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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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SCHEDULE 14D-9
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SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(d)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
COPLEY PHARMACEUTICAL, INC.
(NAME OF SUBJECT COMPANY)
COPLEY PHARMACEUTICAL, INC.
(NAME OF PERSON FILING STATEMENT)
COMMON STOCK
PAR VALUE $.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
21745k-10-1
(CUSIP NUMBER OF CLASS OF SECURITIES)
DANIEL L. KORPOLINSKI, PRESIDENT AND CHIEF EXECUTIVE OFFICER
COPLEY PHARMACEUTICAL, INC.
25 JOHN ROAD
CANTON, MA 02021
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE
NOTICES AND COMMUNICATIONS ON BEHALF OF THE PERSON FILING STATEMENT)
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WITH A COPY TO:
LESLIE E. DAVIS, ESQ.
STEVEN C. BROWNE, ESQ.
TESTA, HURWITZ & THIBEAULT, LLP
125 HIGH STREET
BOSTON, MASSACHUSETTS 02110
(617) 248-7000
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Copley Pharmaceutical, Inc., a Delaware
corporation (the "Company"). The address of the principal executive offices of
the Company is 25 John Road, Canton, MA 02021. The title of the class of equity
securities of the Company to which this Schedule 14D-9 relates is the common
stock, par value $.0l per share (the "Company Common Stock").
ITEM 2. TENDER OFFER OF THE BIDDER.
This Schedule 14D-9 relates to the offer by Caribou Merger Corporation, a
Delaware corporation ("Merger Sub") and a wholly owned subsidiary of Teva
Pharmaceuticals USA, Inc., a Delaware corporation ("Parent"), to purchase all
outstanding shares (the "Shares") of Company Common Stock at a price of $11.00
per share, net to the seller in cash (the "Offer Consideration"), upon the terms
and subject to the conditions set forth in the Offer to Purchase dated August
16, 1999 (the "Offer to Purchase") and the related letter of transmittal and any
amendment or supplement thereto (the "Letter of Transmittal") (which together
constitute the "Offer").
The Offer is disclosed in a Tender Offer Statement on Schedule 14D-1 dated
August 16, 1999 (as amended or supplemented, the "Schedule 14D-1") filed with
the Securities and Exchange Commission (the "SEC" or the "Commission") by Merger
Sub and Parent. The Schedule 14D-1 states that the principal executive offices
of Parent and Merger Sub are located at 650 Cathill Road, Sellersville, PA
18960.
The Offer is being made pursuant to an Agreement and Plan of Merger dated
as of August 9, 1999 (the "Merger Agreement") among the Company, Parent and
Merger Sub. A copy of the Merger Agreement is filed as Exhibit 3 to this
Schedule 14D-9 and is hereby incorporated by reference. The Merger Agreement
provides that, among other things, as soon as practicable after the purchase of
Shares pursuant to the Offer and the satisfaction of the other conditions set
forth in the Merger Agreement and in accordance with the relevant provisions of
the General Corporation Law of the State of Delaware ("Delaware Law"), Merger
Sub will be merged with and into the Company (the "Merger"). Following
consummation of the Merger, the Company will continue as the surviving
corporation (the "Surviving Corporation") and will become a wholly owned
subsidiary of Parent. At the effective time of the Merger (the "Effective
Time"), each Share issued and outstanding immediately prior thereto shall be
canceled and extinguished and each Share (other than Shares held in the treasury
of the Company, Shares held by Parent, Merger Sub or any other subsidiary of
Parent or the Company, and Shares with respect to which appraisal rights are
properly exercised) will, by virtue of the Merger and without any action on the
part of Merger Sub, the Company or the holders of the Shares or the holders of
any capital stock of Merger Sub, be converted into the right to receive the
Offer Consideration (or any higher price that may be paid for each Share
pursuant to the Offer) in cash, without interest (the "Merger Consideration").
The obligations of Parent under the Merger Agreement have been guaranteed by
Teva Pharmaceutical Industries Limited ("Teva Israel"). The Merger Agreement is
summarized in Item 3 of this Schedule 14D-9.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of the Company, which is the person
filing this Schedule 14D-9, are set forth in Item 1 above. Unless the context
otherwise requires, references to the Company in this Schedule 14D-9 are to the
Company and its subsidiaries, viewed as a single entity.
(b) Certain contracts, agreements, arrangements or understandings between
the Company or its affiliates and certain of the Company's directors, executive
officers and affiliates are described in the sections entitled "Executive
Compensation" and "Certain Transactions" in the Company's proxy statement for
its 1999 Annual Meeting of Stockholders (the "1999 Proxy Statement"). A copy of
the relevant sections of the 1999 Proxy Statement has been filed with the
Commission as Exhibit 1 to this Schedule 14D-9 and is incorporated herein by
reference. Except as described herein, to the knowledge of the Company, as of
the date hereof, there exists no material contract, agreement, arrangement or
understanding and no actual or potential conflict of interest between the
Company or its affiliates and (1) the Company's executive officers, directors or
affiliates or (2) Parent, Merger Sub or their respective executive officers,
directors or affiliates.
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ARRANGEMENTS WITH PARENT, MERGER SUB OR THEIR AFFILIATES
THE CONFIDENTIALITY AGREEMENT
On March 18, 1999, the Company and Parent entered into a confidentiality
agreement (the "Confidentiality Agreement"), pursuant to which the Company
agreed to supply Parent with certain requested information and Parent agreed to
treat such information confidentially and to use such information solely in
connection with the transactions contemplated by the Merger Agreement. Parent
also agreed that until March 18, 2000, it would not take any action that would
cause or facilitate the acquisition by any person, including Parent or its
affiliates, of the Company's securities or assets, unless permitted in writing
by the Company. The foregoing description of the Confidentiality Agreement does
not purport to be complete and is qualified in its entirety by reference to the
text of the Confidentiality Agreement, a copy of which is filed as Exhibit 2 to
this Schedule 14D-9 and is incorporated herein by reference.
THE MERGER AGREEMENT
The following is a summary of certain provisions of the Merger Agreement, a
copy of which is filed as Exhibit 3 to this Schedule 14D-9 and is incorporated
herein by reference. This summary is qualified in its entirety by reference to
the Merger Agreement. Capitalized terms not otherwise defined in the following
description of the Merger Agreement have the respective meanings ascribed to
them in the Merger Agreement.
The Offer. The Offer is being made pursuant to the Merger Agreement. The
Merger Agreement provides for the commencement of the Offer as soon as
practicable after the date of the Merger Agreement, but in no event later than
five business days after the public announcement of the execution and delivery
of the Merger Agreement. The obligation of Merger Sub to commence the Offer and
to accept for payment and pay for the Shares tendered pursuant to the Offer is
subject to the conditions set forth below under the section entitled "Conditions
to the Offer." Merger Sub may modify the terms of the Offer, but without the
prior written consent of the Company, Merger Sub may not (a) decrease the Offer
Consideration or change the form of consideration therefor or decrease the
number of Shares sought pursuant to the Offer, (b) change the conditions to the
Offer (other than to increase the Offer Consideration), (c) impose additional
conditions to the Offer, (d) waive the condition that there shall be validly
tendered and not withdrawn prior to the time the Offer expires a number of
Shares which, together with any Shares beneficially owned by Parent and its
affiliates, constitutes at least a majority of the Shares outstanding on a
fully-diluted basis (excluding options the exercise price of which is equal to
or greater than the Offer Consideration) as of the date of purchase, (e)
terminate or withdraw the Offer or extend the expiration date of the Offer
(except as required by law), or (f) amend any term of the Offer in any manner
adverse to holders of Shares. Notwithstanding the foregoing: (a) Merger Sub may
waive, except as set forth above, any other condition to the Offer, in whole or
in part, in its sole discretion; (b) the Offer may be extended in connection
with an increase in the Offer Consideration so as to comply with applicable
rules and regulations of the SEC; (c) if all of the conditions to the Offer are
not satisfied on any scheduled expiration date, and if all of such conditions
are then still reasonably capable of being satisfied prior to the Termination
Date (as defined below), Merger Sub shall extend the Offer from time to time
(each such individual extension not to exceed ten (10) business days after the
previously scheduled expiration date) until such conditions are satisfied or
waived, but Merger Sub will not be required to extend the Offer beyond the
Termination Date; and (d) the Offer may be extended for one additional period of
up to ten (10) business days, if on such expiration date the conditions of the
Offer shall have been satisfied or earlier waived, but the number of Shares that
have been validly tendered and not withdrawn represents less than ninety percent
(90%) of the then issued and outstanding Shares on a fully diluted basis
(excluding options the exercise price of which is equal to or greater than the
Offer Consideration). However, Merger Sub has agreed that as to such final
extension any condition satisfied or waived at the commencement of such
extension (other than a requirement of law) will be deemed satisfied at the end
of such extension. Assuming the prior satisfaction or waiver of the conditions
to the Offer as set forth below, Merger Sub will accept for payment, and pay
for, all Shares validly tendered and not withdrawn pursuant to the Offer as soon
as it is permitted to do so under applicable law.
