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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K 405
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 3, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-19725
PERRIGO COMPANY
(Exact name of registrant as specified in its charter)
Michigan 38-2799573
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
515 Eastern Avenue 49010
Allegan, Michigan (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (616) 673-8451
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock (without par value)
(Title of Class)
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
--- ---
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. X
---
The aggregate market value of the voting stock held by non-affiliates of
the registrant, based upon the closing sale price of the common stock on
September 17, 1999 as reported on the NASDAQ National Market System, was
approximately $371,100,320. Shares of common stock held by each executive
officer and director and by each person who owns 5% of more of the outstanding
common stock have been excluded in that such persons may be deemed to be
affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
As of September 17, 1999 the registrant had outstanding 73,345,540 shares
of common stock.
Documents incorporated by reference: Registrant's Proxy Statement for its
Annual Meeting on December 7, 1999 is incorporated by reference into Part III.
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PART I.
Item 1. Business of the Company. (Dollar amounts in thousands)
GENERAL
Perrigo Company (the "Company"), established in 1887, is the nation?s
largest manufacturer of store brand over-the-counter ("OTC")(non-prescription)
pharmaceutical products and also manufactures store brand nutritional products.
Prior to the divestiture of the personal care business in August 1999, as
described more fully in Item 7, the Company was the nation's largest
manufacturer of store brand personal care products. Store brand products are
sold under a retailer's own label and compete with nationally advertised brand
name products. The Company attributes its leadership position in the store brand
market to its comprehensive product assortment and to its commitment to product
quality, customer service, retailer marketing support and low cost production.
The Company's customers are major national and regional retail drug,
supermarket and mass merchandise chains such as Albertson's, CVS, Kmart, Kroger,
Target, Walgreens and Wal-Mart and major wholesalers such as Fleming, McKesson,
Super Valu and Topco.
The Company operates in one reportable business segment, store brand
health care, and markets a broad line of products that are comparable in quality
and effectiveness to national brand products. These products include
over-the-counter pharmaceuticals such as analgesics, cough and cold remedies,
antacids, laxatives, feminine hygiene and suppositories; and nutritional
products such as synthetic and natural vitamins, herbals, nutritional drinks and
diet aids. Prior to the sale of the personal care business, the Company marketed
personal care products such as toothpaste, mouthwash, rubbing alcohol, hydrogen
peroxide, baby care, skin care, hair care and sun care. The cost to the customer
of a store brand product is significantly lower than that of a nationally
advertised brand name product. The customer therefore can price a store brand
product below the competing national brand product while still realizing a
higher profit margin. Generally, the retailers? dollar profit per unit of store
brand product sold is higher than the dollar profit per unit of the comparable
national brand product. The consumer benefits by receiving a quality product at
a price below a comparable national brand product.
The Company currently manufactures and markets its own brand name
products under the names Good Sense(R), Daily Source(R), Herbal Source(R),
Nature's Glo(TM) and KidMed(TM). Prior to the sale of the personal care
business, the Company used its own brand name of Swan(R). The Company now
markets its own products under the Swan(R) label pursuant to a licensing
agreement with the purchaser of the personal care business. The Company also
manufactures products under contract for marketers of national brand products.
The Company's principal executive offices are located at 515 Eastern
Avenue, Allegan, Michigan 49010 and its telephone number is (616) 673-8451. The
Company operates primarily through three wholly-owned domestic subsidiaries, L.
Perrigo Company, Perrigo Company of South Carolina, Inc., and Perrigo
International, Inc.; four wholly-owned foreign subsidiaries, Perrigo de Mexico
S.A. de C.V., Nippon Perrigo, K.K., Sagmel U.S.A. and Perrigo de Brasil Ltda.;
and one majority owned foreign subsidiary, Quimica y Farmacia, S.A. de C.V. As
used herein, the "Company" means Perrigo Company, its subsidiaries and all
predecessors of Perrigo Company and its subsidiaries.
SIGNIFICANT DEVELOPMENTS DURING FISCAL YEAR 1999
In the fourth quarter of fiscal year 1998, the Company announced a
major restructuring plan, which involved the closing of manufacturing facilities
in California and Missouri and the intention to divest of the personal care
business. The Company recorded a nonrecurring pre-tax charge of $121,966 in
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the fourth quarter of fiscal year 1998 for the estimated costs associated with
this restructuring. In the second half of fiscal year 1999, the manufacturing
facilities in California and Missouri were sold. Proceeds from these sales were
$9,000. In June 1999 the Company entered into an agreement in principle to sell
the personal care business and in August 1999 the sale was completed. Proceeds
from the sale, which are subject to post-closing adjustment, were $32,200 and an
additional pre-tax restructuring charge of $3,248 was recorded in the fourth
quarter of fiscal year 1999. The LaVergne, Tennessee logistics facility was not
included in this sale and is reported as an asset held for sale at July 3, 1999.
The Company is leasing this facility to the new owners of the personal care
business for a term of two years. The lease is assignable to the purchasers of
this logistics facility. See Item 7 for a further discussion of the 1998
restructuring.
In the fourth quarter of fiscal year 1999 the Company announced a
workforce reduction plan that resulted from the Company's decision to divest its
personal care business and efficiencies created by implementation of a new
enterprise software system as discussed below. A pre-tax charge of $2,615 was
recorded, which primarily related to the severance associated with early
retirements and job eliminations for 57 people. See Item 7 for a further
discussion of the 1999 restructuring.
Three significant lawsuits were decided in favor of the Company during
the year. The first lawsuit was originally filed in 1994 by the Company's former
owner and related to the purchase of the Company in 1988. The former owner has
filed an appeal. No ruling has been made on this appeal. The two other lawsuits
were a class action and a related derivative class action. The Company and its
officers were defendants in these lawsuits. In the fourth quarter, the Company
received reimbursement of $8,000 under provisions of its liability insurance
coverage for a significant portion of the legal fees and expenses incurred for
the class action and derivative lawsuits.
The Company completed construction of two logistics facilities located
in Allegan, Michigan and LaVergne, Tennessee. Both logistics facilities were
fully operational in the first half of the year. These modern facilities are
intended to reduce the Company's overall distribution costs and improve customer
service. As discussed above, the LaVergne, Tennessee logistics facility is
intended to be sold because it primarily serviced the personal care business.
The Company converted to a new enterprise software system in the first
quarter. While this conversion was challenging and initially created operating
inefficiencies that had a negative impact on customer service and earnings in
the first and second quarters, the Company has begun to realize the efficiencies
of systems integration.
The Company has a Russian investment that is accounted for using the
equity method. During the first quarter, the Company wrote off a total of
$14,177, including its net investment of $1,640, inventory of $1,663 and
accounts and notes receivable of $10,874, due to the collapse of the Russian
economy.
The Company realized sales from several new products including an
antacid comparable to the branded product Tagamet HB(R) and children's
ibuprofen oral suspension and oral drops, analgesic products comparable to the
brand Children's Motrin(R). Other significant new product launches included
zinc gluconate lozenges, quick dissolve children's analgesic tablets,
extended-relief cold tablets and three-day feminine hygiene treatments. In June
1999, the Company began shipping an OTC nicotine transdermal patch for adult use
as an aid to smoking cessation. This is a new category for the Company with the
product manufactured and supplied through a third party agreement.
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The Company received Abbreviated New Drug Application ("ANDA")
approvals from the Food and Drug Administration ("FDA") to manufacture the
following products that are comparable to the respective national brands as
noted:
- - Children's Ibuprofen Oral Suspension (Children's Motrin(R))
- - Children's Ibuprofen Oral Drops (Children's Motrin(R))
- - Cimetidine Acid Blocker Tablets (Tagamet HB(R))
- - Pseudoephedrine Hydrochloride Extended-release Tablets (Sudafed(R) 12 Hour)
- - Miconazole 3 Combination Package (Monistat(R) 3 Combination Pack)
- - Junior Strength Ibuprofen Tablets (Junior Strength Motrin(R))
In addition, the FDA approved Elan Corporation's New Drug Application
(NDA) to change from prescription to OTC status its nicotine transdermal patch
for adult use as an aid to smoking cessation. Perrigo began the marketing and
distribution of the OTC product through the store brand market sector in June
1999.
BUSINESS STRATEGY
The Company attributes its sustained leadership position in the store
brand market to its implementation of several focused business strategies that
reflect the Company's commitment to its customers and employees. The strategy is
outlined below. As discussed above, the Company sold its personal care business
in August 1999. The Company is focusing its efforts on the significant
opportunities that exist in the higher growth, higher margin OTC pharmaceutical
and nutritional businesses.
PRODUCT ASSORTMENT AND PRODUCT QUALITY
The Company offers a comprehensive product assortment in order to fill
customers' needs while minimizing their product sourcing costs.
The Company is dedicated to developing and marketing new store brand
products before the competition. As a result, the Company has a research and
development staff that management believes is one of the most experienced in the
industry at developing national brand equivalent products. This staff also
responds to changes in existing national brand products by reformulating
comparable existing Company products. In the over-the-counter pharmaceutical
market, many new products are the result of changes in product status from
"prescription only" (Rx) to "over-the-counter" (non-prescription). These Rx
switch products require approval by the FDA through its ANDA process. In order
to accelerate the approval process, the Company uses both internal research and
strategic product development agreements with outside sources.
The Company is committed to providing a high-quality product to the
customer. All products are developed using ingredients, formulas and processes
comparable to those of national brand products. Packaging is designed to make
the product visually appealing to the consumer. High quality standards are
maintained throughout all phases of production, warehousing and distribution.
CUSTOMER SERVICE AND MARKETING SUPPORT
The Company seeks to establish customer loyalty by providing superior
customer service and marketing support. This includes providing (1) a
comprehensive assortment of quality, value priced
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products, (2) timely processing, shipment and delivery of orders, (3) assistance
in managing customer inventories and (4) support in building the store brand
business.
The Company provides marketing support that is directed at developing
customized marketing programs for the customers' store brand products. The
primary objective of this store brand management approach is to enable customers
to increase sales of their own brand name products by communicating store brand
quality and value to the consumer. The Company's marketing personnel assist in
the development and introduction of new store brand products and promotion of
customers' ongoing store brand products by performing consumer research,
providing market information and establishing individualized promotions and
marketing programs.
LOW COST PRODUCTION
The Company continually strives to improve its manufacturing
capabilities and technology in order to provide the manufacturing flexibility
necessary to meet its customers' changing needs and maintain a low cost producer
position. Productivity and efficiency improvements are encouraged by sharing
related cost savings with employees through formalized employee gain-sharing
programs that share productivity improvements with operating employees.
Education of the work force and a team approach provide employees with the
skills to generate and implement programs designed to increase the Company's
productivity and efficiency, to improve quality and to better serve customers.
Continuous improvement programs are utilized to improve efficiency by
eliminating waste from all phases of Company operations. These programs include
cross-functional teams, internal and external audits and on-the-job training.
All levels of management are involved in the planning process in an
effort to forecast future manufacturing needs with sufficient lead-time to
reallocate production resources.
BUSINESS SEGMENT
The Company had three operating segments in fiscal year 1999 as defined
by the accounting pronouncement Statement of Financial Accounting Standards
("SFAS") No. 131, "Disclosures about Segments of an Enterprise and Related
Information". These segments were OTC pharmaceuticals, nutritional products and
personal care products. The personal care business was sold in August 1999 and
information related to its assets, sales and operating income is found in the
Restructuring section of Item 7. The OTC pharmaceuticals and nutritional product
segments have been aggregated into one reportable segment because their
operating processes, types of customers, distribution methods, regulatory
environment and expected long-term financial performance are very similar.
Management believes this is consistent with the objective and basic principles
of SFAS No. 131. See Note A to the consolidated financial statements included in
Item 8 for further information related to business segments.
PRODUCTS
The Company currently markets approximately 920 store brand products to
approximately 430 customers. The Company includes as separate products multiple
sizes, flavors and product forms of certain products. The Company has a leading
market share in certain of its products in the store brand market.
During fiscal year 1999 approximately $50 million of the Company?s net
sales were attributable to new products added to the Company?s product lines
within the past two fiscal years.
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The Company manufactures and markets certain products under its own
brand names Good Sense(R), Daily Source(R), Herbal Source(R), Nature's Glo(R)
and KidMed(TM) and also markets products under the brand name Swan(R) through a
license with the current owners of the personal care business. Net sales of
these products were approximately 4.5% to 5.5% of the Company's net sales for
fiscal years 1999, 1998 and 1997.
The following table illustrates net sales for the Company's three
product lines from fiscal year 1995 through fiscal year 1999. Net sales do not
include miscellaneous sales.
<TABLE>
<CAPTION>
NET SALES BY PRODUCT LINE
YEAR ENDED
------------------------------------------------------------
JUNE 30,
JULY 3, -----------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
OTC Pharmaceuticals............ $551,433 $536,328 $526,541 $474,551 $450,608
Personal Care.................. 192,409 212,261 206,480 212,234 197,784
Nutritional.................... 133,693 151,709 110,408 89,808 66,701
-------- -------- -------- -------- --------
$877,535 $900,298 $843,429 $776,593 $715,093
======== ======== ======== ======== ========
</TABLE>
Listed below are some of the products marketed by the Company under
store brand labels. Each retailer may have its own name for a store brand
product. Also listed are the names of certain national brands against which the
Company's products compete.
Illustrative Competing
Company Products National Brands
- ---------------- ----------------------
OVER-THE-COUNTER PHARMACEUTICALS
Analgesics
- ----------
Ibuprofen Advil(R), Motrin(R)
Children's Ibuprofen Children's Motrin(R)
Pain Reliever Without
Aspirin (Acetaminophen) Tylenol(R)
Children's Non-Aspirin Children's Tylenol(R)
Children's Non-Aspirin Quick
Dissolving Tablets
Aspirin Bayer(R)
Naproxen Sodium Aleve(R)
Pain Reliever & Sleep Aid Tylenol(R) PM
Cough/Cold
- ----------
Nite Time NyQuil(R)
Tussin Cough Syrups Robitussin(R)
Children's Non-Aspirin Cold/Cough Tylenol(R) Cold Plus Cough
Pseudoephedrine Sudafed(R)
Pseudoephedrine Hydrochloride
Extended-release Sudafed(R) 12 Hour Extended-release
Diphedryl(R) Benadryl(R)
Nasal Spray Afrin(R)
Dayhist - 1 Tavist - 1(R)
Non-Aspirin Sinus Tylenol(R) Sinus
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<TABLE>
<CAPTION>
<S> <C>
Antacids
- --------
Ma-santi(R) Mylanta(R)
Flavored Antacid Tums(R)
Effervescent Pain Relief Alka-Seltzer(R)
Cimetidine Acid Blocker Tagamet HB(R)
Laxatives
- ---------
Natural Fiber Laxative Metamucil(R)
Laxative Pills Ex-Lax(R)
Milk of Magnesia Phillips(R) M.O.M.
Anti-diarrheal, Feminine Hygiene, Suppositories Immodium A-D(R), Monistat(R) 3, Preparation H(R)
- ------------------------------------------------
Dermatologic, Diagnostic Test Kits Rogaine(R), e.p.t.(R)
- ----------------------------------
Smoking Cessation
- -----------------
Nicotine Transdermal System
NUTRITIONAL PRODUCTS
Synthetic Vitamins
- ------------------
Multiple Vitamins One-A-Day(R) Maximum
Century Centrum(R)
Century Kids Centrum Junior(R)
A-Shapes Chewables Flintstones(R)
Therapeutic M Theragran M(R)
Antioxidant with Zinc Ocuvite(R)
Calcium Caltrate(R)
Calcium Citrate Citracal(R)
"Super" Multiple Vitamins and Minerals
Natural Vitamins
- ----------------
Vitamin C
Vitamin E
Beta Carotene
Herbals/Specialty Items
- -----------------------
Ginseng Ginsana(R)
Garlic Garlique(R)
Ginkgo Biloba Ginkoba(R)
Echinacea Echinex(R)
Saw Palmetto ProPalmex(R)
St. John's Wort Kira(R)
Chromium Picolinate
Lecithin
Combination Herbs
Kava Kava
Nutritional Drinks
- ------------------
Liquid Nutritional Supplement Ensure(R)
</TABLE>
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PERSONAL CARE PRODUCTS
During fiscal year 1999 and through the date the personal care business
was sold in August 1999, the Company marketed various personal care products
under store brand labels. Store brand equivalents of oral hygiene products, skin
care, sun care, baby care and hair care products and other personal care
products were sold by the Company until the date of sale of the personal care
business.
RESEARCH AND DEVELOPMENT
Research and development is a key component of the Company's business
strategy. The Company focuses on developing store brand products comparable in
formulation, quality and effectiveness to existing national brand products. As
part of the product development process, the Company reviews any potential
patent infringement and develops alternative formulations so as not to infringe
on any patent.
The Company has been granted FDA approval to manufacture and distribute
products such as loperamide hydrochloride, ibuprofen oral suspension and
miconazole 3, products comparable to the national brands Imodium A-D(R),
Children's Motrin(R) and Monistat(R) 3 Combination Pack, respectively.
The Company has obtained the rights to distribute, through use of
strategic alliance agreements, products such as Dayhist-D and DiBromm, products
comparable to the national brands Tavist-D(R) and Dimetapp(R), respectively.
The Company estimates that products for which marketing exclusivity is
expiring through the year 2002 represent a substantial potential market. The
Company is actively pursuing all avenues to offer store brand equivalents of
these products. However, there can be no assurance that the Company will be
successful in obtaining approval to distribute additional products.
The Company spent $14.9 million, $15.9 million, and $13.7 million for
research and development during fiscal years 1999, 1998 and 1997, respectively.
The Company anticipates that research and development expenditures as a percent
of net sales will increase in the foreseeable future.
SALES AND MARKETING
The Company employs its own sales force to service larger customers and
uses industry brokers for some smaller retailers. Sales and field marketing
employees are assigned to specific customers in order to understand and work
most effectively with the customer. They assist in the development of in-store
marketing programs (described below) and optimize communication of customers'
needs to the rest of the Company. Industry brokers provide a distribution
channel for some products, primarily those marketed under the labels of Swan(R)
and Good Sense(R).
The Company has no long-term contracts with customers that are
considered material. Wal-Mart accounted for 24%, 24% and 22% of net sales for
fiscal years 1999, 1998 and 1997, respectively. Should Wal-Mart's current
relationship with the Company change adversely, the resulting loss of business
could have a material adverse impact on the Company's operating results and
financial position. Such a change is not anticipated in the foreseeable future.
No other customer accounted for more than 10% of net sales.
In contrast to national brand manufacturers who incur considerable
advertising and marketing expenditures that are directly targeted to the end
consumer, the Company's primary marketing efforts channel through its customers,
the retailers and wholesalers, and reach the consumer through in-store marketing
programs. These programs are intended to increase visibility of store brand
products and to invite
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comparisons to national brand products in order to communicate store brand value
to the consumer. Merchandising vehicles such as trial sizes, floor displays,
bonus sizes, coupons, rebates, store signs and promotional packs are
incorporated into customers' programs. The Company also provides educational
training aids, packaging displays and point of purchase materials to customers.
Because the retailer profit margin for store brand products is generally higher
than for national brand products, retailers and wholesalers often commit funds
for additional promotions. The Company's marketing efforts are also directed at
new product introductions and conversions and providing market research data.
Market research is used to monitor trends for products and categories.
MANUFACTURING AND DISTRIBUTION
The Company had ten manufacturing facilities which occupied
approximately 2.2 million square feet at July 3, 1999. The Company sold
manufacturing facilities in Missouri and California in the second half of
fiscal year 1999. The Company also sold its Smyrna, Tennessee manufacturing
facility in August 1999 as part of the sale of the personal care business. The
manufacturing facilities in Missouri and California had approximately 0.3
million square feet. The Smyrna, Tennessee manufacturing facility had
approximately 0.7 million square feet. The Company supplements its production
capabilities with the purchase of product from outside sources and will continue
to do so in the future. During fiscal year 1999, the Greenville, South Carolina
facility was expanded to support growth in the nutritional product category.
During fiscal year 1999, the nutritional facility generally operated at between
50% and 100% of capacity, the over-the-counter pharmaceutical facilities
generally operated at between 70% and 90% of capacity and the personal care
facilities generally operated at between 65% and 75% of capacity. The Company
aggressively explores opportunities to utilize available capacities, such as
contract manufacturing for national brands.
The Company's manufacturing operations are designed to allow low cost
production of a wide variety of products of different quantities, sizes and
packaging while maintaining a high level of customer service and quality.
Flexible production line change-over capabilities and reduced cycle times allow
the Company to respond quickly to changes in manufacturing schedules.
The Company has five regional logistics facilities across the United
States and two logistics facilities in Mexico that occupied approximately 1.7
million square feet at July 3, 1999. These include the new logistics facilities
in Allegan, Michigan and LaVergne, Tennessee, which were opened in fiscal year
1999 to replace multiple leased facilities in Holland, Michigan and LaVergne,
Tennessee. These new logistics facilities are intended to reduce the Company's
overall distribution costs and improve customer service. The LaVergne, Tennessee
logistics facility was intended to primarily serve the personal care business.
As described more fully in Item 7, the personal care business was sold in August
1999. The buyer of the personal care business will operate out of the LaVergne
logistics facility under a two year lease agreement. The Company anticipates
that the logistics facility will be sold in fiscal year 2000. Both contract
freight and common carriers are used to deliver products.
COMPETITION
The market for store brand over-the-counter pharmaceutical, personal
care and nutritional products is highly competitive. Competition is based
primarily on price, quality and assortment of products, customer service,
marketing support, and availability of new products. The Company believes it
competes favorably in all of these areas.
The Company's direct competition in store brand products consists
primarily of independent, privately owned companies and is highly fragmented in
terms of both geographical market coverage and
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product categories. The Company is the nation's largest manufacturer of store
brand over-the-counter pharmaceutical products. The Company competes in the
nutritional area with companies with broader product lines and larger sales
volumes.
The Company's products also compete with nationally advertised brand
name products. Most of the national brand companies have resources substantially
greater than those of the Company. National brand companies could in the future
seek to compete more directly in the store brand market by manufacturing store
brand products or by lowering prices of national brand products. The Company
believes that the manufacturing methods used by national brand companies are not
easily adapted to the requirements of the store brand market. These requirements
include the ability to produce many different package designs and product sizes.
In addition, the marketing focus of national brand companies is directed towards
the consumer rather than toward the retailer.
MATERIALS SOURCING
Raw materials and packaging supplies are generally available from
multiple suppliers. Certain component and finished goods are purchased rather
than manufactured because of temporary production limitations, FDA restrictions
or economic or other factors. The Company has historically been able to rapidly
react to situations which require alternate sourcing. The Company has good,
cooperative working relationships with its suppliers and has historically been
able to capitalize on economies of scale in the purchase of materials and
supplies due to the volume of purchases.
TRADEMARKS AND PATENTS
The Company owns certain trademarks and patents; however, its business
as a whole is not materially dependent upon its ownership of any one trademark
or patent, or group of trademarks or patents.
SEASONALITY
The Company's sales are subject to seasonality, primarily with regard
to the timing of the cough/cold/flu season which generally runs from September
through March. In addition, historically, the Company's sales of cough/cold/flu
products have varied from year to year based in large part on the strength and
length of the cough/cold/flu season. Total retail sales for cough/cold/flu
products (both national brands and store brands) in fiscal year 1999 were
comparable to fiscal year 1998, with the peak cough/cold/flu season occurring
later than normal. While the Company believes that the severity and length of
the cough/cold/flu season will continue to impact its sales of cough/cold/flu
products, there can be no assurance that the Company's future sales of those
products will necessarily follow historical patterns.
PRODUCT LIABILITY
Over the last ten years the aggregate amount paid in settlement of
liability claims has not been material and the Company is unaware of any suits
which would exceed its insurance limits. The Company believes that its product
liability coverage is adequate to cover anticipated lawsuits.
ENVIRONMENTAL
The Company is subject to various Federal, state and local
environmental laws and regulations. The Company believes that the costs for
complying with such laws and regulations will not be material to the business of
the Company. The Company does not have any material remediation liabilities
outstanding.
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REGULATORY
The Company's products are subject to regulation by a number of Federal
and state governmental agencies. The FDA, in particular, regulates the
formulation, manufacture, packaging, labeling, storage and distribution of all
of the Company's products. The Company believes that its products comply in all
material respects with existing regulations.
The majority of the Company's pharmaceutical products are regulated as
"old drugs" subject to the requirements of certain FDA regulations. Such
products must comply with FDA regulations that specify, among other things,
required ingredients, dosage levels, label contents and permitted uses. These
products do not require prior approval from the FDA before they are marketed.
FDA regulations may change from time to time, in which case the Company may be
required to change the formulation, packaging or labeling of any affected
product. Changes in FDA regulations normally have a delayed effective date, so
while the Company may incur costs to comply with such changes, disruption of
distribution is unlikely.
Several store brand pharmaceutical products introduced by the Company
are approved using the ANDA process. The ANDA process reduces the time and
expense related to FDA approval since a comparable product was approved by the
FDA when it was originally introduced. The Company must demonstrate that the
submitted product is equivalent to a product that has previously been approved
by the FDA, and that the manufacturing process and other requirements meet FDA
standards. This may require that bioequivalence and/or efficacy studies be
performed using a small number of volunteers in a controlled clinical
environment. If the requirements of the ANDA process are met, the FDA will
approve the product without requiring additional clinical studies to prove
safety, since these studies were performed when the comparable prescription
product was approved by the FDA. Approval time is generally one to four years
from the date of submission of the application.
In November 1997, legislation, known as the Food and Drug
Administration's Modernization Act of 1997, was passed by Congress and signed by
the President. The FDA changed its policy regarding market exclusivity for
products switching from "prescription only" to "over-the-counter" status. In
general, the effect of this legislation and the FDA policy change is to extend,
in certain instances, the exclusivity granted to certain "Rx switch" products.
Whereas previously the ANDA process took up to three years, in the future it may
take up to four years before the Company will be able to sell these "switch"
products. This will have the effect of deferring in certain instances the timing
of sales for the Company for these types of products.
Pharmaceutical products must also comply with FDA regulations known as
"Current Good Manufacturing Practices for Finished Pharmaceuticals." The Company
complies with these practices, which require strict quality control standards at
all stages of production, including raw material receipt and storage, and
product manufacturing and labeling, storage and distribution.
The Company's nutritional products comply with the applicable standards
as required by the Federal Food, Drug and Cosmetic Act of 1938, as amended. The
FDA's most recent inspection of the Company's manufacturing facilities found the
Company in compliance with these standards.
The FDA has extensive enforcement powers, including the power to seize,
request a recall and prohibit the sale of non-complying products and to halt the
operations of non-complying manufacturers. Although certain of the Company's
products have been subject to recalls in the past, none of these recalls have
involved a product which was likely to cause permanent adverse health
consequences and none were material to the Company's operations. Although the
Company follows strict quality control procedures, there can be no assurance
that any future recall or other FDA action would not be material to the
operations of the Company.
-10-
<PAGE> 12
EMPLOYEES
As of July 3, 1999, the Company employed 4,191 permanent and temporary
employees, of whom 338 were engaged in executive, financial and administrative
capacities; 219 in marketing, sales and service; 3,226 in production,
warehousing and distribution; and 408 in research and development and quality
control functions. At July 3, 1999, approximately 421 persons were employed on a
temporary or seasonal basis. Management considers its relations with its
employees to be good. The Company has not been a party to a collective
bargaining agreement in the United States. There are 394 employees in Mexico, of
which 204 are covered by a collective bargaining agreement. The personal care
business, which was sold in August 1999, employed 1,025 permanent and temporary
employees at July 3, 1999 that are included in the employee numbers reported
above.
Item 2. Properties.
As of July 3, 1999, the Company owned or leased the following primary
facilities:
<TABLE>
<CAPTION>
Approximate
Location Type of Facility Square Feet Leased or Owned
-------- ---------------- ----------- ---------------
<S> <C> <C> <C>
Allegan, Michigan Manufacturing (4 locations) 986,400 Owned
Smyrna, Tennessee Manufacturing 715,600 Owned (1)
Greenville, South Carolina Manufacturing 169,600 Owned
Holland, Michigan Manufacturing 120,000 Owned
Ramos Arizpe, Mexico Manufacturing 99,760 Owned
Montague, Michigan Manufacturing 84,000 Owned
Ramos Arizpe, Mexico Manufacturing 21,000 Owned (2)
Allegan, Michigan Logistics 517,000 Owned
LaVergne, Tennessee Logistics 517,000 Owned (3)
Cranbury, New Jersey Logistics 218,000 Leased
Fontana, California Logistics 207,000 Leased
Greenville, South Carolina Logistics 145,000 Leased
Mexico City, Mexico Logistics 39,300 Leased
Guadalajara, Mexico Logistics 20,200 Leased
Allegan, Michigan Offices and Company Store 246,000 Leased
Smyrna, Tennessee Offices 40,000 Leased (1)
Monterrey, Mexico Offices 8,200 Leased
Ramos Arizpe, Mexico Offices 6,700 Owned
</TABLE>
(1) As described more fully in the Restructuring Section in Item 7, these
facilities were sold or assigned in August 1999.
(2) This facility is under construction and is intended to be fully operational
in the first half of fiscal year 2000.
(3) This facility primarily serves the personal care business and is intended
to be sold in fiscal year 2000. The buyer of the personal care business is
currently operating out of this logistics facility under a two year lease
agreement. See Item 7.
-11-
<PAGE> 13
Item 3. Legal Proceedings.
The Company is not a party to any litigation, other than routine
litigation incidental to the business of the Company, except for the litigation
described below. The Company believes that none of the routine litigation,
individually or in the aggregate, will be material to the business of the
Company.
The Company, certain officers and directors (the "officer and director
defendants") and two commercial bank lenders to the Company were named in an
action commenced in the U.S. District Court for the Western District of Michigan
on April 13, 1994 by Grow Group, Inc. ("Grow"), the former owner of the Company,
seeking unspecified damages based upon various legal claims. The relief sought
against the defendants, jointly and severally, includes, among other things,
rescission of the management led purchase of the Company from Grow, an
accounting by the defendants (excluding the Company), money damages and punitive
damages. Claims against the commercial bank lenders have been dismissed.
On April 13, 1998, the District Court granted, in part, the motion for
summary judgment filed by the Company and the officer and director defendants,
dismissing Grow's claim of breach of joint venture and Grow's claim for punitive
damages. The case proceeded to trial in June 1998 on Grow's remaining claims
against the Company and the individual defendants. On June 19, 1998, after the
close of Grow's case-in-chief, the U.S. District Court for the Western District
of Michigan granted defendants' motion for a directed verdict and dismissed all
of Grow's remaining claims against the Company and the individual defendants. On
July 17, 1998, Grow filed a Notice of Appeal to the United States Court of
Appeals for the Sixth Circuit. The Notice of Appeal states that Grow appeals
from the June 19, 1998 Order dismissing Grow's claims against the Company and
the individual defendants. As of this date, the Court has not ruled on the Grow
Notice of Appeal. The Company and the officer and director defendants continue
to believe that Grow's allegations are without merit and will take whatever
action necessary to aggressively defend the case.
Certain shareholders brought a class action against the Company, the
Selling Shareholders (which include several past and present officers and/or
directors of the Company) and the Underwriters of the October 20, 1993 secondary
offering of outstanding shares of the Company's common stock, alleging various
securities law violations. In October 1997, all of the defendants moved for
summary judgment on the class action complaint. In October 1998, the class
action lawsuit was dismissed against all defendants. In November 1998, the
plaintiffs appealed the dismissal of their case. In April 1999, the plaintiffs
withdrew their appeal. The dismissal of the appeal and the subsequent entering
of the final judgment ends any further action against the Company. Under the
agreement reached with the plaintiffs, no money or other compensation will be
paid to the plaintiffs or their attorneys.
In November 1995, a derivative class action law suit relating to the
class action described above was filed against the Company. In April 1999, the
plaintiffs in this lawsuit agreed to dismiss this suit based upon the dismissal
of the class action. No money or other compensation will be paid to the
derivative plaintiff or his attorneys.
The Company received an $8.0 million reimbursement under provisions of
its liability insurance coverage in the fourth quarter of fiscal year 1999 for a
significant portion of the legal fees and expenses incurred for this class
action lawsuit and the related derivative lawsuit. The payment is included on
the Unusual litigation line of the Consolidated Income Statement.
On August 4, 1999, the Company filed a civil antitrust lawsuit in the
U.S. District Court for the Western District of Michigan against a group of
vitamin raw material suppliers alleging the defendants conspired to fix the
prices of vitamin raw materials sold to the Company. The relief sought includes
money damages and a permanent injunction enjoining defendants from future
violation of antitrust laws.
-12-
<PAGE> 14
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to the vote of security holders during the
fourth quarter of fiscal year 1999.
Additional Item. Executive Officers of the Registrant.
The executive officers of the Company and their ages and positions as
of September 15, 1999 were:
<TABLE>
<CAPTION>
NAME AGE POSITION
----- --- --------
<S> <C> <C>
Richard G. Hansen............... 54 President and Chief Operating Officer
Michael J. Jandernoa............ 49 Chairman of the Board of Directors and Chief Executive Officer
Mark P. Olesnavage.............. 46 President, Customer Business Development
Thomas J. Ross.................. 41 Vice President, Finance
</TABLE>
Mr. Hansen was renamed President and Chief Operating Officer in
November 1998. Mr. Hansen has been a member of the Board of Directors since
1995. He was President and Chief Operating Officer of the Company from October
1991 until his retirement August 1995. Mr. Hansen was Executive Vice President
and Chief Operating Officer from 1989 to 1991. From 1979 to 1989 he served in
various executive capacities and led the implementation of Perrigo's MIMS
(Minimum Inventory Maximum Service) program that integrated consumer demand with
operations.
Mr. Jandernoa was elected a director in January 1981, Chief Executive
Officer in February 1986 and Chairman of the Board of Directors in October 1991.
From January 1983 to October 1991, Mr. Jandernoa served as President of the
Company and was reelected President of the Company in September 1995 and served
in that capacity until November 1998. Prior to January 1983, Mr. Jandernoa
served in various executive capacities with the Company since 1979. Mr.
Jandernoa is a director of Old Kent Financial Corporation and also serves on the
Board of Advisors of the National Association of Chain Drugstores.
Mr. Olesnavage was appointed Executive Vice President in January 1993
and in June 1995 was appointed President of Customer Business Development. He
served as President of the over-the-counter pharmaceutical operations from
February 1994 to June 1995. He served as Vice President of Pharmaceutical
Business Development from July 1992 to January 1993 and as Vice
President-Marketing from June 1987 to July 1992. Previously he had been Director
of Marketing of the Company since 1981. He is a member of the Board of Directors
of the Generic Pharmaceutical Industry Association and also is a member of the
Board of Directors of the Consumer Healthcare Products Association.
Mr. Ross has served as the Vice President of Finance since September
1997. He joined the Company as Director of Investor Relations in June 1992, was
promoted to Vice President of Investor Relations and Reporting in July 1996 and
appointed Vice President, Finance in September 1997. Prior to 1992, Mr. Ross
served as Assistant Treasurer at Arbor Drugs, Inc. where he was responsible for
treasury, finance, SEC reporting and investor relations.
-13-
<PAGE> 15
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's common stock was first quoted and began trading on the
Nasdaq National Market System on December 17, 1991 under the symbol "PRGO."
Set forth below are the high and low prices for the Company's common
stock as reported on the Nasdaq National Market System for the last eight
quarters:
Fiscal Year Ended July 3, 1999: High Low
- ------------------------------ ---- ---
First Quarter $10-1/4 $7-27/32
Second Quarter $10-1/8 $7-3/16
Third Quarter $9-7/8 $7
Fourth Quarter $9-11/16 $7-1/8
Fiscal Year Ended June 30, 1998: High Low
- ------------------------------- ---- ---
First Quarter $17-1/4 $12-3/8
Second Quarter $17 $12-3/4
Third Quarter $14-1/4 $9-5/16
Fourth Quarter $13-5/16 $9-5/8
The number of record holders of the Company's common stock as of July
3, 1999 was 1,883.
Historically, the Company has not paid dividends on its common stock
and has no present intention of paying dividends. The declaration and payment of
dividends and the amount paid, if any, is subject to the discretion of the
Company's Board of Directors and will necessarily be dependent on the earnings,
financial condition and capital and surplus requirements of the Company and any
other factors the Board of Directors may consider relevant. While the Company's
credit agreement does not prohibit the Company from paying dividends, the future
payment of dividends could be restricted by financial maintenance covenants
contained in the credit agreement.
In May 1997 the Company announced a common stock repurchase program.
The program called for the repurchase of up to 7.5 million shares subject to
market conditions. Purchases are made in the open market. The repurchased stock
is retired. Through September 15, 1999, the Company has repurchased 3.7 million
shares. This program was terminated in fiscal year 1999.
Item 6. Selected Financial Data
The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and the notes thereto
included herein in Item 8. The consolidated statement of income data set forth
below with respect to the fiscal years ended July 3, 1999 and June 30, 1998 and
1997 and the consolidated balance sheet data at July 3, 1999 and June 30, 1998
are derived from, and are qualified by reference to, the audited consolidated
financial statements included in Item 8 of this report and should be read in
conjunction with those financial statements and notes thereto. The consolidated
statement of income data for the Company set forth below with respect to the
fiscal years ended June 30, 1996 and 1995 and the consolidated balance sheet
data for the Company at June 30, 1997, 1996 and 1995 are derived from audited
consolidated financial statements of the Company, not included herein.
-14-
<PAGE> 16
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------------------
JUNE 30,
JULY 3, ----------------------------------------------------
1999(1) 1998(2) 1997 1996 1995(3)
---------- --------- -------- -------- --------
(In thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Net sales $877,587 $902,637 $844,591 $778,121 $717,077
Cost of sales 691,393 670,775 615,720 574,806 520,265
--------- --------- --------- --------- ---------
Gross profit 185,694 231,862 228,871 203,315 196,812
Operating expenses
Distribution 32,964 31,995 28,073 24,929 20,037
Research and development 14,867 15,942 13,651 10,445 8,679
Selling and administrative 117,623 113,584 103,104 88,629 86,602
Restructuring and redesign 6,160 122,529 5,503 4,491 4,904
Unusual litigation (3,952) 9,585 6,367 6,600 1,043
--------- --------- --------- --------- ---------
167,662 293,635 156,698 135,094 121,265
--------- --------- --------- --------- ---------
Operating income (loss) 18,032 (61,773) 72,173 68,221 75,547
Interest and other expense 14,018 4,219 1,306 5,679 5,413
--------- --------- --------- --------- ---------
Income (loss) before income taxes 4,014 (65,992) 70,867 62,542 70,134
Income tax expense (benefit) 2,468 (14,356) 25,875 22,700 25,700
--------- --------- --------- --------- ---------
Net income (loss) $ 1,546 $ (51,636) $ 44,992 $ 39,842 $ 44,434
========= ========= ========= ========= =========
Basic earnings (loss) per share $ 0.02 $ (0.69) $ 0.59 $ 0.52 $ 0.59
Diluted earnings (loss) per share 0.02 (0.69) 0.58 0.52 0.58
Weighted average shares outstanding for the
period - used for "basic" EPS calculation 73,707 75,302 76,522 76,224 75,934
Weighted average shares outstanding for the
period - used for "diluted" EPS calculation 73,984 75,302 77,274 77,200 77,190
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------------------
JUNE 30,
JULY 3, ---------------------------------------------------
1999(1) 1998(2) 1997 1996 1995
--------- --------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital $249,417 $230,934 $169,631 $166,929 $170,131
Goodwill, net 19,334 20,741 40,834 42,961 45,088
Total assets 615,858 595,861 568,377 549,395 555,733
Long-term debt(4) 135,326 81,619 1,840 49,140 99,440
Shareholders' equity 332,419 345,078 425,875 381,160 340,617
</TABLE>
- ----------------
(1) Includes the impact of a number of non-recurring items which are more fully
discussed in Note I to the consolidated financial statements included in
Item 8.
(2) Includes the financial impact of the June 1998 restructuring discussed in
more detail at Item 7. The pre-tax charge was $121,966, which amounted to
$86,894, or $1.16 per share on an after-tax basis. Excluding the effects of
the restructuring charge, net income would have been $35,258 or $.47 per
share.
(3) The Company's net sales and results of operations were impacted by the
acquisition of certain assets of Vi-Jon Laboratories, Inc. in January 1995.
(4) Includes current installments.
-15-
<PAGE> 17
Item 7. Management's Discussion and Analysis of Results of Operations, Financial
Condition and Outlook for 2000.
Dollar amounts in thousands
RESULTS OF OPERATIONS
The following table sets forth, for fiscal years 1999, 1998 and 1997,
certain items from the Company's consolidated statements of income expressed as
a percentage of net sales:
<TABLE>
<CAPTION>
Year Ended
----------------------------------------
June 30,
July 3, ---------------------------
1999 1998 1997
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 78.8 74.3 72.9
----- ----- -----
Gross profit 21.2 25.7 27.1
----- ----- -----
Operating expenses:
Distribution 3.8 3.5 3.3
Research and development 1.7 1.8 1.6
Selling and administrative 13.4 12.6 12.2
Restructuring and redesign 0.7 13.6 0.7
Unusual litigation (0.5) 1.0 0.8
----- ----- -----
19.1 32.5 18.6
----- ----- -----
Operating income (loss) 2.1 (6.8) 8.5
Interest and other expense 1.6 0.5 0.1
----- ----- -----
Income (loss) before income taxes 0.5 (7.3) 8.4
Income tax expense (benefit) 0.3 (1.6) 3.1
----- ---- -----
Net income (loss) 0.2% (5.7)% 5.3%
===== ==== =====
</TABLE>
FISCAL YEAR 1999 COMPARED TO FISCAL YEAR 1998
RESTRUCTURING
1999 RESTRUCTURING
In the fourth quarter of fiscal year 1999, the Company announced a
workforce reduction plan that resulted from the Company's decision to divest its
personal care business (see below) and efficiencies created by implementation of
a new enterprise software system in the first quarter of fiscal year 1999. The
plan included a combination of early retirements, normal attrition,
redeployments and job eliminations, primarily for professional, managerial,
administrative and support staff personnel located in the Company's corporate
offices. The Company anticipates annual savings of $3,000 to $4,000 beginning in
fiscal year 2000 associated with this workforce reduction. A pre-tax charge and
reserve of $2,615, which related to severance, postretirement and outplacement
costs, were recorded in accordance with Emerging Issues Task Force ("EITF")
94-3. In the fourth quarter, 23 people elected early retirement and 34 people
were terminated. The Company anticipates that severance and retirement payments
will be made through fiscal year 2000. As of July 3, 1999, this restructuring
reserve balance was $2,455.
UPDATE ON 1998 RESTRUCTURING
In June 1998 the Company announced a major restructuring plan which
involved the closing of
-16-
<PAGE> 18
certain personal care manufacturing facilities and the intention to divest the
personal care business. A pre-tax charge of $121,966 was recorded in the fourth
quarter of fiscal year 1998. This charge included $109,707 for impairment of
assets and a reserve of $12,259 for anticipated incremental cash expenditures
recorded in accordance with EITF 94-3.
In the first half of fiscal year 1999 the Company closed personal care
manufacturing facilities in California and Missouri and in the second half of
the year these facilities were sold. Proceeds from the sales were $9,000. No
gains or losses were recorded in the fiscal year 1999 consolidated income
statement related to these sales as the facilities had previously been adjusted
to their estimated fair market values.
In the fourth quarter of fiscal year 1999 the Company entered into an
agreement in principle to sell the personal care business. In conjunction with
that agreement, the Company recorded an additional net restructuring charge of
$3,248. The Company completed the sale of the personal care business in August
1999. Proceeds from the sale, which are subject to post closing adjustment, were
$32,200. No gain or loss is expected to be recorded in fiscal year 2000 related
to this sale. Fiscal year 2000 earnings will reflect one month of the personal
care business. Net sales for the personal care business were $192,409, $212,261
and $206,480 for fiscal years 1999, 1998 and 1997, respectively. The Company
does not maintain operating income information by its three main product lines
(OTC pharmaceuticals, nutritional and personal care products), however, based on
the incremental approach, the Company estimates that pre-tax operating income
was approximately $1,000 for fiscal year 1999 and pre-tax operating losses were
$8,000 and $2,000 for fiscal years 1998 and 1997, respectively, for the personal
care business.
The Company's LaVergne, Tennessee logistics facility was not included
in the sale of the personal care business. This facility is included in assets
held for sale at July 3, 1999 and June 30, 1998. The buyer of the personal care
business will operate out of this logistics facility under a two year lease
agreement. The Company anticipates that this facility will be sold in fiscal
year 2000.
Assets held for sale decreased to $53,045 at July 3, 1999 from $66,398
at June 30, 1998, reflecting the sales of the manufacturing facilities, the
change in the underlying assets during the year (e.g., accounts receivable and
inventory) and the adjustment to the net realizable value of the other personal
care assets as described above. The assets held for sale are not being
depreciated or amortized and are included in the current assets section of the
consolidated balance sheets at July 3, 1999 and June 30, 1998, respectively. The
effect of suspending depreciation was approximately $8,000 for fiscal year 1999.
During fiscal year 1999, $4,089 was paid for costs primarily related to
severance costs, relocation costs and professional fees for the 1998
restructuring. One hundred sixty three employees were terminated during the
fiscal year. The costs incurred were charged against the reserve of $12,259,
which was established in fiscal year 1998. Also in fiscal year 1999, reserves of
approximately $6,000 were charged against the personal care assets held for sale
because certain expenditures anticipated at June 30, 1998 were subsequently
incorporated into the purchase price for the personal care business. As of July
3, 1999, a total restructuring reserve balance of $2,170 remains in accrued
liabilities for anticipated transition and selling costs. Also during the year,
the Company expensed as incurred $297 of other restructuring costs in accordance
with EITF 94-3.
RESULTS OF OPERATIONS
FISCAL YEAR 1999 COMPARED TO FISCAL YEAR 1998
The Company's net sales decreased by $25,050 or 3% to $877,587 for
fiscal year 1999 from $902,637 for fiscal year 1998. The decrease was primarily
due to decreases in sales of nutritional and personal care products partially
offset by a modest increase in OTC and international pharmaceutical
-17-
<PAGE> 19
products. Sales for the Company's major product lines did not meet expectations
primarily due to production and shipping inefficiencies created by the Company's
conversion to a new enterprise software system in the first quarter of fiscal
year 1999. Customer service was improved significantly during the second half of
the year and the Company believes that there will be no permanent loss of
significant business due to this systems conversion. Also during fiscal year
1999, to improve customer service, the Company suspended production for smaller
customers and lower volume products resulting in certain lost sales. This, in
addition to the shipping inefficiencies created by the Company's conversion to
the new software system as described above, resulted in lost sales of
approximately $50,000 in fiscal year 1999.
During the first quarter of fiscal year 1999, the Company wrote off
inventory of $1,663, accounts and notes receivable of $10,874 and the balance of
its Russian investment of $1,640 for a total of $14,177 due to the collapse of
the Russian economy. The inventory amount is included in Cost of sales; the
accounts and notes receivable amount is included in Selling and administrative
expense; and the investment amount is included in Other expense. In the fourth
quarter of fiscal year 1998 the Company recorded a reserve against its Russian
investment and charged Other expense in the amount of $1,250. The discussions
below related to gross profit, operating expenses and other expense exclude the
effects of these charges.
In the fourth quarter of fiscal year 1998, the Company recorded a
restructuring charge in the amount of $121,966 related to its intention to
divest its personal care business as noted above in the Restructuring section.
In the fourth quarter of fiscal year 1999 the Company recorded an additional net
restructuring charge of $3,248 related to these assets. The discussion below
related to operating expenses excludes the effects of these charges.
Gross profit decreased $44,505 or 19% for fiscal year 1999 compared to
fiscal year 1998. The gross profit percent to net sales for fiscal year 1999 was
21.3% compared to 25.7% for fiscal year 1998. The decrease in gross profit
percentage was primarily due to inefficiencies related to the Company's
conversion to its new software system, outsourcing costs incurred to meet
customer service requirements and increases in actual write-offs and reserves
for inventory obsolescence. Inventory obsolescence is higher in the current year
because of an unusual buildup of inventory at the beginning of the fiscal year
in anticipation of the Company's conversion to its new software system. A
certain portion of this inventory did not sell-through because of the
distribution inefficiencies created by the systems conversion. The Company
believes that the valuation of its inventory adequately covers obsolescence
related to the inventory on hand at July 3, 1999.
Operating expenses consist of distribution, research and development,
selling and administration, restructuring and redesign and unusual litigation
costs. Operating expenses were 17.5% of net sales for fiscal year 1999 compared
to 19.0% for fiscal year 1998. Distribution expenses increased $969 or 3% to
$32,964 for fiscal year 1999 primarily due to increased expedited shipment costs
partially offset by lower warehousing costs as the Company began to see benefits
from its shift from leased warehouses to its owned warehouses in Allegan,
Michigan and LaVergne, Tennessee. Distribution expenses were 3.8% of net sales
for fiscal year 1999 compared to 3.5% for fiscal year 1998. Research and
development expenses decreased $1,075 or 7% to $14,867 for fiscal year 1999
primarily due to the timing of expenses for the development of new products,
which are approved through the Food and Drug Administration's ("FDA")
Abbreviated New Drug Application ("ANDA") process. Research and development
expenses were 1.7% of net sales for fiscal year 1999 compared to 1.8% of net
sales for fiscal year 1998. Selling and administrative expenses decreased $6,835
or 6% for fiscal year 1999 primarily due to reductions in sales, marketing and
promotional expenses partially offset by an increase in MIS expenses related to
the Company's new integrated software package. Selling and administrative
expense was 12.2% of net sales for fiscal year 1999 compared to 12.6% of net
sales for fiscal year 1998. Restructuring and redesign expenses were
-18-
<PAGE> 20
$6,160 for fiscal year 1999 compared to $122,529 for fiscal year 1998. The
fiscal year 1999 expense consisted of $2,615 for the 1999 restructuring as
described above and $3,545 of additional write-offs and expenses related to the
1998 restructuring plan to divest the personal care business. The fiscal year
1998 expense consisted of $121,966 for the 1998 restructuring as described above
and $563 for the Company's business process redesign effort. Unusual litigation
expenses decreased by $13,537 in fiscal year 1999 due to an insurance
reimbursement of $8,000 and decreased litigation costs of $5,537 related to the
litigation as described in Note F to the consolidated financial statements.
Interest and other expense increased $9,409 to $12,378 for fiscal year
1999. Interest expense increased $8,333 to $10,482 for fiscal year 1999 from
$2,149 for fiscal year 1998, primarily due to higher borrowing levels. Other
expense increased from $820 in fiscal year 1998 to $1,896 in fiscal year 1999,
primarily due to a permanent impairment write-down of an investment in the
amount of $2,621 in the fourth quarter of fiscal year 1999. Excluding this
charge, the Company had other income of $725 in fiscal year 1999, primarily due
to a gain on the sale of certain assets unrelated to the 1998 restructuring.
The effective tax rate was 61.5% in fiscal year 1999 compared to 21.8%
in fiscal year 1998. The fiscal year 1999 effective rate was negatively impacted
by the investment impairment write-down discussed above which is considered to
be nondeductible for tax purposes. The fiscal year 1998 effective rate was
negatively impacted by the nondeductible write-off of goodwill in the 1998
Restructuring charge.
FOURTH QUARTER - FISCAL YEAR 1999
Excluding the 1998 restructuring charges of $3,248 in fiscal year 1999
and $121,966 in fiscal year 1998, the Company incurred a pretax loss of $206 in
the fourth quarter of fiscal year 1999 compared to a pre-tax loss of $2,902 for
the same period in fiscal year 1998. These losses are unusual for the Company
and the factors related to the 1999 net loss are discussed below. The Company
anticipates that this trend will not continue in fiscal year 2000.
Net sales decreased $26,708 or 12% to $187,742 for the quarter
primarily due to customer inventory building of OTC products in the 1999 third
quarter, a decrease in vitamin sales compared to strong sales in the same
quarter last year and a decrease in sales of personal care products.
Gross profit decreased $11,666 or 23% for the quarter. The gross profit
percent to net sales for the quarter was 20.4% compared to 23.3% for the same
period last year. The decrease is primarily due to increases in write-offs and
provisions for inventory obsolescence of $8,000. These inventory adjustments
were made in the fourth quarter after sales fell short of expectations,
resulting in obsolete and excess inventory. As noted above, the Company believes
that the valuation of its inventory adequately covers obsolescence related to
the inventory on hand at July 3, 1999.
Operating expenses excluding the 1998 restructuring charges incurred in
fiscal years 1999 and 1998 decreased $17,287 or 34% from the same period last
year. Operating expenses were 17.6% of net sales for the quarter compared to
23.5% for the same period last year. Distribution expenses decreased $1,760 or
21% to $6,588 for fiscal year 1999 primarily due to lower warehousing costs as
the Company began to see benefits from its shift from leased warehouses to its
owned warehouses in Allegan, Michigan and Lavergne, Tennessee and lower freight
costs. Distribution expenses were 3.5% of net sales for the quarter compared to
3.9% for the same quarter last year. Research and development expenses decreased
$2,714 or 41% to $3,885 for the quarter primarily due to the timing of expenses
for the development of new products, which are approved through the FDA's ANDA
process. Research and development expenses were 2.1% of net sales for the
quarter compared to 3.1% of net sales for the same period last year. Selling and
administrative expenses decreased $3,945 or 13% for the quarter primarily due to
reductions in
-19-
<PAGE> 21
sales, marketing and promotional expenses. Selling and administrative expense
was 14.5% of net sales for both quarters. Fourth quarter restructuring and
redesign expenses were $6,160 in fiscal year 1999 compared to $121,966 for
fiscal year 1998. The fiscal year 1999 expense consisted of $2,615 for the 1999
restructuring as described above and $3,545 of additional write-offs and
expenses relating to the 1998 restructuring plan to divest of the personal care
business. The fourth quarter fiscal year 1998 expense primarily related to the
planned divestiture of the personal care business. Unusual litigation expenses
decreased by $11,810 in fiscal year 1999 due to an insurance reimbursement of
$8,000 and decreased litigation costs of $3,810 related to the litigation as
described in Note F to the consolidated financial statements.
Interest and other expense increased $2,513 to $4,980 for the quarter.
Interest expense increased $2,630 to $3,426 for the quarter from $796 for the
same period last year primarily due to higher borrowing levels. Other expense
increased $1,047 to $939 for the quarter primarily due to a permanent impairment
write-down of an investment in the amount of $2,621 in the quarter. Excluding
this charge, other income was $1,574 for the quarter compared to $108 for the
same period last year.
