<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM _____ TO _____
COMMISSION FILE NUMBER 1-5851
------
RHONE-POULENC RORER INC.
-------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
PENNSYLVANIA 23-1699163
---------------------------- ------------------------
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
500 ARCOLA ROAD
COLLEGEVILLE, PENNSYLVANIA 19426
---------------------------- ------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 610-454-8000
------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
Common shares (without par value), New York Stock Exchange
stated value $1 per share Paris Stock Exchange
Market Auction Preferred Shares
(without par value), liquidation
preference $1,000 per share
Flexible Money Market Preferred Stock
(without par value), liquidation
preference $100,000 per share
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of January 31, 1995, the aggregate market value of the voting stock held
by non-affiliates of the registrant was approximately $1,518,912,057.
Common shares outstanding as of January 31, 1995 were 134,099,589.
----------------
DOCUMENTS INCORPORATED BY REFERENCE
The following documents have been incorporated by reference in this report:
DOCUMENT PARTS INTO WHICH INCORPORATED
-------- -----------------------------
Proxy Statement dated March 17,
1995 in connection with the April
25, 1995 Annual Meeting of
Shareholders Part III
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Exhibit Index is located on page 56.
<PAGE>
RHONE-POULENC RORER INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1994
PART I
ITEM 1. BUSINESS
Description of the Business
Rhone-Poulenc Rorer Inc. (the "Company" or "RPR"), a Pennsylvania
corporation, is the business formed in the 1990 combination of Rorer Group Inc.
and substantially all of the Human Pharmaceutical Business of Rhone-Poulenc
S.A. ("RP"). RP, based in Paris, France, owns approximately 68 percent of the
Company's common shares and controls the Company.
The Company is primarily engaged in the discovery, development, manufacture
and marketing of a broad line of pharmaceutical products for human use. On the
basis of sales, the Company is the leading pharmaceutical group in France,
among the top three in Europe and among the largest in the world. The Company
also has a growing presence in North America, in developing markets, and in
Japan. The Company's products are manufactured in 30 countries and the Company
has a commercial presence in the major markets of the world.
The Company's pharmaceutical offerings are primarily comprised of
prescription medicines, plasma proteins and over-the-counter ("OTC") medicines.
In addition, the Company manufactures and sells certain bulk pharmaceuticals
and limited quantities of other chemicals.
In 1993, the Company launched a long-term cell and gene therapy research and
development collaboration with Applied Immune Sciences, Inc. ("AIS"), a pioneer
in cell therapy, and entered into agreements for current and future joint
ventures for the marketing and distribution of cell therapy products and
services. To date, the Company has acquired a 42% interest in AIS and has the
right to purchase majority ownership interest around 60%. In 1994, the Company
formally created RPR Gencell, a division dedicated to discovery, development
and commercialization of cell and gene therapies. Through associations with
various companies and research organizations, including AIS, the division will
optimize existing technologies to accelerate the application of cell and gene
therapies in the areas of oncology, cardiovascular diseases and central nervous
system disorders. These collaborations should strategically position the
Company to play a major role in the development of commercial opportunities in
both cell and gene therapies.
In February 1995, the Company's Armour Pharmaceutical Company subsidiary
("Armour") entered into an agreement with Behringwerke AG, a subsidiary of
Germany's Hoechst AG, to form a 50/50 joint venture in the global plasma
proteins business. Armour and Behring have complementary plasma proteins
offerings and geographic strengths which, if combined, would position the
resulting joint venture to become a global market leader. The arrangement,
which is subject to U.S. and European regulatory approvals, will also provide
for increased investment in research and development activities.
Financial Information about Industry Segments and Foreign and Domestic
Operations
See note 16 to the consolidated financial statements, "Industry Segment and
Operations by Geographic Area" appearing on page 44 of this report.
Principal Offerings
The Company's pharmaceutical offerings are primarily comprised of
prescription medicines, plasma proteins and OTC medicines. The Company's
principal offerings can be categorized in the following major therapeutic
areas: cardiovascular; anti-infectives/oncology; plasma proteins; central
nervous system/analgesia; respiratory; bone metabolism/rheumatology; and
gastroenterology. In addition, the
1
<PAGE>
Company manufactures and sells certain bulk chemicals, OTC products and
pharmaceuticals in other therapeutic areas including dermatology. No single
product or offering contributed more than 6% of sales, and the ten largest as a
group contributed 37% of the Company's 1994 sales (1993-36%; 1992-35%). The
following principal therapeutic areas accounted for the indicated percentages
of the Company's total net sales:
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES*
--------------------------
THERAPEUTIC AREA 1994 1993 1992
---------------- -------- -------- --------
<S> <C> <C> <C>
Cardiovascular products, including
Clexane (R)/Lovenox (R), Dilacor (R) XR,
Lozol (R)/Indapamide and Selectol (R)................ 21% 19% 18%
Anti-infectives/oncology products, including
Flagyl (R), Rovamycine (R) and Peflacine (R)......... 13% 13% 13%
Plasma proteins, including Albuminar (R) and
Monoclate-P (R)...................................... 12% 10% 8%
Central nervous system/analgesia products, including
Doliprane (R), Imovane (R)/Amoban (R) and
Sermion (R).......................................... 11% 11% 13%
Respiratory products, including Azmacort (R) and
Nasacort (R)......................................... 10% 10% 10%
Bone metabolism/rheumatology products, including
Orudis (R)/Profenid (R)/Oruvail (R) and
Calsynar (R)/Calcimar (R)............................ 8% 10% 10%
Gastroenterology products, including Maalox (R)....... 11% 12% 12%
All other, including DDAVP (R)........................ 14% 15% 16%
-------- -------- --------
Total net sales..................................... 100% 100% 100%
======== ======== ========
</TABLE>
- --------
* Certain reclassifications have been made from amounts shown in prior periods
for therapeutic areas to conform to classifications now used by the Company.
The Company's principal offerings include the following:
Clexane (R)/Lovenox (R) (enoxaparin), a low molecular weight heparin used in
the prevention and treatment of deep vein thrombosis after certain surgery;
Orudis (R)/Profenid (R)/Oruvail (R) (ketoprofen), a non-steroid anti-
inflammatory agent used in the treatment of rheumatoid arthritis;
Albuminar (R), a protein replacement agent and plasma volume expander for loss
of intra-vascular volume; Monoclate-P (R), a pasteurized anti-hemophilic Factor
VIII:C concentrate; Azmacort (R), an inhaled corticosteroid for asthma;
Dilacor (R) XR (diltiazem), a calcium channel blocker used for treatment of
hypertension; Doliprane (R) (paracetamol), an analgesic; Lozol (R)
(indapamide), a diuretic used to treat hypertension; Calsynar (R)/Calcimar (R)
(calcitonin) for the treatment of metabolic bone diseases such as post-
menopausal osteoporosis; Sermion (R) (nicergoline), a cerebral vasodilator used
in the treatment of memory disturbance due to aging and cognitive disorders;
Imovane (R)/Amoban (R) (zopiclone), a non-benzodiazepine sleeping agent;
Nasacort (R) (triamcinolone acetonide), an inhaled corticosteroid for allergic
rhinitis; Maalox (R), a magnesium and aluminum hydroxide-based antacid for
treatment of gastric hyperacidity; Flagyl (R) (metronidazole), an antiparasitic
used in the treatment of trichomoniasis, amebiasis and anaerobic bacterial
infections; DDAVP (R), primarily for treatment of nocturnal enuresis in
children; Rovamycine (R) (spiramycine), a macrolide anti-infective;
Peflacine (R) (pefloxacine), an anti-infective quinolone product; Sectral (R)
(acebutolol), a beta-blocker used in the treatment of hypertension and angina;
Slo-bid (TM)/Slo-Phyllin (R), a theophylline bronchodilator; Gammar (R) IV, a
sterile, lyophilized preparation of immunoglobulin used in the prevention and
treatment of immunological disorders and to replace antibodies; and
Selectol (R) (celiprolol), a highly cardioselective vasodilating beta-blocker
used in the treatment of hypertension.
While the above offerings as well as others are important to the Company's
strategy and focus in specific geographic markets, not all are marketed by the
Company in all three of the largest pharmaceutical markets of the world
(Europe, United States and Japan).
Customers, Marketing and Distribution
The Company markets certain of its offerings in more than 140 countries
throughout the world. The Company's prescription medicines are sold primarily
to drug wholesalers, retail pharmacies, hospitals and
2
<PAGE>
government authorities, while OTC products are sold, in addition to the
foregoing, to food chains and other retail outlets. Plasma proteins are
marketed to hospitals and home health care organizations. The Company's
customer base is diverse, and no one customer accounted for as much as 10
percent of the Company's consolidated net sales in 1994.
Promotion of the Company's prescription medicines is directed primarily to
physicians, hospitals and pharmacists through personal visits by professional
sales representatives. In addition, this activity is supported by the Company's
participation in scientific seminars, medical journal advertising and by direct
distribution of samples and other printed material. Promotion of prescription
medicines in the U.S. is increasingly directed at managed care organizations.
Promotion of OTC products includes advertising directed at the end consumer
through media such as television, radio or print.
In 1994, the Company conducted its marketing efforts in the United States in
four divisions: (1) Rhone-Poulenc Rorer Pharmaceuticals, the prescription and
hospital division; (2) Rhone-Poulenc Rorer Consumer Pharmaceutical Products,
which marketed OTC products; (3) Armour Pharmaceutical Company, which markets
plasma proteins to hospitals and home health care organizations; and (4) Dermik
Laboratories, which markets prescription dermatological products principally to
dermatologists. In December 1994, due to lack of critical mass, the Company
transferred its U.S. OTC business to Ciba-Geigy Limited through an asset sale
and royalty arrangement.
The U.S. pharmaceutical industry is currently undergoing fundamental changes
in the way health care is administered and provided (see "Governmental
Regulation"). These changes necessitate the development of relationships with a
smaller number of large customers (i.e., managed care organizations) in
addition to the traditional marketing focus on the individual physician. In
1993, the Company reorganized on a regional basis its U.S. prescription
pharmaceuticals division to respond more effectively to the managed care
environment and established an emerging markets unit to focus on nationally-
organized managed care plans. The emerging markets unit is also responsible for
Arcola Laboratories, which markets generic versions of RPR products after
patent or market exclusivity expiration in the United States. In 1994, the
Company entered into an alliance with Caremark International Inc. ("Caremark"),
a pharmaceutical benefit management company, to enhance the delivery of cost-
effective drug therapies through a shared investment in outcomes research. In
1994, approximately 30 percent of the Company's sales were in the United
States.
In Europe, as a result of the reimbursement environment, the category of non-
reimbursed self-medication products is growing. In 1994, the Company
established a European OTC/self-medication business unit to meet the needs of
this expanding non-prescription market. The unit works closely with the
Company's European prescription pharmaceuticals business to meet the specific
challenges of prescription-to-OTC switches and to effectively leverage the
Company's existing sales and marketing resources. RPR believes it is among the
top three OTC companies in Europe.
In France, where the Company enjoys the leading position, marketing
activities are conducted through three subsidiaries (Bellon, Specia and
Theraplix). Facing new government guidelines to promote physician prescribing
practices intended to reduce a national health care deficit, the Company
reorganized its sales organization in France in 1994 to better serve the needs
of targeted customers. Prescription medicines are marketed to hospitals by
Bellon and to non-hospital specialists and general practitioners by Specia and
Theraplix. Theraplix and a fourth subsidiary, RP Labo, promote self-medication
products to physicians, pharmacists and patients. In 1994, Rhone-Poulenc S.A.
acquired Cooperation Pharmaceutique Francaise ("Cooper"). Cooper, which is
managed by RPR for a fee, has an extensive pharmacy distribution network in
France and assists in the promotion of the Company's self-medication products.
Through the French subsidiaries, the Company is party to certain arrangements
with affiliates of Bristol-Myers Squibb, Bayer, and Astra to co-market such
products as Vasten (R), a cholesterol-lowering agent; Captea (R), a combination
ACE inhibitor and diuretic; Captolane (R), an ACE inhibitor; Nidrel (R), a
calcium channel blocker and Zoltum (R), a proton pump inhibitor. In 1994 in
France, the Company, through a joint venture with Dainippon, launched the
quinolone antibiotic Zagam (R) and with its joint venture partner, Chugai,
launched Granocyte (R)
3
<PAGE>
for chemotherapy-induced neutropenia. During 1994, the Company also entered
into an alliance with Fisons Pharmaceuticals to develop and market the
respiratory products Azmacort (R), Nasacort (R) and ebastine in various
European countries, including France. In 1994, 32 percent of the Company's
sales were in France.
Operations in Other Europe (excluding France) contributed approximately 24
percent of 1994 worldwide sales. The Company's largest operations are in
Germany, the United Kingdom and Italy. In Germany, the Company conducts its
prescription products business under the names of Nattermann, Rorer and Rhone-
Poulenc Pharmaceuticals. The OTC business in Germany is conducted through the
Nattermann and Dr. Schieffer units. In the United Kingdom, the Company markets
branded prescription pharmaceuticals through its Rhone-Poulenc Rorer and May &
Baker divisions. Generic pharmaceuticals are marketed and distributed in the
U.K. under the name of APS-Berk, and OTC products are distributed by the Family
Health Division. In 1994, plasma proteins were marketed in Germany and the U.K.
by Armour Pharmaceuticals. In Italy, the Company conducts business through its
Rhone-Poulenc Rorer S.p.A. subsidiary under the names Rhone-Poulenc and Rorer.
The Company is strengthening its operations in Central and Eastern Europe
through local production, warehousing and distribution arrangements and the
expansion of its sales force network. In 1994, the Company started
manufacturing in Poland and expanded its operations in Russia.
In the aggregate, geographic regions comprising the Rest of World area
accounted for just under 14 percent of RPR's 1994 sales. The Company has
operations in Africa, Asia, Latin America, Canada, Australia and Japan. The
Company's operations in Japan are conducted primarily through its subsidiary
Rhone-Poulenc Rorer Japan Inc.; in addition, the Company has several licensing
arrangements with Chugai, Yamanouchi and other Japanese companies for the sale
of RPR products in that market. The Company recently acquired rights to market
products formerly licensed to a third party in Argentina, and discussions are
in process with RP to acquire rights to the Brazilian market.
Raw Materials and Manufacturing
Substantial amounts of the active ingredients used in the Company's
prescription and OTC medicines are manufactured at its bulk pharmaceutical and
chemical facilities at Villeneuve la Garenne and Vitry-sur-Seine (near Paris,
France); Dagenham (near London, England); Cologne (Germany); Lewes, Delaware
(United States); and Marseilles (France). Certain chemicals and botanicals are
purchased from third parties and processed, compounded and packaged in
facilities which the Company operates. See "Properties".
The Company manufactures a substantial amount of the active ingredients
contained in its pharmaceutical products and does not depend to any significant
degree on other suppliers for these materials. Other raw materials and
packaging supplies for the Company's pharmaceutical products generally are
available in ample quantities under normal conditions. Such supplies were
adequate in 1994, and no shortages are currently anticipated.
Armour's Plasma Alliance subsidiary, through the plasmapheresis process,
collects all of the plasma used in the U.S. and substantially all of the plasma
used worldwide at 24 collection centers throughout the southern and mid-western
United States. In 1994, the Company began operation of a new fractionation
facility in France with the objective of increasing the Company's overall
plasma volume capability and opening the French market to the Company's plasma
proteins.
Patents, Trademarks and Licenses
The Company has obtained patents in France, the United States, and other
countries for the significant products discovered or developed through its
research and development activities. Patent protection is available in the
United States, France and most other developed countries for new active
ingredients, as well as for pharmaceutical formulations or manufacturing
processes. In some other countries, patent protection is available only for
manufacturing processes. The Company also licenses patents and other know-how
from third parties. The Company maintains numerous trademarks protected by
registrations in the countries where its products are marketed.
4
<PAGE>
As no single product or offering contributes more than 6% of total sales, no
single patent or trademark is considered material to the Company as a whole.
Certain of the Company's licensed and owned products are covered by patents
principally in the United States, France and/or other countries. These patents
cover such principal offerings as Nasacort (R), Monoclate-P (R),
Clexane (R)/Lovenox (R), Peflacine (R) and Selectol (R). The Company's
licensed or owned patents expire at various times through the next twenty
years. The U.S. Lozol (R) patent expired in 1988 and Lozol (R) U.S. FDA
exclusivity expired in mid-1993. The U.S. Azmacort (R) patent expired in 1993
and Dilacor (R) XR faces loss of U.S. FDA exclusivity in mid-1995. The General
Agreement on Tariffs and Trade ("GATT") was signed into law in late 1994 and
has led to numerous changes in U.S. patent law. Provisions of GATT affect the
life of both newly-issued and currently in-force U.S. patents. Certain RPR
U.S. patents in force today will benefit from an extended patent term, but not
with respect to those that were scheduled to have expired before late 1999.
The Company has been granted Supplementary Certificates of Protection to
extend the patent terms of several of its products in Europe.
Product patent protection is no longer available in nearly all major markets
for the active ingredients (such as ketoprofen, metronidazole, calcitonin,
acebutolol and spiramycine) used in a number of the Company's leading
products. However, the Company does not believe that the expiration of patent
protection for the active ingredients used in these and other products has
generally had a significant adverse effect on the Company because of the
ability thus far to develop and patent new processes, formulations and uses;
to position many of its products in specific market niches; and because the
generic market in France is not presently a significant factor.
The Company is routinely engaged in disputes over its patented products and
processes, the more significant of which are discussed in "Legal Proceedings"
herein. There are currently no significant disputes concerning its trademarks.
Competition
Generally, the Company operates in an intensely competitive global
environment, encountering competition in all of its geographical markets from
large national and international competitors. The Company's chief competitors
include such companies as American Home Products Corp; Bristol-Myers Squibb
Company; Ciba-Geigy Limited; Eli Lilly and Company; Glaxo Holdings p.l.c.;
Hoechst AG; Johnson & Johnson; Marion Merrell Dow Inc.; Merck & Co, Inc.;
Pfizer Inc.; Roche Holdings; Sandoz Ltd.; Schering-Plough Corporation;
SmithKline Beecham; The Upjohn Company and Warner-Lambert Company. These and
other competitors have substantial resources available for research,
development and marketing activities.
In general, a pharmaceutical offering may be subject to competition from
alternative therapies during the period of patent protection and thereafter it
may also be open to competition from generic offerings. The launch by other
companies of new products or processes with therapeutic advantages can result
in obsolescence and/or significant price erosion despite the existence of
patent protection or recognized trademarks. Medical utility, product quality
and marketing are other major competitive factors. Manufacturers of generic
products typically do not invest as heavily in research and development and,
consequently, are able to offer generic products at considerably lower prices
than brand equivalents. A research-based pharmaceutical company may therefore
seek to achieve a sufficient margin and sales volume during the period of
patent protection to recover the original investment and to fund research for
the future. There are, however, a number of factors that can enable products
to remain viable once all forms of patent protection (product, process,
formulation and use) have ceased. These include creating for the prescriber or
the consumer a strong brand identification supported by an active trademark
registration and enforcement policy; offering a range of alternative
formulations that generic manufacturers typically cannot produce; or
complexity of manufacture of the active compound.
Increasing governmental and other pressures in many countries in favor of
the dispensing of generic products in substitution for brand-name products may
increase competition for some of the offerings which are no longer covered by
patents.
5
<PAGE>
The Company believes that its competitive position in the medium- to long-
term depends largely on the ability of its research and development
organization to discover and develop innovative therapies, as well as on
increasing productivity through improved manufacturing methods and marketing
efforts and maximizing the benefits of new business alliances.
Research and Development
The Company invests heavily in research and development, which management
believes is critical to growth and competitiveness in the pharmaceutical
industry. Research and development expenditures were $600 million in 1994, $561
million in 1993 and $521 million in 1992. Such expenditures represented 14% of
net sales in 1994 and 1993 and 13% of net sales in 1992.
The Company has concentrated research efforts at three research centers, in
France, the United States, and the United Kingdom. See also "Properties."
The Company has centralized and redirected its research in selected areas
deemed by management to be of long-term market potential. Research and
development programs are concentrated in several therapeutic areas:
cardiovascular, cancer, infectious diseases/AIDS, respiratory, bone
metabolism/rheumatology, and central nervous system disorder/pain. The Company
has development projects in various stages which include, but are not limited
to, the following:
Filed for registration in certain major markets:
. Taxotere(R)*, an antitumor agent with potential therapeutic benefit
against breast, lung and other forms of cancer;
. Ebastine, a non-sedating antihistaminic compound for treatment of
seasonal or perennial allergic rhinitis;
. Menorest(R)*, an estrogen patch for female hormone replacement;
. Zagam(TM)*, a potential first-line therapy broad spectrum anti-infective
compound (being developed in North America and co-developed in Europe
through a joint venture with Dainippon); and
. CPT-11, a novel anticancer agent which is cytotoxic against a variety of
solid tumors, notably colorectal cancer.
* approvals received in certain markets
Phase III in certain major markets:
. Synercid(TM), an injectable streptogramin antibiotic for hospital-
acquired infections; and
. a novel compound, Rilutek (TM), for the treatment of Amyotrophic Lateral
Sclerosis (ALS).
Phase II in certain major markets:
. a potent and selective inhibitor of the enzyme phosphodiesterase type IV
indicated in the inflammatory process in the lung;
. a potent and highly-specific NK1 receptor antagonist for migraine
attacks;
. a potent analgesic for the treatment of moderate and severe pain, such
as cancer pain; and
. Combi-patch, an estrogen/progestin combination transdermal patch for the
relief of postmenopausal symptoms.
Line extensions, in various stages of development, of marketed products:
. new indications such as use in abdominal surgery and treatment of
unstable angina for the anti-thrombotic drug, Lovenox(R), in the U.S.;
6
<PAGE>
. new formulations that are free of chlorofluorocarbons for Nasacort(R)
for allergic rhinitis and Azmacort(R) for asthma (being co-developed
with Fisons in Europe), as well as an aqueous formulation of
Nasacort(R); and
. a pre-filled syringe for Calcimar(R), indicated for the symptomatic
treatment of Paget's disease, hypercalcemia, and postmenopausal
osteoporosis.
There can be no assurance that the above compounds will ultimately be
approved for commercial sale in those markets where no approval currently
exists.
In 1994, the Company formally created RPR Gencell, a division dedicated to
discovery, development and commercialization of cell and gene therapies.
Through associations with various companies and research organizations,
including AIS, the division will optimize existing technologies to accelerate
the application of cell and gene therapies in the areas of oncology,
cardiovascular disease and central nervous system disorders.
Governmental Regulation
The introduction of new prescription pharmaceuticals is regulated in all
countries where the Company does business. Regulatory requirements generally
relate to the safety and efficacy of the product as well as to the
manufacturing processes for and the packaging and labeling of such products.
Clinical testing is required for pharmaceutical products. Completion of the
lengthy application and testing process for required governmental approvals is
costly and can significantly delay the introduction of new products in a given
market.
In the French prescription pharmaceutical market, direct price controls have
maintained prices at a low level compared to other markets and have slowed the
emergence of generic competition. As part of its efforts to reduce health care
expenditures, in 1994 the French government implemented physician prescribing
guidelines limiting the volume of prescriptions written. Also in 1994, the
government and certain pharmaceutical manufacturers, acting individually,
reached a three-year policy agreement ("convention") aimed at reducing annual
growth of reimbursable pharmaceuticals through a better mix of prices and
volumes. In December 1994, the Company's three major ethical subsidiaries in
France, through the Company's lead subsidiary, signed a convention with the
government setting forth volume and pricing terms for many of the products sold
by the subsidiaries. The French government may consider other cost containment
measures to respond to the nation's health care deficit.
In January 1995, the European Medicines Evaluation Agency began operations in
the European Union and new procedures for drug approvals became effective.
Accordingly, depending on the product, or in some cases, at the discretion of
the registrant, new drug applications can be filed on a country-by-country
basis, by a decentralized procedure or centralized procedure, whereby with the
latter, a single approval becomes effective throughout the entire European
Union. The changes should generally speed the access to the European market of
new chemical entities and result in better harmonization of prescribing
information.
The Company's products sold in the United States are subject to the Food,
Drug and Cosmetic Act, and accordingly are subject to investigation and pre-
market approval of "new drugs" (as such term is defined in the Act), strict
standards regarding their manufacture, safety and efficacy and detailed
requirements with respect to labeling, promotion and, with respect to
prescription drugs, advertising. All states have enacted generic substitution
laws which permit, or in some instances mandate, the dispensing pharmacist to
substitute a different manufacturer's generic equivalent version of a drug
product for the one prescribed.
A variety of legislative proposals to expand public health care programs
and/or impose pharmaceutical price or access restrictions in the U.S. have been
discussed in recent years. During 1993, the Clinton Administration proposed the
Health Security Act ("HSA") which would have provided universal health coverage
through a standardized benefits package for all U.S. citizens and would have,
by 1998, made sweeping structural and financial changes to the U.S. health care
delivery system. A centerpiece of the HSA
7
<PAGE>
were large purchasing cooperatives or alliances that would have fostered the
growth of large managed care plans and eventually eliminated the traditional
"open market" fee-for-service delivery of health care. After a lengthy and
intense debate in Congress, major health system reform, and the several pieces
of legislation based on the HSA, were shelved by Congress in 1994. Health care
reform will likely be addressed again by Congress in the future; however,
rather than a systemic overhaul, it appears that reforms will be incremental
and that the competitive marketplace will be allowed to continue to determine
the prices of pharmaceuticals. With major U.S. federal health care reform
substantially on hold, it is likely that state governments may increase efforts
to enact their own statewide health reform to increase coverage of uninsured
populations.
U.S. federal and state governments also continue to seek means to reduce the
costs of Medicare and Medicaid programs. The exact form and extent of these
possible cost reduction measures is yet to be determined; however, there will
be increasing government incentives to capitate public sector beneficiaries
into managed care plans. Currently, the Company operates under a Medicaid
Rebate Agreement entered into with the U.S. Government under Section 4401 of
the Omnibus Budget Reconciliation Act of 1990. Pursuant to the agreement, in
order to have its prescription drugs eligible for federal reimbursement under
state Medicaid plans, the Company must pay to the states certain statutorily-
prescribed rebates on Medicaid purchases. The law also denies federal Medicaid
reimbursement for drug products of the original New Drug Application ("NDA")-
holder if a less expensive generic version of such drug is available from
another manufacturer, unless the prescriber indicates on the prescription that
the branded product is medically necessary. The Company does not believe that
continued operation of these agreements will have a material adverse impact on
the Company's financial condition in the foreseeable future.
In the Company's other major markets, including Germany, the U.K., Italy and
Japan, national governments exert controls over pharmaceutical prices either
directly or by controlling admission to, or levels for, reimbursement by
government health programs. The nature of such controls and their effect on the
pharmaceutical industry vary greatly from country to country. It is not
possible to predict the extent to which the Company or the pharmaceutical
industry might be affected by the matters discussed above.
Environmental Matters
The Company has a management committee that monitors its worldwide
environmental performance. The Company believes that its operations comply in
all material respects with applicable environmental laws and regulations
including those of U.S. federal, state and local authorities. The Company
routinely makes, and expects that from time to time it will continue to make,
capital expenditures for environmental compliance. It does not, however,
anticipate that such future expenditures will materially affect its earnings or
competitive position.
Like many manufacturers, the Company has been advised of its potential
responsibility relating to past waste disposal practices, including potential
involvement at four sites on the U.S. National Priority List created by the
Comprehensive Environmental Response Compensation and Liability Act
(Superfund). The Company believes its share of liability, if any, for such
matters to be negligible.
Employees
As of January 31, 1995, the Company and its subsidiaries had approximately
22,100 employees. In general, the Company considers its relations with
employees worldwide to be satisfactory.
Non-U.S. Operations
Non-U.S. operations of the Company and its subsidiaries are subject in
varying degrees to a number of risks inherent in conducting business outside of
the United States. These include fluctuating currency exchange rates and the
possibility of nationalization, expropriation or restrictive actions by local
governments. The Company, in general, does not currently consider these factors
to be deterrents to maintaining or expanding such operations.
8
<PAGE>
Executive Officers of the Company
The Company's current executive officers and certain biographical information
concerning such individuals are set forth below.
<TABLE>
<CAPTION>
NAME (AND AGE) OF EXECUTIVE
OFFICER, POSITIONS AND OFFICES
HELD WITH THE COMPANY BUSINESS EXPERIENCE
- ------------------------------ -------------------
<S> <C>
Robert E. Cawthorn (59)....... Mr. Cawthorn was appointed Chairman in 1986,
Chairman and Chief Executive having become Chief Executive Officer in 1985.
Officer He also served as President of the Company from
1984 to 1986 and from 1988 to 1991. Mr.
Cawthorn will transfer his responsibilities as
Chief Executive Officer to Michel de Rosen
effective April 25, 1995 and will continue as
Chairman.
Michel de Rosen (44).......... Mr. de Rosen will assume the position of Chief
President and Chief Operating Executive Officer as of April 25, 1995. Mr. de
Officer Rosen was appointed President and Chief
Operating Officer in 1993, having served as
Chief Executive Officer of the Fibers and
Polymers sector of RP since 1988. From 1986 to
1988, he was Chief of Staff for the Minister of
Industry of the French Government.
Timothy Rothwell (44)......... Mr. Rothwell joined the Company as Executive
Executive Vice President and Vice President in January 30, 1995. Previously,
President, Pharmaceutical he served as Chief Executive Officer and
Operations President of the U.S. pharmaceutical business
of Sandoz Pharmaceuticals from 1992 to 1994
and, most recently, as Senior Vice President of
Worldwide Business Development and Licensing.
During 1991, Mr. Rothwell was Vice President,
Marketing and Sales at Burroughs Wellcome.
Previously, Mr. Rothwell had held several
positions at the Bristol Myers Squibb
Corporation including General Manager, Squibb
U.S. Pharmaceutical and Senior Vice President,
Marketing and Sales.
John A. Sedor (50)............ Mr. Sedor was appointed Executive Vice President
Executive Vice President and effective January 30, 1995, having served as
President, Armour President, Armour Pharmaceutical Company since
Pharmaceutical Company 1989. Since 1986, Mr. Sedor had served as
Senior Vice President and General Manager of
Rorer Consumer Pharmaceuticals as well as
Senior Vice President, Rorer Pharmaceutical
Operations.
Alain Audubert (51)........... Mr. Audubert joined the Company in his present
Senior Vice President and position in January 1994, having served as
President, Worldwide Chief Executive Officer of Pasteur Merieux
Industrial Operations Connaught since 1990. Prior to this, he was
Chief Executive Officer of the Institut de
Selection Animale since 1983.
Yves Barou (47)............... Mr. Barou has served as Senior Vice President,
Senior Vice President, Human Resources since 1993, having been
Corporate Human Resources Corporate Vice President, Human Resources since
1991. Mr. Barou was Managing Director of the
Company's Vitry-Alfortville Research Center in
France between 1989 and 1991.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
NAME (AND AGE) OF EXECUTIVE
OFFICER, POSITIONS AND OFFICES
HELD WITH THE COMPANY BUSINESS EXPERIENCE
- ------------------------------ -------------------
<S> <C>
Gilles D. Brisson (43)........ Mr. Brisson has served as Senior Vice President,
Senior Vice President, Corporate Development since 1990 and in
Corporate Development and December 1994, he also assumed responsibility
General Manager, Japan & for Japan and the Pacific Rim. Mr. Brisson was
Pacific Rim Area Vice President of Northern Europe, the
United Kingdom and Australasia and General
Manager of United Kingdom Health Care for RP
from 1989 to 1990.
Richard T. Collier (41)....... Mr. Collier was appointed to his present
Senior Vice President and position effective January 1, 1995, having
General Counsel served as Vice President and General Counsel,
U.S. since October 1992. Since joining the
Company in 1986, Mr. Collier has held several
positions in the legal organization including
Vice President and Assistant Secretary and has
also served as Assistant to the Chairman of the
Company.
Manfred E. Karobath, MD (54).. Dr. Karobath joined the Company in 1992, having
Senior Vice President and been Senior Vice President, Research and
President, Research and Development at Sandoz Pharma Ltd. in Basle,
Development Switzerland since 1989.
Patrick Langlois (49)......... Mr. Langlois has served in his current position
Senior Vice President and since 1990. Previously, he served as Senior
Chief Financial Officer Vice President, Corporate Finance and
Acquisitions of RP from 1988 to 1990.
John D. Michelmore (52)....... Mr. Michelmore was appointed to his current
Senior Vice President and position in 1993. Prior to that date, he had
General Manager, Europe been Senior Vice President, Northern Europe
since 1990. Mr. Michelmore served as Area Vice
President of Rorer International
Pharmaceuticals from 1988 to 1990.
Philippe Maitre (38).......... Mr. Maitre was appointed to his current position
Vice President and Treasurer in 1994, having joined the Company as Group
Vice President, Finance and Planning for North
America and Pacific Rim countries in 1993. Mr.
Maitre previously held various finance
positions with RP, including General Manager,
Finance and Planning of Rhone-Poulenc Japan
from 1991 to 1993 and Assistant Treasurer of
Rhone-Poulenc Sante S.A. from 1986 to 1991.
</TABLE>
No executive officer of the Company has any family relationship with any
other.
ITEM 2. PROPERTIES
A substantial portion of the Company's pharmaceutical production in most
product categories is conducted in France, the United States, Germany, and the
U.K. The Company has a total of 43 pharmaceutical plants throughout the world:
in France (9), United States (4), elsewhere in Europe excluding France (10),
Canada (1), Africa (7), Japan (1), other Asia (7) and Latin America (4).
Included in the above are 6 plants dedicated solely or partially to the
production of bulk pharmaceuticals and chemicals. These plants are located in
France (3), the United Kingdom (1), the United States (1) and Germany (1).
10
<PAGE>
Research and development activities are conducted in facilities in Vitry-sur-
Seine, France; in Collegeville, Pennsylvania, United States and Dagenham,
United Kingdom. U.S.-based research operations were consolidated and relocated
to the new research center/corporate office facility during 1992.
The Company generally either owns its facilities or leases them under long-
term leases. In 1992, the Company sold its U.S. research center/corporate
office facility to a third party for $258 million and leased it back on a
triple net basis for an initial term of thirty years with options to renew for
a longer period. The Company also leased the underlying land to the third party
for sixty years and subleased it back with the facility. The Company believes
that its properties are well maintained and generally adequate to meet its
needs for the foreseeable future.
Capital expenditures were $221 million in 1994, $250 million in 1993 and $284
million in 1992.
ITEM 3. LEGAL PROCEEDINGS
Diethylstilbestrol ("DES") Litigation
There are approximately two hundred and fifty legal actions pending against
one or more subsidiaries of the Company and various groupings of more than one
hundred pharmaceutical companies, in which it is generally alleged that "DES
daughters" and/or their offspring were injured as a result of the development
of various reproductive tract abnormalities in the "DES daughters" because of
their in utero exposure to DES. Typically, William H. Rorer, Inc. ("WHR") and
Kremers-Urban Company ("K-U"), two former operating subsidiaries of the
Company, are named as defendants, along with numerous other former DES
manufacturers, when the claimant is unable to identify the manufacturer of the
DES to which she was exposed. While the aggregate monetary damages sought in
all of these DES actions are substantial, the Company believes that both WHR
and K-U have adequate defenses to DES claims. In May 1994, a proposed class
action was filed on behalf of persons alleging injuries caused by DES and
living in the state of Ohio (Kurczi, et al. v. Eli Lilly, et al., United States
District Court for the Northern District of Illinois). The Company and certain
of its current and former subsidiaries were named among the 192 defendants. As
the facts of each individual lawsuit vary widely, the Company does not believe
that class action status is warranted and it intends to vigorously oppose this
petition requesting class action certification. In at least seven prior DES
actions, plaintiffs have sought certification of a class and have been
unsuccessful. All pending cases are currently being defended by insurance
carriers, sometimes under a reservation of rights. The Company is also
responsible for the obligations of Nattermann & Cie GmbH ("Nattermann") with
respect to DES-related legal actions brought against certain of its former U.S.
subsidiaries. Under the terms of the 1990 Acquisition Agreement with Rhone-
Poulenc S.A. ("RP"), RP is obligated to indemnify the Company for amounts
expended on the Nattermann DES claims in excess of $2 million. The Company
believes that the former Nattermann subsidiaries have adequate defenses to DES
claims.
AHF Litigation
There are approximately two hundred and fifty-six pending lawsuits in the
United States, ten in Canada and fifty-five in Ireland against the Company's
Armour Pharmaceutical Company ("Armour") subsidiary, and in some instances, the
Company and certain of its other subsidiaries, in which individuals with
hemophilia and infected with the Human Immunodeficiency Virus ("HIV"), or their
representatives, claim that such infection and, in some cases, resulting
illnesses, including Acquired Immune Deficiency Syndrome-related conditions or
death therefrom, may have been caused by administration of anti-hemophilic
factor ("AHF") concentrates processed by Armour in the early and mid-1980's;
none of these cases involves Armour's currently distributed AHF concentrates.
In most of these suits, Armour is one of a number of defendants, including
other fractionators who supplied AHF during that period. To date, approximately
one hundred and three cases and claims have been resolved either by dismissal
by the plaintiffs or the Court or through settlement. A majority of the
currently pending lawsuits were filed in 1993, and management expects
additional lawsuits will be filed. It is not possible, however, to predict with
certainty the number of additional lawsuits that may eventually be filed
alleging HIV-related claims.
11
<PAGE>
In January 1993, a jury in Florida held that Armour was liable to the parents
of a deceased HIV-infected hemophiliac for damages of approximately $2 million.
Armour believes this verdict to be inconsistent with evidence specific to the
case and, accordingly, filed motions with the trial court seeking reversal or,
alternatively, a new trial. The trial court denied both motions and Armour has
appealed the judgment to the United States Court of Appeals for the Eleventh
Circuit. The appeal has been argued and awaits decision. Regardless of the
outcome of this case, and because the facts vary widely in such cases, the
Company does not view this verdict as predictive of, or as precedent for,
decisions in any other cases. Juries in other AHF cases have determined that
Armour and the other plasma fractionators acted responsibly and were not
negligent. In October 1993, Armour obtained a directed verdict dismissing it
from a lawsuit pending in Louisiana State Court on the basis that the plaintiff
had not presented evidence sufficient to maintain an action against Armour.
That decision has been appealed by plaintiffs to the state appellate court in
Louisiana. That appeal is set to be argued in March 1995. Additionally, in
November 1993, a jury verdict in favor of Armour and the other plasma
fractionators was obtained in an action pending in the United States District
Court for the Northern District of Illinois. The jury concluded that the
fractionators of Factor VIII concentrate in the early 1980's were not negligent
as alleged and accordingly were not liable to the claimant. Plaintiff's post-
trial motion seeking a new trial was denied and plaintiff has appealed the
judgment to the United States Court of Appeals for the Seventh Circuit. This
appeal was recently argued and also awaits decision. Armour reasonably expects
that other cases will proceed to trial in the future.
In December 1993, the Federal Multi-District Litigation Panel ("MDL")
authorized the consolidation of all AHF litigation pending in U.S. Federal
Courts for purposes of pre-trial discovery and the transfer of such cases to
the U.S. District Court for the Northern District of Illinois for this purpose.
Four proposed federal class action lawsuits (Wadleigh, et al. v. Armour
Pharmaceutical Company, et al., United States District Court, Northern
District, Illinois; Richard Roe and his mother, Jane Roe v. Armour
Pharmaceutical Company, et al., United States District Court, Idaho District;
Jose Alvarez, Jr. et al. v. Armour Pharmaceutical Company, et al., United
States District Court for the Eastern District of Louisiana; and Timmy Dale
Martin, et al. v. Armour Pharmaceutical Company, et al., United States District
Court for the Northern District of Alabama); and one proposed state class
action (Jeffrey Stanger, et al. v. Armour Pharmaceutical Company, et al.,
Superior Court, Pima County, Arizona), have been filed against several
fractionators, including Armour. The federal actions are part of the MDL
proceeding in Chicago.
In a bench ruling on August 5, 1994, and a Memorandum Opinion filed August
17, 1994, the Court in Wadleigh stated that it intended to certify the issue of
negligence in that action for class action treatment, but that it would deny
plaintiffs' motion for certification of an all-purpose class action and
plaintiffs' motion for certification of the issues of strict liability, breach
of warranty, proximate cause, and punitive damages. In September 1994, the
Court denied the defendants' motion for reconsideration, and also denied
defendants' request that it certify the issues for immediate consideration by
the Court of Appeals. In an order entered in October 1994, the Court ruled that
it would not certify plaintiffs' concert of action claim for class treatment.
In November 1994, the Court entered its formal class certification order, and
in December 1994 entered further orders regarding notice to the class and also
denied class certification in the federal actions other than Wadleigh. Under
the issue certification contemplated by the Court in Wadleigh, only the issue
of negligence would be tried on a class-wide basis. In the event of a defense
verdict, all class members would be bound thereby; in the event of a
plaintiffs' verdict, it would be necessary for each class member to attempt to
utilize that favorable outcome in his own separate litigation. The class trial
would not involve any issues of causation or damages, or a determination as to
any defenses such as the statute of limitations.
As the facts in each individual lawsuit vary widely, Armour did not believe
that class action status was warranted in the Wadleigh action. In December
1994, Armour and the other fractionator/defendants in Wadleigh filed a petition
for a writ of mandamus in the Seventh Circuit Court of Appeals in Chicago
seeking to have the class certification order vacated. On March 16, 1995, the
Court of Appeals granted the writ of mandamus and directed the District Court
to decertify the plaintiff class. The Company notes that a petition for
rehearing by the Circuit Court may be filed within 14 days of the Circuit
Court's action.
12
<PAGE>
In the U.S., Armour and other plasma fractionators have participated in
discussions with representatives of the hemophilia community, including the
National Hemophilia Foundation, concerning the issue of assistance for U.S.
hemophiliacs infected with HIV. Armour and Baxter Healthcare Corporation
("Baxter") reached a tentative settlement with attorneys representing
claimants in the purported class-action lawsuits pending against the
respective companies and submitted a Memorandum of Understanding to the Court
in that regard on August 2, 1994. However, as a result of the Court's August
5, 1994 statements with respect to class certification in Wadleigh,
plaintiffs' counsel withdrew from their recommendation concerning the
settlement. Armour will continue to vigorously defend its position in all
cases and claims brought against it.
With respect to this litigation, the Company has contractual rights to
certain insurance coverage provided by insurance carriers to Revlon, Inc., the
party from which it purchased the Armour business in 1986 ("Revlon carriers").
The Company also believes it has certain insurance coverage from an umbrella
insurance carrier and that it has access to "excess" liability insurance
coverage from other carriers, effective in 1986, for certain of these cases if
certain self-insured retention levels from relevant insurable losses are
exceeded. The Company has been involved in litigation with a principal
insurance carrier ("the principal carrier") as well as with certain of the
Revlon carriers, relative to carrier defense and indemnity obligations
associated with AHF litigation. Recently, the Company settled the dispute
being litigated with the principal carrier by entering into an agreement which
defines the principal carrier's obligations with respect to the underlying AHF
litigation. Additionally, the Company and certain of the other carriers are
engaged in extensive discussions aimed principally at settling the extent and
other conditions of coverage of those carriers. If necessary, a trial in the
insurance coverage litigation will likely take place in the United States
District Court for the Eastern District of Pennsylvania sometime in 1995.
Based upon these discussions, the Company believes that, although not a
certainty, a substantial level of coverage (including substantial coverage for
legal defense expenditures) for the Company's estimated liability determined
in accordance with Statement of Financial Accounting Standards No. 5 ("SFAS
5") is probable of occurrence.
Certain Contract Litigation
Rhone-Poulenc Rorer Pharmaceuticals Inc. ("RPRP"), a subsidiary of the
Company, has been named as a defendant in two related breach of contract
lawsuits initiated by Boehringer Mannheim GmbH and its American affiliate,
Boehringer Mannheim Pharmaceuticals Corporation (collectively, "BM"), seeking
compensatory damages. Specifically, BM commenced arbitration proceedings in
Switzerland and litigation in the state court of Maryland alleging that RPRP
breached an agreement related to the development of BM's bisphosphonate
compound and a copromotion agreement pertaining to the Company's licensed
product Lozol (R). RPR filed a counterclaim in the Maryland litigation against
BM for fraud related to representations made by BM and its agents prior to the
execution of the agreements. In March 1995, the parties agreed to dismiss the
Maryland litigation and to transfer all of those claims to final and binding
arbitration in Switzerland. The Company believes that the claims asserted by
BM are without merit and RPRP intends to vigorously defend its position.
Antitrust Litigation
The Company has been named as a defendant in sixty-nine antitrust lawsuits.
It is presently a party to six state court actions pending in California, and
one each in Wisconsin, Alabama, Washington and Minnesota. Additionally, the
Company has been named in fifty-nine antitrust actions brought in several
federal courts which have been coordinated before a judge in the U.S. District
Court for the Northern District of Illinois (Chicago). The cases brought in
California state court have similarly been coordinated before a judge in the
San Francisco Superior Court. The suits allege that certain pharmaceutical
companies (including RPR) and wholesalers, in conjunction with certain
pharmacy benefits managers, discriminated against independent community
pharmacist plaintiffs with respect to the prices charged for pharmaceutical
products and further conspired to maintain prices at artificially high levels
to the detriment of these pharmacies. One suit alleges injury to a proposed
class of California residents who are consumers of brand name prescription
products. Many of the federal actions were brought on behalf of an alleged
class of retail
13
<PAGE>
pharmacies throughout the United States; four of the state cases similarly
allege classes of pharmacists within those states. Plaintiffs in these lawsuits
seek injunctive relief and a monetary award for past damages alleged. The
federal class plaintiffs have filed an amended consolidated Complaint so that
issues affecting the class are pleaded consistently. The coordinating federal
court certified the class alleged in the amended consolidated Complaint in
November 1994. Notice to the class will likely be given by mail and published
in the first half of 1995.
The Company believes that these claims are without merit and it intends to
vigorously defend these lawsuits.
Patent and Intellectual Property Litigation
In February 1993, Tanabe Seiyaku Company ("Tanabe") of Japan and their U.S.
licensee, Marion Merrell Dow Inc. ("MMD") initiated an action before the
International Trade Commission ("ITC"), the administrative agency responsible
for handling complaints of imports which allegedly infringe U.S. intellectual
property rights. The complaint names ten domestic and foreign respondents,
including the Company, and alleges infringement of a Tanabe U.S. patent,
claiming a process for preparing bulk diltiazem, the active ingredient in the
Company's Dilacor (R) XR product. In January 1995, the ITC ruled that
Dilacor (R) XR does not infringe the MMD/Tanabe patent under any circumstances
and that the MMD/Tanabe patent is invalid and unenforceable.
The Company is a plaintiff in a patent infringement lawsuit with Chiron
Corporation filed in the United States District Court in California involving
the patent licensed exclusively to the Company by the Scripps Research
Institute ("Scripps") covering the anti-hemophilic Factor VIII:C. The Court is
considering pending summary judgment motions. If this case goes to trial, such
trial is likely to be scheduled to commence within the next six to twelve
months.
The eventual outcomes of the above matters of pending litigation cannot be
predicted with certainty. The defense of these matters and the defense of
expected additional lawsuits related to these matters may require substantial
legal defense expenditures. The Company follows SFAS 5 in determining whether
to recognize losses and accrue liabilities relating to such matters.
Accordingly, the Company recognizes a loss if available information indicates
that a loss or range of losses is probable and reasonably estimable. The
Company estimates such losses on the basis of current facts and circumstances,
prior experience with similar matters, the number of claims and the anticipated
cost of administering, defending and, in some cases, settling such claims. The
Company has also recorded as an asset, insurance recoveries which are
determined to be probable of occurrence on the basis of the status of current
discussions with its insurance carriers. If a contingent loss is not probable,
but is reasonably possible, the Company discloses this contingency in the notes
to its consolidated financial statements if it is material. Based on the
information available, the Company does not believe that reasonably possible
uninsured losses in excess of amounts recorded for the above matters of
litigation would have a material adverse impact on the Company's financial
position, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
14
<PAGE>
PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON COMMON EQUITY
The price range at which the Company's common stock traded and the quarterly
dividends paid per share during the last eight quarters are as follows:
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW DIVIDEND PAID
------------- ------- ------- -------------
<S> <C> <C> <C>
December 31, 1994................................. $42.625 $35.250 $.28
September 30, 1994................................ 39.125 30.500 .28
June 30, 1994..................................... 39.500 30.500 .28
March 31, 1994.................................... 37.000 32.000 .28
December 31, 1993................................. $48.500 $32.625 $.28
September 30, 1993................................ 48.875 43.000 .26
June 30, 1993..................................... 54.000 46.375 .24
March 31, 1993.................................... 48.000 42.500 .22
</TABLE>
Rhone-Poulenc Rorer Inc. (RPR) common shares are listed and traded on the New
York and Paris Stock Exchanges and are traded, unlisted, on the Philadelphia,
Boston, Pacific and Midwest Stock Exchanges.
On January 31, 1995, there were approximately 7,138 holders of record of
Rhone-Poulenc Rorer Inc. common shares.
15
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
RHONE-POULENC RORER INC. AND SUBSIDIARIES
TEN-YEAR SELECTED FINANCIAL DATA (UNAUDITED)
(DOLLARS AND SHARES IN MILLIONS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
-------- -------- -------- -------- -------- -------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $4,174.6 $4,019.4 $4,095.9 $3,824.3 $2,917.4 $1,182.2 $1,041.6 $ 928.8 $ 844.6 $338.1
Operating income........ 570.2 675.3 675.0 558.5 88.9 125.5 144.1 122.7 52.9 59.9
Income from continuing
operations............. 351.0 421.1 423.3 326.5 1.0 86.5 61.8 54.3 3.5 36.0
Discontinued operations,
net of tax:
Gain on sale........... -- -- -- -- -- -- -- -- 122.1 --
Earnings from
operations............ -- -- -- -- -- -- -- -- -- .8
Cumulative effect of
change in accounting
for income taxes....... -- -- 15.0 -- -- -- -- (35.5) -- --
Net income available to
common shareholders.... 331.8 408.7 428.2 326.1 1.0 85.0 61.8 18.8 125.6 36.8
Primary earnings per
common share:
Continuing operations.. 2.45 2.96 2.99 2.37 .01 1.33 .98 .84 .05 .56
Discontinued
operations:
Gain on sale........... -- -- -- -- -- -- -- -- 1.88 --
Earnings from
operations............ -- -- -- -- -- -- -- -- -- .01
Cumulative effect of
change in accounting
for income taxes...... -- -- .11 -- -- -- -- (0.55) -- --
Primary earnings per
common share.......... 2.45 2.96 3.10 2.37 .01 1.33 .98 .29 1.93 .57
Fully diluted earnings
per common share....... 2.45 2.96 3.10 2.37 .01 1.21 .97 .29 1.93 .57
Cash dividends per
common share........... 1.12 1.00 .68 .445 .42 .405 .40 .386 .376 .373
Research and development
expenses............... 600.1 561.2 521.3 444.5 350.1 121.8 104.0 82.7 69.7 17.9
BALANCE SHEET DATA:
Working capital......... 525.1 446.6 667.1 407.0 391.3 436.9 312.4 226.6 155.7 53.9
Property, plant &
equipment, at cost..... 2,172.8 1,958.6 1,855.9 2,027.8 1,930.7 488.2 395.7 363.5 333.0 150.6
Capital expenditures:
U.S. corporate offices,
research center and
site.................. -- -- 63.1 102.1 92.1 29.3 10.8 -- -- --
Other.................. 220.9 250.4 221.2 181.6 124.8 82.1 59.9 45.1 36.7 14.5
Total assets............ 4,362.5 4,050.2 3,858.3 4,115.5 4,085.0 1,791.7 1,388.0 1,240.5 1,110.1 444.4
Long-term debt
(including payable to
RP).................... 439.9 432.2 779.7 960.5 1,634.3 882.5 564.6 509.7 444.3 37.3
Shareholders' equity.... 1,981.1 1,821.2 1,568.3 1,298.6 693.5 439.9 414.2 368.8 390.4 265.7
Common shares
outstanding at year-
end.................... 134.1 137.0 138.3 137.9 137.4 63.1 63.6 62.9 65.4 64.9
Book value per common
share.................. 11.79 10.37 9.17 7.24 5.05 6.97 6.51 5.86 5.97 4.09
OTHER DATA:
Employees............... 22,100 22,300 22,900 22,500 23,500 8,500 8,400 7,400 7,500 8,900
Sales per employee
(thousands)............ 189 180 180 170 150 140 132 124 103 84
</TABLE>
- --------
Results include the accounts of the Human Pharmaceutical Business ("HPB") of
Rhone-Poulenc S.A. from May 5, 1990.
Results include pretax restructuring and other charges of $121.2 million in
1994, $93.8 million in 1993, $73.6 million in 1991, $289.3 million in 1990,
and $10.0 million in 1989.
Results for 1994 include a $30.6 million pretax charge related to the
reassessment of the carrying value of certain investments and $11.0 million of
acquired research and development expense associated with the Company's
investment in AIS. Results for 1993 include $105.0 million proceeds from
litigation settlement and pretax charges of $29.1 million related to AIS,
including acquired research and development expense.
Pretax gains on sales of product rights and investments totaled $46.2 million
in 1994, $30.2 million in 1993, $23.1 million in 1992, $95.7 million in 1991,
$78.8 million in 1990 and $30.9 million in 1989. Results for 1989 also include
a $19.9 million pretax gain on contract termination fee.
Effective January 1, 1992, the Company adopted SFAS 109, "Accounting for
Income Taxes," and recorded a cumulative effect adjustment increasing 1992
income by $15.0 million ($.11 per share). Prior years reflect the application
of SFAS 96, "Accounting For Income Taxes," effective January 1, 1987.
The year 1985 has been restated to reflect operations discontinued on February
28, 1986.
Employees and sales per employee for the year 1990 have been restated on a pro
forma basis to include HPB as if it were part of the Company from January 1,
1990.
All share and per share data have been adjusted to reflect a two-for-one
common stock split effective June 7, 1991.
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Rhone-Poulenc Rorer Inc. ("RPR" or "the Company") is one of the largest
research-based pharmaceutical companies in the world. RPR was formed in 1990 by
the combination of Rorer Group Inc. and substantially all of the Human
Pharmaceutical Business of Rhone-Poulenc S.A. ("RP"), based in Paris, France.
RP owns approximately two-thirds of RPR's common stock and controls the
Company. In the discussion which follows, percentage comparisons of year-to-
year sales, except when noted as reported sales, exclude the effects of
exchange rate fluctuations.
INDUSTRY TRENDS
The worldwide pharmaceutical industry continues to be affected by government
and private payor initiatives to reduce pharmaceutical prices and limit the
volume of prescriptions written by physicians. In certain cases, companies may
be able to negotiate terms or conditions which can minimize the effect of
legislation on revenues. The degree to which pharmaceutical companies are
individually affected depends upon each company's product portfolio and its
ability to manage in the environment specific to each country.
In the French prescription pharmaceutical market, direct price controls have
maintained prices at a low level compared to other markets and have slowed the
emergence of generic competition. As part of its efforts to reduce health care
expenditures, in 1994 the French government implemented physician prescribing
guidelines limiting the volume of prescriptions written. Also in 1994, the
government and certain pharmaceutical manufacturers, acting individually,
reached a three-year policy agreement ("convention") aimed at reducing annual
growth of reimbursable pharmaceuticals through a better mix of prices and
volumes. In December 1994, the Company's three major ethical subsidiaries in
France, through the Company's lead subsidiary, signed a convention with the
government setting forth volume and pricing terms for many of the products sold
by the subsidiaries. The French government may consider other cost containment
measures to respond to the nation's health care deficit.
In the U.S., existing legislation requiring payment of rebates to state
Medicaid programs reduced the Company's sales by $40 million in 1994, $34
million in 1993 and $21 million in 1992. In 1994, major health care reform,
including the Clinton Administration's proposed Health Security Act, which
would have made sweeping structural and financial changes to the U.S. health
care delivery system, was shelved by Congress. Health care reform will likely
be addressed by U.S. federal and state governments in the future, but the
precise form and effect of any final legislation cannot be predicted. Even
without government intervention, the U.S. marketplace continues to experience
growth and consolidation of managed care organizations which, on behalf of
payors, seek to reduce health care costs. Most pharmaceutical manufacturers,
including RPR, have reorganized their sales and marketing efforts to adapt to
managed care initiatives.
In the Company's other major markets, including Germany, the U.K., Italy and
Japan, national governments exert controls over pharmaceutical prices either
directly or by controlling admission to, or levels for, reimbursement by
government health programs.
The above measures, while indicative of a continuing global trend toward more
governmental control over health care expenditures, are neither new to the
industry nor to RPR. Whether initiated by governments or by private payors,
these measures tend to restrict future revenue growth derived from existing
products and, as a result, companies in the industry must look increasingly to
achieve profitability objectives through more rapid commercialization of highly
innovative therapies; integrated prescription, over-the-counter and generic
product strategies; aggressive cost reduction; strategic alliances with others
and creative marketing solutions to meet the needs of payors.
17
<PAGE>
RESULTS OF OPERATIONS
Therapeutic Area Sales
In the table and discussion which follows, percentage comparisons of year-to-
year sales are presented excluding the effects of exchange rate fluctuations.
Certain reclassifications have been made from amounts shown in prior periods
for therapeutic area totals to conform to classifications now used by the
Company.
<TABLE>
<CAPTION>
1994 1993 1992
THERAPEUTIC AREA/PRINCIPAL OFFERINGS SALES % CHANGE* SALES % CHANGE* SALES
------------------------------------ ----- --------- ----- --------- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
TOTAL CARDIOVASCULAR...................... $866 + 15% $743 + 6% $744
Clexane (R)/Lovenox (R).................. 214 + 38% 153 + 30% 127
Dilacor (R) XR........................... 128 +150% 51 +152% 20
Lozol (R)/Indapamide..................... 104 - 12% 118 - 13% 119
Selectol (R)/Selecor (R)................. 55 + 8% 50 + 43% 37
- --------------------------------------------------------------------------------
TOTAL ANTI-INFECTIVES/ONCOLOGY............ 540 - 1% 542 + 11% 530
Flagyl (R)............................... 84 + 11% 77 + 3% 82
Rovamycine (R)........................... 83 - 13% 94 + 26% 82
Peflacine (R)............................ 74 - 4% 76 + 9% 75
- --------------------------------------------------------------------------------
TOTAL PLASMA PROTEINS..................... 510 + 26% 400 + 20% 337
Albuminar (R)............................ 179 + 14% 154 + 6% 139
Monoclate-P (R).......................... 148 + 28% 114 + 7% 112
- --------------------------------------------------------------------------------
TOTAL CENTRAL NERVOUS SYSTEM/ANALGESIA.... 472 + 2% 457 - 5% 519
Doliprane (R)............................ 105 + 1% 102 + 23% 88
Sermion (R).............................. 96 + 8% 87 + 1% 92
Imovane (R)/Amoban (R)................... 93 + 6% 85 + 9% 84
- --------------------------------------------------------------------------------
TOTAL RESPIRATORY......................... 422 + 3% 407 + 5% 396
Azmacort (R)............................. 147 + 3% 143 + 13% 127
Nasacort (R)............................. 90 + 14% 79 + 37% 58
- --------------------------------------------------------------------------------
TOTAL BONE METABOLISM/RHEUMATOLOGY........ 326 - 15% 381 - 1% 424
Orudis (R)/Profenid (R)/Oruvail (R)...... 180 + 3% 173 + 3% 186
Calcitonins.............................. 98 - 39% 163 - 10% 198
- --------------------------------------------------------------------------------
TOTAL GASTROENTEROLOGY.................... 473 - 4% 490 + 10% 471
Maalox (R)............................... 249 + 4% 239 + 4% 240
- --------------------------------------------------------------------------------
OTHER THERAPEUTIC AREAS................... 566 - 6% 600 - 5% 675
DDAVP (R)................................ 84 + 16% 73 - 4% 76
- --------------------------------------------------------------------------------
</TABLE>
*% change excludes currency translation effects.
1994 Compared with 1993
On sales of $4,175 million in 1994, net income available to common
shareholders was $332 million ($2.45 per share), 19% below $409 million
reported in 1993. Current year results included pretax restructuring charges of
$121 million ($.58 per share). Prior year results included pretax income of $11
million ($.03 per share) from the net effects of settlement of litigation less
restructuring and other charges.
Full year 1994 reported sales increased 4%, primarily due to volume gains.
The impact of favorable currency fluctuations (+1%) was offset by product
divestitures (-1%); price changes had no material effect on sales growth. No
single product or offering contributed more than 6% of worldwide sales in 1994
and the ten largest contributed approximately 37%.
18
<PAGE>
Sales by geographic area were as follows:
<TABLE>
<CAPTION>
1994 % 1993 % 1992
SALES CHANGE* SALES CHANGE* SALES
------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C>
U.S........................................ $1,262 +13% $1,120 +12% $1,000
------ ---- ------ ---- ------
France..................................... 1,332 - 3% 1,375 + 8% 1,388
Other Europe............................... 1,009 + 3% 978 - 8% 1,218
Rest of World.............................. 572 + 6% 546 +13% 490
------ ---- ------ ---- ------
Total Non-U.S.............................. 2,913 -- 2,899 + 2% 3,096
------ ---- ------ ---- ------
Total Sales................................ $4,175 + 4% $4,019 + 5% $4,096
====== ==== ====== ==== ======
</TABLE>
*excludes effects of currency fluctuations and product divestitures.
Sales increases in the United States reflected growth of the Company's
prescription pharmaceuticals (Dilacor (R) XR, Lovenox (R), DDAVP (R) and
Nasacort (R)) following trade inventory adjustments in the first half of the
year. Sales declines in France, the Company's largest market, were largely a
result of lower sales of anti-infectives. In Other European markets, sales of
prescription pharmaceuticals in Germany recovered 14% from depressed prior
year levels while ethical product sales in Italy (-16%) and the U.K. (-11%)
continued to be impacted by restrictive government programs. In 1995, the
recovery in Germany is expected to continue, although at a somewhat lesser
rate, while Italy may experience a return to modest growth as a result of new
product launches. Higher sales in Eastern Europe and of generics in the U.K.
contributed to the modest sales improvement in the Other Europe region. In the
Rest of World, sales declines in Japan stemming primarily from government-
imposed price reductions were more than offset by sales growth, particularly
of anti-infectives, in South America and the rest of Asia.
If the effects of restructuring charges and prior year litigation settlement
are excluded from reported geographic area results, income before income taxes
as a percentage of sales ("IBT margin") improved in the U.S. and Other Europe
but fell in France and the Rest of World; the decline in the Rest of World
area is due principally to market conditions in Japan and expansion in
emerging markets.
Cardiovascular product sales were led by Clexane (R)/Lovenox (R) and
Dilacor (R) XR. Sales of Clexane (R)/Lovenox (R), a low molecular weight
heparin product, exceeded $200 million in 1994, bolstered by solid performance
in the U.S., France and Germany. Sales of Dilacor (R) XR, a once-daily calcium
channel blocker sold in the U.S., more than doubled from the prior year.
Dilacor (R) XR faces loss of U.S. FDA exclusivity in mid-1995 although
management does not anticipate any significant erosion in Dilacor (R) XR sales
in 1995 from generic intrusion. Despite higher sales of the Company's generic
indapamide, which partially mitigated the impact of reduced Lozol (R) brand
indapamide sales, total indapamide product sales were below the prior year's
sales as anticipated. Sales of Selectol (R)/Selecor (R), for treatment of
hypertension, improved in European markets, particularly France.
Sales of anti-infectives were below prior year levels principally in France
which suffered the combined effects of an increasingly competitive antibiotics
market and strong prior year sales related to a high incidence of influenza.
The successful introduction of Zagam (TM), a quinolone antibiotic, in France
in the third quarter partially offset reduced sales of other anti-infective
products; 1994 sales of Zagam (TM) exceeded $20 million. Elsewhere, anti-
infectives, particularly the antiparasitic Flagyl (R), experienced sales
growth in South American and Asian countries.
Sales of oncology products increased over the prior year driven by the 1994
launch of Granocyte (R) for chemotherapy-induced neutropenia in France,
Germany and other European markets. During the year, the Company also acquired
the U.S. and Canadian marketing rights to Oncaspar (TM) for use in the
treatment of acute lymphoblastic leukemia.
The major plasma proteins (Albuminar (R), Monoclate-P (R), Gammar (R) IV and
Mononine (TM)) sold by the Company's Armour Pharmaceutical Company subsidiary
("Armour") achieved double-digit sales growth in 1994, with particularly good
performance in the United States. Monoclate-P (R) and Mononine (TM) also
registered sales increases in European markets including France and Germany.
19
<PAGE>
Sales of Doliprane (R), the leading analgesic in France, improved in the
second half of 1994 but remained essentially level year-on-year following a
particularly strong 1993 influenza season. Increased sales in France and Japan
of Imovane (R)/Amoban (R), a non-benzodiazepine sleeping agent, were partially
offset by reduced sales in the U.K. due to government-imposed price reductions.
Respiratory product sales improved marginally as U.S. ex-factory sales of the
inhaled steriods Nasacort (R) and, to a lesser extent, Azmacort (R), recovered
from the negative impact of trade inventory reductions in the first half of the
year. Sales of Slo-bid (TM)/Slo-Phyllin (R), a theophylline bronchodilator,
continued to decline (-9%) due to greater use of inhaled steroids coupled with
increasing generic competition; the Company launched its own generic version of
Slo-bid (TM) in the second quarter of 1994. During the year, RPR entered into
various arrangements to further strengthen its respiratory products line,
including agreements with Fisons Pharmaceuticals to develop and market key
respiratory products in various European countries and an agreement with 3M
Pharmaceuticals to co-promote a beta2 agonist bronchodilator in the United
States.
A decline in sales of bone metabolism/rheumatology products included lower
1994 sales of calcitonin products for bone disorders. As expected, sales of
calcitonins were well below the prior year due to government reimbursement
programs in Italy and government price reductions in Spain and Japan. Generic
competition in the United States also contributed to reduced calcitonin product
sales. Sales of Orudis (R)/Profenid (R)/Oruvail (R), a ketoprofen anti-
inflammatory, improved slightly on higher sales in Italy and South America
offset by sales declines in Japan.
Despite lower sales and declining market share in the U.S., worldwide sales
of the antacid Maalox (R) increased modestly with good performance in European
markets, particularly Germany, and Japan, where Maalox (R) granules were
launched at the end of 1994. Reduced sales of Zoltum (R), a peptic ulcer
medication co-marketed in France, and the daily fiber therapy product
Perdiem (R) contributed to an overall sales decline of gastroenterology
products. The U.S. and Canadian Maalox (R) and Perdiem (R) product rights were
transferred to Ciba-Geigy Limited ("Ciba") in December 1994/January 1995. RPR
retains marketing rights to Maalox (R) in other world markets.
Sales in other therapeutic categories included higher sales of DDAVP (R) for
nocturnal enuresis and sales of prescription skin care products marketed to
dermatologists by Dermik Laboratories, which were up slightly over the prior
year.
Gross profit as a percentage of sales improved slightly to 67.2% as compared
with 67.0% in 1993, primarily due to manufacturing expense reductions. Selling,
delivery and administrative expenses decreased slightly as a percentage of
sales to 36.2% in 1994 from 36.5% in the prior year. In 1994, the benefits of
cost reduction initiatives were partially offset by increased spending in
support of new products and certain markets (Germany, Japan and South America).
As the benefits of the Company's restructuring programs, discussed below, are
realized, management expects to achieve further improvements in the Company's
current underlying cost base; a portion of such savings will be redirected to
the development and promotion of new products.
At $600 million, research and development expense grew to 14.4% of sales in
1994. The Company's research and development efforts continue to focus on
innovative global products and technologies, particularly those with the
potential to prolong significantly and/or improve the quality of life
worldwide. Among the Company's most important near-term projects are
Taxotere (R), for certain solid malignant tumors; Synercid (TM), a
streptogramin antibiotic for hospital-acquired infections; and CPT-11 for
colorectal cancer. Timing of a possible U.S. marketing approval for
Taxotere (R) is dependent upon further FDA consideration. Following the
Company's 1993 investment in Applied Immune Sciences, Inc. ("AIS"), in 1994 RPR
created a division (RPR Gencell) dedicated to discovery, development and
commercialization of cell and gene therapies. Through collaborations with
various companies and research organizations, the division will optimize
existing technologies to accelerate the application of cell and gene therapies
in the areas of oncology, cardiovascular diseases and central nervous system
disorders. In 1995, the Company's investment in research and development
programs is expected to approach $700 million.
20
<PAGE>
In 1994, the Company recorded a $121 million charge related to a global
restructuring plan. The plan, which is expected to be completed in 1995, is
intended to contribute to management's objective to reduce the Company's cost
base (exclusive of research and development expenditures) as a percentage of
sales. Annual pretax savings associated with the 1994 restructuring are
expected to approach $50 million in 1996; such savings approximated $20 million
in 1994. Total cash outlays under the plan are expected to exceed $90 million;
the remainder of the restructuring charge relates to asset writeoffs in
conjunction with certain production facilities. As of December 31, 1994, actual
cash outlays and assets writeoffs associated with the plan totaled $34 million
and $19 million, respectively. Total workforce reductions will approximate
1,300 positions, or 6%, primarily from manufacturing, sales/marketing and
administrative functions in North America and France, although other locations
in Europe and elsewhere are also included. Reductions are being effected
through a variety of local programs, the cost of which typically includes
retirement incentives or other severance benefits as well as outplacement
services. As of December 31, 1994, the Company's workforce had been reduced by
just under 550 positions as a result of the 1994 restructuring.
In 1993, the Company recorded charges of $94 million for the cost of certain
restructuring and manufacturing streamlining programs and increased provisions
for certain litigation. The 1993 programs, principally in Europe, include
restructuring of the marketing and manufacturing operations in the Company's
German and Italian prescription pharmaceutical businesses following
governmental actions aimed at reducing prices and limiting prescription volume.
The programs also include a plan to divest a portion of a French manufacturing
facility by the end of 1995. Full year 1994 pretax savings related to the 1993
restructuring approached $30 million. Cash outlays associated with the programs
totaled $19 million in 1994; asset writeoffs were not significant. As of
December 31, 1994, over 650 positions had been affected by the programs; total
workforce reductions upon completion of the programs will approximate 800
employees.
Net interest expense declined 23% to $47 million due to lower average
worldwide net debt balances and lower average interest rates in Europe. At
December 31, 1994, after the effect of interest rate swap contracts,
substantially all of the Company's debt was at variable rates of interest. In
1995, net interest expense is expected to approximate 1994 levels as the
favorable effect of slightly lower average net debt balances will be offset by
higher global interest rates. Preferred dividends of $19 million were higher
than the prior year due to a net increase in average outstanding preferred
shares and the effect of higher U.S. short-term interest rates.
Gains on sales of assets and product rights, including the Company's U.S.
over-the-counter business, totaled $46 million in 1994 (1993-$30 million).
At $84 million, other expense, net, increased by $30 million in 1994,
primarily due to the reassessment of the carrying value of certain of the
Company's investments, including AIS call options. Equity losses associated
with AIS were $29 million and included acquired research and development
expense of $11 million; similar AIS-related expenses totaled $29 million in
1993. Other expense, net also reflected higher 1994 foreign exchange losses,
including the effects of translation and financing in high inflation economies.
The Company's effective tax rate was 27.7% in 1994 compared with 28.7% in
1993 as a result of tax benefits from Puerto Rico operations. A reduction in
the Company's Possessions Tax Credit benefit beginning in December 1994 under
the U.S. Omnibus Budget Reconciliation Act of 1993 could increase the Company's
effective tax rate in 1995 and thereafter. The Company will seek to mitigate
this effect through routine tax planning measures.
1993 Compared with 1992
Net income available to common shareholders was $409 million ($2.96 per
share), 5% below $428 million reported in 1992 ($3.10 per share). The Company's
1993 reported net sales of $4,019 million were down 2% from 1992. The 2%
decline consisted of currency fluctuations (which reduced sales by 6%),
divested products (-1%), price increases (less than +1%), and volume gains
(+4%).
21
<PAGE>
In the United States, prescription pharmaceuticals and over-the-counter
products contributed to an increase in sales despite a fourth quarter decision
to curtail year-end trade incentives on certain prescription pharmaceuticals.
Sales increases in France were driven primarily by demand for anti-infectives
and analgesics following a strong influenza season. Sales in Other Europe fell
principally due to the impact of restrictive government programs in Germany
(where prescription product sales were down 26%) and Italy (down 31%). The
sales declines in these countries were partially offset by higher branded
product sales in Eastern and Southern Europe and generic products in Northern
Europe. Sales increases in the Rest of World area were led principally by
Japan. If the effects of restructuring charges and gains on asset sales are
excluded from reported geographic area results, IBT margin increased in 1993 in
the U.S., France and Rest of World but fell in Other Europe, triggered by
market conditions in Italy and Germany.
Sales of the Company's cardiovascular products in 1993 were led by
Clexane (R)/Lovenox (R), which performed well in France and was launched in the
U.S. early in 1993. The Company introduced a half-strength presentation of
Lozol (R) in 1993 as well as a generic indapamide product through its U.S.
Arcola Labs unit in anticipation of further generic competition following
expiration of the FDA exclusivity of Lozol (R) in mid-1993. Dilacor (R) XR,
launched in the U.S. in mid-1992, attained steady prescription growth
throughout 1993. Other cardiovascular products Frumil (R) (-19%), a leading
diuretic facing generic competition in the U.K., and Biosinax (R) (-66%), a
ganglioside sold in Italy, experienced sales declines as anticipated.
Sales of anti-infectives/oncology products were higher in 1993 on stronger
first and fourth quarter demand for upper respiratory disease products in
France.
Sales of plasma proteins were led by Albuminar (R) human serum albumin in
Japan and Monoclate-P (R) (pasteurized anti-hemophiliac Factor VIII:C) in Other
Europe markets. In the U.S., Monoclate-P (R) encountered competition from a
recombinant form that entered the market in 1993; the Company launched its own
recombinant version in the U.S. in late 1993. Mononine (TM), launched in the
U.S. in late 1992 for treatment of hemophilia B, also contributed to 1993
plasma proteins sales growth.
Sales of central nervous system/analgesia products were headed by
Doliprane (R), driven by a higher incidence of influenza in France, and
Imovane (R)/Amoban (R), which performed well in France and Japan.
Respiratory products were led by sales of Azmacort (R) and Nasacort (R) in
North America. Sales of Slo-bid (TM)/Slo-Phyllin (R) declined due to a shift in
use to inhaled steroids, although brand market share was maintained.
Calcitonin products encountered competition and unfavorable legislation in
Italy, their largest market and faced generic competition in the United States,
where the Company's Arcola Labs unit launched a generic version in the second
half of 1993. Elsewhere, RPR recorded higher calcitonin sales in Spain and
Japan in 1993. Sales of Orudis (R)/Profenid (R)/Oruvail (R) were marginally
higher, led by sales in Japan.
Sales of gastroenterology products benefited from higher Maalox (R) sales in
the U.S., Canada and Japan which exceeded declines in Other Europe. Expansion
of the U.S. antacid market contributed to higher factory sales in the U.S.
although the brand's share of the highly competitive antacid market trailed
1992. In 1993, the Company launched Anti-Gas and Anti-Diarrheal line extensions
of Maalox (R). Sales of Zoltum (R) more than doubled in 1993.
Sales in other therapeutic categories included sales of DDAVP (R), which
declined 4% and sales of Dermik skin care products, which increased 15%.
Gross profit, as a percentage of sales, improved one percentage point in 1993
to 67% due to cost control and product mix-related improvements.
22
<PAGE>
Selling, delivery and administrative expenses were 36.5% of sales compared to
36.7% sales in 1992. Higher expenses in support of selling and promotion of
U.S. prescription pharmaceuticals and in Japan were more than offset by expense
reductions in Europe, particularly Germany and Italy. Research and development
expenses increased 8% to $561 million, or 14% of sales, in 1993.
Excluding restructuring and other charges and litigation proceeds, operating
income was approximately level in 1993 and 1992. In 1993, the effects of
expense controls in manufacturing and administration exceeded relatively higher
research and development spending and lower selling price increases.
Net interest expense declined by $44 million in 1993 as a result of lower
average net debt balances and worldwide interest rates. Approximately 92% of
combined short- and long-term debt was at variable rates (principally in
Europe) at December 31, 1993 and 1992. In 1993, the Company issued $175 million
of money market preferred stock in the U.S. with initial dividend rates fixed
for two to five years and redeemed $75 million of Market Auction Preferred
Shares ("MAPS"). Dividends on preferred shares were higher than in 1992 due to
the $100 million net increase in outstanding preferred shares, partially offset
by the effect on auction rate dividends of lower U.S. short-term interest rates
earlier in the year.
Other expense, net, increased to $54 million due primarily to higher losses
associated with equity-method investments.
The Company's effective income tax rate for 1993 was 28.7% compared with
27.2% for 1992 as a result of reduced tax benefits from Puerto Rico operations
and reduced utilization of net operating losses outside the United States.
Inflation
Although its effect has stabilized at historically low levels in most
developed countries in recent years, price inflation continues to increase the
Company's cost of goods and services. As a result, limited ability to raise
selling prices in the current environment exposes companies in the industry to
risk of profit erosion. The Company attempts to mitigate such adverse
inflationary effects through quality initiatives to improve productivity and to
control costs.
FINANCIAL CONDITION
Cash Flows
Net cash provided by operating activities was $676 million in 1994, $721
million in 1993 and $357 million in 1992. The reduction in 1994 operating cash
flows reflects lower earnings, including the receipt in 1993 of $105 million
proceeds from the settlement of litigation, as well as higher cash outlays for
income taxes and occupancy costs at the U.S. corporate offices. Cash outflows
for income taxes increased by $57 millon in 1994 due to the prior year deferral
of tax payments. Net cash provided by operations benefited from reduced working
capital needs and the receipt of an advance royalty associated with the
Company's transfer to Ciba of its U.S. over-the-counter business. Operating
cash flows were substantially higher in 1993 than in 1992 because of lower
outlays for income taxes, working capital needs and restructuring activities.
Investing activities used cash of $115 million in 1994 and $346 million in
1993 and provided cash of $51 million in 1992. In 1994 and 1992, investing cash
flows reflected higher proceeds from sales of assets and product rights while
1993 investing activities included the acquisition of an initial 37% interest
in AIS for $117 million. Investing activities included $154 million proceeds
from transfer of the U.S. over-the-counter business to Ciba in 1994. Net cash
outflows associated with 1994 net investment hedging totaled $30 million. Cash
outlays for capital expenditures were $221 million in 1994, down from $250
million in 1993 and $284 million in 1992. In the first quarter of 1995,
investing cash outflows associated with certain investments in technologies
will approximate $60 million, including $21 million related to the acquisition
of an additional 5% interest in AIS. First quarter 1995 cash inflows include
the receipt of $35 million of proceeds upon the transfer of the Company's
Canadian over-the-counter business to Ciba.
23
<PAGE>
Cash used in financing activities was $481 million in 1994, $375 million in
1993 and $500 million in 1992. Financing cash outflows in 1994 included lower
debt repayments and higher outlays for common share repurchases and dividends;
1993 financing activities included $97 million of net proceeds from issuance of
preferred stock. Net repayments of third party and RP borrowings totaled $202
million in 1994 as compared with $265 million in 1993 and $403 million in 1992.
During 1994, the Company completed its five million share repurchase program,
acquiring for $110 million approximately three million of its common shares on
the open market for the Employee Benefits Trust to fund employee benefits in
the United States; such share repurchases totaled $76 million (two million
shares) in 1993. Cash dividends paid to common shareholders were $152 million
($1.12 per share) in 1994, $138 million in 1993 ($1.00 per share) and $94
million in 1992 ($.68 per share). In January 1995, the Board of Directors
declared a first quarter cash dividend of $.30 per share, a 7% increase above
the average 1994 quarterly dividend.
Liquidity
As a result of debt repayments, the Company's net debt (short- and long-term
debt including notes payable to RP, less cash and cash equivalents, short-term
investments and time deposits) to net debt plus equity ratio improved to .17 to
1 at December 31, 1994 from .26 to 1 at December 31, 1993. The ratio of current
assets to current liabilities was 1.38 to 1 compared to 1.37 to 1 a year ago.
At December 31, 1994, the Company had committed lines of credit totaling $1.2
billion with approximately $28 million of borrowings outstanding under these
lines. Of the $1.2 billion, $500 million relates to a long-term revolving
credit facility unconditionally guaranteed by RP; the amount available under
this facility reduces by $200 million per year until expiration of the facility
in 1997. In a separate agreement with RP related to the issuance of MAPS, the
Company must maintain as unused under this facility the smaller of $325 million
or the principal amount of debt outstanding (excluding borrowings from, or
guaranteed by, RP). The Company had an additional $695 million available under
several multicurrency line of credit agreements expiring throughout the next
four years. At December 31, 1994, the Company had the ability and intent to
renew, or to refinance under these facilities, approximately $233 million of
short-term third party borrowings for at least one year. Accordingly, this
amount was classified as long-term debt.
Pursuant to a $500 million shelf registration, the Company issued $175
million of money market preferred stock in 1993 and has the ability to issue an
additional $325 million in public debt securities and/or preferred shares.
In 1993, Moody's Investors Service ("Moody's") and Standard & Poor's ("S&P")
lowered the Company's preferred share credit ratings, attributing the change to
the effects of the 1993 privatization of RP. The Company's preferred share
issues are now rated BBB by S&P and Baa1 by Moody's. The Company's senior
unsecured debt ratings carry a rating of BBB+ by S&P and A3 by Moody's.
Management believes that cash flows from operations, supplemented by
financing expected to be available from external sources, will provide
sufficient liquidity to meet its needs for the foreseeable future. Long-term
liquidity is dependent upon the Company's competitive position, including its
ability to discover, develop and market innovative therapies and maximize the
benefits of new business alliances. In 1994, in addition to the formation of
the RPR Gencell partnership dedicated to cell and gene therapy, the Company
entered into an alliance with Caremark International Inc., a U.S.
pharmaceutical benefit management company, to enhance the delivery of cost-
effective drug therapies through a shared investment in outcomes research.
Cooperation Pharmaceutique Francaise ("Cooper"), which has an extensive
pharmacy distribution network in France, was acquired by RP during 1994. Cooper
is currently managed by RPR for a fee and it is expected that it will be
integrated with RPR's operations during the first half of 1995. In February
1995, Armour entered into an agreement with Behringwerke AG ("Behring"), a
subsidiary of Germany's Hoechst AG, to form a 50/50 joint venture in the global
plasma proteins business. Armour and Behring have complementary plasma proteins
offerings and geographic strengths which, if combined, would position the
24
<PAGE>
resulting joint venture to become a global market leader. The arrangement,
which is subject to U.S. and European regulatory approvals, will also provide
for increased investment in research and development activities. The Company
will continue to explore new strategic business alliances as such opportunities
arise.
Insurance and Litigation
The Company maintains significant levels of excess catastrophic general and
products liability insurance obtained from independent third-party insurers. In
light of the risks attendant to the Company's business activities, the limits
and coverage terms of such insurance are believed reasonable in amount and
scope and comparable to the insurance carried by others in the industry.
The Company is involved in litigation incidental to its business including,
but not limited to: (1) approximately 321 lawsuits pending in the United
States, Canada and Ireland against RPR and its Armour subsidiary, in which it
is claimed by individuals infected with the Human Immunodeficiency Virus
("HIV") that their infection with HIV and, in some cases, resulting illnesses,
including Acquired Immune Deficiency Syndrome-related conditions or death
therefrom, may have been caused by administration of anti-hemophilic factor
("AHF") concentrates processed by Armour in the early and mid-1980's. Armour
has also been named as a defendant in five proposed class action lawsuits filed
on behalf of HIV-infected hemophiliacs and their families. None of these cases
involves Armour's currently distributed AHF concentrates; (2) legal actions
pending against one or more subsidiaries of the Company and various groupings
of more than one hundred pharmaceutical companies, in which it is generally
alleged that certain individuals were injured as a result of the development of
various reproductive tract abnormalities because of in utero exposure to
diethylstilbestrol ("DES") (typically, two former operating subsidiaries of the
Company are named as defendants, along with numerous other DES manufacturers,
when the claimant is unable to identify the manufacturer); (3) antitrust
actions alleging that the Company engaged in price discrimination practices to
the detriment of certain independent community pharmacists; (4) alleged breach
of contract by a subsidiary of the Company with respect to agreements involving
a bisphosphonate compound and Lozol (R); and (5) potential responsibility
relating to past waste disposal practices, including potential involvement, for
which the Company believes its share of liability, if any, to be negligible, at
four sites on the U.S. National Priority List created by Superfund legislation.
The eventual outcomes of the above matters of pending litigation cannot be
predicted with certainty. The defense of these matters and the defense of
expected additional lawsuits related to these matters may require substantial
legal defense expenditures. The Company follows Statement of Financial
Accounting Standards No. 5 in determining whether to recognize losses and
accrue liabilities relating to such matters. Accordingly, the Company
recognizes a loss if available information indicates that a loss or range of
losses is probable and reasonably estimable. The Company estimates such losses
on the basis of current facts and circumstances, prior experience with similar
matters, the number of claims and the anticipated cost of administering,
defending and, in some cases, settling such claims. The Company has also
recorded as an asset certain insurance recoveries which are determined to be
probable of occurrence on the basis of the status of current discussions with
its insurance carriers. If a contingent loss is not probable, but is reasonably
possible, the Company discloses this contingency in the notes to its
consolidated financial statements if it is material. Based on the information
available, the Company does not believe that reasonably possible uninsured
losses in excess of amounts recorded for the above matters of litigation would
have a material adverse impact on the Company's financial position, results of
operations or cash flows.
Advertising Costs
In December 1993, the AICPA issued Statement of Position (SOP) 93-7,
"Reporting on Advertising Costs." SOP 93-7 requires that the costs of
advertising other than direct response advertising be expensed as incurred or
the first time the advertising takes place. Adoption of the SOP in 1995 is not
expected to have a material impact on the Company's quarterly or annual
financial statements.
25
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
RHONE-POULENC RORER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Net sales.................................. $ 4,174.6 $ 4,019.4 $ 4,095.9
Cost of products sold...................... 1,371.2 1,326.3 1,394.6
Selling, delivery and administrative ex-
penses.................................... 1,511.9 1,467.8 1,505.0
Research and development expenses.......... 600.1 561.2 521.3
Restructuring and other charges............ 121.2 93.8 --
Proceeds from litigation settlement........ -- 105.0 --
---------- ---------- ----------
Operating income.......................... 570.2 675.3 675.0
Interest expense........................... 55.3 71.2 125.3
Interest income............................ (8.2) (10.4) (20.4)
Gain on sales of assets.................... (46.2) (30.2) (23.1)
Other expense, net......................... 84.1 54.2 11.5
---------- ---------- ----------
Income before income taxes................ 485.2 590.5 581.7
Provision for income taxes................. 134.2 169.4 158.4
---------- ---------- ----------
Net income before accounting change....... 351.0 421.1 423.3
Cumulative effect of accounting change..... -- -- 15.0
---------- ---------- ----------
Net income................................ 351.0 421.1 438.3
Dividends on preferred stock............... 19.2 12.4 10.1
---------- ---------- ----------
Net income available to common sharehold-
ers...................................... $ 331.8 $ 408.7 $ 428.2
========== ========== ==========
Primary earnings per common share:
Net income before cumulative effect of ac-
counting change.......................... $ 2.45 $ 2.96 $ 2.99
Cumulative effect of accounting change.... -- -- .11
---------- ---------- ----------
Net income available to common sharehold-
ers...................................... $ 2.45 $ 2.96 $ 3.10
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
26
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1994 1993
-------- --------
<S> <C> <C>
ASSETS
Current:
Cash and cash equivalents................................. $ 118.8 $ 35.4
Trade accounts receivable less reserves of $74.6 (1993:
$68.3)................................................... 730.1 746.6
Inventories............................................... 546.9 504.1
Other current assets...................................... 496.5 382.7
-------- --------
Total current assets.................................. 1,892.3 1,668.8
Time deposits, at cost.................................... 55.8 64.3
Property, plant and equipment, net........................ 1,123.0 1,032.0
Goodwill, net............................................. 705.9 676.5
Intangibles, net.......................................... 167.2 206.1
Other assets.............................................. 418.3 402.5
-------- --------
Total assets.......................................... $4,362.5 $4,050.2
======== ========
LIABILITIES
Current:
Short-term debt........................................... $ 89.0 $ 108.6
Notes payable to Rhone-Poulenc S.A. & affiliates.......... 37.3 201.3
Accounts payable.......................................... 420.2 365.6
Income taxes payable...................................... 65.5 55.8
Accrued employee compensation............................. 138.6 121.0
Other current liabilities................................. 616.6 369.9
-------- --------
Total current liabilities............................. 1,367.2 1,222.2
Long-term debt............................................ 439.9 432.2
Deferred income taxes..................................... 28.6 29.5
Other liabilities......................................... 545.7 545.1
-------- --------
Total liabilities..................................... 2,381.4 2,229.0
-------- --------
Contingencies.............................................
SHAREHOLDERS' EQUITY
Market Auction Preferred Shares, without par value (liqui-
dation preference $1,000 per share); authorized, issued
and outstanding 225,000 shares........................... 225.0 225.0
Money market preferred stock, without par value (liquida-
tion preference $100,000 per share); issued and outstand-
ing 1,750 shares......................................... 175.0 175.0
Common stock, without par value; stated value $1 per
share; authorized 200,000,000 shares; issued and out-
standing 134,095,649 shares (1993: 136,996,345 shares)... 139.1 139.0
Capital in excess of stated value......................... 305.1 290.0
Retained earnings......................................... 1,387.6 1,207.3
Employee Benefits Trust................................... (185.7) (75.8)
Cumulative translation adjustments........................ (65.0) (139.3)
-------- --------
Total shareholders' equity............................ 1,981.1 1,821.2
-------- --------
Total liabilities and shareholders' equity............ $4,362.5 $4,050.2
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
27
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................ $ 351.0 $ 421.1 $ 438.3
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization........... 186.9 167.9 197.7
Provision for deferred income taxes..... (69.4) (40.8) (20.9)
Cumulative effect of accounting change.. -- -- (15.0)
Gain on sales of assets................. (46.2) (30.2) (23.1)
Deferred royalty income................. 24.0 -- --
Equity losses of unconsolidated affili-
ates, net.............................. 21.1 26.6 2.3
(Increase) decrease in trade accounts
receivable, net........................ 47.3 (33.0) (66.8)
(Increase) decrease in inventories...... (37.6) 2.5 (22.8)
Increase in accounts payable............ 19.6 39.4 47.5
Increase (decrease) in income taxes pay-
able................................... 13.3 83.7 (67.7)
Restructuring charges, net.............. 68.3 44.6 (64.2)
Other items, net........................ 98.1 39.0 (48.0)
---------- ---------- ----------
Net cash provided by operating activi-
ties................................. 676.4 720.8 357.3
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................... (220.9) (250.4) (284.3)
Equity investment in Applied Immune Sci-
ences, Inc............................... -- (117.3) --
Investment in time deposits, net.......... 8.5 (13.8) 5.9
Proceeds from sales of assets............. 162.6 52.0 339.6
Purchase of assets and investments........ (35.3) (15.0) (10.5)
Net investment hedging, net............... (29.8) (1.1) --
---------- ---------- ----------
Net cash provided by (used in) invest-
ing activities....................... (114.9) (345.6) 50.7
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings, net................ (223.1) (240.0) 298.3
Proceeds from issuance of long-term debt.. 67.9 108.2 292.6
Repayment of long-term debt............... (47.4) (133.0) (993.8)
Shares repurchased for Employee Benefits
Trust.................................... (109.9) (75.8) --
Dividends paid............................ (170.7) (149.2) (103.4)
Issuance of money market preferred stock.. -- 171.9 --
Redemption of Market Auction Preferred
Shares................................... -- (75.0) --
Issuances of common stock................. 2.6 17.8 6.1
---------- ---------- ----------
Net cash used in financing activities. (480.6) (375.1) (500.2)
---------- ---------- ----------
Effect of exchange rate changes on cash... 2.5 (4.2) (4.1)
---------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents.............................. 83.4 (4.1) (96.3)
Cash and cash equivalents at beginning of
year..................................... 35.4 39.5 135.8
---------- ---------- ----------
Cash and cash equivalents at end of year.. $ 118.8 $ 35.4 $ 39.5
========== ========== ==========
NONCASH INVESTING AND FINANCING ACTIVI-
TIES:
Issuance of common stock under employee
benefit plans.......................... $ 1.5 $ 4.0 $ 5.7
CASH PAID DURING YEAR FOR:
Interest, net of amounts capitalized.... $ 61.7 $ 82.4 $ 128.2
Income taxes............................ $ 190.4 $ 133.0 $ 247.0
</TABLE>
See Notes to Consolidated Financial Statements.
28
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Rhone-Poulenc
Rorer Inc. and subsidiaries which are more than 50 percent owned and/or
controlled. All subsidiaries are consolidated on the basis of twelve-month
periods ending December 31. Investments in corporate joint ventures and other
companies in which the Company has a 20 to 50 percent ownership are accounted
for by the equity method. Cost investments, less than 20 percent owned, are
carried at their original cost. Certain prior year items have been reclassified
to conform to current classifications.
Cash and Cash Equivalents and Time Deposits
The Company considers cash on hand, cash in banks, certificates of deposit,
time deposits and U.S. government and other short-term securities with
maturities of three months or less when purchased as cash and cash equivalents.
Investments with a maturity period of greater than three months but less than
one year are classified as short-term investments. Certain mortgage-backed
certificates, repurchase obligations and certificates of deposit with
maturities of more than one year are classified as long-term time deposits.
Inventories
Inventories are valued at the lower of cost or market, using the first-in,
first-out (FIFO) or average cost methods.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. For financial accounting
purposes, depreciation is computed principally on the straight-line method over
the estimated useful lives of the assets (generally, 20 to 30 years for
buildings and 5 to 15 years for machinery and equipment). For income tax
purposes, certain assets are depreciated using accelerated methods. Effective
January 1, 1993, the Company extended the depreciation lives for certain
production machinery and equipment. The change in estimate increased 1993 net
income by $11.1 million ($.08 per share).
Goodwill and Intangible Assets
Goodwill represents the excess of cost over the fair market value of net
assets of businesses acquired. Goodwill is amortized on a straight-line basis
over a period not to exceed forty years, and is reported net of accumulated
amortization of $210.2 million in 1994 and $172.1 million in 1993. The Company
assesses potential impairment of goodwill by comparing the carrying value of
goodwill at the balance sheet date with anticipated undiscounted future
operating income before amortization. Intangibles, which principally represent
the cost of acquiring patents and product lines, are amortized over their
estimated useful lives and are reported net of accumulated amortization of
$115.7 million in 1994 and $96.5 million in 1993.
Income Taxes
The Company and substantially all of its United States subsidiaries file a
consolidated federal income tax return. No provision has been made for United
States income taxes or withholding taxes on the unremitted earnings of non-U.S.
subsidiaries which are intended to be indefinitely reinvested. Effective
January 1, 1992, the Company adopted Statement of Financial Accounting
Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes," and recorded a
cumulative effect adjustment increasing 1992 net income by $15.0 million ($.11
per share).
29
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Foreign Currency Translation
Financial information relating to the Company's subsidiaries located outside
the United States is translated using the current rate method. Local currencies
are considered the functional currencies except in countries with highly
inflationary economies.
Advertising
Advertising costs are generally expensed within the fiscal year that the
costs are incurred, except for direct response advertising, which is
capitalized and amortized over the expected period of future benefit.
NOTE 2. RESTRUCTURING AND OTHER CHARGES
In 1994, the Company recorded a $121.2 million ($.58 per share) pretax charge
in connection with a global restructuring plan that is expected to be completed
in 1995. The restructuring will reduce the Company's workforce by approximately
1,300 positions, or 6%. The reductions will be primarily from manufacturing,
sales/marketing and administrative functions in North America and in France,
although other locations in Europe and elsewhere are also included. Reductions
are being effected through a variety of local programs, the cost of which
typically includes retirement incentives or other severance benefits as well as
outplacement services. The cash outlay related to the plan is expected to
exceed $90.0 million. The remainder of the restructuring charge relates to
asset writeoffs in conjunction with certain production facilities. In 1994, the
pretax savings associated with the restructuring approximated $20.0 million;
annual pretax savings are expected to approach $50.0 million in 1996. As of
December 31, 1994, the Company's workforce has been reduced by just under 550
employees as a result of the 1994 restructuring program.
A rollforward of the 1994 restructuring provision from the original liability
is as follows:
<TABLE>
<CAPTION>
PAYMENTS/ TRANSLATION
BEGINNING ASSET ADJUSTMENTS/ DECEMBER 31,
BALANCE WRITEOFFS OTHER 1994
--------- --------- ------------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Social costs................... $ 89.6 $(29.8) $(7.0) $52.8
Third parties.................. 12.5 (4.3) 0.2 8.4
Asset writeoffs................ 19.1 (19.4) 8.5 8.2
------ ------ ----- -----
Total........................ $121.2 $(53.5) $ 1.7 $69.4
====== ====== ===== =====
</TABLE>
In 1993, the Company recorded a pretax charge of $93.8 million ($.45 per
share) for the cost of certain restructuring and manufacturing streamlining
programs and increased provisions for certain litigation. The 1993
restructuring programs, principally in Europe, include restructuring of
marketing and manufacturing operations in the Company's German and Italian
prescription pharmaceutical businesses following governmental actions aimed at
reducing prices and limiting prescription volume. The programs also include a
plan to divest a portion of a manufacturing facility in Monts, France by the
end of 1995. Total workforce reductions associated with the plan will
approximate 800 positions; as of December 31, 1994, the Company's workforce had
been reduced by over 650 employees. Full year 1994 pretax savings associated
with the 1993 restructuring programs approached $30.0 million.
30
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A rollforward of the 1993 restructuring provision from January 1, 1994 is as
follows:
<TABLE>
<CAPTION>
PAYMENTS/ TRANSLATION
JANUARY 1, ASSET ADJUSTMENTS/ DECEMBER 31,
1994 WRITEOFFS OTHER 1994
---------- --------- ------------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Social costs.................. $26.6 $(14.0) $(0.4) $12.2
Third parties................. 1.8 (4.8) 3.0 --
Asset writeoffs............... 9.4 (1.2) 0.8 9.0
----- ------ ----- -----
Total....................... $37.8 $(20.0) $ 3.4 $21.2
===== ====== ===== =====
</TABLE>
NOTE 3. GAINS ON SALES OF ASSETS AND PROCEEDS FROM LITIGATION SETTLEMENT
In 1994, the Company recorded pretax gains on the sale of assets and product
rights totaling $46.2 million; such gains included the sale of certain assets
related to the Company's U.S. over-the-counter business to Ciba-Geigy Limited
("Ciba") in the fourth quarter. Under terms of that agreement, the Company
received a one-time payment totaling $178.0 million which included a prepaid
royalty of $24.0 million for the year 1995. Additional royalties of $24.0
million are expected per year for six years. At the end of the seven-year
period, Ciba has the option to purchase the U.S. product intellectual property
assets for approximately $143.0 million. The Canada portion of the asset sale
transaction closed in the first quarter of 1995, providing additional cash
proceeds of $34.6 million.
In 1993, pretax gains from asset sales including sales of product rights and
certain investments totaled $30.2 million. In 1993, the Company also received
$105.0 million cash proceeds from the settlement of a longstanding patent
lawsuit with Baxter International concerning Factor VIII:C concentrates for the
treatment of hemophilia.
In 1992, the Company recorded gains of $23.1 million related principally to
the sales of product rights in the U.S. and France.
NOTE 4. EQUITY INVESTMENT IN APPLIED IMMUNE SCIENCES, INC.
In 1993, the Company acquired for $117.3 million, including expenses, a 37%
interest in Applied Immune Sciences, Inc. ("AIS") and call options to purchase
up to six million additional shares which, if exercised, would result in
majority ownership by RPR approximating 60%. The companies also agreed to
establish joint ventures related to cell therapy products and services. Equity
losses associated with AIS for the year ended December 31, 1994 were $17.6
million. In 1994, AIS achieved a development milestone requiring RPR to
purchase an additional one million AIS shares, equal to an additional 5%
interest, in January 1995. In connection therewith, in 1994 the Company
recorded in equity losses of affiliates an $11.0 million pretax charge for
acquired research and development expense. In 1993, similar expenses associated
with AIS were $29.1 million ($.14 per share). The purchase of the one million
shares reduced the AIS call options held by RPR to five million related shares.
The Company may be required to purchase up to three million additional shares
of AIS common stock at a cost of up to $75.0 million between 1995 and 1997 if
AIS achieves certain other development milestones and/or sales and earnings
targets.
31
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5. OTHER EXPENSE, NET
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Equity losses of affiliates........................ $46.5 $50.0 $15.8
Minority interest.................................. 3.0 3.8 2.0
Foreign exchange (gains) losses.................... 10.0 (2.5) (8.1)
Other, net......................................... 24.6 2.9 1.8
------- ------- -------
$84.1 $54.2 $11.5
======= ======= =======
</TABLE>
Other, net for the year ended December 31, 1994 includes a charge of $30.6
million related to the reassessment of the carrying value of certain
investments including AIS call options.
NOTE 6. EARNINGS PER SHARE
Earnings per common share were computed by dividing net income available to
common shareholders by the weighted average number of shares of common stock
outstanding. The weighted average number of shares used to compute primary
earnings per common share was 135,254,692; 138,168,739 and 138,073,872 for the
years 1994, 1993 and 1992, respectively. Common share equivalents in the form
of stock options were excluded from the calculation as their dilutive effect
was not material.
NOTE 7. INVENTORIES
<TABLE>
<CAPTION>
1994 1993
-------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Finished goods....................................... $282.9 $235.3
Work in process...................................... 119.1 111.5
Raw materials and supplies........................... 144.9 157.3
-------- --------
$546.9 $504.1
======== ========
</TABLE>
NOTE 8. PROPERTY, PLANT AND EQUIPMENT, NET
<TABLE>
<CAPTION>
1994 1993
-------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Land............................................... $ 57.3 $ 58.0
Buildings.......................................... 599.6 568.7
Machinery and equipment............................ 1,355.3 1,197.2
Construction in progress........................... 160.6 134.7
-------- --------
2,172.8 1,958.6
Less accumulated depreciation...................... 1,049.8 926.6
-------- --------
Property, plant and equipment, net................. $1,123.0 $1,032.0
======== ========
</TABLE>
The Company incurred $58.7 million and $75.5 million in interest cost in 1994
and 1993, respectively, of which $3.4 million and $4.3 million, respectively,
was capitalized as part of the cost of additions to property, plant and
equipment.
32
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9. DEBT
Short-term debt consisted of the following:
<TABLE>
<CAPTION>
1994 1993
----- ------
(DOLLARS IN
MILLIONS)
<S> <C> <C>
Notes payable to banks......................................... $67.0 $ 86.6
Current portion of long-term debt.............................. 22.0 22.0
----- ------
$89.0 $108.6
===== ======
Notes payable to Rhone-Poulenc S.A. and affiliates............. $37.3 $201.3
===== ======
</TABLE>
The weighted average interest rate of total outstanding short-term debt was
9.3% at December 31, 1994 (1993: 6.7%).
Long-term debt, net of current portion, consisted of the following:
<TABLE>
<CAPTION>
1994 1993
------ ------
(DOLLARS IN
MILLIONS)
<S> <C> <C>
Notes payable at variable rates averaging 5.1% at 1994 year-
end (expected to be refinanced long-term).................... $233.3 $255.2
9.15% Series A Senior Notes due 2004, with interest payable
quarterly (guaranteed by Rhone-Poulenc S.A.)................. 56.6 60.1
8.95% Series B Senior Notes due 1997, with interest payable
quarterly (guaranteed by Rhone-Poulenc S.A.)................. 8.6 12.9
Yen-denominated variable rate notes under revolving credit
agreements due 1996 through 1998 (1994 year-end rate 2.8%)... 28.0 --
Notes, mortgages and capitalized lease obligations at rates
averaging 8.1% (1993: 9.0%).................................. 82.1 74.4
------ ------
$408.6 $402.6
Notes payable to Rhone-Poulenc S.A. and affiliates principally
due in 2000 at rates averaging 6.2% (1993: 6.0%)............. 31.3 29.6
------ ------
$439.9 $432.2
====== ======
</TABLE>
At December 31, 1994, the Company had classified $233.3 million of various
short-term borrowings from banks as long-term debt in accordance with the
Company's intention and ability to refinance such obligations on a long-term
basis. These borrowings were in various currencies with interest rates as
follows: $77.1 million in British pounds at 5.7%, $42.1 million in French
francs at 5.6%, $41.8 million in U.S. dollars at 5.9%, $39.3 million in German
marks at 5.0% and $33.0 million in Japanese yen at 2.6%.
The aggregate maturities of all long-term debt at December 31, 1994,
including related party debt, were: $22.0 million in 1995, $135.5 million in
1996, $154.0 million in 1997, $35.6 million in 1998, $26.3 million in 1999 and
$88.5 million thereafter.
The weighted average interest rate of total debt outstanding at December 31,
1994 was 7.0% (1993: 6.5%). At December 31, 1994, including the effect of
interest rate swap contracts, virtually all of the Company's outstanding debt
was at variable rates of interest (1993: 92%).
At December 31, 1994, the Company had committed lines of credit totaling $1.2
billion with $28.0 million in borrowings outstanding under these lines. Of the
$1.2 billion, $500.0 million related to the Revolving Credit Facility Agreement
dated April 30, 1990 ("the Facility"). The Facility is unconditionally
guaranteed by Rhone-Poulenc S.A. ("RP") and expires in $100.0 million
installments semi-annually through
33
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
April 30, 1997. In connection with the 1991 issuance of Market Auction
Preferred Shares, the Company agreed to maintain as unused a portion of the
Facility of not less than the smaller of $325.0 million or total indebtedness
(excluding amounts owed to or guaranteed by RP). Terms of the Facility contain
certain covenants regarding the financial condition of RP, the most restrictive
of which is the maintenance of minimum stockholders' equity and ratio of total
indebtedness to net worth. The Company has an additional $695.0 million
available under several multicurrency credit line agreements with various banks
expiring throughout the next four years. Borrowings under the above facilities
can be made in various currencies, principally U.S. dollars, French francs,
German marks, British pounds and Japanese yen; interest rates vary with the
respective currency's interbank offering rate. Amounts available under unused
uncommitted lines of credit approximated $634.7 million at December 31, 1994.
Pursuant to a 1993 U.S. shelf registration for $500.0 million, the Company
issued $175.0 million of money market preferred stock in 1993 and has the
ability to issue an additional $325.0 million in public debt securities and/or
preferred shares.
NOTE 10. LEASE COMMITMENTS
Rent expense was $55.0 million, $49.4 million and $28.2 million in 1994, 1993
and 1992, respectively. Future minimum lease commitments under all leases with
initial or remaining noncancelable lease terms in excess of one year at
December 31, 1994 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
(DOLLARS IN
MILLIONS)
<S> <C> <C>
1995...................................................... $ 7.2 $ 56.9
1996...................................................... 6.2 48.7
1997...................................................... 5.4 52.9
1998...................................................... 4.4 35.8
1999...................................................... 4.2 34.3
Thereafter................................................ 23.1 581.1
------ ------
Minimum lease payments.................................... 50.5 $809.7
======
Less imputed interest..................................... (14.3)
------
Present value of minimum lease payments (current--$5.2,
noncurrent--$31.0)....................................... $ 36.2
======
</TABLE>
In 1992, the Company sold its U.S. corporate offices and research facility to
a third party for $258.0 million and leased it back for an initial term of
thirty years with options to renew for a longer period. The Company also leased
the underlying land to the third party for sixty years and subleased it back
for thirty years with the facility. The Company pays taxes, insurance and
maintenance costs associated with the facility. Average annual accounting rent
is $22.5 million; under terms of the agreement, the first cash rental payment
was in July 1994.
NOTE 11. INCOME TAXES
The components of income before income taxes are:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
(DOLLARS IN
MILLIONS)
<S> <C> <C> <C>
United States........................................... $241.0 $289.1 $258.9
Non-U.S................................................. 244.2 301.4 322.8
------ ------ ------
$485.2 $590.5 $581.7
====== ====== ======
</TABLE>
34
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The provisions for income taxes are:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
(DOLLARS IN
MILLIONS)
<S> <C> <C> <C>
Current:
United States...................................... $103.4 $100.2 $62.9
Non-U.S............................................ 100.2 110.0 116.4
------ ------ ------
203.6 210.2 179.3
------ ------ ------
Deferred:
United States...................................... (51.7) (31.0) 2.2
Non-U.S............................................ (17.7) (9.8) (23.1)
------ ------ ------
(69.4) (40.8) (20.9)
------ ------ ------
$134.2 $169.4 $158.4
====== ====== ======
</TABLE>
Deferred income taxes are provided for temporary differences between book and
tax bases of the Company's assets and liabilities. Temporary differences giving
rise to a significant portion of the deferred tax assets and liabilities at
December 31 are:
<TABLE>
<CAPTION>
1994 1993
------ ------
(DOLLARS IN
MILLIONS)
<S> <C> <C>
Assets (liabilities):
Depreciation and amortization.............................. $(61.8) $(65.0)
Pension.................................................... 49.0 51.8
Intercompany profit in ending inventory.................... 33.0 30.5
Cost and equity investments................................ 30.9 10.7
Distributable earnings..................................... (26.2) (14.7)
Restructuring.............................................. 22.9 15.8
Net operating loss carryforwards........................... 15.4 13.2
Other, including nondeductible accruals.................... 97.4 52.7
------ ------
160.6 95.0
Less valuation allowance................................... (11.2) (8.9)
------ ------
Deferred income taxes, net................................. $149.4 $ 86.1
====== ======
</TABLE>
The portion of the above net deferred tax assets classified as current was
$143.8 million and $60.3 million at December 31, 1994 and 1993, respectively.
At December 31, 1994, total deferred tax assets were $335.3 million and total
deferred tax liabilities were $174.7 million before netting. At December 31,
1993, similar temporary differences gave rise to total deferred tax assets of
$269.2 million and total deferred tax liabilities of $174.2 million.
The differences between the U.S. statutory income tax rate and the Company's
effective income tax rate are:
<TABLE>
<CAPTION>
1994 1993 1992
------------- ------------- -------------
(PERCENT OF INCOME BEFORE INCOME TAXES)
<S> <C> <C> <C>
U.S. statutory income tax rate. 35.0% 35.0% 34.0%
Non-U.S. tax rate differential. (1.8) (1.7) 1.5
Puerto Rico operations......... (5.0) (3.6) (4.9)
Research and development tax
credits....................... (1.4) (1.8) --
Non-U.S. net operating losses.. -- -- (1.6)
Other, net..................... 0.9 0.8 (1.8)
------------- ------------- -------------
Effective income tax rate...... 27.7% 28.7% 27.2%
============= ============= =============
</TABLE>
35
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has subsidiaries in Puerto Rico and Ireland, where earnings are
either exempt or substantially exempt from income taxes under local government
incentive programs, the latest of which expires in the year 2010.
The Company has non-U.S. net operating loss carryforwards of $39.6 million
for tax return purposes which expire principally through the years 1995-1998.
The U.S. tax returns for the years 1987-1989 are currently being examined by
the Internal Revenue Service ("IRS"); the Company's French tax returns have
been examined through the year 1990. Neither the IRS nor the French tax
authorities have proposed any adjustments of a material nature.
Unremitted earnings of subsidiaries which are intended to be indefinitely
reinvested were $926.3 million at December 31, 1994. Withholding taxes payable
if the entire amount of these earnings were remitted would be $56.8 million.
U.S. income taxes payable if these earnings were remitted would be
substantially offset by available foreign tax credits.
NOTE 12. PENSIONS AND OTHER POSTRETIREMENT BENEFITS
Pensions
The Company has several defined benefit pension plans which cover a majority
of its employees throughout the world. In the United States, the Company's
funding policy is to contribute funds to a trust as necessary to provide for
current service and for any unfunded projected benefit obligation over a
reasonable period. To the extent that these requirements are fully covered by
assets in the trust, a contribution may not be made in a particular year.
Obligations under non-U.S. plans are systematically provided by depositing
funds with trustees, under insurance policies or through book reserves.
The funded status of the Company's plans at December 31 was as follows:
<TABLE>
<CAPTION>
1994 1993
--------------------------- ---------------------------
PLANS WHOSE PLANS WHOSE PLANS WHOSE PLANS WHOSE
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS BENEFITS EXCEED ASSETS
------------- ------------- ------------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Vested benefit obliga-
tions.................. $(141.7) $(330.7) $(128.7) $(317.9)
Nonvested benefits...... (4.2) (64.3) (4.1) (54.4)
------- ------- ------- -------
Accumulated benefit ob-
ligation............... (145.9) (395.0) (132.8) (372.3)
Projected future salary
increases.............. (12.2) (54.2) (9.0) (62.3)
------- ------- ------- -------
Projected benefit obli-
gation................. (158.1) (449.2) (141.8) (434.6)
Fair value of plan
assets (invested
primarily in equities
and bonds)............. 186.1 122.4 158.8 132.2
------- ------- ------- -------
Plan assets in excess of
(less than) projected
benefit obligation..... 28.0 (326.8) 17.0 (302.4)
Unrecognized net transi-
tion (asset) liability. 0.7 -- (0.9) 5.9
Unrecognized net (gain)
loss................... (30.3) 59.9 (4.9) 78.3
Unrecognized prior serv-
ice cost............... 20.7 6.7 7.5 3.6
Adjustment required to
recognize minimum
liability.............. -- (52.4) -- (52.7)
------- ------- ------- -------
Prepaid (accrued) pen-
sion cost.............. $ 19.1 $(312.6) $ 18.7 $(267.3)
======= ======= ======= =======
</TABLE>
36
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The accumulated benefit obligation of U.S. plans included in the above table
was $132.8 million in 1994 and $148.8 million in 1993. U.S. plan assets were
$122.7 million and $128.5 million at December 31, 1994 and 1993, respectively.
Of the net accrued pension cost, $297.1 million and $262.6 million are included
in other noncurrent liabilities in 1994 and 1993, respectively.
The following items are the components of net periodic pension cost for the
years ended December 31:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Service cost...................................... $ 19.3 $ 16.9 $ 17.0
Interest cost..................................... 45.9 42.7 41.2
Actual return on plan assets...................... (26.6) (49.9) (25.5)
Amortization and deferral......................... 5.7 27.2 2.3
------- ------- -------
Net periodic pension cost......................... $ 44.3 $ 36.9 $ 35.0
======= ======= =======
Net periodic pension cost for U.S. plans included in the above amounts is
$12.2 million, $8.5 million and $8.2 million for 1994, 1993 and 1992,
respectively.
The following weighted average assumptions, which are based on the economic
environment of each applicable country, were used to determine the return on
plan assets and benefit obligations:
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Discount rate..................................... 7.9% 7.7% 9.0%
Expected return on plan assets.................... 9.6% 10.4% 10.1%
Rate of future compensation increases............. 3.8% 4.6% 5.4%
</TABLE>
For U.S. plans, the discount rate was 8.5% in 1994, 7.5% in 1993 and 8.25% in
1992. The expected return on plan assets of 9.5% remained constant from 1992
through 1994. The rate of future compensation increases was 4.5% in 1994, 5% in
1993 and 6% in 1992.
Savings Plans
The Company sponsors defined contribution savings plans covering
substantially all U.S. employees. Company contributions to the plans may not
exceed three thousand dollars per employee. Amounts charged to expense were
$7.3 million, $6.2 million and $4.8 million in 1994, 1993 and 1992,
respectively.
Postretirement Benefits Other Than Pensions
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions" and is amortizing the $6.0 million accumulated
postretirement benefit obligation over twenty years. The Company's non-U.S.
affiliates generally contribute to government insurance programs during the
employees' careers and do not sponsor additional postretirement programs. In
the United States, the Company grants retirees access to its medical,
prescription and life insurance programs for a premium targeted to equal the
cost of such benefits.
Postemployment Benefits
Effective January 1, 1994, the Company adopted Statement of Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits." The new
standard did not materially affect the Company's financial position or results
of operations.
37
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13. STOCK PLANS
Stock options and restricted shares have been granted to employees under
plans approved by the shareholders in 1982 and 1985, as amended in 1988 ("Stock
Plan"). The aggregate number of shares originally available for issuance or
transfer to employees under these plans was 7,000,000. Option prices are equal
to the fair market value of the shares on the date of grant. Options are
exercisable during a period determined by the Company, but in no event later
than ten years from the date granted. Shares issued under a restricted grant
may not be sold or otherwise disposed of for a period designated by the
Company. Restricted shares are returned to the Company if the grantee's
employment terminates during the period of restriction. During the restriction
period, the grantee is entitled to vote the shares and receive any dividends
paid. The 1985 Stock Plan, as amended, permits the Company to grant stock
appreciation rights in tandem with stock options. As of December 31, 1994, no
such rights have been granted. The Equity Compensation Plan adopted in 1990
supplements the Stock Plan by providing for an additional 6,000,000 shares that
may be issued to participants after all shares authorized pursuant to the terms
of the Stock Plan have been utilized. The terms of the Equity Compensation Plan
are substantially the same as those of the Stock Plan.
Effective January 1, 1993, the Company substantially curtailed the granting
of restricted shares to employees. In 1992, 90,146 restricted shares were
granted to employees under the Stock Plan. Due to employee terminations 2,228,
12,312 and 23,561 restricted shares were returned to the Company in 1994, 1993
and 1992, respectively.