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The Merger; Conversion of Securities. The Merger Agreement provides that,
subject to the terms and conditions set forth in the Merger Agreement and the
applicable provisions of Delaware Law, Merger Sub will be merged with and into
the Company and the separate existence of Merger Sub will cease, and the Company
will be the Surviving Corporation and a wholly owned subsidiary of Parent. Each
Share issued and outstanding immediately prior to the Effective Time (other than
Shares held in the treasury of the Company, Shares held by Parent, Merger Sub or
any other wholly owned subsidiary of Parent or the Company, and Shares with
respect to which appraisal rights are properly exercised) will, by virtue of the
Merger and without any action on the part of Merger Sub, the Company, the
holders of any Shares or the holders of any capital stock of Merger Sub, be
converted into the right to receive the Merger Consideration. Each Share held in
the treasury of the Company and each Share owned by Parent or any direct or
indirect wholly owned subsidiary of Parent or the Company immediately before the
Effective Time, including Merger Sub, shall be cancelled and extinguished and no
payment or other consideration shall be made with respect thereto. The shares of
capital stock of Merger Sub outstanding immediately prior to the Merger shall be
converted into validly issued, fully paid and non-assessable shares of the
common stock of the Surviving Corporation, which shares shall constitute all of
the issued and outstanding capital stock of the Surviving Corporation and shall
be owned by Parent.
The Merger Agreement further provides that, notwithstanding any provision
of the Merger Agreement to the contrary, any Shares issued and outstanding
immediately prior to the Effective Time and held by a stockholder who has
demanded and perfected demand for appraisal of such stockholder's Shares in
accordance with Delaware Law (including, but not limited to Section 262 thereof)
and who as of the Effective Time has neither effectively withdrawn nor lost
(through failure to perfect or otherwise) such stockholder's right to such
appraisal shall not be converted into or represent the right to receive the
Merger Consideration, but the holder thereof shall be entitled to only such
rights as are granted by Delaware Law. Notwithstanding the foregoing, if any
stockholder who demands appraisal of such stockholder's Shares under Delaware
Law shall effectively withdraw or lose such stockholder's right to appraisal,
then as of the Effective Time or the occurrence of such event, whichever occurs
later, such stockholder's Shares shall automatically be converted into and
represent only the right to receive the Merger Consideration, without interest
thereon, upon surrender of the Shares certificate(s).
Teva Israel has guaranteed the obligations of Parent, its indirect wholly
owned subsidiary, under the Merger Agreement.
Treatment of Stock Option Plans and Stock Purchase Plan. The Merger
Agreement provides that at the Effective Time each then outstanding option to
purchase Shares under the Company's 1986 Incentive Stock Option Plan, 1990 Stock
Option Plan, Amended and Restated 1992 Stock Plan, 1992 Non-Employee Director
Stock Option Plan and 1995 Non-Employee Director Stock Option Plan
(collectively, the "Company Stock Option Plans," which term expressly does not
include the Company's 1992 Employee Stock Purchase Plan (the "Common Stock
Purchase Plan")), whether or not then exercisable or vested (individually, an
"Option" and collectively, the "Options"), will be cancelled, and each holder
thereof will receive at the Effective Time from the Surviving Corporation for
each Share subject to such Option an amount (subject to any applicable
withholding tax) in cash equal to the difference, if any, between the Merger
Consideration and the per share exercise price of such Option to the extent such
difference is a positive number (such amount being hereinafter referred to as
the "Option Consideration"). Upon receipt of the Option Consideration, any and
all rights the holder had or may have had in respect of such Option will
terminate. The Company agreed to use reasonable best efforts to ensure that the
Company Stock Option Plans terminate as of the Effective Time and that following
the Effective Time no participant in any Company Stock Option Plan or other
plan, program or arrangement has any right thereunder to acquire equity
securities of the Company, the Surviving Corporation or any subsidiary or
affiliate thereof and to terminate all such plans.
Pursuant to the Merger Agreement, effective immediately prior to the
Effective Time, the Board of Directors of the Company will terminate the Common
Stock Purchase Plan. Each participant in the Common Stock Purchase Plan will
receive at the Effective Time from the Surviving Corporation in lieu of each
Share of Company Common Stock that could have been purchased under the Common
Stock Purchase Plan had the then applicable Payment Period (as defined in the
Common Stock Purchase Plan) ended on such termination
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date, an amount (subject to any applicable withholding tax) in cash equal to the
difference between the Merger Consideration and the Option Price (as defined in
the Common Stock Purchase Plan) determined with reference only to the first
business day of the applicable Payment Period (as defined in the Common Stock
Purchase Plan) to the extent such difference is a positive number. All funds
contributed by participants to the Common Stock Purchase Plan which have not
been used to purchase Company Common Stock as of the termination date will be
returned, in cash, without interest, to participants in the Common Stock
Purchase Plan as soon as administratively feasible after such termination date.
Board Representation. The Merger Agreement provides that, promptly
following the acceptance for payment and payment for Shares pursuant to the
Offer (the "Offer Closing Date"), Merger Sub will be entitled to designate such
number of directors on the Board of Directors of the Company as will give Merger
Sub, subject to compliance with Section 14(f) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), representation on such Board of Directors
equal to that number of directors, rounded up to the next whole number (and in
no event less than a majority of the Board of Directors), which is the product
of (a) the total number of directors on such Board of Directors (giving effect
to the directors elected pursuant to this sentence) multiplied by (b) the
percentage that (i) such number of Shares so accepted for payment and paid for
by Merger Sub or otherwise owned by Merger Sub and its affiliates bears to (ii)
the number of Shares outstanding. The Company has agreed, subject to applicable
law, to take all action requested by Merger Sub necessary to effect any such
election. In connection with the foregoing, the Company has agreed to promptly,
at the option of Merger Sub, either increase the size of the Company's Board of
Directors or obtain the resignation of such number of its current directors as
is necessary to enable Merger Sub's designees to be elected to the Company's
Board of Directors as provided above. In the event that Merger Sub's designees
are appointed or elected to the Board of Directors of the Company, until the
Effective Time of the Merger such Board of Directors shall have at least two
Independent Directors (as defined below). An Independent Director is a person
who is a director of the Company on the date of the Merger Agreement and who is
not (1) an employee, officer, director, appointee, nominee or affiliate of
Hoechst or any of its affiliates (other than the Company), Parent or Merger Sub
or any of their affiliates, or (2) an employee or officer of the Company.
Following the election or appointment of Merger Sub's designees to the Company
Board as provided above, the vote of the Independent Directors will be required
to authorize any matter relating to the Merger Agreement or the Merger,
including without limitation, any termination or amendment of the Merger
Agreement by the Company, any extension of time for the performance of any
obligation of Parent or Merger Sub under the Merger Agreement, or any waiver of
compliance by Parent or Merger Sub with any provision of the Merger Agreement
for the benefit of the holders of the Shares.