The effective tax rate was 4.2% for the quarter compared to 28.9% for
the same period last year. The effective tax rate for the fiscal year 1999
fourth quarter was negatively impacted by the nondeductible investment
impairment write-down previously discussed. The lower rate for the fourth
quarter of fiscal year 1998 is primarily due to the write-off of goodwill
included in the restructuring charge.
FISCAL YEAR 1998 COMPARED TO FISCAL YEAR 1997
The Company's net sales increased by $58,046 or 7% to $902,637 for
fiscal year 1998 from $844,591 for fiscal year 1997. The increase was primarily
due to an increase of 37% or $41,301 in sales to existing customers of
nutritional products, which consist primarily of vitamins and nutritional
supplements. The sales increase was also due to an increase in international
sales, primarily related to a Mexican subsidiary purchased in September 1997,
and increases in unit sales to existing customers of hair care products,
partially offset by decreases in certain OTC pharmaceutical products, primarily
dermatologic products, laxatives and cough and cold products.
Gross profit increased $2,991 or 1% for fiscal year 1998 compared to
fiscal year 1997. The gross profit percent to net sales for fiscal year 1998 was
25.7% compared to 27.1% for fiscal year 1997. The decrease in gross profit
percentage was primarily due to decreases in sales of higher margin OTC
products, increases in sales of lower margin personal care and vitamin products,
competitive pricing pressures and outsourcing costs incurred to meet customer
requirements.
Excluding the 1998 restructuring as described in the Restructuring
section, operating expenses were 19.0% of net sales for fiscal year 1998
compared to 18.6% for fiscal year 1997. Distribution expenses increased $3,922
or 14% during fiscal year 1998 to $31,995 primarily due to increased warehousing
costs associated with higher inventory levels and increased freight costs due to
customer service requirements. Distribution expenses were 3.5% of net sales for
fiscal year 1998 compared to 3.3% for fiscal year 1997. Research and development
expenses increased $2,291 or 17% to $15,942 for fiscal year 1998 due to planned
increases in new product development activity. Research and development expenses
were 1.8% of net sales for fiscal year 1998 compared to 1.6% for the prior
fiscal year. Selling and administrative expenses increased $10,480 or 10% for
fiscal year 1998 to $113,584 primarily due to increased marketing and sales
promotion activity, offset by a decrease in administrative expenses, primarily
incentive compensation. Selling and administrative expenses were 12.6% of net
sales in fiscal year 1998 compared to 12.2% for fiscal year 1997. Excluding the
1998 restructuring, restructuring and redesign expenses decreased from $5,503 in
fiscal year 1997 to $563 in fiscal year 1998. The $563 fiscal year 1998 expense
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related to the Company's business process redesign effort. The fiscal year 1997
expenses related primarily to the closing of the Company's truck fleet
operations and the business process redesign effort. Unusual litigation costs of
$9,585 for fiscal year 1998 compared to $6,367 for the prior fiscal year were
primarily due to the litigation as described in Note F to the consolidated
financial statements.
Interest and other expense increased $2,913 to $4,219 for fiscal year
1998. Interest expense increased $843 to $2,149 for fiscal year 1998 primarily
due to higher borrowing levels. Other expense increased from zero for fiscal
year 1997 to $2,070 for fiscal year 1998 primarily due to a reserve taken
against the Company's Russian investment.
The effective tax rate was 21.8% for fiscal year 1998 compared to 36.5%
for fiscal year 1997. The lower effective tax rate for fiscal year 1998 is
primarily due to the nondeductible write-off of goodwill included in the 1998
restructuring.
FOURTH QUARTER - FISCAL YEAR 1998
Excluding the 1998 Restructuring, the Company incurred a net loss of
$1,867 for the quarter compared to net income of $8,984 for the same period the
previous year.
The Company's net sales increased $18,278 or 9% to $214,450 for the
quarter primarily due to an increase in unit sales to existing customers of
nutritional products and an increase in international sales, partially offset by
a decrease in certain OTC pharmaceutical products.
Gross profit decreased $3,112 for the quarter. The gross profit percent
of net sales for the quarter was 23.3% compared to 27% for the same period the
previous year. The decrease was primarily due to lower margins for personal care
products, decreases in sales of higher margin OTC products, increases in sales
of lower margin personal care and vitamin products, competitive pricing
pressures and outsourcing costs incurred to meet customer requirements.
Excluding the 1998 Restructuring, operating expenses were 23.5% of net
sales for the quarter compared to 19.9% for the same period the previous year.
Distribution expenses increased $1,760 to $8,348 for the quarter primarily due
to increased warehousing costs associated with higher inventory levels and
increased freight costs due to customer service requirements. Distribution
expenses were 3.9% of net sales for the quarter compared to 3.4% of net sales
for the same period the previous year. Research and development expenses
increased $2,965 to $6,599 for the quarter primarily due to planned increases in
new product development activity. Research and development expenses were 3.1% of
net sales for the quarter compared to 1.8% for the same period the previous
year. Selling and administrative expenses increased $4,922 to $31,185 for the
quarter primarily due to increased marketing and sales promotion activity.
Selling and administrative expenses were 14.5% of net sale for the quarter
compared to 13.4% for the same period the previous year. Unusual litigation
costs increased $2,662 to $4,230 for the quarter primarily due to the lawsuits
as described in Note F to the consolidated financial statements.
Interest expense was $715 for the quarter compared to zero for the same
quarter the previous year due to higher borrowing levels. Other expense was
$1,752 for the quarter primarily due to a reserve of $1,250 established against
the Company's Russian investment. Other income was $139 for the same period the
previous year.
The effective tax rate was 28.9% for the quarter compared to 36.6% for
the same quarter the previous year. The lower rate is primarily due to the
nondeductible write-off of goodwill included in the 1998 Restructuring.
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FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
During fiscal year 1999, working capital increased $18,483 and cash
flow for operating activities was $15,399. Changes in working capital exclude
the effects of the 1998 Restructuring as described in the Results of Operations.
Accounts receivable, net of allowances, increased $18,180 and inventories
increased $17,408, primarily due to customer service requirements and
inefficiencies caused by the Company's conversion to a new software system.
Assets held for sale decreased $13,353, primarily due to the sale of the
manufacturing facilities in California and Missouri for which the Company
received $9,000 in proceeds and the additional $3,248 net restructuring charge
recorded to reflect the estimated fair value of assets held for sale. Accounts
payable decreased $10,551, primarily due to lower purchases in the fourth
quarter of fiscal year 1999 as compared to the same period last year. In the
fourth quarter of fiscal year 1999, the Company's inventory levels were
decreasing, whereas in the fourth quarter of fiscal year 1998, the Company's
inventory levels were increasing. Accrued expenses decreased $8,619, primarily
due to a decrease in the 1998 Restructuring reserves of $10,089.
The Company entered into long-term licensing agreements in fiscal year
1999 to manufacture and/or sell certain OTC products that would have otherwise
been unavailable. Costs related to these agreements in the amount of $8,700 are
included in prepaid expenses and other assets and are being amortized over the
terms of the agreements. Accounts payable include $6,534 related to these
agreements.
Capital expenditures for facilities and equipment were $32,272 for
fiscal year 1999. A significant portion of these expenditures was for the
construction of the new logistics facility in Allegan, Michigan and expansion of
the manufacturing facility for nutritional products.
The Company has a Russian investment that is accounted for using the
equity method. Due to the collapse of the Russian economy, the Company wrote off
a total of $14,177 including its net investment of $1,640, inventory of $1,663
and accounts and notes receivable of $10,874 related to this Russian investment
in fiscal year 1999.
Long-term debt increased $53,707 during fiscal year 1999 as the Company
drew on its $150,000 line of credit and its $55,000 uncommitted lines of credit
to fund, primarily, working capital requirements, the common stock repurchase
program and capital expenditures. At July 3, 1999 the Company had $40,000
available on the line of credit and $30,814 available from uncommitted credit
facilities with two financial institutions. In September 1999 the Company
entered into a new credit agreement with a group of banks. See Note C to the
consolidated financial statements for a description of credit facilities.
During fiscal year 1999 the Company purchased 1,550 shares of common
stock for $14,820 under its common stock repurchase program. The common stock
was retired. The common stock repurchase program was terminated during fiscal
year 1999.
As previously discussed, the Company completed the sale of its personal
care business in August 1999. The Company anticipates that it will use the
proceeds from the sale to reduce debt and fund operations in the first quarter
of fiscal year 2000.
YEAR 2000 READINESS DISCLOSURE
In September 1998 the Company replaced a significant portion of its
software systems with one enterprise software package - SAP R/3. The vendors of
this integrated software package have indicated that this system is year 2000
("Y2K") compliant, and the Company's Y2K compliance testing of this
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system has revealed no Y2K related problems. During fiscal year 1998, the
Company developed a plan to review all of the computer-based systems that remain
after conversion to SAP R/3 in order to determine modifications needed to those
systems for the year 2000. The plan includes (1) becoming Year 2000 compliant in
all of its critical software systems, infrastructure systems, manufacturing
systems, security systems and office equipment, (2) developing contingency plans
for all critical systems; (3) reviewing insurance, regulatory and legal
implications as they relate to the year 2000 and (4) determining the year 2000
compliance status of the Company's key suppliers and customers. The plan has not
changed substantially since the time it was developed in fiscal year 1998. The
Company is within its timeline for having the plan completed prior to the year
2000.
The Company believes it has completed the identification of IT and
non-IT systems that need to be reviewed for Y2K compliance and has prioritized
each system as "critical", "important" or "non-critical". The following
procedures are being followed for all systems in order to gain assurance that
they are year 2000 compliant: (1) Obtain the Y2K compliance status from the
manufacturer. If the system is not considered Y2K compliant by the manufacturer
it will be updated, replaced or eliminated; (2) Test each system to determine
Y2K compliance; and (3) Remediate and retest noncompliant systems until Y2K
compliance is obtained. Critical systems are the highest priority. Important
systems are being tested and remediated as the next priority and non-critical
systems will be tested as time permits. As stated above, Y2K compliance testing
of the Company's core business system, SAP R/3, has revealed no Y2K related
problems. Critical systems requiring remediation are scheduled for completion in
the third quarter of calendar year 1999 and most are complete as of now. The
Company has prepared and reviewed contingency plans for all critical systems and
will continue to review and refine these plans throughout the second half of
calendar year 1999. Costs to date specifically to address Y2K issues, separate
from SAP implementations, have approximated $1,000. Future costs anticipated to
remedy Y2K issues have been budgeted and are not expected to exceed an
additional $1,000. There can be no assurance that the Company will be able to
identify and correct all aspects of the year 2000 problem that affect it in
sufficient time, and if it cannot, the failure could have a material negative
impact on the Company's business, operations or financial condition. The
Company, however, does not currently expect that the year 2000 problem as it
relates to its internal systems will have a material negative impact on the
Company.
The Company is monitoring the insurance, regulatory and legal
implications as they relate to the year 2000. The Company, at this time, does
not anticipate that the costs associated with this review will be material to
the Company's financial condition or results of operations.
The Company's plan to determine the Y2K compliance status of its key
suppliers and customers is in progress. The plan involves soliciting information
from suppliers and customers through use of surveys and follow-up discussions
and testing where needed. The Company has sent out surveys to all of its current
key suppliers and customers and received a majority of these surveys. The survey
responses have been rated by the Company to establish the stated level of
compliance by the respondent. While the Company cannot guarantee Y2K compliance
by its key suppliers and customers, and in many cases will be relying on
statements from outside vendors and customers without independent verification,
the surveys received and related follow-ups with certain vendors and customers
indicate that current key suppliers and customers are aware of the issues and
are working on a solution to achieve compliance on or before the year 2000. The
Company is currently in the process of obtaining more detailed information from
certain key suppliers and customers, following-up with those companies who did
not respond satisfactorily to the survey. The Company will continue this process
throughout the second half of calendar year 1999. The Company has also developed
an initial contingency plan to deal with those key suppliers and customers who
may not be Y2K compliant prior to the year 2000. This contingency plan will be
reviewed and refined throughout the second half of calendar year 1999. If
certain key suppliers or customers were not Y2K compliant and the Company was
unaware of the noncompliance, the Company's results of operations and financial
condition
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could be significantly negatively impacted. However, at this time the
Company is not aware of any key suppliers or customers who will be significantly
hampered from conducting normal business because of internal Y2K problems.
In the fourth quarter of fiscal year 1999 the Company engaged a Y2K
consulting firm to perform an independent validation and verification of its Y2K
project. This process has been completed. The final report offered certain
recommendations from the consulting firm but no material issues or omissions
were noted in the Company's Y2K project.
In addition to the fact that the company has substantially completed
its assessment, remediation and testing efforts, it has also initiated a Y2K
contingency planning process to identify, reduce, and manage risk to our
business and customers of Y2K failures. The contingency planning process is
intended to identify critical systems and services, and develop contingency
plans to document the steps to be taken if they are lost or only partially
functional. While the individual contingency plans vary by facility, the common
recurring theme for a worst case scenario is failure of a critical system or
service for 1 or 2 days. Contingencies planned by the Company include such items
as adequate local power generation capability to ensure continuous operation of
the most critical computers and internal voice and data communication systems.
The anticipated finalization and implementation of the Y2K contingency plans is
fall 1999, though some contingency plan steps were executed as early as spring
1999 due to lead times for certain items.
OUTLOOK - FISCAL YEAR 2000
The Company intends to continue its mission to provide high-quality,
cost effective health care solutions worldwide at a profitable growth rate. The
Company believes that, with the sale of the personal care business in August
1999, the Company can concentrate on its core business of OTC pharmaceuticals
and nutritional products in fiscal year 2000 in order to increase shareholder
value. Proceeds from the sale of the personal care business will be used to
reduce debt and fund operations in the first quarter. No gain or loss is
expected to be recorded in fiscal year 2000 related to this sale. The proceeds
of $32,200 are subject to post closing adjustments. The Company anticipates
that it will sell the LaVergne, Tennessee logistics facility during fiscal year
2000. The Company adjusted this asset held for sale to its estimated proceed
value in fiscal year 1999. The proceed value is subject to change. The fiscal
year 2000 results will include one month of the personal care operations.
Total Company net sales for fiscal year 2000 are expected to be
significantly lower than last year, primarily due to the sale of the personal
care business, partially offset by a moderate increase in sales of OTC
pharmaceuticals, nutritional products and international pharmaceutical
products. Personal care net sales for fiscal year 1999 were $192,409 or 22% of
the Company's net sales in fiscal year 1999. The net sales of the ongoing
businesses are anticipated to increase due to modest market growth in the
nutritional business and to new product introductions to existing customers in
the OTC business, such as the Nicotine Transdermal System Patch for smoking
cessation and several other Rx switch products.
Gross profit dollars are anticipated to be comparable to last year. The
loss in gross profit dollars related to the sale of the personal care business
is expected to be offset by increases in gross profit dollars for the OTC and
nutritional businesses. Gross profit dollars in fiscal year 1999 were negatively
impacted by production inefficiencies and an increase in inventory write-offs
and provisions related to the Company's conversion to a new software system.
Gross profit as a percentage of sales is expected to improve over last year
primarily due to elimination of one-time software conversion inefficiencies and
the reduction in personal care sales in fiscal year 2000. Personal care products
have traditionally had a lower gross profit rate than OTC pharmaceutical and
nutritional products.
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Total operating expenses are expected to decrease both in dollars and
as a percentage of net sales. Research and development expenses are anticipated
to increase due to the Company's commitment to product introductions from Rx
switches. Distribution expenses are expected to decrease in dollars and as a
percentage of net sales due to improved operational efficiencies related to the
new Allegan, Michigan logistics facility and also due to the fact that the
fiscal year 1999 distribution expenses were negatively impacted by
inefficiencies created from the Company's conversion to its new software system.
Selling and administrative expenses are expected to decrease in dollars and as a
percentage of net sales, primarily due to the fact that fiscal year 1999 selling
and administrative expenses included an unusual write-off of accounts and notes
receivable related to a Russian investment and due to the cost reduction program
initiated in fiscal year 1999. The Company expects to have no significant
restructuring or unusual litigation expenses in fiscal year 2000.
Interest expense is expected to be lower in fiscal year 2000 due to
anticipated lower borrowing levels. The Company anticipates that the fiscal
year-end 2000 borrowing level will be substantially lower than at fiscal
year-end 1999 assuming no material acquisitions. Cash flows from operations and
the proceeds from the sale of the personal care business are expected to fund
working capital and capital expenditures and reduce debt.
Capital expenditures are expected to be approximately $25,000 to
$30,000 during the year primarily for normal equipment replacement and
productivity enhancements to equipment.
Item 7A. Quantitative And Qualitative Disclosures About Market Risk.
The Company has evaluated possible disclosures required under this item
and has determined that no market, interest rate or foreign currency risk exists
that would require disclosure.
Additional Item. Cautionary Note Regarding Forward-Looking Statements.
The Company or its representatives from time to time may make or may
have made certain forward-looking statements, orally or in writing, including
without limitation any such statements made or to be made in the Management's
Discussion and Analysis contained in its various SEC filings. The Company wishes
to ensure that such statements are accompanied by meaningful cautionary
statements, so as to ensure to the fullest extent possible the protections of
the safe harbor established in the Private Securities Litigation Reform Act of
1995. Accordingly, such statements are qualified in their entirety by reference
to and are accompanied by the following discussion of certain important factors
that could cause actual results to differ materially from those anticipated in
such forward-looking statements.
Store Brand Product Growth
The future growth of domestic store brand products will be influenced
by general economic conditions, which can influence consumers to switch to store
brand products, consumer perception and acceptance of the quality of the
products available, the development of new products, the market exclusivity
periods awarded on prescription to over-the-counter switch products and the
Company's ability to grow the store brand market share. The Company does not
advertise like the national brand companies and thus is dependent on retailer
promotional spending to drive sales volume and increase market share.
Promotional spending is a significant element of selling and administrative
expenses and is directly influenced by retailer promotional decisions and is
thus very difficult to estimate in future periods. Growth opportunities for the
products in which the Company currently has a significant store brand market
share (cough and cold remedies and analgesics) will be driven by the ability to
offer new products to existing domestic customers and the Company's ability to
service new customers internationally. Should store
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<PAGE> 27
brand growth be limited by any of these factors, there could be a significant
impact on the operating results of the Company.
Fluctuation in Quarterly Results
The Company's quarterly operating results depend on a variety of
factors including the severity and timing of the cough/cold/flu season, the
timing of new product introductions by the Company and its competitors, changes
in the levels of inventories maintained by the Company's customers and the
timing of retailer promotional programs. Accordingly, the Company may be subject
to significant and unanticipated quarter-to-quarter fluctuations.
Regulatory Environment
The Company's products are subject to regulation by a number of federal
and state governmental agencies. The cost of maintaining product quality through
Good Manufacturing Practices (?GMP?) is increasing. Should the Company fail to
adequately conform to governmental regulations, there may be a significant
impact in the operating results of the Company.
The Company's ability to bring new products to market is limited by
certain patent and trade dress factors including, but not limited to, the
exclusivity periods awarded on products that have switched from prescription to
over-the-counter status. The cost and time to develop these switch products is
significantly greater than the rest of the new products that the Company seeks
to introduce.
From time to time the FDA will mandate packaging or labeling changes.
Such changes could be related to safety or effectiveness issues. With specific
regard to safety, there have been instances within the Company's product
categories in which evidence of product tampering has occurred resulting in a
costly product recall. Significant costs could also be incurred in complying
with the required packaging and labeling changes. Should the Company be involved
in such an event, the associated costs could have a material impact on the
results of operations.
The Company believes that it has excellent relationships with the FDA,
which it intends to maintain. If these relationships should deteriorate,
however, the Company's ability to bring new and current products to market could
be impeded.
Research and Development
The Company's investment in research and development will continue to
exceed historical levels due to the high cost of developing and becoming a
qualified manufacturer of new products that are switching from prescription to
over-the-counter status. The ability to attract chemists proficient in emerging
delivery forms and/or contracting with a third party innovator in order to
generate new products of this type is a critical element of the Company's long
term plans. Should the Company fail to attract qualified employees or enter into
reasonable agreements with third party innovators, long term sales growth and
profit would be adversely impacted.
Dependence on Personnel
The Company's future success will depend in large part upon its ability
to attract and retain highly skilled research and development chemists (as noted
above), management information specialists, operations, sales, marketing and
managerial personnel. The Company does not have employment contracts with any
key personnel. Should the Company not be able to attract or retain key qualified
employees, future operating results may be adversely impacted.
International Operations
The Company sources certain key raw materials from foreign suppliers
and is increasing its sales
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outside the United States. Additionally, the Company is investing in the
development of its international business. The Company's primary markets to date
have been Mexico, Canada and Russia/Ukraine. The Company's international sales
are not material. Sales to customers outside the United States and foreign raw
material purchases expose the Company to a number of risks including unexpected
changes in regulatory requirements and tariffs, possible difficulties in
enforcing agreements, longer payment cycles, exchange rate fluctuations,
difficulties obtaining export or import licenses, the imposition of withholding
or other taxes, economic collapse in one or more countries similar to what
occurred in Russia in 1998, embargoes, exchange controls or the adoption of
other restrictions on foreign trade. Should any of these risks occur, they may
have a material adverse impact on the operating results of the Company.
Product Availability
In the past, supplies of certain raw materials, bulk tablets and
finished goods purchased by the Company have become limited, or were available
from one or only a few suppliers, and it is possible that this will occur in the
future. Should this situation occur, it can result in increased prices,
rationing and shortages. In response to these problems the Company tries to
identify alternative materials or suppliers for such raw materials, bulk tablets
and finished goods. Certain shortages could adversely affect financial results.
Legal Exposure
From time to time the Company and/or its subsidiaries become involved
in lawsuits arising from various commercial matters, including, but not limited
to competitive issues, contract issues, intellectual property matters, workers'
compensation, product liability and regulatory issues such as Proposition 65 in
California. See Item 3, Legal Proceedings for a discussion of litigation.
Litigation tends to be unpredictable and costly. There is no assurance that
litigation will not have an adverse effect on the Company's financial position
or results of operations in the future.
The Company maintains property, cargo, auto, product, general
liability, and directors and officers liability insurance to protect itself
against potential loss exposures. To the extent that losses occur, there could
be an adverse effect on the Company's financial results depending on the nature
of the loss, and the level of insurance coverage maintained by the Company. From
time to time, the Company may reevaluate and change the types and levels of
insurance coverage that it purchases.
Competitive Issues
The market for store brand over-the-counter pharmaceutical and
nutritional products is highly competitive. Store brand competition is based
primarily on price, quality and assortment of products, customer service,
marketing support and availability of new products. National brand companies
could choose to compete more directly by manufacturing store brand products or
by lowering the prices of national brand products. Due to the high degree of
price competition, the Company has not always been able to fully pass on cost
increases to its customers. The inability to pass on future cost increases, the
impact of direct store brand competitors, and the impact of national brand
companies lowering prices of their products or directly operating in the store
brand market could have a material adverse impact on financial results.
Customer Issues
The impact of retailer consolidation is unknown but could have an
adverse impact on future sales growth. Should a large customer encounter
financial difficulties, the exposure on uncollectible receivables and unusable
inventory could have a material adverse impact on the Company's financial
position or results of operation.
The Company's largest customer, Wal-Mart, currently comprises
approximately 24% of total
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revenues. Should Wal-Mart's current relationship with the Company change
adversely, the resulting loss of business could have a material adverse impact
on the Company's operating results and financial position.
Capital Requirements
The Company maintains a broad product line to function as a primary
supplier for its customers. Capital investments are driven by growth,
technological advancements and the need for manufacturing flexibility.
Estimation of future capital expenditures could vary materially due to the
uncertainty of these factors. If the Company fails to stay current with the
latest manufacturing and packaging technology it may be unable to competitively
support the launch of new product introductions.
Interest Rate Implication
The interest on the Company's line of credit facility is based on
variable interest rate factors. The interest rates are established at the time
of borrowing based upon the prime rate, the LIBOR rate, plus a factor, or at a
rate based on an interest rate agreed upon between the Company and the Agent at
the time the loan is made. Accordingly, interest expense is subject to variation
due to the variability of these rates.
Tax Rate Implication
Income tax rate changes by governments and changes in the tax
jurisdictions in which the Company operates could influence the effective tax
rates for future years. The anticipated growth of the Company's international
business increases the likelihood of fluctuation occurring.
Liquidity and Capital Resources
The Company anticipates that cash flow from operations will
substantially fund working capital, restructuring, redesign and other unusual
charges and capital expenditures. Additionally, borrowings from the Company's
line of credit are available, if required. The Company has historically
evaluated acquisition opportunities and anticipates that acquisition
opportunities will continue to be identified and evaluated in the future. The
historical growth of sales and profits have been significantly influenced by
acquisitions. There is no assurance that future sales and profits will, or will
not, be impacted by acquisition activities. The Company's current capital
structure, results of operations and cash flow needs could be materially changed
by acquisitions.
The Company has evaluated, and will continue to evaluate, the products
and product categories in which it does business. Future product line
extensions, or deletions, could have a material impact on the Company's
financial position or results of operations.
Year 2000 Issues
The Company has developed a plan to attempt to determine the year 2000
compliance status of its key suppliers and customers. The Company has developed
a contingency plan to deal with those key suppliers and customers that the
Company determines will be noncompliant as of the year 2000. The Company cannot,
however, guarantee the compliance of its key suppliers and customers. In the
event that certain key suppliers or customers are not year 2000 compliant and
the Company does not have a contingency plan in place to deal with those
suppliers or customers, the Company's results of operations and financial
condition could be significantly negatively impacted. In the event that the
Company had internal systems failures related to the year 2000, and the Company
did not have a contingency plan in place to deal with such a failure, the
Company's results of operations and financial condition could be significantly
negatively impacted.
Potential Volatility of Stock Price
The market price of the Company's Common Stock has been, and could be,
subject to wide fluctuations in response to, among other things, quarterly
fluctuations in operating results, adverse
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circumstances affecting the introduction or market acceptance of new products,
failure to meet published estimates of or changes in earnings estimates by
securities analysts, announcements of new products or enhancements by
competitors, sales of Common Stock by existing holders, loss of key personnel,
market conditions in the industry, shortages of key components and general
economic conditions.
The Company cautions the reader that this list of factors may not be
exhaustive. The Company operates in a continually changing business environment,
and new risk factors emerge from time to time. Management cannot predict such
risk factors, nor can it assess the impact, if any, of such risk factors on the
Company's business or the extent to which any factors, or combination of
factors, may cause actual results to differ materially from those projected in
any forward-looking statements. Accordingly, forward-looking statements should
not be relied upon as a prediction of actual results.
Item 8. Financial Statements and Supplementary Data.
Financial statements and supplementary data for the Company are on the
following pages 30 through 51.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Report of Independent Certified Public Accountants........................ 31
Consolidated Statements of Income for the years ended July 3, 1999,
June 30, 1998 and 1997.................................................. 32
Consolidated Balance Sheets as of July 3, 1999 and June 30, 1998.......... 33
Consolidated Statements of Shareholders' Equity for the years ended
July 3, 1999, June 30, 1998 and 1997 ................................... 34
Consolidated Statements of Cash Flows for the years ended July 3, 1999,
June 30, 1998 and 1997 ................................................ 35
Notes to Consolidated Financial Statements................................ 36
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<PAGE> 32
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Perrigo Company
Allegan, Michigan
We have audited the accompanying consolidated balance sheets of Perrigo
Company and subsidiaries as of July 3, 1999 and June 30, 1998, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended July 3, 1999. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Perrigo
Company and subsidiaries as of July 3, 1999 and June 30, 1998, and the results
of their operations and their cash flows for each of the three years in the
period ended July 3, 1999 in conformity with generally accepted accounting
principles.
By: /s/BDO Seidman, LLP
--------------------------
BDO Seidman, LLP
Grand Rapids, Michigan
August 25, 1999, except for Note C,
which is as of September 23, 1999
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<PAGE> 33
PERRIGO COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED
---------------------------------
JUNE 30,
JULY 3, ----------------------
1999 1998 1997
--------- --------- ---------
Net sales $ 877,587 $ 902,637 $ 844,591
Cost of sales 691,893 670,775 615,720
--------- --------- ---------
Gross profit 185,694 231,862 228,871
--------- --------- ---------
Operating expenses
Distribution 32,964 31,995 28,073
Research and development 14,867 15,942 13,651
Selling and administrative 117,623 113,584 103,104
Restructuring and redesign 6,160 122,529 5,503
Unusual litigation (3,952) 9,585 6,367
--------- --------- ---------
167,662 293,635 156,698
--------- --------- ---------
Operating income (loss) 18,032 (61,773) 72,173
Interest and other expense 14,018 4,219 1,306
--------- --------- ---------
Income (loss) before income taxes 4,014 (65,992) 70,867
Income tax expense (benefit) 2,468 (14,356) 25,875
========= ========= =========
Net income (loss) $ 1,546 $ (51,636) $ 44,992
========= ========= =========
Basic earnings (loss) per share $ 0.02 $ (0.69) $ 0.59
========= ========= =========
Diluted earnings (loss) per share $ 0.02 $ (0.69) $ 0.58
========= ========= =========
See accompanying notes to consolidated financial statements.
32
<PAGE> 34
PERRIGO COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JULY 3, JUNE 30,
ASSETS 1999 1998
------- -------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 1,695 $ 1,496
Accounts receivable, net of allowances of $3,281 and
$2,691, respectively 89,123 74,601
Inventories 197,437 181,467
Prepaid expenses and other current assets 7,811 5,817
Current deferred income taxes 33,476 42,675
Assets held for sale 53,045 66,398
--------- ---------
Total current assets 382,587 372,454
Property and equipment
Land 12,004 11,052
Buildings 153,062 137,071
Machinery and equipment 160,378 154,915
--------- ---------
325,444 303,038
Less accumulated depreciation 125,782 112,394
--------- ---------
199,662 190,644
Goodwill, net 19,334 20,741
Other 14,275 12,022
--------- ---------
$ 615,858 $ 595,861
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 68,240 $ 78,791
Notes payable 6,694 5,379
Payrolls and related taxes 18,166 13,266
Accrued expenses 34,787 40,791
Income taxes 4,983 3,293
Current installments on long-term debt 300 --
--------- ---------
Total current liabilities 133,170 141,520
Deferred income taxes 14,674 27,264
Long-term debt, less current installments 135,026 81,619
Minority interest 569 380
Shareholders' equity
Preferred stock, without par value,
10,000 shares authorized, none issued -- --
Common stock, without par value, 200,000 shares authorized,
73,301 and 74,692 issued, respectively 102,030 116,660
Unearned compensation (53) (42)
Accumulated other comprehensive income 436 --
Retained earnings 230,006 228,460
--------- ---------
Total shareholders' equity 332,419 345,078
--------- ---------
$ 615,858 $ 595,861
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 35
PERRIGO COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Common Stock Accumulated
Issued Other
-------------------- Unearned Comprehensive Comprehensive Retained
Shares Amount Compensation Income Income Earnings
------ ------ ------------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1996 76,327 $ 146,056 $ -- $ -- $ 235,104
Net income -- -- -- -- $ 44,992 44,992
Issuance of common stock 264 202 -- -- --
Tax benefit from stock transactions -- 444 -- -- --
Purchases and retirements
of common stock (75) (923) -- -- --
--------- --------- --------- --------- -------- ---------
Balance at June 30, 1997 76,516 145,779 -- -- $ 44,992 280,096
========
Net loss -- -- -- -- $ (51,636) (51,636)
Issuance of common stock under
stock options 287 554 -- -- --
Issuance of common stock under
restricted stock plan 5 70 (70) -- --
Earned compensation for
restricted stock -- -- 28 -- --
Tax benefit from stock transactions -- 452 -- -- --
Purchases and retirements of common
stock (2,116) (30,195) -- -- --
--------- --------- --------- --------- --------- ---------
Balance at June 30, 1998 74,692 116,660 (42) -- $ (51,636) 228,460
=========
Net income -- -- -- -- $ 1,546 1,546
Currency translation adjustments -- -- -- 436 436 --
Issuance of common stock under
stock options 151 89 -- -- --
Issuance of common stock under
restricted stock plan 8 70 (70) -- --
Earned compensation for
restricted stock -- -- 59 -- --
Tax benefit from stock transactions -- 31 -- -- --
Purchases and retirements of
common stock (1,550) (14,820) -- -- --
--------- --------- --------- --------- --------- ---------
Balance at July 3, 1999 73,301 $ 102,030 $ (53) $ 436 $ 1,982 $ 230,006
========= ========= ========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 36
PERRIGO COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------------
JUNE 30,
JULY 3, ---------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Cash Flows From (For) Operating Activities
Net income (loss) $ 1,546 $ (51,636) $ 44,992
Adjustments to derive cash flows
Restructuring, net of cash 5,863 121,468 -
Depreciation 20,021 26,733 26,178
Amortization of intangibles 1,135 2,740 2,424
Write-off of Russian investment and related 14,177 - -
receivables and inventory
Write-down of investment due to permanent impairment 2,621 - -
Deferred income taxes (3,391) (34,754) (1,139)
Provision for losses on accounts receivable 334 580 638
Minority interest 189 192 -
Change in unearned compensation 59 28 -
Changes in operating assets and liabilities, net of
restructuring and amounts acquired from
business acquisition
Accounts receivable (18,180) (5,464) (2,609)
Inventories (17,408) (63,221) (4,497)
Prepaid expenses and other current assets (1,994) (121) 446
Increase in long-term licensing agreements (8,700) - -
Accounts payable (10,551) 30,440 7,146
Payrolls and related taxes 4,900 (4,598) 4,217
Accrued expenses (8,619) (1,889) 8,515
Income taxes 1,690 1,843 225
Other 909 - -
------------- ------------- -------------
Net cash (for) from operating activities (15,399) 22,341 86,536
------------- ------------- -------------
Cash Flows For (From) Investing Activities
Additions to property and equipment (32,272) (70,699) (23,046)
Proceeds from sale of assets held for sale 9,000 - -
Proceeds from sale of fixed assets 2,930 - -
Business acquisitions, net of cash - (14,716) -
Other (4,382) (3,077) (1,733)
------------- ------------- -------------
Net cash for investing activities (24,724) (88,492) (24,779)
------------- ------------- -------------
Cash Flows From (For) Financing Activities
Borrowings of short-term debt 1,315 861 -
Borrowings of long-term debt 53,707 81,619 -
Repayments of long-term debt - - (47,300)
Tax benefit of stock transactions 31 452 444
Issuance of common stock 89 554 202
Repurchase of common stock (14,820) (30,195) (923)
------------- ------------- -------------
Net cash from (for) financing activities 40,322 53,291 (47,577)
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents 199 (12,860) 14,180
Cash and cash equivalents, at beginning of period 1,496 14,356 176
------------- ------------- -------------
Cash and cash equivalents, at end of period $ 1,695 $ 1,496 $ 14,356
============= ============= =============
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Interest $ 9,382 $ 3,577 $ 1,436
Income taxes $ 3,299 $ 20,736 $ 26,440
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 37
PERRIGO COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
The Company is the nation's largest manufacturer of store brand
over-the-counter (non-prescription) pharmaceutical products and also
manufactures nutritional products. Prior to the sale of the personal care
business in August 1999, as described more fully in Note J, the Company was the
largest manufacturer of store brand personal care products.
The Company operates, as described more fully below, in one reportable
segment. The Company's principal customers are major national and regional
retail supermarket, drug store and mass merchandise chains and major wholesalers
located within the United States. The Company is expanding its sales base
internationally, primarily in Mexico and Canada. International net sales for
fiscal years 1999, 1998 and 1997 were $38,233, $32,919 and $11,099,
respectively.
All of the Company's manufacturing facilities as of July 3, 1999 were
located in the United States except for a majority-owned pharmaceutical
manufacturing site located in Mexico. The Company is currently building a
packaging plant in Mexico. This plant is expected to be operational in the first
half of fiscal year 2000. As of July 3, 1999 and June 30, 1998 the net book
value of property and equipment located in Mexico was $3,262 and $2,320,
respectively. Property and equipment located in other foreign countries are not
material.
During the years ended July 3, 1999, June 30, 1998 and 1997, one
customer accounted for 24%, 24% and 22% of revenues, respectively. None of the
Company's other customers account for more than 10% of its sales.
BASIS OF PRESENTATION
The Company changed its fiscal year end from June 30 to the 52 or
53-week period that ends on the Saturday closest to June 30, effective for
fiscal year 1999. After the transition year of fiscal year 1999, the Company's
quarters will each be comprised of 13 weeks and end on a Saturday, except in
certain years when the Company will have one quarter comprised of 14 weeks.
During fiscal year 1999, the first quarter included the period from July 1
through October 3, 1998. The second through fourth quarters were each comprised
of 13 weeks ending on January 2, April 3 and July 3, 1999, respectively. Prior
to fiscal year 1999, the Company's quarters were comprised of three calendar
months ending on September 30, December 31, March 31 and June 30.
In June 1998 the Company announced its decision to divest its personal
care business. The personal care net assets were written down to their fair
value less cost to sell and are included in assets held for sale in the
consolidated balance sheet at July 3, 1999 and June 30, 1998. The net fair
market value of assets and business to be sold of $53,045 at July 3, 1999 is
based on the sale agreement for the personal care assets and management's
current estimate for the LaVergne, Tennessee logistics facility. The estimate
for the LaVergne, Tennessee logistics facility is subject to change. The net
fair market value of personal care assets held for sale at June 30, 1998 was
$66,398. The fiscal year 1999 consolidated cash flow statement reflects the
changes in the balance sheet after the effects of the 1998 restructuring. The
fiscal year 1998 consolidated cash flow statement reflects the changes in the
balance sheet prior to the effects of the 1998 restructuring. The
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<PAGE> 38
consolidated income statement includes the results of operations of the
personal care business for all years presented. The asset and liability amounts
included in the footnotes for fiscal years 1999 and 1998 exclude amounts related
to personal care. See Note J to these consolidated financial statements.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and all majority owned subsidiaries. All material intercompany
transactions and balances have been eliminated in consolidation. Investments in
companies in which the Company's interest is between 20 percent and 50 percent
are accounted for using the equity method and are recorded in other noncurrent
assets.
INTERNATIONAL OPERATIONS
The Company has a Russian investment that is accounted for using the
equity method. Due to the collapse of the Russian economy, the Company wrote off
its net investment of $1,640 and also wrote off inventory of $1,663 and accounts
and notes receivable of $10,874 related to this Russian investment for a total
of $14,177 in the first quarter of fiscal year 1999. The net investment amount
is included in other expense; the inventory amount is included in cost of goods
sold; and the accounts and notes receivable amount is included in selling and
administrative expense.
In January 1999, the Company began to translate its Mexican operation's
foreign currency denominated assets and liabilities into U.S. dollars at current
rates of exchange as of the balance sheet date, and income and expense items at
the average exchange rate for the reporting period. Prior to January 1999, the
Mexican economy was considered "highly inflationary" under the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency
Translation". Accordingly, a combination of current and historical exchange
rates were used in remeasuring the local currency financial statements of the
Company's Mexican operations, and resulting exchange adjustments were included
in income. The one-time translation adjustment associated with this change was a
translation gain of $371. The gain was recorded as an increase in the cumulative
translation adjustment account, a component of comprehensive income. The balance
in the cumulative translation adjustment account, which is included in
comprehensive income, was a net translation gain of $436 as of July 3, 1999.
Gains and losses resulting from exchange rate fluctuations on transactions
denominated in currencies other than the functional currency are not material.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions, which affect the reported earnings, financial position and various
disclosures. Actual results could differ from those estimates.
REVENUES
Revenues from product sales are recognized when the goods are shipped
to the customer. A provision is recorded as revenues are recognized for
estimated losses on credit sales due to customer claims for discounts, price
discrepancies and other items.
FINANCIAL INSTRUMENTS
The carrying amount of the Company's financial instruments, consisting
of cash and cash equivalents, accounts receivable, notes receivable, accounts
payable, notes payable and long-term debt, approximates their fair value.
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<PAGE> 39
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist primarily of demand deposits and
other securities with maturities of three months or less at the date of
purchase.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined primarily using the first-in, first-out (FIFO) method.
LONG-LIVED ASSETS
Property and equipment are recorded at cost and are depreciated
primarily using straight-line methods for financial reporting and accelerated
methods for tax reporting. Cost includes an amount of interest associated with
significant capital projects. Useful lives for financial reporting range from
5-10 years for machinery and equipment, and 10-40 years for buildings.
Maintenance and repair costs are charged to earnings while expenditures that
increase asset lives are capitalized.
Goodwill resulting from business acquisitions is amortized on a
straight-line basis over 25 years. Amortization of $1,027, $2,523 and $2,127 was
recorded during the fiscal years ended July 3, 1999, June 30, 1998 and June 30,
1997, respectively. Accumulated amortization was $10,121, $9,094 and $12,467 as
of July 3, 1999, June 30, 1998 and June 30, 1997, respectively. Net goodwill of
$27,551 was written off in fiscal year 1998 as part of the 1998 restructuring.
See Note J for a further discussion of the 1998 restructuring.
The Company periodically reviews long-lived assets not held for sale
for impairment by comparing the carrying value of the assets to their estimated
future undiscounted cash flows. For the fiscal years ended July 3, 1999 and June
30, 1998, there were no adjustments to the carrying value of long-lived assets
not held for sale as a result of this review.
INVESTMENT
The Company has an investment that is classified for SFAS No. 115
purposes as available-for-sale. In the fourth quarter of fiscal year 1999, the
Company recorded a permanent impairment loss of $2,621 related to this
investment. The permanent impairment loss is included in other expense in the
fiscal year 1999 consolidated income statement. The net investment balance is
included in Other assets in the consolidated balance sheet and is $2,419 and
$5,040 at July 3, 1999 and June 30, 1998, respectively.
INCOME TAXES
Deferred income tax assets and liabilities are recorded based upon the
difference between the financial statement and income tax basis of assets and
liabilities using the enacted tax rates.
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<PAGE> 40
EARNINGS PER SHARE
A reconciliation of the numerators and denominators used in the "basic"
and "diluted" earnings per share calculation follows:
<TABLE>
<CAPTION>
Year Ended
------------------------------------
June 30,
July 3, ---------------------
1999 1998 1997
------ -------- -------
<S> <C> <C> <C>
Numerator:
Net income (loss) used for both "basic"
and "diluted" EPS calculation $1,546 $(51,636) $44,992
====== ========= =======
Denominator:
Weighted average shares outstanding
for the period - used for "basic"
EPS calculation 73,707 75,302 76,522
Dilutive effect of stock options 277 - 752
------ -------- --------
Weighted average shares outstanding
for the period - used for "diluted"
EPS calculation 73,984 75,302 77,274
====== ======== =========
</TABLE>
The effect of stock options of 866 shares was not included at June 30,
1998 because to do so would have been antidilutive.
NEW ACCOUNTING STANDARDS
The Company adopted SFAS No. 130, "Reporting Comprehensive Income" in
fiscal year 1999. This statement establishes standards for the reporting and
presentation of comprehensive income and its components in a full set of
financial statements and requires restatement of prior year information.
Comprehensive income is defined as the total change in shareholders' equity
during the period other than from transactions with shareholders. For the
Company, comprehensive income is comprised of net income and the net change in
the accumulated foreign currency translation adjustment account.
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" in fiscal year 1999. This Statement, which
supersedes SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise", establishes standards for the way that public enterprises report
information about operating segments in annual financial statements and requires
reporting of selected information about operating segments in interim financial
statements issued to the public. It also establishes standards for disclosures
regarding products and services, geographic areas and major customers. SFAS No.
131 defines operating segments as components of a company about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance. Operating segments that exhibit similar characteristics are
permitted to be aggregated into a single operating segment for financial
reporting purposes. As defined by SFAS No. 131, the Company has three operating
segments, OTC pharmaceutical products, nutritional products and personal care
products. As defined by SFAS No. 14, the Company had one segment, health and
beauty care. The personal care business was sold in August 1999 and detailed
information related to their assets, sales and operating income is discussed in
Note J under the 1998 Restructuring Update section. The OTC pharmaceutical
products and nutritional products segments have been aggregated into one
reportable segment because their operating processes, types of customers,
distribution methods, regulatory environment and expected long-term financial
performance are very similar. The Company believes that aggregation of its two
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<PAGE> 41
operating segments is consistent with the objective and basic principles of SFAS
No. 131. Additional information required to be disclosed by SFAS No. 131 is
included above and in Note J.
SFAS No. 130 and 131 were first effective for the Company's fiscal year
1999 consolidated financial statements. Prior year information has been restated
to conform to the provisions of the new standards. The adoption of these
Standards did not affect the Company's results of operations or financial
position but did affect the presentation of information.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities".
SFAS No. 133 requires companies to recognize all derivative contracts as either
assets or liabilities in the balance sheet and to measure them at fair value. If
certain conditions are met, a derivative may be specifically designated as a
hedge, the objective of which is to match the timing of gain or loss recognition
on the hedging derivative with the recognition of (i) the changes in the fair
value of the hedged asset or liability that are attributable to the hedged risk
or (ii) the earnings effect of the hedged forecasted transaction. For a
derivative not designated as a hedging instrument, the gain or loss is
recognized in income in the period of change. SFAS No. 133, as amended by SFAS
No. 137, is effective for all fiscal quarters of fiscal years beginning after
June 15, 2000. Historically, the Company has not entered into derivative
contracts either to hedge existing risks or for speculative purposes.
Accordingly, the Company does not expect adoption of the new standard on July 2,
2000 to affect its financial statements.
During fiscal year 1998, the American Institute of Certified Public
Accountants ("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use" and SOP
98-5, "Reporting the Costs of Start-up Activities". Both SOP's are effective
beginning in fiscal year 2000. SOP 98-1 requires capitalization of certain costs
incurred in the development of internal-use software, including external direct
material and service costs, employee payroll and payroll-related costs, and
capitalized interest. SOP 98-5 requires that start-up costs capitalized prior to
July 4, 1999 be written off and any future start-up costs be expensed as
incurred. The unamortized balance of start-up costs is required to be written
off as of July 4, 1999. The impact on earnings of adopting both of these SOP's
in fiscal year 2000 will be immaterial.
NOTE B - INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
July 3, June 30,
1999 1998
---------- ----------
<S> <C> <C>
Finished goods....................... $ 85,267 $ 70,206
Work in process...................... 79,104 76,015
Raw materials........................ 33,066 35,246
--------- ---------
$ 197,437 $ 181,467
========= =========
</TABLE>
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<PAGE> 42
NOTE C - LONG-TERM BORROWINGS AND CREDIT ARRANGEMENTS
Long-term debt consists of the following:
<TABLE>
<CAPTION>
July 3, June 30,
1999 1998
-------- -------
<S> <C> <C>
Revolving line of credit............ $110,000 $40,000
Uncommitted lines of credit......... 24,186 41,619
Note payable, Industrial
Development Board of
Rutherford County, TN........... 1,140 -
-------- -------
Total............................... 135,326 81,619
Less current installments........... 300 -
-------- -------
Long-term debt...................... $135,026 $81,619
======== =======
</TABLE>
In June 1996, the Company entered into a credit agreement with a group
of banks which provides a $150,000 unsecured revolving credit facility. The
agreement expires June 30, 2000, but contains an option whereby the agreement
may be extended for one-year periods each June 30. Repayment has been guaranteed
by the Company's subsidiaries. Restrictive loan covenants apply to, among other
things, minimum levels of tangible net worth, interest coverage and funded debt
ratio.
During 1998, the Company replaced its two uncommitted credit facilities
which totaled $60,000 with two new uncommitted credit facilities totaling
$55,000. Both facilities can be terminated by either party at any time. The
Company's restrictive covenants under these facilities are substantially the
same as those under the $150,000 credit facility.
The revolving credit agreement and the uncommitted credit facilities
are classified as long-term because they were intended to be replaced with the
revolving credit agreement as described below.
Interest rates on the revolving credit facility are established at the
time of borrowing through four different pricing options: the prime rate (7.75%
at July 3, 1999), a LIBOR rate plus a factor (.35% at July 3, 1999) established
quarterly based on the interest coverage ratio, a CD rate plus a factor (.475%
at July 3, 1999) established quarterly based on the interest coverage ratio, or
at a rate based on interest rate bids submitted by banks within the bank group,
for periods of 1 to 29 days. Interest rates associated with the uncommitted
credit facility loans are based on bids submitted by the financial institutions
for periods of 1 to 90 days.
The Company is obligated to the Industrial Development Board of
Rutherford County, Tennessee, under an agreement entered into to finance the
acquisition of certain machinery and equipment installed at the Smyrna,
Tennessee plant. The debt is subject to mandatory sinking fund redemption
through final maturity on October 1, 2001, bears interest at a variable rate
(3.60% at July 3, 1999) and is secured by a letter of credit and a security
interest in the assets financed. The debt of $1,540 at June 30, 1998, was
associated with the personal care business; thus it was netted against assets
held for sale.
The Company's Mexican subsidiary has uncommitted credit facilities with
two banks in Mexico, totaling 78 million pesos. The facilities, which mature
December 1, 1999 are $6,694 and $5,379 at July 3, 1999 and June 30, 1998,
respectively, and are included in Notes payable. The facilities will be renewed
and are guaranteed by the Company. Interest rates are based on bids submitted by
the banks for periods of 1 to 90 days.
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<PAGE> 43
Effective September 23, 1999, the Company entered into a new revolving
credit agreement with a group of banks, which provides a $200,000 unsecured
revolving credit facility. The new facility replaces the $150,000 revolving
credit facility and the two uncommitted credit facilities. The facility reduces
to $175,000 on January 31, 2000. The agreement expires in September 2004.
Repayment has been guaranteed by the Company's subsidiaries. Restrictive loan
covenants apply to, among other things, minimum levels of net worth, interest
coverage and funded debt leverage.
Interest rates on the new revolving credit facility are established at
the time of borrowing through three options, the prime rate or a LIBOR rate plus
a factor established quarterly based on funded debt leverage, or a rate agreed
upon between the Company and its Agent at the time the loan is made. The rate
factor at inception was .95%, and is fixed for the first six months.
NOTE D - INCOME TAXES
A summary of income taxes is as follows:
<TABLE>
<CAPTION>
Year Ended
-------------------------------------
June 30,
July 3, ------------------------
1999 1998 1997
--------- ----------- --------
<S> <C> <C> <C>
Current:
Federal.................................... $ 5,108 $ 19,011 $26,414
Foreign.................................... 771 757 -
State...................................... (20) 630 600
--------- ----------- --------
5,859 20,398 27,014
Deferred ................................. (3,391) (34,754) (1,139)
--------- ----------- --------
Total $ 2,468 $(14,356) $25,875
========= =========== ========
</TABLE>
The tax effects of temporary differences between the financial
statement carrying amounts and tax bases of assets and liabilities that give
rise to the net deferred income tax liability are as follows:
<TABLE>
<CAPTION>
July 3, June 30,
1999 1998
------- --------
<S> <C> <C>
Allowance for impaired assets and related
reserve for restructuring....................... $34,765 $35,072
Accumulated depreciation.......................... (29,313) (28,225)
Inventory costs................................... 7,359 2,275
Allowance for doubtful accounts................... 1,140 1,287
Accrued expenses not yet deductible............... 5,222 5,372
Other, net........................................ (371) (370)
------- -------
Net deferred income tax asset (liability)......... $18,802 $15,411
======= =======
</TABLE>
The net deferred income tax asset is presented in the balance sheets as
follows:
<TABLE>
<CAPTION>
July 3, June 30,
1999 1998
-------- --------
<S> <C> <C>
Current asset..................................... $33,476 $42,675
Long-term liability............................... 14,674 27,264
</TABLE>
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<PAGE> 44
The effective income tax rate varied from the statutory Federal tax
rate as follows:
<TABLE>
<CAPTION>
Year Ended
---------------------------------------
June 30,
July 3, ----------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Federal statutory rate.............................. 35.0% (35.0)% 35.0%
Expenses not deductible for tax purposes:
Loss on permanent impairment of capital investment 22.8 - -
Restructuring charges, primarily related to goodwill
write-off ...................................... - 11.2 -
Goodwill amortization............................... 6.3 (0.8) 2.3
Product contributions............................... (6.3) 0.6 (0.8)
Other............................................... 3.7 2.2 -
----- ----- -----
Effective income tax rate........................... 61.5% (21.8)% 36.5%
===== ===== =====
</TABLE>
NOTE E - RETIREMENT PLANS AND POSTRETIREMENT BENEFITS
The Company has a qualified profit-sharing plan and three investment
plans under section 401(k) of the Internal Revenue Code, which cover
substantially all employees. Contributions to the qualified profit-sharing plan
are at the discretion of the Board of Directors. Under the investment plans, the
Company matches a percentage of employees' contributions. Under one of the
plans, the Company makes a contribution of 2% of base compensation paid to
eligible employees. The Company's contributions to the plans were $6,727, $6,609
and $5,854 for the years ended July 3, 1999 and June 30, 1998 and 1997,
respectively.
On June 30, 1998, the Company terminated the Perrigo Company of
Missouri Inc. Investment Plan. On August 24, 1999 the Company terminated the
Perrigo Company of Tennessee Retirement Income Savings Plan.
The Company has postretirement plans that provide medical benefits for
retirees and their eligible dependents. Employees become eligible for these
benefits if they meet certain minimum age and service requirements. The Company
reserves the right to modify or terminate these plans. The plans are not funded.
The unfunded accumulated postretirement benefit obligation at July 3, 1999 and
June 30, 1998 and the benefits expensed in fiscal years 1999, 1998 and 1997 are
immaterial to the financial position and results of operations of the Company.
NOTE F - COMMITMENTS AND CONTINGENCIES
The Company leases certain assets, principally warehouse facilities and
data processing equipment, under agreements which expire at various dates
through June 2011. Certain leases contain provisions for renewal and purchase
options and require the Company to pay various related expenses. Future
non-cancelable minimum operating lease commitments are as follows: 2000--$7,618;
2001--$4,128; 2002--$2,028; 2003--$962; 2004--$400; and thereafter--$752. Rent
expense under all leases was $14,007, $14,367 and $12,850 for the years ended
July 3, 1999 and June 30, 1998 and 1997, respectively.
As described more fully in Note J, the Company sold its personal care
business in August 1999. In conjunction with this sale, the Company entered into
an agreement with the buyer to lease to the buyer the Company's LaVergne,
Tennessee logistics facility through August 2001. The Company also entered into
an agreement with the buyer to provide certain logistics support services, MIS
support services and accounting services to the buyer. Certain logistics support
services will be provided through June 30, 2000 and certain
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<PAGE> 45
MIS support services will be provided through June 30, 2001. The accounting
services primarily relate to accounts receivable collection through June 30,
2000 and accounts payable services through November 1999. The Company also
entered into an agreement to sell certain products to the buyer and purchase
certain other products from the buyer through August 2002.
