreement and pays the expenses for which the Company is
responsible under Section 9.5(a) of this Agreement;
(i) by Acquiror, if any Person (other than Acquiror or any Affiliate of
Acquiror pursuant to the Option Agreement) shall have acquired beneficial
ownership or the right to acquire beneficial ownership of, or any "group" (as
such term is defined under Section 13(d) of the Exchange Act and the regulations
promulgated thereunder), other than a "group" comprised of some or all of the
Persons listed on the signature pages to the Voting Agreement, shall have been
formed which beneficially owns, or has the right to acquire beneficial ownership
of, twenty percent (20%) or more of the then outstanding shares of capital stock
of the Company;
(j) by Acquiror, if there shall have occurred one or more events which
shall have caused a Material Adverse Effect on the Company which Material
Adverse Effect shall have remained uncured (to the extent curable) for a period
of thirty (30) days after written notice from Acquiror of Acquiror's intention
to terminate pursuant to this Section 9.1(j);
(k) by the Company, if there shall have occurred one or more events which
shall have caused a Material Adverse Effect on Acquiror which Material Adverse
Effect shall have remained uncured (to the extent curable) for a period of
thirty (30) days after written notice from the Company of the Company's
intention to terminate pursuant to this Section 9.1(k);
(l) by Acquiror, if during a Twenty Day Period (as defined below), the
Twenty Day Average Price (as defined below) shall be less than $30.00. For
purposes of this Section 9.1(l), (i) "Twenty Day Average Price" shall mean the
average of the reported closing prices per share of Acquiror Common Stock on the
Nasdaq (or the last bid price in the absence of a trade) during twenty (20)
consecutive trading days, and (ii) "Twenty Day Period" means any period of
twenty (20) consecutive trading days for the Acquiror Common Stock; or
(m) by Acquiror or the Company, if Requisite Acquiror Approval becomes
necessary but is not obtained at a duly called meeting of the stockholders of
Acquiror for such purpose (including any adjournment or postponement thereof).
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The right of any party hereto to terminate this Agreement pursuant to this
Section 9.1 shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of any party hereto, any Affiliate of
such party or any of their respective officers, directors, representatives or
agents, whether prior to or after the execution of this Agreement.
SECTION 9.2. Effect of Termination.
Except as provided in Section 9.5 of this Agreement, in the event of the
termination of this Agreement pursuant to Section 9.1, this Agreement shall
forthwith become void, there shall be no liability on the part of Acquiror or
the Company or any of their respective officers, directors, stockholders or
Affiliates to the other, and all rights and obligations of any party hereto
shall cease, except that nothing herein shall relieve any party from liability
for any willful breach by a party of any of its representations, warranties,
covenants or agreements in this Agreement; and provided that the provisions of
Section 7.2 and Section 9.5 of this Agreement and the Option Agreement will
remain in full force and effect and survive any termination of this Agreement.
SECTION 9.3. Amendment.
This Agreement may be amended by the parties hereto by action taken or
authorized by their respective Boards of Directors at any time prior to the
Effective Time; provided, however, that, after approval of the Merger by the
stockholders of the Company or the stockholders of Acquiror if Requisite
Acquiror Approval becomes necessary, no amendment may be made which by law or
rule of Nasdaq requires further approval by such stockholders without such
further approval. This Agreement may not be amended except by an instrument in
writing signed by each of the parties hereto.
SECTION 9.4. Extension; Waiver.
At any time prior to the Effective Time, any party hereto may (a) extend
the time for the performance of any of the obligations or other acts of any
other party hereto, (b) waive any inaccuracies in the representations and
warranties of any other party contained herein or in any document delivered
pursuant hereto and (c) waive compliance by any other party with any of the
agreements or conditions contained herein. Any such extension or waiver shall be
valid only if set forth in an instrument in writing signed by the party or
parties to be bond thereby.
SECTION 9.5 Fees, Expenses and Other Payments.
(a) Except as otherwise set forth in this Agreement, all costs and expenses
incurred by the parties hereto shall be borne solely and entirely by the party
which has incurred such costs and expenses, whether or not the Merger is
consummated; provided, however, that Acquiror and the Company shall share
equally all costs and expenses (other than attorney's and accountants' fees and
expenses) incurred in relation to printing and filing and, as applicable,
mailing the Registration Statement and the Proxy Statement/
Prospectus and any amendments or supplements thereto and all SEC and other
regulatory filing fees incurred in connection with the Registration Statement
and the Proxy Statement/Prospectus and the fees required under the HSR Act and
applicable foreign laws, if any, incurred in connection with the transactions
contemplated under this Agreement.
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(b) If this Agreement is terminated (i) by Acquiror pursuant to Section
9.1(b), (ii) by Acquiror pursuant to Section 9.1(g), or (iii) by the Company
pursuant to Section 9.1(h), then the Company shall pay to Acquiror a termination
fee of Twelve Million Dollars ($12,000,000) in cash (the "Termination Fee"),
immediately upon such termination.
(c) If this Agreement is terminated by Acquiror pursuant to Section 9.1(l),
then the Company shall pay to Acquiror a fee equal to two (2) times the Acquiror
Transaction Expenses in addition to any amounts which may become payable
pursuant to Section 9.5(e); provided, however, that in no event shall the fee
payable pursuant to this Section 9.5(c) exceed Six Million Dollars ($6,000,000).
For purposes of this Section 9.5(c), "Acquiror Transaction Expenses" shall mean
all documented costs, fees, expenses and other amounts incurred or payable,
directly or indirectly, by Acquiror or any Affiliate of Acquiror in connection
with the Merger and this Agreement, including, without limitation, (i) all
reasonable legal, accounting, brokerage and other fees, costs and expenses
incurred for the benefit of Acquiror or any Affiliate of Acquiror and (ii) all
filing, registration and other similar fees and expenses payable paid by or on
behalf of Acquiror or any Affiliate of Acquiror.
(d) If this Agreement is terminated pursuant to Section 9.1(e) as a result
of the failure of the Company to timely fulfill any obligation under this
Agreement, and if an Acquisition Proposal involving the Company is thereafter
consummated or the Company enters into a definitive agreement with respect to an
Acquisition Proposal within twelve (12) months after such termination of this
Agreement, the Company shall pay to Acquiror the Termination Fee, at or prior to
the consummation of such Acquisition Proposal, or immediately upon the effective
date of such definitive agreement, whichever is earlier.
(e) If this Agreement is terminated (i) by either Acquiror or the Company
pursuant to Section 9.1(f) as a result of the failure to receive the requisite
vote for approval of this Agreement and the Merger by the stockholders of the
Company at the Company Stockholders Meeting or (ii) by Acquiror pursuant to
Section 9.1(l), and, in the case of clause (i) or (ii), an Acquisition Proposal
involving the Company is thereafter consummated or the Company enters into a
definitive agreement with respect to an Acquisition Proposal within twelve (12)
months after such termination of this Agreement pursuant to Section 9.1(f) or
Section 9.1(l), as applicable, then the Company shall pay to Acquiror the
Termination Fee at or prior to the consummation of such Acquisition Proposal or
immediately upon the effective date of such agreement, whichever is earlier.
(f) Any payment required to be made pursuant to Section 9.5(b), Section
9.5(c), Section 9.5(d) or Section 9.5(e) of this Agreement shall be made by wire
transfer of immediately available funds to an account designated by Acquiror.
ARTICLE X.
GENERAL PROVISIONS
SECTION 10.1. Effectiveness of Representations, Warranties and Agreements.
(a) Except as set forth in Section 10.1(b) of this Agreement, the
representations, warranties, covenants and agreements of each party hereto shall
remain operative and in full force and effect regardless of any investigation
made by or on behalf of any other party
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hereto, any Affiliate of such party or any of their officers, directors,
representatives or agents whether prior to or after the execution of this
Agreement.
(b) The representations and warranties in this Agreement will terminate at
the Effective Time; provided, however, that this Section 10.1(b) shall in no way
limit or terminate any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time or after the termination of
this Agreement pursuant to Article IX.
SECTION 10.2. Notices.
All notices and other communications given or made pursuant hereto shall be
in writing and shall be deemed to have been duly given or made as of the date
delivered, mailed or transmitted, and shall be effective upon receipt, if
delivered personally, mailed by registered or certified mail (postage prepaid,
return receipt requested) to the parties at the following addresses (or at such
other address for a party as shall be specified by like changes of address) or
sent by electronic transmission to the telecopier number specified below:
(a) If to Acquiror:
KING PHARMACEUTICALS, INC.
501 Fifth Street
Bristol, Tennessee 37620
Telecopier No.: (423) 989-8006
Attention: Chief Executive Officer
and
Telecopier No.: (423) 989-6282
Attention: Executive Vice President and General Counsel
With a copy (which shall not constitute notice) to:
Hogan & Hartson L.L.P.
8300 Greensboro Drive
Suite 1100
McLean, Virginia 22102
Telecopier No.: (703) 610-6200
Attention: Richard T. Horan, Jr., Esq.
Thomas E. Repke, Esq.
(b) If to the Company:
MEDCO RESEARCH, INC.
7001 Weston Parkway, Suite 300
Cary, North Carolina 27513
Telecopier No.: (919) 653-7022
Attention: Richard C. Williams, Chairman
With a copy (which shall not constitute notice) to:
Hofheimer, Gartlier & Gross
530 Fifth Avenue
New York, New York 10036
Telecopier No.: (212) 661-3132
Attention: Richard G. Klein, Esq.
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SECTION 10.3. Certain Definitions.