Stock option activity is shown below:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PRICE PER
SHARE DATA)
<S> <C> <C> <C>
Shares under option at beginning of
year............................... 5,815 4,999 4,165
Additions (deductions):
Granted........................... 1,898 2,342 1,323
Exercised......................... (116) (662) (336)
Canceled.......................... (450) (864) (153)
Shares under option at year-end..... 7,147 5,815 4,999
Options exercisable at December 31.. 3,443 2,455 2,165
Shares reserved for future grants... 2,862 4,272 5,738
Price range of options exercised.... $8.24-30.18 $7.92-41.63 $4.67-45.63
Price range for all options out-
standing........................... $4.67-63.00 $4.67-63.00 $4.67-63.00
Price range for all options exercis-
able............................... $4.67-63.00 $4.67-63.00 $4.67-58.50
</TABLE>
38
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 14. SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
MARKET MONEY COMMON CAPITAL IN
AUCTION MARKET STOCK AT EXCESS OF EMPLOYEE CUMULATIVE
PREFERRED PREFERRED STATED STATED RETAINED BENEFITS TRANSLATION
SHARES STOCK VALUE VALUE EARNINGS TRUST ADJUSTMENTS
--------- --------- -------- ---------- -------- -------- -----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1992: $300.0 $ -- $137.9 $256.9 $ 602.6 $ -- $ 1.2
Net income--1992....... -- -- -- -- 438.3 -- --
Cash dividends, $.68
per common share...... -- -- -- -- (93.9) -- --
Dividends on Market
Auction Preferred
Shares................ -- -- -- -- (10.1) -- --
Issuance of shares
under employee benefit
plans................. -- -- .4 12.1 -- -- --
Translation
adjustments, including
hedging (net of $1.7
tax effect)........... -- -- -- -- -- -- (77.1)
------ ------ ------ ------ -------- ------- -------
Balance, December 31,
1992: 300.0 -- 138.3 269.0 936.9 -- (75.9)
Net income--1993....... -- -- -- -- 421.1 -- --
Cash dividends, $1.00
per common share...... -- -- -- -- (138.3) -- --
Dividends on preferred
shares................ -- -- -- -- (12.4) -- --
Issuance of money
market preferred
stock................. -- 175.0 -- (3.1) -- -- --
Redemption of Market
Auction Preferred
Shares................ (75.0) -- -- -- -- -- --
Shares repurchased for
Employee Benefits
Trust................. -- -- -- -- -- (75.8) --
Issuance of shares
under employee benefit
plans................. -- -- .7 24.1 -- -- --
Translation
adjustments, including
hedging (net of $11.6
tax effect)........... -- -- -- -- -- -- (63.4)
------ ------ ------ ------ -------- ------- -------
Balance, December 31,
1993: 225.0 175.0 139.0 290.0 1,207.3 (75.8) (139.3)
Net income--1994....... -- -- -- -- 351.0 -- --
Cash dividends, $1.12
per common share...... -- -- -- -- (151.5) -- --
Dividends on preferred
shares................ -- -- -- -- (19.2) -- --
Shares repurchased for
Employee Benefits
Trust................. -- -- -- -- -- (109.9) --
Issuance of shares
under employee benefit
plans................. -- -- .1 15.1 -- -- --
Translation
adjustments, including
hedging (net of $1.0
tax effect)........... -- -- -- -- -- -- 74.3
------ ------ ------ ------ -------- ------- -------
Balance, December 31,
1994: $225.0 $175.0 $139.1 $305.1 $1,387.6 $(185.7) $ (65.0)
====== ====== ====== ====== ======== ======= =======
</TABLE>
39
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In December 1991, the Company issued $300.0 million of Market Auction
Preferred Shares ("MAPS") represented by four series, each consisting of
75,000 shares. Each series of MAPS is sold in units of 100 shares and is
identical except as to dividend terms. Dividend rates, which are determined at
separate auctions for each series, averaged 4.63% during 1994 (1993: 3.01%;
1992: 3.14%). Dividends are paid every 49 days, subject to certain exceptions.
In 1993, the Company issued $175.0 million of money market preferred stock.
A portion of the proceeds was used to redeem $75.0 million MAPS Series B. The
money market preferred stock was issued in three series, consisting of 750
shares, 500 shares and 500 shares, respectively. The initial dividend period
for all series commenced on August 1, 1993 at initial dividend rates of 4.7%
per annum for a two-year period for Series 1; 5.125% per annum for a three-
year period for Series 2; and 5.84% per annum for a five-year period for
Series 3. After the initial dividend periods expire, dividends will be
determined at separate auctions for each series.
The MAPS and money market preferred stock (collectively, "the Preferred
Shares") rank prior to common shares of the Company as to dividends. Holders
of Preferred Shares have no voting rights except in the event that preferred
dividends are in arrears for at least 180 consecutive days. In such event, the
authorized number of the Company's Board of Directors would be increased by
two and the holders of record of the respective Preferred Shares may elect
these additional directors. The Preferred Shares are not convertible into
common stock or other shares of the Company and holders thereof have no
preemptive rights. Upon the liquidation, dissolution, or winding up of the
Company, or upon redemption of the Preferred Shares at the Company's option,
holders would be entitled to a liquidation preference of $1,000 per share for
MAPS or $100,000 per share for money market preferred stock, plus any
accumulated and unpaid dividends thereon.
In connection with the issuance of MAPS, the Company entered into a support
agreement with RP pursuant to which both parties agreed that 1) RP will own a
majority of the outstanding common stock of the Company entitled to elect
directors; 2) RP will make a capital contribution to the Company if certain
debt-to-capitalization or tangible net worth ratios do not meet specified
levels or if the Company fails to pay a declared dividend on MAPS on a timely
basis; and 3) RP, as guarantor of the Revolving Credit Facility Agreement
dated April 30, 1990, will maintain such facility in full force, and the
Company will maintain, as of any date, the unused portion of such facility in
an amount equal to all principal, interest and premium amounts payable in the
next twelve months with respect to short- and long-term debt other than
amounts owed to RP or guaranteed by RP, subject to certain requirements and
exceptions. In connection with the support agreement, the Company pays RP an
annual fee which approximated $.3 million in 1994. The support agreement does
not constitute a guarantee by RP of any obligation of the Company, including
MAPS, and is not enforceable by any holder of MAPS. The units of each series
of MAPS must be redeemed in the event of breach of certain covenants in the
support agreement.
At December 31, 1994 and 1993, there were 2,451,800 preferred shares without
par value authorized and unissued. In 1994, the Company completed the open
market repurchase of five million of its common shares as authorized by the
Board of Directors in March 1993. During 1994, the Company acquired 3.1
million shares at a cost of $109.9 million; share repurchases during 1993 were
1.9 million shares at a cost of $75.8 million. These shares are being held in
an Employee Benefits Trust to fund future benefits in the United States.
40
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15. FINANCIAL INSTRUMENTS
The Company's financial instruments consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1993
----------------- ---------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Cash and cash equivalents................ $ 118.8 $ 118.8 $ 35.4 $ 35.4
Time deposits, generally maturing in 1-5
years................................... 55.8 55.8 64.3 64.3
Cost investments:
Practical to estimate.................. 17.9 13.0 21.2 18.8
Not practical to estimate.............. 15.0 N/A 13.5 N/A
Other investments, including call options
and warrants............................ 9.8 12.9 36.0 44.7
Long-term debt........................... (461.9) (465.4) (454.2) (470.5)
Foreign exchange contracts............... 4.0* 4.0 2.6* 2.6
Interest rate swap contracts............. 2.0* (0.7) 2.0* 11.8
</TABLE>
- --------
* The carrying amount represents the net unrealized gain/loss or net interest
receivable/payable associated with the contracts at the end of the period.
None of the Company's financial instruments are held for trading purposes.
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument:
Cash and cash equivalents
The carrying amount approximates the fair value due to the short-term
maturity of these instruments.
Time deposits
The carrying amount approximates the fair value due to the variable rate
nature of the long-term deposits.
Cost and other investments
For those investments for which it was practicable, fair value was estimated
using quoted market prices or pricing models. An estimate of fair market value
could not be reasonably made for certain cost investments for which there are
no quoted market prices.
Long-term debt
The majority of the Company's long-term debt is at variable rates of
interest and therefore the Company believes that the carrying amount
approximates fair value. For long-term debt at fixed interest rates, fair
value was determined by discounting future cash flows based on interest rates
currently available to the Company for debt with similar terms and maturities.
Foreign exchange contracts
The fair value of foreign exchange contracts was estimated by valuing the
contracts at current exchange rates.
41
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Interest rate swap contracts
The fair value of interest rate swap contracts reflects the amount at which
they could be settled based on bank pricing models.
Credit Risk
The Company places its cash investments and time deposits with credit-worthy,
high quality financial institutions and, by policy, limits the amount of credit
exposure to any one institution. The Company therefore does not anticipate
nonperformance by any of the counterparties to these financial instruments.
Concentrations of credit risk with respect to trade receivables is limited
due to a large customer base in a wide geographic area.
Foreign exchange contracts do not expose the Company to accounting risk due
to exchange rate movements as gains and losses on the contracts offset gains
and losses on the transactions being hedged. Management believes that the risk
of incurring losses on these contracts due to default by the other party is
remote as the contracts are entered into with major financial institutions.
As interest rate swap contracts involve exchanges of fixed and floating
interest payment obligations without exchanges of underlying principal amounts,
the Company's exposure to credit loss is significantly less than the notional
amounts of the contracts. Management believes that the risk of incurring losses
due to default by the other party is remote as the contracts are entered into
with major financial institutions.
Financial Instruments with Off-Balance Sheet Risk
Foreign Exchange Contracts--Net Investment Hedges
The Company's principal foreign currency net investment exposures before the
effects of foreign exchange contracts were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1993
-------------------- --------------------
LOCAL U.S. DOLLAR LOCAL U.S. DOLLAR
CURRENCY EQUIVALENT CURRENCY EQUIVALENT
(IN MILLIONS) -------- ----------- -------- -----------
<S> <C> <C> <C> <C>
France............................. FF 2,622 $490 FF 3,996 $678
Germany............................ DEM 229 148 DEM 268 155
United Kingdom..................... GBP 45 71 GBP 54 80
</TABLE>
Unhedged net investment positions fluctuate with currency movements with
corresponding translation adjustments recorded in shareholders' equity. The
Company may enter into foreign exchange contracts to limit the exposure of its
net investments in foreign subsidiaries to such currency fluctuations. Gains
and losses from these contracts which are designated as hedges of the Company's
net foreign investments are recorded as translation adjustments in
shareholders' equity and offset the gains and losses on the related net
investments. For the year ended December 31, 1994, the reduction to
shareholders' equity, net of tax effects, associated with net investment
hedging contracts totaled $21.7 million. Effects of similar net investment
hedging contracts increased shareholder's equity by $1.8 million for the year
ended December 31, 1993.
In determining which, if any, net investment positions to hedge, the Company
considers such factors as the magnitude of the exposed position and the cost of
financing hedging instruments. At approximately one-fourth of total
shareholders' equity at December 31, 1994, the French franc net investment
represents the largest single exposure to the Company; accordingly, the Company
has hedged a portion of its net investment in France. At December 31, 1994, the
Company was a party to foreign currency exchange contracts maturing
42
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
in the first quarter of 1995 with a combined notional amount of FF 179.5
million ($33.1 million) to sell French francs. Similar contracts which matured
in January 1994 totaled FF 1.5 billion ($248.4 million) at December 31, 1993.
Foreign Exchange Contracts--Foreign Currency Transaction Hedges
The Company also enters into foreign exchange contracts to minimize exposure
of foreign currency transactions (such as export sales, raw materials
purchases, and short-term intercompany financing) and firm commitments to
fluctuating exchange rates. Gains or losses from these contracts are recognized
in the basis of the transaction being hedged. Cash flows from these contracts
are classified in the same category as the hedged transactions.
The Company's principal net transactional exposures by major currency before
the effects of foreign exchange contracts were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1993
--------------------- ---------------------
LOCAL U.S. DOLLAR LOCAL U.S. DOLLAR
CURRENCY EQUIVALENT CURRENCY EQUIVALENT
-------- ----------- -------- -----------
(ASSET (LIABILITY) IN MILLIONS)
<S> <C> <C> <C> <C>
U.S. dollars*...................... 52 $ 52 18 $ 18
FF................................. 1,679 310 (97) (16)
DEM................................ (24) (15) (2) (1)
GBP................................ 1 2 (22) (32)
Yen................................ 1,408 14 556 5
All other (each <$25 million)...... various 39 various 46
------- ------ ------- ------
Total............................ N/A $402 N/A $ 20
======= ====== ======= ======
</TABLE>
- --------
* Represents U.S. dollar-denominated transactions of affiliates with functional
currencies other than the U.S. dollar.
The Company's policy is to hedge substantially all of its foreign currency
transactional exposures. At December 31, 1994, the Company had entered into
multiple forward contracts maturing in the first quarter of 1995 to buy and
sell various currencies with notional amounts totaling $112.6 million and
$508.4 million, respectively. Similar contracts, which matured in the first
quarter of 1994, totaled $105.8 million and $125.3 million at December 31,
1993, respectively.
Interest Rate Swaps
The Company enters into interest rate swap contracts to manage its interest
rate exposures and minimize its overall cost of borrowings. The net receivable
or payable under the interest rate swap arrangements is recognized as an
adjustment to interest expense over the life of the underlying contracts. The
Company's weighted average interest rate for the year ended December 31, 1994
was reduced by 17 basis points or approximately $1.3 million (45 basis points
or $3.5 million for the year ended December 31, 1993) as a result of interest
rate swap contracts.
At December 31, 1994, the Company was party to contracts to convert certain
floating rate obligations into fixed rate instruments and contracts to convert
certain fixed rate debt into floating rate debt as
43
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
determined by the interest rate environment of the currency in which the
underlying obligation was denominated. Interest rate swap contracts outstanding
at December 31, 1994 were as follows:
<TABLE>
<CAPTION>
FIXED OR NOTIONAL CARRYING ESTIMATED FAIR
CURRENCY VARIABLE AMOUNT AMOUNT MKT. VALUE TERM AVERAGE RATE
-------- -------- -------- -------- -------------- --------- ------------------------
(RECEIVABLE (PAYABLE) IN MILLIONS)
<C> <C> <C> <C> <C> <C> <S>
U.S.$ V $80 $ .3 $(1.4) 7/92-7/99 Pay Libor 3 mos; Rec 7.1%
FF F FF400 (0.8) (1.1) 2/93-2/95 Pay 6.7%; Rec Pibor 6 mos
FF V FF650 2.5 1.8 6/93-6/95 Pay Pibor 3 mos; Rec 6.4%
</TABLE>
The Company was party to similar contracts at December 31, 1993.
NOTE 16. INDUSTRY SEGMENT AND OPERATIONS BY GEOGRAPHIC AREA
The Company's operations are conducted in one industry segment which involves
the production and sale of pharmaceuticals.
Information about the Company's operations for the years 1994, 1993 and 1992
by geographic area is shown below. Inter-area affiliated sales are not
significant. Corporate loss before income taxes includes corporate
administrative expenses incurred in the U.S., worldwide net interest expense,
and worldwide equity losses from unconsolidated affiliates.
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Net sales:
United States................................ $1,261.9 $1,119.9 $ 999.7
France....................................... 1,332.1 1,374.8 1,388.1
Other Europe................................. 1,008.7 977.8 1,218.4
Rest of World................................ 571.9 546.9 489.7
-------- -------- --------
Total net sales............................. $4,174.6 $4,019.4 $4,095.9
======== ======== ========
Income before income taxes:
United States................................ $ 356.9 $ 385.2 $ 268.0
France....................................... 173.9 280.7 274.6
Other Europe................................. 92.0 64.6 216.5
Rest of World................................ 49.4 62.1 44.2
Corporate.................................... (187.0) (202.1) (221.6)
-------- -------- --------
Total income before income taxes............ $ 485.2 $ 590.5 $ 581.7
======== ======== ========
Identifiable assets:
United States................................ $1,107.2 $1,148.3 $1,031.6
France....................................... 1,309.7 1,290.2 1,340.5
Other Europe................................. 999.4 875.6 986.2
Rest of World................................ 441.0 405.9 362.5
Corporate.................................... 505.2 330.2 137.5
-------- -------- --------
Total identifiable assets................... $4,362.5 $4,050.2 $3,858.3
======== ======== ========
</TABLE>
44
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In 1994, income before income taxes ("IBT") for the U.S. includes gains on
asset sales, net of restructuring charges, of $15.1 million. IBT for France
and Other Europe includes $49.0 million and $28.8 million, respectively, of
restructuring charges, net of gains on sales of assets. The Rest of World area
IBT includes restructuring charges of $13.2 million.
In 1993, U.S. IBT includes income of $68.0 million from litigation
settlement proceeds and gains on asset sales, net of restructuring charges.
France IBT includes $19.5 million of restructuring charges, net of gains on
asset sales. Other Europe IBT includes restructuring charges, net of gains on
asset sales, totaling $30.2 million.
NOTE 17. RELATED PARTY TRANSACTIONS
The entities comprising the Company manage their cash separately. In the
largest countries such as the U.S., France, the U.K. and Germany, the local
entities have access to RP cash pooling arrangements whereby they can, at
their own request, lend to or borrow from RP at market terms and conditions.
Amounts receivable from RP and affiliates totaled $84.9 million and $35.8
million at December 31, 1994 and 1993, respectively. The 1994 balance includes
$41.4 million of accounts receivable from sales of products and services to RP
(1993: $11.3 million) and $43.5 million classified as other current assets
(1993: $24.5 million).
Accounts payable related to purchase of materials and services from RP and
affiliates were $7.0 million at December 31, 1994 (1993: $6.3 million);
accrued and other liabilities due to RP at December 31, 1994 were $26.1
million (1993: $12.9 million). In 1994, sales to RP and affiliates were $122.6
million (1993: $34.5 million; 1992: $37.2 million). Materials purchased from
RP totaled $39.5 million in 1994 (1993: $44.4 million; 1992: $53.1 million).
In 1993, RP also compensated the Company $1.7 million in cost of products sold
related to the transfer of certain production activities.
At December 31, 1994, debt with RP and affiliates totaled $68.6 million
(1993: $230.8 million). Interest expense accrued with respect to RP
indebtedness in 1994 was $15.8 million (1993: $24.9 million; 1992: $46.6
million).
In 1994, the Company performed services with respect to an RP affiliate
totaling $7.4 million. RP charges the Company for expenses incurred on its
behalf, including research, data processing, insurance, legal, tax,
advertising, public relations and management fees. Such charges are reflected
in the financial statements and amounted to approximately $33.6 million in
1994 (1993: $20.2 million; 1992: $19.6 million). Management believes that the
expenses so charged are representative of amounts that the Company would have
incurred if it had been operated as an unaffiliated entity.
NOTE 18. CONTINGENCIES
The Company is involved in litigation incidental to its business including,
but not limited to: (1) approximately 321 pending lawsuits in the United
States, Canada and Ireland against the Company and its Armour Pharmaceutical
Company subsidiary ("Armour"), in which it is claimed by individuals infected
with the Human Immunodeficiency Virus ("HIV") that their infection with HIV
and, in some cases, resulting illnesses, including Acquired Immune Deficiency
Syndrome-related conditions or death therefrom, may have been caused by
administration of anti-hemophilic factor ("AHF") concentrates processed by
Armour in the early and mid-1980's. Armour has also been named as a defendant
in five proposed class action lawsuits filed on behalf of HIV-infected
hemophiliacs and their families. None of these cases involve Armour's
currently distributed AHF concentrates; (2) legal actions pending against one
or more subsidiaries of the Company
45
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and various groupings of more than one hundred pharmaceutical companies, in
which it is generally alleged that certain individuals were injured as a result
of the development of various reproductive tract abnormalities because of in
utero exposure to diethylstilbestrol ("DES") (typically, two former operating
subsidiaries of the Company are named as defendants, along with numerous other
DES manufacturers, when the claimant is unable to identify the manufacturer);
(3) antitrust actions alleging that the Company engaged in price discrimination
practices to the detriment of certain independent community pharmacists; (4)
alleged breach of contract by a subsidiary of the Company with respect to
agreements involving a bisphosphonate compound and Lozol (R); and (5) potential
responsibility relating to past waste disposal practices, including potential
involvement, for which the Company believes its share of liability, if any, to
be negligible, at four sites on the U.S. National Priority List created by
Superfund legislation.
The eventual outcomes of the above matters of pending litigation cannot be
predicted with certainty. The defense of these matters and the defense of
expected additional lawsuits related to these matters may require substantial
legal defense expenditures. The Company follows Statement of Financial
Accounting Standards No. 5 in determining whether to recognize losses and
accrue liabilities relating to such matters. Accordingly, the Company
recognizes a loss if available information indicates that a loss or range of
losses is probable and reasonably estimable. The Company estimates such losses
on the basis of current facts and circumstances, prior experience with similar
matters, the number of claims and the anticipated cost of administering,
defending and, in some cases, settling such claims. The Company has also
recorded as an asset certain insurance recoveries which are determined to be
probable of occurrence on the basis of the status of current discussions with
its insurance carriers. If a contingent loss is not probable but is reasonably
possible, the Company discloses this contingency in the notes to its
consolidated financial statements if it is material. Based on the information
available, the Company does not believe that reasonably possible uninsured
losses in excess of amounts recorded for the above matters of litigation would
have a material adverse impact on the Company's financial position, results of
operations or cash flows.
As of December 31, 1994 the Company had unused standby letters of credit
outstanding of $67.7 million. The letters of credit are issued primarily in the
form of guarantees or performance bonds.
NOTE 19. JOINT VENTURE AGREEMENT (UNAUDITED)
In February 1995, the Company's Armour Pharmaceutical Company subsidiary
signed an agreement with Behringwerke AG, a subsidiary of Germany's Hoechst AG,
to form a global joint venture dedicated to the plasma proteins business. Under
the terms of the agreement, both companies will contribute to the joint venture
all the assets of their respective plasma operations in exchange for a 50%
equity interest in the new entity. The agreement is subject to U.S. and
European regulatory approvals.
46
<PAGE>
RESPONSIBILITY FOR FINANCIAL STATEMENTS
The management of Rhone-Poulenc Rorer Inc. is responsible for the
information and representations contained in this report. Management believes
that the financial statements have been prepared in conformity with generally
accepted accounting principles and that the other information in this annual
report is consistent with those statements. In preparing the financial
statements, management is required to include amounts based on estimates and
judgments which it believes are reasonable under the circumstances.
In fulfilling its responsibilities for the integrity of the data presented
and to safeguard the Company's assets, management employs a system of internal
accounting controls designed to provide reasonable assurance, at appropriate
cost, that the Company's assets are protected and that transactions are
appropriately authorized, recorded and summarized. This system of control is
supported by the selection of qualified personnel, by organizational
assignments that provide appropriate delegation of authority and division of
responsibilities, and by the dissemination of written policies and procedures.
This control structure is further reinforced by a program of internal audits
including a policy that requires responsive action by management.
Coopers & Lybrand L.L.P., the Company's independent accountants, performs
audits in accordance with generally accepted auditing standards. The
independent accountants conduct a review of internal accounting controls to
the extent required by generally accepted auditing standards and perform such
tests and procedures as they deem necessary to arrive at an opinion on the
fairness of the financial statements presented herein.
The Board of Directors, through the Audit Committee comprised solely of
directors who are not employees of the Company, meets with management, the
internal auditors and the independent accountants to ensure that each is
properly discharging its respective responsibilities. Both the independent
accountants and the internal auditors have free access to the Audit Committee,
without management present, to discuss the results of their work, including
internal accounting controls and the quality of financial reporting. The Audit
Committee met four times in 1994.
/s/ Robert E. Cawthorn /s/ Patrick Langlois
By___________________________________ By___________________________________
Robert E. Cawthorn Patrick Langlois
Chairman and Senior Vice President and
Chief Executive Officer Chief Financial Officer
47
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of Rhone-Poulenc Rorer Inc.:
We have audited the accompanying consolidated balance sheets of Rhone-Poulenc
Rorer Inc. and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of income and cash flows for each of the three years in
the period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Rhone-Poulenc
Rorer Inc. and subsidiaries as of December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for income taxes in 1992.
/s/ Coopers & Lybrand L.L.P.
By___________________________________
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
January 20, 1995
48
<PAGE>
RHONE-POULENC RORER INC. AND SUBSIDIARIES
QUARTERLY DATA (UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED 1994 QUARTER ENDED 1993
--------------------------------------- ---------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- -------- ---------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $870.6 $973.0 $1,040.7 $1,290.3 $916.3 $1,008.1 $960.1 $1,134.9
Gross profit............ 577.3 650.3 697.3 878.5 607.5 681.7 637.5 766.4
Net income (loss)
available to common
shareholders........... 73.7 (7.4) 102.5 163.0 94.2 119.6 71.0 123.9
Earnings (loss) per
common share........... .54 (0.05) .76 1.22 .68 .87 .51 .90
Market price per common
share:
High................... 37.000 39.500 39.125 42.625 48.000 54.000 48.875 48.500
Low.................... 32.000 30.500 30.500 35.250 42.500 46.375 43.000 32.620
Common dividends paid... .28 .28 .28 .28 .22 .24 .26 .28
</TABLE>
- --------
Results for 1994 include a $121.2 million pretax charge recorded in the second
quarter related to a global restructuring program. Results also include fourth
quarter pretax charges of $30.6 million related to the reassessment of the
carrying value of certain investments and $11.0 million for acquired research
and development expense. Fourth quarter results also include pretax gains of
$37.6 million on the sales of assets, including the transfer of the Company's
U.S. over-the-counter business to Ciba.
Results for 1993 include pretax income of $105.0 million proceeds from
litigation settlement in the second quarter. Results also include $77.2
million and $16.6 million of restructuring and other charges recorded in the
second and fourth quarter, respectively and a $27.0 million pretax charge for
acquired research and development expense in the third quarter. Gains from
sales of product rights and certain investments totaled $10.2 million and
$14.8 million in the first and fourth quarter, respectively.
Earnings per share amounts for each quarter are required to be computed
independently and, therefore, the sum of the four quarters does not
necessarily equal the amount computed for the total year.
Rhone-Poulenc Rorer Inc. (RPR) common shares are listed and traded on the New
York and Paris Stock Exchanges, and are traded, unlisted, on the Philadelphia,
Boston, Pacific and Midwest Stock Exchanges. On January 31, 1995, there were
7,138 holders of record of RPR common shares.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
49
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to the directors of the Company entitled "Election of
Directors," in the Company's Proxy Statement dated 1995, is incorporated herein
by reference. For information relating to the executive officers of the
Company, refer to "Executive Officers of the Company" on pages 9 through 10 of
this report.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to executive compensation immediately before "Certain
Relationships and Related Transactions," of the Company's Proxy Statement dated
1995, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to security ownership of certain beneficial owners and
management entitled, "Ownership of Shares" immediately before "Control of the
Company," of the Company's Proxy Statement dated 1995, is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information entitled, "Certain Relationships and Related Transactions" in the
Company's Proxy Statement dated 1995, is incorporated herein by reference.
50
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
<TABLE>
<CAPTION>
PAGE IN THIS
FORM 10-K
------------
<C> <S> <C>
1. Consolidated financial statements:
Consolidated Statements of Income.......................... 26
Consolidated Balance Sheets................................ 27
Consolidated Statements of Cash Flows ..................... 28
Notes to Consolidated Financial Statements................. 29
Responsibility for Financial Statements.................... 47
Report of Independent Accountants.......................... 48
2. Financial statement schedules:
Valuation and Qualifying Accounts (Schedule II)............ 55
Schedules not listed above have been omitted because they
are not applicable.
3. Exhibits:
A complete listing of exhibits required is given in the
exhibit index which precedes the exhibits filed with this
report.
</TABLE>
(b) The Company filed the following Current Reports on Form
8-K:
. Form 8-K dated December 22, 1994 describing the transfers of its
U.S. and Canadian over-the-counter businesses to Ciba-Geigy Limited
. Form 8-K dated February 22, 1995 announcing the agreement between
Armour Pharmaceutical Company and Behringwerke AG to form a plasma
proteins business joint venture
51
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THERETO DULY AUTHORIZED.
Rhone-Poulenc Rorer Inc.
March 20, 1995
By /s/ Robert E. Cawthorn
----------------------------------
ROBERT E. CAWTHORNCHAIRMAN AND
CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
NAME TITLE DATE
---- ----- ----
/s/ Robert E. Cawthorn Chairman, Chief March 20, 1995
- ------------------------------------- Executive Officer
ROBERT E. CAWTHORN and Director
/s/ Patrick Langlois Senior Vice March 20, 1995
- ------------------------------------- President and Chief
PATRICK LANGLOIS Financial Officer
(Principal
Financial Officer
and Principal
Accounting Officer)
Jean-Jacques Bertrand* Director March 20, 1995
- -------------------------------------
JEAN-JACQUES BERTRAND
Jean-Marc Bruel* Director March 20, 1995
- -------------------------------------
JEAN-MARC BRUEL
Michel De Rosen* Director, President March 20, 1995
- ------------------------------------- and Chief Operating
MICHEL DE ROSEN Officer
Charles-Henri Filippi* Director March 20, 1995
- -------------------------------------
CHARLES-HENRI FILIPPI
Claude Helene* Director March 20, 1995
- -------------------------------------
CLAUDE HELENE
52
<PAGE>
NAME TITLE DATE
---- ----- ----
Michael H. Jordan* Director March 20, 1995
- -------------------------------------
MICHAEL H. JORDAN
Manfred E. Karobath, MD* Director, Senior March 20, 1995
- ------------------------------------- Vice President,
MANFRED E. KAROBATH, MD Research and
Development
Igor Landau* Director March 20, 1995
- -------------------------------------
IGOR LANDAU
Peter J. Neff* Director March 20, 1995
- -------------------------------------
PETER J. NEFF
James S. Riepe* Director March 20, 1995
- -------------------------------------
JAMES S. RIEPE
Edward J. Stemmler, MD* Director March 20, 1995
- -------------------------------------
EDWARD J. STEMMLER, MD
Jean-Pierre Tirouflet* Director March 20, 1995
- -------------------------------------
JEAN-PIERRE TIROUFLET
* By his signature set forth below, Richard B. Young, pursuant to duly
authorized powers of attorney filed with the Securities and Exchange
Commission, has signed this report on behalf of the persons whose signatures
are printed above, in the capacities set forth opposite their respective
names.
/s/ Richard B. Young Vice President and March 20, 1995
- ------------------------------------- Secretary,
RICHARD B. YOUNG (Attorney-in-fact)
53
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To The Shareholders of Rhone-Poulenc Rorer Inc.:
Our report on the consolidated financial statements of Rhone-Poulenc Rorer Inc.
and subsidiaries is included on page 48 of this Form 10-K. In connection with
our audits of the financial statements, we have also audited the related
financial statement schedules listed in the index on page 51 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
Coopers & Lybrand L.L.P.
By /s/ Coopers & Lybrand L.L.P.
-----------------------------------
Philadelphia, Pennsylvania
January 20, 1995
54
<PAGE>
SCHEDULE II
RHONE-POULENC RORER INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS 1994, 1993 AND 1992
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO
BEGINNING COSTS AND BALANCE AT
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS(/1/) END OF PERIOD
----------- ---------- ---------- --------------- -------------
<S> <C> <C> <C> <C>
Year ended December 31,
1994
Accounts receivable
reserves............. $68.3 178.3 172.0 $ 74.6
Year ended December 31,
1993
Accounts receivable
reserves............. $66.6 129.7 128.0 $ 68.3
Year ended December 31,
1992
Accounts receivable
reserves............. $56.6 104.1 94.1 $ 66.6
</TABLE>
- --------
(1) Accounts charged off, net of recoveries and the effect of foreign currency
rate changes.
55
<PAGE>
EXHIBIT INDEX
(3) a. The By-laws of the Company are incorporated herein by reference to
the Company's Annual Report on Form 10-K for the year ended December
31, 1990.
b. The Amended and Restated Articles of Incorporation of the Company as of
January 31, 1992 are incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993.
c. Articles of Amendment dated July 16, 1993 to The Amended and Restated
Articles of Incorporation of the Company as of January 31, 1992 are
incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993.
(4) a. $1,600,000,000 Revolving Credit Facility Agreement dated April 30, 1990
is incorporated herein by the reference to the Company's Annual Report
on Form 10-K for the year ended December 31, 1991.
b. Deposit Agreement dated July 19, 1993 among Rhone-Poulenc Rorer Inc.,
Bankers Trust Company as Depositary, and the holders from time to time
of the Depositary Receipts is incorporated herein by reference to the
Company's Current Report on Form 8-K dated July 12, 1993.
(10) Material Contracts.
a. Joint Venture Agreement dated February 22, 1995 among Armour
Pharmaceutical Company and Plasma Enterprises, Inc. and Behringwerke
AG.
b. Amended and Restated Asset Purchase Agreement dated as of December 22,
1994 among Rhone-Poulenc Rorer Pharmaceuticals Inc., Rhone-Poulenc Rorer
Caribbean Inc. and Ciba Self-Medication, Inc.
c. Intellectual Property Agreement dated as of December 30, 1994 between
Rorer Pharmaceuticals Products Inc. and Ciba Self-Medication, Inc.
d. Form of Lease Agreement among the Company, Rhone-Poulenc Rorer
Pharmaceuticals Inc. and the Owner Trustee is incorporated herein by
reference to Exhibit 4.2.2 of the Company's Registration Statement No.
33-53378 on Form S-3, filed with the Securities and Exchange Commission
on October 16, 1992.
e. Armour Pharmaceutical Company Pension Program Amended and Restated
effective January 1, 1989.
f. Pension Plan of Rhone-Poulenc Rorer Inc. Amended and Restated
effective January 1, 1989.
g. Rhone-Poulenc Rorer Pharmaceuticals Inc. Fort Washington Hourly
Employees' Pension Plan effective January 1, 1990.
h. Rhone-Poulenc Rorer Employee Savings Plan as Amended and Restated
effective January 1, 1992.
i. The Rorer Group Inc. Stock Plan, adopted April 23, 1985, is incorporated
herein by reference to the Registration Statement on Form S-8 (No. 33-
2403) dated December 23, 1985.
j. The Rhone-Poulenc Rorer Inc. Amended and Restated Stock Plan, adopted
March 12, 1990, is incorporated herein by reference to the Company's
Proxy Statement dated June 29, 1990, filed in connection with the July
31, 1990 Annual Meeting of Shareholders.
k. The Rhone-Poulenc Rorer Inc. Equity Compensation Plan is incorporated
herein by reference to the Company's Proxy Statement dated June 29,
1990, filed in connection with the July 31, 1990 Annual Meeting of
Shareholders.
l. The Rhone-Poulenc Rorer Senior Partner Long-Term Capital Plan, effective
January 1, 1994 is incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1994.
56
<PAGE>
m. The Rhone-Poulenc Rorer Inc. Executive Deferral Plan, effective December
1, 1993, is incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1994.
n. The Rorer Group Inc. Incentive Stock Option Plan, adopted April 27,
1982, is incorporated herein by reference to the Company's Annual Report
on Form 10-K for the year ended December 31, 1989.
o. Amendment to the Rhone-Poulenc Rorer Inc. Incentive Stock Option Plan,
effective March 11, 1990, is incorporated herein by reference to the
Form 8, Amendment No. 1 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1989.
p. The Rorer Group Inc. Non-Qualified Stock Option Plan, adopted April 24,
1973, is incorporated herein by reference to the Company's Annual Report
on Form 10-K for the year ended December 31, 1989.
q. The Rhone-Poulenc Rorer Inc. Annual Performance Incentive Plan is
incorporated herein by reference to the Form 8, Amendment No. 1 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1989.
r. The Rhone-Poulenc Rorer Inc. Retirement Plan for Outside Directors,
adopted January 1, 1988, is incorporated herein by reference to the Form
8, Amendment No. 1 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1989.
s. The Rhone-Poulenc Rorer Inc. Supplemental Executive Retirement Plan,
adopted January 1, 1988, is incorporated herein by reference to the Form
8, Amendment No. 1 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1989.
t. The Rhone-Poulenc Rorer Inc. Director Deferred Compensation Plan,
effective March 1, 1987, is incorporated herein by reference to the Form
8, Amendment No. 1 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1987.
u. Acquisition Agreement, dated as of March 12, 1990, between Rorer Group
Inc. and Rhone-Poulenc S.A., is incorporated herein by reference to the
Company's Current Report on Form 8-K dated March 12, 1990.
v. Employment agreement with Robert E. Cawthorn, dated March 12, 1990, is
incorporated herein by reference to the Company's Current Report on Form
8-K, dated March 12, 1990.
w. Employment agreement with Manfred Karobath, dated January 27, 1992, is
incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1992.
x. Employment agreement with Timothy Rothwell, dated January 3, 1995.
y. The Indemnification Agreements between Rorer Group Inc. and Indemnified
Representatives effective July 1, 1987, are incorporated herein by
reference to the Company's Annual Report on Form 10-K for the year ended
December 31, 1987.
z. Supplemental Benefit and Deferred Compensation Trust Agreement, dated
May 10, 1988, between Rorer Group Inc. and Philadelphia National Bank,
as Trustee, is incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1989.
(11) Statement re: Computation of Earnings per Share.
(12) Statement re: Computation of Ratios.
(21) Subsidiaries of the Registrant.
(23) Consent of Independent Accountants.
(24) Powers of Attorney.
(27) Financial Data Schedule.
57
<PAGE>
EXHIBIT 10A
JOINT VENTURE AGREEMENT
-----------------------
DATED AS OF FEBRUARY 22, 1995, AMONG:
ARMOUR PHARMACEUTICAL COMPANY
a company under the laws of Pennsylvania, U.S.A. with its registered office at
500 Arcola Road, Collegeville, PA 19426, U.S.A., (hereinafter called "Armour"),
AND:
PLASMA ENTERPRISES, INC.
a company under the laws of Delaware ("Plasma") and an Affiliate of Armour
AND
BEHRINGWERKE AG
a company under German Law with its registered office at Emil-v.-Behringstra_e
76, 35041 Marburg, Germany, (hereinafter called "Behring", Armour, Plasma and
Behring each a "Party", and collectively, the "Parties"; Armour and Behring,
each a "Principal Party" and collectively, the "Principal Parties")
WHEREAS
<PAGE>
Armour and Behring and certain of their respective Affiliates signed a non-
binding Letter of Intent on February 1, 1994 stating their intention to combine
their respective blood plasma derivative businesses into a worldwide joint
venture (the "Joint Venture") in which the worldwide profits shall be split
evenly between Armour and Plasma, on the one hand, and Behring, on the other
hand, after having made an anticipated compensation for the difference in value
of the businesses contributed to the Joint Venture by the Parties;
WHEREAS
in the meantime the Parties have had detailed joint discussions involving their
management of all functional areas about the merger of their respective
businesses in this field and the Parties have conducted due diligence procedures
regarding the other Parties;
WHEREAS
such discussions and procedures have had positive results for the Parties and
the joint strategic business concepts indicate that a merger of the plasma
derivative businesses of the Principal Parties can lead to a viable, long-term
competitor in the highly competitive field of plasma derivatives;
NOW, THEREFORE
the Parties aim at long-term cooperation within the Joint Venture and have
entered into the following agreement which serves as a basis of this cooperation
and determines its main elements.
<PAGE>
ARTICLE I: OBJECTIVE AND SCOPE
-------------------------------
1.1 Armour and Behring shall transfer or cause to be transferred their
respective worldwide blood plasma derivative businesses (the "Business"
as defined in Section 1.4) including all functional and administrative
areas to a Joint Venture in which the worldwide results shall generally
be split evenly between Armour and Plasma, on the one hand, and Behring,
on the other hand, who generally will have equal equity interests in the
Joint Venture.
1.2 It is the declared intention of the Parties to form a self-contained
independent Joint Venture with an identical globally responsible
management and a common corporate culture and identity. To accomplish
this objective, entities in the individual countries shall be created or
utilized in accordance with economic, financial and/or tax optimization
principles.
1.3 The Parties intend that the new Joint Venture will achieve an outstanding
reputation in the Business in pioneering scientific innovation, in
manufacturing and supplying effective life-saving therapies and
innovative technologies which provide patents throughout the world with
uncompromising quality and value-added service, in marketing the broadest
range of products in the Business utilizing state-of-the-art technology
and in reducing costs and achieving efficiencies that can be passed on to
the consumer; all with the expectation that the Joint Venture can become
a more viable, long-term competitor in the industry than either Behring
or Armour alone.
<PAGE>
1.4 The "Business" comprises the following areas in the field of therapeutics
and prophylaxis:
- blood and blood plasma derived products (including polyvalent and
specific immunoglobulins);
- products that substitute for blood and blood plasma derived products
that can be produced economically out of blood and blood plasma, and
recombinantly or synthetically produced equivalents of such products;
- gene therapy to substitute for blood and blood plasma derived
products; and
- collection of blood and blood plasma.
Products listed on Exhibits 1A and 1B are not initially included as part
of the Business, but the Parties and the Joint Venture reserve the right
to negotiate for the transfer of such products (and value such products).
1.5 New products found by the Joint Venture which are covered by the
definition of "Business" are included in the Business. New products
found by the Joint Venture which are not covered by the definition of the
"Business" may be included in the Business by majority vote of the
shareholders. New products not commercialized by the Joint Venture shall
be offered to both parent companies of the Principal Parties under
reasonable and commercially comparable license conditions.
<PAGE>
ARTICLE II: STRUCTURE
----------------------
2.1 The initial structure of the Joint Venture shall be (i) a limited
liability company formed under the laws of the State of Delaware in the
United States of America ("A1"), (ii) a GmbH formed under the laws of
Germany ("B1"), and (iii) various corporations in other countries to be
agreed upon that shall be wholly or partially owned subsidiaries of
either A1 or B1.
i) As of the Effective Date (as defined in Section 2.4), or if
legally permitted under the relevant jurisdiction as soon as
possible in the twelve-month period following the Effective Date,
Behring, on the one hand, and Armour, on the other hand, shall
contribute to the Joint Venture (by direct contribution or through a
capital lease) all of their respective tangible and intangible
assets of the Business in the following countries:
<TABLE>
<CAPTION>
<S> <C>
Germany Spain
United States United Kingdom
Austria France
Italy Brazil
</TABLE>
(hereinafter called the "Category I Countries")
<PAGE>
The contribution of the Business in the Category I Countries shall
include all the stock or equity interest in those subsidiaries
listed in Exhibit IIA and Exhibit IIB.
The Parties agree that as of the Effective Date, the Joint Venture
shall have operational control of such assets to be contributed to
the Joint Venture from the Category I Countries and enjoy the
benefits of income and economies from the Effective Date. Within 75
days after any such assets are contributed, the contributing Party
shall prepare an audited income statement for the period from the
Effective Date to the date of contribution (the "Post Effective
Period") and an audited balance sheet as of the contribution date
each certified by an independent accounting firm without a material
qualification. Within 10 days after the completion of the financial
statements, the contributing Party shall pay to the Joint Venture
the income of the operations during the Post Effective Period, which
consists of the net income from such operations, plus depreciation,
amortization and other non-cash charges. No liabilities of the
operations of any Category I Countries shall be transferred to the
Joint Venture except as provided by Section 2.2.4 hereof.
ii) All other countries with the exception of Japan (hereinafter
called the "Category II Countries") are considered to be distributor
countries, and as of the Effective Date will operate in the spirit
of this Joint Venture Agreement and under the guidance of the Joint
Venture while remaining legally associated with the relevant Party.
<PAGE>
The Joint Venture may, in its sole discretion, change an existing
distributor and/or appoint a new distributor or distributors in a
Category II Country (in any such case, whether Behring, Armour or an
independent third-party entity) after having first given twelve
months' prior written notice.
If at any time after the Effective Date, the Joint Venture decides
that a Party (or its Affiliate) should contribute its or their
tangible and intangible assets related to the Business in one or
more of the Category II Countries to the Joint Venture, then the
Joint Venture shall give written notice to the relevant Party. As
soon as practicable, but in any event no later than twelve months
after the written notice has been given, the relevant Party shall
take all necessary steps to ensure that the assets of the Business
in such Category II Country have been contributed to the Joint
Venture (the date on which assets in any such country are
contributed to the Joint Venture being hereinafter referred to as
the "Effective Contribution Date"). In addition, a Party may give
written notice to the Joint Venture requesting whether or not the
operations of a Category II Country will be contributed to the Joint
Venture. Within 12 months from the date of such notice, the Joint
Venture shall notify the requesting Party in writing whether or not
the Joint Venture wants such operations contributed. If the Joint
Venture elects to have such operations contributed, then such
operations shall be contributed as soon as practical but in any
event within 12 months from the date of written
<PAGE>
notice from the Joint Venture. If the Joint Venture notifies the
requesting Party that it does not want such operations contributed,
such Party shall no longer have any obligation to contribute such
operations to the Joint Venture.
No liabilities from the operations in a Category II Country shall be
contributed to the Joint Venture, except that liabilities included
in Working Capital (as hereinafter defined) shall be contributed and
except for those liabilities which may be contributed under the
principles of Section 2.2.4; it being understood that the Parties
will not contribute additional Push Down Indebtedness (as defined in
Section 2.2.4). Both Parties agree they will in good faith
contribute the Working Capital of any such operations and will not
take any action to decrease current assets or increase current
liabilities prior to contribution to the Joint Venture.
2.2.2 Behring shall create B1, and Behring shall contribute or make otherwise
available and cause its Affiliates to contribute or make available, if
applicable, to B1 (or such other entities as agreed to by the Parties)
all of its tangible and intangible assets of the Business, including the
stock of the subsidiaries listed in Exhibit IIA, (the "Behring
Contributed Assets") in the manner provided for in Section 2.2.1. Set
forth on Exhibit III hereto is a detailed list of the Behring Contributed
Assets.
B1 shall have an initial share capital of DM 50,000,000, represented by
nonvoting preferred shares in the total nominal amount of DM 49,999,000
<PAGE>
("PB" shares) and 2 common shares in the nominal amount of DM 500 each
(the "BB1" and the "AB1" voting shares). The PB shares collectively will
have a cumulative preferred right to DM 8 million per year in dividends
and will have a DM 80 million liquidation preference over the BB1 and AB1
shareholders. (See Article III for a discussion of the dividend
distribution mechanism in excess of the preference dividends.)
In return for its asset contribution to B1, Behring shall receive,
subject to Section 2.2.5, all of the above-mentioned shares of B1.
2.2.3 Armour and Plasma shall create A1, and Armour and Plasma shall contribute
or make otherwise available and cause its Affiliates to contribute or
make available, if applicable, to A1 (or such other entities as agreed to
by the Parties) all of the tangible and intangible assets of the
Business, including the stock or equity interest in those subsidiaries
listed on Exhibit IIB, in the manner provided for in Section 2.2.1 (the
"Armour Contributed Assets", together with the Behring Contributed
Assets, the "Assets"). Set forth on Exhibit IV hereto is a detailed list
of the Armour Contributed Assets.
A1 shall have an initial share capital of US$ 30,000,000, represented by
nonvoting preferred shares in the total nominal amount of US$ 29,999,400
("PA" shares) and 60,000 common shares in the nominal amount of US$0.01
each consisting of the following number and classes of shares: 29,999 AA1
shares; 29,999 BA1 shares; 1 AAA1 share and 1 BBA1 share. Each class of
common shares in A1 shall have equal voting
<PAGE>
rights. The PA shares collectively will have a cumulative preferred right
to $5 million per year in dividends (payable out of A1's earnings not
including any dividend from B1) plus a dividend equal in amount to the
total dividend paid by B1 in excess of DM 8 million with respect to both
the PB and BB1 shares owned by Behring (both dividends increased by the
gross-up described in Section 4.2 below). The PA shares will also have a
$50 million liquidation preference over the AA1, AAA1, BA1 and BBA1
shares. (See Article III for a discussion of the dividend distribution
mechanism in excess of the preference dividends.)
In return for its asset contribution to A1, Armour shall receive all of
the above-mentioned shares of A1 except the AAA1, BA1 and BBA1 voting
shares. In return for its asset contribution, Plasma shall receive the
AAA1 share.
2.2.4 In addition to the contributions of Assets (which will include inventory
and accounts receivable, but a Party may contribute cash in lieu of
accounts receivables) provided for under Sections 2.2.2 and 2.2.3 herein,
as of the Effective Date, each of Behring and Armour will transfer to the
Joint Venture, and the Joint Venture shall assume, an equal amount of
indebtedness ("Push Down Indebtedness") so that the Equity Ratio (as
hereinafter defined) shall be approximately as specified in Section 9.1.
Push Down Indebtedness may include liabilities of the Parties (other than
Retained Liabilities, as defined in Section 13.1) such as taxes payable,
unfunded pension liability provisions for direct pension obligations and
obligations arising out of retiree medical and life insurance plans under
FASB 106,
<PAGE>
bank indebtedness or may be in the form of a payable to such Party. Push
Down Indebtedness shall not include trade accounts payable. The amount of
the unfunded pension liability in the context of Push Down Indebtedness
should be calculated in the case of Armour and its Transferred
Subsidiaries (as hereinafter defined) in the U.S.A. on a basis of an
average between the Accumulated Benefit Obligation and Projected Benefit
Obligation under FASB 87, for Behring and its
Transferred Subsidiaries in Germany based on Section 6a ESt6 and for the
Parties in countries other than the U.S.A. or Germany based on the
Projected Benefit Obligation. Each of Behring and Armour will also
transfer to the Joint Venture as of the Effective Date, and the Joint
Venture shall assume, the trade accounts payable of the Business of the
countries included within the financial statements comprising Schedule 8
except if the Business in any such country is contributed after the
Effective Date, in which case the trade payable will be transferred on
the date the Business in such country is contributed. No other
liabilities of the Business or the Parties (except as provided in Section
10.1 or except if a Party otherwise provides additional compensation to
the Joint Venture for other liabilities) shall be transferred to, or
assumed by, the Joint Venture; it being understood that under generally
accepted accounting principles in the United States, the Joint Venture
will reflect on its financial statements an account in accordance with
FASB 87 for both pension assets and pension liabilities with respect to
employees transferred to the Joint Venture. As far as applicable, the
same principle applies with regard to retirement benefit liabilities
other than pensions (FASB 106). In addition, the Parties recognize that
for administrative reasons, the Joint Venture, after the Effective Date,
may
<PAGE>
make payment out of its funds for certain liabilities accrued as of the
Effective Date (for example, accrued bonuses). In any such case, Behring
or Armour, as the case may be, shall reimburse the Joint Venture for such
payment within 30 days of written notice from the Joint Venture, with
appropriate supporting documentation, confirming that such payment was
made.
The Parties agree that an adjustment to their respective contributions to
the Joint Venture will be made based upon the difference between the
Working Capital of the Business (of Category I Countries) as of the
Effective Date and the Working Capital included in the audited combined
balance sheet for Category I Country as of December 31, 1993. Working
Capital shall mean trade accounts receivable plus inventory less trade
accounts payable. Such adjustment shall be prepared and calculated no
later than 90 days after the Effective Date based upon an audit of the
opening balance of the Joint Venture on the Effective Date. If Working
Capital as of the Effective Date for a Principle Party is greater than
Working Capital as of December 31, 1993, the Joint Venture shall pay such
Party the amount of such additional Working Capital (or the Party shall
be compensated otherwise, e.g., by an increase in Push Down
Indebtedness). If the Working Capital as of the Effective Date for a
Principle Party is less than Working Capital as of December 31, 1993,
such Party shall pay to or otherwise compensate the Joint Venture for
such shortfall.
2.2.5 As part of the same plan, Armour and Behring shall then engage in the
following transaction simultaneously:
<PAGE>
(b) Behring shall transfer to A1 the AB1 voting share in B1
representing 50% of the voting rights in B1, and
(c) Armour shall cause to be transferred to Behring the BA1 and
BBA1 voting shares in A1 representing an aggregate 50% of the
voting rights in A1.
2.3 At the completion of the transactions described above, the structure will
be:
(d) Armour will have 29,999 AA1 shares in A1; Behring will have
29,999 BA1 shares in A1 and the BBA1 share in A1; Plasma will have
the AAA1 share in A1, representing a nominal amount of US$ 300 for
Armour and Plasma on the one hand, and Behring on the other hand.
(e) Each of A1 and Behring will have 50% of the voting shares of
B1 representing a nominal amount of DM 500 for each side.
(f) Armour will own all PA shares of A1 representing a nominal
amount of US$ 29,999,400.
(g) Behring will own all PB shares of B1 representing a nominal
amount of DM 49,999,000.
<PAGE>
2.4 The closing hereunder shall take place at the offices of Skadden, Arps,
Slate, Meagher & Flom in Washington, D.C. on June 1, 1995, unless the
conditions of closing described herein have not been met, in which case
the closing shall be held as soon as practicable thereafter or at such
other time or place as may be agreed in writing among the Parties (the
"Effective Date"). At the closing hereunder, each Party shall deliver in
form and substance reasonably satisfactory to counsel for the other
Parties all deeds, endorsements, stock powers, assignments and other
instruments of transfer and conveyance as are necessary and appropriate
to effect the transactions contemplated herein, such instruments to be
duly executed as of the Effective Date.
<PAGE>
ARTICLE III: SHARING OF EARNINGS AND LOSSES
--------------------------------------------
3.1 Of the combined worldwide after-tax profits of the Joint Venture, only
such amount shall be retained within the Joint Venture as is necessary to
maintain a sound basis as described in Article IX for the future of the
Business. It is the intention of Armour, Plasma and Behring that all
earnings in excess of such amount (the "Profit") be divided among the
Parties under the formula set forth within this Article III; however, any
distribution out of A1 will be subject to the approval of the A1 Board of
Directors and any distribution out of B1 will be subject to the approval
of the B1 Shareholders' Committee, who will have the sole right to
declare dividends beyond the preference amount described in paragraphs
2.2.2 and 2.2.3 above as they deem appropriate (the Board of Directors of
A1 will hereinafter be referred to as the "Board of Directors").
3.2 Subject to Section 3.1, if the Profits of each of A1 and B1 equal or
exceed both (i) any unpaid cumulative preference dividends due (not
including any amounts due in the current year) ("Cumulative Preference
Shortfall") on the respective PA shares owned by Armour and the PB shares
owned by Behring, and (ii) the preference dividends due with respect to
the PA and PB shares for the current year ("Current-Year Preference
Dividends"), the Parties intend that the division of Profits will be
administered as follows:
(h) First, A1 and B1 must pay any Cumulative Preference
Shortfall due with respect to the PA and PB shares, respectively.
<PAGE>
(i) Second, A1 and B1 must pay any Current-Year Preference
Dividends due with respect to the PA and PB shares respectively.
Amounts due in Sections 3.2(a)(a) and 3.2(b) of this Agreement must
be fully paid before any dividends may be paid on the AB1, BB1,
BA1, AA1, AAA1 and BBA1 shares.
(j) To the extent the Profits of A1 and B1 equal or exceed their
respective dividend payment obligations set forth in Sections
3.2(a) and 3.2(b) of this Agreement and except as otherwise
provided in Section 3.5, the excess profits ("Excess Profits") will
be paid as follows:
i) If the Excess Profits of A1 and B1 are equal,
the Parties intend that B1 pay a dividend on the PB share held
by Behring in an amount equal to B1's Excess Profit, and to
declare no dividend on the AB1 and BB1 shares held by A1 and
Behring. A1 will then be required by its charter to declare a
dividend on the PA share held by Armour in an amount equal to
the Excess Profits of A1 and no other dividend will be paid on
the PA, AA1, BA1, AAA1 and BBA1 shares held by Armour and
Behring.
ii) If A1's Excess Profit is greater than B1's
Excess Profit, the Parties intend that:
<PAGE>
B1 declare a dividend on the PB shares held by Behring in an
amount equal to B1's Excess Profit, and no dividend on the AB1
share held by A1 and the BB1 share held by Behring. As a
result, A1 will be required to declare a dividend on the PA
share held by Armour in an amount equal to B1's Excess Profit,
and the Parties intend that A1 declare a dividend on all of
the AA1, BA1, AAA1 and BBA1 shares held by Behring, Armour and
Plasma, in a total amount equal to the amount by which A1's
Excess Profit is greater than B1's Excess Profit. Such total
amount will be paid equally on a per share basis.
iii) If A1's Excess Profit is less than B1's Excess
Profit, the Parties intend that:
B1 declare a dividend on each of the AB1 and BB1 shares each
equal to one-half of the amount by which B1's Excess Profit is
greater than A1's Excess Profit and a dividend on the PB share
held by Behring in an amount equal to B1's remaining Excess
Profit. A1 will be required to declare a dividend on the PA
share held by Armour in an amount equal to A1's Excess Profit
plus the dividend received from B1. The Parties intend that
no dividend be paid on the AA1, AAA1, BA1 and BBA1 shares held
by Armour and Behring.
3.3 Subject to Section 3.1, Armour and Behring intend that if the Profits of
either A1 or B1 fall below: (i) the Current-Year Preference Dividends
due
<PAGE>
with respect to the PA and PB shares, plus (ii) any Cumulative Preference
Shortfall with respect to amounts previously due on the respective PA and
PB shares and neither A1 or B1 has an operating loss for the year or an
accumulated operating loss from prior years (which case is addressed in
Section 3.4 below), such Profits will be paid on the respective preferred
shares as follows:
(k) First and to the extent Profits are available in A1 and B1,
respectively, A1 must pay any Cumulative Preference Shortfall due
with respect to the PA shares out of its Profits other than from
any dividends paid to A1 from B1, and B1 must pay any Cumulative
Preference Shortfall due with respect to the PB shares.
(l) Second and to the extent Profits are available in A1 and B1,
respectively, A1 must pay any Current-Year Preference Dividends due
with respect to the PA shares out of Profits other than from any
dividends paid to A1 from B1, and, in addition, B1 must pay any
Current-Year Preference Dividends due with respect to the PB
shares. Amounts due in Sections 3.3(a) and 3.3(b) of this
Agreement must be fully paid before any dividends may be paid on
the AB1, BB1, BA1, AA1, AAA1 and BBA1 shares.
(m) To the extent the Profits of either A1 or B1 exceed the
dividend payment obligations set forth in Sections 3.3(a) and
3.3(b) of this Agreement, and except as otherwise provided in
Section 3.5, the Excess Profits will be paid as follows:
<PAGE>
i) If A1 has Excess Profits but B1 does not, the
Parties intend that A1 will declare a dividend on the AA1,
BA1, AAA1 and BBA1 shares held by Armour, Plasma and Behring
equal to the total Excess Profits of A1. Such total amount
will be paid equally on a per share basis.
ii) If B1 has Excess Profits but A1 does not, the
Parties intend that B1 will declare a dividend on the BB1 and
AB1 shares held by Behring and A1 equal to one-half of the
Excess Profits of B1. A1 will then be required to make as
much of a dividend payment as it is capable under 3.3(a) and
(b) out of its Profits other than from dividends from B1. In
addition, A1 will be required to pay a dividend on the PA
shares equal to the amount paid to Behring with respect to the
BB1 shares.
3.4.1 Subject to Section 3.1, Armour and Behring intend that if either A1 or B1
(or both) has an operating loss for the current year ("Current Year
Loss") or an accumulated operating loss from prior years ("Accumulated
Prior Loss") which has not been offset, the Profits of A1 and B1 when
generated will be paid as follows:
(n) First, A1 and B1 must apply any respective Profits earned
against their respective Accumulated Prior Losses.
<PAGE>
(o) Second, to the extent Profits are available, A1 must pay any
Cumulative Preference Shortfall due with respect to the PA shares
out of its Profits other than from any dividends paid to A1 from B1
and B1 must pay any Cumulative Preference Shortfall due with
respect to the PB shares.
(p) Third, to the extent Profits are available, A1 must pay any
Current-Year Preference Dividends due with respect to the PA shares
out of Profits other than from any dividends paid to A1 from B1 and
B1 must pay any Current-Year Preference Dividends due with respect
to the PB shares. Amounts due in Sections 3.4.1(b) and 3.4.1(c) of
this Agreement must be fully paid before any dividends may be paid
on the AB1 and BB1 or BA1, AA1, AAA1 and BBA1 shares,
respectively.
(q) To the extent the Profits of either A1 or B1 exceed the
dividend payment obligations set forth in Sections 3.4.1(b) and
3.4.1(c) of this Agreement, and except as otherwise provided in
Section 3.5, the Excess Profits will be paid as follows:
i) If A1 has Excess Profits but B1 has Accumulated
Prior Losses and/or Current Year Losses to the extent that
such losses result from the ongoing B1 business after the
Effective Date and not to any losses that arise as a result of
events, conditions or occurrences prior to the Effective Date,
the Parties intend that A1 will declare a
<PAGE>
dividend on all of the AA1, BA1, AAA1 and BBA1 shares held by
Armour, Plasma and Behring equal to the total Excess Profits
of A1. Such total amount will be paid equally on a per share
basis.
ii) If B1 has Excess Profits but A1 has
Accumulated Prior Losses and/or Current Year Losses to the
extent that such losses result from the ongoing A1 business
after the Effective Date and not to any losses that arise as a
result of events, conditions or occurrences prior to the
Effective Date, the Parties intend that to the extent B1's
Excess Profits are sufficient, B1 will declare a dividend on
the AB1 share held by A1 equal to A1's Accumulated Prior Loss
plus Current Year Loss. In addition, B1 will declare a
dividend on the BB1 and AB1 shares each equal to one-half of
any remaining Excess Profits. A1 will then reduce or eliminate
its Losses under Section 3.4.1(a). In addition, A1 will be
required to pay a dividend on the PA shares equal to the
amount paid to Behring with respect to the BB1 shares.
3.4.2 The Parties intend that any Current Year Loss of A1 will be allocated to
the AA1, BA1, AAA1 and BBA1 shares in proportion to their percentage
interest in A1. As such Losses are offset with Profits under Section
3.4.1(a), the Parties intend that these Profits will also be allocated in
proportion to their percentage interest in A1.
<PAGE>
(r) Armour and Behring intend that the allocations of Profits
under Sections 3.2(c), 3.3(c), and 3.4.1(d) are to be adjusted as
described below with respect to the combined Profits of the
Business operating in Japan under Behring ("B-Japan") and the
Business operating in Japan under Armour ("A-Japan").
(s) Armour and Behring agree that in the event B-Japan's Profits
are greater than A-Japan's, the amount due Behring under Sections
3.2(c), 3.3(c) or 3.4.1(d) is to be reduced by one-half of this
excess. This reduction shall first come from any allocations to
Behring from A1 and second from any distributions to Behring from
B1. To the extent B1 reduces its distributions to Behring under
this paragraph, B1 shall increase its distribution to A1 by this
same amount. Correspondingly, Armour's allocation and distribution
from A1 shall be increased by an amount equal to this same amount.
(t) Armour and Behring agree that in the event A-Japan's Profits
are greater than B-Japan's, the amount due Armour under Sections
3.2(c), 3.3(c) or 3.4.1(d) is to be reduced by one-half of this
excess. This reduction shall come from allocations and
distributions to Armour and Plasma from A1. Correspondingly,
Behring's allocation and distributions from A1 shall be increased
by an amount equal to this same amount.
(u) In the event the distributions to Armour and Behring without
regard to this Section 3.5 are insufficient, such that the full
reductions
<PAGE>
and distributions required by this Section 3.5 cannot be fully
implemented in any particular year, then any deficiency with
respect to the allocations and distributions specified by this
Section 3.5 shall be carried forward to the next year and added to
(or netted against) any adjustments under this Section 3.5 required
for that year.
(v) In the event there is a final transfer pricing adjustment
under U.S., Japanese or German or other relevant law affecting the
Profits of A-Japan, B-Japan, A1 or B1, Armour and Behring agree to
adjust the reductions and corresponding allocations and
distributions set forth in this Section 3.5 to reflect properly the
Parties' general intention to divide Profits evenly.
3.6 Excess Profits shall be distributed based on the average rate between the
buying and selling rates of the U.S. dollar as established in Frankfurt
based upon the average exchange rate during the period between the last
distribution and the current distribution.
ARTICLE IV: TAXES AND EXPENSES
-------------------------------
4.1.1 Each Party will bear its own expenses incurred in connection with the
formation of the Joint Venture, excluding costs for external legal advice
incurred prior to creation of the Joint Venture from June 16, 1994 on
relating to antitrust advice in the European Union, which shall be shared
<PAGE>
evenly between the Parties. Any transfer taxes incurred in connection
with the formation of the Joint Venture will be shared by the Parties.
Any income taxes of any of the Parties caused by the formation of the
Joint Venture should be borne by that Party. To the extent the Joint
Venture receives a tax benefit as a result of any tax payment borne by
one Party related to the formation of entities other than A1 or B1, it is
intended that such benefit will be directed to such Party. To the extent
the Joint Venture receives a tax benefit as a result of an audit of the
tax authorities by one of the Parties, it is intended that such benefit
will be directed to such Party. The same procedure visa versa applies to
tax benefits received by one of the Parties with the result that such
Party will direct the tax benefit to the Joint Venture.
4.1.2 To simplify the redirection of tax benefits as intended under Section
4.1.1, the Parties agree that any such payment will be made as a lump sum
from the Joint Venture entity (i.e. A1 or B1) and on a net present value
basis (using an after tax discount rate of 11% and the applicable tax
rate for the country) and will be made net of any tax benefit payments
from the appropriate Party as determined at the time. To the extent the
timing of the realization of a tax benefit is not capable of current
estimation, the payment will be made when the timing of the tax benefit
becomes predictable. Any such payments described herein will be made out
of any dividends paid by the benefitting entity to its shareholder (i.e.
A1 and/or B1) before the allocation and payment of Excess Profits under
the provisions of Article 3.2, 3.3 or 3.4. Such payments will be made
after any Cumulative Preference Shortfall and any Current-Year Preference
Dividends
<PAGE>
have been paid under Article III with respect to the PA and PB shares.
The dividends paid by the benefitting entity associated with any amounts
due herein will be directly allocated to the Party receiving such
payments.
4.2.1 For purposes of determining after-tax profits under Section 3.1 with
respect to A1, A1's earnings shall be reduced by the product of (1) the
then current maximum U.S. federal income tax rate plus an assumed state
income tax rate (net of federal income tax deduction benefit) of 2% (the
"Assumed Federal and State Tax Rate"), multiplied by (2) A1's earnings.
Upon any material changes in statutory state income tax rates, however,
the Parties agree to make a corresponding change in this 2% rate taken
into account in the Assumed Federal and State Tax Rate.
4.2.2 The Parties understand that the federal and state income tax due with
respect to Armour's PA and AA1 shares and with respect to Plasma's AAA1
shares must mechanically be paid by Armour and Plasma, respectively,
instead of A1. Therefore, earnings allocated and distributed to Armour
and Plasma under Article III must be grossed-up by the Assumed Federal
and State Tax Rate with respect to the after-tax profits allocated to
Armour.
4.2.3 As is required by U.S. income tax principles, A1 will pay directly to
the U.S. and state taxing authority any income tax due with respect to
the Profits allocated to Behring and A1 will either pay directly or
gross-up any earnings allocated to Behring by the Assumed Federal and
State Tax Rate. However, if Behring transfers its A1 shares to one or
more Related Parties (as defined in Section 18.3) that are U.S.
corporations ("B2" and "B3") then earnings
<PAGE>
allocated to B2 and B3 shall be grossed-up by the Assumed Federal and
State Tax Rates.
4.2.4 In the event that A1 is treated as a taxable entity and not as a flow-
through by any state in the United States and is required to pay or
accrue an income and/or franchise tax ("liability") to such state, such
liability shall be a reduction of A1's earnings after gross-up under
Sections 4.2.1, 4.2.2 and 4.2.3.
ARTICLE V: GOVERNANCE
----------------------
(w) The Parties want the Joint Venture to operate in a unified,
flexible and efficient manner even though the Joint Venture
consists of separate legal entities that are subject to differing
laws. The Parties want to create the maximum amount of
communication, coordination and uniformity in management among the
entities, and, therefore have provided that the entities shall have
similar management structure and internal rules of operation.
(x) Subsidiaries of B1 and A1 shall be governed by the
provisions in this Article V to the fullest extent possible under
the laws of their respective jurisdictions.
<PAGE>
5.2 A1 shall have a Board of Directors (the "Board of Directors") and four
executive officers, which four individuals are hereinafter referred to as
the "Executives".
B1 shall have a Shareholders' Committee, a Supervisory Board and an
officer or officers (up to two) identified under German law as
Geschoftsfuhrer, to be selected by the Shareholders' Committee.
5.3 As long as required by mandatory German law, B1 shall have a Supervisory
Board consisting of six members, consisting of the members of the
Shareholders' Committee and two members appointed by the employees of B1
in accordance with applicable German law regarding employee
representation on the Supervisory Board. The members shall elect a
chairman of the Supervisory Board. It is understood between the Parties
that the Chairman of the Supervisory Board shall be a German speaking
person. The authority of the Supervisory Board shall be limited to the
authority required by mandatory German law.
5.4 The Board of Directors shall have authority over the Executives.
However, operational decisions in the ordinary course of business and
other decisions in accordance with the annual budget shall be delegated
to the Executives. The Shareholders' Committee of B1 shall consist of
the four Executives. The Board of Directors shall give general direction
to the Shareholders' Committee which will pass on such direction to, and
have authority over, the Geschoftsfuhrer.
<PAGE>
5.5 The Board of Directors shall be comprised of six representatives: two
appointed by the holder of the AA1 share; two appointed by the holder of
the BA1 share; and one appointed by each of the holders of the AAA1 share
and BBA1 share. Each Party shall cause its representatives to act in
accordance with this Agreement. The representatives for each Party shall
be senior managerial personnel involved in the Business and their term
shall last until the end of the fourth calendar year after their
appointment. The Parties shall discuss with each other the appointments
each intends to make, and will give good faith consideration to any
Party's objections to an appointment. A member of the Board of Directors
may be removed at any time by the Party who appointed the member, and
such Party may appoint a new member to serve during the remainder of the
term of the departing member and may also fill any vacancy created by a
resignation or death of a member.
The Office of Chairman of the Board of Directors shall be filled as
follows:
(y) As long as a Chief Executive Officer then in office is a
Representative (as defined below) of a Principal Party then the
office of Chairman shall be filled by the other Principle Party;
(z) From the date of appointment of a non-Representative Chief
Executive Officer, the Chairman then in office shall remain to
complete a four-year term; thereafter, for as long as the Chief
Executive Officer is not a Representative of a Principal Party, the
office of Chairman shall alternate between a member appointed by
<PAGE>
Behring and a member appointed by Armour and shall serve a four-
year term;
(aa) A Representative of a Party shall be an individual appointed
as Chief Executive Officer by the Board of Directors who has been
an officer, director or an employee of a Principal Party, or an
Affiliate of a Principal Party (excluding the Joint Venture) at any
time during the preceding five (5) years.
The first Chairman of the Board of Directors shall be appointed by
Behring.
5.6 The Board of Directors shall meet four times per calendar year.
Additional meetings shall be held if requested by any member. The
meetings will be convened by the Chairman or, in the absence or
unavailability of the Chairman, by the member who requested the meeting.
Written notice of the meeting and the agenda shall be delivered to the
members at least ten business days before the date of the meeting. The
written notice may be sent by mail, telex or fax. The notice requirement
may be waived for any meeting at which a quorum unanimously votes for the
waiver. In urgent cases, the Chairman and the Chief Executive Officer
may reduce the notice period and/or convene the meeting without notice,
either orally, by telephone, telecopy, fax, electronic mail or other
means of telecommunication. The Chairman shall appoint a member to serve
as secretary (who shall be a Representative from a Principal Party other
than the Chairman's Party) for the meeting in order to record the minutes
and
<PAGE>
resolutions. The minutes and the resolutions shall be signed by the
Chairman and the secretary.
5.7 The Board of Directors shall conduct business only if a quorum is
present, either in person or by telephone. A quorum shall consist of all
six members but in the event that at any meeting less than a quorum is
present but at least four members are present, those four members by
unanimous vote may reduce the quorum for that meeting.
5.8 The Board of Directors shall make its decisions by way of resolutions.
Resolutions may be passed at a meeting, or (except with respect to
matters set forth in Section 5.10 below under which Section the Chairman
has a casting vote) passed without a meeting so long as the requisite
number of members required by this Agreement to pass the resolution
subsequently approve the resolution in writing. Resolutions of the Board
of Directors shall be passed in accordance with the provisions of Section
5.9 and 5.10 below except for matters that require a larger majority than
provided in Section 5.10 either under the laws of Germany or the State of
Delaware or under the By-Laws of B1 or A1. In the case of a tie vote for
matters in Section 5.10, the Chairman shall cast the deciding vote; for
this purpose a tie vote shall be where any matter receives an equal
number of votes approving and disapproving it or where all the Armour and
Plasma members of the Board of Directors present at a meeting and all the
Behring members of the Board of Directors present at such meeting vote in
opposition of each other on a matter.
<PAGE>
5.9 The following matters shall require the approval of at least four
members of the Board of Directors present in the meeting:
(bb) approval of the business plan including the annual budget
and the investment plan, and approval of annual financial
statements;
(cc) except as previously approved in the annual budget,
acquisition or divestiture of the shares of any company;
(dd) except as previously approved in the annual budget, any
accumulated investments in excess of $20 million;
(ee) creation, implementation, termination or any material
amendment of any collective wage agreement, pension plan, medical
plan, bonus plan or other benefit plan for the employees;
(ff) any contract or transaction with the Parties or their
Affiliates or their subsidiaries or termination or material
amendment to any such contract;
(gg) election of or removal of the Executives of A1;
(hh) disposal of any accumulated assets in excess of $10
million;
(ii) entering into, materially amending or termination of
any strategically significant agreement;
<PAGE>
(jj) other matters of extraordinary importance which
generally shall mean any matter which involves more than 10% of the
Joint Venture's consolidated revenues;
(kk) all contracts (including compensation, benefits and
severance payments) with the Chief Executive Officer and with other
Executives;
(ll) delegation to the Executives of authority concerning
the operational decisions in the ordinary course of business and to
be described in an approval authority matrix;
(mm) all other matters beyond the operational decisions
in the ordinary course of business which have not been delegated to
the Executives and which are not listed under Section 5.10.
5.10 The following matters shall require the approval of a majority of the
members of the Board of Directors present in the meeting:
(nn) except as previously approved in the annual budget, any
accumulated investment or divestiture between the values of $5
million and $20 million;
(oo) except as previously approved in the annual budget,
formation or divestiture of corporate subsidiaries, joint ventures
or partnerships
<PAGE>
that are strategically significant and material to
the Business not exceeding an investment of $20 million;
(pp) establishment of credit lines and guarantees in excess of
$20 million;
(qq) selection and changes of auditors and actuaries, and
approval of annual financial statements;
(rr) except as previously approved in the annual budget,
charitable donations in excess of $100,000 provided that there
shall be no donations to political parties or candidates; and
(ss) creation of banking authorizations.
5.11 The Board of Directors shall be kept informed by the Chief Executive
Officer of the appointment and removal of members of the corporate bodies
and of senior officers of the subsidiaries and Affiliates of A1 based
upon the recommendations of the Chief Executive Officer.
5.12 The Board of Directors may change, delete or supplement the matters
described in Sections 5.9 and 5.10 by a unanimous vote.
5.13 No member of the Board of Directors may delegate to a representative by
written proxy or otherwise the right to act on behalf of the member in
any
<PAGE>
respect, including without limitation the right to attend meetings or
telephone conferences, and to pass resolutions with or without a meeting.
5.14 Members of the Board of Directors may at any time inspect the books and
records, and obtain information including financial statements needed for
consolidation reasons from the Executives. A member of the Board of
Directors may pass on to the Party appointing him any information
concerning B1 or A1 that may come into his possession.
5.15 The Board of Directors may establish rules and procedures for its
operation, and may establish one or more committees from among its
members as it deems necessary. These committees may include an
"Executive Committee". All committees shall consist of an equal number
of representatives from Armour and Plasma, on the one hand, and Behring,
on the other hand. In the event a committee has a tie vote on any
matter, the matter shall be referred to the Board of Directors.
5.16 The provisions of Section 52, German Limited Liability Company Law (GmbH-
Gesetz) and the provisions of German Stock Corporation Law (Aktiengesetz)
shall not apply to the Shareholders' Committee of B1.
5.17 With respect to those resolutions which according to the laws fall under
the competence of the shareholders, each Party shall vote its shares in
the Shareholders' Meeting of A1 and B1 in accordance with the resolutions
adopted by the Board of Directors authorized by this Joint Venture
Agreement or required by law. However, in case that a shareholder has no
right
<PAGE>
to vote, e.g., call in, redemption, repurchase and compulsory assignment
of its share(s), the other shareholder shall be free to vote as it
pleases and shall not be bound by a resolution of the Board of Directors
nor of the Shareholders' Committee.
5.18 The Executives shall be organized as follows:
(tt) The Executives shall be a Chief Executive Officer, a Senior
Vice President and Chief Officer of Research and Development and
Industrial Operations, a Senior Vice President and Chief Financial
Officer, a Senior Vice President and Chief Marketing Officer. The
Executives shall serve for a four-year term.
(uu) The first Chief Financial Officer shall be appointed by
Behring. Any vacancy in the Office of Chief Financial Officer shall
be filled by the Board of Directors by majority resolution
provided, however, that if the first Chief Financial Officer (or
-------- -------
any successor) vacates his position during the first four years
after the Effective Date and the first Chief Executive Officer is
still in office, then Behring shall be entitled to appoint a Chief
Financial Officer for the remainder of the four year period after
the Effective Date. Thereafter, the Chief Financial Officer shall
be appointed by the Board of Directors.
(vv) The Executives shall be responsible for the operation of the
business. If in a particular case a consensus cannot be reached
they shall pass their resolutions with a simple majority of all
Executives.
<PAGE>
In the event of a tie, the Chief Executive Officer shall cast the
deciding vote. In such a case, involving important matters, he
shall inform the Board of Directors.
(ww) The powers of the Geschoftsfuhrer of B1 shall be described
in an approval authority matrix to be decided by the Shareholders'
Committee, subject to Section 5.4, in accordance with German law.
ARTICLE VI: ORGANIZATIONAL STRUCTURE
-------------------------------------
6.1 The Executives shall have the following functional allocations:
(xx) Chief Executive Officer
- strategic planning
- business development
- development of the budget
- corporate communications
- human resources
- legal, including intellectual property matters
. reports to the Board of Directors
(yy) Senior Vice President and Chief Financial Officer
- finance and accounting
- treasury and cash management
- controlling, budgeting
<PAGE>
- general administration, such as fleet and office
administration, travel office, etc.
- taxes, insurances
- pension plans, and similar
- global quality management including QMP
- environment, health and safety
. reports to CEO and, on finance and accounting matters, to the
Board of Directors
<PAGE>
(zz) Senior Vice President and Chief Marketing Officer
- corporate marketing management
- medical marketing
- marketing and sales region Americas
- marketing and sales region Europe, Middle East, Africa
- marketing and sales region Asia
- government relations
. reports to Chief Executive Officer
(aaa) Senior Vice President and Chief Officer of R&D and Industrial
Operations
- R&D
* research and process development
* medical affairs
-- clinical research
-- drug surveillance
* regulatory affairs
* project management
- Industrial Operations
* Plant Manager Marburg
* Plant Manager Barcelona
* Plant Manager Vienna
* Plant Manager Kankakee
* Plant Manager Bordeaux
* Plant Manager Strasbourg
* plasma sourcing
-- Plasma Alliance
-- A B I
-- Seroplas
-- external plasma sourcing
<PAGE>
* staff functions relating to:
-- central production coordination
-- process research coordination
. reports to CEO
6.2 The subordinate officers shall report to the Executive to whom the
corresponding function has been allocated. All Executives have the right
of proposal concerning the filling of all vacancies within their
respective functional areas. The Chief Executive Officer shall be kept
informed and be consulted by all Senior Vice Presidents concerning all
important matters in their areas. The Chief Executive Officer is
entitled at any time to inform himself or herself thoroughly of all
matters arising in the areas of responsibility entrusted to the Senior
Vice Presidents. The Executives are entitled to attend the meetings of
the Board of Directors unless decided otherwise by the Board of Directors
on a case by case basis.
ARTICLE VII: LOCATIONS
-----------------------
7.1 Headquarters
(a) The headquarters of A1 shall be located in the Philadelphia area,
PA., U.S.A.
(b) The headquarters of B1 shall be located in Marburg, Germany.
7.2 In Germany will reside, among others:
<PAGE>
- the Geschoftsfuhrer of B1
- local administration
- process development
- technical transfer
- virus safety group
- window person pre-clinical research
- clinical research and medical marketing for all product groups
- window person biostatistics and information systems
- regulatory affairs
- project management
- drug surveillance
- all site manufacturing functions
- research
- intellectual property functions
- sales organization
- marketing region Europe
7.3 In the U.S.A. will reside, among others:
- local administration
- research
- process development
- technical transfer
- window person pre-clinical research
- clinical research and medical marketing for all product groups
<PAGE>
- window person biostatistics and information systems
- regulatory affairs
- drug surveillance
- all site manufacturing functions
- intellectual property function
- sales organization
- marketing region Americas
7.4 It is understood that as business needs dictate changes those changes
will be made to meet the demands of the Business. The Parties explicitly
expect the Executives to promote an active exchange between Germany and
the U.S.A. of personnel in charge of the various functions in order to
create optimum conditions for the harmonious integration of the
individual locations into the Joint Venture as described in Section 1.2.
7.5 The selection of the locations for the organization in each individual
country besides the U.S.A. and Germany shall take into consideration
existing infrastructure of the parent companies who may bid competitively
to provide services, based on the principles stipulated in Article XVI
(Services).
<PAGE>
ARTICLE VIII: OPERATIONS IN JAPAN
----------------------------------
8.1 Each of Behring and Armour or their Affiliates currently have operations
in Japan which market and distribute products of the Business in Japan.
The Parties agree that they will cooperate with each other and the Joint
Venture in evaluating and implementing the combination of these
operations into a single entity, which will be part of the Joint Venture.
The Parties agree that their objective is to combine such operations
within a 3-5 year time frame after the Effective Date.
Prior to the combination of the Japanese operations into a single entity,
the Parties agree that the Joint Venture will in good faith negotiate and
enter into annual supply agreements to supply the products of the
Business to Armour's and Behring's respective Japanese Affiliates which
distribute such products in Japan. The Parties agree that the Joint
Venture will negotiate transfer prices for each of Armour's and Behring's
respective Japanese Affiliates, taking into account financial and
accounting considerations of each of the respective Affiliates. The
Joint Venture and the respective Japanese Affiliates will also in good
faith determine and agree upon the market supply price for each
applicable period for applicable products. The profits and losses of the
Japanese operations of Armour and Behring will be allocated as provided
in Section 3.5 until such time as the operations are combined.
<PAGE>
ARTICLE IX: CAPITAL STRUCTURE, FINANCING, EQUITY RATIO, DIVIDEND AND INVESTMENT
- --------------------------------------------------------------------------------
POLICY
------
9.1 The Parties shall not be obliged to provide A1 and/or B1 with further
capital in addition to the capital contributions set forth in Sections
2.2.1, 2.2.2 and 2.2.3 of this Agreement. If, however, the ratio of
equity to total assets of the Joint Venture on a consolidated basis under
U.S. generally accepted accounting principles (the "Equity Ratio") of A1
and/or B1 drops below 35% and it is not possible and advisable to
increase it through, e.g., building up of reserves, the Parties shall
consider in good faith the possibility of a capital increase. In doing
this, the Parties shall be working on the principle that, for the purpose
of this Agreement, the shareholding of Armour and Plasma, on the one
hand, and Behring, on the other hand, in A1 as well as in B1 shall be
considered equal. This same premise will also apply for the purposes of
Section 9.2 below. This equality shall be reflected in any capital
increase or indemnity pursuant to Section 9.2.
9.2 Any further financial requirements of A1 and/or B1 exceeding the amount
of its share capital shall be handled in accordance with the following
rules: In principle, A1 and/ or B1 shall procure such requirements by
means of loans available from banks or other financial institutions with
the assets of the Joint Venture as collateral, if required, but without
assurances by the Parties. Should A1 and/or B1 not be in a position to
obtain a necessary further financing in addition to the capital
contributions set forth in
<PAGE>
Sections 2.2.1, 2.2.2 and 2.2.3 of this Agreement from banks or other
financial institutions upon commercially reasonable terms without the
involvement of their shareholders, the Parties shall consider in good
faith on a case by case and on an arms-length, basis whether or not the
required credit support to enable A1 and/or B1 to obtain such further
financing will be provided or whether or not the Parties themselves will
provide such further financing in proportion to their shareholding ratio.
It is understood between the Parties that, in the event they agree to
provide the required credit support, to the extent acceptable comfort
letters rather than letters of guarantee will be offered by them to the
banks or financing institutions and that the comfort letters and/or
guaranties, if any, shall not be jointly given, but shall be on an
individual and several basis. Each Party undertakes in such a case to
indemnify the other Parties to assure that each Party shall be liable
only in proportion to its respective shareholding ratio.
9.3 Subject to the preference provisions in Sections 2.2.2 and 2.2.3 with
respect to the PA and PB shares, the Parties agree and acknowledge that
should either A1 or B1 go into liquidation, they shall consider their
shareholdings of Armour and Plasma on the one hand, and Behring, on the
other hand, in A1 as well as in B1 as equal, with the effect that not
only the sharing of earnings and losses but also the sharing of assets
and liabilities in the liquidating as well as in the remaining Joint
Venture company shall be based on the principle of equality for the two
groups of shareholders except that the foregoing provisions of this
Section 9.3 shall not apply if the liquidation is primarily the result of
the Retained Liabilities
<PAGE>
of any of the Parties, provided, however, the foregoing exception shall
-------- -------
be inapplicable if such Party has met its indemnification obligations
under this Agreement. If the liquidation may be attributed to any Party,
the other Parties shall be entitled to an adequate indemnification for
any transfer of its share(s), or parts thereof, that becomes necessary in
accordance with this Section 9.3. The costs in connection with such
transfer shall be borne by the transferee. However, in the event of a
termination of this Agreement, the obligations of the Parties contained
in this Section 9.3 shall become void.
9.4 Save as otherwise agreed in writing by the Parties, the Parties shall
procure that to the extent consistent with the duties of the members of
the Board of Directors and Shareholders' Committee of A1 and B1,
respectively, A1 and B1 shall in accordance with this Agreement
distribute the maximum amount of their respective profits available for
distribution by way of dividends, but in each case only after having made
the provisions and transfers to reserves and/or keeping that part of the
profits in the retained earnings required to meet the targeted Equity
Ratio established by the Board of Directors and the respective future
cash requirements, especially with a view to the planned investments as
set forth in the annual budget, the strategic business plan and the
investment plan. It is understood among the Parties that the most
favorable provisions shall be made to meet the cash requirements of A1
and B1 as set forth in this Section 9.4, especially in terms of taxation.
(This may result in the application of the so-called "Ausschuttungs-
Ruckholverfahren" on the dividend policy of B1.)
<PAGE>
9.5 Sections 9.1 to 9.4 are based on the agreement that the Joint Venture
shall not be consolidated by any of the Parties. However, in case that
any of the Parties will be required by a government or applicable
governing accounting body to have to consolidate the Joint Venture in the
future, the Parties shall redefine and renegotiate the resulting
consequences and all regulations under Article IX. Notwithstanding any
changes to be agreed upon according to the above sentences, the Party
having fully to consolidate the Joint Venture is entitled to offer to the
Joint Venture to replace any debt outstanding with a financial
institution, with debt from the Party having to consolidate the Joint
Venture. If such offer is made on comparable or more favorable terms as
the debt previously outstanding, the Joint Venture shall accept such
exchange of debt, unless it has a reasonable justification for retaining
the existing arrangement.
In case both Principal Parties have to consolidate the Joint Venture in
the future (in whole or in parts) they shall renegotiate in good faith
the financing and the cash management of the Joint Venture.
9.6 The Executives will keep the Board of Directors duly informed of the
financial conditions of A1 and B1 (including the Retained Liabilities of
the Parties).
<PAGE>
ARTICLE X: VALUATION
---------------------
10.1 Armour and Behring have calculated the value of their respective
Businesses based upon projections of each of their Businesses for a four-
year period from 1994 through 1997 (the "Baseline Projections"). Based
upon the Baseline Projections, the Parties have agreed that Behring will
receive at the Effective Date from Armour a compensation amounting to $18
million for the difference in value of the Businesses contributed to the
Joint Venture by the Parties. Therefore, Behring will be entitled to
transfer an additional $36 million of indebtedness to the Joint Venture
on the Effective Date, unless the Parties mutually agree on another mode
of payment. After such adjustment, the Parties agree that the value of
their respective contributions to the Joint Venture is $1.2 billion (the
"Contribution Amount").
10.2 The Parties will deliver combined audited financial statements (balance
sheet, income statement, statement of cash flows and footnotes)
representing the combined results and financial position of the Category
I Countries as of December 31, 1993 and 1994. Such statements will be
audited by Coopers & Lybrand, with an unqualified opinion expressed
thereon, within 70 calendar days of the date of this Agreement. These
statements will be prepared in accordance with US Generally Accepted
Accounting Principles ("GAAP"). The Parties intend that these audited
financial statements will be further adjusted as necessary and agreed by
the Parties to a basis that is representative of those assets and
liabilities expected to be contributed on the Effective Date ("Pro Forma
Financial Statements"). Such adjustments will be in accordance with
Article Eleven (11) of SEC Regulation S-X (Pro Forma Financial
Statements) and will be
<PAGE>
completed no later than 70 calendar days following the date of this
Agreement. The Parties agree there will be an audit of the opening
balance sheet of the Joint Venture that will be completed within ninety
(90) days of the Effective Date.
10.3 The Parties recognize that each Party will continue its respective
financial due diligence during the period after the signing of this
Agreement and prior to the Effective Date. The Parties agree that if as
a result of this due diligence, any Party demonstrates that the Baseline
Projections of Armour or Behring are materially inaccurate or misstated
because of inaccurate calculations, unsubstantiated or improper data
underlying such Baseline Projections, then the Parties agree that in good
faith they will adjust the valuation of the respective Business to take
into account any such material inaccuracy or misstatement.
ARTICLE XI: REPRESENTATIONS AND WARRANTIES
-------------------------------------------
Each of Armour and Plasma, on the one hand, and Behring, on the other
hand, makes the following representations and warranties regarding the
Assets and Business that it or its Affiliates is transferring to the
Joint Venture:
<PAGE>
11.1 Organization and Corporate Power. Behring is a corporation duly
--------------------------------
organized, validly existing and in good standing under the laws of
Germany. Armour is a corporation duly organized, validly existing and in
good standing under the laws of the Commonwealth of Pennsylvania. Plasma
is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and an indirect wholly-owned
subsidiary of Rhone-Poulenc Rorer Inc. ("RPR Inc."). Plasma is neither a
direct nor indirect subsidiary of Armour. Each Party has all requisite
power and authority to own the Assets being transferred to the Joint
Venture, to operate its respective Businesses as now being conducted, to
execute and deliver this Agreement and all documents contemplated by it,
to perform all of the obligations and to accomplish all of the
transactions contemplated by it, to perform all of the obligations and to
accomplish all of the transactions contemplated by this Agreement.
11.2 Due Authorization: No Breach. The execution, delivery and performance of
----------------------------
this Agreement and the consummation of the transactions contemplated in
it have been duly authorized, and no further corporate action is required
to be taken. This Agreement is a legal, valid and binding obligation of
the Parties, and enforceable in accordance with the terms, except as such
enforceability may be limited by bankruptcy, insolvency or other similar
laws which affect the enforcement of creditor's rights generally. The
persons who have executed this Agreement have been duly authorized to do
so by all necessary corporate action. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated in it are not prohibited by the Certificate of
<PAGE>
Incorporation or By-Laws or other corporate documents governing the
Parties, and will not result in any violation of, default under, conflict
with, breach of, termination of, acceleration of performance under, or
creation of an encumbrance on any of the Assets under any contract, law,
regulation, mortgage, lien or similar instrument that will have a
material adverse effect on the Business or Assets.
11.3 Title to Property.
-----------------
(bbb) On the Effective Date, except as disclosed on Schedule 1 to the
Disclosure Schedule, each of Armour and Behring (or its respective
Affiliates) and its Transferred Subsidiary (as hereinafter defined)
will have a good and marketable title to all of the Assets and
shares to be transferred by it or its Transferred Subsidiary to the
Joint Venture, free and clear of encumbrances, security interests,
liens, pledges, charges, options, rights of first refusal,
mortgages or similar interests ("encumbrances"), except (i) liens
for current personal property taxes not yet due and payable, (ii)
mechanics', carriers', workmen's, repairmen's or other like liens
arising or incurred in the ordinary course of business, original
purchase price conditional sales contracts and equipment leases
with third parties entered into in the ordinary course of business,
and (iii) encumbrances which individually or in the aggregate,
would not have a material adverse effect on a material Asset.
<PAGE>
(b)In accordance with Article II, Armour will transfer or cause to be
transferred to the Joint Venture all shares or assets of Plasma
Alliance Inc., and Behring will transfer or cause to be transferred
to the Joint Venture all shares or assets of Associated Bioscience
Inc. and Seroplas GmbH. Each of Plasma Alliance Inc., Associated
Bioscience Inc. and Seroplas GmbH (the "Transferred Subsidiaries")
is a corporation or other entity duly organized and validly
existing under the laws of its jurisdiction of organization and has
all requisite corporate power and authority to own and operate its
properties and assets and to carry on its business as presently
conducted. Each Transferred Subsidiary is duly qualified to do
business where the ownership or operation of its properties and
assets or the conduct of its business requires such qualification,
except where the failure to be so qualified would not have a
material adverse effect. There has heretofore been delivered to
Armour true and complete copies of each of Behring's Transferred
Subsidiary's governing documents as in effect as of the date
hereof, and to Behring true and complete copies of each of Armour's
Transferred Subsidiary's governing documents as in effect as of the
date hereof.
(c)Except as set forth on Schedule 2 hereto, each of Armour and Behring
respectively owns, directly or indirectly, all of the outstanding
capital stock or other equity interest of each of its Transferred
Subsidiaries. There are no preemptive or other outstanding rights,
options, warrants, conversion rights or agreements or commitments
to issue or sell any shares of capital stock or other equity
interest of any Transferred Subsidiary or any securities or
obligations convertible into or exchangeable for, or giving any
person a right to subscribe for or acquire, any shares of capital
stock or other equity interest of
<PAGE>
any Transferred Subsidiary, and no securities or obligations
evidencing such rights are outstanding. Each Transferred Subsidiary
must have been wholly owned by Armour or Behring, or in the case of
Behring, its parent, or by one or more wholly owned subsidiaries of
Armour or Behring or parent, except for qualifying shares required
by law, which shares will be transferred on, or after, the
Effective Date to the Joint Venture in the manner designated by
Armour and Behring.
11.4 Compliance with Laws. Each Party (its Affiliates, if applicable) and
--------------------
each of the Transferred Subsidiaries is not in violation of any law,
regulation, order, decree, judgment, injunction or similar directive of a
public authority relating to the Assets or the operation of the Business
except for such violations, if any, that in the aggregate do not and will
not have a material adverse effect on the Assets or Business that the
Party is transferring to the Joint Venture. Each Party (its Affiliates,
if applicable) and each of the Transferred Subsidiaries has all
applicable governmental licenses, permits and product registrations
necessary for the conduct of the Business and operation of the Assets,
and such licenses, permits and registrations are in full force and
effect, and shall be transferred to the Joint Venture at the Effective
Date. There have been no violations of the licenses, permits and
registrations and no proceeding is pending or threatened to revoke or
limit them or -- as a condition for the continuance of the permit,
license or
<PAGE>
registration -- to require investments for improvements, except for such
violations, limitations or requests that in the aggregate do not and will
not have a material adverse affect on the Assets or Business that the
Party (its Affiliates, if applicable) is transferring to the Joint
Venture and those that are shown on Schedule 3 to the Disclosure
Schedule.
11.5 Litigation, Claims and Proceedings. Except as set forth on Schedule 4 to
----------------------------------
the Disclosure Schedule, each Party (or its Affiliates, if applicable)
and its respective subsidiaries has no existing or threatened litigation
claims or proceedings that relate to the Assets or the Business, and each
Party is not aware of any facts which, as far as the Party can reasonably
foresee, would give rise to any liability or litigation claim or
proceeding that would have a material adverse effect on the Assets or
Business that the Party (or its Affiliates, if applicable) is
transferring to the Joint Venture.
11.6 Environmental Matters.
---------------------
(a)As used in this Agreement: "Environmental Claim" means any claim,
action, cause of action, investigation or notice (written or oral)
by any person or entity alleging potential liability (including,
without limitation, potential liability for investigatory costs,
cleanup costs, governmental response costs, natural resources
damages, property damages, personal injuries, or penalties) arising
out of, based on or resulting from (i) the presence, or release
into the environment, or any Materials of Environmental Concern (as
hereinafter defined) at any location, whether or not owned or
operated by Armour or
<PAGE>
Behring, as the case may be, or their respective subsidiaries or
(ii) circumstances forming the basis of any violation, or alleged
violation, of any Environmental Laws.
"Environmental Laws" means all applicable laws and regulations
relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface
water, ground water, land surface or subsurface strata), including,
without limitation, laws and regulations relating to emissions,
discharges, releases or threatened releases of Materials of
Environmental Concern, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environmental Concern.
"Materials of Environmental Concern" means chemicals, pollutants,
contaminants, hazardous wastes, toxic substances, petroleum and
petroleum products.
(b)Except as set forth on Schedule 5 to the Disclosure Schedule, the
Assets and the Business are in full compliance in all material
respects with all applicable Environmental Laws, which compliance
includes, but is not limited to, the possession of all permits and
other governmental authorizations required under applicable
Environmental Laws, and compliance with the terms and conditions
thereof.
<PAGE>
(c)Except as set forth on Schedule 5 to the Disclosure Schedule, there
is no Environmental Claim pending or threatened relating to the
Assets or the Business.
(d)Except as set forth on Schedule 5 to the Disclosure Schedule, there
are no past or present actions, activities, circumstances,
conditions, events or incidents, including, without limitation, the
release, emission, discharge, presence or disposal of any Material
of Environmental Concern, that could reasonably form the basis of
any material Environmental Claim relating to the Assets or the
Business.
(e)Without in any way limiting the generality of the foregoing, (i)
all on-site and off-site locations where Armour or Behring has
stored, disposed or arranged for the disposal of Materials of
Environmental Concern relating to the Assets or the Business are
identified on Schedule 5 to the Disclosure Schedule, (ii) to the
best knowledge of Armour and Behring, respectively, without having
made any inquiries to third parties with respect thereto, all
underground storage tanks, and the capacity and contents of such
tanks, located on property owned or leased by Armour or Behring
relating to the Assets or the Business are identified on Schedule 5
to the Disclosure Schedule, (iii) except as set forth on Schedule 5
to the Disclosure Schedule, to the best knowledge of Armour and
Behring, respectively, without having made any inquiries to third
parties with respect thereto, there is no asbestos contained in or
forming part of any building, building component, structure or
office space owned or leased by Armour or
<PAGE>
Behring relating to the Assets or the Business, and (iv) except as
set forth on Schedule 5 to the Disclosure Schedule, no
polychlorinated biphenyls (PCB's) are used or stored at any
property owned or on or within any premises leased by Armour or
Behring relating to the Assets or the Business.
11.7 Brokers. No broker, finder or other similar intermediary has been
-------
engaged by a Party in connection with the transactions contemplated by
this Agreement.
11.8 Hart-Scott-Rodino and European Union Filing. The Parties will file
-------------------------------------------
promptly upon the execution of this Agreement, and thereafter diligently
pursue any filing required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act") and under the
European Union Regulations.
11.9 Consents. Except as required by the HSR Act and its regulations, or by
--------
the European Community Regulations, no actions or consent by a third
party is necessary to consummate the transactions contemplated by this
Agreement or to constitute this Agreement as a legal, valid and binding
obligation of a Party.
11.10 Completeness of Assets. The Assets include any asset that is required by
----------------------
the Joint Venture to conduct the Business in substantially the same
manner as it was conducted by each of Armour and Behring, respectively,
prior to the Effective Date in all material respects, except those assets
<PAGE>
whose benefits are being provided to the Joint Venture under the service
agreements between the Joint Venture and each of Armour and Behring,
respectively, according to Article XVII. Except as set forth on Schedule
6 to the Disclosure Schedule, there are no products manufactured at any
of the facilities being leased or transferred to the Joint Venture which
are not part of the Business.
11.11 Completeness of Contracts to be Transferred to the Joint Venture.
----------------------------------------------------------------
Schedule 7A of the Disclosure Schedule lists all contracts of material
importance for the conduct of the Business, except employment contracts,
between Armour or its Affiliates and third parties which are valid,
binding and in full force and effect . Schedule 7A correctly identifies
which of these contracts require consent by a third party.
Schedule 7B of the Disclosure Schedule lists all contracts of material
importance for the conduct of the Business, except employment contracts,
between Behring or its Affiliates and third parties which are valid,
binding and in full force and effect. Schedule 7B correctly identifies
which of these contracts require consent by a third party.
Except as otherwise provided in Schedules 7A and 7B, to the knowledge of
Armour or Behring, there has been no default under any contract listed in
Schedules 7A and 7B except for defaults that have been cured and defaults
which would not have a material adverse effect.
<PAGE>
This Agreement shall not constitute an assignment or attempted assignment
of any such contract to the extent that such contract is not assignable
without the consent of another party and such assignment or attempted
assignment would constitute a breach thereof.
Each of Armour and Behring, respectively, shall use reasonable efforts to
obtain consent for the assignment to the Joint Venture of all contracts
requiring consents. If any such consent shall not be obtained, each of
Armour and Behring, respectively, agrees to cooperate with the Joint
Venture in any reasonable arrangement designed to provide for the Joint
Venture the benefits intended to be assigned to the Joint Venture under
the relevant contract, including enforcement at the cost and expense of
the Joint Venture of any and all rights of each of Armour and Behring,
respectively, against the party thereto arising out of the breach or
cancellation thereof by such other party or otherwise. Notwithstanding
Article XVII (Remaining Costs) any termination costs, regarding contracts
listed on Schedules 7A and 7B of the Disclosure Schedule such as
compensations to contracting partners, shall be borne separately by each
of Armour and Behring, respectively.
11.12 Financial Information. Schedule 8 consists of (i) the 1993 financial
---------------------
statements of Armour and the gross sales of Armour for 1994 and (ii) the
1993 financial statements of Behring and the gross sales of Behring for
1994. The financial information provided by each Party to the other
Parties as listed on Schedule 8 of the Disclosure Schedule fairly
presents the financial conditions of the respective Business in all
material respects.
<PAGE>
To the best knowledge of each Party, there has been no material adverse
change in its profit margins for the Business in Category I Countries for
the year ended 1994 compared to the year ended 1993; however, a
revaluation of the Business is not intended unless otherwise provided for
in this Agreement
11.13 Trademarks, Patents and Licenses. Schedule 9 of the Disclosure Schedule
--------------------------------
is a list and description of the Intellectual Property (as hereinafter
defined) necessary to conduct the Business (in all material respects) as
currently conducted by each of Armour and Behring, respectively. Except
as described in Schedule 9B of the Disclosure Schedule, there are no
claims or liabilities for infringement of the Intellectual Property
against other persons and to the actual knowledge of each of Armour and
Behring, respectively, no person is infringing or otherwise violating the
Intellectual Property related to the Business, except in each case for
challenges, infringements or violations, that, individually or in the
aggregate would not have a material adverse effect.
For purposes of this Agreement, "Intellectual Property" means patents,
patent applications, inventions, trade secrets, know-how, copyrights,
works of authorship, mask rights, trademarks, service marks, and trade
names.
11.14 Buildings, Plants, Equipment, Stock and Technology.
--------------------------------------------------
<PAGE>
(ccc) Except as set forth on Schedule 10 to the Disclosure
Schedule, the buildings transferred to the Joint Venture have been
properly and soundly constructed and are in a normal and safe state
of repair and condition in all material respects, and no material
that is toxic to human health was used in the construction thereof,
and there are no outstanding claims or liabilities against Armour
or Behring in respect of the construction of said buildings.
(ddd) With the exception of the necessary investments for
improvements listed in Schedule 10A of the Disclosure Schedule, all
plants transferred to the Joint Venture and the equipment used in
connection with the conduct of the Business are in a normal and
safe state of repair and condition and have been duly maintained
and inspected at regular intervals. The equipment and technology
used in the plants that are to be transferred are capable of
producing safe products according to the specifications of Armour
and Behring for the time being and comply, and are operated in
accordance with all required Good Manufacture Practices and Good
Laboratory Practices, if applicable, except as disclosed on
Schedule 10B to the Disclosure Schedule.
11.15 Employee Matters. Except as set forth on Schedule 11 of the Schedule:
----------------
(a) none of Armour, Behring, nor any of their respective subsidiaries or
Affiliates is a party to or bound by any material contract, agreement or
arrangement regarding in the major locations of Germany, USA, Spain,
Austria, France, UK, and Italy the employment, services, consulting or
<PAGE>
severance from or termination of employment of any director, officer or
employee (past or present) employed or expected to be employed in the
Business (each an "Employment Agreement"); (b) each of Armour and Behring
and their respective subsidiaries and Affiliates have paid in full to, or
accrued on behalf of, in all material respects, all of their respective
employees, employed in the Business, wages, salaries, commissions,
bonuses and other direct compensation for all services performed by them
to the date hereof and all amounts required to be reimbursed to such
employees; (c) each of Armour and Behring and their respective
subsidiaries and Affiliates is in material compliance with all applicable
laws and regulations respecting employment and employment practices,
employee benefit programs, terms and conditions of employment and wages
and hours relating or applicable to the Business; (d) there is no unfair
labor practice complaint against Armour or Behring or any of their
respective subsidiaries or Affiliates pending before any government
agency relating to any employee employed in the Business; (e) there is no
labor strike, dispute, slowdown or stoppage actually pending or
threatened against or involving the Business; and (f) no grievance or
arbitration proceeding which may have a material (more than $100,000)
adverse effect on the Assets or the Business, arising out of or under
collective bargaining agreements, is pending and no claim therefor has
been asserted. Other than as set forth on Schedule 11, there are no
collective bargaining agreements or other employee representation
agreements or benefit plans which exist or are currently being negotiated
relating to the Assets or the Business.
<PAGE>
For the Business in countries other than Germany, USA, Spain, Austria,
France, UK, and Italy, none of Armour, Behring nor any of their
respective subsidiaries or Affiliates is a party to or bound by any of
the types of contracts or agreements described in this Section 11.15 (a),
other than existing contracts of the type described in Section 11.15(a)
entered into in the ordinary course of business which do not (and will
not) have a material adverse effect on the Business in any such country
(or the profits of such Business).
11.16 Insurance Policies. Schedule 12 of the Disclosure Schedule contains a
------------------
complete and accurate list of all insurance policies providing coverage
in favor of Armour or Behring or their respective subsidiaries, or
relating to real property, whether leased or owned, in each case relating
to the Assets or the Business, specifying the insurer, amount of coverage
and type of insurance under each and indicating which of such policies
provide for retrospective premium adjustments. Each such policy is in
full force and effect and all premiums are currently paid or accruals
provided for and no notice of cancellation or termination has been
received with respect to any such policy. Such policies are sufficient
for compliance with all requirements of law.
11.17 Absence of Certain Changes. Except as disclosed on Schedule 13 to the
--------------------------
Disclosure Schedule, since December 31, 1993, there has not been any (1)
event, change or effect having, individually or in the aggregate, a
material adverse effect on the Assets or the Business; (2) material
transaction except in the ordinary course of business relating to the
Assets
<PAGE>
or the Business; or (3) event or the failure of any event to occur which
would violate any of the provisions of Section 12.1 if such event
occurred or failed to occur during the period from the date hereof until
the Effective Date.
11.18 No Undisclosed Liabilities. Except as and to the extent set forth in the
--------------------------
financial statements comprising Schedule 8, none of Armour, Behring or
Plasma, nor any of their subsidiaries or their Affiliates had any
liabilities or obligations of any nature, whether or not accrued,
contingent or otherwise, that would be required by generally accepted
accounting principles to be reflected on the respective balance sheets
(including the notes thereto) related to the Assets or the Business in
the financial statements comprising Schedule 8.
<PAGE>
11.19 Taxes.
-----
(eee) Except as disclosed on Schedule 14 to the Disclosure Schedule,
as of the time of filing, all returns, declarations, reports,
estimates, information returns and statements ("Returns") required
to be filed under any applicable laws by Armour, Behring, Plasma,
and their respective subsidiaries and Affiliates with respect to
the Assets or the Business, were in all respects (and, as to
Returns not filed as of the date hereof, will be) true, complete
and correct and filed on a timely basis except where the failure to
be true, complete and correct and timely would not have a material
adverse effect on the Assets or the Business.
(fff) Armour, Behring, Plasma and their respective subsidiaries and
Affiliates have, within the time and in the manner prescribed by
law, paid (and until the Effective Date will, within the time and
in the manner prescribed by law, pay) all material Taxes (as
hereinafter defined) that are due and payable as shown on the
Returns relating to the Assets or the Business.
(ggg) There are no liens for Taxes on the assets of Armour, Behring or
Plasma or their respective subsidiaries relating to the Assets or
the Business except liens for Taxes not yet due.
<PAGE>
(hhh) Except as disclosed on Schedule 14 of the Disclosure Schedule,
Armour, Behring and Plasma and their respective subsidiaries have
complied (and until the Effective Date will comply) in all material
respects with all applicable laws, rules and regulations relating
to the payment and withholding of Taxes and have, within the time
and in the manner prescribed by law, withheld from employee wages
and paid over to the proper governmental authorities all amounts
required to be so withheld and paid over under all applicable laws
relating to the Assets or the Business.
(iii) Except as disclosed on Schedule 14 to the Disclosure Schedule,
there are no outstanding waivers or comparable consents regarding
the application of the statute of limitations with respect to any
Taxes or Returns that have been given by Armour, Behring or Plasma
or any of their respective subsidiaries relating to the Assets or
the Business.
(jjj) Except as set forth on Schedule 14 (which sets forth the
nature of the proceeding, the type of return, the deficiencies
proposed or assessed and the amount thereof, and the taxable year
in question) no federal, state, local or foreign audits or other
administrative proceedings or court proceedings are presently
pending with regard to any Taxes or Returns relating to the Assets
or the Business.
<PAGE>
(kkk) None of Armour, Behring, Plasma or any of their respective
subsidiaries is party to any agreement providing for the allocation
or sharing of Taxes relating to the Assets or the Business which
the Joint Venture would be bound by after the Effective Date.
(lll) None of Armour, Behring, Plasma or any of their respective
subsidiaries has participated (nor will they participate prior to
the Effective Date) in or cooperated with an international boycott
relating to the Assets or the Business.
For purposes of this Agreement, "Taxes" shall mean all taxes,
charges, fees, levies or other assessments, including, without
limitation, all net income, gross income, gross receipts, sales,
use ad valorem, transfer, franchise, profits, license, withholding,
payroll, employments, excise, estimated, severance, stamp,
occupation, property or other taxes, customs duties, fees
assessments or charges of any kind whatsoever, together with any
interest and any penalties, additions to tax or additional amounts
imposed by any taxing authority (domestic or foreign).
11.20 No Untrue Statement of Material Fact. No representation or warranty by a
------------------------------------
Party in this Agreement nor any statement contained in any document or
certificate furnished or to be furnished pursuant hereto by a Party or in
connection with the transactions contemplated hereby, concerning the
Assets transferred by it, considering all the representations, warranties
and statements in total, contains, or will contain, any untrue statement
of a
<PAGE>
material fact, or omits, or will omit to state a material fact necessary
to make the statements contained herein or therein not misleading, which
in any case would materially adversely affect the financial condition of
the Business.
11.21 Survival of Representations and Warranties. All representations and
------------------------------------------
warranties made by the Parties in this Agreement shall survive the
Effective Date. A claim based on the breach or untruth or inaccuracy of
a representation or warranty (except for the representation and
warranties in Section 11.3 concerning title to property, Section 11.4 on
compliance with laws, Section 11.5 on litigation and claims and Section
11.6 on environmental proceedings) must be asserted by a Party within 36
months after the Effective Date; it being understood that in the event
notice of any claim for indemnification under Section 13.3 (a) (ii)
hereof shall have been given (within the meaning of Section 23.9) within
the applicable survival period, the representations and warranties that
are the subject of such indemnification claim shall survive until such
time as such claim is finally resolved.
11.22 Affiliates. "Affiliate" means, for purposes of this Agreement, with
----------
respect to any specified entity, any other entity controlling, controlled
by or under common control with such specified entity. For the purpose
of this definition, "control" shall mean the power to direct the
management and policies of an entity, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise, and
the terms "controlling" and "controlled" shall have meanings correlative
to the foregoing.
<PAGE>
ARTICLE XII: CONDUCT OF BUSINESS PENDING THE
--------------------------------------------
EFFECTIVE DATE; OTHER AGREEMENTS
--------------------------------
12.1 Covenants of the Parties. During the period from the date of this
------------------------
Agreement and continuing until the Effective Date (or where specifically
indicated, after the Effective Date), except as expressly contemplated or
permitted by this Agreement, or to the extent that Armour or Behring, as
the case may be, shall otherwise consent in writing, the Parties agree as
follows:
(mmm) Ordinary Course. Armour and Behring and their respective
---------------
subsidiaries shall carry on their respective businesses relating to
the Assets and the Business in the usual, regular and ordinary
course consistent with past practice and use all reasonable efforts
to preserve intact their present business organizations, use all
reasonable efforts to keep available the services of their present
officers and employees and preserve their relationships with
customers, suppliers and others having business dealings with them,
to the end that their goodwill and ongoing business shall not be
impaired in any material respect following the Effective Date and
neither Party shall intentionally do any other act which would
cause any representation or warranty of it in this Agreement to be
or become untrue in any material respect.
<PAGE>
(nnn) No Acquisitions. Armour and Behring shall not, and shall not
---------------
permit any of their respective subsidiaries to, acquire or agree to
acquire (i) any real properties which would be part of or used in
the Business, (ii) acquire an equity interest in any business or
any corporation, partnership, association or other business
organization or division thereof or otherwise which is engaged in
the Business, or (iii) any assets or processes which would be part
of or used in the Business, except, in the case of clause (iii),
for acquisitions in the ordinary course of business consistent with
past practice.
(ooo) No Dispositions. Armour and Behring shall not, and shall not
---------------
permit any of their respective subsidiaries to, sell, assign,
lease, license, encumber or otherwise dispose of any of the Assets
except in the ordinary course of business consistent with past
practice; provided, however, that if Armour or Behring makes any
such sale, assignment, lease or other disposition of any Asset in
the ordinary course (other than the sale of its products in the
ordinary course), then such Party shall contribute the cash or
other consideration received from such disposition to the Joint
Venture.
(ppp) Waiver of Rights. Armour and Behring shall not, and shall not
----------------
permit any of their respective subsidiaries to, waive, release,
grant or transfer any rights of value or modify, amend or change
any existing license, lease, contract or other agreement or
arrangement relating to the Assets or the Business, or amend the
organizational documents of the transferred subsidiary except for
modifications,
<PAGE>
amendments or changes which individually or in the aggregate are
not material.
(qqq) Capital Expenditures. Except as set forth in Schedule 15 to the
--------------------
Disclosure Schedule, Armour and Behring shall not, and shall not
permit any of their respective subsidiaries to, other than in the
ordinary course of business and consistent with past practice and
in an amount not in excess of $2 million in respect of any
individual project or $5 million in the aggregate, make any capital
expenditures or commitments for capital expenditures relating to
the Assets or the Business.
(rrr) Benefit Plans and Compensation. Armour and Behring shall
------------------------------
not, and shall not permit any of their respective subsidiaries to,
terminate, adopt, amend or enter into, except as may be required by
applicable law or regulation, any bonus, profit sharing, severance,
termination, compensation, stock option, pension retirement,
deferred compensation, employment or other employee benefit plan,
agreement, trust, fund, plan or arrangement for the benefit or
welfare of any employee or pay any benefit not required by any
existing plan or arrangement (including, without limitations, the
granting of stock options, stock appreciation rights or performance
units) except for normal increases in the ordinary course of
business and consistent with past practices and that, in the
aggregate, do not result in a material increase in benefits or
compensation expense, or increase in any manner the compensation or
fringe benefits of any
<PAGE>
officer or employee or enter into any contract, agreement,
commitment or arrangement to do any of the foregoing for any person
employed in, or expected to be employed in, the Business.
(sss) Tax Matters; Accounting Policies. Armour and Behring shall not,
--------------------------------
and shall not permit any of their respective subsidiaries to, make
any tax elections or settle or compromise any income tax liability
(except for tax elections, settlements or compromises which would
not affect the assets or liabilities of the Joint Venture) or,
except as required by law or applicable accounting standards,
change any accounting policies or procedures relating to the Assets
or the Business. A Party shall promptly advise the other Parties
of any tax audit or tax adjustment or proposed or threatened tax
audit or tax adjustment with respect to such Party, and shall also
notify the other Parties of any adverse determination by any
governmental entity with respect to taxes relating to the Assets or
the Business.
(ttt) Maintenance of Property. Armour and Behring shall not, and
-----------------------
shall not permit any of their respective subsidiaries to, fail to
maintain all property and equipment relating to the Assets or
useful and necessary in the Business in good working order and
condition or fail to continue its maintenance programs consistent
with past practice.
(uuu) Insurance. Armour and Behring shall not, and shall not
---------
permit any of their respective subsidiaries to, fail to maintain
its
<PAGE>
existing insurance coverage of all types in effect relating to
the Assets or the Business or, in the event any such coverage shall
be terminated or allowed to lapse, Armour and Behring shall not
fail to procure substantially similar substitute insurance policies
(to extent available at comparable cost) with reputable insurance
companies in at least such amounts and against such risks as are
currently covered by such policies. The Parties agree that between
the date of this Agreement and the Effective Date, they will work
together in good faith to determine the appropriate insurance
coverage for the operations of the Joint Venture, and take such
steps necessary to have such insurance in place as of the Effective
Date.
(vvv) Certain Contracts. Armour and Behring shall not,
-----------------
and shall not permit any of their respective subsidiaries to, enter
into, terminate or materially extend or modify any contracts
relating to the Business except in the ordinary course of business,
consistent with past practice.