Stockholder Meeting. The Merger Agreement provides that, to the extent
required by law, the Company shall take all action necessary in accordance with
Delaware Law, the Company's certificate of incorporation, as amended, and its
by-laws to convene as promptly as practicable following the Offer Closing Date a
meeting of its stockholders (the "Company Stockholders Meeting") to consider and
vote upon the Merger, the Merger Agreement and the transactions contemplated
thereby. The proxy statement used in connection with Company Stockholders
Meeting, if one is required, will include the recommendation of the Board of
Directors of the Company to the holders of Shares that they vote in favor of the
adoption of the Merger Agreement and the Merger, except to the extent that the
Board of Directors of the Company shall have withdrawn or modified its approval
or recommendation of the Merger Agreement. Pursuant to the Merger Agreement and
subject to its fiduciary duties under Delaware Law, in connection with the
Company Stockholders Meeting the Company's Board of Directors shall (a) cause
the Company to use its reasonable best efforts to solicit from the holders of
Shares their proxies in favor of the Merger and the Merger Agreement and (b)
cause the Company to take all other lawful action reasonably necessary to secure
stockholder approval of the Merger and the Merger Agreement.
Parent and Merger Sub will vote all Shares over which they exercise voting
control in favor of the approval and adoption of the Merger and the Merger
Agreement. Under Delaware Law, if Merger Sub acquires at least 90% of the
outstanding Shares, Merger Sub will be able to approve the Merger without a vote
of the Company's stockholders. See Section 12 of the Schedule 14D-1 for a
further discussion of certain provisions of Delaware law applicable to the
Merger.
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Representations and Warranties. The Merger Agreement contains various
customary representations and warranties of the parties thereto, including
representations by the Company as to various matters, including: organization
and qualification, capitalization, the absence of certain changes or events
concerning the Company's business, compliance with law, litigation, regulatory
matters, employee benefit plans, customers and suppliers, insurance, real and
personal property, labor matters, intellectual property, environmental matters,
and taxes.
Conduct of the Business of the Company. The Company has agreed that during
the period from the date of the Merger Agreement and continuing until the
earlier of the termination of the Merger Agreement or the Offer Closing Date,
the Company will, with certain exceptions, conduct its business and will cause
the businesses of its subsidiaries to be conducted only in the ordinary course
of business and in a manner consistent with past practice; and the Company will
use reasonable commercial efforts to preserve substantially intact the business
organization of the Company and its subsidiaries, to keep available the services
of the present officers, employees and consultants of the Company and its
subsidiaries, to prevent the loss, cancellation, abandonment, forfeiture or
expiration of any intellectual property rights of the Company and its
subsidiaries, to preserve in full force and effect all material licenses and
approvals held by the Company and its subsidiaries, and to preserve the present
relationships of the Company and its subsidiaries with customers, suppliers and
other persons with which the Company or any of its subsidiaries has significant
business relations. Neither the Company nor any of its subsidiaries will, during
the period from the date of the Merger Agreement and continuing until the
earlier of the termination of the Merger Agreement or the Offer Closing Date,
directly or indirectly do, or propose to do, any of the following, subject to
certain exceptions, without the prior written consent of Parent:
(a) amend or otherwise change the Company's or any of its
subsidiaries' certificate of incorporation or by-laws;
(b) issue or sell, pledge, dispose or encumber, or authorize the
issuance or sale, pledge, disposition or encumbrance of, any shares of
capital stock of any class, or any options, warrants, convertible
securities or other rights of any kind to acquire any shares of capital
stock, or any other ownership interest of the Company or any of its
subsidiaries;
(c) sell, pledge, dispose of or encumber any material assets of the
Company or any of its subsidiaries;
(d) (A) declare, set aside, make or pay any dividend or other
distribution (whether in cash, stock or property or any combination
thereof) in respect of any of its capital stock, except that a wholly owned
subsidiary of the Company may declare and pay a dividend to its parent; (B)
split, combine or reclassify any of its capital stock or issue or authorize
or propose the issuance of any other securities in respect of, in lieu of
or in substitution for shares of its capital stock; or (C) amend the terms
of, repurchase, redeem or otherwise acquire, or permit any subsidiary to
repurchase, redeem or otherwise acquire, any of its securities or any
securities of its subsidiaries;
(e) (A) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or
division thereof or make any investment therein (other than the acquisition
of equity and debt securities of issuers for investment purposes where such
securities represent less than 5% of the issuer's outstanding voting
securities on an as-converted basis); (B) incur any indebtedness for
borrowed money or issue any debt securities or assume, guarantee (other
than guarantees of bank debt of the Company's subsidiaries entered into in
the ordinary course of business) or endorse or otherwise as an
accommodation become responsible for, the obligations of any person, or
make any loans or advances, except in each case in the ordinary course of
business consistent with past practice and except that the Company may
incur short-term indebtedness for borrowed money in an amount not to exceed
in the aggregate $1,000,000 on terms that do not include the payment of any
prepayment penalty or premium and which the Company will repay within five
(5) business days from the proceeds of maturing short-term investments; (C)
enter into any agreement or arrangement that would have qualified as a
Material Contract if it had been in effect on the date of the Merger
Agreement, or amend or terminate any Material Contract; (D) authorize any
capital expenditures or purchase of fixed assets or
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bioequivalence studies other than in the ordinary course of business; or
(E) enter into or amend any contract, agreement, commitment or arrangement
to effect any of the matters prohibited by the Merger Agreement;
(f) amend or enter into any employment, severance or change of control
agreement; increase the compensation payable or to become payable to its
officers or employees; grant any severance or termination pay to, or enter
into any employment or severance agreement with, any director, officer or
other employee of the Company or any of its subsidiaries; or establish,
adopt, enter into, amend or terminate any Employee Plan except as may be
required by law;
(g) take any action, other than as required by generally accepted
accounting principles or the SEC, to change accounting policies or
procedures;
(h) make any material tax election inconsistent with past practices or
settle or compromise any material Federal, state, local or foreign tax
liability or agree to an extension of a statute of limitations for any
assessment of any tax;
(i) waive or release any rights material to the Company and its
subsidiaries or pay, discharge or satisfy any material claims, liabilities
or obligations, other than the payment, discharge or satisfaction (A) in
the ordinary course of business and consistent with past practice of
liabilities reflected or reserved against in the financial statements of
the Company or incurred in the ordinary course of business and consistent
with past practice or (B) of claims for injury related to use of the
Company's albuterol sulfate solution consistent with past practice; or
(j) take, or agree in writing or otherwise to take, any of the
foregoing actions or any action which would make any of the representations
or warranties of the Company contained in the Merger Agreement untrue or
incorrect in any material respect, prevent the Company from performing in
any material respect or cause the Company not to perform in any material
respect its covenants under the Merger Agreement, or result in any of the
conditions to the Merger set forth therein not being satisfied.
Indemnification. The Merger Agreement provides that the Certificate of
Incorporation of the Surviving Corporation shall contain the provisions with
respect to indemnification set forth in the certificate of incorporation of the
Company as of the date of the Merger Agreement, which provisions may not be
amended, repealed or otherwise modified for a period of six years after the
Effective Time in any manner that would adversely affect the rights thereunder
existing at the Effective Time of individuals who at the Effective Time were
directors, officers, employees or agents of the Company, unless such
modification is required by law.