For purposes of this Agreement, the term:
(a) "Affiliate" of any Person means a Person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, the first mentioned Person;
(b) "beneficial owner" (including the terms "beneficial ownership" and
"beneficially own") means with respect to any shares of capital stock, a Person
who shall be deemed to be the beneficial owner or have beneficial ownership of
such shares (i) which such Person or any of its Affiliates or associates
beneficially owns, directly or indirectly, (ii) which such Person or any of its
Affiliates or associates (as such term is defined in Rule 12b-2 of the Exchange
Act) has, directly or indirectly, (A) the right to acquire (whether such right
is exercisable immediately or subject only to the passage of time), pursuant to
any agreement, arrangement or understanding or upon the exercise of conversion
rights, exchange rights, warrants or options, or otherwise, or (B) the right to
vote pursuant to any agreement, arrangement or understanding, (iii) which are
beneficially owned, directly or indirectly, by any other Persons with whom such
Person or any of its Affiliates or associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding voting or disposing of any
such shares or (iv) pursuant to Section 13(d) of the Exchange Act and any rules
or regulations promulgated thereunder;
(c) "Business Day" shall mean any day other than a day on which banks in
the State of New York are authorized or obligated to be closed;
(d) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management or
policies of a Person, whether through the ownership of stock or as trustee or
executor, by contract or credit arrangement or otherwise;
(e) "Encumbrance" shall mean any lien, pledge, charge, security interest or
other encumbrance of any nature;
(f) "Indebtedness" of a Person shall mean (i) indebtedness of such Person
for borrowed money whether short-term or long-term and whether secured or
unsecured, (ii) indebtedness of such Person for the deferred purchase price of
services or property, which purchase price (A) is due twelve months or more from
the date of incurrence of the obligation in respect thereof or (B) customarily
or actually is evidenced by a note or other written instrument (including,
without limitation, any such indebtedness which is non-recourse to the credit of
such Person but is secured by assets of such Person); provided,that for purposes
of this clause (ii), "Indebtedness" shall not include (x) amounts that may
become due to a clinical research organization in connection with the ordinary
course annual "true-up" process pursuant to which the Company's actual payments
for services rendered by such clinical research organization to the Company are
reconciled against the actual services rendered or (y) milestone payments or
license fees payable by the Company pursuant to the terms of the license
agreements set forth on Schedule 3.13; (iii) obligations of such Person under
capital leases, (iv) obligations of such Person arising under acceptance
facilities, (v) the undrawn face amount of, and unpaid reimbursement obligations
in respect of, all letters of credit issued for the account of such Person, (vi)
all obligations of such Person evidenced by bonds, debentures, notes or other
similar instruments, (vii) all obligations of such Person upon which interest
charges are
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customarily paid, (viii) all obligations of such Person under conditional sale
or other title retention agreements relating to property purchased by such
Person (even though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of such
property), (ix) obligations of such Person to purchase, redeem, retire, defease
or otherwise acquire for value any capital stock of such Person or any warrants,
rights or options to acquire such capital stock (with redeemable preferred stock
being valued at the greater of its voluntary or involuntary liquidation
preference plus accrued and unpaid dividends), (x) all executory obligations of
such Person in respect of financial hedge contracts (including, without
limitation, equity hedge contracts), (xi) all indebtedness of the types referred
to in clauses (i) through (x) above for which such Person is obligated under a
contingent obligation and (xii) renewals, extensions, refundings, deferrals,
restructurings, amendments and modifications of any such indebtedness,
obligation or guarantee;
(g) "Intellectual Property" means all (i) patents and patent applications,
(ii) trademarks, service marks, trade dress, logos, trade names, and corporate
names and registrations and applications for registration thereof, (iii)
copyrights and registrations and applications for registration thereof, (iv)
computer software, data, and documentation, (v) trade secrets and confidential
business information (including formulas, compositions, inventions (whether
patentable or unpatentable and whether or not reduced to practice), know-how,
manufacturing and production processes and techniques, research and development
information, drawings, specifications, designs, plans, proposals, technical
data, copyrightable works, financial, marketing, and business data, pricing and
cost information, business and marketing plans, and customer and supplier lists
and information, (vi) Internet domain names and applications for domain names,
(vii) other proprietary rights, and (viii) copies and tangible embodiments
thereof (in whatever form or medium);
(h) "Material Adverse Effect" shall mean, with respect to a specified
Person any change, event or effect that individually or in the aggregate (taking
into account all other such changes, events or effects) has had, or would be
reasonably likely to have, a material adverse effect on the business,
operations, earnings, condition (financial or otherwise) or prospects of such
Person and its Subsidiaries, if any, taken as a whole, except to the extent in
the case of Acquiror that any such change, event or effect is caused by a
decline in the price of a share of Acquiror Common Stock or a change in the
trading volume of Acquiror Common Stock;
(i) "Person" means an individual, corporation, partnership, association,
trust, unincorporated organization, other entity or group (as defined in Section
13(d) of the Exchange Act);
(j) "reasonable efforts" shall mean, as to a party hereto, an undertaking
by such party to perform or satisfy an obligation or duty or otherwise act in a
manner reasonably calculated to obtain the intended result by action or
expenditure not disproportionate or unduly burdensome in the circumstances,
which means, among other things, that such party shall not be required to (i)
expend funds other than for payment of the reasonable and customary costs and
expenses of employees, counsel, consultants, representatives or agents of such
party in connection with the performance or satisfaction of such obligation or
duty or other action or (ii) institute litigation or arbitration as a part of
its reasonable efforts; and
(k) "Tax" (including, with correlative meaning, the terms "Taxes" and
"Taxable") shall include, except where the context otherwise requires, all
federal, state, local and
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foreign income, profits, franchise, gross receipts, payroll, sales, employment,
use, property, withholding, excise, occupancy and other taxes, duties or
assessments or claims of any nature whatsoever, together with all interest,
penalties and additions imposed with respect to such amounts.
(l) "Transaction Expenses" shall mean all costs, fees, expenses and other
amounts incurred or payable (or reasonably expected to be incurred or payable),
directly or indirectly, by the Company or any Affiliate of the Company, in
connection with the Merger, including, without limitation, (i) all reasonable
legal, accounting, brokerage and other fees, costs and expenses incurred for the
benefit of the Company or any Affiliate of the Company, including, without
limitation, the fees payable to Hambrecht & Quist LLC, (ii) all filing,
registration and other similar fees and expenses paid by or on behalf of the
Company or any Affiliate of the Company, (iii) the fees and expenses payable to
Richard C. Williams or any other amounts payable upon a "change in control" of
the Company or in connection with the consummation of the transactions
contemplated herein, (iv) the adverse consequences on the Taxes payable by the
Company, the Surviving Corporation and/or the Acquiror as a result of the
payment of the amounts described in the preceding clause (iii), (v) all amounts
paid or payable in connection with the extension of the Company's directors' and
officers' liability insurance coverage pursuant to Section 7.6(d) hereof, and
(vi) fees, costs and expenses described on Schedule 10.3(l).
SECTION 10.4. Headings.
The headings contained in this Agreement are for reference purposes only
and shall not affect in any way the meaning or interpretation of this Agreement.
SECTION 10.5. Severability.
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law or public policy or other
judgment, decree, injunction or order, all other conditions and provisions of
this Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated hereby is not
affected in any manner materially adverse to any party. Upon such determination
that any term or other provision is invalid, illegal or incapable of being
enforced, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner to the end that transactions contemplated
hereby are fulfilled to the extent possible.
SECTION 10.6. Entire Agreement.
This Agreement (together with the Exhibits, the Disclosure Schedules and
the other documents delivered pursuant hereto) and the Option Agreement and the
Confidentiality Agreement constitute the entire agreement of the parties and
supersede all prior agreements and undertakings, both written and oral, between
the parties, or any of them, with respect to the subject matter hereof and,
except as otherwise expressly provided herein, are not intended to confer upon
any other Person any rights or remedies hereunder.
SECTION 10.7. Specific Performance.
The transactions contemplated by this Agreement are unique. Accordingly,
the Company acknowledges and agrees that, in addition to all other remedies to
which
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Acquiror or Merger Sub may be entitled, each of Acquiror and Merger Sub shall be
entitled to a decree of specific performance.
SECTION 10.8. Assignment.
Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto (whether by operation
of law or otherwise) without the prior written consent of the other party.
Subject to the preceding sentence, this Agreement shall be binding upon, inure
to the benefit of and be enforceable by the parties and their respective
successors and assigns.
SECTION 10.9. Third Party Beneficiaries.
Subject to Section 10.8, this Agreement shall be binding upon and inure
solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other Person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement.
SECTION 10.10. Governing Law.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Delaware, regardless of the laws that might otherwise
govern under applicable principles of conflicts of law.
SECTION 10.11. Counterparts.
This Agreement may be executed and delivered in one or more counterparts,
and by the different parties hereto in separate counterparts, each of which when
executed and delivered shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement and Plan
of Merger to be executed and delivered as of the date first written above.
KING PHARMACEUTICALS, INC.
By: /s/ JOHN M. GREGORY
Name: John M. Gregory
Title: Chairman of the Board &
Chief Executive Officer
MEDCO RESEARCH, INC.
By: /s/ RICHARD C. WILLIAMS
Name: Richard C. Williams
Title: Chairman
MERLIN ACQUISITION I CORP.