(www) Certain Processes. (i) Behring covenants and agrees it
-----------------
will use all reasonable efforts, keeping Armour duly informed, to
correct and manage the manufacturing process which resulted in the
recent contamination of the BERIPLEX product. Behring agrees that
no public announcements regarding this matter shall be made without
the prior approval of Armour, except if otherwise required by law,
but Behring will use reasonable efforts in such case to give prior
notice to Armour. (ii) Within three months after the year ending
<PAGE>
December 31, 1997, if Armour can reasonably show that there has
been a significant reduction in sales of BERIPLEX(R) for the period
1995 through 1997 primarily because of the contamination cases
which occurred in 1994 of BERIPLEX(R), which may have caused the
recent Hepatitis B contamination, (e.g. because of direct
contamination, a regulatory decision or unfavorable publicity
relating thereto) but not for any other reason (e.g. a general
decline in demand for such products, pricing strategy, a Joint
Venture decision to de-emphasize such products or market
competitive products), then the Parties will, in good faith,
revalue the contribution made by Behring to the Joint Venture
(using the same method of valuation as originally used by the
Parties) to take into account such reduction and appropriate
compensation will be made to Armour. If, pursuant to the preceding
sentence, Armour can reasonably show, in accordance with the
principles expressed in the preceding sentence, that there has been
a significant reduction in the sales of all other coagulation
products contributed by Behring or its Affiliates to the Joint
Venture for the period 1995 through 1997, primarily because of said
contamination cases which occurred in 1994 of BERIPLEX(R), then the
Parties will similarly revalue the contribution made by Behring to
the Joint Venture to take into account such reduction in
coagulation products and appropriate compensation will be made to
Armour. For purposes of this Section 12.1 (k) (ii) a significant
reduction in sales of BERIPLEX shall mean a 30 percent reduction
from the Baseline Projections of BERIPLEX(R) for the period 1995
through 1997 and a significant reduction in sales of all other
<PAGE>
coagulation products contributed by Behring or its Affiliates shall
mean 25 percent reduction from the Baseline Projection of all such
other coagulation products for the period 1995 through 1997.
(xxx) Within three months after the year ending December 31, 1997,
if Behring can reasonably show that there has been a significant
reduction in sales of the recombinant Factor VIII products for the
period 1995 through 1997 primarily because Miles and/or Baxter did
not supply to the Joint Venture the quantities of the recombinant
Factor VIII products pursuant to the Manufacturing and Supply
Agreement, dated May 26, 1993 between Baxter Healthcare Corporation
and Rhone-Poulenc Rorer Inc. and the Supply Agreement, dated
January 26, 1994 between Miles Inc. and Armour ("the Supply
Contract/s") in quantities comparable to those used in the Baseline
Projections but not for any other reason (e.g. a general decline in
demand for such products, pricing strategy, a Joint Venture
decision to de-emphasize such products, or market competitive
products) then the Parties will, in good faith, revalue the
contribution made by Armour to the Joint Venture (using the same
method of valuation as originally used by the Parties) to take into
account such reduction and appropriate compensation will be made to
Behring. For purposes of this Section 12.1(l), a significant
reduction in sales of recombinant Factor VIII products shall mean a
20 percent reduction from the Baseline Projections of recombinant
Factor VIII products for the period 1995 through 1997.
Notwithstanding the foregoing, if a court of competent
jurisdiction, or an
<PAGE>
arbitrator in a binding arbitration proceeding, determines that
Miles, in the case of the Miles Supply Contract, or Baxter, in the
case of the Baxter Supply Contract, has breached its contract with
respect to the supply of recombinant Factor VIII, then the
preceding provisions of this Section 12.1(l) shall not
apply; provided, further, if the Joint Venture has initiated
-------- -------
litigation or arbitration not later than 30 days of the date of any
determination pursuant to the first sentence of this Section
12.1(l) (or the Board of Directors has resolved by unanimous
consent no later than the last day of such 30 day period that the
Joint Venture should consider initiating such litigation or
arbitration), alleging breach of contract against Miles or Baxter,
as the case may be, then any compensation calculated to be due to
Behring will not be paid until a decision is rendered that the
defendant was not in breach of contract; it also being understood,
if compensation is paid to Behring pursuant to this Section 12.1(l)
and subsequently a decision is rendered by a court of competent
jurisdiction or by an arbitrator, that Miles or Baxter, as the case
may be, breached its contract with respect to the supply of
recombinant Factor VIII, then Behring shall reimburse such
compensation.
(yyy) Certain Processes/Zimmerman-Patent. The royalty income related
----------------------------------
to the Business shall be transferred to the Joint Venture. The
payment to Scripps has been made by Armour.
(zzz) Advice of Changes. The Parties shall confer on a regular and
-----------------
frequent basis with one another, inform one another on operational
<PAGE>
matters and with respect to any significant new contracts and
promptly advise the other Parties orally and in writing of any
change, event or effect having, or which, insofar as can reasonably
be foreseen, could reasonably be likely to have a material adverse
effect on the Assets or the Business.
(aaaa) Access to Information. Upon reasonable notice and subject to
---------------------
applicable law each Party shall, and shall cause each of its
subsidiaries to, afford to the officers, employees, accountants,
counsel, and other representatives of the other Party, access,
during normal business hours during the period prior to the
Effective Date, to all its properties, books, contracts,
commitments and records relating to the Assets or the Business and,
during such period, subject to applicable law, each Party shall,
and shall cause each of its subsidiaries to, furnish promptly to
the other Party all information concerning its business, properties
and personnel as the other Party may reasonably request. Unless
otherwise required by law, each Party will hold any such
information which is non-public in confidence until such time as
such information otherwise becomes publicly available through no
wrongful act of such Party, and in the event of termination of this
Agreement for any reason, each Party shall promptly return all non-
public documents obtained from the other Party, and any copies made
of such documents, to the other Party. The Parties agree that any
disclosure under this Paragraph (o) does not waive the
attorney/client privilege or attorney/work product privilege
relating to such disclosed information.
<PAGE>
(bbbb) Financial Statements. Behring covenants and agrees that it
--------------------
will deliver to Armour combined audited financial statements
(balance sheet, income statement, statement of cash flows and
footnotes) representing the combined results and financial position
of the Behring Category I Countries as of December 31, 1993 and
1994. Such statements will be audited by Coopers & Lybrand, with
an unqualified opinion expressed thereon, within 70 calendar days
of the date of this Agreement. These statements will be prepared
in accordance with U.S. GAAP. It is intended that these combined
audited financial statements will be further adjusted as necessary
and agreed by the Parties to a basis that is representative of
those assets and liabilities expected to be contributed on the
Effective Date ("Pro Forma Financial Statements"). Such
adjustments will be in accordance with Article Eleven (11) of SEC
Regulation S-X (Pro Forma Financial Statements) and will be
completed no later than 70 calendar days following the date of this
Agreement. In addition, Behring shall deliver to Armour on a
timely basis any interim unaudited statements after December 31,
1994 which, due to rules related to the age of financial
statements, are required to be filed by Armour or its Affiliates
with the Securities and Exchange Commission; provided that, Armour
shall provide Behring with reasonable advance notice of the
requirement of any such additional interim statement. Such interim
statement would be prepared on a basis consistent with the 1993 and
1994 financial statements.
<PAGE>
(cccc) Behring covenants and agrees that prior to the Effective Date
it will (or will cause its Affiliates to) complete the
restructuring plan for the Business in Spain.
12.2 License Agreements. On the Effective Date, the Joint Venture and Behring
------------------
shall enter into a License Agreement, licensing to the Joint Venture the
right to use the name "Behring" on a royalty free basis for the
transition period (which shall not be longer than two years) as set forth
in such Agreement. On the Effective Date, the Joint Venture and Armour
shall enter into a License Agreement, licensing to the Joint Venture the
right to use the name "Armour" on a royalty free basis for the same
transitional period as set forth in such Agreement.
12.3 Financial Statements. The Parties agree that the financial statements of
--------------------
the Joint Venture shall be prepared in accordance with United States
GAAP.
12.4 Successor to Plasma. Prior to the Effective Date (a) Plasma will
-------------------
transfer and assign its entire interest in the Joint Venture to a direct
or indirect wholly-owned subsidiary of RPR Inc., which shall be organized
outside the United States, and (b) such subsidiary shall succeed to the
interest of Plasma under this Joint Venture Agreement and shall agree to
be bound to the terms and provisions thereof. The initial contribution
of such subsidiary for the AAA1 share shall have been derived from
sources other than those of Armour or any subsidiary of Armour, and both
Armour and
<PAGE>
the successor subsidiary/assignee referred to in 12.4(a) above shall so
represent to Behring on the Effective Date.
ARTICLE XIII: LIABILITIES AND INDEMNIFICATION
----------------------------------------------
13.1 Retained Liabilities. As between the Parties, a Party shall be solely
--------------------
liable and responsible for the following retained liabilities ("Retained
Liabilities"), regardless of when asserted:
(dddd) liabilities that arose or were incurred from or relate to the
ownership, use or possession of the Assets or the operation or
conduct of the Business by the Party or its Affiliates or its
predecessor prior to the Effective Date (or the Effective
Contribution Date, with respect to Assets and Businesses
contributed after the Effective Date) whether known, unknown,
accrued, absolute, existing, contingent or otherwise, or which
arise at any time out of or relating to any action, condition or
occurrence existing prior to the Effective Date (or the Effective
Contribution Date, if later) including without limitation,
liabilities for the matters listed by the Party on Schedules 16 and
17 to the Disclosure Schedule, it being expressly understood that
Armour retains all liabilities resulting from product liability
claims (including claims of persons who claim to have been infected
with HIV from their use of Armour's blood concentrate products
prior to the Effective date (the "AIDs claims")), but ex
<PAGE>
-cluding those liabilities expressly transferred to the Joint
Venture pursuant to Article II hereof; and
(eeee) liabilities of the Joint Venture that arise from contributions
to collective funds or similar institutions which cover global
settlements for Retained Liabilities of the Party prior to the
Effective Date.
The Joint Venture and the other Parties shall have no
responsibility or liability for the Retained Liabilities of another
Party, and shall be indemnified against them pursuant to Section
13.3.
13.2 Assumed Liabilities. The Joint Venture shall be solely liable and
-------------------
responsible for all liabilities incurred after the Effective Date (or the
Effective Contribution Date, as the case may be) that arise from the
ownership, use or possession of the Assets or the operation or conduct of
the Business on or after the Effective Date, including obligations
arising after the Effective Date under contracts assumed by the Joint
Venture and liabilities transferred to the Joint Venture pursuant to
Article II. A Party shall have no responsibility or liability for the
assumed liabilities, and shall be indemnified against them pursuant to
Section 13.4.
<PAGE>
13.3 Indemnification by a Party.
--------------------------
(ffff) Subject to Section 13.7, a Party (hereafter an "Indemnitor")
shall indemnify, defend and save harmless the Joint Venture and the
other Parties, and their respective directors, officers,
shareholders, attorneys, accountants, employees, agents, successors
and assigns (the "Indemnitees"), to the full extent lawful, from,
against, and in respect of any damages (including actual, punitive
or consequential), claims, losses, liabilities, charges, actions,
suits, proceedings, deficiencies, levies, duties, taxes, interest,
penalties, and costs and expenses (including without limitation
reasonable attorneys' and accountants' fees and disbursements and
all expenses for discovery, including but not limited to, discovery
respecting the formation and implementation of the Joint Venture
and the intercorporate activities of the Parties, removal costs,
containment, cleanup, abatement or remediation costs, closure
costs), fines and expenses of investigation and ongoing monitoring,
and settlements and judgements of any kind or nature (collectively,
the "Losses") imposed on, sustained, incurred or suffered by or
asserted against any of the indemnitees, directly or indirectly
relating to or arising out of
(i) a breach by the Party of this Agreement or any of the
agreements made pursuant to it;
<PAGE>
(ii) a breach of, or an inaccuracy or misrepresentation in, the
representations and warranties made by the Party in this
Agreement subject to the limitation stated in Section 11.21;
(iii) the Retained Liabilities; and
(iv) any bankruptcy or reorganization proceeding which is
primarily the result of the Retained Liabilities of such
Party (it being the Parties' intention to include fees and
expenses of all professionals retained in such proceeding and
related costs, but not operating expenditures to the extent
that would be incurred regardless of the proceeding).
(b)A claim for indemnification pursuant to this Article XIII may be
brought by the Joint Venture, by any of the nonbreaching Parties on
behalf of the Joint Venture or by any indemnitee on its own behalf.
In the event any Indemnitee or its Affiliate elects or exercises
any option to receive indemnification payment directly, rather than
to or through the Joint Venture, the payment in full of such claim
pursuant to the election or option shall constitute a release from
all other Indemnitees with respect to the related Lossses.
13.4 Indemnification by the Joint Venture. Subject to Section 13.7, the Joint
------------------------------------
Venture (an "indemnitor") shall indemnify, defend and save harmless the
Parties and their respective directors, officers, shareholders,
attorneys, accountants, employees, agents, successors and assigns ("the
<PAGE>
indemnitees"), to the full extent lawful from, against, and in respect of
any damages (including actual, punitive or consequential), claims,
losses, liabilities, charges, actions, suits, proceedings, deficiencies,
levies, duties, taxes, interest, penalties, and costs and expenses
(including without limitation reasonable attorneys' and accountants' fees
and disbursements, removal costs, containment, cleanup, abatement or
remediation costs, closure costs), fines and expenses of investigation
and ongoing monitoring, and settlements and judgments of any kind or
nature imposed on, sustained, incurred or suffered by or asserted against
any of the indemnitees, directly relating to or arising out of the
assumed liabilities.
<PAGE>
13.5 Indemnification Procedure.
-------------------------
(gggg) The indemnitee shall give prompt written notice of any claim
for indemnification. Payment of the reimbursement or sums sought
in any notice for indemnification shall be paid by the indemnitor
within thirty days after receipt of the notice. Failure to give
timely notice shall be a defense to the indemnitee's claim only to
the extent that the indemnitor has been prejudiced by the failure.
(hhhh) In the case of a third party claim against the indemnitee, the
indemnitor shall have the right to assume control of the defense
and to retain counsel at its own expense to defend the claim, such
counsel to be reasonably satisfactory to the indemnitee. In the
event, however, the indemnitee reasonably determines in its
judgment and on the advice of counsel, that having common counsel
would present such counsel with a conflict of interest or if
indemnitor fails to assume the defense of the action or proceeding
on behalf of the indemnitee in a timely manner, then the indemnitee
may employ separate counsel to represent or defend it in any such
action or proceeding and the indemnitor will pay the fees and
disbursements of such counsel reasonably incurred, provided,
however, that it will not be required to pay the fees and
disbursements of more than one separate counsel for all indemnitees
in any jurisdiction, in any simple action or proceeding. In any
action or proceeding the defense of which the indemnitor assumes,
the
<PAGE>
indemnitee may also retain counsel and participate in the defense
of the claim at its own expense. In any action or proceeding the
defense of which the indemnitor assumes, at the request of the
indemnitee, the indemnitor will use its best efforts to have the
indemnitees and their respective officers, directors, attorneys,
accountants, employees, agents, Affiliates, successors and assigns
summarily dismissed as parties. The indemnitor, the indemnitee and
their counsels shall communicate and cooperate fully in the defense
and settlement of any claim.
(iiii) The indemnitee and the indemnitor shall not settle any
indemnifiable claim without the written consent of the other, which
consent shall not be unreasonably withheld or delayed. If the
indemnitee does not consent to a settlement, the indemnitee
thereafter shall be responsible for the defense of the claim for
its own account, and the indemnitor shall be released from any
liability with respect to the claim in excess of the settlement
amount acceptable to the person asserting the claim. If the
indemnitor fails to timely defend, contest or otherwise protect
against the third party claim, the indemnitee shall have the right,
but not the obligation, to defend the matter and to make any
compromise or settlement without the consent of the indemnitor, and
to be indemnified for the entire cost incurred.
13.6.1 In the event the Internal Revenue Service ("IRS") successfully treats any
amount that Behring receives from B1 as having been distributed first to
<PAGE>
A1 and, as a result, Behring is treated as having increased income from
A1 that is subject to U.S. tax, Armour agrees to indemnify Behring for
any increased U.S. federal and state tax liability including interest and
penalties thereon which is imposed on Behring (or collected from A1 under
section 1446 of the Internal Revenue Code on Behring's interest in A1)
attributable to any increase in the income of A1 that is allocated to
Behring as a result of the IRS's treatment ("Indemnified U.S. Taxes").
In addition, Armour agrees to indemnify Behring for any branch profits
tax imposed on Behring with respect to such IRS treatment, but only to
the extent Armour is entitled to excess foreign tax credits for German
taxes paid by B1 and Armour is able to use such credits to reduce its tax
liability at the time of any final resolution to the IRS challenge
(together with Indemnified U.S. Taxes, the "Indemnified Tax Amount").
Any payment under this agreement will be made in U.S. dollars only when
the IRS's determination becomes final ("A Final Determination") either
pursuant to a settlement agreement with the IRS, the United States, or
any U.S. state taxing authority, or as a result of a final judgment of a
court which judgment is no longer appealable. Mechanically and for
accounting purposes, such payment will be made by Armour to A1 for A1 to
satisfy the IRS obligation. If, however, the IRS imposes the obligation
directly on Behring, then A1 will distribute the Indemnified Tax Amount
to Behring for Behring to pay the IRS.
13.6.2 Behring and Armour also agree that, in the event the IRS asserts this
treatment (i.e. that the amounts that Behring receives from B1 were
distributed first to A1), the cost of disputing the IRS's position will
be
<PAGE>
borne by A1 and thus shared equally by Armour and Behring. In no event
will those costs include the internal costs of Armour personnel in
defending the action. Behring will only share in up to $1 million of
external legal expenses. Behring and Armour also agree that Armour shall
control any administrative or judicial contest (a "Proceeding") with
respect to any dispute pursuant to which Armour could become obligated to
pay the Indemnified Taxes. This control includes, but is not limited to
the choice of counsel, the selection of an administrative or judicial
forum and the terms and timing of any settlement agreement with the IRS,
the United States, or any U.S. state taxing authority.
13.6.3 If in connection with a Proceeding over which Armour has control under
this Agreement, Armour chooses to litigate the dispute in a forum which
requires payment of the tax in dispute (or a portion thereof) or posting
of a bond before jurisdiction can be conferred, Armour shall pay (or
post) so much of such tax (or bond) as may be necessary but does not
exceed the Indemnified Tax Amount (exclusive of interest if unnecessary
to obtain jurisdiction in the court in which Armour has chosen to
litigate). Behring agrees that it shall take such actions as Armour
requests in order to enable Armour to control the dispute as contemplated
herein, including, but not limited to, the execution and filing of (but
not preparation of) protests, refund claims, powers of attorney,
pleadings and waivers.
13.6.4 If Armour proposes to settle a dispute (which in good faith Armour
believes would be acceptable to the IRS) covered by this provision on
specific terms and Behring elects not to settle such dispute on those
<PAGE>
terms, then Armour's obligation to Behring under this provision shall not
exceed the amount which Armour would have to pay if the dispute had been
settled on the terms proposed by Armour.
13.6.5 Behring promises to use its best efforts to assist Armour in minimizing
the amount of any interest and penalties which may be imposed on any
deficiency or tax that may result from any dispute. Specifically, to
avoid the penalty imposed on the failure to file a required tax return,
Behring promises to file an income tax return for all years to which this
indemnity applies, even if such return shows that Behring earned zero
U.S. income. Armour shall be entitled to pay any tax and interest that
may be asserted by the IRS, the United States, or any U.S. state taxing
authority at any time during an administrative or judicial proceeding in
order to stop the running of interest on any such amounts; however, any
such payment shall in no way limit Armour's rights under this agreement.
13.6.6 If Behring receives a tax refund attributable to payment of any Indemnity
Tax Amount made under this provision, Behring agrees to pay to Armour
such refund, including any interest on such refund Behring receives in
U.S. dollars no later than 15 days after Behring receives such tax
refund.
13.6.7 This indemnity agreement does not extend to any other federal or state
tax liability for any other position taken by A1 or B1. Specifically,
neither Behring nor Armour will be entitled to indemnification from the
other Party if it is concluded that A1 is a corporation (and not a
partnership) under U.S. tax principles.
<PAGE>
13.7 Limits of Indemnification
-------------------------
(jjjj) No liability shall attach to an indemnifying Party unless in
excess of (US$ 1,000,000) in the aggregate, provided this provision
shall not apply to indemnification with respect to Retained
Liabilities as well as to a tax indemnification pursuant to Section
13.6.1 through 13.6.7.
(kkkk) The amount of any liability of an indemnifying Party shall be
reduced by any amount recovered by the indemnified Party under any
insurance policy or from any third party with respect to such
liability and by the amount of any tax benefit resulting from the
indemnified Party because of such liability.
ARTICLE XIV: NON-COMPETITION
-----------------------------
14.1 For the duration of the Joint Venture, throughout the world, the Parties
shall
(llll) engage in the Business only through the Joint Venture;
(mmmm) not compete in the Business directly or indirectly with the
Joint Venture; and
<PAGE>
(nnnn) cause their respective Controlled Entities not to compete in
the Business directly or indirectly with the Joint Venture.
14.2 For the purpose of this Article XIV, "Controlled Entities" shall mean any
corporation or other entity in which a Party can directly or indirectly
elect no less than 50% of the directors (or persons holding a similar
office if the entity is not a corporation) whether by virtue of the
Party's shareholdings, ownership interest, contract or otherwise.
14.3 If any portion of this non-competition obligation should be held invalid
or unenforceable by a competent legal authority, the Parties desire that
the legal authority modify, or direct the Parties to modify, the non-
competition obligation in such a manner that will be valid and
enforceable, and the Parties shall continue to be bound by the modified
non-competition obligation.
14.4 The prohibition against a Party engaging in the Business except through
the activities of the Joint Venture shall not prohibit a Party from
making an acquisition or merger that includes an entity or assets engaged
in the Business, as long as the Party shall within 30 days after the
acquisition or merger offer to sell the entity or assets to the Joint
Venture. Within 60 days after receipt of the offer, the Joint Venture
may accept the offer, or direct the Party either to retain the entity or
assets, or to sell the entity or assets to an unrelated third party. A
failure to respond within the 60 days shall be deemed a decision by the
Joint Venture to direct the Party to sell the entity or assets to an
unrelated third party. Any sale to an unrelated
<PAGE>
third party (i) shall occur as soon as possible, but in no event later
than one year from the date of the directive, and (ii) shall be at the
same or higher price and on terms no more favorable than were offered to
the Joint Venture.
ARTICLE XV: HUMAN RESOURCES
----------------------------
15.1 Armour and Behring will use all reasonable efforts within the labor law
in force to transfer their respective employees currently involved in the
Business and selected to be transferred to the Joint Venture by the
process described in detail in the Human Resources Agreement which shall
be signed on the same day as this Joint Venture Agreement and which is
attached hereto as Exhibit III.
<PAGE>
ARTICLE XVI: SERVICE AGREEMENTS
--------------------------------
16.1 The Joint Venture shall request service contracts from the relevant
entity in both Category I and Category II Countries for the period
following the contribution of their assets to the Joint Venture if the
Joint Venture determines that the requested service is of value, that it
had been delivered effectively in the past for the Business and can be
offered at competitive market rates. In the case that a comparable
market rate cannot be found, services are to be offered at reasonable
rates. Generally, the Joint Venture must give 12 months' notice of
termination, unless otherwise negotiated in cases that would otherwise
cause a hardship for the Party providing the service. For example, where
(a) the Party providing such service has made a capital investment to
provide the service or (b) is subject to a longer termination period in
contracts with a third party related to providing such services, the
Joint Venture and the Party may consider a more appropriate term for the
contract.
16.2 If for any reason after good faith efforts the relevant entity and the
Joint Venture are unable to agree on the provision of a service contract
for services which were provided before the Effective Date, and the
relevant entity can demonstrate it is in an unfair and unavoidably
burdensome situation, then the Party related to the relevant entity may
go to the Board of Directors and the Board of Directors shall discuss in
good faith and decide by majority upon which, if any, of such entity's
costs allocated to the Business that have not been transferred to the
Joint Venture and not recovered by service contracts, shall be assumed by
the Joint Venture.
<PAGE>
16.3 The Joint Venture may contract out services to the existing organizations
within Armour and/or Behring or their respective Affiliates to avoid
replication of costs, including distribution, purchase, personnel,
systems, information systems, finance, logistics, drug regulatory
affairs, drug surveillance, legal, tax, insurance, industrial property,
real estate, administration, and -- if required -- other available
services.
16.4 Under the prevailing circumstances (capacity and efficiency of the
existing organizations), in principle, services shall be furnished by
Armour (or its Affiliates) for the USA, Canada, Central America, France,
New Zealand, the United Kingdom and Ireland, and by Behring (or its
Affiliates) for the rest of Europe, Asia, South America and Australia.
16.5 The Parties agree that services required by the Joint Venture for which
there are no practicable alternative providers because of the lack of a
competitive market with respect to any such services (e.g., power or
----
energy supply) shall be rendered by such Party to the Joint Venture at
reasonable cost.
16.6 For the establishment of its own functions, the Joint Venture shall give
priority to employees of the existing organizations of Armour and
Behring.
ARTICLE XVII: REMAINING COSTS
------------------------------
<PAGE>
17.1 With respect to each Category I Country, if and to the extent that there
are costs which, prior to the Effective Date, were allocated to the
Business and have not been transferred to the Joint Venture nor related
to services subject to a service agreement hereunder, (the "Remaining
Costs"), and the relevant Party can demonstrate that the Remaining Costs
were included in the Baseline Projections for the country concerned, then
the Parties agree that the Joint Venture shall reimburse such relevant
Party for those Remaining Costs for the twelve month period after the
Effective Date either, at the option of the Joint Venture, by paying such
Remaining Costs on a periodic basis or by lump sum.
17.2 For each Category II Country for which the Joint Venture gives either
Armour or Behring notice that the operation in such country will become
part of the Joint Venture, as provided in Section 2.2.1, such Party will
transfer to the Joint Venture (as soon as practicable but in any event no
later than twelve months from the date of notice) all assets of the
Business in such country and those employees primarily dedicated to the
Business in such country, which are capable of being transferred. During
the period between the date of the notice and the date of transfer (the
"notice period"), the transferring Party will continue (or, if
applicable, will cause its Affiliate in such country to continue) to
conduct operations related to the Business under the direction of the
Joint Venture in a prudent and diligent manner, while making prudent
modifications to its organization in light of such notice. It is the
Parties' intention that immediately upon such transfer, any costs of such
transferred assets or employees, except Retained Liabilities, will be
borne by the Joint Venture.
<PAGE>
17.3 With respect to the operations of all countries (except for Category II
Countries for which the Joint Venture enters into a distributor
agreement), if the transferring entity has fixed costs which, prior to
the Effective Date, were primarily dedicated to the Business, and which
have not been transferred to the Joint Venture (and after good faith
efforts, the transferring entity and the Joint Venture are unable to
agree on the provision of a contract for services related to such costs),
and the transferring entity can demonstrate it is in an unfair and
unavoidably burdensome situation, the transferring entity may present its
situation to the Board of Directors of the Joint Venture. The Board of
Directors shall discuss in good faith and decide upon which, if any, of
such transferring entity's costs as described above shall be assumed by
the Joint Venture.
ARTICLE XVIII: TRANSFER OF INTERESTS
-------------------------------------
18.1 A Party may sell, assign or encumber its Interest in the Joint Venture
only in accordance with this Article XVIII. For purposes of this Article
XVIII and Article XIX, a Party's "Interest" shall mean all shares of all
classes of stock in the German B1, in the U.S. A1, and all shares of all
classes of stock or ownership interests in any other legal entity created
by the Parties to conduct the Business of the Joint Venture.
18.2 A Party may encumber its Interest only with the written agreement of the
other Parties.
<PAGE>
18.3 After the Effective Date, Armour and Behring and the holder of the AAA1
share may sell or assign their respective Interest only with the written
agreement of the other Parties; except that (i) Behring may transfer its
Interest to a Related Party without consent, provided, however, that if a
-------- -------
Related Party thereafter ceases to be a Related Party, such Related Party
must first transfer such Interest back to Behring and (ii) the AAA1 share
may be transferred or sold without the consent of the Parties if the
transfer or sale is to a Related Party of Behring. For purposes of this
Agreement, a Related Party means a corporation or other legal entity in
which such Party owns, directly or indirectly, 100% of the voting stock
or comparable ownership interest if the entity is not a corporation or a
corporation that owns directly or indirectly 100% of the voting stock of
the Party (a "Parent") or a corporation in which a Parent owns directly
or indirectly 100% of the voting stock or comparable ownership interest
if the entity is not a corporation.
18.4 A sale or assignment is permitted and effective under this Article XVIII
only if the remaining Parties receive a written document in which the
transferee assumes the obligations of the transferor under this Agreement
and agrees to be bound by the terms of this Agreement. The transferor
shall remain liable to the Remaining Parties for the transferee's non-
performance under this Agreement.
18.5 It is understood between the Parties that no Party shall be entitled to
sell, assign or encumber any single share of A1 or B1 without selling,
assigning
<PAGE>
or encumbering its Interest as a whole in accordance with this Article
XVIII.
ARTICLE XIX: TERM; TERMINATION
-------------------------------
19.1 The term of the Joint Venture is 50 years, unless the Parties agree to
extend beyond that term.
19.2 This Agreement may be terminated prior to the Effective Date in the
following matter:
(a)by written agreement of the Parties;
(b)by either Principal Party hereto, if the Effective Date shall not
have occurred on or before September 30, 1995, (the "Expiration
Date"); provided, however, that the right to terminate the
Agreement under this Section 19.2(b) shall not be available to a
Principal Party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the
Effective Date to occur on or before such date;
(c)by the non-breaching Principal Party if the other Principal Party
breaches a material obligation under this Agreement or any of the
related Agreements or any material representation or warranty made
by an Principal Party is not true in any material respect, unless
such breach is capable of being cured prior to the Expiration Date
and is so cured
<PAGE>
within 60 days after written notice, but no later than the
Expiration Date;
(d)by an Principal Party if the other Principal Party (i) is unable to
pay its debts as they become due; (ii) starts a proceeding, or
indicates its acquiescence to a proceeding started by another,
relating to it under any bankruptcy, reorganization, rearrangement,
insolvency, readjustment of debt, dissolution, liquidation or
similar law; (iii) makes an assignment for the benefit of
creditors; (iv) consents to the appointment of a receiver, trustee
or liquidator for a substantial part of its property; (v) files, or
has filed against it, a petition in bankruptcy, reorganization,
rearrangement or insolvency which, if filed against it, is not
dissolved or dismissed within 60 days after filing; or (vi) has
entered against it an order by a court of competent jurisdiction
appointing a receiver, trustee or liquidator for it or a
substantial part of its property, or approving its dissolution or
termination, and if not consented to or acquiesced in by such
Party, such order is not vacated or set aside or stayed within 60
days.
(e) by Principal Party if there is a change of control over the other
Principal Party; for purposes of this subsection (d), a "change of
control" shall occur if: (i) Hoechst AG ceases to own directly or
indirectly enough voting stock of Behring to elect no fewer than
50% of the members of the Supervisory Board or the Management Board
of Behring; (ii) if RPR Inc. ceases to own directly or indirectly
enough voting stock of Armour to elect a majority of the Board of
Directors
<PAGE>
of Armour; (iii) Rhone-Poulenc S.A. ("RP") ceases to own directly
or indirectly enough voting stock of RPR Inc. to elect a majority
of the Board of Directors of RPR Inc.
(f) Effect of Termination. In the event of the termination of this
Agreement in accordance with this Section 19.2 hereof, this
Agreement shall thereafter become void and have no effect, and no
Party shall have any liability to the other Party or their
respective shareholders, directors, officers or employees, except
for the obligations of the Parties contained in this Section 19.2
and in Sections 4.1, 12.1(o), 22.4, 22.13, and 22.14, and except
that nothing herein will relieve any Party from liability for any
breach of this Agreement prior to such termination.
19.3 In the event of a breach of this Joint Venture Agreement after the
Effective Date, the non-breaching Parties shall have those remedies
available at law or equity.
ARTICLE XX: REDEMPTION AND
---------------------------
COMPULSORY ASSIGNMENT OF SHARES; INDEMNIFICATION
------------------------------------------------
20.1 B1 shall be entitled by way of a shareholders' resolution to call in,
redeem or repurchase the share(s) of a shareholder of B1, if the
shareholder (the "Affected Shareholder") of B1 or an entity which, along
with its Affiliates, owns 50% of the shares of such shareholder (a)
starts a proceeding, or indicates its acquiescence to a proceeding
started by another, relating to it
<PAGE>
under any bankruptcy, insolvency, dissolution, liquidation or similar
law; (b) makes a general assignment for the benefit of creditors; (c)
consents to the appointment of a receiver, trustee or liquidator for a
substantial part of its property; (d) files, or has filed against it, a
petition in bankruptcy or insolvency which is not dissolved or dismissed
within sixty days after filing; or (e) has entered against it any order
by a court of competent jurisdiction appointing a receiver, trustee or
liquidator for it or a substantial part of its property, or approving its
dissolution or termination, and if not consented to or acquiesced in by
such shareholder, such order is not vacated or set aside or stayed within
sixty days.
20.2 As an alternative B1 shall be entitled, by way of a shareholders'
resolution, to oblige the Affected Shareholder, in the aforementioned
cases to transfer the share(s) to a third party, that may be one of the
other shareholders, designated in the shareholders' resolution (a
"compulsory assignment").
20.3 The affected shareholder shall have no right to vote on any of the
resolutions referred to in Sections 20.1 and 20.2 hereof.
20.4 The obligation to pay an indemnification to the Affected Shareholder
shall be borne by the Party to which the compelling reason, that causes
the call in, redemption, repurchase or compulsory assignment of the
share(s) may be attributed:
<PAGE>
(a)in case of the call in, redemption, repurchase or compulsory
assignment of BB1 and PB shares, Behring shall bear the
corresponding indemnification obligation.
(b)in case of the call in, redemption, repurchase or compulsory
assignment of the AB1 share, B1 shall only bear the corresponding
indemnification obligation, if the compelling reason, that causes
the call in, redemption, repurchase or compulsory assignment of the
AB1 share may be attributed to the Joint Venture, e.g., the opening
----
of bankruptcy proceedings against the assets of A1 due to risks of
the Joint Venture arising from operations of the Joint Venture
after the Effective Date. If the compelling reason may not be
attributed to the Joint Venture, e.g., the opening of bankruptcy
----
proceedings against the assets of A1 due to the Retained
Liabilities of Armour, the corresponding indemnification obligation
shall be borne by Armour.
20.5 It is understood and agreed between the Parties that the indemnitor under
this Section 20.4 or its designee shall be entitled to the shares
redeemed, repurchased or assigned under this Article XX upon payment of
the Indemnity Amount.
ARTICLE XXI: COOPERATION
-------------------------
<PAGE>
21.1 The Parties shall sign documents, provide information and take such
further action as may be necessary to cooperate fully with each other in
order to implement in a timely and efficient manner any sale, assignment
or encumbrance that is permitted under Articles XVIII and XIX.
ARTICLE XXII: CONDITIONS OF CLOSING
------------------------------------
22.1 The obligation of Armour and Plasma, on the one hand, and Behring, on the
other hand, to consummate the transactions contemplated by this Agreement
on the Effective Date are subject to the following conditions, unless
waived by the Party or Parties adversely affected in its or their sole
discretion:
(a)The representations and warranties of Armour and Plasma, on the one
hand, or Behring, on the other hand, contained in this Agreement or
in any agreement delivered pursuant hereto shall be complete, true
and correct in all material respects as of the Effective Date and
the covenants and the agreements of each Party to be performed on
or prior to the Effective Date shall have been performed in all
material respects and an officer of each Party shall sign and
deliver to the other Parties a certificate to that effect.
(b)Behring shall have performed due diligence procedures regarding
Armour's plants in Strasbourg and Bordeaux and there shall have not
<PAGE>
been any findings, which in any case would materially adversely
affect the financial condition of the Business.
(c)No temporary restraining order or preliminary or permanent injunction
or other order by any court or government authority preventing or
restraining the consummation of the transactions contemplated by
this Agreement shall have been issued and continuing in effect.
(d)The Parties shall have delivered to each other certified copies of
resolutions duly adopted by their appropriate corporate bodies
authorizing the execution and delivery of this Agreement and all
documents required by it, and the performance by the Parties of all
their obligations contained therein.
(e)The applicable waiting periods indicating approval of the Joint
Venture shall have expired under the HSR Act and the European
Community Regulations.
(f) There shall have been no (i) casualty, loss or damages to the
Assets or the Business or (ii) material inaccuracy or omission in
the information contained in the Schedules of this Agreement or
otherwise provided by the Parties to each other, in either case
which has or is likely to have a material adverse effect on the
Assets or Business.
<PAGE>
(g)The Parties shall have received reasonably satisfactory rulings from
German tax authorities, that the Business of Behring and its
Affiliates can be transferred to the Joint Venture on a tax-free
basis. Behring shall use reasonable efforts to promptly obtain
such a ruling; provided, that, either Party may elect to terminate
-------- ----
this Agreement pursuant to Section 19.2(f) if the ruling is denied
in writing by the appropriate German tax authority.
(h)Supply Agreement. On the Effective Date, the Joint Venture shall
----------------
execute and deliver the Supply Agreement, upon terms to be
negotiated prior to the Effective Date, pursuant to which the Joint
Venture will sell to Behring and its ffiliates their requirements
of specific immunoglobulins in connection with their vaccine
businesses.
(i) Service Agreement. On the Effective Date, the Parties, or their
-----------------
Affiliates, will enter into such Service Agreements as are
necessary to provide the Joint Venture with such support services
in the U.S., Germany and elsewhere for the Joint Venture to operate
the Business.
(j) Lease Agreements. On the Effective Date, the Parties or their
----------------
respective Affiliates, and the Joint Venture will enter into lease
agreements for those Assets being leased to the Joint Venture, on
terms consistent with the principles set forth on Exhibit VI.
<PAGE>
(k)The Parties have arranged to have appropriate insurance for the
operations of the Joint Venture to be in place and in full force
and effect as of the Effective Date.
(l) The Parties shall cause (i) the Limited Liabiity Company Agreement
for A1 to be in accordance with the provisions of this Joint
Venture Agreement, satisfactory to all parties hereto and in
connection therewith to adopt such terminology as will comport with
Delaware law, and (ii) an appropriate Certificate to be prepared,
executed and filed in accordance with Delaware law. The interest
in A1 owned by each holder of each class of shares of A1 shall be
evidenced by a certificate issued by A1. The interest of each such
holder shall be transferred and assigned, to the extent permitted
under this Agreement, by the delivery of the respective certificate
duly endorsed, whereupon the party to whom such certificate is so
transferred and assigned shall thereupon (i) become a member of A1
in the place and stead of its assignor and deemed approved as such
by all of the other members of A1 without any further procedure
being required, and (ii) have all the rights and powers of the
assignor with respect to the A1 interest so assigned. The Limited
Liability Company Agreement for A1 shall incorporate and provide
for the foregoing provisions of this Section 22.1(l). The Parties
shall cause the GmbH Agreement for B1 to be in accordance with the
provisions of this Joint Venture Agreement and satisfactory to all
parties hereto, and for appropriate organizational documents to be
prepared, executed and filed in accorandance with German law. The
<PAGE>
ownership interest in the GmbH shall also be represented by share
certificates similar to those provided with respect to A1 above.
(m) There will be no material adverse change in the Business or results
of operations of the Business or either Party since the date hereof
or in the reserves or payments (before consideration of insurance)
(in accordance with U.S. GAAP) in respect of Armour's Retained
Liabilities relating to its product liability claims or Behring's
Retained Liabilities relating to its product liability claims.
(n)Each Party has delivered the financial statements required by Section
10.2.
(o)The Parties will have assigned to the Joint Venture all contracts
listed on Schedule 7A in the case of Armour and Schedule 7B in the
case of Behring. The Parties will have represented which such
contracts cannot be assigned without the consent of a third party
and all such third party consents required for the assignment of
contracts will have been obtained by each Party.
ARTICLE XXIII: MISCELLANEOUS
-----------------------------
23.1 Effective Date. The Parties shall use their best efforts to consummate
--------------
all transactions contemplated by this Agreement not later than June 1,
1995 in order to commence the Business of the Joint Venture on June 1,
1995.
<PAGE>
23.2 Binding Effect, Assignment. This Agreement shall be binding upon and
--------------------------
inure to the benefit of the respective successors and permitted assigns
of each of the Parties. This Agreement and any rights hereunder shall
not be assigned by any Party nor shall the obligations of any Party
hereunder be delegated without the prior written consent of the other
Parties, except (a) as expressly permited by Article XVIII hereof and (b)
prior to the Effective Date, Armour may transfer its interest to a
Related Party who is reasonably satisfactory to Behring and who shall
agree to be bound by the provisions of this Joint Venture Agreement and
all related agreements to which Armour is a party; provided that Behring
-------- ----
is reasonably satisfied that (1) it is reasonably protected as
contemplated by such agreements and (2) Armour shall remain liable to the
Remaining Parties for the transferree's non-performance under this Joint
Venture Agreement and related agreements and (3) the transferee remains a
Related Party of Armour.
23.3 Entire Agreement. The terms and conditions in this Agreement together
----------------
with the Human Resources Agreement and Principles of the Lease
Agreements, constitute the entire agreement and understanding between the
Parties and supersede all previous communications, either oral or
written. The Parties have not made nor relied upon any representations
or warranties that are not set forth expressly in this Agreement or in
any agreement made pursuant to this Agreement.
23.4 Public Agreements. Except as may be required by law, the Parties shall
-----------------
not make any public announcement or public disclosure relating to this
<PAGE>
Agreement, without the prior consent of the other Party as to the
content, form and timing of the announcement or disclosure.
23.5 Non-Waiver. A waiver of rights under this Agreement must be in writing.
----------
Unless expressly stated otherwise, a written waiver shall apply only to
the specific acts or omissions described, and not to similar acts or
omissions. A delay in the exercise of a right or a failure to exercise a
right shall not be deemed to be a waiver of the right, unless expressly
stated otherwise in this Agreement. A waiver of a right shall not be
deemed to be a waiver of other rights.
23.6 Limited Liability Company. In accordance with Delaware law, the Parties
-------------------------
agree that the Limited Liability Company Agreement for A1 shall provide
that upon the bankruptcy including filing for reorganization,
reorganization or dissolution of any of its members, A1 will dissolve
unless it is continued by the consent of a majority in interest of
remaining members within 90 days (which majority in interest shall be
represented by two or more remaining members).
23.7 Article and Section Headings. Article and section headings in this
----------------------------
Agreement are inserted for convenience only, and shall not affect the
interpretation of this Agreement.
23.8 Severability. If a court of competent jurisdiction determines that any
------------
provision of this Agreement is invalid or unenforceable, the Parties will
in good faith try to negotiate an alternative provision which best
attempts to
<PAGE>
reflect the original agreement and intent of the Parties and which will
be valid and enforceable; however failing that, the determination shall
not affect the enforceability of the other provisions of this Agreement,
which shall remain in full force and effect if it can be assumed that the
Agreement would also have been concluded without the invalid or
unenforceable provision.
23.9 Notice. Any notice, demands or requests given under this Agreement shall
------
be in writing and delivered by hand, sent by telex or telecopy, or
deposited in the authorized government mail, addressed as follows:
<PAGE>
Behring: Behringwerke AG
Emil-v. Behringstra_e 76, 35041
Marburg, Germany,
Atn: Geschoftsleitung
Armour: Armour Pharmaceutical Company
500 Arcola Road
Collegeville, Pennsylvania 19426, U.S.A.
Attn: General Counsel
Plasma: Plasma Enterprises, Inc.
500 Arcola Road
Collegeville, Pennsylvania 19426, U.S.A.
or to such other address as may be specified in a written notice by a
Party. All notices, demands and requests shall be deemed to have been
given on the date of receipt.
23.10 Modification and Amendment. No modification or amendment of this
--------------------------
Agreement shall be binding unless approved in writing by an authorized
representative of each Party, which writing states that it is
modification or amendment of this Agreement.
23.11 Counterparts. This Agreement may be executed by the Parties in separate
------------
counterparts, each of which when so executed and delivered shall be an
<PAGE>
original, but all the counterparts together shall continue one and the
same instrument.
23.12 Exhibits and Schedules. The exhibits and schedules are a part of this
----------------------
Agreement as if fully set forth herein. The disclosure of any matter in
any schedule to this Agreement shall be deemed to be a disclosure for all
purposes of this Agreement to which such matter could reasonably be
expected to be pertinent, but shall expressly not be deemed to constitute
an omission by each Party or to otherwise imply, that any such matter is
material for the purpose of this Agreement.
23.13 Jurisdiction. Any proceeding arising out of or relating to this
------------
Agreement or the breach or the threatened breach of this Agreement shall
be commenced and prosecuted by Armour and Plasma, on the one hand, in the
competent court located in Frankfurt/Germany and by Behring, on the other
hand, in the competent court located in Delaware, U.S.A. Each Party
waives any objections to the venue of such court and any claim that the
proceeding has been brought to an inconvenient jurisdiction and each
Party submits to the jurisdiction of each court.
23.14 Governing Law. The validity, interpretation and performance of this
-------------
Agreement shall be governed by the laws of Germany in any action brought
by Armour or Plasma against Behring or a permitted assignee and by the
laws of Delaware in any action brought by Behring or a permitted assignee
against Armour or Plasma, without reference to the principles of those
courts concerning conflicts of laws.
<PAGE>
23.15 Further Assurances. At any time at or after the Effective Date, each
------------------
Party shall promptly execute, acknowledge and deliver any other
assurances or documents reasonably requested by the other Party, as the
case may be, and necessary for the other Party, as the case may be, to
satisfy its respective obligations hereunder or obtain the benefits
contemplated hereby.
23.16 Joinder of Joint Venture Companies. At the Effective Date, A1 and B1
----------------------------------
shall execute and deliver a counterpart of this Agreement to each of the
other Parties hereto and each of the Parties agree that by virtue thereof
the Joint Venture shall be entitled to all of the rights and benefits
granted, and assume all of the obligations delegated, to it under this
Agreement.
23.17 This Agreement shall be binding upon and inure solely to the benefit of
each Party hereto and its permitted assigns and, except for rights of
Indemnitees pursuant to Article XIII hereof, nothing in this Agreement,
express or implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement.
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement by their
duly authorized representatives.
BEHRINGWERKE
AKTIENGESELLSCHAFT
/s/Dr. Bernd Neuefeind
Chairman of the Board
/s/Dr. Peter Fuhge
Head of Business Unit Therapeutics
ARMOUR PHARMACEUTICAL COMPANY
/s/John A. Sedor
President
PLASMA ENTERPRISES, INC.
/s/Robert M. Infarinato
President
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this
Agreement by their duly authorized representatives.
ARMOUR PHARMACEUTICAL COMPANY
__________________________ Signature
John A. Sedor
__________________________ Name
President
__________________________ Title
__________________________ Date
PLASMA ENTERPRISES INC.
__________________________ Signature
Robert M. Infarinato
__________________________ Name
President
__________________________ Title
__________________________ Date
ARMOUR PHARMACEUTICAL COMPANY
__________________________ Signature
__________________________ Name
__________________________ Title
__________________________ Date
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this
Agreement by their duly authorized representatives.
ARMOUR PHARMACEUTICAL COMPANY
__________________________ Signature
__________________________ Name
__________________________ Title
PLASMA ENTERPRISES, INC.
__________________________ Signature
__________________________ Name
__________________________ Title
BEHRINGWERKE AKTIENGESELLSCHAFT
__________________________
Dr. Bernd Neuefeind
Chairman of the Board
__________________________
Dr. Peter Fuhge
Head of Business Unit Therapeutics
<PAGE>
EXHIBIT 10B
AMENDED AND RESTATED
ASSET PURCHASE AGREEMENT,
DATED AS OF DECEMBER 22, 1994,
AMONG
RHONE-POULENC RORER PHARMACEUTICALS INC.,
RHONE-POULENC RORER CARIBBEAN INC.
AND
CIBA SELF-MEDICATION, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 1. DEFINITIONS................................................. 1
ARTICLE 2. PURCHASE AND SALE OF ASSETS................................. 8
2.1 Assets of Seller to Be Purchased................................. 8
2.2 Liabilities Assumed.............................................. 11
2.3 The Canadian Transaction......................................... 12
ARTICLE 3. PAYMENTS.................................................... 12
3.1 Payments......................................................... 12
3.2 Adjustment....................................................... 12
3.3 Payment in Immediately Available Funds........................... 13
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF SELLER.................... 13
4.1 Representations and Warranties................................... 13
4.1.1 Organization of Seller................................... 13
4.1.2 Authorization............................................ 14
4.1.3 Compliance............................................... 14
4.1.4 Consents and Approvals of Governmental
Bodies................................................. 15
4.1.5 Other Consents........................................... 15
4.1.6 Financial Statements..................................... 17
4.1.7 Tax Matters.............................................. 16
4.1.8 Contracts and Binding Commitments........................ 17
4.1.9 Status of Contracts...................................... 18
4.1.10 Good Title; Condition of Purchased Assets;
No Condemnation........................................ 19
4.1.11 Litigation; Warranty Claims.............................. 20
4.1.12 Environmental; Worker Health and Safety.................. 21
4.1.13 Material Changes......................................... 22
4.1.14 Intellectual Property.................................... 22
4.1.15 Labor Matters............................................ 23
4.1.16 Employee Benefits........................................ 25
4.1.17 Inventory................................................ 26
4.1.18 Compliance with Law...................................... 27
4.1.19 Broker................................................... 27
4.1.20 Assets of the Business................................... 28
4.1.21 Related Person Transactions.............................. 28
4.1.22 Customers and Suppliers.................................. 28
4.1.23 Officers and Employees................................... 29
4.1.24 Absence of Certain Changes............................... 29
4.1.25 Insurance Matters........................................ 30
4.1.26 Books and Records........................................ 30
4.1.27 Products................................................. 31
4.1.28 Product Warranties....................................... 31
</TABLE>
i
<PAGE>
<TABLE>
Page
<S> <C> <C>
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF BUYER..................... 31
5.1 Representations and Warranties................................... 31
5.1.1 Organization and Standing................................ 31
5.1.2 Authorization............................................ 32
5.1.3 Compliance............................................... 32
5.1.4 Broker................................................... 32
5.1.5 Available Funds.......................................... 33
5.1.6 Consents and Approvals of Governmental
Bodies................................................. 33
5.1.7 Other Consents........................................... 33
ARTICLE 6. COVENANTS OF SELLER PENDING CLOSING......................... 33
6.1 Operate in Ordinary Course....................................... 33
6.2 Access........................................................... 36
6.3 No Dealings with Other Possible Buyers........................... 36
ARTICLE 7. CLOSING DATE; CONDITIONS PRECEDENT;
TERMINATION................................................. 37
7.1 Closing Date and Place........................................... 37
7.2 Conditions Precedent to the Obligations of Buyer
to Close.................................................... 37
7.2.1 No Injunctive Proceedings................................ 37
7.2.2 Hart-Scott............................................... 37
7.2.3 Representations and Warranties........................... 37
7.2.4 Performance of Agreements................................ 38
7.2.5 Material Adverse Effect.................................. 38
7.2.6 Intentionally Omitted.................................... 38
7.2.7 Litigation............................................... 38
7.2.8 Regulatory Approvals..................................... 38
7.2.9 Consents, Approvals, Assignments......................... 38
7.2.10 Deliveries............................................... 38
7.2.11 Canadian Purchase Agreement Closing...................... 38
7.2.12 Compliance Evidence...................................... 38
7.2.13 Proceedings Satisfactory................................. 39
7.2.14 License Agreements....................................... 39
7.2.15 Delivery of Possession................................... 39
7.3 Conditions Precedent to the Obligations of Seller
to Close.................................................... 39
7.3.1 No Injunctive Proceedings................................ 39
7.3.2 Hart-Scott............................................... 39
7.3.3 Representations and Warranties........................... 39
7.3.4 Performance of Agreements................................ 39
7.3.5 Payments................................................. 40
</TABLE>
ii
<PAGE>
<TABLE>
Page
<S> <C> <C>
7.3.6 Intentionally Omitted.................................... 40
7.3.7 Litigation............................................... 40
7.3.8 Regulatory Approvals..................................... 40
7.3.9 Consents, Approvals and Assignments...................... 40
7.3.10 Deliveries............................................... 40
7.3.11 Canadian Purchase Agreement Closing...................... 40
7.3.12 Compliance Evidence...................................... 40
7.3.13 Proceedings Satisfactory................................. 41
7.4 Termination of this Agreement.................................... 41
7.4.1 Termination.............................................. 41
7.4.2 Effect of Termination.................................... 41
7.5 Signing Deliveries............................................. 41
ARTICLE 7A. CUT-OFF DATE AND CERTAIN REVISED ARRANGEMENTS............... 42
7A.1. When Effective................................................. 42
7A.2. Revised Arrangements........................................... 42
7A.2.1. Cut-Off Event............................................ 42
7A.2.2. Conditions to Buyer's Obligations........................ 42
7A.2.3. Conditions to Seller's Obligations....................... 43
7A.2.4. Termination.............................................. 44
7A.2.5. Effect of Termination.................................... 45
7A.2.6. Deliveries By Seller..................................... 45
7A.2.7. Deliveries By Buyer...................................... 46
7A.3. Interim Period................................................. 46
7A.4. Post-Closing Payment........................................... 47
7A.5. Affirmative Covenants.......................................... 48
ARTICLE 8. CLOSING DELIVERIES.......................................... 48
8.1 Deliveries by Seller........................................... 48
8.1.1 Corporate Resolutions.................................... 48
8.1.2 Bill of Sale............................................. 49
8.1.3 Real Property Deed....................................... 49
8.1.4 Transition Services Agreement............................ 49
8.1.5 Intellectual Property Agreement.......................... 49
8.1.6 Other Transfer Documents................................. 49
8.1.7 FIRPTA Certificate....................................... 49
8.1.8 Restrictive Covenants Agreement.......................... 49
8.1.9 Supply Agreement......................................... 49
8.1.10 Transition Manufacturing Agreement....................... 49
8.1.11 Code Compliance.......................................... 50
</TABLE>
iii
<PAGE>
<TABLE>
Page
<S> <C> <C>
8.2 Deliveries by Buyer.............................................. 50
8.2.1 Corporate Resolutions.................................... 50
8.2.2 Assumption Agreement..................................... 50
8.2.3 Transition Services Agreement............................ 50
8.2.4 Intellectual Property Agreement.......................... 50
8.2.5 Restrictive Covenants Agreement.......................... 50
8.2.6 Supply Agreement......................................... 50
8.2.7 Transition Manufacturing Agreement....................... 50
ARTICLE 9. SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION............................................. 50
9.1 Survival....................................................... 50
9.2 Indemnification by Seller...................................... 51
9.2.1 Certain Limitations...................................... 54
9.3 Indemnification by Buyer....................................... 55
9.3.1 Certain Limitations...................................... 56
9.4 Conduct Attributable to Both Parties........................... 57
9.5 Procedure for Indemnification.................................. 57
9.5.1............................................................ 57
9.5.2............................................................ 57
9.5.3............................................................ 58
9.6 Limitation on Remedies......................................... 58
9.7 Real Property Deed............................................. 58
ARTICLE 10. COVENANTS................................................... 59
10.1 Employee Matters............................................... 59
10.1.1 Termination of Employment; Offer of Employment........... 59
10.1.2 Collective Bargaining Agreement.......................... 60
10.1.3 Welfare and Other Fringe Benefit Plans................... 60
10.1.4 Pension Plans............................................ 62
10.1.5 Seller's Liabilities With Respect to Employees........... 65
10.1.6 Conditional Offers of Employment......................... 66
10.1.7 Reimbursement............................................ 66
10.1.8 No Rights to Employees................................... 66
10.1.9 Notice Obligations....................................... 66
10.1.10 Termination of Employment, Noncompetition and
confidentiality Agreements.............................. 67
10.2 Reasonable Commercial Efforts and Required Consents............ 67
10.3 Books, Records and Information................................. 68
10.4 Workers' Compensation.......................................... 68
10.5 Confidential Information....................................... 68
10.6 Publicity...................................................... 69
10.7 Switch Products................................................ 69
</TABLE>
iv
<PAGE>
<TABLE>
Page
<S> <C> <C>
10.8 Barcroft First Refusal......................................... 70
10.9 Office Building Repurchase..................................... 71
10.9.1........................................................... 71
10.9.2........................................................... 71
10.9.3........................................................... 72
10.9.4........................................................... 73
10.9.5........................................................... 73
10.9.6........................................................... 73
10.9.7........................................................... 74
10.9.8........................................................... 74
10.9.9........................................................... 75
10.9.10.......................................................... 78
10.10 Failure to Obtain Consent...................................... 78
10.11 Use of Name.................................................... 79
10.12 Non-Solicitation............................................... 79
10.13 Consultation................................................... 80
10.14 Envirotest Parcel Repurchase................................... 80
10.14.1.......................................................... 80
10.14.2.......................................................... 80
10.14.3.......................................................... 80
10.14.4.......................................................... 81
10.14.5.......................................................... 81
10.14.6.......................................................... 82
ARTICLE 11. TAX MATTERS................................................. 82
11.1 General........................................................ 82
11.2 Sales, Use and Transfer Taxes.................................. 82
11.3 Federal, State and Local Taxes................................. 83
11.4 Cooperation and Exchange of Information........................ 83
11.5 Purchase Price Allocation...................................... 84
11.6 FIRPTA Certificate............................................. 84
11.7 Calculations Related to Section 11.1........................... 84
11.8 Refunds........................................................ 85
ARTICLE 12. MISCELLANEOUS............................................... 85
12.1 Expenses....................................................... 85
12.2 Notices........................................................ 85
12.3 Integration.................................................... 86
12.4 Captions....................................................... 86
12.5 Assignment; Amendment; Waiver.................................. 87
12.6 Applicable Law................................................. 87
12.7 Failure to Close............................................... 87
12.8 Further Assurances............................................. 88
12.9 No Third-Party Rights.......................................... 88
12.10 Incorporation of Exhibits and Schedules........................ 88
12.11 Submission to Jurisdiction..................................... 88
12.12 Counterparts................................................... 89
12.13 Rights Cumulative.............................................. 89
12.14 Time........................................................... 89
12.15 Specific Performance........................................... 89
12.16 Severability................................................... 90
12.17 Recording...................................................... 90
</TABLE>
v
<PAGE>
SCHEDULES
---------
<TABLE>
<CAPTION>
Number Title
- ------ -----
<S> <C>
2.1(a)(i) Real Property
2.1(a)(i)-1 Office Building
2.1(a)(i)-2 Envirotest Parcel
2.1(a)(ii) Tangible Personal Property
2.1(a)(iii) Leases (Real and Personal Property)
2.1(a)(viii) Governmental, Permits
2.1(a)(xii) Prepaid Expenses
2.1(b) Other Excluded Assets
2.2(a) Contracts not being Assumed
2.2(c) Advertising Commitments
4.1.3 Compliance
4.1.4 Governmental Body Consents
4.1.5 Third Party Consents
4.1.6 Schedule of Assets and Management Income Statements
4.1.7(c) Unpaid Assessments of Taxes
4.1.8 Contracts
4.1.9 Status of Contracts
4.1.10(b) Permitted Encumbrances
4.1.10(d) Condemnation Proceedings
4.1.11(a) Litigation
4.1.12 Environmental Matters
4.1.13 Material Changes
4.1.14 Intellectual Property Matters
4.1.15(a) Strikes, Slowdowns, etc.
4.1.15(b) Labor Relations Exceptions
</TABLE>
vi
<PAGE>
<TABLE>
<S> <C>
4.1.16(a) Employee Benefit Plans
4.1.16(b) Amendments to Employee Benefit Plans
4.1.16(d) Multi-Employer Plans
4.1.16(e) Obligations Relating to Health Plans
4.1.16(g) Government Proceedings Relating to Plans
4.1.18 Exceptions to Business being operated in Compliance with
Laws, etc.
4.1.21(a) Agreements between Seller and Related Persons
4.1.22(a) Customers and Suppliers
4.1.23 Employee List
4.1.24 Changes in Business
4.1.25 Insurance
4.1.27(a) Products
4.1.27(c) Product Complaints
4.1.28 Product Warranties
6.1 Exceptions to Operations in the Ordinary Course
7.2.8 Required Regulatory Approvals
7.2.9 Other Required Consents
10.1.1 Certain New Employees
10.4 Workers' Compensation Claims
</TABLE>
vii
<PAGE>
EXHIBITS
--------
<TABLE>
<CAPTION>
Number Title
- ------ -----
<S> <C>
2.2 Form of Assumption Agreement
8.1.2 Form of Bill of Sale
8.1.3 Form of Real Property Deed
8.1.4 Form of Transition Services Agreement
8.1.5 Form of Intellectual Property Agreement
8.1.8 Form of Restrictive Covenants Agreement
8.1.9 Form of Supply Agreement
8.1.10 Form of Transition Manufacturing Agreement
8.1.11 Form of RPR Guaranty
8.2.8 Form of CUA Guaranty
</TABLE>
viii
<PAGE>
AMENDED AND RESTATED ASSET PURCHASE AGREEMENT, dated as of December
22, 1994, among RHONE-POULENC RORER PHARMACEUTICALS INC., a corporation
organized under the laws of Delaware ("SELLER"), RHONE-POULENC RORER CARIBBEAN
INC., a corporation organized under the laws of the Commonwealth of Puerto Rico
("RPR CARIBBEAN"), and CIBA SELF-MEDICATION, INC., a corporation organized under
the laws of Delaware ("BUYER").
WHEREAS, Seller, RPR Caribbean and Buyer have entered into an Asset
Purchase Agreement dated as of December 22, 1994 (the "DECEMBER 22 PURCHASE
AGREEMENT"); and
WHEREAS, Seller, RPR Caribbean and Buyer desire to amend and restate
the December 22 Purchase Agreement in its entirety.
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties herein contained, the December 22 Purchase
Agreement shall be amended and restated in its entirety as follows:
ARTICLE 1. DEFINITIONS
-----------
As used in this Agreement, the following terms have the meanings
specified or referred to in this Article 1:
"ACQUISITION EVENT" -- See Section 10.14.3.
"ADJUSTMENT" -- See Section 3.2(a).
"AFFILIATE" -- With respect to any Person, any Person which, directly
or indirectly, controls or is controlled by that Person or is under common
control with that Person. For the purposes of this definition, "control"
(including, with correlative meaning, the terms "controlled by" and "under
common control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person whether through the
ownership of voting securities, by contract or otherwise.
"AGENTS" -- See Section 9.2.
"AGREEMENT" -- This Amended and Restated Asset Purchase Agreement.
"ASSUMED LIABILITIES" -- See Section 2.2.
"ASSUMPTION AGREEMENT" -- See Section 2.2.
"BARCROFT FACILITY" -- The Seller's raw materials manufacturing
facility located at 40 Cape Henlopen Drive, Lewes, Delaware 19958.
"BEST KNOWLEDGE" -- As to any Person, actual knowledge of directors,
officers and managerial employees of such Person (as to Seller, including Rhone-
Poulenc Rorer Inc., with respect to the Intellectual Property, Rhone-Poulenc
Pharmaceuticals Inc. and, with respect to the assets and liabilities associated
with Puerto Rico, RPR Caribbean), after due inquiry.
"BILL OF SALE" -- See Section 8.1.2.
<PAGE>
"BUSINESS" -- The production, marketing, distribution and sale of the
Products in the Territory by the North American Consumer Products Division of
Seller and RPR Caribbean.
"BUSINESS DAY" -- Any day that is not a Saturday or Sunday or a day on
which banks located in the City of New York are authorized or required to be
closed.
"BUYER" -- See the first paragraph of this Agreement.
"BUYER PENSION PLAN" -- See Section 10.1.4(b).
"BUYER REPLY" -- See Section 10.7(b).
"CANADIAN BUSINESS" -- The production, marketing, distribution and
sale of the Products in Canada by the North American Consumer Products Division
of Seller.
"CANADIAN BUYER" -- See Section 2.3.
"CANADIAN PURCHASE AGREEMENT" -- See Section 2.3.
"CANADIAN PURCHASED ASSETS" -- The assets of Canadian Seller being
purchased pursuant to the Canadian Purchase Agreement.
"CANADIAN SELLER" -- See Section 2.3.
"CIBA GUARANTY" -- See Section 7.5.
"CLOSING" -- See Section 7.1.
"CLOSING DATE" -- See Section 7.1.
"COBRA" -- United States Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended, 26 U.S.C. (S) 4980B, and the rules and regulations
promulgated thereunder.
"CODE" -- United States Internal Revenue Code of 1986, as amended.
2
<PAGE>
"CONTEMPLATED TRANSACTIONS" -- The sale, transfer, assignment and
conveyance of the Purchased Assets by Seller to Buyer, the purchase of the
Purchased Assets by Buyer from Seller, the assumption of the Assumed Liabilities
by Buyer and the other transactions contemplated hereby and by the U.S. Buyer
Ancillary Agreements and the U.S. Seller Ancillary Agreements.
"CONTRACTS" -- All contracts, leases, agreements, indentures,
mortgages, deeds of trust, notes, bonds, instruments, plans (excluding Plans),
commitments, licenses, purchase orders, sales orders or any other binding
arrangements, express or implied (including any amendments, supplements,
modifications and schedules and exhibits thereto), to which Seller or any
Related Person is a party or by which any of them or their assets is bound which
primarily relate to the Products, the Business, the Purchased Assets or the
Intellectual Property.
"CUT-OFF DATE" -- See Section 7A.1.
"CUT-OFF EVENT" -- See Section 7A.2.1.
"DAMAGES" -- See Section 9.2.
"DECEMBER 22 PURCHASE AGREEMENT" -- See the first Whereas clause.
"EEOC" -- United States Equal Employment Opportunity Commission and
any successor Governmental Body.
"EMPLOYMENT CONTRACTS" -- any contract for employment of any employee
of Seller or any other Person who renders services to Seller and any Contract
with any labor union or association representing any employee of the Business as
of the Closing Date.
"ENCUMBRANCE" -- Any security interest, mortgage, deed of trust, lien
(including any lien imposed by any court or Governmental Body), charge, adverse
claim or restriction of any kind, including, but not limited to, the rights of
any vendor, lessor or similar Person under any conditional sale or other title
retention agreement or any lease, and any restriction on the use, voting,
transfer, receipt of income or other exercise of any attributes of ownership.
"ENVIRONMENT" -- The air, ground (surface and subsurface) or water
(surface and groundwater), or the workplace.
"ENVIRONMENTAL LAW" -- Any applicable federal, state, local or other
law, statute, ordinance, rule, regulation, permit, judgment, order, decree or
other binding requirement of, or binding agreement with, any Governmental Body,
relating to Releases of Hazardous Materials, worker exposure to Hazardous
Materials, the protection of natural resources and the Environment, historic
preservation, zoning or land use, and any
3
<PAGE>
judicial ruling, court decree, order or judgment with respect thereto.
"ENVIROTEST DAMAGES" -- See Section 10.14.5.
"ENVIROTEST PARCEL" -- The land described on Schedule 2.1(a)(i)-2
hereto.
"ENVIROTEST SUBDIVISION" -- See Section 10.14.2.
"EPA" -- United States Environmental Protection Agency and any
successor Governmental Body.
"ERISA" -- United States Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations promulgated thereunder.
"EXCLUDED ASSETS" -- See Section 2.1(b).
"FDA" -- United States Food and Drug Administration and any successor
Governmental Body.
"FICA" -- United States Federal Insurance Contributions Act, as
amended, and the rules and regulations promulgated thereunder.
"FIRPTA CERTIFICATE" -- See Section 11.6.
"FUTA" -- United States Federal Unemployment Tax Act, as amended, and
the rules and regulations promulgated thereunder.
"GAAP" -- United States generally accepted accounting principles as in
effect on the date hereof.
"GOVERNMENTAL BODY" -- Any domestic or foreign national, regional,
state (including the District of Columbia and the Commonwealth of Puerto Rico)
or municipal or other local government or multi-national body, any subdivision,
agency, commission, authority or instrumentality thereof, or any quasi-
governmental or arbitral tribunal or other private body exercising any
regulatory or taxing authority thereunder.
"GOVERNMENTAL PERMIT" -- All permits, authorizations, registrations,
consents, approvals, waivers, franchises, exceptions, variances, orders,
certificates, judgments, decrees, licenses, exemptions, or declarations of or by
any court or Governmental Body.
"HART-SCOTT" -- U.S. Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder.
"HAZARDOUS MATERIALS" -- All chemicals, substances, materials and
wastes that are, or are deemed by a Governmental Body or court to be, hazardous,
dangerous, toxic, polluting or contaminating, or that are designated, defined or
regulated under, any Environmental Law, and shall include, without
4
<PAGE>
limitation, petroleum, petroleum products, asbestos, asbestos-containing
material, polychlorinated biphenyls and ureaformaldehyde.
"IND" -- See Section 4.1.27(b).
"INDEMNITEE" -- See Section 9.5.2(a).
"INDEMNITOR" -- See Section 9.5.2(a).
"INTELLECTUAL PROPERTY" -- See Section 4.1.14.
"INTELLECTUAL PROPERTY AGREEMENT" -- See Section 8.1.5.
"INTERIM NET EARNINGS" -- See Section 7A.4(b).
"INTERIM PERIOD" -- See Section 7A.3.
"IRS" -- United States Internal Revenue Service and any successor
Governmental Body.
"MANUFACTURING PLANT" -- The Real Property excluding the Office
Building.
"MATERIAL ADVERSE EFFECT" -- See Section 4.1.1.
"MATERIAL CONTRACTS" -- See Section 4.1.8.
"MULTIEMPLOYER PLAN" -- See Section 4.1.16(d).
"NET EARNINGS STATEMENT" -- See Section 7A.4(b).
"NEW EMPLOYEES" -- See Section 10.1.1(c).
"NLRA" -- United States National Labor Relations Act, as amended, and
the rules and regulations promulgated thereunder.
"NLRB" -- United States National Labor Relations Board and any
successor Governmental Body.
"NOTICES" -- See Section 10.1.9.
"OFFICE BUILDING" -- The land described on Schedule 2.1(a)(i)-1 hereto
together with the office building and all other improvements thereon.
"OFFICE BUILDING DAMAGES" -- See Section 10.9.9(iii).
"OFFICE BUILDING MATTERS" -- See Section 10.9.9(i).
"PBGC" -- United States Pension Benefit Guaranty Corporation and any
successor Governmental Body.
5
<PAGE>
"PERMITTED ENCUMBRANCES" -- See Section 4.1.10(b).
"PERSON" -- Any individual, corporation, partnership, limited
liability company, joint venture, trust, association, unincorporated
organization, Governmental Body or other entity.
"PLANS" -- See Section 4.1.16(a).
"PRODUCTS" -- The products of the North American Consumer Products
Division of Seller and RPR Caribbean as set forth on Schedule 4.1.27(a).
"PURCHASE ACCEPTANCE" -- See Section 10.8(c).
"PURCHASED ASSETS" -- See Section 2.1(a).
"PURCHASE PRICE" -- See Section 3.1.
"QUALIFIED PLANS" -- See Section 4.1.16(b).
"REAL PROPERTY" -- See Section 2.1(a)(i).
"REAL PROPERTY DEED" -- See Section 8.1.3.
"RELATED PERSON" -- Rhone-Poulenc Rorer Inc. and its majority owned
subsidiaries, including, without limitation, RPR Caribbean.
"RELEASE" -- Any release, spill, leak, placement, pumping, pouring,
flooding, emission, emptying, discharge, injection, escape, leaching, migration,
disposal or dumping.
"RESTRICTIVE COVENANTS AGREEMENT" -- See Section 8.1.8.
"RETAINED NAMES" -- See Section 10.11.
"RPR CARIBBEAN" -- See the first paragraph of this Agreement.
"RPR GUARANTY" -- See Section 7.5.
"RPR HOURLY PLAN" -- See Section 10.1.4(c).
"RPR PENSION PLAN" -- See Section 10.1.4(b).
"SALABLE RETURNS" -- See Section 2.2(b).
"SELLER" -- See the first paragraph of this Agreement.
"SELLER ACTION" -- See Section 10.9.9(i).
6
<PAGE>
"SELLER MINIMUM" -- See Section 9.2.1(a).
"SELLER OFFER" -- See Section 10.7(b).
"SUBDIVISION" -- See Section 10.9.2.
"SUI" -- State Unemployment Insurance.
"SUPPLY AGREEMENT" -- See Section 8.1.9.
"SWITCH PRODUCTS" -- See Section 10.7(a).
"TAX" OR "TAXES" -- (a) Any and all taxes, charges, fees, imposts,
levies, interest, penalties, additions to tax or other assessments or fees of
any kind (whether federal, state, local or foreign), including, without
limitation, income, corporate, capital, gross receipts, profits, occupation, ad
valorem, transfer, withholding, payroll, employment, excise, property, sales,
use, turnover, value added and franchise taxes, deductions, withholdings and
customs duties, imposed by any Governmental Body and (b) any payments or
obligation with respect to any Tax or Taxes described in clause (a) above
required under any tax-sharing agreement or other arrangement.
"TAX RETURNS" -- Any return, report, information return or other
document (including any related or supporting information) filed or required to
be filed with any Governmental Body in connection with the determination,
assessment, collection or administration of any Taxes or the administration of
any laws, regulations or administrative requirements relating to any Taxes.
"TERMINATION NOTICE" -- See Section 10.9.6.
"TERRITORY" -- The 50 States of the United States, the District of
Columbia and the Commonwealth of Puerto Rico. The Territory shall include the
territories and possessions of the United States.
"THIRD PARTY NOTICE" -- See Section 10.8(b).
"THIRD PARTY OFFER" -- See Section 10.8(b).
"TRANSFER DOCUMENTS" -- See Section 8.1.6.
"TRANSFER TAXES" -- See Section 11.2(a).
"TRANSITION MANUFACTURING AGREEMENT" -- See Section 8.1.10.
"TRANSITION SERVICES AGREEMENT" -- See Section 8.1.4.
7
<PAGE>
"TSCA" -- The Toxic Substances Control Act, as amended, and the rules
and regulations promulgated thereunder.
"UNION AGREEMENT" -- See Section 10.1.2.
"U.S. BUYER ANCILLARY AGREEMENTS" -- Collectively, the Assumption
Agreement, the Transition Services Agreement, the Restrictive Covenants
Agreement, the Supply Agreement, the Transition Manufacturing Agreement, the
Ciba Guaranty and the Intellectual Property Agreement.
"U.S. SELLER ANCILLARY AGREEMENTS" -- Collectively, the Bill of Sale,
the Real Property Deeds, the Transfer Documents, the Transition Services
Agreement, the Restrictive Covenants Agreement, the Supply Agreement, the
Transition Manufacturing Agreement, the RPR Guaranty and the Intellectual
Property Agreement.
"WARN ACT" -- See Section 10.1.9.
Wherever, from the context it appears appropriate, each term stated in
either the singular or plural shall include the singular and the plural, and
pronouns stated in the masculine, feminine or neuter gender shall include the
masculine, the feminine and the neuter.
ARTICLE 2. PURCHASE AND SALE OF ASSETS
---------------------------
2.1 Assets of Seller to Be Purchased.
--------------------------------
(a) At the Closing, subject to the terms and conditions of this
Agreement, Buyer, in reliance on the representations, covenants and warranties
of Seller and RPR Caribbean contained herein, shall purchase, assume and acquire
from Seller, RPR Caribbean or Related Persons, and Seller and RPR Caribbean, in
reliance on the representations, covenants and warranties of Buyer contained
herein, shall, and shall cause Related Persons to, sell, transfer, convey,
assign and deliver to Buyer all of Seller's, RPR Caribbean's and any Related
Person's right, title and interest in all of the assets, properties, powers and
rights of every type and description, real, personal and mixed, tangible and
intangible, wherever located, which are primarily used or held for use in the
conduct of the Business (but in no event including the Excluded Assets, free and
clear of all Encumbrances except the Assumed Liabilities and the Permitted
Encumbrances (collectively, the "PURCHASED ASSETS"), including, without
limitation:
(i) the real property described in Schedules 2.1(a)(i) and
2.1(a)(i)-1 hereto, together with the buildings and other improvements thereon
and all easements,
8
<PAGE>
licenses and other interests in real property appurtenant thereto (the "REAL
PROPERTY");
(ii) all tangible personal property, machinery, equipment, plant
and office furniture and fixtures, vehicles and trailers, tools, dies and
machines (including, without limitation, computers) primarily used or held for
use in the Business including, without limitation, that identified in Schedule
2.1(a)(ii) hereto and that located or maintained at the Real Property;
(iii) all leases of real property (and leasehold improvements) and
of equipment or other personal property (whether as lessor or lessee) primarily
used or held for use or entered into by Seller or any Related Person primarily
in connection with the Business or the Purchased Assets, including, without
limitation, those listed on Schedule 2.1(a)(iii) hereto;
(iv) all inventory of the Business, including, without limitation,
spare parts, supplies, fuel and other consumable items, inventories of
fabricated products, finished products, work in process and raw materials;
(v) all manufacturers', vendors', lessors', and suppliers'
warranties with respect to any item of property falling within the scope of the
Purchased Assets;
(vi) all right, title and interest in all guarantees in favor of
Seller or any Related Person to the extent related to the Business or the
Purchased Assets and in the Agreements;
(vii) all originals and all copies of all customer lists and
supplier lists, advertising material, promotional material and artwork (except
to the extent related to and covered by the Intellectual Property Agreement),
and copies or originals of all files, financial information or any other
documentation and books and records in whatever form (including, without
limitation, computer records, operating systems and data bases) of Seller or any
Related Person to the extent primarily related to the Business or the Purchased
Assets;
(viii) to the extent legally assignable, all Governmental Permits
primarily used or held by Seller or any Related Person, for use in the Business
or primarily relating to the Purchased Assets, including, without limitation,
those identified in Schedule 2.1(a)(viii) hereto;
(ix) all Contracts (excluding Contracts identified in Schedule
2.2(a) hereto and assets of Plans as described in Section 10.1.4 hereto);
9
<PAGE>
(x) all goodwill associated with the Purchased Assets;
(xi) all restrictive covenants and obligations of present and
former officers and employees of Seller (or any predecessor thereof) and of any
Related Person (or any predecessor thereof) and of other individuals and
corporations in favor of Seller (or any predecessor thereof) or any Related
Person (or any predecessor thereof) to extent included in any Contract being
assumed by Buyer hereunder;
(xii) all prepaid expenses primarily relating to the Business, the
Purchased Assets or the Intellectual Property, all surety bonds, surety
deposits, security deposits, lease deposits, letters of credit and other such
instruments posted by Seller or any Related Person as security for performance
of any Contract, including, without limitation, those identified in Schedule
2.1(a)(xii) hereto (provided, however, that prepaid real estate taxes allocated
to the Manufacturing Plant shall be prorated between Seller and Buyer as of the
Closing Date based on the fiscal year of the taxing authority);
(xiii) all Intellectual Property not covered by the Intellectual
Property Agreement, including, without limitation, all copyrights and
applications therefor, patents and patent applications, processes, software
formulation, know-how, shop rights, product manufacturing procedures, test
procedures, research and development results, inventions, ideas, technology,
formulae, recipes, trade secrets, technical data, preclinical and clinical data,
proprietary rights, toxicological and pharmacological data, ingredient and
product specifications, discoveries and any other information or experience
primarily used or held for use in the Business by Seller or any Related Person
as well as any improvements or modifications thereto developed by, or by any
third Person for, Seller or any Related Person; and
(xiv) all other assets, whether tangible or intangible, primarily
used or held for use in the Business by Seller or any Related Person not
expressly mentioned hereinabove which, as of the Closing Date, are owned by
Seller or any Related Person, or in which Seller or any Related Person has a
right, title or interest.
(b) Anything in this Agreement to the contrary notwithstanding,
the Purchased Assets shall exclude: (i) cash; (ii) securities; (iii) insurance
policies and rights under or arising from such insurance policies; (iv) all
rights to any Tax refunds; (v) all rights in, to or under the names "Rorer",
"Rhone-Poulenc", "Rhone-Poulenc Rorer" and trademarks, trade names or labels
including any such name or any variation thereof (except as set out in Section
10.11 hereof); (vi) all rights of Seller and Related Persons under this
Agreement and the U.S.
10
<PAGE>
Buyer Ancillary Agreements; (vii) the corporate books and records of Seller,
other than those primarily relating to the Business, the Purchased Assets or the
Intellectual Property; (viii) all Tax records of Seller; (ix) the assets set
forth on Schedule 2.1(b) hereto; (x) the Barcroft Facility (subject to Buyer's
rights under Section 10.8); (xi) Seller's rights and interests under the Supply
Agreement, dated January 8, 1993, between Seller and Barre-National, Inc.; (xii)
accounts receivable of the Business; (xiii) all existing causes of action and
choses in action of Seller or any Related Person; (xiv) the Intellectual
Property covered by the Intellectual Property Agreement; (xv) all assets
purchased by Canadian Buyer under the Canadian Purchase Agreement and the
Excluded Assets (as defined in the Canadian Purchase Agreement); (xvi) the
Contracts set forth on Schedule 2.2(a); (xvii) the assets, inventory and
materials primarily used or held for use for the production of Slo-Bid by Seller
or Related Persons; and (xviii) all furniture, fixtures, office equipment and
all other related equipment located at the Collegeville, Pennsylvania
headquarters of Rhone-Poulenc Rorer, Inc. (collectively, the "EXCLUDED ASSETS").
2.2 Liabilities Assumed. Buyer agrees to assume as of the Closing
-------------------
Date only the following obligations and liabilities relating to the Business and
the Purchased Assets (hereinafter, the "ASSUMED LIABILITIES"):
(a) those liabilities or obligations of Seller which accrue after
the Closing Date under Contracts in effect on the Closing Date (other than the
Contracts set forth on Schedule 2.2(a));
(b) those liabilities and obligations incurred in the ordinary
course of the Business which relate to the return of Products sold by the
Business (i) which are of a quality salable and merchantable in the ordinary
course of the Business including a shelf life of not less than 15 months from
the date of return ("SALABLE RETURNS") returned after the date which is 90 days
after the earlier to occur of the Cut-Off Date or the Closing Date or (ii) which
are not Salable Returns after the date which is 120 days after the earlier to
occur of the Cut-Off Date or the Closing Date;
(c) those liabilities and obligations incurred which relate to
advertising and promotional financial commitments during 1995 set forth on
Schedule 2.2(c); and
(d) those liabilities and obligations set forth in Section
10.1.4.
On the terms and subject to the conditions set forth in this
Agreement, Buyer will execute and deliver to Seller on the Closing Date an
assumption agreement (the "ASSUMPTION
11
<PAGE>
AGREEMENT"), substantially in the form attached hereto as Exhibit 2.2, pursuant
to which Buyer shall assume and agree to pay, perform and discharge the Assumed
Liabilities.
Except to the extent specifically set out in this Agreement,
Buyer is not assuming and shall not be bound by any obligations or liabilities
of Seller or any Related Person of any kind or nature, known, unknown,
expressed, implied, contingent or otherwise, other than those obligations or
liabilities expressly assumed by Buyer pursuant to this Section 2.2 or the
Assumption Agreement.
2.3 The Canadian Transaction. (a) Rhone Poulenc Rorer Consumer Inc.
------------------------
("CANADIAN SELLER"), a Canadian Affiliate of Seller, and Ciba Self-Medication,
Inc. ("CANADIAN BUYER"), a Canadian Affiliate of Buyer, have executed and
delivered an agreement dated as of December 21, 1994 (the "CANADIAN PURCHASE
AGREEMENT") providing for the purchase by Canadian Buyer of certain of the
assets of Canadian Seller for Thirty-Four Million Six Hundred Thousand United
States Dollars (U.S. $34,600,000), on the terms and conditions set out therein.
The parties to this Agreement agree and the parties to the Canadian Purchase
Agreement have agreed that the transactions contemplated by the two Agreements
together comprise one commercial transaction, and that both transactions are
therefore to be consummated simultaneously, and that neither transaction shall
be consummated without the other.
(b) Seller and Buyer each agree that at or prior to the Closing
contemplated by the Canadian Purchase Agreement, it will cause its respective
Canadian Affiliate to enter into an amendment to the Canadian Purchase Agreement
that will amend and restate Article 9 of such Agreement to make such Article
consistent in all material respects with the provisions of Article 9 of this
Agreement, including conforming the definition of the Seller Minimum in the
Canadian Purchase Agreement to the definition of the Seller Minimum in this
Agreement and make such other substantive changes in the Canadian Purchase
Agreement as shall be required to conform the provisions of such agreement to
the corresponding provisions of this Agreement.
ARTICLE 3. PAYMENTS
--------
3.1 Payments. The aggregate purchase price (the "PURCHASE PRICE")
--------
for the Purchased Assets is One Hundred Fifty-Four Million United States Dollars
(U.S. $154,000,000), which is payable by Buyer to Seller on the Closing Date,
subject to adjustment as set forth below in Section 3.2.
3.2 Adjustment.
----------
(a) The parties have agreed that there shall be a post-Closing
payment by Seller to Buyer to adjust for any excess buildup of trade inventories
in 1994 (the "ADJUSTMENT"). The Adjustment shall be equal to the product of (i)
the amount of actual net sales of Products by Seller during the period from
January 1, 1994 to December 31, 1994 less the sum of (w) the amount of Salable
Returns (excluding all non-antacid Maalox(R) line extension products) in the
United States delivered to Buyer with respect to which Seller indemnifies Buyer
pursuant to Section 9.2(n), (x) $3,300,000, plus (y) the amount of actual net
sales in the United States of all non-antacid Maalox(R) line extension Products
and net sales in the United States of Products to hospitals during the period
from January 1, 1994 to December 31, 1994, plus (z) the product of (A) the
----
amount reported by Information Resources Inc. as the three outlet sales in the
United States by Seller of the Products (excluding all non-antacid Maalox(R)
line extension products) during the period from
12
<PAGE>
January 1, 1994 to December 31,1994 multiplied by (B) .856, (ii) multiplied by
------------- ----------
.66.
(b) As soon as practicable after the Closing but not later than
April 30, 1995, Seller shall cause the Adjustment to be calculated.
(c) Seller shall deliver the calculation of the Adjustment to
Buyer promptly upon completion thereof. Unless Buyer notifies Seller in writing
that it disagrees with the Adjustment within 30 Business Days after receipt
thereof, the Adjustment shall be conclusive and binding on Buyer and Seller for
purposes of determining the Adjustment under this Section 3.2.
(d) If Buyer notifies Seller in writing of its disagreement with
the Adjustment within such 30 Business Day period, then Buyer and Seller shall
attempt to resolve their differences with respect thereto within 30 Business
Days after Seller's receipt of Buyer's written notice of such disagreement. Any
disputes regarding the Adjustment not resolved by Buyer and Seller within such
30 Business Day period shall be resolved by an accounting firm mutually
acceptable to both parties or, in the absence of agreement, by a "big-six"
accounting firm selected by lot after eliminating the independent certified
public accounting firms regularly employed by Buyer and Seller. Buyer and Seller
shall each pay 50% of the fees and expenses of such accounting firm. The
determination of any accounting firm so selected with respect to the Adjustment
(with such modifications therein, if any, as reflect such determination) shall
be conclusive and binding upon the parties.
(e) Seller shall make payment of the amount of the Adjustment to
Buyer not more than 10 Business Days following the determination of the
Adjustment pursuant to this Section 3.2.
3.3 Payment in Immediately Available Funds. All payments required to
--------------------------------------
be made pursuant to this Agreement shall be made in immediately available United
States funds.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES
OF SELLER
------------------------------
4.1 Representations and Warranties. Seller represents and warrants
------------------------------
to Buyer, as of the date hereof and as of the Closing Date (except to the extent
any representation or warranty relates to a specific date), that:
4.1.1 Organization of Seller. Seller is a corporation duly
----------------------
incorporated, validly existing and in good standing under the laws of the State
of Delaware and has full power and authority to carry on its business as now
conducted and
13
<PAGE>
to own all of its properties and assets, including, without limitation, the
Purchased Assets and the Intellectual Property. Seller has full corporate power
and authority to execute and deliver this Agreement and each of the U.S. Seller
Ancillary Agreements and other documents delivered hereunder or thereunder to
which it is a party, and to carry out its obligations hereunder and thereunder.
Each Related Person has full corporate power and authority to execute and
deliver this Agreement and each of the U.S. Seller Ancillary Agreements to which
it is a party, and to carry out its obligations thereunder. Seller is currently,
and as of the Closing Date will be, duly qualified to do business in each
jurisdiction in which the conduct of the Business or the ownership of its
properties requires it to be so qualified except where the failure to be so
qualified would not, individually or in the aggregate, have a material adverse
effect on the businesses, properties, operations or results thereof or financial
condition of the Business (a "MATERIAL ADVERSE EFFECT").
4.1.2 Authorization. All corporate and other proceedings
-------------
required to be taken by or on the part of Seller and any Related Person to
authorize and to execute, deliver and perform its respective obligations under
this Agreement and the U.S. Seller Ancillary Agreements to which it is a party
and all other documents delivered by such Persons hereunder and thereunder, and
to sell, transfer and convey the Purchased Assets hereunder, have been duly and
properly taken. Each of this Agreement and the U.S. Seller Ancillary Agreements
to which it is a party and all other documents delivered by such Persons
hereunder and thereunder has been duly executed and delivered by Seller and each
Related Person and is a legal, valid and binding obligation of each such Person,
enforceable against such Person in accordance with its terms. Seller has
delivered to Buyer a complete and correct copy of its certificate of
incorporation and by-laws as in effect on the date hereof.
4.1.3 Compliance. Except as set forth on Schedule 4.1.3, the
----------
execution and delivery of this Agreement and the U.S. Seller Ancillary
Agreements and, upon satisfaction of the conditions set forth in Article 7, the
consummation of the Contemplated Transactions will not:
(a) result in the breach of any of the terms or conditions of, or
constitute a default (or event which with notice or lapse of time or both would
constitute a default) under, or violate (i) the certificate of incorporation or
by-laws of Seller or any Related Person or (ii) any of the Contracts or other
document or undertaking, oral or written, to which Seller or any other Related
Person is a party or by which any of them or their assets is bound or by which
the Business, the Purchased Assets or the Intellectual Property are affected,
except, in the case of clause (ii), for any such breaches, defaults or
14
<PAGE>
violations which could not reasonably be expected to, individually or in the
aggregate, have a Material Adverse Effect; or
(b) violate any order, writ, injunction, decree, judgment or
permit of any court, administrative agency or other Governmental Body or any
statute, rule or regulation, in each case, applicable to Seller or any other
Related Person, the Purchased Assets, the Intellectual Property or the Business,
except for any such violations which could not reasonably be expected to,
individually or in the aggregate, have a Material Adverse Effect.
4.1.4 Consents and Approvals of Governmental Bodies. Except
---------------------------------------------
as set forth in Schedule 4.1.4 and under Hart-Scott, no consent, approval,
designation, exemption or authorization of, or declaration, qualification,
filing or registration with, any Governmental Body is required on behalf of
Seller or any Related Person in connection with the execution, delivery and
performance of this Agreement or the U.S. Seller Ancillary Agreements or the
consummation of the Contemplated Transactions (including, without limitation, in
connection with any Governmental Permit), except for those which could not
reasonably be expected to, individually or in the aggregate, have a Material
Adverse Effect.
4.1.5 Other Consents. Except as set forth in Schedule 4.1.5
--------------
and as described in Section 4.1.4, no consent, approval, authorization,
registration, qualification, designation, exemption, declaration or filing of or
with any other Person is required in connection with or necessary to the
execution, delivery and performance of this Agreement or the U.S. Seller
Ancillary Agreements or the consummation of the Contemplated Transactions,
including, without limitation, consents from parties to the Contracts,
warranties or other agreements or commitments and approvals for permit or
license transfers, except for those which could not reasonably be expected to,
individually or in the aggregate, have a Material Adverse Effect.
4.1.6 Financial Statements. The unaudited Schedule of Assets
--------------------
of the United States (including its territories and possessions and the District
of Columbia) and Puerto Rico segments of the Business at September 30, 1994
attached hereto in Schedule 4.1.6 fairly presents in all material respects the
net book value of the Purchased Assets of the Business at September 30, 1994.
Except as disclosed on Schedule 4.1.6, each of the Management Income Statements
of the Business attached hereto in Schedule 4.1.6 for the 12-month periods ended
December 31, 1992 and 1993, respectively, fairly present in all material
respects the operating results of the Business for the
15
<PAGE>
respective periods set forth therein in accordance with GAAP consistently
applied throughout all of the periods involved.
4.1.7 Tax Matters.
-----------
(a) All material Tax Returns required to be filed with respect to
any period ending on or before or including the Closing Date, by or with respect
to Seller and its Affiliates, either separately or as a member of an affiliated
group of corporations (as defined in Section 1504 of the Code), have been or
will be filed on a timely basis and in accordance with the laws, regulations and
administrative requirements of each Governmental Body. All such Tax Returns that
have been filed on or before the Closing Date were, when filed, and continue to
be, true, correct and complete in all material respects. All such material Tax
Returns that will be filed after the Closing Date will be, when filed, and will
continue to be, true, correct and complete in all material respects.
(b) All Taxes of Seller that have or may become due on or before
the Closing Date with respect to periods ending on or before such date have been
(or will be) paid within the time and in the manner prescribed by law as
reflected on the Tax Returns referred to in Section 4.1.7(a), or in any written
notice of deficiency or assessment or notice, either formal or informal, except
such Taxes, if any, as are set forth in Schedule 4.1.7(c) that are being
contested in good faith and as to which adequate reserves (as determined by
Seller in accordance with GAAP consistently applied) have been provided.
(c) Except as set forth in Schedule 4.1.7(c), neither Seller nor
any Related Person has given waivers or extensions (or is or would be subject to
a waiver or extension given by any other Person) of any statute of limitations
relating to the payment of Taxes for which (i) Seller or (ii) with respect to
the Business, any Related Person, may be liable. Except as set forth in Schedule
4.1.7(c), no Governmental Body has given Seller any written notice of deficiency
or commenced any audit proceedings (including, without limitation, written
notice of audit) at any time since January 1, 1989 that have not been completely
resolved or settled with respect to any Tax Return of Seller or any Related
Person relating to the Business or the Purchased Assets; and to the best
knowledge of Seller, no notice of deficiency has been proposed or issued, nor is
Seller aware of any notice of deficiency to be proposed or issued, by a
Governmental Body with respect to any material Tax Return of Seller or any
Related Person relating to the Business or the Purchased Assets, and there are
no outstanding tax controversies related to any material Tax Return of Seller or
any Related Person relating to the Business or the Purchased Assets.
16
<PAGE>
(d) All material Taxes that Seller and Related Persons are or
were required by law to withhold or collect have been duly withheld or collected
and, to the extent required, have been paid to the appropriate Governmental
Body.
(e) To the best knowledge of Seller, there are no Encumbrances
asserted by a Governmental Body as a result of the failure of the Seller to pay
Taxes upon the Purchased Assets or the Intellectual Property except the lien of
real estate taxes that are not yet due and payable.
(f) Seller is not a party to any tax-sharing agreement that as a
consequence of the Contemplated Transactions will require that payment be made
by Buyer or an Affiliate thereof on or after the Closing Date with respect to
the Business for tax periods ending on or before the Closing Date.
(g) Neither the Seller nor any Related Person who, pursuant to
this Agreement, transfers a U.S. Real Property Interest as defined in Section
897(c) of the Code is a "foreign person" within the meaning of Section 1445 of
the Code.
(h) There is no contract, agreement, plan or arrangement to which
Seller is a party covering any Person that, individually or collectively, as a
consequence of the Contemplated Transactions, will give rise to the payment of
any amount that would not be deductible by Buyer by reason of Section 280G of
the Code.
(i) None of the Purchased Assets is subject to a "safe harbor
lease" under Section 168(f)(8) of the Code, as in effect immediately prior to
the Tax Equity and Fiscal Responsibility Act of 1982.
4.1.8 Contracts and Binding Commitments.
---------------------------------
(a) Schedule 4.1.8 lists all Contracts or other similar
arrangements relating to the Business, the Purchased Assets or the Intellectual
Property to which Seller or a Related Person is a party or by which Seller or a
Related Person or any of their respective properties is bound (collectively,
"MATERIAL CONTRACTS"), which are:
(i) Employment Contracts;
(ii) contracts for capital expenditures requiring minimum annual
payments in excess of $375,000;
(iii) contracts or commitments made for the sale or lease of
materials, supplies, equipment, merchandise or services, other than pursuant to
purchase orders entered into in the
17
<PAGE>
ordinary course of business requiring minimum annual payments in excess of
$375,000;
(iv) contracts or commitments made for the purchase or lease of
materials, supplies, equipment, merchandise or services, other than pursuant to
purchase orders entered into in the ordinary course of business requiring
minimum annual payments in excess of $375,000;
(v) contracts, leases or commitments relating to any real
property, including, without limitation, the Real Property, requiring minimum
annual payments in excess of $375,000;
(vi) distributor, dealer, sales or other agency, manufacturer's
representative, advertising or public relations contracts requiring minimum
annual payments in excess of $375,000;
(vii) contracts or commitments with respect to any Intangibles
requiring minimum annual payments in excess of $375,000;
(viii) contracts or commitments for any financing arrangements,
including loans for working capital; or
(ix) other agreements of Seller or any Related Person mentioned in
this Section 4.1.8 or Schedule 4.1.8 which primarily relate to the Business, the
Purchased Assets or the Intellectual Property, including agreements which run
with the Real Property or any portion thereof, whether or not made or entered
into in the ordinary course of the Business requiring minimum payments in excess
of $375,000.
4.1.9 Status of Contracts. Each of the Material Contracts is a
-------------------
legal, valid and binding obligation of Seller or any Related Person which is a
party thereto, and to the best knowledge of Seller, the other parties thereto,
enforceable against each of Seller, any such Related Person which is a party to
any such Material Contract and, to the best knowledge of Seller, the other
parties thereto, in accordance with its terms. True and correct copies of each
of the Material Contracts as in effect on the date hereof and at the Closing
Date (including, without limitation, all amendments, supplements, schedules and
exhibits thereto) have been delivered to Buyer. All of the Material Contracts
are valid and in full force and effect, except for such Material Contracts the
failure of which to be in full force and effect could not reasonably be expected
to, individually or in the aggregate, have a Material Adverse Effect. Except as
set forth in Schedule 4.1.9, there are no existing defaults (or events which,
with notice or lapse of time or both, would constitute a default) under any such
Material Contract,
18
<PAGE>
license or permit by Seller or any Related Person or, to the best knowledge of
Seller, any other party, thereunder, except such defaults, events of default and
other events which could not reasonably be expected to, individually or in the
aggregate, have a Material Adverse Effect.
4.1.10 Good Title; Condition of Purchased Assets; No
---------------------------------------------
Condemnation.
- ------------
(a) Seller and RPR Caribbean have good, valid and marketable
title to all of the Purchased Assets which are not Real Property. Such Purchased
Assets are owned by Seller or RPR Caribbean directly, and not through any
Related Person, and are free and clear of Encumbrances other than Permitted
Encumbrances. The delivery of the Bill of Sale and the payment of the Purchase
Price will result in Buyer's acquisition of good, valid and marketable title to
such Purchased Assets, free and clear of Encumbrances, other than Permitted
Encumbrances. To the best knowledge of Seller, such Purchased Assets are in good
operating condition and repair, ordinary wear and tear excepted, and, in the
aggregate, are adequate for the conduct of the Business as currently conducted.
(b) Seller has good, valid and marketable title to all of the
parcels of land described in Schedule 2.1(a)(i) and the buildings and
improvements thereon in fee simple. The Real Property is owned by Seller
directly, and not through any Related Person, and is free and clear of all
Encumbrances, other than (i) Encumbrances for current Taxes not yet payable,
(ii) zoning and building statutes, ordinances, resolutions or regulations, not
violated by existing improvements on or the current use of the Real Property or
any portion thereof, (iii) inchoate mechanic and materialmen or comparable
Encumbrances for construction in progress for amounts not exceeding $375,000 in
the aggregate, (iv) Encumbrances that do not materially detract from the value
or interfere with the use of the Purchased Assets, (v) as set out in Schedule
4.1.10(b) and (vi) the lease to the Vanderveer Group, Inc. (collectively,
"PERMITTED ENCUMBRANCES"). The delivery of the Real Property Deed, the recording
thereof and the payment to Seller of the Purchase Price will result in Buyer's
immediate acquisition of good, valid and marketable title to the Real Property,
free and clear of all Encumbrances, except Permitted Encumbrances.
(c) To the best knowledge of Seller, buildings, structures and
equipment (including, without limitation, the electrical, mechanical, plumbing,
elevator, heating, ventilating, air conditioning and fire safety systems)
included in the Real Property are structurally sound with no material defects
and are in good operating condition and repair and are adequate for the uses to
which they are being put, and none of such buildings, structures or equipment is
in need of maintenance or repairs,
19
<PAGE>
except for ordinary, routine maintenance and repairs. None of the Real Property
is in violation of any applicable building, zoning, health or other law,
ordinance or regulation in respect of its buildings or other structures or its
operations, and no such violation exists, except for violations which could not
reasonably be expected to, individually or in the aggregate, have a Material
Adverse Effect.
(d) Except as set forth in Schedule 4.1.10(d), neither the whole
nor any portion of the property or leaseholds included in the Purchased Assets
is subject to any decree or order of any Governmental Body to be sold or is
being condemned, expropriated or otherwise taken by any Governmental Body or
other Person with or without payment of compensation therefor, nor, to the best
knowledge of Seller, has any such condemnation, expropriation or taking been
proposed.
(e) None of the Real Property that is improved is located within
a special flood hazard zone or in any conservation or historic district. To the
best of knowledge of Seller, none of the Real Property has been designated a
landmark. All utilities necessary for the operation of the Business at the Real
Property (including, without limitation, electricity, telephone, water and
sanitary sewers) have been connected to and are currently serving all buildings
on the Real Property.
(f) The parcels of land described in Schedule 2.1(a)(1) hereto
constitute one large parcel of ground. Such large parcel ground is the same as
that designated as Lots 1 and 2 on the subdivision map referred to in Schedule
2.1(a)(i)-1 hereto. Any reference in this Agreement or the Schedules hereto to
such subdivision map shall not be construed as Buyer's approval of or consent to
any matter noted thereon, but the foregoing shall not be construed to relieve
Buyer of any of its obligations under Section 10.9.2.
4.1.11 Litigation; Warranty Claims.
---------------------------
(a) Except as set forth in Schedule 4.1.11(a) and except for
matters involving only monetary recovery in which the damages sought do not
exceed $50,000 individually, there is no claim, action, suit, proceeding,
charge, arbitration, order, litigation inquiry or investigation (i) pending or,
to the best knowledge of Seller, threatened in writing against Seller or any
Related Person with respect to the Business, the Purchased Assets or the
Intellectual Property, or (ii) by or before any court or Governmental Body
pending or, to the best knowledge of Seller, threatened in writing against or
involving Seller or any Related Person relating to any Product of the Business
alleged to have been manufactured or supplied by or for or sold, marketed or
distributed by Seller or any Related Person and alleged to have been defective,
or improperly designed or manufactured.
20
<PAGE>
(b) Since January 1, 1992, there have been no warranty claims
asserted in writing or, to the best knowledge of Seller, threatened in writing
by customers with respect to Products sold by the Business.
4.1.12 Environmental; Worker Health and Safety. Except as set
---------------------------------------
forth in Schedule 4.1.12:
(a) The Purchased Assets and the Business are and have been in
substantial compliance with all Environmental Laws;
(b) With respect to the Purchased Assets and the Business, Seller
has not received any written notice of any alleged violation of any
Environmental Law from January 1, 1990 to the present (whether remedied or not)
nor is Seller aware of any basis for any claim of any violation of any
Environmental Law;
(c) With respect to the Purchased Assets and the Business, Seller
has obtained and is in substantial compliance with all Governmental Permits and
has submitted all applications, notices and other documents necessary to effect
renewal or reissuance of all Governmental Permits necessary for the continued
conduct of the Business in the manner now conducted and Seller is not aware of
any threatened revocation or reopening of any Governmental Permit;
(d) To the best knowledge of Seller, with respect to any
Environmental Law, there are no past or present conditions or circumstances that
are likely to interfere with the conduct of the Business in the manner now
conducted;
(e) To the best knowledge of Seller, there are no past or present
conditions or circumstances at, or arising out of, the Purchased Assets or the
Business, including but not limited to on-site or off-site disposal or Release
of any Hazardous Material into the Environment are likely to give rise to: (i)
liabilities or obligations for any cleanup, remediation or corrective action
under any Environmental Law, (ii) claims arising under any Environmental Law for
personal injury, property damage, or damage to natural resources, (iii)
liabilities or obligations incurred to enable the Purchased Assets and the
Business to comply with any Environmental Law in effect as of the Closing Date,
or (iv) fines or penalties arising under any Environmental Law;
(f) To the best knowledge of Seller, there is no existing or
threatened investigation or judicial or administrative proceeding alleging or
claiming that the Seller or any Related Person with respect to the Purchased
Assets or the Business may be: (i) in violation of any Environmental Law, (ii)
subject to liabilities or obligations for any cleanup,
21
<PAGE>
remediation or corrective action under any Environmental Law, (iii) subject to
claims arising under any Environmental Law, including claims for personal
injury, property damage, or damage to natural resources, (iv) subject to
liabilities or obligations incurred to enable the Purchased Assets and the
Business to comply with any Environmental Law, or (v) subject to any fines or
penalties arising under any Environmental Law;
(g) No report of substantial risk under Section 8(e) of TSCA has
been made by Seller or any Related Person in connection with the Business and to
the best knowledge of the Seller, no such report has been made by any other
Person in connection with the Business
(h) There have been no underground storage tanks owned or
operated at any time at the Real Property or at the Purchased Assets, and no
such tank has caused a Release.
4.1.13 Material Changes. Since September 30, 1994, the
----------------
Business has been operated only in the ordinary course. Other than as set forth
on Schedule 4.1.13, since September 30, 1994, there has not been:
(a) Any Material Adverse Effect or any condition which could
reasonably be expected to have a Material Adverse Effect; or
(b) Any destruction, damage by fire, accident or other casualty
or act of God or to any of the properties or assets of Seller, any Related
Person or any other Person, including, without limitation, the Purchased Assets
or the Intellectual Property, which could reasonably be expected to result in a
Material Adverse Effect.
4.1.14 Intellectual Property. Schedule 4.1.14 is a complete and
---------------------
correct list of all material intellectual property agreements, patents and
patent applications (including, without limitation, those granted to or applied
for or owned by Seller or any Related Person and any continuations,
continuations-in-part, divisions, re-examinations, reissues, extensions or
written invention disclosures of any such patents and patent applications),
registered and unregistered trademarks and registration applications therefor,
registered copyrights and applications therefor, trade names, or any other
names, marks, logos or slogans, or service marks, and the goodwill of the
Business symbolized thereby, primarily used by or held for use by the Business
or the Purchased Assets (collectively, the "INTELLECTUAL PROPERTY"). Except as
set forth on Schedule 4.1.14, Seller owns, or is licensed full, exclusive and
valid rights, to use all of the Intellectual Property. Seller has delivered to
Buyer a complete and correct copy of each agreement, certificate, license or
registration relating to the Intangibles.
22
<PAGE>
Each such agreement or license is a legal, valid and binding obligation of
Seller and enforceable against Seller in accordance with its terms, and Seller
is aware of no facts to the contrary with respect to the other parties thereto.
Except as set forth on Schedule 4.1.14, there are no existing claims of, and
neither Seller nor any Related Person has received notice alleging, any
infringement by Seller or any Related Person of, any patent, trademark,
tradename, copyright or other intellectual property right described in the first
sentence of this Section 4.1.14 of any other Person or challenging the validity
or effectiveness of any license or agreement relating thereto to which Seller or
any Related Person is a party and, to the best knowledge of Seller, there is no
basis for any such claim. To the best knowledge of Seller, no Person is
infringing any of the Intellectual Property, there are no existing claims or
claims contemplated or outstanding by Seller or any Related Person alleging any
infringement of the Intellectual Property by any third Person or challenging the
validity or effectiveness of any license or other agreement relating thereto.
4.1.15 Labor Matters.
-------------
(a) All employees and former employees employed by Seller as part
of the Business have been or will have been on or before the Closing or as such
obligations become due, paid in full all wages, salaries, commissions, bonuses,
vacation pay and sick pay, for all services performed by them up to the Closing,
payable in accordance with the obligations of Seller under any employment
practices and policies, or any collective bargaining agreement or other
employment agreement to which Seller is a party, or by which Seller may be
bound. Seller has taken all steps required under the Immigration Reform and
Control Act of 1986 and regulations thereunder with respect to all of the
employees of the Business, who are listed on Schedule 4.1.23 attached hereto,
are lawfully authorized to work in the United States according to federal
immigration laws. Except as set forth on Schedule 4.1.15(a), since January 1,
1992, to the best knowledge of Seller there has not occurred or been threatened,
any strikes, slowdowns or work stoppages with respect to employees of Seller.
Except as set forth on Schedule 4.1.15(a), to the best knowledge of Seller, no
material grievance or arbitration proceeding arising out of or under any
collective bargaining agreement of Seller is pending and, to the best knowledge
of Seller and Related Persons, no such grievance or proceeding is threatened.
(b) (i) To the best knowledge of Seller, except as set forth in
Schedule 4.1.15(b) Seller has materially complied within the applicable statutes
of limitation with all applicable laws regarding labor, employment and
employment practices, terms and conditions of employment, occupational safety
and health and wages and hours, including, without limitation, any bargaining or
23
<PAGE>
other obligations under the National Labor Relations Act, (ii) except as set
forth on Schedule 4.1.15, Seller is not party to or bound by, any collective
bargaining agreement or other Employment Contract or any affirmative action plan
established pursuant to any local, state or federal law or order of any
Governmental Body or court, (iii) Seller has discharged, or will discharge by or
on the Closing Date or as such liabilities become due, all liabilities with
respect to severance or termination pay to employees or former employees of the
Business, (iv) there is no question concerning representation as to any
collective bargaining representative concerning employees of the Business, and
no union claims to or is seeking to represent employees of Seller and there is
no organizing effort being made to the best knowledge of Seller, (v) no
collective bargaining agreement or individual agreements relating to employees
of the Business are being negotiated and all collective bargaining agreements
have been duly ratified as set forth in Schedule 4.1.15(b), (vi) there are no
collective bargaining agreements, individual agreements, employment practices,
policies or procedures, or other representations, whether written or oral, which
have been made to employees of the Business that commit Buyer to retain them as
employees of the Business for any period of time subsequent to the Closing, or
that are, in any way, inconsistent with their possible future status with Buyer
as employees at-will who may be terminated at any time without cause or notice,
except as otherwise provided by law, (vii) Seller is not party to any agreements
or arrangements or subject to any requirement that in any manner requires or may
require Buyer to hire any employee of Seller or restrict Buyer from relocating,
consolidating, merging or closing, in whole or in part, any portion of the
Business subject to applicable law, (viii) Seller is not subject to any
settlement or consent decree with any present or former employee, employee
representative or any Governmental Body relating to claims of unfair labor
practices, employment discrimination, or other claims in respect to employment
practices and policies, and no Governmental Body has issued a judgment, order,
decree, or finding with respect to the labor and employment practices of Seller
which has any present effect (or could reasonably be anticipated by Seller to
have any future effect) on the employment practices and policies of Seller in
connection with the Business or the Purchased Assets, and (ix) Seller has not
been issued any deficiency letters by any Governmental Body or entered into any
settlement agreements, conciliation agreements or letters of commitment with any
Governmental Body which have any present effect (or could reasonably be
anticipated by Seller to have any future effect) on the employment practices or
policies of Seller relating to the Business or the Purchased Assets.
24
<PAGE>
4.1.16 Employee Benefits.
-----------------
(a) Except as set forth in Schedule 4.1.16(a), Seller does not
maintain or contribute to or have any obligation with respect to, and none of
the employees of the Business are covered by, any material bonus, incentive,
deferred compensation, severance pay, pension, profit-sharing, retirement,
hospitalization insurance, stock purchase, stock option plan or arrangement,
written or otherwise, including, without limitation, any employee benefit plan
(as defined in Section 3(3) of ERISA) providing benefits to any employee of the
Business (collectively, "PLANS").
(b) With respect to each Plan, Seller has heretofore made
available or delivered to Buyer true, correct and complete copies of all
documents that comprise the most current version of each of such Plans,
including any related trust agreements, insurance contracts, or other funding
agreements and any amendments thereto (and a written description of any Plan
that is not in writing). Except as set forth in Schedule 4.1.16(b), the RPR
Hourly Plan and the RPR Pension Plan (collectively, "QUALIFIED PLANS") have not
been amended since the date of the version delivered to Buyer, and will not be
amended prior to the Closing Date.
(c) Seller has performed and complied in all material respects
with all of its obligations under and with respect to the Qualified Plans, and
each of the Qualified Plans has been administered in material compliance with
its terms and the requirements of all applicable laws. Each Qualified Plan has
received a favorable determination letter from the IRS and Seller is not aware
of any circumstances likely to result in the revocation of such favorable
determination letter.
(d) There are no unpaid contributions due prior to the date
hereof with respect to any Qualified Plan that were required to have been made
under the terms of the Qualified Plan, any collective bargaining agreement or
any applicable law. Except as set forth in Schedule 4.1.16(d), no Qualified Plan
(other than any plan which is a multiemployer plan within the meaning of Section
3(37) of ERISA (a "MULTIEMPLOYER PLAN")) has incurred any "accumulated funding
deficiency" (as defined in Section 302 of ERISA and Section 412 of the Code),
whether or not waived, no "reportable event" (as defined in Section 4043(b) of
ERISA other than a reportable event for which the thirty-day notice requirement
has been waived) has occurred with respect to any such Qualified Plan and Seller
has not provided, and is not required to provide, security to any Qualified Plan
or to any single-employer plan of an ERISA Affiliate pursuant to Section
401(a)(29) of the Code. Seller does not contribute to any Multiemployer Plan
and, except as set forth in Schedule
25
<PAGE>
4.1.16(d), has not contributed to any such Multiemployer Plan during the six
year period preceding the date hereof.
(e) Except as set forth in Schedule 4.1.16(e), Seller has no
obligation to provide post-retirement health benefits or other non-pension
benefits to retired or other former employees of the Business, other than as
required by applicable law. With respect to each Qualified Plan which provides
any retiree or other post-termination welfare benefits, including, without
limitation, health or life insurance, Seller has the right, subject to any
applicable collective bargaining agreement, to modify or terminate any of such
benefits at any time without penalty or incurrence of another obligation, and no
provision of this Agreement nor any of the Contemplated Transactions will affect
such right.
(f) To the best knowledge of Seller, neither Seller nor any other
"disqualified person" or "party in interest" (as defined in Section 4975 of the
Code and Section 3(14) of ERISA, respectively) has engaged in any "prohibited
transaction" (as defined in Section 4975 of the Code or Section 406 of ERISA)
with respect to any Qualified Plan nor have there been any material fiduciary
violations under ERISA which would subject the Business (or any officer,
director or employee thereof) to the penalty or tax under Section 502(i) of
ERISA or Sections 4971 and 4975 of the Code.
(g) Except as set forth in Schedule 4.1.16(g), with respect to
any Qualified Plan (other than a Multiemployer Plan): (i) no filing, application
or other material matter is pending with the IRS, the PBGC, United States
Department of Labor or any other Governmental Body, (ii) there is no action,
suit or claim pending (nor any basis for such a claim), other than routine
claims for benefits, and (iii) there are no outstanding liabilities for Taxes or
fees, other than routine fees.
(h) For purposes of this Section 4.1.16, the term "Seller" shall
include the Seller and any other trade or business under common control with the
Seller, as determined under Section 414(b), (c) or (m) of the Code.
4.1.17 Inventory. The inventory included in the Purchased
---------
Assets consists of a quality and quantity usable and salable in the ordinary
course of the Business net of appropriate reserves. All inventory included in
the Purchased Assets has been valued on the Statement of Assets in accordance
with GAAP consistently applied. As of the Closing Date, all finished goods
inventories will have an expiration date of not less than 15 months after the
Closing Date. None of the inventory or the raw materials contained in the
inventory of the Business are set forth on the inventory of chemical substances
under the TSCA.
26
<PAGE>
4.1.18 Compliance with Law. The Business has been conducted in
-------------------
accordance, and the Business, the Purchased Assets and the Intellectual Property
are in compliance, with all applicable laws, rules, regulations, ordinances,
decrees, orders of all Governmental Bodies and all Governmental Permits and all
Encumbrances including, without limitation, (1) all laws, rules, regulations and
other requirements relating to antitrust, consumer protection, currency
exchange, required by law, and (2) any applicable orders, ordinances,
regulations, permits, licenses and certificates in respect of the Business's
buildings, plants, structures or operations except for laws, rules, regulations,
ordinances, decrees, permits, requirements, licenses or certificates, the
failure to be in compliance with which could not reasonably be expected to,
individually or in the aggregate, have a Material Adverse Effect. Without
limiting the foregoing, all certificates of occupancy required for the lawful
use and occupancy of the Real Property have been issued and are in full force
and effect in all material respects. Since January 1, 1992, and except as set
forth on Schedule 4.1.18, neither Seller nor any Related Person has received any
notification of any failure by any such Person to comply with any such laws,
rules, regulations, ordinances, permits, licenses or certificates except for
laws, rules, regulations, ordinances, permits, licenses or certificates, the
failure to be in compliance with which could not reasonably be expected to,
individually or in the aggregate, have a Material Adverse Effect. Except as set
forth in Schedule 4.1.18, Seller has received all approvals, including, without
limitation, licenses, permits or orders, required for the conduct of the
Business, and neither Seller nor any Related Person is in violation of any such
license, permit, order or approval, except for any such approvals or violations
which could not reasonably be expected to, individually or in the aggregate,
have a Material Adverse Effect. All such licenses, permits, orders and
approvals are in full force and effect, and no suspension, revocation,
termination or, except as disclosed on Schedule 4.1.18, modification of any such
license, permit, order or approval, and, to the best knowledge of Seller, no
proceeding which seeks to suspend, revoke, terminate, or modify any such
license, permit, order or approval, is pending. Except as set out in Schedule
4.1.18, neither Seller nor any Related Person has received written notice of any
event or condition which may interfere with or prevent continued compliance with
the above-referenced approvals, licenses, laws, rules, regulations or
ordinances. The representation and warranty set forth in this Section 4.1.18
shall not apply to compliance with Environmental Law, labor matters or employee
benefits matters.
4.1.19 Broker. Except for Bear, Stearns & Co. Inc., no broker, finder,
------
agent or similar intermediary has acted for or on behalf of Seller or any
Related Person in connection with this Agreement or the Contemplated
Transactions or is entitled to any broker's, finder's or similar fee or other
27
<PAGE>
commission in connection therewith based on any agreement, arrangement or
understanding with Seller or any Related Person, and Seller will be responsible
for the fees and expenses of such Person.