In July 1994 the Company was served a "summons with notice" alleging
breach of fiduciary duties by its officers in connection with their purchase of
the Company from the former owner in April 1988. In February 1995 a complaint
was filed seeking unspecified damages. In June 1998 the United States District
Court for the Western District of Michigan dismissed, at the close of the
plaintiff's case, the action filed by the former owner. In July 1998 the former
owner filed an appeal. As of this date, the Court has not ruled on the appeal.
In March 1995 the Company was served with a complaint purporting to be
a class action lawsuit on behalf of shareholders who purchased Perrigo common
stock between May 11, 1993 and May 10, 1994. The complaint alleges various
violations of federal securities laws and seeks unspecified damages. In June
1998 the Court granted defendant's motion of a summary judgement in this case.
In June 1998 the plaintiffs filed a motion to file a proposed second amended
complaint. In October 1998 the class action lawsuit was dismissed against all
defendants. In November 1998 the plaintiffs appealed the dismissal of their
case. In April 1999 the plaintiffs withdrew their appeal. The dismissal of the
appeal and the subsequent entering of the final judgment ends any further action
against the Company. Under the agreement reached with the plaintiffs, no money
or other compensation will be paid to the plaintiffs or their attorneys.
In June 1995 the Company received notice of a possible derivative class
action against the Company, as a nominal defendant, and certain of its officers
and directors, and their trusts. In November 1995 the related complaint was
filed. The complaint alleges possible violation of Michigan law, seeks to
protect the Company against any expense or liability arising out of the
aforementioned and purported class action lawsuit, and seeks to recover any
proceeds unlawfully received by named officers and directors and their trusts in
the October 1993 public offering. In January 1998 the Court entered an order
staying the derivative action pending the resolution of the related class action
case. In April 1999 the plaintiffs agreed to dismiss this suit based upon the
dismissal of the class action.
In the fourth quarter of fiscal year 1999 the Company received
reimbursement of $8,000 under provisions of its liability coverage for a
significant portion of the legal fees and expenses incurred for the class action
lawsuit and the related derivative lawsuit. The payment is included on the
Unusual litigation line of the consolidated income statement.
The consolidated statements of income for the years ended July 3, 1999,
June 30, 1998 and June 30, 1997 include $4,048, $9,585 and $6,367, respectively,
of charges primarily related to the three legal actions described above.
On August 4, 1999, the Company filed a civil antitrust lawsuit in the
U.S. District Court for the Western District of Michigan against a group of
vitamin raw material suppliers alleging the defendants conspired to fix the
prices of vitamin raw materials sold to the Company. The relief sought includes
money damages and a permanent injunction enjoining defendants from future
violations of antitrust laws.
The Company has pending certain legal actions and claims incurred in
the normal course of business. The Company believes that these actions are
without merit or are covered by insurance and is actively pursuing the defense
thereof. The Company believes the resolution of all of these matters will not
have a material adverse effect on its financial condition and results of
operations as reported in the accompanying financial statements. However,
depending on the amount and timing of an unfavorable resolution of these
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<PAGE> 46
lawsuits, it is possible that the Company's future results of operations or cash
flow could be materially affected in a particular period.
NOTE G - SHAREHOLDERS' EQUITY
In May 1997, the Company announced a common stock repurchase program.
The program calls for the repurchase of up to 7,500 shares, subject to market
conditions. Purchases are made in the open market. The Company purchased 1,550
shares for $14,820 in fiscal year 1999; 2,116 shares at $30,195 in fiscal year
1998; and 75 shares at $923 in fiscal year 1997. The common stock repurchased
for all years was retired. The program was terminated in fiscal year 1999.
On April 10, 1996, the Company's Board of Directors adopted a Preferred
Share Purchase Rights Plan and declared a dividend distribution to be made to
shareholders of record on April 22, 1996, of one Preferred Share Purchase Right
on each outstanding share of the Company's common stock. The Rights contain
provisions which are intended to protect the Company's stockholders in the event
of an unsolicited and unfair attempt to acquire the Company. The Company is
entitled to redeem the Rights at $.01 per Right at any time before a 20%
position has been acquired. The Rights will expire on April 10, 2006, unless
previously redeemed or exercised.
In November 1997 the Company established a restricted stock plan for
directors, which is intended to attract and retain the services of experienced
and knowledgeable non-employee directors. The Company reserved 25 common shares
for issuance under the plan. The terms of the plan call for the granting of $10
worth of restricted shares to each Director on the date of the Annual Board
Meeting. The number of shares issued is based on the fair market value of the
shares on the date of the Annual Board Meeting. The restricted shares become
vested on the date of the next Annual Board Meeting on which the Director's
existing term as a Board member is set to expire (director terms are generally
three years). The holder of restricted shares has all rights of a shareholder
except that the shares are restricted as to sale or transfer for the vesting
period and the shares are forfeited upon termination in certain circumstances.
The Company accounts for these restricted shares as unearned compensation, which
is ratably charged to expense over the vesting period. In fiscal years 1999 and
1998, respectively, the Company granted 8 and 5 shares at $70 and $70, and
charged $59 and $28 to expense. The unearned compensation included in
stockholder's equity at July 3, 1999 and June 30, 1998 was $53 and $42,
respectively.
The Company's 1988 Employee Incentive Stock Option Plan, as amended in
November 1997, grants key management employees options to purchase shares of
common stock. The options vest and may be exercised from one to ten years after
the date of grant based on a vesting schedule. Proceeds from the exercise of
stock options under the Company's stock option plans and income tax benefits
attributable to stock options exercised are credited to common stock.
-45-
<PAGE> 47
'
A summary of activity for the Company's employee stock option plan is
presented below:
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------------------------
June 30,
July 3, -------------------------------------
1999 1998 1997
------------------- -------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning of year 4,143 $12.25 3,737 $11.43 3,248 $11.83
Granted 1,061 8.49 1,022 12.94 1,235 9.18
Exercised (139) (.69) (287) (1.93) (264) (.74)
Terminated (213) (14.37) (326) (14.08) (482) (14.26)
------ ------ ------
Options outstanding at end of year 4,852 11.68 4,143 12.25 3,737 11.43
Options exercisable at end of year 1,869 12.70 1,333 12.28 1,104 10.96
Options available for grant at end of year 1,597 1,608 1,981
Price per share of options outstanding $.57 to $.22 to $.22 to
$31.25 $31.25 $31.25
</TABLE>
In August 1999, the Company granted options to certain employees to
purchase 621 shares at an exercise price of $7.95.
The Company issues stock options to directors under a non-qualified
stock option plan. Options granted under the plan vest and may be exercised from
one to ten years after the date of grant based on a vesting schedule. As of July
3, 1999, options to purchase 100 shares at prices ranging from $8.38 to $29.38
and at a weighted average price of $15.94 were outstanding, 48 of which were
exercisable at a weighted average price of $17.70. There were 14 options granted
at a weighted average exercise price of $8.38 during the fiscal year ended July
3, 1999. There were 12 options exercised at a weighted average price of $.57 and
there were no options terminated in the fiscal year ended July 3, 1999. There
were 20 options available for grant at July 3, 1999.
The Company applies Accounting Principles Board Opinion No. 25,
?Accounting for Stock Issued to Employees,? and related interpretations in
accounting for its plans. Accordingly, no compensation expense has been
recognized. Had compensation cost been determined and recorded based upon the
fair value at the grant date for awards under these plans consistent with the
methodology prescribed under SFAS No. 123, ?Accounting for Stock-Based
Compensation,? the Company?s net income (loss) and earnings (loss) per share
would have been reduced (loss increased in fiscal year 1998) as follows:
Fiscal Year
----------------------------------
1999 1998 1997
------ ------ ------
Decrease in net income
or increase in net loss $3,178 $2,558 $1,642
Basic earnings per share $.04 $.03 $.01
Diluted earnings per share $.04 $.03 $.02
The effects on net income (loss) and earnings (loss) per share for
fiscal years 1999, 1998 and 1997 may not be representative of future years
because compensation cost is allocated on a straight-line basis over the vesting
periods of the grants, which extend beyond the reported years.
The weighted average fair value per option at the date of grant for
options granted during fiscal years
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<PAGE> 48
1999, 1998 and 1997 was $3.69, $5.79 and $4.04, respectively. The fair value was
estimated using the Black-Sholes option pricing model with the following
weighted average assumptions:
Fiscal Year
------------------------
1999 1998 1997
---- ---- ----
Dividend yield 0.0% 0.0% 0.0%
Volatility, as a percent 35.1% 31.3% 30.0%
Risk-free interest rate 4.9% 6.1% 6.3%
Expected life in years after vest date 3.0 3.0 3.0
Forfeitures are accounted for as they occur.
The following table summarizes information concerning options
outstanding under the Plans at July 3, 1999:
<TABLE>
<CAPTION>
Options Outstanding Option Exercisable
- -------------------------------------------------------------- ------------------------
Weighted
Average Weighted
Range of Number Remaining Weighted Number Average
Exercise Outstanding Contractual Average Exercisable Exercise
Prices at 7/3/99 Term (Years) Exercise Price at 7/3/99 Price
---------- ----------- ------------ -------------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.57 - $9.06 1,313 7.81 $ 7.11 359 3.29
9.07 - 11.09 1,062 7.16 9.18 354 9.18
11.10 - 12.97 1,321 7.51 12.75 231 12.51
12.98 - 31.25 1,256 4.34 17.73 973 17.74
----- -----
4,952 1,917
===== =====
</TABLE>
NOTE H - ACQUISITION
On September 11, 1997, the Company acquired 87.8% of the outstanding
shares of Quimica y Farmacia, S.A. de C.V. for approximately $16,000. Quimica y
Farmacia, S.A. de C.V. is a pharmaceutical manufacturer and distributor located
in Mexico. The assets, liabilities, sales and profits of this acquisition, which
are not considered material to the Company, are included in the consolidated
financial statements since the acquisition date.
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<PAGE> 49
NOTE I - QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1999 October 3,(1) January 2, April 3, July 3,(2)
- ------------------------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C>
Net sales................................... $212,298 $226,121 $251,426 $187,742
Gross profit................................ 35,305 54,295 57,863 38,231
Net (loss) income........................... (12,376) 7,123 9,712 (2,913)
Basic (loss) earnings per share............. $(0.17) $ .10 $ .13 $(0.04)
Diluted (loss) earnings per share(3)........ (0.17) .10 .13 (0.04)
Weighted average shares outstanding
Basic............................. 73,429 73,219 73,265 73,320
Diluted........................... 73,429 73,489 73,519 73,320
1998 September 30, December 31, March 31, June 30,(4)
- ------------------------- ------------- ------------ --------- ---------
Net sales................................... $223,773 $240,738 $223,676 $214,450
Gross profit................................ 59,466 66,291 56,208 49,897
Net income (loss)........................... 13,205 14,445 9,475 (88,761)
Basic earnings (loss) per share............. $ .17 $ .19 $ .13 $(1.19)
Diluted earnings (loss) per share(3)........ .17 .19 .13 (1.19)
Weighted average shares outstanding
Basic............................. 76,213 75,573 74,622 74,661
Diluted........................... 77,370 76,778 75,321 74,661
</TABLE>
(1) Includes a pre-tax write-off of $14,177 related to the Company's equity
investment in Russia. See the International Operations section of Note A.
(2) Includes a pre-tax charge of $2,615 for the 1999 restructuring and $3,248
for the 1998 restructuring. See Note J. Includes pre-tax income of $8,000
for proceeds received in an insurance settlement for litigation expenses
associated with a class action lawsuit and a related derivative lawsuit.
See Note F. Includes a pre-tax charge of $2,621 related to a permanent
impairment write-down of an investment. See the Investment section of
Note A. Includes a total pre-tax charge of $8,000 for increases in
inventory write-offs and inventory obsolescence provisions. These
inventory adjustments were made in the fourth quarter after sales fell
short of expectations, resulting in obsolete and excess inventory. The
Company believes that the valuation of its inventory covers obsolescence
related to inventory on hand at July 3, 1999.
(3) The effect of stock options of 333 shares and 231 shares was not included
in the first and fourth quarter of fiscal year 1999, respectively, because
to do so would have been antidilutive. The effect of stock options of 628
shares was not included in the fourth quarter of fiscal year 1998 because
to do so would have been antidilutive.
(4) Includes a pre-tax charge of $121,966 for the fourth quarter for the 1998
restructuring. On an after-tax basis the restructuring charge was $86,894
or $1.16 per share. Excluding this charge, net loss would have been $1,867
or $.03 per share.
NOTE J - RESTRUCTURING AND REDESIGN COSTS
For fiscal years 1999, 1998 and 1997, the Company incurred
restructuring and redesign charges primarily related to an intended divestiture,
facilities closings, business process redesign efforts and streamlining
operations. The total restructuring and redesign charges were $6,160, $122,529
and $5,503 for fiscal years 1999, 1998 and 1997, respectively. The total
restructuring reserve balance was $4,625, $12,259 and $819 at July 3, 1999, June
30, 1998 and June 30, 1997, respectively. Assets held for sale related to the
1998 restructuring were $53,045 and $66,398 at July 3, 1999 and June 30, 1998,
respectively.
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<PAGE> 50
1999 RESTRUCTURING
In the fourth quarter of fiscal year 1999 the Company announced a
workforce reduction plan that resulted from the Company's decision to divest its
personal care business (see below) and efficiencies created by implementation of
a new enterprise software system in the first quarter of fiscal year 1999. The
plan included a combination of early retirements, normal attrition,
redeployments and job eliminations, primarily for professional, managerial,
administrative and support staff personnel located in the Company's corporate
offices. The Company anticipates annual savings of $3,000 to $4,000 beginning in
fiscal year 2000 associated with this workforce reduction. A pre-tax charge and
reserve of $2,615, which related to severance, postretirement and outplacement
costs, were recorded in accordance with Emerging Issues Task Force ("EITF")
94-3. In the fourth quarter 23 people elected early retirement and 34 people
were terminated. The Company anticipates that severance and retirement payments
will be made through fiscal year 2000. As of July 3, 1999, this restructuring
reserve balance was $2,455.
UPDATE ON 1998 RESTRUCTURING
In June 1998 the Company announced a major restructuring plan which
involved the closing of certain personal care manufacturing facilities and the
intention to divest the personal care business. A pre-tax charge of $121,966 was
recorded in the fourth quarter of fiscal year 1998. This charge included
$109,707 for impairment of assets and a reserve of $12,259 for anticipated
incremental cash expenditures recorded in accordance with EITF 94-3.
In the first half of fiscal year 1999 the Company closed personal care
manufacturing facilities in California and Missouri and in the second half of
the year these facilities were sold. Proceeds from the sales were $9,000. No
gains or losses were recorded in the fiscal year 1999 consolidated income
statement related to these sales as the facilities had previously been adjusted
to their estimated fair market values.
In the fourth quarter of fiscal year 1999 the Company entered into an
agreement in principle to sell the personal care business. In conjunction with
that agreement, the Company recorded an additional net restructuring charge of
$3,248. The Company completed the sale of the personal care business in August
1999. Proceeds from the sale, which are subject to post closing adjustments,
were $32,200. No gain or loss is expected to be recorded in fiscal year 2000
related to this sale. Fiscal year 2000 earnings will reflect one month of the
personal care business. Net sales for the personal care business were $192,409,
$212,261 and $206,480 for fiscal years 1999, 1998 and 1997, respectively. The
Company does not maintain operating income information by its three main product
lines (OTC pharmaceuticals, nutritional and personal care products), however,
based on the incremental approach, the Company estimates that pre-tax operating
income was approximately $1,000 for fiscal year 1999 and pre-tax operating
losses were $8,000 and $2,000 for fiscal years 1998 and 1997, respectively, for
the personal care business.
The Company's LaVergne, Tennessee logistics facility was not included
in the sale of the personal care business. This facility is included in assets
held for sale at July 3, 1999 and June 30, 1998. The buyer of the personal care
business will operate out of this logistics facility under a two year lease
agreement. The Company anticipates that this facility will be sold in fiscal
year 2000.
Assets held for sale decreased to $53,045 at July 3, 1999 from $66,398
at June 30, 1998, reflecting the sales of the manufacturing facilities, the
change in the underlying assets during the year (e.g., accounts receivable and
inventory) and the adjustment to the net realizable value of the other personal
care assets as described above. The assets held for sale are not being
depreciated or amortized and are included in the current assets section of the
consolidated balance sheets at July 3, 1999 and June 30, 1998, respectively. The
effect of suspending depreciation was $8,000 for fiscal year 1999.
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<PAGE> 51
During fiscal year 1999, $4,089 was paid for costs primarily related to
severance costs, relocation costs and professional fees for the 1998
restructuring. One hundred sixty three employees were terminated during the
fiscal year. The costs incurred were charged against the reserve of $12,259,
which was established in fiscal year 1998. Also in fiscal year 1999, reserves of
$6,000 were charged against the personal care assets held for sale because
certain expenditures anticipated at June 30, 1998 were subsequently incorporated
into the purchase price for the personal care business. As of July 3, 1999 a
total restructuring reserve balance of $2,170 remains in accrued liabilities for
anticipated transition and selling costs. Also during the year, the Company
expensed as incurred $297 of other restructuring costs in accordance with EITF
94-3.
1996 - 1997 RESTRUCTURING AND REDESIGN
In fiscal year 1995, the Company announced a restructuring of
operations designed to better serve its customers and improve operational
efficiencies. The restructuring plan included consolidating the sales and
marketing functions across all product lines, eliminating multiple sales efforts
and increasing resources in marketing. The restructuring also included the
elimination of certain low volume products and the consolidation of two
logistics facilities.
In fiscal year 1996, the Company initiated a business process redesign
effort, which focused primarily on how the Company managed its processes for
customer orders and new product development. These costs were expensed as
incurred.
In fiscal year 1997, the Company recorded a restructuring charge for
the closing of its truck fleet operations. Restructuring costs included
termination benefits for 50 employees in the distribution employee group. The
closing was substantially completed in fiscal year 1997 and 50 employees were
actually terminated.
The restructuring and redesign charges as described above and the
related reserves are detailed in the following table:
<TABLE>
<CAPTION>
1995 Restructuring Plan
------------------------------------------------------
Low Streamline Business Closing of
Volume SKU Warehouse Of Process Truck Fleet
Reduction Consolidation Operations Total Redesign Operations
------------- ------------- ---------- ----- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Restructuring Reserves
Balance at 6/30/96 $ 1,045 $ 416 $ 187 $ 1,648 $ - $ -
Additions 1,211
--------- --------- ------ -------- ------- ------
- - - - -
Charges (696) (118) (187) (1,001) - (1,039)
--------- --------- ------ -------- ------- ------
Balance at 6/30/97 349 298 - 647 - 172
--------- --------- ------ -------- ------- ------
- - - - - -
Additions
Charges (349) (298) - (647) - (172)
--------- --------- ------ -------- ------- ------
Balance at 6/30/98 $ - $ - $ - $ - $ - $ -
========= ========= ====== ======== ======= ======
Restructuring and Redesign Expenses
1997 - - 95 95 4,197 1,211
1998
- - - - 563 -
</TABLE>
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<PAGE> 52
The additions to the "Restructuring Reserves" table represent those
costs which met the criteria of EITF 94-3 to be expensed in conjunction with and
at the time of the restructuring plan. The "Restructuring and Redesign Expenses"
table presents total costs recognized during each fiscal year, including those
costs which were expensed as incurred as they did not meet the criteria to be
accrued at the time of the restructuring plan.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
PART III.
Item 10. Directors and Executive Officers of the Registrant.
(a) Directors of the Company.
See the Company's Proxy Statement, incorporated by reference as
Part III of this Form 10-K, under the heading "Election of
Directors."
(b) Executive Officers of the Company.
See Part I, Additional Item of this Form 10-K on 13.
Item 11. Executive Compensation.
See the Company's Proxy Statement, incorporated by reference as Part
III of this Form 10-K, under the headings "Compensation of Executive
Officers" and "Compensation of Directors."
Item 12. Security Ownership of Certain Beneficial Owners and Management.
See the Company's Proxy Statement, incorporated by reference as Part
III of this Form 10-K, under the heading "Principal Securityholders."
Item 13. Certain Relationships and Related Transactions.
See the Company's Proxy Statement, incorporated by reference as Part
III of this Form 10-K, under the heading "Compensation of Directors."
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The following documents are filed or incorporated by reference
as part of this Form 10-K:
1. All financial statements. See Index to Consolidated Financial
Statements on page 30 of this Form 10-K.
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<PAGE> 53
2. Financial Schedules
Report of Independent Certified Public Accountants on Financial
Statement Schedule Schedule II -Valuation and Qualifying Accounts
Schedules other than the one listed are omitted because they
are included in the footnotes, immaterial or not applicable.
3. Exhibits:
2(a) - Asset Purchase Agreement, dated August 25, 1999,
among Perrigo Company and Perrigo Company of
Tennessee as Sellers; and Cumberland Swan Holdings,
Inc., as Buyer.
3(a) - Amended and Restated Articles of Incorporation of
Registrant, incorporated by reference from Amendment
No. 2 to Registration Statement No. 33-43834 filed
by the Registrant on September 23, 1993.
3(b) - Restated Bylaws of Registrant, dated April 10, 1996,
incorporated by reference from the Registrant's Form
8-K filed on April 10, 1996.
4(a) - Shareholders' Rights Plan, incorporated by reference
from the Registrant's Form 8-K filed on April 10,
1996.
10(a) - Credit Agreement, dated June 30, 1996, between the
Registrant and NBD Bank, N.W., Sanwa Bank, Comerica
Bank-Detroit, PNC Bank, Westdeutsche Landesbank
Girozentrale and Old Kent Bank and Trust Company,
incorporated by reference from the Registrant's 1996
Form 10-K filed on September 25, 1996.
10(b) - Registrant's Management Incentive Plan, incorporated
by reference from the Registration Statement No.
33-69324 filed by the Registrant on September 23,
1993.
10(c) - Registrant's 1988 Employee Incentive Stock Option
Plan as amended, incorporated by reference from
Exhibit A of the Registrant's 1997 proxy statement.
10(d) - Registrant's 1989 Non-Qualified Stock Option Plan
for Directors as amended, incorporated by reference
from Exhibit B of the Registrant's 1997 Proxy
Statement as amended at the Annual Meeting of
Shareholders on November 6, 1997.
10(e) - First Amendment to Registrant's Credit Agreement,
dated June 29, 1998, incorporated by reference from
Registrant's 1998 Form 10-K filed on October 6,
1998.
10(f) - Credit Agreement, dated March 25, 1998, between
Registrant and
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<PAGE> 54
Wachovia Bank, N.A., incorporated by reference from
Registrant's 1998 Form 10-K filed on October 6,
1998.
10(g) - Registrant's Restricted Stock Plan for Directors,
dated November 6, 1997, incorporated by reference
from Registrant's 1998 Form 10-K filed on October 6,
1998.
10(h) - Second Amendment to Registrant's Credit Agreement,
dated November 20, 1998, incorporated by reference
from Registrant's first quarter 1999 Form 10-Q filed
on November 23, 1998.
10(i) - Credit Agreement dated December 8, 1998, between
Registrant and National City Bank, incorporated by
reference from Registrant's second quarter 1999 Form
10-Q filed on February 11, 1999.
10(j) - Credit Agreement, dated September 23, 1999, between
Registrant and Bank One, Michigan.
10(k) - Guaranty Agreement, dated September 23, 1999,
between L. Perrigo Company and Perrigo Company of
South Carolina, Inc.
21 - Subsidiaries of the Registrant.
23 - Consent of BDO Seidman, LLP.
24 - Power of Attorney (see signature page).
27 - Financial Data Schedule.
(b) Exhibit and reports on Form 8-K.
(i) The Company filed a report on Form 8-K on June 14, 1999
that announced that under the provisions of its liability insurance
coverage, the Company is to receive an $8 million reimbursement for
legal expenses and costs associated with the dismissed class action
lawsuit and the related derivative lawsuit. As a result, the Company
would recognize a one-time pre-tax gain of $8 million or approximately
$5 million and $.07 per basic share after-tax in the fourth quarter of
fiscal year 1999. The one-time gain would be accounted for as an offset
to unusual litigation expenses.
Additionally, the Company announced that the U.S. District
Court approved the final dismissal of the shareholder derivative
lawsuit. An order in favor of Perrigo was entered dismissing the
derivative lawsuit. This dismissal follows the dismissal of a related
shareholder class action lawsuit in late March 1999.
-53-
<PAGE> 55
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
Board of Directors
Perrigo Company
Allegan, Michigan
The audits referred to in our report to Perrigo Company and
Subsidiaries dated August 25, 1999, (except for Note C, which is as of September
23, 1999) relating to the consolidated financial statements of Perrigo Company,
which is contained in Item 8 of this Form 10-K for the year ended July 3, 1999,
included the audit of Schedule II - Valuation and Qualifying Accounts. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statement schedule
based upon our audits.
In our opinion, such financial statement schedule presents fairly, in
all material respects, the information set forth therein.
By: /s/BDO Seidman, LLP
-----------------------------
BDO Seidman, LLP
Grand Rapids, Michigan
August 25, 1999 except for Note C,
which is as of September 23, 1999
-54-
<PAGE> 56
SCHEDULE II -VALUATION AND QUALIFYING ACCOUNTS
PERRIGO COMPANY
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE CHARGED TO BALANCE
AT BEGINNING COSTS AND AT END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS(1) OF PERIOD
------------ ------------ --------- ---------- ---------
<S> <C> <C> <C> <C>
Year Ended June 30, 1997:
Reserves and allowances deducted from
asset accounts:
Allowance for uncollectible accounts $2,975 $ 638 $ 587 $3,026
Year Ended June 30, 1998:
Reserves and allowances deducted from
asset accounts:
Allowance for uncollectible accounts $3,026 $ 580 $ 915 $2,691
Year Ended July 3, 1999:
Reserves and allowances deducted from
asset accounts:
Allowance for uncollectible accounts $2,691 $ 334 $ (256) $3,281
</TABLE>
(1) Uncollectible accounts charged off, net of recoveries and the effect
of the 1998 restructuring.
-55-
<PAGE> 57
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form
10-K for the fiscal year ended July 3, 1999 to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Allegan, State of Michigan
on the 1st of October, 1999.
PERRIGO COMPANY
By: /s/Michael J. Jandernoa
Michael J. Jandernoa
Chairman of the Board
and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Michael J.
Jandernoa and Thomas J. Ross and each of them severally, acting alone and
without the other, his true and lawful attorney-in-fact with authority to
execute in the name of each such person, and to file with the Securities and
Exchange Commission, together with any exhibits thereto and other documents
therewith, any and all amendments to this Annual Report on Form 10-K for the
fiscal year ended July 3, 1999 necessary or advisable to enable Perrigo Company
to comply with the Securities Exchange Act of 1934, any rules, regulations and
requirements of the Securities and Exchange Commission in respect thereof, which
amendments may make such other changes in the report as the aforesaid
attorney-in-fact executing the same deems appropriate.
-56-
<PAGE> 58
Pursuant to the requirements of the Securities Exchange Act of
1934, this Annual Report on Form 10-K for the fiscal year ended July 3, 1999 has
been signed by the following persons in the capacities indicated on the 1st of
October, 1999.
Signature Title
----------- -----
/s/Michael J. Jandernoa Chairman of the Board and Chief
------------------------------ Executive Officer and Director
Michael J. Jandernoa (Principal Executive Officer)
/s/Richard G. Hansen President and Chief Operating Officer
------------------------------
Richard G. Hansen
/s/Thomas J. Ross Vice President - Finance,
------------------------------ Principal Accounting and
Thomas J. Ross Financial Officer
/s/F. Folsom Bell Director
------------------------------
F. Folsom Bell
/s/Peter R. Formanek Director
------------------------------
Peter R. Formanek
/s/Larry D. Fredricks Director
------------------------------
Larry D. Fredricks
/s/L.R. Jalenak, Jr. Director
- -------------------------------
L.R. Jalenak, Jr.
/s/John W. Spoelhof Director
- -------------------------------
John W. Spoelhof
/s/Mary Alice Taylor Director
- -------------------------------
Mary Alice Taylor
-57-
<PAGE> 59
EXHIBIT INDEX
EXHIBIT DOCUMENT
- ------- --------
2(a) Asset Purchase Agreement, dated August 25, 1999, among Perrigo
Company and Perrigo Company of Tennessee as Sellers; and
Cumberland Swan Holdings, Inc., as Buyer.
10(j) Credit Agreement, dated September 23, 1999, between Registrant and
Bank One, Michigan.
10(k) Guaranty Agreement, dated September 23, 1999, between L. Perrigo
Company and Perrigo Company of South Carolina, Inc.
21 Subsidiaries of the Registrant
23 Consent of Independent
Certified Public Accountants
27 Financial Data Schedule
-58-
<PAGE> 1
EXHIBIT 2(a)
ASSET PURCHASE AGREEMENT
Dated as of August 25, 1999
among
Perrigo Company
and
Perrigo Company of Tennessee
as Sellers;
and
Cumberland Swan Holdings, Inc., as Buyer
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE 1. DEFINITIONS................................................................................1
1.1. Definitions...........................................................................1
ARTICLE 2. PURCHASE AND SALE..........................................................................8
2.1. Purchased Assets......................................................................8
2.2. Excluded Assets......................................................................10
2.3. Assumed Liabilities..................................................................11
2.4. Excluded Liabilities.................................................................12
ARTICLE 3. PURCHASE PRICE............................................................................13
3.1. Purchase Price.......................................................................13
3.2. Purchase Price Adjustments...........................................................13
3.3. Allocation of Purchase Price and Assumed Liabilities.................................15
ARTICLE 4. CLOSING...................................................................................16
4.1. Closing..............................................................................16
4.2. Documents to be Delivered to Buyer...................................................16
4.3. Documents to be Delivered to Sellers.................................................18
4.4. Form of Documents....................................................................18
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF SELLERS.................................................19
5.1. Organization.........................................................................19
5.2. Power and Authority; Agreement Binding...............................................19
5.3. Financial Statements.................................................................19
5.4. International Business...............................................................20
5.5. Absence of Conflicts.................................................................20
5.6. No Litigation........................................................................21
5.7. Operations Since May 8, 1999.........................................................21
5.8. Taxes................................................................................22
5.9. Title to and Condition of Assets.....................................................22
5.10. Personal Property....................................................................24
5.11. Reserved.............................................................................24
5.12. Governmental Permits.................................................................24
5.13. Intellectual Property................................................................24
5.14. Employee Agreements and Plans........................................................25
5.15. Employee Relations...................................................................26
5.16. Commercial Contracts.................................................................27
5.17. Status of Contracts..................................................................28
5.18. Environmental Matters................................................................28
5.19. Insurance............................................................................30
5.20. All Assets...........................................................................30
5.21. Brokers..............................................................................30
5.22. Compliance With Requirements of Law..................................................30
5.23. Product and Service Warranties.......................................................30
5.24. Orders, Commitments and Returns......................................................30
5.25. Customers and Suppliers..............................................................31
5.26. Government Contracts.................................................................31
5.27. Certain Payments.....................................................................31
5.28. Full Disclosure......................................................................31
</TABLE>
-ii-
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF BUYER...................................................32
6.1. Organization.........................................................................32
6.2. Power and Authority..................................................................32
6.3. Agreement Binding....................................................................32
6.4. Absence of Conflicts.................................................................32
6.5. No Litigation........................................................................33
6.6. No Advisor...........................................................................33
6.7. Financing............................................................................33
6.8. Brokers..............................................................................33
6.9. Size of Person.......................................................................33
ARTICLE 7. ACTION PRIOR TO THE CLOSING...............................................................33
7.1. Investigation of Sellers by Buyer....................................................33
7.2. Preserve Accuracy of Representations and Warranties..................................33
7.3. Consents of Third Parties; Governmental Approvals....................................34
7.4. Operations Prior to the Closing......................................................34
7.5. Reserved.............................................................................34
7.6. Title to the Owned Real Property.....................................................34
7.7. Survey...............................................................................34
7.8. Estoppel Certificate.................................................................34
7.9. Reserved.............................................................................34
7.10. UCC Searches.........................................................................34
7.11. Preservation of Business.............................................................35
ARTICLE 8. CONDITIONS TO CLOSING.....................................................................35
8.1. Conditions to the Obligations of the Buyer...........................................35
8.2. Conditions to the Obligations of Sellers.............................................36
ARTICLE 9. ADDITIONAL AGREEMENT OF THE PARTIES.......................................................37
9.1. Taxes and Fees In Connection With Transfer of Certain Purchased Assets...............37
9.2. Taxes................................................................................37
9.3. Employees and Employee Benefit Plans.................................................38
9.4. Consents of Third Parties; Governmental Approvals....................................40
9.5. Covenant Not to Compete..............................................................40
9.6. Access to Records; Cooperation.......................................................41
9.7. Dispute Resolution...................................................................42
9.8. Reserved.............................................................................42
9.9. Non-Solicitation.....................................................................42
9.10. Certain Sellers' Agreements..........................................................43
9.11. Collection of Accounts Receivable....................................................43
ARTICLE 10. TERMINATION...............................................................................43
10.1. Termination..........................................................................43
10.2. Notice of Termination................................................................44
10.3. Effect of Termination................................................................44
ARTICLE 11. INDEMNIFICATION...........................................................................44
11.1. Survival of Representations and Warranties...........................................44
11.2. Obligation of Sellers to Indemnify...................................................45
11.3. Obligation of Buyer to Indemnify.....................................................46
11.4. Notice and Opportunity to Defend Third Party Claims..................................46
11.5. Limits on Indemnification............................................................47
</TABLE>
-iii-
<PAGE> 4
<TABLE>
<S> <C> <C>
11.6. Certain Benefits.....................................................................47
ARTICLE 12. GENERAL PROVISIONS........................................................................48
12.1. Notices..............................................................................48
12.2. Confidential Information.............................................................49
12.3. No Public Announcement...............................................................49
12.4. Entire Agreement; Amendments.........................................................49
12.5. Successors and Assigns...............................................................50
12.6. Interpretation.......................................................................51
12.7. Waivers..............................................................................51
12.8. Expenses.............................................................................51
12.9. Partial Invalidity...................................................................51
12.10. Execution in Counterparts............................................................52
12.11. Governing Law........................................................................52
12.12. Further Assurances and Cooperation...................................................52
12.13. Disclosure Schedules.................................................................52
</TABLE>
EXHIBITS
A - Form of Intellectual Property License Agreement
B - Form of Assumption Agreement
C - Form of Escrow Agreement
D - Interim Schedule of Net Assets
E - Form of Real Estate Lease
F - [Reserved]
G - Form of Interim Services Agreement
H - Form of Contract Manufacturing Agreement
I - Form of Trademark Cross License Agreement
J - Forms of Independent Sales Representative and Account Servicing Agreements
K - Form of Access Agreement
L - Form of Estoppel Certificate
M - Forms of Opinion of Sellers' counsel
N - Form of Opinion of Buyers' counsel
O - Form of Tri-Party Agreement
P - Form of Assignment of Representation, Warranties and Covenants
Q - Form of Bailee Waiver and Agreement
-iv-
<PAGE> 5
SCHEDULES
2.1(a) Real Property
2.1(b) Computer Hardware Included in Purchased Assets
2.1(f) Proprietary Rights
2.2(f) Licensed Intellectual Property
2.2(h) Inventory
2.3(b) Sellers Agreements Not Assumed
3.3 Allocation of Purchase Price and Assumed Liabilities
4.3(e) Assumed Employee Agreements
5.3 Financial Statements
5.5 Absence of Conflicts; Consents Not Received
5.6 No Litigation
5.7 Operations Since May 8, 1999
5.8 Taxes
5.9(a) Title to and Condition of Assets
5.9(b) Title to and Condition of Assets
5.10 Personal Property
5.12(a) Governmental Permits
5.13(c) Intellectual Property
5.13(d) Intellectual Property
5.14(a) Employee Agreements and Plans
5.14(d) Employee Agreements and Plans
5.15(b) Employee Relations
5.16 Commercial Contacts
5.18(a) Environmental Matters
5.18(b) Environmental Matters
5.18(c) Environmental Matters
5.18(d) Environmental Matters
5.18(f) Environmental Matters
5.18(g) Environmental Matters
5.18(h) Environmental Matters
5.18(i) Environmental Matters
5.19 Insurance
5.20 All Assets
5.22 Compliance with Requirements of Law
5.25 Customers and Suppliers
5.26(e) Government Contracts
7.4 Operations Prior to Closing
7.10 UCC Searches
9.3(e) Employees and Employee Benefit Plans
9.3(f) Employees and Employee Benefit Plans
[PERRIGO COMPANY will furnish supplementally a copy of the omitted exhibits and
schedules to the Securities Exchange Commission upon its request.]
-v-
<PAGE> 6
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT, dated as of August 25, 1999 (the
"Agreement") is executed by and among PERRIGO COMPANY, a corporation
incorporated under the laws of the State of Michigan ("Perrigo") and PERRIGO
COMPANY OF TENNESSEE, a corporation incorporated under the laws of the State of
Tennessee ("PTN" and together with Perrigo, the "Sellers") and Cumberland Swan
Holdings, Inc., a corporation organized under the laws of the State of Tennessee
("Buyer").
WHEREAS, PTN directly and Perrigo, through certain of Perrigo's other
subsidiaries, are engaged, among other things, in the business of developing,
manufacturing, marketing and distributing personal care products (including,
without limitation, mouthwash, wets and drys, babycare, haircare, skincare,
suncare, denture and toothpaste products) (the "Business");
WHEREAS, Buyer desires to purchase from Sellers, and Sellers desire to
sell to Buyer, substantially all of the assets and properties of the Business,
as the Business is to be conducted immediately prior to the Closing, all on the
terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, Buyer and Sellers agree as follows:
ARTICLE 1.
DEFINITIONS
1.1. DEFINITIONS. In this Agreement, the following terms have the
meanings specified or referred to in this Section 1.1 and shall be equally
applicable to both the singular and plural forms. Any agreement referred to
below shall mean such agreement as amended, supplemented and modified from time
to time to the extent permitted by the applicable provisions thereof and by this
Agreement.
"ACTION" means any lawsuit, arbitration, whether at law or in equity,
or Known investigation or audit by a Governmental Body, whether civil, criminal,
or administrative, commenced, conducted or heard by or before any Governmental
Body or arbitrator.
"AFFILIATE" means, with respect to any Person, any other Person which
directly or indirectly controls, is controlled by or is under common control
with such Person.
"AGREEMENT" has the meaning specified in the first paragraph of this
Agreement.
"ASSERTED LIABILITY" has the meaning specified in Section 11.4(a).
"ASSUMABLE EMPLOYEE PLANS" has the meaning specified in Section 9.3(f).
"ASSUMED EMPLOYMENT AGREEMENTS" has the meaning specified in Section
4.3(e).
<PAGE> 7
"ASSUMED LIABILITIES" has the meaning specified in Section 2.3.
"ASSUMPTION AGREEMENT" has the meaning specified in Section 2.3.
"BUSINESS" has the meaning specified in the second paragraph of this
Agreement.
"BUYER" has the meaning specified in the first paragraph of this
Agreement.
"BUYER ANCILLARY AGREEMENTS" means all agreements, instruments and
documents being or to be executed and delivered by Buyer under this Agreement
other than this Agreement.
"BUYER EXPENSES" has the meaning specified in Section 12.8(b).
"BUYER RESTRICTED PRODUCTS" has the meaning specified in Section
9.5(a).
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act, 42 U.S.C. Section 9601 et., seq., as amended through the
Closing Date, and any regulations promulgated thereunder.
"CLAIMS NOTICE" has the meaning specified in Section 11.4(a).
"CLEAN AIR ACT" means the Clean Air Act, 42 U.S.C. Section 7401 et
seq., as amended through the Closing Date, and any regulations promulgated
thereunder.
"CLEAN WATER ACT" means the Federal Water Pollution Control Act, 33
U.S.C Section 1251 et seq., as amended through the Closing Date, and any
regulations promulgated thereunder.
"CLOSING" has the meaning specified in Section 4.1.
"CLOSING DATE" has the meaning specified in Section 4.1.
"CODE" means the Internal Revenue Code of 1986, as amended through the
Closing Date, and any regulations promulgated thereunder.
"CONFIDENTIAL INFORMATION" has the meaning specified in Section 12.2.
"CONTAMINANT" shall mean those materials listed in Section 101(14) of
CERCLA, and any other substance, material or waste defined, limited, prohibited
or otherwise regulated as toxic or hazardous under any Environmental Law,
including, but not limited to any petroleum, petroleum hydrocarbons, or
petroleum byproducts, flammable explosives, radioactive materials, asbestos,
asbestos products, polychlorinated biphenyls, including transformers or other
equipment that contain dielectric fluid containing detectable levels of
polychlorinated biphenyls, waste oil, used oil and any constituent thereof.
"CONTRACT MANUFACTURING AGREEMENT" has the meaning specified in Section
4.2(o).
-2-
<PAGE> 8
"COURT ORDER" means any judgment, order, award or decree of any
Governmental Body and any award in any arbitration proceeding.
"DOL" has the meaning specified in Section 5.14(d).
"DISCLOSURE SCHEDULES" means the Disclosure Schedules attached to and
made a part of this Agreement.
"DOCUMENT PRESERVATION ORDER" has the meaning specified in Section
9.8(a).
"EMPLOYEE PLAN" has the meaning specified in Section 5.14(b).
"EMPLOYEE PLAN OBLIGATIONS" has the meaning specified in Section
9.3(f).
"ENCUMBRANCE" means any charge, lien, option, pledge, security
interest, mortgage, easement, defect in title or right of first refusal.
"ENVIRONMENTAL LAW" means all Requirements of Law relating to or
addressing the environment, health or safety including Requirements of Law under
OSHA to the extent OSHA addresses any Contaminants or chemicals, and also
including but not limited to CERCLA, Clean Air Act, Clean Water Act, EPCRA,
HMTA, RCRA, TSCA, FIFRA, SDWA, and any similar state or local law.
"EPCRA" means the Emergency Planning and Community Right-to-Know Act of
1986, 42 U.S.C. Section 11001 et seq., as amended through the Closing Date, and
any regulations promulgated thereunder.
"ERISA" has the meaning specified in Section 5.14(b).
"ERISA AFFILIATE" has the meaning specified in Section 5.14(g).
"ESCROW AGREEMENT" has the meaning specified in Section 3.1.
"ESTIMATED PAID ASSUMED LIABILITIES" has the meaning specified in
Section 3.2(e).
"ESTIMATED PURCHASE PRICE" has the meaning specified in Section 3.1.
"ESTOPPEL CERTIFICATES" has the meaning specified in Section 7.8.
"EXCLUDED ASSETS" has the meaning specified in Section 2.2.
"EXCLUDED LIABILITIES" has the meaning specified in Section 2.4.
"EXPENSES" means any and all reasonable expenses incurred in connection
with investigating, defending or asserting any Action (including court filing
fees, court costs,
-3-
<PAGE> 9
arbitration fees or costs, witness fees, and reasonable fees and disbursements
of legal counsel, investigators, expert witnesses, accountants and other
professionals).
"FIFRA" means the Federal Insecticide, Fungicide, and Rodenticide Act,
7 U.S.C. Section 136 et seq., as amended through the Closing Date, and any
regulations promulgated thereunder.
"FINAL CLOSING DATE SCHEDULE OF NET ASSETS" has the meaning set forth
in Section 3.2(a)(i).
"FINAL NET ASSETS" has the meaning specified in Section 3.2(a)(i).
"FINANCIAL STATEMENTS" means the unaudited balance sheets of the
Business as of June 30, 1997, June 30, 1998, the May 8, 1999 interim balance
sheet, and the unaudited statements of income for the Business for the fiscal
years ended June 30, 1996, 1997 and 1998, and the ten periods ended May 8, 1999
and the Interim Schedule of Net Assets, to the extent derived from the May 8,
1999 interim balance sheet. The May 8, 1999 financial statements are attached
hereto as Exhibit 3.2(a).
"GAAP" means generally accepted accounting principles applied on a
basis consistent with preceding years throughout the periods involved.
"GOVERNMENTAL BODY" means any foreign, United States, state or local
governmental authority, agency, or regulatory body.
"GOVERNMENTAL PERMITS" has the meaning specified in Section 5.12(a).
"HMTA" means the Hazardous Materials Transportation Act, 49 U.S.C.
Section 5101, et seq. as amended through the Closing Date and any regulations
promulgated thereunder.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and any regulations promulgated thereunder.
"INDEMNIFIABLE LOSSES" has the meaning specified in Section 11.2.
"INDEMNIFYING PARTY" has the meaning specified in Section 11.4(a).
"INDEMNITEE" has the meaning specified in Section 11.4(a).
"INDEPENDENT SALES REPRESENTATIVE AND ACCOUNT SERVICING AGREEMENTS" has
the meaning specified in Section 4.2(q).
"INTELLECTUAL PROPERTY LICENSE AGREEMENT" means the license agreement
between Sellers and Buyer with respect to the Licensed Intellectual Property in
substantially the form set forth in Exhibit A hereto.
-4-
<PAGE> 10
"INTELLECTUAL PROPERTY TRANSFER DOCUMENTS" has the meaning specified in
Section 4.2(k).
"INTERIM NET ASSETS" has the meaning specified in Section 3.2(a)(i).
"INTERIM SERVICES AGREEMENT" has the meaning set forth in Section
4.2(n).
"INTERIM SCHEDULE OF NET ASSETS" has the meaning specified in Section
3.2(a).
"IRS" means the Internal Revenue Service.
"KNOWLEDGE OF THE SELLERS" or similar phrases used to qualify a
statement herein mean matters actually known to, or that should have been known
after a reasonable investigation by, Michael J. Jandernoa, Chief Executive
Officer of Perrigo, Thomas J. Ross, Principal Accounting and Finance Officer of
Perrigo, John R. Nichols, Vice President and General Counsel of Perrigo, Craig
G. Hammond, President of Perrigo International, Inc., James H. Bloem, President
of PTN, Harvey Elgersma, Vice President of Finance of PTN, Ellen Z. Carpenter,
Vice President of Marketing of PTN, Daniel J. Asma, Vice President of Sales of
PTN, Everett L. McIntire, Vice President of Operations of PTN, Donald G.
Clingman, Director of Human Resources of PTN or Mark A. Copeland, Director of
Manufacturing of PTN, as of the date such statement is, or is deemed to be, made
or given.
"LEASED REAL PROPERTY" has the meaning specified in Section 2.1(a).
"LEMELSON" has the meaning specified in Section 2.3(f).
"LEMELSON SETTLEMENT AGREEMENT" has the meaning specified in Section
2.3(f).
"LENDER" has the meaning specified in Section 4.2(t).
"LICENSED INTELLECTUAL PROPERTY" is the intellectual property listed on
Schedule 2.2(f) and all other intellectual property employed or utilized both in
the Business and in Sellers' other businesses except for Sellers' trademarks and
trade names so employed or utilized.
"LOSSES" means losses, obligations, liabilities, costs (including
oversight and investigation costs), fees, settlement payments, awards,
judgments, fines, assessments, penalties, and damages.
"MARK" has the meaning specified in Section 5.13(a).
"MATERIAL ADVERSE EFFECT" means a material adverse effect on the
Purchased Assets or the financial condition or results of operations of the
Business taken as a whole.
"NET ASSETS" has the meaning specified in Section 3.2(a)(i).
"NON DISTURBANCE AGREEMENTS" has the meaning specified in Section 7.9.
-5-
<PAGE> 11
"OSHA" means the Occupational Safety and Health Act, 29 U.S.C. Section
651 et seq., as amended through the Closing Date, and any regulations
promulgated thereunder.
"OWNED REAL PROPERTY" has the meaning specified in Section 2.1(a).
"PATENTS" has the meaning specified in Section 5.13(b).
"PERMITTED ENCUMBRANCES" has the meaning specified in Section 5.9(a).
"PERRIGO" has the meaning specified in the first paragraph of this
Agreement.
"PERSON" means any individual, corporation, partnership, limited
liability company or corporation, joint venture, association, joint-stock
company, trust, unincorporated organization or Governmental Body.
"PTN" has the meaning specified in the first paragraph of this
Agreement.
"PTN FACILITIES" has the meaning specified in Section 2.1(a).
"PURCHASE PRICE" has the meaning specified in Section 3.1.
"PURCHASED ASSETS" has the meaning specified in Section 2.1.
"PURCHASED INTELLECTUAL PROPERTY" has the meaning specified in Section
2.1(f).
"RCRA" means the Resource Conservation and Recovery Act, 42 U.S.C
Section 6901 et seq., as amended through the Closing Date, and any regulations
promulgated thereunder.
"REAL ESTATE LEASE" has the meaning specified in Section 4.2(m);
"RECEIVABLES" has the meaning specified in Section 2.1(d).
"RECEIVABLE AMOUNT" has the meaning specified in Section 9.11.
"REFERRAL COMMITTEE" has the meaning specified in Section 9.7(c).
"RELEASE" means disposing, depositing, discharging, injecting,
spilling, leaking, leaching, dumping, emitting, escaping, emptying, seeping,
placing and the like, into or upon any land or water or air, or otherwise
entering into the environment.
"REMEDIAL ACTION" means any investigation, clean up, removal, remedial
action, or other response action undertaken pursuant to any Environmental Law or
required by a Governmental Body to: (i) clean up, remove, treat or in any other
way address Contaminants; (ii) prevent the Release of Contaminants; or (iii)
investigate and determine if a response action is needed and to design and
implement such a response and post-remedial investigation, monitoring, operation
and maintenance.
-6-
<PAGE> 12
"REQUIREMENTS OF LAW" means any foreign, federal, state, or local,
published law, statute, regulation, code, constitution, treaty, order or
ordinance of any Governmental Body in effect on the Closing Date.
"SDWA" means the Safe Drinking Water Act, as amended through the
Closing Date, 42 U.S.C. Section 300f et seq., and any regulations promulgated
thereunder.
"SELLER INSURANCE POLICIES" has the meaning specified in Section 5.19.
"SELLER RESTRICTED PRODUCTS" has the meaning specified in Section
9.5(a).
"SELLERS" has the meaning specified in the first paragraph of this
Agreement.
"SELLERS' AGREEMENTS" has the meaning specified in Section 2.1(h).
"SELLERS' ANCILLARY AGREEMENTS" means all agreements, instruments and
documents being or to be executed and delivered by the Sellers under this
Agreement, other than this Agreement.
"SELLERS' EMPLOYEES" has the meaning specified in Section 5.14(a).
"STIPULATED AMOUNT" has the meaning specified in Section 11.5.
"SURVEY" has the meaning specified in Section 7.7.
"SURVIVAL DATE" has the meaning specified in Section 11.1(a).
"TAX" (and, with correlative meaning, "Taxes" and "Taxable") means any
federal, state, county, local or foreign income, alternative or add-on minimum,
gross income, gross receipts, property, earnings and profits, sales, use,
transfer, license, excise, franchise, employment, payroll, withholding or
minimum tax, ad valorem, or customs duty, together with any interest, penalty or
fine, or addition to tax imposed by any Governmental Body.
"TAX RETURN" means any return, report or similar statement required to
be filed with respect to any Taxes (including any attached schedules),
including, without limitation, any information return, claim for refund, amended
return and declaration of estimated Tax.
"TITLE COMMITMENT" has the meaning specified in Section 7.6.
"TITLE INSURANCE POLICY" has the meaning specified in Section 4.2(g).
"TRADEMARK CROSS LICENSE AGREEMENT" has the meaning specified in
Section 4.2(p).
"TSCA" means the Toxic Substances Control Act, 15 U.S.C. Section 2601
et seq., as amended through the Closing Date, and any regulations promulgated
thereunder.
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"UCC SEARCHES" has the meaning specified in Section 7.10.
"WWPT SYSTEM" has the meaning specified in Section 5.9(b).
ARTICLE 2.
PURCHASE AND SALE
2.1. PURCHASED ASSETS. Upon the terms and subject to the conditions of
this Agreement, at the Closing, Sellers shall sell, transfer, assign, convey and
deliver to Buyer, and Buyer shall purchase from Sellers, all of the assets and
properties of Sellers physically located in Smyrna, Tennessee, and all other
assets and properties of Sellers described below, but excluding the Excluded
Assets wherever located (herein collectively called the "Purchased Assets").
Purchased Assets shall consist of all of the Sellers' right, title and interest
in and to the following to the extent not excluded under Section 2.2:
(a) Real Property. All real property located in Smyrna, Tennessee that
is described in Schedule 2.1(a)A, including all land, plant, warehousing and
office facilities and other improvements and fixtures attached thereto (the
"Owned Real Property") and all of Sellers' interests in each lease or similar
agreement under which PTN is lessee of, or holds or operates, any real property
located in Tennessee that is owned by any third Person, and is described in
Schedule 2.1(a)B (the "Leased Real Property" and together with the Owned Real
Property, the "PTN Facilities");
(b) Machinery and Equipment. (i) All machinery and equipment and other
tangible personal property owned by Sellers that is used or held for use by
either Seller in the conduct of the Business at the PTN Facilities, including
but not limited to, the machinery and equipment listed on Schedule 5.10; (ii)
all interest (through lease, assignment or sublet) in any machinery and
equipment and other tangible personal property located at the PTN Facilities
that is leased from third parties for use in the conduct of the Business,
including, but not limited to, those items listed on Schedule 5.16; (iii) all
tooling and display materials of the Business wherever located; and (iv) the
computer hardware that is listed in the "L. Perrigo Company Personal Care
Divestiture Hardware Summary" dated July 1, 1999 attached to Schedule 2.1(b);
(c) Inventory. All inventories of the Business wherever located (other
than raw materials inventory used in the manufacture of effervescent denture
products and toothpaste products that is also used in the manufacture of other
products of Perrigo's business) as the same shall exist on the Closing Date;
(d) Receivables. Subject to Section 2.2(l), all notes, trade
receivables and other accounts receivable, commissions receivable and other
receivables and rights to payment in respect of the Business, net of reserves,
as the same may exist on the Closing Date (the "Receivables");
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(e) Prepaid Expenses. All prepaid expenses pertaining to the Business
to the extent reflected on the Final Closing Date Schedule of Net Assets
(excluding prepaid insurance premiums);
(f) Proprietary Rights. Other than the Licensed Intellectual Property,
all patents, patent applications, patent disclosures and inventions; trademarks,
service marks, trade dress, trade names (other than any trade names that include
the name Perrigo or any derivation of such name), and any applications to
register any of the foregoing; copyrights and copyright registrations; trade
secrets, know-how and confidential business information, computer software, data
or documentation, and other proprietary rights or any licenses to and from any
Person with respect to any of the foregoing developed by or for Sellers and
employed by or utilized in the conduct of the Business, and all other
proprietary information and rights employed by or utilized in the conduct of the
Business (collectively, the "Purchased Intellectual Property"). Notwithstanding
the foregoing, the Purchased Intellectual Property shall only include patents,
trademarks, corporate names, and computer software to the extent that they are
(i) set forth on Schedule 2.1(f) or (ii) are employed or utilized solely by the
Business.