By: /s/ JOHN M. GREGORY
Name: John M. Gregory
Title: President
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INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
SECTION
-----------
<S> <C>
Acquiror.................................................... PREAMBLE
Acquiror Common Stock....................................... 2.1(a)
Acquiror Permits............................................ 5.10
Acquiror Environmental Claim................................ 5.14(d)
Acquiror Environmental Permits.............................. 5.14(a)
Acquiror SEC Reports........................................ 5.6(a)
Acquiror Stock Option Plans................................. 5.3(a)
Acquiror Subsidiary and Acquiror Subsidiaries............... 5.1
Acquiror Transaction Expenses............................... 9.5(e)
Acquisition Proposal........................................ 7.8(b)
Affiliate................................................... 10.3(a)
Agreement................................................... PREAMBLE
Average Closing Price....................................... 2.1(a)
beneficial owner, beneficial ownership or beneficially
own....................................................... 10.3(b)
Benefit Plans............................................... 3.15(a)
Blue Sky Laws............................................... 3.5(b)
Business Day................................................ 10.3(c)
Cash-on-Hand Condition...................................... 8.4
Certificate and Certificates................................ 2.2(b)
Certificate of Merger....................................... 1.2
Claim....................................................... 7.6(b)
Closing..................................................... 1.6
Closing Date................................................ 1.6
COBRA....................................................... 3.15(g)
Code........................................................ RECITALS
Company..................................................... PREAMBLE
Company Benefit Plans....................................... 3.15(a)
Company Common Stock........................................ RECITALS
Company Commonly Controlled Entity.......................... 3.15(a)
Company Environmental Claim................................. 3.18(d)(i)
Company Environment Permits................................. 3.18(a)
Company ERISA Plan.......................................... 3.15(a)
Company Insiders............................................ 7.18(c)
Company Intellectual Property............................... 3.13(a)
Company Material Contracts.................................. 3.14(a)
Company Permits............................................. 3.10
Company Preferred Stock..................................... 3.3(a)
Company SEC Reports......................................... 3.6(a)
Company Stock Option Plan................................... 2.3(a)
Company Stockholder Approval................................ 3.4
Company Stockholders Meeting................................ 7.3(b)
Company Subsidiary and Company Subsidiaries................. 3.1(a)
Confidentiality Agreement................................... 7.2
control, controlled by, under common control with........... 10.3(d)
CSA......................................................... 3.27(a)
Current Cash Reserves....................................... 3.28
DEA......................................................... 3.27(a)
Delaware Law................................................ RECITALS
Due Investigation........................................... 3.13(a)
</TABLE>
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<TABLE>
<CAPTION>
SECTION
-----------
<S> <C>
Effective Time.............................................. 1.2
Encumbrance................................................. 10.3(e)
Environmental Laws.......................................... 3.18(d)(ii)
ERISA....................................................... 3.15(a)
Exchange Act................................................ 3.5(b)
Exchange Agent.............................................. 2.2(a)
Exchange Fund............................................... 2.2(a)
Exchange Ratio.............................................. 2.1(a)
Extended Termination Date................................... 8.2(f)
FDA......................................................... 3.5(b)
FDCA........................................................ 3.27(a)
Fujisawa.................................................... 8.2(f)
GAAP........................................................ RECITALS
Governmental Entity......................................... 3.5(b)
Hazardous Materials......................................... 3.18(d)(iii)
HIPAA....................................................... 3.15(g)
HSR Act..................................................... 3.5(b)
Indebtedness................................................ 10.3(f)
Indemnified Parties......................................... 7.6(b)
Intellectual Property....................................... 10.3(g)
Interim Period.............................................. 7.1
Material Adverse Effect..................................... 10.3(h)
Merger...................................................... 1.1
Merger Consideration........................................ 2.1(a)
Merger Sub.................................................. PREAMBLE
Multiemployer Plan.......................................... 3.15(d)
Nasdaq...................................................... 2.1(a)
NASD........................................................ 4.4(b)
NYSE........................................................ 3.5(b)
Option...................................................... 2.3(a)
Option Agreement............................................ RECITALS
Parachute Gross Up Payment.................................. 3.15(f)
Person...................................................... 10.3(i)
Pharmaceutical Product...................................... 3.27(a)
PHSA........................................................ 3.27(a)
Product Licensee............................................ 3.27(a)
Proxy Statement/Prospectus.................................. 3.25
Real Property Leases........................................ 3.14(a)
reasonable efforts.......................................... 10.3(j)
Receiving Party............................................. 7.2
Registration Statement...................................... 3.25
Representatives............................................. 7.8(a)
Requisite Acquiror Approval................................. 5.4
Rights...................................................... 3.3
Rights Agreement............................................ 3.3
Sanofi...................................................... 8.2(f)
SEC......................................................... 3.6(a)
Section 16 Information...................................... 7.18(b)
Securities Act.............................................. 3.5(b)
Subsidiary.................................................. 3.1(b)
</TABLE>
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<TABLE>
<CAPTION>
SECTION
-----------
<S> <C>
Superior Proposal........................................... 7.8(c)
Surviving Corporation....................................... 1.1
Tax, Taxable and Taxes...................................... 10.3(k)
Tax Returns................................................. 5.12
Terminating Acquiror Breach................................. 9.1(c)
Terminating Company Breach.................................. 9.1(b)
Termination Fee............................................. 9.5(b)
Transaction Expenses........................................ 10.3(l)
Twenty Day Average Price.................................... 9.1(l)
Twenty Day Period........................................... 9.1(l)
Voting Agreement............................................ RECITALS
1997 Plan................................................... 5.3(a)
1998 Plan................................................... 5.3(a)
</TABLE>
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ANNEX B
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT (this "Agreement"), dated as of November 30, 1999,
between MEDCO RESEARCH, INC., a Delaware corporation (the "Company"), and KING
PHARMACEUTICALS, INC., a Tennessee corporation ("Grantee").
WHEREAS, the Company, Grantee and Merlin Acquisition I Corp., a Delaware
corporation and a newly-formed, wholly-owned, direct subsidiary of Grantee
("Merger Sub"), have contemporaneously with the execution of this Agreement
entered into an Agreement and Plan of Merger dated as of the date hereof (the
"Merger Agreement") which provides, among other things, that Merger Sub shall be
merged with and into the Company pursuant to the terms and conditions thereof;
and
WHEREAS, as an essential condition and inducement to Grantee's entering
into the Merger Agreement and in consideration therefor, the Company has agreed
to grant Grantee the Option (as hereinafter defined).
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein and in the Merger Agreement, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound hereby, the parties hereby agree
as follows:
1. Grant of Option.
The Company hereby grants to Grantee an irrevocable option (the "Option")
to purchase up to Two Million Three Hundred Thirty-nine Thousand Six Hundred
Ninety-two (2,339,692) validly issued, fully paid and non-assessable shares of
Company Common Stock (such shares, as adjusted pursuant to Section 7 of this
Agreement, the "Option Shares"), together with the associated rights (the
"Rights") under the Rights Agreement, dated as of April 14, 1998, between the
Company and American Stock Transfer & Trust Company, as Rights Agent (references
to the Option Shares shall be deemed to include the associated Rights), at a
purchase price of Thirty Dollars ($30.00) per share (such price, as adjusted
pursuant to Section 7 of this Agreement, the "Option Price"); provided, however,
that in no event shall the number of Option Shares for which this Option is
exercisable exceed nineteen and nine-tenths percent (19.9%) of the number of
shares of Company Common Stock issued and outstanding (before giving effect to
the exercise of the Option) at the time this Option is exercised.
2. Certain Terms of the Option.
(a) Exercise of Option. Grantee may exercise the Option, in whole or part,
and from time to time, if, but only if, a Triggering Event (as hereinafter
defined) shall have occurred prior to the occurrence of an Option Termination
Event (as hereinafter defined); provided that Grantee shall have sent the
written notice of such exercise (as provided in Section 2(e) hereof) on or prior
to the last date of the eighteen (18) month period following such Triggering
Event (the "Option Expiration Date"). The right to exercise the Option shall
terminate upon the first to occur of the Option Expiration Date or an Option
Termination Event.
(b) Triggering Events. The term "Triggering Event" shall mean the
occurrence of the date, upon or after termination of the Merger Agreement, on
which Grantee's right,
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pursuant to Section 9.5(b), Section 9.5(d) or Section 9.5(e) of the Merger
Agreement, to receive the Termination Fee first arises.
(c) Option Termination Events. The term "Option Termination Event" shall
mean the earlier to occur of (i) the Effective Time; (ii) the termination of the
Merger Agreement pursuant to Section 9.1(l) of the Merger Agreement; or (iii)
the termination of the Merger Agreement other than under circumstances which
constitute (or may constitute in the event of a termination of the Merger
Agreement pursuant to Section 9.1(e) or Section 9.1(f) of the Merger Agreement)
a Triggering Event under this Agreement.
(d) Notice of Triggering Event. The Company shall notify Grantee in
writing as promptly as practicable following the Company becoming aware of the
occurrence of any Triggering Event, it being understood that the giving of such
notice by the Company shall not be a condition to the right of Grantee to
exercise the Option or for a Triggering Event to have occurred.
(e) Notice of Exercise; Closing. In the event that Grantee is entitled to
and desires to exercise the Option (in whole or in part), Grantee shall send to
the Company a written notice (such notice being herein referred to as an
"Exercise Notice" and the date of issuance of an Exercise Notice being herein
referred to as the "Notice Date") specifying (i) the total number of shares (or
other Option Securities (as hereinafter defined)) Grantee will purchase pursuant
to such exercise and (ii) a place and date not earlier than three (3) Business
Days nor later than sixty (60) Business Days after the Notice Date for the
closing of such purchase (the "Option Closing Date"); provided, that if the
closing of the purchase and sale pursuant to the Option (the "Option Closing")
cannot be consummated by reason of any applicable Order, the period of time that
otherwise would run pursuant to this sentence shall run instead from the date on
which such restriction on consummation has expired or been terminated; provided,
further, without limiting the foregoing, that if, in the reasonable opinion of
Grantee, prior notification to or approval of any Governmental Entity is
required in connection with such purchase, the Company or Grantee, as the case
may be, shall promptly file the required notice or application for approval and
shall expeditiously process the same and the period of time that otherwise would
run pursuant to this sentence shall run instead from the date on which any
required notification periods have expired or been terminated or such approvals
have been obtained and any requisite waiting period or periods shall have
passed.