4.1.20 Assets of the Business. Except for the Excluded Assets
----------------------
(other than the Intellectual Property covered by the Intellectual Property
Agreement) and the administrative, management, accounting and other support
services provided to the Business by Seller or Related Persons, the Purchased
Assets and the Intellectual Property covered by the Intellectual Property
Agreement constitute all of the assets currently primarily used or held for use
in the Business and those necessary to continue to carry on the Business.
4.1.21 Related Person Transactions.
---------------------------
Schedule 4.1.21 sets forth a list of all contracts, agreements,
arrangements or other practices (including a brief description of the terms
thereof), whether or not written, between Seller on behalf of the Business, on
the one hand, and any Related Person, on the other hand, involving minimum
payments in excess of $375,000, with respect to the provision of services,
products, materials, supplies, research or development by any Related Person to
or from, as the case may be, Seller for the Business or with respect to the
Purchased Assets or the Intellectual Property.
4.1.22 Customers and Suppliers.
-----------------------
(a) Except as set forth on Schedule 4.1.22(a), from January 1,
1994 to the date hereof, no single customer accounted for more than 5% of the
gross revenues of the Business. Except as set forth on Schedule 4.1.22(a), from
January 1, 1994 to the date hereof, no single supplier accounted for more than
5% of the total expenditures by the Business.
(b) The Seller has good commercial working relationships with the
customers and suppliers of and to the Business. No customer or supplier of or
to Seller has cancelled its relationship with the Seller, except for any such
cancellations as could not be reasonably expected to, individually or in the
aggregate, have a Material Adverse Effect.
(c) Seller has made available to Buyer the lists of each customer
of the Business for the Products and services offered by Seller since January 1,
1993, and the lists of suppliers of the various goods and services offered to
the Business since January 1, 1993. Such lists contain the names and addresses
as carried in the records of the Seller of such customers and suppliers.
28
<PAGE>
4.1.23 Officers and Employees. Schedule 4.1.23 sets forth (i)
----------------------
the name, total W-2 or Form 1099 compensation since January 1, 1994 and wage or
salary rate and classification of each of the 480 employees working in the
Business whose services will be offered to Buyer and (ii) the amount of all wage
or salary increases or bonuses granted by Seller or Related Persons to such
persons since January 1, 1993. As of the date of this Agreement, none of such
persons has given notice to Seller or any Related Person to cancel or otherwise
terminate such person's relationship with Seller or any Related Person.
4.1.24 Absence of Certain Changes. Except as set forth on
--------------------------
Schedule 4.1.24, since September 30, 1994, neither Seller nor any Related Person
has:
(i) operated the Business other than in the ordinary course;
(ii) (a) employed, or agreed to employ, any person for the
Business other than the employees named on Schedule 4.1.23; (b) entered into or
amended, or agreed to enter into or amend, any employment agreement of any
person listed on Schedule 4.1.23; (c) entered into, or agreed to enter into, any
agreement with any labor union or association representing any employee; or (d)
entered into or amended, or agreed to enter into or amend, any Plan (except for
any amendments required by applicable law to be made on or before December 31,
1994);
(iii) waived or agreed to waive, any right of material value to the
Business, the Purchased Assets or the Intellectual Property, other than in the
ordinary course of business consistent with past practice;
(iv) changed, or agreed to change, any of the Business's business
policies or practices, including, without limitation, purchasing, personnel,
sales, returns, budget or
product acquisition policies or practices, other than in the ordinary course
consistent with past practice;
(v) made, or agreed to make, any loan or advance to any officers,
employees, consultants or agents listed on Schedule 4.1.23 or made, or agreed to
make, any other loan or advance to Persons on account of the Business, except
for advances made to employees for business expenses and except those made in
the ordinary course of business consistent with past practice;
(vi) sold, leased, abandoned or made any other disposition of, or
agreed to sell, lease, abandon or make any other disposition of, any of the
Purchased Assets or the Intellectual Property (or disposed of any records
related to the
29
<PAGE>
Purchased Assets or the Intellectual Property) other than in the ordinary course
of the Business; or
(vii) agreed or otherwise committed, whether in writing or
otherwise, to do any of the foregoing.
4.1.25 Insurance Matters.
-----------------
Schedule 4.1.25 sets forth an accurate and complete list of (i)
all known (extant and missing) commercial general liability insurance policies
issued to or otherwise covering the Business, the Purchased Assets and the
Intellectual Property which are currently in effect and (ii) all current
policies of fire, workers' compensation and other forms of insurance owned or
held by Seller and Related Persons with respect to the Business, the Purchased
Assets or the Intellectual Property, or covering any portion of the Purchased
Assets including, since January 1, 1991, a claims history under each such policy
(including all claims, notices of claims, or notices of occurrences submitted by
Seller to its insurance companies with respect to claims, losses, or potential
claims or losses asserted against Seller and covered or potentially covered by
insurance). Correct and complete copies of each such policy have been made
available to Buyer. Except as set forth on Schedule 4.1.25 all such policies are
in full force and effect. The policies currently in effect are sufficient for
compliance with all requirements of law and of all material agreements to which
Seller is a party or by which it is bound, are valid, outstanding and, to the
best knowledge of Seller, enforceable policies; provide in the opinion of
Seller's management, adequate insurance coverage for the Purchased Assets, the
Intellectual Property and the operations of the Business, will remain in full
force and effect through the respective dates set forth on Schedule 4.1.25
without the payment of additional premiums, and, except as set forth on Schedule
4.1.25, will not be affected by, or terminate or lapse by reason of, the
Contemplated Transactions until after the Closing Date.
4.1.26 Books and Records. The books of account and other records
-----------------
of Seller or any Related Person relating to the Business, the Purchased Assets
and the Intellectual Property (and the predecessors of Seller), all of which
have been or will be made available to Buyer before the Closing Date, are
complete and correct in all material respects and have been maintained in
accordance with sound business practices. At the Closing or as soon as
practicable thereafter, copies or originals of the books of account and other
records of Seller or any Related Person relating to the Business, the Purchased
Assets and the Intellectual Property will be delivered to Buyer (except as to
the Excluded Assets). Seller hereby agrees to use commercially reasonable
efforts to deliver to Buyer such books of account and other records as soon as
practicable.
30
<PAGE>
4.1.27 Products.
--------
(a) Schedule 4.1.27(a) is a complete and correct list of each of
the Products manufactured, marketed, distributed or sold by the Seller or any
Related Person in connection with the Business.
(b) Each ongoing clinical investigation conducted by Seller
relating to the Business that is required by law to be conducted under an
Investigational New Drug application (an "IND") or similar application has an
IND or similar application that is currently in effect. To the best knowledge of
Seller, such IND is not subject to a clinical hold, and such investigation is in
compliance with the terms and conditions of the IND and applicable FDA
regulations.
(c) Schedule 4.1.27(c), to the best knowledge of Seller, is a
complete and correct list of all existing adverse drug experience information,
drug product complaints concerning the Products from January 1, 1992 through the
Closing Date.
(d) To the best knowledge of Seller, there are no proposals or
other proceedings pending before the FDA or any other Governmental Body to
change any label, labeling or drug monograph relating to any Product.
4.1.28 Product Warranties. Except for (i) the written product
------------------
warranties set forth on Schedule 4.1.28; (ii) promotional documentation,
labeling and advertising materials utilized by Seller in the ordinary course of
operating the Business; and (iii) product labels and inserts used in connection
with the Products, Seller has not made any express warranties relating to the
Products to third parties in connection with the sale of any of the Products.
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
5.1 Representations and Warranties. Buyer represents and warrants to
------------------------------
Seller, as of the date hereof and as of the Closing Date (except to the extent
any representation or warranty relates to a specified date), that:
5.1.1 Organization and Standing. Buyer is a corporation duly
-------------------------
incorporated and validly existing and is in good standing under the laws of
Delaware. Buyer has full corporate power and authority to carry on its business
as now conducted and to own all of its properties and assets. Buyer has full
corporate power and authority to execute and deliver this Agreement and the U.S.
Buyer Ancillary Agreements and the other documents delivered by Buyer hereunder
and thereunder and to carry out its obligations hereunder and thereunder.
31
<PAGE>
5.1.2 Authorization. All corporate and other proceedings
-------------
required to be taken on the part of Ciba Geigy Limited and Buyer and its
Affiliates for Buyer and its Affiliates to enter into and carry out this
Agreement and the U.S. Buyer Ancillary Agreements and all documents delivered by
Buyer hereunder and thereunder and to consummate the Contemplated Transactions
have been duly and properly taken. This Agreement and each of the U.S. Buyer
Ancillary Agreements and all documents delivered by Buyer hereunder and
thereunder have each been duly executed and delivered by Buyer and each is a
legal, valid and binding obligation of Buyer enforceable against Buyer in
accordance with its terms. Buyer has delivered to Seller a complete and correct
copy of its certificate of incorporation and by-laws as in effect on the date
hereof.
5.1.3 Compliance. The execution and delivery of this Agreement
----------
and the U.S. Buyer Ancillary Agreements and, upon satisfaction of the conditions
set forth in Article 7, the consummation of the Contemplated Transactions will
not:
(a) result in the breach of any of the terms or conditions of, or
constitute a default (or event which with notice or lapse of time or both would
constitute a default) under, or violate (i) the certificate of incorporation or
by-laws of Buyer or any Affiliate thereof or (ii) any of the contracts, leases,
agreements, mortgages, deeds of trust, notes, bonds, instruments, plans,
commitments, licenses, purchase orders, sales order or any other agreements or
other document or undertaking, oral or written, to which Buyer or any Affiliate
thereof is a party or by which it or its assets is bound or affected, except, in
the case of clause (ii), for any such breaches, defaults or violations which
could not be reasonably expected to, individually or in the aggregate, have a
material adverse effect on the businesses, properties, operations or results
thereof, or financial condition of Buyer or Affiliate thereof; or
(b) violate any order, writ, injunction, decree, judgment or
permit of any court, administrative agency or other Governmental Body or any
statute, rule or regulation, in each case, applicable to Buyer or any Affiliate
thereof, except such violations which could not be reasonably expected to,
individually or in the aggregate, have a material adverse effect on the
business, properties, operations or results thereof or financial condition of
Buyer or any Affiliate thereof.
5.1.4 Broker. No broker, finder, agent or similar intermediary
------
has acted for or on behalf of Buyer or any Affiliate thereof in connection with
this Agreement or the Contemplated Transactions or is entitled to any broker's,
finder's, or similar fee or other commission in connection therewith based on
any agreement, arrangement or understanding with Buyer or any Affiliate thereof.
32
<PAGE>
5.1.5 Available Funds. Buyer has sufficient unrestricted funds
---------------
available to it to purchase the Purchased Assets pursuant to this Agreement and
to otherwise satisfy its obligations under this Agreement and the U.S. Buyer
Ancillary Agreements.
5.1.6 Consents and Approvals of Governmental Bodies. Except for
---------------------------------------------
under Hart-Scott, no consent, approval, designation, exemption or authorization
of, or declaration, qualification, filing or registration with, any Governmental
Body is required on behalf of Buyer in connection with the execution, delivery
and performance of this Agreement or the U.S. Buyer Ancillary Agreements or the
consummation of the Contemplated Transactions (including, without limitation, in
connection with any Governmental Permit), except for those which could not be
reasonably expected to have, individually or in the aggregate, a material
adverse effect on the business, properties, operations or results thereof, or
financial condition of Buyer.
5.1.7 Other Consents. No consent, approval, designation,
--------------
exemption or authorization, qualification, designation, exemption, declaration
or filing of or with any Person is required in connection with the execution,
delivery and performance of this Agreement or the U.S. Buyer Ancillary
Agreements or the consummation of the Contemplated Transactions, except for
those which could not be reasonably expected to have, individually or in the
aggregate, a material adverse effect on the business, properties, operations or
results thereof, or financial condition of Buyer.
ARTICLE 6. COVENANTS OF SELLER PENDING CLOSING
-----------------------------------
6.1 Operate in Ordinary Course.
--------------------------
(a) Between the date hereof and the Closing Date, Seller shall
cause the Business to be conducted only in the ordinary course in accordance
with past practice. Seller shall use reasonable commercial efforts to maintain
and preserve the organizational structure of the Business as of the date hereof,
to preserve the present relationship between Seller and suppliers, customers and
other Persons having significant business relations with the Business and
providing significant services to the Business, and to maintain in effect the
insurance policies currently in effect with coverages and limits at least equal
to those in effect on September 30, 1994. Buyer shall at Closing receive a
credit against the Purchase Price for the net amount of any condemnation awards
or similar payments paid to Seller prior to Closing. Seller shall permit Buyer
to participate in any condemnation proceedings and shall not agree to any award
or payment in lieu thereof without Buyer's consent, which shall not be
unreasonably withheld or delayed. Nothing in the foregoing shall be construed as
Buyer's waiving any of its
33
<PAGE>
rights under Section 7.2.5. Without limiting the generality of the foregoing,
except as set forth on Schedule 6.1 or as contemplated by this Agreement without
the prior written consent of Buyer, neither Seller nor any Related Person shall:
(i) except as required by any Contract in effect as of the date
hereof (or otherwise with respect to non-management salaried employees or hourly
workers made in the ordinary course of business and consistent with past
practice), increase the compensation payable or to become payable to any
individual identified on Schedule 4.1.23 or make any bonus payment or
arrangement to or with any individual identified on Schedule 4.1.23, except for
normal increases associated with regular annual performance evaluations in the
ordinary course of business;
(ii) cancel any contractual agreement with any customers or
material suppliers to the Business which imposes upon any party thereto
liabilities or obligations having a value equal to or more than $375,000;
(iii) (a) employ, or agree to employ, any person for the Business
other than those persons named on Schedule 4.1.23; (b) enter into or amend, or
agree to enter into or amend, any Employment Contract of any person listed on
Schedule 4.1.23 or which relates to the Business or the Purchased Assets; (c)
enter into, or agree to enter into, any agreement with any labor union or
association representing any employee; (d) enter into or amend, or agree to
enter into or amend, any Plan; or (e) terminate the employment of any individual
identified on Schedule 4.1.23 other than for cause (for the purposes of
subclauses (a) and (e), the consent of Buyer shall not be unreasonably withheld
or delayed);
(iv) waive, or agree to waive, any right of material value to the
Business, the Purchased Assets or the Intellectual Property, other than in the
ordinary course of business consistent with past practice;
(v) cause or permit to be made, or agree to make, any change in
Seller's accounting methods or practices or make, or agree to make, any change
in depreciation or amortization policies or rates adopted by Seller, in each
case relating to the Business, the Purchased Assets or the Intellectual
Property, except as otherwise required by sound business practices;
(vi) cause or permit to be changed, or agree to change, any of the
Business's business policies or practices, including, without limitation,
purchasing, personnel, sales, returns, budget or product acquisition policies or
practices;
34
<PAGE>
(vii) cause or permit to be made, or agree to make, any loan or
advance to any individual identified on Schedule 4.1.23 or made, or agreed to
make, any other loan or advance, except for advances made to employees for
business expenses and except those made in the ordinary course of business
consistent with past practice;
(viii) (a) sell, lease, abandon or make, any other disposition of
any of the Purchased Assets or the Intellectual Property (or dispose of any
records relating to the Purchased Assets or the Intellectual Property) other
than in the ordinary course of business; (b) grant any Encumbrance on the
Purchased Assets or the Intellectual Property other than Permitted Encumbrances;
or (c) enter into (other than entering into purchase orders in the ordinary
course of business), amend, terminate, cause any breach under, or permit any act
or omission which would cause a default under, any Material Contract; provided,
however, that notwithstanding anything to the contrary contained in this clause
(viii) or any other provision of this Section 6.1, Seller shall have the right
to terminate or amend (but not extend) the existing lease with the Vanderveer
Group, Inc.; provided any such amendment would not interfere with in any
material respect or adversely affect in any material respect Buyer or the
Manufacturing Plant or the use thereof or the Business therein either prior to
or after the Closing;
(ix) dispose of or permit to lapse any rights to the use of any
Intellectual Property, or dispose of or disclose to any Person any trade secret,
formula, process or know-how of the Business or relating to the Purchased Assets
or the Intellectual Property and not theretofore a matter of public
knowledge, except in the ordinary course of business consistent with past
practice;
(x) withdraw, permit to lapse, or apply for any amendment or
modification to, any Governmental Permit or application therefor, except in the
ordinary course of business consistent with past practice;
(xi) agree, or otherwise permit or commit, whether in writing or
otherwise, to do any of the foregoing.
(b) Between the date hereof and the Closing Date, Seller shall
immediately notify Buyer if:
(i) any contractual agreements with any customers or suppliers
which produce at least $100,000 per year individually in revenues for the
Business or the supplier, as the case may be, is canceled or noticed to be
canceled by any party to such agreements; or
35
<PAGE>
(ii) there occurs (A) any event which reasonably could be
expected to have a Material Adverse Effect and (B) any litigation, claim or
regulatory inquiry involving Seller or any Related Person, to the extent related
to the Business, the Purchased Assets or the Intellectual Property, as a party
or which reasonably could be expected to have a Material Adverse Effect.
6.2 Access. Between the date hereof and the Closing Date, Seller
------
shall, and shall cause its Related Persons to, provide Buyer and its Affiliates
and their respective representatives with such information as such Persons may
from time to time reasonably request with respect to Seller, the Business, the
Purchased Assets, the Intellectual Property, and upon reasonable notice by
Buyer, provide Buyer and its Affiliates and their respective representatives
during regular business hours, in a manner so as not to unduly disrupt the
Business or the other business of Seller, reasonable access to the properties,
books and records and representatives of Seller or Related Persons relating to
the Business, the Purchased Assets and the Intellectual Property (including, the
opportunity to have Buyer or its agents or contractors conduct environmental,
engineering and/or other tests at the Real Property), as Buyer and its
Affiliates and their respective representatives may from time to time reasonably
request; provided, however, that Seller shall have the right to have a
representative present at all such times; and provided, further, that such
access shall be at the expense and risk of Buyer, and Buyer shall indemnify,
defend and hold harmless Seller and its Affiliates and their respective Agents
from and against any Damages, arising from Buyer's or its Affiliates' or their
representatives' acts or omissions while performing due diligence at the Real
Property, and Buyer shall restore any property altered or damaged by reason of
any such testing to the condition existing prior to such testing in all material
respects.
6.3 No Dealings with Other Possible Buyers. Seller shall not, and
--------------------------------------
shall not permit any Related Person to, solicit or entertain offers, enter into
discussions or negotiations, provide information regarding the Business or the
Canadian Business, the Purchased Assets or the Canadian Purchased Assets or the
Intellectual Property or in any manner discuss, encourage, recommend or agree to
any proposal of, any other potential buyer or buyers of all or any part of the
Business or the Canadian Business or the Purchased Assets or the Canadian
Purchased Assets or the Intellectual Property
36
<PAGE>
ARTICLE 7. CLOSING DATE; CONDITIONS PRECEDENT;
TERMINATION
-----------------------------------
7.1 Closing Date and Place. The consummation of the purchase and
----------------------
sale of the Purchased Assets and the assumption of the Assumed Liabilities (the
"CLOSING") shall take place at the offices of Kaye, Scholer, Fierman, Hays &
Handler at 425 Park Avenue, New York, New York at 10:00 A.M. on December 30,
1994 or at such other date and time as may be mutually agreeable to the parties
hereto (the "CLOSING DATE"), subject to the following:
(a) If any of the conditions set forth in Section 7.2 has not
been satisfied on the date on which the Closing would otherwise occur, Buyer may
from time to time, by notice to Seller, defer the Closing to a Business Day
specified in that notice, but not later than March 1, 1995.
(b) If any of the conditions set forth in Section 7.3 has not
been satisfied on the date on which the Closing would otherwise occur, Seller
may from time to time, by notice to Buyer, defer the Closing to a Business Day
specified in that notice, but not later than March 1, 1995.
(c) If both of the preceding paragraphs (a) and (b) are
applicable, the Closing shall take place on the later of the dates determined in
accordance with those paragraphs.
7.2 Conditions Precedent to the Obligations of Buyer to Close. The
---------------------------------------------------------
obligations of Buyer under this Agreement are subject to the fulfillment at or
prior to the Closing of each of the following conditions, any one or more of
which may be waived by Buyer in its sole discretion:
7.2.1 No Injunctive Proceedings. No preliminary or permanent
-------------------------
injunction or other order (including a temporary restraining order) or decree of
any state, federal or foreign court or Governmental Body which prevents or
delays the consummation of the Contemplated Transactions or prohibits or delays
Buyer's ownership (in part or in whole) of the Purchased Assets or conduct of
the Business (including, without limitation, use of the Intellectual Property)
shall have been issued and remain in effect.
7.2.2 Hart-Scott. The requirements of Hart-Scott applicable to
----------
the Contemplated Transactions shall have been complied with, and the waiting
period thereunder shall have expired or been terminated.
7.2.3 Representations and Warranties. All representations and
------------------------------
warranties of Seller contained in this Agreement shall be true and correct in
all material respects as
37
<PAGE>
of the Closing Date (except to the extent any representation or warranty relates
to a specific date).
7.2.4 Performance of Agreements. Seller shall have performed in
-------------------------
all material respects all obligations, agreements, conditions and commitments to
be fulfilled by it pursuant to the terms hereof on or prior to the Closing Date.
7.2.5 Material Adverse Effect. There shall not have been any
-----------------------
Material Adverse Effect, nor shall there exist any condition which could
reasonably be expected to result in a Material Adverse Effect (other than due to
matters disclosed in a Schedule to this Agreement).
7.2.6 Intentionally Omitted.
7.2.7 Litigation. No action or proceeding shall have been
----------
instituted by any court or Governmental Body and, at what would otherwise have
been the Closing Date, remain pending before any court or Governmental Body,
relating to the Business, any of the Purchased Assets or the Intellectual
Property, or to restrain or prohibit or to recover damages in respect of any or
all of the Contemplated Transactions or seeking any divestiture or seeking to
require that all or any part of the Purchased Assets or Intellectual Property be
held separate or to revoke, suspend or terminate (in whole or in part) any
license, permit, order or approval by reason of any or all of the Contemplated
Transactions, the revocation, suspension or termination of which would have a
Material Adverse Effect.
7.2.8 Regulatory Approvals. All licenses, certifications,
--------------------
authorizations, consents, orders and regulatory approvals of Governmental Bodies
set forth on Schedule 7.2.8 shall have been obtained on terms reasonably
satisfactory to Buyer and shall be in full force and effect.
7.2.9 Consents, Approvals, Assignments. All consents,
--------------------------------
approvals, authorizations and filings set forth on Schedule 7.2.9 shall have
been obtained on terms reasonably satisfactory to Buyer and shall be in full
force and effect.
7.2.10 Deliveries. Buyer shall have received all of the
----------
deliveries required to be made to it, as set forth in Section 8.1.
7.2.11 Canadian Purchase Agreement Closing. The closing under
-----------------------------------
the Canadian Purchase Agreement shall have occurred or shall occur
simultaneously with the Closing.
7.2.12 Compliance Evidence. Buyer shall have received such
-------------------
certificates, opinions, documents and information as it may reasonably request
in order to establish satisfaction
38
<PAGE>
of the conditions set forth in this Section 7.2, including a certificate
certifying to the matters set out in Sections 7.2.3 and 7.2.4, dated the Closing
Date, and signed by the President or Vice President of Seller.
7.2.13 Proceedings Satisfactory. All certificates, opinions and
------------------------
other documents to be delivered by Seller and all other matters to be
accomplished prior to or at the Closing shall be satisfactory in the reasonable
judgment of Buyer and its counsel.
7.2.14 License Agreements. The license agreement between the
------------------
predecessor corporations to Rhone-Poulenc Rorer Consumer Inc. and Rorer
Pharmaceutical Products Inc. shall have been terminated and shall be of no
further force and effect as of the closing contemplated by the Canadian Purchase
Agreement and the license agreement between Seller and Rorer Pharmaceutical
Products Inc. shall have been terminated and shall be of no further force and
effect at the Closing Date and Buyer shall have received written evidence of
same in a form reasonably satisfactory to Buyer.
7.2.15 Delivery of Possession. Seller shall deliver to Buyer
----------------------
possession of the Real Property free of all leases, tenants, occupants and
rights of occupancy, except for the lease to the Vanderveer Group, Inc. and the
month-to-month lease described on Schedule 4.1.10(b).
7.3 Conditions Precedent to the Obligations of Seller to Close.
----------------------------------------------------------
The obligations of Seller under this Agreement are subject to the fulfillment at
or prior to the Closing of each of the following conditions, any one or more of
which may be waived by Seller in its sole discretion:
7.3.1 No Injunctive Proceedings. No preliminary or permanent
-------------------------
injunction or other order (including, without limitation, a temporary
restraining order) of any state, federal or foreign court or Governmental Body
which prevents the consummation of the Contemplated Transactions or prohibits or
delays Buyer's ownership (in part or in whole) of the Purchased Assets or
conduct of the Business (including, without limitation, use of the Intellectual
Property) shall have been issued and remain in effect.
7.3.2 Hart-Scott. The requirements of Hart-Scott applicable to
----------
the Contemplated Transactions shall have been complied with, and the waiting
period thereunder shall have expired or been terminated.
7.3.3 Representations and Warranties. All representations and
------------------------------
warranties of Buyer contained in this Agreement shall be true and correct in all
material respects as of the Closing Date (except to the extent any
representation or warranty relates to a specified date).
7.3.4 Performance of Agreements. Buyer shall have performed in
-------------------------
all material respects all obligations,
39
<PAGE>
agreements, conditions and commitments to be fulfilled by it pursuant to the
terms hereof on or prior to the Closing Date.
7.3.5 Payments.
--------
(a) Buyer shall have delivered to Seller the Purchase Price.
(b) Buyer shall have delivered to Seller the first payment under
the Intellectual Property Agreement.
7.3.6 Intentionally Omitted.
7.3.7 Litigation. No action or proceeding shall have been
----------
instituted by any court or Governmental Body and, at what would otherwise have
been the Closing Date, remain pending before any court or Governmental Body
relating to the Business, any of the Purchased Assets or the Intellectual
Property, or to restrain or prohibit or to recover damages in respect of any or
all of the Contemplated Transactions or seeking any divestiture or seeking to
require that all or any part of the Purchased Assets or Intellectual Property be
held separate or to revoke, suspend or terminate (in whole or in part) any
license, permit, order or approval by reason of any or all of the Contemplated
Transactions, the revocation, suspension or termination of which would have a
Material Adverse Effect.
7.3.8 Regulatory Approvals. All licenses, certifications,
--------------------
authorizations, consents, orders and regulatory approvals of Governmental Bodies
set forth on Schedule 7.2.8 shall have been obtained on terms reasonably
satisfactory to Seller and shall be in full force and effect.
7.3.9 Consents, Approvals and Assignments. All consents,
-----------------------------------
approvals, authorizations, and filings set forth on Schedule 7.2.9 shall have
been obtained on terms reasonably satisfactory to Seller and shall be in full
force and effect.
7.3.10 Deliveries. Seller shall have received all of the
----------
deliveries required to be made to it, as set forth in Section 8.2.
7.3.11 Canadian Purchase Agreement Closing. The closing under
-----------------------------------
the Canadian Purchase Agreement shall have occurred or shall occur
simultaneously with the Closing.
7.3.12 Compliance Evidence. Seller shall have received such
-------------------
certificates, opinions, documents and information as it may reasonably request
in order to establish satisfaction of the conditions set forth in this Section
7.3, including a certificate certifying to the matters set out in Sections 7.3.3
40
<PAGE>
and 7.3.4, dated the Closing Date, and signed by the President or Vice President
of Buyer.
7.3.13 Proceedings Satisfactory. All certificates, opinions and
------------------------
other documents to be delivered by Buyer and all other matters to be
accomplished prior to or at the Closing shall be satisfactory in the reasonable
judgment of Seller and its counsel.
7.4 Termination of this Agreement.
-----------------------------
7.4.1 Termination. This Agreement may be terminated prior to
-----------
the Closing only as follows:
(a) By written agreement of Buyer and Seller at any time.
(b) By Seller, by notice to Buyer at any time, if one or more of
the conditions specified in Section 7.3 is not satisfied at the time at which
the Closing (as it may be deferred pursuant to Section 7.l) would otherwise
occur or if satisfaction of such a condition is or becomes impossible.
(c) By Buyer, by notice to Seller at any time, if one or more of
the conditions specified in Section 7.2 is not satisfied at the time at which
the Closing (as it may be deferred pursuant to Section 7.l) would otherwise
occur or if satisfaction of such a condition is or becomes impossible.
(d) By Buyer or Seller, by notice to the other at any time after
March 1, 1995.
7.4.2 Effect of Termination. In the event that this Agreement
---------------------
is terminated pursuant to Section 7.4, this Agreement shall terminate without
any liability or further obligation of any party to another, except for Sections
6.2, 12.1, 12.2, 12.6 and 12.7 which shall survive termination; provided,
--------
however, that termination under Section 7.4 shall not relieve any party of
- -------
liability for any intentional failure to perform or comply with any agreement
prior to the date of termination, including, without limitation, under
Section 10.2.
7.5 Signing Deliveries. The parties acknowledge that concurrent with
------------------
the execution and delivery of this Agreement, Ciba-Geigy Corporation executed
and delivered a guaranty (the "CIBA GUARANTY") of the obligations of Buyer
hereunder and under the U.S. Buyer Ancillary Documents and Rhone-Poulenc Rorer
Inc. executed and delivered a guaranty (the "RPR GUARANTY") of the obligations
of Seller and Related Persons hereunder and under the U.S. Seller Ancillary
Documents.
41
<PAGE>
ARTICLE 7A. CUT-OFF DATE AND CERTAIN REVISED
ARRANGEMENTS
-------------------------------
7A.1. When Effective. If the Closing has not occurred prior to
--------------
December 30, 1994 (the "CUT-OFF DATE"), then the provisions of this Article 7A
shall become effective as of such date. Upon becoming effective, the provisions
of this Article 7A shall supersede any other provision of this Agreement which
is inconsistent with this Article 7A. If the Closing occurs prior to December
30, 1994, the provisions of this Article 7A shall not become effective.
7A.2. Revised Arrangements. If this Article 7A becomes effective:
--------------------
7A.2.1. Cut-Off Event. At 10:00 a.m., or such other time as the
-------------
parties may agree, on December 30, 1994 at the offices of Kaye, Scholer,
Fierman, Hays and Handler, the parties shall make certain deliveries and take
certain actions (the "CUT-OFF EVENT").
7A.2.2. Conditions to Buyer's Obligations. (a) The provisions of
---------------------------------
this Section 7A.2.2. shall apply instead of the provisions of Section 7.2.
(b) The obligations of Buyer under this Agreement shall be subject to
fulfillment at or prior to the Cut-Off Event of each of the following
conditions, any one which may be waived by Buyer in its sole discretion:
(i) the conditions set out in Section 7.2.1.
(ii) the conditions set out in Section 7.2.3, except that
the references to the Closing Date in Section 7.2.3 and
in Article 4 of this Agreement shall be deemed to be
the Cut-Off Date.
(iii) the conditions set out in Section 7.2.4, except that
the reference to the Closing Date shall be deemed to be
the Cut-Off Date.
(iv) the condition set out in Section 7.2.5.
(v) Intentionally Omitted.
42
<PAGE>
(vi) the condition set out in Section 7.2.7, except that the
reference to the Closing Date shall be deemed to be the
Cut-Off Date.
(vii) the status of all matters described in Section 7.2.8
shall be described as of the Cut-Off Date in writing by
the President or a Vice President of Seller and such
status shall be satisfactory in the judgment of Buyer
and its counsel.
(viii) the status of all matters described in Section 7.2.9
shall be described as of the Cut-Off Date in writing by
the President or a Vice President of Seller and such
status shall be satisfactory in the judgment of Buyer
and its counsel.
(ix) Buyer shall have received all deliveries required by
Section 7A.2.6.
(x) the conditions set out in Section 7.2.12, except that
the reference to the Closing Date shall be deemed to be
the Cut-Off Date and the references to the sections in
the certificate certifying certain matters shall be
deemed to be to Sections 7A.2.2(ii) and (iii).
(xi) the conditions set out in Section 7.2.13, except that
the reference to the Closing Date shall be deemed to be
the Cut-Off Date.
(x) the condition set out in Section 7.2.14, such agreement
to be effective as of the Closing Date.
7A.2.3. Conditions to Seller's Obligations. (a) The provisions of
----------------------------------
this Section 7A.2.3 shall apply instead of the provisions of Section 7.3.
(b) The obligations of Seller under this Agreement shall be
subject to the fulfillment at or prior to the Cut-Off Event of each of the
following conditions, any one or more of which may be waived by Seller in its
sole discretion:
(i) the conditions set out in Section 7.3.1.
(ii) the conditions set out in Section 7.3.3, except that
the references to the
43
<PAGE>
Closing Date in Section 7.3.3 and in Article 5 of the
Agreement shall be deemed to be the Cut-Off Date.
(iii) the conditions set out in Section 7.3.4, except the
reference to the Closing Date shall be deemed to be the
Cut-Off Date.
(iv) Intentionally Omitted.
(v) the condition set out in Section 7.3.7, except that the
reference to the Closing Date shall be deemed to be the
Cut-Off Date.
(vi) Seller shall have received all deliveries required by
Section 7A.2.7.
(vii) the status of all matters described in Section 7.3.8
shall be described as of the Cut-Off Date in writing by
the President or Vice President of Buyer and such
status shall be satisfactory in the judgment of Seller
and its counsel.
(viii) the status of all matters described in Section 7.3.9
shall be described as of the Cut-Off Date in writing by
the President or Vice President of Buyer and such
status shall be satisfactory in the judgment of Seller
and its counsel.
(ix) the conditions set out in Section 7.3.12, except the
reference to the Closing Date shall be deemed to be the
Cut-off Date and the references to the sections in the
certificate certifying certain matters shall be deemed
to be for Sections 7A.2.3(ii) and (iii).
(x) the conditions set forth in 7.3.13, except that the
reference to the Closing Date shall be deemed to be the
Cut-Off date.
7A.2.4. Termination. After the Cut-Off Date, the Agreement may
-----------
be terminated prior to Closing only as follows:
44
<PAGE>
(a) by Seller, by notice to Buyer, if one or more of the conditions
specified in Sections 7.3.1, 7.3.2, 7.3.5, 7.3.7 and 7.3.8 (but
only with respect to the delivery of such items which were not
delivered pursuant to Section 7A.2.7), is not satisfied by March
1, 1994 or if satisfaction of such a condition is or becomes
impossible.
(b) by Buyer, by notice to Seller, if one or more of the
conditions specified in Sections 7.2.1, 7.2.2, 7.2.7 and
7.2.8 (but only with respect to the delivery of such
items which were not delivered pursuant to Section
7A.2.7.), is not satisfied by March 1, 1994 or if
satisfaction of such a condition is or becomes
impossible.
(c) by Buyer or Seller, by notice to the other at any time
after March 1, 1995.
7A.2.5. Effect of Termination. In the event that this
---------------------
Agreement is terminated pursuant to Section 7A.2.4, this Agreement shall
terminate without any liability or further obligation of any party to another,
except for Sections 6.2, 12.1, 12.2, 12.6 and 12.7 which shall survive
termination; provided, however, that termination under Section 7A.2.4 shall not
-------- -------
relieve any party of liability for any intentional failure to perform or comply
with any agreement prior to the date of termination, including, without
limitation, under Section 10.2.
7A.2.6. Deliveries By Seller. At the Cut-Off Event,
--------------------
Seller shall deliver to Buyer the following (all documents to be dated as of the
Cut-Off Date):
(a) the resolutions described in Section 8.1.1, except that the
reference to the Closing Date shall be the Cut-Off Date.
(b) the document specified in Section 8.1.4.
(c) the document specified in Section 8.1.5.
(d) the document specified in Section 8.1.6.
(e) the document specified in Section 8.1.8.
(f) the document specified in Section 8.1.9.
(g) the document specified in Section 8.1.10.
45
<PAGE>
Such documents shall provide that they will become effective if and
only if the Closing occurs hereunder. All such items shall not thereafter be
required deliveries at the Closing.
7A.2.7. Deliveries By Buyer. At the Cut-Off Event, Buyer shall
-------------------
deliver to Seller the following (all documents to be dated as of the Cut-Off
Date):
(a) the resolutions described in Section 8.2.1, except that the
reference to the Closing Date shall be the Cut-Off Date.
(b) the document specified in Section 8.2.3
(c) the document specified in Section 8.2.4
(d) the document specified in Section 8.2.5.
(e) the document specified in Section 8.2.6.
(f) the document specified in Section 8.2.7.
Such documents shall provide that they will become effective if and
only if the Closing occurs hereunder. All such items shall not thereafter be
required deliveries at the Closing.
7A.3. Interim Period. If the Closing occurs, all the profits and
--------------
losses, changes in assets and liabilities and cash flow of the Business
commencing the day after the period from the Cut-Off Date though the Closing
Date (the "INTERIM PERIOD") shall be for the account of the Buyer. During the
Interim Period, the Seller shall keep the books and records and accounts of the
Business in a manner that will enable Buyer and Seller to prepare the Net
Earning Statements and cash flow statements. During the Interim Period, Seller
shall fund all working capital needs of the Business, which shall not exceed
$1,000,000 without the prior approval of Buyer and, if the Closing occurs, Buyer
shall reimburse Seller for such costs as provided in Section 7A.4.
46
<PAGE>
7A.4 Post-Closing Payment
--------------------
(a) Not more than 30 days after the Closing Date, Seller shall
deliver to Buyer a Net Earnings Statement (as defined below) and balance
sheet and cash flow statements of the Business for the Interim Period,
prepared in accordance with GAAP on a basis consistent with prior periods;
provided, that, no deduction shall be made from earnings for expenses
-------- ----
incurred as a result of the Contemplated Transactions or related matters
(which such expenses shall be paid by Seller and not the Business), or
expense items associated with capital expenditures in excess of $1,000,000
or insurance coverage (or other prepaid items) in excess of the share of
such expense items allocable to the Interim Period.
(b) The parties have agreed that there shall be a post-Closing
payment to Buyer to reflect the cash flow generated by the business less
working capital advanced by Seller of the Business during the Interim
Period. For purposes of determining the amount of the payment the parties
have agreed to use in their calculation the cash flow statements of the
Business during the Interim Period as shown on the unaudited statement of
cash flow and net earnings of the Business (the "NET EARNING STATEMENTS"),
to be prepared in accordance with GAAP and consistent with the Management
Income Statements set forth in Schedule 4.1.6, but subject to the
adjustments described in paragraph (a) above (the net earnings of Seller
for the Interim Period being hereinafter referred to as the "INTERIM NET
EARNINGS") and to follow the procedures set out below in this Section 7A.
(c) Buyer may elect to have the Net Earning Statements, balance
sheet and cash flow statement audited by its independent certified public
accountants and Seller shall cooperate with Buyer in such audit. Unless
Buyer notifies Seller in writing that it disagrees with the Net Earning
Statements within 30 days after receipt thereof, or if the Buyer elects to
audit the Net Earning Statements, upon completion of the audit by the
Buyer's Accountants (which in no event shall take more than 45 Business
Days following Seller's delivery of the Net Earning Statements, balance
sheet and cash flow statement), the Net Earning Statements, balance sheet
and cash flow shall be conclusive and binding on Buyer and Seller for
purposes of determining the post-Closing payment under this Section 7A.
The fees and expenses of Buyer's independent certified public accountants
incurred in auditing the Net Earning Statements, balance sheet and cash
flow statement shall be borne and paid by Buyer.
47
<PAGE>
(d) If Buyer notifies Seller in writing of its disagreement with
the Net Earning Statements, balance sheet and/or cash flow statement within
such 30 day period (or after completion of Buyer's audit), then Buyer and
Seller shall attempt to resolve their differences with respect thereto
within 30 days after Seller's receipt of Buyer's written notice of such
disagreement. Any disputes regarding the Net Earning Statements, balance
sheet and/or cash flow statement not resolved by Buyer and Seller within
such 30 day period shall be resolved by an accounting firm mutually
acceptable to both parties or, in the absence of agreement, by a "big-six"
accounting firm selected by lot after eliminating Seller's accountants and
Buyer's accountants. Buyer and Seller shall each pay 50% of the fees and
expenses of such accounting firm. The determination of any accounting firm
so selected, and the Net Earning Statements, balance sheet and cash flow
statement (with such modifications therein, if any, as reflect such
determination) shall be conclusive and binding upon the parties.
(e) If the amount of the cash flow for the Interim Period is
positive in connection with the Business, then Seller shall pay to Buyer an
amount equal to such amount. If the amount of the cash flow for the
Interim Period statement is negative Seller or Buyer, as the case may be,
shall make such payment or payments not more than 10 Business Days
following the determination of the Interim cash flow pursuant to this
Section 7A. The amount of the payment or payments shall bear simple
interest from the Closing Date until the date such payment or payments are
made at the rate announced by The Chase Manhattan Bank, N.A., or any
successor thereto, in New York City as its prime rate of interest as of the
Closing Date.
7A.5. Affirmative Covenants. At the Closing, Seller agrees to
---------------------
deliver to Buyer evidence of the termination of the agreement referred to in
Section 7.2.14.
ARTICLE 8. CLOSING DELIVERIES
------------------
8.1 Deliveries by Seller. At the Closing, Seller shall deliver to
--------------------
Buyer the following (all documents to be dated as of the Closing Date, except as
otherwise specified):
8.1.1 Corporate Resolutions. Copies of corporate resolutions of
---------------------
Seller and, to the extent relevant, Related Persons, certified by an appropriate
officer of each such Person as being in effect on the Closing Date, authorizing
the execution and delivery and performance by Seller and, to the extent
relevant, Related Persons of this Agreement and the U.S. Seller
48
<PAGE>
Ancillary Agreements to which each such Person is a party and the performance of
the Contemplated Transactions.
8.1.2 Bill of Sale. A bill of sale in favor of Buyer covering
------------
the Purchased Assets (excluding the Real Property), in the form attached as
Exhibit 8.1.2 hereto (the "BILL OF SALE"), duly executed by Seller.
8.1.3 Real Property Deed. Special warranty deed in favor of
------------------
Buyer for the Real Property, in the form attached as Exhibit 8.1.3 hereto
(collectively, the "REAL PROPERTY DEED"), duly executed by the record owner of
the Real Property.
8.1.4 Transition Services Agreement. An agreement providing
-----------------------------
for the performance of certain services by and/or for Buyer and Seller, between
Seller and Buyer, in the form attached as Exhibit 8.1.4 (the "TRANSITION
SERVICES AGREEMENT"), duly executed by Seller.
8.1.5 Intellectual Property Agreement. An agreement between
-------------------------------
Rorer Pharmaceuticals Products, Inc. and Buyer providing Buyer the rights to the
Intellectual Property, in the form attached as Exhibit 8.1.5 hereto (the
"INTELLECTUAL PROPERTY AGREEMENT"), duly executed by Rorer Pharmaceuticals
Products Inc.
8.1.6 Other Transfer Documents. Such other documents
------------------------
(including, without limitation, written assignments) as Buyer shall deem
reasonably necessary or appropriate to evidence or effectuate the transfer of
any of the Purchased Assets to Buyer (the "TRANSFER DOCUMENTS").
8.1.7 FIRPTA Certificate. The FIRPTA Certificate duly executed
------------------
by Seller.
8.1.8 Restrictive Covenants Agreement. An agreement between
-------------------------------
Seller and Buyer providing for Seller's and its Related Persons agreement to not
engage in certain activities, in the form attached as Exhibit 8.1.8 hereto (the
"RESTRICTIVE COVENANTS AGREEMENT"), duly executed by Seller.
8.1.9 Supply Agreement. The Supply Agreement between Buyer
----------------
and Barcroft Company for the supply by Barcroft Company to Buyer of aluminum
hydroxide and magnesium hydroxide, in the form attached as Exhibit 8.1.9 hereto
(the "SUPPLY AGREEMENT"), duly executed by Barcroft Company.
8.1.10 Transition Manufacturing Agreement. The Transition
----------------------------------
Manufacturing Agreement between Buyer and Seller, in the form attached as
Exhibit 8.1.10 hereto (the "TRANSITION MANUFACTURING AGREEMENT"), duly executed
by Seller.
49
<PAGE>
8.1.11 Code Compliance. A letter from the Upper Dublin
---------------
Township Code Enforcement Office stating that such Office has no record that the
Real Property violates any applicable zoning and building codes; provided that
the Seller's obligation to deliver such letter shall exist only to the extent
that such letters are customarily available from such Office and that Seller,
with the exercise of its diligent efforts (including the payment of any required
fees and expenses), is able to obtain such letter by the Closing Date.
8.2 Deliveries by Buyer. At the Closing, Buyer shall deliver to
-------------------
Seller the following (all documents to be dated as of the Closing Date, except
as otherwise specified):
8.2.1 Corporate Resolutions. Copies of corporate resolutions of
---------------------
Buyer, certified by an appropriate officer of Buyer as being in effect on the
Closing Date, authorizing the execution and delivery and performance by Buyer of
this Agreement and the U.S. Buyer Ancillary Agreements and the performance of
the Contemplated Transactions.
8.2.2 Assumption Agreement. The Assumption Agreement, duly
--------------------
executed by Buyer.
8.2.3 Transition Services Agreement. The Transition Services
-----------------------------
Agreement, duly executed by Buyer.
8.2.4 Intellectual Property Agreement. The Intellectual
-------------------------------
Property Agreement, duly executed by Buyer.
8.2.5 Restrictive Covenants Agreement. The Restrictive
-------------------------------
Covenants Agreement, duly executed by Buyer.
8.2.6 Supply Agreement. The Supply Agreement, duly executed by
----------------
Buyer.
8.2.7 Transition Manufacturing Agreement. The Transition
----------------------------------
Manufacturing Agreement, duly executed by Buyer.
ARTICLE 9. SURVIVAL OF REPRESENTATIONS AND
WARRANTIES; INDEMNIFICATION
-------------------------------
9.1 Survival. Except to the extent specifically set out to the
--------
contrary in any U.S. Buyer's Ancillary Agreements or U.S. Seller's Ancillary
Agreements, all representations and warranties and agreements of Seller and
Buyer contained in this Agreement or in any U.S. Buyer's Ancillary or U.S.
Seller's Ancillary Agreements or any other document delivered pursuant to this
Agreement to be performed and complied with prior to the Closing Date shall
survive the Closing until April 30, 1996, notwithstanding any investigation
conducted or knowledge acquired with respect thereto, other than (a)
representations and
50
<PAGE>
warranties relating to Taxes and Tax matters and representations and warranties
set forth in Section 4.1.14, all of which shall survive until the expiration of
the applicable statute of limitations (as the same may be extended or tolled)
and (b) the representations and warranties set forth in Sections 4.1.1, 4.1.2,
5.1.1 and 5.1.2, which shall survive without limitation as to time. All other
agreements contained in this Agreement or in U.S. Buyer's Ancillary Agreements
or U.S. Seller's Ancillary Agreements or any other document delivered pursuant
to this Agreement shall survive the Closing without limitation as to time,
except as and to the extent specifically set out to the contrary therein.
Notwithstanding the foregoing, Seller shall have no liability for breach of any
representation or warranty relating to the status of title to the Real Property
to the extent that Buyer's Damages for such breach are covered by a title
insurance policy under which Buyer is the insured. Buyer shall use reasonable
efforts (including the payment of customary premium) to obtain title insurance
or a commitment therefor (including survey, "comprehensive" and contiguity
endorsements, to the extent available based on then available information about
the Real Property and at reasonable rates) at Closing coverage under which is
consistent with the state of title required to be delivered by Seller hereunder.
9.2 Indemnification by Seller. If the Closing occurs, Seller
-------------------------
shall indemnify, defend and hold harmless Buyer and its Affiliates and their
respective officers, directors and employees (collectively, the "AGENTS") from,
and shall reimburse Buyer and its Affiliates and their respective Agents for,
any judgments, awards, losses, obligations, damages, liabilities (whether
arising out of strict liability, tort or otherwise), deficiencies, penalties,
fines, claims and expenses (including, but not limited to, reasonable costs of
investigation and defense, reasonable attorneys' fees and disbursements and,
with respect to Section 9.2(f) as it relates to Section 4.1.12, consultants'
fees) (collectively, "DAMAGES") arising from or in connection with:
(a) the conduct of the Business by Seller or any Related Person
(or any predecessor entities), the operation or use of the Purchased Assets or
the Intellectual Property or any act or omission of Seller or any Related Person
(or any predecessor entities) on or prior to the Closing Date (whether or not in
connection with the operation of the businesses of Seller or any Related Person
(or any predecessor entities) on or prior to the Closing Date), but not
including any matter which would be covered by Section 9.2(f);
(b) any failure by Seller or any Related Person to perform or
comply with any agreement in this Agreement;
(c) any claim by any Person, including, without limitation, Bear,
Stearns & Co. Inc. for brokerage or finder's
51
<PAGE>
fees or commissions or similar payments based upon any agreement or
understanding alleged to have been made by any such Person with Seller or any
Related Person in connection with any of the Contemplated Transactions;
(d) any claim, including, without limitation, for Damages,
severance pay, welfare and fringe benefits or for wrongful discharge by any
employee(s) or former employees(s) of Seller or any Related Person incurred,
relating to or arising from employment with the Seller on or prior to the
Closing Date (excluding claims by New Employees for severance payments during
the one-year period following the Closing Date or any other claims arising out
of any plans (including the RPR Hourly Plan), agreements, or policies maintained
by or on behalf of the Buyer or its Affiliates), (i) whose employment with any
such Person is terminated by such Person, whether in connection with the
consummation of the Contemplated Transactions or otherwise; or (ii) who claim
termination of employment on account of the consummation of the Contemplated
Transactions or (iii) relating to any unpaid wages, salaries, commissions,
bonuses, vacation pay or short-term disability or any other compensation or
benefits;
(e) any and all orders, notices, claims, suits, proceedings,
investigations or actions at law or in equity against or affecting the Business
or the Purchased Assets, Seller or any property or rights of Seller relating to
the Business or the Purchased Assets which are pending or threatened as of the
Closing Date, or arising from acts, omissions or circumstances occurring or
existing prior to the Closing Date but not including any matter which would be
covered by Section 9.2(f);
(f) any and all orders, notices, claims, suits, proceedings,
investigations by third parties (including, without limitation, Governmental
Bodies) or actions at law or in equity under any Environmental Law (including,
without limitation, changes in law) relating to:
(I) conditions associated with the Purchased Assets or the
Business at or prior to the Closing Date, or related to acts or omissions of
Seller or any of Seller's predecessor entities or Related Persons;
(II) the manufacture, generation, processing, distribution,
labeling, use, presence, treatment, removal, handling, storage, disposal,
transport or abandoning of any Hazardous Materials at or prior to the Closing
Date from, on, at, around or under the Purchased Assets, the Business, or
properties currently or previously owned, operated or leased by Seller or any of
Seller's predecessor entities or Related Persons (or any of their respective
predecessor entities), or by any third party acting on Seller's or a Related
Person's behalf;
(III) the Release of any Hazardous Materials or the threat of the
same on or prior to the Closing Date, into the
52
<PAGE>
Environment from, on, at, around or under the Purchased Assets or the Business,
or properties currently or previously owned, operated or leased by Seller or any
of Seller's predecessor entities or Related Persons (or any of their respective
predecessor entities), or by any third party acting on Seller's behalf;
(IV) worker exposure to Hazardous Materials or other personal
injury or property damages relating to releases of Hazardous Materials by the
Purchased Assets or the Business prior to the Closing Date;
(V) any Governmental Permit required to be obtained under
Environmental Law prior to the Closing Date which has not been obtained prior to
the Closing Date or as of the Closing Date,
provided, that Buyer notifies Seller of any such orders, notices, claims, suits,
- --------
proceedings, investigations by third parties (including, without limitation,
Governmental Bodies) or actions at law or in equity under Environmental Laws,
including without limitation, changes in law, on or before the fifteenth
anniversary of the Closing Date (notwithstanding the fact that remedial actions
with respect to such matters have not been determined by such date or are to be
undertaken in the future);
(g) except as otherwise provided in Section 10.1.4 hereof, the
maintenance by Seller at any time, of any employee benefit plan (as defined in
Section 3(3) of ERISA), including, without limitation, any liability to the
PBGC, the IRS, a multiemployer plan or employees or former employees (or their
beneficiaries) of Seller arising out of or relating to the maintenance,
administration, or termination or any other reason of any such plans, the trusts
related to such plans, or employment with Seller on or prior to the Closing
Date;
(h) any Damages arising out of or resulting from any failure to
comply with any applicable bulk sales laws in connection with the Contemplated
Transactions;
(i) any claim by any Governmental Body for Taxes relating to the
Seller's Tax obligations listed under Section 4.1.7 and Article 11 of this
Agreement, provided, that Buyer notifies Seller of any such claim within 45 days
--------
after receipt of written notice from such Governmental Body, and provided that
--------
such notification to Seller occurs no later than the later of (I) the day which
constitutes the midpoint of the period from the date on which written notice
from such Governmental Body is received to the date on which a response to such
notice is due (counting the day of receipt as a day only if it would result in a
period with an odd number of days), and (II) 30 days before the date on which a
response to the notice from such Governmental
53
<PAGE>
Body is due, in each case determining the date on which such response is due by
taking into account all applicable extensions of time to respond that are
granted; provided, further, that the failure of Buyer to provide Seller with
-------- -------
such notification shall relieve Seller of its obligation to indemnify Buyer
hereunder only if, and to the extent that, Seller incurs liability hereunder
directly as a result of Buyer's failure to provide such notification to Seller;
(j) any products liability claim which involves Products or
products or active ingredients made, manufactured or shipped by or for Seller or
a Related Person or any predecessor entity on or prior to the Closing Date
unless such Products, products or active ingredients have been adulterated after
the Closing Date;
(k) any inaccuracy in or omissions relating to any of the
representations and warranties of Seller in this Agreement;
(l) any liability or obligation which is not an Assumed
Liability;
(m) any Office Building Damages;
(n) any liability or obligation relating to the return of Salable
Products within 90 days of the earlier to occur of the Cut-Off Date or the
Closing Date and all other Products within 120 days of the earlier to occur of
the Cut-Off Date or the Closing Date sold by the Business, provided that
Seller's obligation under this Section 9.2(n) shall not exceed $4,000,000;
provided further that Buyer shall purchase from Seller any Salable Returns
received by Seller whose shelf life is 15 months or longer at Seller's 1994
standard cost of goods sold (it being understood that such purchases shall not
be offset against the $4,000,000 limitation on Seller's liability pursuant to
this Section 9.2(n)); Seller shall have no further liability or responsibility
to accept Salable Returns under this Section 9.2(n) if Buyer makes any material
change in the formulation or packaging of Products which reasonably could be
expected to encourage the return of Products. Seller shall have no liability
with respect to any returns of Products if Buyer implements any sale or return
practices or takes any action which reasonably could be expected to encourage
the return of Products; and
(o) any Envirotest Damages.
9.2.1 Certain Limitations.
-------------------
(a) Seller shall not be required to make any payment under
subsection 9.2(k) in respect of Damages until the aggregate amount of all
Damages under such subsection when combined with all Damages under subsection
9.2(k) of the Canadian Purchase Agreement exceeds $5,000,000 (the "SELLER
MINIMUM"), but
54
<PAGE>
then for the entire amount of such Damages, including those not in excess of
$5,000,000. The Seller Minimum shall not apply to losses arising out of any
breach of the representations and warranties set forth in Section 4.1.1, 4.1.2
or 10.10(c) hereof.
(b) Determinations of amounts of indemnification payable
hereunder shall be made with a view towards making Buyer whole (i) net of any
insurance proceeds actually received with respect thereto by Buyer or any
Affiliate thereof and (ii) after taking into account any net decrease or
increase in the Tax liability of the Buyer or any Affiliate resulting from the
event giving rise to the indemnification hereunder and the receipt by the Buyer
or its Affiliate of indemnification, insurance or other payments with respect to
such event or pursuant to this Agreement. For purposes of the preceding
sentence, any payment that results, for income Tax purposes, in a reduction in
the tax basis for the Purchased Assets shall, to the extent of such reduction in
tax basis, be treated as taxable income to Buyer or the relevant Affiliate in
the taxable year in which such tax basis is reduced.
(c) To the extent any matter specified in subsections 9.2(a),
9.2(b) or 9.2(k) is the subject of any of the specific subsections 9.2(a)
through 9.2(o), such specific subsection shall govern.
(d) Seller shall not have any liability to Buyer in respect of
any claim for indemnification pursuant to Section 9.2(k) to the extent that the
facts, circumstances, act or omissions were disclosed to Buyer by Seller prior
to the earlier of the Cut-Off Date or the Closing Date in an amendment to a
Schedule to this Agreement or in a writing that references this Section.
9.3 Indemnification by Buyer. If the Closing occurs, Buyer shall
------------------------
indemnify and hold harmless Seller and Related Persons and their respective
Agents from, and shall reimburse Seller and Related Persons and their respective
Agents for, any Damages arising from or in connection with:
(a) the conduct of the Business by Buyer or any Affiliate thereof
(or any successor entities) or the operation or use of the Purchased Assets by
Buyer or any act or omission of Buyer or any Affiliate thereof (or any successor
entities) subsequent to the Closing Date;
(b) any failure by Buyer thereof to perform or comply with any
agreement in this Agreement;
(c) any inaccuracy in or omission relating to any of the
representations and warranties of Buyer in this Agreement;
55
<PAGE>
(d) any claim by any Governmental Body for any Taxes of any kind
or nature relating to the Purchased Assets attributable to periods beginning and
ending after the Closing Date; provided, that Seller notifies Buyer of any such
--------
claim within 45 days after receipt of written notice from such Governmental Body
and provided, that such notification to Buyer occurs no later than the later of
--------
(I) the day which constitutes the midpoint of the period from the date on which
written notice from such Governmental Body is received to the date on which a
response to such notice is due (counting the day of receipt as a day only if it
would result in a period with an odd number of days), and (II) 30 days before
the date on which a response to the notice from such Governmental Body is due,
in each case determining the date on which such response is due by taking into
account all applicable extensions of time to respond that are granted; provided,
--------
further, that the failure of Seller to provide Buyer with such notification
- -------
shall relieve Buyer of its obligation to indemnify Seller hereunder only if, and
to the extent that, Buyer incurs liability hereunder directly as a result of
Seller's failure to provide such notification to Buyer;
(e) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by any such Person with Buyer or any Affiliate thereof
in connection with any of the Contemplated Transactions; and
(f) any of the Assumed Liabilities.
9.3.1 Certain Limitations.
-------------------
(a) Buyer shall not be required to make any payment under
subsection 9.3(b) until the aggregate amount of all Damages under such
subsection when combined with all Damages under Section 9.3(b) of the Canadian
Purchase Agreement exceeds $5,000,000 but then for the entire amount of such
Damages, including those not in excess of $5,000,000.
(b) Determinations of amounts of indemnification payable
hereunder shall be made with a view towards making Seller whole (i) net of any
insurance proceeds actually received with respect thereto by Seller or any
Affiliate thereof; and (ii) after taking into account any net decrease or
increase in the Tax liability of the Seller or any Affiliate resulting from the
event giving rise to the indemnification hereunder and the receipt by Seller or
its Affiliate of indemnification, insurance or other payments with respect to
such event or pursuant to this Agreement.
(c) To the extent any matter specified in subsection 9.3(a) or
9.3(c) is the subject of any of the specific
56
<PAGE>
subsections 9.3(a) through 9.3(f), such specific subsection shall govern.
9.4 Conduct Attributable to Both Parties. In the event any Damages
------------------------------------
hereunder are attributable to or arise out of the conduct of the Business in
part both before and after the Closing Date and the parties have not otherwise
provided for the allocation of such Damages, the parties shall indemnify each
other against all such Damages in proportion to the extent to which the conduct
of each party (including, in the case of Seller, all Related Persons and all
predecessors thereof) created or formed the basis for such Damages.
9.5 Procedure for Indemnification.
-----------------------------
9.5.1 Claims for indemnification under this Article 9, other
than those referred to in Section 9.5.2, and under Article 11, shall be made by
notice in accordance with Section 12.2 to each party from whom indemnification
or other payment is sought and shall contain a statement to the effect that a
claim for indemnification is being made pursuant to this Article 9. If the
parties agree as to the amount of Damages, the indemnifying party shall pay such
amount within 20 days of receipt of said notification.
9.5.2 (a) Except as provided in Section 9.5.2(b), after receipt
by an indemnitee under Section 9.2 or 9.3 (an "INDEMNITEE") of notice of a
claim, such Indemnitee shall, if a claim in respect thereof is to be made
against an indemnitor under such Section (an "INDEMNITOR"), give notice to the
Indemnitor in accordance with Section 12.2 of the commencement thereof within a
reasonable time after obtaining information concerning the facts of the claim.
The failure so to notify the Indemnitor shall not relieve it of any liability
that it may have to an Indemnitee except to the extent the Indemnitor
demonstrates that the defense of such claim is materially prejudiced thereby. In
case any such claim shall be brought against an Indemnitee and it shall give
notice to an Indemnitor, the Indemnitor, to the extent that it shall wish, may
assume the defense thereof with counsel reasonably satisfactory to the
Indemnitee and, after notice from the Indemnitor to the Indemnitee of its
election so to assume the defense thereof, the Indemnitor shall not be liable to
the Indemnitee for fees of counsel and any other expenses subsequently incurred
by the Indemnitee in connection with the defense thereof, other than reasonable
costs of investigation; provided, an Indemnitee shall nonetheless have the right
to participate in such proceedings and to be represented by counsel of its own
choosing, and the cost and expense attributable to such counsel employed by an
Indemnitee shall be borne solely by the Indemnitee. The Indemnitor shall keep
the Indemnitee fully informed of the facts of the claim, the progress of the
defense and of its disposition.
57
<PAGE>
(b) If an Indemnitor assumes the defense of an action pursuant to
Section 9.5.2(a), no compromise or settlement thereof may be effected by the
Indemnitor without the Indemnitee's written consent (not to be unreasonably
withheld or delayed). If an Indemnitee determines in good faith that there is a
reasonable probability that a claim may adversely affect it or its Affiliates
other than as a result of monetary damages, such Indemnitee may, by notice to
the Indemnitor, assume the exclusive right to defend, compromise or settle such
action, but the Indemnitor shall not be bound by any compromise or settlement
thereof effected without its consent (which shall not be unreasonably withheld
or delayed); provided that Buyer shall have the exclusive right to defend,
compromise or settle any action with respect to the Manufacturing Plan brought
by a Governmental Body under an Environmental Law. If notice is given to an
Indemnitor by an Indemnitee of the commencement of any action, and the
Indemnitor does not, within ten Business Days after the Indemnitee's notice is
given, give notice of its election to assume the defense thereof, the Indemnitor
shall be bound by any determination made in such action or any compromise or
settlement thereof effected by the Indemnitee. The Indemnitor shall cooperate
with the Indemnitee in the defense against any asserted liability and the
Indemnitee shall keep the Indemnitor fully informed of the facts of the claim of
which it becomes aware and the progress of the defense.
(c) In the investigation and defense of any claim for which
indemnification is sought hereunder, the Indemnitor and the Indemnitee shall
cooperate with the other and shall provide reasonable access to all information
in their respective possession which is reasonably necessary in the
investigation and defense of any such claim.
9.5.3 All notices given under this Section 9.5 shall be in
writing.
9.6 Limitation on Remedies. Each of the parties hereto hereby
----------------------
acknowledges and agrees that its sole and exclusive remedy with respect to any
and all claims relating to the representations and warranties in this Agreement,
shall be pursuant to the indemnification provisions set forth in this Article 9,
and each party agrees not to seek any remedies other than those set forth
herein.
9.7 Real Property Deed. The fact that the Real Property Deed recites
------------------
that the Real Property is being conveyed "under and subject to all matters of
record" shall not affect, release or impair Seller's liability under this
Agreement for breach of any representations, covenants and warranties made by
Seller in this Agreement with respect to the Real Property, and the provisions
of this Agreement shall survive delivery of the Real Property Deed in accordance
with the terms of this Agreement.
58
<PAGE>
ARTICLE 10. COVENANTS
---------
10.1 Employee Matters.
----------------
10.1.1 Termination of Employment; Offer of Employment.
----------------------------------------------
(a) Prior to the Closing Date, Buyer shall identify to Seller the
majority of employees of Seller whose employment relates to the Business that
Buyer shall offer to employ under terms which are substantially similar in the
aggregate to those existing immediately prior to the Closing Date unless
otherwise agreed to pursuant to an employment contract or labor agreement. In
total, Buyer shall offer employment commencing on the Closing Date to at least
380 of Seller's employees. Within 60 days after the Closing Date, Buyer shall
identify to Seller and offer employment commencing 60 days after the Closing
Date to any additional employees of Seller whose employment relates to the
Business in accordance with this Section. Buyer shall conduct the process of
offering employment pursuant to this Section 10.1.1(a) in accordance with any
applicable federal, state or local law or rule. For the one-year period
commencing on the Closing Date, Buyer shall provide each of the New Employees
who accepts the offer of employment by Buyer with severance benefits that are
substantially comparable to, and under the same terms and conditions as, those
provided by Seller on the date hereof in the event any such New Employees are
terminated during such one-year period; provided, however, that within 30 days
after the Closing Date, Buyer may terminate the employment of up to 20 New
Employees (but in no event any of 9 New Employees who currently work for the
Business in the classifications identified in Schedule 10.1.1) and Seller,
promptly after Buyer's request and identification of the terminated New
Employees, shall reimburse Buyer for severance payments Buyer makes to such
terminated New Employees in an amount equal to and calculated pursuant to
Seller's relevant severance pay Plan or obligation as such Plan or obligation
existed before the Closing Date. Notwithstanding the foregoing, Seller
acknowledges and agrees that Buyer shall have no obligation to continue to
employ any New Employee for any specific period of time after the Closing Date
or interfere in any way with Buyer's right to terminate any New Employee at any
time for any reason, subject to applicable law. Seller shall retain at its own
cost or terminate, in its sole discretion, all employees of the Business who are
not being offered employment by Buyer or who reject any offer of employment by
Buyer in accordance with the foregoing provisions of this Section 10.1.1(a), and
shall, except as otherwise provided in Section 10.1.4 hereto, be responsible for
any and all obligations and liabilities arising in connection with the
employment and/or termination of any such employees, including, without
limitation, any severance or other termination pay, retirement and welfare
benefit payments.
(b) Subject to the prior approval of Seller, which approval
shall not be unreasonably withheld, Buyer may at any time during normal business
hours meet with managerial and supervisory personnel of the Business, and Seller
shall cooperate with and assist Buyer to effectuate such meetings. Buyer intends
to meet with employees of the Business and with any collective bargaining
representatives of any such employees to make arrangements or to enter into any
agreements with those employees
59
<PAGE>
or their representatives concerning their becoming employees of Buyer. Seller
shall assist Buyer to arrange and to effectuate such meetings. Such assistance
by Seller shall include, without limitation, distributing notices prepared by
Buyer notifying the employees and the collective bargaining representatives,
inter alia, of the time, location and date of such meetings. Such notices
- ----- ----
shall be subject to approval by Seller without delay and Seller shall not
unreasonably withhold its approval.
(c) For purposes of this Section 10.1, all employees of Seller
who become employed by Buyer following the Closing or on or before the
expiration of their leave of absence (including employees on layoff or
disability leaves) shall be individually referred to as a "NEW EMPLOYEE" and
collectively referred to as the "NEW EMPLOYEES."
10.1.2 Collective Bargaining Agreement. Buyer expressly shall
-------------------------------
not assume or be bound and shall not be required in any manner by the Seller to
assume or be bound, by any labor and employment obligations relating to
employees of Seller, except as specifically provided herein or pursuant to
applicable law. Buyer does not intend to become a successor employer to any
collective bargaining agreement (including the Agreement between Seller and
Teamsters Employees Union Local 169, effective as of October 16, 1992 (the
"UNION AGREEMENT")), either by operation of law or fact. Except as otherwise
provided by applicable law, and, except as otherwise provided in Section 10.1.4
hereto, Seller shall continue to be responsible for any and all obligations and
liabilities arising, accruing or attributable to service with Seller before the
Closing Date, or asserted to exist as of the Closing Date with respect to any
collective bargaining agreement which covers or may cover employees of Seller,
including, without limitation, any claim for severance arising out of the
Closing, and shall discharge, or make adequate provision for the discharge, of
any such obligations and liabilities. Seller shall continue to be responsible
for any legal, administrative, arbitration or other action or proceeding arising
out of the collective bargaining agreement existing on or before the Closing
Date. Nothing in this Section 10.1.2 shall limit the parties' rights under any
other provisions of this Agreement.
10.1.3 Welfare and Other Fringe Benefit Plans.
--------------------------------------
(a) Buyer shall establish or provide for the New Employees'
hospitalization, medical, surgical, life insurance and other welfare plans or
programs, which shall specifically include a "group health plan" within the
meaning of Section 4980B(g)(2) of the Code, and which, taken as a whole, will
provide such employees with a level of benefits that is substantially comparable
to that provided to similarly situated employees of Buyer on the Closing Date,
provided that Buyer shall have no obligation to establish or provide any
severance plan or program
60
<PAGE>
which provides any benefits which vest, are increased or for which the time of
payment is accelerated solely on account of either a change in control or sale
of assets of Buyer. Buyer shall credit each New Employee with his or her total
years and months of service with Seller for purposes of eligibility but not for
purposes of vesting or benefit accrual under each and every such plan and
program where service is used for such purpose, and any other fringe benefit
arrangements that exist or may be established by Buyer for its employees, to the
extent such service was recognized under corresponding plans of Seller; provided
that, with respect to any plan or program that provides for severance pay or
other termination pay of any kind, each New Employee shall receive credit for
his or her past service with Seller if such New Employee has his or her
employment terminated by Buyer during the 12-month period immediately following
the Closing Date. Buyer shall use commercially reasonable efforts to arrange
that any group insurance plan established or maintained by it for the purpose of
providing New Employees with hospitalization, medical, surgical or similar
benefits after the Closing Date shall, to the extent practicable, (1) recognize
expenses and claims that were incurred by a New Employee in the year in which
the Closing Date occurs and recognized by a similar plan of Seller solely for
the purpose of computing deductible amounts, co-payments or other limitations on
coverage under Buyer's plan, and (2) provide coverage (without any required
waiting period) for pre-existing health conditions to the extent covered under
the applicable plan of Seller. Notwithstanding the foregoing, the welfare and
other fringe benefits to be provided to any New Employees who, pursuant to
applicable law, are determined to be represented by a collective bargaining
representative, shall be established in accordance with any legal obligations
Buyer may have with respect to any such representative under a collective
bargaining agreement which incorporates the provision for such benefits under
the Union Agreement. To the extent Buyer assumes and continues the obligation
for the Health and Welfare Retirement Benefit (the "RETIREE BENEFIT") as
currently set forth in Paragraph 39 of the Union Agreement (including any
portion of the payment made for the payment of taxes), Seller agrees to
reimburse Buyer for the payments made pursuant to such paragraph as such
payments are made, up to the aggregate dollar limit set forth below. The
aggregate dollar limit for which Seller shall be liable to reimburse Buyer
hereunder shall be equal to the sum of (1) one-half (50%) of the aggregate
amount that Seller would have been obligated to pay the participants in the RPR
Hourly Plan who are New Employees who had reached their Special Early Retirement
Date as of the Closing Date, assuming that all such employees retired on such
date, and (2) the aggregate amount that would be payable under Paragraph 39 to
the remaining participants in the RPR Hourly Plan who are New Employees,
assuming that each such employee retired upon attaining age 63 (collectively,
the "LIMIT OF SELLER'S LIABILITY"). Buyer shall notify Seller of the amount
61
<PAGE>
of Retiree Benefit payments made as they are made and Seller shall reimburse
Buyer for the amount of such payments within 10 business days of such notice. In
the event that Buyer subsequently negotiates the elimination of the Retiree
Benefit from the Union Agreement, Buyer shall notify Seller of such elimination
and, within 10 business days of such notifications, Seller agrees to pay Buyer a
lump sum in cash equal to (a) the actuarial present value as of the date of such
elimination of the Limit of Seller's Liability as of the Closing Date using the
retirement age assumptions specified in clauses (1) and (2) above, and a
discount rate of 8.5%, less (b) the total of the reimbursements made by Seller
pursuant to this Section prior to such date. Buyer's acceptance of this
provision is conditioned upon its receipt of a letter from Seller's actuary
setting forth the methodology and assumptions used to calculate the liabilities
arising under the Union Agreement and the allocation of such liability between
Buyer and Seller as set forth above. Buyer shall have no obligations to
reimburse Seller in any event.
(b) If Buyer requests, Seller shall use its best efforts to
arrange to have coverage under its group health care insurance plan or policies
extended for any or all of the New Employees through the end of the month in
which the Closing Date occurs, and for one month thereafter. Buyer shall
reimburse Seller promptly for any costs or other liabilities or obligations
Seller incurs by reason of providing the foregoing coverage, taking into account
any tax effect.
(c) Prior to and subsequent to the Closing Date, Seller shall
provide Buyer with such records and other relevant data within its control or
access relating to benefit matters with respect to the New Employees as Buyer
shall reasonably request, to the extent permitted by applicable law.
10.1.4 Pension Plans.
-------------
(a) As soon as practicable after the Closing Date, Buyer shall
establish a new 401(k) plan for the benefit of New Employees who had been
subject to the Union Agreement and/or who participated in the Rhone-Poulenc
Rorer Employee Savings Plan (the "RPR 401(K) PLAN") as of the Closing Date
and/or allow other New Employees to participate in a 401(k) plan Buyer presently
maintains (collectively, the "BUYER 401(K) PLAN"). In either case, for purposes
of eligibility and vesting the Buyer's 401(k) Plan shall recognize the service
credited the New Employees under the RPR 401(k) Plan as of the Closing Date.
Seller shall cause the RPR 401(k) Plan to fully vest all New Employees in their
account balances thereunder as of the Closing Date. Buyer agrees that the Buyer
401(k) Plan shall accept "eligible rollover distributions" (within the meaning
of Section 401(a)(31) of the Code) of cash from any New Employee who receives
such a distribution from the RPR 401(k) Plan, provided that such
62
<PAGE>
rollover distribution meets the requirements for such distributions specified in
the Code and Buyer 401(k) Plan.
(b) Seller shall cause to be transferred from the trust under the
Pension Plan of Rhone-Poulenc Rorer (the "RPR PENSION PLAN") to the trust under
a defined benefit pension plan or plans designated by Buyer (the "BUYER PENSION
PLAN") assets in the form of cash and/or another form or forms acceptable to
Buyer, the value of which shall be equal to the present value of the accumulated
retirement benefits of the New Employees in the RPR Pension Plan as of the
Closing Date, determined using the actuarial methods and assumptions used in the
January 1, 1993 actuarial valuation for the RPR Pension Plan, except that an
interest rate of 8.5% shall be substituted for the rate used in such valuation.
For purposes of eligibility, vesting, subsidized benefits and accrued benefits,
Buyer shall credit each New Employee with the total number of months and years
of service with which such New Employee was credited under the RPR Pension Plan
as of the Closing Date. Any such credit of past service shall be contingent
upon the transfer of assets described above and Buyer shall not be required to
provide any credit for service to any New Employee with Seller if it would
result in a duplication of benefits for such New Employee under the Buyer
Pension Plan. The transfer of assets described above is contingent upon Seller
providing evidence to Buyer that the RPR Pension Plan is qualified under Section
401(a) of the Code on the date of such transfer, including, specifically,
evidence that the RPR Pension Plan was amended on or before December 31, 1994 to
make all changes required by the Internal Revenue Code and the regulations
thereunder to be made to the RPR Pension Plan by such date. The amount to be
transferred shall be adjusted to take into account any benefit payments made to
the New Employees from the RPR Pension Plan from the day following the Closing
Date to the date assets are transferred. The amount to be transferred under this
paragraph shall be determined in the first instance by an actuary designated by
Seller, and shall be subject to review and approval by an actuary designated by
Buyer. In the event of any disagreement between the actuary for Buyer and
Seller, they shall agree on the appointment of a third actuarial firm to review
such dispute, and the determination of such actuary shall be final and binding.
Such transfer shall take place as soon as possible after the Closing Date,
subject to the receipt of any necessary governmental approvals, which Buyer and
Seller shall cooperate in receiving. Upon the transfer of assets contemplated
above, the Buyer agrees to indemnify and hold harmless Seller and its Affiliates
and their respective Agents for any Damages arising from or in connection with
the Buyer Pension Plan caused by any action or failure to act by Buyer,
provided, that this indemnification shall not apply to Damages that result from
violations of the law or other failures with respect to the RPR Pension Plan
which occurred prior to the Closing Date. Notwithstanding the foregoing, no
transfer shall take place until
63
<PAGE>
Buyer furnishes Seller with (i) a copy of a favorable determination letter
issued by the IRS with respect to the Buyer Pension Plan or (ii) an opinion of
Buyer's counsel to the effect that the terms of the Buyer Pension Plan and its
related trust qualify under Section 401(a) of the Code and the trust is exempt
from taxation under Section 501(a) of the Code. Buyer and Seller shall cooperate
with respect to providing each other with records and information necessary or
appropriate to carry out the foregoing, and the transfer of assets described in
this Section 10.1.4(c) shall be subject to the filing of any required
governmental forms and the receipt of any necessary governmental approvals.
(c) Seller currently maintains the Rhone-Poulenc Rorer
Pharmaceutical Inc. Ft. Washington Hourly Employees Pension Plan (the "RPR
HOURLY PLAN"). Prior to the Closing Date, Seller shall make a contribution to
the RPR Hourly Plan equal to the lesser of (i) $8,000,000 and (ii) the maximum
tax deductible contribution permitted under applicable law (the "AMOUNT
CONTRIBUTED"). In addition, as soon as practicable after the signing of this
Agreement, but in no event later than June 30, 1995, a determination shall be
made of the amount, if any, by which (1) the present value of the accumulated
retirement and termination benefits of the participants in the RPR Hourly Plan
on December 31, 1994, determined using the actuarial methods and assumptions
used in the January 1, 1993 actuarial valuation for the RPR Hourly Plan, except
that (x) an interest rate of 8.5% shall be substituted for the rate used in such
valuation, and (y) it shall be assumed that one-half (50%) of the participants
in such RPR Hourly Plan who have reached their Special Early Retirement Date as
of December 31, 1994 under such RPR Hourly Plan will retire immediately, exceeds
(2) the fair market value of the assets of the RPR Hourly Plan on December 31,
1994 (without regard to any accrued but unpaid contributions) (the "PENSION
SHORTFALL"). If there is a Pension Shortfall, Seller shall pay Buyer an amount
in cash or cash equivalents equal to the excess, if any, of the Pension
Shortfall over the Amount Contributed. If the Pension Shortfall is less than the
Amount Contributed, Buyer shall pay Seller an amount in cash or cash equivalents
equal to the excess, if any, of the Amount Contributed over the Pension
Shortfall. In the case of either adjustment described above, the amount of the
adjustment shall be paid within 10 business days of the date the actuaries for
the parties agree on the Pension Shortfall. All calculations contemplated in
this Section shall be determined in the first instance, by an actuary designated
by Seller, and shall be subject to review and approval by an actuary designated
by Buyer. Any disagreements shall be resolved and reconciled between the Buyer's
actuary and Seller's actuary. In the event of any material disagreement between
the actuary for Buyer and Seller, they shall agree on the appointment of a third
actuarial firm to review such dispute, and the determination of such
64
<PAGE>
actuary shall be final and binding. Subject to and contingent upon the
foregoing, effective as of the Closing Date, Buyer shall adopt and be
substituted for Seller as the sponsoring employer of the RPR Hourly Plan, and,
except as otherwise provided in this Agreement, Seller shall have no further
liability with respect to the RPR Hourly Plan. Seller shall take all steps
necessary prior to December 31, 1994 to ensure that the RPR Hourly Plan is
qualified under Section 401(a) of the Code on such date, including,
specifically, causing the RPR Hourly Plan to adopt on or before December 31,
1994 any amendments required to be made by such date. Upon Buyer's assumption of
the RPR Hourly Plan, Buyer agrees to indemnify and hold harmless Seller and its
Affiliates and their respective Agents for any Damages arising from or in
connection with the RPR Hourly Plan caused by any action or failure to act by
Buyer, provided that this indemnification shall not apply to Damages that result
from violation of law or other failures with respect to the RPR Hourly Plan
which occurred prior to the Closing Date.
(d) To the extent any New Employee is eligible to participate in
one or more employee pension benefit plans (within the meaning of Section 3(2)
of ERISA) maintained by Buyer other than the plans described in this Section
10.1.4, for purposes of eligibility and vesting but not for purposes of benefit
accrual, Buyer shall cause such plan to credit each such New Employee
participant with the total number of months and years of service with which such
employee was credited under the RPR Pension Plan or the RPR Hourly Plan as of
the Closing Date.
10.1.5 Seller's Liabilities With Respect to Employees.
----------------------------------------------
(a) Seller shall (i) be responsible for providing any required
notices to the employees of the Business pursuant to COBRA, (ii) with respect to
the New Employees, continue to be responsible after the Closing Date for any
benefit claims incurred by such employees (or their eligible dependents) on or
prior to the Closing Date which become payable under the terms of any medical,
hospitalization, disability, workers' compensation, or life insurance plan,
coverage, obligation, practice, arrangement or any other plan that is a welfare
benefit plan (as defined in Section 3(1) of ERISA) affecting such employees
maintained by Seller, (iii) continue to be responsible for the cost of extended
insurance coverage for any employee of the Business not actively employed by the
Seller on the Closing Date until such time, if any, that such employee returns
to active employment and is employed by Buyer, and (iv) except as provided in
Sections 10.1.1, 10.1.3 and 10.1.4, with respect to New Employees, continue to
be responsible for all wages, salaries, commissions, bonuses, vacation pay,
retiree health and other non-pension benefits, including long-term disability,
and other
65
<PAGE>
compensation or benefits accrued or attributable to services with Seller prior
to the Closing Date.
10.1.6 Conditional Offers of Employment. All offers of
--------------------------------
employment by Buyer contemplated in this Section 10.1 shall be expressly
conditioned upon consummation of the Contemplated Transactions.
10.1.7 Reimbursement. Seller shall pay all liabilities
-------------
relating to the employer's portion of FICA, FUTA taxes, SUI taxes, the state
unemployment and payroll taxes, unused vacation time accrued by the New
Employees prior to the Closing Date.
10.1.8 No Rights to Employees. Nothing in this Section 10.1 or
----------------------
elsewhere in this Agreement is intended to confer upon any past, present or
future employee of Seller or his or her legal representatives, including,
without limitation, any collective bargaining representative, or heirs, any
rights as a third party beneficiary or otherwise or any other rights or remedies
of any nature or kind whatsoever under or by reason of this Agreement or the
Contemplated Transactions, including without limitation, any rights of
employment, continued employment, or any rights under or with respect to any
welfare benefit, pension or other fringe benefits plan, program or arrangement.
Nothing in this Agreement shall be construed as causing a termination of
employment with Seller with respect to any New Employees by reason of any
transactions contemplated hereby. Except as otherwise provided herein, nothing
contained in this Agreement shall restrict in any way Buyer's right, in its sole
discretion to establish, amend or terminate any employee benefit plan,
arrangement, program, practice, policy or procedure. All rights and obligations
created by this Agreement are solely between the parties hereto.
10.1.9 Notice Obligations.
------------------
(a) Buyer shall have the right to review any and all notices
provided to employees of the Business, their legal representatives, including,
without limitation, any collective bargaining representative, or other Persons
required by law, in connection with the Contemplated Transactions including,
without limitation, notices: (i) pursuant to Section 2101 et seq. of the
-- ---
Workers' Adjustment Retraining and Notification Act of 1988 (the "WARN ACT"),
(ii) to any collective bargaining representatives of employees of Seller, (iii)
pursuant to COBRA, and (iv) as otherwise provided by applicable law
(collectively, the "NOTICES") before such Notices are issued to the appropriate
parties by Seller.
(b) Upon Buyer's request, Seller shall distribute to its
employees letters prepared by Buyer advising such
66
<PAGE>
employees of employment opportunities with Buyer. Such letters shall be subject
to approval by Seller without delay and Seller shall not unreasonably withhold
its approval.
10.1.10 Termination of Employment, Noncompetition and
---------------------------------------------
Confidentiality Agreements. To the extent that Seller or any Related Person
- --------------------------
have employment, noncompetition and/or confidentiality agreements with any
employees of the Business, Seller shall, and shall cause each Related Person to,
terminate all such agreements and release, relinquish, waive and terminate any
rights Seller or any such Related Person may have pursuant to such agreements,
effective immediately prior to the Closing, for any New Employee; provided that
with regard to Seller's standard confidentiality agreement with employees of the
Business, Seller shall discharge its obligations under this Section 10.1.10 by
refraining from enforcement of such agreements which had been entered into by
any New Employee.
10.2 Reasonable Commercial Efforts and Required Consents. (a)
---------------------------------------------------
Subject to Sections 10.10(b), 10.10(c) and 10.10(d), Seller and Buyer shall each
use reasonable commercial efforts to comply promptly with all requests or
requirements which applicable Governmental Bodies may impose on them with
respect to the Contemplated Transactions, and to consummate such transactions as
promptly as practicable. The reasonable commercial efforts of Buyer and Seller
shall include, without limitation, the good faith response, in cooperation with
each other, to all requests for information, documentary or otherwise, by any
Governmental Body pursuant to Hart-Scott. Seller shall use reasonable
commercial efforts to secure all necessary consents, approvals, authorizations,
exemptions and waivers set forth on Schedules 4.1.4, 4.1.5, 7.2.8 and 7.2.9 from
any and all Persons, including, without limitation, Governmental Bodies, as
shall be required for the transfer of the Purchased Assets from Seller to Buyer
and the consummation of the other Contemplated Transactions, including, without
limitation, consents or approvals with respect to the transfer or assignment of
all Governmental Permits which require such consent. Buyer will cooperate with
Seller, as Seller may reasonably request, in Seller's efforts to obtain any such
consent.
(b) Seller has used commercially reasonable efforts to identify
all of the assets which are primarily used or held for use for the Business. In
the event that after the date hereof, Seller or Buyer shall identify any
additional assets which are primarily used or held for use in the Business which
have not previously been conveyed by Seller to Buyer, Seller shall immediately
deliver such assets to Buyer (without any consideration therefor). To the extent
Seller uses any assets to conduct any business other than the Business and such
assets are also used or are useful in the Business, Seller shall use
commercially reasonably efforts to afford Buyer, to the fullest extent
practicable, the use or benefit of such assets (without any consideration
therefor).
67
<PAGE>
10.3 Books, Records and Information. Buyer agrees that it shall
------------------------------
cause to be preserved and kept the records of the Seller delivered to it
hereunder for a period of two years after the Closing Date or for any longer
period as may be required by applicable law or in connection with any ongoing
litigation that Seller informs Buyer of in writing prior to the date which is
two years after the Closing Date, and shall make such records and employees of
Buyer available to Seller or any Related Person (at Seller's cost) as may be
reasonably required by Seller in connection with any legal proceedings
involving, or governmental investigations or tax examinations of Seller or any
Related Person. In the event Buyer wishes to destroy such records after that
time, it shall first give prior written notice to the Seller and Seller shall
have the right at its option, upon notice given to the Buyer within ten days
after delivery of such notice, to take possession of such records.
10.4 Workers' Compensation. Seller represents and warrants to Buyer
---------------------
that Schedule 10.4 contains a true and complete list of all workers'
compensation claims brought against Seller or any Related Person by employees or
former employees of the Business arising from occurrences which took place or
were alleged to have taken place in whole or in part since January 1, 1992.
Seller, through the applicable insurance carrier or claims administrator, shall,
at its sole cost and expense, administer (including, without limitation,
defending, settling and paying awards) the workers' compensation claims listed
on Schedule 10.4 and any other workers' compensation claims brought against
Seller or any Related Person by employees or former employees of the Business
arising from occurrences which took place or were alleged to have taken place in
whole or in part on or prior to the Closing Date, regardless of when the claim
with respect thereto is filed.
10.5 Confidential Information. Prior to the Closing, each party
------------------------
shall keep confidential and not disclose to any Person (other than its
employees, attorneys, accountants, bankers and advisors) or use (except in
connection with the Contemplated Transactions) all confidential information
obtained by it from the other party or its representatives (including any
information obtained pursuant to the access provided under Section 6.2). Prior
to the Closing, each party shall keep confidential and not disclose to any
Person (other than its employees, attorneys, accountants, bankers and advisors)
this Agreement or the Canadian Purchase Agreement or the U.S. Seller Ancillary
Agreements, the U.S. Buyer Ancillary Agreements, the Canadian Seller Ancillary
Agreements or any provision of such Agreements. If the Closing occurs, neither
Seller nor any Affiliate shall at any time, directly or indirectly, publish,
utilize, disclose or make available to any Person other than its Affiliates,
whether or not a competitor of Buyer or its Affiliates, any confidential
information concerning the Purchased Assets or the Business,
68
<PAGE>
Buyer or its Affiliates. If the Closing occurs, neither Buyer nor any Affiliate
shall at any time, directly or indirectly, publish, utilize, disclose or make
available to any Person any confidential information concerning Seller or its
Affiliates. This Section 10.5 shall not be violated by disclosure of information
which (a) at the time of disclosure is publicly available or becomes publicly
available through no act or omission by the party who obtained the information,
(b) was in possession of the party receiving the information prior to the other
party's disclosure thereof to such party, (c) is thereafter disclosed to the
party receiving the information by a third party who did not obtain the
information under an obligation of confidentiality, (d) is disclosed with the
written consent of the other party, or (e) is disclosed pursuant to court order
or as otherwise required by law, on condition that notice of the requirement for
such disclosure is given to the other party prior to making any disclosure and
the party subject to such requirement cooperates as the other may reasonably
request in resisting it. Seller and Buyer shall each use commercially reasonable
efforts to cause their own and their Affiliates' representatives, attorneys,
accountants and advisers to whom information is disclosed pursuant to this
Section 10.5 to comply with the provisions of this Section 10.5.
10.6 Publicity. Without the approval of the other party hereto,
---------
neither party shall issue (or permit any Affiliate to issue) any public
announcement or statement with respect to this Agreement, the U.S. Seller
Ancillary Agreements, the U.S. Buyer Ancillary Agreements, the Canadian Purchase
Agreement, the Canadian Seller Ancillary Agreements or the Contemplated
Transactions, except as required by law or stock exchange regulations.
10.7 Switch Products. (a) On the terms described in this Section
---------------
10.7, Seller agrees to negotiate in good faith with Buyer during the period
beginning on the Closing Date and ending seven years after the Closing Date,
with respect to the right to use, distribute, market and sell any existing or
future prescription pharmaceutical products owned by Seller or any Related
Person which become or in the reasonable judgement of Seller have the potential
to become consumer pharmaceutical products ("SWITCH PRODUCTS") which Seller
decides not to use, market, distribute or sell itself in the Territory.
(b) If at any time Seller wishes to permit the use, marketing,
distribution or sale of any Switch Product as a consumer pharmaceutical product
by any third party (pursuant to an acquisition, licensing arrangement or
otherwise), Seller shall first offer such right to Buyer by delivering a writing
(the "SELLER OFFER") to Buyer that describes the Switch Product and the terms of
Seller's proposed offer. If Buyer wishes to accept the Seller Offer or if Buyer
wishes to discuss the Seller Offer,
69
<PAGE>
Buyer shall give written notice (the "BUYER REPLY") to Seller within 15 days
after receipt of the Seller Offer. If Buyer timely gives the Buyer Reply to
Seller, then the parties shall, within five days after receipt of the Buyer
Reply, either (a) execute a written contract about the Switch Product, if Buyer
accepted the Seller Offer, or (b) begin to negotiate in good faith to achieve a
written contract and execute such contract, if Buyer's Reply asked to discuss
the Seller Offer. If the parties are unable to execute a mutually satisfactory
contract within two months (or such longer period as the parties may agree)
after the Buyer Reply or if Buyer does not deliver a Buyer Reply within 15 days
after receipt of a Seller Offer, then Seller shall be free to discuss the Switch
Product which was the subject of the Seller Offer with third parties and all
rights of Buyer with respect to such Switch Products shall terminate.
10.8 Barcroft First Refusal. (a) During the one-year period
----------------------
following the Closing Date, Seller shall not sell or enter into a contract to
sell the Barcroft Facility without complying with the provisions of this Section
10.8. For purposes of this Section 10.8, a ground lease of the Barcroft
Facility shall be deemed to be a sale thereof. The grant of a mortgage lien
shall not trigger Buyer's rights hereunder; provided such mortgage lien is
granted as part of a bona fide financing transaction with a Person unaffiliated
---- ----
to Seller and not for the purpose of conveying title to a third Person.
(b) If Seller desires to accept a bona fide offer from a third party
---- ----
(a "THIRD PARTY OFFER") regarding the acquisition of the Barcroft Facility at
any time during the one-year period after the Closing, Seller shall promptly
notify Buyer of such Third Party Offer in writing (the "THIRD PARTY NOTICE").
The Third Party Offer shall contain all of the material terms and conditions
concerning the proposed acquisition and the Third Party Notice shall contain a
copy of the Third Party Offer (but need not contain the form of the complete
agreement with respect thereto or the identity of the third party).
(c) Buyer shall have 60 days after the date of its receipt of the
Third Party Notice to give notice (the "PURCHASE ACCEPTANCE") that it wishes to
enter into a contract with Seller on the material terms and conditions set out
in the Third Party Offer and Third Party Notice. During such 60-day period,
Buyer shall have the right to conduct a full due diligence investigation of the
Barcroft Facility, including, without limitation, the taking of physical samples
(subject to the same requirements for restoration and indemnity as are set forth
in Section 6.2). Such 60-day period shall be extended to 90 days if Buyer
elects to obtain an environmental audit beyond a "phase-1" environmental audit.
If Buyer gives its Purchase Acceptance with the specified period, the parties
shall execute a binding contract evidencing the transaction within 45 days after
the
70
<PAGE>
expiration of the period described in the previous sentence which contract shall
provide for closing upon the later of (i) the date specified in the Third Party
Offer and (ii) a date no later than 60 days after the execution of such binding
contract. If Buyer does not give its Purchase Acceptance within the specified
period, Seller shall be free to enter into the third party transaction, but only
on the same (or less favorable to the third party) terms and conditions as are
set out in the Third Party Notice; provided, however, that if the transaction
-------- -------
with the third party is not consummated within the one-year period set out in
the first sentence of this Section 10.8, the restrictions set out in this
Section 10.8 shall again become effective for the balance of such one-year
period. If Buyer defaults under any such binding contract, this Section 10.8
shall be of no further force and effect.
10.9 Office Building Repurchase.
--------------------------
10.9.1 Notwithstanding that the Office Building is part of the
Real Property to be conveyed to Buyer at Closing, the parties agree that (i) the
Office Building is being conveyed to Buyer as an accommodation to Seller pending
completion of the subdivision of the Real Property and the reconveyance of the
Office Building to Seller as described below in this Section 10.9; (ii) it is
the desire and intention of the parties that Seller retain all of the benefits
(including the right to receive all revenues) and burdens (including the
obligation to pay all expenses and liabilities) of the Office Building; and
(iii) Buyer is taking legal title to the Office Building at Closing solely as
the nominee and/or "straw party" for Seller and in order to enable Seller to
legally convey to Buyer at Closing the balance of the Real Property. The Real
Property Deed shall not reflect such arrangement, but at Seller's request Buyer
and Seller shall enter into a separate "straw party" agreement on or prior to
the date of Closing, which agreement shall not be recorded and shall not detract
from or expand either party's rights or obligations under this Section 10.9.
10.9.2 Promptly following the Closing, Seller shall, at
Seller's sole cost and expense, take any and all action necessary to legally
subdivide the Real Property so that the Office Building will constitute a
single, separate tax lot that may be legally reconveyed by Buyer to Seller
(including, without limitation, the satisfaction of all conditions imposed by
any governmental authority in connection with such subdivision). Such action
shall include, without limitation, the removal of the existing above-ground
walkway connecting the Manufacturing Plant and the Office Building and the
performance of all work to the Manufacturing Plant and Office Building
necessitated by such removal, and the installation in the Office Building and/or
Manufacturing Plant, as needed, of all infrastructure, heating, ventilation, air
conditioning, electrical and other systems, and
71
<PAGE>
connection of all utilities necessary, and the creation of access to a public
street or highway, so that each of the Manufacturing Plant and Office Building
alone complies with all zoning laws (taking then existing variances into
account) and is able to be operated and accessed, as a totally independent and
self-sufficient facility without depending on the other property for service,
compliance with any laws or any other matters (except for any cross easements
granted pursuant to this Section 10.9.2). Seller shall cause such subdivision
and all such work and installations, including, without limitation, all work
required by governmental authorities as a condition to obtaining such
subdivision (collectively, the "SUBDIVISION") to be completed not later than the
third anniversary of the Closing. Subject to the last sentence of this Section
10.9.2, Buyer shall cooperate with Seller in connection with effecting the
Subdivision (and satisfying conditions pertaining thereto, including, without
limitation, conditions relating to parking, access, sewage and "equivalent
dwelling units" for the Office Building) and upon Seller's request (as described
below in Section 10.9.9) Buyer shall execute any and all documents which must be
executed by the record owner of the Office Building in order to effect the
Subdivision and shall grant reasonable and necessary easements in favor of the
Manufacturing Plant and/or Office Building required in order to obtain the
Subdivision; provided, however, that Buyer shall have no obligation to incur any
out of pocket liability or expense in connection with the Subdivision and Seller
shall reimburse Buyer, and shall indemnify and hold harmless Buyer in accordance
with Sections 10.9.9 and 9.2(m), for all Damages incurred or suffered by Buyer
in connection with the Subdivision, including, without limitation, by reason of
business interruption at the Manufacturing Plant on account of the Subdivision.
Buyer shall provide Seller with reasonable evidence of such Damages and shall
cooperate in a reasonable manner with Seller, but without any out of pocket
expense to Buyer, to mitigate any such damages. Such cooperation shall include,
but not be limited to, informing Seller, upon its request, of the times when any
work would cause the least amount of disruptions to Buyer. Notwithstanding
anything to the contrary contained in this Section 10.9.2, in no event shall the
provisions of the preceding sentence be deemed to require Seller to take any
action or grant any easement or give Seller "equivalent dwelling units" or agree
to any condition pertaining to the Subdivision that would have a materially
adverse effect on the Manufacturing Plant or the conduct of Buyer's business on
or in the Manufacturing Plant, or would be a violation of any applicable law.
10.9.3 Seller shall notify Buyer within ten Business Days after
the Subdivision has occurred.
72
<PAGE>
10.9.4 Subject to Section 10.9.6, at any time following the
Subdivision (including after the third anniversary of the Closing), either party
may, by notice to the other, fix a date (which shall be a Business Day) for the
reconveyance to Seller of legal title to the Office Building, which date may not
be earlier than 30 days after the giving of such notice.
10.9.5 On the date specified in a notice given pursuant to
Section 10.9.4, Buyer shall reconvey to Seller the Office Building by quitclaim
deed (or, if required for title insurance purposes, a special warranty deed),
subject to all Encumbrances existing on the date of such reconveyance other than
Encumbrances resulting from Buyer's breach of Section 10.9.9 or other misconduct
of Buyer. Buyer shall have no obligation to make any representations or
warranties, or give any indemnities, to Seller with respect to any matters
relating to such reconveyance (except in the special warranty deed, if one is
required by Seller's title company); provided, that Buyer shall execute and
deliver to Seller at such closing a FIRPTA Certificate and shall execute and
deliver at such closing to Seller's title insurance company any affidavit
customarily requested by such company (but only if such title company will not
accept such affidavit from Seller). The closing of such reconveyance shall take
place at the offices of Buyer at the address set forth in Section 12.2 or such
other place as Buyer and Seller shall agree. All costs and expenses of such
reconveyance (including, without limitation, all transfer taxes, (if any) and
the reasonable fees and expenses of Buyer's attorneys) shall be paid for by
Seller at or before such closing. Buyer and Seller shall also execute and
deliver at such closing any other documents reasonably necessary to effectuate
such reconveyance. If following the Subdivision and Seller's giving of notice
under Section 10.9.4 Buyer fails to tender a deed for the Office Building in
compliance with the requirements for reconveyance under this Section 10.9.5, and
such failure continues for 90 days after notice from Buyer, Seller shall have
the right to either (i) bring an action for specific performance or (ii) elect
to terminate all its obligations under this Section 10.9 arising after the
expiration of such 90 day period.
10.9.6 If on the third anniversary of the Closing the
Subdivision has not been completed, or if Seller is not ready, willing and able
to close on the reconveyance of the Office Building on the date fixed therefor
pursuant to paragraph 10.9.4 above (or within 15 days thereafter) and in either
such case the same is not due to a breach by Buyer of this Section 10.9 written
notice of which was given by Seller to Buyer promptly following such breach,
then, in any such event, Buyer shall thereafter have the right but not the
obligation to give Seller a notice (a "TERMINATION NOTICE") terminating Seller's
right to reacquire the Office Building and all other rights of Seller under this
Section 10.9. If Buyer gives a Termination
73
<PAGE>
Notice then (i) Seller shall, subject to the last sentence of Section
10.9.9(iii) hereof, thereafter have no rights under this Section 10.9, (ii)
Seller shall, within 15 days after the giving of such notice, pay to Buyer in
immediately available funds the sum of $1,000,000, as liquidated damages (and
not as a penalty) and as Buyer's sole legal and equitable remedy for Seller's
default under Section 10.9.2 and/or Section 10.9.5 and thereafter neither Seller
nor Buyer shall have any further rights or obligations under this Section 10.9,
except that Seller shall remain fully liable under Section 9.2(m) and this
Section 10.9 for all Office Building Damages. From and after the date of the
Termination Notice or any termination pursuant to the last sentence of Section
10.9.5, Buyer's ownership of the Office Building shall not be as the nominee or
straw party of Seller but rather Buyer shall be deemed to own all of the legal,
beneficial and equitable ownership interests in the Office Building. Following
the giving of a Termination Notice or any termination pursuant to the last
sentence of Section 10.9.5, (i) Seller shall, within ten days after Buyer's
request, confirm in writing (including, if requested by Buyer, in a deed in
recordable form confirming) that Seller has no legal, beneficial or equitable
interest in the Office Building and (ii) Buyer shall be liable for all
obligations arising with respect to the Office Building from and after the
giving of such Termination Notice or any termination pursuant to the last
sentence of Section 10.9.5. Seller shall not be relieved of any of its
obligations under this Section 10.9 except to the extent expressly so provided
in the last sentence of Section 10.9.5, in the preceding sentence or elsewhere
in this Section 10.9.
10.9.7 Buyer and Seller agree that the damages that Buyer will
suffer as a result of Seller's breach of Section 10.9.5 are difficult to
ascertain and that the liquidated damages provided for in Section 10.9.6
represent fair and reasonable compensation to Buyer for such breach.
10.9.8 The parties agree that from Closing Date to the earliest
to occur of (x) Buyer's giving a Termination Notice under Section 10.9.6, (y) a
termination by Seller pursuant to the last sentence of Section 10.9.5, or (z)
the date of reconveyance of the Office Building to Seller pursuant to Section
10.9.5 above, (i) Seller shall have the sole right to make all decisions and
take all reasonable actions (provided such decisions and actions do not
interfere in any material respect or adversely affect in any material respect
Buyer or the Manufacturing Plant or the use thereof or the Business therein and
subject to the other provisions of this Section 10.9) regarding the Office
Building (including, without limitation, all decisions and actions relating to
the management, leasing, repair and improvement of the Office Building);
provided, that Buyer shall have the right to take any action which it reasonably
believes to be necessary in order to comply with law even if such action is
inconsistent with Seller's decisions (provided further, that
74
<PAGE>
except in the event of an emergency, Buyer shall notify Seller in writing at
least two business days before taking such actions), (ii) subject to the first
proviso in the preceding clause (i), Buyer shall cooperate with Seller to
implement all such decisions made by Seller and Seller shall have the right to
enter upon the Office Building for the purpose of implementing all such
decisions, and (iii) Seller shall pay when due any and all costs and expenses
relating to the Office Building (including, without limitation, all real estate
taxes, utilities, and costs of managing, operating, maintaining, repairing,
improving and leasing the Office Building). For purposes of the preceding clause
(iii), 20% of the real estate taxes for the entire Real Property (and of any
other expense relating to the entire Real Property which is not separately
billed or otherwise specifically allocated to the Office Building) shall be
deemed allocable to the Office Building. From the date hereof through the date
of the reconveyance of the Office Building pursuant to Section 10.9.5 or the
date of delivery of a Termination Notice or a termination by Seller under
Section 10.9.5, whichever is earliest, Seller shall maintain, at its expense,
comprehensive or commercial general liability insurance with respect to the
Office Building with such carrier, deductible and limit as may be reasonably
acceptable to Buyer. The comprehensive or commercial general liability insurance
maintained by Seller shall be primary over any other insurance. Seller shall
cause Buyer to be named as an additional insured under such insurance, and upon
Buyer's request Seller shall deliver to Buyer a copy of such insurance policy
and evidence of timely renewals thereof.
10.9.9 Notwithstanding anything in this Agreement to the
contrary (but subject to the first proviso in clause (i) of Section 10.9.8), it
is specifically agreed by the parties that
(i) prior to the earliest of (x) Buyer's giving a
Termination Notice under Section 10.9.6, or (y) the date of reconveyance of the
Office Building to Seller pursuant to Section 10.9.5, or (z) a termination by
Seller under clause (ii) of the last sentence of Section 10.9.5, Buyer shall
take no action (or grant consent to any action) pursuant to Section 10.9.2 or
10.9.8 or otherwise (including, without limitation, the conveying of any
interest in or granting any lien or other encumbrances on or placing any matter
of record with respect to the Office Building, or violating the rights of any
tenants thereof) to carry out the Subdivision or regarding any other matter
relating to the Office Building ("OFFICE BUILDING MATTERS") without the specific
written request and direction of Seller (any such action taken by Buyer at the
request or direction of Seller, or taken by Seller, are hereinafter referred to
as a "SELLER ACTION"). Buyer shall cause any judgment lien filed against Buyer
to be removed of record as against the Office Building prior to the foreclosure
thereof or the date fixed for reconveyance under Section 10.9.4, whichever is
earlier.
75
<PAGE>
(ii) prior to the earliest of (x) Buyer's giving a
Termination Notice under Section 10.9.6, or (y) the date of reconveyance of the
Office Building to Seller pursuant to Section 10.9.5, or (z) a termination by
Seller under clause (ii) of the last sentence of Section 10.9.5, Buyer will take
such lawful actions in connection with Office Building Matters as are directed
in writing by Seller, including but not limited to cooperating in a reasonable
manner to minimize or avoid real estate transfer taxes to the extent permitted
by law.
(iii) Buyer shall have no liability, and Seller shall
reimburse Buyer for, any and all Damages pertaining to the Office Building or
which arise at any time on account of Buyer's owning or maintaining (or having
owned or maintained) the Office Building or on account of any Seller Action or
on account of the conveyance of the Office Building to Buyer or the reconveyance
of the Office Building to Seller, excluding, however, Damages arising by reason
of (w) Buyer's breach of this Section 10.9, (x) Buyer's (or its Affiliates' or
their respective Agents') gross negligence or willful misconduct, (y) acts,
omissions, conditions or circumstances which first exist or occur on or after
the date that Buyer acquires beneficial ownership of the Office Building
pursuant to Section 10.9.6 or (z) acts of Buyer, its Affiliates or their
respective Agents after the date of reconveyance of the Office Building to
Seller pursuant to Section 10.9.5 (collectively, "OFFICE BUILDING DAMAGES").
Office Building Damages shall include, without limitation, all Taxes, insurance,
utilities, operating losses and maintenance and upkeep relating to the Office
Building and all claims by third parties arising with respect to, or on account
of the Office Building and all reasonable fees and expenses of counsel incurred
relating to such claims. Seller shall reimburse Buyer for all Office Building
Damages, within 10 Business Days after submission to Seller of a reasonably
detailed invoice therefor (with supporting documents), on a dollar-for-dollar
basis (without giving effect to any tax benefits) including for the reasonable
value of Purchaser's employees and for Purchaser's internal and other
disbursements, including reasonable attorney's or other expert fees, if in
Buyer's reasonable judgment such services are required as long as and to the
extent Buyer complies in all material respects with Seller's directions. The
provisions of this Section 10.9.9(iii) and Section 10.9.9(iv) below shall
survive the closing of any reconveyance under Section 10.9.5 or the conveyance
of beneficial ownership of the Office Building to Buyer.
(iv) If Buyer receives directions regarding a Seller
Action from Seller and does not comply therewith in all material respects
(through no fault of Seller or the third party or parties involved with the
Seller Action and subject in all events to the first proviso contained in clause
(i) of Section 10.9.8), then, unless the reason for Buyer's non-compliance is
that Seller is in default with respect to payments due to Buyer under this
Section 10.9, Buyer shall indemnify, defend and hold harmless Seller and its
Affiliates and their respective Agents for all Damages arising from such non-
compliance by Buyer or its Affiliates or their respective Agents, net of
Seller's available insurance therefor.
76
<PAGE>
(v) If Buyer receives a request from a third party for
or otherwise needs directions regarding a Seller Action, it shall promptly
notify Seller and Seller shall reply with directions promptly (and in any event
in sufficient time to allow Buyer to comply with Seller's directions without
undue effort). If Seller delivers directions to Buyer without having been
requested, Seller shall allow sufficient time to permit Buyer to comply with
Seller's directions without unreasonable effort.
(vi) If Buyer receives no request for a Seller Action
from a third party or directions from Seller, it shall take no Seller Action
(unless required by law, in which case Buyer shall be indemnified as provided in
Section 9.2(m)). If Buyer notifies Seller of a request for directions and
receives no direction from Seller, Buyer shall take no action in connection with
such request unless required by law, and Buyer shall be fully reimbursed and
indemnified by Seller for all Damages relating thereto or arising on account
thereof or in connection therewith, as described in Sections 9.2(m) and
10.9.9(iii).
(vii) So long as Buyer owns the Office Building as
Seller's nominee or straw party, Buyer shall supply the Office Building with a
reasonable amount of chilled water, steam and electricity to enable Seller to
comply with the obligations to tenants of the Office Building, provided that:
(A) Seller shall pay Buyer for such service at a
reasonable cost established by Buyer from time to time,
(B) Buyer shall have no obligation to provide such
chilled water, steam and electricity above levels so provided as of the
date of this Agreement, but Buyer will in good faith try to accommodate
requests by Seller for additional levels if the same are available and in
excess of that required by Buyer,
(C) Buyer shall have no liability to Seller or any
tenant of the Office Building by reason of any interruption of any such
services (any such liability being "Office Building Damages") unless (x)
such interruption is due to the gross negligence or wilful misconduct of
Buyer or (y) Buyer does not use reasonable efforts to promptly restore such
service.
(viii) In the event of a sale of the Office Building to a
third party, such third party shall be entitled to all of the rights, and be
bound by all of the obligations, of Buyer under this Section 10.9. Buyer and
such third party shall execute and deliver an assignment and
77
<PAGE>
assumption agreement so stating and deliver an original thereof to Seller, and
at Buyer's request Seller shall consent in writing to such assignment and
assumption.
(ix) So long as Buyer owns the Office Building as
Seller's nominee or straw party, Buyer shall pay all real estate taxes and
assessments on the Manufacturing Plant on a timely basis.
10.9.10 Whenever this Section 10.9 provides that Buyer may take
action if required by law, Buyer shall be permitted to take such action if it in
good faith believes that such action is required by law and has received advice
from counsel to such effect.
10.10 Failure to Obtain Consent.
-------------------------
(a) Subject to Sections 10.10(b), 10.10(c) and 10.10(d), in the
event and to the extent Seller does not obtain any of the consents set forth on
Schedules 4.1.4 and 4.1.5, Seller shall use commercially reasonable efforts to
obtain such consents. Pending receipt of such consents, Seller agrees to
cooperate with Buyer to provide for Buyer the benefits under any Contract or
Governmental Permit which is the subject of such consents, and Seller shall, to
the fullest extent possible, exercise all rights of Seller thereunder for the
benefit of Buyer.
(b) Seller will use its best efforts to obtain a written consent,
in form and substance satisfactory to Buyer, of MADAUS AG ("MADAUS") to Seller's
assignment to Buyer of the Product Supply Agreement between Seller and Madaus,
dated April 28, 1994 (the "MADAUS SUPPLY AGREEMENT"), without alteration in any
terms or conditions thereof. Buyer will cooperate with Seller, as Seller may
reasonably request, in Seller's efforts to obtain such consent. If Seller fails
to obtain such consent on or prior to the Closing Date (or such consent is
conditioned upon a modification of the Madaus Agreement reasonably unacceptable
to Buyer or otherwise subject to conditions reasonably unacceptable to Buyer),
(i) Seller shall hold its interest in the benefits of the Madaus Supply
Agreement in trust for the benefit of Buyer or shall enter into such other
arrangements as Buyer may reasonably request in order to permit Buyer to obtain
the intended benefits thereof, (ii) Seller shall use its best efforts to provide
to Buyer (whether through continued exercise of its rights under the Madaus
Agreement or through alternative arrangements) the economic benefits of the
Madaus Agreement at no increased cost and under no more burdensome conditions
than those borne by Seller as of the date of this Agreement (the "ALTERNATIVE
ARRANGEMENTS"), and (iii) the Intellectual Property Agreement shall be deemed
amended to exclude the Trademarks "Perdiem" and "Prodiem" and the goodwill
associated therewith (the "MADAUS INTELLECTUAL PROPERTY"). In the event the
Closing occurs prior to Seller's receipt of a written consent of Madaus which
satisfies the condition set out
78
<PAGE>
above, Buyer shall have the right, exercisable by 30 days' written notice to
Seller at any time prior to Seller's receipt of such consent in accordance with
the provisions of Section 12.2, to notify Seller that Buyer has determined that
the Madaus Agreement constitutes an Excluded Asset, in which event Buyer shall
(x) reduce all remaining outstanding annual Payment Amounts contemplated by
Section 3.1 of the Intellectual Property Agreement by $6.4 million per year (in
the case of a full Fiscal Year (as defined in the Intellectual Property
Agreement), and a proportionate amount thereof, in the case of a portion of a
Fiscal Year) and (y) reduce the purchase price of the purchase option
contemplated by Section 9.1 of the Intellectual Property Agreement by $36.8
million. Should Buyer exercise such right, Seller's obligations pursuant to
clauses (i) and (ii) above shall terminate and Seller shall have all rights to
the Madaus Intellectual Property, free and clear of all rights of Buyer under
this Agreement or the Intellectual Property Agreement.
(c) The Purchased Assets constitute all of the assets of the
business of Seller to which the Material Supply Agreement, dated September 22,
1994, between Dow Corning Corporation and Seller relates. Seller has provided
Dow Corning Corporation with written notice of the assignment by Seller to Buyer
of Seller's rights under such Material Supply Agreement.
(d) The obligations of Seller and Buyer to consummate the
transactions contemplated by this Agreement are conditioned upon, among other
things, the receipt of a consent (the "OI CONSENT") to the assignment by Seller
to Buyer of the OI Supply Agreement, dated as of September 22, 1993, by and
between Rhone-Poulenc Rorer Inc. and Owens-Illinois Plastic Products Inc. (the
"OI SUPPLY AGREEMENT"). Seller has advised Buyer that the OI Consent will not
be received by Closing.
To induce Buyer to waive the condition to its obligation to close set
forth in Section 7.2.9 of this Agreement, Seller agrees that it will use its
best efforts to obtain the OI Consent and that if the OI Consent is not obtained
or is obtained on terms that result in an increased cost to Buyer of the
materials supplied under the OI Supply Agreement (over the pricing as currently
provided for in the OI Supply Agreement), Seller shall for a period of one year
following the Closing Date reimburse Buyer for and indemnify Buyer against the
increased cost to Buyer, if any, of the materials that are or (except that Buyer
had to use an alternate source) would have been supplied pursuant to the Supply
Agreement. In connection with the enforcement of any rights under this Section
10.10(d), Buyer shall be entitled to recover reasonable attorney fees and
expenses. Seller shall pay Buyer for amounts due to Buyer under this Section
10.10(d) within 15 Business Days after delivery by Buyer to Seller of a
reasonably detailed invoice therefor.
To induce Seller to waive the condition to its obligation to close set
forth in Section 7.3.9 of this Agreement, Buyer agrees that it will cooperate
with Seller in Seller's efforts to obtain the OI Consent and will use reasonable
efforts to mitigate its damages resulting from Seller's failure to obtain the OI
Consent or failure to obtain the OI Consent with the same price terms as are
currently provided for therein.
10.11 Use of Name. Anything herein to the contrary notwithstanding,
-----------
no interest in or right to use the names "Rorer," "Rhone-Poulenc," "Rhone-
Poulenc Rorer" or any variation or derivation thereof (collectively, the
"RETAINED NAMES") is being transferred to Buyer pursuant to the Contemplated
Transactions. Buyer shall not put into use after the Closing Date any products,
signs, purchase orders, invoices, sales orders, labels, letterheads, shipping
documents and other materials not in existence on the Closing Date that bear any
Retained Name or any name, mark or logo similar thereto. Buyer
shall be entitled to use any Products, signs, purchase orders, invoices, sales
orders, labels, letterheads or shipping documents that bear any Retained Name or
any name, mark or logo similar thereto for such period after the Closing Date,
not exceeding one year, as Buyer reasonably requires in order to (i) sell, in
the ordinary course, the inventory purchased by Buyer hereunder and (ii) effect
an orderly transition of the Business; provided, that, upon the written consent
of Seller (which shall not be unreasonably withheld) such one year period may be
extended for a period reasonably necessary to effect an orderly transition of
the Business. Buyer agrees that Seller shall have no responsibility for claims
by third parties arising out of, or relating to, the use by Buyer of any
Retained Name after the Closing Date, and Buyer agrees to indemnify and hold
harmless Seller and its Affiliates from any and all claims that may arise out of
the use thereof by Buyer or any Affiliate thereof whether or not in accordance
with this Agreement.