(g) Cash. All cash, cash equivalents, bank accounts, certificates of
deposit, commercial paper and any other similar investments of the Business as
reflected on the Final Closing Date Schedule of Net Assets;
(h) Executory Agreements. The rights of either Seller with respect to
the Business under each executory agreement utilized in the conduct of the
Business to which either Seller is a party or to which any Purchased Asset is
subject (excluding any agreement to the extent giving rise to an Excluded
Liability), including, without limitation, any purchase order or contract with
any customer or supplier of Sellers to the extent that such purchase order or
contract is not fulfilled by Sellers on the Closing Date (collectively, the
"Sellers' Agreements") and including but not limited to those executory
agreements listed on Schedule 5.16 other than items 40 and 77 of Schedule 5.16;
provided, however, that the acquisition of rights in Sellers' Agreements
pursuant to this Section 2.1(h) shall not constitute an assumption of any
liabilities or obligations under such Sellers' Agreements unless such
liabilities or obligations are included in Assumed Liabilities.
(i) Books and Records. Except as set forth in Section 2.2(m), all books
and records (including all data and other information stored on discs, hard
drives, tapes or other media) including, without limitation, customer lists,
operating records, financial records, customer contracts and employee records to
the extent relating to the Business;
(j) Governmental Permits. All Governmental Permits of Sellers to the
extent relating to the conduct of the Business conducted at the PTN Facilities,
including, but not limited to, those listed on Schedule 5.18(b), except for
those permits listed on Schedule 5.18(b) as not being assignable;
(k) Rights and Causes of Action. All rights to causes of action,
guarantees, warranties, indemnities, claims and demands of any nature to the
extent relating to the Business and the ownership, use, function or value of any
of the Purchased Assets, except for any of the foregoing to the extent that they
relate to an Excluded Liability; and
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(l) Other Assets. All other assets used or useful in the Business that
are located in Smyrna, Tennessee and all other assets reflected on the Final
Closing Date Schedule of Net Assets.
2.2. EXCLUDED ASSETS. The Purchased Assets shall not include any of the
other assets of Sellers, including but not limited to the following (herein
referred to as the "Excluded Assets"):
(a) Corporate Records. All corporate minute books and stock transfer
books and the corporate seals of Sellers;
(b) Taxes. All refunds of any Taxes paid, all deferred Taxes, and all
Tax records and Tax Returns with respect to periods ending on or before the
Closing Date, and all claims for Taxes paid;
(c) Certain Rights of Sellers. All rights of Sellers arising from or
relating to that certain Action encaptioned Raz v. Archer Daniels Midland Co.,
Inc., No. 96-CV-009729, in the Circuit Court of Milwaukee County, Milwaukee,
Wisconsin, and all agreements, claims, rights and causes of action to the extent
they relate to Excluded Assets or the Excluded Liabilities;
(d) Insurance. All prepaid insurance premiums and all insurance
policies of Sellers and all rights thereunder;
(e) Executory Agreements. The rights of either Seller to the extent
they relate to businesses other than the Business under any executory agreement
to which either Seller is a party and all executory agreements listed in items
47-59 of Schedule 5.5;
(f) Licensed Intellectual Property. The Licensed Intellectual Property;
(g) Certain Product Line Assets. All tangible assets (other than
inventory described in Section 2.1(c) above) relating to toothpaste and
effervescent denture products located in Allegan, Michigan and Montague,
Michigan;
(h) Inventory. All inventories used in the manufacture of medicated rub
products, except raw materials that are also used in the manufacture of other
products of the Business, and international products, and raw materials
inventory used in the manufacture of toothpaste products and effervescent
denture products that are also used in the manufacture of other products of
Perrigo's business as set forth in Schedule 2.2(h);
(i) Environmental Escrow. All rights of Sellers under that certain
Escrow Agreement dated September 19, 1991 as amended, among Old Kent Bank and
Trust Company as escrow agent, Perrigo, and the Shareholder Representatives
designated as such under that certain Stock Purchase Agreement between Perrigo
and the former shareholders of Cumberland-Swan Inc. dated September 19, 1991;
(j) Machinery Equipment, and Supplies. All machinery, equipment, and
supplies owned by Sellers or their Affiliates located at facilities other than
the PTN Facilities (except for the items referenced in clause (iii) of Section
2.1(b));
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(k) Fontana, California Lease. The lease of real property located in
Fontana, California under which PTN is lessee of property used in the Business;
(l) Receivables. All Receivables which: (i) result in collections by
Perrigo subsequent to the Closing Date in excess of the Receivables Amount, or
(ii) remain uncollected after twenty-five (25) days after the Closing Date;
(m) Books and Records. All books and records to the extent relating to
the Excluded Assets or Excluded Liabilities;
(n) Proprietary Rights to Labels and Packaging. All proprietary rights
to labels and packaging, including labels, plates, cylinders, artwork and
drawings, in the possession of Sellers that are unique to one or more customers
of the Business and contain such customer's brand name or logo that were either
furnished by such customer to either Seller or prepared specifically for such
customer's business by either Seller; provided, however, possession of all such
labels and packaging and all of Sellers' right, title and interest, if any,
therein, shall pass to Buyer as of the Closing; and
(o) Other Excluded Assets. All other assets of the Sellers not relating
to the Business.
2.3. ASSUMED LIABILITIES. At the Closing, Buyer shall deliver to
Sellers an assumption agreement, in the form attached hereto as Exhibit B (the
"Assumption Agreement") pursuant to which Buyer shall assume and agree to
discharge all of the obligations and liabilities of Sellers set forth below
(collectively referred to herein as the "Assumed Liabilities") in accordance
with their respective terms and subject to the respective conditions thereof:
(a) Balance Sheet Liabilities. All current liabilities of the Business
as of the Closing Date (other than intercompany and affiliate payables), all to
the extent reflected on the Final Closing Date Schedule of Net Assets, including
all accrued expenses other than accrued income taxes, all to the extent
reflected on the Final Closing Date Schedule of Net Assets. Buyer hereby
acknowledges that Sellers shall cease making payments with respect to the
accounts payable of the Business on the Closing Date, except to the extent
provided for in Section 4.4 of the Interim Services Agreement, and that Buyer
will take possession of any remaining cash and cash equivalents of the Business
on the Closing Date to the extent reflected on the Final Closing Date Schedule
of Net Assets;
(b) Executory Agreements. Liabilities, obligations, and commitments of
Sellers under the Sellers' Agreements, regardless of whether such liabilities,
obligations or commitments arose or were incurred before or after the Closing
Date, except to the extent any such liabilities, obligations, and commitments
relate to or arise out of a default or breach by either Seller occurring on or
before the Closing Date, provided that, (i) Purchaser is not assuming the
Sellers' Agreements identified on Schedule 2.3(b) and (ii) with respect to any
Sellers' Agreement that is required to be disclosed in Schedule 5.16 but is not
disclosed thereon, Buyer may elect not to assume the liabilities under such
contract provided further that if Buyer chooses not to assume the liabilities
under any such contract, Buyer shall not be entitled to the rights and benefits
under such contract and provided further that acceptance by Buyer of any
material rights and benefits under any such contract shall be deemed to be an
election by Buyer to assume the liabilities under such contract;
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(c) Sales Orders. All liabilities, obligations, and commitments of the
Business relating to sales orders placed with Sellers in the ordinary course of
business consistent with past practice to the extent such orders have not been
filled as of the Closing Date but excluding any such liability resulting from
breach or nonperformance by Sellers of any of their obligations;
(d) Employees. (i) All liabilities and obligations for vacation and
bonus entitlements of Sellers' Employees (as defined in Section 5.14(a) hereto)
through the Closing Date who accept employment with Buyer (which liabilities and
obligations are accrued on the Interim Schedule of Net Assets (except for the
retention bonuses set forth in Schedule 9.3(e)) and will be accrued on the Final
Closing Date Schedule of Net Assets) (other than the retention bonuses set forth
in Schedule 9.3(e)); (ii) all liabilities and obligations under the Assumed
Employment Agreements (as hereinafter defined); (iii) the Assumable Employee
Plans (as hereinafter defined); (iv) all liabilities and obligations accrued on
the Final Closing Date Schedule of Net Assets arising from claims asserted
against Sellers by any Sellers Employee who accepts employment with Buyer,
whether or not such claims are covered by insurance, except to the extent that
the liabilities and obligations referenced in clauses (ii) and (iii) of this
Section 2.3(d) relate to or arise out of a default or breach by either Seller
occurring on or before the Closing Date; and (v) all liabilities and obligations
arising under the Worker's Adjustment and Retraining Notification Act and/or any
comparable state legislation with respect to any action taken or omission by
Buyer after Closing with respect to any Sellers' Employee.
(e) Intellectual Property Rights and Proposition 65 Claims. All claims
and Actions alleging violations of patent, trademark, trade dress, copyright,
false advertising or California Proposition 65 that are asserted or filed after
the Closing Date relating to products manufactured and packaged by the Business
prior to the Closing Date, provided however, that Buyer shall not be responsible
for: (i) liabilities pursuant to this Section 2.3(e) for any claims in respect
of products that were discontinued by Sellers on or prior to the Closing Date;
and (ii) Losses and Expenses arising from patent, trademark, trade dress,
copyright, or false advertising violations asserted by any Person(s) during the
one year period following the Closing Date to the extent all such Losses and
Expenses exceed in the aggregate two hundred and fifty thousand dollars
($250,000).
(f) Lemelson Claim. Any claims arising from Buyer's non-compliance or
alleged non-compliance with the terms of the Settlement Agreement dated May 20,
1999 between Lemelson Medical Education Research Foundation, Limited Partnership
("Lemelson") and Perrigo (the "Lemelson Settlement Agreement") insofar as the
terms of the Lemelson Settlement Agreement apply to Buyer as purchaser of the
Business, and any claims arising under the Lemelson Settlement Agreement with
respect to the Business as conducted by Buyer that triggers the payment of
additional royalties under the Lemelson Settlement Agreement.
2.4. EXCLUDED LIABILITIES. Notwithstanding anything to the contrary set
forth herein, other than the Assumed Liabilities, Buyer shall not assume or be
obligated to pay, perform or otherwise discharge any of the liabilities or
obligations of Sellers or any of the Sellers' Affiliates arising out of or in
any way related to the conduct of the Business by Sellers or the ownership of
the Purchased Assets prior to the Closing Date including, but not limited to,
any liability of either Seller for Taxes and any liability of either Seller for
the unpaid Taxes of any Person under Section 1.1502-6 of the regulations
promulgated under the Code (or any similar
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provisions of state, local, or foreign law), as a transferee or successor, by
contract or otherwise (except as set forth in Section 9.2(b) hereof) (all such
liabilities and obligations not being assumed being herein called the "Excluded
Liabilities"). Without limiting the generality of the foregoing, the following
shall be Excluded Liabilities: any claim asserted by Lemelson with respect to
the pre-Closing operation of the Business, regardless of amount, or with respect
to any post-Closing Date operation of the Business (except as set forth in
Section 2.3(f)).
ARTICLE 3.
PURCHASE PRICE
3.1. PURCHASE PRICE. The purchase price (the "Purchase Price") shall be
equal to Thirty Nine Million Eight Hundred Eight Thousand and One Hundred
dollars ($39,802,100). At the Closing, Buyer shall pay: (a) Thirty One Million
Two Hundred Two Thousand and One Hundred dollars ($31,202,100) to Sellers by
wire transfer of immediately available funds to such bank account as Sellers
shall direct in writing; and (b) one million dollars ($1,000,000) to American
National Bank and Trust Company of Chicago as escrow agent, to be held for a
period of one year from the Closing Date for the purposes and on the terms and
conditions, set forth in the form of escrow agreement attached hereto as Exhibit
C (the "Escrow Agreement"). The aggregate amount paid at the Closing under
clauses (a) and (b) above shall be referred to herein as the "Estimated Purchase
Price." After Closing, the balance of the Purchase Price, if any, shall be paid
by Buyer to Sellers when the Purchase Price is adjusted pursuant to the
provisions of Section 3.2.
3.2. PURCHASE PRICE ADJUSTMENTS.
(a) Net Assets Adjustment.
(i) As used herein "Net Assets" shall mean the dollar amount
equal to the total assets (other than Receivables) as reflected on the
applicable schedule of Net Assets minus the total liabilities as
reflected on the applicable schedule of Net Assets. The schedule of Net
Assets of the Business at May 8, 1999 (the "Interim Schedule of Net
Assets"), a copy of which is attached hereto as Exhibit D, sets forth
only those Purchased Assets (excluding Receivables) and Assumed
Liabilities set forth on the May 8, 1999 interim balance sheet of the
Business which is included in Schedule 3.2(a) plus raw materials
inventory for Toothpaste Products and Effervescent Denture Products (as
such products are defined in the Contract Manufacturing Agreement). The
Net Assets of the Business as set forth in the Interim Schedule of Net
Assets are hereinafter referred to as the "Interim Net Assets." Within
forty five (45) days after the date of the Closing, Sellers shall
submit to Buyer a schedule of Net Assets for the Business, prepared
consistently with and on the same basis as the Interim Schedule of Net
Assets, showing only Purchased Assets (excluding Receivables) and
Assumed Liabilities as of the Closing Date (the "Final Closing Date
Schedule of Net Assets"). The parties hereby acknowledge and agree that
the Final Closing Date Schedule of Net Assets (i) shall not contain any
accrual in respect of the net SAP assets, and (ii) shall exclude the
raw materials inventory used in the manufacture of effervescent denture
products and toothpaste products that is also used in the manufacture
of other products of Perrigo's business. Sellers shall also provide to
Buyer with the Final
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Closing Date Schedule of Net Assets such detailed work papers and other
supporting schedules and documentation with respect to the Business as
shall be reasonably necessary for Buyer to evaluate the Final Closing
Date Schedule of Net Assets including, without limitation, supporting
items with respect to cash, inventory, prepaid expenses, fixed assets,
and related accumulated depreciation, trade payables and accrued
expenses that reconcile to the total amount as reflected on the Final
Closing Date Schedule of Net Assets. The inventory reflected on the
Final Closing Date Schedule of Net Assets shall be valued at PTN's
fiscal year 1999 standard cost for such inventory using the same
methodology used to determine PTN's fiscal year 1999 standard cost with
respect to the May 8, 1999 interim balance sheet and shall reflect an
inventory reserve of five million dollars ($5,000,000). No other
reserve for inventory shall be established on the Final Closing Date
Schedule of Net Assets. During and within the sixty (60) day period
after delivery to Buyer of such Final Closing Date Schedule of Net
Assets, Buyer and its representatives may review the Final Closing Date
Schedule of Net Assets and shall notify Sellers in writing whether or
not Buyer disputes the Final Closing Date Schedule of Net Assets (and,
if Buyer does dispute the Final Closing Date Schedule of Net Assets,
Buyer shall deliver to Sellers a written statement, giving reasonable
detail as to the reasons for such dispute accompanied by copies of such
work papers as Buyer relied on in connection with its decision to file
such dispute). If Buyer does dispute the Final Closing Date Schedule of
Net Assets submitted by Sellers, and if Buyer and Sellers are unable to
resolve such dispute within forty five (45) days of Sellers' receipt of
Buyer's written notice thereof, the Final Closing Date Schedule of Net
Assets shall be submitted to the Chicago office of Ernst & Young whose
determination as to the dispute shall be final and binding on the
parties. The expenses of Ernst & Young shall be borne equally by Buyer
and Sellers. The Net Assets of the Business at the Closing Date, as
shown on the Final Closing Date Schedule of Net Assets are hereinafter
referred to as the "Final Net Assets."
(ii) After the expiration of sixty (60) days following the
delivery of the Final Closing Date Schedule of Net Assets, or upon
determination of the Final Closing Date Schedule of Net Assets, as the
case may be, the Purchase Price shall be adjusted such that, if the
Interim Net Assets exceed the Final Net Assets, the Purchase Price
shall be reduced by the amount by which the Interim Net Assets exceeds
the Final Net Assets and, if the Final Net Assets exceeds the Interim
Net Assets, the Purchase Price shall be increased by the amount by
which the Final Net Assets exceed the Interim Net Assets. If the
Purchase Price (as adjusted in this Section 3.2(a)(ii)) exceeds the
Estimated Purchase Price, Buyer shall pay to Sellers such excess, and
if the Estimated Purchase Price exceeds the Purchase Price (as adjusted
in this Section 3.2(a)(ii)), the Sellers shall pay to Buyer such
excess. Any payment made under this Section shall be by wire transfer
of immediately available funds of the full amount owing, to an account
designated by the recipient (which in the case of a payment to Buyer
shall be made to Account No. 361567864 maintained by Buyer with Bank
One Michigan, Detroit, Michigan, ABA No. 072000326, unless otherwise
instructed in a written notice from Buyer and Lender), within five (5)
business days after the expiration of fifteen (15) days following the
later of delivery of the Final Closing Date Schedule of Net Assets, or
the determination of the Final Closing Date Schedule of Net Assets, as
the case may be.
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(b) Final Determination. The determination of the adjustment to the
Purchase Price pursuant to the method set forth in this Section 3.2 shall be
final and binding on Sellers and Buyer, and Sellers and Buyer hereby agree to
accept such determination. Subsequent to such determination, neither Sellers nor
Buyer shall have any right to challenge or protest the Interim Schedule of Net
Assets, the Final Closing Date Schedule of Net Assets or any determinations or
valuations made therein for purposes of the calculation of the adjustment to the
Purchase Price as set forth in this Section 3.2.
(c) Cooperation. At all reasonable times after the Closing, Buyer shall
make employees of the Business available, at no charge, and shall afford Sellers
and BDO Seidman LLP and their respective employees and authorized
representatives, at no charge, complete access to the books and records of the
Business and all information relating to the accounting, business, financial,
legal or tax affairs of the Business, in connection with the preparation of the
Final Closing Date Schedule of Net Assets.
(d) At all reasonable times after the Closing, Sellers shall make their
employees available, at no charge, and shall afford Buyer and Arthur Andersen
and their respective employees and authorized representatives, at no charge,
reasonable access to the books and records of Sellers and all information
relating to the accounting, business, financial, legal or tax affairs of the
Business retained by Sellers, in connection with Buyer's evaluation of the Final
Closing Date Schedule of Net Assets.
(e) At the Closing, Sellers shall estimate in good faith the Assumed
Liabilities that Sellers have paid prior to Closing (the "Estimated Paid Assumed
Liabilities"). An amount equal to the Estimated Paid Assumed Liabilities shall
be deducted from the first payment made by Sellers to Buyer under Section 9.11
hereof. As part of the post-Closing Purchase Price adjustment process, Sellers
and Buyer shall reasonably and in good faith discuss and agree upon what
additional adjustments, if any, are necessary to insure that (i) the Net Assets
reflected on the Final Closing Date Schedule of Net Assets are actually realized
by Buyer and (ii) Sellers are reimbursed for all Assumed Liabilities paid by
Sellers. By way of illustration, if a piece of equipment reflected on the Final
Closing Date Schedule of Net Assets were sold in the ordinary course for cash on
August 17 (i.e., after the Closing Date but prior to the date of Closing), then
Sellers and Buyer would need to assure that the cash received in respect of such
sale were appropriately credited to Buyer, and, correspondingly, if an Assumed
Liability were paid by Sellers in the ordinary course on August 17, 1999 and not
included in the Estimated Paid Assumed Liabilities, the Sellers and Buyer would
need to assure that Sellers receive an appropriate credit.
3.3. ALLOCATION OF PURCHASE PRICE AND ASSUMED LIABILITIES. The Purchase
Price and Assumed Liabilities shall be allocated among the Purchased Assets as
set forth on Schedule 3.3, attached hereto. The allocation on Schedule 3.3 shall
be appropriately adjusted to reflect the Purchase Price adjustment after such
adjustment has been finally determined. The parties agree that the allocation
required by this Section will be used by them and respected for all income tax
purposes, and that the parties shall follow such allocation for all income tax
reporting purposes, including the filing of Form 8594 by each party with the
IRS.
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ARTICLE 4.
CLOSING
4.1. CLOSING. The closing of the purchase and sale of the Purchased
Assets and the assumption of the Assumed Liabilities (the "Closing") shall be
consummated at 10:00 a.m. local time on August 25, 1999, at the offices of
Gardner, Carton & Douglas, 321 North Clark, Chicago, Illinois, or at such other
time or place as shall be agreed upon by Buyer and Sellers. Notwithstanding that
the Closing shall be consummated on August 25, 1999, the Closing shall be
effective as provided herein as of 12:01 a.m., August 8, 1999 (the "Closing
Date").
4.2. DOCUMENTS TO BE DELIVERED TO BUYER. At the Closing, Sellers shall
deliver or cause to be delivered to Buyer:
(a) a certificate of good standing of each Seller, issued as of a
recent date by the Secretaries of State of their respective states of
incorporation;
(b) a bring down certificate of each Seller as described in Section
8.1(a);
(c) a certificate of the secretary or an assistant secretary of each
Seller, dated the date of the Closing, certifying as to: (i) the resolutions of
such Seller's board of directors and, if applicable, stockholders, authorizing
the execution and performance of this Agreement and the transactions
contemplated hereby; and (ii) incumbency and signatures of the officers
executing this Agreement and any of the Sellers' Ancillary Agreements;
(d) certificates of title or origin (or like documents) with respect to
any vehicles or other equipment included in the Purchased Assets for which a
certificate of title or origin is required in order to transfer title;
(e) all third party consents obtained by Sellers as of the date of the
Closing and related assignments, including the consents and related assignments
with respect to the Leased Real Property;
(f) a special warranty deed with respect to the Owned Real Property;
(g) an extended coverage owner's title insurance policy in the amount
of the Purchase Price and Assumed Liabilities allocated to the Owned Real
property pursuant to Section 3.3, dated as of the date of the Closing and
showing title to the Owned Real Property in the name of Buyer (the "Title
Insurance Policy"), or if the Title Insurance Policy cannot be issued at
Closing, then a marked up unconditional binder for such insurance dated as of
the Closing, in either case subject only to the Permitted Encumbrances;
(h) estoppel certificates received with respect to the Leased Real
Property;
(i) all required real estate transfer declaration or exemption
certificates and any other documents as may be otherwise necessary to transfer
title of the Owned Real Property to Buyer;
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(j) all affidavits and other statements as may be reasonably required
by the title insurance company in order to issue the Title Insurance Policy;
(k) documentation sufficient to convey by transfer or license the
Purchased Intellectual Property rights to Buyer from Sellers (the "Intellectual
Property Transfer Documents");
(l) the Intellectual Property License Agreement;
(m) the real estate lease between Perrigo and Buyer with respect to the
LaVergne, Tennessee distribution center in substantially the form set forth in
Exhibit E ("Real Estate Lease");
(n) the interim services agreement between Perrigo and Buyer in
substantially the form set forth in Exhibit F hereto (the "Interim Services
Agreement");
(o) the contract manufacturing agreement between Perrigo and Buyer in
substantially the form set forth in Exhibit G hereto (the "Contract
Manufacturing Agreement");
(p) the cross license agreement between Perrigo and Buyer in
substantially the form set forth in Exhibit H hereto (the "Trademark Cross
License Agreement");
(q) the independent sales representative and account servicing
agreements among Perrigo or Buyer, respectively, and Geiss, Destin & Dunn, Inc.
and Teresa C. Geiss in substantially the forms set forth in Exhibit I hereto
(the "Independent Sales Representative and Account Servicing Agreements");
(r) the Escrow Agreement;
(s) the opinions of Gardner, Carton & Douglas, Law Weathers &
Richardson and Waller Lansden Dortch & Davis, as counsel to the Sellers, in
substantially the forms set forth in Exhibit M hereto;
(t) the Tri-Party Agreement among Perrigo, Buyer and Foothill Capital
Corporation ("Lender") in the form attached hereto as Exhibit O;
(u) the Assignment of Representation, Warranties and Covenants, between
Buyer and Lender, in the form attached hereto as Exhibit P;
(v) the Bailee Waiver and Agreement, among Perrigo, Lender and Buyer,
in the form attached hereto as Exhibit Q; and
(w) such other deeds, bills of sale, and other good and sufficient
instruments of conveyance (together with releases of any lien on the Purchased
Assets that is not a Permitted Encumbrance) as shall be effective to vest in
Buyer all of Sellers' title to and interest in the Purchased Assets, and
simultaneously therewith, Sellers will take such steps as may be necessary to
put Buyer in actual possession and operating control of the Purchased Assets.
4.3. DOCUMENTS TO BE DELIVERED TO SELLERS. At the Closing, Buyer shall,
in addition to the payment under Section 3.1 above, deliver to Sellers:
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(a) a certificate of good standing of Buyer, issued as of a recent date
by the Secretary of State of the State of Tennessee;
(b) a bring down certificate of Buyer as described in Section 8.2(a);
(c) a certificate of the secretary or an assistant secretary of Buyer,
dated the date of Closing, certifying as to: (i) the resolutions of Buyer's
members authorizing the execution and performance of this Agreement and the
transactions contemplated hereby; and (ii) an incumbency certificate containing
the signatures of its officers executing this Agreement and any Buyer Ancillary
Agreement;
(d) the Assumption Agreement;
(e) an acknowledgment of the assumption of all of the employment
agreements and letter agreements between Sellers and certain employees of
Sellers (the "Assumed Employment Agreements") listed on Schedule 4.3(e) and the
Assumable Employee Plans;
(f) the Intellectual Property License Agreement;
(g) the Real Estate Lease;
(h) the Interim Services Agreement;
(i) the Contract Manufacturing Agreement;
(j) the Trademark Cross License Agreement;
(k) the Independent Sales Representative and Account Servicing
Agreements;
(l) the Escrow Agreement;
(m) the opinion of Bass, Berry & Sims PLC, as counsel to the Buyer, in
substantially the form set forth in Exhibit N hereto; and
(n) an access agreement in the form of Exhibit J hereto.
4.4. FORM OF DOCUMENTS. The documents and instruments referred to in
Sections 4.2 and 4.3 shall be satisfactory as to form and substance to counsel
for the party to whom they are delivered.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers jointly and severally make the following representations and
warranties to Buyer.
5.1. ORGANIZATION. Perrigo is a corporation duly organized, validly
existing and in good standing under the laws of the State of Michigan. PTN is a
corporation duly
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organized, validly existing and in good standing under the laws of the State of
Tennessee. Each Seller is duly qualified or licensed to do business and is in
good standing as a foreign corporation in all jurisdictions where such Seller is
required to be qualified or licensed to do business as a foreign corporation,
except for those jurisdictions where the failure to so qualify is not reasonably
likely to have a Material Adverse Effect.
5.2. POWER AND AUTHORITY; AGREEMENT BINDING. Each Seller has all
requisite corporate power and authority to execute and deliver this Agreement
and the Sellers' Ancillary Agreements and to perform its obligations hereunder
and thereunder, to own or hold under lease its properties and assets and to
carry on the Business as currently conducted. Each Seller's execution of this
Agreement has been duly authorized and approved by all necessary corporate
action. This Agreement has been duly executed and delivered by each Seller and,
assuming due authorization, execution, and delivery by Buyer, is the legal,
valid and binding obligation of Sellers enforceable against Sellers in
accordance with its terms, subject to general principles of equity and except as
enforceability may be limited by applicable bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium or other similar laws of general
application relating to creditors' rights generally.
5.3. FINANCIAL STATEMENTS.
(a) Sellers have furnished to Buyer accurate and complete copies of the
Financial Statements certified by Perrigo's principal accounting and finance
officer. Except as set forth on Schedule 5.3(a)(1), the Financial Statements
have been prepared in accordance with GAAP. Except as set forth on Schedule 5.3,
the Financial Statements fairly present in all material respects the financial
position of the Business as of the respective dates thereof and the results of
operations of the Business for the periods then ended. Except as set forth on
Schedule 5.3, the May 8, 1999 interim balance sheet has been prepared
consistently with and on the same basis as the balance sheet as of June 30, 1998
included in the Financial Statements. Notwithstanding the foregoing, Sellers'
representations with respect to the Financial Statements are further subject to
the disclosures set forth in Schedule 5.3(a)(2).
(b) Insofar as the Financial Statements bear on the value (including
price, quantity and salability) of the inventory that is or will be included in
the Purchased Assets, Section 3.2 above sets forth the exclusive provision in
this Agreement for determining such value, and, following completion of the
procedures set forth in that Section 3.2, Buyer shall have no other claim or
recourse with respect to the value of the inventory included in the Purchased
Assets, including, without limitation, no claim or recourse with respect to an
alleged inaccuracy of the Financial Statements as to such value under this
Section 5.3. Insofar as the Financial Statements, including, without limitation,
any reflection of inventory levels therein, bear on the results of operations of
the Business for any periods covered by such Financial Statements, the
representations and warranties of this Section 5.3 shall be applicable thereto
in accordance with the terms of such representation and warranties; provided,
however that Sellers make no representation regarding the salability of
inventory reflected on the 1999 period 10 financial statements.
(c) Buyer acknowledges that Perrigo has not maintained separate
business unit financial information in connection with its historical
consolidated financials, as required of certain companies in accordance with
segment disclosure requirements of GAAP. The parties agree that
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such fact, in and of itself, does not impair the integrity of the Financial
Statements and is not intended as a qualification of the express terms of
Section 5.3(a), as such Section is qualified by the disclosures in Schedule 5.3.
(d) Sellers represent and warrant that: (i) the financial information
contained in the column headed "Adjusted 06/30/1998" on Attachment (d) to
Schedule 5.3 was furnished to Buyer in connection with its review of the
Business; (ii) the figures contained in the column headed "Adjusted 06/30/1998"
on Attachment (d) to Schedule 5.3 were derived by making the adjustments
reflected in columns 2 through 11 of Attachment (d) to Schedule 5.3 to the
figures contained in the column headed "Per G/L 06/30/1998" on Attachment (d) to
Schedule 5.3; and (iii) the figures contained in the column headed "Per G/L
06/30/1998" on Attachment (d) to Schedule 5.3 are consistent with the figures
contained in the June 30, 1998 balance sheet which is included as part of the
Financial Statements, with the exception that certain items included as "Accrued
Expense" on such June 30, 1998 balance sheet have been included as
"Depreciation" in the "Per G/L 06/30/1998" column on Attachment (d) to Schedule
5.3. Except as expressly set forth in this Section 5.3(d), the Sellers do not
make any representation or warranty of any kind with respect to the financial
information contained in Attachment (d) to Schedule 5.3, including, without
limitation, any representation or warranty with respect to the appropriateness
or completeness of the items or amounts of the adjustments reflected in columns
2 through 11 thereof.
5.4. INTERNATIONAL BUSINESS. Except as set forth in Section 9.5(a)(i)
and (ii), the Business does not conduct business outside of the United States.
Neither Seller is a party to any noncompetition agreement or other contract that
prohibits or imposes other material restrictions on the Business from conducting
business outside of the United States.
5.5. ABSENCE OF CONFLICTS. Except as set forth in Schedule 5.5, the
execution and delivery of this Agreement, and the consummation of the
transactions contemplated hereby, will not:
(a) result in a breach of the terms or provisions of, constitute a
default or result in the creation or imposition of any Encumbrance upon the
Purchased Assets under: (i) any note, instrument, contract, agreement, mortgage,
indenture, lease, license, or franchise which will be assumed by Buyer or by
which any Purchased Assets are bound (other than with respect to terms,
provisions, defaults or Encumbrances relating to consents to assignment not
obtained prior to Closing as identified on Schedule 5.5); (ii) any Court Order;
or (iii) any Seller's certificate or articles of incorporation or by-laws; or
(b) require the approval, consent, authorization or act of, or the
making by either Seller of any declaration, notification, filing or registration
with any Person, except in each case, for such consents, approvals and filings,
which the failure to obtain or make would not have a Material Adverse Effect.
5.6. NO LITIGATION. Except as set forth in Schedule 5.6, there is no
Action related to the Business pending or, to the Knowledge of Sellers,
threatened, against either Seller.
5.7. OPERATIONS SINCE MAY 8, 1999. Except as set forth in Schedule 5.7,
since May 8, 1999, there has been no change in the Business or the Purchased
Assets that has had or is
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reasonably likely to have a Material Adverse Effect, and neither Seller has,
with respect to the Business either directly or indirectly:
(a) made any change in the Business or its operations or in the manner
of conducting the Business other than changes in the ordinary course of business
consistent with past practice;
(b) incurred any obligations or liabilities (whether absolute, accrued,
contingent or otherwise and whether due or to become due), except obligations or
liabilities incurred in the ordinary course of business and consistent with past
practice, or experienced any change in any assumptions underlying or methods of
calculating any bad debt, contingency or other reserves;
(c) paid, discharged or satisfied any Encumbrance or liability (whether
absolute, accrued, contingent or otherwise and whether due or to become due),
other than Encumbrances or liabilities (i) which are reflected or reserved
against in the Interim Schedule of Net Assets and which were paid, discharged or
satisfied since the date thereof in the ordinary course of business and
consistent with past practice, or (ii) which were incurred and paid, discharged
or satisfied since May 8, 1999 in the ordinary course of business consistent
with past practice;
(d) written down the value of any inventory, or written off as
uncollectible any notes or accounts receivable or any portion thereof, except
for immaterial write-downs and write-offs made in the ordinary course of
business, consistent with past practice and at a rate no greater than during the
twelve (12) months ended May 8, 1999;
(e) canceled any other debts or claims, or waived any rights, of
substantial value, other than in the ordinary course of business consistent with
past practice;
(f) sold, transferred or conveyed any of its properties or assets
(whether real, personal or mixed, tangible or intangible), except in the
ordinary course of business consistent with past practice;
(g) disposed of or permitted to lapse, or otherwise failed to preserve
its rights to use any patent, trademarks, trade name, logo or copyright or any
such application, or disposed of or permitted to lapse any license or permit, or
disposed of or disclosed of or disclosed to any person any trade secret,
formula, process or know-how, other than in the ordinary course of business
consistent with past practice;
(h) granted any increase in the compensation of any officer, director,
employee or agent (including, without limitation, any increase pursuant to any
bonus, pension, profit sharing or other plan or commitment), or adopted any such
plan or other arrangements;
(i) made any capital expenditures or commitments in excess of one
hundred thousand dollars ($100,000) in the aggregate for replacements or
additions to property, plant, equipment or intangible capital assets;
(j) made any change in any method of accounting or accounting practice;
(k) paid, loaned or advanced any amount to or in respect of, or sold,
transferred or leased any properties or assets (real, personal or mixed,
tangible or intangible) to, or entered into
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any agreement, arrangement or transaction with, either of the Sellers or the
officers or directors of either of the Sellers, any Affiliates of either Seller
or any of their respective officers or directors, or any business or entity in
which any of such Persons has any direct or material indirect interest, except
for compensation to the officers and employees of any Seller at rates not
exceeding the rates of compensation in effect at May 8, 1999 and advances to
employees in the ordinary course of business for travel and expense
disbursements in accordance with past practice;
(l) subjected any of the Purchased Assets, tangible or intangible, to
any Encumbrance except for liens for current property taxes not yet due and
payable; or
(m) agreed, whether in writing or otherwise, to take any action
described in this Section 5.7.
5.8. TAXES. Each Seller has, with respect to the Business, duly and
timely filed all Tax Returns and has duly and timely paid all Taxes and other
charges (whether or not shown on any Tax Return) due or claimed to be due from
it by any Governmental Body or taxing authority, or has set up an adequate
reserve for all Taxes payable. Since June 30, 1998, no Seller has, with respect
to the Business, incurred any Tax liabilities other than in the ordinary course
of business. There are no Tax liens (other than liens for current Taxes not yet
due) upon any of the Purchased Assets (whether real, personal, or mixed,
tangible or intangible), and, except as set forth in Schedule 5.8, there are no
pending or, to the Knowledge of Sellers, threatened audits or examinations
relating to, or claims asserted for, Taxes or assessments against either Seller
with respect to the Business. Except as set forth on Schedule 5.8, neither
Seller has requested or been granted any extension of the limitation period
applicable to any claim for Taxes or assessments with respect to the Business.
Each Seller has withheld and paid all Taxes with respect to the Business
required to have been withheld and paid in connection with amounts paid or owing
to each Sellers' Employee. Except as set forth in Schedule 5.8, no claim has
been made and remains pending by an authority in a jurisdiction where either
Seller files Tax Returns that such Seller is or may be subject to taxation by
that jurisdiction. Neither Seller has made, or is obligated to make, any
material payments or is a party to any agreement that obligates it to make any
material payment that will not be deductible under Section 280G of the Code.
5.9. TITLE TO AND CONDITION OF ASSETS. (a) Except as set forth in
Schedule 5.9(a), Schedule 2.1(a) contains a complete and accurate list of all
real property, leaseholds, or other interests in real property owned by either
Seller, relating to the Business. Sellers own (with good and marketable title in
the case of real property) all of the Purchased Assets (whether real, personal,
or mixed and whether tangible or intangible), including all of the properties
and assets reflected on the Interim Schedule of Net Assets (except for assets
held under capitalized leases disclosed on the Interim Schedule of Net Assets
and personal property sold since the date of the Interim Schedule of Net Assets,
as the case may be, in the ordinary course of business consistent with past
practice), and all of the Purchased Assets that have been purchased or otherwise
acquired by the Sellers since the date of the Interim Schedule of Net Assets
(except for personal property acquired and sold since the date of the Interim
Schedule of Net Assets in the ordinary course of business and consistent with
past practice). Except as set forth in Schedule 5.9(a), all of the Purchased
Assets reflected in the Interim Schedule of Net Assets are held by Sellers free
and clear of all Encumbrances except for the following Encumbrances which are
hereinafter collectively referred to as the "Permitted Encumbrances": (i)
mortgages or security interests
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shown on the Interim Schedule of Net Assets as securing specified liabilities or
obligations, with respect to which no default (or event that, with notice or
lapse of time or both, would constitute a default) exists and which are also
reflected on the Final Closing Date Schedule of Net Assets, (ii) liens for
current taxes not yet due, (iii) Encumbrances which do not consist of a lien in
respect of a monetary obligation and do not materially interfere with the
operation of the Business; and (iv) with respect to real property, (A) minor
imperfections of title, if any, none of which consists of a lien in respect of a
monetary obligation, materially detracts from the value or impairs the use of
the property subject thereto, or impairs the operation of the Business, (B)
zoning laws and other land use restrictions that do not materially impair the
present use of the property subject thereto, and (C) the Encumbrances set forth
in items 3 through 20 of Schedule B-2 of the Title Commitment.
(b) Except as set forth in this Section 5.9(b) and Schedule 5.9(b), all
plants, structures, machinery and equipment included in the Purchased Assets are
in good working condition and repair, normal wear and tear excepted. Buyer
acknowledges that it is purchasing the wastewater pretreatment system as part of
the Purchased Assets, including all components, parts, equipment, machinery, and
fixtures that are part thereof or related to the use or operation thereof, such
as, by way of example and not by way of limitation, all pipes, conduits, flow
meters, stations, presses, pumps, and equalization, septic, sump, mixing, and
holding tanks (all of which are collectively referred to as the "WWPT System"),
used in the Business conducted at the Owned Real Property. Notwithstanding any
representations or warranties made by Sellers in this Agreement or any
disclosures made in the Disclosure Schedules or any other provisions of this
Agreement, Buyer agrees that it is purchasing the WWPT System "AS-IS," in its
present condition, without any representation or warranty from Sellers, or
indemnity by or from Sellers pursuant to Section 11.2, regarding any aspect
thereof, specifically including violations of the applicable Governmental
Permits for the WWPT System that occur after the Closing Date.
(c) Sellers have not, directly or through any Affiliates, conducted the
Business in the United States under any name other than is listed on Schedule
5.9(c), since June 1, 1994; have not owned or leased real property used in the
conduct of the Business in the United States other than real property located in
the states listed on Schedule 5.9(c), since June 1, 1994; and have not
warehoused any inventory at any location other than those locations listed on
Schedule 5.9(c), since June 1, 1998.
5.10. PERSONAL PROPERTY. Schedule 5.10 contains a list of all
machinery, equipment, vehicles and other personal property owned by Sellers and
included in the Purchased Assets having an original cost of ten thousand dollars
($10,000) or more, individually, except for items included in the PTN
Construction In Process Account.
5.11. RESERVED.
5.12. GOVERNMENTAL PERMITS.
(a) Except as set forth in Schedule 5.12(a), Sellers own, hold or
possess all licenses, franchises, permits, privileges, immunities,
identification numbers, registrations, approvals and other authorizations from a
Governmental Body which are necessary to conduct the Business at the PTN
Facilities as currently operated (herein collectively called "Governmental
Permits").
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(b) No violation, default, order or deficiency exists with respect to
any Governmental Permit. No Seller has received written notice of any Action
pending or threatened by any Governmental Body having jurisdiction over any
Governmental Permit either to revoke, restrict, withdraw or suspend any such
Governmental Permit.
(c) Notwithstanding the foregoing provisions of Sections 5.12(a) and
(b), Governmental Permits required under Environmental Laws are addressed solely
in Section 5.18(b).
5.13. INTELLECTUAL PROPERTY.
(a) Sellers own, or hold licenses or otherwise possess legally
enforceable rights to use, the registered and unregistered Marks (as defined
below). The trademarks, service marks, and tradenames included in the Marks are
listed in Schedule 2.1(f). The term "Mark" shall mean all right, title and
interest in and to any United States or foreign trademarks, service marks and
trade names now held by either Seller and in each case which relates to the
Business and is included in the Purchased Assets, including any registration or
application for registration of any such trademarks and services marks in the
United States Patent and Trademark Office or the equivalent thereof in any state
of the United States or in any foreign country.
(b) Sellers own, or are licensed or otherwise possess legally
enforceable rights to use U.S. Patent No. 4,767,032 (paste dispenser) and U.S.
Patent No. D 367,010 (container and cap), the only Patents owned and/or used by
Sellers or any Affiliate of Sellers that relate to the Business. The term
"Patents" shall mean any United States or foreign patent as well as any
application for a United States or foreign patent made by either Seller relating
to the Business. There are no copyrights owned and/or used by Sellers or any
Affiliate of Sellers for use in the Business.
(c) Except as set forth on Schedule 5.13(c), Sellers have no obligation
to compensate any person for the use of any Purchased Intellectual Property nor
has either Seller granted to any Person any license, option or other right to
use any Purchased Intellectual Property, whether requiring the payment of
royalties or not.
(d) Except as set forth in Schedule 5.13(d), no Seller is, or will it
be as a result of the execution and delivery of this Agreement or the
performance of its obligations hereunder, in violation of any license,
sublicense or agreement relating to the Purchased Intellectual Property. Except
as set forth in Schedule 5.13(d), no claims with respect to the Purchased
Intellectual Property are currently pending or, to the Knowledge of Sellers, are
threatened by any Person (i) to the effect that the manufacture, sale or license
by either Seller with respect to the Business infringes on any copyright,
patent, trademark, service mark or trade secret of such Person; (ii) against the
use by either Seller of any trademarks, trade names, trade secrets, copyrights,
patents, technology, know-how or computer software programs and applications
used in such Seller's operation of the Business; (iii) challenging the ownership
or validity of any of the Purchased Intellectual Property; and (iv) challenging
any Seller's license or legally enforceable right to use any item of Purchased
Intellectual Property. To the Knowledge of Sellers, there is no unauthorized
use, infringement or misappropriation of any of Purchased Intellectual Property
by any third party. Except as set forth in Schedule 5.13(d), neither Seller has
been sued or charged
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in writing as a defendant in any Action which involves a claim or infringement
of trade secrets, patents, trademarks, servicemarks or copyrights and which has
not been finally terminated, and neither Seller has been informed or notified in
writing by any third party that such Seller is alleged to be engaged in such
infringement.
5.14. EMPLOYEE AGREEMENTS AND PLANS.
(a) Schedule 5.14(a) sets forth the names and titles of all employees
of the Business as of July 2, 1999, who are employed at the PTN Facilities and
of certain other management and sales employees employed in connection with the
Business but located at places other than the PTN Facilities, including active
employees and employees who are on layoff, family or medical leave, disability
leave, military leave or other authorized inactive status and who are entitled
to reinstatement or re-employment under any applicable federal or state statute,
or contract or policy of Sellers ("Sellers' Employees"), and the annual rate of
compensation being paid to each such Sellers' Employee as of such date.
(b) For purposes of this Agreement, the term "Employee Plan" means any
employment, bonus, deferred compensation, pension, stock option, stock
appreciation right, profit-sharing or retirement plan, arrangement or practice,
each medical, vacation, retiree medical, severance pay plan, and each other
agreement or fringe benefit plan, arrangement or practice of either Seller,
whether legally binding or not, which affects one or more of Sellers' Employees,
including all "employee benefit plans" as defined by Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"). There are
no Employee Plans which are subject to Title IV of ERISA or the minimum funding
standards of Section 412 of the Code.
(c) For each Employee Plan which is an Assumable Employee Plan (as
defined in Section 9.3(f)) and an "employee benefit plan" under Section 3(3) of
ERISA, Sellers have delivered to Buyer correct and complete copies of the plan
documents and summary plan descriptions, the most recent determination letter
received from the IRS, the three most recent Form 5500 Annual Reports, and all
related trust agreements, insurance contracts and funding agreements which
implement each such Assumable Employee Plan.
(d) Except as set forth in Schedule 5.14(d) and except for changes
required by the Code, the IRS, and United States Department of Labor ("DOL")
regulations, and except as specified in the Assumed Employment Agreements, no
Seller has any commitment, whether formal or informal and whether legally
binding or not, (i) to create any additional Assumable Employee Plan; (ii) to
modify or change any Assumable Employee Plan; or (iii) to maintain for any
period of time any Assumable Employee Plan.
(e) No Seller nor any Assumable Employee Plan nor any trustee,
administrator, fiduciary or sponsor of any Assumable Employee Plan has engaged
in any prohibited transactions as defined in Section 406 of ERISA or Section
4975 of the Code for which there is no statutory exemption in Section 408 of
ERISA or Section 4975 of the Code. All filings, reports and descriptions as to
such Assumable Employee Plans (including Form 5500 Annual Reports, Summary Plan
Descriptions, and Summary Annual Reports) required to have been made or
distributed to participants, the IRS, the DOL and other governmental agencies
have been made in a timely manner or will be made on or prior to the Closing
Date. Each Assumable Employee Plan
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which is intended to be a qualified plan under Section 401(a) of the Code has
received, within the last four (4) years, a favorable determination letter from
the IRS.
(f) None of the Assumable Employee Plans which are "welfare benefit
plans," within the meaning of Section 3(1) of ERISA, provide for continuing
benefits or coverage after termination or retirement from employment, except for
COBRA rights under a "group health plan" as defined in Code Section 4980B(g) and
ERISA Section 607.
(g) Neither Seller nor any entity required to be aggregated with either
Seller under Sections 414(b), (c), (m) or (o) of the Code (an "ERISA Affiliate")
has ever sponsored, participated in, contributed to, or withdrawn from a
multi-employer plan as defined in Section 4001(a)(3) of Title IV of ERISA, and
neither Seller nor any ERISA Affiliate has incurred or owes any liability as a
result of any partial or complete withdrawal by any employer from such a
multi-employer plan as described under Sections 4201, 4203, or 4205 of ERISA.
5.15. EMPLOYEE RELATIONS.
(a) With respect to employees and former employees of the Business who
rendered services to, or participated in conduct or activities in connection
with the Business at the PTN Facilities, Sellers are in substantial compliance
with all Requirements of Law respecting employment and employment practices,
terms and conditions of employment, and wages and hours, and are not engaged in
any unfair labor practice.
(b) Except as set forth in Schedule 5.15(b), there are no: (i) unfair
labor practice charges or complaints pending or, to the Knowledge of Sellers,
threatened against Sellers before the National Labor Relations Board or DOL by
an employee of the Business employed at the PTN Facilities; (ii) discrimination
charges pending or, to the Knowledge of Sellers, threatened against Sellers
before any Governmental Body by any employee of the Business conducted at the
PTN Facilities; (iii) complaints, charges or citations pending or, to the
Knowledge of Sellers, threatened against Sellers under OSHA or any state or
local occupational safety act or regulation by an employee of the Business
employed at the PTN Facilities; (iv) to the Knowledge of Sellers, material
controversies pending or threatened between any Seller and any employees of the
Business conducted at the PTN Facilities; (v) there is no labor strike, dispute,
slowdown or stoppage in progress or, to the Knowledge of Sellers, threatened
against or involving any Seller with respect to the Business; (vi) no question
concerning representation has been raised or, to the Knowledge of Sellers, is
threatened respecting the employees of the Business; (vii) no grievance or
arbitration proceeding is pending or to the Knowledge of Sellers threatened with
respect to the Business; (viii) no private agreement restricts any Seller from
relocating, closing or terminating any of its operations or facilities relating
to the Business; and (ix) Sellers have not experienced any labor strike,
dispute, slowdown, stoppage or other labor difficulty with respect to the
Business.
5.16. COMMERCIAL CONTRACTS. Set forth on Schedule 5.16, is a list of
all of the following types of agreements to which either Seller is a party and
which relates to the Business, true and correct copies of which agreements have
been previously delivered to Buyer:
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(a) any agreement which may reasonably be anticipated to involve the
payment or receipt of more than fifty thousand dollars ($50,000) in any fiscal
year, which is not terminable on ninety (90) days' or less notice or which was
made or given outside of the ordinary course of business;
(b) any agreement, the primary purpose of which is to guarantee or
indemnify an obligation or liability of any other Person;
(c) any contract, agreement or commitment which provides for the
incurrence by such Seller of indebtedness for borrowed money;
(d) any partnership or joint venture agreement;
(e) each lease or other agreement or right under which either Seller is
lessee of, or holds or operates, any machinery, equipment, or vehicle owned by a
third Person except those which are terminable on ninety (90) days' or less
notice or which provide for annual rentals of less than fifty thousand dollars
($50,000);
(f) each licensing agreement or other contract with respect to patents,
trademarks, copyrights, or other intellectual property, including agreements
with current or former employees, consultants, or contractors regarding the
appropriation or the non-disclosure of any of the Purchased Intellectual
Property;
(g) each collective bargaining agreement and other contract to or with
any labor union or other employee representative of a group of employees;
(h) each contract containing covenants that in any way purport to
restrict the conduct of the Business or limit the freedom of any Seller or an
Affiliates thereof to engage in any line of the Business or to compete with any
Person;
(i) each contract providing for payments to or by any Person based on
sales, purchases, or profits, other than direct payments for goods; and
(j) each amendment, supplement, and modification (whether oral or
written) in respect of any of the foregoing.
5.17. STATUS OF CONTRACTS. Each of the Sellers' Agreements constitutes
a legal, valid and binding obligation of the applicable Seller and of the other
party thereto (subject to bankruptcy, insolvency, reorganization, moratorium and
similar laws of general application relating to or affecting creditors' rights
and to general equity principles) and is in full force and effect; and no Seller
has received written notice that it is in material breach of, or material
default under, any of the Sellers' Agreements. To the Knowledge of Sellers, no
party to any of the Sellers' Agreements has made written demand for
renegotiation. No condition exists or event has occurred with respect to any
Seller Agreement which, with notice or lapse of time or both, would constitute a
default or a basis for a force majeure, accelerate the maturity or other due
date for performance, or permit modification, cancellation or termination
thereunder, in each case with respect to the performance of Sellers and, to the
Knowledge of Sellers, with respect to the performance of the other parties.
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5.18. ENVIRONMENTAL MATTERS. Notwithstanding any other provision of
this Agreement, this Section 5.18 contains the only representations or
warranties of Sellers with respect to Environmental Law or environmental matters
relating to the PTN Facilities or the Business conducted at the PTN Facilities,
and no other statement in this Agreement, in any Sellers' Ancillary Agreement or
in any other document or information delivered or given to or received by or on
behalf of Buyer (either orally or in writing) in connection with the
transactions contemplated by this Agreement shall be deemed to be a
representation or warranty relating to Environmental Law or environmental
matters.
(a) Except as set forth in Schedule 5.18(a), the Owned Real Property
and the Business conducted thereon are in compliance with all applicable
Environmental Laws and no violations of applicable Environmental Laws have
occurred during PTN's occupancy of the Leased Real Property.
(b) Except as set forth in Schedule 5.18(b), Sellers have and are in
compliance with, all Governmental Permits required under Environmental Laws
necessary for the operation of the Business at the PTN Facilities substantially
as currently conducted. Except as set forth in Schedule 5.18(b), all
Governmental Permits described in the preceding sentence are current, in full
force and effect, and are listed in Schedule 5.18(b).
(c) Except as set forth in Schedule 5.18(c), neither Sellers nor any of
the PTN Facilities is subject to any pending or, to the Knowledge of Sellers,
threatened investigation by, order from, claim by or continuing agreement with
any Person respecting: (i) any actual or alleged noncompliance with or violation
of Environmental Law at the Owned Real Property or any actual or alleged
noncompliance with or violation of Environmental Law by Sellers at the Leased
Real Property, (ii) any Remedial Action at the PTN Facilities, or (iii) any
claim of Losses and Expenses arising from the Release or threatened Release of a
Contaminant or the presence of any Contaminant on, in, at, from or beneath the
PTN Facilities.
(d) Except as set forth in Schedule 5.18(d), neither Sellers nor any of
the PTN Facilities is subject to any pending or, to the Knowledge of Sellers,
threatened judicial or administrative action, suit, demand, demand letter,
claim, investigation, proceeding, order, judgment, decree or settlement relating
to any Environmental Law with respect to the PTN Facilities or the Business at
the PTN facilities or that has resulted in the attachment of an environmental
lien to any portion of the Purchased Assets.
(e) Neither Seller has received written notice pursuant to CERCLA to
the effect that the Business at the PTN Facilities is or may be liable to any
Person as a result of the presence, handling, use, generation, storage,
transportation, treatment, Release, discharge, arrangement for disposal, or
disposal of any Contaminants.
(f) Except as set forth in Schedule 5.18(f), PTN has maintained all
records and has made all filings, reports, and other notifications required by
Environmental Laws with respect to PTN's operation of the Business at the PTN
Facilities, and all such filings, reports and notifications were accurate and
complete as submitted and provided to all persons and governmental authorities
as required under any Environmental Law.