(f) Payment of Purchase Price. Subject to Section 2(k), at any Option
Closing, Grantee shall pay to the Company the aggregate Option Price for the
number of Option Shares and Option Securities to be issued at such Option
Closing, in immediately available funds by wire transfer to a bank account
designated by the Company; provided that failure or refusal of the Company to
designate such a bank account shall not preclude Grantee from exercising the
Option.
(g) Issuance of Company Common Stock. Subject to Section 2(k), at any
Option Closing, simultaneously with the delivery of immediately available funds
as provided in Section 2(f) hereof, the Company shall deliver to Grantee a
certificate or certificates representing the number of shares of Company Common
Stock (or other Option Securities) purchased by Grantee at such Option Closing
and, if the Option should be exercised in part only, a new Option evidencing the
rights of Grantee thereof to purchase the balance of the Option Shares (or other
Option Securities) purchasable hereunder. If at the time of issuance of any
Option Shares pursuant to an exercise of all or part of the
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Option hereunder, the Company shall have issued any rights or other securities
which are attached to or otherwise associated with Company Common Stock, then
each Option Share issued pursuant to such exercise shall also represent such
rights or other securities with terms substantially the same as and at least as
favorable to Grantee as are provided under any shareholder rights agreement or
similar agreement of the Company then in effect.
(h) Legend. Certificates for Company Common Stock (or other Option
Securities) delivered at an Option Closing hereunder may be endorsed with a
restrictive legend that shall read substantially as follows:
"THE TRANSFER OF THE SHARES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO
RESALE RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS AMENDED."
It is understood and agreed that the reference to the resale restrictions of the
Securities Act in the above legend shall be removed by delivery of substitute
certificate(s) without such reference if Grantee shall have delivered to the
Company a copy of a letter from the staff of the SEC, or an opinion of counsel
reasonably satisfactory to the Company, to the effect that such legend is not
required for purposes of the Securities Act.
(i) Record Grantee; Expenses. Upon the delivery by Grantee to the Company
of the Exercise Notice and the tender of the applicable Option Price in
immediately available funds, Grantee shall be deemed to be the holder of record
of the shares of Company Common Stock (or other Option Securities) issuable upon
such exercise, notwithstanding that the stock transfer books of the Company
shall then be closed or that certificates representing such shares of Company
Common Stock (or other Option Securities) shall not then be actually delivered
to Grantee or that the Company shall have failed or refused to designate the
bank account described in Section 2(f). The Company shall pay all expenses that
may be payable in connection with the preparation, issuance and delivery of
stock certificates under this Section 2 in the name of Grantee. Grantee shall
pay all expenses that may be payable in connection with the issuance and
delivery of stock certificates or a substitute option agreement in the name of
any assignee, transferee or designee of Grantee.
(j) Consents. The obligation of the Company to issue Option Shares (or
other Option Securities) to Grantee hereunder is subject to the conditions that
(i) any waiting period under the HSR Act applicable to the issuance of the
Option Shares (or other Option Securities) hereunder shall have expired or been
terminated; (ii) all material consents, approvals, orders or authorizations of,
or registrations, declarations or filings with, any Governmental Entity, if any,
required in connection with the issuance of the Option Shares (or other Option
Securities) hereunder shall have been obtained or made, as the case may be; and
(iii) no preliminary or permanent injunction or other Order prohibiting or
otherwise restraining such issuance shall be in effect. It is understood and
agreed that at any time during which the Option is exercisable, the parties will
use their respective best efforts to satisfy all such conditions to closing, so
that an Option Closing may take place as promptly as practicable.
(k) Cancellation Amount. If at any time while this Option is exercisable
under Section 2(a), any Person or group (other than Grantee or its Affiliates)
(i) shall have made a bona fide proposal with respect to (A) a tender offer or
exchange offer for fifty percent (50%) or more of the then outstanding shares of
Company Common Stock (a
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"Share Proposal"), (B) a merger, consolidation or other business combination
with the Company (a "Merger Proposal") or (C) any acquisition of a material
portion of the assets of the Company (an "Asset Proposal"), or (ii) shall have
acquired fifty percent (50%) or more of the then outstanding shares of Company
Common Stock (a "Share Acquisition"), then Grantee, in lieu of exercising the
Option, shall have the right at any time thereafter (for so long as the Option
is exercisable under Section 2(a)) to request in writing (a "Cancellation
Notice") that the Company pay, and promptly (but in any event not more than five
(5) Business Days) after the giving by Grantee of such Cancellation Notice, the
Company shall pay to Grantee, in cancellation of the Option, an amount in cash
equal to the Cancellation Amount (as defined below). Notwithstanding anything to
the contrary in this Agreement, in the event of any closing involving the
payment of a Cancellation Amount, Grantee shall deliver to the Company for
cancellation the Option, and the Company shall make payment to Grantee of the
Cancellation Amount by wire transfer of immediately available funds pursuant to
Grantee's instructions.
As used herein, the "Cancellation Amount" shall mean an amount equal to:
(i) the excess over the Option Price of the greater of (A) the last
sale price of a share of Company Common Stock as reported on the New York
Stock Exchange on the last trading day prior to the date of the
Cancellation Notice, or (B)(x) the highest price per share of Company
Common Stock offered or proposed to be paid or paid by any such Person or
group pursuant to or in connection with a Share Proposal, a Share
Acquisition or a Merger Proposal or (y) the aggregate consideration offered
to be paid or paid in any transaction or proposed transaction in connection
with an Asset Proposal, divided by the number of shares of Company Common
Stock then outstanding, multiplied by (ii) the number of Option Shares then
covered by the Option. If all or a portion of the price per share of
Company Common Stock offered, paid or payable or the aggregate
consideration offered, paid or payable for the assets of the Company, each
as contemplated by this Section 2(k), consists of non-cash consideration,
such price or aggregate consideration shall be the cash consideration, if
any, plus the fair market value of the non-cash consideration as determined
by the mutual agreement of the investment bankers of the Company and the
investment bankers of Grantee (or, if such investment bankers cannot agree
within ten (10) Business Days of such question being submitted for such
determination, then promptly by an independent investment banker chosen by
Grantee's investment bankers and reasonably acceptable to the Company's
investment bankers).
3. Evaluation of Investments. Grantee, by reason of its knowledge and
experience in financial and business matters, believes itself capable of
evaluating the merits and risks of an investment in the Option and the
securities to be purchased/sold pursuant to this Agreement (collectively, the
"Option Securities").
4. Investment Intent. Grantee represents and warrants that Grantee is
entering into this Agreement and is acquiring and/or will acquire the Option
Securities for Grantee's own account and not with a view to resale or
distribution of all or any part of the Option Securities in violation of
applicable law.
5. Reservation of Shares. The Company agrees (a) that the Company shall at
all times maintain, free from preemptive rights, sufficient authorized but
unissued shares of Company Common Stock (and other Option Securities) issuable
pursuant to this Agreement so that the Option may be exercised without
additional authorization of Company Common Stock (or such other Option
Securities) after giving effect to all other
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options, warrants, convertible securities and other rights to purchase Company
Common Stock (or such other Option Securities); (b) that the Company shall not,
by charter amendment or through reorganization, consolidation, merger,
dissolution or sale of assets, or by any other voluntary act, avoid or seek to
avoid the observance or performance of any of the covenants to be observed or
performed hereunder by the Company; and (c) promptly to take all action as may
from time to time be required in order to permit Grantee to exercise the Option
and the Company to duly and effectively issue shares of Company Common Stock (or
other Option Securities) pursuant hereto.
6. Division of Option; Lost Options. This Agreement (and the Option
granted hereby) are exchangeable, without expense, at the option of Grantee,
upon presentation and surrender of this Agreement at the principal office of the
Company, for other agreements providing for Options of different denominations
entitling the holder(s) thereof to purchase, on the same terms and subject to
the same conditions as are set forth herein, in the aggregate the same number of
shares of Company Common Stock purchasable hereunder. Upon receipt by the
Company of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Agreement, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and upon surrender and
cancellation of this Agreement, if mutilated, the Company will execute and
deliver a new Agreement of like tenor and date.
7. Adjustment Upon Changes in Capitalization. The number of shares of
Company Common Stock purchasable upon the exercise of the Option shall be
subject to adjustment from time to time as provided in this Section 7.
(a) Transaction Adjustment. In the event of any change in Company Common
Stock by reason of stock dividends, splits, mergers, recapitalizations,
combinations, subdivisions, conversions, exchanges of shares or other similar
transactions, then the Option Shares that are then purchasable upon exercise of
the Option shall be appropriately adjusted so that Grantee shall receive upon
exercise of the Option and payment of the aggregate Option Price hereunder the
number and class of shares or other securities or property (including cash) that
Grantee would have owned or been entitled to receive after the happening of any
of the events described in this Section 7(a) if the Option had been exercised
immediately prior to such event, or the record date therefor, as applicable.
(b) Option Price Adjustment. Whenever the number of shares of Company
Common Stock subject to this Option are adjusted pursuant to Section 7(a), the
Option Price shall be appropriately adjusted, if applicable, by multiplying the
Option Price by a fraction, the numerator of which shall be equal to the
aggregate number of shares of Company Common Stock purchasable under the Option
prior to the adjustment and the denominator of which shall be equal to the
aggregate number of shares of Company Common Stock purchasable under the Option
immediately after the adjustment.
8. Profit Limitation.
(a) Notwithstanding any other provision of this Agreement, in no event
shall the Total Profit (as hereinafter defined) exceed in the aggregate
Seventeen Million Dollars ($17,000,000) (such amount, the "Maximum Profit") and,
if Grantee's Total Profit shall exceed such Maximum Profit, Grantee, at its sole
discretion, shall either (i) reduce the number of shares of Company Common Stock
subject to this Option, (ii) deliver to the Company for cancellation Option
Shares (or other securities into which such Option Shares are converted or
exchanged) previously purchased by Grantee, (iii) pay cash to the
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Company or (iv) any combination thereof, so that Grantee's actually realized
Total Profit shall not exceed the Maximum Profit after taking into account the
foregoing actions.