10.12 Non-Solicitation. In the event the closing shall not occur,
----------------
Buyer agrees that from the date hereof until December 31, 1997, it will not, and
will cause each Affiliate thereof not to, directly or indirectly, solicit for
employment
79
<PAGE>
any of the individuals identified on Schedule 4.1.23 or have any arrangement
(financial, consulting or otherwise) with any such individual.
10.13 Consultation. Buyer hereby agrees to render general consulting
------------
services to Seller with respect to the worldwide marketing, and sale of
Maalox(R) products by Seller (other than in the Territories and Canada) at
reasonable times for a term of five years from the date of this Agreement. In
consideration therefor, Seller shall pay to Buyer $2,000,000 per year for five
years. The first payment shall be made by Seller to Buyer on the Closing Date
and the subsequent annual payments shall be made by Seller to Buyer on each
anniversary of the Closing Date. Each such payments shall be made in
immediately available funds.
10.14 Envirotest Parcel Repurchase
----------------------------
10.14.1 Notwithstanding that the Envirotest Parcel is part of
the Real Property to be conveyed to Buyer at Closing, the parties agree that (i)
the Envirotest Parcel is being conveyed to Buyer as an accommodation to Seller,
pending completion of the subdivision of the Envirotest Parcel from the Real
Property, and the reconveyance of the Envirotest Parcel to Seller; (ii) it is
the desire and intention of the parties that Seller retain all of the benefits
(including the right to receive any revenues) and burdens (including the
obligation to pay all expenses and liabilities) of the Envirotest Parcel; and
(iii) Buyer is taking legal title to the Envirotest Parcel at Closing solely as
the nominee and/or straw party for Seller and in order to enable Seller legally
to convey to Buyer at Closing the balance of the Real Property. The Real
Property Deed shall not reflect such arrangement, but at Seller's request, Buyer
and Seller shall enter into a separate "straw party" agreement on or before the
date of Closing, which agreement shall not be recorded and shall not detract
from or expand either party's rights under this Section 10.14.
10.14.2 Subject to Section 10.14.3(b), at any time following
the Envirotest Subdivision, Buyer, at Seller's request, shall reconvey the
Envirotest Parcel to Seller upon at least twenty (20) days' prior written notice
from Seller (the "Closing Notice"); provided, however, that notwithstanding such
-------- -------
20-day time period or any other applicable time period provided for in this
Section 10.14, Buyer shall use all reasonable efforts to reconvey the Envirotest
Parcel by a date that will enable Seller to meet its obligations to Envirotest
Partners, and Seller shall use all reasonable efforts to give Buyer as much
prior notice as possible of Seller's requested date of reconveyance. Buyer
shall not be required to convey the Envirotest Parcel unless and until Seller,
at no out-of-pocket expense to Buyer, has taken any and all action necessary
legally to subdivide the Envirotest Parcel from the remainder of the Real
Property (the "Envirotest Subdivision") so that the Envirotest Parcel is a
single, separate lot that may be legally conveyed by Buyer to Seller. Buyer
shall cooperate with Seller and Envirotest in connection with effecting the
Envirotest Subdivision and satisfying the conditions pertaining thereto
(including, without limitation, execution and delivery by Buyer of covenants in
favor of Upper Dublin Township in form substantially similar to those heretofore
delivered to Buyer's counsel and a stormwater easement substantially similar to
that heretofore delivered to Buyer's counsel) and upon Seller's request (as
described in Section 10.14.5), Buyer shall execute any and all documents which
must be executed by the record owner of the Envirotest Parcel in order to effect
the Envirotest Subdivision; provided, however, that Buyer shall have no
obligation to incur any out-of-pocket liability or expense in connection with
the Envirotest Subdivision and Seller shall reimburse Buyer, and shall indemnify
and hold harmless Buyer in accordance with Sections 10.14.5 and 9.2(m) of this
Agreement, for all Envirotest Damages incurred or suffered by Buyer; provided
further, that in no event shall the provisions of this Section 10.14.2 require
Buyer to take any action or agree to any condition (including, without
limitation, the execution of the Stormwater easement referred to above)
pertaining to the Envirotest Subdivision that would have a materially adverse
effect on the Manufacturing Plant or the conduct of Buyer's business on or in
the Manufacturing Plant. Buyer shall provide Seller with reasonable evidence of
such Damages and shall cooperate in a reasonable manner with Seller, but without
any out-of-pocket expense to Buyer, to mitigate such Damages.
10.14.3 (a) On the date specified in the Closing Notice, Buyer
shall reconvey to Seller the Envirotest Parcel by a quitclaim deed (or, if
required for title insurance purposes, special warranty deed), subject to all
the Encumbrances existing on the date of such reconveyance, other than
Encumbrances resulting from Buyer's breach of Section 10.14.5 hereof or other
misconduct of Buyer. Buyer shall have no obligation to make any representations
or warranties, or give any indemnities, to any party with respect to any matters
relating to such conveyance (except in the special warranty deed, if one is
required by the title insurance company); provided, that Buyer shall execute and
deliver to Seller a FIRPTA Certificate and shall execute and deliver at such
closing to the company insuring Seller's title any affidavit customarily
requested by such title company (but only if such title company will not accept
such an affidavit from Seller). The closing of such conveyance shall take place
at such location in the Philadelphia area as is reasonably requested by Seller.
Seller shall pay reasonable out-of-pocket costs incurred by Buyer's
representatives (including, without limitation, the reasonable fees, travel
expenses and other disbursements of Buyer's attorneys) in connection with
attending such closing, and all other costs and expenses of such closing,
including all real estate transfer taxes, if any. Buyer and Seller shall also
execute and deliver at such closing such other documents reasonably necessary to
effectuate such closing. If following the Envirotest Subdivision and Seller's
giving the Closing Notice Buyer fails to tender a deed for the Envirotest Parcel
in compliance with the requirements for conveyance under this Section 10.14.3,
and such failure continues for 60 days after notice from Seller, Seller shall
have the right to exercise one or more of the following remedies: (i) bring an
80
<PAGE>
action for specific performance and (ii) elect to terminate all its obligations
under this Section 10.14 arising after the expiration of such 60 day period (but
such termination shall not constitute a waiver by either party of its right, if
any, to seek damages from the other).
(b) If, by the second anniversary of the Closing, the Envirotest
Parcel has not been reconveyed to Seller, and such failure is not due to a
breach by Buyer of any of the terms of this Section 10.14, written notice of
which has been given by Seller to Buyer promptly following such breach, then in
such event, without any further action, Buyer shall become the legal and
equitable owner of the Envirotest Parcel, Seller shall have no legal, beneficial
or equitable interest in the Envirotest Parcel, and Buyer shall be liable for
all obligations arising in respect of the Envirotest Parcel from and after such
date. Buyer shall have no other legal or equitable remedy against Seller for
Seller's breach of Section 10.14.2 or Section 10.14.3; provided, that Seller
shall remain fully liable under Sections 9.2(m) and 10.14.5 for Envirotest
Damages the Acquisition Event. The occurrence of Buyer's acquisition of full
legal and equitable ownership of the Envirotest Parcel as provided in this
Section 10.14.3 is hereinafter referred to as the "Acquisition Event." After the
Acquisition Event, Seller shall, within ten (10) Business Days after Buyer's
request, confirm in writing (including, if requested by Buyer, in a deed in
recordable form confirming) the occurrence of the Acquisition Event. From and
after the date of the Acquisition Event or any termination pursuant to the last
sentence of Section 10.14.3(a), Buyer's ownership of the Envirotest Parcel shall
not be as the nominee or straw party of Seller but rather Buyer shall be deemed
to own all of the legal, beneficial and equitable ownership interests in the
Envirotest Parcel.
10.14.4 The parties agree that from and after the Closing Date
until the earliest to occur of (x) reconveyance of the Envirotest Parcel
pursuant to Section 10.14.3(a), (y) the Acquisition Event, or (z) termination of
Seller's obligations pursuant to the last sentence of Section 10.14.3(a) hereof:
(i) Seller shall not take any action with respect to the Envirotest Parcel other
than (w) in connection with the Envirotest Subdivision or reconveyance of the
Envirotest Parcel pursuant to Section 10.14.3, (x) complying with legal
requirements, (y) responding to emergencies, (z) complying with Seller's
agreement of sale with Envirotest Partners, to the extent such compliance does
not violate any applicable law, or (zz) other action deemed reasonably necessary
by Seller and consented to by Buyer, which consent shall not be unreasonably
withheld or delayed (provided that in no event shall Seller lease, mortgage,
encumber or develop the Envirotest Parcel except as required by law or pursuant
to the Envirotest Subdivision); and (ii) Seller shall pay when due any and all
costs and expenses relating to the ownership and maintenance of the Envirotest
Parcel (including without limitation, all real estate taxes). For the purposes
of the preceding clause (ii), 5.3% of the real estate taxes for the entire Real
Property (and any other expense relating to the entire Real Property which is
not separately billed or otherwise specifically allocated to the Envirotest
Parcel) shall be deemed allocable to the Envirotest Parcel.
10.14.5 Notwithstanding anything in this Section 10.14 to the
contrary, it is specifically agreed by the parties that:
(i) Before the earliest to occur of (x) the Acquisition Event,
(y) the date of reconveyance of the Envirotest Parcel pursuant to Section
10.14.3 or (z) termination of Seller's obligations pursuant to the last sentence
of Section 10.14.3(a), Buyer shall take no action (or grant consent to any
action) pursuant to Section 10.14.2 or 10.14.4 or otherwise (including, without
limitation, the conveying of any interest in or granting of any lien or other
encumbrance on, or placing any matter of record with respect to the Envirotest
Parcel) with respect to the Envirotest Parcel, other than in connection with the
Envirotest Subdivision, the reconveyance of the Envirotest Parcel pursuant to
this Agreement, compliance with legal requirements, and in the event of an
emergency, in which cases Buyer shall take only such actions as shall be
reasonably requested by Seller or as Buyer reasonably believes are required in
order to comply with law or eliminate such emergency. Buyer shall cause any
judgment lien filed against Buyer to be removed of record as against the
Envirotest Parcel prior to the foreclosure thereof or the date fixed for closing
under Section 10.14.3 hereof, whichever is earlier.
(ii) Buyer shall have no liability, and Seller shall reimburse
Buyer for, any and all Damages pertaining to the Envirotest Parcel or which
arise at any time on account of Buyer's owning (or having owned) the Envirotest
Parcel or on account of the Envirotest Subdivision or the conveyance of the
Envirotest Parcel by Seller to Buyer or the reconveyance of the Envirotest
Parcel to Seller or on account of any action taken (or not taken) by Seller or
by Buyer at the direction or request of Seller in connection with any of the
foregoing matters, excluding, however, Damages arising by reason of (w) Buyer's
breach of this Section 10.14, or (x) Buyer's (or its Affiliates' or their
respective Agents') gross negligence or willful misconduct, (y) acts, omissions,
conditions or circumstances which first exist or occur on or after the date that
Buyer acquires beneficial ownership of the Envirotest Parcel pursuant to Section
10.14.3(a) or 10.14.3(b) or (z) acts of Buyer, its Affiliates or their
respective Agents after the date of reconveyance of the Envirotest Parcel to
Seller pursuant to Section 10.14.3(a) (collectively, "ENVIROTEST DAMAGES").
Envirotest Damages shall include, without limitation, all Taxes, insurance,
utilities, operating losses and maintenance and upkeep relating to the
Envirotest Parcel and all claims by third parties (including, without
limitation, Envirotest) arising with respect to, or on account of, the
Envirotest Parcel and all reasonable fees and expenses of counsel incurred
relating to such claims. Seller shall reimburse Buyer for all Envirotest
Damages, within 10 Business Days after submission to Seller of a reasonably
detailed invoice therefor (with supporting documents), on a dollar-for-dollar
basis (without giving effect to any tax benefits) including for the reasonable
value of Buyer's employees and for Buyer's internal and other disbursements,
including reasonable attorney's or other expert fees, if in Buyer's reasonable
judgment such services are required as long as and to the extent Buyer complies
in all material respects with Seller's directions. The provisions of this clause
81
<PAGE>
(ii) of Section 10.14.5 and of clause (iii) of this Section 10.14.5 shall
survive the closing of any conveyance under Section 10.14.3 hereof and the
transfer of beneficial ownership pursuant to Section 10.14.3(a) or (b).
(iii) If Buyer receives directions from Seller regarding an
action required to be taken by Buyer pursuant hereto and does not comply
therewith in all material respects (through no fault of Seller or the third
party or parties involved with such action), then, unless the reason for Buyer's
non-compliance is that Seller is in default with respect to payments due to
Buyer under this Section 10.14.5, Buyer shall indemnify, defend and hold
harmless Seller and its Affiliates and their respective Agents for all Damages
arising from such non-compliance by Buyer or its Affiliates or their respective
Agents, net of Seller's available insurance therefor.
10.14.6 Buyer shall cause any successor in title to the
Envirotest Parcel that acquires title from Buyer (other than at the request of
Seller) to comply with the terms of this Section 10.14.
ARTICLE 11. TAX MATTERS
-----------
11.1 General.
-------
(a) Except as otherwise provided in Section 11.2 and 11.3, (i)
Seller shall be responsible for the payment of all Taxes relating to the
Business and the Purchased Assets attributable to the taxable periods that end
on or before the Closing Date; (ii) Buyer shall be responsible for the payment
of all Taxes relating to the Business and the Purchased Assets attributable to
taxable periods that begin on or after the Closing Date; (iii) for all taxable
periods which include (but do not begin or end on) the Closing Date, Seller
shall be responsible for the payment of Taxes relating to the Business and the
Purchased Assets which are attributable to such taxable periods up to and
including the Closing Date and Buyer shall be responsible for the payment of
Taxes relating to the Business and the Purchased Assets attributable to the day
immediately following the Closing Date to the end of such taxable period;
provided, however, that Taxes on real property shall be prorated and apportioned
in accordance with Section 164(d) of the Code. The party that has the primary
obligation to do so under applicable law shall file any Tax Return that is
required to be filed in respect of Taxes described in this Section 11.1, and
that party shall pay the Taxes shown on such Tax Return and the other party
shall reimburse the paying party for its share of such Tax as determined under
Section 11.7 by wire transfer of immediately available funds no later than ten
days after receipt of written notice that such Tax has been paid to the
applicable Governmental Body.
11.2 Sales, Use and Transfer Taxes.
-----------------------------
(a) Buyer and Seller shall equally share the liability for all
sales, value added, use, transfer, registra-tion, stamp and similar Taxes
("TRANSFER TAXES") incurred
82
<PAGE>
with respect to the Contemplated Transactions, including the purchase and sale
of the Purchased Assets contemplated by this Agreement, other than Transfer
Taxes attributable to the conveyance of the Office Building and Envirotest
Parcel from Seller to Buyer, and the subdivision and reconveyance of the Office
Building and Envirotest Parcel from Buyer to Seller pursuant to Sections 10.9
and 10.14, respectively, for which Seller shall be solely liable.
(b) Seller shall prepare and file the required Tax Returns and
other required documents with respect to Transfer Taxes required to be paid by
both Buyer and Seller in paragraph Section 11.2(a). Buyer shall reimburse Seller
for its portion of such Transfer Taxes within ten days of receipt of written
notice from Seller. With respect to Transfer Taxes attributable to the
subdivision and reconveyance of the Office Building pursuant to Section 10.9,
the Seller shall pay such Transfer Taxes and file such Tax Returns as required.
11.3 Federal, State and Local Taxes.
------------------------------
(a) For purposes of Taxes based upon or measured by net income
("INCOME TAXES"), Seller shall include the net income attributable to the
Business and the Purchased Assets in its income through the Closing Date and
shall file the appropriate Tax Returns, and Buyer shall thereafter include the
net income relating to the Business and the Purchased Assets in its income,
other than the net income or net loss attributable to the Office Building which
Seller shall include in its income on its Tax Returns. Seller shall be
responsible for the payment of all Income Taxes imposed on Seller as a result of
the transfer of the Business and the Purchased Assets to Buyer.
11.4 Cooperation and Exchange of Information. Seller and Buyer shall
---------------------------------------
provide each other, and shall cause their respective Affiliates to provide each
of them, with such cooperation and information as either of them reasonably may
request of the other in filing any Tax Return with respect to the Business or
the Purchased Assets, amended return or claim for refund, determining a
liability for Taxes or a right to refund of Taxes or in conducting any audit or
other proceeding in respect of Taxes with respect to the Business or the
Purchased Assets. Such cooperation and information shall include, without
limitation, providing copies of all relevant portions of Tax Returns with
respect to the Business, together with accompanying schedules and related work
papers, documents relating to rulings or other determinations by taxing
authorities and records concerning the ownership and tax basis of property,
which either party may possess. Each party shall make its employees available on
a mutually convenient basis to provide explanation of any documents or
information provided hereunder. The party requesting assistance hereunder shall
reimburse the other for any reasonable out-of-pocket costs incurred in providing
any return,
83
<PAGE>
document or other written information, and shall compensate the other for any
reasonable costs (excluding wages and salaries) of making employees available,
upon receipt of reasonable documentation of such costs. Each party shall retain
all returns, schedules and work papers and all material records or other
documents relating thereto, until the expiration of the statute of limitations
(including extensions) of the taxable years to which such returns and other
documents relate and, unless the relevant portions of such returns and other
documents are offered to the other party, until the final determination of any
payments which may be required in respect of such years under this Agreement.
Any information obtained under this Section 11.4 shall be kept confidential,
except as may be otherwise necessary in connection with the filing of returns or
claims for refund or in conducting any audit or other proceeding.
11.5 Purchase Price Allocation. The Purchase Price shall be
-------------------------
allocated pursuant to Section 1060 of the Code, in accordance with the fair
market values for the Purchased Assets as reflected on a schedule to be agreed
upon between Buyer and Seller on or promptly following the Closing Date (the
"ALLOCATION SCHEDULE"). Unless otherwise agreed in writing by Buyer and Seller,
Buyer and Seller shall (i) reflect the Purchased Assets in their books for tax
reporting purposes in accordance with the Allocation Schedule, and (ii) file all
U.S. Tax Returns (including Form 8594) in accordance with and based upon such
allocation.
11.6 FIRPTA Certificate. Seller shall deliver to Buyer on or before
------------------
the Closing Date a certification of non-foreign status of the Seller or any
Related Person who, pursuant to this Agreement, transfers any U.S. Real Property
Interests as defined in Section 897(c) of the Code (the "FIRPTA CERTIFICATE")
(as provided for in Section 1445 of the Code and the regulations promulgated
thereunder). Seller acknowledges and agrees that Buyer shall, if requested,
deliver copies of the certification to the IRS and Buyer shall incur no
liability, and the rights and obligations of Buyer and Seller hereunder shall
not be affected, as a result of any such delivery.
11.7 Calculations Related to Section 11.1. For purposes of Section
------------------------------------
11.1, Buyer's Accountants and Seller's Accountants shall attempt to determine
the amount, if any, of Taxes properly attributable to the Buyer and Seller for
any taxable period that does not in fact end on the Closing Date. If no
agreement can be reached within 45 days after the end of such taxable period,
Buyer's Accountants and Seller's Accountants shall jointly select a third
independent certified public accounting firm to resolve the dispute. The
determination of the jointly selected independent certified public accounting
firm shall be binding on both Buyer and Seller. Buyer and Seller shall each bear
their own costs and one-half the costs of the
84
<PAGE>
jointly selected independent certified public accounting firm in determining any
amount due under Section 11.1. For purposes of Section 11.1 and the calculation
of any indemnity, interest, penalties or additions to tax accruing after the
Closing Date with respect to a liability for Taxes for which Seller indemnifies
Buyer pursuant to Section 9.2(i) shall be deemed to be attributable to a taxable
period ending on or before the Closing Date.
11.8 Refunds.
-------
(a) Seller shall be entitled to any refunds or credits of Taxes
attributable to the taxable periods ending on or before the Closing Date or
attributable (or deemed attributable pursuant to Section 11.7) to such taxable
periods up to and including the Closing Date with respect to the Business and
the Purchased Assets.
(b) Buyer shall be entitled to any refunds or credits of Taxes
attributable to the taxable periods beginning on or after the Closing Date or
attributable to such taxable periods beginning on the day immediately following
the Closing Date with respect to the Business and the Purchased Assets.
ARTICLE 12. MISCELLANEOUS
-------------
12.1 Expenses. Except as specifically set out herein to the
--------
contrary, each party hereto shall bear its own expenses incident to the
preparation, negotiation, execution and delivery of this Agreement and the
performance of its obligations hereunder. Expenses incurred after the date
hereof under the U.S. Buyer Ancillary Agreements and the U.S. Seller Ancillary
Agreements shall be borne as set out in each such agreement.
12.2 Notices. All notices or other communications given pursuant
-------
hereto by one party hereto to the other party shall be in writing and deemed
given when (a) delivered by messenger, (b) sent by telecopier (with receipt
confirmed), provided that a copy is mailed by registered or certified mail,
postage prepaid, return receipt requested, (c) received by the addressee, if
sent by Express Mail, Federal Express or other express delivery service (receipt
requested), or (d) mailed, seven days after being mailed in the U.S. first-class
postage prepaid, registered or certified, in each case to the appropriate
addresses and telecopier numbers set forth below (or to such other addresses and
telecopier numbers as a party may designate as to itself by notice to the other
party):
85
<PAGE>
If to Seller or RPR Caribbean, to it at:
c/o Rhone-Poulenc Rorer Pharmaceuticals Inc.
500 Arcola Road
Collegeville, Pennsylvania 19426-0107
Attention: General Counsel
Telecopier No.: (610) 454-3807
Confirmation No.: (610) 454-8000
Copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attention: J. Michael Schell, Esq.
Telephone No.: (212) 735-3000
Telecopier No.: (212) 735-2000
If to Buyer, to it at:
Ciba Self-Medication, Inc.
581 Main Street
Woodbridge, New Jersey 07095
Attention: President
Telecopier No.: (908) 602-6600
Confirmation No.: (908) 602-6612
Copies to:
Ciba-Geigy Corporation
444 Saw Mill River Road
Ardsley, New York 10502
Attention: General Counsel
Telecopier No.: (914) 479-2199
Confirmation No.: (914) 496-5000
12.3 Integration. This Agreement, the Canadian Purchase Agreement
-----------
and the other agreements being executed by the parties concurrently herewith and
therewith or on the Closing Date (or on the closing date under the Canadian
Purchase Agreement if different than the Closing Date) are the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersede all prior agreements and understandings, including, without
limitation, the Letter of Intent, dated December 7, 1994, between Buyer and
Seller and the Confidential Disclosure Agreement, dated September 30, 1994,
between Rhone Poulenc Pharmaceuticals Inc. and Ciba-Geigy Limited.
12.4 Captions. The headings contained in this Agreement and in the
--------
tables of contents, exhibits and schedules
86
<PAGE>
are for reference purposes only and shall not affect the meaning or
interpretation of this Agreement.
12.5 Assignment; Amendment; Waiver.
-----------------------------
(a) All of the terms and provisions of this Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors and permitted assigns. This Agreement
shall not be assignable or transferable by either party hereto without the prior
written consent of the other party, except that Buyer may assign this Agreement
and all its rights hereunder to any corporation organized in the United States
wholly-owned directly or indirectly by Ciba-Geigy Limited without consent,
provided that such assignment shall not relieve Buyer of any of its obligations
hereunder. Buyer shall be responsible for any additional state or local realty
transfer tax payable in connection with any such assignment.
(b) This Agreement may be amended only by written agreement of
the parties hereto.
(c) The failure of a party to insist upon strict adherence to any
term of this Agreement on any occasion shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing.
12.6 Applicable Law. This Agreement shall be governed by and
--------------
construed in accordance with the internal laws of the State of New York, without
giving effect to the principles of conflicts of laws thereof.
12.7 Failure to Close. If this Agreement is terminated prior to
----------------
Closing, each party to this Agreement shall return to the other party all
documents and other information, including, without limitation, all originals
and all copies thereof, theretofore delivered to such party by the other party.
In such event, neither Buyer nor any Affiliates thereof shall retain copies of
any such documents or other information disclosed to such Persons by or on
behalf of Seller or its Affiliates, and shall not thereafter use for any
purposes any information conveyed to Buyer or its Affiliates in connection with
the Contemplated Transactions or concerning Seller or its Affiliates, except for
such information which was: (a) possessed by Buyer or its Affiliates prior to
the disclosure thereof by or on behalf of Seller or Related Persons; (b)
disclosed to Buyer or its Affiliates by an independent third party without a
violation of any obligation of confidentiality on the part of such third party
to Seller or Related Persons; (c) ascertainable from public or published
information or trade sources; (d) is disclosed with the written consent of
Seller or Related Persons; or (e) is
87
<PAGE>
disclosed pursuant to court order or as otherwise required by law, on condition
that notice of the requirement for such disclosure is given to Seller prior to
making any disclosure and Buyer and its Affiliates cooperate as Seller
reasonably requests in resisting it. Neither Seller nor any Affiliates thereof
shall retain copies of any such documents or other information disclosed to such
Persons by or on behalf of Buyer or its Affiliates, and shall not thereafter use
for any purposes any information conveyed to Seller or its Affiliates in
connection with the Contemplated Transactions, or concerning Buyer and its
Affiliates except for such information which was: (a) possessed by Seller or
its Affiliates prior to the disclosure thereof by or on behalf of Buyer or its
Affiliates; (b) disclosed to Seller or its Affiliates by an independent third
party without a violation of any obligation of confidentiality on the part of
such third party to Buyer or its Affiliates; (c) ascertainable from public or
published information or trade sources; (d) is disclosed with the written
consent of Buyer or its Affiliates; or (e) is disclosed pursuant to court order
or as otherwise required by law, on condition that notice of the requirement for
such disclosure is given to Buyer prior to making any disclosure and Seller and
its Affiliates cooperate as Buyer reasonably requests in resisting it.
12.8 Further Assurances. Each party agrees that it will execute and
------------------
deliver, or cause to be executed and delivered, on or after the date of this
Agreement, all such other instruments and will take all reasonable actions as
the other party may reasonably request from time to time in order to effectuate
the provisions and purposes of this Agreement.
12.9 No Third-Party Rights. This Agreement is intended for the
---------------------
exclusive benefit of the parties hereto and their respective successors and
permitted assigns. Nothing contained in the Agreement shall be construed as
granting any rights or benefits in or to any third party, and no Person shall
assert any rights as third-party beneficiary hereunder.
12.10 Incorporation of Exhibits and Schedules. The Exhibits and
---------------------------------------
Schedules attached hereto are incorporated into this Agreement and shall be
deemed a part hereof as if set forth herein in full. References herein to "this
Agreement" and the words "herein," "hereof" and words of similar import refer to
this Asset Purchase Agreement (including its Exhibits and Schedules) as an
entirety. In the event of any conflict between the provisions of this Agreement
and any such Exhibit or Schedule, the provisions of this Agreement shall
control.
12.11 Submission to Jurisdiction.
--------------------------
(a) Any legal action or proceeding with respect to this Agreement
or any of the Contemplated Transactions may be
88
<PAGE>
brought in the courts of the State of New York located in the County of New York
or of the United States of America for the Southern District of New York, and,
by execution and delivery of this Agreement, each of the parties hereto and
hereby accepts generally and unconditionally, the exclusive jurisdiction of the
aforesaid courts.
(b) Each of the parties hereto hereby irrevocably waives, in
connection with any such action or proceeding, any objection, including, without
limitation, any objection to the laying of venue or based on the grounds of
forum non conveniens, which it may now or hereafter have to bringing of any such
action or proceeding in such respective jurisdictions.
(c) Each of the parties hereto hereby irrevocably consents to the
service of process of any of the aforementioned courts in any such action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to each such person, as the case may be, at its address set
forth in Section 12.2 hereof.
(d) Nothing herein shall affect the right of any party hereto to
serve process in any other manner permitted by law or to commence legal
proceedings or otherwise proceed against any other party hereto in any other
jurisdiction.
12.12 Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be considered an original, but all of which together shall
constitute the same instrument.
12.13 Rights Cumulative. Except as otherwise provided herein, all
-----------------
rights and remedies of each of the parties under this Agreement will be
cumulative, and the exercise of one or more rights or remedies will not preclude
the exercise of any other right or remedy available under this Agreement or
applicable law.
12.14 Time. If the last day permitted for the giving of any notice
----
or the performance of any act required or permitted under this Agreement falls
on a day which is not a Business Day, the time for the giving of such notice or
the performance of such act will be extended to the next succeeding Business
Day.
12.15 Specific Performance. The parties agree that irreparable
--------------------
damages would occur if any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions without the need to first post any bond or other security to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, in
addition to any other remedy to which they are entitled at law or in equity.
89
<PAGE>
12.16 Severability. Any term or provision of this Agreement which is
------------
invalid or unenforceable will be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining rights
of the Person intended to be benefitted by such provision or any other
provisions of this Agreement.
12.17 Recording. Except as required by any applicable law, neither
---------
this Agreement nor any memorandum shall be recorded in any public place of
record, and any attempt by Buyer or Seller or any Person on its behalf to do so
shall be a default by Buyer or Seller under this Agreement.
90
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date first above written.
CIBA SELF-MEDICATION, INC.
By:/s/Roland Jeannet
----------------------------
Name:Roland Jeannet
----------------------------
Title:President
----------------------------
RHONE-POULENC RORER
PHARMACEUTICALS INC.
By:/s/Michel de Rosen
----------------------------
Name:Michel de Rosen
----------------------------
Title:President
----------------------------
RHONE-POULENC RORER
CARIBBEAN INC.
By:/s/Joseph C. Scodari
----------------------------
Name:Joseph C. Scodari
----------------------------
Title:President
----------------------------
91
<PAGE>
Exhibit 10C
INTELLECTUAL PROPERTY AGREEMENT
DATED AS OF DECEMBER 30, 1994
BETWEEN
RORER PHARMACEUTICALS PRODUCTS INC.
AND
CIBA SELF-MEDICATION, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 1. DEFINITIONS................................................. 1
ARTICLE 2. GRANT....................................................... 2
ARTICLE 3. PAYMENTS.................................................... 3
ARTICLE 4. TIMING OF PAYMENTS.......................................... 3
ARTICLE 5. REPRESENTATIONS AND WARRANTIES.............................. 3
ARTICLE 6. TRANSFER OF ADVERSE DRUG REACTION INFORMATION .............. 4
ARTICLE 7. TRADEMARK RIGHTS............................................ 5
7.1 Prosecution, Maintenance and Registration...................... 5
7.2 Infringement or Other Actions.................................. 5
7.4 Ownership of Intellectual Property............................. 6
ARTICLE 8. THIRD PARTY RIGHTS.......................................... 6
ARTICLE 9. PURCHASE OPTION............................................. 7
ARTICLE 10. QUALITY CONTROL............................................. 7
ARTICLE 11. TERMINATION................................................. 8
ARTICLE 12. MISCELLANEOUS............................................... 9
ARTICLE 13. NOTICES..................................................... 10
ARTICLE 14. TERM........................................................ 11
ARTICLE 15. FORCE MAJEURE............................................... 12
ARTICLE 16. CONFIDENTIALITY............................................. 12
ARTICLE 17. PUBLICITY................................................... 13
ARTICLE 18. ASSIGNMENT; AMENDMENT; WAIVER............................... 13
ARTICLE 19. GOVERNING LAW............................................... 14
ARTICLE 20. SEVERABILITY................................................ 14
ARTICLE 21. ENTIRE AGREEMENT............................................ 14
</TABLE>
-i-
<PAGE>
INTELLECTUAL PROPERTY AGREEMENT
-------------------------------
INTELLECTUAL PROPERTY AGREEMENT, dated as the 30th day of December,
1994, between RORER PHARMACEUTICALS PRODUCTS INC., a Delaware corporation
("RPP") and CIBA SELF-MEDICATION, INC., a Delaware corporation ("Ciba").
Preliminary Statement
---------------------
1. RPP and Ciba have entered into an Amended and Restated Asset
Purchase Agreement dated as of December 22, 1994 (the "Asset Purchase
Agreement").
2. The Asset Purchase Agreement contemplates that this Agreement be
executed and delivered by the parties hereto on the Closing Date (as defined in
the Asset Purchase Agreement).
3. RPP owns or has access and/or the rights to certain Intellectual
Property (as defined herein) relating to the Business (as defined in the Asset
Purchase Agreement).
4. Ciba desires to acquire the exclusive right to use the
Intellectual Property to the same extent as they currently are available for use
by RPP.
5. RPP is willing to grant Ciba the exclusive right to use the
Intellectual Property to the same extent as they currently are available for use
by RPP.
In consideration of the premises and of the mutual covenants and
obligations set forth herein, the parties hereto agree as set out below.
ARTICLE 1. DEFINITIONS
-----------
Capitalized terms used herein but not otherwise defined herein are
used herein as defined in the Asset Purchase Agreement, provided that the word
"Seller", when used in the Asset Purchase Agreement, shall be deemed to be
replaced with the word "RPP". The following terms, as used in this Agreement,
shall have the meanings set forth in this Article 1:
"AFFILIATE" shall mean all corporations or business entities which,
directly or indirectly, are controlled by, control, or are under common control
with Ciba or RPP, as the case may be. For this purpose, the meaning of the word
"control" shall mean direct or indirect ownership of at least fifty percent
<PAGE>
(50%) of the voting shares or interest of such corporation or business entity.
"AGREEMENT PERIOD" shall mean the period commencing on the Closing
Date and extending until January 15, 2002, unless earlier terminated in
accordance with the provisions hereof.
"FISCAL YEAR" shall mean Ciba's fiscal year, which is a fifty-two to
fifty-three (52-53) week year based on 4-4-5 week quarters, ending on the last
Friday of the calendar year.
"INTELLECTUAL PROPERTY" shall mean all right, title and interest of
RPP in and to (i) the Trademarks and (ii) all goodwill associated with the
Trademarks.
"PAYMENT AMOUNT" shall have the meaning specified in Section 3.1.
"PRODUCTS" shall mean the products listed on Exhibit A attached hereto
and line extensions thereof.
"TRADEMARKS" shall mean all registered and unregistered trade names,
trademarks, trade dress or service marks and applications for registration and
registrations therefor and other names, marks, logos or slogans and all variants
and abbreviations of the foregoing primarily used or held for use in the
Business by RPP or any Related Person, including, without limitation, those
identified in Exhibit B hereto.
ARTICLE 2. GRANT
-----
2.1 RPP hereby grants to Ciba during the Agreement Period the
exclusive right to use the Intellectual Property and to grant others ("sub-
grantees"), subject to the terms of Section 2.3, the right to use the
Intellectual Property in the Territory in connection with (a) the development,
manufacture, distribution, marketing, advertising and sale of Products in the
Territory, (b) the development and manufacture of Products outside the Territory
for distribution, marketing, advertising and sale in the Territory and (c) the
development and manufacture of Products in the Territory for distribution,
marketing, advertising and sale in Canada.
2.2 (a) Ciba shall not sell Products bearing the Trademarks outside
the Territory, nor shall it sell Products bearing the Trademarks to any Person
which Ciba knows or has reason to know will sell such Products outside the
Territory.
(b) RPP shall not sell Products bearing the Trademark inside the
Territory, nor shall it sell Products bearing the
-2-
<PAGE>
Trademarks to any Person which RPP knows or has reason to know will sell such
Products inside the Territory.
2.3 Subject to paragraphs 7.4(a) and 18.1, Ciba may grant to any
Person all or part of the rights granted to Ciba under Section 2.1 hereof with
RPP's consent, which consent shall not be unreasonably withheld or delayed.
Ciba's obligations under this Agreement shall not be reduced by virtue of any
such grant, and Ciba shall be responsible for ensuring RPP's rights under this
Agreement including, but not limited to, RPP's right to exercise quality control
pursuant to Article 10 hereof with respect to any sub-grantee.
ARTICLE 3. PAYMENTS
--------
3.1 In consideration of the rights granted in Article 2, Ciba shall
in accordance with Article 4 pay RPP for each Fiscal Year (or portion thereof)
during the Agreement Period an amount equal to $24,000,000 (in the case of a
full Fiscal Year, and a proportionate amount thereof, in the case of a portion
of a Fiscal Year) (the "Payment Amount"). Payments made pursuant to this
Article shall be made by wire transfer to an account to be designated by RPP in
writing.
ARTICLE 4. TIMING OF PAYMENTS
------------------
4.1 The Payment Amount for each Fiscal Year (or portion thereof)
during the Term hereof shall be payable by Ciba on or before January 15 of each
Fiscal Year, except that the initial payment shall be made on the Closing Date.
In the event this Agreement is terminated for any reason whatsoever before the
end of a Fiscal Year for which Ciba has paid the Payment Amount, RPP shall
immediately remit to Ciba the proportionate amount of the Payment Amount for the
remainder of such Fiscal Year.
ARTICLE 5. REPRESENTATIONS AND WARRANTIES
------------------------------
5.1 RPP warrants and represents that:
(a) It is the owner of or has the right to use the Intellectual
Property and has the right to grant Ciba the exclusive right to use the
Intellectual Property, free of any Encumbrances, in the Territory in the manner
set forth in this Agreement;
(b) It has not assigned or conveyed any interest in the
Intellectual Property;
(c) To the best of its knowledge and that of the Related Parties,
the use of the Intellectual Property in the Territory in connection with (i) the
development, manufacture,
-3-
<PAGE>
distribution, advertising and/or sale of Products in the Territory, (ii) the
development and/or manufacture of Products outside the Territory for
distribution, marketing, advertising and/or sale within the Territory, and (iii)
the development and/or manufacture of Products in the Territory for
distribution, marketing, advertising and/or sale in Canada, does not infringe
any rights of third parties;
(d) To the best of its knowledge and that of the Related Parties,
no third party is infringing the Intellectual Property;
(e) It is a corporation duly incorporated and in good standing in
its state of incorporation and has all requisite power to enter into and perform
this Agreement. Upon execution by the parties hereto, this Agreement shall
constitute a valid and legally binding obligation of RPP, enforceable in
accordance with its terms;
(f) It has prosecuted all trademark applications included in the
Intellectual Property in good faith and has no reason to believe that any
Trademarks included within the Intellectual Property would be invalid or would
be held to be unenforceable by a court of competent jurisdiction; and
(g) It has not, and shall not during the Agreement Period, pledge
or in any way encumber the Intellectual Property.
5.2 Ciba warrants and represents that if any Product line extensions
marketed by it consist of Products other than gastrointestinal products, Ciba
shall cooperate and consult with RPP regarding development and marketing
activities related to such Products.
ARTICLE 6. TRANSFER OF ADVERSE DRUG REACTION INFORMATION
---------------------------------------------
6.1 All marketing research and similar information developed by Ciba
and its Affiliates relating to the Intellectual Property shall remain the
property of Ciba or its Affiliates.
6.2 During the Agreement Period, each of RPP and Ciba shall report to
the other as soon as practicable, and no later than three (3) days following its
own notification, of any information associated with the use of any Product that
pertains to hazards, contraindications, side effects, precautions, or other
information pertinent to the safety of such Product. In addition, RPP shall
provide Ciba with notice of all adverse reaction information to enable Ciba to
meet all regulatory requirements for reporting such adverse reactions in the
Territory.
-4-
<PAGE>
ARTICLE 7. TRADEMARK RIGHTS
----------------
7.1 Prosecution, Maintenance and Registration.
-----------------------------------------
(a) RPP shall undertake and shall bear all costs of the prosecution,
maintenance and registration of the Trademarks in the Territory. RPP shall keep
Ciba fully and timely informed in respect to the course and conduct of the
registration of the Trademarks and Ciba shall have the right, but not the
obligation, to consult and advise RPP regarding such prosecution, maintenance
and registration. In connection with RPP's prosecution, maintenance and
registration of the Trademarks, Ciba shall reasonably cooperate with RPP by
executing any necessary documents, supplying RPP with specimens and performing
other reasonable acts.
(b) Ciba shall be entitled to obtain and own trademarks or service
marks which are not confusingly similar with the Trademarks. No payments shall
be owed to RPP arising from said trademarks or service marks.
7.2 Infringement or Other Actions.
-----------------------------
(a) If either party shall become aware of any infringement or
threatened infringement of the Intellectual Property or any unfair competition,
disparagement or other tortious act by any third party in relation to any of the
Products, including an action that falls under the provisions of the Lanham Act,
15 U.S.C. (S)1125, or other similar federal or state statute, or an equivalent
action in any other country of the world, then the party having such knowledge
shall give notice to the other within ten (10) days of becoming aware of such
infringement or threatened infringement.
(b) Ciba shall have the right to take such action as it deems
appropriate to protect and maintain the Intellectual Property, including but not
limited to bringing an action, suit, proceeding or otherwise to prevent or
eliminate the infringement of the Intellectual Property, or the unfair
competition, disparagement or other tortious act by any third party in relation
to any Product. Without in any way limiting the provisions of Article 9 of the
Asset Purchase Agreement, in the event that RPP would be obligated thereunder to
indemnify Ciba with respect to such infringement, unfair competition,
disparagement or other tortious act, RPP will bear all of Ciba's expenses in
connection with any action taken by Ciba in accordance with the preceding
sentence. RPP agrees to cooperate with Ciba in any reasonable manner including,
but not limited to, being named as a co-plaintiff in an action brought by Ciba.
Any damages recovered by Ciba shall be retained by Ciba and RPP shall have no
right to any portion of such damages.
-5-
<PAGE>
(c) Ciba agrees to cooperate and consult with RPP with respect to its
decision whether to take any action of the nature specified in Section 7.2(b),
giving due consideration to RPP's views with respect to the necessity or
desirability of taking such action. Ciba further agrees that it will take
action of the nature specified in Section 7.2(b) if, in Ciba's business
judgment, such action is reasonably necessary to protect and maintain the
validity of the Intellectual Property.
7.3 Ciba shall not enter into any agreement to settle any action or
suit specified in Section 7.2(b) without the express written consent of RPP,
which consent shall not be unreasonably withheld, if such agreement would in any
way limit or reduce the nature or scope of Ciba's use, or any other person's
use, of the Intellectual Property at the time such agreement is executed or at a
future time.
7.4 Ownership of Intellectual Property.
----------------------------------
(a) Ciba acknowledges that the Intellectual Property belongs to
RPP.
(b) During the Agreement Period (and after the Agreement Period in
the event that Ciba does not exercise its option to purchase the Intellectual
Property pursuant to Section 9.1 hereof), Ciba shall not challenge RPP's
ownership in the Intellectual Property or attempt to register the Intellectual
Property in its own name in the Territory.
(c) Ciba shall not use the Trademarks in any manner which will
tarnish, disparage or otherwise have a material adverse effect upon the
Trademarks or the goodwill associated therewith.
(d) Ciba shall not use a materially altered version of any Trademark
(including, but not limited to, a Trademark made part of a composite mark)
without the prior consent of RPP, which consent shall not be unreasonably
withheld. Any materially altered version of a Trademark approved by RPP
pursuant to this Section 7.4(d) shall be deemed part of the Intellectual
Property hereunder.
ARTICLE 8. THIRD PARTY RIGHTS
------------------
8.1 If either party shall become aware of any action, or suit, or
threat of action or suit, by a third party alleging that the use of any
Intellectual Property infringes a trademark or violates any other proprietary
rights of any third party, the party aware shall promptly notify the other party
of the same and fully disclose the basis therefor.
-6-
<PAGE>
8.2 RPP agrees to use its best efforts to defend any such action or
suit. RPP agrees to cooperate and consult with Ciba during the course of such
defense and to keep Ciba fully informed in respect to all significant aspects of
such action or suit. Ciba agrees to assist RPP by providing information in the
possession and control of Ciba and to otherwise cooperate with RPP as may be
reasonably necessary to such defense. All reasonable out-of-pocket costs and
expenses of Ciba in respect to such defense shall be borne by RPP. RPP will
indemnify Ciba for any direct and consequential damages and costs that may
become payable under a final judgment, decree or decision rendered by a court,
tribunal or other authority of competent jurisdiction as a result of any such
action or suit.
8.3 Nothing herein shall authorize RPP to settle any action or suit
without the express written consent of Ciba, which consent shall not be
unreasonably withheld. Ciba shall have the right at any time, and at its
expense, to participate in any such action or suit.
8.4 Nothing in this Section 8, or in Section 7, shall be construed as
a waiver or cure of any breach of any warranties set forth in Section 5, or any
release of any claim by Ciba as may be appropriate relating thereto.
ARTICLE 9. PURCHASE OPTION
---------------
9.1 Ciba will have the absolute, exclusive and unconditional right,
upon notice to RPP given at any time on or after the date which is 90 days prior
to January 15, 2002, to purchase the Intellectual Property on January 15, 2002
for an amount equal to $143,000,000. In connection with such purchase, RPP
shall deliver such documents as Ciba shall reasonably deem necessary or
appropriate to evidence or effectuate the transfer of the Intellectual Property
to Ciba.
ARTICLE 10. QUALITY CONTROL
---------------
10.1 Ciba will use commercially reasonable efforts during the
Agreement Period to advertise and promote the Products.
10.2 Ciba agrees that the nature and quality of all goods sold by Ciba
covered by the Trademarks shall meet high quality industry standards. Ciba
shall comply with applicable federal, state and local laws and regulations in
marketing any products under the Trademarks.
10.3 RPP shall have the following rights to exercise quality control
over Ciba's uses of the Trademarks to assure
-7-
<PAGE>
itself of Ciba's adherence to the standards set forth in Section 10.2:
(a) Ciba shall upon request by RPP, from time to time, submit to RPP a
reasonable number of samples of any Products and any packaging, advertising and
other materials which use the Trademarks; and
(b) in the event such samples fail to meet the standards set forth in
Section 10.2 in the reasonable opinion of RPP, then RPP shall have the right,
during regular business hours and until such deficiency is cured, to inspect
those facilities used by Ciba to manufacture such Products and to make
recommendations to Ciba on ways to cure such failure.
ARTICLE 11. TERMINATION.
-----------
11.1 In the event that Ciba shall fail to pay any Payment Amount when
due and such failure shall continue for more than 60 days after notice thereof
from RPP, RPP may, upon written notice effective upon receipt, terminate this
Agreement. In the event of a material breach of any of the quality control
provisions set forth in Article 10 hereof by Ciba, RPP shall provide Ciba with
written notice specifying in detail the nature of the alleged breach. Ciba
shall then have 60 business days, from its receipt of such notice, to cure the
breach. If Ciba fails to do so by the end of such 60-business day period, RPP
shall provide Ciba with additional written notice of such failure, and Ciba
shall then have an additional 60 business days, from its receipt of such notice,
to cure the alleged breach. If Ciba fails to do so by the end of such 60-
business day period, RPP shall provide Ciba with notice of intent to negotiate.
The parties shall then endeavor to cooperate and negotiate in good faith, for a
period of 60 business days, their dispute concerning Ciba's alleged breach of
the Agreement. If the parties do not resolve their dispute at the expiration of
the foregoing negotiation period, RPP shall be entitled to bring suit against
Ciba in any court of competent jurisdiction seeking a declaratory judgment that
Ciba has materially breached this Agreement and/or injunctive relief to restrain
and enjoin Ciba's breaches and any further breaches of the quality control
provisions. Ciba agrees that a material breach of the quality control
provisions set forth in Article 10 hereof would constitute irreparable harm to
RPP, entitling RPP to obtain injunctive relief.
11.2 Upon the termination of this Agreement (or upon its expiration in
the event that Ciba declines to exercise its option to purchase the Intellectual
Property under Section 9.1 hereof), all rights granted hereunder to Ciba in the
Trademarks and the goodwill associated therewith shall revert to RPP, the
security interest granted to Ciba pursuant to Section 12.1 shall
-8-
<PAGE>
terminate and Ciba will execute and file such Form UCC-3s and other documents as
may be needed from time to time to evidence the termination of such security
interest.
11.3 Upon the termination of this Agreement (or upon its expiration in
the event that Ciba declines to exercise its option to purchase the Intellectual
Property under Section 9.1 hereof), Ciba shall have a period of twelve (12)
months in which to cease all use of the Trademarks (or of any mark confusingly
similar thereto) in the manufacture, sale, distribution, marketing or
advertising of its consumer health products.
ARTICLE 12. MISCELLANEOUS.
-------------
12.1 RPP, in receipt of good and valuable consideration, which is
hereby acknowledged, grants to Ciba a security interest in and to the
Intellectual Property to secure performance of any and all obligations of RPP
set out in this Agreement, and agrees to execute and assist Ciba in filing such
Form UCC-1s and other documents as may be needed from time to time to perfect
such security interest. In the event of a material breach of this Agreement by
RPP (other than a breach of the nature specified in the last sentence of this
Section 12.1), Ciba shall provide RPP with written notice specifying in detail
the nature of the alleged breach. RPP shall then have 60 business days, from
its receipt of such notice, to cure the breach. If RPP fails to do so by the
end of such 60-business day period, Ciba shall provide RPP with additional
written notice of such failure, and RPP shall then have an additional 60
business days, from its receipt of such notice, to cure the alleged breach. If
RPP fails to do so by the end of such 60-business day period, Ciba shall provide
RPP with notice of intent to negotiate. The parties shall then endeavor to
cooperate and negotiate in good faith, for a period of 60 business days, their
dispute concerning RPP's alleged breach of the Agreement. If the parties do not
resolve their dispute at the expiration of the foregoing negotiation period,
Ciba may, but is not required to, exercise the remedies of a secured party under
the Uniform Commercial Code, provided, however, that Ciba may not exercise any
such remedies unless (i) it is in full compliance with all of its obligations
under this Agreement, and (ii) it first pays to RPP all amounts which are due,
or would be due, if Ciba had exercised its Purchase Option in accordance with
Article 9 of this Agreement, including all Payment Amounts that would be due
under Article 3 and the purchase price set forth in Section 9.1 of this
Agreement. It is agreed that a rejection of this Agreement by a trustee in
bankruptcy of RPP or a debtor in possession shall be deemed a material breach of
this Agreement; upon any such rejection, Ciba may immediately exercise the
remedies of a secured party under the Uniform Commercial Code
-9-
<PAGE>
provided Ciba first pays to RPP all amounts set forth in clause (ii) of the
immediately preceding sentence.
12.2 Each of Ciba and RPP shall make commercially reasonable efforts
to cooperate and consult with the other regarding development and marketing
activities related to the worldwide "Maalox" brand. However, it is specifically
understood that Ciba shall, without liability to RPP, have the absolute
responsibility and authority in making all marketing and other management
decisions regarding "Maalox" within the Territory, and RPP shall, without
liability to Ciba, have the absolute responsibility and authority in making all
marketing and other management decisions regarding "Maalox" outside the
Territory.
12.3 Ciba shall have the unconditional right during the Agreement
Period to make changes in the formulation of any Product. All improvements to,
modifications of or adaptations of any of the Products created or developed by
or on behalf of Ciba during the Agreement Period (collectively, "Improvements")
shall be the property of Ciba. In the event that Ciba does not exercise the
purchase option referred to in Article 9 hereof, Ciba shall, upon termination of
this Agreement, grant RPP a nonexclusive, perpetual, royalty-free license, in
form and substance satisfactory to each of the parties hereto, to use the
Improvements in the Territory, and to any IND, NDA or ANDA pertaining to the
Improvements.
12.4 Without in any way limiting the provisions hereof or the terms of
the Asset Purchase Agreement, Ciba shall be entitled to the benefit of the
indemnification provisions contained in Article 9 of the Asset Purchase
Agreement, insofar as they relate to the Intellectual Property, to the same
extent as if such provisions were set forth herein in their entirety.
12.5 Ciba shall have the right, at Ciba's sole option, to record this
Agreement in the United States Patent and Trademark Office pursuant to 35 U.S.C.
261. Ciba covenants to discharge any such filing at the end of the Agreement
Period if Ciba has not exercised the purchase option referred to in Article 9
hereof.
ARTICLE 13. NOTICES
-------
13.1 All notices or other communications given pursuant hereto by one
party hereto to the other party shall be in writing and deemed given when (a)
delivered by messenger, (b) sent by telecopier (with receipt confirmed),
provided that a copy is mailed by registered or certified mail, postage prepaid,
return receipt requested, (c) received by the addressee, if sent by Express
Mail, Federal Express or other express delivery service (receipt requested), or
(d) mailed, seven days after being mailed
-10-
<PAGE>
in the U.S. first-class postage prepaid, registered or certified, in each case
to the appropriate addresses and telecopier numbers set forth below (or to such
other addresses and telecopier numbers as a party may designate as to itself by
notice to the other party):
If to RPP, to it at:
Rorer Pharmaceuticals Products Inc.
Delaware Corporate 1, Suite 114
One Righter Parkway
Wilmington, Delaware 19803-1510
Attention: General Counsel
Telecopier No.: (302) 477-0542
Confirmation No.: (302) 477-1777
Copies to:
Rhone-Poulenc Rorer Pharmaceuticals, Inc.
500 Arcola Road
Collegeville, Pennsylvania 19426-0107
Attention: General Counsel
Telecopier No.: (610) 454-3807
Confirmation No.: (610) 454-8000
If to Ciba, to it at:
Ciba Self-Medication, Inc.
581 Main Street
Woodbridge, New Jersey 07095
Attention: President
Telecopier No.: (908) 602-6600
Confirmation No.: (908) 602-6612
Copies to:
Ciba-Geigy Corporation
444 Saw Mill River Road
Ardsley, New York 10502
Attention: General Counsel
Telecopier No.: (914) 479-2199
Confirmation No.: (914) 496-5000
ARTICLE 14. TERM
----
14.1 The term of this Agreement shall begin as of the Closing Date and
shall remain in effect for the Agreement Period. Unless and until such Closing
occurs, this Agreement shall be of no force and effect.
-11-
<PAGE>
14.2 The confidentiality obligations set forth in Section 16 shall
survive the expiration of this Agreement.
ARTICLE 15. FORCE MAJEURE
-------------
15.1 Neither party shall be responsible or liable to the other
hereunder for failure or delay in performance of this Agreement due to any war,
fire, accident or other casualty, or any labor disturbance or act of God or the
public enemy, or any other contingency beyond such party's reasonable control.
In the event of the applicability of this Article, the party affected by such
force majeure shall use reasonable efforts, consistent with good business
judgment, to eliminate, cure and overcome any of such causes and resume
performance of its obligations.
ARTICLE 16. CONFIDENTIALITY
---------------
16.1 Ciba and RPP each agrees to:
(a) not disclose any confidential and proprietary information
relating to the Intellectual Property to third parties except to: (i) the FDA
and any other Governmental Body, or their foreign equivalents, contract
manufacturers and clinical investigators; or (ii) Affiliates, sub-grantees, and
consultants of Ciba pursuant to a non-disclosure commitment; and
(b) take such precautions as it normally takes with its own
confidential and proprietary information to prevent disclosure of any
Intellectual Property that is confidential and proprietary to third parties
(except Affiliates, sub-grantees, consultants and contract manufacturers as
above).
16.2 The obligation of maintaining confidentiality under this Article
shall not, in any event, apply to any information which:
(a) at the time of disclosure is or thereafter becomes available
to the general public through no fault of the recipient party;
(b) was lawfully known to, or otherwise was lawfully in the
possession of, the recipient party, an Affiliate, or a sub-grantee, prior to the
receipt of such information from the disclosing party;
(c) is obtained by the recipient party from a source other than
the disclosing party and other than one who would be breaching a commitment of
confidentiality to the disclosing party by disclosing such information to the
recipient party; or
-12-
<PAGE>
(d) is required to be disclosed pursuant to law to protect the
recipient party's interest or in connection with any litigation, investigation
or regulatory proceeding, or as otherwise required by law.
ARTICLE 17. PUBLICITY
---------
17.1 RPP and Ciba agree not to issue any press release or other public
statement disclosing the existence of or relating to this Agreement without the
prior written consent of the other party, provided, however, that RPP or Ciba
shall not be prevented from complying with any duty of disclosure it may have
pursuant to law, subject to notifying the other party and giving such other
party reasonable time to comment on the same prior to disclosure.
ARTICLE 18. ASSIGNMENT; AMENDMENT; WAIVER
-----------------------------
18.1 (a) All of the terms and provisions of this Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors and permitted assigns. This Agreement
shall not be assignable or transferable by either party hereto without the prior
written consent of the other party (which consent shall not be unreasonably
withheld), except that Ciba or RPP may assign this Agreement and all its rights
hereunder to any Affiliate without consent.
(b) This Agreement may be amended only by written agreement of
the parties hereto.
(c) The failure of a party to insist upon strict adherence to any
term of this Agreement on any occasion shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing.
-13-
<PAGE>
ARTICLE 19. GOVERNING LAW
-------------
19.1 This Agreement shall be governed by, and construed in accordance
with, the laws of the State of New York as though made and to be fully performed
in said State.
ARTICLE 20. SEVERABILITY
------------
20.1 Any term or provision of this Agreement which is invalid or
unenforceable will be ineffective to the extent of
such invalidity or unenforceability without rendering invalid or unenforceable
the remaining rights of the Person intended to be benefitted by such provision
or any other provisions of this Agreement.
ARTICLE 21. ENTIRE AGREEMENT
----------------
21.1 This Agreement constitutes the entire understanding between the
parties relating to the subject matter hereof, and no amendment or modification
to this Agreement shall be valid or binding upon the parties unless made in
writing and signed by the representatives of such parties.
-14-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives as of the day and year first
indicated above.
RORER PHARMACEUTICALS PRODUCTS INC.
By: /s/Paul Leggieri
--------------------------------
Title: President
-----------------------------
CIBA SELF-MEDICATION, INC.
By: /s/Robert Powderly
--------------------------------
Title: Vice President
-----------------------------
<PAGE>
EXHIBIT A
---------
List of Products
----------------
<PAGE>
EXHIBIT B
---------
List of Trademarks
------------------
<PAGE>
ARMOUR PHARMACEUTICAL COMPANY Exhibit 10e
PENSION PROGRAM
AMENDED AND RESTATED
EFFECTIVE JANUARY 1, 1989
<PAGE>
ARMOUR PHARMACEUTICAL COMPANY
PENSION PROGRAM
AMENDED AND RESTATED
EFFECTIVE JANUARY 1, 1989
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Article Page
- ------- ----
<S> <C> <C>
I. Definitions 1
II. Transition and Eligibility to Participate 12
III. Years of Service 13
IV. Eligibility for Benefits 18
V. Calculation of Benefits 20
VI. Vesting 37
VII. Payment of Benefits 38
VIII. The Fund and Funding 54
IX. Administration 57
X. Amendment and Termination 62
XI. General Provisions 66
Schedule A 73
</TABLE>
<PAGE>
ARMOUR PHARMACEUTICAL COMPANY
PENSION PROGRAM
WHEREAS, Armour and Company, on behalf of itself and its wholly owned
subsidiaries, adopted the Armour Pension Plan Established 1952, effective August
1, 1952; and
WHEREAS, the Armour Pension Plan Established 1952 was amended and
restated, and renamed the Armour Pension Program Established 1952, effective
January 1, 1976; and
WHEREAS, Armour Pharmaceutical Company (the "Company"), a Delaware
corporation, participated in the Armour Pension Program Established 1952; and
WHEREAS, APC Pharmaceutical Company, a Delaware corporation which is a
wholly owned subsidiary of Revlon, Inc., purchased all of the outstanding
capital stock of the Company, effective November 10, 1977, pursuant to an
agreement dated September 30, 1977 (the "Agreement"); and
WHEREAS, the Company withdrew from the Armour Pension Program
Established 1952 in accordance with the Agreement and adopted the Armour
Pharmaceutical Company Pension Program (the "Program"), for its employees, as a
continuation of the Armour Pension Program Established 1952; and
WHEREAS, effective January 1, 1985, the Company amended and restated
the Program to comply with the requirements of the Employee Retirement Income
Security Act
-i-
<PAGE>
of 1974 and with the Internal Revenue Code of 1954, as amended; and
WHEREAS, the Company desires at this time to amend and restate the
Program to incorporate the amendments necessary to comply with the Tax Reform
Act of 1986, the Omnibus Budget Reconciliation Acts of 1986 and 1987, the
Technical and Miscellaneous Revenue Act of 1988 and all subsequent applicable
legislation. Except where a different effective date is provided herein, the
terms of the Plan, as amended and restated, shall apply only to an Employee who
terminates employment on or after January 1, 1989. The rights and benefits, if
any, of other employees shall be determined in accordance with the provisions of
the Plan as it existed prior to that date.
NOW, THEREFORE, effective January 1, 1989, the Program is continued,
amended and restated as hereinafter set forth:
-ii-
<PAGE>
ARTICLE I
---------
DEFINITIONS
-----------
Except where otherwise clearly indicated by context, the masculine
shall include the feminine, the singular shall include the plural, and vice-
versa.
1.1 "Accrued Benefit" shall mean at any time the portion of the
---------------
Participant's monthly benefit earned to the date that the determination is made,
calculated in accordance with Article V, based upon his Years of Credited
Service, the Benefit Unit and the Program in effect as of that date.
1.2 "Actuarial Equivalent" shall mean having or that which has equal
--------------------
actuarial value based on the assumptions and factors described in Schedule A.
1.3 "Actuary" shall mean the actuarial firm selected by the Committee
-------
which has a member who meets all applicable governmental requirements for
enrollment then in effect.
1.4 "Affiliated Company" shall mean, with respect to the Company, (a)
------------------
any corporation that is a member of the same controlled group of corporations
(within the meaning of Section 414(b) of the Code) as the Company; (b) any
member of an affiliated service group, as determined under Section 414(m) of the
Code, of which the Company is a member; (c) any trade or business that is under
common control with the Company, as determined under Section 414(c) of the Code;
and
-1-
<PAGE>
(d) any other entity which is required to be aggregated with the Company under
Section 414(o) of the Code. When the term "Affiliated Company" is used in
section 5.7, section 414(b) and (c) of the Code shall be deemed modified by
application of the provisions of section 415(h) of the Code, which substitutes
the phrase "more than 50 percent" for the phrase "at least 80 percent" in
section 1563(a)(1) of the Code, which is then incorporated by reference in
sections 414(b) and (c).
1.5 "Annuity Starting Date" shall mean the date as of which the first
---------------------
benefit payment (whether a single sum or an annuity installment payment) is made
(or the date such payment is due, if such payment is delayed) to the Participant
(or to the Spouse if the Participant's death occurs prior to such date).
1.6 "Alternate Payee" shall mean the person entitled to receive
---------------
payment of benefits under the Plan pursuant to a QDRO.
1.7 "Benefit Unit" shall mean the dollar amount used to calculate the
------------
Participant's Accrued Benefit determined in accordance with Section 5.1.
1.8 "Code" shall mean the Internal Revenue Code of 1986, as amended
----
and any regulations promulgated thereunder.
1.9 "Committee" shall mean the persons who are designated by the
---------
board of directors of the Company to
-2-
<PAGE>
supervise the administration of the Program, as hereinafter provided.
1.10 "Company" shall mean Armour Pharmaceutical Company.
-------
1.11 "Disability Retirement Date" shall mean the first day of the
--------------------------
calendar month coincident with or next following the day on which a Participant
(a) is determined by the Committee to have suffered a Total Disability, (b)
ceases to be employed by the Company and all Affiliated Companies on account of
such Total Disability and (c) has been credited with five (5) or more Years of
Credited Service.
1.12 "Early Retirement Date" shall mean the first day of the
---------------------
calendar month coincident with or next following the day on which a Participant
(a) attains age 55, (b) is credited with five (5) Years of Credited Service and
(c) ceases to be employed by the Company and all Affiliated Companies on or
after his attainment of such age and Years of Credited Service and before his
Normal Retirement Date.
1.13 "Effective Date" shall mean January 1, 1989, the effective date
--------------
of this amended and restated Program.
1.14 "Employee" shall mean any employee of the Company who (a) is
--------
covered by a collective bargaining agreement between the Company and the
International Chemical Workers Union, Local 498 and (b) is not eligible to
participate in any other pension plan of the Company or an Affiliated Company.
The term "Employee" shall include a
-3-
<PAGE>
leased employee within the meaning of Section 414(n) or 414(o) of the Code to
whom Section 414(n)(5) of the Code does not apply.
1.15 "ERISA" shall mean the Employee Retirement Income Security Act
-----
of 1974, as amended and any regulations promulgated thereunder.
1.16 "415 Compensation" shall mean a Participant's remuneration
----------------
including wages, salaries, fees for professional services and other amounts
received for personal services actually rendered in the course of employment
with the Company or an Affiliated Company to the extent that such amounts are
includible in gross income, including but not limited to, commissions paid
salesmen, compensation for services of the basis of a percentage of profits,
commissions on insurance premiums, tips and bonuses, but excluding the
following:
(a) contributions to a deferred compensation plan which, without
regard to Section 415 of the Code, are not includable in the Participant's gross
income for the taxable year in which contributed;
(b) contributions made on behalf of a Participant to a simplified
employee pension described in section 408(k) of the Code;
(c) distributions from a deferred compensation plan (regardless of
whether such amounts are includible);
-4-
<PAGE>
(d) amounts realized from the exercise of a non-qualified stock
option, or when restricted stock (or property) held by a Participant either
becomes freely transferable or is no longer subject to a substantial risk of
forfeiture;
(e) amounts realized from the sale, exchange or other disposition of
stock acquired under a qualified stock option; and
(f) other amounts which receive special tax benefits, such as premiums
for group term life insurance (to the extent excludable from gross income) or
employer contributions towards the purchase of an annuity contract described in
Section 403(b) of the Code.
1.17 "Fund" shall mean the fund established for this Program,
----
administered under the Trust Agreement, out of which benefits payable under this
Program shall be paid.
1.18 "Hour of Service" shall mean an hour for which:
---------------
(a) an employee is directly or indirectly paid or entitled to payment
by the Company or an Affiliated Company for the performance of employment
duties;
(b) back pay, irrespective of mitigation of damages, is ether awarded
or agreed to;
(c) an employee is directly or indirectly paid or entitled to payment
by the Company or an Affiliated Company on account of a period of time during
which no duties are
-5-
<PAGE>
performed due to vacation, holiday, illness, incapacity (including disability),
jury duty, lay-off, leave of absence, or military duty;
(d) paid clothes-changing time;
(e) guaranteed makeup hours paid, if any, as provided in any
applicable collectively bargained agreement;
(f) with respect to an employee who was absent from active employment
by reason of total disability resulting from an injury or disease arising out of
and in the course of his employment and compensable under any Workmen's
Compensation or Occupational Disease Act applicable to him, for the period of
such disability, the number of hours credited to individual members of the gang
to which he was last regularly assigned;
(g) with respect to any union representatives who are excused for
intermittent absence of a day or part of a day, or are granted leaves of absence
not to exceed thirty (30) days, to perform ordinary union business functions in
connection with the local plant of the Company at which they are employed, the
same number of hours as are actually credited to the gang to which they are
regularly assigned;
(h) each hour that constitutes part of the employee's customary work week during
any period of absence in the armed forces of the United States, provided that
(1) such absence is with the approval of the Employer or pursuant to a national
conscription law, (2) the Employee receives an
-6-
<PAGE>
honorable discharge, and (3) the Employee returns to employment with the Company
within 90 days after his release from active service or any longer period during
which his right to reemployment is protected by law; or
(i) eight (8) hours per day of qualifying sick leave (as defined
below) with maximums thereon of forty (40) hours per week and thirty (30) days
per calendar year. This thirty (30) days per calendar year limitation shall not
apply for those employees who do not return to work but retire on a disability
pension immediately following the termination of sick leave payments. For the
purpose of this Section 1.19(h), qualifying sick leave is any continuous absence
by reason of illness or accident of five (5) or more work days in duration
determined without regard to whether or not the employee is eligible for paid
sick leave, provided that such employee is ineligible therefor solely by reason
of his inability to meet the length of service requirements thereunder, or
because he has exhausted his right to paid sick leave benefits.
There shall be excluded from the foregoing those periods during which
payments are made or due under a plan maintained solely for the purpose of
complying with applicable workers' compensation, unemployment compensation or
disability insurance laws. No more than 501 Hours of Service shall be credited
under Section 1.19(c) on account of any single continuous period during which no
duties are
-7-
<PAGE>
performed except to the extent otherwise provided in this Program. An Hour of
Service shall not be credited where an employee is being reimbursed solely for
medical or medically related expenses.
No Hours of Service shall be credited twice. Hours of Service shall
be credited in accordance with the rules set forth in Department of Labor Reg.
(S)2530.200b-2(b) and (c).
Notwithstanding the foregoing, the Committee may, in accordance with
uniform rules non-discriminatorily applied, elect to credit Hours of Service
using one or more of the following equivalencies:
<TABLE>
<CAPTION>
Basis Upon Which Records Credit Granted to Individual
Maintained For Period
- ------------------------ ----------------------------
<S> <C>
shift actual hours for full shift
day 10 Hours of Service
week 45 Hours of Service
semi-monthly period 95 Hours of Service
month 190 Hours of Service
</TABLE>
1.19 "Late Retirement Date" shall mean the first day of the calendar
--------------------
month coincident with or next following the day on which a Participant's
employment with the Company and all Affiliated Companies has ceased after the
Participant's Normal Retirement Date.
1.20 "Normal Retirement Date" shall mean, for any Participant, the
----------------------
first day of the calendar month coincident with or next following the later of
(a) the date on which he
-8-
<PAGE>
attains age 65 or (b) the fifth anniversary of his commencement of participation
in the Program.
1.21 "Participant" shall mean an Employee entitled to participate in
-----------
this Program, a former Employee receiving benefits under the Program, a former
Employee who has been transferred out of Employee status and who continues to be
employed by the Company or an Affiliated Company and a former Employee whose
employment with the Company and all Affiliated Companies has ceased with vested
rights under the Program. An Employee who is such solely by reason of being a
leased employee within the meaning of Section 414(n) or 414(o) of the Code shall
not be a Participant.
1.22 "Program" shall mean the Armour Pharmaceutical Company Pension
-------
Program, as set forth herein (including any Schedules) and as hereafter amended
from time to time.
1.23 "Plan Year" shall mean a twelve month period which shall
---------
commence each January 1 and end on the next following December 31.
1.24 "QDRO" shall mean a qualified domestic relations order within
----
the meaning of section 206(d)(3)(B) of ERISA and section 414(p) of the Code.
1.25 "Required Beginning Date" shall mean April 1 of the calendar
-----------------------
year following the later of (a) the calendar year in which the Participant
attains age 70-1/2; or (b) in the case of a Participant who attained age 70-1/2
before
-9-
<PAGE>
January 1, 1988, and who is not a 5% owner (within the meaning of section 416(i)
of the Code) at any time during the 5-Plan-Year period ending in the calendar
year in which the Participant attains age 70-1/2, the calendar year in which the
Participant's Termination Date occurs. If a Participant described in clause (b)
becomes a 5% owner at any time after such 5-Plan-Year period, his Required
Distribution Date shall be April 1 of the calendar year following the calendar
year in which the Plan Year in which he becomes a 5% owner ends.
Notwithstanding the foregoing, in the case of a Participant who attained age 70
1/2 on or after January 1, 1988, but before January 1, 1989 is not a 5% owner,
and has not had a termination of employment before January 1, 1989, Required
Beginning Date shall mean April 1, 1990.
1.26 "Seniority" shall have the same meaning as that term has under
---------
the collectively bargained agreement applicable to such Participant, or if there
is no such agreement, his seniority, if any, as determined by the Company's
employment practices at the plant or location at which such Participant works.
1.27 "Social Security Retirement Age" shall mean (a) for any
------------------------------
individual born before January 1, 1938, age 65, (b) for any individual born
after December 31, 1937, but before January 1, 1955, age 66, or (c) for any
individual born after December 31, 1954, age 67.
-10-
<PAGE>
1.28 "Spouse" shall mean the person to whom a Participant is married
------
on the applicable date.
1.29 "Termination Date" shall mean the date on which an Employee's
----------------
employment with the Company or an Affiliated Company terminates for any reason.
1.30 "Total Disability" shall mean, with respect to any Participant,
----------------
a disability that renders him unable to perform the duties of any position to
which his Seniority entitles him (the Participant must exercise any Seniority
options available to him, provided he is physically able).
1.31 "Trust Agreement" shall mean the agreement and declaration of
---------------
trust executed under this Program.
1.32 "Trustee" shall mean the corporate trustee or one or more
-------
individuals collectively appointed and acting under the Trust Agreement.
1.33 "Years of Credited Service" shall mean the number of full and
-------------------------
partial calendar years counted with respect to determining an Employee's Accrued
Benefit under the Program, as further described in Article III.
1.34 "Years of Vesting Service" shall mean the number of calendar
------------------------
years counted with respect to determining an Employee's vested status under the
Program, as further described in Article III. Years of Service shall include
all Plan Years during which an Employee is employed by an Affiliated Company
after the entity becomes an Affiliated Company.
-11-
<PAGE>
ARTICLE II
----------
TRANSITION AND ELIGIBILITY TO PARTICIPATE
-----------------------------------------
2.1 Rights Affected. Except as provided to the contrary herein, the
---------------
provisions of this amended and restated Program shall apply only to Employees
who complete an Hour of Service on or after January 1, 1989. The rights of any
other individual shall be governed by the Program as in effect on his
Termination Date, except to the extent expressly provided in any amendment
adopted subsequently thereto.
2.2 Eligibility to Participate. Each person shall become a
--------------------------
Participant as of the date on which he completes an Hour of Service as an
Employee.
-12-
<PAGE>
ARTICLE III
-----------
YEARS OF SERVICE
----------------
3.1 Years of Vesting Service.
------------------------
(a) An Employee shall be credited with one (1) Year of Vesting
Service for each calendar year prior to January 1, 1976 in which he is credited
with six-tenths or more of a Year of Credited Service, or 1,000 Hours of
Service. No Year of Vesting Service shall be credited in any calendar year in
which the Employee was credited with less than six-tenths of a year of Credited
Service and was credited with 999 or fewer Hours of Service.
(b) An Employee shall be credited with one (1) Year of Vesting
Service for each calendar year after December 31, 1975 during which he is
credited with 1,000 or more Hours of Service. No Year of Vesting Service shall
be credited in any calendar year in which the Employee was credited with 999 or
fewer Hours of Service. For purposes of this Section 3.1(b), an Employee shall
receive credit for his Hours of Service for his employment by the Company or an
Affiliated Company as an employee not covered by the collective bargaining
agreement providing for a participation in this Plan.
3.2 Years of Credited Service. A Participant's Years of Credited
-------------------------
Service shall be equal to the sum of (a) and (b) below:
-13-
<PAGE>
(a) His Years of Credited Service, if any, on December 31, 1975 under
the Program as in effect on such date.
(b) One Year of Credited Service for each calendar year after
December 31, 1975, in which the Participant has 1,700 or more Hours of Service.
For purposes of this Section 3.2 and Section 3.3, a Participant shall accrue
Years of Credited Service only while in an eligible classification with the
Company to the earliest of (1) transfer to an ineligible classification with the
Company, (2) transfer to an Affiliated Company which has not adopted this
Program or (3) termination of employment with the Company and all Affiliated
Companies for any other reason.
3.3 Partial Years of Credited Service. A Participant who has not
---------------------------------
accrued 1,700 or more Hours of Service in a calendar year shall be credited with
a fraction of a Year of Credited Service, not to exceed 1.0, the numerator of
which is the Hours of Service with which the Participant is credited for such
calendar year, and the denominator of which is 1,700, rounded up to the nearest
1/10 of a year.
3.4 Breaks in Service.
-----------------
(a) Any calendar year in which an Employee is not credited with more
than 500 Hours of Service shall constitute a one-year break in service.
-14-
<PAGE>
(b) Notwithstanding the foregoing, if an Employee is absent by reason
of pregnancy, childbirth or adoption, or for purposes of the care of such
Employee's child immediately after birth or adoption, such Employee shall be
credited solely for purposes of this Section with sufficient Hours of Service to
avoid a break in service in the Plan Year in which the absence commences or, if
the Employee already has more than 500 Hours of Service in such Plan Year, the
immediately following Plan Year. Hours of Service during such absence shall be
credited in an amount equal to the Hours of Service the Employee would have had
but for such absence or, if such hours cannot be determined, at the rate of
eight (8) hours per normal workday. In order to receive credit for Hours of
Service under this Section, an Employee must provide to the Committee, in the
form and manner prescribed by the Committee, information establishing (a) that
the absence from work is for reasons set forth in this paragraph and (b) the
number of days for which there was an absence. Nothing in this Section shall be
construed as expanding or amending any maternity or paternity leave policy of
the Company.
(c) Notwithstanding the foregoing, if an Employee is absent for one or
more of the following reasons, then, to the extent he is not otherwise credited
with Hours of Service with respect to such absence, he shall be credited with an
Hour of Service, solely for purposes of this definition, for each Hour of
Service with which he would have been credited
-15-
<PAGE>
if he had continued to be actively employed during the period of absence:
(1) a period of absence during which he has not terminated his
Seniority;
(2) a disability arising in and out of the course of employment by
the Employer and compensable under any Workmen's Compensation Act or
Occupational Disease Act;
(3) a leave of absence granted to a member of a collective
bargaining unit elected or appointed to a full-time position with a union
associated with such collective bargaining unit; or
(4) an approved sick leave.
(d) The total number of hours to be treated as Hours of Service under
this definition shall not exceed 501.
3.5 Loss of Vesting Service. An Employee's Years of Vesting Service
-----------------------
shall be canceled if he incurs a Break in Service before his Normal or Early
Retirement Date at a time when his vested percentage under Section 6.1 is zero
or his Accrued Benefit is zero.
3.6 Loss of Credited Service. An Employee's Years of Credited
------------------------
Service shall be canceled if he receives or is deemed to receive a single-sum
payment following his Termination Date pursuant to Section 7.9.
3.7 Restoration of Service.
----------------------
(a) The Years of Vesting Service and Years of Credited Service of an
Employee whose Years of Vesting
-16-
<PAGE>
Service and Years of Credited Service have been canceled pursuant to Section 3.5
and/or Section 3.6 shall be restored to his credit if he thereafter completes an
Hour of Service at a time when the number of his consecutive Breaks in Service
does not exceed the greater of (1) the number of Years of Vesting Service to his
credit when the first such Break in Service occurred or (2) five (5).
Notwithstanding the foregoing, the Years of Credited Service of a Participant
described in Section 7.9(a) shall not be restored.
(b) If a Participant who receives a single sum distribution under
Section 7.10(a), His Years of Credited Service canceled pursuant to Section 3.6
shall be restored upon his full repayment of the amount of such distribution,
plus interest, compounded annually, from the date of distribution to the date of
repayment at the rate described in Section 411(c)(2)(C)(iii)(I) of the Code;
provided, however, that such repayment must be made before the earlier of (1)
five (5) years after the date the Participant again becomes an Employee, or (2)
the first date the Participant incurs five (5) consecutive Breaks in Service
following the date of the single-sum distribution.
-17-
<PAGE>
ARTICLE IV
----------
ELIGIBILITY FOR BENEFITS
------------------------
4.1 Normal Retirement. A Participant who has a Termination Date on
-----------------
his Normal Retirement Date shall be eligible for normal retirement benefits.
Such Participant's Annuity Starting Date shall be his Normal Retirement Date.
4.2 Late Retirement. If a Participant continues his employment with
---------------
the Company or an Affiliated Company beyond his Normal Retirement Date, he shall
be eligible for benefits commencing on the earlier of his Late Retirement Date
or his Required Beginning Date.
4.3 Early Retirement. A Participant shall be eligible for early
----------------
retirement benefits as of his Early Retirement Date.
4.4 Disability Retirement.
---------------------
(a) A Participant shall be eligible for disability retirement benefits
as of his Disability Retirement Date.
(b) Total Disability shall be determined by the Committee, which may
consult with a medical examiner who shall have the right to make such physical
examinations and other investigations as may be reasonably required to determine
Total Disability. The Committee may direct that any former Employee receiving
Total Disability benefits shall be reexamined without expense to him from time
to time prior to his Normal Retirement Date, but not more than semi-
-18-
<PAGE>
annually, to determine if Total Disability continues to exist. Benefits
hereunder shall terminate at any time that the former Employee ceases to be
disabled under this Section. In the event that former Employee refuses to
submit to medical examination, his pension will be discontinued until he submits
to such examination.
(c) In the event of the Participant's recovery from his Total
Disability and subsequent reemployment, the Participant shall have his Years of
Vesting Service and Years of Credited Service as of his Disability Retirement
Date reinstated. Such Participant shall be entitled to receive for life his
Normal Retirement Benefits pursuant to Section 5.1, commencing on his Normal
Retirement Date without actuarial reduction on account of previous disability
pension payments made to him while a Participant on Total Disability.
4.5 Furnishing Data. Each Employee and beneficiary shall furnish
---------------
such information as the Committee may consider necessary for the determination
of the Employee's rights and benefits under the Program and shall otherwise
cooperate fully with the Committee in the administration of the Program.
Benefit commencement shall be deferred until all of such information is
provided.
-19-
<PAGE>
ARTICLE V
---------
CALCULATION OF BENEFITS
-----------------------
5.1 Normal Retirement.
-----------------
(a) A Participant who is eligible for normal retirement benefits
shall receive a pension of Actuarial Equivalent value equal to a single life
annuity at his Normal Retirement Date, payable monthly in an amount determined
in accordance with the provisions of Section 5.1(b) hereof. The benefit shall be
funded by the Company based on the Years of Credited Service accrued by the
Participant while in its employ, but shall be paid by the Trustee in the form
elected by the Participant in accordance with Article VII.
(b) A Participant's normal retirement benefit shall be a monthly
amount determined by multiplying the Participant's Years of Credited Service by
the Participant's applicable Benefit Unit; provided, however, the normal
retirement benefit of a Participant shall not be less than his benefit under the
Armour Pension Plan Established 1952, attributable to participation in such plan
prior to November 10, 1977 under a program supplement, other than Program
Supplement No. 925-498. The Participant's Benefit Unit shall be determined in
accordance with the following schedule:
-20-
<PAGE>
<TABLE>
<CAPTION>
Monthly Benefit per
Year of Credited Service
------------------------
Payable in Payable in
Year of Subsequent
Date of Termination Termination Years
- ------------------- ----------- ----------
<S> <C> <C>
09/01/76 - 12/31/76 $ 8.50 $10.00
01/01/77 - 08/31/77 10.00 10.00
09/01/77 - 12/31/77 10.00 11.50
01/01/78 - 08/31/78 11.50 11.50
09/01/78 - 12/31/78 11.50 12.00
01/01/79 - 08/31/79 12.00 12.00
09/01/79 - 12/31/79 12.00 12.50
01/01/80 - 08/31/80 12.50 12.50
09/01/80 - 12/31/80 12.50 13.00
01/01/81 - 09/20/83 13.00 13.00
09/21/83 - 12/31/84 13.50 13.50
01/01/85 - 12/31/85 14.00 14.00
01/01/86 - 12/31/86 14.50 14.50
01/01/87 - 12/31/87 15.00 15.00
01/01/88 - 12/31/88 16.00 16.00
01/01/89 - 12/31/89 17.00 17.00
01/01/90 - 12/31/90 18.00 18.00
01/01/91 - 12/31/91 21.00 21.00
01/01/92 - 12/31/92 23.00 23.00
01/01/93 - 12/31/93 25.00 25.00
01/01/94 - 12/31/94 27.00 27.00
</TABLE>
5.2 Late Retirement.
---------------
(a) A Participant who is eligible for benefits under Section 4.2
shall receive a pension of Actuarial Equivalent Value equal to a single life
annuity, payable monthly in an amount determined in accordance with the
provisions of Section 5.1 as of the earlier of his Late Retirement Date or his
Required Beginning Date.
(b) If a Participant's Required Beginning Date and, therefore, his
Annuity Starting Date precedes his Late Retirement Date, the amount of the
pension payable to the Participant shall be determined as of his Annuity
Starting Date and shall be adjusted annually as of January 1 in each
-21-
<PAGE>
calendar year following his Annuity Starting Date, up to and including the
January 1 next following his Late Retirement Date. Such annual adjustment shall
include any increase (but not any decrease) in the Participant's Accrued
Benefit, determined in accordance with Section 5.1, as a result of an increase
in the Benefit Unit and/or additional Years of Credited Service since the
Participant's Annuity Starting Date or the last such annual adjustment,
whichever applies. In addition, such annual adjustment shall be reduced (but not
below zero) by the Actuarial Equivalent of any benefits paid to the Participant
since his Annuity Starting Date, to the extent not previously taken into account
under this Section 5.2(b); provided, however, that the amount, if any, of the
benefits paid to the Participant which exceeds the amount the Participant would
have received if distribution had been made in the normal form of benefits
described in Section 7.2 for such Participant shall be disregarded in
determining the Actuarial Equivalent of such benefits for purposes of the
reduction described in this sentence.
(c) This Section shall apply only to a Participant credited with one
or more Hours of Service as an Employee on or after January 1, 1988. The
pension of any other Participant entitled to a pension under Section 4.2 shall
be determined as if he had had a Termination Date on his Normal Retirement Date
based on the Years of Credited Service to his
-22-
<PAGE>
credit as of his Normal Retirement Date and the Benefit Unit in effect as of his
Normal Retirement Date.
5.3 Early Retirement.
----------------
(a) Basic Benefit. Each Participant who retires on an Early
-------------
Retirement Date shall be entitled to receive a monthly pension commencing as of
his Normal Retirement Date in an amount equal to his Accrued Benefit (or its
Actuarial Equivalent in a form set forth in Article VII), determined as of his
Early Retirement Date.
(b) Early Benefit Commencement.
--------------------------
(1) A Participant described in subsection (a) may elect in
writing, no earlier than 90 days prior to his Benefit Payment Date and in no
event earlier than the date he receives the explanation described in Section
7.5, to receive, in lieu of the benefit starting as of his Normal Retirement
Date, a benefit determined as described in paragraph (2) hereof (or its
Actuarial Equivalent in a form set forth in Article VII) starting as of the
first day of any month next following his Early Retirement Date and prior to his
Normal Retirement Date.
(2) The benefit payable to the Participant pursuant to
paragraph (1) hereof shall be a pension of Actuarial Equivalent value equal to a
single life annuity, payable monthly in an amount equal to his Accrued Benefit
as of his Early Retirement Date, reduced 1/2 of 1% for each full calendar month
by which his Annuity Starting
-23-
<PAGE>
Date precedes the first day of the month coincident or next following the date
on which the Participant attains age 60.
5.4 Disability Retirement.
---------------------
(a) A Participant who is eligible for benefits under Section 4.4
shall receive a pension of Actuarial Equivalent value equal to a single life
annuity, payable monthly in an amount equal to his Accrued Benefit as of his
Disability Retirement Date. Such benefit shall commence as of the Participant's
Disability Retirement Date and ends on the earliest of:
(1) the date the Plan Administrator finds, on the basis of
medical evidence, that the Participant is no longer Totally Disabled as defined
in Section 1.30;
(2) the date the Participant refuses to submit to any
medical examination requested by the Plan Administrator;
(3) the Participant's death; or
(4) the Participant's Normal Retirement Date.
A Disability pension payable to a Participant under Section 4.4
and this Section shall be disregarded in determining a Participant's Annuity
Starting Date.
(b) In addition to the disability pension provided under Section
5.4(a), a Participant who meets the requirements of Section 4.4, is not entitled
to receive a disability pension under the Federal Social Security Act, and
-24-
<PAGE>
has not attained his Normal Retirement Date, shall be eligible to receive, in
addition to the disability pension under Section 5.4(a), an additional
disability pension in the form of a single life annuity, Actuarially Equivalent
to the disability pension under Section 5.4(a); provided, however, that
commencing with the month as of which the Participant either becomes entitled to
receive a disability pension under the Federal Social Security Act or reaches
his Normal Retirement Date, and for life thereafter, the additional monthly
disability pension payable hereunder shall cease. A Disability pension payable
to a Participant under Section this Section 5.4(b) shall be disregarded in
determining a Participant's Annuity Starting Date.
(c) For purposes of Section 5.4(b), it shall be assumed unless
written evidence to the contrary is submitted to the Company, that a disabled
Participant is eligible for a disability pension under the Federal Social
Security Act. With respect to each such Participant who files with the Company
written evidence that his application for a disability pension under the Federal
Social Security Act has been declined, the Company may require that such
Employee resubmit his application for a disability pension under the Federal
Social Security Act at such intervals as may be deemed appropriate by the
Employer, subject only to such rules and regulations and procedures as may be
established by the Federal Social Security Administration.
-25-
<PAGE>
5.5 Transfers.
---------
(a) An Employee who has been transferred from an eligible
classification with the Company or an Affiliated Company shall have his benefit
computation based upon his Years of Credited Service and the Benefit Unit in
effect under Section 5.1 as of the last date on which he is in the eligible
classification.
(b) If an Employee transfers into an eligible classification,
including a transfer from the employ of an Affiliated Company, his employment
with any Affiliated Company while he is not in an eligible classification shall
not be considered in determining his Years of Credited Service under Sections
3.2 and 3.3.
5.6 Post-Retirement Death Benefit. In the event of the death of a
-----------------------------
Participant after his Annuity Starting Date, his beneficiary shall be entitled
to receive any amount which may be payable under the form of benefit in effect.
5.7 Maximum Benefit.
---------------
(a) General Limitation. Except as provided to the contrary in
------------------
subsections (b) through (g) of this Section, the annual retirement benefit
attributable to Company contributions payable to any Participant shall not
exceed the lesser of (1) $90,000 (as adjusted pursuant to section 415(d) of the
Code) in the form of the normal form of benefit as provided for in Section 7.2
of the Plan, or if in a form other than the normal form, the reduced Actuarial
Equivalent
-26-
<PAGE>
of a $90,000 (as adjusted) per annum annuity in the normal form, or (2) 100% of
the Participant's average 415 Compensation for his high 3 years, where "high 3
years" refers to the period of 3 consecutive calendar years yielding the highest
such average during which the person was an active Participant in the Plan. The
$90,000 (as adjusted) limitation referred to herein shall be increased using an
interest rate assumption equal to the lesser of 5% or the rate specified in the
Plan for benefits commencing after Social Security Retirement Age. In the event
that the Participant's benefits become payable before the Social Security
Retirement Age, the $90,000 (as adjusted) limitation shall be decreased to
provide the Actuarial Equivalent of an annual benefit equal to such limitation
commencing at the age at which benefit payments begin in accordance with section
415(b)(2)(C) of the Code. For purposes of this decrease, the reduction is the
same as the reduction in Social Security benefits for benefits that begin to be
paid on or after age 62, and the interest rate assumption used in reducing the
benefit for years prior to age 62 shall be the greater of 5% or the rate
specified in the Plan.
(b) Exceptions to the General Limitation. No benefit shall be deemed
------------------------------------
in violation of the limitation expressed in Section 5.7(a) if the amount of the
benefit does not exceed $10,000 for the current Plan Year or any prior Plan
Year, and the Company has not at any time maintained a
-27-
<PAGE>
defined contribution plan in which the Participant participated.
(c) Short Service Limitation. In the case of a Participant who has
------------------------
less than 10 years of active participation in the Plan, the limitation set forth
in Section 5.7(a)(1) shall be reduced by multiplying it by a fraction, the
numerator of which is the number of a Participant's years of participation (or
parts thereof), and the denominator of which is 10. Unless otherwise provided
by the Company, the limitation described in the preceding sentence shall be
applied separately with respect to each change in the benefit structure of any
qualified defined benefit plan maintained by the Company or an Affiliated
Company adopted after May 16, 1989 and before August 3, 1992. In the case of a
Participant who has less than 10 Years of Vesting Service, the limitations set
forth in Sections 5.7(a)(2) and 5.7(b) shall be reduced by multiplying them by a
fraction, the numerator of which is the number of the Participant's Years of
Vesting Service (or parts thereof) and the denominator of which is 10.
(d) Combined Plans and Affiliated Companies Limitations. If the
---------------------------------------------------
Participant is a participant in any other qualified defined benefit pension plan
sponsored by the Company or an Affiliated Company, the Participant's pension
benefit under such other plan shall be aggregated with his projected benefit
under the Plan, and the benefit under the
-28-
<PAGE>
Plan and such other plan shall be reduced proportionally, to the extent
necessary, so that the aggregate of such benefits does not exceed the
limitations set forth in this Section. If the Participant is a participant in
one or more qualified defined contribution plans sponsored by the Company or an
Affiliated Company, his benefit under the Plan and any other defined benefit
plan sponsored by the Company or an Affiliated Company shall be reduced
proportionally, to the extent necessary, so that the sum of the Defined Benefit
Fraction and the Defined Contribution Fraction does not exceed 1.0.
For purposes of this Section, "Defined Benefit Fraction" shall mean a
fraction, (a) the numerator of which is the sum of the projected annual benefits
of the Participant under all qualified defined benefit pension plans sponsored
by the Company or an Affiliated Company, as of the close of the Plan Year, and
(b) the denominator of which is the lesser of (1) 1.25 multiplied by the dollar
limitation in effect under section 415(b)(1)(A) of the Code as to such Plan
Year, reduced in accordance with sections 415(b)(2) and 415(b)(5) of the Code,
if applicable, or (2) the product of (A) 1.4 multiplied by (B) the amount which
may be taken into account under section 415(b)(1)(B) of the Code with respect to
such person under the Plan for such Plan Year, reduced in accordance with
section 415(b)(5) of the Code, if applicable.
-29-
<PAGE>
Defined Contribution Fraction shall mean a fraction, (a) the numerator
of which is the sum of the "annual additions," as that term is defined in
section 415(c) of the Code, to the Participant's account, determined as of the
close of the Plan Year of reference, and (b) the denominator of which is the sum
of the denominator increments under all Company- or Affiliated Company-sponsored
qualified defined contribution plans (as of the close of the Plan Year) for all
of the Participant's years of service with the Company or an Affiliated Company,
where the denominator increment for each such year of service is the lesser of
(1) the product determined by multiplying 1.25 by the dollar limitation in
effect under section 415(c)(1)(A) for such year of service (determined without
regard to section 415(c)(6) of the Code), or (2) the product determined by
multiplying 1.4 by the amount which may be taken into account under section
415(c)(1)(B) of the Code (or section 415(c)(7), if applicable) with respect to
such person for such year.
Notwithstanding anything in this subsection (d) to the contrary, if
the Plan satisfied section 415 of the Code as in effect for the last Plan Year
beginning prior to January 1, 1987, an amount shall be subtracted permanently
from the numerator of the Defined Contribution Fraction (not exceeding such
numerator) as prescribed by the Secretary of the Treasury so that the sum of the
Defined Benefit and Defined Contribution Fractions computed under section
-30-
<PAGE>
415(e)(1) of the Code as amended effective January 1, 1987 does not exceed 1.0
for such Plan Year.
(e) Effective Date. The limitations described in this Section 4.11
--------------
shall become effective with respect to the Plan and Participants as is required
to comply with section 415 of the Code as amended by the Tax Reform Act of 1986
and subsequent legislation, but shall not reduce any benefit which was accrued
by a Participant under the Plan prior to the first day of the Plan Year
beginning in 1987, using the applicable maximum dollar limitations then in
effect; provided, however, that this sentence shall not apply to any Participant
who was not a Participant as of the first day of the first Plan Year that began
in 1987. For purposes of this subsection (g), no change in the Plan after May
5, 1986 and no cost of living adjustment after May 5, 1986 shall be taken into
account.
5.8 Suspension of Benefits on Employment.
------------------------------------
(a) (1) In the event that a Participant is employed after his Normal
Retirement Date in "qualified reemployment" (as defined in Section 5.8(c)), the
benefits otherwise payable to the Participant shall be suspended for each
calendar month before his Required Beginning Date in which he continues his
qualified reemployment. In addition, no benefits shall be paid before a
Participant's Required Beginning Date during the qualified reemployment of a
Participant who continues in the employ of the Company or an
-31-
<PAGE>
Affiliated Company after his Normal Retirement Date. The rules relating to such
a suspension of benefits and their subsequent resumption are described in this
Section.
(2) The Committee shall notify the Participant by personal delivery or
first class mail of the suspension of his benefits during the first month in
which such suspension of benefits occurs.
(3) Each Participant receiving benefits under the Program shall be
required to give notice to the Committee of any employment relationship which
such Participant has with the Company or any Affiliated Company. The Committee
shall have the right to use all reasonable efforts to determine whether such
employment constitutes qualified reemployment. The Committee shall also have
the right to require the Participant to provide information sufficient to prove
that such employment does not constitute qualified reemployment.
(4) A Participant may by written request ask the Committee to make a
determination as to whether specific contemplated employment constitutes
qualified reemployment. The Committee shall respond to such request in writing
within sixty (60) days of the Committee's receipt of the request.
(5) Benefit payments to the Participant will resume (or commence) no
later than the earlier of (A) the first day of the third calendar month
following the month
-32-
<PAGE>
in which his qualified reemployment ceases or, if later, the first day of the
calendar month following receipt by the Committee of the Participant's notice
that his qualified reemployment has ceased or (B) the Participant's Required
Beginning Date. The initial resumption payment shall include payment for the
current month and for all previous calendar months since the cessation of the
Participant's qualified reemployment.
(6) The resumed benefit payments shall be recalculated on the basis of
Years of Credited Service credited during such period of reemployment and the
provisions of the Program as then in effect. The resumed payments shall be paid
in the form determined pursuant to Article VII. The Committee shall offset
resumed benefits by an amount equal to any benefits which were paid to the
Participant with respect to a calendar month in which the Participant was
engaged in qualified reemployment. However, the offset to any monthly benefit,
other than the initial resumption payment, shall not exceed twenty-five percent
(25%) of the monthly benefit. Any remaining offset shall be applied to benefits
payable in subsequent months.
(b) Except as provided in Section 5.8(d), if a Participant is employed
or reemployed by the Company or an Affiliated Company under any circumstances
other than as described in Section 5.8(a), the benefits otherwise payable
-33-
<PAGE>
to the Participant shall be continued during such period of reemployment.
(c) Qualified reemployment shall mean the employment of a
Participant by the Company or an Affiliated Company in such a capacity that the
Participant receives or is entitled to be paid for at least forty (40) Hours of
Service (not including Hours of Service credited as a result of back pay) during
a calendar month.
(d) If a Participant is reemployed before his Normal Retirement
Date as an Employee, benefits otherwise payable to the Participant shall be
suspended during his period of reemployment. Upon his subsequent Termination
Date, his pension shall be recalculated on the basis of his Years of Service
credited during such period of reemployment, and the provisions of the Program
as then in effect, but shall be reduced by the Actuarial Equivalent of payments
previously made prior to his Normal Retirement Date. The resumed payments shall
be paid in the form determined pursuant to Section 7.4.
(e) A Participant whose benefits have been suspended during a
period of qualified reemployment shall be entitled to elect the form of payment
for his entire benefit, including amounts accrued both before and during
reemployment, in accordance with Article VII.
5.9 Accruals While Benefits Are in Pay Status. In the event that a
-----------------------------------------
Participant is credited with a benefit
-34-
<PAGE>
accrual during and/or after the Plan Year in which the Participant attains
Normal Retirement Age and after the distribution of benefits has commenced
hereunder, the amount of benefit payable to the Participant as determined as of
his Annuity Starting Date shall be adjusted annually as of each January 1
following his Annuity Starting Date, up to and including the January 1 next
following the date the Participant ceases to accrue benefits under the Plan.
Such annual adjustment shall include any increase (but not any decrease) in the
Participant's Accrued Benefit, determined in accordance with Section 5.1
(including, for any period during which benefits would not be suspendible under
Section 5.8, an Actuarial Equivalent adjustment to such increase to reflect
payment commencing after Normal Retirement Date) since the Participant's Annuity
Starting Date or the last such annual adjustment, whichever applies. In
addition, such annual adjustment shall be reduced (but not below zero) by the
Actuarial Equivalent of any benefits paid to the Participant since his Annuity
Starting Date during any period that would have constituted suspendible service
under Section 4.9 had the Participant not reached his Required Distribution
Date, to the extent not previously taken into account under this Section;
provided, however, that the amount, if any, of the benefits paid to the
Participant which exceeds the amount the Participant would have received if
distribution had been made in the normal form of benefits described in Section
7.1 for
-35-
<PAGE>
such Participant shall be disregarded in determining the Actuarial Equivalent of
such benefits for purposes of the reduction described in this sentence.
5.9 Prohibition Against Decrease in Benefits Payable. In the event
------------------------------------------------
that a Participant's Accrued Benefit, as determined on his Normal Retirement
Date, is less than his Accrued Benefit, as determined on any day on which he
would have been entitled to a benefit payment on his Early Retirement Date, his
normal retirement benefit shall be the amount which would have been payable on
the Participant's Early Retirement Date.
-36-
<PAGE>
ARTICLE VI
----------
VESTING
-------
6.1 Eligibility.
------------
(a) A Participant who terminates service with the Company and all
Affiliated Companies, other than as provided in Article IV, after completing
five (5) Years of Vesting Service shall be eligible for a deferred vested
benefit commencing on his Normal Retirement Date, if he is then living;
provided, however, that a Participant who has completed five (5) or more Years
of Credited Service may elect to receive his early retirement benefits under
Section 4.3 upon attaining age 55.
(b) Notwithstanding the foregoing, a Participant shall be fully vested
in his Accrued Benefit upon the later of (a) the date on which he attains age 65
or (b) the fifth anniversary of his commencement of participation in the
Program.
6.2 Amount of Benefit. A Participant who meets the requirements of
-----------------
Section 6.1 shall be entitled to receive his Accrued Benefit, calculated as of
his Termination Date, as a normal retirement benefit commencing on his Normal
Retirement Date, or the Accrued Benefit reduced under Section 5.3 for early
retirement.
6.3 Form and Payment of Benefit. Deferred vested benefits shall be
---------------------------
paid in a form provided for in Article VII.
-37-
<PAGE>
ARTICLE VII
-----------
PAYMENT OF BENEFITS
-------------------
7.1 Earliest and Latest Commencement of Benefits.
--------------------------------------------
(a) Except as set forth below, a Participant's benefit shall not
commence prior to his Termination Date, nor shall a Participant commence to
receive benefits later than the earlier of the dates determined under (1) or (2)
below:
(1) the 60th day after the close of the Plan Year in which occurs
the latest of (A) the Participant's attainment of his Normal Retirement Date or
(B) the 10th anniversary of the year in which the Participant commenced
participation in the Plan, or (C) Participant's Termination Date; or
(2) the Participant's Required Beginning Date, except as otherwise
provided in a valid deferral election filed by the Participant with the
Committee before January 1, 1984 and not subsequently revoked.
(b) Notwithstanding anything in the Program to the contrary, if a
Participant dies before his Annuity Starting Date, his interest under the
Program, to the extent not forfeited, shall be distributed either:
(1) not later than December 31 of the calendar year containing the
fifth anniversary of the date of the Participant's death, or
-38-
<PAGE>
(2) over the life or life expectancy of the Participant's beneficiary,
provided such distribution begins not later than (A) December 31 of the calendar
year following the year of the Participant's death, or (B) if the Participant's
beneficiary is the surviving Spouse of the Participant, December 31 of the later
of the calendar year following the year of the Participant's death or the
calendar year in which the Participant would have attained age 70-1/2. If the
surviving Spouse dies before the distributions to such Spouse begin, then the
five-year distribution requirement of Subsection (b)(1) shall apply as if the
Spouse were the Participant.
(c) Notwithstanding anything in the Program to the contrary, the form
and the timing of all distributions under the Program shall be in accordance
with regulations issued by the Department of the Treasury under Section
401(a)(9) of the Code, including the incidental death benefit requirements of
Section 401(a)(9)(G) of the Code.
(d) This Section shall apply to all Participants, including
Participants who had a Termination Date or ceased to be an Employee in a
eligible classification prior to January 1, 1989.
7.2 Normal Form of Benefit.
----------------------
(a) The normal form of benefit for a Participant who is married
on his Annuity Starting Date shall be an Actuarial Equivalent joint and survivor
annuity, with
-39-
<PAGE>
monthly installments payable after the death of the Participant to the Spouse,
if then living, for the life of such Spouse in an amount equal to fifty percent
(50%) of the benefit paid to the retired Participant.
(b) The normal form of benefit for a Participant who establishes to
the satisfaction of the Committee that he has no Spouse as of his Annuity
Starting Date shall be a single life annuity with equal monthly installments
payable to the Participant during his lifetime.
7.3 Optional Forms of Benefits. In lieu of the normal form of benefit
--------------------------
as determined under Section 7.2, the Participant may elect, subject to the rules
of Section 7.4, one of the following Actuarial Equivalent optional forms of
benefit:
(a) a single life annuity payable in equal monthly installments to the
retired Participant for his life commencing on the Participant's Annuity
Starting Date; or
(b) a joint and survivor annuity with the Participant's Spouse or
other designated beneficiary, payable in monthly installments to the Participant
for his life and with fifty percent (50%) or one hundred percent (100%) of the
amount of such monthly installment payable after the death of the Participant to
the Spouse or other designated beneficiary of such Participant, if then living,
for the life of such Spouse or other designated beneficiary. Notwithstanding
the foregoing, the percentage payable to the Participant's
-40-
<PAGE>
beneficiary (unless the beneficiary is the Participant's Spouse) after the
Participant's death may not exceed the applicable percentage from the table set
forth in Appendix A;
7.4 Rules for Election of Optional Benefits. A Participant may elect
---------------------------------------
an optional form of benefit under Section 7.3 by filing written notice with the
Committee in the form and manner prescribed by the Committee. The following
rules shall be applied in a uniform and non-discriminatory manner with respect
to the election of optional forms of benefits.
7.5 Waiver of Normal Form.
---------------------
(1) Participant's Waiver Rights. At any time during the applicable
---------------------------
election period but not thereafter, a Participant may elect in writing in a form
acceptable to the Committee to waive payment under the normal form of benefit
payment described in Section 7.2 and elect to receive payment in an optional
form of payment described in Section 7.3. For the purposes hereof, the
applicable election period shall be the 90-day period ending on the Annuity
Starting Date; provided that a Participant's election of any optional form of
payment shall in no event be made earlier than the date the Participant receives
the notice described in Section 7.5(4).
(2) Revocation of Waivers. Any waiver and election delivered
---------------------
by the Participant to the Committee in accordance with the provisions of
paragraph (1) hereof may be
-41-
<PAGE>
revoked by the Participant upon written notice delivered to the Committee prior
to the Annuity Starting Date.
(3) Spouse's Consent. A married Participant's waiver and
----------------
election under paragraph (1) shall be effective only if:
(A) the Participant's Spouse (or the Spouse's legal
guardian if the Spouse is legally incompetent) executes a written instrument
whereby such Spouse irrevocably consents to such election and to the specific
form of payment and/or alternate beneficiary elected by the Participant, and
such instrument acknowledges the effect of the election to which the Spouse's
consent is given and is witnessed by a notary public; or
(B) the Participant (i) establishes to the satisfaction
of the Committee that the consent of the Spouse cannot be obtained because the
Spouse cannot be located or because of other circumstances that may be
prescribed in applicable regulations, or (ii) furnishes a court order to the
Committee establishing that the Participant is legally separated or has been
abandoned (within the meaning of local law), unless a QDRO provides that the
Spouse's consent must be obtained.
(4) Revocation of Election. (a) In the event of the divorce of a
----------------------
Participant prior to his Annuity Starting Date, but following the Participant's
election of a form of benefit, the election shall remain in effect unless
-42-
<PAGE>
the election is revoked by the Participant, the Participant remarries, or a
qualified domestic relations order provides otherwise.
(b) Notwithstanding Section 7.4(a), if a Participant who is
receiving a joint and survivor annuity with his Spouse is divorced subsequent to
his Annuity Starting Date, the joint and survivor annuity shall remain in effect
unless specifically revoked by a qualified domestic relations order. In the
event that the joint and survivor benefit is revoked, the Participant's benefit
shall be paid in the normal form under Section 7.2, unless the Participant
elects an optional form of benefit under Section 7.3. The Participant may elect
an optional form of benefit at any time during the ninety-day period that
commences on the date the Participant is notified that the order revoking the
joint and survivor annuity is a qualified domestic relations order.
7.5 Explanation to Participants. The Committee shall provide each
---------------------------
Participant (whose vested Accrued Benefit has an Actuarial Equivalent single-sum
value in excess of $3,500) no less than thirty (30) days and no more than ninety
(90) days before his Annuity Starting Date a written explanation of:
(a) the terms and conditions of the normal form of benefit and each
optional form of benefit, including information explaining the relative values
of each form of benefit;
-43-
<PAGE>
(b) the Participant's right to waive the normal form of benefit and
the effect of such waiver;
(c) the right of the Participant's Spouse with respect to such
waiver;
(d) the right of the Participant to revoke the election and the
effect of the revocation; and
(e) if the Participant has not reached his Normal Retirement Date,
the Participant's right to defer commencement of his benefit until his Normal
Retirement Date. In addition, if applicable, the Committee shall provide to each
Participant a notice regarding his right to elect a direct rollover, as provided
in Section 7.14, in accordance with section 402(f) of the Code.
7.6 Termination of Benefits. The last benefit payment hereunder shall
-----------------------
be made for the month in which occurs:
(a) in the case of a single life annuity, the death of the retired
Participant;
(b) in the case of a surviving Spouse's benefit or a joint and
survivor benefit, the later of the death of the Participant and the Spouse or,
if applicable, the designated beneficiary of such Participant;
(c) in the case of a current disability benefit under Section 4.4,
the Participant ceases to have a Total Disability; or
-44-
<PAGE>
(d) in the case of a single-sum distribution, the payment is made.
7.7 Beneficiary Designation.
-----------------------
(a) The designation of a beneficiary under a joint and survivor
annuity shall be fixed and may not be changed on or after the Annuity Starting
Date.
(b) Subject to Section 7.9(a) and to the provisions set forth above
relating to the rights of Spouses to survivor benefit payments, each Participant
shall have the right at any time to designate or to change the previous
designation of the beneficiary or beneficiaries who shall receive benefits, if
any, after his death by executing and filing with the Committee a form
prescribed by the Committee. No designation, revocation or chance of
beneficiaries shall be a valid and effective unless and until it is filed with
the Committee.
7.8 Mailing Address. Benefit payments and notifications hereunder
---------------
shall be deemed made when mailed to the last address furnished to the Committee.
7.9 Small Benefit Payments.
----------------------
(a) Notwithstanding any other provision of the Plan, if the Actuarial
Equivalent single-sum value, determined as of the date of distribution, of the
vested Accrued Benefit of a Participant who has had a termination of employment,
or of the benefit payable to a Spouse by reason
-45-
<PAGE>
of the Participant's death, is $3,500 or less (and has never exceeded $3,500 at
the time of any prior distribution), the benefit shall be paid, as soon as
administratively practicable following the Participant's termination of
employment or death, as a single-sum in settlement of all liabilities of the
Plan in connection with the Participant; provided, however, that no such payment
shall be made after such benefit has commenced in any other form.
(b) If the value of the benefit described in Section 7.9(a) is zero,
the Participant shall be deemed to have received a single-sum distribution under
this Section of his entire vested Accrued Benefit as of his Termination Date.
7.10 Benefit Payable to the Surviving Spouse in the Event of Death
-------------------------------------------------------------
Before Retirement Benefits Commence.
- -----------------------------------
(a) Subject to Section 7.10(b), if a Participant dies prior to his
Annuity Starting Date, has been continuously married for at least six (6) months
prior to the date of the his death and has met the requirements specified in
Section 6.1 for a vested termination benefit, the Participant's surviving Spouse
shall receive a survivor's benefit. Such benefit shall be a monthly pension for
life and shall begin, as elected by the Spouse not more than ninety (90) days
prior to the Annuity Starting Date, as early as the later of (A) the earliest
date on which the Participant would have been eligible to receive his benefit
pursuant to Article IV or (B) the first day of the month
-46-
<PAGE>
following the month in which the Participant's death occurs. Notwithstanding
anything in this paragraph to the contrary, any benefit payable to the Spouse
shall commence not later than the later of (i) the Participant's Normal
Retirement Date or (ii) the first day of the month following the month in which
the Participant's death occurs and shall end with the payment for the month in
which the Spouse's death occurs. Subject to Section 5.7, the Spouse's benefit
shall be the benefit such Spouse would have received if the Participant (1) had
had a Termination Date on the date of his death (if he is then an Employee), (2)
had survived the Annuity Starting Date elected by the Spouse, (3) had then begun
to receive an immediate retirement benefit in the normal form under Section
7.2(a), and (4) died on the following day. If the Participant dies before his
Annuity Starting Date but after he has elected an optional form of benefit that
is a joint and survivor annuity with the Participant's Spouse that provides for
periodic payments after the Participant's death each of which is not less than
fifty percent (50%) nor more than one hundred percent (100%) of the periodic
payment to the Participant, the survivor's benefit shall be the benefit to which
the Spouse is entitled under the optional form elected by the Participant. If
the surviving Spouse dies prior the Spouse's Annuity Starting Date, the
survivor's benefit described in this Section shall be forfeited.
-47-
<PAGE>
(b) The survivor's benefit under Section 7.10(a) shall not be payable
and the death benefit under this Section 7.10(b) shall be payable with respect
to the surviving Spouse of a Participant who dies prior to his Annuity Starting
Date, has been continuously married for at least six (6) months prior to the
date of his death, has been credited with ten (10) or more Years of Credited
Service, and has Seniority or is employed by the Company or any Affiliated
Company as of the date of his death; provided, however, that the death benefit
calculated under this Section 7.10(b) is greater than the Actuarial Equivalent
value of the benefit calculated under Section 7.10(a). Such benefit shall be a
monthly pension for life and shall begin on the first day of the month next
following the death of the Participant. Subject to Section 5.7, the Spouse's
benefit under this Section 7.10(b) shall equal .4250 of the Participant's
Accrued Benefit
(1) reduced by an amount equal to .0003 multiplied by the number
of months by which the Participant's month of birth preceded the month of birth
of the Participant's Spouse; or
(2) increased by an amount equal to .0003 multiplied by the
number of months by which the month of birth of the Participant's Spouse
preceded the Participant's month of birth.
-48-
<PAGE>
7.11 Benefit Payable to the Surviving Child in the Event of Death
------------------------------------------------------------
Before Retirement Benefits Commence.
- -----------------------------------
(a) If a Participant dies prior to his Annuity Starting Date, does
not have a Spouse at the time of his death, has been credited with ten (10) or
more Years of Credited Service, and has Seniority or is employed by the Company
or any Affiliated Company as of the date of his death; the Participant's
surviving child, if any, shall receive a death benefit. For purposes of this
Section 7.11, child shall mean one or more of the Participant's children who
have neither married nor attained age 18, and who at the time of the
Participant's death were dependent upon the Participant for support or
maintenance and lived with him in a normal parent-child relationship, or was
eligible for support payments from the Participant as a result of a court order.
Such benefit shall be a monthly pension beginning on the first day of the month
next following the death of the Participant and ending with the first day of the
month during which all surviving children have either married or attained age
18. Subject to Section 5.7, the benefit under this Section 7.11 shall equal
.4250 of the Participant's Accrued Benefit. If more than one child of the
Participant shall survive and shall neither have married nor attained age 18
prior to the first day of any month as of which the benefit under this Section
7.12 is payable, a proportionate share of
-49-
<PAGE>
the total of such benefit then due shall be payable to the legal guardian of
each such child.
7.12 Special Rules for Certain Terminated Participants.
-------------------------------------------------
(a) If a Participant with a surviving Spouse
(1) who is eligible for a deferred vested benefit under the
Program,
(2) who has been credited with at least one Hour of Service
on or after September 2, 1974,
(3) whose employment with the Company and all Affiliated
Companies has terminated prior to the first day of the first Plan Year beginning
after December 31, 1975,
(4) who has not thereafter been reemployed by the Company
or any Affiliated Company, and
(5) who is alive on August 23, 1984 and whose benefit
payments have not commenced as of that date, such Participant's retirement
benefits shall be paid in accordance with this Article VII without the required
consent of his Spouse.
(b) A Participant with a surviving Spouse
(1) who has at least one Hour of Service after the first
day of the Plan Year beginning on or after January 1, 1976,
(2) who has not been credited with any Hours of Service
after August 22, 1984,
-50-
<PAGE>
(3) who has at least ten (10) Years of Vesting Service and
a vested right to all or a portion of his Accrued Benefit, and
(4) who is alive on August 23, 1984 and whose benefit
payments have not commenced as of such date, may elect surviving Spouse's
benefit coverage under Article VII.
7.13. Application for Benefits. Except as provided in Section
------------------------
7.9, benefit payments shall commence when properly written application for same
is received by the Committee. In the event that a Participant, or the Spouse of
a deceased Participant entitled to benefits under Article VII fails to apply to
the Committee by the earlier of (a) the Participant's Normal Retirement Date or
the date of the Participant's termination of employment, if later, or (b) the
end of the calendar year in which the Participant attains age 70-1/2, the
Committee shall make diligent efforts to locate such Participant or Spouse and
obtain such application. In the event the Participant or Spouse fails to make
application by the Participant's Required Distribution Date, subject to Section
11.7, the Committee shall commence distribution as of the Required Distribution
Date without such application. No payments shall be made for the period in which
benefits would have been payable if the Participant or Spouse had made timely
application therefor; provided, however, that, if the Participant's Annuity
Starting Date or, if the Participant
-51-
<PAGE>
has died, his Spouse's Annuity Starting Date under Article VII, has been delayed
until after the Participant's Normal Retirement Date solely by reason of failure
to make application, and not by reason of suspension of benefit, the benefit
payable (a) to the Participant on and after his Annuity Starting Date, or (b) to
the Participant's Spouse pursuant to Article VII on and after the Spouse's
Annuity Starting Date, shall be equal to the Actuarial Equivalent of the benefit
the Participant or the Spouse would have received had benefits commenced on the
Participant's Normal Retirement Date, as determined to reflect the deferral of
benefit commencement.
7.14 Direct Rollovers. Effective January 1, 1993, in the event any
----------------
payment or payments (excluding any amount not includible in gross income) to be
made to an individual from the Plan would constitute an "eligible rollover
distribution" within the meaning of section 401(a)(31)(C) of the Code and
regulations thereunder, such individual may request that, in lieu of payment to
the individual, all or part of such eligible rollover distribution be
transferred directly from the Fund to the trustee or custodian of an "eligible
retirement plan" within the meaning of section 401(a)(31)(D) of the Code and
regulations thereunder. Any such request shall be made in writing, in such form
and subject to such procedures, requirements, and restrictions as may be
prescribed by the
-52-
<PAGE>
Committee for such purpose pursuant to Treasury regulations, at such time in
advance of the date such payment would otherwise be made as may be required by
the Committee. For purposes of this Section, an "individual" shall include an
Employee or former Employee or his surviving spouse or former spouse who is an
Alternate Payee.