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(g) Except as set forth in Schedule 5.18(g), during PTN's operation of
the Business at the PTN Facilities, no Release of any Contaminant has occurred
on any portion of the PTN Facilities and no Contaminants have been present,
handled, used, generated, treated or stored on any portion of the PTN Facilities
except in compliance with Environmental Laws.
(h) Except as set forth in Schedule 5.18(h), PTN has not had insurance
coverage denied or canceled relating to the presence, handling, use, generation,
storage, treatment, Release, discharge, or disposal of Contaminants at the PTN
Facilities, and PTN's insurance carriers have not given any written directives
to PTN relating to the presence, handling, use, generation, storage, treatment,
Release, discharge or disposal of Contaminants at the PTN Facilities.
(i) Except as set forth in Schedule 5.18(i), no underground storage
tanks or above ground storage tanks are or have been present on any of the Owned
Real Property, no portion of any improvements on the Owned Property contain
asbestos, and no underground storage tanks or aboveground storage tanks have
been placed on the Leased Real Property by PTN during PTN's occupancy thereof.
(j) PTN has provided to Buyer copies of all environmental reports
prepared at PTN's request in connection with the transactions contemplated by
this Agreement, all of which have been prepared by ERM Southeast, Inc. and are
identified as follows: (i) Environmental Summary Report, August 1998; (ii)
Compliance Audit Report, August 1998 and Summary of Compliance Audit Findings
and Follow-Up Chart, December 16, 1998; (iii) Phase I Environmental Assessment
Report, September 1998; (iv) Addendum to Phase I Environmental Site Assessment
Report, October 1998; (v) Phase II Environmental Site Assessment Report,
December 1998; (vi) Phase III Work Report (Soil Excavation) dated December 1998;
(vii) Wastewater Release Investigation Report dated January 1999; (viii)
Compliance Audit Report, June 1999, and Summary of Compliance Audit findings and
Follow-Up Chart, June 1999; and (ix) Memorandum Report regarding Superfund Sites
at the Smyrna Airport Property, July 1999.
5.19. INSURANCE. Schedule 5.19 contains a list of all insurance
policies (specifying (i) the insurer, (ii) the amount of the coverage, (iii) the
type of insurance, (iv) the policy number and (v) any currently pending claims
thereunder) maintained by or on behalf of Sellers on the properties, assets or
personnel of the Business (the "Seller Insurance Policies"). The Seller
Insurance Policies (which term shall include any insurance policy entered into
after the date of this Agreement in replacement of a Seller Insurance Policy
provided that such replacement policy shall insure against risks and
liabilities, and in amounts and under terms and conditions, substantially the
same as those provided in such replaced policy or binder) are in full force and
effect. Neither Seller is in default with respect to any material provision
contained in any Seller Insurance Policy. No Seller has failed to give any
notice of any claim under any Seller Insurance Policy in due and timely fashion,
nor has any coverage for current claims been denied.
5.20. ALL ASSETS. Except for the Licensed Intellectual Property, the
trademarks that are the subject of the Trademark Cross License Agreement and the
Excluded Assets, and except as set forth in Schedule 5.20, the Purchased Assets
constitute all of the assets used or held for use in connection with the
operation of the Business immediately prior to the Closing.
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5.21. BROKERS. Except with respect to the engagement of J.P. Morgan
Securities Inc., no Seller nor any person acting on its behalf has retained any
advisor, broker, investment banker or financial advisor in connection with this
Agreement or any transaction contemplated hereby.
5.22. COMPLIANCE WITH REQUIREMENTS OF LAW. Except as set forth in
Schedule 5.22, Sellers are in compliance, in the conduct of the Business and the
ownership of the Purchased Assets with all Requirements of Law. Sellers have not
received any written notice of a violation of any Requirements of Law relating
to or affecting the operation of the Business or the Purchased Assets.
5.23. PRODUCT AND SERVICE WARRANTIES. There are no pending claims with
respect to any product warranties related to the Business which have not been
adequately reserved against on the Interim Schedule of Net Assets.
5.24. ORDERS, COMMITMENTS AND RETURNS. The aggregate of all accepted
and unfilled orders for products entered into by Sellers in connection with the
Business does not exceed an amount which can reasonably be expected to be filled
in the ordinary course of business, and the aggregate of all contracts or
commitments for the purchase of products by Sellers in connection with the
Business does not exceed an amount which is reasonable for its anticipated
volumes of business (all of which orders, contracts and commitments were made in
the ordinary course of business). Except as disclosed in Schedule 5.7, Sellers
have received no notice of claims to return merchandise or refund payments for
services of any Seller in connection with the Business by reason of alleged
overshipments, defective merchandise, or breach of warranty which would
individually or in the aggregate have a Material Adverse Effect. To the
Knowledge of Sellers, the Business has not received written notice that either
the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby will result in any cancellations or withdrawals
of accepted and unfilled orders for the sale of any Seller's products related to
the Business.
5.25. CUSTOMERS AND SUPPLIERS. Schedule 5.25 contains an accurate and
complete list of the names and addresses of the twenty (20) largest customers to
whom the Seller had sold or leased products or services in connection with the
Business during the past two fiscal years and the twenty (20) largest suppliers
from whom either Seller has purchased supplies in connection with the Business
during the past two fiscal years. No Seller has received written notice from any
customer or supplier whose name appears on such list that such customer or
supplier will not continue as a customer or supplier of Buyer after the Closing.
Except as set forth in Schedule 5.25, no customer of the Business accounted for
more than ten percent (10%) of the revenues generated by the Business for the
fiscal year ended June 30, 1998 or 1999.
5.26. GOVERNMENT CONTRACTS.
(a) Neither Seller has been suspended or barred from bidding on
contracts or subcontracts relating to the Business for any agency or
instrumentality of any Governmental Body, nor, to the Knowledge of Sellers, has
any suspension or debarment action been threatened or commenced.
(b) With respect to the transaction of business with any Governmental
Body, PTN has not been, nor is it now being, audited, or investigated in
connection with the Business by any
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Governmental Body nor, to the Knowledge of the Sellers, has such audit or
investigation been threatened.
(c) Neither Seller has a dispute pending before a contracting office
of, nor any current claim (other than the Receivables) pending against, any
Governmental Body, relating to a contract executed in connection with the
Business.
(d) Neither Seller has submitted any inaccurate or untruthful cost or
pricing data, certification, bid, proposal, report, claim, or any other
information relating to a contract related to the Business to any agency or
instrumentality of any Governmental Body.
(e) Except as set forth in Schedule 5.26(e), PTN has no government
contracts related to the Business, and does not do business with any
Governmental Body with respect to the Business.
5.27. CERTAIN PAYMENTS. No Seller or any director, officer, agent or
employee of any Seller or any other Person acting for or on behalf of any
Seller, has directly or indirectly at any time used funds, in connection with
the Business, for any illegal purpose or in violation of any Requirements of
Law, including, without limitation, the making of any unlawful political
contribution, bribe or kickback.
5.28. FULL DISCLOSURE. Neither this Agreement, nor any Schedule or
Exhibit hereto furnished or to be furnished by Sellers to Buyer pursuant to this
Agreement, contains any untrue statement of a material fact or omits to state
any material fact required to be stated herein or therein or necessary to make
the statements and information contained herein or therein not misleading.
ARTICLE 6.
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Sellers as follows:
6.1. ORGANIZATION. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Tennessee. Buyer is
duly qualified to do business and is in good standing as a foreign corporation
in each of the jurisdictions in which Buyer's operations require that it qualify
to transact business as a foreign corporation, except for those jurisdictions
where the failure to so qualify is not likely to have a material adverse effect
on Buyer's business or financial condition or the ability of Buyer to lawfully
consummate the transactions contemplated by this Agreement.
6.2. POWER AND AUTHORITY. Buyer has the full corporate power and
authority to execute and deliver this Agreement and the Buyer Ancillary
Agreements, to perform its obligations hereunder and thereunder, and to own and
lease its property and conduct its operations as currently conducted. Buyer's
execution, delivery and performance of this Agreement has been duly authorized
and approved by all necessary corporate action.
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6.3. AGREEMENT BINDING. This Agreement has been duly executed and
delivered by Buyer, and assuming due authorization, execution and delivery by
Sellers, is the legal, valid and binding obligation of Buyer enforceable against
Buyer in accordance with its terms, subject to general principles of equity and
except as enforceability may be limited by applicable bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium or other similar laws of general
application relating to creditor's rights generally.
6.4. ABSENCE OF CONFLICTS. The execution and delivery of this Agreement
and the Buyer Ancillary Agreements and the consummation of the transactions
contemplated hereby, will not:
(a) conflict with, result in a breach of the terms, conditions or
provisions of, or constitute a default, an event of default or an event creating
rights of acceleration, termination or cancellation, or result in the creation
or imposition of any Encumbrance under: (i) any term or provision of the
Articles of Organization, as amended, or Operating Agreement, as amended, of
Buyer, (ii) any note, instrument, contract, agreement, mortgage, indenture,
lease, license, franchise, permit or other commitment to which Buyer is a party
or by which it is bound, (iii) any Court Order, or (iv) any Requirements of Law;
except in each case, for any of the foregoing which, individually or in the
aggregate, is or are not likely to have a material adverse effect on Buyer or
its business taken as a whole or hinder or impair the consummation of the
transactions contemplated hereby; or
(b) require the approval, consent, authorization or act of, or the
making by Buyer of any declaration, notification, filing or registration with,
any Person, except in each case, for any of the foregoing which, individually or
in the aggregate, is or are not likely to have a material adverse effect on
Buyer or its business taken as a whole or materially hinder or impair the
consummation of the transactions contemplated hereby.
6.5. NO LITIGATION. There is no Action pending or, to the knowledge of
Buyer, threatened which questions the legality or propriety of the transactions
contemplated by this Agreement or the Buyer Ancillary Agreements or which would
materially hinder or impair the consummation of the transactions contemplated
hereby.
6.6. NO ADVISOR. Neither Buyer nor any Person acting on its behalf has
retained any advisor, broker, investment banker or financial advisor in
connection with this Agreement or any transaction contemplated hereby for which
Sellers may be liable.
6.7. FINANCING. Buyer has sufficient cash resources to pay the Purchase
Price.
6.8. BROKERS. Neither Buyer nor any person acting on its behalf has
retained any advisor, broker, investment banker or financial advisor in
connection with this Agreement or any transaction contemplated hereby.
6.9. SIZE OF PERSON. Under the HSR Act, Buyer is its own "ultimate
parent entity" and as such does not satisfy the "size of person" test of the HSR
Act.
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ARTICLE 7.
ACTION PRIOR TO THE CLOSING
Buyer and Sellers covenant and agree to take the following actions
between the date hereof and the date of the Closing:
7.1. INVESTIGATION OF SELLERS BY BUYER. Sellers shall afford to the
officers, employees and authorized representatives of Buyer reasonable access to
the offices, properties, and business and financial records of the Business, as
well as to officers, employees, accountants and counsel of Sellers, to the
extent Buyer shall reasonably deem necessary and shall furnish to Buyer or its
authorized representatives such additional information concerning Sellers, the
Purchased Assets, and the Business as shall be reasonably requested, provided
that Buyer shall not have access to the work papers of Sellers' accountants that
do not relate to the Business. Such access shall be granted during Sellers'
normal business hours and upon reasonable advance notice from Buyer. Buyer
agrees that such investigation shall be conducted in such a manner as not to
interfere with the operations of Sellers.
7.2. PRESERVE ACCURACY OF REPRESENTATIONS AND WARRANTIES. Buyer and
Sellers shall refrain from taking any action that would render any
representation or warranty contained in this Agreement materially inaccurate as
of the Closing without the written consent of the other party hereto. Sellers
shall notify Buyer of any changes, additions, or events not specifically
contemplated by this Agreement of which they have Knowledge that would cause any
material change in or material addition to any Schedule hereto promptly after
occurrence of the same. If the effect of such change or addition would,
individually or in the aggregate with the effect of changes or additions
previously disclosed pursuant to this Section 7.2, constitute a Material Adverse
Effect, Buyer may, within ten (10) days after receipt of such notice, elect to
terminate this Agreement. If Buyer does not give written notice of such
termination within such ten (10) day period, Buyer shall be deemed to have
consented to such change or addition and shall not be entitled to terminate this
Agreement by reason thereof. Buyer and Sellers shall promptly notify the other
of any Action or other proceeding, that shall be instituted or threatened
against such party to restrain, prohibit or otherwise challenge the legality of
any transaction contemplated by this Agreement.
7.3. CONSENTS OF THIRD PARTIES; GOVERNMENTAL APPROVALS.
(a) Sellers and Buyer shall act diligently and reasonably to secure,
before the Closing, the consent, approval or waiver from any party to any
Sellers' Agreement required to be obtained in contemplation or as a result of
the transactions contemplated hereby. Buyer shall cooperate with Sellers in
securing such consents, approvals and waivers.
(b) During the period prior to the Closing, Sellers and Buyer shall act
diligently and reasonably, and shall cooperate with each other, to secure any
consents and approvals of any Governmental Body required to be obtained in order
to effect the consummation of the transactions contemplated by this Agreement.
7.4. OPERATIONS PRIOR TO THE CLOSING. During the period prior to the
Closing, Sellers shall conduct the Business only in the ordinary course and
substantially as operated prior
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to the date hereof and, except as set forth in Schedule 7.4 shall not take any
of the actions specified in Section 5.7.
7.5. RESERVED.
7.6. TITLE TO THE OWNED REAL PROPERTY. Sellers have previously
delivered to Buyer the title insurance commitment of Chicago Title Company,
including copies of all exceptions to title referred to therein and committing
to insure such title in the purchaser of the Purchased Assets by the issuance of
Title Insurer's ALTA 1992 extended coverage owner's policy of title insurance in
the amount of the Purchase Price allocated to the Owned Real Property pursuant
to Section 3.3, with certain endorsements thereto (collectively, the "Title
Commitment"), and Buyer agrees to accept title to the Owned Real Property as set
forth in the Title Commitment subject to the exceptions disclosed in items 3
through 20 of Schedule B-2 thereof.
7.7. SURVEY. Sellers have previously delivered to Buyer a survey of the
Owned Real Property (the "Survey"), by a surveyor registered as such under the
laws of the State of Tennessee, and Buyer agrees to accept the Survey without
objection.
7.8. ESTOPPEL CERTIFICATE. Prior to the Closing, Sellers shall use
their reasonable best efforts to furnish to Buyer and its designees, an estoppel
certificate in substantially the form attached hereto as Exhibit K, from the
lessor with respect to each parcel of Leased Real Property (collectively, the
"Estoppel Certificates").
7.9. RESERVED.
7.10. UCC SEARCHES. UCC Financing Statement searches, local and
central, including fixtures (and including copies of all such financing
statements and exhibits and attachments thereto), and federal and state tax lien
and judgment searches, with respect to PTN and the Purchased Assets, from each
of the jurisdictions in which the Business operates or has operated or has done
business within the preceding five (5) years (the "UCC Searches"), shall be
obtained as of a date no longer than thirty (30) days prior to Closing by
Sellers, at the expense of Sellers. A list of liens revealed by such searches is
set forth in Schedule 7.10.
7.11. PRESERVATION OF BUSINESS. Each Seller will use its reasonable
best efforts to preserve the Business in tact, to keep available the services of
the Seller Employees, and to preserve the goodwill of the suppliers, customers
and others having business relations with the Business.
ARTICLE 8.
CONDITIONS TO CLOSING
8.1. CONDITIONS TO THE OBLIGATIONS OF THE BUYER. The obligations of
Buyer under this Agreement shall, at the option of Buyer, be subject to the
satisfaction, on or prior to the Closing, of each of the following conditions:
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(a) No Misrepresentation or Breach of Covenants and Warranties. There
shall have been no breach by Sellers in the performance of any of their
covenants and agreements herein which shall not have been remedied or cured,
except for such breaches as would not, individually or in the aggregate, be
reasonably likely to have a Material Adverse Effect; each of the representations
and warranties of Sellers contained in this Agreement shall be true and correct
on the Closing as though made on the date of Closing (except to the extent that
they expressly relate to an earlier date in which case they shall continue to be
true and correct as of such earlier date), except for changes therein
specifically permitted by this Agreement or resulting from any transaction
expressly consented to in writing by Buyer and except for such inaccuracies as
are not, individually or in the aggregate, reasonably likely to have a Material
Adverse Effect; and there shall have been delivered to Buyer a certificate to
such effect, dated the date of the Closing, signed by the President or Vice
President of each Seller.
(b) Closing Documents. Buyer shall have received from Sellers and
counsel to Sellers the agreements and closing documents contemplated by Section
4.2.
(c) No Material Adverse Change. Between the date hereof and the
Closing, there shall have been no material adverse change in the business,
operations, assets, or financial condition of the Business taken as a whole,
other than changes that: (i) reflect general economic conditions, (ii) are
common to the industry, or (iii) result from the public disclosure of the
transactions contemplated hereby or the identity of Buyer.
(d) Necessary Government Approvals. Sellers and Buyer shall have
received all approvals and actions of or by all Governmental Bodies which are
necessary to consummate the transactions contemplated hereby.
(e) No Suit. No Action shall be pending before or by any Governmental
Body or by any Person questioning the legality of this Agreement or the
consummation of the transactions contemplated hereby in whole or in part.
(f) No Restraint. No Court Order shall have been issued and be in
effect which restrains or prohibits any material transaction contemplated
hereby.
Notwithstanding the failure of any one or more of the foregoing
conditions, Buyer may, at its option, proceed with the Closing without
satisfaction, in whole or in part, of any one or more of such conditions and
without written waiver.
8.2. CONDITIONS TO THE OBLIGATIONS OF SELLERS. The obligations of
Sellers under this Agreement shall, at the option of Sellers, be subject to the
satisfaction, on or prior to the Closing, of each of the following conditions:
(a) No Misrepresentation or Breach of Covenants and Warranties. There
shall have been no material breach by Buyer in the performance of any of its
covenants and agreements herein which shall not have been remedied or cured;
each of the representations and warranties of Buyer contained in this Agreement
shall be true and correct in all material respects on the Closing as though made
on the date of Closing (except to the extent that they expressly relate to an
earlier date in which case they shall continue to be true and correct as of such
earlier date), except for changes therein specifically permitted by this
Agreement or resulting from any transaction
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expressly consented to in writing by Sellers; and there shall have been
delivered to Sellers a certificate to such effect, dated the date of the Closing
and signed by the President or Vice President of Buyer.
(b) Closing Documents. Sellers shall have received from Buyer and
counsel to Buyer the agreements and closing documents contemplated by Section
4.3.
(c) Payment of Purchase Price. Buyer shall have tendered payment of
that portion of the Purchase Price payable at Closing.
(d) Necessary Government Approvals. Sellers and Buyer shall have
received all approvals and actions of or by all Governmental Bodies which are
necessary to consummate the transactions contemplated hereby.
(e) No Suit. No Action shall be pending before or by any Governmental
Body or by any Person questioning the legality of this Agreement or the
consummation of the transactions contemplated hereby in whole or in part.
(f) No Restraint. No Court Order shall have been issued and be in
effect which restrains or prohibits any material transaction contemplated
hereby.
Notwithstanding the failure of any one or more of the foregoing
conditions, Sellers may, at their option, proceed with the Closing without
satisfaction, in whole or in part, of any one or more of such conditions and
without written waiver.
ARTICLE 9.
ADDITIONAL AGREEMENT OF THE PARTIES
9.1. TAXES AND FEES IN CONNECTION WITH TRANSFER OF CERTAIN PURCHASED
ASSETS. At the Closing, (a) Buyer shall pay all transfer taxes applicable to the
conveyance of the Owned Real Property, and (b) Seller shall pay all fees
applicable to the transfer of the Purchased Intellectual Property.
9.2. TAXES.
(a) Except to the extent reflected as liabilities on the Final Closing
Date Schedule of Net Assets, Sellers shall be liable for and shall pay all Taxes
(whether assessed or unassessed) applicable to the Business or the Purchased
Assets, in each case attributable to all periods ending at the time of or prior
to the Closing Date. Buyer shall be liable for and shall pay (i) all Taxes
reflected as a liability on the Final Closing Date Schedule of Net Assets
(provided, that Sellers' income and franchise taxes shall not be included on the
Final Closing Balance Sheet and Buyer shall not be obligated to pay such taxes);
and (ii) all Taxes (whether assessed or unassessed) applicable to the operation
of the Purchased Assets, in each case attributable to periods beginning on or
after the Closing Date.
(b) Notwithstanding Section 9.2(a), any Tax attributable to the sale,
transfer or delivery of the Purchased Assets including any real property
transfer taxes, (but in no event
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including any income Tax) shall be borne and paid by Buyer. Buyer and Sellers
agree to timely sign and deliver such certificates or forms as may be necessary
or appropriate to establish an exemption from (or otherwise reduce), or file Tax
Returns with respect to, such Taxes.
(c) Sellers or Buyer, as the case may be, shall provide reimbursement
for any Tax paid by one party all or a portion of which is the responsibility of
the other party in accordance with the terms of this Agreement. Within a
reasonable time prior to the payment of any said Tax, the party paying said Tax
shall give notice to the other party of the Tax payable and the portion which is
the liability of each party, although failure to do so will not relieve the
other party from its liability hereunder.
(d) After the Closing, Sellers and Buyer shall (and shall cause their
respective Affiliates to):
(i) make available to the other and to any taxing authority as
reasonably requested all information, records, and documents relating
to Taxes relating to the Business or the Purchased Assets and preserve
the same until the expiration of any applicable statute of limitations
or extensions thereof;
(ii) provide timely notices to the other in writing of any
pending or threatened Tax audits or assessments relating to the
Business or the Purchased Assets for taxable periods for which the
other may have a liability under this Section 9.2 or otherwise; and
(iii) furnish the other with copies of all correspondence
received from any taxing authority in connection with any Tax audit or
information request with respect to any such taxable period.
(e) After the Closing, Buyer shall promptly remit to Sellers any Tax
refunds or credits received by Buyer or any of its Affiliates relating to
Sellers for periods ending on or before the Closing Date.
9.3. EMPLOYEES AND EMPLOYEE BENEFIT PLANS.
(a) Prior to Closing, Buyer shall offer employment to all Sellers'
Employees (other than Sellers' Employees subject to an Assumed Employment
Agreement) under the following terms and conditions, and those Sellers'
Employees that accept such offer shall be transferred to Buyer's payroll as of
the Closing Date:
(i) All such Sellers' Employees shall be offered employment,
provided that Buyer shall not be obligated (after the Closing Date) to
retain such employees for any period of time, to compensate such
employees at any level or to provide any level of employee benefits to
such employees. Without limiting the generality of the foregoing, Buyer
may, at any time following the Closing, eliminate any bonus or other
employee benefit plan.
(ii) All such Sellers' Employees who are identified on
Schedule 5.14(a) as being on layoff, family or disability leave,
medical leave, military leave or other authorized inactive status and
who are entitled to reinstatement or re-employment under any
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applicable Federal or state statute, or contract or policy of Sellers
shall be transferred to comparable leave status with Buyer and shall be
offered employment pursuant to Section 9.3(a)(i).
(b) At Closing, Buyer shall assume the Assumed Employment Agreements
and shall adopt a retirement savings plan ("Buyer's Plan") for Sellers'
Employees who are employed by Buyer. Buyer's Plan shall have substantially the
same or more favorable terms as the Perrigo Company of Tennessee Retirement
Income Savings Plan ("Perrigo Plan"). Sellers shall terminate the Perrigo Plan
prior to the Closing and file an application with the IRS for a favorable
determination letter with respect to the Perrigo Plan's termination within 45
days following the Closing. Prior to filing such determination letter
application, Sellers shall consult with Buyer as to any operational and form
qualification errors concerning the Perrigo Plan to be corrected by Sellers and
the appropriate method of correction under IRS Revenue Procedure 98-22 to be
accomplished prior to such filing and Sellers shall after such consultation take
such action prior to such filing as they deem necessary to correct such errors.
Buyer agrees that it will not contact the IRS in any respect concerning the
Perrigo Plan and that it will not authorize or permit any agent of Buyer
(including any employee of Buyer acting on behalf of Buyer), to make any such
contact without Sellers' approval. Buyer and Sellers agree to take such actions
as may be reasonably required so that Perrigo Plan participants who have
outstanding plan loans on the Closing and who become participants in Buyer's
Plan will not experience an interruption in loan repayments or a deemed taxable
distribution under Code Section 72(p).
(c) Buyer shall assume and shall reimburse Sellers as contemplated in
Section 3.2(e) for any employment related costs (e.g., payroll, employment
taxes, health care premiums and plan contributions) that are associated with
those Sellers' Employees who accept Buyer's offer of employment and all Sellers'
Employees subject to Assumed Employment Agreements and that arise after the
Closing Date and prior to the Closing. Sellers shall bear the cost and expense
of all workers' compensation claims arising out of any injury sustained by
Sellers' Employees before the Closing Date. Buyer shall bear the cost and
expense of all workers' compensation claims which arise out of any injury
sustained by any Sellers' Employee on or after the Closing Date.
(d) Buyer agrees that any Sellers' Employee who accepts employment with
Buyer as of the Closing Date shall receive full credit for service with Sellers
for purposes of determining such employee's eligibility for and determining the
amount of benefit entitlement for holidays, sick days, vacations, and also for
purposes of determining eligibility (including, without limitation, waiting
periods under group health plans), vesting and benefits provided under any other
employee benefit plan, program, policy or other arrangement covering such
employee established, continued or otherwise sponsored by Buyer or an Affiliate
of Buyer after the Closing Date.
(e) Buyer shall assume responsibility and all liabilities and
obligations for vacation and bonus entitlements of, and any severance pay claims
which are asserted against Sellers by, Sellers' Employees who accept employment
with Buyer and shall indemnify and hold Sellers harmless from and against all
Losses and Expenses arising from or relating to vacation pay, bonus and
severance pay claims which are asserted against Sellers by Sellers' Employees
who accept employment with Buyer. Notwithstanding the foregoing, Buyer shall
have no liability or obligation with respect to vacation or bonus entitlements
that are not accrued on the Final Closing Date Schedule of Net Assets except to
the extent disclosed on Schedule 9.3(e).
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(f) Effective as of the Closing Date, Buyer shall assume sponsorship of
all Sellers' Employee Plans listed in Schedule 9.3(f) (the "Assumable Employee
Plans"). Buyer shall assume responsibility for contributions and all liabilities
and obligations in connection with all such Assumable Employee Plans ("Employee
Plan Obligations"); provided, however, that Buyer shall not assume any
liabilities or obligations which arise out of a breach or default by either
Seller under the Assumable Employee Plans prior to the Closing Date. As part of
the Employee Plan Obligations, Buyer shall assume all liabilities and
obligations with respect to any and all medical, dental or disability claims and
expenses due to the illness or injury of any Sellers' Employees occurring prior
to the Closing Date for which proper accruals or reserves are included in the
Final Closing Date Schedule of Net Assets.
(g) The employment agreements of the individuals listed in item 1 of
Schedule 4.3(e) provide that Perrigo's Home Purchase Program (which is not an
Assumable Employee Plan) will be extended to such employees in connection with
their transfer to Tennessee in connection with the consummation of Buyer's
acquisition of the Business. Perrigo agrees to allow Buyer to use Perrigo's Home
Purchase Program with respect to such individuals and Buyer agrees that the cost
associated with such use shall be invoiced to and paid by Buyer. Buyer further
agrees that from and after the Closing, Buyer will provide to all Sellers'
Employees who accept employment with Buyer a program that provides substantially
similar benefits as Perrigo's Home Purchase Program.
9.4. CONSENTS OF THIRD PARTIES; GOVERNMENTAL APPROVALS. To the extent
that any of the consents, approvals or waivers referred to in Section 7.3(a) or
(b) have not been obtained as of the Closing, then upon request by Buyer, for a
period of six (6) months after the Closing Date, Sellers shall use their
commercially reasonable best efforts, with Buyer reimbursing Sellers for their
out-of-pocket expenses and indemnifying and holding Sellers harmless for any
liabilities or obligations incurred by Sellers, to:
(a) cooperate with Buyer in any reasonable and lawful arrangements
under which Buyer would obtain the benefit of and assume the post-Closing Date
obligations in relation to the matter concerned; and
(b) enforce for the account of Buyer any rights of Sellers arising from
the matters concerned.
If after the above-referenced six-month period, any consents, approvals
or waivers have not been obtained, Buyer and Sellers will cooperate in any
commercially reasonable arrangement to obviate the need for such consent,
approval or waiver, all at Buyer's expense. Failure of Sellers to obtain any
consents or approvals shall not give rise to monetary damages against Sellers.
9.5. COVENANT NOT TO COMPETE. (a) Subject to Section 9.5(b), for a
period of three (3) years after the Closing Date, neither Sellers nor any of
their Affiliates will, directly or indirectly, own, manage, operate, join,
control or participate in the ownership, management, operation, financing or
control of, any business whether in corporate, proprietorship or partnership
form or otherwise as more than five percent owner in such business where such
business includes the manufacture or distribution of products of the type
manufactured by the Business as of the Closing Date ("Seller Restricted
Products"), provided that the following shall
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not be deemed to be Seller Restricted Products: (i) Sellers' inventory of
personal care products held for use in Sellers' international business that is
on hand as of the Closing Date; (ii) Effervescent Denture Products sold by
Sellers outside of the United States; and (iii) products purchased by Sellers
from Buyer pursuant to the Contract Manufacturing Agreement in the form attached
hereto as Exhibit G to be executed by Perrigo and Buyer at the Closing. Buyer
agrees that for a period of three (3) years after the Closing Date, neither it
nor any of its Affiliates will, directly or indirectly, own, manage, operate,
join, control or participate in the ownership, management, operation, financing
or control of, any business whether in corporate, proprietorship or partnership
form or otherwise as more than a five percent owner in such business where such
business includes the manufacture or distribution of pharmaceutical and
nutritional products of the type manufactured by Sellers as of the Closing (the
"Buyer Restricted Products"); provided that products purchased from Perrigo
under the Contract Manufacturing Agreement shall not be Buyer Restricted
Products. The parties hereto specifically acknowledge and agree that the remedy
at law for any breach of the foregoing will be inadequate and that the aggrieved
party, in addition to any other relief available to it, shall be entitled to
temporary and permanent injunctive relief without the necessity of proving
actual damage. In the event that the provisions of this Section 9.5 should ever
be deemed to exceed the limitation provided by applicable law, the parties agree
that such provisions shall be reformed to set forth the maximum limitations
permitted.
(b) Notwithstanding the provisions of Section 9.5(a), neither Sellers
nor Buyer shall be deemed to be in violation of this Section 9.5 if they acquire
an interest in a business that at the time of such acquisition produces, sells
and/or distributes the Seller Restricted Products or the Buyer Restricted
Products, as the case may be; provided, however, that (i) during the twelve (12)
month period preceding the closing of such acquisition the sales volume of the
acquired business of personal care products (whether or not specifically
included in the definition of Seller Restricted Products), or pharmaceutical and
nutrition products (whether or not specifically included within the definition
of Buyer Restricted Products), as the case may be, was not more than twenty
percent (20%) of the total sales volume of the acquired business during such
twelve (12) month period; (ii) Sellers or Buyer, as the case may be, shall only
be permitted to continue selling the Seller Restricted Products or the Buyer
Restricted Products, as the case may be, that were produced, sold and/or
distributed during such twelve (12) month period by the acquired business and
shall not be permitted to expand such business into other products; and (iii)
Sellers or Buyer, as the case may be, shall only have the right to sell the
Seller Restricted Products or the Buyer Restricted Products, as the case may be,
to customers to whom the acquired business was selling such products as of the
closing of such acquisition and not to any new customers.
(c) For a period of one (1) year after the Closing Date, neither Seller
shall, directly or through any Affiliate, solicit any sale of products sold
under the Good Sense label to any customer who as of the Closing Date purchases
products sold under the Swan label, and Buyer shall not, directly or through any
Affiliate, solicit any sale of products sold under the Swan label to any
customer who as of the Closing Date purchases products sold under the Good Sense
label. The foregoing restriction shall not prohibit any party from making sales
to any customer who, without solicitation from such party or its Affiliates,
decides to purchase products under a different label.
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9.6. ACCESS TO RECORDS; COOPERATION.
(a) For a period of seven (7) years following the Closing Date, or
until any audits of tax returns of the Sellers relating to periods prior to or
including the Closing Date are completed, whichever occurs later, Buyer will
retain all business records of the Business, except as set forth in Section
2.2(m). For a period of seven (7) years following the Closing Date, Sellers will
retain all business records set forth in Section 2.2(m). During such period,
Buyer and Sellers will afford duly authorized representatives of the other and
appropriate tax auditors displaying appropriate credentials, free and full
access, during normal business hours after reasonable prior notice, to all of
such records for any reasonable purpose, and will permit such representatives,
at the expense of the party being granted access, to make abstracts from or to
take copies of any of such records or to obtain temporary possession of any
thereof as may be reasonably required by the Sellers or Buyer, as the case may
be.
(b) Following the Closing, Buyer and Sellers shall cooperate with each
other, and cause their respective employees to cooperate in furnishing
information, evidence, testimony and other assistance in connection with any
action, proceeding, or investigation relating to the conduct of the Business
prior to the Closing Date or to the Assumed Liabilities, Excluded Liabilities,
Purchased Assets, or Excluded Assets.
9.7. DISPUTE RESOLUTION. Except with respect to the determination of
the post-Closing adjustment to the Purchase Price under Section 3.2, if, after
the Closing, the parties should have any dispute arising out of or relating to
this Agreement or the parties' respective rights and duties hereunder then the
parties will attempt to resolve such dispute in the following manner:
(a) Either party may at any time deliver to the other a written dispute
notice setting forth a brief description of the issue for which such notice
initiates the dispute resolution mechanism contemplated by this Section 9.7.
(b) During the forty five (45) day period following the delivery of the
notice described in Section 9.7(a), appropriate representatives of the parties
will meet and seek to resolve the disputed issue through negotiation.
(c) If representatives of the parties are unable to resolve the
disputed issue through negotiation within the first fifteen (15) days of the
period described in Section 9.7(b) hereof, the parties will refer the issue to
an executive officer of each party or a neutral person or persons satisfactory
to both parties (the "Referral Committee"). The procedures to be followed for
presentation of each party's position with respect to the disputed issue and the
method by which the Referral Committee will consider the issue and attempt to
reach a decision will be determined at the time the matter is referred. Unless
the parties otherwise agree in advance in writing, a decision of the Referral
Committee pursuant to this Section 9.7 will not be binding upon the parties.
(d) No party shall bring any action against another with respect to
such dispute until expiration of the sixty (60) day period specified in Sections
9.7(b) and (c).
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(e) If the parties are unable to resolve the disputed issue by
complying with the provisions of this Section 9.7(a) - (e), then they shall
initiate binding arbitration in Chicago, Illinois pursuant to the American
Arbitration Association's Commercial Dispute Rules. The arbitration shall be
heard by one arbitrator and the parties shall request expedited proceedings.
Each party shall bear its own attorney's fees and costs incurred in connection
with such arbitration, provided that the fees and expenses of the arbitrator
shall be borne equally by Buyer and Sellers. This provision for arbitration
shall be specifically enforceable and the decision of the arbitrator in
accordance with the provisions hereof shall be final and binding and there shall
be no right of appeal therefrom.
9.8. RESERVED.
9.9. NON-SOLICITATION. For a period of three (3) years after the
Closing Date, neither Sellers nor any Affiliate of Sellers will directly or
indirectly solicit the employment of, or offer employment to, any Sellers'
Employee who is then an employee of Buyer, or who has terminated such employment
without the consent of Buyer within sixty (60) days of such solicitation or
offer, and Buyer will not directly or indirectly solicit the employment of, or
offer employment to, any person other than a Sellers' Employee who, after the
Closing Date is then an employee of any Seller or Affiliate of Seller or who has
terminated such employment with such Seller or Affiliate without the consent of
such Seller or Affiliate within sixty (60) days of such solicitation or offer.
9.10. CERTAIN SELLERS' AGREEMENTS. Buyer and Sellers acknowledge that
certain of the Sellers' Agreements, such as confidentiality agreements and
non-compete agreements, by their nature will require continuing observance and
performance by Sellers even as Buyer also observes and performs under said
agreements. Sellers agree to continue such observance and performance and to
indemnify Buyer from any non-performance by Sellers (such as disclosure of
confidential information or engaging in prohibited competitive activities) under
such agreements. Buyer agrees to indemnify Sellers from any non-performance by
Buyer (such as disclosure of confidential information or engaging in prohibited
competitive activities) under such agreements.
9.11. COLLECTION OF ACCOUNTS RECEIVABLE. After Closing, Perrigo will
retain the right and authority to collect all Receivables which constitute a
part of the Purchased Assets. In lieu of Perrigo being required to separate
collection of the Receivables from collection of other Perrigo receivables,
Perrigo will pay Buyer the Receivables as follows: sixty percent (60%) of the
total amount of Receivables, net of reserves, in the amount of $26,223,000,
which represents the Receivables (such total amount hereinafter referred to as
the "Receivable Amount"), net of the Estimated Paid Assumed Liabilities, shall
be paid to Buyer on the day following the date of the Closing; twenty percent
(20%) of the Receivable Amount shall be paid to Buyer on the twentieth (20th)
day following the Closing Date; and twenty percent (20%) of the Receivable
Amount shall be paid to Buyer on the twenty fifth (25th) day following the
Closing Date. The amounts indicated above shall be paid without any adjustment
to reflect actual collection of the Receivables. In addition, Sellers shall,
within seventy-two (72) hours transfer to Buyer any cash or other property that
Sellers may receive after the date of the Closing in respect of any deposit,
prepaid expense, claim, contract, license, lease, commitment, sales order,
purchase order, or receivable of any character, in each case constituting a part
of the Purchased Assets, or any other item included in the Purchased Assets.
Buyer shall, within seventy-two (72) hours, transfer or deliver to Sellers
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any cash or other property that Buyer may receive after the date of the Closing
in respect of any asset of Sellers not constituting a part of the Purchased
Assets.
ARTICLE 10.
TERMINATION
10.1. TERMINATION. Anything contained in this Agreement to the contrary
notwithstanding, this Agreement may be terminated at any time prior to the
Closing:
(a) by the mutual written consent of Buyer and Sellers;
(b) [reserved];
(c) by Buyer in the event of any breaches by Sellers of Sellers'
agreements, representations or warranties contained herein which breaches
individually or in the aggregate are reasonably likely to have a Material
Adverse Effect, and which Sellers have failed to remedy or cure within ten (10)
days after receipt of notice from Buyer requesting that such breaches be
remedied or cured;
(d) by Sellers in the event of any material breaches by Buyer of
Buyer's agreements, covenants, representations or warranties contained herein,
which Buyer has failed to remedy or cure within ten (10) days after receipt of
notice from Sellers requesting that such breaches be remedied or cured; or
(e) by Buyer or Sellers if any court shall have issued a Court Order or
if any Governmental Body shall have issued a decree or ruling or taken any other
action permanently restraining, enjoining or otherwise prohibiting the
consummation of the transactions contemplated hereby.
(f) by Buyer pursuant to Section 7.2.
10.2. NOTICE OF TERMINATION. Any party desiring to terminate this
Agreement pursuant to Section 10.1 shall give written notice of such termination
to the other parties to this Agreement.
10.3. EFFECT OF TERMINATION. In the event that this Agreement shall be
terminated pursuant to this Article 10, all further obligations of the parties
under this Agreement (other than Sections 12.2, and 12.8) shall be terminated
without further liability of any party to the other, provided that nothing
herein shall relieve any party from liability for its willful breach of this
Agreement.
ARTICLE 11.
INDEMNIFICATION
11.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. (a) All
representations and warranties contained herein shall survive the execution and
delivery of this Agreement and the
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Closing hereunder for a period of eighteen (18) months after the Closing Date
provided that: (i) each of the representations and warranties set forth in
Sections 5.14 and 5.18 shall survive until the third (3rd) anniversary of the
Closing Date, and (ii) each of the representations and warranties set forth in
Sections 5.1, 5.2, and 5.8 shall survive until the expiration of the statute of
limitations applicable thereto. (The applicable expiration of each survival
period is hereinafter referred to as the "Survival Date"). From and after the
Survival Date, no party hereto or any shareholder, director, officer, employee,
or Affiliate of such party shall be under any liability whatsoever as a result
of any inaccuracy of any such representation or warranty except with respect to
those inaccuracies as to which notice has been received in accordance with
Section 11.1(b).
(b) No party hereto shall have any indemnification obligation as a
result of any inaccuracy of any such representation or warranty unless before
the Survival Date it shall have received from the party seeking indemnification
written notice of the existence of the claim for or in respect of which
indemnification in respect of such inaccuracy is sought.
11.2. OBLIGATION OF SELLERS TO INDEMNIFY. The Sellers, jointly and
severally, agree to indemnify, defend and hold harmless Buyer (and its
directors, officers, shareholders, employees, Affiliates, successors and assigns
and representatives) from and against all claims, Losses, or other expenses
(including reasonable consultants' and attorneys' fees and disbursements
(collectively, the "Indemnifiable Losses")) based upon, arising out of or
otherwise in respect of:
(a) any inaccuracy in or any breach of any representation or warranty,
or covenant or agreement of Sellers contained in this Agreement or in any
Schedules, instrument or documents delivered pursuant to this Agreement;
(b) any violation of Environmental Law relating to the Owned Real
Property or the Business conducted thereon that occurred on or prior to the date
of Closing and any violation of Environmental Law relating to the Leased Real
Property during PTN's occupancy thereof caused by the action or inaction of PTN;
(c) any contamination of the soils, sediments, groundwater or surface
water from a Release of Contaminants (i) that occurred prior to the date of
Closing at, on, under or onto the Owned Real Property or migrating from the
Owned Real Property, including but not limited to any contamination at or
relating to Chemical Recovery Services' former operations at the Owned Real
Property, and also including but not limited to any migration of such
pre-Closing contamination after the date of Closing and/or any Action brought by
any Person alleging personal injury, property damage and/or a citizen suit
relating to alleged or actual contamination from such a pre-Closing Release of
Contaminants; or (ii) that occurred at, on, under, from or onto the Leased Real
Property during PTN's occupancy thereof prior to the date of Closing, including
but not limited to any migration of such contamination after the date of
Closing, and/or any Action brought by any Person alleging personal injury,
property damage and/or a citizen suit relating to alleged or actual
contamination from such a Release; provided, however that this indemnification
shall not cover the amount by which Indemnifiable Losses incurred under
subparagraph (c)(i) or (ii) are increased as a result of the failure of Buyer to
take reasonably prompt response action after it discovers such a Release of
Contaminants or becomes aware of facts that would lead a reasonably prudent
property owner to discover such a Release;
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(d) the matters disclosed on Schedule 5.6;
(e) the Excluded Liabilities;
(f) Indemnifiable Losses sustained by Buyer or Buyer's Plan resulting
from the failure of Sellers to correct any operational and form qualification
errors in connection with terminating the Perrigo Plan; and
(g) any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including without limitation,
reasonable legal fees and expenses and reasonable consultants' fees and
expenses, incident to any of the foregoing or incurred in investigating or
attempting to avoid the same or to oppose the imposition thereof, or in
enforcing this indemnity.
11.3. OBLIGATION OF BUYER TO INDEMNIFY. Buyer agrees to perform and
discharge all of the Assumed Liabilities and Buyer's agreements under Sections
9.2, 9.3 and 9.6 and agrees to indemnify, defend and hold harmless Sellers (and
their respective directors, officers, shareholders, employees, Affiliates,
successors, assigns and representatives) from and against any Indemnifiable
Losses based upon Buyer's failure to do so or arising out of or otherwise in
respect of:
(a) any inaccuracy in or breach of any representation or warranty, or
covenant or agreement of Buyer contained in this Agreement or in any instrument
or document delivered pursuant to this Agreement;
(b) the Assumed Liabilities;
(c) Buyer's operation of the Business after the Closing, including, but
not limited to, sale after the Closing of product manufactured after the
Closing, which bears labels with the Perrigo name or logo; and
(d) any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including without limitation,
reasonable legal fees and expenses, and reasonable consultants' fees and
expenses incident to any of the foregoing or incurred in investigating or
attempting to avoid the same or to oppose the imposition thereof, or in
enforcing this indemnity.
11.4. NOTICE AND OPPORTUNITY TO DEFEND THIRD PARTY CLAIMS.
(a) Promptly after receipt by any party hereto (the "Indemnitee") of
notice of any demand, claim or circumstance which would or might give rise to a
claim or the commencement (or threatened commencement) of any action, proceeding
or investigation (an "Asserted Liability") that may result in an Indemnifiable
Loss, the Indemnitee shall give written notice thereof (the "Claims Notice") to
the party obligated to provide indemnification pursuant to Section 11.2 or 11.3
hereof (the "Indemnifying Party"). The Claims Notice shall describe the Asserted
Liability in reasonable detail and shall indicate the amount (estimated, if
necessary, and to the extent feasible) of the Indemnifiable Loss that has been
or may be suffered by the Indemnitee.
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(b) The Indemnifying Party may elect to compromise or defend, at its
own expense and by its own counsel, any Asserted Liability. If the Indemnifying
Party elects to compromise or defend such Asserted Liability, it shall within
thirty days (or sooner, if the nature of the Asserted Liability so requires)
notify the Indemnitee in writing of its intent to do so. In such event, the
Indemnitee shall cooperate, at the expense of the Indemnifying Party, in the
compromise of, or defense against, such Asserted Liability and may also, at its
option, choose to participate in such defense or compromise through counsel of
its choosing at its expense. If the Indemnifying Party elects not to compromise
or defend the Asserted Liability, fails to notify the Indemnitee of its election
as herein provided or contests its obligation to indemnify under this Agreement,
the Indemnitee may pay, compromise or defend such Asserted Liability.
Notwithstanding the foregoing, neither the Indemnifying Party nor the Indemnitee
may settle or compromise any claim over the objection of the other; provided,
however, that consent to settlement or compromise shall not be unreasonably
withheld or delayed. If the Indemnifying Party chooses to defend any claim, the
Indemnitee shall cooperate with and make available to the Indemnifying Party any
books, records or other documents within its control that are necessary or
appropriate for such defense.
(c) Notwithstanding the provisions of Section 11.4(a) and (b), Sellers
may elect to compromise or defend, at their own expense and by their own
counsel, any claim asserted by any Person during the one year period following
the Closing Date which may result in liability to Sellers as a result of Section
2.3(e), and Buyer shall notify Sellers in writing of Buyer's receipt of such
claim promptly upon Buyer's receipt thereof. If Sellers elect to compromise or
defend any such claim, Sellers shall, within thirty days (or sooner, if the
nature of the claim so requires) notify Buyer in writing of its intent to do so.
In such event, Buyer shall cooperate, at the expense of Sellers, in the
compromise of, or defense against, such claim and may also, at its option,
choose to participate in such defense or compromise through counsel of its
choosing at its expense. If Sellers elect not to compromise or defend such claim
or fail to notify Buyer of its election as herein provided, Buyer may pay,
compromise or defend such claim. Notwithstanding the foregoing, neither Sellers
nor Buyer may settle or compromise any such claim over the objection of the
other; provided, however, that the objecting party shall be responsible for: (i)
all settlement or judgment amounts in excess of the proposed settlement amount,
and (ii) the defense and cost of defense of such claim from and after the date
of the objecting party's objection. If Sellers choose to defend any such claim,
Buyer shall cooperate with and make available to Sellers any books, records or
other documents within its control that are necessary or appropriate for such
defense.
11.5. LIMITS ON INDEMNIFICATION. Notwithstanding anything contained in
this Article 11 to the contrary, Sellers shall not have an obligation to
indemnify Buyer pursuant to Section 11.2 hereof with respect to any
Indemnifiable Losses and Buyer shall not have an obligation to indemnify Sellers
pursuant to Section 11.3 hereof with respect to any Indemnifiable Losses unless
and until such aggregate Indemnifiable Losses incurred exceed two hundred fifty
thousand dollars ($250,000) (the "Stipulated Amount"), in which event Buyer
shall be entitled to and be indemnified under Section 11.2 hereof for the amount
of Indemnifiable Losses in excess of the Stipulated Amount and Sellers shall be
entitled to and be indemnified under Section 11.3 hereof for the amount of
Indemnifiable Losses in excess of the Stipulated Amount, as the case may be. In
no event will Sellers' total obligation to Buyer pursuant to Section 11.2 hereof
or
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Buyer's total obligation to Sellers pursuant to Section 11.3 hereof exceed, in
the aggregate, twenty million dollars ($20,000,000.)
11.6. CERTAIN BENEFITS. The amount of any indemnification payable under
this Section 11 shall be net of (i) any federal, state or local tax benefits
with respect to which the indemnified party actually receives a benefit (all
parties being obligated to take reasonable actions to receive such benefits,
provided that, no party shall be obligated to take any actions which may
otherwise adversely affect such party or its Affiliates) by reason of the
Asserted Liability giving rise to the Indemnifiable Losses, and (ii) the receipt
of any insurance proceeds paid or payable to the Indemnitee under any policy or
policies of insurance covering the Asserted Liability giving rise to the
Indemnifiable Losses. The Indemnitee will use reasonable efforts to collect any
such insurance and will account to the other parties therefor. The parties agree
to respond within a reasonable time to any inquiry by the other parties as to
the status of any such insurance payment.
ARTICLE 12.
GENERAL PROVISIONS
12.1. NOTICES. Any notice, request, instruction or other document to be
given hereunder shall be in writing and: (a) delivered personally; (b) sent by
Federal Express or other similarly reputable overnight courier; or (c)
transmitted by facsimile, according to the instructions set forth below. Such
notices shall be sent to the following addresses and/or facsimile numbers and
shall be deemed given: (x) if delivered personally, at the time delivered; (y)
if sent by Federal Express or other similarly reputable overnight courier, at
the time sent, or (z) if transmitted by facsimile, at the time when receipt is
confirmed by the sending facsimile machine.
If to Sellers, to:
Perrigo Company
Perrigo Company of Tennessee
c/o Perrigo Company
515 Eastern Avenue
Allegan, Michigan 49010
Attn: John R. Nichols, General Counsel
Facsimile: (616) 673-1386
with a copy to:
Gardner, Carton & Douglas
321 N. Clark Street
Suite 3400
Chicago, Illinois 60610
Attention: George C. McKann
Facsimile: (312) 644-3381
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<PAGE> 53
If to Buyer, to:
Cumberland Swan Holdings, Inc.
One Swan Avenue
Smyrna, Tennessee 37167
Attention: Laurence DeFrance
Facsimile: (615) 355-4479
with a copy to:
Bass, Berry & Sims PLC
2700 First American Center
Nashville, Tennessee 37238
Attention: Samuel E. Stumpf, Jr.
Facsimile: (615) 742-2745
or to such other address as such party may indicate by a notice delivered to the
other parties hereto in accordance with the provisions of this Section 12.1.
12.2. CONFIDENTIAL INFORMATION. Each party agrees that it will treat in
confidence all documents, materials and other information which it shall have
obtained regarding any of the other parties during the course of the
negotiations leading to the consummation of the transactions contemplated hereby
(whether obtained before or after the date of this Agreement), the investigation
provided for herein and the preparation of this Agreement and other related
documents ("Confidential Information"), and, in the event the transactions
contemplated hereby shall not be consummated, each party will return to the
other party all copies of nonpublic Confidential Information which have been
furnished in connection therewith. Confidential Information shall not be
communicated to any third Person (other than the parties' respective counsel,
accountants, financial advisors, or environmental consultants). No party shall
use any Confidential Information in any manner whatsoever except solely for
purposes related to the transaction contemplated by this Agreement. The
obligation of each party to treat Confidential Information in confidence shall
not apply to any Confidential Information which (i) is or becomes available to
such party, other than in violation of a confidentiality obligation to the other
party, from a source other than such party, (ii) is or becomes available to the
public other than as a result of disclosure by such party or its agents, (iii)
is required to be disclosed under applicable law or judicial process, but only
to the extent it must be disclosed, or (iv) as to which such party reasonably
deems disclosure necessary to obtain any of the consents or approvals
contemplated hereby.
12.3. NO PUBLIC ANNOUNCEMENT. Neither Buyer nor Sellers shall, without
the approval of the other party, issue any press release or other public
announcement concerning the transactions contemplated by this Agreement.
Notwithstanding the foregoing, either party may issue a press release or other
public announcement concerning the transactions contemplated by this Agreement
to the extent that such party shall be so obligated by law, or to comply with
accounting, Securities and Exchange Commission, or NASDAQ Exchange disclosure
obligations, provided that such party shall be obligated to give the other party
prior notice of such press release or other public announcement if prior notice
is commercially feasible.
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12.4. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the Exhibits and
Schedules referred to herein and therein and the Buyer Ancillary Agreements and
the Sellers Ancillary Agreements contain the entire understanding of the parties
hereto with regard to the subject matter contained herein or therein, and
supersede all prior written or oral agreements, understandings or letters of
intent between or among any of the parties hereto. This Agreement shall not be
amended, modified or supplemented except by a written instrument signed by an
authorized representative of each of the parties hereto.
12.5. SUCCESSORS AND ASSIGNS. (a) The rights of each party under this
Agreement shall not be assignable prior to the Closing without the written
consent of the other party; provided however, that Buyer may assign and transfer
this Agreement and the Buyer Ancillary Agreements and Buyer's rights and
obligations hereunder and thereunder without the prior written consent of
Sellers to a purchaser of the business which is the subject of this Agreement
provided that such purchaser is not (i) a brand company which competes with
Sellers' businesses as then conducted, (ii) a store or value brand competitor of
Sellers' then existing businesses, (iii) a competitor of any customer with whom
either Seller is then doing business, or (iv) a party who does not meet Sellers'
then existing credit requirements for doing business with Sellers; and provided
further, that (x) no such assignment by Buyer shall relieve Buyer of its
obligations to Sellers hereunder and under the Buyer Ancillary Agreements, and
(y) the assignee must expressly agree to assume and perform Buyer's obligations
hereunder and under the applicable Buyer Ancillary Agreements by written
instrument in form and substance reasonably acceptable to Sellers. For purposes
of this Section, a "change of control" of a party shall be deemed to be an
assignment or transfer by such party. Buyer shall notify in writing Sellers of
any proposed change in control or any proposed sale of the business that is the
subject of this Agreement, which notice shall include the identity of the
purchaser and other relevant facts necessary for Sellers to determine if any of
the foregoing exceptions to the requirement of Sellers' prior written consent
applies. Sellers shall have thirty (30) days to determine whether Sellers' prior
written consent is required under this Section 12.5(a) and, if so, whether such
consent is granted. Sellers shall so respond in writing to Buyer within such
thirty (30) day period and, if consent is required and not given, Sellers shall
explain the reason why consent is required, provided, however, if such response
is not given within the thirty (30) day period, Sellers' consent shall be deemed
to have been given. A "change of control" means a transaction or series of
related transactions affecting a party as the result of which the person or
persons who immediately prior to such transaction(s) held a majority of the
voting power with respect to such party do not hold, immediately after such
transaction(s) a majority of the voting power of such party or of an entity
acquiring assets or stock of such party. Sellers hereby acknowledge that this
Agreement is being collaterally assigned by Buyer to Lender and hereby consent
to such assignment provided that such consent shall not eliminate any rights,
remedies, defenses, claims, or counterclaims Sellers may have against Lender as
collateral assignee of Buyer's rights hereunder, and provided further that
Sellers' consent to such collateral assignment is contingent upon Lender's
compliance with the provisions of this Section 12.5(a) applicable to "Buyer"
with respect to any further assignment of this Agreement by Lender. Any payment
by Sellers to the Lender shall constitute and be deemed for all purposes of this
Agreement and all other Buyer Ancillary Agreements to be a payment by Sellers to
Buyer under this Agreement or such other Buyer Ancillary Agreements. Buyer
hereby authorizes the Sellers to rely on any certificate or statement (written
or oral) delivered or given by any person whom Sellers reasonably believe to be
acting on behalf of Lender as to the existence or nonexistence of
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an Event of Default (as such term is used in the Assignment of Representations,
Warranties and Covenants dated as of August 25, 1999 between the Buyer and
Lender.