The Surviving Corporation and Parent have agreed, from and after the
Effective Time, to indemnify, defend and hold harmless, to the fullest extent
permitted under applicable law, each person, who on the date of the Merger
Agreement was, or who was at any time prior to the date of the Merger Agreement
or who becomes prior to the Effective Time, a director, officer, employee,
fiduciary or agent of the Company or any of its subsidiaries against any costs
or expenses (including reasonable attorneys' fees and expenses), judgments,
fines, losses, claims, damages, liabilities and amounts paid in settlement in
connection with any threatened or actual claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of or pertaining to (in whole or in part) any action or omission occurring
at or prior to the Effective Time (including, without limitation, the
transactions contemplated by the Merger Agreement) and to pay expenses in
advance of the final disposition of any such claim, action, suit, proceeding or
investigation to the fullest extent permitted by law.
Parent and the Surviving Corporation have also agreed, from and after the
Effective Time, to honor all of the indemnity agreements entered into prior to
the date of the Merger Agreement by the Company with its officers, employees,
directors and consultants, whether or not such persons continue in their
positions with Parent or the Surviving Corporation following the Effective Time.
The Merger Agreement also provides that, from and after the Effective Time
until at least six years after the Effective Time, Parent shall, or shall cause
the Surviving Corporation to, maintain in effect directors' and officers'
liability insurance covering those persons who are currently covered by the
Company's directors' and
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officers' liability insurance policies of at least the same coverage and
amounts, containing terms that are no less advantageous with respect to claims
arising at or before the Effective Time than the Company's policies in effect
immediately prior to the Effective Time; provided, however, that neither Parent
nor the Surviving Corporation will be required to pay an annual premium in
excess of 150% of the last annual premium paid by the Company for such coverage
prior to the date of the Merger Agreement, in which event the Parent shall
purchase such coverage as is available for such 150% of such annual premium.
No Solicitation. The Merger Agreement provides that from the date of the
Merger Agreement to the earlier of the Effective Time or termination of the
Merger Agreement in accordance with its terms, the Company will not nor will it
permit any of its subsidiaries or any of its or their respective officers,
directors, employees, agents or representatives (including, without limitation,
any investment banker, attorney or accountant retained by it or any of its
subsidiaries) (collectively, the "Representatives") to, directly or indirectly:
(a) initiate, solicit or knowingly encourage any inquiries, offers or
proposals that constitute, or could reasonably be expected to lead to, an
Acquisition Proposal (as defined below), (b) engage in negotiations or
discussions concerning, or provide to any person or entity any non-public
information or data relating to the Company or any of its subsidiaries for
the purposes of making, or take any other action to facilitate knowingly,
the making of any Acquisition Proposal or inquiry that could reasonably be
expected to lead to an Acquisition Proposal, or (c) agree to, approve or
recommend any Acquisition Proposal; provided, however, that, subject to the
Company's compliance with the provisions of the Merger Agreement, nothing
contained in the Merger Agreement will prevent the Company or its Board of
Directors, prior to the adoption of the Merger Agreement at the Company
Stockholders Meeting, from (i) entering into a definitive agreement
providing for the implementation of a Superior Proposal (as defined below)
if the Company or the Board of Directors is simultaneously terminating the
Merger Agreement in accordance with its terms, (ii) providing non-public
information or data to, entering into customary confidentiality agreements
with, or entering into discussions or negotiations with, any person or
entity in connection with an unsolicited bona fide, written Acquisition
Proposal to the Company or its stockholders, if the Board of Directors of
the Company, by action of a majority of Independent Directors, determines
in good faith after consultation with nationally-recognized independent
financial advisors that such Acquisition Proposal, if accepted,
constitutes, or is reasonably likely to lead to, a Superior Proposal or
(iii) taking and disclosing to its stockholders a position with respect to
such Acquisition Proposal contemplated by Rules 14d-9 and 14e-2(a)
promulgated under the Exchange Act or making any other public disclosure
that, after consultation with and based on the advice of outside legal
counsel, is determined to be required by applicable law; provided, further,
that except as otherwise permitted by the terms of the Merger Agreement,
the Company does not withdraw or modify its position with respect to the
Merger or approve or recommend an Acquisition Proposal.
The Company has also agreed that it will (a) promptly, and in any event
within 24 hours, notify Parent orally and in writing after receipt by the
Company (or its advisors) of any Acquisition Proposal or any inquiries which
could reasonably be expected to lead to an Acquisition Proposal, including the
material terms and conditions thereof and the identity of the person making it,
(b) (x) promptly, and in any event within 24 hours, notify Parent orally and in
writing after receipt of any request for non-public information relating to it
or any of its subsidiaries or for access to its or any of its subsidiaries'
properties, books or records by any person that, to the Company's knowledge, is
considering making, or has made, an Acquisition Proposal and (y) promptly
provide to Parent any nonpublic information regarding the Company provided to
any such person which was not previously provided to Parent, (c) receive from
any person identified in clause (b) an executed confidentiality letter in
reasonably customary form and containing terms that are as stringent in all
material respects as those contained in the confidentiality agreement with
Parent prior to delivery of any such non-public information, and (d) keep Parent
advised on a prompt basis of the status of any such Acquisition Proposal,
inquiry or request (including notifying Parent within 24 hours of any material
changes to the terms and conditions of any Acquisition Proposal).
The Company will not withdraw or modify, in any manner adverse to Parent,
its approval or recommendation of the Merger Agreement or the Merger and will
not approve or recommend an Acquisition
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<PAGE> 9
Proposal, except in each case in connection with a Superior Proposal and then
only upon or after the termination of the Merger Agreement pursuant to its
terms.
For purposes of the Merger Agreement, the term "Acquisition Proposal" means
any of the following (other than the transactions between the Company, Parent
and Merger Sub contemplated by the Merger Agreement and the transactions
contemplated by the Stockholder Agreement and the Registration Rights Agreement)
involving the Company or any of its subsidiaries: (a) a proposal for any
transaction pursuant to which any person or its affiliates (a "Third Party")
proposes to acquire beneficial ownership of at least twenty percent (20%) of the
outstanding equity securities of the Company, whether from the Company or
pursuant to a tender offer, exchange offer, recapitalization, reorganization or
otherwise, (b) a proposal for any merger, consolidation or other business
combination involving the Company pursuant to which any Third Party proposes to
acquire beneficial ownership of at least twenty percent (20%) of the outstanding
equity securities of the Company or the entity surviving such merger,
consolidation or other business combination, (c) a proposal for any other
transaction or series of related transactions pursuant to which any Third Party
proposes to acquire control of assets (including for this purpose the
outstanding equity securities of subsidiaries of the Company, and the entity
surviving any merger, consolidation or business combination including any of
them) of the Company and its subsidiaries having a fair market value equal to or
greater than twenty percent (20%) of the fair market value of all of the assets
of the Company and its subsidiaries, taken as a whole, immediately prior to such
transaction, or (d) any public announcement of a proposal, plan or intention to
do any of the foregoing or any agreement to engage in any of the foregoing.
For purposes of the Merger Agreement, the term "Superior Proposal" means a
bona fide written Acquisition Proposal (a) for which financing, to the extent
required, is committed, (b) which in the good faith judgment of a majority of
the Independent Directors is reasonably likely to be consummated without undue
delay and (c) which a majority of the Independent Directors determine in their
good faith judgment (based upon the opinion (written or oral) of
nationally-recognized independent financial advisors that the value of the
consideration provided for in such proposal exceeds the value of the
consideration provided for in the Offer and the Merger) and after taking into
account all legal, financial, regulatory and other material aspects of the
Acquisition Proposal, and the person making the proposal, to be more favorable
to the Company's stockholders than the Merger.