(b) As used herein, the term "Total Profit" shall mean: (i) the aggregate
amount of (A) any excess of (x) the net cash proceeds actually received by
Grantee from the sale of Option Shares (or securities into which such shares are
converted or exchanged) to any unaffiliated third party, over (y) the aggregate
Option Price for such Option Shares (or other securities), plus (B) the amount
of the Cancellation Amount actually received by Grantee pursuant to Section
2(k)hereof, plus (C) any Termination Fee actually received by Grantee pursuant
to the terms of the Merger Agreement, minus (ii) the sum of amounts of any cash
previously paid to the Company pursuant to this Section 8 plus the value of the
Option Shares (or other securities) previously delivered to the Company for
cancellation pursuant to this Section 8.
(c) Notwithstanding any other provision of this Agreement, nothing in this
Agreement shall affect the ability of Grantee to receive, nor relieve the
Company's obligation to pay, any Termination Fee provided for in Sections
9.5(b), 9.5(d) or 9.5(e) of the Merger Agreement; provided that if and to the
extent that the Total Profit received by Grantee would exceed the Maximum Profit
following receipt of such payment, Grantee shall be obligated to promptly comply
with the terms of Section 8(a).
9. Registration Rights.
(a) The Company shall, if requested by Grantee at any time and from time to
time within two (2) years after a Triggering Event, as promptly as possible (but
in no event later than thirty (30) days after receipt of such request) prepare
and file up to three (3) registration statements under the Securities Act to the
extent necessary in order to permit the sale or other disposition of any or all
shares of securities that have been acquired by or are issuable to Grantee upon
exercise of the Option in accordance with the intended method of sale or other
disposition stated by Grantee, including a "shelf" registration statement under
Rule 415 under the Securities Act or any successor provision, and the Company
will use its best efforts to qualify such shares or other securities under any
applicable state securities laws. The Company shall use best efforts to cause
each such registration statement to become effective, to obtain all consents or
waivers of other parties which are required therefor, and to keep such
registration statement effective for a period of at least one hundred eighty
(180) calendar days after the date such registration statement first becomes
effective (or such shorter period as may be necessary to effect such sale or
other disposition).
(b) The obligations of the Company hereunder to file a registration
statement and to maintain its effectiveness may be suspended for one or more
periods of time not exceeding sixty (60) calendar days in the aggregate if the
Board of Directors of the Company shall have determined in good faith after
having consulted with outside counsel that the filing of such registration or
the maintenance of its effectiveness would require premature disclosure of
material nonpublic information that would materially and adversely affect the
Company or the Company is required under the Securities Act to include audited
financial statements for any period in such registration statement and such
financial statements are not yet available for inclusion in such registration
statement.
(c) In addition to such demand registrations, if the Company proposes to
effect a registration of Company Common Stock (other than a registration
statement on Form S-4 or S-8 or any successor thereto) for the Company's own
account or for the account of any
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other stockholder of the Company, the Company shall give prompt written notice
to all holders of Options or Option Shares of the Company's intention to do so
and shall use best efforts to include therein all Option Shares requested by
Grantee to be so included. No registration effected under this Section 9(c)
shall relieve the Company of its obligations to effect demand registrations
under Section 9(a) hereof.
(d) Registrations effected under this Section 9 shall be effected at the
Company's expense, including the fees and expenses of counsel to the holder of
Options or Option Shares, but excluding underwriting discounts and commissions
to brokers or dealers. In connection with each registration under this Section
9, the Company shall indemnify and hold each holder of Options or Option Shares
participating in such offering (a "Holder"), its underwriters and each of their
respective affiliates harmless against any and all losses, claims, damages,
liabilities and expenses (including, without limitation, investigation expenses
and fees and disbursements of counsel and accountants), joint or several, to
which such Holder, its underwriters and each of their respective Affiliates may
become subject, under the Securities Act or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) arise
out of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any registration statement (including any prospectus
therein), or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
other than such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) which arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in written information
furnished by a Holder to the Company expressly for use in such registration
statement.
(e) In connection with any registration statement pursuant to this Section
9, each Holder agrees to furnish the Company with such information concerning
itself and the proposed sale or distribution as shall reasonably be required in
order to ensure compliance with the requirements of the Securities Act. In
addition, each Holder shall indemnify and hold the Company, its underwriters and
each of their respective Affiliates harmless against any and all losses, claims,
damages, liabilities and expenses (including without limitation investigation
expenses and fees and disbursements of counsel and accountants), joint or
several, to which the Company, its underwriters and each of their respective
Affiliates may become subject under the Securities Act or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in written information furnished by such
Holder to the Company expressly for use in such registration statement. In no
event shall the liability of any Holder or any Affiliate thereof under this
Section 9 be greater in amount than the dollar amount of the proceeds (net of
payment of all expenses) received by such Holder upon the sale of the Option
Shares giving rise to such indemnification obligation.
(f) Upon the issuance of Option Shares hereunder, the Company shall
promptly list such Option Shares with the New York Stock Exchange or on such
national or other exchange on which the shares of Company Common Stock are at
the time principally listed.
10. Extension of Time for Regulatory Approvals. The periods related to
exercise of the Option and the other rights of Grantee hereunder shall be
extended (a) to the extent necessary to obtain all regulatory approvals for the
exercise of such rights, and for the
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expiration of all statutory waiting periods and (b) to the extent necessary to
avoid liability under Section 10(b) of the Exchange Act by reason of such
exercise.
11. Representations and Warranties of the Company. The Company hereby
represents and warrants to Grantee as follows:
(a) Authority. The Company has the necessary corporate power and authority
to enter into this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action and no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Company and, assuming the due authorization, execution and
delivery by Grantee, constitutes a legal, valid and binding obligation of the
Company, enforceable in accordance with its terms, except as such enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium and other
similar laws of general applicability relating to or affecting creditors' rights
generally and by the application of general principles of equity.
(b) Corporate Action. The Company has taken all necessary corporate action
to authorize and reserve and to permit the Company to issue, and at all times
from the date hereof through the termination of this Agreement in accordance
with its terms will have reserved for issuance upon the exercise of the Option,
that number of shares of Company Common Stock equal to the maximum number of
shares of Company Common Stock at any time and from time to time issuable
hereunder, and all such shares of Company Common Stock, upon issuance pursuant
hereto, will be duly authorized, validly issued, fully paid, non-assessable, and
will be delivered free and clear of all Encumbrances and not subject to any
preemptive rights.
(c) No Conflict. The execution and delivery of this Agreement by the
Company do not, and the performance by the Company of its obligations under this
Agreement will not (i) conflict with or violate the certificate or articles of
incorporation, bylaws or partnership agreement of the Company or any Company
Subsidiary, (ii) conflict with or violate any law, statute, ordinance, rule,
regulation, order, judgment or decree applicable to the Company or any Company
Subsidiary or by which any of their respective properties is bound or affected,
or (iii) result in any breach of or constitute a default (or an event which with
or without notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of an Encumbrance on any of the
properties or assets of the Company or any Company Subsidiary pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which the Company or any Company
Subsidiary is a party or by which the Company, any Company Subsidiary or any of
their respective properties or assets is bound or affected, except, in the case
of clauses (ii) and (iii) above, for any such conflicts, violations, breaches,
defaults or other alterations or occurrences that would not have a Material
Adverse Effect on the Company.
(d) Anti-Takeover Statutes. The provisions of Section 203 of the General
Corporation Law of the State of Delaware will not, prior to the termination of
this Agreement, apply to this Agreement or the transactions contemplated hereby
and thereby. The Company has taken, and will in the future take, all steps
necessary to irrevocably exempt
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the transactions contemplated by this Agreement from any other applicable state
takeover law and from any applicable charter provision containing change of
control or anti-takeover provisions.
(e) Additional Representations and Warranties. The representations and
warranties contained in Section 3.1 of the Merger Agreement and, to the extent
they relate to this Agreement, the representations and warranties in Section
3.3, Section 3.20, and Section 3.26 of the Merger Agreement, are incorporated by
reference herein.
12. Assignment. The Company may not assign any of the Company's rights or
obligations under this Agreement or the Option created hereunder to any other
Person, without the express written consent of Grantee.
13. Application for Regulatory Approval. Each of Grantee and the Company
will use its reasonable efforts to make all filings with, and to obtain consents
of, all third parties and Governmental Entities necessary to the consummation of
the transactions contemplated by this Agreement, including without limitation
making application to list the shares of Company Common Stock issuable hereunder
on the New York Stock Exchange upon official notice of issuance.
14. Specific Performance. The Company acknowledges and agrees that damages
would be an inadequate remedy for a breach of this Agreement by the Company and
that the obligations of the Company shall be enforceable by Grantee through
injunctive or other equitable relief.
15. Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the extent possible.
16. Notices. All notices, claims, demands and other communications
hereunder shall be deemed to have been duly given or made when delivered in
person, by registered or certified mail (postage prepaid, return receipt
requested), by overnight courier or by facsimile at the respective addresses of
the parties set forth in the Merger Agreement.
17. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
18. Counterparts. This Agreement may be executed and delivered in one or
more counterparts, and by the different parties hereto in separate counterparts,
each of which when executed and delivered shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
19. Definitions. Capitalized terms used and not defined herein shall have
the meanings set forth in the Merger Agreement.
20. Expenses. Except as otherwise expressly provided herein or in the
Merger Agreement, each of the parties hereto shall bear and pay all costs and
expenses incurred
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by it or on its behalf in connection with the transactions contemplated
hereunder, including fees and expenses of its own financial consultants,
investment bankers, accountants and counsel.