(b) This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their successors and permitted assigns. Nothing in this
Agreement, expressed or implied, is intended or shall be construed to confer
upon any Person other than the parties and their respective successors and
assigns permitted by this Section 12.5 any right, remedy or claim under or by
reason of this Agreement.
12.6. INTERPRETATION. (a) Article titles and headings to sections
herein are inserted for convenience of reference only and are not intended to be
part of or to affect the meaning or interpretation of this Agreement. The
Schedules and Exhibits referred to herein shall be construed with and as an
integral part of this Agreement to the same extent as if they were set forth
herein.
(b) This Agreement and the Schedules and Exhibits hereto have been
mutually prepared, negotiated and drafted by each of the parties hereto and
thereto. The parties agree that the terms of this Agreement shall be construed
and interpreted against each party in the same manner and that no such
provisions shall be construed or interpreted more strictly against one party on
the assumption that an instrument is to be construed more strictly against the
party which drafted the agreement.
12.7. WAIVERS. Any term or provision of this Agreement may be waived,
or the time for its performance may be extended, pursuant to a written action by
the party or parties entitled to the benefit thereof. Any such waiver shall be
validly and sufficiently authorized for purposes of this Agreement if, as to any
party, it is authorized in writing by an authorized representative of such
party. Subject to Sections 8.1 and 8.2, the failure of any party hereto to
enforce at any time any provision of this Agreement shall not be construed to be
a waiver of such provision, nor in any way to affect the validity of this
Agreement or any part hereof or the right of any party thereafter to enforce
each and every such provision. No waiver of any breach of this Agreement shall
be held to constitute a waiver of any other or subsequent breach.
12.8. EXPENSES. (a) Subject to the provisions of Sections 3.2(a), 9.1,
9.2 and 10.3, regardless of whether the transactions provided for in this
Agreement are consummated, each party hereto will pay its own costs and expenses
incident to the negotiation, preparation and performance of this Agreement,
including the fees, expenses and disbursements of its counsel, financial
advisors, and accountants.
(b) Buyer shall not be required to reimburse Seller for the sixty one
thousand four hundred dollars ($61,400) advanced by Sellers to Buyer for the
appraisal of the Owned Real Property and the machinery and equipment located
thereon.
12.9. PARTIAL INVALIDITY. Wherever possible, each provision hereof
shall be interpreted in such manner as to be effective and valid under
applicable law, but in case any one or more of the provisions contained herein
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such provision shall be ineffective to the extent, but only to the
extent, of such invalidity, illegality or unenforceability without invalidating
the remainder of such invalid, illegal
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or unenforceable provision or provisions or any other provisions hereof, unless
such a construction would be unreasonable.
12.10. EXECUTION IN COUNTERPARTS. This Agreement may be executed in one
or more counterparts, each of which shall be considered an original instrument,
and shall become binding when one or more counterparts have been signed by the
parties hereto and delivered to each of Sellers and Buyer.
12.11. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of Tennessee, without giving
effect to any choice of laws provisions which may direct the application of the
laws of another jurisdiction.
12.12. FURTHER ASSURANCES AND COOPERATION. From and after the date of
this Agreement, upon the request of any Seller or Buyer or any of their
respective Affiliates, the other party and its Affiliates shall execute and
deliver such instruments, documents or other writings and take such actions as
may be reasonably necessary or desirable to confirm and carry out and to
effectuate fully the intent and purposes of this Agreement.
12.13. DISCLOSURE SCHEDULES. The Disclosure Schedules are hereby
incorporated by reference into and made a part of this Agreement. The inclusion
of any item in the Disclosure Schedules is intended to qualify the
representations and warranties contained in this Agreement, and to set forth
other information required by this Agreement. Disclosure of information in any
one of the Disclosure Schedules shall be deemed to be a disclosure with respect
to every Section of this Agreement, notwithstanding the presence or absence of a
cross-reference to Disclosure Schedules under other Sections of this Agreement;
provided, however, that disclosure as to an exception to a specific
representation or warranty shall be deemed disclosed only if the disclosure was
made in or cross-referenced in the Disclosure Schedule relating to that
representation or warranty. Disclosure of information in the Disclosure
Schedules shall not be deemed to be an admission by Sellers that such
information is material for purposes of this Agreement. Summaries or extracts of
any documents, instruments, or other agreements contained in the Disclosure
Schedules are for the convenience of reference only and are qualified in their
entirety by reference to the applicable document, instrument or other agreement
so summarized or extracted from.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed the day and year first above written.
SELLERS:
PERRIGO COMPANY
By:
-------------------------------------
Name: John R. Nichols
Title: Secretary, General Counsel
and Vice President
PERRIGO COMPANY OF TENNESSEE
By:
-------------------------------------
Name: John R. Nichols
Title: Secretary, General Counsel
and Vice President
BUYER:
CUMBERLAND SWAN HOLDINGS, INC.
By:
-------------------------------------
Name: Laurence DeFrance
Title: President
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<PAGE> 1
1999 CREDIT AGREEMENT
AMONG
PERRIGO COMPANY
AND
THE LENDERS PARTIES HERETO,
AS LENDERS
AND
BANK ONE, MICHIGAN,
AS AGENT FOR THE LENDERS
DATED
SEPTEMBER 23, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I. DEFINITIONS
1.1 Certain Definitions.............................................................................1
1.2 Other Definitions; Rules of Construction.......................................................12
ARTICLE II. THE COMMITMENT AND THE ADVANCES
2.1 Commitments of the Lenders.....................................................................13
2.2 [Reserved].....................................................................................15
2.3 Effect on Commitments..........................................................................15
2.4 Termination and Reduction of the Commitments...................................................15
2.5 Facility Fee...................................................................................16
2.6 Letter of Credit Fees..........................................................................16
2.7 Agency Fee.....................................................................................16
2.8 Extension of Termination Date..................................................................17
ARTICLE III. THE LOANS AND LETTERS OF CREDIT
3.1 Disbursing Loans and Letter of Credit Advances.................................................18
3.2 Conditions for Disbursing Initial Loans or Letter of Credit Advances...........................21
3.3 Further Conditions for Disbursing Loans or Letter of Credit Advances...........................22
3.4 Subsequent Elections as to Revolving Credit Loans..............................................23
3.5 Limitation of Requests and Elections...........................................................24
3.6 Minimum Amounts................................................................................14
ARTICLE IV. PAYMENTS AND PREPAYMENTS OF LOANS
4.1 Principal Payments.............................................................................24
4.2 Interest Payments..............................................................................26
4.3 Letter of Credit Reimbursement Payments........................................................26
4.4 Payment Method.................................................................................28
4.5 No Setoff or Deduction.........................................................................29
4.6 Payment on Non-Business Day; Payment Computations..............................................29
ARTICLE V. REPRESENTATIONS AND WARRANTIES
5.1 Corporate Existence and Power..................................................................30
5.2 Corporate Authority............................................................................30
5.3 Binding Effect.................................................................................30
5.4 Subsidiaries...................................................................................30
5.5 Litigation.....................................................................................31
5.6 Use of Loans and Letter of Credit Advances.....................................................31
5.7 Consents, Etc..................................................................................31
5.8 Taxes..........................................................................................32
5.9 Title to Properties............................................................................32
</TABLE>
1999 CREDIT AGREEMENT
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<PAGE> 3
<TABLE>
<S> <C> <C>
5.10 Financial Condition............................................................................32
5.11 Solvency.......................................................................................33
5.12 ERISA Compliance...............................................................................33
5.13 Labor Disputes and Casualties..................................................................33
5.14 Environmental, Safety, Drug and Cosmetic Regulations...........................................33
5.15 Year 2000 Matters..............................................................................34
ARTICLE VI COVENANTS
6.1 Affirmative Covenants..........................................................................34
6.2 Negative Covenants.............................................................................39
ARTICLE VII. DEFAULT
7.1 Events of Default..............................................................................44
7.2 Remedies.......................................................................................47
ARTICLE VIII. THE AGENT AND THE LENDERS
8.1 Appointment of Agent...........................................................................48
8.2 Scope of Agency................................................................................48
8.3 Duties of Agent................................................................................49
8.4 Resignation of Agent...........................................................................49
8.5 Pro Rata Sharing by Lenders....................................................................50
ARTICLE IX YIELD PROTECTION AND CONTINGENCIES
9.1 Additional Costs...............................................................................50
9.2 Illegality and Impossibility...................................................................52
9.3 Funding Loss Indemnification...................................................................52
9.4 HLT............................................................................................53
ARTICLE X. MISCELLANEOUS
10.1 Amendments, Etc................................................................................53
10.2 Notices........................................................................................54
10.3 Conduct No Waiver; Remedies Cumulative.........................................................55
10.4 Reliance on and Survival of Various Provisions.................................................56
10.5 Expenses; Indemnification......................................................................56
10.6 Successors and Assigns.........................................................................58
10.7 Participations and Assignments.................................................................58
10.8 Counterparts...................................................................................59
10.9 Governing Law..................................................................................59
10.10 Table of Contents and Headings.................................................................59
10.11 Construction of Certain Provisions.............................................................59
10.12 Integration and Severability...................................................................59
10.13 Interest Rate Limitation.......................................................................60
10.14 Execution by Guarantors........................................................................60
10.15 Foreign Lenders................................................................................60
</TABLE>
1999 CREDIT AGREEMENT
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<PAGE> 4
EXHIBITS
Exhibit A Revolving Credit Note
Exhibit B Swing Line Note
Exhibit C Extension Request
Exhibit D Request for Advance
Exhibit E Notice of Continuation or Conversion
Exhibit F Subsidiaries
Exhibit G Litigation
Exhibit H Environmental
Exhibit I Insurance
Exhibit J Indebtedness
Exhibit K Liens
Exhibit L Assignment and Acceptance
1999 CREDIT AGREEMENT
-iii-
<PAGE> 5
THIS 1999 CREDIT AGREEMENT, dated as of September 23, 1999 (this
"Agreement"), is among PERRIGO COMPANY, a Michigan corporation (the "Company"),
the lenders named in Section 2.1 hereof (collectively, the "Lenders" and
individually, a "Lender"), and BANK ONE, MICHIGAN, a Michigan banking
corporation, as agent for the Lenders (in such capacity, the "Agent").
RECITALS
The Company desires to obtain an unsecured revolving bank
credit, including letters of credit, in the aggregate principal amount not to
exceed $200,000,000, reducing to $175,000,000 on or before January 31, 2000, and
expiring on June 30, 2004, and the Lenders are willing to establish such a
credit facility in favor of the Company on the terms and conditions herein set
forth.
AGREEMENT
In consideration of the premises and of the mutual agreements herein
contained, the parties hereto agree as follows:
ARTICLE I. DEFINITIONS
1.1 Certain Definitions. As used herein the following terms shall have
the following respective meanings:
"Acquisition" is defined in Section 6.2(g).
"Adjusted EBIT" means (a), for periods during the Company's fiscal year
ending July 3, 1999, the Consolidated EBIT of the Company and its Subsidiaries
for such period, plus (i) $14,177,000 (corresponding to the write-off of Russian
investment), (ii) $6,160,000 (corresponding to restructuring charges taken), and
(iii) $2,621,000 (corresponding to a permanent impairment of investment
recognized), and less $3,952,000 (corresponding to net litigation insurance
proceeds received) and (b), for any other period, the Consolidated EBIT of the
Company and its Subsidiaries for such period.
"Affiliate", when used with respect to any person, means any other
person which, directly or indirectly, controls or is controlled by or is under
common control with such person. For purposes of this definition, "control"
(including the correlative meanings of the terms "controlled by" and "under
common control with"), with respect to any person, means 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 or
by contract or otherwise.
"Applicable Margin" means, during the six-month period following the
Effective Date, the percentage per annum set forth below next to the row labeled
"Greater than and equal to 2.5 to 1.0" and, thereafter, the percentage per annum
set forth below in accordance with the then-applicable Leverage Ratio
(calculated as set forth in Section 6.2(c) of this Agreement):
<PAGE> 6
<TABLE>
<CAPTION>
LEVERAGE RATIO EUROCURENCY FACILITY FEE
RATE L/C FEE UNDER SECTION 2.5
----------- ------- -----------------
<S> <C> <C> <C>
Less than 0.5 to 1.0 .425% .625% .20%
Greater than or equal to 0.5 to 1.0 and less .525% .75% .225%
than 1.5 to 1.0
Greater than or equal to 1.5 to 1.0 and less .75% 1.0% .25%
than 2.5 to 1.0
Greater than or equal to 2.5 to 1.0 .95% 1.25% .30%
</TABLE>
The applicable Leverage Ratio shall be determined as of the last day of
each fiscal quarter of the Company based on information provided by the Company
on or before the 45th day after the close of such quarter pursuant to Section
6.1(d)(ii). Any change in the Applicable Margin resulting from a change in the
Leverage Ratio shall be effective on the first day of the month following
receipt of the information referenced above provided by the Company on or before
the 45th day after the close of each fiscal quarter of the Company but shall be
subject to adjustment in accordance with and as of the date of the computation
subsequently furnished to the Lenders with the quarterly financial statements of
the Company and the Subsidiaries pursuant to Section 6.1(d)(ii)(B).
"Assignment and Acceptance" means the form of Assignment and Acceptance
attached as Exhibit L hereto.
"Bank One" means Bank One, Michigan, a Michigan banking corporation.
"Business Day" means a day other than a Saturday, Sunday or other day
on which the Agent is not open for the transaction of substantially all of its
banking functions.
"Capital Expenditures" means any expenditures for any fixed asset or
any other capital expenditure as determined in accordance with Generally
Accepted Accounting Principles.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Commitments" means the commitments of the Lenders to lend pursuant to
Section 2.1(a), as such amounts may be reduced from time to time pursuant to
Section 2.4.
"Consolidated" or "consolidated" means, when used with reference to any
financial term in this Agreement, the aggregate for the Company and the
Subsidiaries of the amounts signified by such term for all such persons
determined on a consolidated basis in accordance with Generally Accepted
Accounting Principles.
"Credit" means the revolving bank credit established under Section 2.1
in the amount of the Commitments.
"Cumulative Net Income" of any person means, as of any date, the net
income (after deduction for income and other taxes of such person determined by
reference to income or profits of such person) for the period commencing on the
specified date through the end of the most recently completed fiscal year of
such
1999 CREDIT AGREEMENT
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<PAGE> 7
person (but without reduction for any net loss incurred for any completed fiscal
year during such period), taken as one accounting period, all as determined in
accordance with Generally Accepted Accounting Principles.
"Default" means any Event of Default, or any event or condition which
might become such an Event of Default with notice or lapse of time, or both.
"Dollars" and "$" means the lawful money of the United States of
America.
"EBIT" of any person means, for any period, the net income of such
person, determined before Interest Charges and taxes, including without
limitation the Michigan Single Business Tax, and in accordance with Generally
Accepted Accounting Principles.
"EBITDA" of any person means, as of any date, the Adjusted EBIT of such
person for the four fiscal quarter period ending on or immediately prior to such
date, determined before extraordinary gains and losses, depreciation, and
amortization and in accordance with Generally Accepted Accounting Principles.
"Effective Date" means the effective date specified in the final
paragraph of this Agreement.
"Environmental Laws" means all provisions of law, statute, ordinances,
rules, regulations, judgments, writs, injunctions, decrees, orders, awards and
standards promulgated by the government of the United States of America or any
foreign government or by any state, province, municipality or other political
subdivision thereof or therein or by any court, agency or instrumentality,
regulatory authority or commission of any of the foregoing concerning the
protection of, or regulating the discharge of substances into, the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA Affiliate" means, with respect to any person, any trade or
business (whether or not incorporated) which, together with such person or any
Subsidiary of such person, would be treated as a single employer under Section
414 of the Code.
"Eurodollar Business Day" means, with respect to any Eurodollar Rate
Loan, a day which is both a Business Day and a day on which dealings in Dollar
deposits are carried out in the London interbank market.
"Eurodollar Interest Period" means, with respect to any Eurodollar Rate
Loan, the period commencing on the day such Eurodollar Rate Loan is made or
converted to a Eurodollar Rate Loan and ending on the date one, two, three, or
six months thereafter, as the Company may elect under Section 3.1 or 3.4, and
each subsequent period commencing on the last day of the immediately preceding
Interest Period and ending on the date one, two, three, or six months
thereafter, as the Company may elect under Section 3.1 or 3.4, provided,
however, that (a) any Eurodollar Interest Period which commences on the last
Eurodollar Business Day of a calendar month (or on any day for which there is no
numerically corresponding day in the appropriate subsequent calendar month)
shall end on the last Eurodollar Business Day of the appropriate subsequent
calendar month, (b) each Eurodollar Interest Period which would otherwise end on
a day which is not a Eurodollar Business Day shall end on the next succeeding
Eurodollar Business Day or, if such next
1999 CREDIT AGREEMENT
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<PAGE> 8
succeeding Eurodollar Business Day falls in the next succeeding calendar month,
on the next preceding Eurodollar Business Day, and (c) no Eurodollar Interest
Period which would end after the Termination Date shall be permitted, and
provided, further, that, during the thirty day period prior to the Reduction
Date, the Company may elect Eurodollar Interest Periods under Sections 3.1 and
3.4 of less than one month which end on or before the Reduction Date.
"Eurodollar Rate" means, with respect to any Eurodollar Rate Loan and
the related Eurodollar Interest Period, the per annum rate that is equal to the
sum of:
(a) the Applicable Margin plus
(b) the rate obtained by dividing (i) the per annum rate of interest at
which deposits in Dollars for such Eurodollar Interest Period in an aggregate
amount comparable to the amount of such Eurodollar Rate Loan to be made by the
Agent in its capacity as a Lender hereunder are offered to the Agent by other
prime banks in the London interbank market at approximately 11:00 a.m. London
time on the second Eurodollar Business Day prior to the first day of such
Eurodollar Interest Period by (ii) an amount equal to one minus the stated
maximum rate (expressed as a decimal) of all reserve requirements (including,
without limitation, any marginal, emergency, supplemental, special or other
reserves) that is specified on the first day of such Eurodollar Interest Period
by the Board of Governors of the Federal Reserve System (or any successor agency
thereto) for determining the maximum reserve requirement with respect to
eurocurrency funding (currently referred to as "Eurocurrency liabilities" in
Regulation D of such Board) maintained by a member bank of such System, all as
conclusively determined by the Agent.
"Eurodollar Rate Loan" means any Revolving Credit Loan which bears
interest at the Eurodollar Rate.
"Event of Default" means any of the events or conditions described in
Section 7.1.
"Extension Request" means an extension request duly executed by the
Company, substantially in the form of Exhibit C hereto.
"Federal Funds Rate" means, for any day, the average of the Overnight
Rates, as published by the Federal Reserve Bank of Chicago for such day, or, if
the Overnight Rates are not so published for any day, the average of the
quotations for the Overnight Rates received by the Agent from three Federal
funds brokers of recognized national standing selected by it.
"Fixed Asset" means, as of any date, any tangible asset of the Company
and the Subsidiaries (other than Current Assets of the Company and the
Subsidiaries) that is or should be classified as a fixed asset on a balance
sheet of the Company and the Subsidiaries in accordance with Generally Accepted
Accounting Principles.
"Funded Debt" of any person as of any date means the average principal
amount of the Consolidated Indebtedness of such person and its Subsidiaries of
the nature referred to in the definition of Indebtedness outstanding as of the
end of each of the four fiscal quarters of such person ending on or immediately
prior to such date, provided, however, that (a) Funded Debt as of any date prior
to the end of the first fiscal quarter for fiscal 2000 shall be measured only as
of the end of fiscal year 1999, (b) Funded Debt as of any date thereafter
1999 CREDIT AGREEMENT
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<PAGE> 9
but prior to the end of the second fiscal quarter of fiscal 2000 shall be the
average principal amount of the Consolidated Indebtedness outstanding as of the
end of fiscal year 1999 and the end of the first fiscal quarter of fiscal 2000,
and (c) Funded Debt as of any date thereafter but prior to the end of the third
fiscal quarter of fiscal 2000 shall be the average principal amount of the
Consolidated Indebtedness outstanding as of the end of fiscal year 1999 and the
end of the first two fiscal quarters of fiscal 2000, and, provided, further,
that the amount of deferred taxes referred to in subsection (i) of the
definition of Indebtedness shall be reduced by the amount of deferred taxes
carried as an asset, but shall not be less than zero.
"Generally Accepted Accounting Principles" means generally accepted
accounting principles applied on a basis consistent with that reflected in the
financial statements referred to in Section 5.10.
"Guarantors" means LPC and PSC, together with any Material Subsidiaries
existing after the Effective Date which have executed guaranty agreements
pursuant to Section 6.1(g).
"Guaranty" means the guaranty agreements of the Guarantors in form and
substance satisfactory to the Agent, entered into or confirmed by the Guarantors
for the benefit of the Agent and the Lenders pursuant to Section 3.2(f) or
6.1(g), as such guaranty agreements may be amended or modified from time to
time.
"Indebtedness" of any person means, as of any date, (a) all obligations
of such person for borrowed money, (b) all obligations which are secured by any
lien or encumbrance existing on property owned by such person whether or not the
obligation secured thereby shall have been assumed by such person, (c) all
obligations of such person as lessee under any lease which, in accordance with
Generally Accepted Accounting Principles, is or should be capitalized on the
books of the lessee, (d) the deferred purchase price for goods, property or
services acquired by such person, and all obligations of such person to purchase
goods, property or services where payment therefor is required regardless of
whether or not delivery of such goods or property or the performance of such
services is ever made or tendered, (e) all obligations of such person to advance
funds to, or to purchase property or services from, any other person in order to
maintain the financial condition of such person, (f) liabilities in respect of
unfunded vested benefits under any Plan of such person, (g) the face amount of
all letters of credit issued for the account of such person, (h) all obligations
of such person in respect of any interest rate or currency swap, rate cap or
other similar transaction (valued in an amount equal to the highest termination
payment, if any, that would be payable by such person upon termination for any
reason on the date of determination), (i) deferred taxes of such person, and (j)
all obligations of others similar in character to those described in clauses (a)
through (i) of this definition for which such person is liable, contingently or
otherwise, as obligor, guarantor or in any other capacity, or in respect of
which obligations such person assures a creditor against loss or agrees to take
any action to prevent any such loss (other than endorsements of negotiable
instruments for collection in the ordinary course of business).
"Interest Charges" of any person means for any period the sum of all
interest paid or payable during such period on Indebtedness of such person.
"Interest Coverage Ratio" means, for any period, the ratio of (a) the
Consolidated Adjusted EBIT of the Company and its Subsidiaries, to (b)
Consolidated Interest Charges of the Company and its Subsidiaries.
"Interest Payment Date" means (a) with respect to any Eurodollar Rate
Loan, the last day of each Interest Period with respect to such Loan and, in the
case of any Eurodollar Interest Period exceeding three
1999 CREDIT AGREEMENT
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months, those days that occur during such Eurodollar Interest Period at
intervals of three months after the first day of such Eurodollar Interest
Period, and (b) with respect to any Prime Rate Loan and in all other cases, the
12th day of each January, April, July and October, commencing October 12, 1999.
As provided in Section 4.2(b), so long as no Default has occurred and is
continuing, interest payable on any Interest Payment Date with respect to any
Prime Rate Loan shall be for all interest accrued through the end of the
preceding month.
"Interest Period" means any Eurodollar Interest Period or Swing Line
Interest Period.
"Letter of Credit" means a standby letter of credit having a stated
expiry date not later than one year after the issuance thereof, and in any event
not later than 30 days prior to the Termination Date, issued by the Agent on
behalf of the Lenders for the account of the Company under an application and
related documentation acceptable to the Agent requiring, among other things,
immediate reimbursement by the Company to the Agent in respect of all drafts or
other demand for payment honored thereunder and all expenses paid or incurred by
the Agent relative thereto.
"Letter of Credit Advance" means the issuance of any Letter of Credit
under Section 3.1 made pursuant to Section 2.1 in which each Lender acquires a
pro-rata risk participation pursuant to Section 3.1(e).
"Letter of Credit Documents" is defined in Section 3.3.
"Leverage Ratio" means, at any date, the ratio of (i) Consolidated
Funded Debt to (ii) Consolidated EBITDA.
"Lien" means any pledge, assignment, mortgage, option, title retaining
contract, sale and leaseback transaction, lease which, in accordance with
Generally Accepted Accounting Principles, is or should be capitalized,
subordination of any claim or right, or any other type of lien, charge or
encumbrance, security interest or other claim or right.
"Loans" means as the context may require either the Revolving Credit
Loans, the Swing Line Loans, or all such types of Loans, collectively, and
"Loan" means either any Revolving Credit Loan or Swing Line Loan, as the context
may require.
"LPC" means L. Perrigo Company, a Michigan corporation, which is a
wholly-owned subsidiary of the Company.
"Majority Lenders" means any three or more Lenders holding not less
than 51% of the aggregate principal amount of the Revolving Credit Loans then
outstanding (or 51% of the Commitments if no Revolving Credit Loans are then
outstanding).
"Management Group" means Michael J. Jandernoa and other directors or
officers of the Company who individually own more than one percent (1%) of the
securities of the Company having ordinary voting power for the election of
directors.
1999 CREDIT AGREEMENT
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"Material Subsidiary" means any Subsidiary of the Company which, in any
fiscal quarter, accounts for five percent or more of the gross revenues of the
Company and its Subsidiaries or whose total assets are equal to five percent or
more of the total assets of the Company and its Subsidiaries.
"Multiemployer Plan" means any "multiemployer" plan as defined in
Section 4001(a)(3) of ERISA or Section 414(f) of the Code.
"Net Worth" of any person means, as of any date, net worth determined
in accordance with Generally Accepted Accounting Principles.
"Notes" means, collectively, the Revolving Credit Notes and the Swing
Line Note.
"Overdue Rate" means (a) in respect of principal of Prime Rate Loans, a
rate per annum that is equal to the sum of three percent (3%) per annum plus the
Prime Rate, (b) in respect of principal of all other Loans than Prime Rate
Loans, a rate per annum that is equal to the sum of three percent (3%) per annum
plus the per annum rate in effect thereon until the end of the then-current
Interest Period for such Loan and, thereafter, a rate per annum that is equal to
the sum of three percent (3%) per annum plus the Prime Rate, and (c) in respect
of other amounts payable by the Company hereunder (other than interest), a per
annum rate that is equal to the sum of three percent (3%) per annum plus the
Prime Rate.
"Overnight Rates" means for any day, the rates on overnight Federal
funds transactions with members of the Federal Reserve System arranged by
Federal funds brokers.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"PSC" means Perrigo Company of South Carolina, Inc., a Michigan
corporation, which is a wholly-owned subsidiary of the Company.
"Person" or "person" shall include an individual, a corporation, an
association, a partnership, a limited liability company, a trust or estate, a
joint stock company, an unincorporated organization, a joint venture, a
government (foreign or domestic), and any agency or political subdivision
thereof, or any other entity.
"Personal Care Division" means the personal care business of the
Company, which consists or consisted of the Company's operations and assets
formerly located in California, Michigan, Missouri, and Tennessee.
"Personal Care Division L/C" means one or more Letters of Credit issued
in favor of the purchaser (or an affiliate thereof) of the Personal Care
Division in the maximum face amount of $25,000,000 and expiring on or before
January 31, 2000.
"Plan" means, with respect to any person, any pension plan (other than
a Multiemployer Plan) subject to Title IV of ERISA or to the minimum funding
standards of Section 412 of the Code which has been established or maintained by
the Company, any Subsidiary of the Company or any ERISA Affiliate, or
1999 CREDIT AGREEMENT
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by any other person if the Company, any Subsidiary of the Company or any ERISA
Affiliate could have liability with respect to such pension plan.
"Prime Rate" means the per annum rate that is equal to the greater of
(a) the per annum rate announced by the Agent from time to time as its "prime
rate", which may not be the lowest rate charged by the Agent to any of its
customers, or (b) the Federal Funds Rate plus one-half of one percent (1/2%) per
annum. The Prime Rate shall change simultaneously with any change in such "prime
rate" or such Federal Funds Rate, if applicable.
"Prime Rate Loan" means any Loan denominated in Dollars which bears
interest at the Prime Rate.
"Prior Credit Agreement" means the Credit Agreement dated as of June
30, 1996, among the Company, the lenders thereto, and the Agent, as amended.
"Pro Forma Interest Coverage Ratio" means, for any period, with respect
to any Acquisition of a Person by the Company, the ratio of (a) the Consolidated
Adjusted EBIT of the Company and its Subsidiaries plus the Consolidated EBIT of
the Person being acquired by the Company, to (b) the sum of Consolidated
Interest Charges of the Company and its Subsidiaries plus Consolidated Interest
Charges of the Person being acquired by the Company.
"Prohibited Transaction" means any transaction including any Plan which
is proscribed by Section 406 of ERISA or Section 4975 of the Code.
"Reduction Date" means the earlier to occur of (a) January 31, 2000,
and (b) the date the Personal Care Division L/C expires or is terminated.
"Related Business" means any business substantially similar to the
business of the Company and any business that supplies or is supplied by the
Company (including generic prescription drug manufacturers).
"Reportable Event" means a reportable event as described in Section
4043(b) of ERISA including those events as to which the thirty (30) day notice
period is waived under Part 2615 of the regulations promulgated by the PBGC
under ERISA.
"Revolving Credit Loan" means any borrowing under Section 2.1(a)
evidenced by the Revolving Credit Notes. Any Revolving Credit Loan or portion
thereof may also be denominated as a Prime Rate Loan or a Eurodollar Rate Loan,
as appropriate, and such Prime Rate Loans and Eurodollar Rate Loans are referred
to herein as "types" of Revolving Credit Loans.
"Revolving Credit Notes" means the promissory notes of the Company
issued to the Lenders evidencing the Revolving Credit Loans, in substantially
the form annexed hereto as Exhibit A, as amended or modified from time to time
and together with any promissory note or notes issued in exchange or replacement
therefor.
"Solvency Certificate" means a certificate of the chief executive
officer and the treasurer of the Company in form and substance satisfactory to
the Agent and the Lenders certifying as to the matters set forth in Section
5.11.
1999 CREDIT AGREEMENT
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"Solvent" means, with respect to any person, that, as of any date of
determination, (a) the then fair saleable value of the property of such person
is (i) greater than the total amount of liabilities (including contingent
liabilities) of such person and (ii) greater than the amounts that would be
required to pay such person's probable liability on such person's then existing
debts as they become absolute and matured, (b) such person's property is not
unreasonably small in relation to its business or any contemplated or undertaken
transaction, and (c) such person does not intend to incur, or believe or
reasonably should have believed that it will incur, debts beyond its ability to
pay such debts as they become due.
"Subsidiaries" means all Persons (whether now existing or hereafter
organized or acquired) in which at least a majority of the securities (other
than directors' qualifying shares required by law) of each class having ordinary
voting power for the election of directors (other than securities having such
power only by reason of the happening of a contingency), at the time as of which
any determination is being made, is owned, beneficially and of record, by the
Company and/or by one or more of the other Subsidiaries.
"Swing Line Facility" means the facility under which the Agent may make
Swing Line Loans to the Company pursuant to Section 2.1(b).
"Swing Line Interest Period" means, with respect to any Swing Line
Loan, the period commencing on the day the Swing Line Loan is made and ending on
the date agreed upon between the Company and the Agent at the time the Swing
Line Loan is made. No Swing Line Interest Period longer than thirty days or
which would end after the Termination Date will be permitted.
"Swing Line Loan" means any borrowing under Section 2.1(b) evidenced by
the Swing Line Note.
"Swing Line Note" means the promissory note of the Company payable to
the order of the Agent, in substantially the form of Exhibit B, as amended or
modified from time to time, and any promissory note or notes issued in exchange
or replacement therefor.
"Swing Line Rate" means, with respect to any Swing Line Loan, the rate
per annum agreed upon between the Company and the Agent at the time the Swing
Line Loan is made.
"Termination Date" means the earlier to occur of (a) June 30, 2004, or
(b) the date on which the Credit shall be terminated pursuant to Section 2.4 or
7.2.
"Year 2000 Issues" means anticipated costs, problems, and uncertainties
associated with the inability of certain computer applications to effectively
handle data, including dates prior to, on, and after January 1, 2000, as such
inability affects the business, operations, and financial condition of the
Company and its Subsidiaries.
"Year 2000 Program" is defined in Section 5.15.
1.2 Other Definitions; Rules of Construction. As used herein, the terms
"Lenders", "Lender", "Agent", "Company" and "this Agreement" shall have the
respective meanings ascribed thereto in the introductory paragraph of this
Agreement. Such terms, together with the other terms defined in Section 1.1,
shall include both the singular and the plural forms thereof and be construed
accordingly. Any financial
1999 CREDIT AGREEMENT
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terms used but not defined herein shall be interpreted in accordance with
Generally Accepted Accounting Principles. References to "Sections" and
"subsections" shall be to Sections and subsections, respectively, of this
Agreement unless otherwise specifically provided.
ARTICLE II. THE COMMITMENT AND THE ADVANCES
2.1 Commitments of the Lenders.
(a) Revolving Credit Loans and Letter of Credit Advances. (i) Each
Lender agrees, for itself only, subject to the specific limitations set forth in
this Section 2.1(a) and to the other terms of this Agreement, to make Revolving
Credit Loans to the Company pursuant to Section 3.1 and to participate in Letter
of Credit Advances to the Company pursuant to Section 3.1, from time to time
from the Effective Date until the Reduction Date, not to exceed in aggregate
principal amount at any time outstanding the amount set forth opposite its name
below as its Commitment:
<TABLE>
<CAPTION>
NAME OF LENDER COMMITMENT
-------------- ----------
<S> <C>
Bank One $65,000,000
Comerica Bank $35,000,000
Old Kent Bank $35,000,000
Harris Trust and Savings Bank $25,000,000
National City Bank $25,000,000
Northern Trust Bank $15,000,000
-----------
Aggregate Commitments $200,000,000
============
</TABLE>
(ii) Each Lender agrees, for itself only, subject to the
specific limitations set forth in this Section 2.1(a) and to the other terms of
this Agreement, to make Revolving Credit Loans to the Company pursuant to
Section 3.1 and to participate in Letter of Credit Advances to the Company
pursuant to Section 3.1, from time to time from the Reduction Date until the
Termination Date, not to exceed in aggregate principal amount at any time
outstanding the amount set forth opposite its name below as its Commitment:
<TABLE>
<CAPTION>
NAME OF LENDER COMMITMENT
-------------- ----------
<S> <C>
Bank One $40,000,000
Comerica Bank $35,000,000
Old Kent Bank $35,000,000
Harris Trust and Savings Bank $25,000,000
National City Bank $25,000,000
Northern Trust Bank $15,000,000
-----------
Aggregate Commitments $175,000,000
============
</TABLE>
(iii) The aggregate principal amount of all Letter of Credit
Advances (being the maximum amount available to be drawn under the related
Letters of Credit plus the amount of any draws under such
1999 CREDIT AGREEMENT
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<PAGE> 15
Letters of Credit that have not been reimbursed) at any time outstanding shall
not exceed $35,000,000 prior to the Reduction Date, and shall not exceed
$10,000,000 thereafter. Notwithstanding anything in this Agreement to the
contrary, the aggregate principal amount of all Loans and Letter of Credit
Advances shall not at any time exceed the aggregate Commitments then in effect.
(b) Swing Line Loans. The Company may request the Agent to make, and
the Agent may, in its sole discretion, make Swing Line Loans to the Company from
time to time on any Business Day (but limited to one such Loan per Business Day)
during the period from the Effective Date until the Termination Date in the
principal amount not to exceed at any time outstanding the lesser of (i)
$20,000,000 and (ii) the aggregate of the unused portion of the Commitments of
all Lenders as of such date. The Company may at any time request a Revolving
Credit Loan to repay any Swing Line Loan. Forthwith upon demand by the Agent,
the Company shall request a Revolving Credit Loan hereunder (and if the Company
does not do so, the Agent shall be entitled to do so on behalf of the Company)
to repay all or any Swing Line Loans (provided that such Swing Line Loan was not
made in violation of any term or provision of this Agreement and that the Agent
did not have any actual knowledge of an Event of Default at the time of the
making of such Swing Line Loan) and the Lenders shall be obligated, absolutely
and unconditionally, to make such Revolving Credit Loan, and the obligation
shall not be affected by any circumstance whatsoever, including, without
limitation, (i) any setoff, counterclaim, recoupment, defense or other right
which such Lender or the Company may have against the Agent, the Company or
anyone else for any reason whatsoever, (ii) the occurrence of any Default, (iii)
any adverse change in the condition (financial or otherwise) of the Company or
any of its Subsidiaries, (iv) any breach of this Agreement by the Company, any
of its Subsidiaries or any Lender, or (v) any other circumstance, happening or
event whatsoever, whether or not similar to any of the foregoing, including
without limitation any limitation on the Commitments, or any failure to satisfy
any conditions contained in Sections 3.2, 3.3, or any other provision of this
Agreement. Each Swing Line Loan shall be for a term not exceeding thirty days
and shall bear interest at the Swing Line Rate. Within the limits of the Swing
Line Facility, so long as the Agent, in its sole discretion, elects to make
Swing Line Loans, the Company may borrow and reborrow under this Section 2.1(b).
2.2 [Reserved.]
2.3 Effect on Commitments. Notwithstanding anything in this Agreement
to the contrary, the sum of the aggregate principal amount of all Revolving
Credit Loans plus all Swing Line Loans and all Letter of Credit Advances (being
the maximum amount available to be drawn under the related Letters of Credit
plus the amount of any draws under Letters of Credit that have not been
reimbursed) shall not at any time exceed the aggregate amount of the Commitments
of all Lenders.
2.4 Termination and Reduction of the Commitments. (a) The Company shall
have the right to terminate or reduce the Commitments at any time and from time
to time, in which case the Commitments of the Lenders shall be terminated or
permanently reduced by the amount so specified (the reduction of each Lender's
Commitment being on a pro rata basis in accordance with the respective amounts
of the Commitments), as the case may be; provided that (i) the Company shall
give notice of such termination or reduction to the Agent at least three
Business Days in advance thereof, specifying the amount and effective date
thereof, (ii) each partial reduction of the Commitments shall be in a minimum
amount of $10,000,000 and in an integral multiple of $1,000,000, (iii) no such
termination or reduction shall be permitted with respect to any portion of the
Commitments as to which a request for a Loan or Letter of Credit Advance
pursuant to Section 3.1 is then pending, and (iv) the Commitments may not be
completely terminated if any
1999 CREDIT AGREEMENT
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<PAGE> 16
Loans or Letter of Credit Advances are then outstanding and may not be reduced
below the principal amount of the aggregate Loans and Letter of Credit Advances
then outstanding. The Credit or any portion thereof so terminated or reduced
pursuant to this Section 2.4 may not be reinstated.
(b) For purpose of this Agreement, a Letter of Credit Advance (i) shall
be deemed outstanding in an amount equal to the sum of the maximum amount
available to be drawn under the related Letter of Credit on or after the date of
determination and on or before the stated expiry date thereof plus the amount of
any draws under such Letter of Credit that have not been reimbursed as provided
in Section 4.3, and (ii) shall be deemed outstanding at all times on and before
such stated expiry date or such earlier date on which all amounts available to
be drawn under such Letter of Credit have been fully drawn, and thereafter until
all related reimbursement obligations have been paid pursuant to Section 4.3. As
provided in Section 4.3, upon each payment made by the Agent in respect of any
draft or other demand for payment under any Letter of Credit, the amount of any
Letter of Credit Advance outstanding immediately prior to such payment shall be
automatically reduced by the amount of each Revolving Credit Loan deemed
advanced in respect of the related reimbursement obligation of the Company.
2.5 Facility Fee. The Company agrees to pay to the Agent for the pro
rata benefit of the Lenders a facility fee on the daily average amount of the
Commitments, for the period from the Effective Date to but excluding the
Termination Date, at the Applicable Margin. Accrued facility fees shall be
payable, in arrears, on the 12th day of each January, April, July and October
occurring after the date hereof, commencing October 12, 1999, which payment then
due shall be for all facility fees accrued through the end of the preceding
month, and on the Termination Date, which payment then due shall be for all
facility fees accrued through the Termination Date.
2.6 Letter of Credit Fees. The Company agrees to pay to the Agent for
the pro rata benefit of the Lenders a fee computed at a per annum rate equal to
the then-Applicable Margin of the maximum amount available to be drawn from time
to time under such Letter of Credit for the period from and including the date
of issuance of such Letter of Credit to and including the stated expiry date of
such Letter of Credit, which fees shall be paid in advance. If any Letter of
Credit does not remain outstanding through its stated expiry date, the Lenders
shall promptly refund the unused portion of the fee to the Company or credit the
Company's account for such portion.
(b) The Company also agrees to pay a fronting fee to the Agent for its
own account computed at the rate of one-eighth of one percent (.125%) per annum
of such maximum amount for such period, to be payable at such times as agreed
upon between the Company and the Agent. The fronting fee is nonrefundable and
the Company shall not be entitled to any rebate of any portion thereof if such
Letter of Credit does not remain outstanding through its stated expiry date or
for any other reason.
(c) The Company further agrees to pay to the Agent, on demand, such
other customary administrative fees, charges and expenses of the Agent in
respect of the issuance, negotiation, acceptance, amendment, transfer and
payment of such Letter of Credit or otherwise payable pursuant to the
application and related documentation under which such Letter of Credit is
issued.
2.7 Agency Fee. The Company agrees to pay to the Agent an agency fee
for its services as Agent under this Agreement in such amounts as may from time
to time be agreed upon by the Company and the Agent.
1999 CREDIT AGREEMENT
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2.8 Extension of Termination Date. The Termination Date and the
obligation pursuant to Section 4.1(a) to make mandatory repayment of the
outstanding principal amount of the Loans on the Termination Date shall be
subject to extension as set forth in this Section 2.8.
(a) Request for Extension of Termination Date. Notwithstanding anything
contained in this Agreement to the contrary, not later than June 30, 2000, and
each June 30th thereafter, the Company may, by delivery of a duly completed
Extension Request to the Agent accompanied by the audited financial statements
required by Section 6.1(d)(iii), irrevocably request that each Lender extend the
Termination Date relating to such Lender's Commitment for a single one-year
period for each Extension Request.
(b) Consent to Extension of Termination Date.
(i) The Agent shall, promptly after receiving any such
Extension Request pursuant to subsection (a) above,
notify each Lender by providing them a copy of the
Extension Request.
(ii) Each Lender shall, within 30 days of receiving the
Extension Notice, notify the Agent whether it consents
to the Company's request set forth in such Extension
Request, such consent to be in the sole discretion of
such Lender. Each Lender acknowledges and agrees that
its consent to the Company's request to extend the
Termination Date shall also be deemed to be a consent
by such Lender to an extension of its obligations to
participate pursuant to Section 3.1(e) in the Letter of
Credit Advances. If any Lender does not so notify the
Agent of its decision within such 30 day period, such
Lender shall be deemed not to have consented to such
requests of the Company.
(iii) The Agent shall promptly notify the Company whether the
Lenders have consented to such request. If the Agent
does not so notify the Company by August 15, 2000, and
each August 15th thereafter, the Agent shall be deemed
to have notified the Company that the Lenders have not
consented to the Company's request.
(iv) Each Lender that elects not to extend the Termination
Date or fails to so notify the Agent of such consent (a
"Non-Consenting Lender") hereby agrees that if any
other Lender or financial institution acceptable to the
Company and the Agent offers to purchase such
Non-Consenting Lender's Commitment for a purchase price
equal to the sum of all amounts then owing with respect
to the Loans and all other amounts accrued for the
account of such Non-Consenting Lender, such
Non-Consenting Lender will promptly assign, sell and
transfer all of its right, title, interest and
obligations with respect to the foregoing to such other
Lender or financial institution pursuant to and on the
terms specified in the form of an Assignment and
Acceptance.
(v) The Loans of any Non-Consenting Lender that are not
purchased pursuant to clause (iv) above will mature and
be due and payable on the then-scheduled Termination
Date and the Commitment of such Non-Consenting Lender
will thereupon terminate. On such Termination Date, the
aggregate Commitments will be automatically reduced by
an amount equal to such Non-Consenting Lenders'
Commitment.
1999 CREDIT AGREEMENT
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<PAGE> 18
(vi) The pro rata share of the remaining Lenders which have
consented to an extension of their Commitment hereunder
shall be adjusted accordingly by the Agent, based on
such Lenders' pro rata share of the remaining
Commitments as it may be adjusted pursuant to clause
(iv) above or otherwise.
ARTICLE III. THE LOANS AND LETTERS OF CREDIT
3.1 Disbursing Loans and Letter of Credit Advances. (a) The Company
shall give the Agent notice of each requested Revolving Credit Loan, Swing Line
Loan or Letter of Credit Advance in the form of Exhibit D hereto not later than
(i) 1:30 p.m. Detroit time three Eurodollar Business Days prior to the date of
any requested Revolving Credit Loan if such Loan is to be made as a Eurodollar
Rate Loan, (ii) 1:30 p.m. Detroit time one Business Day prior to the date of any
requested Revolving Credit Loan if such Loan is to be made as a Prime Rate Loan,
(iii) 1:00 p.m. on the day any requested Swing Line Loan is to be made and (iv)
five Business Days prior to the date any Letter of Credit Advance is requested
to be made. Such notice shall specify whether a Eurodollar Rate Loan, Prime Rate
Loan, Swing Line Loan, or a Letter of Credit Advance is requested and, in the
case of each requested Eurodollar Rate Loan and Swing Line Loan, the Interest
Period to be initially applicable to such Loan and, in the case of each Letter
of Credit, such information as may be necessary for the issuance thereof by the
Agent. The Agent shall provide notice of such requested Revolving Credit Loan or
Letter of Credit Advance to each Lender no later than 3:00 p.m. Detroit time on
the day such notice is received. Subject to the terms of this Agreement, the
proceeds of such requested Revolving Credit Loan or Swing Line Loan shall be
made available to the Company by depositing the proceeds thereof, in immediately
available funds, in an account maintained and designated by the Company with the
Agent. Subject to the terms of this Agreement, the Agent shall, on the date any
Letter of Credit Advance is requested to be made, issue the related Letter of
Credit on behalf of the Lenders for the account of the Company. Notwithstanding
anything herein to the contrary, the Agent may decline to issue any requested
Letter of Credit on the basis that the beneficiary, the purpose of issuance or
the conditions of drawing are unacceptable to it in its discretion.
(b) Each Lender, on the date each Revolving Credit Loan is requested to
be made, shall make its pro rata share of such Revolving Credit Loan available
in immediately available funds at the principal office of the Agent for
disbursement to the Company or reimbursement of the Agent, as the case may be.
Unless the Agent shall have received notice from any Lender prior to the date
any Revolving Credit Loan is requested to be made under this Section 3.1 that
such Lender will not make available to the Agent such Lender's pro rata portion
of such Revolving Credit Loan, the Agent may assume that such Lender has made
such portion available to the Agent on the date such Loan is requested to be
made in accordance with this Section 3.1. If and to the extent such Lender shall
not have so made such pro rata portion available to the Agent, the Agent may
(but shall not be obligated to) make such amount available to the Company, and
such Lender and the Company severally agree to pay to the Agent forthwith on
demand such amount together with interest thereon for each day from the date
such amount is made available to the Company by the Agent until the date such
amount is repaid to the Agent at a rate per annum equal to the interest rate
applicable to such Loan during such period. If such Lender shall pay such amount
to the Agent together with interest, such amount so paid shall constitute a loan
by such Lender as a part of such Revolving Credit Loan for the purposes of this
Agreement. The failure of any Lender to make its pro rata portion of any such
Loan available to the Agent shall not relieve any other Lender of its
obligations to make available its pro rata
1999 CREDIT AGREEMENT
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<PAGE> 19
portion of such Revolving Credit Loan on the date required under this Section
3.1, but no Lender shall be responsible for the failure of any other Lender to
make such pro rata portion available to the Agent on the date required under
this Section 3.1.
(c) All Revolving Credit Loans made under this Section 3.1 shall be
evidenced by the Revolving Credit Notes and each Revolving Credit Loan shall be
made by the Lenders pro rata in accordance with their Commitments. All Loans
shall be due and payable and bear interest as provided in Article IV. Each
Lender is authorized by the Company to note on the schedule attached to its
Revolving Credit Notes or otherwise on its books and records the date, amount
and type of each Loan, the related Interest Period (if applicable), the amount
of each payment or prepayment of principal thereon, and the other information
provided for on such schedule, which schedule or books and records shall
constitute prima facie evidence of the information so noted, provided that
failure of any Lender to make any such notation, or any error in any such
notation, shall not relieve the Company of its obligation to repay the
outstanding principal amount of the Revolving Credit Loans, all accrued interest
thereon and other amounts payable with respect thereto in accordance with the
terms of the Revolving Credit Notes and this Agreement. Subject to the terms of
this Agreement, the Company may borrow, prepay pursuant to Section 4.1, and
reborrow Revolving Credit Loans, under this Section 3.1.
(d) Nothing in this Agreement shall be construed to require or
authorize any Lender to issue any Letter of Credit, it being recognized that the
Agent has the sole obligation under this Agreement to issue Letters of Credit on
behalf of the Lenders and the Revolving Credit Commitment of each Lender with
respect to Letter of Credit Advances are expressly conditioned upon the Agent's
performing such obligations. Upon such issuance by the Agent, each Lender shall
automatically acquire a pro rata risk participation interest in such Letter of
Credit Advance based on its respective Revolving Credit Commitment. If the Agent
shall honor a draft or other demand for payment presented or made under any
Letter of Credit, the Agent shall provide notice thereof to each Lender on the
date such draft or demand is honored unless the Company shall have satisfied its
reimbursement obligation under Section 4.3 by payment to the Agent on such date.
Each Lender, on such date, shall make its pro rata share of the amount paid by
the Agent and not reimbursed by the Company available in immediately available
funds at the principal office of the Agent for the account of the Agent. If and
to the extent such Lender shall not have made such pro rata portion available to
the Agent, such Lender and the Company severally agree to pay to the Agent
forthwith on demand such amount together with interest thereon, for each day
from the date such amount was paid by the Agent until such amount is so made
available to the Agent at a per annum rate equal to the interest rate applicable
during such period to the related Loan disbursed under Section 4.3 in respect of
the reimbursement obligation of the Company. If such Lender shall pay such
amount to the Agent together with such interest, such amount so paid shall
constitute a Revolving Credit Loan by such Lender disbursed in respect of the
reimbursement obligation of the Company under Section 4.3 for purposes of this
Agreement. The failure of any Lender to make its pro rata portion of any such
amount paid by the Agent available to the Agent shall not relieve any other
Lender of its obligation to make available its pro rata portion of such amount,
but no Lender shall be responsible for failure of any other Lender to make such
pro rata portion available to the Agent.
3.2 Conditions for Disbursing Initial Loans or Letter of Credit
Advances. The obligation of the Lenders to make the initial Loan or of the Agent
to issue the initial Letter of Credit hereunder is subject to receipt by the
Agent of the following documents, in form and substance satisfactory to the
Agent:
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(a) Charter Documents. Copies of all charter documents of each of the
Company and the Guarantors on file in their respective states of incorporation,
certified as of a recent date by the appropriate authority or official of such
states and certified as true and correct as of the Effective Date by a duly
authorized officer of each of the Company and the Guarantors;
(b) Bylaws and Corporate Authorizations. Copies of the respective
by-laws of each of the Company and the Guarantors, together with all authorizing
resolutions and evidence of other corporate action taken by the Company and the
Guarantors to authorize the execution, delivery and performance by the Company
of this Agreement and the Notes and by each of the Guarantors of the Guaranty to
which it is a party, and the consummation by each of them of the transactions
contemplated hereby, each certified as true and correct as of the Effective Date
by a duly authorized officer of each of the Company and the Guarantors;
(c) Incumbency Certificate. Certificates of incumbency of each of the
Company and the Guarantors containing and attesting to the genuineness of the
signatures of those officers authorized to act on behalf of the Company in
connection with the Agreement and the Notes and of each of the Guarantors in
connection with the Guaranty and the consummation by each of them of the
transactions contemplated hereby, certified as true and correct as of the
Effective Date by a duly authorized officer of each of the Company and the
Guarantors;
(d) Good Standing Certificates. Certificates of recent dates of (i) the
Director of the Department of Consumer and Industry Services of the State of
Michigan certifying as to good standing and corporate existence of each of the
Company, LPC and PSC in the State of Michigan; and (ii) the appropriate
governmental official certifying as to the good standing of each of the Company
and each Guarantor in each additional jurisdiction in which such person should
be qualified to do business, except where the failure to be so qualified would
have a material adverse effect on the properties, business, operations, or
condition, financial or otherwise, of the Company or such Guarantor;
(e) Notes. The Notes, appropriately completed for each Lender and duly
executed on behalf of the Company;
(f) Guaranty. A fully executed guaranty or confirmation of guaranty
whereby the Guarantors guarantee all obligations of the Company to the Lenders
and the Agent under this Agreement and the Notes;
(g) Legal Opinion. The favorable written opinion of Law, Weathers &
Richardson, counsel for the Company and the Guarantors, relating to those
matters referenced in Sections 5.1, 5.2, 5.3, 5.5 and 5.7 of this Agreement and
paragraphs 5(a) and (b) of the Guaranty, in form and substance satisfactory to
the Lenders and as to such other matters as the Lenders may reasonably request;
(h) Solvency Certificate. The Solvency Certificate, in form, and
substance satisfactory to the Agent, executed by the chief executive officer and
the treasurer of the Company, together with balance sheets as of June 30, 1998,
of the Company and each of LPC and PSC, and of the Company and its Subsidiaries
on a consolidated basis;
(i) Payment of Indebtedness Under Prior Credit Agreement. Payment in
full (which payment shall be made simultaneously with the first Loans made under
this Agreement) of the outstanding principal balance and all interest accrued
through the Effective Date on the loans and all fees accrued under the Prior
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Credit Agreement, and it is acknowledged and agreed that the Commitments replace
all commitments to lend under the Prior Credit Agreement, all of which
commitments to lend under the Prior Credit Agreement shall be terminated
simultaneously upon this Agreement being executed;
(j) Sale of Personal Care Division. The Company shall have sold the
Personal Care Division and shall have received minimum net cash proceeds of
$30,000,000; and
(k) Additional Documents. Such additional agreements and documents,
fully executed by the Company and its Subsidiaries, requested by the Agent as
the Agent may consider to be necessary or desirable to implement or further the
provisions and intent of this Agreement.