-53-
<PAGE>
ARTICLE VIII
------------
THE FUND AND FUNDING
--------------------
8.1 Designation of Trustee. The Company, by appropriate resolution
----------------------
of its Board of Directors shall name and designate a Trustee and enter into a
Trust Agreement with such Trustee.
8.2 Contributions to the Fund. The benefits provided under the
-------------------------
Program shall be financed exclusively by contributions made from time to time to
the Trustee by the Company and by the Fund created thereby. Subject to the
provisions of applicable law, the liability of the Company under the Program
shall be limited to the contributions determined by the Company from time to
time in accordance with the advice and counsel of the Actuary. The funding
policy applicable to the Fund shall be established by the Committee and reviewed
from time to time. All contributions are conditioned on their deductibility for
federal income tax purposes in the Plan Year for which they are contributed.
8.3 Use of Contributions to the Fund. The contributions deposited
--------------------------------
under the terms of this Program shall constitute the Fund held for the benefit
of Participants, former Employees and their eligible survivors under and in
accordance with this Program. No part of the corpus or income of the Fund shall
be used for or diverted to purposes other than exclusively for the benefit of
the Participants, former Employees and their eligible survivors and for
necessary administrative costs; provided, however, that in
-54-
<PAGE>
the event of the termination of the Program and after all liabilities, as
defined under the Code and ERISA, shall have been satisfied, any remaining funds
attributable to contributions by the Company shall revert to the Company; and
further provided that in the case of a contribution (a) made by the Company as a
mistake of fact, (b) for which a tax deduction is disallowed, in whole or in
part, by the Internal Revenue Service, the Company shall be entitled to a refund
of said contributions (1) within one year after payment of a contribution made
as a mistake of fact, or (2) within one year after disallowance, to the extent
of such disallowance, as the case may be. Earnings attributable to any excess
contribution under (a) or (b) above may not be returned to the Company but
losses attributable thereto shall reduce the amount returned.
8.4 Trustee. The Trustee shall be the "named fiduciary," as that
-------
term is defined in section 402(c) of ERISA, with respect to management and
control of Program assets held by it and shall have exclusive and sole
responsibility for the custody and investment thereof in accordance with the
Trust Agreement.
8.5 Forfeitures. Forfeitures shall not be applied to increase the
-----------
benefits of any Participant, but shall reduce the contributions of the Company
hereunder.
8.6 Expenses of Administration. All expenses of administration of
--------------------------
this Program shall be paid from the Fund unless paid directly by the Company.
-55-
<PAGE>
8.7 Sole Source of Benefits. The Fund shall be the sole source for
-----------------------
the provision of benefits under the Program. Neither the Company nor any other
person shall be liable therefor.
-56-
<PAGE>
ARTICLE IX
----------
ADMINISTRATION
--------------
9.1 Committee. Except as may otherwise be provided herein, the
---------
Committee shall be responsible for the administration of the Program. The
Committee members may, but need not be, employees of the Company. They shall be
entitled to reimbursement of expenses, but those members of the Committee who
are also employees of the Company shall be entitled to no compensation for their
service on the Committee. Any reimbursement of expenses of the Committee
members shall be paid directly by the Company. The Committee shall be
responsible for the general administration of the Program under the policy
guidance of the Company.
9.2 Duties and Powers of Committee. In addition to the duties and
------------------------------
powers described elsewhere herein, the Committee shall have the following
specific duties and powers:
(a) to retain such consultants, accountants, attorneys, and
Actuaries as deemed necessary or desirable to render statements, reports, and
advice with respect to the Program and to assist the Committee in complying with
all applicable rules and regulations affecting the Program; any consultants,
accountants, attorneys, and Actuaries may be the same as those retained by the
Company;
(b) to establish a funding policy consistent with the objectives
of the Program;
-57-
<PAGE>
(c) to enact uniform and non-discriminatory rules and regulations
to carry out the provisions of the Program;
(d) to resolve questions or disputes relating to eligibility for
benefits or the amount, manner and time of payment of any benefits hereunder;
(e) to construe and interpret the provisions of the Program,
correct defects and supply omissions therein, make factual determinations, and
resolve ambiguities;
(f) to determine whether any domestic relations order received by
the Program is a QDRO;
(g) to evaluate administrative procedures; and
(h) to delegate such duties and powers as the Committee shall
determine from time to time to any person or persons.
9.3 Functioning of Committee. The Committee and those persons or
------------------------
entities to whom the Committee has delegated responsibilities shall keep
accurate records and minutes of meetings, interpretations and decisions. The
Committee shall act by majority vote of the members, and such action shall be
evidenced by a written document.
9.4 Disputes.
--------
(a) The Committee shall have the power, authority and discretion to
determine whether a claimant is eligible for any benefit under the Program and
to construe the terms and provisions of the Program. In the event that the
Committee denies, in whole or in part, a claim for
-58-
<PAGE>
benefits by a Participant or his beneficiary, the Committee shall furnish notice
of the denial to the claimant, setting forth:
(1) the specific reasons for the denial;
(2) specific reference to the pertinent Program provisions
on which the denial is based;
(3) a description of any additional information necessary
for the claimant to perfect the claim and an explanation of why such information
is necessary; and
(4) appropriate information as to the steps to be taken if
the claimant wishes to submit his claim for review.
The notice shall be forwarded to the claimant within ninety (90) days
of the Committee's receipt of the claim; provided, however, that in special
circumstances the Committee may extend the response period for up to an
additional (90) days, provided that the Committee so notifies the claimant in
writing and specifies the reason or reasons for such extensions.
(b) Within sixty (60) days of receipt of a notice of claim denial,
a claimant or his duly authorized representative may petition the Committee in
writing for a full and fair review of the denial. The claimant or his duly
authorized representative shall have the opportunity to review pertinent
documents and to submit issues and comments in writing to the Committee. The
Committee shall review the denial and communicate its decision and the reasons
therefor to the claimant in writing within sixty (60) days of receipt
-59-
<PAGE>
of the petition; provided, however, that the Committee may extend the response
period in special circumstances for up to an additional sixty (60) days.
Written notice of the extension shall be send to the claimant prior to the
commencement of the extension.
9.5 Indemnification. Each member of the Committee and any other
---------------
person who is an employee or director of the Company or an Affiliated Company
shall be indemnified by the Company against expenses (other than amounts paid in
settlement to which the Company does not consent) reasonably incurred by him in
connection with any action to which he may be a party by reason of his
performance of administrative functions and duties under the Program, except in
relation to matters as to which he shall be adjudged in such action to be
personally guilty of negligence or willful misconduct in the performance of his
duties. The foregoing right to indemnification shall be in addition to such
other rights as the Committee member or other person may enjoy as a matter of
law or by reason of insurance coverage of any kind. Rights granted hereunder
shall be in addition to and not in lieu of any rights to indemnification to
which the Committee member or other person may be entitled pursuant to the by-
laws of the Company.
9.6 Reliance on Data and Consents. The Company, the Trustee, the
-----------------------------
Committee, all fiduciaries with respect to the Plan, and all other persons or
entities associated with the operation of the Plan, the management of its
assets, and the provision of benefits thereunder, may reasonably rely on
-60-
<PAGE>
the truth, accuracy and completeness of any data provided by any Participant,
Spouse, or beneficiary, including, without limitation, representations as to
age, health and marital status. Furthermore, the Company, the Trustee, the
Committee, and all fiduciaries with respect to the Plan may reasonably rely on
all consents, elections and designations filed with the Plan or those associated
with the operation of the Plan and the Fund by any Participant, the Spouse of
any Participant, any beneficiary of any Participant, or the representatives of
such persons without duty to inquire into the genuineness of any such consent,
election or designation. None of the aforementioned persons or entities
associated with the operation of the Plan, its assets and the benefits provided
under the Plan shall have any duty to inquire into any such data, and all may
rely on such data being current to the date of reference, it being the duty of
the Participants, spouses of Participants, and Beneficiaries to advise the
appropriate parties of any change in such data.
-61-
<PAGE>
ARTICLE X
---------
AMENDMENT AND TERMINATION
-------------------------
10.1 Power of Amendment and Termination. It is the intention of the
----------------------------------
Company that this Program will be permanent. However, the Company reserves the
power to amend or terminate the Program at any time by or pursuant to resolution
of its board of directors. Except as expressly provided elsewhere in the
Program, prior to the satisfaction of all liabilities with respect to the
benefits provided under this Program, no amendment or termination shall cause
any part of the monies contributed hereunder to revert to the Company or to be
diverted to any purpose other than for the exclusive benefit of Participants and
their beneficiaries. No amendment shall have the effect of retroactively
depriving Participants of benefits already accrued under the Program. Any
amendment shall become effective as of the date designated by the board of
directors of the Company.
Each Participant with at least three (3) Years of Service at the time
the Program is amended may elect to have his vested percentage computed under
the Program as in effect prior to the amendment.
10.2 Disposition on Termination. In the event of the termination or
--------------------------
partial termination of the Program, as defined in the Code, the interest of each
affected Participant with respect to whom the Program is terminating (including
each former Employee who has not received a distribution under Section 7.9 and
has not had a Break in
-62-
<PAGE>
Service) who would not have a nonforfeitable right to one hundred percent (100%)
of his Accrued Benefit if his employment terminated on the date of the
termination or partial termination of the Program shall become nonforfeitable to
the extent funded; however, in the event of such a termination, each Participant
and beneficiary shall have recourse toward satisfaction of his nonforfeitable
rights to his pension only from Program assets or from the Pension Benefit
Guaranty Corporation to the extent that it guarantees benefits.
The amount of the Fund shall be determined and, after providing for
expenses incident to termination and liquidation, the remaining assets of such
Fund shall be allocated for the purpose of paying benefits proportionately among
each of the priority groups described below in the following order of
precedence:
(a) to provide that portion of the Accrued Benefit, if any, of
each Participant, which is derived from the Participant's contributions to the
Program which were not mandatory contributions;
(b) to provide benefits to retired Participants and
beneficiaries who began receiving benefits at least three (3) years before the
Program termination (including those benefits which would have been received for
at least three (3) years if the Participant had retired that long ago), based on
Program provisions in effect five (5) years prior to termination during which
period such benefit would be the least; provided that the lowest benefit in pay
-63-
<PAGE>
status during a three-year period shall be considered the benefit in pay status
for such period;
(c) to provide all other Accrued Benefits guaranteed by Federal
law;
(d) to provide all other vested Accrued Benefits;
(e) to provide all remaining non-vested Accrued Benefits.
If the assets available for allocation under any priority group (other
than as provided in priority groups (d) and (e)) are insufficient to satisfy in
full the Accrued Benefits of all Participants and beneficiaries, the assets
shall be allocated pro rata among such Participants and beneficiaries on the
basis of the present value of their respective benefits (as of the termination
date). The foregoing payments and payments in the event assets are insufficient
to pay the Accrued Benefits provided in priority groups (d) and (e) will be paid
in accordance with regulations prescribed by the Pension Benefit Guaranty
Corporation. The procedure for allocation of assets upon termination of the
Program will be carried out in an appropriate manner as to prevent the Program
from being deemed disqualified by the Internal Revenue Service.
In the event all Accrued Benefits described above have been fully
funded, any remaining funds will revert to the Company.
-64-
<PAGE>
10.4 Merger, Consolidation, or Transfer.
----------------------------------
(a) In case of any merger or consolidation with, or transfer of
assets or liabilities to any other plan, as provided in the Code, the benefit of
any Participant or beneficiary immediately after such merger, consolidation, or
transfer (if the Program had then terminated) shall be at least equal to the
benefit such Participant or beneficiary would have received immediately before
such merger, consolidation, or transfer (if the Program had then terminated).
(b) In the event of a spinoff or termination of the Plan within
five years following a merger or consolidation (or series of mergers or
consolidations) in which liabilities (or a sum of liabilities, in the event of a
series of mergers or consolidations) of less than 3% of the assets of the Plan,
as of at least 1 day in the Plan Year in which the merger(s) or consolidation(s)
occurs, are merged or consolidated with the Plan, Plan assets shall first be
allocated for the benefits of participants in the plan(s) merged or consolidated
with this Plan to the extent of the present value of such benefits as of the
date of such merger or consolidation. In the case of a merger or consolidation
designed to occur in more than one Plan Year, the merger or consolidation shall
be deemed to have occurred in the Plan Year in which the first transaction
occurred.
-65-
<PAGE>
ARTICLE XI
----------
GENERAL PROVISIONS
------------------
11.1 No Employment Rights. The action of the Company in establishing
--------------------
the Program, nor the action of the Company in adopting the Program, nor any
provisions of the Program, nor any action taken by it or by the Committee shall
be construed as giving to any Employee of the Company the right to be retained
in its employ, or any right to payment except to the extent of the benefits
provided in the Program to be paid from the Fund.
11.2 Governing Law. Except to the extent superseded by ERISA, all
-------------
questions pertaining to the validity, construction and operation of the Program
shall be determined in accordance with the laws of the State of New York.
11.3 Severability of Provisions. If any provision of this Program is
--------------------------
determined to be void by any court of competent jurisdiction, the Program shall
continue to operate and, for the purposes of the jurisdiction of that court
only, shall be deemed not to include the provisions determined to be void.
11.4 Spendthrift Clause.
------------------
(a) No benefit payable at any time under this Program, and no
interest or expectancy herein shall be anticipated, assigned, or alienated by
any Participant or beneficiary, or be subject to attachment, garnishment, levy,
execution or other legal or equitable process, except for (1)
-66-
<PAGE>
a Federal tax levy made pursuant to Section 6331 of the Code and (2) any benefit
payable pursuant to a domestic relations order which is determined to be a QDRO.
Upon receipt of any judgment, decree or order (including approval of a property
settlement agreement) relating to the provision of payment by the Program to an
Alternate Payee pursuant to a state domestic relations law, the Committee shall
promptly notify the affected Participant and any Alternate Payee of the receipt
of such judgment, decree or order and shall notify the affected Participant and
any Alternate Payee of the Committee's procedure for determining whether or not
the judgment, decree or order is a QDRO. The Committee shall establish a
procedure to determine the status of a judgment, decree or order as a QDRO and
to administer Program distributions in accordance with QDRO. Such procedure
shall be in writing, shall include a provision specifying the notification
requirements enumerated above, shall permit an Alternate Payee to designate a
representative for receipt of communications from the Committee and shall
include such other provisions as the Committee shall determine, including
provisions required under applicable regulations.
(b) Any attempt to alienate or assign a benefit hereunder, whether
currently or hereafter payable, shall be void to benefit shall in any manner be
liable for or subject to the debts or liability of any Participant or
beneficiary. If any Participant or beneficiary shall attempt to, or shall,
alienate or assign his benefits under the Program or any part thereof, or if by
reason of his bankruptcy or other event
-67-
<PAGE>
happening at any time, such benefits would devolve upon anyone else or would not
be enjoyed by him, then the Committee may terminate payment of such benefit and
hold or apply it to or for the benefit of the Participant or beneficiary.
11.5 Incapacity. If the Committee deems any Participant who is
----------
entitled to receive payments hereunder incapable of receiving or disbursing the
same by reason of age, illness, infirmity, or incapacity of any kind, the
Committee may direct the Trustee to apply such payment directly for the comfort,
support and maintenance of such Participant or to pay the same to any
responsible person caring for the Participant as determined by the Committee to
be qualified to receive and disburse such payments for the Participant's
benefit, and the receipt of such person shall be a complete acquittance for the
payment of the benefit. Payments pursuant to this Section shall be complete
discharge to the extent thereof of any and all liability of the Company, the
Committee, the Trustee and the Fund.
11.6 Withholding. The Committee and the Trustee shall have the
------------
right to withhold any and all state, local, and Federal taxes which may be
withheld in accordance with applicable law.
11.7 Payments to Minors and Incompetents. If a Participant,
-----------------------------------
contingent annuitant or beneficiary entitled to receive any benefits hereunder
is a minor or is adjudged to be legally incapable of giving valid receipt and
discharge for such benefits, such benefits shall be paid to such
-68-
<PAGE>
persons as the Committee shall designate or to the duly appointed guardian.
Such payment shall, to the extent made, be deemed a complete discharge of any
liability for such payment under the Plan.
11.8 Lost Payees. If a Participant, Spouse or other beneficiary to
-----------
whom a benefit is payable under the Plan cannot be located following a
reasonable effort to do so by the Committee, such benefit shall be forfeited.
Whether or not efforts to locate a Participant have previously been made, the
Committee shall make reasonable efforts to locate the Participant (or, where
applicable, his Spouse) during the one-year period preceding the Participant's
Required Distribution Date. If such efforts fail to locate the Participant or
Spouse, such Participant or Spouse shall be presumed dead as of the Required
Distribution Date and any benefit payable to the Participant or Spouse shall be
forfeited. In any case, if a claim for a forfeited benefit is subsequently
filed by the Participant, Spouse or beneficiary, such benefit shall be
reinstated and paid in accordance with Article IV.
11.9 Notices. Each Participant, Spouse, and beneficiary shall be
-------
responsible for furnishing the Committee with the current and proper address for
the mailing of notices, reports and benefit payments. Any notice required or
permitted to be given shall be deemed given if directed to the person to whom
addressed at such address and mailed by regular United States mail, first-class
and prepaid. If any check mailed to such address is returned as undeliverable
to
-69-
<PAGE>
the addressee, mailing of checks will be suspended until the Participant,
Spouse, or beneficiary furnishes the proper address. This provision shall not
be construed as requiring the mailing of any notice or notification if the
regulations issued under ERISA deem sufficient notice to be given by the posting
of notice in appropriate places, or by any other publication device.
-70-
<PAGE>
APPENDIX A
MINIMUM DISTRIBUTION TABLE I
<TABLE>
<CAPTION>
Excess of Age of Participant Applicable
over Age of Beneficiary Percentage
- ---------------------------- ----------
<S> <C>
10 years or less .............................. 100%
11 ............................................ 96%
12 ............................................ 93%
13 ............................................ 90%
14 ............................................ 87%
15 ............................................ 84%
16 ............................................ 82%
17 ............................................ 79%
18 ............................................ 77%
19 ............................................ 75%
20 ............................................ 73%
21 ............................................ 72%
22 ............................................ 70%
23 ............................................ 68%
24 ............................................ 67%
25 ............................................ 66%
26 ............................................ 64%
27 ............................................ 63%
28 ............................................ 62%
29 ............................................ 61%
30 ............................................ 60%
31 ............................................ 59%
32 ............................................ 59%
33 ............................................ 58%
34 ............................................ 57%
35 ............................................ 56%
36 ............................................ 56%
37 ............................................ 55%
38 ............................................ 55%
39 ............................................ 54%
40 ............................................ 54%
41 ............................................ 53%
42 ............................................ 53%
43 ............................................ 53%
44 and greater ................................ 52%
</TABLE>
-71-
<PAGE>
SCHEDULE A
ACTUARIAL EQUIVALENTS
The following assumptions will be used for determining Actuarially
Equivalent benefits, except as specified to the contrary in the Plan: 7.5%
interest assumption and the 1971 Group Annuity Tables for males set back one (1)
year for Participants and set back five (5) years for spouses or other
designated beneficiaries.
Notwithstanding the foregoing, for purposes of determining Acturarially
Equivalent single-sum amounts, the following interest rates shall be used:
(a) If the Actuarial Equivalent single-sum value of a Participant's
vested Accrued Benefit using the "applicable interest rate" (as defined below)
does not exceed $25,000, the applicable interest rate; or
(b) If the Actuarial Equivalent single-sum value of a Participant's
vested Accrued Benefit using the "applicable interest rate" exceeds $25,000, one
hundred twenty percent (120%) of the applicable interest rate.
For purposes of this Schedule A, "applicable interest rate" shall mean the
interest rate which would be used as of the Participant's Termination Date by
the Pension Benefit Guaranty Corporation for purposes of determining the present
value of a lump sum distribution on plan termination.
-72-
<PAGE>
RHONE-POULENC RORER PHARMACEUTICALS INC. Exhibit
10 G
FORT WASHINGTON HOURLY EMPLOYEES' PENSION PLAN
(AMENDED AND RESTATED EFFECTIVE JANUARY 1, 1990)
<PAGE>
RHONE-POULENC RORER PHARMACEUTICALS INC.
FORT WASHINGTON HOURLY EMPLOYEES' PENSION PLAN
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Article Page
------- ----
<S> <C>
I. Definitions 1
II. Eligibility to Participate 6
III. Service and Credited Service 7
IV. Benefits Under the Plan 10
V. Benefits Upon Termination of Employment 15
VI. Pre-Retirement Death Benefits 16
VII. Form of Benefits 20
VIII. The Fund and Funding 25
IX. Administration 27
X. Allocation and Delegation of Authority 31
XI. Amendment and Termination 33
XII. General Provisions 35
</TABLE>
-ii-
<PAGE>
INTRODUCTION
------------
Rhone-Poulenc Rorer Pharmaceuticals Inc. (the "Company") established
the Rhone-Poulenc Rorer Pharmaceuticals Inc. Fort Washington Hourly Employees'
Pension Plan (the "Plan") effective January 1, 1990, the terms and provisions of
which are contained herein.
The Plan is now amended and restated in its entirety to comply with
the Tax Reform Act of 1986 and all subsequent applicable legislation. The
restatement shall take effect on January 1, 1990, unless otherwise specified in
the Plan.
-iii-
<PAGE>
ARTICLE I
---------
DEFINITIONS
-----------
Except where otherwise clearly indicated by context, the masculine
shall include the feminine, the singular shall include the plural, and vice-
versa.
1.1 "Accrued Benefit" shall mean at any time with respect to any
---------------
Participant the product of (a) and (b) where (a) equals the portion of the
monthly benefit payable at Normal Retirement Date earned to the date that such
determination is made, calculated in accordance with Section 4.1, and (b) equals
a fraction (which shall not exceed 1), the numerator of which is the number of
Years of Credited Service, in years and twelfths thereof, actually completed by
the Participant, and the denominator of which is the sum of the numerator plus
the number of additional Years of Credited Service, in years and twelfths
thereof, which would have been completed by the Participant assuming he had
continued to participate in the Plan as an Employee to his Normal Retirement
Date and completed 1,800 Hours of Service during each Plan Year.
1.2 "Actuarial Equivalent Value" shall mean having or that which
--------------------------
has equal actuarial value taking into account where applicable the actuarial
assumptions of mortality and interest. For purposes of this Plan, mortality
shall be assumed to be in accordance with the 1951 Group Annuity Table, unrated
as to the Participant, and rated back five years in age for a beneficiary, and
interest will be at the rate of 8% per year, compounded annually, net of
investment expenses.
1.3 "Actuary" shall mean the actuarial firm selected by the
-------
Committee which has a member who meets all applicable governmental requirements
for enrollment then in effect.
1.4 "Affiliated Company" shall mean any entity (a) which, with the
------------------
Company, constitutes (1) a "controlled group of corporations" within the meaning
of section 414(b) of the Code, (2) a "group of trades or businesses under common
control" within the meaning of section 414(c) of the Code, or (3) an "affiliated
service group" within the meaning of section 414(m) of the Code or (b) is
required to be aggregated with the Company pursuant to regulations under section
414(o) of the Code. An entity shall be considered an Affiliated Company only
with respect to such period as the relationship described in the preceding
sentence exists. When the term "Affiliated Company" is used in Section 4.10 of
the Plan, sections 414(b) and (c) of the Code shall be deemed modified by
application of the provisions of section 415(h) of the Code, which substitutes
the phrase "more than 50 percent" for the phrase "at least 80 percent" in
section 1563(a)(1) of the
-1-
<PAGE>
Code, which is then incorporated by reference in sections 414(b) and (c).
1.5 "Annuity Starting Date" means the date as of which the first
---------------------
benefit payment (whether a single sum or an annuity installment payment) is made
(or the date such payment is due, if such payment is delayed) to the Participant
(or to the Spouse if the Participant's death occurs prior to such date).
1.6 "Alternate Payee" means the person entitled to receive payment
---------------
of benefits under the Plan pursuant to a QDRO.
1.7 "Code" shall mean the Internal Revenue Code of 1986, as
----
amended, and any regulations promulgated thereunder..
1.8 "Committee" shall mean the persons who are designated to
---------
supervise the administration of the Plan, as hereinafter provided.
1.9 "Company" shall mean Rhone-Poulenc Rorer Pharmaceuticals Inc.
-------
1.10 "Disability Retirement Date" shall mean the first day of the
--------------------------
calendar month coincident with or next following the day on which a Participant
(a) is determined by the Committee to have suffered a Total Disability which has
continued for a period of six months, (b) ceases to be employed by the Company
and all Affiliated Companies on account of such Total Disability, and (c) has
ten (10) or more Years of Credited Service.
1.11 "Early Retirement Date" means the first day of the month
---------------------
coincident with or immediately following the date a Participant retires prior to
his Normal Retirement Date pursuant to the provisions of Section 4.2.
1.12 "Effective Date" shall mean January 1, 1990.
--------------
1.13 "Employee" shall mean any employee of the Company who is paid
--------
on an hourly basis and who is a member of the collective bargaining unit
represented by the Warehouse Employees' Union Local 169.
1.14 "ERISA" shall mean the Employee Retirement Income Security Act
-----
of 1974, as amended and any regulations promulgated thereunder.
1.15 "Fund" shall mean the fund established for this Plan,
----
administered under the Trust Agreement, out of which benefits payable under this
Plan shall be paid.
-2-
<PAGE>
1.16 "Hour of Service" shall mean an hour for which:
---------------
(a) an employee is directly or indirectly paid or entitled to
payment by the Company or an Affiliated Company for the performance of
employment duties or
(b) back pay, irrespective of mitigation of damages, is either
awarded or agreed to, or
(c) an employee is directly or indirectly paid or entitled to
payment by the Company or an Affiliated Company on account of a period of time
during which no duties are performed due to vacation, holiday, illness,
incapacity (including disability) jury duty, lay-off, leave of absence, or
military duty, or
(d) an employee is on Total Disability.
(e) each hour that constitutes part of the Employee's
customary work week during any period of absence in the armed forces of the
United States, provided that (1) such absence is with the approval of the
Employer or pursuant to a national conscription law, (2) the Employee receives
an honorable discharge, and (3) the Employee returns to employment with the
Company within 90 days after his release from active service or any longer
period during which his right to reemployment is protected by law.
There shall be excluded from the foregoing those periods during which
payments are made or due under a plan maintained solely for the purpose of
complying with applicable workers' compensation, unemployment compensation, or
disability insurance laws. No more than 151 Hours of Service shall be credited
under Subsection (c) on account of any single continuous period during which no
duties are performed except to the extent otherwise provided in this Plan. An
Hour of Service shall not be credited where an Employee is being reimbursed
solely for medical or medically related expenses.
No Hours of Service shall be credited twice. Hours of Service shall
be credited in accordance with the rules set forth U.S. Department of Labor Reg.
(S)2530.200b-2(b) and (c).
1.17 "Late Retirement Date" shall mean the first day of the calendar
--------------------
month coincident with or next following the day on which a Participant's
employment with the Company and all Affiliated Companies has ceased after the
Participant's Normal Retirement Date.
1.18 "Normal Retirement Date" shall mean the first day of the
----------------------
calendar month coincident with or next following the Participant's retirement
upon the later of the attainment of age
-3-
<PAGE>
65 or the fifth anniversary of the Participant's commencement of participation
in the Plan ("Normal Retirement Age").
1.19 "Participant" shall mean an Employee entitled to participate in
-----------
this Plan, a former Employee receiving benefits under the Plan, a former
Employee who has been transferred out of Employee Status and who continues to be
employed by the Company or an Affiliated Company, and a former Employee whose
employment with the Company and all Affiliated Companies has ceased with vested
rights under the Plan.
1.20 "Plan" shall mean the Rhone-Poulenc Rorer Pharmaceuticals Inc.
----
Fort Washington Hourly Employees' Pension Plan, as established by the Company
and as set forth herein (including any Schedules) and as hereafter amended from
time to time.
1.21 "Plan Year" shall mean a twelve month period which shall
---------
commence each January 1 and end on the next following December 31.
1.22 "QDRO" shall mean a qualified domestic relations order within
----
the meaning of section 206(d)(3)(B) of ERISA and section 414(p) of the Code.
1.23 "Required Distribution Date" means April 1 of the calendar
--------------------------
year following the later of (a) the calendar year in which the Participant
attains age 70-1/2; or (b) in the case of a Participant who attained age 70-1/2
before January 1, 1988, and who is not a 5% owner (within the meaning of section
416(i) of the Code) at any time during the 5-Plan-Year period ending in the
calendar year in which the Participant attains age 70-1/2, the calendar year in
which the Participant's termination of employment occurs. If a Participant
described in clause (b) becomes a 5% owner at any time after such 5-Plan-Year
period, his Required Distribution Date shall be April 1 of the calendar year
following the calendar year in which the Plan Year in which he becomes a 5%
owner ends. Notwithstanding the foregoing, in the case of a Participant who
attained age 70 1/2 on or after January 1, 1988, but before January 1, 1989,
Required Distribution Date shall mean April 1, 1990.
1.24 "Social Security Retirement Age" means (a) For any person born
------------------------------
before January 1, 1938, age 65, (b) for any person born after December 31, 1937,
but before January 1, 1955, age 66, and (c) for any person born after December
31, 1954, age 67.
1.25 "Special Early Retirement Date" means the first day of the month
-----------------------------
coincident with or immediately following the date a Participant retires prior to
his Normal Retirement Date pursuant to the provisions of Section 4.5.
-4-
<PAGE>
1.26 "Spouse" shall mean the person to whom a Participant is married
------
on the applicable date.
1.27 "Total Disability" shall mean a Participant's suffering of a
----------------
disability of a nature which enables the Participant to qualify for and to
receive disability benefits under the Federal Social Security Act.
1.28 "Trust Agreement" shall mean the agreement and declaration of
---------------
trust executed under this Plan.
1.29 "Trustee" shall mean the corporate trustee or one or more
-------
individuals collectively appointed and acting under the Trust Agreement.
1.30 "Union Plan" shall mean the Warehouse Employees' Union Local
----------
169 and Employers' Joint Pension Plan.
1.31 "Years of Credited Service" shall mean the number of full and
-------------------------
partial Plan Years counted with respect to determining an Employee's Accrued
Benefit under the Plan, as further described in Article III.
1.32 "Years of Excess Credited Service" shall mean those Years of
--------------------------------
Credited Service in excess of the greater of (a) twenty (20), or (b) Years of
Credited Service at a Participant's Special Early Retirement Date.
1.33 "Years of Service" shall mean the number of Plan Years counted
----------------
with respect to determining an Employee's vested status under the Plan, as
further described in Article III.
-5-
<PAGE>
ARTICLE II
----------
ELIGIBILITY TO PARTICIPATE
--------------------------
2.1 Eligibility to Participate.
--------------------------
(a) Each Employee who was a participant in the Union
Plan as of the Effective Date shall become a Participant herein as of such date.
Each other Employee shall become a Participant herein as of the last day of
first Plan Year in which the Employee completes 750 Hours of Service.
(b) A Participant who ceases to be an Employee shall no
longer be eligible to actively participate hereunder. Should such an individual
again become an Employee, then he shall resume his participation in the Plan on
the January 1st next following the date he again becomes an Employee,
retroactive to such date.
-6-
<PAGE>
ARTICLE III
-----------
SERVICE AND CREDITED SERVICE
----------------------------
3.1 Service for Vesting. For purposes of determining the
-------------------
nonforfeitable interest of a Participant under the Plan, an Employee shall be
credited with a Year of Service for each Plan Year during which he completes
1,000 or more Hours of Service with the Company or any Affiliated Company,
regardless of whether such service was performed as an Employee. For purposes
of this Section 3.1, an Employee shall receive credit for his Hours of Service
for his employment by the Company or an Affiliated Company either as a "leased
employee" within the meaning of section 414(n) and section 414(o) of the Code,
or as an employee not covered by the collective bargaining agreement providing
for a participation in this Plan.
3.2 Credited Service for Benefit Accrual. An Employee
------------------------------------
shall earn a full Year of Credited Service for each Plan Year in which he
completes 1800 or more Hours of Service as an Employee. Should the Employee
complete less than 1800 Hours of Service during a Plan Year, a partial Year of
Credited Service shall be earned in accordance with the following table:
<TABLE>
<CAPTION>
Hours of Service Credited Twelfths
---------------- -----------------
<S> <C>
at least 1,650 but less than 1,800 11
at least 1,500 but less than 1,650 10
at least 1,350 but less than 1,500 9
at least 1,200 but less than 1,350 8
at least 1,050 but less than 1,200 7
at least 900 but less than 1,050 6
at least 750 but less than 900 5
at least 600 but less than 750 4
at least 450 but less than 600 3
at least 300 but less than 450 2
at least 150 but less than 300 1
less than 150 0
</TABLE>
For the purpose of this Section 3.2, an Employee shall receive
credit for service during the six month waiting period in which no disability
retirement benefits are paid, if he thereafter is determined to suffer a Total
Disability.
3.3 Service Prior to Effective Date. For purposes of
-------------------------------
determining a Year of Service under Section 3.1 and a Year of Credited Service
under Section 3.2, there shall be taken into account periods of service credited
under the Union Plan as of December 31, 1989 for vesting and benefit accrual
purposes respectively. Except as provided in this Section 3.3, periods of
service prior to the Effective Date shall be disregarded for all purposes under
the Plan.
-7-
<PAGE>
3.4 Breaks in Service.
-----------------
(a) Any Plan Year in which an Employee is not credited with
more than 150 Hours of Service shall constitute a one year break in service;
provided, however, that if an Employee is absent for the following reasons, he
shall be credited with an Hour of Service, for purposes of this Section only,
for each Hour of Service he would have received if he had continued in the
active employ of the Company during the following periods of absence:
(1) layoff for a period not in excess of six months;
provided that the Participant returns to work promptly on receipt of notice to
do so;
(2) illness or accident for a period not in excess of
one year; provided that the Participant returns to work as soon as he is
physically able;
(3) military service such that his right to
reemployment protected by law;
(4) leave of absence granted in accordance with
established leave of absence policies.
(b) Service credited under this Section shall not be credited
for any other purpose under the Plan unless such service is comprised
of Hours of Service.
(c) If an Employee is absent from work by reason of
pregnancy, childbirth or adoption, or for purposes of the care of such
employee's child immediately after birth or adoption, such Employee shall be
credited solely for purposes of this Section with sufficient Hours of Service to
avoid a break in service in the Plan Year in which the absence commences or, if
the Employee already has more than 150 Hours of Service in such Plan Year, the
immediately following Plan Year. Hours of Service during such absence shall be
credited in an amount equal to the Hours of Service the Employee would have had
but for such absence or, if such hours cannot be determined, at the rate of
eight hours per normal workday. In order to receive credit for Hours of Service
under this Section, an Employee shall provide to the Committee, in the form and
manner prescribed by the Committee, information establishing (1) that the
absence from work is for reasons set forth in this paragraph, and (b) the number
of days for which there was such an absence. Nothing in this Section shall be
construed as expanding or amending any maternity or paternity leave policy of
the Company.
-8-
<PAGE>
3.5 Restoration of Service.
----------------------
(a) A Participant who has a vested interest under Section 5.1
and who incurs a break in service shall have his pre-break and post-break
service with the Company and Affiliated Companies aggregated for purposes of
Sections 3.1 and 3.2 on his reemployment by the Company or an Affiliated
Company.
(b) A Participant who does not have a vested interest under
Section 5.1 and who incurs a break in service shall have his pre-break and post-
break service with the Company and Affiliated Companies aggregated for purposes
of Sections 3.1 and 3.2 on his reemployment unless the period of consecutive
breaks in service exceeds the greater of (1) the number of Years of Service
prior to his break in service, and (2) five consecutive one year breaks in
service. If the consecutive breaks in service exceed (1) his Years of Service
before the break or (2) five, he shall receive no credit for his pre-break
service for purposes of Sections 3.1 and 3.2. Such Years of Service shall not be
deemed to include any Years of Service not required to be taken into account
under this Section by reason of any prior break in service.
-9-
<PAGE>
ARTICLE IV
----------
BENEFITS UNDER THE PLAN
-----------------------
4.1 Normal Retirement Benefit. Each Participant who retires from the
-------------------------
employ of the Company on his Normal Retirement Date shall be entitled to a
monthly retirement benefit equal to
4.2 Early Retirement Benefit. A Participant who has attained his
------------------------
fifty-fifth (55th) birthday and completed ten (10) Years of Credited Service
shall be entitled to receive a monthly retirement benefit equal to his Accrued
Benefit payable at his Normal Retirement Date. In lieu of this deferred
benefit, however, a Participant may elect, no more than 90 days but no less than
30 days prior to his Annuity Starting Date, to receive a reduced payment of an
Early Retirement Benefit commencing on his Early Retirement Date which benefit
shall equal his Accrued Benefit reduced as follows:
(a) the portion of the Accrued Benefit calculated in accordance
with Section 4.1(a) shall be reduced by five ninths of one percent (5/9%) for
each month by which the Early Retirement Date precedes the Normal Retirement
Date, and
(b) the portion of the Accrued Benefit, if any, calculated in
accordance with Section 4.1(b) shall be reduced by one half of one percent
(1/2%) for each of the first 120 months and by one quarter of one percent (1/4%)
for each additional month by which the Early Retirement Date precedes the Normal
Retirement Date.
4.3 Disability Retirement Benefit.
-----------------------------
(a) A Participant may retire prior to his Normal Retirement Date
on his Disability Retirement Date and receive a monthly retirement benefit equal
to his Accrued Benefit payable at his Normal Retirement Date. However, if a
Participant so elects, he may receive payment of a Disability Retirement Benefit
equal to $510 per month, to the extent permitted by applicable law, commencing
on his Disability Retirement Date and ending on the earliest of:
(1) the date the Committee finds, on the
basis of medical evidence, that the Participant is no longer of Total Disability
as defined in Section 1.29;
(2) the date the Participant refuses to
submit to any medical examination requested by the Committee;
(3) the Participant's death; or
-10-
<PAGE>
(4) the Participant's Normal Retirement
Date.
A Disability retirement benefit payable to a Participant under this
Section shall be disregarded in determining a Participant's Annuity Starting
Date.
(b) The Committee may direct that any former Employee receiving
Total Disability benefits shall be reexamined without expense to him from time
to time prior to his Normal Retirement Date, but not more than twice in any Plan
Year, to determine if Total Disability continues to exist. Benefits hereunder
shall terminate at any time that the former Employee ceases to be disabled,
prior to his Normal Retirement Date, under this Section. Failure to submit to
such reexamination shall be cause for termination of Total Disability benefits
hereunder.
(c) In the event of the Participant's recovery from his Total
Disability before his Normal Retirement Date, the Participant shall be entitled
to a deferred vested benefit payable in accordance with the provisions of
Article V, reduced to reflect the Actuarial Equivalent of the value of the prior
payment of Total Disability retirement benefits.
4.4 Late Retirement Benefit. A Participant who retires from the
-----------------------
employ of the Company after his Normal Retirement Date shall be entitled to his
Accrued Benefit (determined as if the fraction referred to in clause (b) of
Section 1.1 equals 1) as of his Late Retirement Date, reduced by the Actuarial
Equivalent Value of benefits already distributed to the Participant by reason of
Section 401(a)(9) of the Code in accordance with Section 4.10 hereof.
4.5 Special Early Retirement Benefits. A Participant who is
---------------------------------
employed by the Company and who has (1) completed thirty (30) Years of Credited
Service, (2) completed twenty (20) Years of Credited Service and attained his
fifty-seventh (57th) birthday, or (3) completed ten (10) Years of Credited
Service and attained his sixty-second (62nd) birthday may retire prior to his
Normal Retirement Date and elect in writing, no earlier than 90 days prior to
his Annuity Starting Date and in no event earlier than the date he receives the
explanation described in Section 7.2(4), to receive, in lieu of the benefit
starting as of his Normal Retirement Date, a Special Early Retirement Benefit
commencing on his Special Early Retirement Date equal to his Accrued Benefit
(determined as if the fraction referred to in clause (b) of Section 1.1 equals
1), unreduced pursuant to Section 4.2(a) on account of early commencement,
provided, however, that the reduction pursuant to Section 4.2(b) shall apply.
-11-
<PAGE>
4.6 Termination of Employment Benefits. A Participant shall be
----------------------------------
entitled to benefits upon termination of employment as set forth in Article V.
4.7 Pre-Retirement Death Benefits. A Participant's surviving Spouse
-----------------------------
shall be entitled to benefits upon the death of the Participant in accordance
with Article VI.
4.8 Furnishing Data. Each Employee and beneficiary shall furnish
---------------
such information as the Committee may consider necessary for the determination
of the Employee's rights and benefits under the Plan and shall otherwise
cooperate fully with the Committee in the administration of the Plan. Benefit
commencement shall be deferred until all of such information is provided.
4.9 Suspension of Benefits on Reemployment.
---------------------------------------
(a) (1) In the event that a Participant is employed in
qualified reemployment, the benefits otherwise payable to the Participant shall
be suspended before his Required Distribution Date for each calendar month in
which he continues his qualified reemployment. In addition, no benefits shall be
paid during the qualified reemployment of a Participant who continues in the
employ of the Company or an Affiliated Company after his Normal Retirement Date
and before his Required Distribution Date. The rules relating to such a
suspension of benefits and their subsequent resumption are described in this
Section.
(2) The Committee shall notify the Participant by personal
delivery or first class mail of the suspension of his benefits during the first
month in which such suspension of benefits occurs.
(3) Each Participant receiving benefits under the Plan
shall be required to give notice to the Committee of any employment relationship
which such Participant has with the Company or any Affiliated Company. The
Committee shall have the right to use all reasonable efforts to determine
whether such employment constitutes qualified reemployment. The Committee shall
also have the right to require the Participant to provide information sufficient
to prove that such employment does not constitute qualified reemployment.
(4) A Participant may by written request ask the Committee
to make a determination as to whether specific contemplated employment
constitutes qualified reemployment. The Committee shall respond to such request
in writing within 60 days of the Committee's receipt of the request.
-12-
<PAGE>
(5) Benefit payments to the Participant will resume (or
commence) no later than the first day of the third calendar month following the
month in which his qualified reemployment ceases or, if later, the first day of
the calendar month following receipt by the Committee of the Participant's
notice that his qualified reemployment has ceased. The initial resumption
payment shall include payment for the current month and for all previous
calendar months since the cessation of the Participant's qualified reemployment.
(6) The Committee shall offset resumed benefits by an
amount equal to any benefits which were paid to the Participant with respect to
a calendar month in which the Participant was engaged in qualified reemployment.
However, the offset to any monthly benefit, other than the initial resumption
payment, shall not exceed twenty-five percent (25%) of such monthly benefit. Any
remaining offset shall be applied to benefits payable in subsequent months.
(b) Qualified reemployment shall mean the reemployment of a
Participant by the Company or an Affiliated Company or the continued employment
of a Participant after his Normal Retirement Date in such a capacity that the
Participant receives or is entitled to be paid for at least 40 Hours of Service
(not including Hours of Service credited as a result of back pay) during a
calendar month, or reemployment of a Participant by the Company or an Affiliated
Company prior to his Normal Retirement Date without regard to his Hour of
Service.
(c) A Participant whose benefits have been suspended during a
period of qualified reemployment shall be entitled to elect the form of payment
for his entire benefit, including amounts accrued both before and during
reemployment, in accordance with Article VII.
4.10 Accruals While Benefits Are in Pay Status. In the event that
a Participant is credited with a benefit accrual during and/or after the Plan
Year in which the Participant attains Normal Retirement Date and after the
distribution of benefits has commenced hereunder, the amount of benefit payable
to the Participant as determined as of his Annuity Starting Date shall be
adjusted annually as of each January 1 following his Annuity Starting Date, up
to and including the January 1 next following the date the Participant ceases to
accrue benefits under the Plan. Such annual adjustment shall include any
increase (but not any decrease) in the Participant's Accrued Benefit, determined
in accordance with Section 4.1 (including, for any period during which benefits
would not be suspendible under Section 4.9, an Actuarial Equivalent adjustment
to such increase to reflect payment commencing after Normal Retirement Date)
since the Participant's Annuity Starting Date or the last such annual
adjustment, whichever applies. In addition, such
-13-
<PAGE>
annual adjustment shall be reduced (but not below zero) by the Actuarial
Equivalent of any benefits paid to the Participant since his Annuity Starting
Date during any period that would have constituted suspendible service under
Section 4.9 had the Participant not reached his Required Distribution Date, to
the extent not previously taken into account under this Section; provided,
however, that the amount, if any, of the benefits paid to the Participant which
exceeds the amount the Participant would have received if distribution had been
made in the normal form of benefits described in Section 7.1 for such
Participant shall be disregarded in determining the Actuarial Equivalent of such
benefits for purposes of the reduction described in this sentence.
4.11 Maximum Benefits.
----------------
(a) Notwithstanding anything in this Plan to the contrary, in
no event shall benefits under the Plan violate the limitations set forth in
Section 415 of the Code, which are hereby incorporated into the Plan.
(b) If in any Plan Year, a Participant is a participant in one
or more defined contribution plans sponsored by a Participating Company or an
Affiliated Company, the annual benefit under this Plan shall be reduced to the
extent necessary to meet the combined plan limits of Section 415(e) of the Code.
-14-
<PAGE>
ARTICLE V
BENEFITS UPON TERMINATION OF EMPLOYMENT
---------------------------------------
5.1 Benefit on Termination Prior to Retirement. In the
------------------------------------------
event of the termination of a Participant's active participation for any reason
other than his death or retirement under the Plan, he shall be entitled to a
monthly retirement benefit equal to his Accrued Benefit only if he has completed
five (5) Years of Service. The computation of a Participant's nonforfeitable
percentage of his interest in the Plan shall not be reduced as the result of any
direct or indirect amendment to this Section 5.1. In the event that the Plan is
amended to change or modify any vesting schedule, a Participant with at least
three (3) years of Vesting Service as of the expiration date of the election
period may elect to have his nonforfeitable percentage computed under the Plan
without regard to such amendment. If a Participant fails to make such election,
then such Participant shall be subject to the new vesting schedule. The
Participant's election period shall commence on the adoption date of the
amendment and shall end 60 days after the latest of:
(i) the adoption date of the amendment,
(ii) the effective date of the amendment, or
(iii) the date the Participant receives
written notice of the amendment from the
Company or the Retirement Committee.
5.2 Commencement of Benefits to Vested Terminated
---------------------------------------------
Participants. A Participant who is entitled to the benefit under Section 5.1
- -------------
shall hereinafter be referred to as a "Vested Terminated Participant." The
monthly retirement benefit of a Vested Terminated Participant who is living on
his Normal Retirement Date shall be payable in accordance with Article VII,
commencing on the Normal Retirement Date, subject to the provisions of Section
4.9. A Vested Terminated Participant who has or subsequently meets the
requirements for an Early Retirement Benefit as provided in Section 4.2 may
elect to commence receiving benefits at any time following his termination of
employment and prior to his Normal Retirement Date, in which event the benefit
payable shall be the Actuarial Equivalent Value of his Accrued Benefit.
-15-
<PAGE>
ARTICLE VI
PRE-RETIREMENT DEATH BENEFITS
-----------------------------
6.1 Benefit Payable in the Event of Death While in
-----------------------------------------------
Service Before Retirement Benefits Commence
- -------------------------------------------
(a) No benefit is payable under this Section 6.1 unless
a Participant (i) dies while in the active service of the Company, (ii) dies
prior to the date that retirement benefits commence, (iii) is married at the
time of his death and (iv) has met the requirements specified in Section 5.1 for
a vested termination benefit.
(b) If a Participant dies after having satisfied the
requirements for retirement specified in Section 4.1, 4.2, 4.4 or 4.5, and is
eligible for benefits under this Section 6.1, his surviving Spouse shall be
entitled to receive a benefit. Such benefit shall be a monthly pension for life
and shall begin, as elected by the Spouse in writing not more than ninety (90)
days prior to the Annuity Starting Date, on the later of (A) the earliest date
on which the Participant would have been eligible to receive his benefit
pursuant to Article V or (B) the first day of the month following the month in
which the Participant's death occurs, but not later than the date that would
have been the Participant's Normal Retirement Date. The amount of the Spouse's
benefit shall b a monthly retirement benefit in the amount which would have been
payable under the survivor portion of the joint and survivor annuity if the
Participant had survived and retired with an immediate joint and 50% survivor
annuity on the Annuity Starting Date elected by the Spouse and died on the
following day. Notwithstanding the preceding sentence, if a Participant has
elected before his Annuity Starting Date an optional form of joint and survivor
annuity described in Section 7.1 with his Spouse as beneficiary and dies before
his Annuity Starting Date, the benefits payable to his Spouse under this Section
6.1(b) shall be based on the form elected by the Participant.
(c) If a Participant dies before having satisfied the
requirements for retirement specified in Section 4.1, 4.2, 4.4 or 4.5, and is
eligible for benefits under this Section 6.1, his surviving Spouse shall be
entitled to a deferred retirement benefit. Such benefit shall be a monthly
pension for life and shall begin, as elected by the Spouse in writing not more
than ninety (90) days prior to the Annuity Starting Date, on the first day of
any month following the earliest date on which the Participant could have
elected to receive immediate retirement benefits, but not later than the date
that would have been the Participant's Normal Retirement Date. The amount of the
Spouse's benefit shall be the amount which would have been payable under the
survivor benefit portion of the joint and
-16-
<PAGE>
survivor annuity if the Participant had terminated employment on the date of
death with a deferred vested retirement benefit, had survived and retired with
an immediate joint and 50% survivor annuity on the Annuity Starting Date elected
by the surviving Spouse and died on the following day. Notwithstanding the
preceding sentence, if a Participant has elected before his Annuity Starting
Date an optional form of joint and survivor annuity with his Spouse as
beneficiary as described in Section 7.1 and dies before his Annuity Starting
Date, the benefits payable to his Spouse under this Section 6.1(c) shall be
based on the form elected by the Participant.
6.2 Benefit Payable in the Event of Death of a Vested Terminated
------------------------------------------------------------
Participant.
- -----------
(a) No benefit is payable under this Section 6.2 unless a
Participant who is no longer an Employee (i) dies prior to the date that his
retirement benefits commence (ii) is married at the time of his death (iii) has
met the requirements specified in Section 5.1 for a vested termination benefit.
(b) If a vested terminated Participant dies after attaining
his fifty-fifth (55th) birthday and is eligible for benefits under this Section
6.2, his surviving Spouse shall be entitled to a benefit. Such benefit shall be
a monthly pension for life and shall begin, as elected by the Spouse in writing
not more than ninety (90) days prior to the Annuity Starting Date, on the later
of (A) the earliest date on which the Participant would have been eligible to
receive his benefit pursuant to Article V or (B) the first day of the month
following the month in which the Participant's death occurs, but not later than
the date that would have been the Participant's Normal Retirement Date. The
amount of the Spouse's benefit shall b a monthly retirement benefit in the
amount which would have been payable under the survivor portion of the joint and
survivor annuity if the Participant had survived and retired with an immediate
joint and 50% survivor annuity on the Annuity Starting Date elected by the
Spouse and died on the following day. Notwithstanding the preceding sentence, if
a Participant has elected before his Annuity Starting Date an optional form of
joint and survivor annuity described in Section 7.1 with his Spouse as
beneficiary and dies before his Annuity Starting Date, the benefits payable to
his Spouse under this Section 6.2(b) shall be based on the form elected by the
Participant.
(c) If a Vested Terminated Participant dies prior to his
fifty-fifth (55th) birthday and is eligible for benefits under this Section 6.2,
his surviving Spouse shall be entitled to a deferred retirement benefit. Such
benefit shall be a monthly pension for life and shall begin, as elected by the
Spouse in writing not more than ninety (90) days prior to the Annuity Starting
Date, on the earliest date on which the
-17-
<PAGE>
Participant would have been eligible to receive his benefit in accordance with
Article IV hereunder, but not later than the date that would have been the
Participant's Normal Retirement Date. The amount of the Spouse's benefit shall
be the amount which would have been payable under the survivor benefit portion
of the joint and survivor annuity if the Participant had terminated employment
on the date of death with a deferred vested retirement benefit, had survived and
retired with an immediate joint and 50% survivor annuity on the Annuity Starting
Date elected by the surviving Spouse and died on the following day.
Notwithstanding the preceding sentence, if a Participant has elected before his
Annuity Starting Date an optional form of joint and survivor annuity with his
Spouse as beneficiary described in Section 7.1 and dies before his Annuity
Starting Date, the benefits payable to his Spouse under this Section 6.2(c)
shall be based on the form elected by the Participant.
6.3 Reduction in Retirement Benefits. Unless a Participant
--------------------------------
waives, in accordance with Section 6.4, the pre-retirement death benefit
coverage afforded hereunder, the Accrued Benefit otherwise payable pursuant to
Articles IV and V shall be reduced by the following factors, based upon the
period during which the pre-retirement death benefit coverage was in effect:
<TABLE>
<CAPTION>
Reduction Factors
Period Coverage in Effect (per month of coverage)
- ------------------------- -----------------------
<S> <C>
Before attainment of age 35 0
From the first day of the month following the
attainment of age 35 until the last day of
the month of attainment of age 45 .0002
From the first day of the month following the
attainment of age 45 until the last day of
the month of attainment of age 55 .0004
From the first day of the month following the
attainment of age 55 until Normal Retirement
Date .0006
</TABLE>
6.4 Waiver of Pre-Retirement Death Benefit.
--------------------------------------
(a) Any election to waive the Pre-Retirement Death Benefit
before the Participant's death must be made by the Participant in writing during
the election period and shall require the Spouse's consent in the same manner
provided for in Section 7.2.
(b) The election period to waive the Pre-Retirement Death
Benefit shall begin on the first day of the Plan Year in which the Participant
attains age 35 and end on the date of the Participant's death. In the event a
vested Participant
-18-
<PAGE>
separates from service prior to the beginning of the election period, the
election period shall begin on the date of such separation from service.
(c) With regard to the election, the Committee shall provide
each Participant within the applicable period, with respect to such Participant
(and consistent with Regulations), a written explanation of the Pre-Retirement
Death Benefit containing comparable information to that required pursuant to
Section 7.2(c). For the purposes of this paragraph, the term "applicable period"
means, with respect to a Participant, whichever of the following periods ends
last:
(1) The period beginning with the first day of the Plan Year
in which the Participant attains age 32 and ending with the
close of the Plan Year preceding the Plan Year in which the
Participant attains age 35;
(2) A reasonable period after the individual becomes a
Participant;
(3) A reasonable period ending after the Plan no longer fully
subsidizes the cost of the Pre-Retirement Survivor Annuity with
respect to the Participant;
(4) A reasonable period ending after section 401(a)(11) of the
Code applies to the Participant; or
(5) A reasonable period after separation from service in the
case of a Participant who separates before attaining age 35.
For this purpose, the Committee must provide the explanation at
the time of separation or within one year after separation.
Unless otherwise specified above, for purposes of this 6.4(c), a
reasonable period ending after the enumerated events described in paragraphs
(2), (3) and (4) is the end of the one-year period beginning with the date the
applicable event occurs. The applicable period for such events begins one year
prior to the occurrence of the enumerated events.
-19-
<PAGE>
ARTICLE VII
-----------
FORM OF BENEFITS
----------------
7.1 Normal Form. Unless otherwise elected as provided below, a
-----------
Participant who is married on the Annuity Starting Date shall receive his
benefits in the form of an actuarially reduced joint and survivor annuity. The
joint and survivor annuity shall be equal in value to a single life annuity.
Such joint and survivor benefits following the Participant's death shall
continue to the Spouse during the Spouse's lifetime at a rate equal to 50% of
the rate at which such benefits were payable to the Participant. The
Participant may elect to receive a smaller annuity benefit with continuation of
payments to the Spouse at a rate of seventy-five percent (75%) or one hundred
percent (100%) of the rate payable to a Participant during his lifetime. An
unmarried Participant shall receive his benefit in the form of a single life
annuity. Such unmarried Participant, however, may elect in writing to waive the
single life annuity. The election must comply with the provisions of this
Article as if it were an election to waive the joint and survivor annuity by a
married Participant, but without the spousal consent requirement.
7.2 Waiver of Normal Form.
---------------------
(1) Participant's Waiver Rights. At any time during the applicable
---------------------------
election period but not thereafter, a Participant may elect in writing in a form
acceptable to the Committee to waive payment under the normal form of benefit
payment described in Section 7.1 and elect to receive payment in an optional
form of payment described in Section 7.3. For the purposes hereof, the
applicable election period shall be the 90-day period ending on the Annuity
Starting Date; provided that a Participant's election of any optional form of
payment shall in no event be made earlier than the date the Participant receives
the notice described in Section 7.2(4).
(2) Revocation of Waivers. Any waiver and election delivered by the
---------------------
Participant to the Committee in accordance with the provisions of paragraph (1)
hereof may be revoked by the Participant upon written notice delivered to the
Committee prior to the Annuity Starting Date.
(3) Spouse's Consent. A married Participant's waiver and election
----------------
under paragraph (1) shall be effective only if:
(A) the Participant's Spouse (or the Spouse's legal guardian if
the Spouse is legally incompetent) executes a written instrument whereby such
Spouse irrevocably consents to such election and to the specific form of payment
and/or alternate Beneficiary elected by the Participant, and such
-20-
<PAGE>
instrument acknowledges the effect of the election to which the Spouse's consent
is given and is witnessed by a notary public; or
(B) the Participant (i) establishes to the satisfaction of the
Committee that the consent of the Spouse cannot be obtained because the Spouse
cannot be located or because of other circumstances that may be prescribed in
applicable regulations, or (ii) furnishes a court order to the Committee
establishing that the Participant is legally separated or has been abandoned
(within the meaning of local law), unless a Qualified Domestic Relations Order
provides that the Spouse's consent must be obtained.
(4) Explanations to Participants. The Committee shall provide to
----------------------------
each Participant no less than 30 days and no more than 90 days prior to his
Annuity Starting Date a written explanation of:
(A) the terms and conditions of all forms of payment available to
the Participant, including information explaining the relative values of each
form of payment;
(B) the Participant's right to waive the normal form of benefit
payment and the effect of such waiver;
(C) the rights of the Participant's Spouse with respect to such
waiver;
(D) the right to revoke an election to receive an optional form
of payment and the effect of such revocation; and
(E) if the Participant has not attained Normal Retirement Age, the
Participant's right to defer commencement of his benefit until Normal Retirement
Date.
(F) if applicable, the Committee shall provide to each Participant
a notice regarding his right to elect a direct rollover, as provided in Section
7.6, in accordance with section 402(f) of the Code.
7.3 Optional Forms. In the event a married Participant duly elects
--------------
pursuant to Section 7.2(a) not to receive the retirement benefit in the form of
a joint and survivor annuity, or if such Participant is not married, in the form
of a single life annuity, the Participant may elect to receive the amount to
which he is entitled under the Plan in one or more of the following methods:
(a) Single Life Annuity - monthly payments commencing on a
Participant's Annuity Starting Date and continuing until the death of the
Participant.
-21-
<PAGE>
(b) Sixty (60) Month Certain Annuity - actuarially reduced monthly
payments commencing on a Participant's Annuity Starting Date, and continuing
until the death of the Participant, provided, however, that should the
Participant die prior to receiving sixty (60) monthly payments, monthly payments
shall continue (at the same rate) to the Participant's beneficiary until sixty
(60) total monthly payments have been made to or on behalf of the Participant.
A Participant's designation of a beneficiary to receive the balance of a
guaranteed number of payments may be made or changed until the earlier of the
Participant's death or the expiration of the guaranteed period. Notwithstanding
the foregoing, the number of monthly payments guaranteed shall be calculated so
that the number of guaranteed monthly payments remaining as of the beginning of
the calendar year preceding the Participant's Required Distribution Date does
not exceed the joint life expectancy of the Participant and his beneficiary, or
if less, and the Participant's beneficiary is not the Participant's Spouse, the
applicable number from the table set forth in Appendix A.
(c) Notwithstanding the provisions of this Section 7.3 to the
contrary, if the Actuarial Equivalent single-sum value, determined as of the
date of distribution, of the vested Accrued Benefit of a Participant who has had
a termination of employment, or of the benefit payable to a Spouse by reason of
the Participant's death, is $3,500 or less (and has never exceeded $3,500 at the
time of any prior distribution), the benefit shall be paid, as soon as
administratively practicable following the Participant's termination of
employment or death, as a single-sum in settlement of all liabilities of the
Plan in connection with the Participant; provided, however, that no such payment
shall be made (1) after such benefit has commenced in any other form or (2) with
respect to a Participant whose benefits are funded in whole or in part through
an annuity contract held by the Plan, if such payment would be contrary to the
terms of such contract. If the present value of a Participant's vested Accrued
Benefit at the time of his termination of employment is zero, the Participant
shall be deemed to have received a single-sum payment of his entire vested
Accrued Benefit as of the date of his termination of employment. For this
purpose, the Actuarial Equivalent Value shall be determined by using interest
rates no greater than the "applicable interest" rates as defined in section
417(e) of the Code.
7.4 Requirements as to Distributions.
--------------------------------
(a) Notwithstanding any provision in the Plan to the contrary, a
Participant's benefits shall be distributed to him not later than the Required
Distribution Date.
(b) If the distribution of a Participant's interest has begun in
accordance with a method selected in Article VII and
-22-
<PAGE>
the Participant dies before his entire interest has been distributed to him, the
remaining portion of such interest shall be distributed at least as rapidly as
under the method of distribution selected pursuant to Article VII as of his date
of death.
(c) If a Participant dies before he has begun to receive any
distributions of his interest under the Plan, his death benefit shall be
distributed to his beneficiaries no later than December 31 of the year
containing the fifth anniversary of the Participant's death.
(d) The 5-year distribution requirement of Section 7.4(e) shall not
apply to any portion of the deceased Participant's interest which is payable to
or for the benefit of a designated beneficiary. In such event, such portion may
be distributed over the life of such designated beneficiary (or over a period
not extending beyond the life expectancy of such designated beneficiary)
provided such distribution begins not later than December 31 of the year
containing the first anniversary of the Participant's death (or such later date
as may be prescribed by Treasury regulations). Except, however, in the event
the Participant's Spouse is his beneficiary, distributions are not required to
commence earlier than December 31 of the later of (1) the calendar year
following the year of the Participant's death or (2) the calendar year in which
the deceased Participant would have attained age seventy and one-half (70 1/2).
If the surviving Spouse dies before the distributions to such Spouse begin, then
the 5-year distribution requirement of Section 7.3(e) shall apply as if the
Spouse were the Participant.
(e) Notwithstanding any provision in the Plan to the contrary, the
form and timing of all distributions under the Plan shall be in accordance with
regulations issued by the Department of the Treasury under section 401(a)(9) of
the Code including the incidental death benefit requirements of section
401(a)(9)(G) of the Code.
7.5 Application for Benefits. Except as provided in Section 7.3
------------------------
(c), benefit payments shall commence when properly written application for same
is received by the Committee. In the event that a Participant, or the Spouse of
a deceased Participant entitled to benefits under Article VI fails to apply to
the Committee by the earlier of (a) the Participant's Normal Retirement Date or
the date of the Participant's termination of employment, if later, or (b) the
end of the calendar year in which the Participant attains age 70-1/2, the
Committee shall make diligent efforts to locate such Participant or Spouse and
obtain such application. In the event the Participant or Spouse fails to make
application by the Participant's Required Distribution Date, subject to Section
12.7, the Committee shall commence distribution as of the Required Distribution
Date
-23-
<PAGE>
without such application. No payments shall be made for the period in which
benefits would have been payable if the Participant or Spouse had made timely
application therefor; provided, however, that, if the Participant's Annuity
Starting Date or, if the Participant has died, his Spouse's Annuity Starting
Date under Article VI, has been delayed until after the Participant's Normal
Retirement Date solely by reason of failure to make application, and not by
reason of suspension of benefit, the benefit payable (a) to the Participant on
and after his Annuity Starting Date, or (b) to the Participant's Spouse pursuant
to Article VI on and after the Spouse's Annuity Starting Date, shall be equal to
the Actuarial Equivalent of the benefit the Participant or the Spouse would have
received had benefits commenced on the Participant's Normal Retirement Date, as
determined to reflect the deferral of benefit commencement.
7.6 Direct Rollovers. Effective January 1, 1993, in the event any
----------------
payment or payments (excluding any amount not includible in gross income) to be
made to an individual from the Plan would constitute an "eligible rollover
distribution" within the meaning of section 401(a)(31)(C) of the Code and
regulations thereunder, such individual may request that, in lieu of payment to
the individual, all or part of such eligible rollover distribution be
transferred directly from the Fund to the trustee or custodian of an "eligible
retirement plan" within the meaning of section 401(a)(31)(D) of the Code and
regulations thereunder. Any such request shall be made in writing, in such form
and subject to such procedures, requirements, and restrictions as may be
prescribed by the Committee for such purpose pursuant to Treasury regulations,
at such time in advance of the date such payment would otherwise be made as may
be required by the Committee. For purposes of this Section, an "individual"
shall include an Employee or former Employee or his surviving spouse or former
spouse who is an Alternate Payee.
-24-
<PAGE>
ARTICLE VIII
------------
THE FUND AND FUNDING
--------------------
8.1 Designation of Trustee. The Company, by appropriate resolution
-----------------------
of its board of Directors shall name and designate a Trustee and enter into a
Trust Agreement with such Trustee.
8.2. Contributions to the Fund. The benefits provided under the Plan
--------------------------
shall be financed exclusively by contributions made from time to time to the
Trustee by the Company and by the Fund created thereby. Subject to the
provisions of applicable law, the liability of the Company under the Plan shall
be limited to the contributions determined by the Company from time to time in
accordance with the advice and counsel of the Actuary. The funding policy
applicable to the Fund shall be established by the Company and reviewed from
time to time. All contributions are conditioned on their deductibility for
Federal income tax purposes in the Plan Year for which they are contributed.
8.3 Use of Contributions to the Fund. The contributions deposited
---------------------------------
under the terms of this Plan shall constitute the Fund held for the benefit of
Participants, former Employees, and their eligible survivors under and in
accordance with this Plan. No part of the corpus or income of the Fund shall be
used for or diverted to purposes other than exclusively for the benefit of such
Participants, former Employees, and their eligible survivors and for necessary
administrative costs; provided, however, that in the event of the termination of
Plan and after all liabilities, as defined under the Code and ERISA, shall have
been satisfied, any remaining funds attributable to contributions by the Company
shall revert to the Company; and further provided that the case of a
contribution (a) made by the Company as a mistake of fact, or (b) which is
conditioned upon the initial qualification of the Plan under section 401 (a) of
the Code, (c) or which a tax deduction is disallowed, in whole or in part, by
the Internal Revenue Service, the Company shall be entitled to a refund of said
contributions (1) within one year after payment of a contribution made as a
mistake of fact, or (2) within one year of the date on which the initial
qualification of the Plan is denied by the Internal Revenue Service, or (3)
within one year after disallowance, to the extent of such disallowance, as the
case may be. Earnings attributable to any excess contribution under (a) or (b)
above may not be returned to the Company but losses attributable thereto shall
reduce the amount returned.
8.4 Trustee. The Trustee shall be responsible for the management and
--------
control of Plan assets held by it and shall have exclusive and sole
responsibility for the custody and investment thereof in accordance with the
Trust Agreement.
-25-
<PAGE>
8.5 Forfeitures. Forfeitures shall not be applied to increase the
------------
benefits of any Participant, but shall reduce the contributions of the Company
hereunder.
8.6 Expenses of Administration. All expenses of administration of
--------------------------
this Plan shall be paid from the Fund unless paid directly by the Company.
8.7 Sole Source of Benefits. The Fund shall be the sole source for
------------------------
the provision of benefits under the Plan. No Company or any other person shall
be liable therefor.
-26-
<PAGE>
ARTICLE IX
----------
ADMINISTRATION
--------------
9.1 Committee. Except as may otherwise be provided herein, the
----------
Committee shall be responsible for the administration of the Plan, and shall be
the Plan "administrator" within the meaning of section 3(16) of ERISA. The
Committee shall consist of five (5) persons, three (3) of whom shall be selected
by the Company, and two (2) of whom shall be Employees as selected by a majority
of Employees who vote in a mail ballot election conducted once every three
years. At least three weeks prior to such election, Employees shall have the
opportunity to nominate candidates. Those five (5) nominees receiving the most
nominations shall be included on the final election ballot. Each Employee
selected Committee member shall serve for a period of three years unless such
Committee member dies, terminates employment, resigns, is removed, or otherwise
vacates the position. In such event, an election shall be held within ninety
(90) days to fill such vacancy. If the Employees fail to appoint a Committee
member for any reason, the remaining members of the Committee shall be empowered
to conduct the business of the Committee. The Committee shall elect a chairman
and a secretary from among its number. The Committee may elect an assistant
secretary. The Company may act to remove Company appointed Committee members
and fill vacancies which may arise by reason of such removal, resignation,
death, termination of employment, or otherwise. Members of the Committee shall
be entitled to reimbursement of expenses, but those members of the Committee who
are also employees of the Company shall be entitled to no compensation for their
service on the Committee. Any reimbursement of expenses of the Committee
members shall be paid directly by the Company.
9.2 Meetings. The Committee shall hold meetings upon such notice,
--------
and at such place or places, and at such intervals as it may from time to time
determine.
9.3 Quorum. A quorum of the Committee for the transaction of
------
business shall consist of not less than half of the members then serving on the
Committee.
9.4 Requirements for Committee Approval. Action shall be taken by
-----------------------------------
the vote of a majority of those members present. If the Committee should fail
to agree on any question, it shall be referred within thirty (30) days from the
date of disagreement to an impartial third person to be chosen by the Committee.
If the Committee should be unable to agree upon such third person, then such
person shall be appointed by the American Arbitration Association upon the
application by any Committee member. Such third person, whose fees and expenses
are properly chargeable to the Plan, shall determine such question but shall
have authority only to interpret and apply the provisions of this Plan document
-27-
<PAGE>
and shall not have authority in any way to alter, add to or subtract from such
provisions.
9.5 Duties and Powers of Committee. In addition to the duties and
-------------------------------
powers described elsewhere hereunder, the Committee shall have full
discretionary power and authority to construe and interpret the terms of the
Plan, to make factual determinations and to decide any and all matters arising
under the Plan, including the right to remedy possible ambiguities, defects,
inconsistencies or omissions and all such constructions, interpretations,
determinations, and decisions shall final and binding on all parties. The
Committee shall also have the following specific duties and powers:
(a) to retain such consultants, accountants, attorneys, and
actuaries as deemed necessary or desirable to render statements, reports, and
advice with respect to the Plan and to assist the Committee in complying with
all applicable rules and regulations affecting the Plan; any consultants,
accountants, attorneys, and actuaries may be the same as those retained by the
Company;
(b) to enact uniform and non-discriminatory rules and regulations to
carry out the provisions of the Plan;
(c) to determine whether any domestic relations order received by
the Plan is a qualified domestic relations order as provided in section 414(p)
of the Code;
(d) to evaluate administrative procedures; and
(e) to delegate such duties and powers as the Committee shall
determine from time to time to any person or persons.
9.6 Functioning of Committee. The Committee and those persons or
-------------------------
entities to whom the Committee has delegated responsibilities shall keep
accurate records and minutes of meetings, interpretations and decisions. The
Committee shall act by majority vote of the members, and such action shall be
evidenced by a written document.
9.7 Disputes.
---------
(a) The Committee shall have the power, authority, and discretion to
determine whether a claimant is eligible for any benefit under the Plan and to
construe the terms and provisions of the Plan. In the event that the Committee
denies, in whole or in part, a claim for benefits by a Participant or his
beneficiary, the Committee shall furnish notice of the denial to the claimant,
setting forth:
(1) the specific reasons for the denial,
<PAGE>
(2) specific reference to the pertinent Plan provisions on which
the denial is based,
(3) a description of any additional information necessary for the
claimant to perfect the claim and an explanation of why such information is
necessary, and
(4) appropriate information as to the steps to be taken if the
claimant wishes to submit his claim for review.
Such notice shall be forwarded to the claimant within 90 days of the
Committee' s receipt of the claim; provided, however, that in special
circumstances the Committee may extend the response period for up to an
additional 90 days, provided that the Committee so notifies the claimant in
writing and specifies the reason or reasons for such extensions.
(b) Within 60 days of receipt of a notice of claim denial, a claimant
or his duly authorized representative may petition the Committee in writing for
a full and fair review of the denial. The claimant or his duly authorized
representative shall have the opportunity to review pertinent documents and to
submit issues and comments in writing to the Committee. The Committee shall
review the denial and communicate its decision and the reasons therefor to the
claimant in writing within 60 days of receipt of the petition; provided,
however, that the Committee may extend the response period in special
circumstances for up to an additional 60 days. Written notice of the extension
shall be sent to the claimant prior to the commencement of the extension.
(c) Section 9.7 shall be the exclusive means for resolving any
disputes regarding benefit entitlement of individual Participants. Such
disputes shall not be subject to any grievance and arbitration procedures under
any collective bargaining agreements.
9.8 Indemnification. Each member of the Committee and any other
---------------
person who is an employee or director of the Company or an affiliated Company
shall be indemnified by the Company against expenses (other than amounts paid in
settlement to which the Company does not consent) reasonably incurred by him in
connection with any action to which he may be a party by reason of his
performance of administrative functions and duties under the Plan, except in
relation to matters as to which he shall be adjudged in such action to be
personally guilty of negligence or willful misconduct in the performance of his
duties. The foregoing right to indemnification shall be in addition to such
other rights as the Committee member or other person may enjoy as a matter of
law or by reason of insurance coverage of any kind. Rights granted hereunder
shall be in addition to and not in lieu of any rights to indemnification to
which the Committee member or other person may be entitled pursuant to the by-
laws of the Company.
-29-
<PAGE>
9.9 Reliance on Data and Consents. The Company, the Trustee, the
-----------------------------
Committee, all fiduciaries with respect to the Plan, and all other persons or
entities associated with the operation of the Plan, the management of its
assets, and the provision of benefits thereunder, may reasonably rely on the
truth, accuracy and completeness of any data provided by any Participant,
Spouse, or beneficiary, including, without limitation, representations as to
age, health and marital status. Furthermore, the Company, the Trustee, the
Committee, and all fiduciaries with respect to the Plan may reasonably rely on
all consents, elections and designations filed with the Plan or those associated
with the operation of the Plan and the Fund by any Participant, the Spouse of
any Participant, any beneficiary of any Participant, or the representatives of
such persons without duty to inquire into the genuineness of any such consent,
election or designation. None of the aforementioned persons or entities
associated with the operation of the Plan, its assets and the benefits provided
under the Plan shall have any duty to inquire into any such data, and all may
rely on such data being current to the date of reference, it being the duty of
the Participants, spouses of Participants, and beneficiaries to advise the
appropriate parties of any change in such data.
-30-
<PAGE>
ARTICLE X
---------
ALLOCATION AND DELEGATION OF AUTHORITY
--------------------------------------
10.l Authority and Responsibilities of Company. The Company, as Plan
-----------------------------------------
sponsor, shall serve as a "Named Fiduciary" within the meaning of section 402(c)
of ERISA, having the following authority and responsibility:
(a) to establish and communicate to the Trustee a funding policy
for the Plan;
(b) to perform all administrative functions which relate to the
funding of the Plan, except as to those such functions which the Company may
choose to delegate to the Committee.
(c) to appoint the Trustee and three members of the five-member
Committee and to monitor each of their performances;
(d) to appoint an investment manager (or to refrain from such
appointment), to monitor the performance of the investment manager so appointed,
and to terminate such appointment (more than one investment manager may be
appointed and in office at any time pursuant hereto);
(e) to communicate such information to the Committee and to the
Trustee as each needs for proper performance of its duties; and
(f) to provide channels and mechanisms through which the Committee
and/or the Trustee can communicate with Participants and their beneficiaries.
In addition, the Company shall perform such duties as are imposed by
law or by regulation and shall serve as Plan Administrator in the absence of an
appointed Plan Administrator.
10.2 Authority and Responsibilities of the Committee. The Committee
-----------------------------------------------
shall have the authority and responsibilities imposed by Article IX hereof.
With respect to the said authority and responsibility, the Committee shall be a
"Named Fiduciary," and as such, shall have no authority and responsibility other
than as granted in the Plan, or as imposed by law.
10.3 Authority and Responsibilities of the Trustee. The Trustee
----------------------------------------------
shall be the "Named Fiduciary" within the meaning of section 402(c) of ERISA
with respect to investment of the Fund assets and shall have the powers and
duties set forth in the Trust Agreement.
10.4 Limitations on Obligations of Named Fiduciaries. No Named
-----------------------------------------------
Fiduciary shall have authority or
-31-
<PAGE>
responsibility to deal with matters other than as delegated to it under this
Plan, under the Trust Agreement, or by operation of law. A Named Fiduciary shall
not in any event be liable for breach of fiduciary responsibility or obligation
by another fiduciary (including Named Fiduciaries) if the responsibility or
authority of the act or omission deemed to be a breach was not within the scope
of the said Named Fiduciary's authority or delegated responsibility.
-32-
<PAGE>
ARTICLE XI
----------
AMENDMENT AND TERMINATION
-------------------------
11.1 Power of Amendment and Termination. It is the intention of the
----------------------------------
Company that this Plan will be permanent. However, the Company reserves the
power to amend or terminate the Plan at any time by or pursuant to resolution of
its board of directors. Except as expressly provided elsewhere in the Plan,
prior to the satisfaction of all liabilities with respect to the benefits
provided under this Plan, no such amendment or termination shall cause any part
of the monies contributed hereunder to revert to the Company or to be diverted
to any purpose other than for the exclusive benefit of Participants and other
beneficiaries. No amendment shall have the effect of retroactively depriving
Participants of benefits already accrued under the Plan. Any amendment shall
become effective as of the date designated by the board of directors of the
Company.
11.2 Disposition on Termination. In the event of the termination or
--------------------------
partial termination of the Plan, as defined in the Code, the interest of each
affected Participant who would not have a nonforfeitable right to one hundred
percent (100%) of his Accrued Benefit if his employment terminated on the date
of the termination or partial termination of the Plan shall become
nonforfeitable to the extent funded; however, in the event of such a
termination, each participant and beneficiary shall have recourse toward
satisfaction of his nonforfeitable rights to his pension only from Plan assets
or from the Pension Benefit Guaranty Corporation to the extent that it
guarantees benefits.
The amount of the Fund shall be determined and, after providing for
expenses incident to termination and liquidation, the remaining assets of such
Fund shall be allocated for the purpose of paying benefits proportionately among
each of the priority groups described below in the following order of
precedence:
(a) to provide that portion of the Accrued Benefit, if any, of each
Participant, which is derived from the Participants contributions to the Plan
which were not mandatory contributions:
(b) to provide benefits to retired Participants and beneficiaries
who began receiving benefits at least three years before the Plan termination
(including those benefits which would have been received for at least three
years if the Participant had retired that long ago), based on Plan provisions in
effect five years prior to termination during which period such benefit would be
the least; provided that the lowest benefit in pay status during a three-year
period shall be considered the benefit in pay status for such period;
(c) to provide all other Accrued benefits guaranteed by Federal law;
-33-
<PAGE>
(d) to provide all other vested Accrued benefits;
(e) to provide all remaining non-vested Accrued Benefits.
If the assets available for allocation under any priority group (other
than as provided in priority groups (d) and (e)) are insufficient to satisfy in
full the Accrued Benefits of all Participants and beneficiaries, the assets
shall be allocated pro rata among such participants and beneficiaries on the
basis of the present value of their respective benefits (as of the termination
date). The foregoing payments and payments in the event assets are insufficient
to pay the Accrued benefits provided in priority groups (d) and (e) will be paid
in accordance with regulations prescribed by the Pension Benefit Guaranty
Corporation. The procedure for allocation of assets upon termination of the
Plan will be carried out in an appropriate manner as to prevent the Plan from
being deemed disqualified by the Internal Revenue Service.
In the event all Accrued Benefits described above have been fully
funded, any remaining funds will revert to the Company.
11.3 Merger, Consolidation, or Transfer.
----------------------------------
(a) In case of any merger or consolidation with, or transfer of
assets or liabilities to any other plan, as provided in the Code, the benefit of
any Participant or beneficiary immediately after such merger, consolidation, or
transfer (if the Plan had then terminated) shall be at least equal to the
benefit such Participant or beneficiary would have received immediately before
such merger, consolidation, or transfer (if the Plan had then terminated).
(b) In the event of a spinoff or termination of the Plan within five
years following a merger or consolidation (or series of mergers or
consolidations) in which liabilities (or a sum of liabilities, in the event of a
series of mergers or consolidations) of less than 3% of the assets of the Plan,
as of at least 1 day in the Plan Year in which the merger(s) or consolidation(s)
occurs, are merged or consolidated with the Plan, Plan assets shall first be
allocated for the benefits of participants in the plan(s) merged or consolidated
with this Plan to the extent of the present value of such benefits as of the
date of such merger or consolidation. In the case of a merger or consolidation
designed to occur in more than one Plan Year, the merger or consolidation shall
be deemed to have occurred in the Plan Year in which the first transaction
occurred.
-34-
<PAGE>
ARTICLE XII
-----------
GENERAL PROVISIONS
------------------
12.1 No Employment Rights. Neither the action of the Company in
--------------------
establishing the Plan, nor any provisions of the Plan, nor any action taken by
it or by the Committee shall be construed as giving to any employee of the
Company the right to be retained in its employ, or any right to payment except
to the extent of the benefits provided in the Plan to be paid from the Fund.
12.2 Governing Law. Except to the extent superseded by ERISA, all
-------------
questions pertaining to the validity, construction and operation of the Plan
shall be determined in accordance with the laws of the Commonwealth of
Pennsylvania.
12.3 Severability of Provisions. If any provision of this Plan is
--------------------------
determined to be void by any court of competent
jurisdiction, the Plan shall continue to operate and, for the purposes of the
jurisdiction of that court only, shall be deemed not to include the provisions
determined to be void.
12.4 Spendthrift Clause.
------------------
(a) No benefit payable at any time under this Plan, and no interest
or expectancy herein shall be anticipated, assigned, or alienated by any
Participant or beneficiary, or be subject to attachment, garnishment, levy,
execution or other legal or equitable process, except for (1) a Federal tax levy
made pursuant to section 6331 of the Code and (2) any benefit payable pursuant
to a domestic relations order which is determined to be a qualified domestic
relations order as defined in the Code.
(b) Any attempt to alienate or assign a benefit hereunder, whether
currently or hereafter payable, shall be void. No benefit shall in any manner be
liable for or subject to the debts or liability of any Participant or
beneficiary. If any Participant or beneficiary shall attempt to, or shall,
alienate or assign his benefits under the Plan or any part thereof, or if by
reason of his bankruptcy or other event happening at any time, such benefits
would devolve upon anyone else or would not be enjoyed by him, then the
Committee may terminate payment of such benefit and hold or apply it to or for
the benefit of the Participant or beneficiary.
12.5 Incapacity. If the Committee deems any Participant who is
----------
entitled to receive payments hereunder incapable of receiving or disbursing the
same by reason of age, illness, infirmity, or incapacity of any kind, the
Committee may direct the Trustee to apply such payment directly for the comfort,
support and maintenance of such Participant or to pay the same to any
responsible person caring for the Participant as determined by the Committee to
be qualified to receive and disburse such payments for the Participant s
benefit, and the
-35-
<PAGE>
receipt of such person shall be a complete acquittance for the payment of the
benefit. Payments pursuant to this Section shall be complete discharge to the
extent thereof of any and all liability of the Company, the Committee the
Trustee, and the Fund.
12.6 Withholding. The Committee and the Trustee shall have the right
-----------
to withhold any and all state, local, and Federal taxes which may be withheld in
accordance with applicable law.
12.7 Lost Payees. If a Participant, Spouse or other beneficiary to
-----------
whom a benefit is payable under the Plan cannot be located following a
reasonable effort to do so by the Committee, such benefit shall be forfeited.
Whether or not efforts to locate a Participant have previously been made, the
Committee shall make reasonable efforts to locate the Participant (or, where
applicable, his Spouse) during the one-year period preceding the Participant's
Required Distribution Date. If such efforts fail to locate the Participant or
Spouse, such Participant or Spouse shall be presumed dead as of the Required
Distribution Date and any benefit payable to the Participant or Spouse shall be
forfeited. In any case, if a claim for a forfeited benefit is subsequently
filed by the Participant, Spouse or beneficiary, such benefit shall be
reinstated and paid in accordance with Article IV.
12.8 Notices. Each Participant, Spouse, and beneficiary shall be
-------
responsible for furnishing the Committee with the current and proper address for
the mailing of notices, reports and benefit payments. Any notice required or
permitted to be given shall be deemed given if directed to the person to whom
addressed at such address and mailed by regular United States mail, first-class
and prepaid. If any check mailed to such address is returned as undeliverable
to the addressee, mailing of checks will be suspended until the Participant,
Spouse, or beneficiary furnishes the proper address. This provision shall not
be construed as requiring the mailing of any notice or notification if the
regulations issued under ERISA deem sufficient notice to be given by the posting
of notice in appropriate places, or by any other publication device.
-36-
<PAGE>
APPENDIX A
MINIMUM DISTRIBUTION TABLE
<TABLE>
<CAPTION>
Age of Participant in
calendar year preceding
Required Beginning Date
- -----------------------
Maximum Years Remaining
- -----------------------
<S> <C>
70 ................................ 26.2
71 ................................ 25.3
72 ................................ 24.4
73 ................................ 23.5
74 ................................ 22.7
75 ................................ 21.8
76 ................................ 20.9
77 ................................ 20.1
78 ................................ 19.2
79 ................................ 18.4
80 ................................ 17.6
81 ................................ 16.8
82 ................................ 16.0
83 ................................ 15.3
84 ................................ 14.5
85 ................................ 13.8
86 ................................ 13.1
87 ................................ 12.4
88 ................................ 11.8
89 ................................ 11.1
90 ................................ 10.5
91 ................................ 9.9
92 ................................ 9.4
93 ................................ 8.8
94 ................................ 8.3
95 ................................ 7.8
96 ................................ 7.3
97 ................................ 6.9
98 ................................ 6.5
99 ................................ 6.1
100 ............................... 5.7
101 ............................... 5.3
102 ............................... 5.0
103 ............................... 4.7
104 ............................... 4.4
105 ............................... 4.1
106 ............................... 3.8
107 ............................... 3.6
108 ............................... 3.4
109 ............................... 3.2
110 ............................... 2.8
111 ............................... 2.6
112 ............................... 2.4
113 ............................... 2.0
114 ............................... 2.0
115 and older ..................... 1.8
</TABLE>
-37-
<PAGE>
RHONE-POULENC RORER Exhibit 10H
EMPLOYEE SAVINGS PLAN
As Amended and Restated
Effective January 1, 1992
<PAGE>
RHONE-POULENC RORER
EMPLOYEE SAVINGS PLAN
As Amended and Restated
Effective January 1, 1992
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C> <C>
I Purpose............................................. 1
II Definitions......................................... 5
III Participating in the Plan........................... 21
IV Participant's Contributions......................... 23
V Employer Contributions.............................. 29
VI Limitations on Contributions and Allocations........ 34
VII Distribution........................................ 46
VIII Vesting and Credited Service........................ 56
IX Withdrawals and Loans............................... 58
X Administration...................................... 66
XI The Fund............................................ 72
XII Investment by the Trustee........................... 74
XIII Amendment or Termination of the Plan................ 77
XIV General Provisions.................................. 79
XV Special Provisions for Top-Heavy Plans.............. 82
Supplement A - Special Rules for Puerto Rico Participants.. 86
Supplement B - Special Matching Contributions for Puerto
Rico Participants who are Members of
the United Auto Workers' Union.............. 90
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
Supplement C - Special Matching Contributions for
Participants who are Members of Warehouse
Employees' Local 169........................ 91
Supplement D - Special Matching Contributions for
Participants who are Members of International
Chemical Workers' Union, Local 498.......... 92
</TABLE>
-ii-
<PAGE>
ARTICLE I
---------
PURPOSE
-------
1.1 The Rhone-Poulenc Rorer Employee Savings Plan is intended to
encourage eligible employees to build financial security by enabling them to
accumulate assets in a trust fund through convenient payroll reductions which
are enhanced by contributions from the Company. The Plan is designed to
supplement employees' income when they retire, as well as to help them meet
preretirement financial emergencies. The trust fund will be invested in a
variety of investment media, including an investment medium dedicated to Rhone-
Poulenc Rorer Inc. Common Stock.
The Plan, when originally established in 1978, was called the Rorer
Group Employees Savings Plan. In 1984, the Plan was amended to incorporate a
401(k) cash or deferred feature and renamed the Rorer Group Employees Savings
Plus Plan. In 1986, participation in the Plan was expanded when the Plan
accepted transfers of funds from the 401(k) plan maintained for the benefit of
certain employees of the Ethical Pharmaceutical Division of Revlon, Inc.,
including USV Pharmaceutical Corporation, Armour Pharmaceutical Company and
Melroy Laboratories, Inc. With respect to each new Participant, the transferred
funds were allocated to his Basic Contribution Account I, Basic Contribution
Account II, Supplemental
-1-
<PAGE>
Contribution Account I, Supplemental Contribution Account II and Employer
Contribution Account I, as appropriate.
The Plan was amended and restated in its entirety, effective as of
January 1, 1989, to incorporate the amendments necessary to comply with the Tax
Reform Act of 1986, the Omnibus Budget Reconciliation Acts of 1986 and 1987 and
the Technical and Miscellaneous Revenue Act of 1988. The Plan was also amended
and restated in its entirety, effective July 1, 1989, to transform the Plan into
a leveraged employee stock ownership plan which was designed to invest primarily
in Rorer Group Inc. convertible preferred stock. In addition, effective July 1,
1989, the Rorer Pharmaceutical Corporation Hourly Employees Savings Plus Plan
was merged into the Plan.
On March 16, 1990, Rhone-Poulenc S.A. ("RP") initiated a tender offer
for approximately 50.1% of the common stock of Rorer Group Inc. The common
stock held by the Plan was tendered by the Trustees in accordance with the
instructions issued by the participants. In addition, the convertible preferred
stock that was held by the Plan was converted into common stock and tendered to
RP. The common stock that was acquired as a result of the conversion and was
tendered but not purchased by RP was purchased by Rorer Group Inc. pursuant to
the terms of the Stock Purchase Agreement that was entered into as of March 9,
1990. The majority of the proceeds from the sales of Rorer Group Inc. common
stock by the Plan were utilized to retire the debt incurred by the Plan to
purchase the preferred stock from Rorer
-2-
<PAGE>
Group Inc. in 1989. The remaining proceeds (received either from the sale of
(i) Rorer Group Inc. common stock held by the Plan and tendered by the Trustees
in accordance with the instructions issued by the participants, or (ii) Rorer
Group Inc. common stock acquired by the Plan as a result of the conversion of
the convertible preferred stock held by the Plan and tendered by the Trustees or
purchased by Rorer Group Inc.) were allocated to the Participant's Accounts and
shall be invested in accordance with their directions.
The Plan was amended and restated in its entirety, effective July 1,
1990, to eliminate the employee stock ownership feature from the Plan.
Accordingly, the Plan now constitutes a profit sharing plan with a 401(k) cash
or deferred feature. The name of the Plan was changed to the Rhone-Poulenc
Rorer Employees Savings Plus Plan effective July 15, 1990. As a result of the
sale of all of the convertible preferred stock by the Plan and the elimination
of the employee stock ownership feature, the Employer Contribution Accounts I
and II, respectively, have been combined into one Employer Contribution Account.
The Plan is now amended and restated in its entirety, effective
January 1, 1992, except where an earlier effective date is provided herein or
otherwise required by applicable law, to incorporate certain amendments
necessary to comply with recent statutory and regulatory changes, to change the
name of the Plan to the Rhone-Poulenc Rorer Employee Savings Plan and to reflect
certain changes in the administration of the Plan. In addition,
-3-
<PAGE>
the Armour Pharmaceutical Company Hourly Employee Savings Plus Plan and the
Rorer Group Inc. Payroll Stock Ownership Plan are being merged into the Plan
effective December 31, 1991 and January 1, 1992, respectively. The Plan is also
being amended to incorporate certain provisions relating to Participants who are
residents of the Commonwealth of Puerto Rico. Except where a different
effective date is provided herein or otherwise required by applicable law, the
terms of the Plan, as amended and restated, shall apply only to an Employee who
terminates employment on or after January 1, 1992. The rights and benefits, if
any, of other employees shall be determined in accordance with the provisions of
the Plan as it existed prior to such date.
-4-
<PAGE>
ARTICLE II
----------
DEFINITIONS
-----------
2.1 "Accounts" shall mean all of the various separate accounts
--------
maintained by the Trustee for each Participant.
(a) "Basic Contribution Account I" shall mean the Account to
----------------------------
which are credited a Participant's contributions made pursuant to Section 4.1
prior to July 1, 1984.
(b) "Basic Contribution Account II" shall mean the Account to
-----------------------------
which are credited a Participant's contributions made pursuant to Section 4.1
after June 30, 1984 and to which is credited (or debited) the net increase or
decrease apportioned to such contributions.
(c) "Employee Valuation Account" shall mean the Account to which
--------------------------
is credited (or debited) the net increase or decrease apportioned to each
Participant's Basic Contribution Account I and Supplemental Contribution Account
I as of each Valuation Date.
(d) "Employer Contribution Account" shall mean the Account to
-----------------------------
which are credited Employer Contributions to the Plan.
(e) "Employer Valuation Account" shall mean the Account to
--------------------------
which is credited (or debited) the net increase or decrease apportioned to each
Participant's Employer Contribution Account as of each Valuation Date.
-5-
<PAGE>
(f) "PAYSOP Account" shall mean the Account to which are
--------------
credited contributions which had previously been held in the Rorer Group Inc.
Payroll Stock Ownership Plan and which were transferred to this Plan effective
January 1, 1992.
(g) "Rollover Account" shall mean the Account to which are
----------------
credited a Participant's contributions made pursuant to Section 4.10 and to
which is credited (or debited) the net increase or decrease apportioned to such
contributions.
(h) "Supplemental Contribution Account I" shall mean the
-----------------------------------
Account to which are credited a Participant's contributions made pursuant to
Section 4.2 for periods prior to July 1, 1984.
(i) "Supplemental Contribution Account II" shall mean the
------------------------------------
Account to which are credited a Participant's contributions made pursuant to
Section 4.2 for periods after June 30, 1984 and to which is credited (or
debited) the net increase or decrease apportioned to such contributions.
(j) "Supplemental Employer Contribution Account" shall mean the
------------------------------------------
Account to which are credited Supplemental Employer Contributions made pursuant
to Section 5.2 and to which is credited (or debited) the net increase or
decrease apportioned to such contributions.
2.2 "Activity Date" shall mean a date on which an Eligible Employee
-------------
may (a) become or cease to be a Participant and (b) make an investment or
reinvestment selection pursuant to Article XII hereof. The Activity Dates for
purposes of the Plan
-6-
<PAGE>
shall be the first day of the month of each calendar quarter during the Plan
Year, or such other dates as the Committee may determine, in its sole
discretion. The Committee may establish different Activity Dates and required
notice periods for different purposes under the Plan.
2.3 "Affiliated Company" shall mean any entity (a) which, with the
------------------
Employer, constitutes (1) a "controlled group of corporations" within the
meaning of Section 414(b) of the Code, (2) a "group of trades or businesses
under common control" within the meaning of Section 414(c) of the Code, or (3)
an "affiliated service group" within the meaning of Section 414(m) of the Code
or (b) which is required to be aggregated with the Employer pursuant to
regulations under section 414(o) of the Code and regulations issued thereunder.
An entity shall be considered an Affiliated Company only with respect to such
period as the relationship described in the preceding sentence exists. When the
term "Affiliated Company" is used in Section 6.9 or 6.10, Sections 414(b) and
(c) of the Code shall be deemed modified by application of the provisions of
Section 415(h) of the Code, which substitute the phrase "more than 50 percent"
for the phrase "at least 80 percent" each place it appears in Section 1563(a)(1)
of the Code which is then incorporated by reference in Sections 414(b) and (c)
of the Code.
2.4 "Anniversary Date" shall mean the last day of each Plan Year.
----------------
-7-
<PAGE>
2.5 "Basic Contributions" shall mean the contributions made by a
-------------------
Participant pursuant to Section 4.1.
2.6 "Board of Directors" shall mean the Board of Directors of the
------------------
Company.
2.7 "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
2.8 "Committee" shall mean the persons appointed by the Board of
---------
Directors to supervise the administration of the Plan, as hereinafter provided.
2.9 "Common Stock" shall mean the common stock of the Company.
------------
2.10 "Common Stock Fund" shall mean the Investment Medium dedicated
-----------------
to the acquisition and holding of Common Stock.
2.11 "Company" shall mean Rhone-Poulenc Rorer Inc., a Pennsylvania
-------
corporation, or its successors.
2.12 "Compensation" shall mean with respect to all Participants, the
------------
base wages of a Participant paid by an Employer, exclusive of overtime,
commissions, bonuses, any contributions to any qualified pension or other fringe
benefit programs, severance pay and amounts identified by the Employer as
payment toward business expenses incurred by the Participant without direct
reimbursement, prior to any reduction in compensation pursuant to Section 4.1
and 4.2 or pursuant to any plan or program maintained by the Employer pursuant
to Section 125 of the Code. For purposes of Article VI, Compensation shall mean
all remuneration which is required to be reported as wages
-8-
<PAGE>
on the Participant's Form W-2, and, unless the Company elects otherwise, any
Basic or Supplemental Contributions to this Plan or any reductions in
compensation pursuant to any plan or program maintained by the Employer pursuant
to Section 125 of the Code; provided, however, that only that remuneration paid
to the Employee while he was an Eligible Employee shall be taken into account.
Compensation in excess of $200,000 ($150,000 for Plan Years beginning on or
after January 1, 1994) for any Plan Year (adjusted to reflect any cost-of-living
increases provided in accordance with Section 415(d) of the Code) shall be
disregarded. In determining Compensation for purposes of the foregoing
limitation, the rules of Section 414(q)(6) of the Code shall apply, except that
in applying such rules, the term "family" shall include only the Spouse of the
Employee and any lineal descendants who have not attained age 19 before the
close of the Plan Year. If, as a result of the application of Code Section
414(q)(6), the limitation is exceeded, then the limitation shall be prorated
among the affected family members in proportion to each such member's
Compensation as determined under this Section prior to application of the
limitation.
2.13 "Earliest Retirement Age" shall mean for purposes of Section
-----------------------
2.31 the earlier of (a) the date on which the Participant is entitled to a
distribution under the Plan or (b) the later of (i) the date the Participant
attains age 50, or (ii) the earliest date on which, under the Plan, the
Participant could
-9-
<PAGE>
elect to receive benefits if the Participant incurred a Termination Date.
2.14 "Effective Date" shall mean January 1, 1978. "Amendment
--------------
Effective Date" shall mean January 1, 1992.
2.15 "Eligible Employee" shall mean any Employee other than (i) an
-----------------
Employee who is such solely by reason of being a leased employee within the
meaning of Section 414(n) of the Code, (ii) an Employee whose terms and
conditions of employment are determined through collective bargaining shall not
be eligible to participate in the Plan unless the collective bargaining
agreement so provides, (iii) an Employee who is a non-resident alien, and (iv)
an Employee who is a temporary employee which shall mean, for the purpose of
this Section 2.15, any person who is hired for a specific project or for a
limited duration. "Full-Time Employee" shall mean an Eligible Employee working
------------------
the regularly scheduled work week for the location at which he is employed.
2.16 "Employee" shall mean all individuals employed by the Company or
--------
an Affiliated Company, including officers, shareholders or directors who are
employees and leased employees within the meaning of Section 414(n)(2) of the
Code.
2.17 "Employer" shall mean the Company or any Affiliated Company
--------
which has duly adopted the Plan with the consent of the Board of Directors.
2.18 "Employer Contribution" shall mean the contribution made by an
---------------------
Employer pursuant to Section 5.1.
-10-
<PAGE>
2.19 "ERISA" shall mean the Employee Retirement Income Security Act
-----
of 1974, as amended.
2.20 "415 Compensation" shall mean a Participant's remuneration
----------------
including wages, salaries, fees for professional services and other amounts
received for personal services actually rendered in the course of employment
with an Employer maintaining the Plan or an Affiliated Company to the extent
such amounts are included in gross income, including overtime, bonuses, premium
time, etc., but excluding the following:
(a) contributions to a deferred compensation plan which, without
regard to Section 415 of the Code, are not includable in the Participant's gross
income for the taxable year in which contributed;
(b) contributions made on behalf of a Participant to a
simplified employee pension described in Section 408(k) of the Code;
(c) distributions from a deferred compensation plan (regardless
of whether such amounts are includable in gross income);
(d) amounts realized from the exercise of a non-qualified stock
option, or when restricted stock (or property) held by a Participant either
becomes freely transferable or is no longer subject to a substantial risk of
forfeiture;
-11-
<PAGE>
(e) amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock option; or
(f) other amounts which receive special tax benefits, such as
premiums for group term life insurance (to the extent excludable from gross
income) or Employer contributions towards the purchase of an annuity contract
described in Section 403(b) of the Code.
For purposes of the definition of "Key Employee" in Section 15.2, 415
Compensation shall include elective contributions that are excluded from gross
income under Section 125, 402(e)(3), 402(h) or 403(b) of the Code.
2.21 "Fund" shall mean the separate fund established for this Plan,
----
administered under the Trust Agreement, out of which benefits payable under this
Plan shall be paid.
2.22 "Highly Compensated Employee" shall mean:
---------------------------
(a) each Employee who, with respect to the Company or an
Affiliated Company, performed services (an "Active Employee") during the Plan
Year for which a determination is being made (the "Determination Year") and who
during such Determination Year, or the preceding Determination Year:
(1) was at any time a 5% owner (as defined in Section
416(i) of the Code and the regulations issued thereunder);
-12-
<PAGE>
(2) received 415 Compensation in excess of $75,000
(adjusted to reflect any cost-of-living increases provided in accordance with
Section 415(d) of the Code);
(3) received 415 Compensation in excess of $50,000
(adjusted to reflect any cost-of-living increases provided in accordance with
Section 415(d) of the Code) and was in the top 20% of Active Employees (based on
415 Compensation received) during such year; or
(4) was an officer (as defined in Section 416(i) of the
Code and the regulations issued thereunder) and received 415 Compensation
greater than 50% of the amount in effect under Section 415(b)(1)(A) of the Code
for the calendar year in which a determination is made.
Notwithstanding the foregoing, the provisions of paragraph (2), (3) or (4) above
shall not cause an Employee to be treated as a Highly Compensated Employee for
the Determination Year of reference unless such Employee is one of the top 100
Active Employees (based on 415 Compensation received) during such Determination
Year and was not a Highly Compensated Employee in accordance with the provisions
of paragraph (2), (3) or (4) above for the preceding Determination Year (without
regard to this sentence).
(b) For purposes of determining the number of Employees in the
top 20% of Active Employees in paragraph (a)(3), Employees described in Section
414(q)(8) of the Code shall be excluded to the extent (i) permitted under
Section 414(q)(8) of
-13-
<PAGE>
the Code and regulations thereunder and (ii) elected by the Committee.
(c) For purposes of paragraph (a)(4), no more than 50 Employees
(or, if lesser, the greater of three Employees or 10% of the Employees,
excluding Employees described in section 414(q)(8) of the Code disregarded for
purposes of identifying the top 20% of Active Employees) shall be treated as
officers, and if for any Plan Year no officer is described in such paragraph,
the highest paid officer for such Plan Year shall be treated as described in
such paragraph.
(d) If any person is a member of the family of a 5% owner who is
an Employee or former Employee or of a Highly Compensated Employee in the group
consisting of the ten Highly Compensated Employees with the greatest 415
Compensation for the Plan Year, such person shall not be considered a separate
Employee. In such case, the family member (or family members) and 5% owner or
Highly Compensated Employee shall be treated as a single Highly Compensated
Employee receiving 415 Compensation and Plan contributions equal to the sum of
the 415 Compensation and Plan contributions of the family member(s) and the 5%
owner or Highly Compensated Employee. The term "family" shall mean, with respect
to any Employee or former Employee, such Employee's spouse and lineal ascendants
or descendants and the spouses of such lineal ascendants or descendants.
(e) A former Employee shall be treated as a Highly Compensated
Employee, if such Employee was a Highly
-14-
<PAGE>
Compensated Employee while an active Employee in either the Plan Year in which
such Employee separated from service or in any Plan Year ending on or after his
55th birthday.
(f) The determination of Highly Compensated Employee made
pursuant to this Section shall be made in accordance with Section 414(q) of the
Code and the regulations issued thereunder.
(g) For purposes of this Section, the term "415 Compensation"
shall include Basic and Supplemental Contributions under this Plan.
2.23 "Hour of Service" shall mean an hour
---------------
(a) for which an Employee is directly or indirectly paid or
entitled to payment by an Employer or an Affiliated Company for the performance
of employment duties;
(b) for which back pay is either awarded or agreed to,
irrespective of mitigation of damages;
(c) for which an Employee is directly or indirectly paid or
entitled to payment by an Employer or an Affiliated Company on account of a
period of time during which no duties are performed due to vacation, holiday,
illness, incapacity, jury duty, lay-off, or leave of absence;
(d) each hour that constitutes part of the Employee's customary
work week during any period of absence in the armed forces of the United States,
provided that (1) such absence is with the approval of the Employer or pursuant
to a national conscription law, (2) the Employee receives an honorable
-15-
<PAGE>
discharge, and (3) the Employee returns to employment with the Employer within
90 days after his release from active service or any longer period during which
his right to reemployment is protected by law.
There shall be excluded from the above those periods during which payments are
made or due solely for the purpose of complying with applicable workers'
compensation, unemployment compensation or disability insurance laws. No more
than 501 Hours of Service shall be credited under Subsection (c) for any period
during which no duties are performed except to the extent otherwise provided in
this Plan. An Hour of Service shall not be credited where an Employee is being
reimbursed solely for medical or medically related expenses. Hours of Service
shall be credited in accordance with the rules set forth in DOL Reg. 2530.200b-
2(b) and (c).
Notwithstanding the foregoing, the Committee may, in accordance with
uniform rules nondiscriminatorily applied, elect to credit Hours of Service
using one or more of the following equivalencies:
<TABLE>
<CAPTION>
Basis Upon Which Records Credit Granted to
Are Maintained Individual for Period
- ------------------------ ---------------------
<S> <C>
shift actual hours for full shift
day 10 hours of service
week 45 hours of service
semi-monthly period 95 hours of service
month 190 hours of service
</TABLE>
2.24 "Investment Media" shall mean those funds, contracts,
----------------
obligations or other modes of investment selected by
-16-
<PAGE>
the Committee to which each Participant may direct the investment of the assets
of his Accounts.
2.25 "Non-Highly Compensated Employee" shall mean an Employee who is
-------------------------------
not a Highly Compensated Employee.
2.26 "Participant" shall mean an Eligible Employee who is entitled to
-----------
participate and who elects to participate in this Plan under Article III hereof.
2.27 "Permanent and Total Disability" shall mean a Participant's
------------------------------
suffering a disability of a nature which enables the Participant to qualify for
and to receive disability benefits under the Federal Social Security Act.
2.28 "Permanently and Totally Disabled Employee" shall mean a
-----------------------------------------
Participant who has suffered a Permanent and Total Disability.
2.29 "Plan" shall mean the Rhone-Poulenc Rorer Employee Savings Plan,
----
as set forth herein and as hereafter amended from time to time.
2.30 "Plan Year" shall mean the calendar year.
---------
2.31 "Qualified Domestic Relations Order" shall mean a judgment,
----------------------------------
decree or order (including approval of a property settlement agreement) made
pursuant to a state domestic relations law (including a community property law)
which:
(a) relates to the provision of child support, alimony payments
or marital property rights to a spouse, former spouse, child or other dependent
of a Participant (the "Alternate Payee");
-17-
<PAGE>
(b) creates or recognizes the existence of the Alternate Payee's
right to, or assigns to the Alternate Payee the right to, receive all or a
portion of the benefits payable to a Participant under this Plan;
(c) specifies (i) the name and last known mailing address (if
any) of the Participant and each Alternate Payee covered by the order, (ii) the
amount or percentage of the Participant's Plan benefits to be paid to the
Alternate Payee, or the manner in which such amount or percentage is to be
determined, and (iii) the number of payments or the period to which the order
applies and each plan to which the order relates; and
(d) does not require the Plan to (i) provide any type or form of
benefit, or any option not otherwise provided under the Plan, (ii) provide
increased benefits, or (iii) pay benefits to the Alternate Payee that are
required to be paid to another Alternate Payee under a prior Qualified Domestic
Relations Order. Notwithstanding the foregoing, a Qualified Domestic Relations
Order may provide that distribution commence immediately or at any other time
specified in the Qualified Domestic Relations Order, but not later than the
latest date benefits would be payable to the Participant under Article VII, if
the Order directs (i) that the payment of the benefits be determined as if the
Participant had retired on the date on which payment is to begin under such
Order, taking into account only the balance standing to the Participant's credit
in his Accounts
-18-
<PAGE>
on such date and (ii) that the payment be made in a form in which such benefits
may be paid under the Plan to the Participant.
2.32 "Required Distribution Date" shall mean the April 1 of the Plan
--------------------------
Year following the later of (a) the Plan Year in which the Participant attains
age 70 1/2; or (b) in the case of a Participant who attained age 70 1/2 before
January 1, 1988, and who is a not 5% owner (as defined in Section 416 of the
Code) at any time during the five Plan Year period ending in the Plan Year in
which the Participant attains age 70 1/2, the Plan Year in which the Participant
retires. If a Participant described in clause (b) becomes a 5% owner at any
time after such five Plan Year period, his Required Distribution Date shall be
April 1 of the calendar year following the calendar year in which the Plan Year
in which he becomes a 5% owner ends. Notwithstanding the foregoing, in the case
of a Participant who attained age 70 1/2 on or after January 1, 1988, but before
January 1, 1989, is not a 5% owner, and has not had a Separation from Service
before January 1, 1989, Required Distribution Date shall mean April 1, 1990.
2.33 "Retirement" shall mean the termination of employment of an
----------
Employee who is entitled to an immediate receipt of retirement benefits under a
pension or retirement plan maintained or contributed to by the Employer. If a
Participant does not participate in such a Plan, the Participant's "Retirement"
under this Plan shall be the later of the date on which (a) the Participant
attains age 55, (b) completes 10 years
-19-
<PAGE>
of service (as defined in Section 8.2) and (c) ceases to be employed by the
Employer and all Affiliated Companies on or after his attainment of such age and
years of service.
2.34 "Rollover Contribution" shall mean the contributions made by a
---------------------
Participant pursuant to Section 4.10.
2.35 "Spouse" shall mean the spouse or surviving spouse of the
------
Participant, as the context requires; provided, that a former spouse shall be
treated as the spouse or surviving spouse to the extent provided under a
Qualified Domestic Relations Order.
2.36 "Supplemental Contributions" shall mean the contributions made
--------------------------
by a Participant pursuant to Section 4.2.
2.37 "Supplemental Employer Contribution" shall mean the
----------------------------------
contributions, if any, made by an Employer pursuant to Section 5.2.
2.38 "Termination Date" shall mean the earlier of the dates on which
----------------
an Employee dies or his employment terminates for any reason.
2.39 "Trust Agreement" shall mean the Trust Agreement(s) executed
---------------
under this Plan.
2.40 "Trustee" shall mean the corporate trustee(s) or one or more
-------
individuals collectively appointed and acting under the Trust Agreement.
2.41 "Valuation Date" shall mean the last business day of each month
--------------
and each other date on which a valuation of the Fund is made.
-20-
<PAGE>
ARTICLE III
-----------
PARTICIPATING IN THE PLAN
-------------------------
3.1 Eligibility. All Employees who were Participants as of the
-----------
Amendment Effective Date shall continue to participate in the Plan without
interruption. An Eligible Employee (a) who is a Full-Time Employee shall be
eligible to become a Participant on any Activity Date coincident with or
following the Eligible Employee's completion of three months of employment and
(b) who is not a Full-Time Employee shall be eligible to become a Participant on
any Activity Date following the Eligible Employee's completion of one year of
employment. A Participant who suffers a break in service, as defined in Section
8.2, shall become eligible to participate again in the Plan on the first
Activity Date following his reemployment in an Eligible Employee classification.
3.2 Participation. Participants shall share in Employer
-------------
Contributions and Supplemental Employer Contributions under Sections 5.1 and 5.2
for any Plan Year during which they make Basic Contributions to the Plan.
3.3 Application for Participation. Participation in this Plan is
-----------------------------
voluntary. Each Eligible Employee who elects to become a Participant shall
become a Participant as of an Activity Date upon such notice and after
completing such enrollment and application forms as may be required by the
Committee. Each Eligible Employee who becomes a Participant shall be deemed to
-21-
<PAGE>
have agreed to the terms and requirements of the Plan and the Trust Agreement.
3.4 Data. Each Participant shall furnish to the Committee such data
----
as may be requested by the Committee for the determination of his rights and
benefits under the Plan.
3.5 Termination of Participation. A Participant's participation will
----------------------------
end when he and his beneficiaries have received all benefits due to them under
the Plan.
-22-
<PAGE>
ARTICLE IV
----------
PARTICIPANT'S CONTRIBUTIONS
---------------------------
4.1 Basic Contributions. Subject to the limitations set forth in
-------------------
Article VI, a Participant shall authorize the Employer, on forms provided by the
Committee, to reduce his Compensation by either 1%, 2%, 3%, 4%, 5% or 6%, up to
a maximum of $6,000, adjusted to the nearer whole dollar, as a Basic
Contribution to the Plan.
4.2 Supplemental Contributions. Subject to the limitations set forth
--------------------------
in Article VI, a Participant who elects to make a Basic Contribution of 6% (or
$6,000, if less) may also elect to authorize the Employer, on forms provided by
the Committee and subject to any limitations imposed by the Committee, to reduce
his Compensation by either 1%, 2%, 3%, 4%, 5% or 6% (calculated by whole
percentage points and adjusted to the nearer whole dollar) as a Supplemental
Contribution to the Plan; provided, however, that such amount, when added to the
Participant's Basic Contributions for the Plan Year, shall not exceed the dollar
limitation set forth in Section 402(g) of the Code.
4.3 How Contributions Are Made. Basic and Supplemental Contributions
--------------------------
shall be made by payroll reduction in accordance with the consent of the
Participant granted pursuant to the terms of Sections 4.1 and 4.2.
-23-
<PAGE>
4.4 When Contributions Are Made. Withholding of a Participant's
---------------------------
contributions shall begin as of the first Activity Date following a timely
receipt of his written consent to withhold and shall be completed in accordance
with the Participant's instructions.
4.5 Cash Contributions. Cash contributions in lieu of payroll
------------------
reductions are not permissible.
4.6 Change of Percentage Rate. A Participant may elect to change his
-------------------------
percentage rate of contribution under Section 4.1 or 4.2 (within the limits set
forth in those Sections) as of any Activity Date. Any such change shall be made
in accordance with such written, electronic or telephonic procedures as may be
prescribed by the Committee.
4.7 Discontinuance of Contributions. By giving prior notice to the
-------------------------------
Committee, a Participant may elect to discontinue his Basic Contributions and/or
his Supplemental Contributions at any time. If a Participant elects to
discontinue his Basic Contributions, his ability to make Supplemental
Contributions will also cease. A Participant who has discontinued either his
Basic or Supplemental Contributions shall not be permitted thereafter to make
such Contributions until the Activity Date next following the effective date of
such discontinuance. Notice of discontinuance shall be given in accordance with
such written, electronic or telephonic procedures as may be prescribed by the
Committee.
-24-
<PAGE>
4.8 Return of Basic and Supplemental Contributions.
----------------------------------------------
(a) Notwithstanding any provision in the Plan to the contrary, a
Participant's Basic and Supplemental Contributions made under this Plan and his
elective deferrals (as defined in Section 402(g) of the Code) made under any
other plan or arrangement maintained by the Employer or an Affiliated Company
for a taxable year shall not exceed the dollar limitation in Section 402(g) of
the Code. Furthermore, the Participant should notify the Committee in writing
no later than the March 1 following the Participant's taxable year that his
Basic and Supplemental Contributions (reduced by amounts previously distributed
pursuant to Sections 6.8 or 6.9) when added to his elective deferrals under any
other plan or arrangement (whether or not maintained by an Employer or
Affiliated Company) exceed the limit imposed by the Code Section 402(g) for the
taxable year in which the deferrals occurred. Not later than the April 15
following the close of the Participant's taxable year, the Committee shall cause
the Trustee to distribute to the Participant the excess deferrals (adjusted for
any income or loss attributable thereto through the date of distribution and
subject, however, to the withholding of taxes and other amounts as though such
amounts were current remuneration). A Participant shall be deemed to have made
a claim for distribution of excess deferrals from the Plan to the extent that
his Basic and Supplemental Contributions together with his elective deferrals
under any other plan or arrangement maintained by the Employer or
-25-
<PAGE>
an Affiliated Company exceed the limit imposed by Code Section 402(g) for the
taxable year.
(b) Effective January 1, 1992, in the event a Participant
receives a distribution of Basic Contributions pursuant to paragraph (a) of this
Section, the Participant shall forfeit any Employer or Supplemental Employer
Contributions (plus income thereon to the date of distribution) allocated to the
Participant by reason of the distributed Basic Contributions. Amounts forfeited
shall be used to reduce future Employer Contributions made pursuant to Section
5.1.
4.9 Transfer to Trustee. Each Employer shall transfer to the Trustee
-------------------
the Basic and Supplemental Contributions of each Participant as soon as
practicable, but no more than thirty (30) days after the end of the calendar
month in which such contributions were withheld from the Participant's
Compensation.
4.10 Rollover Contributions.
----------------------
(a) In accordance with procedures established by the Committee
and applied on a uniform basis, an Eligible Employee may transfer or have
transferred directly to the Fund, from any qualified retirement plan of a former
employer, all or a portion of his vested accrued benefit in the distributing
plan, except that the amount being transferred shall not contain nondeductible
contributions made to the distributing plan by the Eligible Employee, unless the
transfer to the Fund is directly from the funding agent of the distributing
plan.