Conditions to the Offer. The Merger Agreement provides that,
notwithstanding any other provision of the Offer, Merger Sub will not be
required to accept for payment or, subject to any applicable rules and
regulations of the SEC, including Rule 14e-1(c) under the Exchange Act (relating
to Merger Sub's obligation to pay for or return tendered Shares promptly after
expiration or termination of the Offer), to pay for any Shares tendered, and may
postpone the acceptance for payment or, subject to the restriction referred to
above, payment for any Shares tendered, and (subject to the terms of the Merger
Agreement) may amend or terminate the Offer (whether or not any Shares have
theretofore been purchased or paid for) if, (i) there shall not have been
validly tendered and not withdrawn prior to the time the Offer otherwise expires
a number of Shares which, together with any Shares beneficially owned by Parent
and its affiliates, constitutes at least a majority of the Shares outstanding on
a fully-diluted basis (excluding options the exercise price of which is equal to
or greater than the Offer Consideration) or (ii) any applicable waiting periods
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("the
"HSR Act"), shall not have expired or been terminated prior to the expiration of
the Offer or (iii) at any time on or after the date of the Merger Agreement and
before acceptance for payment of such Shares any of the following events shall
occur and be continuing:
(a) any U.S. or foreign governmental entity or foreign, federal, state
or local court of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive
order, decree, injunction or other order (other than the application to the
Offer and the Merger of applicable waiting periods under the HSR Act) which
is in effect and which (1) prevents or prohibits consummation of the Offer
or the Merger, (2) prohibits or limits the ownership or operation by the
Company, Parent or any of their affiliates or subsidiaries of all or any
material portion of the business or assets of the Company and its
subsidiaries taken as a whole, (3) imposes material limitations on the
ability of Parent, Merger Sub or any other subsidiary of Parent to hold or
to exercise effectively full rights
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<PAGE> 10
of ownership of the Shares, including, without limitation, the right to
vote the Shares, acquired by Merger Sub pursuant to the Offer or otherwise
on all matters properly presented to the Company's stockholders, including,
without limitation, the approval and adoption of the Merger Agreement and
the transactions contemplated thereby, (4) requires divestiture by Parent,
Merger Sub or any other affiliate of Parent of the Shares, or (5) requires
Parent, the Company or any of their respective affiliates to enter into a
divestiture, hold-separate, business limitation or similar agreement or
undertaking, except in the case of clauses (2), (3), (4) and (5) for any
prohibition, limitation or requirement which would not, individually or in
the aggregate, in the reasonable judgment of the board of directors of
Parent, materially and adversely impact the economic or business benefits
to Parent and its affiliates of the transactions contemplated by the Merger
Agreement or the ability of Parent or the Surviving Corporation to conduct
its business (including, without limitation, its product development
efforts) substantially in the manner such business was being conducted as
of the date of the Merger Agreement; or
(b) the representations and warranties of the Company contained in the
Merger Agreement (without giving effect to any materiality limitations
contained therein) shall fail to be true and correct (except for
representations and warranties made as of a specified date, which shall
fail to be so true and correct as of such date) and the failure of such
representations and warranties to be so true and correct in the aggregate
shall have a material adverse effect on the business, financial condition
or results of operations of the Company and its subsidiaries taken as a
whole; or
(c) the Company shall not have performed or complied in all material
respects with its obligations, agreements or covenants under the Merger
Agreement to be performed or complied with by it; or
(d) the Merger Agreement shall have been terminated in accordance with
its terms; or
(e) there shall have occurred a material adverse change in the
business, financial condition or results of operations of the Company and
its subsidiaries taken as a whole, excluding any change resulting from or
attributable to general economic conditions; or
(f) there shall have occurred (1) any general suspension of, or
limitation on prices for, trading in securities on any national securities
exchange or the over-the-counter market in the United States (other than a
shortening of trading hours or any coordinated trading halt triggered
solely as a result of a specified increase or decrease in a market index)
for a continuous period of five (5) days, (2) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States, (3) any material limitation (whether or not mandatory) by any U.S.
or foreign governmental entity on the extension of credit by banks or other
lending institutions in the United States, (4) a commencement of a war or
armed hostilities or other national calamity directly involving the United
States and Parent shall have determined that there is a reasonable
likelihood that such event would have a material adverse significance to
Parent, its subsidiaries, the Company and its subsidiaries all taken as a
whole, or (5) in the case of any of the foregoing existing at the time of
the execution of the Merger Agreement, a material acceleration or worsening
thereof; or
(g) the Company's Board of Directors (1) shall have withdrawn or
modified in a manner adverse to Parent or Merger Sub (including by
amendment of this Schedule 14D-9) its approval or recommendation of the
Merger Agreement or the transactions contemplated thereby, including the
Offer or the Merger, (2) shall have recommended an Acquisition Proposal or
(3) shall have adopted any resolution to effect any of the foregoing;
which, in the reasonable judgment of Merger Sub in any such case, and regardless
of the circumstances (including any action or inaction by Parent or Merger Sub
other than any action or inaction by Parent or Merger Sub constituting a breach
of the Merger Agreement) giving rise to any condition, makes it inadvisable to
proceed with such acceptance for payment or payments.
Conditions to the Merger. The Merger Agreement provides that the
respective obligations of each party to effect the Merger are subject to the
satisfaction at or prior to the Effective Time of the following conditions: (a)
the approval and adoption of the Merger Agreement and the Merger by the
requisite vote of the stockholders of the Company if and as required by Delaware
Law and the Company's certificate of
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<PAGE> 11
incorporation and by-laws; (b) the waiting period (and any extension thereof)
applicable to the consummation of the Merger under the HSR Act shall have
expired or been terminated; (c) no temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing the consummation
of the Merger shall be in effect; and there shall not have been any action
taken, or any statute, rule, regulation or order enacted, entered, enforced or
deemed applicable to the Merger, which makes the consummation of the Merger
illegal; and (d) Merger Sub shall have accepted for payment and paid for Shares
tendered pursuant to the Offer, provided that this condition will be deemed
satisfied if (A) Merger Sub fails to accept for payment and pay for Shares
pursuant to the Offer in violation of the terms of the Offer or (B) Parent or
any affiliate of Parent acquires any Shares other than pursuant to the Offer,
which shares, when added to the shares acquired by Parent pursuant to the Offer
would result in Parent owning at least a majority of the outstanding Shares on a
fully diluted basis (excluding options the exercise price of which is equal to
or greater than the Offer Consideration).