3.3 Further Conditions for Disbursing Loans or Letter of Credit
Advances. No Lender shall be obligated to make any Loan and the Agent shall not
be obligated to issue any Letter of Credit (including the initial Loan or Letter
of Credit) unless (a) no Default exists or shall have occurred and be continuing
on the date such Loan or Letter of Credit Advance is made, and the
representations and warranties set forth in Article V are true and correct as of
the date such Loan or Letter of Credit Advance is made with the same effect as
if made on such date and (b) in the case of any Letter of Credit Advance, the
Company shall have delivered to the Agent an application for the related Letter
of Credit and other related documentation requested by and acceptable to the
Agent appropriately completed and duly executed on behalf of the Company. The
Company shall be deemed to have made a certification to the Lenders at the time
of the making of each Loan or Letter of Credit Advance to the effect set forth
in this Section 3.3. For purposes of this Section 3.3, the representations and
warranties contained in Section 5.10 shall be deemed made with respect to both
the financial statements referred to therein and the most recent financial
statements delivered pursuant to Section 6.1(d)(ii) and (iii).
3.4 Subsequent Elections as to Revolving Credit Loans. The Company may
elect (a) to continue a Eurodollar Rate Loan or a portion thereof, as a
Eurodollar Rate Loan of the then-existing type, or (b) to convert a Eurodollar
Rate Loan of one type, or a portion thereof, to a Loan of another type, or (c)
to convert a Prime Rate Loan, or a portion thereof, to a Eurodollar Rate Loan,
in each case by giving notice thereof to the Agent in substantially the form of
Exhibit E hereto not later than 1:30 p.m. Detroit time three Eurodollar Business
Days prior to the date any such continuation of or conversion to a Eurodollar
Rate Loan is to be effective and not later than 1:30 p.m. Detroit time one day
prior to the date any such continuation or conversion is to be effective in all
other cases; provided that an outstanding Eurodollar Rate Loan may only be
converted on the last day of the then-current Interest Period with respect to
such Loan, and provided, further, if a continuation of a Revolving Credit Loan
as, or a conversion of a Revolving Credit Loan to, a Eurodollar Rate Loan is
requested, such notice shall also specify the Interest Period to be applicable
thereto upon such continuation or conversion. The Agent, no later than 3:00 p.m.
Detroit time on the day such notice is received, shall provide notice of such
election to the Lenders and provided, further, that a Revolving Credit Loan may
not be converted to a Swing Line Loan. If the Company shall not timely deliver
such a notice with respect to any outstanding Eurodollar Rate Loan, the Company
shall be deemed to have elected to convert such Eurodollar Rate Loan to a Prime
Rate Loan on the last day of the then-current Interest Period with respect to
such Eurodollar Rate Loan.
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3.5 Limitation of Requests and Elections. Notwithstanding any other
provision of this Agreement to the contrary, if, upon receiving a request for a
Eurodollar Rate Loan pursuant to Section 3.1, or a request for a continuation or
conversion of a Eurodollar Rate Loan, or a portion thereof, as a Eurodollar Rate
Loan, or a request for a conversion of a Prime Rate Loan, or a portion thereof,
to a Eurodollar Rate Loan pursuant to Section 3.4, (a) in the case of any
Eurodollar Rate Loan, deposits in Dollars for periods comparable to the Interest
Period elected by the Company are not available to any Lender in the London
interbank market, or (b) the Eurodollar Rate will not adequately and fairly
reflect the cost to any Lender of making, funding, or maintaining the related
Eurodollar Rate Loan, or (c) by reason of national or international financial,
political, or economic conditions or by reason of any applicable law, treaty,
rule or regulation (whether domestic or foreign) now or hereafter in effect, or
the interpretation or administration thereof by any governmental authority
charged with the interpretation or administration thereof, or compliance by any
Lender with any guideline, request or directive of such authority (whether or
not having the force of law), including without limitation exchange controls, it
is impracticable, unlawful or impossible for any Lender (i) to make or fund the
relevant Eurodollar Rate Loan, or (ii) to continue or convert such Eurodollar
Rate Loan, or a portion thereof, as a Eurodollar Rate Loan, or (iii) to convert
a Prime Rate Loan, or a portion thereof, to a Eurodollar Rate Loan, then the
Company shall not be entitled, so long as such circumstances continue, to
request a Loan of the affected type pursuant to Section 3.1 or a continuation of
or conversion to a Loan of the affected type pursuant to Section 3.4. In the
event that such circumstances no longer exist, the Lenders shall again consider
requests for Loans of the affected type pursuant to Section 3.1, and requests
for continuations of and conversions to Loans of the affected type pursuant to
Section 3.4.
3.6 Minimum Amounts. Except for (a) Revolving Credit Loans and
conversions which exhaust the entire remaining amount of the Credit and (b)
conversions or payments required pursuant to Article IX, each Eurodollar Rate
Loan shall be in a minimum amount of $5,000,000 and in integral multiples of
$1,000,000 and each Prime Rate Loan shall be in a minimum amount and in integral
multiples of $1,000,000. The aggregate number of Eurodollar Rate Loans
outstanding at any one time under this Agreement may not exceed six. Except for
Swingline Loans which exhaust the entire remaining amount of the Credit, each
Swingline Loan shall be in a minimum amount of $1,000,000 and in integral
multiples of $100,000.
ARTICLE IV. PAYMENTS AND PREPAYMENTS OF LOANS
4.1 Principal Payments.
(a) Unless earlier payment is required under this Agreement, the
Company shall pay to the Agent for the account of the Lenders (i) on the
Termination Date, the outstanding principal amount of all Revolving Credit Loans
and (ii) on the stated maturity date, the outstanding principal amount of all
Swing Line Loans but in no event shall such date be later than the Termination
Date.
(b) The Company may at any time and from time to time prepay all or any
portion of the Loans without premium or penalty upon notifying the Agent at
least one Business Day prior to the date of any proposed prepayment, provided
that (i) the Company may not prepay any portion of any Revolving Credit Loan as
to which an election for continuation as or conversion to a Eurodollar Rate Loan
is pending pursuant to Section 3.1 or 3.4, (ii) unless earlier payment is
required under this Agreement, any Eurodollar Rate Loan may only be paid on the
last day of the then-current Interest Period with respect to such Loan and no
prepayments thereof are allowed, (iii) each such prepayment of any Revolving
Credit Loan shall be in a
1999 CREDIT AGREEMENT
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minimum amount and in integral multiples of $1,000,000, and (iv) each such
prepayment of any Swingline Loan shall be in a minimum amount and in integral
multiples of $100,000.
(c) If at any time the aggregate principal amounts outstanding under
the Loans and Letters of Credit exceed the Commitments, the Company shall
immediately pay to the Agent for the account of the Lenders an amount not less
than the amount of such excess, to be applied first to the amounts outstanding
under the Revolving Credit Loans, then to the amounts outstanding under the
remaining Loans, and the remainder, if any, to be held by the Agent on behalf of
the Lenders as cash collateral securing any reimbursement obligations which may
arise under the outstanding Letters of Credit, if any; the Company grants to the
Agent for the benefit of the Lenders a first-priority lien and security interest
in this cash collateral, and all cash collateral shall be in the Agent's sole
and exclusive control.
(d) If, at any time before the Reduction Date, the aggregate face
amount of the Letters of Credit exceeds the lesser of $35,000,000 and the
Commitment, or if, at any time on or after the Reduction Date, the aggregate
face amount of the Letters of Credit exceeds the lesser of $10,000,000 and the
Commitment, the Company shall immediately pay to the Agent for the account of
the Lenders an amount not less than the amount of such excess, to be applied
first to the amounts outstanding under the Revolving Credit Loans, and the
remainder, if any, to be held by the Agent on behalf of the Lenders as cash
collateral securing any reimbursement obligations which may arise under the
outstanding Letters of Credit, if any.
4.2 Interest Payments. (a) The Company shall pay interest to the Agent
for the account of the Lenders on the unpaid principal amount of each Loan for
the period commencing on the date such Loan is made until such Loan is paid in
full, on each Interest Payment Date and on the Termination Date, and thereafter
on demand, at the following rates per annum:
(i) During such periods that such Loan is a Prime Rate
Loan, the Prime Rate;
(ii) During such periods that such Loan is a Eurodollar Rate
Loan, the Eurodollar Rate applicable to such Loan for
the related Interest Period;
(iii) During such periods that such Loan is a Swing Line
Loan, the Swing Line Rate applicable to such Loan for
each related Swing Line Interest Period; and
(iv) Notwithstanding the foregoing paragraphs (i) through
(iii), the Company agrees to pay interest on demand at
the Overdue Rate on the outstanding principal amount of
any Loan and any other amount payable by the Company
hereunder (other than interest) which is not paid in
full within five Business Days from the due date
thereof (whether at stated maturity, by acceleration or
otherwise) for the period commencing on the sixth day
after the due date thereof until the same is paid in
full.
(b) So long as no Default has occurred and is continuing, interest
payable on any Interest Payment Date on any of the Prime Rate Loans shall be for
interest accrued on the Loans through the end of the preceding month.
4.3 Letter of Credit Reimbursement Payments. (a) The Company agrees to
pay to the Agent, on the day on which the Agent shall honor a draft or other
demand for payment presented or made under any
1999 CREDIT AGREEMENT
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Letter of Credit, an amount equal to the amount paid by the Agent in respect of
such draft or other demand under such Letter of Credit and all expenses paid or
incurred by the Agent relative thereto. Unless the Company shall have made such
payment to the Agent on such day, upon each such payment by the Agent, the Agent
shall be deemed to have disbursed to the Company, and the Company shall be
deemed to have elected to satisfy its reimbursement obligation by, a Revolving
Credit Loan bearing interest at the Prime Rate for the account of the Lenders in
an amount equal to the amount so paid by the Agent in respect of such draft or
other demand under such Letter of Credit. Such Revolving Credit Loan shall be
disbursed notwithstanding any failure to satisfy any conditions for disbursement
of any Loan set forth in Article III and, to the extent of the Revolving Credit
Loan so disbursed, the reimbursement obligation of the Company under this
Section 4.3 shall be deemed satisfied without, however, constituting any waiver
by the Lenders or the Agent as to any Default then existing or thereby created.
(b) The reimbursement obligation of the Company under this Section 4.3
shall be absolute, unconditional and irrevocable and shall remain in full force
and effect until all obligations of the Company to the Lenders hereunder shall
have been satisfied, and such obligations of the Company shall not be affected,
modified or impaired upon the happening of any event, including without
limitation, any of the following, whether or not with notice to, or the consent
of, the Company:
(i) Any lack of validity or enforceability of any Letter of
Credit or any documentation relating to any Letter of
Credit or to any transaction related in any way to such
Letter of Credit (the "Letter of Credit Documents");
(ii) Any amendment, modification, waiver, consent, or any
substitution, exchange or release of or failure to
perfect any interest in collateral or security, with
respect to any of the Letter of Credit Documents;
(iii) The existence of any claim, setoff, defense or other
right which the Company may have at any time against
any beneficiary or any transferee of any Letter of
Credit (or any persons or entities for whom any such
beneficiary or any such transferee may be acting), the
Agent or any Lender or any other person or entity,
whether in connection with any of the Letter of Credit
Documents, the transactions contemplated herein or
therein or any unrelated transactions;
(iv) Any draft or other statement or document presented
under any Letter of Credit proving to be forged,
fraudulent, invalid or insufficient in any respect or
any statement therein being untrue or inaccurate in any
respect;
(v) Payment by the Agent to the beneficiary under any
Letter of Credit against presentation of documents
which do not comply with the terms of the Letter of
Credit, including failure of any documents to bear any
reference or adequate reference to such Letter of
Credit;
(vi) Any failure, omission, delay or lack on the part of the
Agent or any Lender or any party to any of the Letter
of Credit Documents to enforce, assert or exercise any
right, power or remedy conferred upon the Agent, any
Lender or any such party under this
1999 CREDIT AGREEMENT
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Agreement or any of the Letter of Credit Documents, or
any other acts or omissions on the part of the Agent,
any Lender or any such party; and
(vii) Any other event or circumstance that would, in the
absence of this clause, result in the release or
discharge by operation of law or otherwise of the
Company from the performance or observance of any
obligation, covenant or agreement contained in this
Section 4.3.
No setoff, counterclaim, reduction or diminution of any obligation or any
defense of any kind or nature which the Company has or may have against the
beneficiary of any Letter of Credit shall be available hereunder to the Company
against the Agent or any Lender. Nothing in this Section 4.3 shall limit the
liability, if any, of the Lenders or the Agent to the Company pursuant to
Section 10.5(b).
4.4 Payment Method. (a) All payments to be made by the Company
hereunder will be made in Dollars and in immediately available funds to the
Agent not later than 1:30 p.m. Detroit time on the date on which such payment
shall become due. Payments received after 1:30 p.m. shall be deemed to be
payments made prior to 1:30 p.m. on the next succeeding Business Day. The
Company authorizes the Agent to charge its account with the Agent in order to
cause timely payment of amounts due hereunder to be made (subject to sufficient
funds being available in such account for that purpose).
(b) At the time of making each such payment, the Company shall, subject
to the other terms of this Agreement, specify to the Agent that obligation of
the Company hereunder to which such payment is to be applied, or, if an Event of
Default shall have occurred and be continuing, the Agent shall apply such
payments as follows: first, to reimburse the Agent for all costs and expenses
incurred by and in connection with performing its duties and obligations
hereunder and any documents executed in connection herewith; second, on a pro
rata basis, all accrued but unpaid commitment fees, letter of credit fees, agent
fees, fronting fees, and other similar fees due hereunder; third, on a pro rata
basis, all accrued but unpaid interest on any Loans, provided that if no Event
of Default has occurred and is continuing, interest shall be paid on the
Revolving Credit Loans before payment of interest on other Loans; fourth, on a
pro rata basis, to pay all principal on all Loans and all cash collateral and
reimbursement obligations under Letters of Credit, provided, that if no Event of
Default shall have occurred and be continuing, the principal amount of Revolving
Credit Loans shall be paid prior to payment of any principal on any other Loans
or any cash collateral or reimbursement obligations under Letters of Credit; and
fifth, to pay to the Agent and the Lenders any other amounts payable hereunder.
(c) On each day such payments are deemed received, the Agent shall
remit to the Lenders their pro rata shares of such payments in immediately
available funds via wire transfer (i) in the case of payments of principal and
interest on the Revolving Credit Loans, determined with respect to each such
Lender by the ratio which the outstanding principal balance of its Revolving
Credit Notes bears to the outstanding principal balance of all such Revolving
Credit Notes and (ii) in the case of facility fees, letter of credit fees paid
pursuant to Sections 2.4 through 2.6, and other amounts payable hereunder (other
than amounts payable with respect to Article IX), determined with respect to
each such Lender by the ratio which the Commitment of such Lender bears to the
Commitments of all the Lenders.
4.5 No Setoff or Deduction. All payments of principal of and interest
on the Loans and other amounts payable by the Company hereunder shall be made by
the Company without setoff or counterclaim,
1999 CREDIT AGREEMENT
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and free and clear of, and without deduction or withholding for, or on account
of, any present or future taxes, levies, imposts, duties, fees, assessments, or
other charges of whatever nature, imposed by any governmental authority, or by
any department, agency or other political subdivision or taxing authority.
4.6 Payment on Non-Business Day; Payment Computations. Except as
otherwise provided in this Agreement to the contrary, whenever any installment
of principal of, or interest on, any Loan outstanding hereunder or any other
amount due hereunder, becomes due and payable on a day which is not a Business
Day, the maturity thereof shall be extended to the next succeeding Business Day
and, in the case of any installment of principal, interest shall be payable
thereon at the rate per annum determined in accordance with this Agreement
during such extension. Computations of interest and other amounts due under this
Agreement shall be made on the basis of a year of 360 days (in the case of
calculations with respect to Eurodollar Rate Loans and Swing Line Loans, and all
fees due hereunder), or 365 or 366 days (in the case of calculations with
respect to Prime Rate Loans), including the first day but excluding the last day
of the relevant period.
ARTICLE V. REPRESENTATIONS AND WARRANTIES
The Company represents and warrants that:
5.1 Corporate Existence and Power. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Michigan and is duly qualified to do business in each additional jurisdiction
where the failure to so qualify would have a material adverse effect on the
properties, business, operations, or condition, financial or otherwise, of the
Company. The Company has all requisite corporate power to own its properties and
to carry on its business as now being conducted and as proposed to be conducted,
and to execute and deliver this Agreement and the Notes and to engage in the
transactions contemplated by this Agreement.
5.2 Corporate Authority. The execution, delivery and performance by the
Company and the Guarantors of this Agreement, the Guaranty and the Notes, are
within their corporate powers, have been duly authorized by all necessary
corporate action, and do not contravene any law, rule or regulation, or any
judgment, decree, writ, injunction, order or award of any arbitrator, court or
governmental authority, or of the terms of the Company's or any Guarantor's
charter or by-laws, or of any contract or undertaking to which the Company or
any Subsidiary is a party or by which the Company, any Guarantor or their
property may be bound or affected; and neither the Company nor any Subsidiary is
in default under any such law, rule or regulation, judgment, decree, writ,
injunction, order or award of any arbitrator, court of governmental authority,
or of any contract or undertaking to which the Company or any Subsidiary is a
party or by which the Company or its property or any Subsidiary or any of its
property may be bound or affected, where such default could have a material
adverse effect on the business, properties, operations or condition, financial
or otherwise, of the Company or any Subsidiary.
5.3 Binding Effect. This Agreement, the Guaranty and the Notes when
delivered hereunder will be legal, valid and binding obligations of the Company
and each Guarantor enforceable against the Company and each Guarantor in
accordance with their respective terms, except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, or other laws relative to or
affecting the enforcement of creditors' rights generally in effect from time to
time and by general principles of equity.
1999 CREDIT AGREEMENT
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5.4 Subsidiaries. Exhibit F hereto correctly sets forth the corporate
name, jurisdiction of incorporation and ownership percentage of each Subsidiary.
Each such Subsidiary is and each corporation becoming a Subsidiary after the
date hereof will be a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation and duly qualified
to do business in each additional jurisdiction where the failure to so qualify
would have a material adverse effect on the properties, business, operations, or
condition, financial or otherwise, of the Company and the Subsidiaries, on a
consolidated basis. Each Subsidiary has and will have all requisite corporate
power to own its properties and to carry on its business as now being conducted
and as proposed to be conducted. All outstanding shares of capital stock of each
class of each Subsidiary have been and will be validly issued and will be fully
paid and nonassessable and, except as otherwise indicated on Exhibit F hereto,
are and will be owned, beneficially and of record, by the Company or another
Subsidiary of the Company free and clear of any liens, charges, encumbrances or
rights of others whatsoever, other than Liens permitted under Section 6.2(f).
5.5 Litigation. Except as set forth on Exhibit G, there are no actions,
suits or proceedings pending or, to the best of the Company's knowledge,
threatened against or affecting the Company or any of its Subsidiaries before
any court, governmental authority, or arbitrator which, if adversely decided,
might result, either individually or collectively, in any material adverse
change in the business, properties, operations or condition, financial or
otherwise, of the Company and the Subsidiaries on a consolidated basis and, to
the best of the Company's knowledge, there is no basis for any such action, suit
or proceeding.
5.6 Use of Loans and Letter of Credit Advances. The Company does not
extend or maintain, in the ordinary course of business, credit for the purpose,
whether immediate, incidental, or ultimate, of buying or carrying margin stock
(within the meaning of Regulations U, T, or X of the Board of Governors of the
Federal Reserve System), and no part of the proceeds of any Loan or Letter of
Credit Advance will be used for the purpose, whether immediate, incidental, or
ultimate, of buying or carrying any such margin stock or maintaining or
extending credit to others for such purpose. After applying the proceeds of each
Loan and Letter of Credit Advance, not more than 25% of the value of the assets
(either of the Company alone or of the Company and its Subsidiaries on a
consolidated basis) subject to the provisions of this Agreement that may cause
the Loan or any Letter of Credit Advance to be deemed secured will constitute
such margin stock.
5.7 Consents, Etc. No consent, approval or authorization of or
declaration, registration or filing with any governmental authority or any
nongovernmental person or entity, including without limitation any creditor or
stockholder of the Company or any of the Subsidiaries, is required on the part
of the Company or any of the Subsidiaries in connection with the execution,
delivery and performance by the Company of this Agreement and the Notes and by
the Guarantors of any Guaranty or the transactions contemplated hereby or as a
condition to the legality, validity or enforceability of this Agreement, the
Notes or the Guaranties except for such consents approvals, authorizations,
declarations, registrations or filings which have been obtained and are in full
force and effect.
5.8 Taxes. Each of the Company and each Subsidiary has filed or has
caused to be filed all tax returns (federal, state and local) required to be
filed (unless the failure to file such returns would not materially adversely
affect the business, properties, operations or condition, financial or
otherwise, of the Company and its Subsidiaries on a consolidated basis) and has
paid all taxes shown thereon to be due, including interest and penalties, or, if
required by Generally Accepted Accounting Principles, has established adequate
financial reserves on its books and records for payment thereof.
1999 CREDIT AGREEMENT
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5.9 Title to Properties. Each of the Company and the Subsidiaries has
good and marketable title to, and a valid indefeasible ownership interest in,
all of its properties and assets (other than property and assets held under
valid leases or which do not materially adversely affect the business or
financial condition of the Company and the Subsidiaries on a consolidated basis)
and all of its properties and assets are free and clear of any Lien except Liens
permitted by Section 6.2(f).
5.10 Financial Condition. The consolidated balance sheet of the Company
and its Subsidiaries and the consolidated statements of income, retained
earnings and cash flows of the Company and its Subsidiaries for the fiscal year
ended June 30, 1998, certified by BDO/Seidman, independent certified public
accountants, and the interim consolidated balance sheet and interim consolidated
statements of income and cash flow as of or for the nine-month period ended on
April 3, 1999, copies of which have been furnished to the Lenders, fairly
present the consolidated financial condition of the Company and its Subsidiaries
as at the date thereof, and the consolidated results of operations of the
Company and its Subsidiaries for the periods indicated, all in accordance with
Generally Accepted Accounting Principles consistently applied. There has been no
material adverse change in the business, properties, operations, or in the
condition, financial or otherwise of the Company and its Subsidiaries, on a
consolidated basis, since June 30, 1998, other than the sale of the Personal
Care Division. There are no liabilities of the Company or any Subsidiary, fixed
or contingent, which are material but are not reflected in such financial
statements or the notes thereto.
5.11 Solvency. The Company and its Subsidiaries, individually and on a
consolidated basis, are Solvent.
5.12 ERISA Compliance. The Company, its Subsidiaries, their ERISA
Affiliates and their respective Plans are in compliance in all material respects
with those provisions of ERISA and of the Code which are applicable with respect
to any Plan. No Prohibited Transaction and no Reportable Event has occurred with
respect to any Plan. None of the Company, any of its Subsidiaries or any ERISA
Affiliate is an employer with respect to any Multiemployer Plan. The Company,
its Subsidiaries and their ERISA Affiliates have met the minimum funding
requirements under ERISA and the Code with respect to each of their respective
Plans, if any, and have not incurred any liability to the PBGC or any Plan. The
execution, delivery and performance of this Agreement and the Notes do not
constitute a Prohibited Transaction. There is no material unfunded benefit
liability, determined in accordance with Section 4001(a)(18) of ERISA, with
respect to any Plan.
5.13 Labor Disputes and Casualties. Neither the business nor the
properties of the Company or any Subsidiary are affected by any strike, lockout
or other labor dispute, or by any fire, accident, or other casualty, which
materially and adversely affects such business or properties or the operation of
the Company and its Subsidiaries on a consolidated basis.
5.14 Environmental, Safety, Drug and Cosmetic Regulations. Except as
disclosed on Exhibit H hereto, the Company and each Subsidiary is in compliance
in all material respects with all federal, state and local laws, ordinances and
regulations relating to safety, industrial hygiene, the environmental condition
or the manufacture, sale or distribution of any drug or cosmetic, including,
without limitation all Environmental Laws in jurisdictions in which the Company
or any Subsidiary owns or operates, or has owned or operated, a facility or
site, or arranges or has arranged for disposal or treatment of hazardous
substances, solid waste, or other wastes, accepts or has accepted for transport
any hazardous substances, solid wastes or holds or has any
1999 CREDIT AGREEMENT
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interest in real property or otherwise. No demand, claim, notice, suit, suit in
equity, action, administrative action, investigation or inquiry whether brought
by any governmental authority, private person or entity or otherwise, arising
under, relating to or in connection with any Environmental Laws is pending or
threatened against the Company or any of its Subsidiaries, any real property in
which the Company or any such Subsidiary holds or has held an interest or any
past or present operation of the Company or any Subsidiary, the outcome of
which, if adversely determined against the Company or any Subsidiary, would be
material to the business, operations, properties or condition, financial or
otherwise, of the Company and its Subsidiaries on a consolidated basis. Neither
the Company nor any Subsidiary (a) is the subject of any federal or state
investigation evaluating whether any remedial action is needed to respond to a
release of any toxic substances, radioactive materials, hazardous wastes or
related materials into the environment, (b) has received any notice of any toxic
substances, radioactive materials, hazardous waste or related materials in or
upon any of its properties in violation of any Environmental Laws, except as
disclosed on Exhibit H hereto, and, as to such matters disclosed on Exhibit H,
none, if adversely decided, would result, either individually or collectively,
in any material adverse change in the business, operations, properties or
condition, financial or otherwise, of the Company and its Subsidiaries on a
consolidated basis, (c) has received any notice or to its knowledge is the
subject of any federal or state investigation with respect to any material
violation of any laws or regulations relating to the manufacture, sale or
distribution of any drug or cosmetic, including without limitation the Federal
Food, Drug and Cosmetic Act, 21 USC Sections 301 et seq., or (d) knows of any
basis for any such investigation, notice or violation other than an
investigation, notice, or violation which, if adversely decided, would not
result, either individually or collectively, in any material adverse change in
the business, operations, properties or condition, financial or otherwise, of
the Company and the Subsidiaries, on a consolidated basis.
5.15 Year 2000 Matters. The Company has made a full and complete
assessment of the Year 2000 Issues and has a realistic and achievable program
for remediating the Year 2000 Issues on a timely basis (the "Year 2000
Program"). Based on this assessment and on the Year 2000 Program, the Company
does not reasonably anticipate that Year 2000 Issues will have a material
adverse effect on the business, properties, operations or condition, financial
or otherwise, of the Company and the Subsidiaries on a consolidated basis.
ARTICLE VI. COVENANTS
6.1 Affirmative Covenants. The Company covenants and agrees that, until
the Termination Date and thereafter until payment in full of the principal of
and accrued interest on the Notes, the termination or expiration of all Letters
of Credit and the performance of all other obligations of the Company under this
Agreement, unless the Majority Lenders shall otherwise consent in writing, it
shall, and shall cause each of the Subsidiaries to:
(a) Preservation of Corporate Existence, Etc. Except as permitted under
Section 6.2(g), preserve and maintain its corporate existence, rights,
privileges, licenses, franchises and permits and qualify and remain qualified as
a validly existing corporation in good standing in each jurisdiction in which
the failure to so qualify would have a material adverse effect on the
properties, business, operations or condition, financial or otherwise, of the
Company and the Subsidiaries, on a consolidated basis.
(b) Compliance with Laws, Etc. Comply in all material respects with all
applicable laws, rules, regulations and orders of any governmental authority,
whether federal, state, local or foreign (including
1999 CREDIT AGREEMENT
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without limitation ERISA, the Code and Environmental Laws), in effect from time
to time; and pay and discharge promptly when due all taxes, assessments and
governmental charges or levies imposed upon it or upon its income, revenues or
property, before the same shall become delinquent or in default; as well as all
lawful claims for labor, materials and supplies or otherwise, which, if unpaid,
might give rise to liens upon such properties or any portion thereof), except to
the extent that failure to comply with the foregoing would not have a material
adverse impact on the business or financial condition of the Company and the
Subsidiaries, on a consolidated basis, or that compliance with any of the
foregoing is then being contested in good faith by appropriate legal proceedings
and with respect to which adequate financial reserves have been established on
the books and records of the Company or its Subsidiaries, if required by
Generally Accepted Accounting Principles.
(c) Maintenance of Insurance. Maintain insurance with responsible and
reputable insurance companies or associations in such amounts and covering such
risks as is usually carried by companies engaged in similar or comparable
businesses, or otherwise in the manner determined in the reasonable judgment of
the Company which would not have a material adverse effect on the financial
condition of the Company and its Subsidiaries on a consolidated basis, including
without limitation such workers' compensation insurance as required by law,
unless the Company or any Subsidiary is qualified and duly authorized by law to
self-insure with respect to its workers' compensation liability and is not
otherwise prohibited by this Agreement from doing so, and products liability
insurance. The insurance listed on Exhibit I hereto is currently in full force
and effect.
(d) Reporting Requirements. Furnish to the Lenders the following:
(i) Promptly and in any event within 10 calendar days after
becoming aware of the occurrence of (A) any Event of
Default or any event or condition which, with notice or
lapse of time, or both, would constitute an Event of
Default, (B) the commencement of any material
litigation against, by or affecting the Company or any
Subsidiary, and any material developments therein, (C)
the entry into any material contract or undertaking
that is not entered into in the ordinary course of
business, (D) any development in the business or
affairs of the Company or any of its Subsidiaries which
has resulted in or which is likely, in the reasonable
judgment of the Company, to result in any material
adverse change in the business, properties, operations
or condition, financial or otherwise, of the Company or
any of its Subsidiaries, or (E) any notice from any
governmental entity, including without limitation the
Food and Drug Administration and the Environmental
Protection Agency, of any formal or informal
investigation or violation of any law or regulation
with respect to the Company or any Subsidiary (other
than customary, reoccurring or routine investigations)
which is likely, in the reasonable judgment of the
Company, to result in any material adverse change in
the business, properties, operations or conditions,
financial or otherwise, of the Company or any of its
Subsidiaries, together with a statement of the
treasurer of the Company setting forth the details of
any of the foregoing and the action which the Company
has taken and proposes to take with respect thereto;
(ii) As soon as available and in any event within 45 days
after the end of each fiscal quarter of the Company,
the consolidated balance sheet of the Company and its
1999 CREDIT AGREEMENT
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Subsidiaries as of the end of such quarterly period,
and the related consolidated statements of income,
retained earnings and cash flows for the period
commencing at the end of the previous fiscal year and
ending with the end of such quarterly period, setting
forth in each case in comparative form the
corresponding figures for the corresponding date or
period of the preceding fiscal year, all in reasonable
detail and duly certified (subject to year-end
adjustments) by the treasurer of the Company as having
been prepared in accordance with Generally Accepted
Accounting Principles, together with a certificate of
the treasurer of the Company stating that (A) no Event
of Default or event or condition which, with notice or
lapse of time, or both, would constitute an Event of
Default, has occurred and is continuing or, if an Event
of Default or such an event or condition has occurred
and is continuing, a statement setting forth the
details thereof and the action which the Company has
taken and proposes to take with respect thereto and (B)
a computation (which computation shall accompany such
certificate in reasonable detail) showing compliance
with Sections 6.2(a), (b), (c), and (d) in conformity
with the terms of this Agreement; provided, however,
that, within 28 days after the end of each fiscal
quarter of the Company, the Company shall provide the
Agent with a computation showing compliance with
Sections 6.2(b) and (c);
(iii) As soon as available and in any event within 90 days
after the end of each fiscal year of the Company, (A)
the consolidated balance sheet of the Company and its
Subsidiaries as of the end of such fiscal year and the
related consolidated statements of income, retained
earnings and cash flows for such fiscal year, certified
without qualifications unacceptable to the Lenders by
independent certified public accountants selected by
the Company and acceptable to the Agent, together with
(B) a certificate of such accountants stating that they
have reviewed this Agreement, and stating further
whether, in the course of their review of such
financial statements, they have become aware of any
Default and, if a Default has occurred and is
continuing, a statement setting forth the nature and
status thereof and (C) a computation by the Company
(which computation shall accompany such certificate and
shall be in reasonable detail) showing compliance with
Sections 6.2(a), (b), (c), and (d) in conformity with
the terms of this Agreement;
(iv) Promptly after the sending or filing thereof, copies of
all reports, proxy statements and financial statements
which the Company or any of the Subsidiaries sends to
any securities exchange or to the Securities and
Exchange Commission or any successor agency thereof;
(v) Promptly and in any event within 10 calendar days after
receiving or becoming aware thereof (A) a copy of any
notice of intent to terminate any Plan of the Company,
its Subsidiaries or any ERISA Affiliate filed with the
PBGC, (B) a statement of the treasurer of the Company
setting forth the details of the occurrence of any
Reportable Event with respect to any such Plan, (C) a
copy of any notice that the Company, any of its
Subsidiaries or any ERISA Affiliate may receive from
the PBGC relating to the intention of the PBGC to
terminate any such Plan or to appoint a trustee to
administer any such Plan, or (D) a copy of any notice
of failure to make a required installment or
1999 CREDIT AGREEMENT
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other payment within the meaning of Section 412(n) of
the Code or Section 302(f) of ERISA with respect to any
such Plan;
(vi) At least 15 days but not more than 60 days prior to the
Company entering into an Acquisition with a purchase
price (including all assumed liabilities) valued at
$10,000,000 or more, a certificate of the treasurer of
the Company stating that (A) no Event of Default or
event or condition which, with notice or lapse of time,
or both, would constitute an Event of Default, has
occurred and is continuing or would occur as a result
of the Acquisition taking place, and (B) a computation
(which computation shall accompany such certificate in
reasonable detail) showing compliance with Sections
6.2(a), (b), (c), (d), and (g) in conformity with the
terms of this Agreement.
(vii) Promptly, such other information respecting the
business, properties or the condition or operations,
financial or otherwise, of the Company or any of its
Subsidiaries as any Lender may from time to time
reasonably request.
(e) Access to Records, Books, Etc. At any reasonable time and from time
to time, permit the Lenders or any agents or representatives thereof to examine
and make copies of and abstracts from the records and books of account of, and
visit the properties of, the Company and the Subsidiaries, and to discuss the
affairs, finances and accounts of the Company and the Subsidiaries with their
respective officers and employees.
(f) Use of Proceeds. The proceeds of the Loans shall be used to (i) pay
in full all outstanding amounts due under the Prior Credit Agreement, without
any prepayment fee, (ii) make advances to the Guarantors for working capital,
capital expenditures and operating expenses, and (iii) for other general
corporate purposes of the Company.
(g) Further Assurances. Promptly (i) cause each person becoming a
Material Subsidiary at any time after the Effective Date to execute and deliver
to the Lenders (or, where appropriate, to the Agent for the benefit of the
Lenders), within 30 days after such person becomes a Material Subsidiary, a
Guaranty in substantially the form of such Guaranty delivered by the Guarantors,
(ii) execute and cause each such Subsidiary promptly to execute and deliver all
further instruments and documents and take all further action that may be
necessary or desirable, or that the Agent may request, in order to give effect
to, and to aid in the exercise and enforcement of the rights and remedies of the
Agent and the Lenders under this Agreement and the Notes.
6.2 Negative Covenants. The Company covenants and agrees that, until
the Termination Date and thereafter until payment in full of the principal of
and accrued interest on the Notes, the termination or expiration of all Letters
of Credit and the performance of all other obligations of the Company under this
Agreement, unless the Majority Lenders shall otherwise consent in writing, it
shall not, and shall not permit any Subsidiary to:
(a) Net Worth. Permit or suffer Consolidated Net Worth of the Company
and its Subsidiaries to be less than the sum of (i) $300,000,000, plus (ii) an
amount equal to 50% of Cumulative Net Income (without reduction for net loss) of
the Company and its Subsidiaries for each fiscal year of the Company
1999 CREDIT AGREEMENT
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ending after the Effective Date, plus (iii) the amount of proceeds of any new
issuance of common or preferred stock other than stock issued pursuant to the
exercise of employee stock options.
(b) Interest Coverage Ratio. Permit or suffer the Consolidated Interest
Coverage Ratio of the Company and its Subsidiaries as of the last day of each
fiscal quarter of the Company, as calculated for the four consecutive preceding
fiscal quarters of the Company then ending, to be less than 3.0 to 1.0.
(c) Leverage Ratio. Permit or suffer the Leverage Ratio to be greater
than (i) 3.0 to 1.0 as of the last day of each fiscal quarter of the Company
ending on or before July 1, 2000, (ii) ) 2.25 to 1.0 as of the last day of each
fiscal quarter of the Company ending after July 1, 2000, and on or before June
29, 2001, and (iii) 2.0 to 1.0 as of the last day of each fiscal quarter of the
Company thereafter.
(d) Loans and Advances; Investments. Purchase or otherwise acquire any
capital stock of or other ownership interest in, or debt securities of or other
evidences of Indebtedness of, any other person, nor make any loan or advance of
any of its funds or property or make any other extension of credit to, or make
any investment or acquire any interest whatsoever in, any other person, nor
incur any contingent liability except under this Agreement and the Guaranty,
other than:
(i) extensions of trade credit made in the ordinary course
of business on customary credit terms and advances made
to officers and employees in the ordinary course of
business;
(ii) commercial paper of any United States issuer having an
investment grade rating then given by Moody's Investors
Service, Inc., or Standard & Poor's Ratings Group, a
division of McGraw-Hill, Inc., direct obligations of
and obligations fully guaranteed by the United States
of America or any agency or instrumentality thereof, or
certificates of deposit or repurchase agreements of any
commercial bank which is a member of the Federal
Reserve System and which has capital, surplus and
undivided profit (as shown on its most recently
published statement of condition) aggregating not less
than $50,000,000;
(iii) loans and advances to and other investments in joint
ventures and in other corporations primarily engaged in
a Related Business, provided that the aggregate
outstanding amount of all such loans, advances and
other investments shall not exceed 10% of Consolidated
Net Worth of the Company and its Subsidiaries as of the
later of March 31, 1999, or the then most recently
ended fiscal quarter of the Company;
(iv) funds invested with a prudently selected nationally
recognized money market fund;
(v) loans or advances by the Company to and investments by
the Company in any Subsidiaries and loans or advances
by any Subsidiaries to and investments by any
Subsidiaries in the Company or any other Subsidiaries;
and
(vi) acquisitions of evidences of Indebtedness of
Subsidiaries pursuant to Section 6.2(e)(iv) and
transactions permitted by Section 6.2(g).
1999 CREDIT AGREEMENT
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(e) Indebtedness. Create, incur, assume, guaranty or in any manner
become liable in respect of, or suffer to exist, any Indebtedness other than:
(i) Indebtedness existing on the Effective Date and
described in Exhibit J attached hereto, but no increase
of the principal amount of any such Indebtedness shall
be permitted;
(ii) The Loans, the Letters of Credit, and the Guaranty;
(iii) Indebtedness of the Company and its Subsidiaries in
aggregate outstanding principal amount not exceeding
$15,000,000 which is secured by one or more Liens
permitted by Section 6.2(f)(iv);
(iv) Indebtedness of any Subsidiary owing to the Company or
to any other Subsidiary;
(v) Indebtedness consisting of payments and other amounts
due under operating leases, provided the aggregate
amount of all such payments does not exceed $20,000,000
in any fiscal year;
(vi) Any Indebtedness pursuant to any interest rate swap,
interest rate cap or other similar interest rate
protection relating to the Indebtedness of the Company
hereunder;
(vii) Indebtedness consisting of deferred taxes; and
(viii) Other Indebtedness in aggregate outstanding amount not
exceeding 20% of the Consolidated Net Worth of the
Company and its Subsidiaries as of the then most
recently ended fiscal quarter of the Company at any
time.
(f) Liens. Create, incur or suffer to exist, any Liens on any of the
assets, rights, revenues or property, real, personal or mixed, tangible or
intangible, whether now owned or hereafter acquired of the Company or any
Subsidiary, other than:
(i) Liens existing on the Effective Date and described in
Exhibit K attached hereto, but no increase in the
amount secured thereby or the assets covered thereby
shall be permitted;
(ii) Liens for taxes not delinquent or for taxes being
contested in good faith by appropriate proceedings and
as to which adequate financial reserves have been
established on its books and records, if required by
Generally Accepted Accounting Principles;
(iii) Liens created by operation of law in connection with
workers' compensation, unemployment insurance, and
social security and other Liens incidental to the
conduct of its business or the ownership of its
property and assets which were not incurred in
connection with the borrowing of money or the obtaining
of advances or
1999 CREDIT AGREEMENT
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credit, and which do not in the aggregate materially
detract from the value of its property or assets or
materially impair the use thereof in the operation of
its business;
(iv) Liens on any Fixed Asset created to secure the payment
of a portion of the purchase price of such Fixed Asset
acquired in the ordinary course of business by the
Company or any Subsidiary if the outstanding principal
amount of the Indebtedness secured by any such Lien
does not at any time exceed the purchase price paid by
the Company or such Subsidiary for such Fixed Asset,
and the aggregate principal amount of all Indebtedness
secured by such Liens does not exceed 10% of the
Consolidated Net Worth of the Company and its
Subsidiaries as of the then most recently ended fiscal
quarter of the Company at any time, provided that such
Lien does not burden any other asset at any time owned
by the Company or any Subsidiary and provided, further,
that not more than one such Lien shall burden a Fixed
Asset at any one time;
(v) Any interest or title of a lessor under any lease;
Liens which constitute minor survey exceptions, minor
encumbrances, easements or reservations of, or rights
of others for, rights of way, sewers, electric lines,
telegraph and telephone lines and other similar
purposes; or zoning or other restrictions affecting
real property owned or leased by the Company or the
Subsidiaries, provided that all of the foregoing, in
the aggregate, do not at any time materially detract
from the value of such property or materially impair
the use of such property in the operation of the
businesses of the Company and the Subsidiaries, on a
consolidated basis; and
(vi) Liens assumed in any acquisition permitted hereunder,
provided that such Lien does not burden any other asset
at any time owned by the Company or any Subsidiary
other than the asset to which it attached prior to the
acquisition, and there shall be no increase in the
amount of indebtedness secured thereby.
(g) Merger; Purchase or Sale of Assets; Etc. Sell, lease, transfer or
otherwise dispose of any of its assets or business to any Person other than (A)
sales, leases, transfers or other dispositions of any line or lines of business
in any fiscal year which did not constitute more than 10% of the Consolidated
Net Income of the Company and its Subsidiaries for the then most recently ended
fiscal year of the Company, and (B) sales, leases, transfers and other
dispositions of other assets which, together with those subject to transactions
permitted under clause (A), do not have a book value constituting more than 10%
of the consolidated total book value of assets of the Company and its
Subsidiaries as of the end of the then most recently ended fiscal quarter; nor
purchase or otherwise acquire all or a substantial portion of the assets of any
Person, or all or a substantial portion of the shares of stock of or other
ownership interest in any other Person; nor merge or consolidate with any other
Person; nor make any substantial change in the nature of its business; nor
become, or remain, an obligee with respect to any obligation of any other Person
if the obligation of such Person would constitute Indebtedness of such Person
other than Indebtedness secured by Liens permitted under Section 6.2(f)(iv) in
an amount not exceeding the purchase price of the assets subject to such Liens;
provided, however, that the Company or any Subsidiary may purchase or otherwise
acquire all or 50% or more of the assets of any Person or of any line of
business or division of any Person or all or 50% or more of the shares of stock
or other ownership interest in any other Person or merge with any other
corporation (individually, an "Acquisition" and the foregoing transactions
described in this provision are governed by this Section 6.2(g) and not by
Section 6.2(d)) provided that (V) the Company shall be the surviving or
continuing corporation
1999 CREDIT AGREEMENT
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after such merger or consolidation, (W) no Default shall exist or shall have
occurred and be continuing, either before or after giving effect to the
Acquisition, (X) the assets or stock being purchased or the Person which is
merging into the Company is primarily engaged in a Related Business, (Y) the
aggregate amount paid and other consideration given for all such Acquisitions,
whether of assets or stock or other ownership interests, or in connection with
any merger, does not in the aggregate for any fiscal year exceed $25,000,000 and
does not in the aggregate exceed $60,000,000 during the term of this Agreement,
and (Z) the Company is in compliance with all financial and other covenants
contained in this Agreement on a pro forma basis acceptable to the Agent both
before and after giving effect to such Acquisition. No transaction permitted
under this Section 6.2(g) shall be limited by the restriction on investments of
the Company and its Subsidiaries under Section 6.2(d)(iii), and any purchase or
other Acquisition by the Company of less than 50% of the assets of any Person or
of any line of business or division of any Person or less than 50% of the shares
of the stock or other ownership interest in any other Person shall be governed
by the limitations as set forth in Section 6.2(d) and not by this Section
6.2(g).
(h) Capital Expenditures. Acquire or contract to acquire any fixed
asset or make any other Capital Expenditure if the aggregate purchase price and
other acquisition costs of all such Capital Expenditures made by the Company or
any of its Subsidiaries during any fiscal year of the Company would exceed
$40,000,000, provided, however, that, if the aggregate purchase price and other
acquisition costs of Capital Expenditures made by the Company or any of its
Subsidiaries during any fiscal year is less than $40,000,000, the limitation for
the following fiscal year shall be $40,000,000 plus the unused portion of the
prior fiscal year's limitation.
ARTICLE VII. DEFAULT
7.1 Events of Default. The occurrence of any one of the following
events or conditions shall be deemed an "Event of Default" hereunder unless
waived pursuant to Section 10.1:
(a) Default in any payment of principal of any of the Notes; or
(b) Default in any payment of interest on any of the Notes, any fees,
or any other amount payable hereunder within 5 Business Days after it is due; or
(c) Any representation or warranty made by the Company in Article V, or
by the Company or any Guarantor in any other document or certificate furnished
by or on behalf of the Company or such Guarantor in connection with this
Agreement, shall prove to have been incorrect in any material respect when made;
or
(d) The Company shall fail to perform or observe any term, covenant or
agreement contained in Section 6.1(a) or Section 6.2; or
(e) The Company shall fail to perform or observe any other term,
covenant or agreement contained in this Agreement and any such failure shall
remain unremedied for 30 calendar days after notice thereof shall have been
given to the Company by any Lender or 30 calendar days after notice thereof
should have been given by the Company to the Lenders pursuant to Section
6.1(d)(i), whichever is earlier; or
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(f) The Company or any of its Subsidiaries shall fail to pay any part
of the principal of, the premium, if any, or the interest on, or any other
payment of money due under any Indebtedness outstanding in favor of any Lender,
whether as agent or otherwise, or any other Indebtedness aggregating in excess
of $5,000,000 (other than Indebtedness hereunder) beyond any period of grace
provided with respect thereto, or the Company or any of its Subsidiaries shall
fail to perform or observe any other term, covenant or agreement contained in
any document evidencing or securing such Indebtedness, or in any agreement or
instrument under which any such Indebtedness was issued or created, beyond the
period of grace, if any, provided with respect thereto, if the effect of such
failure is to accelerate the maturity of such Indebtedness; or
(g) A judgment or order for the payment of money which, together with
other such judgments or orders exceeds the aggregate amount of $5,000,000, shall
be rendered against the Company or any of its Subsidiaries and either (i)
enforcement proceedings shall have been commenced by any creditor upon such
judgment or order and such judgment or order shall have remained unsatisfied and
such proceedings shall have remained unstayed for a period of 30 consecutive
days, or (ii) for a period of 30 consecutive days such judgment or order shall
have remained unsatisfied and a stay of enforcement thereof, by reason of
pending appeal or otherwise, shall not have been in effect; or
(h) The occurrence of a Reportable Event that results in or could
result in liability of the Company, any Subsidiary or their ERISA Affiliates to
the PBGC or to any Plan and such Reportable Event is not corrected within thirty
(30) days after the occurrence thereof; or the occurrence of any Reportable
Event which could constitute grounds for termination of any Plan of the Company,
any Subsidiary or their ERISA Affiliates by the PBGC or for the appointment by
the appropriate United States District Court of a trustee to administer any such
Plan and such Reportable Event is not corrected within thirty (30) days after
the occurrence thereof; or the filing by the Company, any Subsidiary or any of
their ERISA Affiliates of a notice of intent to terminate a Plan or the
institution of other proceedings to terminate a Plan; or the Company, any
Subsidiary or any of their ERISA Affiliates shall fail to pay when due any
liability to the PBGC or to a Plan; or the PBGC shall have instituted
proceedings to terminate, or to cause a trustee to be appointed to administer,
any Plan of the Company, any Subsidiary or their ERISA Affiliates; or any person
engages in a Prohibited Transaction with respect to any Plan which results in or
could result in liability of the Company, any Subsidiary, any of their ERISA
Affiliates, any Plan of the Company, its Subsidiaries or their ERISA Affiliates
or fiduciary of any such Plan; or failure by the Company, any Subsidiary or any
of their ERISA Affiliates to make a required installment or other payment to any
Plan within the meaning of Section 302(f) of ERISA or Section 412(n) of the Code
that results in or could result in liability of the Company, any Subsidiary or
any of their ERISA Affiliates to the PBGC or any Plan; or the withdrawal of the
Company, any Subsidiary or any of their ERISA Affiliates from a Plan during a
plan year in which it was a "substantial employer" as defined in Section
4001(9a)(2) of ERISA; or the Company, any Subsidiary or any of their ERISA
Affiliates becomes an employer with respect to any Multiemployer Plan without
the prior written consent of the Majority Lenders; or
(i) The Company or any of its Subsidiaries shall generally not pay its
debts as they become due, or shall admit in writing its inability to pay its
debts generally, or shall make a general assignment for the benefit of
creditors, or shall institute, or there shall be instituted against the Company
or any of its Subsidiaries, any proceeding or case seeking to adjudicate it a
bankrupt or insolvent or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief or composition of it or its debts
under any law relating to bankruptcy, insolvency or reorganization or relief or
protection of debtors or seeking the entry of an order for relief or the
appointment of a receiver, trustee, custodian or other similar official for it
or
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for any substantial part of its property, and, if such proceeding is instituted
against the Company or such Subsidiary and is being contested by the Company or
such Subsidiary, as the case may be, in good faith by appropriate proceedings,
such proceedings shall remain undismissed or unstayed for a period of 60 days;
or the Company or such Subsidiary shall take any action (corporate or other) to
authorize or further any of the actions described above in this subsection; or
(j) Any event of default described in any Guaranty shall have occurred
and be continuing, or any material provision of any Guaranty shall at any time
for any reason cease to be valid and binding and enforceable against any obligor
thereunder, or the validity, binding effect or enforceability thereof shall be
contested by any person, or any obligor shall deny that it has any or further
liability or obligation thereunder, or any Guaranty shall be terminated,
invalidated or set aside, or be declared ineffective or inoperative or in any
way cease to give or provide to the Lenders and the Agent the benefits purported
to be created thereby; or
(k) Any person, other than the Management Group, shall own in the
aggregate, directly or indirectly, more than 25% of the securities having
ordinary voting power for the election of directors of the Company unless the
Company's board of directors shall agree to such person acquiring more than 25%.
7.2 Remedies.
(a) Upon the occurrence and during the continuance of any Event of
Default, the Agent shall at the request of, or may with the consent of, the
Majority Lenders, by notice to the Company (i) terminate the Credit and the
Commitments or (ii) declare the outstanding principal of, and accrued interest
on, the Notes, all unpaid reimbursement obligations in respect of drawings under
Letters of Credit and all other amounts due under this Agreement to be
immediately due and payable, or (iii) demand immediate delivery of cash
collateral and the Company agrees to deliver such cash collateral upon demand,
in an amount equal to the maximum amount that may be available to be drawn at
any time prior to the stated expiry of all outstanding Letters of Credit, or any
one or more of the foregoing, whereupon the Credit and the Commitments shall
terminate forthwith and all such amounts, including such cash collateral, shall
become immediately due and payable, as the case may be, provided that in the
case of any event or condition described in Section 7.1(i) with respect to the
Company, the Credit and the Commitments shall automatically terminate forthwith
and all such amounts, including such cash collateral, shall automatically become
immediately due and payable without notice and without demand, presentment,
protest, diligence, notice of dishonor or other formality, all of which are
hereby expressly waived. Such cash collateral delivered in respect of
outstanding Letters of Credit shall be deposited in a special cash collateral
account to be held by the Agent as collateral security for the payment and
performance of the Company's obligations under this Agreement to the Lenders and
the Agent.
(b) Upon the occurrence and during the continuance of such Event of
Default, the Agent may, and, upon being directed to do so by the Majority
Lenders, shall, in addition to the remedies provided in Section 7.2(a), enforce
any and all other rights and remedies available to it or the Lenders either by
suit in equity, or by action at law, or by other appropriate proceedings,
whether for the specific performance (to the extent permitted by law) of any
covenant or agreement contained in this Agreement, the Notes or the Guaranties,
or in aid of the exercise of any power granted in this Agreement, the Notes or
the Guaranties, and may enforce the payment of the Notes and any other rights
available to it or the Lenders at law or in equity.
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(c) Upon the occurrence and during the continuance of any Event of
Default hereunder, each Lender is hereby authorized at any time and from time to
time, without notice to the Company (any requirement for such notice being
expressly waived by the Company) to set off and apply against any and all of the
obligations of the Company now or hereafter existing under this Agreement any
and all deposits (general or special, time or demand, provisional or final) at
any time held and other indebtedness at any time owing by such Lender to or for
the credit or the account of the Company and any property of the Company from
time to time in possession of such Lender, irrespective of whether or not such
Lender shall have made any demand hereunder and although such obligations may be
contingent and unmatured. The rights of the Lenders under this Section 7.2(c)
are in addition to other rights and remedies (including, without limitation,
other rights of setoff) which the Lenders may have.