21. Entire Agreement. This Agreement, the Merger Agreement, the
Confidentiality Agreement and any documents and instruments referred to herein
and therein constitute the entire agreement of the parties with respect to the
transactions contemplated hereunder and supersede all prior arrangements or
understandings with respect thereof, written or oral. The terms and conditions
of this Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective successors and permitted assigns. Nothing in this
Agreement, express or implied, is intended to confer upon any party, other than
the parties hereto, and their respective successors and permitted assigns, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement, except as expressly provided herein. Any provision of this Agreement
may be waived only in writing at any time by the party that is entitled to the
benefits of such provision. This Agreement may not be modified, amended, altered
or supplemented except upon the execution and delivery of a written agreement
executed by the parties hereto.
22. Further Assurances. In the event of any exercise of the Option by
Grantee, the Company and Grantee shall execute and deliver all other documents
and instruments and take all other action that may be reasonably necessary to
the fullest extent permitted by law in order to consummate the transactions
provided for by such exercise. Nothing contained in this Agreement shall be
deemed to authorize the Company or Grantee to breach any provision of the Merger
Agreement.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, each of the parties hereto has caused this Stock Option
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
MEDCO RESEARCH, INC.
By: /s/ RICHARD C. WILLIAMS
---------------------------------
Name: Richard C. Williams
Title: Chairman
KING PHARMACEUTICALS, INC.
By: /s/ JOHN M. GREGORY
---------------------------------
Name: John M. Gregory
Title: Chairman of the Board and
Chief Executive Officer
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ANNEX C
HAMBRECHT & QUIST LLC
230 PARK AVENUE
NEW YORK, NY 10169
(212) 207-1400
FAX: (212) 207-1519
November 30, 1999
Confidential
The Board of Directors
Medco Research, Inc.
85 T.W. Alexander Drive
Research Triangle Park, NC 27709
Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the holders of the outstanding shares of common stock (the "Common
Stock") of Medco Research, Inc. ("Medco" or the "Company") of the consideration
to be received by such shareholders in connection with the proposed merger of
Merlin Acquisition Corp. ("Merger Sub"), a wholly owned subsidiary of King
Pharmaceuticals, Inc. ("King"), with and into Medco (the "Proposed Transaction")
pursuant to the Agreement and Plan of Merger to be dated as of November 30,
1999, among King, Merger Sub, and Medco (the "Agreement").
We understand that the terms of the Agreement provide, among other things,
that each issued and outstanding share of Common Stock shall be converted into
the right to receive 0.6818 share of common stock of King, as more fully set
forth in the Agreement. For purposes of this opinion, we have assumed that the
Proposed Transaction will qualify as a tax-free reorganization under the United
States Internal Revenue Code for the shareholders of the Company and that the
Proposed Transaction will be accounted for as a pooling of interests.
Hambrecht & Quist LLC ("Hambrecht & Quist"), as part of its investment
banking services, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, strategic transactions,
corporate restructurings, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes. We have acted as a financial advisor to the Board of
Directors of Medco in connection with the Proposed Transaction, and we will
receive a fee for our services, which include the rendering of this opinion.
SAN FRANCISCO - NEW YORK - BOSTON - ATLANTA - NEWPORT BEACH - SAN DIEGO - LONDON
- TOKYO
MEMBERS NEW YORK STOCK EXCHANGE - AMERICAN STOCK EXCHANGE - PACIFIC STOCK
EXCHANGE
C-1
<PAGE> 173
The Board of Directors
Medco Research, Inc.
Page 2
November 30, 1999
In the past, we have provided investment banking and other financial
advisory services to King and Medco and have received fees for rendering these
services. In the ordinary course of business, Hambrecht & Quist acts as a market
maker and broker in the publicly traded securities of King and Medco and
receives customary compensation in connection therewith, and also provides
research coverage for King and Medco. In the ordinary course of business,
Hambrecht & Quist actively trades in the equity and derivative securities of
King and Medco for its own account and for the accounts of its customers and,
accordingly, may at any time hold a long or short position in such securities.
Hambrecht & Quist may in the future provide additional investment banking or
other financial advisory services to King and Medco.
In connection with our review of the Proposed Transaction, and in arriving
at our opinion, we have, among other things:
(i) reviewed the consolidated financial statements of King for recent
years and interim periods to date and certain other relevant financial and
operating data of King (including its capital structure) made available to
us from published sources and from the internal records of King;
(ii) reviewed certain internal financial and operating information,
including certain projections, relating to King prepared by the management
of King;
(iii) discussed the business, financial condition and prospects of
King with certain members of senior management;
(iv) reviewed the consolidated financial statements of Medco for
recent years and interim periods to date and certain other relevant
financial and operating data of Medco made available to us from published
sources and from the internal records of Medco;
(v) reviewed certain internal financial and operating information,
including certain projections, relating to Medco prepared by the senior
management of Medco;
(vi) discussed the business, financial condition and prospects of
Medco with certain members of senior management;
(vii) reviewed the recent reported prices and trading activity for the
common stocks of King and Medco and compared such information and certain
financial information for King and Medco with similar information for
certain other companies engaged in businesses we consider comparable;
(viii) reviewed the financial terms, to the extent publicly available,
of certain comparable merger and acquisition transactions;
(ix) reviewed a draft of the Agreement dated November 30, 1999;
(x) discussed the tax and accounting treatment of the Proposed
Transaction with King and King's lawyers and accountants; and
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<PAGE> 174
The Board of Directors
Medco Research, Inc.
Page 3
November 30, 1999
(xi) performed such other analyses and examinations and considered
such other information, financial studies, analyses and investigations and
financial, economic and market data as we deemed relevant.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of all of the information concerning King or Medco considered in
connection with our review of the Proposed Transaction, and we have not assumed
any responsibility for independent verification of such information. We have not
prepared any independent valuation or appraisal of any of the assets or
liabilities of King or Medco, nor have we conducted a physical inspection of the
properties and facilities of either company. With respect to the financial
forecasts and projections made available to us and used in our analysis, we have
assumed that they reflect the best currently available estimates and judgments
of the expected future financial performance of King and Medco. For purposes of
this opinion, we have assumed that neither King nor Medco is a party to any
pending transactions, including external financings, recapitalizations or
material merger discussions, other than the Proposed Transaction and those
activities undertaken in the ordinary course of conducting their respective
businesses. Our opinion is necessarily based upon market, economic, financial
and other conditions as they exist and can be evaluated as of the date of this
letter and any change in such conditions would require a reevaluation of this
opinion. We express no opinion as to the price at which King common stock will
trade subsequent to the Effective Time (as defined in the Agreement). In
rendering this opinion, we have assumed that the proposed merger will be
consummated substantially on the terms discussed in the Agreement, without any
waiver of any material terms or conditions by any party thereto.
It is understood that this letter is for the information of the Board of
Directors only and may not be used for any other purpose without our prior
written consent; provided, however, that this letter may be reproduced in full
in the Proxy Statement/Prospectus. This letter does not constitute a
recommendation to any stockholder as to how such stockholder should vote on the
Proposed Transaction.
Based upon and subject to the foregoing and after considering such other
matters as we deem relevant, we are of the opinion that as of the date hereof
the consideration to be received by the holders of the Common Stock in the
Proposed Transaction is fair to such holders from a financial point of view. We
express no opinion, however, as to the adequacy of any consideration received in
the Proposed Transaction by King or any of its affiliates.
Very truly yours,
HAMBRECHT & QUIST LLC
By: /s/ PAUL B. CLEVELAND
----------------------------------
Paul B. Cleveland
Managing Director
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<PAGE> 175
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. 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, director, 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. King has adopted the
provisions of the Tennessee statute pursuant to Paragraph 9 of its Second
Amended and Restated Charter. King also has 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 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
- --------- -------
<S> <C>
2.1** Agreement and Plan of Merger by and among King
Pharmaceuticals, Inc., Medco Research, Inc. and Merlin
Acquisition I Corp., dated as of November 30, 1999 (included
as Annex A to prospectus).
2.2** Stock Option Agreement by and between King Pharmaceuticals,
Inc. and Medco Research, Inc., dated as of November 30, 1999
(included as Annex B to prospectus).
3.1* Second Amended and Restated Charter of King Pharmaceuticals,
Inc.
3.2* Amended and Restated Bylaws of King Pharmaceuticals, Inc.
5** Opinion of Baker, Donelson, Bearman & Caldwell as to the
validity of the securities registered hereunder, including
the consent of Baker, Donelson, Bearman & Caldwell
8** Opinion of Hofheimer Gartlir & Gross, LLP as to certain tax
matters, including the consent of that firm.
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* Toll Manufacturing Agreement for APAP/Hydrocodone Bitartrate
Tablets by and between Mallinckrodt Chemical, Inc. and King
Pharmaceuticals, Inc.
10.3**** Credit Agreement, dated as of February 27, 1998, as amended
and restated as of December 22, 1998 among King
Pharmaceuticals, Inc., and the Lenders therein, Credit
Suisse First Boston, as Administrative Agent, as Collateral
Agent and as Swingline Lender, First Union National Bank, as
Issuing Bank, and First Union National Bank and NationsBank,
N.A., as Syndication Agents.
10.4* Manufacture and Supply Agreement with Novartis (Ciba-Geigy
Corporation) dated July 17, 1995.
</TABLE>
II-1
<PAGE> 176
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
- --------- -------
<S> <C>
10.5* Supply Agreement with SmithKline Beecham Corporation dated
July 16, 1996.
10.6* Trademark, Patent, Copyright and Know-How License Agreement
between Warner-Lambert Company and Glaxo Wellcome Inc. dated
as of June 30, 1996
10.7* 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.