Termination. The Merger Agreement provides that it may be terminated and
the Offer and Merger abandoned at any time prior to the Offer Closing Date or
the Effective Time, as set forth below, under the following circumstances,
notwithstanding prior approval thereof by the stockholders of the Company:
(a) prior to the Effective Time, by mutual written consent of Parent
and the Company for any reason, or by mutual action of their respective
boards of directors;
(b) prior to the Effective Time, by Parent or the Company if there
shall be any law or regulation making the consummation of the Merger
illegal or if a court of competent jurisdiction or governmental, regulatory
or administrative agency or commission shall issue a non-appealable final
order, decree or ruling or takes any other action, in each case having the
effect of permanently restraining, enjoining or otherwise prohibiting the
Merger;
(c) prior to the Offer Closing Date, by the Company if (1) any of the
representations and warranties of Parent or Merger Sub set forth in the
Merger Agreement shall fail to be true and correct (in the case of
representations and warranties qualified as to materiality) or true and
correct in all material respects (in the case of other representations and
warranties), in each case as of a given date as though made on and as of
such date (except for representations and warranties made as of a specified
date, which shall fail to be so true and correct as of such date), or (2)
either Parent or Merger Sub shall have failed to perform or comply in all
material respects with its obligations, agreements or covenants contained
in the Merger Agreement, which failure, in the case of (1) or (2), is not
curable or, if curable, is not cured by the earlier of (x) 15 calendar days
after written notice of such failure is given by the Company to Parent or
Merger Sub and (y) the Termination Date (as defined below);
(d) prior to the Offer Closing Date, by Parent if (1) the
representations and warranties of the Company set forth in the Merger
Agreement (without giving effect to any materiality limitations contained
therein) shall fail to be true and correct on a given date as though made
on and as such date (except for representations and warranties made as of a
specified date, which shall fail to be so true and correct as of such date)
and the failure of such representations and warranties to be so true and
correct in the aggregate has a material adverse effect on the business,
financial condition or results of operations of the Company and its
subsidiaries taken as a whole, or (2) the Company shall have failed to
perform or comply in all material respects with its obligations, agreements
or covenants contained in the Merger Agreement, which failure, in the case
of (1) or (2), is not curable or, if curable, is not cured by the earlier
of (x) 15 calendar days after written notice of such failure is given by
Merger Sub to the Company and (y) the Termination Date;
(e) prior to the Effective Time, by Parent or the Company, if, at the
Company Stockholders Meeting (including any adjournment or postponement
thereof), if required, the requisite vote of the stockholders of the
Company shall not be obtained (provided that in order for Parent to
terminate the Merger Agreement pursuant to this provision Parent must have
voted or caused to be voted the Shares beneficially owned by it or its
affiliates in favor of the Merger and the Merger Agreement);
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<PAGE> 12
(f) prior to the Effective Time, by the Company, if prior to the
adoption of the Merger Agreement at the Company Stockholders Meeting the
Board of Directors of the Company shall have approved, and the Company
shall concurrently enter into, a definitive agreement providing for the
implementation of a Superior Proposal; but only if (1) the Company shall
not be then in breach of the non-solicitation covenant described in the
section above entitled "No Solicitation," (2) the Company's Board of
Directors shall have authorized the Company, subject to complying with the
terms of the Merger Agreement, to enter into a binding written agreement
concerning a transaction that constitutes a Superior Proposal and the
Company notifies Parent in writing that it intends to enter into such an
agreement, (3) during the ten (10) business day period after the Company's
notice, (A) the Company shall offer to negotiate with, and, if accepted,
shall negotiate in good faith with, Parent to attempt to make such
commercially reasonable adjustments in the terms and conditions of the
Merger Agreement as would enable the Company to proceed with the Merger and
(B) the Board of Directors of the Company shall conclude, after considering
the results of such negotiations and the revised proposals made by Parent,
if any, that any Superior Proposal giving rise to the Company's notice
continues to be a Superior Proposal; (4) such termination shall be within
five (5) business days following the ten (10) business day period referred
to above, and (5) no termination pursuant to this provision shall be
effective unless the Company shall simultaneously makes the payment of the
termination fee required by the Merger Agreement (see the section below
entitled "Fees and Expenses");
(g) prior to the Offer Closing Date, by the Company, if Merger Sub
shall fail to commence the Offer within five (5) business days following
the date of the initial public announcement of the Offer;
(h) prior to the Offer Closing Date, by the Company, (1) if the Offer
shall expire or be withdrawn or terminated without any Shares being
purchased thereunder or (2) if no Shares shall have been purchased
thereunder on or prior to the Termination Date; provided, however, that the
Company's right to terminate the Merger Agreement pursuant to clause (2) of
this provision will not be available to the Company if the Company shall be
in material breach of the Merger Agreement and such breach shall have been
the proximate cause of the failure of the Offer to be consummated; or
(i) prior to the Offer Closing Date, by Parent, (1) if the Offer shall
have been withdrawn or terminated without any Shares having been purchased
thereunder, whether or not the Offer had commenced, or (2) if no Shares
shall have been purchased thereunder on or prior to the Termination Date,
or (3) if the Stockholder Agreement shall have been terminated by Hoechst
in accordance with its terms as in effect on the date of the Merger
Agreement; provided, however, that Parent's right to terminate the Merger
Agreement pursuant to this provision shall not be available to Parent if
Merger Sub shall have withdrawn or terminated the Offer or failed to extend
the Offer in breach of the Merger Agreement or if Parent or Merger Sub
shall be in material breach of the Merger Agreement and such breach shall
have been the proximate cause of the failure of the Offer to be
consummated.
For purposes of the Merger Agreement, the term "Termination Date" means
October 31, 1999; provided, however, that if on October 31, 1999 the only
condition to the Offer (as described in the section above entitled "Conditions
to the Offer") that has not been satisfied or waived shall be the condition that
any applicable waiting periods under the HSR Act shall have expired or been
terminated prior to the expiration of the Offer, then the term "Termination
Date" means December 31, 1999.
Fees and Expenses. The Merger Agreement provides that, except as otherwise
provided below, whether or not the Offer or the Merger is consummated, all fees,
costs and expenses incurred in connection with the Merger Agreement and the
transactions contemplated by the Merger Agreement will be paid by the party
incurring such fees, costs and expenses.
The Merger Agreement provides that, in the event the Company shall
terminate the Merger Agreement pursuant to clause (c) under the section above
entitled "Termination," Parent shall reimburse the Company for its actual,
reasonable and documented out-of-pocket expenses incurred in connection with the
Merger Agreement and the transactions contemplated thereby in an aggregate
amount not to exceed $1,500,000. In the event Parent shall terminate the Merger
Agreement pursuant to clause (d) or the Company shall terminate the Merger
Agreement pursuant to clause (f) under the section above entitled "Termination,"
the
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<PAGE> 13
Company shall reimburse Parent for its actual, reasonable and documented
out-of-pocket expenses incurred by Parent and Merger Sub in connection with the
Merger Agreement and the transactions contemplated thereby in an aggregate
amount not to exceed $1,000,000.
The Merger Agreement also provides that, under the following circumstances,
the Company will pay to Parent a fee equal to $10,000,000 (the "Termination
Fee"): (i) the Company terminates the Merger Agreement pursuant to clause (f)
under the section above entitled "Termination"; or (ii) Parent terminates the
Merger Agreement pursuant to clause (d) under the section above entitled
"Termination" and on or prior to the 180th day after the date of termination the
Company enters into a definitive agreement providing for a Qualified Acquisition
and on or prior to the first anniversary of the date of termination, such
Qualified Acquisition is consummated.
For purposes of the Merger Agreement, the term "Qualified Acquisition"
means an Acquisition Proposal in which the amount to be received with respect to
each Share equals or exceeds the Merger Consideration.
Other Agreements. The Merger Agreement also provides that: (a) the Company
shall afford Parent, Merger Sub and their representatives reasonable access to
information about the Company and make available to Parent and Merger Sub
appropriate individuals for discussion concerning the Company's business,
properties and personnel; (b) the Company, Parent and Merger Sub shall (1) use
best efforts to file notifications under the HSR Act and to respond to inquiries
from governmental agencies regarding the same, and (2) use reasonable efforts to
obtain all consents, waivers and approvals required in connection with the
transactions contemplated in the Merger Agreement; (c) from and after the
Effective Time, Parent shall cause the Surviving Corporation to honor and
satisfy all obligations and liabilities that are vested as of the Effective Time
under any employee benefit plan, subject to certain limitations set forth in the
Merger Agreement; and (d) each of the parties shall use reasonable best efforts
to take, or cause to be taken, all actions necessary or advisable to consummate
and make effective as promptly as practicable the transactions contemplated by
the Merger Agreement.
THE STOCKHOLDER AGREEMENT
The following is a summary of certain material provisions of the
Stockholder Agreement, dated as of August 9, 1999, by and among Parent, Merger
Sub and Hoechst (the "Stockholder Agreement"). This summary does not purport to
be complete and is qualified in its entirety by reference to the complete text
of the Stockholder Agreement, a copy of which has been filed as Exhibit 4 to
this Schedule 14D-9 and is incorporated herein by reference.
In connection with the execution of the Merger Agreement, Hoechst, which
beneficially owns 9,934,100 Shares, or approximately 51% of the issued and
outstanding Shares (the "Hoechst Shares"), entered into the Stockholder
Agreement with Parent and Merger Sub. Pursuant to the Stockholder Agreement,
Hoechst has agreed to tender (and not withdraw) the Hoechst Shares pursuant to
the Offer.
Agreement to Tender. Under the Stockholder Agreement, Hoechst has agreed
to validly tender (and not withdraw) pursuant to the terms of the Offer, the
Hoechst Shares not later than the fifth business day after receipt by Hoechst of
the Offer. For the Hoechst Shares validly tendered in the Offer and not
withdrawn, Hoechst will be entitled to receive an amount per share equal to the
Offer Consideration.