-26-
<PAGE>
(b) In addition, an Eligible Employee who has established an
individual retirement account to hold distributions received from qualified
retirement plans of former employers may, in accordance with procedures
established by the Committee and applied on a uniform basis, transfer all of the
assets of such individual retirement account to the Fund. Such individual
retirement account shall not contain nondeductible contributions made by the
Eligible Employee while he was a participant in the plans of his former
employers.
(c) The distributions transferred by or for an Eligible Employee
from another qualified retirement plan or from an individual retirement account
shall be credited to the Participant's Rollover Account.
(d) The Trustee shall not accept a distribution from any other
qualified retirement plan or from an individual retirement account unless the
following conditions are met:
(1) the distribution being transferred must come directly
from the fiduciary of the plan of the former employer, or it must come from the
Eligible Employee within 60 days after the Eligible Employee received a
distribution from such other qualified retirement plan or individual retirement
account;
(2) distributions from a plan for a self-employed person
shall not be transferred to this Plan, unless the transfer is directly to the
Fund from the funding agent of the distributing plan;
-27-
<PAGE>
(3) the distribution being transferred will not cause the
Plan to be a direct or indirect transferee of a plan to which the joint and
survivor annuity requirements of Sections 401(a)(11) and 417 of the Code apply;
and
(4) the distribution being transferred will not cause the
Plan to violate the requirements set forth in Section 411(d)(6) of the Code (and
the regulations issued thereunder).
-28-
<PAGE>
ARTICLE V
---------
EMPLOYER CONTRIBUTIONS
----------------------
5.1 Matching Contributions. Except as is otherwise provided in
----------------------
Supplements B, C and D, and subject to the limitations set forth in Article VI,
each Participant's Basic Contributions shall be matched on an annual basis by an
Employer Contribution up to a maximum Employer Contribution of $3,000 for a
Participant in a Plan Year. The Basic Contributions shall be matched by
Employer Contributions in accordance with the following schedule:
<TABLE>
<CAPTION>
Basic Contribution Employer Contribution
(as a % of Compensation) (as a % of Basic Contribution)
- ------------------------ ------------------------------
<S> <C>
1st 1% 100%
2nd 1% 75%
3rd 1% 50%
4th-6th 1% 25%
</TABLE>
Effective September 1, 1993, the Basic Contributions shall be matched by
Employer Contributions in accordance with the following schedule:
<TABLE>
<CAPTION>
Basic Contribution Employer Contribution
(as a % of Compensation) (as a % of Basic Contribution)
- ------------------------ ------------------------------
<S> <C>
1st 1% 100%
2nd 1% 90%
3rd 1% 80%
4th-6th 1% 50%
</TABLE>
Effective September 1, 1993, the Company may, with respect to the
first Plan Year in which an Eligible Employee elects to become a Participant
pursuant to Article III hereof, make an additional Employer Contribution of $100
on behalf of the Participant. The Company may, in its sole discretion, elect to
-29-
<PAGE>
make an Employer Contribution that is in excess of the amount required to be
contributed by the Company; provided, however, that in no event shall the total
Employer Contributions for any Participant for any Plan Year exceed the $3,000
limitation referenced above.
5.2 Supplemental Employer Contributions. As soon as possible after
-----------------------------------
the end of the Plan Year, the Company, in its discretion, may determine to make
a Supplemental Employer Contribution, subject to the limitations set forth in
Article VI. The Supplemental Employer Contribution for any Plan Year under this
Section will be made no later than the expiration of the period within which
such contribution may be paid and deducted for the purpose of federal income
taxes. Supplemental Employer Contributions shall be allocated to the
Supplemental Employer Contribution Account of each Participant who qualifies for
Employer Contributions under Section 3.2 and who either (i) is in the active
employment of an Employer or an Affiliated Company on the last day of the Plan
Year for which such Supplemental Employer Contributions are made or (ii) dies,
suffers a Permanent and Total Disability, or has a Retirement during the Plan
Year; provided, however, that if this method of allocating the Supplemental
Employer Contribution for a Plan Year (A) would not serve to prevent the Plan
from failing to satisfy the requirements set forth in Sections 6.3 and 6.5,
respectively (such failure to be determined without regard to the Supplemental
Employer Contribution) and/or (B) would result in the Plan's
-30-
<PAGE>
failure to satisfy either of the requirements set forth in Sections 6.3 and 6.5,
then, but only to the extent necessary to satisfy the requirements set forth in
Sections 6.3 and 6.5 (as determined by the Committee in its sole discretion),
the allocation of the Supplemental Employer Contribution for the Plan Year shall
be made only to those Participants who otherwise satisfy the requirements set
forth in (i) and (ii) above and who are also Non-Highly Compensated Employees.
Supplemental Employer Contributions shall be treated the same as the Employer
Contributions for all purposes under the Plan, except as otherwise provided
herein.
5.3 Fund. The contributions deposited by the Employer in the Fund in
----
accordance with this Article V (and Article IV) shall constitute a fund held for
the benefit of Participants and terminated or retired Employees, and their
eligible survivors under and in accordance with this Plan. No part of the
principal or income of the Fund shall be used for, or diverted to purposes other
than those which are exclusively for the benefit of such Participants,
terminated or retired Employees, and their eligible survivors including
necessary administrative costs.
5.4 Determination of Amount. If any Employer in any Plan Year makes
-----------------------
a contribution in excess of the amount allowable as a deduction for such fiscal
year, the amount of the excess shall be returned to the Employer in accordance
with Section 5.7
5.5 When Contributions Are Made. Employer Contributions shall be
---------------------------
paid to the Trustee at the time that a
-31-
<PAGE>
Participant's Basic and Supplemental Contributions are forwarded to the Trustee.
Supplemental Employer Contributions shall be made at the time set forth in
Section 5.2 hereof.
5.6 Form of Contributions. Employer contributions shall be made in
---------------------
cash or shares of Common Stock.
5.7 Deductibility of Contributions. All Basic, Employer and
------------------------------
Supplemental Employer Contributions under the Plan are conditioned upon their
deductibility under Section 404 of the Code and, to the extent the deduction is
disallowed, shall be returned to the Employer or the Participant as appropriate
within one year after the disallowance of the deduction. Notwithstanding the
foregoing, the maximum amount which may be returned to the Employer or a
Participant shall be the value of the contribution on the date it is returned.
5.8 Mistake. In the case of a contribution which is made under a
-------
mistake of fact, such contribution shall be returned to the Employer or the
Participant, as appropriate, within one year after the payment of the
contribution. Notwithstanding the foregoing, the maximum amount which may be
returned to the Employer or a Participant shall be the value of the contribution
on the date it is returned.
5.9 Contributions Conditioned on Plan Qualification. All
-----------------------------------------------
contributions under the Plan are conditioned on initial qualification of the
Plan under Sections 401(a) and 401(k) of the Code, and if the Plan is found not
to so qualify, it shall be terminated in accordance with the provisions of
Section 13.2 and
-32-
<PAGE>
the Fund shall be distributed to the Participants and the Employer, as
appropriate, within one year after the denial of such initial qualification.
5.10 Records. All contributions transferred to the Trustee under the
-------
Plan shall be accompanied by written instructions from the Committee to the
Trustee that: (a) identify the Participant on whose behalf the contribution is
being made, (b) state whether the contribution represents a Basic Contribution,
Supplemental Contribution, Employer Contribution or Supplemental Employer
Contribution and (c) direct the investment of the contribution in accordance
with the Participant's investment directions pursuant to Article XII.
-33-
<PAGE>
ARTICLE VI
----------
LIMITATIONS ON CONTRIBUTIONS AND ALLOCATIONS
--------------------------------------------
6.1 General Requirements. For any Plan Year, (a) contributions under
--------------------
the Plan shall not exceed the limitations on deductions imposed under Sections
404(a)(3) and 404(a)(9) of the Code, (b) the Plan shall satisfy the coverage
requirements of Section 410(b)(1) of the Code, (c) the Plan shall satisfy the
average deferral percentage test set forth in Section 6.3 and (d) effective
January 1, 1987, the Plan shall satisfy the average contribution percentage test
set forth in Section 6.5.
6.2 Allocations. Each Employer Contribution shall be allocated as of
-----------
the day the contribution is received by the Trustee with respect to each
Participant in accordance with Section 5.1. Supplemental Employer Contributions
shall be allocated to each Participant eligible to participate in the
contribution under Section 5.2 as soon as possible after the close of the Plan
Year for which the contribution is made, and shall be based on the amount of the
Basic Contributions made by such Participant during the Plan Year to total Basic
Contributions of all eligible Participants for such Plan Year.
6.3 Average Deferral Percentage Test. Effective January 1, 1987, the
--------------------------------
average deferral percentage for Highly Compensated Employees who are Eligible
Employees shall not exceed the greater of (a) or (b) as follows:
-34-
<PAGE>
(a) The average deferral percentage for all Eligible Employees
who are Non-Highly Compensated Employees, multiplied by 1.25, or
(b) The average deferral percentage for all Eligible Employees
who are Non-Highly Compensated Employees, multiplied by 2.0; provided that the
average deferral percentage for Highly Compensated Employees who are Eligible
Employees may not exceed the average deferral percentage for Eligible Employees
who are Non-Highly Compensated Employees by more than two percentage points.
6.4 Average Deferral Percentage. For purposes of Section 6.3, the
---------------------------
term "average deferral percentage" as applied to a specified group of Eligible
Employees shall mean the average of the ratios, calculated separately for each
such Eligible Employees in such group of:
(a) the amount of Basic and Supplemental Contributions
(excluding any such contributions taken into account in determining the average
contribution percentage in Section 6.5(a), distributed to a Non-Highly
Compensated Employee pursuant to a deemed claim for distribution under Section
4.8, or returned pursuant to Section 6.9) paid to the Plan on behalf of each
such Participant for such Plan Year, to
(b) the Participant's Compensation for such Plan Year; provided,
however, that only that Compensation paid to a Participant while he was an
Eligible Employee shall be taken into account.
-35-
<PAGE>
For the purposes of this Section, the deferral percentage of a Highly
Compensated Employee who is an Eligible Employee under this Plan and who has
made elective deferrals under any other qualified cash or deferred arrangement
maintained by the Company or an Affiliated Company pursuant to Section 401(k) of
the Code shall be the sum of his deferral percentages under all such plans
(excluding those that are not permitted to be aggregated with the Plan under
Treas. Reg. (S)1.401(k)-1(b)(3)(ii)(B)) for the Plan Year. In addition, this
Plan shall be aggregated and treated as a single plan with other plans
maintained by the Company or an Affiliated Company to the extent that this Plan
is aggregated with any such other plan for purposes of satisfying Section 410(b)
(other than section 410(b)(2)(A)(ii)) of the Code.
6.5 Average Contribution Percentage Test. The term "average
------------------------------------
contribution percentage test" shall mean the numerical test set forth in Section
6.3 substituting for the term "average deferral percentage" the term "average
contribution percentage".
(a) The term "average contribution percentage" as applied to a
specified group of Eligible Employees shall mean the average of the ratios,
calculated separately for each such Participant in such group of:
(1) the amount of Employer Contributions and Supplemental
Employer Contributions paid to the Plan on behalf of such Participant for such
Plan Year (excluding any such contributions forfeited pursuant to Section 4.8 or
6.8(b)) and,
-36-
<PAGE>
at the discretion of the Employer, Basic and Supplemental Contributions, to
(2) the Participant's Compensation for such Plan Year;
provided, however, that only that Compensation paid to a Participant while he
was an Eligible Employee shall be taken into account.
(b) Basic and Supplemental Contributions may be taken into
account under this Section only to the extent necessary to satisfy the average
contribution percentage test, and only to the extent that the Plan continues to
satisfy the average deferral percentage test set forth in Section 6.3 without
taking into account such Basic and Supplemental Contributions.
(c) For purposes of this Section, the contribution percentage of
a Highly Compensated Employee who is an Eligible Employee under this Plan and
who has made employee after-tax contributions or for whom employer matching
contributions were made under any other plan of the Company or an Affiliated
Company shall be the sum of his contribution percentages under all such plans
(excluding those that are not permitted to be aggregated with the Plan under
Treas. Reg. (S)1.401(m)-1(b)(3)(ii)) for the Plan Year.
(d) For purposes of determining contribution percentages, the
Employer or the Committee may take Basic and Supplemental Contributions into
account, in accordance with Treasury regulations, so long as the requirements of
Section 6.03 are met both when the Basic and Supplemental Contributions used
-37-
<PAGE>
in determining contribution percentages are and are not included in determining
actual deferral percentages. In addition, this Plan shall be aggregated and
treated as a single plan with other plans maintained by the Company or an
Affiliated Company to the extent that this Plan is aggregated with any such
other plan for purposes of satisfying Section 410(b) (other than section
410(b)(2)(A)(ii)) of the Code.
6.6 Limitation on Use of Percentage Tests. For any Plan Year, the
-------------------------------------
sum of the average deferral percentage and the average contribution percentage
for all Highly Compensated Employees who are Eligible Employees shall not exceed
the greater of (a) and (b) where:
(a) is the sum of (i) 1.25 times the greater of the relevant
actual deferral percentage or the relevant actual contribution percentage and
(ii) two percentage points plus the lesser of the relevant actual deferral
percentage or the relevant actual contribution percentage. In no event, however,
shall this amount exceed twice the lesser of the relevant actual deferral
percentage or the relevant actual contribution percentage; and
(b) is the sum of (i) 1.25 times the lesser of the relevant
actual deferral percentage or the relevant actual contribution percentage and
(ii) two percentage points plus the greater of the relevant actual deferral
percentage or the relevant actual contribution percentage. In no event, however,
shall this amount exceed twice the greater of the relevant actual
-38-
<PAGE>
deferral percentage or the relevant actual contribution percentage.
For purposes of this Section, the term "relevant actual deferral
percentage" means the actual deferral percentage of the group of Non-Highly
Compensated Employees who are Eligible Employees and the term "relevant actual
contribution percentage" means the actual contribution percentage of the group
of Non-Highly Compensated Employees who are Eligible Employees.
If the limitation in this Section is not met, the actual deferral
percentage or the actual contribution percentage of Highly Compensated
Employees, as determined by the Committee, shall be reduced in the manner
prescribed in Section 6.8 until the limitation is met; provided, however, that
in Plan Years beginning after 1991, the actual contribution percentage shall be
reduced to satisfy this limit.
For purposes of this Section, this Plan shall be aggregated and
treated as a single plan with other plans maintained by the Company or an
Affiliated Company to the extent that this Plan is aggregated with any such
other plan for purposes of satisfying Section 410(b) (other than section
410(b)(2)(A)(ii)) of the Code.
6.7 Treatment of Family Members. For purposes of Section 6.3 and
---------------------------
6.5, if a Highly Compensated Employee is subject to the family aggregation rules
of Section 414(q)(6) of the Code because he is either a 5% owner (as defined in
Section 416(i) of the Code and regulations issued thereunder), or is one of the
top
-39-
<PAGE>
100 Highly Compensated Employees (based on 415 Compensation received including
Basic and Supplemental Contributions hereunder) during the Plan Year of
reference, the combined actual deferral (or contribution) ratio for the family
group (which shall be treated as one Highly Compensated Employee) shall be the
actual deferral (or contribution) ratio determined by combining the applicable
contributions and Compensation of all of the eligible family members. Any
family member(s) included above shall not be considered a separate Participant
in determining the average deferral percentage or average contribution
percentage hereunder. For purposes of this paragraph, "family member" means,
with respect to an Employee, such Employee's spouse and lineal ascendants and
descendants and the spouses of such lineal ascendants and descendants.
6.8 Return of Excess Contributions.
------------------------------
(a) If the average deferral percentage or the average
contribution percentage for all Participants who are Highly Compensated
Employees exceeds the amount specified in Sections 6.3 or 6.5 for any Plan Year,
the Basic and Supplemental Contributions (and corresponding Employer
Contributions) for the Highly Compensated Employee(s) with the highest deferral
(or contribution) percentage shall be reduced so that his applicable percentage
is reduced to the greater of (1) such percentage that enables the Plan to
satisfy the applicable percentage test, or (2) a percentage equal to the
applicable percentage of the Highly Compensated Employee(s) with the next
highest percentage. This
-40-
<PAGE>
procedure shall be repeated until the applicable percentage test is satisfied.
For purposes of determining the necessary reduction, Basic and Supplemental
Contributions previously distributed pursuant to Section 4.8 shall be treated as
distributed under this Section 6.8(a).
(b) The average deferral percentage of any Highly Compensated
Employee which must be reduced pursuant to paragraph (a) shall be reduced (1)
first, by distributing Supplemental Contributions and (2) then, by distributing
Basic Contributions to the Employee; and the provisions of Section 4.8(b)
regarding the forfeiture of related Employer Contributions or Supplemental
Employer Contributions shall apply.
(c) The average contribution percentage of any Highly
Compensated Employee which must be reduced pursuant to paragraph (a) shall be
reduced by distributing the excess Employer and Supplemental Employer
Contributions to the Employee.
(d) Any distribution or forfeiture of Basic or Supplemental
Contributions or Matching Contributions necessary pursuant to subsections (a),
(b) or (c) shall include a distribution or forfeiture of the income, if any,
allocable to such contributions. Such income shall be equal to the sum of the
allocable gain or loss for the Plan Year and shall be determined by the
Committee in a manner uniformly applicable to all Participants and consistent
with Treasury regulations.
(e) Distribution under paragraphs (b) and (c) shall be made
within two and one half (2 1/2) months following
-41-
<PAGE>
the close of such Plan Year, if administratively practicable, but in no event
later than the last day of the Plan Year following such Plan Year.
(f) For purposes of satisfying the nondiscrimination test
described in Section 6.6, the Matching Contributions of all Highly Compensated
Employees shall be reduced as described in subsection (c).
6.9 Maximum Allocation to Participants.
----------------------------------
(a) Notwithstanding any other provision of this Plan, the amount
of the Annual Addition to each Participant's Accounts for any Plan Year may not
exceed the lesser of:
(1) $30,000 (or, effective January 1, 1987, if greater, 25%
of the dollar limitation in effect under Section 415(b)(1)(A) of the Code), or
(2) 25% of the total 415 Compensation paid to the
Participant during a Plan Year.
The limitation referred to in paragraph (2) shall not apply to any contribution
for medical benefits within the meaning of Section 401(h) or Section 419A(f)(2)
of the Code which is otherwise treated as an Annual Addition under Section
415(l)(1) or 419A(d)(2) of the Code.
(b) For purposes of this Section, "Annual Addition" means the
sum of all contributions including, effective January 1, 1987, all after-tax
contributions, by the Participant or by the Employer or an Affiliated Company
hereunder or under any defined contribution plan maintained by either, all
-42-
<PAGE>
forfeitures allocated to the Participant's accounts under such plans, and
amounts treated as part of an Annual Addition under Sections 415(l) and
419A(d)(2) of the Code.
(c) If the amount otherwise allocable to the Accounts of a
Participant would exceed the amount described above as a result of the
reallocation of forfeitures, a reasonable error in estimating the Participant's
Compensation, a reasonable error in determining the amount of elective deferrals
(within the meaning of Section 402(g) of the Code) that may be made under the
limitations of Section 415 of the Code, or such other circumstances as permitted
by law, the Committee shall determine which portion, if any, of such excess
amount is attributable to the Participant's Basic and Supplemental
Contributions, and/or Matching Contributions and/or Supplemental Employer
Contributions, if any, until such amount has been exhausted. To the extent any
portion of a Participant's Basic or Supplemental Contributions are determined to
be excess under this Section, such Basic or Supplemental Contributions, with
income thereon, shall be returned to the Participant as soon as administratively
practicable. To the extent any portion of the Matching Contributions, or
Supplemental Employer Contributions allocable to a Participant are determined to
be excess under this Section, while the Participant remains an Eligible
Employee, his excess Matching Contributions and/or Supplemental Employer
Contributions shall be held in a suspense account (which shall share in
investment gains and losses of the Fund) by the Trustee until the
-43-
<PAGE>
following Plan Year (or any succeeding Plan Years), at which time such amounts
shall be allocated to the Participant's Accounts before any Matching
Contributions or Supplemental Employer Contributions are made on his behalf for
the Plan Year. When the Participant ceases to be an Eligible Employee, his
excess Matching Contributions and/or Supplemental Employer Contributions held in
the suspense account shall be allocated in the following Plan Year (or any
succeeding Plan Years) to the Accounts of other Participants in the Plan.
Furthermore, the Committee shall perform any other actions as may be necessary
to preserve the Plan's status as a qualified plan.
6.10 Maximum Allocation Under all Plans. If a Participant is also
----------------------------------
earning retirement benefits under a separate defined benefit plan or plans
established by the Company or an Affiliated Company, the benefits under such
plan or plans shall be so limited that the sum of (a) and (b) below shall not
exceed 1.0, where:
(a) is a fraction, the numerator of which is the projected
annual benefit of the Participant under the defined benefit plan(s) and the
denominator of which is the lesser of:
(1) the product of 1.25 and $90,000 (subject to all
adjustments as are permitted by, or required under Section 415 of the Code), or
(2) the product of 1.4 and 100% of the Participant's
average annual 415 Compensation for his high three consecutive years; and
-44-
<PAGE>
(b) is a fraction, the numerator of which is the sum of all
Annual Additions for all Plan Years during which he was a Participant and the
denominator of which is the sum, for all Plan Years during which the Participant
was an Employee of the Employer of the lesser of:
(1) the product of 1.25 and the dollar limitation in effect
under Section 415(c)(1)(A) of the Code for such Plan Year, or
(2) the product of 1.4 and 25% of the Participant's 415
Compensation for such Plan Year.
6.11 Accounts. All contributions and earnings thereon may be
--------
invested in one commingled fund for the benefit of all Participants. In order
that the interest of each Participant may be accurately determined and computed,
however, separate Accounts shall be maintained for each Participant which shall
represent his interest in the Fund.
-45-
<PAGE>
ARTICLE VII
-----------
DISTRIBUTION
------------
7.1 General. The interest of each Participant in the Fund shall be
-------
distributed in the manner, in the amount and at the time provided in this
Article, except that in the event of termination of the Plan, the provisions of
Section 13.2 shall govern.
7.2 Retirement. Subject to Section 7.10, upon a Participant's
----------
Retirement, the value of his Accounts in the Fund, computed in accordance with
Section 7.7 shall be paid to him as soon as administratively practicable
following the date of his Retirement in a single payment. Effective October 1,
1992, in lieu of receiving a single payment, a Participant may elect to draw
upon his Accounts pursuant to a continuous withdrawal right which shall be
subject to such reasonable terms and conditions (such as minimum amounts and
frequency of withdrawals) as may be established by the Committee, in its sole
discretion. If the Board of Directors determines to make a Supplemental
Employer Contribution for the Plan Year during which a Participant's Retirement
occurs, such Participant's pro rata share thereof shall be paid to him (or made
available to him) as soon as practicable after the Supplemental Employer
Contribution has been made unless the Participant has elected to defer
distribution pursuant to Section 7.10.
-46-
<PAGE>
7.3 Death. In the event of a Participant's death, the value of his
-----
Accounts in the Fund, computed in accordance with Section 7.7, shall be paid in
a single distribution as soon as practicable following the date of his death in
accordance with Section 7.4. If the Board of Directors determines to make a
Supplemental Employer Contribution for the Plan Year during which a Participant
dies, such Participant's pro rata share thereof shall be paid to the
Participant's designated beneficiary as soon as practicable after the
Supplemental Employer Contribution has been made.
7.4 Beneficiary Designation.
-----------------------
(a) Death benefits under the Plan shall be paid to the
Participant's surviving Spouse (i) unless (A) the Spouse consents in writing not
to receive such benefit, (B) such consent acknowledges its own effect and (C)
such consent is witnessed by a notary public; or (ii) unless the Participant
establishes to the satisfaction of a Plan representative either that he has no
Spouse or that his Spouse cannot be located.
(b) Except as provided in this Section, each Participant shall
have the unrestricted right at any time to designate the beneficiary or
beneficiaries who shall receive, on or after his death, his interest in the
Fund. Such designation shall be made by executing and filing with the Committee
a written instrument in such form as may be prescribed by the Committee for that
purpose. Except as provided in this Section, the Participant shall also have the
unrestricted right to revoke
-47-
<PAGE>
and to change, at any time and from time to time, any beneficiary designations
previously made; provided, however, that the Spouse of the Participant must
consent to any such revocation or change. Such revocations and/or changes shall
be made by executing and filing with the Committee a written instrument in such
form as may be prescribed by the Committee for that purpose. No designation,
revocation, or change of beneficiaries shall be valid and effective unless and
until filed with the Committee. If no designation is made, or if the
beneficiaries named in such designation predecease the Participant, or if the
beneficiaries cannot be located by the Committee, the interest of the deceased
Participant shall be paid to the Participant's surviving Spouse or, if none, to
the Participant's estate.
7.5 Disability. Subject to Section 7.10, in the event that a
----------
Participant suffers a Permanent and Total Disability, the value of his Accounts,
computed in accordance with Section 7.7, shall be paid to him or applied for his
benefit in a single payment as soon as practicable following the date on which
the Committee determines that he has a Permanent and Total Disability.
Effective October 1, 1992, in lieu of receiving a single payment, a Participant
may elect to draw upon his Accounts pursuant to a continuous withdrawal right
which shall be subject to such reasonable terms and conditions (such as minimum
amounts and frequency of withdrawals) as may be established by the Committee, in
its sole discretion. If the Company makes a Supplemental Employer Contribution
for the Plan Year during which
-48-
<PAGE>
the Permanent and Total Disability occurs, such Participant's pro rata share
thereof shall be paid to him (or made available to him) as soon as practicable
after the Supplemental Employer Contribution has been made unless such
Participant has elected to defer distribution pursuant to Section 7.10.
Permanent and Total Disability shall be determined by the Committee,
who may consult with a medical examiner and who may require a Participant to
undergo physical or other examinations reasonably necessary to form the basis of
the Committee's determination.
7.6 Treatment of Terminated Participant.
-----------------------------------
(a) In the case of a Participant whose employment with the
Employer and all Affiliated Companies has terminated (other than by Retirement,
death, or Permanent and Total Disability) and whose vested Account balances do
not exceed $3,500 (and has never exceeded $3,500 at the time of any prior
distribution), the benefit of such Participant, calculated in accordance with
Section 7.7, shall be paid to or applied for the benefit of such Participant in
a single sum as soon as practicable.
(b) Subject to Section 7.10, in the case of a Participant whose
employment with the Employer and all Affiliated Companies has terminated (other
than by Retirement, death, or Permanent and Total Disability) and whose vested
Account balances exceed $3,500 (or have ever exceeded $3,500 at the time of any
prior distribution), the benefit of such Participant, calculated
-49-
<PAGE>
in accordance with Section 7.7, shall be paid to or applied for the benefit of
such Participant at the earliest date provided under this Article VII as if the
Participant had continued employment. The Committee shall, however, make a
single sum distribution to the Participant or, effective October 1, 1992, shall
make available to the Participant a continuous withdrawal right, earlier than
the date referenced in the preceding sentence if the Participant elects in
writing to receive an earlier distribution and his Spouse consents to the
election.
7.7 Valuation for Distribution. For the purposes of paying the
--------------------------
amounts to be distributed to a Participant or his beneficiaries under the
provisions of this Article, the value of the Fund and the amount of the
Participant's Accounts shall be determined in accordance with the provisions of
this Section as of the Valuation Date coincident with or next following the date
on which occurs the event which gives rise to payment under this Article (or the
date of the Participant's consent pursuant to Section 7.10, if later). The
Trustee may establish accounting procedures for the purpose of making the
allocations, valuations, and adjustments necessary to maintain the Participant's
Accounts in the Fund. From time to time, the Trustee may modify its accounting
procedures for the purpose of achieving equitable and nondiscriminatory
allocation among the Accounts of Participants in accordance with the general
concepts of the Plan and the provisions of this Article. All valuations of the
Fund shall be
-50-
<PAGE>
performed on the basis of the fair market value of each of the assets therein.
7.8 Timing of Distribution.
----------------------
(a) Unless the Participant elects otherwise, a Participant
entitled under this Article to receive benefits shall commence to receive
benefits no later than the earlier of the dates determined under (1) and (2)
below:
(1) the later of (A) the 60th day after the close of the
Plan Year in which the Participant attains age 65 or (B) the 60th day after the
close of the Plan Year in which the Participant's employment with the Employer
and all Affiliated Companies terminates; or
(2) the Participant's Required Distribution Date.
(b) A Participant who is an Employee on his Required
Distribution Date, instead of receiving payment in a single sum, may elect to
receive distribution of his Accounts while he remains an Employee in annual
installments, commencing not later than his Required Distribution Date, over a
period certain not extending beyond the life expectancy of the Participant, with
no recalculation of life expectancy. Each such annual installment shall equal
the minimum amount required to be distributed pursuant to Section 401(a)(9) of
the Code and regulations thereunder based on the applicable life expectancy.
Notwithstanding the Participant's election to receive distribution as described
above, the amounts remaining in the
-51-
<PAGE>
Participant's Accounts upon his actual termination of employment with the
Employer and all Affiliated Companies will be distributed to him in a single sum
on the earliest practicable date following such termination, but not later than
the 60th day following the close of the Plan Year in which such termination
occurs.
(c) Notwithstanding anything in this Plan to the contrary, a
Qualified Domestic Relations Order may provide that any benefits of a
Participant payable to an Alternate Payee shall be distributed immediately or at
any other time specified in the Qualified Domestic Relations Order, but not
later than the latest date benefits would be payable to the Participant under
this Article. If the Qualified Domestic Relations Order does not specify the
time at which benefits shall be payable to the Alternate Payee, the Alternate
Payee may elect, in writing on a form prescribed by the Committee, to have
benefits commence (A) in accordance with Section 7.6, as of the earlier of (i)
the Participant's 50th birthday or (ii) the Participant's termination of
employment, or as of any date thereafter that is not later than the latest date
on which benefits would be payable to the Participant pursuant to Section 7.6 or
(B) in accordance with Section 7.3, but as of the Alternate Payee's death;
provided, however, that in the event the amount payable to the Alternate Payee
under the Qualified Domestic Relations Order does not exceed $3,500, such amount
shall be paid to the Alternate Payee in a single sum as soon as practicable
following the Committee's
-52-
<PAGE>
receipt of the order and verification of its status as a Qualified Domestic
Relations Order.
7.9 Mode of Distribution. Distributions under this Article shall be
--------------------
made as follows:
(a) the portion of a Participant's Accounts that is not invested
in the Common Stock Fund shall be paid in cash; and
(b) the portion of a Participant's Accounts that is invested in
the Common Stock Fund shall be paid in whole shares of Common Stock unless the
Participant elects to have the portion of his Accounts invested in the Common
Stock Fund converted to and distributed in cash. If the Participant makes an
election to receive cash in lieu of Common Stock, his distribution shall be
reduced by any expense incurred (including brokerage fees and commissions) in
converting the portion of his Accounts invested in the Common Stock Fund to
cash.
7.10 Consent to Distribution. Notwithstanding anything in the Plan
-----------------------
to the contrary, in the case of a Participant whose interest in his Accounts
exceeds $3,500 (or has ever exceeded $3,500 at the time of any prior
distribution), no distribution shall be made pursuant to Section 7.2, 7.5 or 7.6
prior to the Participant's attainment of age 65 (his Required Distribution Date
effective October 1, 1992) without the written consent of the Participant. If
the Participant does not so consent, then distribution will be deferred until
any subsequent date elected by the Participant in writing pursuant to such
-53-
<PAGE>
procedures as the Committee may impose, but not later than the Participant's
65th birthday (his Required Distribution Date effective October 1, 1992). A
Participant's election to receive payment prior to the date he attains age 65
(his Required Distribution Date effective October 1, 1992) must be made within
the 90-day period ending on the benefit payment date elected by the Participant
and in no event earlier than the date the Committee provides the Participant
with notice of his right to defer payment until age 65 (his Required
Distribution Date effective October 1, 1992) and the modes of payment available.
Such notice must be supplied not less than 30 days nor more than 90 days prior
to the benefit payment date. Notwithstanding the preceding sentence, effective
January 1, 1993, if Sections 401(a)(11) and 417 of the Code do not apply to the
distribution, the distribution shall commence less than 30 days after receipt of
the notice described herein, provided that the Participant has been notified
that he has a right to a period of at least 30 days to elect a distribution and
the Participant, after receiving such notice, affirmatively elects a
distribution.
7.11 Direct Transfers.
----------------
(a) Effective January 1, 1993, in the event any payment or
payments to be made under the Plan to a Participant, a beneficiary who is the
surviving spouse of a Participant, or an alternate payee under a Qualified
Domestic Relations Order who is the spouse or former spouse of a Participant
would constitute an "eligible rollover distribution," such individual may
request
-54-
<PAGE>
that such payment or payments be transferred directly from the Trust Fund to the
trustee of (i) an individual retirement account described in Section 408(a) of
the Code, (ii) an individual retirement annuity described in Section 408(b) of
the Code (other than an endowment contract), (iii) an annuity plan described in
Section 403(a) of the Code, or (iv) a qualified retirement plan the terms of
which permit the acceptance of rollover distributions; provided, however, that
clauses (iii) and (iv) shall not apply with respect to an eligible rollover
distribution made to a beneficiary who is the surviving spouse of a Participant
or an alternate payee under a Qualified Domestic Relations Order who is the
former spouse of a Participant. Any such request shall be made in writing, on
the form prescribed by the Committee for such purpose, at such time in advance
as the Committee may specify.
(b) For purposes of this Section 7.11, eligible rollover
distribution shall mean a distribution from the Plan, excluding (i) any
distribution that is one of a series of substantially equal periodic payments
(not less frequently than annually) over the life (or life expectancy) of the
individual, the joint lives (or joint life expectancies) of the individual and
the individual's designated beneficiary, or a specified period of ten (10) or
more years, (ii) any distribution to the extent such distribution is required
under Section 401(a)(9) of the Code, and (iii) any distribution to the extent
such distribution is not included in gross income.
-55-
<PAGE>
ARTICLE VIII
------------
VESTING AND CREDITED SERVICE
----------------------------
8.1 Accounts. Each Participant shall be fully vested at all times in
--------
all of his Accounts under the Plan.
8.2 Breaks in Service.
-----------------
(a) The performance of no Hours of Service during any Plan Year
shall constitute a 1-year break in credited service; provided that,
notwithstanding the foregoing, if an Employee is absent for one of the following
reasons, he shall be credited with one Hour of Service, for purposes of this
Section only, for each Hour of Service he would have received if he had
continued in the active employ of an Employer during the period of absence:
(1) layoff for a period of less than six (6) months;
provided that the Employee returns to work promptly upon receipt of notice to do
so;
(2) leave of absence granted in accordance with established
leave of absence policies;
(3) military service such that his right to reemployment is
protected by law; provided the Employee makes application for reemployment
within the time provided by law; and
(4) illness or accident for a period of less than twelve
(12) months; provided, the employee returns to work as soon as he is physically
able.
-56-
<PAGE>
(b) If an Employee is absent from work by reason of pregnancy,
childbirth, or adoption, or for purposes of the care of such Employee's child
immediately after birth or adoption, such Employee shall be credited, solely for
purposes of this Section, with sufficient Hours of Service to avoid a Break in
Service in the Plan Year in which the absence commences, or, if the Employee
already has more than one Hour of Service in such Plan Year, in the Plan Year
immediately following. Hours of Service during such absence shall be credited
in an amount equal to the Hours of Service the Employee would have had but for
such absence, or, if such hours cannot be determined, at the rate of eight hours
per normal workday.
8.3 Special Vesting Provision for Participants Whose Participation is
-----------------------------------------------------------------
Terminated as a Result of the January 23, 1986 Stock Sale. Any Participant
- ---------------------------------------------------------
employed by one of the following Employers whose participation in the Plan is
terminated on February 28, 1986 as a result of the sale of the Employer's stock
to CooperVision, Inc. under a stock purchase agreement between CooperVision,
Inc. and the Company, dated January 23, 1986, shall become fully vested in his
Employer Contribution and Employer Valuation Accounts on February 28, 1986:
Richards Medical Company
Richards Surgical Manufacturing Company
Comfort Care Products, Inc.
Neomed, Inc.
Dyonics, Inc.
Cilco, Inc.
-57-
<PAGE>
ARTICLE IX
----------
WITHDRAWALS AND LOANS
---------------------
9.1 General. The interest of each Participant in the Fund may be
-------
withdrawn in the manner, in the amount and at the time provided in this Article.
All withdrawals must be made on written notice in accordance with the procedures
established by the Committee. A withdrawal of less than the full value of an
Account may be made only in multiples of $100, except as provided under Section
9.5.
9.2 Special Withdrawals. With the approval of the Committee, a
-------------------
Participant may withdraw, without penalty, up to the total value of his Accounts
upon:
(a) termination of the Plan without establishment of a successor
plan; or
(b) the sale by an Employer of substantially all of its assets
used in a trade or business or of its interest in a subsidiary if the
Participant making the withdrawal begins employment with the corporation
acquiring such assets (the "Purchaser") and if the Purchaser does not maintain
the Plan after the disposition.
Unless otherwise determined by the Committee, any withdrawal pursuant
to Section 9.2(b) must be made before the end of the second Plan Year following
the Plan Year in which the disposition occurred.
-58-
<PAGE>
9.3 Withdrawals from Basic Contribution Account I and Supplemental
--------------------------------------------------------------
Contribution Account I. A Participant may withdraw from his Basic Contribution
- ----------------------
Account I and Supplemental Contribution Account I all or any portion of such
Accounts.
9.4 Withdrawals from Employee Valuation Account and Rollover Account.
----------------------------------------------------------------
A Participant may withdraw, as of any date, all or any portion of his Employee
Valuation Account and/or his Rollover Account.
9.5 Withdrawals From Basic Contribution Account II and Supplemental
---------------------------------------------------------------
Contribution Account II.
- -----------------------
(a) A Participant may withdraw amounts (other than earnings
attributable to Plan Years beginning after December 31, 1988) from his Basic
Contribution Account II and his Supplemental Contribution Account II by
submitting a written request to the Committee, which request shall represent
that the withdrawal is made for one or more of the following purposes:
(1) purchase (excluding mortgage payments) of a principal
residence for the Participant;
(2) post-secondary educational tuition expenses and related
educational fees for the next (12) months for the Participant, his Spouse, his
children or his dependents;
(3) medical expenses for medical care described in Section
213(d) of the Code of a Participant, his Spouse, his children or his dependents
(or amounts necessary to obtain such medical care); or
-59-
<PAGE>
(4) the need to prevent the eviction of the Participant
from his principal residence or foreclosure on the mortgage of the Participant's
principal resident; or
(5) such other circumstances as may be prescribed by the
Secretary of the Treasury or his delegate.
(b) Such a withdrawal shall be permitted only if the Committee
finds that it is necessary in light of immediate and heavy financial needs of
the Participant. The amount of the withdrawal may not exceed the amount required
to meet the financial need created by the hardship (including, if elected by the
Participant, any amount necessary to pay any federal, state or local income
taxes or penalties reasonably anticipated to result from the distribution) and
not reasonably available from other resources of the Participant. A
Participant's resources shall include those assets of his Spouse and minor
children that are reasonably available to the Participant. A Participant must
certify, on a form provided by the Committee, that his financial need cannot be
relieved:
(1) through reimbursement or compensation by insurance or
otherwise;
(2) by reasonable liquidation of the Participant's assets
to the extent such liquidation would not itself cause an immediate and heavy
financial need;
(3) by cessation of contributions to the Plan; or
-60-
<PAGE>
(4) by other distributions from the Plan, by other
distributions or loans from plans maintained by any employer or by borrowing
from commercial sources on reasonable commercial terms.
There shall be no limitation on the frequency of permitted withdrawals under
this Section.
(c) Notwithstanding the provisions of Subsections (a) and (b),
upon his attainment of age 59-1/2, a Participant shall be entitled to withdraw
all or any portion of his Basic Contribution Account II and Supplemental
Contribution Account II.
9.6 Withdrawal from Employer Contribution, Supplemental Employer
------------------------------------------------------------
Contribution, PAYSOP and Employer Valuation Accounts. A Participant may
- ----------------------------------------------------
withdraw from his Employer Contribution Account, Supplemental Employer
Contribution Account, PAYSOP Account and his Employer Valuation Account all or
any portion of such Accounts which are not invested in the Common Stock Fund and
which have been held in such Accounts for at least two (2) full years. A
Participant who has completed at least sixty (60) months of participation in the
Plan may also withdraw that portion of the Accounts which is not invested in the
Common Stock Fund and which has been held in such Accounts for less than two (2)
full years.
9.7 Fund to be Charged with Withdrawal. A withdrawal from a
----------------------------------
Participant's Account under this Article will be made first out of the
Participant's interest in the various Investment Media in which the Account is
invested, other than the
-61-
<PAGE>
Participant's interest invested in the Common Stock Fund, in proportion to the
Participant's share in such Investment Media, and then out of the Participant's
interest in the Common Stock Fund, where permitted.
9.8 Withdrawals Not Subject to Replacement. A Participant may not
--------------------------------------
replace any portion of his Accounts withdrawn under this Plan.
9.9 Payment of Withdrawals. Withdrawals under this Article shall be
----------------------
paid in cash.
9.10 Valuation for Distribution. For the purposes of paying the
--------------------------
amounts to be distributed to a Participant or to his beneficiaries under the
provisions of this Article, the value of the Fund and the amount of the
Participant's interest therein shall be determined in accordance with the
provisions of Article VII as of the date of the withdrawal.
9.11 Loans. Each Participant who is an Employee of an Employer and
-----
any other Participant or beneficiary who is a party in interest as defined in
ERISA may apply for a loan from the Plan. The Committee shall have the right to
require any applicant for a loan to secure the written consent of any party for
whose benefit there exists a Qualified Domestic Relations Order in respect to
the Participant's interest under the Plan. Requests for loans may not be made
more frequently than once in any twelve-month period. Loans shall be at least
$1,000 in amount and in no event shall the total loans exceed the lesser of (i)
50% of the vested balance credited to his Accounts (including
-62-
<PAGE>
his interest in the Common Stock Fund) or (ii) $50,000, as such amount is
reduced by the excess, if any, of (A) the highest outstanding balance of all
loans during the twelve months prior to the time the new loan is to be made over
(B) the outstanding balance of loans made to the Participant on the date such
new loan is made. Loans under any other qualified plan sponsored by the
Employer and all Affiliated Companies shall be aggregated with loans under the
Plan in determining whether or not the limitation stated herein has been
exceeded. Applications for a loan must be submitted in writing, in the manner
prescribed by the Committee. All loans shall be subject to the final approval
of the Committee, in its sole discretion, which discretion shall be exercised as
to all Participants on a reasonably equivalent basis. All loans shall be made
upon such terms and conditions as the Committee shall determine, which shall
include provisions for repayment and adequate security, and shall bear interest
on the unpaid principal at a reasonable rate to be determined by the Committee
in accordance with generally prevailing market conditions for similar types of
loans. Unless otherwise specified, no loan shall have a term in excess of five
years (or, in the case of a loan used to acquire the Participant's principal
residence, a term in excess of ten years), and the loan shall be repaid on a
schedule providing for level amortization determined by the Committee. Each
loan shall be considered a separate Investment Medium (to which the interest
payable on the loan shall be allocated), and the Participant shall specify from
which
-63-
<PAGE>
Investment Medium or Media the Participant's interest is to be liquidated to
provide the loan principal; provided, however, that a Participant's interest in
the Common Stock Fund shall not be liquidated to provide the loan principal. If
any loan to a Participant is unpaid on the date that he or his beneficiary
becomes entitled to any distribution from the Fund, such loan, in all events and
notwithstanding the terms thereof, shall become immediately due and payable on
such date, and the amount thereof, together with any accrued unpaid interest
thereon, shall be deducted from the amount of any distribution to which the
Participant or his beneficiary may become entitled. Effective October 1, 1992,
the deduction described in the preceding sentence shall not be made if the
Participant or his beneficiary makes arrangements with the Committee to continue
to repay the loan while the Participant's or beneficiary's interest remains in
the Plan; provided, however, that the Plan's right to make such deduction shall
be exercised immediately upon the Participant's or beneficiary's (i) request to
receive payment of his interest hereunder which would reduce the interest below
the outstanding loan balance or (ii) failure to make any scheduled loan payment
when due. The conditions and terms of all loans shall be applied in a uniform
and consistent manner with respect to all Participants. A loan may be prepaid
at any time without penalty.
9.12 Written Instructions. All loans or withdrawal payments to a
--------------------
Participant under the Plan shall be made by the Trustee from the appropriate
Account of the Participant only upon
-64-
<PAGE>
receipt of written instructions furnished by the Committee setting forth the
amount of the loan or withdrawal payment and the name and address of the
recipient. In making any loan or withdrawal payment under the Plan, the Trustee
shall be fully entitled to rely on the instructions furnished by the Committee
and shall be under no duty to make any inquiry or investigation with respect
thereto.
9.13. Spousal Consent. No withdrawal or loan request shall be
---------------
granted unless the Spouse of the Participant consents to the withdrawal or loan
within the 90-day period prior to the date the withdrawal or loan is made. The
consent shall be in writing on a form provided by the Committee, shall
acknowledge the effect of the withdrawal or loan on the Participant's benefit
under the Plan, shall be witnessed by a notary public, and shall be irrevocable.
Spousal consent may be waived if it is established to the satisfaction of the
Committee that the consent may not be obtained because there is no Spouse,
because the Spouse cannot be located, or because of other circumstances as may
be prescribed by the Committee.
-65-
<PAGE>
ARTICLE X
---------
ADMINISTRATION
--------------
10.1 Committee. The Committee shall be the named fiduciary which
---------
shall control and manage the operation of and administer the Plan. The
Committee members may, but need not be, employees of an Employer. They shall be
entitled to reimbursement of expenses, but those members of the Committee who
are also employees of an Employer shall be entitled to no compensation for their
service on the Committee. Such Committee shall be responsible for the general
administration of the Plan under the policy guidance of the Company.
10.2 Duties and Powers of Committee. In addition to the duties and
------------------------------
powers described elsewhere hereunder, the Committee shall have the following
specific duties and powers:
(a) to retain such consultants, accountants, attorneys and other
advisors as deemed necessary or desirable, to render statements, reports, and
advice with respect to the Plan and to assist the Committee in complying with
all applicable rules and regulations affecting the Plan; any consultants,
accountants or attorneys may be the same as those retained by an Employer;
(b) to review the investment performance of the Fund, to create
additional or substitute Investment Media, and to establish a funding policy
consistent with the objectives of the Plan;
-66-
<PAGE>
(c) to enact uniform and non-discriminatory rules and
regulations necessary to carry out the provisions of the Plan;
(d) to resolve questions or disputes relating to eligibility for
benefits or the amount of benefits under the Plan;
(e) to interpret the provisions of the Plan;
(f) to determine whether any domestic relations order received
by the Plan is a Qualified Domestic Relations Order;
(g) to evaluate administrative procedures; and
(h) to delegate such duties and powers as the Committee shall
determine from time to time to any person or persons.
10.3 Functioning of Committee. The Committee and those persons and
------------------------
entities to whom the Committee has delegated responsibilities shall keep
accurate records and minutes of meetings, interpretations and decisions. The
Committee shall act by majority vote of the members, and such action shall be
evidenced by a written document.
10.4 Construction of the Plan. The Committee shall take such steps
------------------------
as are considered necessary and appropriate to remedy any inequity that results
from incorrect information received or communicated in good faith or as the
consequence of an administrative error. The Committee shall have the full
discretionary power and authority to make factual determinations,
-67-
<PAGE>
to interpret the Plan, to make benefit eligibility determinations and to
determine all questions arising in the administration, interpretation and
application of the Plan. The Committee shall correct any defect, reconcile any
inconsistency or ambiguity, or supply any omission with respect to the Plan.
All such corrections, reconciliations, interpretations and completions of Plan
provisions shall be final, binding and conclusive upon all parties, including,
without limitation, the Company, each Employer, the Employees, their families,
dependents and any Alternative Payees.
10.5 Disputes.
--------
(a) In the event that the Committee denies, in whole or in part,
a claim for benefits by a Participant or his beneficiary, the Committee shall
furnish notice of the denial to the claimant, setting forth:
(1) the specific reasons for the denial;
(2) specific reference to the pertinent Plan provisions on
which the denial is based;
(3) a description of any additional information necessary
for the claimant to perfect the claim and an explanation of why such information
is necessary; and
(4) appropriate information as to the steps to be taken if
the claimant wishes to submit his claim for review.
Such notice shall be forwarded to the claimant within ninety (90) days
of the Committee's receipt of the claim;
-68-
<PAGE>
provided, however, that in special circumstances the Committee may extend the
response period for up to an additional ninety (90) days, provided that the
Committee so notifies the claimant in writing and specifies the reason or
reasons for such extensions.
(b) Within sixty (60) days of receipt of a notice of claim
denial, a claimant or his duly authorized representative may petition the
Committee in writing for a full and fair review of the denial. The claimant or
his duly authorized representative shall have the opportunity to review
pertinent documents and to submit issues and comments in writing to the
Committee. The Committee shall review the denial and communicate its decision
and the reasons therefor to the claimant in writing within sixty (60) days of
receipt of the petition; provided, however, that the Committee may extend the
response period in special circumstances for up to an additional sixty (60)
days. Written notice of the extension shall be sent to the claimant prior to the
commencement of the extension.
10.6 Indemnification. Each member of the Committee and any other
---------------
person who is an employee or director of an Employer or an Affiliated Company
shall be indemnified by the Company against expenses (other than amounts paid in
settlement to which the Company does not consent) reasonably incurred by him in
connection with any action to which he may be a party by reason of his
performance of administrative functions and duties under the Plan, except in
relation to matters as to which he
-69-
<PAGE>
shall be adjudged in such action to be personally guilty of negligence or
willful misconduct in the performance of his duties. The foregoing right to
indemnification shall be in addition to such other rights as the Committee
member or other person may enjoy as a matter of law or by reason of insurance
coverage of any kind. Rights granted hereunder shall be in addition to and not
in lieu of any rights to indemnification to which the Committee member or other
person may be entitled pursuant to the by-laws of the Employer and Affiliated
Company.
10.7 Reliance on Data and Consents. The Employer, the Trustee, the
-----------------------------
Committee, all fiduciaries with respect to the Plan, and all other persons or
entities associated with the operation of the Plan, the management of its
assets, and the provision of benefits thereunder, may reasonably rely on the
truth, accuracy and completeness of any data provided by any Participant,
Spouse, or beneficiary, including, without limitation, representations as to
age, health and marital status. Furthermore, the Employer, the Trustee, the
Committee, and all fiduciaries with respect to the Plan may reasonably rely on
all consents, elections and designations filed with the Plan or those associated
with the operation of the Plan and the Fund by any Participant, the Spouse of
any Participant, any beneficiary of any Participant, any Alternate Payee, or the
representatives of such persons without duty to inquire into the genuineness of
any such consent, election or designation. None of the aforementioned persons
or entities associated with the operation
-70-
<PAGE>
of the Plan, its assets and the benefits provided under the Plan shall have any
duty to inquire into any such data, and all may rely on such data being current
to the date of reference, it being the duty of the Participants, spouses of
Participants, Beneficiaries, and Alternate Payees to advise the appropriate
parties of any change in such data.
-71-
<PAGE>
ARTICLE XI
----------
THE FUND
--------
11.1 Designation of Trustee. The Company, by appropriate resolution
----------------------
of its Board of Directors, shall name and designate a Trustee and enter into a
Trust Agreement with such Trustee. The Company shall have the power, by
appropriate resolution of its Board of Directors, to amend the Trust Agreement,
remove the Trustee, and designate a successor Trustee, all as provided in the
Trust Agreement. All of the assets of the Plan shall be held in trust by the
Trustee for use in accordance with this Plan in providing for the benefits
hereunder.
11.2 Exclusive Benefit. No part of the corpus or income of the Fund
-----------------
shall be used for or diverted to purposes other than for the exclusive benefit
of Participants and their beneficiaries, except as expressly provided in this
Plan and in the Trust Agreement.
11.3 No Interest in Fund. No person shall have any interest in, or
-------------------
right to, any part of the assets or income of the Fund, except to the extent
expressly provided in this Plan and in the Trust Agreement.
11.4 Trustee. The Trustee shall be a fiduciary with respect to
-------
management and control of Plan assets and shall have exclusive and sole
responsibility for the custody and investment thereof in accordance with the
Trust Agreement.
-72-
<PAGE>
11.5 Expenses. Unless otherwise paid by the Company, the expenses of
--------
establishing and administering the Plan and Trust, including any Fund asset
charges and reimbursement for the reasonable expenses incurred by the Trustee
and the Committee members, shall be paid from the Fund.
-73-
<PAGE>
ARTICLE XII
-----------
INVESTMENT BY THE TRUSTEE
-------------------------
12.1 General. The Trustee shall invest all contributions paid to it
-------
and the income thereon in the Investment Media that each Participant may select
in accordance with Section 12.2; provided, however, that Employer Contributions
and Supplemental Employer Contributions made in Common Stock and allocated to a
Participant's Account shall be credited to the Common Stock Fund on behalf of
such Participant. Investments in the Common Stock Fund made by the Trustee at
the direction of a Participant shall be made at a price equal to the market
value of the stock on the date of purchase.
12.2 Investment Media.
----------------
(a) Thirty (30) days, or such other period as set by the
Committee, prior to the Activity Date as of which a Participant shall commence
to make Basic Contributions, he shall select one or more of the Investment Media
in which (except for Employer Contributions and Supplemental Employer
Contributions made in Common Stock and amounts credited to his PAYSOP Account)
his contributions thereto shall be invested, and what percentage thereof, in
increments of 1%, shall be invested in each Investment Media. A Participant may
amend his investment selections for contributions in increments of 1% or
transfer funds between Investment Media in increments of 1% or in dollar
amounts, subject to reasonable administrative limits as may be
-74-
<PAGE>
established by the Committee, effective as of any prospective Activity Date, via
toll free telephone communication with the Trustee and without obtaining prior
confirmation or authorization from the Committee as to the investment funds in
which subsequent contributions and current Account balances, in whole or in
part, are to be invested; provided, however, that any portion of a Participant's
Employer Contribution and Employer Valuation Accounts invested in the Common
Stock Fund may not be transferred to another Investment Medium prior to the
Participant's attainment of age fifty-five (55), or such other age as is
established by the Committee.
(b) Each Participant shall be solely responsible for the
investment direction he gives under the Plan. Neither the Company or its
officials, nor the Committee, the Trustee, or any other fiduciary of the Plan
will have any responsibility or liability for any losses which may result from a
Participant's investment directions. The Plan is intended to be a plan described
in Section 404(c) of ERISA and Title 29 of the Code of Federal Regulations
---------------------------
Section 2550.404c-1, as in effect on January 1, 1994.
12.3 Commingled Investment Media. The amounts contributed by all
---------------------------
Participants to each Investment Medium shall be commingled for investment
purposes.
12.4 Trustee May Hold and Distribute Cash. The Trustee may hold
------------------------------------
assets of the Fund and make distributions therefrom in the form of cash without
liability for interest, if
-75-
<PAGE>
for administrative purposes it becomes necessary or practical to do so.
-76-
<PAGE>
ARTICLE XIII
------------
AMENDMENT OR TERMINATION OF THE PLAN
------------------------------------
13.1 Amendment. The Company reserves the right at any time, and from
---------
time to time, by or pursuant to resolution of the Board of Directors, to alter,
amend, and modify, in whole or in part, the provisions of the Plan and the Trust
Agreement; provided, however, that it shall be impossible, except as provided in
Section 5.4, for any part of the corpus or income of the Fund, at any time, to
be used for, or diverted to, purposes other than the exclusive benefit of the
Participants or their beneficiaries. Any amendment made pursuant to this
Section 13.1 shall be binding upon each Employer, unless otherwise indicated.
In addition, the Committee may adopt such amendments to the Plan as it shall
deem necessary or appropriate to maintain compliance with current law or
regulation, to correct errors or omissions in the Plan document or to facilitate
the administration of the Plan. Any amendment adopted by the Committee shall
not increase the liability of the Company or materially affect the benefits of
any Participant hereunder. The Committee shall report at least annually to the
Board of Directors of the Company all amendments adopted by the Committee during
the Plan Year.
13.2 Termination. The Plan and the Trust Agreement forming part of
-----------
the Plan may be terminated or partially terminated or contributions completely
discontinued by or pursuant to resolution of the Board of Directors (or with
respect
-77-
<PAGE>
to any Employer, by the board of directors of that Employer with the approval of
the Company) at any time. In the event of a termination, partial termination,
or a complete discontinuance of contributions or in the event an Employer is
dissolved, liquidated or adjudicated a bankrupt, the interest of the affected
Participants of such Employer, their estates and beneficiaries shall be non-
forfeitable and shall be fully vested, and distributions shall be made to them
in cash or property or in any combination of cash or property. When all assets
shall have been paid out by the Trustees, the Fund shall cease.
13.3 Merger. The Plan shall not be merged or consolidated with, nor
------
shall its assets be transferred to, any other plan unless each Participant would
(assuming the Plan then terminated) receive a benefit after such merger,
consolidation or transfer which is of value equal to or greater than the benefit
he would have received from the value of his Accounts if the Plan had been
terminated on the day before such merger, consolidation or transfer.
-78-
<PAGE>
ARTICLE XIV
-----------
GENERAL PROVISIONS
------------------
14.1 No Employment Rights. Neither the action of the Company in
--------------------
establishing the Plan, nor the action of any Employer in joining the Plan, nor
any provisions of the Plan, nor any action taken by the Committee shall be
construed as giving to any employee of an Employer the right to be retained in
its employ, or any right to payment except to the extent of the benefits
provided in the Plan to be paid from the Fund.
14.2 Source of Payments. All payments payable under the Plan shall
------------------
be paid or provided for solely from the Fund, and the Employers assume no
liability or responsibility therefor.
14.3 Governing Law. All questions pertaining to the validity,
-------------
construction and operation of the Plan shall be determined in accordance with
the laws of the Commonwealth of Pennsylvania except to the extent superseded by
ERISA.
14.4 Spendthrift Clause.
------------------
(a) No benefit payable at any time under this Plan and no
interest or expectancy herein shall be anticipated, assigned, or alienated by
any Participant or beneficiary, or subject to attachment, garnishment, levy,
execution, or other legal or equitable process, except for (1) an amount
necessary to satisfy a Federal tax levy made pursuant to Section 6331 of the
Code and (2) any benefit payable pursuant to a domestic relations
-79-
<PAGE>
order which is determined to be a Qualified Domestic Relations Order.
(b) Any attempt to alienate or assign a benefit hereunder,
whether currently or hereafter payable, shall be void. No benefit shall in any
manner be liable for or subject to the debts or liability of any Participant or
beneficiary. If any Participant or beneficiary shall attempt to, or shall,
alienate or assign his benefit under the Plan or any part thereof, or if by
reason of his bankruptcy or other event happening at any time such benefit would
devolve upon anyone else or would not be enjoyed by him, then the Committee may
terminate payment of such benefit and hold or apply it for the benefit of the
Participant or beneficiary.
14.5 Incapacity. If the Committee deems any Participant who is
----------
entitled to receive payments hereunder incapable of receiving or disbursing the
same by reason of age, illness, infirmity, or incapacity of any kind, the
Committee may direct the Trustee to apply such payment directly for the comfort,
support and maintenance of such Participant or to pay the same to any
responsible person caring for the Participant as determined by the Committee to
be qualified to receive and disburse such payments for the Participant's
benefit, and the receipt of such person shall be a complete acquittance for the
payment of the benefit. Payments pursuant to this Section shall be a complete
discharge to the extent thereof of any and all
-80-
<PAGE>
liability of the Employers, the Committee, the Trustee and the Fund.
13.6 Notices. Each Participant, Spouse, beneficiary and Alternate
-------
Payee shall be responsible for furnishing the Committee with the current and
proper address for the mailing of notices, reports and benefit payments. Any
notice required or permitted to be given shall be deemed given if directed to
the person to whom addressed at such address and mailed by regular United States
mail, first-class and prepaid. If any check mailed to such address is returned
as undeliverable to the addressee, mailing of checks will be suspended until the
Participant, Spouse, beneficiary or Alternate Payee furnishes the proper
address. This provision shall not be construed as requiring the mailing of any
notice or notification if the regulations issued under ERISA deem sufficient
notice to be given by the posting of notice in appropriate places, or by any
other publication device.
14.7 Lost Payees. A benefit shall be deemed forfeited, and used to
-----------
reduce future Matching Contributions made pursuant to Section 5.1 by the
Employer that last employed the Participant, if the Committee is unable to
locate a Participant, a Spouse, a beneficiary or an Alternate Payee to whom
payment is due; provided, however, that such benefit shall be reinstated if a
claim is made by the party to whom it is properly payable.
14.8 Gender and Number. Except where otherwise clearly indicated by
-----------------
context, the masculine shall include the feminine, the singular shall include
the plural, and vice-versa.
-81-
<PAGE>
ARTICLE XV
----------
SPECIAL PROVISIONS FOR TOP-HEAVY PLANS
--------------------------------------
15.1 General Rule. Notwithstanding any provision in the Plan to the
------------
contrary, for any Plan Year in which the Plan is determined to be a Top-Heavy
Plan, the provisions of this Article XV shall become effective.
15.2 Determination of Top-Heavy Status. The Plan shall be considered
---------------------------------
a Top-Heavy Plan for the Plan Year, if, as of the last day of the first Plan
Year and thereafter, as of the last day of the preceding Plan Year (the
"Determination Date"):
(a) the value of the sum of all Accounts of Participants who are
Key Employees (as defined below) exceeds 60% of the sum of all Accounts of all
Participants, or
(b) the Plan is part of an Aggregation Group and such
Aggregation Group is determined to be a Top-Heavy Group (as defined in Section
416(g)(2)(B) of the Code).
In determining the above Top-Heavy ratio, the Account balances of an
Employee (a) who is a Non-Key Employee (defined for purposes of this Article as
an Employee who is not a Key Employee) but who was a Key Employee in any prior
Plan Year, or (b) who has not performed services for the Employer maintaining
the Plan at any time during the five-year period ending on the applicable
Determination Date are disregarded.
A Key Employee is defined as any Employee, former Employee or the
beneficiary of such Employee who, at any time
-82-
<PAGE>
during a Plan Year or the immediately preceding four (4) Plan Years is: (a) an
officer of the Employer having annual 415 Compensation greater than 50% of the
amount in effect under Section 415(b)(1)(A) of the Code for any Plan Year; (b)
one of the ten (10) Employees who own the largest interests in the Employer; (c)
a 5% owner of the Employer; or (d) a 1% owner of the Company having annual 415
Compensation from the Company of more than $150,000.
For purposes of this Section, Aggregation Group means (a) each plan of
the Company or an Affiliated Company in which a Key Employee participates,
including any terminated or frozen plans which are maintained within the five
year period ending on the applicable Determination Date, and (b) each other plan
of the Company or an Affiliated Company which enables such plan to meet the
requirements of Sections 401(a)(4) or 410 of the Code. The foregoing
notwithstanding, the Company may treat any plan maintained by the Company or an
Affiliated Company not required to be included in the Aggregation Group as being
part of such group if such group would continue to meet the requirements of
Sections 401(a)(4) and 410 of the Code with such plan being taken into account.
15.3 Minimum Contributions. For any Plan year in which the Plan is
---------------------
determined to be a Top-Heavy Plan pursuant to Section 15.2, the Employer
Contributions for such Plan Year for each Participant who is a Non-Key Employee
shall not be less than the lesser of:
-83-
<PAGE>
(a) 3% of the Participant's 415 Compensation for such Plan Year,
or
(b) the percentage at which Employer Contributions, Basic and
Supplemental Contributions are made or are required to be made under the Plan
for the Plan Year for the Key Employee for whom such percentage is the highest.
Notwithstanding the foregoing, if a Participant is also participating in another
defined contribution plan maintained by the Company, the minimum contribution
hereunder may be reduced in accordance with regulations issued under Section
416(f) of the Code. If a Participant is also participating in a defined benefit
plan maintained by the Company, "5%" shall be substituted for "3%" in paragraph
(a) of this Section.
The Employer Contributions referred to above shall be provided to each
Non-Key Employee who is a Participant and who has not separated from service at
the end of the Plan Year, regardless of such Employee's number of Hours of
Service, Compensation, or whether such Employee had made any contribution to the
Plan.
15.4 Adjustments to Maximum Limits on Benefits and Contributions.
-----------------------------------------------------------
For any Plan Year in which the Plan is determined to be a Top-Heavy Plan
pursuant to Section 15.2, paragraphs (a)(1) and (b)(1) of Section 6.10 shall be
read by substituting the number "1.00" for the number "1.25", wherever it
appears. Notwithstanding the foregoing, no adjustment shall be made to Section
6.10 if the following requirements are met:
-84-
<PAGE>
(a) Section 15.3 shall be applied by substituting "4%" for "3%";
and the annual accrued benefit derived from employer contributions under the
defined benefit plan for each Participant who is a Non-Key Employee shall not be
less than the product of:
(1) 3% of such Participant's average annual 415
Compensation during the period of consecutive years (not exceeding five) which
yields the highest average;
and
(2) the Participant's Years of Service (not exceeding 10)
during which the Plan is a Top-Heavy Plan; and
(b) the aggregate of the Accounts of Participants who are Key
Employees under the Plan does not exceed 90% of the aggregate of the Accounts of
all Participants; and
(c) the sum of (i) the present value of the cumulative accrued
benefits for Key Employees under all defined benefit plans in the Aggregation
Group, and (ii) the aggregate of the accounts of Key Employees under all defined
contributions plans in the Aggregation Group does not exceed 90% of such sum
determined for all employees; and
(d) in the case of a Participant also participating in a defined
benefit plan maintained by the Company, all of the requirements of paragraph (a)
shall be met by substituting "7-1/2%" for "3%" in Section 15.3.
-85-
<PAGE>
SUPPLEMENT A
------------
SPECIAL RULES FOR PUERTO RICO PARTICIPANTS
------------------------------------------
A-1 Purpose and Effect - The purposes of this Supplement A is to comply
------------------
with the requirements of Section 165 of The Puerto Rico Income Tax Act
of 1954 (the "ITA"). The provisions of this Supplement A shall be
effective as of April 1, 1988, and shall apply to those employees of
Rhone-Poulenc Rorer Inc. (the "Company"), and any of its subsidiaries
as may be designated by the Board of Directors of the Company as an
"Employer" under the Plan, who are residents of the Commonwealth of
Puerto Rico ("Supplement A Participants).
A-2 Compensation - For purposes of Paragraph A-7 below, "compensation"
------------
shall mean all remuneration which is required to be reported as wages
by the Employer to the Puerto Rico Treasury Department on Form 499 R-
2/W-2 PR, and, unless the Company elects otherwise, any Supplement A
Participant's Basic or Supplemental Contributions to the Plan.
A-3 Maximum Basic and Supplemental Contributions - The sum of a Supplement
--------------------------------------------
A Participant's Basic and Supplemental Contributions under Sections
4.1 and 4.2 of the Plan may not exceed in any event the lesser of 10%
of the Supplement A Participants Compensation or $7,000.
A-4 Return of Supplement A Participants Basic and Supplemental
----------------------------------------------------------
Contributions - If the Supplement A Participant's Basic and
-------------
Supplemental Contributions made under this Plan and his elective
deferrals made under any other qualified cash or deferred arrangement
maintained pursuant to Section 165(e) of the ITA for a taxable year
exceed the maximum Basic and Supplemental Contributions limitation
described in Paragraph A-3 above, the Supplement A Participant shall
allocate to the Plan or to such other qualified cash or deferred
arrangement the excess deferrals. The Supplement A Participant shall
notify the Committee of such allocation in writing no later than the
March 1 following the Supplement A Participant's taxable year in which
the excess deferrals were made. Notwithstanding any other provisions
of the Plan, not later than the April 15 following the close of the
Supplement A Participant's taxable year, the Committee may cause the
Trustee to distribute to the Supplement A Participant the excess
deferrals (adjusted for any
-86-
<PAGE>
income or loss attributable thereto and subject, however, to the
withholding of taxes and other amounts as though such amounts were
current remuneration) allocated to the Plan by the Supplement A
Participant pursuant to Article IV of the Plan.
A-5 Rollover Contributions - Supplement A Employees may make Rollover
----------------------
Contributions to the Plan under Section 4.10 of the Plan except that
the Plan from which the Supplement A Employee received the
distribution must be a Plan that qualifies under Section 401(a) of the
Internal Revenue Code of 1986 and Section 165(a) of the ITA.
---
A-6 Puerto Rico Limitation on Contributions - For any Plan Year, (a)
---------------------------------------
contributions under the Plan shall not exceed the limitations on
deductions imposed under section 23(p)(1)(C) and 23(p)(1)(F) of the
ITA, (b) the Plan shall satisfy the coverage requirements of Section
165(a)(3) of the ITA, and (c) the Plan shall satisfy the Puerto Rico
Actual Deferral Percentage Test set forth in Paragraph A-7 below.
A-7 Puerto Rico Actual Deferral Percentage Test - In no event shall the
-------------------------------------------
actual deferral percentage (as defined below) of the Highly
compensated Supplement A Participants (as defined in paragraph A-8)
for any calendar year exceed the greater of:
(a) the actual deferral percentage of all other Supplement A
Participants for such calendar year multiplied by 1.5; or
(b) the actual deferral percentage of all other Supplement A
Participants for such calendar year multiplied by 2.0; provided
that the actual deferral percentage of the Highly Compensated
Supplement A Participants does not exceed that of all other
Supplement A Participants by more than two percentage points.
The "actual deferral percentage" of a group of Supplement A
Participants for a calendar year means the average of the ratios
(determined separately for each Supplement A Participant in such
group) of: (i) the sum of the Basic Contributions and Supplemental
Contributions allocated to each Supplement A Participant for such
calendar year; to (ii) the Supplement A Participant's compensation for
such calendar year.
-87-
<PAGE>
For purposes of this Paragraph, the deferral percentage of a Highly
Compensated Supplement A Participant who has made elective deferrals
under any other qualified cash or deferred arrangement maintained by
the Company or an Affiliated Company pursuant to Section 165(e) of the
ITA shall be the sum of his deferral percentages under all such plans.
A-8 Highly Compensated Supplement A Participant - The term "Highly
-------------------------------------------
Compensated Supplement A Participant" means any Supplement A Employee
who is eligible to participate in the Plan and is more highly
compensated than two-thirds of all other Supplement A Employees
eligible to participate in the Plan.
The Puerto Rico Actual Deferral Percentage Test of Paragraph A-7 and
the determination of who is a Highly Compensated Supplement A
Participant shall be done separately for each Employer.
A-9 Supplemental Section 165(e) Employer Contributions - As soon as
--------------------------------------------------
possible after the end of the Plan Year, the Company, in its
discretion, may determine to make a Supplemental Section 165(e)
Employer contribution, subject to the limitations set forth in
Paragraph A-3. The Supplemental Section 165(e) Employer Contribution
for any Plan Year under this paragraph will be made no later than the
expiration of the period within which such contribution may be paid
and deducted for the purpose of Puerto Rico income taxes.
Supplemental Section 165(e) Employer Contributions shall be allocated
to the Supplemental Employer Contribution Account of each Supplement A
Participant who qualifies for Employer Contributions under Section 3.2
of the Plan and who either (i) is in the active employment of an
Employer or an Affiliated Company on the last day of the Plan Year for
which the Supplemental Section 165(e) Employer Contributions are made
or (ii) dies, suffers a Permanent and Total Disability, or has a
Retirement during the Plan Year; provided, however, that if this
method of allocating the Supplemental Section 165(e) Employer
Contribution for a Plan Year (A) would not serve to prevent the Plan
from failing to satisfy the requirements set forth in Paragraph A-7
(such failure to be determined without regard to the Supplemental
Section 165(e) Employer Contribution) and/or (B) would result in the
Plan's failure to satisfy the requirements set forth in Paragraph A-7,
then, but only to the extent necessary to satisfy the requirements set
forth in Paragraph A-7 (as determined by the Committee in its sole
discretion), the allocation of the
-88-
<PAGE>
Supplemental Section 165(e) Employer Contribution for the Plan Year
shall be made only to those Supplement A Participants who otherwise
satisfy the requirements set forth in (i) and (ii) above and who are
not Highly Compensated Supplement A Employees. Supplemental Section
165(e) Employer Contributions for all purposes under the Plan, except
as otherwise provided herein.
A-10 Return of Excess Contributions - If the average deferral percentage
------------------------------
for all Highly Compensated Supplement A Participants exceeds the
amount specified in Paragraph A-7 for any Plan Year, the Basic and
Supplemental Contributions (and corresponding Employer Contributions)
for the Highly Compensated Supplement A Participant(s) with the
Highest deferral percentage shall be reduced so that his applicable
percentage is reduced to the greater of (a) such percentage that
enables the Plan to satisfy the applicable percentage test, or (b) a
percentage equal to the applicable percentage of the Highly
Compensated Supplement A Participant(s) with the next highest
percentage. This procedure shall be repeated until the Puerto Rico
Actual Deferral Test is satisfied. The amount so reduced, together
with the attributable earnings thereon, shall be deemed to have been
contributed to the Plan by mistake of fact, shall be refunded to the
Employer, and the portion attributable to Basic and Supplemental
Contributions shall thereafter be paid (subject, however, to the
withholding of taxes and other amounts as though such amounts were
current remuneration) by the Employer to the Supplement A Participants
from whose Compensation such amount was obtained.
A-11 Use of Terms - All terms and provisions of the Plan shall apply to
------------
this Supplement A, except that where the terms and provisions of the
Plan and this Supplement A conflict, the terms and provisions of this
Supplement A shall govern.
-89-
<PAGE>
SUPPLEMENT B
------------
SPECIAL MATCHING CONTRIBUTIONS FOR
PUERTO RICO PARTICIPANTS WHO ARE
MEMBERS OF THE UNITED AUTO WORKERS' UNION
-----------------------------------------
The Basic Contributions for Puerto Rico Participants who are Members of the
United Auto Workers' Union shall be matched by Employer Contributions in
accordance with the following schedule:
<TABLE>
<CAPTION>
Basic Contribution Employer Contribution
(as a % of Compensation) (as a % of Basic Contribution)
- ------------------------ ------------------------------
<S> <C>
1st 1% 100%
2nd 1% 75%
3rd 1% 50%
4th-6th 1% 25%
</TABLE>
-90-
<PAGE>
SUPPLEMENT C
------------
SPECIAL MATCHING CONTRIBUTIONS FOR PARTICIPANTS
WHO ARE MEMBERS OF WAREHOUSE EMPLOYEES' LOCAL 169
-------------------------------------------------
Effective January 1, 1993, the Basic Contributions for Participants who are
Members of Warehouse Employees' Local 169 shall be matched by Employer
Contributions in accordance with the following schedule:
<TABLE>
<CAPTION>
Basic Contribution Employer Contribution
(as a % of Compensation) (as a % of Basic Contribution)
- ------------------------ ------------------------------
<S> <C>
1st 1% 100%
2nd 1% 90%
3rd 1% 80%
4th-6th 1% 50%
</TABLE>
-91-
<PAGE>
SUPPLEMENT D
------------
SPECIAL MATCHING CONTRIBUTIONS FOR
PARTICIPANTS WHO ARE MEMBERS OF
INTERNATIONAL CHEMICAL WORKERS' UNION, LOCAL 498
------------------------------------------------
Effective January 1, 1994, the Basic Contributions for Participants who are
Members of International Chemical Workers' Union, Local 498 shall be matched by
Employer Contributions in accordance with the following schedule:
<TABLE>
<CAPTION>
Basic Contribution Employer Contribution
(as a % of Compensation) (as a % of Basic Contribution)
- ------------------------ ------------------------------
<S> <C>
1st 1% 100%
2nd 1% 90%
3rd 1% 80%
4th-6th 1% 50%
</TABLE>
-92-
<PAGE>
EXHIBIT 10X
January 3, 1995
Mr. Timothy C. Rothwell
10 Mark Twain Drive
Morristown, New Jersey 07960
Dear Tim,
I am pleased to confirm the terms and conditions of our offer to you as
President, Rhone-Poulenc Rorer Worldwide Ethical Pharmaceuticals and Executive
Vice President, Rhone-Poulenc Rorer Inc. In your new position, you will be
reporting to Michel de Rosen, President and Chief Operating Officer, Rhone-
Poulenc Rorer Inc. and will be based in Collegeville, Pennsylvania. It is our
hope that you will join the company around and about the beginning of February,
1995.
BASE COMPENSATION
- -----------------
The starting annual base salary for your position will be $415,000 and will
be payable to you on a semi-monthly basis. As part of our Performance and Career
Development System (PCDS), individuals are reviewed for performance and salary
increase consideration on an annual basis. Your first performance and salary
review will be March 1996.
INCENTIVE COMPENSATION
- ----------------------
RPR provides a very comprehensive variable performance pay system. For your
position, you are eligible to participate in the annual Performance Incentive
Plan (cash bonus), the RPR Performance Unit Capital Plan, and the Long-Term
Incentive Stock Option Program.
Cash Bonus: Your annual target cash bonus is 55.0% of base salary. This
target is adjusted for annual Company, Business Unit, and individual
performance. You will be eligible for your first annual cash bonus payment March
1996, based on performance year 1995 results.
Capital Plan: The RPR Capital Plan is an annual, cash incentive performance
unit program. Your annual target award is $160,000 which equates to 8,000 RPR
Performance Units (at a starting value of $20.00 per unit). The target number of
units and value of each unit is adjusted annually based on RPR's year over year
net income performance along with RPR's annual net income performance as
compared
1
<PAGE>
to a competitive benchmark. 50.0% of each annual grant vests in one
year and 50.0% cliff vests after three years. Your first annual grant will be
March, 1996.
Stock Options: You are eligible for stock option grants under the Rhone-
Poulenc Rorer Long-Term Incentive Plan formula. The number of non-qualified
stock options granted for your position each year is derived through a
calculation of blended salary times your stock option multiple (190.0%) and then
adjusted for individual performance. The dollar amount of this calculation is
then divided by the RPR share price at the date of grant to determine the actual
number of stock options awarded. Your stock options vest one third a year over
the first three years of the grant, and vested options can then be exercised
over ten years from the original date of grant. The exercise price of the grant
is the fair market price for RPR shares at date of grant. Your first annual
stock option grant is scheduled for March 1996.
All incentive compensation awards are made at the Company's discretion, are
subject to change, and require the approval of the Rhone-Poulenc Rorer Executive
Personnel and Compensation Committee and Board of Directors.
TRANSITION/SIGN-ON AWARDS
- -------------------------
To appropriately position you from your current compensation system to
RPR's, the following upfront awards will be made to you upon your arrival:
- $160,000 sign-on bonus
- $140,000 cash advance payment given to you with the following terms; if
you leave RPR voluntarily within four years from date of RPR employment,
then you will need to return to the Company $35,000 a year for each year
not worked up to a maximum of four years. For the taxes you will pay on
this $140,000 payment, RPR will reimburse your tax payment as follows: For
each year you work for RPR during your first four years of employment, the
Company will provide an annual tax reimbursement payment equal to 25.0% of
the total tax payment you will make on this cash advance. A corresponding
gross up payment on each year's RPR tax reimbursement will be provided to
you as well. This approach is in line with the approach you currently have
with your present employer.
- An initial grant of 12,000 RPR stock options that will vest one third each
year over the first three years of the grant. The terms of this grant
correspond to those described in the above stock option section.
- A Capital Plan grant with an initial value of $115,000 or 5,750 RPR
Performance Units at a starting $20.00 value for each unit, 55.0% of this
2
<PAGE>
grant, or 3,163 units will cliff vest two years from date of grant and the
balance will cliff vest in three years from date of grant.
- An RPR phantom stock grant with an initial value of $100,000. This grant
will vest equally over a six year period of time and will be available for
distribution upon your reaching age 60. The phantom shares from this grant
can be applied toward your meeting an RPR stock holding requirement
discussed later on in this document.
LOAN SUPPORT
- ------------
The Company will assist you in securing a $250,000 interest bearing loan
that could be effected in one of two ways. Our preference, for Proxy reporting
reasons, would be to facilitate your securing an external personal loan between
you and one of the financial institutions we deal with. We will work with you
to accomplish this.
If for some reason this isn't possible, the Company will loan you up to
$250,000, at a prevailing market interest rate. The loan will need to be repaid
to RPR within five years, with payments made to the Company each March.
SENIOR PARTNER STATUS
- ---------------------
In the future, you will be considered for entry into the RPR Senior Partner
Group. The Senior Partner document you've previously received describes the
mission, objectives, and role of this important worldwide team. Typically,
individuals targeted to become Senior Partners work with the membership for
about a year before being considered for formal entry into the partnership.
This allows an appropriate amount of time for the individual and the group to
become comfortable and experienced in working with each other.
One requirement in being an RPR Senior Partner is to acquire and maintain
an amount of RPR stock whose value equates to one year's worth of annual base
compensation. Shares that count towards meeting this requirement are RPR shares
owned outright, shares derived from the RPR phantom stock grant (previously
mentioned in this document), shares acquired as a consequence of exercising
vested RPR stock options, and shares from the RPR 401(k) Savings Program.
Financing support can be made available to assist Senior Partners in meeting
this requirement. You will be required to reach this level of RPR stock
holdings two years from the date you officially become a Senior Partner.
RELOCATION ASSISTANCE
- ---------------------
You are eligible for RPR's comprehensive relocation assistance program.
Enclosed is a document that describes the many provisions of this plan. Please
be
3
<PAGE>
aware that you will be provided with the Company's third party home purchase
assistance program which is managed for RPR through the Weichert Real Estate
Company. In addition, should you experience a loss on sale of your current
principal residence, the Company will reimburse you for up to $120,000. This
loss on sale payment will be grossed up for taxes owed. In order to obtain the
RPR relocation benefits, your relocation must occur within one year from your
date of hire.
EMPLOYEE BENEFITS
- -----------------
You will participate in the RPR Flexible Benefits Plan which is a very
comprehensive package of employee benefits and services. The RPR "Your Benefits
Handbook", that you've previously received, spells out each item within the
offering.
The attached life insurance exhibit compares your current arrangement to
what RPR provides. There is a shortfall between the two plans that can be
bridged through the purchase of additional coverage from a third party insurer.
RPR can facilitate this with your being responsible for paying the required
premium (as you know, we've increased our base salary offer to you to assist in
your paying for this added insurance). The medical data you've agreed to
release from your physical exam taken last March will be utilized to better
understand the type and cost of this supplemental insurance coverage.
Regarding your current pension plan arrangement, RPR is prepared to provide
additional pension benefits to help bridge the gap between your current
company's plan and ours. The Company will therefore provide you with "double"
years of RPR pension service credit as follows: For every year worked for RPR,
you will receive 2 years of RPR service credit up to a maximum of 45 years of
total credited service. To receive this extra service credit, you must work a
minimum of five years for RPR. The attached exhibit depicts the details
relating to this commitment.
You are also eligible for four weeks vacation, ten Company paid designated
holidays, and three personal days.
CAR ALLOWANCE
- -------------
You will receive a monthly automobile allowance of $1,100. This allowance
is to be used for both the lease or purchase payments for a car of your choice
along with the upkeep (gas, insurance, maintenance, etc.). You are responsible
for paying the taxes on this benefit.
FINANCIAL PLANNING AND TAX PREPARATION
- --------------------------------------
4
<PAGE>
The Company will provide you with an annual subsidy to be used for
financial planning and tax preparation services. In year one this subsidy is
$3,000 and beyond year one the subsidy is $1,750 per year.
EMPLOYMENT SECURITY
- -------------------
If you are terminated from the Company involuntarily within the first two
years of employment, except for just cause, you will receive a minimum of one
year's then current base salary and one year's target cash bonus. Beyond two
years of RPR employment, you would receive severance compensation in line with
the Company policy in effect at time of your termination.
WORK AUTHORIZATION
- ------------------
This offer of employment is contingent upon your producing proof that you
are presently legally authorized to work in the United States on a full-time
basis. This evidence needs to be provided no later than the first day of your
employment with RPR.
PRE-EMPLOYMENT PHYSICAL
- -----------------------
This offer is also contingent upon satisfactory results of a pre-employment
physical and drug screening. Results must be received by Rhone-Poulenc Rorer
before your start date. Please contact Ms. Monica Ford, Company Nurse, at (610)
454-8911 to make appropriate arrangements.
NON-SMOKING CLAUSE
- ------------------
Please note that Rhone-Poulenc Rorer has a non-smoking policy.
Tim, we very much hope you will accept our offer and join forces with RPR.
I am sure you will find your experience with us to be very challenging and
rewarding. If you have any questions, feel free to contact me at my office in
Paris (33 1 40.91.74.80).
Sincerely,
/s/Yves Barou
Sr. Vice President, Human Resources
5
<PAGE>
I hereby accept this offer as amended by addendum dated January 6, 1995 and plan
to start work with Rhone-Poulenc Rorer on or about January 25, 1995.
Date January 8, 1995 /s/Timothy C. Rothwell
6
<PAGE>
TIMOTHY C. ROTHWELL RPR OFFER LETTER ADDENDUM January 6, 1995
- ---------------------------------------------
Transition/Sign on Awards Section
- ---------------------------------
Regarding the RPR phantom stock grant, the customary six year vesting
requirement will be waived, such that you will be immediately vested in this
grant when commencing employment with RPR. The future distribution of the grant
still remains at age 60.
Loan Support Section
- --------------------
RPR, through discussions with the financial institutions we deal with, will
attempt to facilitate a personal loan for you, in the amount of $250,000 at a
below market interest rate instead of a prevailing interest rate as referenced
- -----
in the offer letter.
Relocation Assistance Section
- -----------------------------
You will receive RPR's temporary living relocation benefit for up to six months.
Employee Benefits Section
- -------------------------
As stated, RPR will facilitate the acquisition of additional term life
insurance, as referenced in the exhibit in your offer letter, and in doing so,
will seek to have alternative insurance carriers and premium schedules
(graduated and set premiums) available for you to select from. As you know, RPR
cannot guarantee this additional life insurance coverage, but will do everything
in our power to effect this happening.
Sincerely,
/s/David Brandies
Vice President, Compensation, Benefits, Expatriation
7
<PAGE>
<TABLE>
<CAPTION>
RHONE-POULENC RORER INTEROFFICE CORRESPONDENCE
- --------------------------------------------------------------------------------
<S> <C> <C>
Date 14 February 1995 Information
Copies
To Tim Rothwell To
From David Brandies
- --------------------------------------------------------------------------------
</TABLE>
Subject MODIFICATION TO JANUARY 3, 1995 OFFER LETTER
Tim:
As we agreed, I've gone forward and instructed our payroll
department to provide you with a supplemental sign-on check
that essentially pays you your $140,000.00 cash advance
payment on a net basis. Our cost to provide the $140,000 net
is $135,916.
Enclosed you will find both a check for $52,724.00, which is
the amount required to accomplish this, and a schedule that
depicts how the calculation was made. Since this methodology
is different from the approach described in your January 3,
1995 offer letter, I 'm amending that section of the letter
as follows:
. $140,000.00 cash advance payment given to you net with the
---
following terms:
If you leave voluntarily within four years from date of RPR
employment, then you will need to return, to the Company,
$68,979 ($140,000 + 135,916 / 4) a year for each year not
worked up to maximum of four years.
Tim, if this meets with your approval, please sign off below.
Sincerely,
/s/David Brandies
AGREED
/s/Tim Rothwell Date: February 14,1995
8
<PAGE>
EXHIBIT 11
Rhone-Poulenc Rorer Inc.
Computation of Earnings Per Common Share
(Dollars and shares in millions except per share data)
<TABLE>
<CAPTION>
Years Ended December 31,
1994 1993 1992
--------------------- -------------------- ---------------------
Net income per common share, primary: Dollars Per Share Dollars Per Share Dollars Per Share
--------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net income before preferred dividends and cumulative effect of
accounting change............................................ $ 351.0 $ 421.1 $ 423.3
Less: Preferred dividends....................................... 19.2 12.4 10.1
--------- --------- ---------
Net income before cumulative effect of accounting change......... $ 331.8 $ 2.45 $ 408.7 $ 2.96 $ 413.2 $ 2.99
Cumulative effect of accounting change........................... -- -- -- -- 15.0 .11
--------- --------- --------- --------- --------- ----------
Net income available to common shareholders...................... $ 331.8 $ 2.45 $ 408.7 $ 2.96 $ 428.2 $ 3.10
========= ========= ========= ========= ========= ==========
Average shares outstanding....................................... 135.3 138.2 138.1
========= ========= =========
<CAPTION>
Net income per common share, fully diluted:
<S> <C> <C> <C> <C> <C> <C>
Net income before preferred dividends and cumulative effect of
accounting change............................................ $ 351.0 $ 421.1 $ 423.3
Less: Preferred dividends....................................... 19.2 12.4 10.1
--------- --------- ---------
Net income before cumulative effect of accounting change......... $ 331.8 $ 2.45 $ 408.7 $ 2.94 $ 413.2 $ 2.96
Cumulative effect of accounting change........................... -- -- -- -- 15.0 .11
--------- --------- --------- --------- --------- ----------
Net income available to common shareholders...................... $ 331.8 $ 2.45 $ 408.7 $ 2.94 $ 428.2 $ 3.07
========= ========= ========= ========= ========= ==========
Average shares outstanding....................................... 135.3 138.2 138.1
Shares contingently issuable for stock plan...................... .3 .7 1.4
--------- --------- ---------
Average shares outstanding, assuming full dilution............... 135.6 138.9 139.5
========= ========= =========
</TABLE>
This calculation is submitted in accordance with the regulations of the
Securities and Exchange Commission although not required by APB Opinion No. 15
because it results in dilution of less than 3 percent in all years presented.
<PAGE>
EXHIBIT 12
Rhone-Poulenc Rorer Inc.
Computation of Ratio of Earnings to Fixed Charges and
Ratio of Earnings to Fixed Charges and Preferred Dividends
(In millions except for ratios)
<TABLE>
<CAPTION>
Years Ended December 31,
- ------------------------------------------------------------------------------------
Pro
Actual Forma
1994 1993 1992 1991 1990 1990
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income before income taxes and
minority interest................... $488 $594 $584 $486 $ 17 $232
Add:
Portion of rents representative of the
interest factor..................... 18 16 9 9 7 8
Interest on indebtedness................ 55 71 125 165 183 247
Amortization of capitalized interest.... 9 6 3 2 2 2
- ------------------------------------------------------------------------------------
Income as adjusted...................... $570 $687 $721 $662 $209 $489
====================================================================================
Interest on indebtedness................ 55 71 125 165 183 247
Capitalized interest.................... 3 4 15 21 8 9
Portion of rents representative of the
interest factor..................... 18 16 9 9 7 8
- ------------------------------------------------------------------------------------
Fixed charges........................... 76 91 149 195 198 264
Preferred dividends..................... 25 16 14 -- -- --
- ------------------------------------------------------------------------------------
Fixed charges and preferred dividends... $101 $107 $163 $195 $198 $264
====================================================================================
Ratio of earnings to fixed charges...... 7.5 7.5 4.8 3.4 1.1 1.9
====================================================================================
Ratio of earnings to fixed charges and
preferred dividends................. 5.6 6.4 4.4 3.4 1.1 1.9
====================================================================================
</TABLE>
<PAGE>
EXHIBIT 21
RHONE-POULENC RORER INC.
SUBSIDIARIES
Agrico Limited (U.K.)
American Lecithin, Inc.
Approved Prescription Services Limited (U.K.)
APS Health Ltd. (U.K.)
Armour Laboratoires (France)
Armour Pharma GmbH (Germany)
Armour Pharmaceutica LTDA (Brazil)
Armour Pharmaceutical Co. (De)
Armour Pharmaceutical Company Ltd. (U.K.)
Armour Pharmaceutical Holdings Limited (U.K.)
Armour Pharmaceutical Products Inc.(De)
Barcroft Company (De)
Bellon (France)
Berk Pharma A/S (Denmark)
Berk Pharmaceuticals Limited (U.K.)
Biovital Laboratoires (France)
Biovital Vertriebs, GmbH (Germany)
Bottu (France)
BRG Partnership (De)
Co-Frusamil Limited (U.K.)
Dermik II (De)
Dermik Labs, Inc. (De)
DeRoc Partnership (De)
Dicoss A.G. (Switzerland)
Dipharm A.G. (Switzerland)
Dr. Schieffer Arznei GmbH (Germany)
Dr. Schieffer Arzneimittel A.G. (Switzerland)
Dr. Schieffer International Arzneimittel GmbH (Germany)
Inmobiliaria RPR, S.A. de C.V. (Mexico)
May & Baker Limited (U.K.)
May & Baker Limited U.K. (U.K.)
May & Baker Pharma Inc. (Canada)
May & Baker Pharmaceuticals Limited (U.K.)
Natrapharm (Ireland) LTD
Nattermann & CIE GmbH (Germany)
Nattermann de Mexico (Mexico)
Nattermann Espana S.A. (Spain)
Nattermann International GmbH (Germany)
Performances Chimiques (France)
Pharmatec Limited (U.K.)
Pharmindustrie S.A. (France)
Piraud A.G. (Switzerland)
Plasma Alliance Inc. (De)
R-PR BRG Group Inc. (De)
R-PR IPL Group Inc. (De)
Rhodiapharm Inc. (Canada)
Rhone-Poulenc Bangladesh Ltd. (Bangladesh)
Rhone-Poulenc Indonesia Pharma (Indonesia)
Rhone-Poulenc Labo (France)
Rhone-Poulenc Pharma (Cameroon)
Rhone-Poulenc Pharma AB (Sweden)
Rhone-Poulenc Pharma AG (Switzerland)
Rhone-Poulenc Pharma Cologne GmbH (Germany)
Rhone-Poulenc Rorer (El Salvador) S.A. DE C.V. (El Salvador)
Rhone-Poulenc Rorer (Morocco)
<PAGE>
EXHIBIT 21
RHONE-POULENC RORER INC.
SUBSIDIARIES
Rhone-Poulenc Rorer A.G. (Switzerland)
Rhone-Poulenc Rorer Aebe (Greece)
Rhone-Poulenc Rorer AS (Denmark)
Rhone-Poulenc Rorer Australia Pty. Ltd. (Australia)
Rhone-Poulenc Rorer B.V. (Netherlands)
Rhone-Poulenc Rorer Belgium (Belgium)
Rhone-Poulenc Rorer Biologie (France)
Rhone-Poulenc Rorer Canada Inc. (Canada)
Rhone-Poulenc Rorer Caribbean Inc. (Puerto Rico)
Rhone-Poulenc Rorer De Centro America (Guatemala) S.A. (Guatemala)
Rhone-Poulenc Rorer de Venezuela, S.A.
Rhone-Poulenc Rorer Doma (France)
Rhone-Poulenc Rorer Export LTD (UK)
Rhone-Poulenc Rorer GmbH (Germany)
Rhone-Poulenc Rorer Graham J.V.
Rhone-Poulenc Rorer Holdings LTD (U.K.)
Rhone-Poulenc Rorer Holdings Ltd. (Ireland)
Rhone-Poulenc Rorer Inc. (Pa)
Rhone-Poulenc Rorer Ingenierie (France)
Rhone-Poulenc Rorer International Holdings Inc. (De)
Rhone-Poulenc Rorer Ireland Ltd. (Ireland)
Rhone-Poulenc Rorer Japan, Inc. (Japan)
Rhone-Poulenc Rorer Korea (Korea)
Rhone-Poulenc Rorer Multiservices (France)
Rhone-Poulenc Rorer New Zealand Ltd. (New Zealand)
Rhone-Poulenc Rorer Pakistan (PVT) Ltd. (Pakistan)
Rhone-Poulenc Rorer Panama S.A. (Panama)
Rhone-Poulenc Rorer Participations (France)
Rhone-Poulenc Rorer Pharm Products (De)
Rhone-Poulenc Rorer Pharma Specialties (France)
Rhone-Poulenc Rorer Pharma Z.O.O. (Poland)
Rhone-Poulenc Rorer Pharmaceutical Limited (Ireland)
Rhone-Poulenc Rorer Pharmaceuticals Inc. (De)
Rhone-Poulenc Rorer Pharmaservices (France)
Rhone-Poulenc Rorer Philippines Inc. (Philippines)
Rhone-Poulenc Rorer Portugal
Rhone-Poulenc Rorer Portugal
Rhone-Poulenc Rorer Principes Actifs (France)
Rhone-Poulenc Rorer Propharm (France)
Rhone-Poulenc Rorer R&D (France)
Rhone-Poulenc Rorer S.A. (Argentina)
Rhone-Poulenc Rorer S.A. (Chile)
Rhone-Poulenc Rorer S.A. (France)
Rhone-Poulenc Rorer S.A. (Pty.) Ltd. (South Africa)
Rhone-Poulenc Rorer S.A. (Spain)
Rhone-Poulenc Rorer S.A. De C.V. (Mexico)
Rhone-Poulenc Rorer S.A.(Uruguay)
Rhone-Poulenc Rorer S.p.A. (Italy)
Rhone-Poulenc Rorer Thailand
Rhone-Poulenc Rorer Z.O.O. (Poland)
Rorer (U.K.) Limited
Rorer A.G. (Switzerland)
Rorer De Equador S.A. (Equador)
Rorer Finanziaria S.p.A. (Italy)
Rorer Ges.m.b.h. (Austria)
Rorer GmbH (Germany)
<PAGE>
EXHIBIT 21
RHONE-POULENC RORER INC.
SUBSIDIARIES
Rorer Health Care Holdings Limited (U.K.)
Rorer Health Care Limited (U.K.)
Rorer Health Care Staff Pension Trustee Co. Limited (U.K.)
Rorer Health Care Staff Pensions Limited (U.K.)
Rorer Holdings B.V. (Netherlands)
Rorer International Corporation (Pa)
Rorer International Ltd. (Hong Kong)
Rorer Pharmaceutical Pte. Ltd. (Singapore)
Rorer Pharmaceuticals Limited (U.K.)
Rorer S.A. (Colombia)
Rorer S.A. Zug (Switzerland)
RPC Inc. (De)
S.I.P.O.A. (Senegal)
Sedapharm (France)
Sopar Pharma (Belgium)
SPCA - Barcroft E.U.R.L. (France)
Specia (France)
Theraplix (France)
U.S. Ethicals Inc. (N.Y.)
Wampole Inc. (Canada)
Whitney Bay Insurance LTD. (Bermuda)
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of Rhone-Poulenc Rorer Inc. (formerly Rorer Group Inc.) on Form S-3
(Registration No. 33-62052, Registration No. 33-36558, Registration No. 33-
30795, Registration No. 33-23754, Registration No. 15671, Registration No.
33-43941, Registration No. 33-53378 and Registration No. 33-55694) and on
Form S-8 (Registration No. 33-58998, Registration No. 33-24537, Registration
No. 2-61635, Registration No. 2-78374 and Registration No. 33-21902) of our
report dated January 20, 1995, on our audits of the consolidated financial
statements of Rhone-Poulenc Rorer Inc. and subsidiaries as of December 31,
1994 and 1993, and for the years ended December 31, 1994, 1993 and 1992,
which report is included in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
--------------------------------------
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
March 20, 1995
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a Director of
Rhone-Poulenc Rorer Inc. (the "Company"), hereby appoints Richard T.
Collier, Patrick Langlois and Richard B. Young, and each of them severally,
his true and lawful attorney-in-fact and agent, with full power of
substitution, acting in the name and on behalf of the undersigned, to
execute and to file with the Securities and Exchange Commission the
Company's Annual Report on Form 10-K for the year ended December 31, 1994
under the Securities Exchange Act of 1934, as amended (the "'34 Act"), and
to do all such other acts in compliance with the '34 Act and the rules,
regulations and requirements of the Securities Exchange Commission, which
said attorneys and agents, and each of them, may deem necessary or desirable
in connection therewith.
/s/Jean-Jacques Bertrand
(Name)
Dated: March 20, 1995
WITNESS:
/s/Richard B. Young
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a Director of
Rhone-Poulenc Rorer Inc. (the "Company"), hereby appoints Richard T.
Collier, Patrick Langlois and Richard B. Young, and each of them severally,
his true and lawful attorney-in-fact and agent, with full power of
substitution, acting in the name and on behalf of the undersigned, to
execute and to file with the Securities and Exchange Commission the
Company's Annual Report on Form 10-K for the year ended December 31, 1994
under the Securities Exchange Act of 1934, as amended (the "'34 Act"), and
to do all such other acts in compliance with the '34 Act and the rules,
regulations and requirements of the Securities Exchange Commission, which
said attorneys and agents, and each of them, may deem necessary or desirable
in connection therewith.
/s/Jean-Marc Bruel
(Name)
Dated: March 6, 1995
WITNESS
/s/Rudolph A. Muller
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a Director of
Rhone-Poulenc Rorer Inc. (the "Company"), hereby appoints Richard T.
Collier, Patrick Langlois and Richard B. Young, and each of them severally,
his true and lawful attorney-in-fact and agent, with full power of
substitution, acting in the name and on behalf of the undersigned, to
execute and to file with the Securities and Exchange Commission the
Company's Annual Report on Form 10-K for the year ended December 31, 1994
under the Securities Exchange Act of 1934, as amended (the "'34 Act"), and
to do all such other acts in compliance with the '34 Act and the rules,
regulations and requirements of the Securities Exchange Commission, which
said attorneys and agents, and each of them, may deem necessary or desirable
in connection therewith.
/s/Robert E. Cawthorn
(Name)
Dated: March 20, 1995
WITNESS:
/s/Richard B. Young
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a Director of
Rhone-Poulenc Rorer Inc. (the "Company"), hereby appoints Richard T.
Collier, Patrick Langlois and Richard B. Young, and each of them severally,
his true and lawful attorney-in-fact and agent, with full power of
substitution, acting in the name and on behalf of the undersigned, to
execute and to file with the Securities and Exchange Commission the
Company's Annual Report on Form 10-K for the year ended December 31, 1994
under the Securities Exchange Act of 1934, as amended (the "'34 Act"), and
to do all such other acts in compliance with the '34 Act and the rules,
regulations and requirements of the Securities Exchange Commission, which
said attorneys and agents, and each of them, may deem necessary or desirable
in connection therewith.
/s/Michel de Rosen
(Name)
Dated: March 20, 1995
WITNESS:
/s/Richard B. Young
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a Director of
Rhone-Poulenc Rorer Inc. (the "Company"), hereby appoints Richard T.
Collier, Patrick Langlois and Richard B. Young, and each of them severally,
his true and lawful attorney-in-fact and agent, with full power of
substitution, acting in the name and on behalf of the undersigned, to
execute and to file with the Securities and Exchange Commission the
Company's Annual Report on Form 10-K for the year ended December 31, 1994
under the Securities Exchange Act of 1934, as amended (the "'34 Act"), and
to do all such other acts in compliance with the '34 Act and the rules,
regulations and requirements of the Securities Exchange Commission, which
said attorneys and agents, and each of them, may deem necessary or desirable
in connection therewith.
/s/Charles-Henri Filippi
(Name)
Dated: March 1, 1995
WITNESS:
/s/Richard B. Young
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a Director of
Rhone-Poulenc Rorer Inc. (the "Company"), hereby appoints Richard T.
Collier, Patrick Langlois and Richard B. Young, and each of them severally,
his true and lawful attorney-in-fact and agent, with full power of
substitution, acting in the name and on behalf of the undersigned, to
execute and to file with the Securities and Exchange Commission the
Company's Annual Report on Form 10-K for the year ended December 31, 1994
under the Securities Exchange Act of 1934, as amended (the "'34 Act"), and
to do all such other acts in compliance with the '34 Act and the rules,
regulations and requirements of the Securities Exchange Commission, which
said attorneys and agents, and each of them, may deem necessary or desirable
in connection therewith.
/s/Claude Helene
(Name)
Dated: March 1, 1995
WITNESS:
/s/Richard B. Young
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a Director of
Rhone-Poulenc Rorer Inc. (the "Company"), hereby appoints Richard T.
Collier, Patrick Langlois and Richard B. Young, and each of them severally,
his true and lawful attorney-in-fact and agent, with full power of
substitution, acting in the name and on behalf of the undersigned, to
execute and to file with the Securities and Exchange Commission the
Company's Annual Report on Form 10-K for the year ended December 31, 1994
under the Securities Exchange Act of 1934, as amended (the "'34 Act"), and
to do all such other acts in compliance with the '34 Act and the rules,
regulations and requirements of the Securities Exchange Commission, which
said attorneys and agents, and each of them, may deem necessary or desirable
in connection therewith.
/s/Michael H. Jordan
(Name)
Dated: March 20, 1995
WITNESS:
/s/Richard B. Young
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a Director of
Rhone-Poulenc Rorer Inc. (the "Company"), hereby appoints Richard T.
Collier, Patrick Langlois and Richard B. Young, and each of them severally,
his true and lawful attorney-in-fact and agent, with full power of
substitution, acting in the name and on behalf of the undersigned, to
execute and to file with the Securities and Exchange Commission the
Company's Annual Report on Form 10-K for the year ended December 31, 1994
under the Securities Exchange Act of 1934, as amended (the "'34 Act"), and
to do all such other acts in compliance with the '34 Act and the rules,
regulations and requirements of the Securities Exchange Commission, which
said attorneys and agents, and each of them, may deem necessary or desirable
in connection therewith.
/s/Manfred E. Karobath, MD
(Name)
Dated: March 1, 1995
WITNESS:
/s/Richard B. Young
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a Director of
Rhone-Poulenc Rorer Inc. (the "Company"), hereby appoints Richard T.
Collier, Patrick Langlois and Richard B. Young, and each of them severally,
his true and lawful attorney-in-fact and agent, with full power of
substitution, acting in the name and on behalf of the undersigned, to
execute and to file with the Securities and Exchange Commission the
Company's Annual Report on Form 10-K for the year ended December 31, 1994
under the Securities Exchange Act of 1934, as amended (the "'34 Act"), and
to do all such other acts in compliance with the '34 Act and the rules,
regulations and requirements of the Securities Exchange Commission, which
said attorneys and agents, and each of them, may deem necessary or desirable
in connection therewith.
/s/Igor Landau
(Name)
Dated: March 20, 1995
WITNESS:
/s/Richard B. Young
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a Director of
Rhone-Poulenc Rorer Inc. (the "Company"), hereby appoints Richard T.
Collier, Patrick Langlois and Richard B. Young, and each of them severally,
his true and lawful attorney-in-fact and agent, with full power of
substitution, acting in the name and on behalf of the undersigned, to
execute and to file with the Securities and Exchange Commission the
Company's Annual Report on Form 10-K for the year ended December 31, 1994
under the Securities Exchange Act of 1934, as amended (the "'34 Act"), and
to do all such other acts in compliance with the '34 Act and the rules,
regulations and requirements of the Securities Exchange Commission, which
said attorneys and agents, and each of them, may deem necessary or desirable
in connection therewith.
/s/James S. Riepe
(Name)
Dated: March 14, 1995
WITNESS:
/s/Jeanne Marie B. Patella
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a Director of
Rhone-Poulenc Rorer Inc. (the "Company"), hereby appoints Richard T.
Collier, Patrick Langlois and Richard B. Young, and each of them severally,
his true and lawful attorney-in-fact and agent, with full power of
substitution, acting in the name and on behalf of the undersigned, to
execute and to file with the Securities and Exchange Commission the
Company's Annual Report on Form 10-K for the year ended December 31, 1994
under the Securities Exchange Act of 1934, as amended (the "'34 Act"), and
to do all such other acts in compliance with the '34 Act and the rules,
regulations and requirements of the Securities Exchange Commission, which
said attorneys and agents, and each of them, may deem necessary or desirable
in connection therewith.
/s/Edward J. Stemmler, MD
(Name)
Dated: March 3, 1995
WITNESS:
/s/Richard B. Young
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a Director of
Rhone-Poulenc Rorer Inc. (the "Company"), hereby appoints Richard T.
Collier, Patrick Langlois and Richard B. Young, and each of them severally,
his true and lawful attorney-in-fact and agent, with full power of
substitution, acting in the name and on behalf of the undersigned, to
execute and to file with the Securities and Exchange Commission the
Company's Annual Report on Form 10-K for the year ended December 31, 1994
under the Securities Exchange Act of 1934, as amended (the "'34 Act"), and
to do all such other acts in compliance with the '34 Act and the rules,
regulations and requirements of the Securities Exchange Commission, which
said attorneys and agents, and each of them, may deem necessary or desirable
in connection therewith.
/s/Jean-Pierre Tirouflet
(Name)
Dated: March 6, 1995
WITNESS:
/s/Rudolph A. Muller
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a Director of
Rhone-Poulenc Rorer Inc. (the "Company"), hereby appoints Richard T. Collier,
Patrick Langlois and Richard B. Young, and each of them severally, his true and
lawful attorney-in-fact and agent, with full power of substitution, acting in
the name and on behalf of the undersigned, to execute and to file with the
Securities and Exchange Commission the Company's Annual Report on Form 10-K for
the year ended December 31, 1994 under the Securities Exchange Act of 1934, as
amended (the "'34 Act"), and to do all such other acts in compliance with the
'34 Act and the rules, regulations and requirements of the Securities Exchange
Commission, which said attorneys and agents, and each of them, may deem
necessary or desirable in connection therewith.
/s/ Peter J. Neff
(Name)
Dated: March 14, 1995
WITNESS:
/s/ Michele Fabre
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
CONSOLIDATED BALANCE SHEET AND THE RELATED CONDENSED CONSOLIDATED STATEMENT OF
INCOME FOR THE YEAR ENDED DECEMBER 31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 100,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 1,188
<SECURITIES> 0
<RECEIVABLES> 8,047
<ALLOWANCES> 746
<INVENTORY> 5,469
<CURRENT-ASSETS> 18,923
<PP&E> 21,728
<DEPRECIATION> 10,498
<TOTAL-ASSETS> 43,625
<CURRENT-LIABILITIES> 13,672
<BONDS> 0
<COMMON> 1,391
0
4,000
<OTHER-SE> 14,420
<TOTAL-LIABILITY-AND-EQUITY> 43,625
<SALES> 41,746
<TOTAL-REVENUES> 41,746
<CGS> 13,712
<TOTAL-COSTS> 36,044
<OTHER-EXPENSES> 379
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 471
<INCOME-PRETAX> 4,852
<INCOME-TAX> 1,342
<INCOME-CONTINUING> 3,510
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,318
<EPS-PRIMARY> 2.45
<EPS-DILUTED> 2.45
</TABLE>
<PAGE>
PENSION PLAN OF
RHONE-POULENC RORER INC.
AMENDED AND RESTATED
EFFECTIVE JANUARY 1, 1989
<PAGE>
PENSION PLAN OF
RHONE-POULENC RORER INC.
WHEREAS, William H. Rorer, Inc., a Pennsylvania corporation, adopted
the Pension Plan of William H. Rorer, Inc. for its employees, effective January
1, 1958, and effective January 1, 1979, sponsorship of the Pension Plan of
William H. Rorer, Inc., was assigned to Rorer Group Inc., a Pennsylvania
corporation, of which William H. Rorer, Inc. is a wholly-owned subsidiary; and
WHEREAS, the Pension Plan of William H. Rorer, Inc. was renamed as the
Pension Plan of Rorer Group Inc. (the "Plan"); and
WHEREAS, effective January 1, 1984, Rorer Group Inc. amended and
restated the Plan to comply with the requirements of the Employee Retirement
Income Security Act of 1974 and with the Internal Revenue Code of 1954, as
amended; and
WHEREAS, effective January 1, 1992, the Pension Plan of Rorer Group
Inc. was renamed as the Pension Plan of Rhone-Poulenc Rorer Inc.; and
WHEREAS, Rhone-Poulenc Rorer Inc. desires at this time to amend and
restate the Plan to incorporate the amendments necessary to comply with the Tax
Reform Act of 1986, the Omnibus Budget Reconciliation Acts of 1986 and 1987 and
the Technical and Miscellaneous Revenue Act of 1988 and all other subsequent
applicable legislation. Except where a different effective date is provided
herein, the terms of the Plan, as amended and restated, shall apply only to an
Employee who terminates employment on or after January 1, 1989. The rights and
benefits,
-i-
<PAGE>
if any, of other employees shall be determined in accordance with the provisions
of the Plan as it existed prior to that date.
NOW, THEREFORE, effective January 1, 1989, the Plan is continued,
amended and restated as hereinafter set forth:
-ii-
<PAGE>
ARTICLE I
---------
DEFINITIONS
-----------
Except where otherwise clearly indicated by context, the masculine
shall include the feminine, the singular shall include the plural, and vice-
versa.
1.1 "Accrued Benefit" shall mean at any time the portion of the
---------------
Participant's monthly benefit earned to the date that the determination is made,
calculated in accordance with Article V, based upon his Final Average
Compensation and his Years of Credited Service as of that date.
1.2 "Actuarially Equivalent" shall mean having or that which has
----------------------
equal actuarial value based on the assumptions and factors described in
Schedule A.
1.3 "Actuary" shall mean the actuarial firm selected by the
-------
Committee which has a member who meets all applicable governmental requirements
for enrollment then in effect.
1.4 "Affiliated Company" shall mean any entity (a) which, with a
------------------
Participating Company, constitutes (1) a "controlled group of corporations"
within the meaning of section 414(b) of the Code, (2) a "group of trades or
businesses under common control" within the meaning of section 414(c) of the
Code, or (3) an "affiliated service group" within the meaning of section 414(m)
of the Code or (b) which is required to be aggregated with a Participating
Company pursuant to regulations under section 414(o) of the Code. An entity
shall be considered an Affiliated Company only with respect to such period as
the relationship described in the preceding sentence exists. When
-1-
<PAGE>
the term "Affiliated Company" is used in Section 5.7 of the Plan, sections
414(b) and (c) of the Code shall be deemed modified by application of the
provisions of section 415(h) of the Code, which substitutes the phrase "more
than 50 percent" for the phrase "at least 80 percent" in section 1563(a)(1) of
the Code, which is then incorporated by reference in sections 414(b) and (c).
With respect to a Foreign Subsidiary Employee, a Foreign Subsidiary should also
be considered an Affiliated Company, but only with respect to such period during
which such relationship exists.
1.5 "Annuity Starting Date" shall mean the date as of which the
---------------------
first benefit payment (whether a single sum or an annuity installment payment)
is made (or the date such payment is due, if such payment is delayed) to the
Participant (or to the Spouse if the Participant's death occurs prior to such
date).
1.6 "Board" shall mean the Board of Directors of the Company or any
-----
successor thereto.
1.7 "Code" shall mean the Internal Revenue Code of 1986, as
----
amended and the regulations promulgated thereunder.
1.8 "Committee" shall mean the persons who are designated by the
---------
Board to supervise the administration of the Plan, as hereinafter provided.
1.9 "Company" shall mean Rhone-Poulenc Rorer Inc.
-------
1.10 "Compensation" shall mean the actual base compensation paid to
------------
a Participant by either a Participating Company or an Affiliated Company, or
both. Compensation shall
-2-
<PAGE>
include any amount which is contributed by a Participating Company or by an
Affiliated Company to a plan pursuant to a salary reduction agreement and which
is not includible in the gross income of the Participant under Sections 125 or
402(e)(3) of the Code.
1.11 "Covered Compensation" shall mean the thirty-five year average
--------------------
of the Social Security maximum taxable wage bases (rounded according to the
tables provided in Rev. Rul. 93-20) in effect as of the last day of the calendar
year in which a Participant attains his Social Security Retirement Age, as that
term is defined in Section 5.8 hereof. In determining a Participant's Covered
Compensation for a Plan Year, the taxable wage base for the Plan Year of
reference and any subsequent Plan Year shall be assumed to be the same as the
taxable wage base in effect as of the beginning of the Plan Year of reference.
A Participant's Covered Compensation for any Plan Year commencing after the 35-
year period described above is the Participant's Covered Compensation for the
Plan Year during which the Participant attained his Social Security Retirement
Age. A Participant's Covered Compensation for a Plan Year commencing prior to
the 35-year period described above is the taxable wage base in effect as of the
beginning of such Plan Year. For purposes of this Section, "taxable wage base"
means the contribution and benefit base under section 230 of the Social Security
Act (42 U.S.C. (S)430).
-3-
<PAGE>
1.12 "Disability Retirement Date" shall mean the first day of the
--------------------------
calendar month coincident with or next following the day on which a Participant
(a) is determined by the Committee to have suffered a Total Disability which has
continued for a period of five months, (b) ceases to be employed by the
Participating Company and all Affiliated Companies on account of such Total
Disability and (c) has been credited with 5 or more Years of Service.
1.13 "Earliest Retirement Age" shall mean, for purposes of Section
-----------------------
1.31, the earlier of (a) the date on which the Participant is entitled to a
distribution under the Plan or (b) the later of (i) the date the Participant
attains age 55, or (ii) the earliest date on which, under the Plan, the
Participant could elect to receive benefits if the Participant incurred a
Termination Date.
1.14 "Early Retirement Date" shall mean the first day of the
---------------------
calendar month coincident with or next following the day on which a Participant
(a) attains age 55, (b) is credited with 5 Years of Service and (c) ceases to be
employed by a Participating Company and all Affiliated Companies.
1.15 "Effective Date" shall mean January 1, 1989, the effective date
--------------
of this amended and restated Plan. The Prior Plan was originally effective on
January 1, 1958.
1.16 "Employee" shall mean any employee and of a Participating
--------
Company (including a Foreign Subsidiary ) in the United States who is not
covered by a collective bargaining
-4-
<PAGE>
agreement, unless the same provides for participation hereunder. The term
"Employee" shall not include a leased employee within the meaning of Sections
414(n) and 414(o) of the Code. "Foreign Subsidiary Employee" shall mean a
---------------------------
citizen of the United States who is employed by a Foreign Subsidiary and who is
designated as a Foreign Subsidiary Employee by the Committee as shown in the
attached List A.
1.17 "ERISA" shall mean the Employee Retirement Income Security Act
-----
of 1974, as amended and the regulations promulgated thereunder.