10.8* 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.
10.9* Product Manufacturing Agreement between Santen Incorporated
and Warner-Lambert Company, dated June 26, 1997, for the
manufacture of Ofloxacin Otic Solution 0.3%.
10.10* License Agreement by and among Warner-Lambert Company, Parke
Davis & Company, and Parkedale Pharmaceuticals, Inc., dated
February 27, 1998, for the use of the Anusol Trademark, the
Anusol Mold, and Other Trademarks.
10.11* 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.
10.12*** General Products Agreement dated as of December 17, 1998, by
and among Hoechst Marion Roussel, Inc., Hoechst Marion
Roussel, Deutschland GmbH, and King Pharmaceuticals, Inc.
10.13* 1998 King Pharmaceuticals, Inc. Non-Employee Director Stock
Option Plan.
10.14* 1997 Incentive and Nonqualified Stock Option Plan for
Employees of King Pharmaceuticals, Inc.
21.1***** Subsidiaries of the Registrant
23.1** Consent of Baker, Donelson, Bearman & Caldwell (included as
part of Exhibit 5).
23.2** Consent of Hofheimer Gartlir & Gross, LLP.
23.3** Consent of PricewaterhouseCoopers LLP.
23.4** Consent of KPMG LLP.
23.5** Consent of PricewaterhouseCoopers LLP.
23.6** Consent of Hambrecht & Quist LLC (included as Annex C to
prospectus)
24** Power of Attorney (included in signature page hereof).
99.1** Form of Medco Research, Inc. proxy card.
99.2** Consent of Richard C. Williams.
</TABLE>
- -------------------------
* Incorporated by reference to the Company's Registration Statement on Form
S-1 (Registration No. 333-38753) filed October 24, 1997.
II-2
<PAGE> 177
** Filed herewith.
*** Incorporated by reference to the Company's Current Report on Form 8-K
filed January 6, 1999.
**** Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1998.
***** Incorporated by reference to the Company's Registration Statement on Form
S-4 (Registration No. 333-77141) filed April 27, 1999.
(b) Not required.
(c) See Annex C to the proxy statement/prospectus.
ITEM 22. UNDERTAKINGS.
(a) King hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of the securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Securities and Exchange Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in the
"Calculation of the Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) King hereby undertakes that, for purposes of determining any liability
under the Securities Act of 1933, each filing of King's annual report pursuant
to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Securities
II-3
<PAGE> 178
Exchange Act of 1934) that is incorporated by reference in the registration
statement 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.
(c) King hereby undertakes as follows: that prior to any public reoffering
of the securities registered hereunder through use of a prospectus which is a
part of this registration statement, by any person or party who is deemed to be
an underwriter within the meaning of Rule 145(c), King undertakes that such
reoffering prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items of
the applicable form.
(d) King undertakes that every prospectus (i) that is filed pursuant to
paragraph (c) immediately preceding, or (ii) that purports to meet the
requirements of section 10(a)(3) of the Securities Act of 1933 and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment 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.
(e) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
King pursuant to the foregoing provisions, or otherwise, King has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by King of
expenses incurred or paid by a director, officer or controlling person of King
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with securities being
registered, King will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
(f) King hereby undertakes to respond to requests for information that is
incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or
13 of this Form, within one business day of receipt of such request, and to send
the incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding to
the request.
(g) King hereby undertakes to supply by means of a post-effective amendment
all information concerning a transaction, and the company being acquired
involved therein, that was not the subject of and included in the Registration
Statement when it became effective.
II-4
<PAGE> 179
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Bristol,
State of Tennessee on December 10, 1999.
KING PHARMACEUTICALS, INC.
By: /s/ JOHN M. GREGORY
-----------------------------------
John M. Gregory
Chairman of the Board
Date: December 10, 1999
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints John M. Gregory, Jefferson J. Gregory and
Joseph R. Gregory and each of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities (including his capacity as a
director and/or officer of King Pharmaceuticals, Inc.), to sign any or all
amendments (including post-effective amendments) to this Registration Statement
on Form S-4 of King relating to distribution of shares related to the merger of
Medco Research, Inc. into King Pharmaceuticals, Inc., and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Exchange Act, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JOHN M. GREGORY Chairman of the December 10, 1999
- --------------------------------------------------- Board and Chief
John M. Gregory Executive Officer
/s/ BRIAN G. SHRADER Chief Financial December 10, 1999
- --------------------------------------------------- Officer
Brian G. Shrader
/s/ JOSEPH R. GREGORY Vice Chairman of December 10, 1999
- --------------------------------------------------- the Board and
Joseph R. Gregory Director
</TABLE>
II-5
<PAGE> 180
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JEFFERSON J. GREGORY President and December 10, 1999
- --------------------------------------------------- Director
Jefferson J. Gregory
President, December , 1999
- --------------------------------------------------- International
Ernest C. Bourne Division, and
Director
/s/ LOIS A. CLARKE Director December 10, 1999
- ---------------------------------------------------
Lois A. Clarke
Director December , 1999
- ---------------------------------------------------
Frank W. DeFriece, Jr.
Director December , 1999
- ---------------------------------------------------
D. Gregory Rooker
/s/ TED G. WOOD Director December 10, 1999
- ---------------------------------------------------
Ted G. Wood
</TABLE>
II-6
<PAGE> 1
EXHIBIT 5
December 10, 1999
Board of Directors
King Pharmaceuticals, Inc.
501 Fifth Street
Bristol, TN 37620
Re: Registration Statement on Form S-4
Dear Board of Directors:
We have acted as counsel to King Pharmaceuticals, Inc., a Tennessee
corporation (the "Company"), in connection with the registration of up to
9,653,719 shares of Common Stock (the "Common Stock") of the Company. The
Company has filed a Registration Statement on Form S-4 pursuant to the
Securities Act of 1933, as amended (the "Registration Statement").
We have acted as counsel for the Company in connection with the
proposed transaction and have assisted with the preparation of the Registration
Statement and various corporate documents related thereto. We have examined and
relied upon the following documents and instruments for the purpose of giving
this opinion, which, to our knowledge and in our judgment, are all of the
documents and instruments that are necessary for us to examine for such purpose:
1. The Registration Statement, the proxy statement, prospectus filed
therewith (the "Prospectus") and all exhibits thereto;
2. A copy of the Company's Second Amended and Restated Charter certi-
fied by the Tennessee Secretary of State and a copy of the
proposed Form of Second Amended and Restated Charter;
3. A copy of the Company's Amended and Restated Bylaws certified by
the Secretary of the Company;
4. The minute book of the Company; and
<PAGE> 2
Board of Directors
December 10, 1999
Page 2
5. The stock records of the Company.
In giving our opinion, we have assumed without investigation the
authenticity of any document or instrument submitted to us as an original, the
conformity to the authentic original of any document or instrument submitted to
us as a certified, conformed or photostatic copy and the genuineness of all
signatures on such originals or copies.
Based upon the foregoing and having regard for such legal
considerations as we deem relevant, we are of the opinion that (i) the Company
is a corporation duly incorporated and validly existing under the laws of the
State of Tennessee and (ii) the Common Stock, when issued in accordance with the
Registration Statement, will be validly issued, fully paid and nonassessable.
Our opinion is subject to the following qualifications and limitations:
i. The opinions expressed herein are subject to the effect of
applicable bankruptcy, insolvency, reorganization or similar laws affecting the
enforcement of creditors' rights and equitable principles limiting the
availability of equitable remedies on the enforceability of contracts,
agreements and instruments.
ii. Members of our firm are qualified to practice law in the State of
Tennessee and nothing contained herein shall be deemed to be an opinion as to
any law, rule or regulation other than the law of the State of Tennessee and the
federal law of the United States.
iii. The opinions set forth herein are expressed as of the date hereof
and, except during the time prior to the effectiveness of the Registration
Statement filed with the Securities and Exchange Commission, we disclaim any
undertaking to advise you of any changes which may subsequently be brought to
our attention in the facts and the law upon which such opinions are based.
This opinion is intended to be used as an exhibit to the Registration
Statement filed with the Securities and Exchange Commission. Except for such
use, neither this opinion nor copies hereof may be relied upon by, delivered to,
or quoted in whole or in part without our prior written consent.
We consent to the reference of our firm name under the caption LEGAL
MATTERS in the Prospectus and to the use of our opinion as an exhibit to the
Registration Statement. In giving these consents, we do not admit that we come
within the category of persons whose consent is
<PAGE> 3
Board of Directors
December 10, 1999
Page 3
required under Section 7 of the Securities Act of 1933, as amended, or the
rules and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Baker, Donelson, Bearman & Caldwell
<PAGE> 1
EXHIBIT 8
December 10, 1999
Medco Research, Inc.
7001 Weston Parkway, Suite 300
Cary, North Carolina 27513
King Pharmaceuticals, Inc.
501 Fifth Street
Bristol, Tennessee 37620
Ladies and Gentlemen:
This opinion is being delivered to you in connection with the
Form S-4 Registration Statement (the "Registration Statement") filed pursuant
to the Agreement and Plan of Merger dated as of November 30, 1999, (the "Merger
Agreement") by and among King Pharmaceuticals, Inc., a Tennessee corporation
("Acquiror"), Merlin Acquisition I Corp., a Delaware corporation and wholly
owned subsidiary of Acquiror ("Merger Sub"), and Medco Research, Inc., a
Delaware corporation (the "Company").
Except as otherwise provided, capitalized terms used but not
defined herein shall have the meanings set forth in the Merger Agreement. All
section references, unless otherwise indicated, are to the Internal Revenue
Code of 1986, as amended (the "Code").