Agreement Not to Dispose or Encumber Shares/Hoechst Offering. Under the
Stockholder Agreement and while the Stockholder Agreement is in effect, Hoechst
has agreed that, except pursuant to the Offer, it will not, without the prior
written consent of Parent and Merger Sub, (a) offer for sale, sell, transfer,
tender, assign, pledge, encumber, or otherwise dispose of, or enter into any
contract, option or other arrangement or understanding with respect to the offer
for sale, sale, transfer, tender, pledge, encumbrance, assignment or other
disposition of any or all of the Hoechst Shares, or any interest therein, (b)
grant any proxies or powers of attorney with respect to the Hoechst Shares,
deposit any of the Hoechst Shares into a voting trust or enter into a voting
agreement, understanding or arrangement with respect to any of the Hoechst
Shares, or (c) take any action that could reasonably be expected to make any
representation or warranty of Hoechst under the Stockholder Agreement incorrect,
result in a breach of the Stockholder Agreement by Hoechst or of the
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<PAGE> 14
Merger Agreement by the Company or have the effect of preventing or disabling
Hoechst from performing its obligations under the Stockholder Agreement.
Additionally, Hoechst has agreed that the Hoechst Shares will bear a legend
stating that they are subject to the restrictions on transfer contained in the
Stockholder Agreement. Hoechst has also agreed to waive any appraisal rights it
may have under the Stockholder Agreement and the Merger Agreement.
In order to assure that Hoechst will have the flexibility to dispose of at
least a portion of the Hoechst Shares in 1999, the Stockholder Agreement
provides that Hoechst will have the right to withdraw and sell up to 4,967,050
of the Hoechst Shares (the "Offering Shares"), subject to the conditions set
forth below. To facilitate such a possible sale, the Stockholder Agreement
permits Hoechst and the Company (a) to take customary actions in preparation for
a registered or unregistered secondary offering of the Offering Shares (a
"Hoechst Offering") (including conducting discussions and negotiations with
prospective placement agents and due diligence activities involving the Company,
and drafting any related registration statement or offering circular); (b) after
September 30, 1999, to file with the Securities and Exchange Commission a
registration statement for a Hoechst Offering, distribute any related prospectus
or other offering circular for a Hoechst Offering and any amendments or
supplements thereto to prospective investors, and commence marketing efforts
with respect to a Hoechst Offering; and (c) after October 31, 1999, to
consummate any Hoechst Offering with respect to the Offering Shares; provided
that sales of the Offering Shares can be made to no more than ten (10)
purchasers and Hoechst will cause each purchaser which acquires Offering Shares
in any Hoechst Offering to agree in writing, in form and substance reasonably
satisfactory to Parent, to be bound with respect to such Offering Shares to the
same obligations as Hoechst is bound to pursuant to the Stockholder Agreement
(except that no such purchaser shall have the right to withdraw the Offering
Shares from the Offer or transfer such Shares other than pursuant to the Offer).
Any breach by any such purchaser of any such obligations shall be deemed a
breach of the Stockholder Agreement by Hoechst.
Voting of Shares. In the Stockholder Agreement, Hoechst has agreed that
from the date thereof until the termination of the Stockholder Agreement, at any
meeting of the Company's stockholders (whether annual or special, and whether or
not an adjourned or postponed meeting), however called or in connection with any
written consent of the Company's stockholders, that it will vote the Hoechst
Shares (a) in favor of the approval and adoption of the Merger and each of the
other actions contemplated by the Merger Agreement, (b) against any action or
agreement that would result in a breach of any covenant, representation or
warranty or any other obligation or agreement of the Company under the Merger
Agreement or of Hoechst under the Stockholder Agreement or that would impede,
interfere with, delay, postpone or adversely affect the Merger or the
transactions contemplated thereby or by the Stockholder Agreement. Hoechst has
also agreed, except as otherwise authorized by Parent or Merger Sub, to vote
against: (A) any extraordinary corporate transaction, such as a merger,
consolidation or other business combination, involving the Company or any of its
subsidiaries; (B) any sale, lease or transfer of a material amount of the assets
or business of the Company or its subsidiaries, or any reorganization,
restructuring, recapitalization, special dividend, dissolution, liquidation or
winding up of the Company or its subsidiaries; (C) any change in the present
capitalization of the Company, including any proposal to sell any equity
interest in the Company or any of its subsidiaries or any amendment of the
Certificate of Incorporation or By-laws of the Company; (D) any change in a
majority of the Company's Board of Directors; (E) any other change in the
Company's corporate structure or business; and (F) any other action which is
intended or could reasonably be expected to impede, interfere with, delay,
postpone, discourage or adversely affect the Merger or the transactions
contemplated by the Merger Agreement or the Stockholder Agreement.
Termination. The Stockholder Agreement provides that it shall terminate
and be of no further force and effect automatically and without any required
action of the parties thereto upon the earlier to occur of (a) the Effective
Time; (b) the termination of the Merger Agreement by any party thereto in
accordance with its terms; (c) Merger Sub's failure to commence the Offer within
five (5) business days following the date of the initial public announcement of
the Offer; (d) the termination of the Offer, or expiration of the Offer without
Merger Sub's having accepted for payment and paid for all Shares tendered
pursuant thereto, provided that Hoechst's right to terminate shall not be
available to Hoechst if it is then in material breach of
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<PAGE> 15
the Stockholder Agreement and such breach is the proximate cause of the Offer
having so expired or having been terminated; (e) any modification of any term or
condition of the Offer which would require the prior written consent of the
Company pursuant to certain provisions of the Merger Agreement as in the form
originally executed and without amendment (whether or not such consent is
obtained); and (f) December 31, 1999. Hoechst has also agreed to pay to Parent
$10,000,000 in cash in same day funds if the Merger Agreement is terminated in
accordance with its terms and the proximate cause of such termination was
Hoechst's breach of any of its representations or warranties under the
Stockholder Agreement or Hoechst's breach or failure to perform any of its
covenants or agreements under the Stockholder Agreement.
Representations and Warranties. The Stockholder Agreement contains various
customary representations and warranties of the parties thereto including,
without limitation, representations and warranties by Hoechst as to ownership of
the Hoechst Shares, corporate organization, power and authority, the absence of
any conflicts with charter documents and contracts, the absence of any need to
make governmental filings or to obtain consents or approvals, the execution,
delivery and performance of the Stockholder Agreement, the lack of encumbrances
on the Hoechst Shares and the acknowledgement of Parent and Merger Sub's
reliance.
No Solicitation. Hoechst has agreed in the Stockholder Agreement that
during the term of the Stockholder Agreement, except in connection with a
Hoechst Offering, it will not, directly or indirectly, through any officer,
director, agent or other representative, solicit, initiate or encourage, or take
any other action designed or reasonably likely to facilitate, any inquiries or
the making of any proposal from any person (other than Parent, Merger Sub and
any of their affiliates) relating to (i) any acquisition of all or any of the
Hoechst Shares or (ii) any transaction that constitutes an Acquisition Proposal,
or participate in any negotiations regarding, or furnish to any person any
information with respect to, or otherwise cooperate in any way with, or assist
or participate in or facilitate or encourage, any effort or attempt by any
person to do or seek any of the foregoing. Without the prior written consent of
Parent, and except in connection with a Hoechst Offering, Hoechst and its
affiliates shall not, and shall instruct their respective Representatives not
to, issue any press release or make any public statement or take any action that
would otherwise require any public disclosure concerning the Merger, the Offer
or the transactions contemplated by the Merger Agreement or the Stockholder
Agreement; provided, however, that Hoechst may, without the prior written
consent of Parent, issue such press release or make such public statement or
take such action as may upon the advice of counsel be required by law, if it has
provided prior notice to Parent and used all reasonable efforts to consult with
Parent.