1.18 "Final Average Compensation" shall mean the average of a
--------------------------
Participant's Compensation for the 60 consecutive full calendar months in the
final 120 (or fewer) months of employment in an eligible classification with a
Participating Company which yields the highest average. Non-consecutive periods
of employment shall be aggregated for purposes of determining Final Average
Compensation if there have been intervening breaks in service or periods for
which no Years of Service credit were given. In excluding any intervening
breaks in service or periods, the Plan shall comply with Treasury Regulation
(S)1.401(a)(4)-3(e). If an Employee does not have 60 consecutive months of
employment in an eligible classification with a Participating Company, his Final
Average Compensation shall be the annual amount determined by dividing his
Compensation during his period of Years of Credited Service by the number of
years and fractional years thereof, based on
-5-
<PAGE>
completed months. For purposes of determining Final Average Compensation,
remuneration that was paid in any currency other than U.S. dollars will be
converted to U.S. dollars on a monthly basis.
Notwithstanding the above, annual Compensation taken into account in
determining Final Average Compensation shall not exceed $200,000 ($150,000,
effective January 1, 1994), or such other amount as may be applicable under Code
section 401(a)(17) (the "Section 401(a)(17) Compensation Limit"). Except as
provided below, the Section 401(a)(17) Compensation Limit in effect for a
calendar year applies to any period, not exceeding 12 months, over which
Compensation is determined ("determination period") and which begins in such
calendar year. Compensation for any determination period beginning prior to
1989 that is taken into account in determining a Participant's Final Average
Compensation as of a date on or after January 1, 1989 but prior to January 1,
1994 is subject to the Section 401(a)(17) Compensation Limit in effect for 1989.
Compensation for any determination period beginning prior to January 1, 1994
that is taken into account in determining a Participant's Final Average
Compensation as of a date on or after January 1, 1994 is subject to the Section
401(a)(17) Compensation Limit in effect for 1994.
If a determination period consists of fewer than 12 months, the
Section 401(a)(17) Compensation Limit will be multiplied by a fraction, the
numerator of which is the number of months in the determination period, and the
denominator of which
-6-
<PAGE>
is 12. In determining Compensation for purposes of applying the Section
401(a)(17) Compensation Limit, the rules of section 414(q)(6) of the Code shall
apply, except that "family members" shall include only the Spouse of the
Employee and any lineal descendants who have not attained age 19 before the end
of the determination period. If, as a result of the application of the rules of
Code section 414(q)(6), the limitation is exceeded, then the limitation shall be
prorated among the family members in proportion to each such family member's
Compensation as determined prior to the application of this limitation.
1.19 "415 Compensation" shall mean a Participant's remuneration
----------------
including wages, salaries, fees for professional services and other amounts
received for personal services actually rendered in the course of employment
with a Participating Company or an Affiliated Company to the extent that such
amounts are includible in gross income, including overtime, bonuses, premium
time, etc., but excluding the following:
(a) contributions to a deferred compensation plan which, without
regard to Section 415 of the Code, are not includable in the Participant's gross
income for the taxable year in which contributed;
(b) contributions made on behalf of a Participant to a simplified
employee pension described in section 408(k) of the Code;
-7-
<PAGE>
(c) distributions from a deferred compensation plan (regardless of
whether such amounts are includible in gross income);
(d) amounts realized from the exercise of a non-qualified stock
option, or when restricted stock (or property) held by a Participant either
becomes freely transferable or is no longer subject to a substantial risk of
forfeiture;
(e) amounts realized from the sale, exchange or other disposition of
stock acquired under a qualified stock option; and
(f) other amounts which receive special tax benefits, such as premiums
for group term life insurance (to the extent excludable from gross income).
For purposes of the definition of "Key Employee" in Section 12.2,
415 Compensation shall include elective contributions that are excluded from
gross income under section 125, 402(e)(3), 402(h) or 403(b) of the Code.
1.20 "Fund" shall mean the fund established for this Plan,
----
administered under the Trust Agreement, out of which benefits payable under this
Plan shall be paid.
1.21 "Highly Compensated Employee" shall mean as follows:
---------------------------
(a) The term "Highly Compensated Employee" generally means an
Employee who performs services for a Participating Company or an Affiliated
Company during the current
-8-
<PAGE>
Plan Year and in the immediately preceding Plan Year and who during such current
Plan Year or the immediately preceding Plan Year:
(1) was at any time a 5% owner, as defined in section 416
(i) of the Code;
(2) received 415 Compensation from the Participating
Company or an Affiliated Company in excess of $75,000, as adjusted by the
Secretary of the Treasury in accordance with section 415(d) of the Code;
(3) received annual Compensation from the Participating
Company or an Affiliated Company in excess of $50,000, as adjusted by the
Secretary of the Treasury in accordance with section 415(d) of the Code, and was
in the top-paid group of Employees for such Plan Year; or
(4) was at any time an officer and received annual
Compensation from the Participating Company or an Affiliated Company greater
than 50% of the amount in effect under section 415(b)(1)(A) of the Code.
(b) Highly Compensated Employees also include any Employee who
is performing services for the Participating Company or an Affiliated Company
during the current Plan Year and in the current Plan Year is a 5% owner or is
described in paragraph (2), (3) or (4) of subsection (a) hereof and is a member
of the group consisting of the 100 Employees paid the greatest Compensation
during the current Plan Year.
-9-
<PAGE>
(c) An Employee is in the top-paid group of Employees for any
Plan Year if such Employee is in the group consisting of the top 20% of the
Employees when ranked on the basis of Compensation for such Plan Year. For
purposes of determining the number of Employees in the top-paid group, Employees
described in section 414(q)(8) of the Code shall be excluded to the extent (A)
permitted under section 414(q)(8) of the Code and regulations thereunder and (B)
elected by the Committee.
(d) For purposes of paragraph (4) of subsection (a) hereof, no
more than 50 Employees (or, if lesser, the greater of 3 Employees or 10% of all
Employees, excluding Employees described in section 414(q)(8) of the Code) shall
be treated as officers, and if for any Plan Year no officer is described in such
paragraph, the highest paid officer for such Plan Year shall be treated as
described in such paragraph.
(e) If any person is a member of the family of a 5% owner who
is an Employee or former Employee or of a Highly Compensated Employee in the
group consisting of the 10 Highly Compensated Employees with the greatest
Compensation for the current Plan Year or the immediately preceding Plan Year,
such person shall not be considered a separate Employee. The term "family" shall
mean, with respect to any Employee or former Employee, such Employee's spouse
and lineal ascendants or descendants and the spouses of such lineal ascendants
or descendants.
-10-
<PAGE>
(f) A former Employee shall be treated as a Highly Compensated
Employee, if such Employee was a Highly Compensated Employee while an active
Employee in either the Plan Year in which such Employee separated from service
or in any Plan Year ending on or after his 55th birthday.
1.22 "Hour of Service" shall mean an hour for which:
---------------
(a) an Employee is directly or indirectly paid or entitled to
payment by a Participating Company or an Affiliated Company for the performance
of employment duties;
(b) back pay, irrespective of mitigation of damages, is ether
awarded or agreed to;
(c) an Employee is directly or indirectly paid or entitled
to payment by a Participating Company or an Affiliated Company on account of a
period of time during which no duties are performed due to vacation, holiday,
illness, incapacity (including disability), jury duty, lay-off, leave of
absence, or military duty;
(d) an Employee is on Total Disability; and
(e) each hour that constitutes part of the Employee's customary
work week during any period of absence in the armed forces of the United States,
provided that (1) such absence is with the approval of the Participating Company
or pursuant to a national conscription law, (2) the Employee receives an
honorable discharge, and (3) the Employee returns to employment with the
Participating Company within 90 days after
-11-
<PAGE>
his release from active service or any longer period during which his right to
reemployment is protected by law.
There shall be excluded from the foregoing those periods during which
payments are made or due under a plan maintained solely for the purpose of
complying with applicable workers' compensation, unemployment compensation or
disability insurance laws. No more than 501 Hours of Service shall be credited
under Subsection (c) on account of any single continuous period during which no
duties are performed except to the extent otherwise provided in this Plan. An
Hour of Service shall not be credited where an Employee is being reimbursed
solely for medical or medically related expenses.
No Hours of Service shall be credited twice. Hours of Service shall
be credited in accordance with the rules set forth in Department of Labor Reg.
(S)2530.200b-2(b) and (c).
Notwithstanding the foregoing, the Committee may, in accordance with
uniform rules non-discriminatorily applied, elect to credit Hours of Service
using one or more of the following equivalencies:
<TABLE>
<CAPTION>
Basis Upon Which Records Credit Granted to Individual
Are Maintained For Period
- ------------------------ ----------------------------
<S> <C>
shift actual hours for full shift
day 10 Hours of Service
week 45 Hours of Service
semi-monthly period 95 Hours of Service
month 190 Hours of Service
</TABLE>
-12-
<PAGE>
1.23 "Late Retirement Date" shall mean the first day of the calendar
--------------------
month coincident with or next following the day on which a Participant's
employment with a Participating Company and all Affiliated Companies has ceased
after the Participant's Normal Retirement Date.
1.24 "Normal Retirement Date" shall mean the first day of the
----------------------
calendar month coincident with or next following the latter of the Participant's
attainment of age 65 or the fifth anniversary of his participation in the Plan.
1.25 "Participant" shall mean an Employee entitled to participate in
-----------
this Plan, a former Employee receiving benefits under the Plan or the Prior
Plan, a former Employee who has been transferred out of Employee status and who
continues to be employed by a Participating Company or an Affiliated Company and
a former Employee whose employment with a Participating Company and all
Affiliated Companies has ceased with vested rights under the Plan.
1.26 "Participating Company" shall mean the Company and each other
----------------------
Domestic or Foreign Subsidiary which is designated by the Board to adopt this
Plan.
1.27 "Plan" shall mean the Pension Plan of Rhone-Poulenc Rorer Inc.,
----
as set forth herein (including any Schedules and Exhibits) and as hereafter
amended from time to time.
1.28 "Plan Year" shall mean a twelve month period which shall
---------
commence each January 1 and end on the next following December 31.
-13-
<PAGE>
1.29 "Predecessor Company" shall mean each corporation that is a
-------------------
predecessor in interest to the Participating Company whether due to merger,
consolidation, asset acquisition or stock acquisition.
1.30 "Prior Plan" shall mean the Pension Plan of Rorer Group Inc.,
----------
as maintained by the Participating Company immediately prior to the Effective
Date.
1.31 "Qualified Domestic Relations Order" shall mean a judgment,
----------------------------------
decree or order (including approval of a property settlement agreement) made
pursuant to a state domestic relations law (including a community property law)
which:
(a) relates to the provision of child support, alimony payments or
marital property rights to a Spouse, former spouse, child or other dependent of
a Participant (the "Alternate Payee");
(b) creates or recognizes the existence of the Alternate Payee's
right to, or assigns to the Alternate Payee the right to, receive all or a
portion of the benefits payable to a Participant under this Plan;
(c) specifies (i) the name and last known mailing address (if any) of
the Participant and each Alternate Payee covered by the order, (ii) the amount
or percentage of the Participant's Plan benefits to be paid to the Alternate
Payee, or the manner in which such amount or percentage is to be determined, and
(iii) the number of payments or the period to
-14-
<PAGE>
which the order applies and each plan to which the order relates; and
(d) does not require the Plan to (i) provide any type or form of
benefit, or any option not otherwise provided under the Plan, (ii) provide
increased benefits, or (iii) pay benefits to the Alternate Payee that are
required to be paid to another Alternate Payee under a prior Qualified Domestic
Relations Order. Notwithstanding the foregoing, a Qualified Domestic Relations
Order may provide that a distribution commence on or after the date on which the
Participant attains, or would have attained his Earliest Retirement Age
regardless of whether the Participant has incurred a Termination Date, if the
Order directs (i) that the payment of the benefits be determined as if the
Participant had retired on the date on which payment is to begin under such
Order, taking into account only those amounts standing to the Participant's
credit on such date and (ii) that the payment be made in a form in which such
benefits may be paid under the Plan to the Participant other than in the form of
a joint and survivor annuity with respect to the Alternate Payee and his
subsequent spouse.
1.32 "Required Distribution Date" shall mean the April 1 of the
--------------------------
calendar year following the later of (a) the Plan Year in which the Participant
attains age 70 1/2; or (b) in the case of a Participant who attained age 70 1/2
before January 1, 1988, and who is not a five-percent owner (as defined in
section 416 of the Code) at any time during the five Plan Year period
-15-
<PAGE>
ending in the Plan Year in which the Participant attains age 70 1/2, the
calendar year in which the Participant retires. If a Participant described in
clause (b) becomes a 5% owner at any time after such 5-Plan-Year period, his
Required Distribution Date shall be April 1 of the calendar year following the
calendar year in which the Plan Year in which he becomes a 5% owner ends.
Notwithstanding the foregoing, in the case of a Participant who attained age 70-
1/2 on or after January 1, 1988, but before January 1, 1989, is not a 5% owner,
and has not had a Separation from Service before January 1, 1989, Required
Distribution Date shall mean April 1, 1990.
1.33 "Spouse" shall mean the person to whom a Participant is
------
married on the applicable date.
1.34 "Subsidiary" shall mean any corporation at least eighty percent
----------
(80%) of the outstanding voting stock of which is owned directly or indirectly
by Rhone-Poulenc Rorer Inc. "Domestic Subsidiary" shall mean any Subsidiary
-------------------
that is incorporated under the laws of any state or possession of the United
States or the District of Columbia. "Foreign Subsidiary" shall mean a foreign
------------------
business organization for which the Company has contracted to provide coverage
under Title II of the Social Security Act for services performed by such
organization's employees who are citizens of the United States and which has
been designated a Foreign Subsidiary by the Committee.
-16-
<PAGE>
1.35 "Termination Date" shall mean the earlier of the dates on which
----------------
an Employee dies or his employment terminates for any reason.
1.36 "Total Disability" shall mean a Participant's suffering a
----------------
disability of a nature which enables the Participant to qualify for and to
receive disability benefits under the Federal Social Security Act.
1.37 "Trust Agreement" shall mean the agreement and declaration of
---------------
trust executed under this Plan.
1.38 "Trustee" shall mean the corporate trustee or one or more
-------
individuals collectively appointed and acting under the Trust Agreement.
1.39 "Years of Credited Service" shall mean the number of full and
-------------------------
partial Plan Years counted with respect to determining an Employee's Accrued
Benefit under the Plan, as further described in Article III.
1.40 "Years of Service" shall mean the number of Plan Years counted
----------------
with respect to determining an Employee's vested status under the Plan, as
further described in Article III. With respect to an Employee's eligibility to
participate in the Plan pursuant to Section 2.3, a Year of Service shall mean
the twelve-month period commencing on the Employee's employment commencement
date and, commencing with the Plan Year in which that initial twelve-month
period ends, each and every full Plan Year. Years of Service shall include all
Plan Years during which an Employee is employed by an Affiliated Company after
the entity becomes an Affiliated Company.
-17-
<PAGE>
ARTICLE II
----------
TRANSITION AND ELIGIBILITY TO PARTICIPATE
-----------------------------------------
2.1 Rights Affected. Each former Employee who has retired or has
---------------
terminated service in an eligible classification before the Effective Date shall
receive no additional rights as a result of this amended and restated Plan, but
shall have his rights and benefits determined solely under the Prior Plan as in
effect before the Effective Date. Any former Employee who has terminated
employment in an eligible classification and who is reemployed as an Employee
after the Effective Date shall have the rights and benefits provided hereunder.
2.2 Preservation of Prior Plan Benefit. Subject to the maximum
----------------------------------
benefit limitations, in no event shall the Accrued Benefit of a Participant who
was a participant in the Prior Plan be less than the accrued benefit of such
Participant under the Prior Plan immediately before the Effective Date.
2.3 Eligibility to Participate.
--------------------------
(a) Each person who was a "participant" in the Prior Plan, as
that term is defined in the Prior Plan, immediately prior to the Effective Date
and who is in the employ of a Participating Company on the Effective Date shall
be a Participant hereunder as of such date. Each other Employee shall become a
Participant on the January 1st or July 1st coincident with or next following the
date on which he completes one Year of Service.
-18-
<PAGE>
(b) A Participant whose employment is terminated and who is later
reemployed by a Participating Company shall resume his participation in the Plan
on the January 1st or July 1st coincident with or next following the date of his
reemployment, retroactive to the date of his reemployment.
-19-
<PAGE>
ARTICLE III
-----------
SERVICE AND CREDITED SERVICE
----------------------------
3.1 Service for Eligibility for Benefits and Vesting. An Employee
------------------------------------------------
shall accrue a Year of Service for each Plan Year during which he is credited
with 1,000 or more Hours of Service. For purposes of this Section 3.1, an
Employee's Year of Service shall include his Hours of Service (i) while a
"leased employee" as defined in section 414(n) or 414(o) of the Code with a
Participating Company or an Affiliated Company, and (ii) while an employee
covered by the terms of a collective bargaining agreement that does not provide
for participation in this Plan.
3.2 Credited Service for Benefit Accrual. Except as provided in this
------------------------------------
Article, a Participant shall accrue a Year of Credited Service for each Plan
Year in which he completes the number of his regularly scheduled, weekly Hours
of Service (not to exceed 40), multiplied by 52, in an Employee status. For
purposes of this Section 3.2 and Section 3.3, a Participant shall accrue Years
of Credited Service only while in an eligible classification with the
Participating Company (including periods in which he would have been a
Participant but for the eligibility waiting period under Article II) to the
earliest of (a) transfer to an ineligible classification with the Participating
Company, (b) transfer to an Affiliated Company which has not adopted this Plan
or (c) termination of employment with the Participating
-20-
<PAGE>
Company and all Affiliated Companies for any other reason except for Total
Disability.
3.3 Partial Years of Credited Service.
---------------------------------
(a) A Participant who does not complete at least the number of
his regularly scheduled, weekly Hours of Service (not to exceed 40), multiplied
by 52, in his initial Plan Year of employment with a Participating Company shall
accrue one-twelfth (1/12th) of a Year of Credited Service for each calendar
month in such Plan Year during which he is credited with an Hour of Service.
However, if the Participant is not hired on the first day of a calendar month,
the first calendar month to be considered hereunder shall be the month next
following the Participant's date of hire.
(b) Except as provided for in subsection (c) below, a Participant
who does not complete at least the number of his regularly scheduled, weekly
Hours of Service (not to exceed 40), multiplied by 52, in any of his subsequent
Plan Year of employment with a Participating Company shall accrue one full Year
of Credited Service if he completes at least 1,000 Hours of Service during that
Plan Year.
(c) A Participant who does not complete at least the number of
his regularly scheduled, weekly Hours of Service (not to exceed 40), multiplied
by 52, in his final Plan Year of employment with a Participating Company shall
accrue one-twelfth (1/12th) of a Year of Credited Service for each calendar
-21-
<PAGE>
month in such Plan Year during which he is credited with an Hour of Service.
3.4 Special Rules
-------------
(a) For purposes of Sections 3.1 and 3.2 above, service with a
Predecessor Company shall be credited only upon the approval of the Committee,
unless such service is required to be credited for such purposes in accordance
with section 414(a) of the Code.
(b) For the purpose of Section 3.2, an Employee shall receive
credit for service during the five-month waiting period in which no disability
retirement benefits are paid, if he thereafter is determined to suffer a Total
Disability.
3.5 Breaks in Service.
-----------------
(a) Any Plan Year in which an Employee is not credited with more
than 500 Hours of Service shall constitute a one-year break in service;
provided, however, that if an Employee is absent for the following reasons, he
shall be credited with an Hour of Service, for purposes of this Section only,
for each Hour of Service he would have received if he had continued in the
active employ of the Participating Company during the following periods of
absence:
(1) layoff for a period not in excess of six months; provided
that the Participant returns to work promptly on receipt of notice to do so;
-22-
<PAGE>
(2) illness or accident for a period not in excess of one year;
provided that the Participant returns to work as soon as he is physically able;
(3) military service such that his reemployment is protected by
law; or
(4) leave of absence granted in accordance with established
leave of absence policies.
(b) Service credited under this Section shall not be credited for any
other purpose under the Plan unless such services are comprised of Hours of
Service.
(c) If a Participant is absent from work by reason of pregnancy,
childbirth or adoption, or for purposes of the care of such Participant's child
immediately after birth or adoption, such Participant shall be credited solely
for purposes of this Section with sufficient Hours of Service to avoid a break
in service in the Plan Year in which the absence commences or, if the
Participant already has more than 500 Hours of Service in such Plan Year, the
immediately following Plan Year. Hours of Service during such absence shall be
credited in an amount equal to the Hours of Service the Participant would have
had but for such absence or, if such hours cannot be determined, at the rate of
eight hours per normal workday. The total number of hours treated as Hours of
Service under this Section shall not exceed 501. In order to receive credit for
Hours of Service under this Section, a Participant must provide to the
Committee, in the form and manner prescribed by the Committee, information
establishing
-23-
<PAGE>
(a) that the absence from work is for reasons set forth in this paragraph and
(b) the number of days for which there was an absence. Nothing in this Section
shall be construed as expanding or amending any maternity or paternity leave
policy of a Participating Company.
3.6 Restoration of Service.
----------------------
(a) A Participant who has a vested interest under Section 6.1 and
who incurs a break in service shall have his pre-break and post-break service
with the Participating Company and Affiliated Companies aggregated for purposes
of Sections 3.1 and 3.2 on his reemployment by the Participating Company or an
Affiliated Company.
(b) A Participant who does not have a vested interest under
Section 6.1 and who incurs a break in service shall have his pre-break and post-
break service with the Participating Company and Affiliated Companies aggregated
for purposes of Sections 3.1 and 3.2 on his reemployment unless the period of
consecutive breaks in service exceeds the greater of (1) the number of Years of
Service prior to his break in service, or (2) five consecutive one year breaks
in service. If the consecutive breaks in service exceed the greater of (1) his
Years of Service before the break or (2) five, he shall receive no credit for
his pre-break service for purposes of Sections 3.1 and 3.2.
-24-
<PAGE>
ARTICLE IV
----------
ELIGIBILITY FOR BENEFITS
------------------------
4.1 Normal Retirement. A Participant shall be eligible for normal
-----------------
retirement benefits on his Normal Retirement Date. A Participant shall be fully
vested in his Accrued Benefit upon attaining his Normal Retirement Date.
4.2 Late Retirement. If a Participant continues his employment with
---------------
the Participating Company or an Affiliated Company beyond his Normal Retirement
Date, he shall be eligible for late retirement benefits on his Late Retirement
Date, except as set forth in Section 7.1(a).
4.3 Early Retirement. A Participant shall be eligible for early
----------------
retirement benefits as of his Early Retirement Date.
4.4 Disability Retirement.
---------------------
(a) A Participant who suffers from Total Disability shall be
eligible for disability retirement benefits. Such retirement benefits shall
commence on the date specified in Article V.
(b) The Committee may direct that any former Employee receiving
Total Disability benefits shall be reexamined without expense to him from time
to time prior to his Normal Retirement Date, but not more than twice in any Plan
Year, to determine if Total Disability continues to exist. Hours of Service
credited on account of Total Disability hereunder shall
-25-
<PAGE>
cease being credited at any time that the former Employee ceases to be disabled,
prior to his Normal Retirement Date, under this Section. Failure to submit to
such reexamination shall be cause for termination of crediting of Hours of
Service on account of Total Disability hereunder.
(c) In the event of the Participant's recovery from his Total
Disability before his Normal Retirement Date, the Participant shall be entitled
to an Actuarially Equivalent deferred vested benefit payable in accordance with
the provisions of Article VII.
4.5 Furnishing Data. Each Employee and beneficiary shall furnish
---------------
such information as the Committee may consider necessary for the determination
of the Employee's rights and benefits under the Plan and shall otherwise
cooperate fully with the Committee in the administration of the Plan. Benefit
commencement shall be deferred until all of such information is provided.
-26-
<PAGE>
ARTICLE V
---------
CALCULATION OF BENEFITS
-----------------------
5.1 Normal Retirement.
-----------------
(a) A Participant who is eligible for normal retirement benefits
shall receive a pension of Actuarially Equivalent value equal to a single life
annuity at his Normal Retirement Date, payable monthly in an annual amount
determined in accordance with the provisions of subsection (b) hereof.
(b) A Participant's accrued benefit payable at his Normal
Retirement Date shall be an annual amount equal to the sum of (i), (ii), and
(iii) below:
(i) 1.25% of Final Average Compensation multiplied by Years
and partial Years of Credited Service, to a maximum of 30 Years of Credited
Service,
(ii) 0.55% of Final Average Compensation in excess of
Covered Compensation as of the date of reference multiplied by Years and partial
Years of Credited Service, to a maximum of 30 Years of Credited Service,
(iii) 0.50% of Final Average Compensation multiplied by Years
and partial Years of Credited Service in excess of 30.
(c) Alternative Normal Retirement Benefit.
(i) As a result of the imposition of the $200,000 cap on
compensation under section 401(a)(17) of the Code effective January 1, 1989
pursuant to Section 1.18 hereof, the
-27-
<PAGE>
Accrued Benefit of a Section 401(a)(17) Employee determined as of any date on or
after January 1, 1989 and prior to January 1, 1994 shall be the larger of the
amount calculated in (b) above or the sum of:
(1) his Accrued Benefit determined as of December 31, 1988
under the provisions of the Prior Plan as in effect through December 31, 1988;
plus
(2) the Participant's Accrued Benefit determined under (b)
above of this section based on the Participant's Years of Credited Service
earned on and after January 1, 1989 and before January 1, 1994;
(ii) As a result of the reduction of the $200,000 cap on
compensation under Section 401(a)(17) of the Code to $150,000 effective January
1, 1994 pursuant to Section 1.18, the Accrued Benefit of a Section 401(a)(17)
Employee determined as of any date on or after January 1, 1994 shall be the
larger of the amount calculated pursuant to (b) above or the sum of:
(1) his Accrued Benefit under (b) above as of December 31,
1993 or, to the extent applicable, his Accrued Benefit under (c) as of December
31, 1993, if greater, determined in each case under the provisions of the Plan
as in effect through December 31, 1993; plus
(2) the Participant's Accrued Benefit determined under (b)
above based on the Participant's Years of Credited Service earned on and after
January 1, 1994.
-28-
<PAGE>
(iii) For purposes of Section 5.1(c)(i), a 'Section 401(a)
(17) Employee' means an Employee who completes an Hour of Service on or after
January 1, 1989 and whose Accrued Benefit as of a date on or after January 1,
1989 and prior to January 1, 1994 is based on annual Compensation for a
determination period (as defined in Section 1.18) beginning prior to January 1,
1989 that exceeds $200,000. For purposes of Section 5.1(c)(ii), a 'Section
401(a)(17) Employee' means an Employee who completes an Hour of Service on or
after January 1, 1994 and whose Accrued Benefit as of a date on or after January
1, 1994 is based on annual Compensation for a determination period (as defined
in Section 1.18) beginning prior to January 1, 1994 that exceeds $150,000.
(d) If a Participant is entitled to receive, or upon
application would be entitled to receive, or has received, any retirement or
similar benefit from any other retirement plan to which the Company or any
Affiliated Company contributed, then notwithstanding other provisions of this
Article V, the benefit to which the Participant shall be entitled hereunder
shall be reduced by the value of any pension or other benefit payable (or, where
appropriate, the present value of any pension or other benefit payable in the
future) under such other retirement plan based on the same period of employment
and/or earnings for which retirement income is credited under this Plan, which
value is converted, where appropriate, to a single life annuity, based upon the
Actuarial Equivalence under this Plan.
-29-
<PAGE>
5.2 Overall Permitted Disparity Limits. Notwithstanding any
----------------------------------
provision in the Plan to the contrary, the overall permitted disparity limits
set forth in Treas. Reg. (S)1.401(l)-5 shall not be exceeded with respect to any
Participant when all qualified plans of the Company and all Affiliated Companies
are taken into account. For purposes of applying the overall permitted disparity
limits:
(a) the annual permitted disparity limit shall be satisfied
without reducing the disparity provided under this Plan; and
(b) the Accrued Benefit of a Participant who reaches his
cumulative permitted disparity limit described in Treas. Reg. (S)1.401(l)-5(c)
prior to accruing a total of 30 Years of Credited Service shall equal the sum of
(1), (2) and (3), where (1), (2) and (3) equal:
(1) 1.25% of Final Average Compensation plus 0.55% of
the Participant's Final Average Compensation in excess of Covered Compensation,
multiplied by Years and partial Years of Credited Service earned prior to the
date the Participant reaches the cumulative permitted disparity limit;
(2) 1.67% of the Participant's Final Average Compensation,
multiplied by Years and partial Years of Credited Service earned
after the date the Participant reaches the cumulative permitted disparity limit,
provided that the Years and partial Years of Credited Service taken into account
under this paragraph (b)(2) when added to the Years and partial Years
-30-
<PAGE>
of Credited Service taken into account under paragraph (b)(1) do not exceed a
total of 30 years; and
(3) 0.50% of the Participant's Final Average Compensation,
multiplied by Years and partial Years of Credited Service in
excess of 30 years.
5.3 Late Retirement. A Participant who is eligible for late
---------------
retirement benefits shall receive an annual pension, payable monthly, calculated
under Section 5.1 as of his Late Retirement Date.
5.4 Early Retirement. A Participant who is eligible for early
----------------
retirement benefits shall receive either of the following:
(a) A reduced annual pension, payable monthly, equal to his
Accrued Benefit as of his Early Retirement Date. Such reduction is one-one
hundred eightieth (1/180) for each of the first 60 full calendar months and one-
three hundred sixtieth (1/360) for each of the next 60 full calendar months by
which the commencement of his benefit precedes his Normal Retirement Date.
(b) A deferred, unreduced annual pension, payable monthly, equal
to his Accrued Benefit as of his Early Retirement Date, with payment commencing
at his Normal Retirement Date.
A Participant retiring on his Early Retirement Date may elect in
writing, no earlier than 90 days prior to his Annuity Starting Date and in no
event earlier than the date he receives the explanation described in Section
7.6(4), to receive,
-31-
<PAGE>
in lieu of the benefit starting as of his Normal Retirement Date, a benefit
determined as described in paragraph (a) above starting as of the first day of
any month next following his Early Retirement Date and prior to his Normal
Retirement Date. Under no circumstances may a Participant receive a benefit
under this section prior to his election.
5.5 Disability Retirement. A Participant who is eligible for
---------------------
disability benefits shall receive an annual pension, payable monthly, commencing
on his Normal Retirement Date. Such Participant will continue to accrue Years
of Credited Service from his Disability Retirement Date as long as he receives
long-term disability benefits under the Company's Long Term Disability Plan.
For purposes of this Article, the Compensation of such Participant will be
deemed to remain at the rate in effect at his Disability Retirement Date. Such
Participant's benefit shall be his Accrued Benefit as of the earlier of his
Normal Retirement Date or cessation of Total Disability. In the event of the
Participant's death prior to the commencement of benefits under this Section,
survivor's benefits shall be paid only in accordance with the other provisions
of the Plan.
5.6 Transfers. An Employee who is eligible for benefits under
----------
Article IV and who has been transferred to or from an eligible classification
with the Participating Company or an Affiliated Company shall have his benefit
computation based upon his Final Average Compensation and the benefit formula in
effect under Section 5.1 on his Termination Date with the Participating
-32-
<PAGE>
Company or an Affiliated Company. If the Participant is entitled to receive, or
upon application would be entitled to receive, or has received, any benefit from
a qualified retirement plan that is presently or was previously maintained or
contributed to by any Affiliated Company, the Participant's Accrued Benefit
hereunder shall be offset in accordance with Section 5.1(d).
5.7 Post-Retirement Death Benefit. In the event of the death of a
-----------------------------
Participant after his Annuity Starting Date and the date of his election of a
form of benefit under Article VII, his beneficiary shall be entitled to receive
any amount which may be payable under the form of benefit in effect.
5.8 Maximum Benefit.
---------------
(a) General Limitation. Except as provided to the contrary in
------------------
subsections (b) through (g) of this Section, the annual retirement benefit
attributable to Company contributions payable to any Participant shall not
exceed the lesser of (1) $90,000 (as adjusted pursuant to section 415(d) of the
Code) in the form of the normal form of benefit as provided for in Section 7.3
of the Plan, or if in a form other than the normal form, the reduced Actuarial
Equivalent of a $90,000 (as adjusted) per annum annuity in the normal form as
provided in Section 7.3 hereof, or (2) 100% of the Participant's average 415
Compensation for his high 3 years, where "high 3 years" refers to the period of
3 consecutive calendar years yielding the highest such average during which the
person was an active Participant in the Plan. The $90,000 (as adjusted)
limitation referred to herein shall be
-33-
<PAGE>
increased using an interest rate assumption equal to the lesser of 5% or the
rate specified in the Plan for benefits commencing after Social Security
Retirement Age. In the event that the Participant's benefits become payable
before the Social Security Retirement Age, the $90,000 (as adjusted) limitation
shall be decreased to provide the Actuarial Equivalent of an annual benefit
equal to such limitation commencing at the age at which benefit payments begin
in accordance with section 415(b)(2)(C) of the Code. For purposes of this
decrease, the reduction is the same as the reduction in Social Security benefits
for benefits that begin to be paid on or after age 62, and the interest rate
assumption used in reducing the benefit for years prior to age 62 shall be the
greater of 5% or the rate specified in the Plan.
For purposes of this Section, "Social Security Retirement Age" shall
mean (a) for any person born before January 1, 1938, age 65, (b) for any person
born after December 31, 1937, but before January 1, 1955, age 66, and (c) for
any person born after December 31, 1954, age 67.
(b) Exceptions to the General Limitation. No benefit shall be
------------------------------------
deemed in violation of the limitation expressed in Section 5.7(a) if the amount
of the benefit does not exceed $10,000 for the current Plan Year or any prior
Plan Year, and the Participating Company has not at any time maintained a
defined contribution plan in which the Participant participated.
(c) Short Service Limitation. In the case of a Participant who
------------------------
has less than 10 years of active participation in
-34-
<PAGE>
the Plan, the limitation set forth in Section 5.7(a)(1) shall be reduced by
multiplying it by a fraction, the numerator of which is the number of a
Participant's years of participation (or parts thereof), and the denominator of
which is 10. Unless otherwise provided by the Participating Company, the
limitation described in the preceding sentence shall be applied separately with
respect to each change in the benefit structure of any qualified defined benefit
plan maintained by a Participating Company or an Affiliated Company adopted
after May 16, 1989 and before August 3, 1992. In the case of a Participant who
has less than 10 Years of Service, the limitations set forth in Sections
5.7(a)(2) and 5.7(b) shall be reduced by multiplying them by a fraction, the
numerator of which is the number of the Participant's Years of Service (or parts
thereof) and the denominator of which is 10.
(d) Combined Plans and Affiliated Companies Limitations. If the
---------------------------------------------------
Participant is a participant in any other qualified defined benefit pension plan
sponsored by a Participating Company or an Affiliated Company, the Participant's
pension benefit under such other plan shall be aggregated with his projected
benefit under the Plan, and the benefit under the Plan and such other plan shall
be reduced proportionally, to the extent necessary, so that the aggregate of
such benefits does not exceed the limitations set forth in this Section. If the
Participant is a participant in one or more qualified defined contribution plans
sponsored by a Participating Company or an Affiliated Company, his benefit under
the Plan and any other
-35-
<PAGE>
defined benefit plan sponsored by the Participating Company or an Affiliated
Company shall be reduced proportionally, to the extent necessary, so that the
sum of the Defined Benefit Fraction and the Defined Contribution Fraction does
not exceed 1.0.
Notwithstanding anything in this subsection (d) to the
contrary, if the Plan satisfied section 415 of the Code as in effect for the
last Plan Year beginning prior to January 1, 1987, an amount shall be subtracted
permanently from the numerator of the Defined Contribution Fraction (not
exceeding such numerator) as prescribed by the Secretary of the Treasury so that
the sum of the Defined Benefit and Defined Contribution Fractions computed under
section 415(e)(1) of the Code as amended effective January 1, 1987 does not
exceed 1.0 for such Plan Year.
The following definitions apply to this subsection:
1. "Defined Benefit Fraction" shall mean a fraction,
(a) the numerator of which is the sum of the projected annual benefits of the
Participant under all qualified defined benefit pension plans sponsored by a
Participating Company or an Affiliated Company, as of the close of the Plan
Year, and (b) the denominator of which is the lesser of (1) 1.25 multiplied by
the dollar limitation in effect under section 415(b)(1)(A) of the Code as to
such Limitation Year, reduced in accordance with sections 415(b)(2) and
415(b)(5) of the Code, if applicable, or (2) the product of (A) 1.4 multiplied
by (B) the amount which may be taken into account under section 415(b)(1)(B) of
the Code with
-36-
<PAGE>
respect to such person under the Plan for such Limitation Year, reduced in
accordance with section 415(b)(5) of the Code, if applicable.
2. "Defined Contribution Fraction" shall mean a fraction,
(a) the numerator of which is the sum of the "annual additions," as that term is
defined in section 415(c) of the Code, to the Participant's account, determined
as of the close of the Plan Year of reference, and (b) the denominator of which
is the sum of the denominator increments under all Participating Company- or
Affiliated Company-sponsored qualified defined contribution plans (as of the
close of the Plan Year) for all of the Participant's years of service with the
Company or an Affiliated Company, where the denominator increment for each such
year of service is the lesser of (1) the product determined by multiplying 1.25
by the dollar limitation in effect under section 415(c)(1)(A) for such year of
service (determined without regard to section 415(c)(6) of the Code), or (2) the
product determined by multiplying 1.4 by the amount which may be taken into
account under section 415(c)(1)(B) of the Code (or section 415(c)(7), if
applicable) with respect to such person for such year.
(e) Determination of Survivor Benefits. If a Participant's
----------------------------------
benifit is otherwise limited by this Section, the benefit payable to the
Participant's Spouse under Article VII shall be based upon the Participant's
benefit without regard to this Section, and the limitations of this Section
shall apply to the resulting benefit payable to the Spouse.
-37-
<PAGE>
(f) Special Rule for Cost of Living Adjustments. The limitations
-------------------------------------------
described in Sections 5.7(a)(1) and (2) shall be automatically adjusted for each
vested Participant to reflect the cost of living adjustment factor prescribed by
the Secretary of the Treasury under section 415(d) of the Code in such manner as
the Secretary shall prescribe, and the pension being paid to any vested
Participant shall be automatically adjusted, if appropriate, to reflect
adjustment of the limit.
(g) Effective Date. The limitations described in this Section
--------------
5.7 shall become effective with respect to the Plan and Participants as is
required to comply with section 415 of the Code as amended by the Tax Reform Act
of 1986 and subsequent legislation, but shall not reduce any benefit which was
accrued by a Participant under the Plan prior to the first day of the Plan Year
beginning in 1987, using the applicable maximum dollar limitations then in
effect; provided, however, that this sentence shall not apply to any Participant
who was not a Participant as of the first day of the first Plan Year that began
in 1987. For purposes of this subsection (g), no change in the Plan after May 5,
1986 and no cost of living adjustment after May 5, 1986 shall be taken into
account.
5.9 Suspension of Benefits on Employment.
-------------------------------------
(a) (1) In the event that a Participant is employed in qualified
reemployment, the benefits otherwise payable to the Participant shall be
suspended for each calendar month before his Required Distribution Date in which
he continues
-38-
<PAGE>
his qualified reemployment. In addition, no benefits shall be paid before a
Participant's Required Distribution Date during the qualified reemployment of a
Participant who continues in the employ of a Participating Company or an
Affiliated Company after his Normal Retirement Date. The rules relating to such
a suspension of benefits and their subsequent resumption are described in this
Section.
(2) The Committee shall notify the Participant by personal
delivery or first class mail of the suspension of his benefits during the first
month in which such suspension of benefits occurs.
(3) Each Participant receiving benefits under the Plan shall
be required to give notice to the Committee of any employment relationship which
such Participant has with a Participating Company or any Affiliated Company. The
Committee shall have the right to use all reasonable efforts to determine
whether such employment constitutes qualified reemployment. The Committee shall
also have the right to require the Participant to provide information sufficient
to prove that such employment does not constitute qualified reemployment.
(4) A Participant may by written request ask the Committee
to make a determination as to whether specific contemplated employment
constitutes qualified reemployment. The Committee shall respond to such request
in writing within 60 days of the Committee's receipt of the request.
-39-
<PAGE>
(5) Benefit payments to the Participant will resume (or
commence) no later than the first day of the third calendar month following the
month in which his qualified reemployment ceases or, if later, the first day of
the calendar month following receipt by the Committee of the Participant's
notice that his qualified reemployment has ceased. The initial resumption
payment shall include payment for the current month and for all previous
calendar months since the cessation of the Participant's qualified reemployment.
(6) The Committee shall offset resumed benefits by an amount
equal to the Actuarial Equivalence of any benefits which were paid to the
Participant with respect to a calendar month in which the Participant was
engaged in qualified reemployment. However, the offset to any monthly benefit,
other than the initial resumption payment, shall not exceed twenty-five percent
(25%) of the monthly benefit. Any remaining offset shall be applied to benefits
payable in subsequent months.
(b) In the event that a Participant is employed or reemployed by
a Participating Company or an Affiliated Company under any circumstances other
than as described in Subsection (a), the benefits otherwise payable to the
Participant shall be continued during such period of reemployment.
(c) Qualified reemployment shall mean the reemployment of a
Participant by any Participating Company or an Affiliated Company or the
continued employment of a Participant after his Normal Retirement Date in such a
capacity that the
-40-
<PAGE>
Participant receives or is entitled to be paid for at least 80 Hours of Service
(not including Hours of Service credited as a result of back pay) during a
calendar month, or reemployment of a Participant by a Participating Company or
an Affiliated Company prior to his Normal Retirement Date without regard to his
Hours of Service.
(d) A Participant whose benefits have been suspended during a
period of qualified reemployment shall be entitled to elect the form of payment
for his entire benefit, including amounts accrued both before and during
reemployment, in accordance with Article VII if his Annuity Starting Date with
respect to the prior distribution occurs before his Normal Retirement Date. If a
Participant's Annuity Starting Date with respect to the distribution of benefits
made prior to the suspension of benefits hereunder occurs on or after the
Participant's Normal Retirement Date, the optional form of distribution elected
by the Participant for that distribution in accordance with Article VII shall
apply to any additional benefits accrued during his qualified reemployment.
5.10 Accruals While Benefits Are In Pay Status. In the event that a
-----------------------------------------
Participant is credited with an increase in his Accrued Benefit during and/or
after the Plan Year in which the Participant attains Normal Retirement Date and
after the distribution of benefits has commenced hereunder, the amount of
benefit payable to the Participant as determined as of his Annuity Starting Date
shall be adjusted annually as of each
-41-
<PAGE>
January 1 following his Annuity Starting Date, up to and including the January 1
next following the date the Participant ceases to accrue benefits under the
Plan. Such annual adjustment shall include any increase (but not any decrease)
in the Participant's Accrued Benefit, determined in accordance with Section 5.1
(including, for any period during which benefits would not be suspendible under
Section 5.8, an Actuarial Equivalent adjustment to such increase to reflect
payment commencing after Normal Retirement Date) since the Participant's Annuity
Starting Date or the last such annual adjustment, whichever applies. In
addition, such annual adjustment shall be reduced (but not below zero) by the
Actuarial Equivalent of any benefits paid to the Participant since his Annuity
Starting Date during any period that would have constituted suspendible service
under Section 5.8 had the Participant not reached his Required Distribution
Date, to the extent not previously taken into account under this Section;
provided, however, that the amount, if any, of the benefits paid to the
Participant which exceeds the amount the Participant would have received if
distribution had been made in the normal form of benefits described in Section
7.3 for such Participant shall be disregarded in determining the Actuarial
Equivalent of such benefits for purposes of the reduction described in this
sentence.
5.11 Prohibition Against Decrease in Benefits Payable. In the event
------------------------------------------------
that under a strict application of the formula set forth in Section 5.1 as of
any given date a reduction
-42-
<PAGE>
in a Participant's Accrued Benefit would result, his Accrued Benefit on any date
of reference on and after such date shall equal the greater of (a) his Accrued
Benefit, as determined as of the last day of the Plan Year prior to the Plan
Year in which such reduction occurred, under the terms of the Plan as then in
effect, or (b) his Accrued Benefit determined pursuant to the provisions of the
Plan as in effect on the date of reference. Furthermore, if the Participant has
had a termination of employment and is again reemployed as an active
Participant, the amount of any benefit payable to such Participant at his
subsequent termination of employment shall not be less than the benefit the
Participant was entitled to receive at his prior termination of employment,
except as provided in Section 3.6 and Section 5.8 hereof.
-43-
<PAGE>
ARTICLE VA.
----------
SPECIAL EARLY RETIREMENT OFFER OF 1994
--------------------------------------
5A.1 Definitions. For purposes of this Article VA only,
-----------
the initially capitalized terms are defined as follows:
a. "Election Period" shall mean the period beginning on
March 23, 1994 and ending at the close of business on June 10, 1994.
b. "Eligible Employee" shall mean a Participant employed
by an Eligible Organization, who, by the end of the Window Period, either (1)
will be age 55 and credited with at least 10 Years of Service; or (2) will be at
least age 50 and have a combination of age plus Years of Service which equals 75
or more; provided that the Participant must either (i) be an active Employee
during the period beginning on the first day of the Window Period and ending on
the last day of the Election Period, or (ii) have retired on an Early Retirement
Date on or after October 1, 1993 and before the first day of the Window Period.
c. "Eligible Electing Employee" shall mean an Eligible
Employee who (i) voluntarily elects to accept the SERO in accordance with
Section 5A.2, (ii) does not revoke his election by the end of the Election
Period, and (iii) actually retires on or before the Retirement Date.
d. "Eligible Organization" shall mean the corporate
headquarters, sales and marketing support unit,
-44-
<PAGE>
industrial operations and distribution centers of the Company located at
Collegeville and Fort Washington, Pennsylvania; Decatur, Georgia; Tinley Park,
Illinois or of Barcroft Company, located at Lewes, Delaware.
e. "Retirement Date" shall mean June 1, 1994 or such
later date as requested by the Company and agreed to by the Eligible Electing
Employee, or, if earlier, the Early Retirement Date referred to in Section
5A.1b.
f. "Social Security Retirement Age" shall mean the age
used as the retirement age under section 216(l) of the Social Security Act.
g. "SERO" shall mean the Special Early Retirement Offer
of 1994, as set forth in this Article VA..
h. "Special Pension" shall mean the pension benefit
described in Section 5A.3(b).
i. "Temporary Social Security Bridge Benefit" shall mean
the supplemental benefit described in Section 5A.3(c).
j. "Window Period" shall mean the period beginning on
October 1, 1993 and ending at the close of business on December 31, 1994.
Notwithstanding the preceding sentence, the Company reserves the right to extend
or reduce the Window Period in its capacity as the sponsor of the Plan.
-45-
<PAGE>
5A.2 Special Early Retirement Offer Election.
---------------------------------------
1. The election to accept the SERO will be available to
Eligible Employees only during the Election Period. An Eligible Employee who
wishes to elect the SERO must make the election in writing on a form provided by
the Committee and submit the properly completed form to the Committee on or
before June 10, 1994.
2. An election to accept the SERO shall be revocable by the
Eligible Employee until the later of the last date of the Election Period or
seven days of the election. After such time, the election shall become
irrevocable.
5A.3 Benefits.
--------
(a) The benefits available under the SERO, as set forth in this
Article VA, consist of the following:
(1) a Special Pension, and
(2) a Temporary Social Security Bridge Benefit, if
applicable.
(b) (1) An Eligible Electing Employee's Special Pension
shall be an annual amount, payable monthly, equal to the sum of (i), (ii), and
(iii) below:
(i) 1.25% of the lesser of either Final Average
Compensation or Covered Compensation, multiplied by Years of Credited Service
accrued as of the Retirement Date, to a maximum of 30 Years of Credited Service,
(ii) 1.80% of Final Average Compensation in
excess of Covered Compensation as of the
-46-
<PAGE>
Retirement Date multiplied by Years of Credited Service accrued to that date, to
a maximum of 30 Years of Credited Service, with reduction for early commencement
in accordance with Section 5.3(a) of the Plan based on the Eligible Electing
Employee's Retirement Date. In the case of a Participant less than age 55 on
his Retirement Date, the basis of such reduction will be Actuarially Equivalent,
as defined in the Plan, for purposes of determining the reduction for years
prior to age 55, and
(iii) 0.50% of Final Average Compensation
multiplied by Years of Credited Service accrued as of the Retirement Date in
excess of 30.
(c) An Eligible Electing Employee who retires under the
provisions of this Article VA and who has not reached his Social Security
Retirement Age, shall receive a Temporary Social Security Bridge Benefit equal
to fifty percent (50%) of the Social Security benefit he is expected to receive
at age 62 (or, in the case of an Eligible Electing Employee who is older than
age 62 by the Retirement Date, his current age), based on a current computation
by the Plan's Actuary as of the Retirement Date, payable monthly, in the
following manner:
(1) The first such payment shall be due on June 1, 1994 or,
if later, the first day of the month following the month in which occurs such
Employee's Retirement Date;
(2) The last such payment shall be due on the later of the
first day of the month following the Eligible Electing Employee's 62nd birthday
or three years from the date of
-47-
<PAGE>
commencement in (1) above. However, in no case shall payments continue beyond
the month in which an Eligible Electing Employee attains age 65;
(3) In the case of the death of the Eligible Electing
Employee prior to the last due date for the payment of his Temporary Social
Security Bridge Benefit, the following special rule shall apply: (i) if the
Eligible Electing Employee is married at the time of his death, the surviving
Spouse shall continue to receive the Temporary Social Security Bridge Benefit
until the earlier of (A) the Spouse's death, or (B) the month in which occurs
the last due date for the payment of the Temporary Social Security Bridge
Benefit; and (ii) if the surviving Spouse described in (i) above dies prior to
the last due date of the payment of the Temporary Social Security Bridge
Benefit, or if the Eligible Electing Employee is not married at the time of his
death, his designated beneficiary(ies), or if he does not have any designated
beneficiaries, his estate, shall continue to receive the Temporary Social
Security Bridge Benefit until the month in which occurs the last due date for
the payment of the Temporary Social Security Bridge Benefit.
(4) None of the optional forms of payment described in
Section 5A.4 below shall be applicable to the Temporary Social Security Bridge
Benefit.
-48-
<PAGE>
5A.4 Timing and Form of Payment.
--------------------------
(a) The Special Pension and the Temporary Social Security
Bridge Benefit shall commence on or about the Retirement Date.
(b) The Special Pension shall be paid in one of the following
forms:
(1) In the case of an Eligible Electing Employee who is
married on the Retirement Date, an Actuarially Equivalent joint and survivor
annuity, as described in Section 7.3(a) of the Plan, unless he elects, at the
time and in the manner described in Section 7.6, one of the optional forms of
payment described in Section 7.4 or the Alternative Pension Payment Option as
described in 5A.4(b)(3) below;
(2) In the case of an Eligible Electing Employee who has
no Spouse on the Retirement Date, a single life annuity as described in Section
7.3(b) of the Plan, unless he elects, at the time and in the manner described in
Section 7.6, one of the optional forms of payment described in Section 7.4 or
the Alternative Pension Payment Option as described in 5A.4(b)(3) below; or
(3) the Alternative Pension Payment Option. For purposes
of this Article VA, the "Alternative Pension Payment Option" shall mean, in the
case of an Eligible Electing Employee who has not reached his Social Security
Retirement Age, an optional form of benefit distribution which,
-49-
<PAGE>
if elected by such Eligible Electing Employee at the time and in the manner
described in Section 7.6, will provide, on a single life basis, (i) increased
monthly payments for the period commencing on the Eligible Electing Employee's
Retirement Date and ending on the date the Temporary Social Security Bridge
Benefit terminates (the "Reduction Date") as described in Section 5A.3(c)(2)
(the "Initial Distribution Period"), and (ii) decreased monthly payments for the
period commencing on the Reduction Date and ending on the date of the death of
the Eligible Electing Employee (the "Remaining Distribution Period"), so that
the value of the adjusted retirement income is Actuarially Equivalent to the
retirement income which would otherwise have been payable to the Eligible
Electing Employee. The increased monthly payment of the Eligible Employee's
Special Pension during the Initial Distribution Period shall approximate the sum
of the decreased monthly payment of his Special Pension and the estimated
payment of any Social Security retirement benefits expected to become payable to
him at his Social Security Retirement Age under the applicable law during the
Remaining Distribution Period. In the case of an Eligible Electing Employee
whose monthly payments of his Special Pension after the Reduction Date would be
less than $50.00, the amount of his increased monthly payments during the
Initial Distribution Period shall be so adjusted that his decreased monthly
payments during the Remaining Distribution Period will be no less than $50.00.
-50-
<PAGE>
In lieu of the form of a single life annuity as described above, an
Eligible Electing Participant may elect, in the manner described in Section 7.6,
to receive his Special Pension under this Alternative Pension Payment Option in
one of the Actuarially Equivalent optional forms of benefit described in Section
7.4(b). Those optional forms shall be calculated by applying Actuarially
Equivalent contingent annuitant factors to the amount payable as a single life
annuity under this Alternative Pension Payment Option both before and after the
Reduction Date.
5A.5 Special Rules. Notwithstanding anything in this Article
-------------
to the contrary, following special rules shall apply with respect to any
Eligible Employee or Eligible Electing Employee, as the case may be, described
in this Section 5A.5:
(a) Death Prior to June 1, 1994. If (i) a Participant who was
---------------------------
an active Employee on the date of his death and who would have been an Eligible
Electing Employee had he survived and remained employed until the last date of
the Election Period dies on or prior to that date but after making a written
election pursuant to Section 5A.2 which had not been revoked; or (ii) an
Eligible Electing Employee dies prior to the Retirement Date, the special rules
of this Section 5A.5(a) shall apply.
-51-
<PAGE>
(1) If the deceased Participant was married at the
time of his death and had elected to receive his Special Pension in one of the
optional forms of the joint and survivor annuity as described in Section 7.4(b)
of the Plan, his surviving Spouse shall be entitled to a pre-retirement survivor
annuity in the form of the joint and survivor annuity that would have been paid
to his surviving Spouse if he had survived to, and retired on, his Retirement
Date, and died on the day after with the Special Pension in the form of such a
joint and survivor annuity.
(2) If the deceased Participant was married at the time
of his death and had elected to receive his Special Pension in the normal form
of benefit for a married Participant as provided in Section 7.3(a) or in the
form of either a single life annuity pursuant to Section 7.4(a) or a single life
annuity with 120 monthly guaranteed payments pursuant to Section 7.4(c), his
surviving Spouse shall be entitled to the survivor annuity described in Section
7.11(b), based on the Special Pension to which the deceased would otherwise have
been entitled under this Article VA, assuming that he had survived to, and
retired on, his Retirement Date, and died on the day after.
(3) If the deceased Participant was not married at the
time of his death and had elected to receive his Special Pension in the form of
a single life annuity with 120
-52-
<PAGE>
monthly payments, the Special Pension shall continue to be paid to his
designated beneficiary or estate, as the case may be, after his death, until the
expiration of the 120 monthly guaranteed payments.
(b) Date of Receipt of Election. Any election described in
---------------------------
Section 5A.2 shall be considered to have been received on the date that it is
date-stamped by the Committee; provided, however, that an Eligible Employee's
election shall be deemed to have been received on or before June 3, 1994, even
if it is date-stamped by the Committee after that date, if such election was
mailed to the Committee on or before May 27, 1994, as evidenced by the postmark,
by U.S. mail, certified-return receipt requested.
(c) Application of Section 415 Limits. For purposes of
---------------------------------
applying the limitations of Section 415 of the Code as described in Section 5.7,
the ten-year phase-in limitation described in Section 415(b)(5)(A) shall not be
applied separately with respect to benefit enhancements described in this
Article VA.
-53-
<PAGE>
ARTICLE VI
----------
VESTING
-------
6.1 Eligibility. A Participant who terminates service with
-----------
the Participating Company and all Affiliated Companies, other than as provided
in Article IV, after completing five (5) Years of Service shall be eligible for
a deferred vested benefit commencing on his Normal Retirement Date, if he is
then living; provided, however, that such Participant may elect to receive his
early retirement benefits under Section 4.3 upon attaining age 55.
6.2 Amount of Benefit. A Participant who meets the
-----------------
requirements of Section 6.1 shall be entitled to receive his Accrued Benefit,
calculated as of his Termination Date, as a normal retirement benefit commencing
on his Normal Retirement Date, his Late Retirement Date (but not beyond his
Required Distribution Date) or the Accrued Benefit reduced under Section 5.3 for
early retirement.
6.3 Form and Payment of Benefit. Deferred vested benefits
---------------------------
shall be paid in a form provided for in
Article VII.
-54-
<PAGE>
ARTICLE VII
-----------
PAYMENT OF BENEFITS
-------------------
7.1 Earliest and Latest Commencement of Benefits.
--------------------------------------------
(a) Except as set forth below, a Participant's benefit
shall not commence prior to the termination of his employment with the
Participating Company and all Affiliated Companies, nor shall a Participant
commence to receive benefits later than the earlier of the dates determined
under (1) or (2) below:
(1) the 60th day after the close of the Plan Year in
which occurs the latest of (A) the Participant's attainment of his Normal
Retirement Date, (B) the 10th anniversary of the year in which the Participant
commenced participation in the Plan, or (C) the Participant's termination of
employment with the Participating Company and all Affiliated Companies; or
(2) the Required Distribution Date.
(b) If the distribution of a Participant's interest has
begun in accordance with a method selected in Article VII and the Participant
dies before his entire interest has been distributed to him, the remaining
portion of such interest shall be distributed at least as rapidly as under the
method of distribution selected pursuant to this Article VII as of his date of
death.
-55-
<PAGE>
(c) If a Participant dies before he has begun to receive
any distributions of his interest under the Plan, his death benefit shall be
distributed to his beneficiaries no later than December 31 of the year
containing the fifth anniversary of his death.
(d) The 5-year distribution requirement of Section 7.1(c)
shall not apply to any portion of the deceased Participant's interest which is
payable to or for the benefit of a designated beneficiary. In such event, that
portion may be distributed over the life of such designated beneficiary (or over
a period not extending beyond the life expectancy of such designated
beneficiary) provided such distribution begins not later than December 31 of the
year containing the first anniversary of the Participant's death (or such later
date as may be prescribed by Treasury regulations). In the event that the
Participant's designated beneficiary is the surviving Spouse of the Participant,
then the previous sentence shall not apply. In lieu thereof, such distribution
must commence no later than December 31 of the later of (1) the calendar year
following the year of the Participant's death or (2) the calendar year in which
the deceased Participant would have attained age seventy and one-half (70 1/2).
If the surviving Spouse dies before the distributions to such Spouse begin, then
the 5-year distribution requirement of Section 7.1(c) shall apply as if the
Spouse were the Participant.
-56-
<PAGE>
(e) Notwithstanding any provision in the Plan to the
contrary, the form and timing of all distributions under the Plan shall be in
accordance with regulations issued by the Department of the Treasury under
section 401(a)(9) of the Code including the incidental death benefit
requirements of section 401(a)(9)(G) of the Code.
7.2 Payment of Benefits. Benefits shall be paid monthly in an
-------------------
amount equal to the benefit calculated under the Plan subject to an Actuarially
Equivalent adjustment for the form of benefit under this Article.
7.3 Normal form of Benefit.
----------------------
(a) The normal form of benefit for a Participant who is
married on his Annuity Starting Date shall be an Actuarially Equivalent joint
and survivor annuity, with monthly installments payable after the death of the
Participant to the Spouse, if then living, for the life of such Spouse in an
amount equal to fifty percent (50%) of the benefit paid to the retired Employee;
provided, however, that with respect to a Participant who is an Employee of
Armour Pharmaceutical Company, the joint and survivor annuity payable to the
Participant shall not be actuarially reduced so as to reflect the survivor
feature.
In the case of a late retirement, the Actuarial Equivalence will
be determined on the basis of the ages of the Participant and his Spouse as of
the Participant's Late Retirement Date.
-57-
<PAGE>
(b) In the case of retirement where the Participant has no
Spouse, the normal form of benefit shall be a single life annuity with equal
monthly installments payable to the Participant during his lifetime only.
7.4 Optional Forms of Benefits. In lieu of the normal form of
--------------------------
benefit as determined under Section 7.3, the Participant may elect, subject to
the rules of Section 7.5, one of the following Actuarially Equivalent optional
forms of benefit:
(a) a single life annuity payable in equal monthly
installments to the retired Participant for his life only commencing on the
Participant's Annuity Starting Date; or
(b) a joint and survivor annuity with the Participant's Spouse
or other designated beneficiary, payable in monthly installments to the
Participant for his life and with fifty percent (50%), sixty-six and two-thirds
percent (66 2/3%), or one hundred percent (100%) of the amount of such monthly
installment payable after the death of the Participant to the Spouse or other
designated beneficiary of such Participant, if then living, for the life of such
Spouse or other designated beneficiary. Notwithstanding the foregoing, the
percentage payable to the Participant's beneficiary (unless the beneficiary is
the Participant's Spouse) after the Participant's death may not exceed the
applicable percentage from the table set forth in Appendix A; or
-58-
<PAGE>
(c) a single life annuity payable in equal monthly
installments to the retired Participant for his life, with 120 monthly payments
guaranteed. If the Participant dies before he has received 120 monthly payments,
then such monthly payments shall continue to be made to the Participant's
beneficiary until a total of 120 monthly payments have been made.
Notwithstanding the foregoing, the number of monthly payments guaranteed shall
be calculated so that the number of guaranteed monthly payments remaining as of
the beginning of the calendar year preceding the Participant's Required
Distribution Date does not exceed the joint life expectancy of the Participant
and his beneficiary, or if less, and the Participant's beneficiary is not the
Participant's Spouse, the applicable number from the table set forth in Appendix
B; or
(d) a Participant who was an employee of Kremers Urban may
elect to receive the portion of his Accrued Benefit that is attributable to his
account balance in the qualified plan previously maintained by Kremers Urban
that was transferred to the Plan in the form of a lump sum upon his retirement.
7.5 Rules for Election of Optional Benefits. The rules shall be
----------------------------------------
uniformly and non-discriminatorily applied with respect to the election of
optional forms of benefits by filing written notice in the form and manner
prescribed by the Committee.
-59-
<PAGE>
7.6 Waiver of Normal Form.
---------------------
(1) Participant's Waiver Rights. At any time during the
---------------------------
applicable election period but not thereafter, a Participant may elect in
writing in a form acceptable to the Committee to waive payment under the normal
form of benefit payment described in Section 7.3 and elect to receive payment in
an optional form of payment described in Section 7.4. For the purposes hereof,
the applicable election period shall be the 90-day period ending on the Annuity
Starting Date; provided that a Participant's election of any optional form of
payment shall in no event be made earlier than the date the Participant receives
the notice described in Section 7.6(4).
(2) Revocation of Waivers. Any waiver and election delivered
---------------------
by the Participant to the Committee in accordance with the provisions of
paragraph (1) hereof may be revoked by the Participant upon written notice
delivered to the Committee prior to the Annuity Starting Date.
(3) Spouse's Consent. A married Participant's waiver and
----------------
election under paragraph (1) shall be effective only if:
(A) the Participant's Spouse (or the Spouse's legal
guardian if the Spouse is legally incompetent) executes a written instrument
whereby such Spouse irrevocably consents to such election and to the specific
form of payment and/or alternate beneficiary elected by the Participant, and
such
-60-
<PAGE>
instrument acknowledges the effect of the election to which the Spouse's consent
is given and is witnessed by a notary public; or
(B) the Participant (i) establishes to the satisfaction
of the Committee that the consent of the Spouse cannot be obtained because the
Spouse cannot be located or because of other circumstances that may be
prescribed in applicable regulations, or (ii) furnishes a court order to the
Committee establishing that the Participant is legally separated or has been
abandoned (within the meaning of local law), unless a Qualified Domestic
Relations Order provides that the Spouse's consent must be obtained.
(4) Explanations to Participants. The Committee shall
----------------------------
provide to each Participant no less than 30 days and no more than 90 days prior
to his Annuity Starting Date a written explanation of:
(A) the terms and conditions of all forms of payment
available to the Participant, including information explaining the relative
values of each form of payment;
(B) the Participant's right to waive the normal form of
benefit payment and the effect of such waiver;
(C) the rights of the Participant's Spouse with respect
to such waiver;
(D) the right to revoke an election to receive an
optional form of payment and the effect of such revocation; and
-61-
<PAGE>
(E) if the Participant has not attained Normal
Retirement Age, the Participant's right to defer commencement of his benefit
until Normal Retirement Date. In addition, if applicable, the Committee shall
provide to each Participant a notice regarding his right to elect a direct
rollover, as provided in Section 7.15, in accordance with section 402(f) of the
Code.
7.7 Termination of Benefits. The last benefit payment hereunder
-----------------------
shall be made for the month in which occurs:
(a) in the case of a single life annuity, the death of the
retired Participant;
(b) in the case of a surviving Spouse's benefit or a joint and
survivor benefit, the later of the death of the participant and the Spouse or,
if applicable, the designated beneficiary of such Participant; or
(c) in the case of a single life annuity with 120 monthly
guaranteed payments, the later of the death of the Participant or the lapse of
the 120 monthly guaranteed payments.
7.8 Beneficiary Designation.
-----------------------
(a) The designation of a beneficiary under a joint and survivor
annuity shall be fixed and may not be changed on or after benefit payments
commence.
(b) The designation of a beneficiary to receive any remainder of
a guaranteed number of payments may be made or changed until the date on which
the guaranteed period has expired.
-62-
<PAGE>
(c) Subject to Subsections (a) and (b) and to the provisions set
forth above relating to the rights of Spouses to survivor benefit payments, each
Participant shall have the right at any time to designate or to change the
previous designation of the beneficiary or beneficiaries who shall receive
benefits, if any, after his death by executing and filing with the Committee a
form prescribed by the Committee. No designation, revocation or change of
beneficiaries shall be valid and effective unless and until it is filed with the
Committee. If no designation is made, or if all of the beneficiaries named in
the designation predecease the Participant or, cannot be located by the
Committee, the interest, if any, of the deceased Participant shall be paid to
the surviving relative of the Participant in the first surviving class in the
schedule, set forth as follows:
(a) Spouse,
(b) lineal descendants (including stepchildren and
adopted persons) per stirpes,
(c) parents equally,
(d) the Participant's estate.
7.9 Mailing Address. Benefit payments and notifications hereunder
----------------
shall be deemed made when mailed to the last address furnished to the Committee.
7.10 Small Benefit Payments. Notwithstanding any other provision of
----------------------
the Plan, if the amount of any monthly benefit shall be less than $50.00, such
benefit shall be paid in
-63-
<PAGE>
Actuarially Equivalent quarterly amounts. Notwithstanding any other provision
of the Plan, if the Actuarial Equivalent single-sum value, determined as of the
date of distribution, of the vested Accrued Benefit of a Participant who has had
a termination of employment, or of the benefit payable to a Spouse by reason of
the Participant's death, is $3,500 or less (and has never exceeded $3,500 at the
time of any prior distribution), the benefit shall be paid, as soon as
administratively practicable following the Participant's termination of
employment or death, as a single-sum in settlement of all liabilities of the
Plan in connection with the Participant; provided, however, that no such payment
shall be made after such benefit has commenced in any other form. If the
present value of a Participant's vested Accrued Benefit at the time of his
termination of employment is zero, the Participant shall be deemed to have
received a single-sum payment of his entire vested Accrued Benefit as of the
date of his termination of employment.
7.11 Benefit Payable in the Event of Death While in Service Before
-------------------------------------------------------------
Retirement Benefits Commence.
- ----------------------------
(a) No benefit is payable under this Section 7.11 unless a
Participant (i) dies while on Total Disability or in the active service of a
Participating Company or an Affiliated Company, (ii) dies prior to his Annuity
Starting Date, (iii) is married at the time of his death and (iv) has met the
requirements specified in Section 6.1 for a vested termination benefit.
-64-
<PAGE>
(b) If a Participant dies after having satisfied the
requirements for retirement specified in Section 4.1, 4.2 or 4.3, and is
eligible for benefits under this Section 7.11, his surviving Spouse shall be
entitled to receive a benefit. Such benefit shall be a monthly pension for life
and shall begin, as elected by the Spouse in writing not more than ninety (90)
days prior to the Annuity Starting Date, on the later of (A) the earliest date
on which the Participant would have been eligible to receive his benefit
pursuant to Article V or (B) the first day of the month following the month in
which the Participant's death occurs, but not later than the date that would
have been the Participant's Normal Retirement Date. The amount of the Spouse's
benefit shall be a monthly retirement benefit in the amount which would have
been payable under the survivor portion of the joint and survivor annuity if the
Participant had survived and retired with an immediate joint and 50% survivor
annuity on the Annuity Starting Date elected by the Spouse and died on the
following day. Notwithstanding the preceding sentence, if a Participant has
elected before his Annuity Starting Date an optional form of joint and survivor
annuity described in Section 7.4 with his Spouse as beneficiary and dies before
his Annuity Starting Date, the benefits payable to his Spouse under this Section
7.11(b) shall be based on the form elected by the Participant.
(c) If a Participant dies before having satisfied the
requirements for retirement specified in Section
-65-
<PAGE>
4.1, 4.2 or 4.3, and is eligible for benefits under this Section 7.11, his
surviving Spouse shall be entitled to a deferred retirement benefit. Such
benefit shall be a monthly pension for life and shall begin, as elected by the
Spouse in writing not more than ninety (90) days prior to the Annuity Starting
Date, on the first day of any month following the earliest date on which the
Participant could have elected to receive immediate retirement benefits, but not
later than the date that would have been the Participant's Normal Retirement
Date. The amount of the Spouse's benefit shall be the amount which would have
been payable under the survivor benefit portion of the joint and survivor
annuity if the Participant had terminated employment on the date of death with a
deferred vested retirement benefit, had survived and retired with an immediate
joint and 50% survivor annuity on the Annuity Starting Date elected by the
surviving Spouse and died on the following day. Notwithstanding the preceding
sentence, if a Participant has elected before his Annuity Starting Date an
optional form of joint and survivor annuity with his Spouse as beneficiary
described in Section 7.4 and dies before his Annuity Starting Date, the benefits
payable to his Spouse under this Section 7.11(c) shall be based on the form
elected by the Participant.
7.12 Benefit Payable in the Event of a Death of a Deferred Vested
------------------------------------------------------------
Participant.
- -----------
(a) No benefit is payable under this Section 7.12 unless a
Participant who is no longer an Employee with any
-66-
<PAGE>
Participating Company or an Affiliated Company (i) dies prior to his Annuity
Starting Date, (ii) is married at the time of his death and (iii) has met the
requirements specified in Section 6.1 for a vested termination benefit.
(b) If a deferred vested Participant dies after attaining his
fifty-fifth (55th) birthday and is eligible for benefits under this Section
7.12, his surviving Spouse shall be entitled to a benefit. Such benefit shall be
a monthly pension for life and shall begin, as elected by the Spouse in writing
not more than ninety (90) days prior to the Annuity Starting Date, on the later
of (A) the earliest date on which the Participant would have been eligible to
receive his benefit pursuant to Article V or (B) the first day of the month
following the month in which the Participant's death occurs, but not later than
the date that would have been the Participant's Normal Retirement Date. The
amount of the Spouse's benefit shall be that monthly retirement benefit which
would have been payable under the survivor portion of the joint and survivor
annuity if the Participant had survived and retired with an immediate joint and
50% survivor annuity on the Annuity Starting Date elected by the Spouse and died
on the following day. Notwithstanding the preceding sentence, if a Participant
has elected before his Annuity Starting Date an optional form of joint and
survivor annuity described in Section 7.4 with his Spouse as beneficiary and
dies before his Annuity Starting Date, the benefits payable to his Spouse under
this Section 7.11(b) shall be based on the form elected by the
-67-
<PAGE>
Participant. benefit in the amount which would have been payable to such Spouse
as if the Participant had retired early as of his date of death in accordance
with the provisions of Section 5.2, and had elected to receive his benefit as a
joint and 50% survivor annuity.
(c) If a deferred vested Participant dies prior to his fifty-
fifth (55th) birthday and is eligible for benefits under this Section 7.12, his
surviving Spouse shall be entitled to a deferred retirement benefit. Such
benefit shall be a monthly pension for life and shall begin, as elected by the
Spouse in writing not more than ninety (90) days prior to the Annuity Starting
Date, on the earliest date on which the Participant would have been eligible to
receive his benefit in accordance with Article V hereunder, but not later than
the date that would have been the Participant's Normal Retirement Date. The
amount of the Spouse's benefit shall be the amount which would have been payable
under the survivor benefit portion of the joint and survivor annuity if the
Participant had terminated employment on the date of death with a deferred
vested retirement benefit, had survived and retired with an immediate joint and
50% survivor annuity on the Annuity Starting Date elected by the surviving
Spouse and died on the following day. Notwithstanding the preceding sentence, if
a Participant has elected before his Annuity Starting Date an optional form of
joint and survivor annuity with his Spouse as beneficiary described in Section
7.4 and dies before his Annuity Starting Date, the benefits payable
-68-
<PAGE>
to his Spouse under this Section 7.12(c) shall be based on the form elected by
the Participant.
7.13 Special Rules for Certain Terminated Participants.
-------------------------------------------------
(a) If a Participant with a surviving Spouse
(1) who is eligible for a deferred vested benefit under
the Plan,
(2) who has been credited with at least one Hour of
Service on or after September 2, 1974,
(3) whose employment with the Participating Company and
all Affiliated Companies has terminated prior to the first day of the first Plan
Year beginning after December 31, 1975,
(4) who has not thereafter been reemployed by the
Participating Company or any Affiliated Company, and
(5) who is alive on August 23, 1984 and whose benefit
payments have not commenced as of that date, such Participant's retirement
benefits shall be paid in accordance with this Article VII without the required
consent of his Spouse.
(b) A Participant with a surviving Spouse
(1) who has at least one Hour of Service after the first
day of the Plan Year beginning on or after January 1, 1976,
(2) who has not been credited with any Hours of Service
after August 22, 1984,
-69-
<PAGE>
(3) who has at least ten Years of Service and a vested
right to all or a portion of his Accrued Benefit, and
(4) who is alive on August 23, 1984 and whose benefit
payments have not commenced as of such date, may elect surviving Spouse's
benefit coverage under Article VII.
7.14 Application for Benefits. Except as provided in Section
------------------------
7.10, benefit payments shall commence when properly written application for same
is received by the Committee. In the event that a Participant, or the Spouse of
a deceased Participant entitled to benefits under Article VII fails to apply to
the Committee by the earlier of (a) the Participant's Normal Retirement Date or
the date of the Participant's termination of employment, if later, or (b) the
end of the calendar year in which the Participant attains age 70-1/2, the
Committee shall make diligent efforts to locate such Participant or Spouse and
obtain such application. In the event the Participant or Spouse fails to make
application by the Participant's Required Distribution Date, subject to Section
13.7, the Committee shall commence distribution as of the Required Distribution
Date without such application. No payments shall be made for the period in which
benefits would have been payable if the Participant or Spouse had made timely
application therefor; provided, however, that, if the Participant's Annuity
Starting Date or, if the Participant has died, his Spouse's Annuity Starting
Date under Article VII, has been delayed until
-70-
<PAGE>
after the Participant's Normal Retirement Date solely by reason of failure to
make application, and not by reason of suspension of benefit, the benefit
payable (a) to the Participant on and after his Annuity Starting Date, or (b) to
the Participant's Spouse pursuant to Article VII on and after the Spouse's
Annuity Starting Date, shall be equal to the Actuarial Equivalent of the benefit
the Participant or the Spouse would have received had benefits commenced on the
Participant's Normal Retirement Date, as determined to reflect the deferral of
benefit commencement.
7.15 Direct Rollovers. Effective January 1, 1993, in the event any
----------------
payment or payments (excluding any amount not includible in gross income) to be
made to an individual from the Plan would constitute an "eligible rollover
distribution" within the meaning of section 401(a)(31)(C) of the Code and
regulations thereunder, such individual may request that, in lieu of payment to
the individual, all or part of such eligible rollover distribution be
transferred directly from the Fund to the trustee or custodian of an "eligible
retirement plan" within the meaning of section 401(a)(31)(D) of the Code and
regulations thereunder. Any such request shall be made in writing, in such form
and subject to such procedures, requirements, and restrictions as may be
prescribed by the Committee for such purpose pursuant to Treasury regulations,
at such time in advance of the date such payment would otherwise be made as may
be required by the Committee. For purposes of this Section, an "individual"
shall include an Employee or former Employee or his surviving spouse or former
spouse who is an Alternate Payee.
-71-
<PAGE>
ARTICLE VIII
------------
THE FUND AND FUNDING
--------------------
8.1 Designation of Trustee. The Company, by appropriate resolution
----------------------
of its Board of Directors shall name and designate a Trustee and enter into a
Trust Agreement with such Trustee.
8.2 Contributions to the Fund. The benefits provided under the Plan
--------------------------
shall be financed exclusively by contributions made from time to time to the
Trustee by the Participating Company and by the Fund created thereby. Subject
to the provisions of applicable law, the liability of the Participating Company
under the Plan shall be limited to the contributions determined by the
Participating Company from time to time in accordance with the advice and
counsel of the Actuary. The funding policy applicable to the Fund shall be
established by the Committee and reviewed from time to time. All contributions
are hereby made expressly contingent on the deductibility thereof for federal
income tax purposes for the fiscal year with respect to which such contribution
is made, and no such contribution shall be made for any year to the extent it
would exceed the deductible limit for such year as set forth in section 404 of
the Code.
8.3 Use of Contributions to the Fund. The contributions deposited
---------------------------------
under the terms of this Plan shall constitute the Fund held for the benefit of
Participants, former
-72-
<PAGE>
Employees and their eligible survivors under and in accordance with this Plan.
No part of the corpus or income of the Fund shall be used for or diverted to
purposes other than exclusively for the benefit of the Participants, former
Employees and their eligible survivors and for necessary administrative costs;
provided, however, that in the event of the termination of the Plan and after
all liabilities, as defined under the Code and ERISA, shall have been satisfied,
any remaining funds attributable to contributions by the Participating Company
shall revert to the Participating Company; and further provided that in the case
of a contribution (a) made by the Participating Company as a mistake of fact, or
(b) for which a tax deduction is or would be disallowed, in whole or in part, by
the Internal Revenue Service, the Participating Company shall be entitled to a
refund of said contributions (1) within one year after payment of a contribution
made as a mistake of fact, or (2) within one year after disallowance, to the
extent of such disallowance, as the case may be. Earnings attributable to any
excess contribution under (a) or (b) above may not be returned to any
Participating Company but losses attributable thereto shall reduce the amount
returned.
8.4 Trustee. The Trustee shall be the "named fiduciary," as that
--------
term is defined in section 402(c) of ERISA, with respect to management and
control of Plan assets held by it and shall have exclusive and sole
responsibility for the custody and investment thereof in accordance with the
Trust Agreement.
-73-
<PAGE>
8.5 Forfeitures. Forfeitures shall not be applied to increase the
------------
benefits of any Participant, but shall reduce the contributions of the
Participating Company hereunder.
8.6 Expenses of Administration. All expenses of administration of
--------------------------
this Plan shall be paid from the Fund unless paid directly by the Participating
Company.
8.7 Sole Source of Benefits. The Fund shall be the sole source for
------------------------
the provision of benefits under the Plan. No Participating Company or any other
person shall be liable therefor.
-74-
<PAGE>
ARTICLE IX
----------
ADMINISTRATION
--------------
9.1 Committee. Except as may otherwise be provided herein, the
----------
Committee shall be responsible for the administration of the Plan. The
Committee members may, but need not be, employees of the Company. They shall be
entitled to reimbursement of expenses, but those members of the Committee who
are also employees of a Participating Company shall be entitled to no
compensation for their service on the Committee. Any reimbursement of expenses
of the Committee members shall be paid directly by the Company. The Committee
shall be responsible for the general administration of the Plan under the policy
guidance of the Company.
9.2 Duties and Powers of Committee. In addition to the duties and
-------------------------------
powers described elsewhere herein, the Committee shall have the following
specific duties and powers:
(a) to retain such consultants, accountants, attorneys, and
Actuaries as deemed necessary or desirable to render statements, reports, and
advice with respect to the Plan and to assist the Committee in complying with
all applicable rules and regulations affecting the Plan; any consultants,
accountants, attorneys, and Actuaries may be the same as those retained by the
Company;
(b) to establish a funding policy consistent with the objectives
of the Plan;
-75-
<PAGE>
(c) to enact uniform and non-discriminatory rules and
regulations to carry out the provisions of the Plan;
(d) to resolve questions or disputes relating to eligibility for
benefits or the amount of benefits under the Plan;
(e) to interpret the provisions of the Plan ;
(f) to determine whether any domestic relations order received
by the Plan is a Qualified Domestic Relations Order;
(g) to evaluate administrative procedures;
(h) to amend the Plan in accordance with Section 10.1; and
(i) to delegate such duties and powers as the Committee shall
determine from time to time to any person or persons.
9.3 Functioning of Committee. The Committee and those persons or
-------------------------
entities to whom the Committee has delegated responsibilities shall keep
accurate records and minutes of meetings, interpretations and decisions. The
Committee shall act by majority vote of the members, and such action shall be
evidenced by a written document.
9.4 Construction of the Plan. The Committee shall take such steps
------------------------
as are considered necessary and appropriate to remedy any inequity that results
from incorrect information received or communicated in good faith or as the
consequence of an administrative error. The Committee shall have the full
-76-
<PAGE>
discretionary power and authority to make factual determinations, to interpret
the Plan, to make benefit eligibility determinations and to determine all
questions arising in the administration, interpretation and application of the
Plan. The Committee shall correct any defect, reconcile any inconsistency or
ambiguity, or supply any omission with respect to the Plan. All such
corrections, reconciliations, interpretations and completions of Plan provisions
shall be final, binding and conclusive upon all parties, including, without
limitation, the Company, each Participating Company, the Employees, their
families, dependents and any Alternate Payees.
9.5 Disputes.
---------
(a) The Committee shall have the power, authority and
discretion to determine whether a claimant is eligible for any benefit under the
Plan and to construe the terms and provisions of the Plan. In the event that the
Committee denies, in whole or in part, a claim for benefits by a Participant or
his beneficiary, the Committee shall furnish notice of the denial to the
claimant, setting forth:
(1) the specific reasons for the denial;
(2) specific reference to the pertinent Plan provisions on
which the denial is based;
(3) a description of any additional information necessary
for the claimant to perfect the claim and an explanation of why such information
is necessary; and
-77-
<PAGE>
(4) appropriate information as to the steps to be taken if
the claimant wishes to submit his claim for review.
The notice shall be forwarded to the claimant within 90 days of the
Committee's receipt of the claim; provided, however, that in special
circumstances the Committee may extend the response period for up to an
additional 90 days, provided that the Committee so notifies the claimant in
writing and specifies the reason or reasons for such extensions.
(b) Within 60 days of receipt of a notice of claim denial, a
claimant or his duly authorized representative may petition the Committee in
writing for a full and fair review of the denial. The claimant or his duly
authorized representative shall have the opportunity to review pertinent
documents and to submit issues and comments in writing to the Committee. The
Committee shall review the denial and communicate its decision and the reasons
therefor to the claimant in writing within 60 days of receipt of the petition;
provided, however, that the Committee may extend the response period in special
circumstances for up to an additional 60 days. Written notice of the extension
shall be send to the claimant prior to the commencement of the extension.
9.6 Indemnification. Each member of the Committee and any other
---------------
person who is an employee or director of a Participating Company or an
Affiliated Company shall be indemnified by the Company against expenses (other
than amounts
-78-
<PAGE>
paid in settlement to which the Participating Company does not consent)
reasonably incurred by him in connection with any action to which he may be a
party by reason of his performance of administrative functions and duties under
the Plan, except in relation to matters as to which he shall be adjudged in such
action to be personally guilty of negligence or willful misconduct in the
performance of his duties. The foregoing right to indemnification shall be in
addition to such other rights as the Committee member or other person may enjoy
as a matter of law or by reason of insurance coverage of any kind. Rights
granted hereunder shall be in addition to and not in lieu of any rights to
indemnification to which the Committee member or other person may be entitled
pursuant to the by-laws of the Participating Company.
9.7 Reliance on Data and Consents. The Participating Companies, the
-----------------------------
Trustee, the Committee, all fiduciaries with respect to the Plan, and all other
persons or entities associated with the operation of the Plan, the management of
its assets, and the provision of benefits thereunder, may reasonably rely on the
truth, accuracy and completeness of any data provided by any Participant,
Spouse, or beneficiary, including, without limitation, representations as to
age, health and marital status. Furthermore, the Participating Companies, the
Trustee, the Committee, and all fiduciaries with respect to the Plan may
reasonably rely on all consents, elections and designations filed with the Plan
or those
-79-
<PAGE>
associated with the operation of the Plan and the Fund by any Participant, the
Spouse of any Participant, any beneficiary of any Participant, or the
representatives of such persons without duty to inquire into the genuineness of
any such consent, election or designation. None of the aforementioned persons
or entities associated with the operation of the Plan, its assets and the
benefits provided under the Plan shall have any duty to inquire into any such
data, and all may rely on such data being current to the date of reference, it
being the duty of the Participants, spouses of Participants, and Beneficiaries
to advise the appropriate parties of any change in such data.
-80-
<PAGE>
ARTICLE X
---------
AMENDMENT AND TERMINATION
-------------------------
10.1 Power of Amendment and Termination. It is the intention of
-----------------------------------
each Participating Company that this Plan will be permanent. Furthermore, the
Company reserves the power to amend or terminate the Plan at any time by or
pursuant to resolution of the Board. In addition, the Committee may adopt such
amendments to the Plan as it shall deem necessary or appropriate to maintain
compliance with current law or regulation, to correct errors or omissions in the
Plan document or to facilitate the administration of the Plan. Any amendment
adopted by the Committee shall not increase the liability of the Company or
materially affect the benefits of any Participant hereunder. The Committee
shall report at least annually to the Board all amendments adopted by the
Committee during the Plan Year. Each amendment to the Plan will be binding on
each Participating Company. Except as expressly provided elsewhere in the Plan,
prior to the satisfaction of all liabilities with respect to the benefits
provided under this Plan, no amendment or termination shall cause any part of
the monies contributed hereunder to revert to the Participating Company or to be
diverted to any purpose other than for the exclusive benefit of Participants and
their beneficiaries. No amendment shall have the effect of retroactively
depriving Participants of benefits already accrued
-81-
<PAGE>
under the Plan. Any amendment shall become effective as of the date designated
by the Board.
Each Participant with at least three Years of Service at the time that
the Plan ceases to be a Top-Heavy Plan may elect to have his vested percentage
computed under the Plan in accordance with the vesting schedule set forth in
Article XII. The period during which the election may be made shall commence on
the date on which the Participant is informed that the Plan is no longer a Top-
Heavy Plan and shall end 60 days thereafter.
10.2 Disposition on Termination. In the event of the termination or
---------------------------
partial termination of the Plan, as defined in the Code, the interest of each
affected Participant who would not have a nonforfeitable right to one hundred
percent (100 %) of his Accrued Benefit if his employment terminated on the date
of the termination or partial termination of the Plan shall become
nonforfeitable to the extent then funded; however, in the event of such a
termination, each participant and beneficiary shall have recourse toward
satisfaction of his nonforfeitable rights to his pension only from Plan assets
or from the Pension Benefit Guaranty Corporation to the extent that it
guarantees benefits.
The amount of the Fund shall be determined and, after providing for
expenses incident to termination and liquidation, the remaining assets of such
Fund shall be allocated for the purpose of paying benefits proportionately among
each of the priority groups described below in the following order of
precedence:
-82-
<PAGE>
(a) to provide that portion of the Accrued Benefit, if any, of
each Participant, which is derived from the Participant's contributions to the
Plan which were not mandatory contributions;
(b) to provide benefits to retired Participants and
beneficiaries who began receiving benefits at least three years before the Plan
termination (including those benefits which would have been received for at
least three years if the Participant had retired that long ago), based on Plan
provisions in effect five years prior to termination during which period such
benefit would be the least; provided that the lowest benefit in pay status
during a three-year period shall be considered the benefit in pay status for
such period;
(c) to provide all other Accrued Benefits guaranteed by Federal
law;
(d) to provide all other vested Accrued Benefits;
(e) to provide all remaining non-vested Accrued Benefits.
If the assets available for allocation under any priority group (other
than as provided in priority groups (d) and (e)) are insufficient to satisfy in
full the Accrued Benefits of all Participants and beneficiaries, the assets
shall be allocated pro rata among such Participants and beneficiaries on the
basis of the present value of their respective benefits (as of the termination
date). The foregoing payments and payments in the
-83-
<PAGE>
event assets are insufficient to pay the Accrued Benefits provided in priority
groups (d) and (e) will be paid in accordance with regulations prescribed by the
Pension Benefit Guaranty Corporation. The procedure for allocation of assets
upon termination of the Plan will be carried out in an appropriate manner as to
prevent the Plan from being deemed disqualified by the Internal Revenue Service.
In the event all Accrued Benefits described above have been fully
funded, any remaining funds will revert to the Participating Company.
10.3 Merger, Consolidation, or Transfer. (a) In case of any merger
-----------------------------------
or consolidation with, or transfer of assets or liabilities to any other plan,
as provided in the Code, the benefit of any Participant or beneficiary
immediately after such merger, consolidation, or transfer (if the Plan had then
terminated) shall be at least equal to the benefit such Participant or
beneficiary would have received immediately before such merger, consolidation,
or transfer (if the Plan had then terminated).
(b) In the event of a spinoff or termination of the Plan within
five years following a merger or consolidation (or series of mergers or
consolidations) in which liabilities (or a sum of liabilities, in the event of a
series of mergers or consolidations) of less than 3% of the assets of the Plan,
as of at least 1 day in the Plan Year in which the merger(s) or consolidation(s)
occurs, are merged or consolidated with the
-84-
<PAGE>
Plan, Plan assets shall first be allocated for the benefits of participants in
the plan(s) merged or consolidated with this Plan to the extent of the present
value of such benefits as of the date of such merger or consolidation. In the
case of a merger or consolidation designed to occur in more than one Plan Year,
the merger or consolidation shall be deemed to have occurred in the Plan Year in
which the first transaction occurred.
-85-
<PAGE>
ARTICLE XI
----------
RESTRICTED PAYMENTS
-------------------
11.1 Limitations.
-----------
The following provisions shall be effective with respect to
distributions made on or after January 1, 1994; distributions made prior to
January 1, 1994 shall be subject to the restrictions described in Treas. Reg.
(S)1.401-4(c).
(a) In the event of Plan termination, the benefit payable to any
highly compensated employee (as defined in section 414(q) of the Code) shall be
limited to a benefit that is nondiscriminatory under section 401(a)(4) of the
Code. If payment of benefits is restricted in accordance with this paragraph
(a), assets in excess of the amount required to provide such restricted benefits
shall become a part of the assets available under Section 10.2 for allocation
among Participants and their contingent annuitants and beneficiaries whose
benefits are not restricted under this paragraph (a).
(b) The restrictions of this paragraph (b) shall apply prior to
termination of the Plan to any Participant who is a highly compensated employee
(as defined in section 414(q) of the Code) and who is one of the 25 highest paid
employees of former employees of the Participating Company and all Affiliated
Companies for any Plan Year. The annual payments to or on behalf of any such
Participant shall be limited to an amount equal to (1) the payments that would
have been made to or on behalf of the Participant under a single life annuity
that is the Actuarial
-86-
<PAGE>
Equivalent of the sum of the Participant's Accrued Benefit and any other
benefits under the Plan (other than a social security supplement) plus (2) the
payments that the Participant is entitled to receive under a social security
supplement.
(c) The restrictions in paragraph (b) shall not apply:
(1) if, after the payment of benefits to or on behalf of
such Participant, the value of the Plan assets equals or exceeds 110% of the
value of the current liabilities (within the meaning of section 412(l)(7) of the
Code);
(2) if the value of the benefits payable to or on behalf
of the Participant is less than 1% of the value of current liabilities before
distribution; or
(3) if the value of the benefits payable to or on behalf
of the Participant does not exceed $3,500.
-87-
<PAGE>
ARTICLE XII
-----------
TOP-HEAVY PROVISIONS
--------------------
12.1 General. The following provisions shall apply automatically to
--------
the Plan and supersede any contrary provisions for each Plan Year in which it is
a Top-Heavy Plan. It is intended that this Article shall be construed in
accordance with the provisions of Section 416 of the Code and regulations
thereunder.
12.2 Definitions. The following definitions shall supplement those
------------
set forth in Article I of the Plan:
(a) "Aggregation Group" shall mean:
-------------------
(1) each plan (including a frozen plan or a plan which has
been terminated during the 60-month period ending on the Determination Date) of
a Participating Company or an Affiliated Company in which a Key Employee is a
participant;
(2) each other plan (including a frozen plan or a plan
which has been terminated during the 60-month period ending on the Determination
Date) of the Participating Company or an Affiliated Company which enables any
plan in which a Key Employee participates to meet the requirements of Sections
401(a)(4) or 410 of the Code; and
(3) each other plan (including a frozen plan or a plan
which has been terminated during the 60-month period ending on the Determination
Date) of the Participating Company or an Affiliated Company which is included by
the
-88-
<PAGE>
Committee if the Aggregation Group, including such a plan, would continue to
meet the requirements of Sections 401(a)(4) and 410 of the Code.
(b) "Determination Date" shall mean the last day of the
--------------------
preceding Plan Year.
(c) "Key Employee" shall mean any Employee or former
--------------
Employee who at any time during the 60-month period ending on the Determination
Date is described below. Key Employee shall also include the beneficiaries of
such persons. Notwithstanding the foregoing, the number of persons described in
Section (c)(2) for the entire 60-month period shall be limited to 10:
(1) An officer of the Participating Company or an
Affiliated Company having annual 415 Compensation, as defined in Treas. Reg.
1.415-2(d), from the Participating Company and all Affiliated Companies greater
than fifty percent (50%) of the amount in effect under Section 415(b)(1)(A) of
the Code for any Plan Year during such period;
(2) One of the 10 employees with annual 415
Compensation, as defined in Section 1.19, from the Company and all Affiliated
Companies greater than the amount described in Section 415(c)(1)(A) of the Code
who owns (or is considered as owning within the meaning of Section 318 of the
Code) the largest interests in the Participating Company or any Affiliated
Company, provided that such interest exceeds one-half percent (1/2%) of the
total share ownership of the Participating Company or such Affiliated Company;
-89-
<PAGE>
(3) A five percent (5%) owner of the Participating
Company or an Affiliated Company; or
(4) A one percent (1%) owner of the Participating
Company who has annual 415 Compensation from the Participating Company and all
Affiliated Companies in the aggregate in excess of $150,000.
The above determinations will be made in accordance with Section
416(i) of the Code. No more than 50 employees (or, if less, the greater of
three employees or ten percent (10%) of the greatest number of employees,
including leased employees within the meaning of Section 414(n) of the Code, of
the Participating Company and all Affiliated Companies during the 60-month
period ending on the Determination Date) shall be treated as officers.
(d) "Key Employee Ratio" shall mean the ratio for
--------------------
any Plan Year, calculated as of the Determination Date of such Plan Year,
determined by comparing the amount described in Subsection (d)(1) with the
amount described in Subsection (d)(2) after deducting from each such amount any
portion thereof described in Subsection (d)(3).
(1) The sum of (A) the present value of all
accrued benefits of Key Employees under all qualified defined benefit plans
included in the Aggregation Group, (B) the balance in all of the accounts of Key
Employees under all qualified defined contribution plans included in the
Aggregation Group, and (C) the amounts distributed from all plans in such
-90-
<PAGE>
Aggregation Group to or on behalf of any Key Employee during the period of five
Plan Years ending on the Determination Date, except benefits paid on account of
death in excess of the accrued benefit or account balances immediately prior to
death.
(2) The sum of (A) the present value of all accrued benefits of
all participants under all qualified defined benefit plans included in the
Aggregation Group, (B) the balances in all of the accounts of all participants
under all qualified defined contribution plans included in the Aggregation Group
and (C) the amounts distributed from all plans in such Aggregation Group Co or
on behalf of any participant during the period of five Plan Years ending on the
Determination Date.
(3) The sum of (A) all rollover contributions, or fund-to-fund
transfers, to the Plan by an Employee after December 31, 1983 from a plan
sponsored by an employer which is not a Participating Company or an Affiliated
Company, (B) any amount that is included in Subsections (d)(1) and (2) for a
person who is a Non-Key Employee as to the Plan Year of reference but who was a
Key Employee as to any earlier Plan Year and (C) for Plan Years beginning after
December 33, 1984, any amount that is included in Subsections (d)(1) and (2) for
a person who has not performed services for the Participating Company during the
five-year period ending on the Determination Date.
(4) The present value of accrued benefits under all qualified
defined benefit plans included in the
-91-
<PAGE>
Aggregation Group shall be determined on the basis of the assumptions described
in Schedule A and, effective for Plan Years beginning after December 31, 1986,
under the method used for accrual purposes for all plans maintained by any
Participating Company and all Affiliated Companies if a single method is used by
all such plans, or otherwise, the slowest accrual method permitted under section
411(b)(1)(C) of the Code. The value of proportional subsidies, including
subsidized preretirement survivor's benefits, subsidized early retirement
benefits and optional forms of payment, shall be ignored in determining the
present value of accrued benefits.
(e) "Non-key Employee" shall mean any Employee or former
------------------
Employee of the Participating Company or an Affiliated Company in any Plan Year,
but who is not a Key Employee as to that Plan Year. Non-Key Employee shall also
include the beneficiaries of such persons.
(f) "Super Top-Heavy Plan" shall mean each plan in an
----------------------
Aggregation Group if, as of the applicable Determination Date, the Key Employee
Ratio in the plan exceeds ninety percent (90%) determined in accordance with
Section 416 of the Code.
(g) "Top-Heavy Compensation" shall mean the average of the
------------------------
Participant's annual 415 Compensation (as defined in Section 1.19) over the
period of five consecutive Plan Years (or, if shorter, the longest period of
consecutive Plan Years during which the Participant was in the employ of a
-92-
<PAGE>
Participating Company) yielding the highest average, disregarding (1)
compensation paid in Plan Years prior to January 1, 1984 and (2) compensation
paid in Plan Years subsequent to the close of the last Plan Year in which the
Plan was a Top-Heavy Plan. For purposes of this Section, annual 415 Compensation
shall not exceed $200,000 ($150,000, effective January 1, 1994), or such other
amount as may be applicable under Code section 401(a)(17) (the "Section
401(a)(17) Compensation Limit"). The Section 401(a)(17) Compensation Limit shall
be applied for this purpose in the same manner as described in Section 1.18.
(h) "Top-Heavy Plan" shall mean each plan in an
----------------
Aggregation Group if, as of the applicable Determination Date, the Key Employee
Ratio exceeds sixty percent (60%), determined in accordance with Section 416 of
the Code.
(i) "Year of Top-Heavy Service" shall mean any Plan
Year in which the Participant completes 1,000 or more Hours of Service,
excluding (1) Plan Years commencing prior to January 1, 1984 and (2) Plan Years
commencing after the close of the last Plan Year in which the Plan is a
Top-Heavy Plan.
12.3 Minimum Benefit for Non-key Employees.
--------------------------------------
(a) In each Plan Year in which the Plan is a Top-Heavy
Plan, each Non-Key Employee (except a Non-key Employee as to the Plan Year of
reference but who was a Key Employee as to any earlier Plan Year) who is a
Participant and who has accrued a 1,000 or more Hours of Service during such
Plan Year will receive a minimum Accrued Benefit. Such Accrued Benefit, when
expressed
-93-
<PAGE>
as an annual benefit payable in the form of a single life annuity
commencing at Normal Retirement Date, shall not be less than the
lesser of:
(1) two percent (2%,) of the Participant's Top-Heavy
Compensation, multiplied by the Participant's Years of Top-Heavy Service, or
(2) twenty percent (20%) of the Participant's Top-Heavy
Compensation.
(b) If a Non-Key Employee described in Subsection (a)
participates in both a defined benefit plan and a defined contribution plan
described in Section 12.2(a) (1) and (2), the Participating Company is not
required to provide such Employee with both the minimum benefit and the minimum
contribution. In such event, the Non-Key Employee shall receive the minimum
contribution. In such event, the Non-Key Employee shall receive the minimum
contribution under the defined contribution plan.
12.4 Vesting.
-------
(a) Change in Schedule. Each Participant's vested interest
------------------
in his Accrued Benefit shall be determined in accordance with the following
schedule for any Plan Year in which the Plan is a Top-Heavy Plan unless the
previous schedule set forth in the Plan provides more rapid vesting for such
Participant:
-94-
<PAGE>
<TABLE>
<CAPTION>
Years of Service Vested Percent
---------------- --------------
<S> <C>
Less than 2 Years 0%
After 2 Years 20%
After 3 Years 40%
After 4 Years 60%
After 5 Years 100%
</TABLE>
12.6 Social Security. The Plan, for each Plan Year
----------------
in which it is a Top-Heavy Plan, must meet the requirements of this Article
without regard to any Social Security or similar contributions or benefits.
12.7 Adjustment to Maximum Benefit Limitation.
-----------------------------------------
(a) For each Plan Year in which the Plan is (1) a Super
Top-Heavy Plan or (2) a Top-Heavy Plan and the Board does not make the election
to amend the Plan to provide the minimum benefit described above and for which a
similar election has not been made as to another plan in the Aggregation Group,
the 1.25 factor in the defined benefit and defined contribution fractions under
the Maximum Benefit provisions of the Plan shall be reduced to 1.0.
(b) If in any Plan Year in which the Plan is a Top-Heavy
Plan but not a Super Top-Heavy Plan and the Aggregation Group described in
Section 12.2(a) (1) and (2) also includes a defined contribution plan, the Board
may elect to use a factor of 1.25 in computing the denominator of the defined
benefit and defined contribution fractions under the Maximum Benefit provisions
of the Plan. In the event of such election, the
-95-
<PAGE>
minimum benefit described in Section 12.3(a) for each Non-Key Employee shall be
increased according to the following:
(1) "three percent (3%)" shall be substituted for "two
percent (2%)" in Section 12.3(a)(1), and
(2) Section 12.3(a)(2) shall be deemed to read, "the
Participant s Top-Heavy Compensation multiplied by the sum of (A) twenty percent
(20%) plus (B) one percent (1%) for each ear of Top-Heavy Service completed by
the Participant, up to a maximum of 10 such Years of Top-Heavy Service."
12.8 Suspension of Benefits. Notwithstanding the other provisions of
-----------------------
the Plan, the payment of a Participant's Accrued Benefit shall not be suspended
during the Participant's reemployment during any period in which the Plan is a
Top-Heavy Plan.
-96-
<PAGE>
ARTICLE XIII
GENERAL PROVISIONS
------------------
13.1 No Employment Rights. The action of the Company in establishing
--------------------
the Plan, nor the action of any Participating Company in adopting the Plan, nor
any provisions of the Plan, nor any action taken by it or by the Committee shall
be construed as giving to any Employee of a Participating Company the right to
be retained in its employ, or any right to payment except to the extent of the
benefits provided in the Plan to be paid from the Fund.
13.2 Governing Law. Except to the extent superseded by ERISA, all
--------------
questions pertaining to the validity, construction and operation of the Plan
shall be determined in accordance with the laws of the Commonwealth of
Pennsylvania.
13.3 Severability of Provisions. If any provision of this Plan is
---------------------------
determined to be void by any court of competent jurisdiction, the Plan shall
continue to operate and, for the purposes of the jurisdiction of that court
only, shall be deemed not to include the provisions determined to be void.
13.4 Spendthrift Clause.
-------------------
(a) No benefit payable at any time under this Plan, and no
interest or expectancy herein shall be anticipated, assigned, or alienated by
any Participant or beneficiary, or be subject to attachment, garnishment, levy,
execution or other legal or equitable process, except for (1) a Federal tax levy
-97-
<PAGE>
made pursuant to Section 6331 of the Code and (2) any benefit payable pursuant
to a domestic relations order which is determined to be a Qualified Domestic
Relations Order. Upon receipt of any judgment, decree or order (including
approval of a property settlement agreement) relating to the provision of
payment by the Plan to an Alternate Payee pursuant to a state domestic relations
law, the Committee shall promptly notify the affected Participant and any
Alternate Payee of the receipt of such judgment, decree or order and shall
notify the affected Participant and any Alternate Payee of the Committee's
procedure for determining whether or not the judgment, decree or order is a
Qualified Domestic Relations Order. The Committee shall establish a procedure
to determine the status of a judgment, decree or order as a Qualified Domestic
Relations Order and to administer Plan distributions in accordance with
Qualified Domestic Relations Orders. Such procedure shall be in writing, shall
include a provision specifying the notification requirements enumerated above,
shall permit an Alternate Payee to designate a representative for receipt of
communications from the Committee and shall include such other provisions as the
Committee shall determine, including provisions required under applicable
regulations.
(b) Any attempt to alienate or assign a benefit hereunder,
whether currently or hereafter payable, shall be void to benefit shall in any
manner be liable for or subject to the debts or liability of any Participant or
beneficiary. If
-98-
<PAGE>
any Participant or beneficiary shall attempt to, or shall, alienate or assign
his benefits under the Plan or any part thereof, or if by reason of his
bankruptcy or other event happening at any time, such benefits would devolve
upon anyone else or would not be enjoyed by him, then the Committee may
terminate payment of such benefit and hold or apply it to or for the benefit of
the Participant or beneficiary.
13.5 Incapacity. If the Committee deems any Participant, contingent
-----------
annuitant or beneficiary who is entitled to receive payments hereunder incapable
of receiving or disbursing the same by reason of age, illness, infirmity, or
incapacity of any kind, the Committee may direct the Trustee to apply such
payment directly for the comfort, support and maintenance of such Participant or
person or to pay the same to any responsible person caring for the Participant
or person as determined by the Committee to be qualified to receive and disburse
such payments for the Participant's or the person's benefit, and the receipt of
such person shall be a complete acquittance for the payment of the benefit.
Payments pursuant to this Section shall be complete discharge to the extent
thereof of any and all liability of all Participating Companies, the Committee,
the Trustee and the Fund.
13.6 Withholding. The Committee and the Trustee shall have the
------------
right to withhold any and all state, local, and Federal taxes which may be
withheld in accordance with applicable law.
-99-
<PAGE>
13.7 Lost Payees. If a Participant, Spouse or other beneficiary to
-----------
whom a benefit is payable under the Plan cannot be located following a
reasonable effort to do so by the Committee, such benefit shall be forfeited.
Whether or not efforts to locate a Participant have previously been made, the
Committee shall make reasonable efforts to locate the Participant (or, where
applicable, his Spouse) during the one-year period preceding the Participant's
Required Distribution Date. If such efforts fail to locate the Participant or
Spouse, such Participant or Spouse shall be presumed dead as of the Required
Distribution Date and any benefit payable to the Participant or Spouse shall be
forfeited. In any case, if a claim for a forfeited benefit is subsequently
filed by the Participant, Spouse or beneficiary, such benefit shall be
reinstated and paid in accordance with Article IV.
13.8 Notices. Each Participant, Spouse, Alternate Payee and
-------
beneficiary shall be responsible for furnishing the Committee with the current
and proper address for the mailing of notices, reports and benefit payments.
Any notice required or permitted to be given shall be deemed given if directed
to the person to whom addressed at such address and mailed by regular United
States mail, first-class and prepaid. If any check mailed to such address is
returned as undeliverable to the addressee, mailing of checks will be suspended
until the Participant, Spouse, Alternate Payee or beneficiary furnishes the
proper address. This provision shall not be construed as requiring the
-100-
<PAGE>
mailing of any notice or notification if the regulations issued under ERISA deem
sufficient notice to be given by the posting of notice in appropriate places, or
by any other publication device.
-101-
<PAGE>
APPENDIX A
MINIMUM DISTRIBUTION TABLE I
<TABLE>
<CAPTION>
Excess of Age of Participant Applicable
over Age of Beneficiary Percentage
- ---------------------------- ----------
<S> <C>
10 years or less ........................ 100%
11 ...................................... 96%
12 ...................................... 93%
13 ...................................... 90%
14 ...................................... 87%
15 ...................................... 84%
16 ...................................... 82%
17 ...................................... 79%
18 ...................................... 77%
19 ...................................... 75%
20 ...................................... 73%
21 ...................................... 72%
22 ...................................... 70%
23 ...................................... 68%
24 ...................................... 67%
25 ...................................... 66%
26 ...................................... 64%
27 ...................................... 63%
28 ...................................... 62%
29 ...................................... 61%
30 ...................................... 60%
31 ...................................... 59%
32 ...................................... 59%
33 ...................................... 58%
34 ...................................... 57%
35 ...................................... 56%
36 ...................................... 56%
37 ...................................... 55%
38 ...................................... 55%
39 ...................................... 54%
40 ...................................... 54%
41 ...................................... 53%
42 ...................................... 53%
43 ...................................... 53%
44 and greater .......................... 52%
</TABLE>
-102-
<PAGE>
APPENDIX B
MINIMUM DISTRIBUTION TABLE II
<TABLE>
<CAPTION>
Age of Participant in
calendar year preceding
Required Distribution Date ...................... Maximum Years
- -------------------------- -------------
Remaining
- ---------
<S> <C>
70 ...................................... 26.2
71 ...................................... 25.3
72 ...................................... 24.4
73 ...................................... 23.5
74 ...................................... 22.7
75 ...................................... 21.8
76 ...................................... 20.9
77 ...................................... 20.1
78 ...................................... 19.2
79 ...................................... 18.4
80 ...................................... 17.6
81 ...................................... 16.8
82 ...................................... 16.0
83 ...................................... 15.3
84 ...................................... 14.5
85 ...................................... 13.8
86 ...................................... 13.1
87 ...................................... 12.4
88 ...................................... 11.8
89 ...................................... 11.1
90 ...................................... 10.5
91 ...................................... 9.9
92 ...................................... 9.4
93 ...................................... 8.8
94 ...................................... 8.3
95 ...................................... 7.8
96 ...................................... 7.3
97 ...................................... 6.9
98 ...................................... 6.5
99 ...................................... 6.1
100 ..................................... 5.7
101 ..................................... 5.3
102 ..................................... 5.0
103 ..................................... 4.7
104 ..................................... 4.4
105 ..................................... 4.1
106 ..................................... 3.8
107 ..................................... 3.6
108 ..................................... 3.4
109 ..................................... 3.2
110 ..................................... 2.8
111 ..................................... 2.6
112 ..................................... 2.4
113 ..................................... 2.0
114 ..................................... 2.0
115 and older ........................... 1.8
</TABLE>
-103-
<PAGE>
SCHEDULE A
ACTUARIAL EQUIVALENCE
The following materials provide the factors or basis which will be
used for determining Actuarially Equivalent benefits, except as specified to the
contrary in the Plan. Any factors not included herein will be determined by the
Committee.
I. ANNUITY BASED
-------------
RETIREMENT OPTIONS
- ------------------
These factors shall
be used to convert a single life annuity to other equivalent annuity forms: six
percent (6%) interest assumption and the 1984 Unisex Pension Mortality Table,
set back three years for spouses or other designated beneficiaries.
II. SINGLE SUM OPTION
-----------------
The following factors will be used to convert a single life annuity to
an equivalent single-sum payment:
(a) Single-sum payments for all Participants will be calculated
according to the tables of factors applicable to males issued by the Pension
Benefit Guaranty Corporation (PBGC).
(b) The single-sum payment will be the present value of the normal
form of benefit payable at the Participant's Normal Retirement Date, as defined
in the Plan. The value of subsidized early retirement benefits and optional
forms of payment, including the qualified joint and survivor option, will be
ignored in determining the amount of a single-sum payment.
(c) The appropriate PBGC factor will be determined by using the
Participant's age at the date of payment and the PBGC interest rates in effect
as of the date of payment. Effective January 1, 1995, the PBGC interest rates
shall be the ones in effect as of the beginning of a Plan Year; provided that a
Participant's accrued benefit determined after January 1, 1995 shall be the
greater of (i) his accrued benefit determined by applying the PBGC factor in
effect prior to January 1, 1995, or (ii) his accrued benefit determined by
applying the PBGC factor in effect on or after January 1, 1995, in accordance
with Treas. Reg. (S)1.417(e)-1(d)(3)(iv).
III. TOP-HEAVY ASSUMPTIONS
---------------------
The following assumptions will be used to determine the present value
of Accrued Benefits under the top-heavy provisions
-104-
<PAGE>
(Article XII) of the Plan: six percent (6%) interest assumption and the [1971
Group Annuity Mortality Table] for males, set back six years for females.
IV. MAXIMUM BENEFIT ASSUMPTIONS
---------------------------
The following assumption will be used to determine equivalent Accrued
Benefits commencing before age 62 or after age 65 under the maximum benefit
provisions (Section 5.7) of the Plan: the 1971 Group Annuity Mortality Table for
males, set back six years for spouses or other beneficiaries.
-105-
<PAGE>
PENSION PLAN OF RHONE-POULENC RORER INC.
----------------------------------------
EXHIBIT A
---------
Special Provisions for Certain Grandfathered Groups
---------------------------------------------------
The following amended sections shall apply to the groups of Participants who
participated in certain prior plans as further described below.
I. FORMER PARTICIPANTS IN THE ARMOUR PHARMACEUTICAL COMPANY SALARIED PENSION
-------------------------------------------------------------------------
PLAN
----
The following shall apply to those individuals (shown on Attachment A) who
were Participants in the Armour Pharmaceutical Company Salaried Pension
Plan, and who elected not to be covered by the basic retirement formula of
the Revlon, Inc. Employees' Retirement Plan.
SECTION 5.1 - NORMAL RETIREMENT
----------- -----------------
The first sentence of paragraph (a) is amended to read as follows:
(a) A Participant who is eligible for normal retirement benefits
shall receive a pension of Actuarially Equivalent value equal to
either a joint and 50% contingent survivor annuity, if the
Participant is married, or a single life annuity if the
Participant is not married, at his Normal Retirement Date. Such
pension shall be payable monthly in an annual amount determined
in accordance with the provisions of subsections (b) and (c)
hereof.
Paragraph (c)(i) is amended to read as follows:
(c)(i) the Participants' Accrued Benefit determined pursuant to the
terms of the prior Armour Pharmaceutical Company Salaried
Pension Plan as of December 31, 1988,
SECTION 5.3 - EARLY RETIREMENT
----------- ----------------
Paragraph (a) is amended to add a third sentence as follows:
Or the following amount if larger than that determined according
to the first portion of this subsection (a): The Accrued Benefit
determined pursuant to the terms of the prior Armour
-106-
<PAGE>
Pharmaceutical Company Salaried Pension Plan as of December 31,
1988 reduced 3% per year for each of the first 3 years and 5% per
year for each of the next 7 years by which the commencement of
his benefit precedes his Normal Retirement Date.
SECTION 1.9 - COMPENSATION
----------- ------------
For Participants in this group the definition of Compensation shall
include commission income - see Section 1.9 above.
-------
II. FORMER EMPLOYEES OF MELOY LABORATORIES, INC.
--------------------------------------------
The following shall apply to those individuals who were former employees
of Meloy Laboratories, Inc. (shown on Attachment B).
SECTION 5.1 - NORMAL RETIREMENT
----------- -----------------
Paragraph (b) is changed such that "Years of Credited Service" is
replaced by "Years of Credited Service after April 1, 1982".
Paragraph (c) is amended to read as follows:
(c) Alternative normal retirement benefit - In the case of a
Participant who was employed on or before December 31, 1988, by
Meloy Laboratories, Inc., the amount of his normal retirement
benefit shall be the larger of the amount calculated in (b) above
or the sum of the following:
(i) the larger of (1) the Participant's Accrued Benefit
determined pursuant to the terms of the Prior Plan as of
December 31, 1988, offset by the Actuarially Equivalent
value of any prior distribution received by the Participant
from the Meloy Laboratories, Inc. Money Purchase Pension
Plan or (2) the Participant's Accrued Benefit determined
pursuant to the terms of the Prior Plan as of December 31,
1988 taking into account only Years of Credited Service
after April 1, 1982.
(ii) the Participant's Accrued Benefit determined pursuant to
paragraph (b) of this section taking into account only Years
of Credited Service after December 31, 1988.
-107-
<PAGE>
III. KREMERS - URBAN COMPANY
-----------------------
The following shall apply to those employees who were former Participants
in the Kremers - Urban Company Employees' Profit Sharing Retirement Plan
(shown on Attachment D).
SECTION 5.1 - NORMAL RETIREMENT
----------- -----------------
Participants in the former Kremers - Urban Company Employees' Profit
Sharing Retirement Plan may select either of the following:
(1) The benefit described in Section 5.1 taking into account only
Years of Credited Service after December 31, 1983 and the value
---
of his account under the Kremers - Urban Company Employees'
Profit Sharing Retirement Plan, or
(2) The benefit described in Section 5.1 offset by the value of the
Participant's account under the Kremers - Urban Company
Employees' Profit Sharing Retirement Plan on his Normal
Retirement Date expressed as an Actuarially Equivalent single
life annuity.
-108-
<PAGE>
PENSION PLAN OF RHONE-POULENC RORER INC.
----------------------------------------
EXHIBIT B
---------
Special Provisions for Certain Food Service Employees
-----------------------------------------------------
1. SECTION 1.23 - For each individual listed on Attachment C,
------------
the term "Normal Retirement Date" shall mean the first day of the calendar month
coincident with or next following the Participant's attainment of age 65.
2. SECTION 2.3 - For purposes of Section 2.3(a), each employee
-----------
who is listed on Attachment C shall become a Participant on the first day of the
first month coincident with or next following his employment commencement date.
3. ARTICLE III - For each individual listed on Attachment C,
-----------
the date of hire specified therein shall be utilized for the purpose of
determining Years of Service and Years of Credited Service pursuant to Sections
3.1 and 3.2, respectively.
-109-
<PAGE>
PENSION PLAN OF RHONE-POULENC RORER INC.
----------------------------------------
ATTACHMENT A
------------
-110-
<PAGE>
PENSION PLAN OF RHONE-POULENC RORER INC.
----------------------------------------
ATTACHMENT B
------------
-111-
<PAGE>
PENSION PLAN OF RHONE-POULENC RORER INC.
----------------------------------------
ATTACHMENT C
------------
1. Irma E. Ford
------------
Date of birth: 9/16/11
Date of hire: 7/1/70
Normal Retirement Date: 11/1/91
2. Teresa Reimers
--------------
Date of birth: 5/21/30
Date of hire: 7/1/65
Normal Retirement Date: 2/1/92
-112-