ARTICLE VIII. THE AGENT AND THE LENDERS
8.1 Appointment of Agent. Bank One is appointed Agent for the Lenders
and accepts such appointment and agrees to act as such upon the conditions
herein set forth. The Agent shall have no duties or responsibilities except
those expressly set forth in this Agreement, and shall not, by reason of this
Agreement, have a fiduciary relationship with any Lender.
8.2 Scope of Agency. Neither the Agent nor any of its directors,
officers or agents shall be liable for any action taken or omitted by any of
them hereunder or under the Notes or any Guaranty except for its, his or her own
gross negligence or willful misconduct; or be responsible for any recitals,
warranties or representations herein or in the Notes or any other agreement to
which the Company or any Subsidiary is a party, or for the execution or validity
of this Agreement, the Notes, the Guaranties or any other agreement to which the
Company or any Subsidiary is a party; or be required to make any inquiry
concerning the performance by the Company of any of its obligations under this
Agreement, the Notes or any other agreement to which the Company or any
Subsidiary is a party. In the absence of gross negligence or willful misconduct,
the Agent shall be entitled to rely, without liability therefor, upon any
certificate or other document or other communication believed by it to be
genuine and correct and to have been signed or sent by the proper officer or
person and upon the advice of legal counsel (which may be legal counsel for the
Company), independent public accountants and other experts concerning all
matters pertaining to the agency. The Company agrees, upon demand, to pay or to
reimburse the Agent for the payment of all reasonable compensation of such
counsel, accountants and other experts and all other reasonable out-of-pocket
expenses of the Agent. To the extent that the Company shall fail to pay or to
reimburse the Agent for the payment of any such amounts, the Lenders shall
reimburse the Agent for such amounts on a pro rata basis in accordance with the
Commitments, and any such amount so paid shall be immediately due and payable to
the Lenders by the Company. The Lenders agree to indemnify the Agent ratably in
accordance with their Commitments for any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever which may be imposed on, incurred
by or asserted against the Agent in any way relating to or arising out of this
Agreement or the transactions contemplated hereby, provided that no Lender shall
be liable for any of the foregoing to the extent they arise solely from the
Agent's gross negligence or willful misconduct.
8.3 Duties of Agent. In carrying out the agency, the Agent shall have
only the duties and responsibilities expressly set forth in this Agreement. In
performing such duties and responsibilities, the Agent shall exercise the same
degree of care as it would if the Loans were entirely for its own account, but,
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unless the Agent has actual knowledge thereof, the Agent shall not be deemed to
have knowledge of the occurrence of any Event of Default or any Default, and
need not take or continue any action with respect thereto or toward the
enforcement of this Agreement, the Notes, or any Guaranty nor prosecute or
defend any suit with respect to this Agreement, the Notes, or any Guaranty
unless directed to do so by the Majority Lenders and unless indemnified to its
satisfaction against any loss, cost, liability or expense which it might incur
as a consequence of taking such action. The Agent may employ agents and
attorneys and shall not be answerable for the negligence or misconduct of any
such agents or attorneys selected by it with reasonable care. The Agent in its
capacity as a Lender hereunder shall have the same rights and powers hereunder
as any other Lender and may exercise the same as though it were not acting as
the Agent hereunder. Each Lender agrees that it has, independently and without
reliance on the Agent or any other Lender, and based on such documents and
information as it has deemed appropriate, made its own credit analysis of the
Company and the Subsidiaries in connection with its decision to enter into this
Agreement and that it will, independently and without reliance upon the Agent or
any other Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own analysis and decisions in
taking or not taking action under this Agreement.
8.4 Resignation of Agent. The Agent may resign as such at any time upon
30 days' prior written notice to the Company and the Lenders. In the event of
any such resignation, the Majority Lenders shall, by an instrument in writing
delivered to the Company and the Agent, appoint a successor which shall be an
incorporated bank or trust company. If a successor is not so appointed or does
not accept such appointment at least 5 days before the Agent's resignation
becomes effective, the Agent may appoint a temporary successor to act until such
appointment by the Majority Lenders is made and accepted. Any successor to the
Agent shall execute and deliver to the Company and the Lenders an instrument
accepting such appointment and, from and after such acceptance, such successor
Agent, without further act, deed, conveyance or transfer shall become vested
with all of the properties, rights, interests, powers, authorities and
obligations of its predecessor hereunder with like effect as if originally named
as Agent hereunder. Upon request of such successor Agent, the Company and the
Agent ceasing to act shall execute and deliver such instruments of conveyance,
assignment and further assurance and do such other things as may reasonably be
required for more fully and certainly vesting and confirming in such successor
Agent all such properties, rights, interests, powers, authorities and
obligations.
8.5 Pro Rata Sharing by Lenders. Each Lender agrees with every other
Lender that, in the event that it shall receive and retain any payment on
account of any Note in excess of its pro rata portion, according to the
principal amount of the Notes then outstanding, of the payment due all of the
Lenders, whether such payment be voluntary, involuntary or by operation of law,
by application of set-off of any indebtedness or otherwise, then such Lender
shall promptly purchase from the other Lenders, without recourse, for cash and
at face value, ratably in accordance with the principal amount of the Revolving
Credit Notes then outstanding, participation interests in the Notes of the other
Lenders in such an amount that each Lender shall have received payment pro rata
on account of the Revolving Credit Notes in accordance with the unpaid principal
amount thereof then owing to it; provided, that if any such purchase be made by
any Lender and if any such excess payment relating thereto or any part thereof
is thereafter recovered from such Lender, appropriate adjustment in the related
purchase from the other Lenders shall be made by rescission and restoration of
the purchase price as to the portion of such excess payment so recovered. It is
further agreed that, to the extent there is then owing by the Company or any
Guarantor to any Lender indebtedness other than that evidenced by the Notes, to
which such Lender may apply any involuntary payments of indebtedness by the
Company or any Guarantor, including those resulting from exercise of rights of
set-off or similar rights
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or any proceeds resulting from a sale or other disposition of or realization
upon any collateral or security now or hereafter securing indebtedness owing by
the Company or any Guarantor to any Lender other than that evidenced by the
Notes, such Lender shall apply all such involuntary payments first to
obligations of the Company to the Lenders hereunder and under the Notes and then
to such other indebtedness owed to it by the Company or any Guarantor.
ARTICLE IX. YIELD PROTECTION AND CONTINGENCIES
9.1 Additional Costs. (a) In the event that any applicable law, treaty,
rule or regulation (whether domestic or foreign) now or hereafter in effect and
whether or not presently applicable to any Lender or the Agent, or any
interpretation or administration thereof by any governmental authority charged
with the interpretation or administration thereof, or compliance by any Lender
or the Agent with any guideline, request or directive of any such authority
(whether or not having the force of law), shall (a) affect the basis of taxation
of payments to any Lender or the Agent of any amounts payable by the Company
under this Agreement (other than taxes imposed on the overall net income of any
Lender or the Agent, by the jurisdiction, or by any political subdivision or
taxing authority of any such jurisdiction, in which any Lender or the Agent, as
the case may be, has its principal office), or (b) shall impose, modify or deem
applicable any reserve, special deposit or similar requirement against assets
of, deposits with or for the account of, or credit extended by any Lender or the
Agent, or (c) shall impose any other condition with respect to this Agreement,
the Commitments, the Notes or the Loans or any Letter of Credit, and the result
of any of the foregoing is to increase the cost to any Lender or the Agent, as
the case may be, of making, funding or maintaining any Eurodollar Rate Loan or
any Letter of Credit or to reduce the amount of any sum receivable by any Lender
or the Agent, as the case may be, thereon, then the Company shall pay to such
Lender or the Agent, as the case may be, from time to time, upon request by such
Lender (with a copy of such request to be provided to the Agent) or the Agent,
additional amounts sufficient to compensate such Lender or the Agent, as the
case may be, for such increased cost or reduced sum receivable to the extent, in
the case of any Eurodollar Rate Loan, such Lender or the Agent is not
compensated therefor in the computation of the interest rate applicable to such
Eurodollar Rate Loan. A statement as to the amount of such increased cost or
reduced sum receivable, prepared in good faith and in reasonable detail by such
Lender or the Agent, as the case may be, and submitted by such Lender or the
Agent, as the case may be, to the Company, shall be conclusive and binding for
all purposes absent manifest error in computation.
(b) In the event that any applicable law, treaty, rule or regulation
(whether domestic or foreign) now or hereafter in effect and whether or not
presently applicable to any Lender or the Agent, or any interpretation or
administration thereof by any governmental authority charged with the
interpretation or administration thereof, or compliance by any Lender or the
Agent with any guideline, request or directive of any such authority (whether or
not having the force of law), including any risk-based capital guidelines,
affects or would affect the amount of capital required or expected to be
maintained by such Lender or the Agent (or any corporation controlling such
Lender or the Agent) and such Lender or the Agent, as the case may be,
determines that the amount of such capital is increased by or based upon the
existence of such Lender's or the Agent's obligations hereunder and such
increase has the effect of reducing the rate of return on such Lender's or the
Agent's (or such controlling corporation's) capital as a consequence of its
obligations hereunder to a level below that which such Lender or the Agent (or
such controlling corporation) could have achieved but for such circumstances
(taking into consideration its policies with respect to capital adequacy) by an
amount deemed by such Lender or the Agent to be material, then the Company shall
pay to such
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Lender or the Agent, as the case may be, from time to time, upon request by such
Lender (with a copy of such request to be provided to the Agent) or the Agent,
additional amounts sufficient to compensate such Lender or the Agent (or such
controlling corporation) for any increase in the amount of capital and reduced
rate of return which such Lender or the Agent reasonably determines to be
allocable to the existence of such Lender's or the Agent's obligations
hereunder. A statement as to the amount of such compensation, prepared in good
faith and in reasonable detail by such Lender or the Agent, as the case may be,
and submitted by such Lender or the Agent to the Company, shall be conclusive
and binding for all purposes absent manifest error in computation.
9.2 Illegality and Impossibility. In the event that any applicable law,
treaty, rule or regulation (whether domestic or foreign) now or hereafter in
effect and whether or not presently applicable to any Lender, or any
interpretation or administration thereof by any governmental authority charged
with the interpretation or administration thereof, or compliance by any Lender
with any guideline, request or directive of such authority (whether or not
having the force of law), including without limitation exchange controls, shall
make it unlawful or impossible for any Lender to maintain any Eurodollar Rate
Loan under this Agreement, the Company shall upon receipt of notice thereof from
such Lender, repay in full the then outstanding principal amount of each
Eurodollar Rate Loan so affected, together with all accrued interest thereon to
the date of payment and all amounts owing to such Lender under Section 9.3, (a)
on the last day of the then-current Interest Period applicable to such Loan if
such Lender may lawfully continue to maintain such Loan to such day, or (b)
immediately if such Lender may not continue to maintain such Loan to such day.
9.3 Funding Loss Indemnification. If the Company makes any payment of
principal with respect to any Eurodollar Rate Loan on any other date than the
last day of an Interest Period applicable thereto (whether pursuant to Section
7.2 or otherwise), or if the Company fails to borrow any Eurodollar Rate Loan
after notice has been given to the Lender or if the Company fails to make any
payment of principal or interest in respect of a Eurodollar Rate Loan when due,
the Company shall, in addition to any other amounts that may be payable
hereunder reimburse each Lender (or any existing or prospective participant in
the related Loan) on demand for any resulting loss or expense incurred by each
such Lender (or such participant), including without limitation any loss
incurred in obtaining, liquidating or employing deposits from third parties,
whether or not such Lender shall have funded or committed to fund such Loan. A
statement as to the amount of such loss or expense, prepared in good faith and
in reasonable detail by such Lender and submitted by such Lender to the Company,
shall be conclusive and binding for all purposes absent manifest error in
computation. Calculation of all amounts payable to such Lender under this
Section 9.3 shall be made as though such Lender shall have actually funded or
committed to fund its relevant Eurodollar Rate Loan through the purchase of an
underlying deposit in an amount equal to the amount of such Eurodollar Rate Loan
and having a maturity comparable to the related Interest Period and through the
transfer of such deposit from an offshore office of such Lender to a domestic
office of such Lender in the United States of America; provided, however, that
such Lender may fund any Eurodollar Rate Loan in any manner it sees fit and the
foregoing assumption shall be used only for the purpose of calculation of
amounts payable under this Section 9.3.
9.4 HLT. If, after the Effective Date, the Agent determines that, or
the Agent is advised by the Majority Lenders that the Majority Lenders have
received notice from any governmental authority, central bank or comparable
agent that, the Loans or the Commitments are classified as a "highly leveraged
transaction" (an "HLT Classification"), the Agent shall promptly give notice of
such HLT Classification to
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the Company and the other Lenders. During the period of such HLT Classification,
the applicable interest rate shall be increased by one percent (1%) in the case
of all Eurodollar Rate Loans, Prime Rate Loans, and Swing Line Loans.
ARTICLE X. MISCELLANEOUS
10.1 Amendments, Etc. (a) This Agreement and the Guaranties may be
amended from time to time and any provision hereof may be waived by an
instrument in writing executed by the Company, the Majority Lenders and the
Agent, provided that, except by an instrument in writing executed by the
Company, all of the Lenders and the Agent, no such amendment or waiver shall:
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(i) Authorize or permit the extension of the time or times
of payment of the principal of, or interest on, the
Notes or any of them, or any Letter of Credit
reimbursement obligation, or the reduction in the
principal amount thereof or the rate of interest
thereon, or the rate or time for payment of any fees or
any other modification in the terms of the payment of
the principal of or interest on the Notes or any fees;
or
(ii) Amend or change the respective amounts of the Lenders'
Commitments set forth in Section 2.1, reduce the
percentage of the aggregate principal amount of the
Loans outstanding required by the provisions of this
Section for the taking of any action under this
Section, or amend or change Section 2.8, the definition
of Majority Lenders, or this Section 10.1; or
(iii) Permit the termination of the obligations of any
Lender, provided that upon any such termination, (A)
the Company shall have the option to select a lender to
replace such terminating Lender and assume the rights
and obligations of such Lender hereunder, provided that
such replacement Lender is acceptable to each
non-terminating Lender, and (B) in the event that such
terminating Lender is not so replaced, each
non-terminating Lender shall be entitled, but shall not
be obligated, to increase its Commitment by an amount
equal to that amount of the terminating Lender's
Commitment bearing the same ratio to such terminating
Lender's Commitment as such non-terminating Lender's
Commitment bears to the aggregate Commitment of all
non-terminating Lenders. In the event that any
non-terminating Lender shall not elect to increase its
Commitment as specified in clause (B), each Lender
making such election shall be entitled, but shall not
be obligated, to further increase its Commitment by an
amount equal to that amount of each non-electing
Lender's Commitment bearing the same ratio to such
non-electing Lender's Commitment as such electing
Lender's Commitment bears to the aggregate Commitment
of all electing Lenders. The procedure set forth in the
preceding sentence shall be followed until the entire
Commitment of the terminating Lender is allocated or
until no non-terminating Lender shall desire to further
increase its Commitment; or
(iv) Release any guaranties of the Loans or release all or
any substantial portion of any collateral, if any.
(b) No such amendment or waiver of any provision of this Agreement, nor
consent to any departure by the Company therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Agent and by the
Majority Lenders or the Lenders, as the case may be, and then such amendment,
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given.
10.2 Notices. (a) Except as otherwise provided in Section 10.2(c), all
notices and other communications hereunder or under the Guaranty shall be in
writing and shall be delivered or sent to the Company, the Guarantors, the Agent
and the Lenders at the respective addresses for notices set forth on the
signatures pages hereof, or to such other address as may be designated by the
Company, any Guarantor, the Agent or any Lender by notice to the other parties
hereto. All notices and other communications shall be
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deemed to have been given at the time of actual delivery thereof to such address
or if sent by the Agent to the Company or to any Guarantor by certified or
registered mail, postage prepaid, to such address, on the fifth day after the
date of mailing, or, if sent by recognized overnight delivery service, prepaid
to such address, on the Business Day following the date of deposit with such
delivery service prior to such services next day delivery deadline, provided,
however, that notices to the Agent or the Lenders shall not be effective until
received.
(b) Notices by the Company to the Agent with respect to terminations or
reductions of the Commitments pursuant to Section 2.4, requests for extensions
pursuant to Section 2.8, requests for Loans pursuant to Section 3.1, and notices
of prepayment pursuant to Section 4.1 shall be irrevocable and binding on the
Company.
(c) Any notice to be given by the Company to the Agent pursuant to
Sections 2.4 or 3.1 and any notice to be given by the Agent hereunder, may be
given by telephone, by telex or by facsimile transmission and must be
immediately confirmed in writing in the manner provided in Section 10.2(a). Any
such notice given by telephone, telex or facsimile transmission shall be deemed
effective upon receipt thereof by the party to whom such notice is given.
10.3 Conduct No Waiver; Remedies Cumulative. No course of dealing on
the part of the Agent or any Lender, nor any delay or failure on the part of the
Agent or any Lender in exercising any right, power or privilege hereunder shall
operate as a waiver of such right, power or privilege or otherwise prejudice the
Agent's or such Lender's rights and remedies hereunder; nor shall any single or
partial exercise thereof preclude any further exercise thereof or the exercise
of any other right, power or privilege. No right or remedy conferred upon or
reserved to the Agent or any Lender under this Agreement, the Notes or any
Guaranty is intended to be exclusive of any other right or remedy, and every
right and remedy shall be cumulative and in addition to every other right or
remedy granted thereunder or now or hereafter existing under any applicable law.
Every right and remedy granted by this Agreement or the Notes or by applicable
law to the Agent or any Lender may be exercised from time to time and as often
as may be deemed expedient by the Agent or any Lender and, unless contrary to
the express provisions of this Agreement or the Notes, irrespective of the
occurrence or continuance of any Event of Default.
10.4 Reliance on and Survival of Various Provisions. All terms,
covenants, agreements, representations and warranties of the Company and the
Subsidiaries made herein or in any certificate or other document delivered
pursuant hereto shall be deemed to be material and to have been relied upon by
the Agent and the Lenders, notwithstanding any investigation heretofore or
hereafter made by any Lender or the Agent on such Lender's behalf, and those
covenants and agreements of the Company set forth in Sections 9.1, 9.2, and 10.5
shall survive the repayment in full of the Loans and the termination of the
Commitments.
10.5 Expenses; Indemnification. (a) The Company agrees to pay, or
reimburse the Agent for the payment of, on demand, (i) the reasonable fees and
expenses of outside legal counsel to the Agent, including without limitation the
fees and expenses of Dickinson Wright PLLC, in connection with the preparation,
execution, delivery and administration of this Agreement, the Notes, the
Guaranties and the consummation of the transactions contemplated hereby, and in
connection with advising the Agent as to its rights and responsibilities with
respect thereto, and in connection with any amendments, waivers or consents in
connection therewith, and (ii) all stamp and other taxes and fees payable or
determined to be payable in connection with the execution, delivery, filing or
recording of this Agreement, the Notes, the Guaranties and
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the consummation of the transactions contemplated hereby, and any and all
liabilities with respect to or resulting from any delay in paying or omitting to
pay such taxes or fees, and (iii) all reasonable costs and expenses of the Agent
and the Lenders (including reasonable fees and expenses of legal counsel and
whether incurred through negotiations, legal proceedings or otherwise) in
connection with any Default or Event of Default or the enforcement of, or the
exercise or preservation of any rights under, this Agreement or the Notes, the
Guaranties or in connection with any financing or restructuring of the credit
arrangements provided under this Agreement, and (iv) all reasonable costs and
expenses of the Agent and the Lenders (including reasonable fees and expenses of
legal counsel) in connection with any action or proceeding relating to a court
order, injunction or other process or decree restraining or seeking to restrain
the Agent from paying any amount under, or otherwise relating in any way to, any
Letter of Credit and any and all costs and expenses which any of them may incur
relative to any payment under any Letter of Credit. The Company indemnifies and
agrees to hold harmless the Agent and the Lenders from and against any and all
liabilities, damages, penalties, suits, costs, and expenses of any kind and
nature (including reasonable attorneys fees and disbursements), imposed on,
incurred by or asserted against any of them in any way relating to or arising
out of this Agreement, the Notes, the Guaranties and any other document and
agreement executed pursuant hereto (including the administration and enforcement
thereof) or in any way relating to or arising out of any activities of the
Company, including without limitation the Company's acquisition, or attempted
acquisitions, directly or indirectly, in any manner, of a part or all of the
stock (or other equity interest) or assets of any person or the manufacture,
sale, lease, or return or other disposition of any goods by the Company or any
Subsidiary (including, without limitation, latent and other defects, whether or
not discoverable by the Lender or the Company or any Subsidiary, any tort claim
(whether in strict liability or otherwise), and any claim for patent, trademark
or copyright infringement).
(b) The Company indemnifies and agrees to hold harmless the Lenders and
the Agent, and their respective officers, directors, employees and agents,
harmless from and against any and all claims, damages, losses, liabilities,
costs or expenses of any kind or nature whatsoever which the Lenders or the
Agent or any such person may incur or which may be claimed against any of them
by reason of or in connection with any Letter of Credit, and neither any Lender
nor the Agent or any of their respective officers, directors, employees or
agents shall be liable or responsible for: (i) the use which may be made of any
Letter of Credit or for any acts or omissions of any beneficiary in connection
therewith; (ii) the validity, sufficiency or genuineness of documents or of any
endorsement thereon, even if such documents should in fact prove to be in any or
all respects invalid, insufficient, fraudulent or forged; (iii) payment by the
Agent to the beneficiary under any Letter of Credit against presentation of
documents which do not comply with the terms of any Letter of Credit, including
failure of any documents to bear any reference or adequate reference to such
Letter of Credit; (iv) any error, omission, interruption or delay in
transmission, dispatch or delivery of any message or advice, however
transmitted, in connection with any Letter of Credit; or (v) any other event or
circumstance whatsoever arising in connection with any Letter of Credit;
provided, however, that the Company shall not be required to indemnify the
Lenders and the Agent and such other persons, and the Agent shall be liable to
the Company to the extent, but only to the extent, of any direct, as opposed to
consequential or incidental, damages suffered by the Company which were caused
by (A) the Agent's wrongful dishonor of any Letter of Credit after the
presentation to it by the beneficiary thereunder of a draft or other demand for
payment and other documentation strictly complying with the terms and conditions
of such Letter of Credit, or (B) the payment by the Agent to the beneficiary
under any Letter of Credit against presentation of documents which do not comply
with the terms of the Letter of Credit to the extent, but only to the extent,
that such payment constitutes gross negligence or willful misconduct of the
Agent. It is understood that in making any payment under a Letter of Credit, the
Agent will rely on documents presented to it under such Letter of Credit as to
1999 CREDIT AGREEMENT
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<PAGE> 47
any and all matters set forth therein without further investigation and
regardless of any notice or information to the contrary, and such reliance and
payment against documents presented under a Letter of Credit substantially
complying with the terms thereof shall not be deemed gross negligence or willful
misconduct of the Agent in connection with such payment. It is further
acknowledged and agreed that the Company may have rights against the beneficiary
or others in connection with any Letter of Credit with respect to which the
Lenders are alleged to be liable and it shall be a precondition of the assertion
of any liability of the Lenders under this Section that the Company shall first
have exhausted all remedies in respect of the alleged loss against such
beneficiary and any other parties obligated or liable in connection with such
Letter of Credit and any related transactions.
10.6 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, provided that the Company may not, without the prior consent of the
Lenders, assign its rights or obligations hereunder or under the Notes or any
Guaranty and the Lenders shall not be obligated to make any Loan hereunder to
any entity other than the Company.
10.7 Participations and Assignments. (a) Any Lender may sell
participations to one or more banks or other entities in or to all or a portion
of its rights and obligations under this Agreement (including, without
limitation, all or a portion of its Commitment, the Notes held by it, and its
interest in the Guaranties) provided that (i) such Lender's obligations under
this Agreement (including without limitation, its Commitment to lend to the
Company hereunder) shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations,
(iii) such Lender shall remain the holder of its Note for all purposes under
this Agreement, and (iv) the Company, the Agent and the other Lenders shall
continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement.
(b) (i) Any Lender may assign, transfer and negotiate all or a portion
of its Commitment, the Notes held by it, and its interest in the Guaranties to
any affiliate of such Lender, to any other Lender, or, following the occurrence
and during the continuance of a Default, to any financial institution or
institutions, without the consent of any other Lender, the Agent or the Company
and (ii) any Lender may otherwise so assign, transfer and negotiate such
Lender's interest, with the consent of the Company, which consent shall not be
unreasonably withheld, and the Agent to any financial institution or
institutions, provided, however, that each such assignment of less than all of a
Lender's commitment shall be in the minimum amount of $10,000,000 and integral
multiples of $5,000,000. In the case of any assignment, transfer or negotiation,
the assignee, transferee or recipient shall have, to the extent of such
assignment, transfer or negotiation, the same rights, benefits and obligations
as if it were a Lender with respect to such Commitment or Notes, including,
without limitation, the right to approve or disapprove actions which, in
accordance with the terms hereof, require the approval of Majority Lenders and
the obligation to fund Loans and Letter of Credit Advances pursuant to Article
III. The parties to each such assignment shall execute and deliver to the Agent
an Acceptance and Assignment, together with any Note or Notes subject to such
assignment. The assigning Lender shall pay to the Agent an assignment fee in the
amount of $3,500 for administration of each assignment, transfer or negotiation
of its Commitment and Notes.
10.8 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
1999 CREDIT AGREEMENT
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<PAGE> 48
10.9 Governing Law. This Agreement is a contract made under, and shall
be governed by and construed in accordance with, the laws of the State of
Michigan applicable to contracts made and to be performed entirely within such
State and without giving effect to choice of law principles of such State. The
Company further agrees that any legal action or proceeding with respect to this
Agreement or the Notes or the transactions contemplated hereby may be brought in
any court of the State of Michigan, or in any court of the United States of
America sitting in Michigan, and the Company hereby submits to and accepts
generally and unconditionally the jurisdiction of those courts with respect to
its person and property.
10.10 Table of Contents and Headings. The table of contents and the
headings of the various subdivisions hereof are for the convenience of reference
only and shall in no way modify any of the terms or provisions hereof.
10.11 Construction of Certain Provisions. If any provision of this
Agreement refers to any action to be taken by any person, or which such person
is prohibited from taking, such provision shall be applicable whether such
action is taken directly or indirectly by such person, whether or not expressly
specified in such provision.
10.12 Integration and Severability. This Agreement embodies the entire
agreement and understanding between the Company, the Agent and the Lenders, and
supersedes all prior agreements and understandings, relating to the subject
matter hereof. In case any one or more of the obligations of the Company under
this Agreement or any Note shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
obligations of the Company shall not in any way be affected or impaired thereby,
and such invalidity, illegality or enforceability in one jurisdiction shall not
affect the validity, legality or enforceability of the obligations of the
Company under this Agreement or the Notes in any other jurisdiction.
10.13 Interest Rate Limitation. Notwithstanding any provisions of this
Agreement, the Notes or any other documents, in no event shall the amount of
interest paid or agreed to be paid by the Company exceed an amount computed at
the highest rate of interest permissible under applicable law. If, from any
circumstances whatsoever, fulfillment of any provision of this Agreement or the
Notes at the time performance of such provision shall be due, shall involve
exceeding the interest rate limitation validly prescribed by law which a court
of competent jurisdiction may deem applicable hereto, then, ipso facto, the
obligations to be fulfilled shall be reduced to an amount computed at the
highest rate of interest permissible under applicable law, and if for any reason
whatsoever the Lender shall ever receive as interest an amount which would be
deemed unlawful under such applicable law such interest shall be automatically
applied to the payment of principal of the Loans outstanding hereunder (whether
or not then due and payable) and not to the payment of interest, or shall be
refunded to the Company if such principal and all other obligations of the
Company to the Lenders have been paid in full.
10.14 Execution by Guarantors. Each of the Guarantors is joining in the
execution of this Agreement for the purpose of acknowledging and agreeing to all
of the terms hereof and the conditions and obligations to be observed or
performed by such Guarantor hereunder.
10.15 Foreign Lenders. Each Lender organized under the laws of a
jurisdiction outside the United States shall, from time to time if requested in
writing by the Agent (but only so long thereafter as such Lender remains
lawfully able to do so), provide the Agent and the Company with Internal Revenue
Service form
1999 CREDIT AGREEMENT
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<PAGE> 49
1001 or 4224, as appropriate, or any successor form prescribed by the Internal
Revenue Service, certifying that such Lender is entitled to benefits under an
income tax treaty to which the United States is a party that reduces the rate of
withholding tax on payments under this Agreement or the Notes certifying that
the income receivable pursuant to this Agreement or the Notes is effectively
connected with the conduct of a trade or business in the United States. If the
form provided by a Lender at the time such Lender first becomes a party to this
Agreement indicates a United States interest withholding tax rate in excess of
zero, withholding tax at such rate shall be considered excluded from taxes. If
any form or document referred to in this Section 10.15 requires the disclosure
of information, other than information necessary to compute the tax payable and
information required on the date hereof by Internal Revenue Service form 1001 or
4224, that the Lender reasonably considers to be confidential, the Lender shall
give notice thereof to the Company and shall not be obligated to include in such
form or document such confidential information.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of September 23, 1999, which shall be the
Effective Date of this Agreement, notwithstanding the day and year first above
written or the date this Agreement is executed by any of the parties hereto, and
which shall be the date inserted by the Agent on which the Agent has executed
counterparts of this Agreement which have been executed by each of the Lenders,
the Company, and the Guarantors.
Address for Notices: PERRIGO COMPANY
117 Water Street
Allegan, MI 49010
Attn: Treasurer By:
Telephone:(616) 673-7936 ----------------------
Facsimile:(616) 673-1234 James R. Ondersma
Treasurer
Address for Notices: L. PERRIGO COMPANY
117 Water Street
Allegan, MI 49010
Attn: Treasurer By:
Telephone:(616) 673-7936 ----------------------
Facsimile:(616) 673-1234 James R. Ondersma
Treasurer
Address for Notices: PERRIGO COMPANY OF SOUTH CAROLINA, INC.
117 Water Street
Allegan, MI 49010
Attn: Treasurer By:
Telephone:(616) 673-7936 ----------------------
Facsimile:(616) 673-1234 James R. Ondersma
Treasurer
1999 CREDIT AGREEMENT
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<PAGE> 50
Address for Notices: BANK ONE, MICHIGAN, as
611 Woodward Avenue Agent and Individually
Detroit, MI 48226 as a Lender
Attn: Manager,
Commercial Loans
By:
----------------------
With a Copy to: William C. Goodhue
William C. Goodhue Managing Director
Telephone: (313) 225-2227
Facsimile: (313) 226-0855
Address for Notices: COMERICA BANK
500 Woodward Ave.
Detroit, MI 48226
Attn: Robert M. Porterfield By:
Telephone: (313) 222-7802 ----------------------
Telecopy: (313) 222-9514 Robert M. Porterfield
Vice President
Address for Notices: OLD KENT BANK
111 Lyon Street, NW
Grand Rapids, MI 49502-3001
Attn: Todd E. Dood By:
Telephone: (616) 771-5870 ----------------------
Telecopy: (616) 771-4641 Todd E. Dood
Vice President
Address for Notices: HARRIS TRUST AND SAVINGS BANK
111 West Monroe St., 10th Fl. West
Chicago, IL 60603
Attn: Thad D. Rasche By:
Telephone: (312) 461-5739 ----------------------
Facsimile: (312) 461-5225 Thad D. Rasche
Vice President
Address for Notices: NATIONAL CITY BANK
1001 South Worth, R-J40-4A
Birmingham, MI 48009
Attn: Kenneth Ehrhardt By:
Telephone: (248) 901-1402 ----------------------
Facsimile: (248) 901-2033 Kenneth Ehrhardt
Vice President
1999 CREDIT AGREEMENT
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<PAGE> 51
Address for Notices: THE NORTHERN TRUST COMPANY
50 S. LaSalle St.
Chicago, IL 60675
Attn: Brian D. Beitz By:
Telephone: (312) 444-3987 --------------------------
Facsimile: (312) 444-7028 Brian D. Beitz
Vice President
DETROIT 7-3265 454079-7
1999 CREDIT AGREEMENT
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<PAGE> 1
GUARANTY AGREEMENT
THIS GUARANTY AGREEMENT, dated as of September 23, 1999 (this
"Guaranty"), is made by L. PERRIGO COMPANY, a Michigan corporation, and PERRIGO
COMPANY OF SOUTH CAROLINA, INC., a Michigan corporation (collectively, the
"Guarantors" and each, individually, a "Guarantor"), in favor of the lenders
(the "Lenders") which are parties to a Credit Agreement (as defined below), and
BANK ONE, MICHIGAN, a Michigan banking corporation, as agent (in such capacity,
the "Agent") for such Lenders under the Credit Agreement.
RECITALS
A. Perrigo Company, a Michigan corporation (the "Company"), has entered
a 1999 Credit Agreement of even date herewith (the "Credit Agreement") with the
Lenders and the Agent, pursuant to which the Lenders have agreed to make Loans
to the Company.
B. As a condition to the effectiveness of the obligations of the
Lenders under the Credit Agreement, the Guarantors are required to guarantee,
among other things, the obligations of the Company in respect of the Loans and
other obligations of the Company under the Notes and the Credit Agreement.
C. The Guarantors have reviewed the Credit Agreement, the Notes, and
all other documents, agreements, instruments and certificates furnished by or on
behalf of the Company in connection therewith (all of the foregoing, as amended
or modified from time to time and together with any agreements or instruments in
replacement thereof, being collectively referred to as the "Operative
Documents"), and the Guarantors have determined that it is in their interest and
to their financial benefit that the parties to the Operative Documents enter
into the transactions contemplated thereby. This Guaranty supersedes the
Guaranty Agreement dated as of June 30, 1996, executed by the Guarantors in
connection with the Credit Agreement dated as of June 30, 1996, among the
Company, the lenders party thereto, and the Agent.
For valuable consideration, the receipt of which is acknowledged, and
as further consideration, and as an inducement to the Lenders to maintain the
credit facilities established by the Operative Documents, the Guarantors agree
with the Lenders and the Agent as follows:
1. Guarantee of Obligations. (a) The Guarantors (i) jointly and
severally guarantee to the Lenders the prompt payment of the principal of and
any and all accrued and unpaid interest (including without limitation interest
which, but for the filing of a bankruptcy petition, would have accrued on the
principal amount of the Guaranteed Obligations) on the Loans, when due, whether
by scheduled maturity, acceleration or otherwise, all in accordance with the
terms of the Notes and the Credit Agreement, all reimbursement obligations under
any letters of credit issued by the Agent for the account of the Company, and
any and all other amounts which may be payable by the Company to the Lenders or
the Agent in connection with or pursuant to any of the Operative Documents,
including without limitation default interest, indemnification payments, and all
costs and expenses incurred by the Lenders or the Agent in connection with
enforcing any obligations of the Company thereunder, including without
limitation the reasonable fees and disbursements of legal counsel, and (ii)
agree to make prompt payment, on
<PAGE> 2
demand, of any and all costs and expenses incurred by the Lenders and the Agent
in connection with enforcing the obligations of the Guarantors hereunder,
including without limitation the reasonable fees and disbursements of counsel.
All of the foregoing are collectively referred to as the "Guaranteed
Obligations".
(b) If for any reason any amount payable under or in
connection with any Operative Document shall not be paid in full when the same
becomes due and payable, the Guarantors undertake to pay forthwith each such
amount to the Lenders and the Agent regardless of any defense or setoff or
counterclaim which the Company may have or assert, and regardless of any other
condition or contingency.
(c) The date and amount of the Loans and of each payment of
principal and interest thereon and other amounts received, and the aggregate
amount thereof shown upon the books and records of the Lenders or the Agent, and
in any certificate delivered by the Lenders or the Agent to the Guarantors in
respect thereof, shall be prima facie evidence of the amount due, owing, and
unpaid on the Loans. The failure to record any such information on such books
and records shall not, however, limit or otherwise affect the obligations of the
Company to repay the amount of the Loans together with accrued interest thereon
or the obligations of the Guarantors hereunder with respect thereto.
1. Nature of Guaranty. This Guaranty is an absolute and unconditional
and irrevocable guaranty of payment and not a guaranty of collection and is
wholly independent of and in addition to other rights and remedies of the
Lenders and the Agent and is not contingent upon the pursuit by the Lenders or
the Agent of any such rights and remedies, and the Guarantors waive such
pursuit.
2. Waivers and Other Agreements. The Guarantors unconditionally (a)
waive any requirement that the Lenders or the Agent, in the event of any default
by the Company, first make demand upon, or seek to enforce remedies against, the
Company before demanding payment under or seeking to enforce this Guaranty, (b)
covenant that this Guaranty will not be discharged except by complete
performance of all obligations of the Company contained in the Operative
Documents, (c) agree that this Guaranty shall remain in full force and effect
without regard to, and shall not be affected or impaired by, any invalidity,
irregularity, or unenforceability in whole or in part of any of the Operative
Documents, or any limitation on the liability of the Company thereunder, or any
limitation on the method or terms of payment thereunder which may now or
hereafter be imposed in any manner whatsoever, (d) waive diligence, presentment,
and protest with respect to, and any notice of default or dishonor in the
payment of any amount at any time payable by the Company under or in connection
with, any of the Operative Documents, and further waive any requirement of
notice of acceptance of, or other formality relating to, this Guaranty, and (e)
agree that the Guaranteed Obligations shall include any amounts paid by the
Company which may be required to be returned to the Company, or to its
representative or to a trustee, custodian, or receiver for the Company.
3. Obligations Absolute. The obligations, covenants, agreements, and
duties of the Guarantors under this Guaranty shall not be released, affected, or
impaired by any of the following, whether or not undertaken with notice to or
consent of the Guarantors: (a) any
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<PAGE> 3
assignment or transfer, in whole or in part, of the Loans or any of the
Operative Documents, or (b) any waiver by the Lenders or the Agent, or by any
other person, of the performance or observance by the Company of any of the
agreements, covenants, terms, or conditions contained in any of the Operative
Documents, or (c) any indulgence in or the extension of the time for payment by
the Company of any amounts payable under or in connection with any of the
Operative Documents, or of the time for performance by the Company of any other
obligations under or arising out of any of the Operative Documents, or the
extension or renewal thereof, whether occurring once or more than once, or (d)
the modification, amendment or waiver (whether material or otherwise) of any
duty, agreement, or obligation of the Company set forth in any of the Operative
Documents (the modification, amendment, or waiver from time to time of the
Credit Agreement or the Notes being expressly authorized without further notice
to or consent of the Guarantors), or (e) the voluntary or involuntary
liquidation, sale, or other disposition of all or substantially all of the
assets of the Company, or any receivership, insolvency, bankruptcy,
reorganization, or other similar proceedings affecting the Company or any of its
assets, or (f) the merger or consolidation of the Company or any Guarantor with
any other person, or (g) the release or discharge of the Company or any
Guarantor from the performance or observance of any agreement, covenant, term,
or condition contained in any of the Operative Documents by operation of law, or
(h) any other cause, whether similar or dissimilar to the foregoing, which would
release, affect, or impair the obligations, covenants, agreements, or duties of
the Guarantors hereunder.
4. Representations and Warranties. Each Guarantor represents and
warrants that (a) the execution, delivery, and performance by the Guarantor of
this Guaranty are within its corporate powers, have been duly authorized by all
necessary corporate action, require no action by or in respect of, or filing
with, any governmental body, and do not contravene, or constitute a default
under, any provision of applicable law or regulation or of the articles of
incorporation or other charter documents or bylaws of the Guarantor, or of any
agreement, judgment, injunction, order, decree, or other instrument binding upon
the Guarantor or its property; (b) this Guaranty constitutes a legal, valid, and
binding obligation of the Guarantor, enforceable against the Guarantor in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium, or other similar laws
relating to creditors' rights, and except that the remedy of specific
performance and injunctive and other forms of equitable relief are subject to
equitable defenses and to the discretion of the court in which any proceedings
may be brought; and (c) as of the date hereof, each of the following is true and
correct for the Guarantor: (i) the fair saleable value and the fair valuation of
the Guarantor's property is greater than the total amount of its liabilities
(including contingent liabilities) and greater than the amount that would be
required to pay its probable aggregate liability on its existing debts as they
become absolute and matured, (ii) the Guarantor's capital is not unreasonably
small in relation to its current and/or contemplated business or other
undertaken transactions, and (iii) the Guarantor does not intend to incur, or
believe that it will incur, debts beyond its ability to pay such debts as they
become due.
5. Common Enterprise. The Guarantors represent to the Lenders that the
Company and the Guarantors are engaged as an integrated group in the business of
manufacturing and distributing over-the-counter pharmaceutical and nutritional
products for the store and value brand markets; that the integrated operation
requires financing on such a basis that credit
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<PAGE> 4
supplied to the Company can be made available from time to time to the Company
and the Guarantors, as required for the continued successful operation of the
Guarantors and the integrated operation as a whole, and that the Guarantors have
requested the Lenders to continue to lend and to make credit available to the
Company and the Guarantors, with the Guarantors expecting to derive benefit,
directly or indirectly, from the loans and other credit extended by the Lenders
to the Company, both in each Guarantor's separate capacity and as a member of
the integrated group, inasmuch as the successful operation and condition of the
Guarantors is dependent upon the continued successful performance of the
functions of the integrated group as a whole.
6. Amendments, Etc. This Guaranty may be amended from time to time and
any provision hereof may be waived in accordance with the requirements of the
Credit Agreement. No such amendment or waiver of any provision of this Guaranty
nor consent to any departure by the Guarantors therefrom shall in any event be
effective unless the same shall be in writing and signed by the Majority Lenders
or all of the Lenders, as the case may be, and to the extent any rights or
duties of the Agent may be affected, the Agent, and then such amendment, waiver
or consent shall be effective only in the specific instance and for the specific
purpose for which given.
7. Notices. All notices, demands, requests, consents, and other
communications hereunder shall be in writing and made in accordance with Section
10.2(a) of the Credit Agreement.
8. Conduct No Waiver; Remedies Cumulative. The obligations of the
Guarantors under this Guaranty are continuing obligations and a separate and
independent cause of action shall arise in respect of each enforcement hereunder
and default hereunder or under the Credit Agreement. No course of dealing on the
part of any Lender or the Agent, nor any delay or failure on the part of any
Lender in exercising any right, power, or privilege hereunder shall operate as a
waiver of such right, power, or privilege or otherwise prejudice the rights and
remedies of the Lenders and the Agent hereunder; nor shall any single or partial
exercise thereof preclude any further exercise thereof or the exercise of any
other right, power or privilege. No right or remedy conferred upon or reserved
to the Lenders or the Agent under this Guaranty is intended to be exclusive of
any other right or remedy, and every right and remedy shall be cumulative and in
addition to every other right or remedy given hereunder or now or hereafter
existing under any applicable law. Every right and remedy given by this Guaranty
or by applicable law to the Lenders or the Agent may be exercised from time to
time and as often as may be deemed expedient by them.
9. Reliance on and Survival of Various Provisions. All terms,
covenants, agreements, representations, and warranties of the Guarantors made
herein or in any certificate or other document delivered pursuant hereto shall
be deemed to be material and to have been relied upon by the Lenders and the
Agent, notwithstanding any investigation heretofore or hereafter made by any
Lenders or the Agent or on their behalf.
10. Successors and Assigns. The rights and remedies of the Lenders
hereunder shall inure to the benefit of the Lenders and the Agent and their
respective successors and assigns, and
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<PAGE> 5
the duties and obligations of the Guarantors hereunder shall be binding upon the
Guarantors and their successors and assigns.
11. Governing Law; Consent to Jurisdiction. This Guaranty is a contract
made under, and the rights and obligations of the parties hereunder shall be
governed by and construed in accordance with, the laws of the State of Michigan
applicable to contracts to be made and to be performed entirely within such
State. The Guarantors further agree that any legal action or proceeding brought
with respect to this Guaranty or the transactions contemplated hereby may be
brought in any court of the State of Michigan, or any court of the United States
of America sitting in Michigan, and the Guarantors irrevocably submit to and
accept generally and unconditionally the jurisdiction of those courts with
respect to their persons and property.
12. Definitions; Headings. Terms used but not defined herein shall have
the respective meanings ascribed thereto in the Credit Agreement. The headings
of the various subdivisions hereof are for convenience of reference only and
shall in no way modify any of the terms or provisions hereof.
13. Integration; Severability; Enforceability. (a) This Guaranty and
the Credit Agreement (including any documents specified therein for execution by
the Guarantors) embody the entire agreement and understanding among the
Guarantors, the Lenders, and the Agent, and supersede all prior agreements and
understandings, relating to the subject matter hereof. If any one or more
provisions of this Guaranty should be invalid, illegal, or unenforceable in any
respect, the validity, legality, and enforceability of the remaining provisions
contained herein shall not in any way be affected, impaired, prejudiced or
disturbed thereby. If at any time any portion of the obligations of the
Guarantors under this Guaranty shall be determined by a court of competent
jurisdiction to be invalid, unenforceable, or avoidable, the remaining portion
of the Guarantors' obligations under this Guaranty shall not in any way be
affected, impaired, prejudiced, or disturbed thereby and shall remain valid and
enforceable to the fullest extent permitted by applicable law.
(b) It is the intent of each Guarantor, the Agent, and the
Lenders that each Guarantor's maximum Guaranteed Obligations shall be in, but
not in excess of:
(i) in a case or proceeding commenced by or against
such Guarantor under the Bankruptcy Code on or within one year from the date on
which any of the Guaranteed Obligations are incurred, the maximum amount that
would not otherwise cause the Guaranteed Obligations (or any other obligations
of such Guarantor to the Agent and the Lenders) to be avoidable or unenforceable
against such Guarantor under (A) Section 548 of the Bankruptcy Code or (B) any
state fraudulent transfer or fraudulent conveyance act or statute applied in
such case or proceeding by virtue of Section 544 of the Bankruptcy Code; or
(ii) in a case or proceeding commenced by or against
such Guarantor under the Bankruptcy Code after one year from the date on which
any of the Guaranteed Obligations are incurred, the maximum amount that would
not otherwise cause the Guaranteed Obligations (or any other obligations of such
Guarantor to the Agent and the Lenders) to be avoidable or unenforceable against
such Guarantor under any state fraudulent transfer or
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<PAGE> 6
fraudulent conveyance act or statute applied in any such case or proceeding by
virtue of Section 544 of the Bankruptcy Code; or
(iii) in a case or proceeding commenced by or against
such Guarantor under any law, statute, or regulation other than the Bankruptcy
Code (including without limitation any other bankruptcy, reorganization,
arrangement, moratorium, readjustment of debt, dissolution, liquidation, or
similar debtor relief laws), the maximum amount that would not otherwise cause
the Guaranteed Obligations (or any other obligations of such Guarantor to the
Agent and the Lenders) to be avoidable or unenforceable against such Guarantor
under such law, statute, or regulation, including without limitation any state
fraudulent transfer or fraudulent conveyance act or statute applied in any such
case or proceeding.
14. Reinstatement. This Guaranty shall remain in full force and effect
and continue to be effective in the event any petition is filed by or against
the Company or any Guarantor for liquidation or reorganization, in the event the
Company or any Guarantor becomes insolvent or makes an assignment for the
benefit of creditors, or in the event a receiver or trustee is appointed for all
or any significant part of the Company's or any Guarantor's assets, and shall
continue to be effective or be reinstated, as the case may be, if at any time
payment and performance of the Guaranteed Obligations, or any part thereof, is,
pursuant to applicable law, rescinded or reduced in amount, or must otherwise be
restored or returned by the Lenders or the Agent, whether as a "voidable
preference", "fraudulent conveyance", or otherwise, all as though such payment
or performance had not been made. In the event that any payment, or any part
thereof, is rescinded, reduced, restored, or returned, the Guaranteed
Obligations shall be reinstated and deemed reduced only by such amount paid and
not so rescinded, reduced, restored, or returned.
15. Subrogation and Contribution. (a) If any Guarantor makes a payment
in respect of the Guaranteed Obligations, it shall be subrogated to the rights
of the payee against the Company with respect to such payment and shall have the
rights of contribution set forth below against all other Guarantors (as the term
"Guarantors" is defined in the Credit Agreement, which includes all current
Guarantors of the Guaranteed Obligations and any person at any time becoming a
Guarantor of the Guaranteed Obligations), and each Guarantor agrees that all
other Guarantors shall have the rights of contribution against it set forth
below; provided, that no Guarantor shall enforce its rights to any payment by
way of subrogation or by exercising its right of contribution until all of the
Guaranteed Obligations shall have been paid in full and such payment is not
subject to any possibility of revocation or rescission and the Credit Agreement
has expired or been terminated. If any Guarantor makes a payment in respect of
the Guaranteed Obligations that is smaller in proportion to its Payment
Obligation (as defined below) than such payments by the other Guarantors are in
proportion to the amounts of their respective Payment Obligations, such
Guarantor shall, when permitted by the preceding sentence, pay to the other
Guarantors an amount such that the net payments made by the Guarantors in
respect of the Guaranteed Obligations shall be shared among the Guarantors pro
rata in proportion to their respective Payment Obligations. If any Guarantor
receives any payment by way of subrogation that is greater in proportion to the
amount of its Payment Obligation than the payments received by the other
Guarantors are in proportion to the amounts of their respective Payment
Obligations, such Guarantor shall, when permitted by the second preceding
sentence, pay to the other Guarantors an amount such that the subrogation
payments received by the Guarantors shall
-6-
<PAGE> 7
be shared among the Guarantors pro rata in proportion to their respective
Payment Obligations. Notwithstanding anything to the contrary contained in this
paragraph or in this Guaranty, no Guarantor shall have the right of subrogation
or contribution whatsoever, whether arising under this Guaranty or otherwise,
and no liability or obligation shall accrue pursuant to any such rights or shall
be paid or shall be deemed owing, until all of the Guaranteed Obligations shall
be paid in full and not be subject to any possibility of revocation or
rescission and the Credit Agreement has expired or been terminated, and, upon
any enforcement of this Guaranty, all present and future indebtedness,
obligations and liabilities of the Company to any Guarantor shall be fully
junior and subordinate in right and priority of payment to the Guaranteed
Obligations.
(b) For purposes hereof, the "Payment Obligation" of each
Guarantor shall be the sum of (i) the aggregate proceeds of the Guaranteed
Obligations received by such Guarantor plus (ii) the product of (A) the
aggregate Guaranteed Obligations remaining unpaid on the date such Guaranteed
Obligations become due and payable in full, whether by stated maturity,
acceleration, or otherwise, reduced by the amount of such Guaranteed Obligations
attributed to such Guarantors pursuant to clause (i) above, times (B) a
fraction, the numerator of which is such Guarantor's net worth on the effective
date of this Guaranty (determined as of the end of the immediately preceding
fiscal reporting period of such Guarantor), and the denominator of which is the
aggregate net worth of all Guarantors on such effective date.
16. Joint and Several Obligations. The obligations of the Guarantors
hereunder and any other parties now or hereafter guranteeing any of the
Guaranteed Obligations shall be joint and several, and the Guarantors shall be
liable for all of the Guaranteed Obligations, regardless of any additional
guarantors, and the Lenders and the Agent shall have the right, in their sole
discretion, to pursue their remedies against any other guarantor, whether now or
hereafter in existence, or against the Guarantors and any other guarantors
separately or against any two or more jointly, or against some separately and
some jointly.
IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be duly
executed and delivered as of the day and year first above written.
L. PERRIGO COMPANY
By:
----------------------------
Its:
------------------------
PERRIGO COMPANY OF SOUTH CAROLINA,
INC.
By:
----------------------------
Its:
------------------------
-7-
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
State/Country of Percent Owned By
Name Incorporation Perrigo Company
- ---- ---------------- ----------------
<S> <C> <C>
L. Perrigo Company Michigan 100%
Perrigo Company of Tennessee, Inc. Tennessee 100%
Perrigo Company of Missouri, Inc. Missouri 100%
Perrigo Company of Michigan 100%
South Carolina, Inc.
Perrigo Sales Company Michigan 100%
Perrigo (Barbados), L.T.D. Barbados 100%
Perrigo International, Inc. Michigan 100%
Perrigo de Mexico S.A. de C.V. Nuevo Leon (Mexico) 100% by Perrigo International, Inc.
Nippon Perrigo K.K. Japan 100% by Perrigo International, Inc.
Perrigo Asia Ltd. Michigan 100% by Perrigo International, Inc.
Sagmel U.S.A. Illinois 50% by Perrigo International, Inc.
Quimica y Farmacia S.A. de C.V. Mexico 87.8% by Perrigo International, Inc.
Shandex Sales Group Limited Canada 30% by Perrigo International, Inc.
Perrigo do Brasil Ltda. Brazil 100% by Perrigo International, Inc.
</TABLE>
-1-
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference and use of our
report dated August 25, 1999, (except for Note C, which is as of September 23,
1999) on the consolidated financial statements of Perrigo Company and
subsidiaries which appears on page 33 of this Form 10-K for the year ended July
3, 1999 in the previously filed registration statements for that company's 1988
Employee Incentive Stock Option Plan as amended (Registration No. 33-46265),
1989 Non-qualified Stock Option Plan for Directors as amended (Registration No.
33-46264), L. Perrigo Investment Plan and Trust (Registration No. 33-46262),
Perrigo Company of Tennessee, Inc. Retirement Income Savings Plan
(Registration No. 33-46263) and Perrigo Company Missouri, Inc. Investment Plan
and Trust (Registration No. 33-90886).
By: /s/ BDO Seidman, LLP
------------------------
BDO Seidman, LLP
Grand Rapids, Michigan
September 23, 1999
-1-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-03-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUL-03-1999
<CASH> 1,695
<SECURITIES> 0
<RECEIVABLES> 89,123
<ALLOWANCES> 3,281
<INVENTORY> 197,437
<CURRENT-ASSETS> 382,587
<PP&E> 325,444
<DEPRECIATION> 125,782
<TOTAL-ASSETS> 615,858
<CURRENT-LIABILITIES> 133,170
<BONDS> 135,026
0
0
<COMMON> 102,030
<OTHER-SE> 230,389
<TOTAL-LIABILITY-AND-EQUITY> 615,858
<SALES> 877,587
<TOTAL-REVENUES> 877,587
<CGS> 691,893
<TOTAL-COSTS> 691,893
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 334
<INTEREST-EXPENSE> 10,482
<INCOME-PRETAX> 4,014
<INCOME-TAX> 2,468
<INCOME-CONTINUING> 1,546
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,546
<EPS-BASIC> .02
<EPS-DILUTED> .02
</TABLE>