We have acted as counsel to the Company in connection with
the Merger. As such, and for the purpose of rendering this opinion, we have
examined, and are relying upon (without any independent investigation or review
thereof) the truth and accuracy, at all relevant times, of the statements,
covenants, representations and warranties contained in the following documents
(including all exhibits and schedules attached thereto):
(a) the Merger Agreement;
(b) those certain tax representation letters dated ________ ,
delivered to us by Acquiror and the Company containing certain representations
of Acquiror and the Company (the "Tax Representation Letters"); and
(c) such other instruments and documents related to the
formation, organization and operation of Acquiror, Merger Sub and the Company
and related to the consummation of the Merger and the other transactions
contemplated by the Merger Agreement as we have deemed necessary or
appropriate.
In connection with rendering this opinion, we have assumed
(without any independent investigation or review thereof) that:
<PAGE> 2
1. Original documents submitted to us (including signatures
thereto) are authentic, documents submitted to us as copies conform to the
original documents, and that all such documents have been (or will be by the
Effective Time) duly and validly executed and delivered where due execution and
delivery are a prerequisite to the effectiveness thereof;
2. All representations, warranties and statements made or
agreed to by Acquiror, Merger Sub and the Company, their managements,
employees, officers, directors and shareholders in connection with the Merger,
including, but not limited to, those set forth in the Merger Agreement
(including the exhibits thereto) and the Tax Representation Letters are true
and accurate at all relevant times;
3. All covenants contained in the Merger Agreement (including
exhibits thereto) and the Tax Representation Letters are performed without
waiver or breach of any material provision thereof;
4. The Merger will be consummated in accordance with the
terms of the Merger Agreement, will be effective under the laws of the State of
Delaware, and will be reported by Acquiror and the Company on their respective
federal income tax returns in a manner consistent with the opinion set forth
below;
5. All classes of Company stock are properly classified as
equity and all Company instruments denominated as indebtedness are properly
classified as debt under Section 385 of the Code; and
6. Any representation or statement made "to the best of
knowledge" or similarly qualified is correct without such qualification.
Based on our examination of the foregoing items and subject
to the limitations, qualifications, assumptions and caveats set forth herein,
we are of the opinion that, for federal income tax purposes, the Merger will be
a reorganization within the meaning of Section 368(a)(1) of the Code.
In addition to your request for our opinion on this specific
matter of federal income tax law, you have asked us to review the discussion of
federal income tax issues contained in the Registration Statement. We have
reviewed the discussion entitled "Federal Income Tax Consequences of the
Merger" contained in the Registration Statement and believe that, insofar as it
relates to statements of law and legal conclusions, it is correct in all
material respects.
We consent to the filing of this opinion as an exhibit to the
Registration Statement.
This opinion does not address the various state, local or
foreign tax consequences that may result from the Merger or the other
transactions contemplated by the Merger Agreement. In addition, no opinion is
expressed as to any federal income tax consequence of the
-2-
<PAGE> 3
Merger or the other transactions contemplated by the Merger Agreement except as
specifically set forth herein, and this opinion may not be relied upon except
with respect to the consequences specifically discussed herein. Furthermore,
this opinion only relates to the holders of Company capital stock who hold such
stock as a capital asset. No opinion is expressed as to the federal income tax
treatment that may be relevant to a particular investor in light of personal
circumstances or to certain types of investors subject to special treatment
under the federal income tax laws (for example, stockholders who are dealers in
securities, banks, insurance companies or tax-exempt organizations, who are
subject to the alternative minimum tax provisions of the Code, who are
non-United States persons, who acquired their shares of Company capital stock
in connection with stock option or stock purchase plans or in other
compensatory transactions, or who hold their Company capital stock as a hedge
or as part of a hedging, straddle, conversion or other risk reduction
transaction).
No opinion is expressed as to any transaction other than the
Merger as described in the Merger Agreement, or as to any other transaction
whatsoever, including the Merger, if all of the transactions described in the
Merger Agreement are not consummated in accordance with the terms of the Merger
Agreement and without waiver of any material provision thereof. To the extent
that any of the representations, warranties, statements and assumptions
material to our opinion and upon which we have relied are not accurate and
complete in all material respects at all relevant times, our opinion would be
adversely affected and should not be relied upon.
This opinion only represents our best judgment as to the
federal income tax consequences of the Merger and is not binding on the
Internal Revenue Service or any court of law, tribunal, administrative agency
or other governmental body.
The conclusions are based on the Code, existing judicial
decisions, administrative regulations and published rulings. No assurance can
be given that future legislative, judicial or administrative changes or
interpretations would not adversely affect the accuracy of the conclusions
stated herein. Nevertheless, by rendering this opinion, we undertake no
responsibility to advise you of any new developments in the application or
interpretation of the federal income tax laws.
This opinion is being delivered solely in connection with the
Registration Statement. It is intended for the benefit of Company, Acquiror and
Merger Sub and may not be relied upon or utilized for any other purpose or by
any other person and may not be made available to any other person without our
prior written consent.
Sincerely,
-3-
<PAGE> 1
EXHIBIT 23.2
December 10, 1999
Medco Research, Inc.
7001 Weston Parkway, Suite 300
Cary, North Carolina 27513
King Pharmaceuticals, Inc.
501 Fifth Street
Bristol, Tennessee 37620
Ladies and Gentlemen:
We have acted as counsel to Medco Research, Inc. in connection with the
Registration Statement on Form S-4 of King Pharmaceuticals, Inc. filed with the
Securities and Exchange Commission on December 10, 1999 and hereby confirm to
you our opinion set forth under the heading "Federal Income Tax Consequences of
the Merger" in the Proxy Statement/Prospectus included in the Registration
Statement, subject to the assumptions set forth under such heading.
We hereby consent to the filing with the Securities and Exchange
Commission of this letter as an exhibit to the Registration Statement. In
giving such consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act of
1933, as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder.
Very truly yours,
<PAGE> 1
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 of King Pharmaceuticals, Inc. of our report dated February
15, 1999 (except Note 20 for which the date is March 3, 1999 and Note 21 for
which the date is November 11, 1999) relating to the financial statements
appearing in the Company's Form 8-K dated December 10, 1999. We also consent to
the references to us under the headings "Experts" in such Registration
Statement.
PricewaterhouseCoopers LLP
Greensboro, NC
December 10, 1999
<PAGE> 1
EXHIBIT 23.4
ACCOUNTANTS' CONSENT
The Board of Directors and Stockholders
Medco Research, Inc.:
We consent to the incorporation by reference in the registration statement on
Form S-4 of King Pharmaceuticals, Inc. of our report on Medco Research, Inc.
and subsidiary dated January 28, 1997, with respect to the consolidated
statements of operations, stockholders' equity, and cash flows for the year
ended December 31, 1996, which report appears in the December 31, 1998 annual
report on Form 10-K of Medco Research, Inc.
Our report dated January 28, 1997, contains an explanatory paragraph that states
that the Company is party to certain claims and litigation, which outcome cannot
presently be determined. No provisions for liability, if any, that may result
from the resolution of such matters have been recognized in the accompanying
consolidated financial statements.
/s/ KPMG LLP
Raleigh, North Carolina
December 9, 1999
<PAGE> 1
Exhibit 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 of King Pharmaceuticals, Inc. of our report, dated January
22, 1999 relating to the financial statement appearing in the Medco Research,
Inc. and its subsidiary's Annual Report on Form 10K for the year ended December
31, 1998. We also consent to the references to us under the headings "Experts"
in such Registration Statement.
PricewaterhouseCoopers LLP
Raleigh, North Carolina
December 10, 1999
<PAGE> 1
PROXY EXHIBIT 99.1
Medco Research, Inc.
7001 Weston Parkway
Cary, North Carolina 27513
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS
The undersigned appoints each of _______________, _________________ and
__________________, or any of them, with full power of substitution and
revocation as Proxy to vote all shares of stock standing in my name on the books
of Medco Research, Inc. (the "Company") at the close of business on ____________
___, 2000, which the undersigned would be entitled to vote if personally present
at the Special Meeting of Stockholders of the Company to be held at
____________________, _________________, _______________, ____________, on
_______________, ________, at __:00 __.m., Eastern Time, and at any and all
adjournments, upon the matters set forth in the Notice of the meeting. The Proxy
is further authorized to vote in his or her discretion as to any other matters
which may come before the meeting. At the time of preparation of the Proxy
Statement, the Board of Directors knows of no business to come before the
meeting other than that referred to in the Proxy Statement.
THE SHARES COVERED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
INSTRUCTIONS GIVEN AND WHEN NO INSTRUCTIONS ARE GIVEN WILL BE VOTED FOR THE
PROPOSALS DESCRIBED IN THE ACCOMPANYING NOTICE OF SPECIAL MEETING AND PROXY
STATEMENT AND ON THIS PROXY.
<PAGE> 2
[X]Please mark votes as in this example.
- --------------------------------------------------------------------------------
APPROVAL AND ADOPTION OF MERGER AGREEMENT AND APPROVAL OF MERGER
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
- --------------------------------------------------------------------------------
Dated: , 2000 Signed:
--------- -------------------------------------
Signed:
---------------------------------------
Shareholder should sign here exactly as
shown on the label affixed hereto.
Administrator, Trustee, or Guardian,
please give full title. If more than
one Trustee, all should sign. All Joint
Owners should sign.
PLEASE COMPLETE, SIGN, DATE AND RETURN THIS PROXY PROMPTLY IN THE ENCLOSED
ENVELOPE TO: ___________________________
<PAGE> 1
EXHIBIT 99.2
CONSENT OF RICHARD C. WILLIAMS
I hereby consent to being named a director of King Pharmaceuticals, Inc. in the
event the merger is consummated as disclosed in the Registration Statement of
King Pharmaceuticals, Inc. on Form S-4, filed with the Securities and Exchange
Commission on December 10, 1999.
/s/ Richard C. Williams
---------------------------
Richard C. Williams
December 10, 1999