THE REGISTRATION RIGHTS AGREEMENT
The following is a summary of certain material provisions of the
Registration Rights Agreement dated as of August 9, 1999 by and among the
Company and Hoechst (the "Registration Rights Agreement"). This summary does not
purport to be complete and is qualified in its entirety by reference to the
complete text of the Registration Rights Agreement, a copy of which has been
filed as Exhibit 8 to this Schedule 14D-9 and is incorporated herein by
reference.
In order to ensure that Hoechst will have the flexibility to dispose of the
Offering Shares (as defined below) pursuant to the Stockholder Agreement, the
Company and Hoechst entered into the Registration Rights Agreement. The
Registration Rights Agreement provides that at any time after September 30,
1999, Hoechst will be entitled to request that the Company register under the
Securities Act of 1933, as amended (the "Securities Act"), up to 4,967,050
shares of Common Stock (the "Registrable Shares") for sale to not more than ten
(10) purchasers as permitted by the Stockholder Agreement. In no event will the
Company be obligated to file more than one registration statement under the
Registration Rights Agreement.
The Company is required to use its reasonable best efforts to cause such
registration statement to become effective by October 31, 1999. All
out-of-pocket expenses incurred by the Company in complying with the
registration of the Registrable Shares that it would not otherwise have incurred
absent such registration will be borne by Hoechst. These expenses include all
registration and filing fees, printing expenses, fees and disbursements of
counsel and independent public accountants for the Company, fees and expenses
(including counsel fees) incurred in connection with complying with state
securities or "blue sky" laws, fees of the National Association of Securities
Dealers, Inc., transfer taxes, fees of transfer agents and registrars, costs of
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insurance and fees and disbursements of Hoechst's counsel. The Company will bear
all expenses that it would have incurred absent the registration required by
Hoechst.
The Company is not required to enter into an underwriting agreement in
connection with the registration of the Registrable Shares. The Company and
Hoechst have agreed to indemnify each other against, and to provide contribution
with respect to, certain liabilities relating to the registration of the
Registrable Shares under the Securities Act. The Registration Rights Agreement
contains various customary representations and warranties of the Company.
The obligations of the Company to register the Registrable Shares or keep
effective the registration statement shall terminate on the earliest of (A)
January 10, 2000, (B) termination of the Merger Agreement, (C) termination of
the Stockholder Agreement or (D) termination, withdrawal or expiration of the
Offer without Merger Sub accepting for payment thereunder shares of Common
Stock.
THE PURCHASE AND SALE AGREEMENT
The following is a summary of certain material provisions of the Purchase
and Sale Agreement dated as of August 9, 1999 by and among the Company, Hoechst
and, with respect to certain provisions only, Parent (the "Purchase and Sale
Agreement"). This summary does not purport to be complete and is qualified in
its entirety by reference to the complete text of the Purchase and Sale
Agreement, a copy of which has been filed as Exhibit 9 to this Schedule 14D-9
and is incorporated herein by reference.
On May 20, 1994, the Company and Chia Tai Healthcare Group, a Hong Kong
corporation ("CT"), entered into an agreement (the "JV Agreement") pursuant to
which the Company and CT formed Wuxi Chia Tai-Copley Pharmaceutical Limited, a
corporation formed under the laws of the British Virgin Islands (the "BVI Joint
Venture"). The BVI Joint Venture and another investor then formed Chia
Tai-Copley Pharmaceutical Co. Ltd., a joint venture formed under the laws of the
Peoples Republic of China (the "Chinese Joint Venture"), for the purpose of
manufacturing generic drugs in China.
Parent indicated its unwillingness to enter into the Merger Agreement
unless Parent was provided an option to terminate the Company's indirect
interest in the Chinese Joint Venture. Pursuant to the terms of the Purchase and
Sale Agreement, at any time prior to the six month anniversary of the Offer
Closing Date, at the Company's written request (the "Put Request"), Hoechst will
be required to purchase all of the Company's ownership interest in the BVI Joint
Venture for U.S. $2,107,000 in immediately available funds, the same price for
which Hoechst had earlier agreed to purchase the Company's interest in the BVI
Joint Venture.
Effective as of the closing (the "Put Closing") of the purchase of the
Company's ownership interest in the BVI Joint Venture pursuant to a Put Request,
Hoechst will be required to assume, and agree to indemnify the Company and
Parent against, any and all liabilities of the Company or Parent as of the Put
Closing in respect of or arising out of the JV Agreement, the BVI Joint Venture
or the Chinese Joint Venture, including liabilities arising out of any
termination of the JV Agreement, any assignment thereof to Hoechst or the
exercise by the Company of its right to sell its ownership interest in the BVI
Joint Venture under the Purchase and Sale Agreement.
The Purchase and Sale Agreement provides that, until the earlier of the Put
Closing or the expiration of the Company's right to deliver the Put Request
without such right having been exercised, the Company shall not agree to incur
any liabilities in respect of or arising out of the JV Agreement, the BVI Joint
Venture or the Chinese Joint Venture, without the prior written consent of
Hoechst. The Company has agreed to take such reasonable action as Hoechst may
request in order to minimize liabilities assumed by Hoechst pursuant to the
Purchase and Sale Agreement or any liabilities of Hoechst related to or arising
out of the JV Agreement, the BVI Joint Venture or the Chinese Joint Venture and
incurred on or after the Put Closing. Hoechst has agreed to compensate the
Company for the Company's cost in taking any such requested action.
If Merger Sub shall not have purchased all Shares tendered pursuant to the
Offer, then the Purchase and Sale Agreement will terminate upon the first to
occur of (a) the termination of the Merger Agreement by any party thereto in
accordance with its terms; (b) Merger Sub's failure to commence the Offer within
five (5) business days following the date of the initial public announcement of
the Offer; (c) the termination of
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the Offer, or expiration of the Offer without Merger Sub's having accepted for
payment and paid for all Shares tendered pursuant thereto, provided that
Hoechst's right to terminate shall not be available to Hoechst if it is then in
material breach of the Stockholder Agreement and such breach has been the
proximate cause of the Offer having so expired or having been terminated; (d)
any modification of any term or condition of the Offer which would require the
prior written consent of the Company pursuant to the Merger Agreement (whether
or not such consent is obtained); and (e) December 31, 1999 (the earliest of the
events set forth in (a) through (e) above to be referred to herein as the
"Applicable Termination Event").
THE PENTOXIFYLLINE AGREEMENT AMENDMENT
The following is a summary of certain material provisions of a
Pentoxifylline Agreement Amendment dated as of August 9, 1999 (the
"Pentoxifylline Agreement Amendment") between the Company and Hoechst Marion
Roussel, Inc. ("HMRI"), an affiliate of Hoechst, regarding certain changes to
the parties' existing Pentoxifylline Agreement dated as of January 1, 1997 (the
"Original Pentoxifylline Agreement"). Parent, as a condition to entering into
the Merger Agreement, required that the Original Pentoxifylline Agreement be
terminated. This summary does not purport to be complete and is qualified in its
entirety by reference to the complete text of the Pentoxifylline Agreement
Amendment, a copy of which has been filed as Exhibit 10 to this Schedule 14D-9
and is incorporated herein by reference.
The Pentoxifylline Agreement Amendment provides that after the Offer
Closing Date HMRI will continue to receive, with respect to sales by the Company
of Pentoxifylline, 80% of the Copley Net Profit Margin (as defined in the
Pentoxifylline Agreement) if such number is a positive amount, but in no event
will HMRI be charged with any losses if such Copley Net Profit Margin is a
negative amount. The determination of Copley Net Profit Margin shall not give
effect to any shelf stock adjustments after the Offer Closing Date.
The Pentoxifylline Agreement Amendment also provides that after the Offer
Closing Date, the Company's obligation to purchase and HMRI's obligation to
supply pentoxifylline shall be limited to (i) 100% of the quantity set forth in
the Company's last forecast delivered before the Offer Closing Date for the
three calendar months following the month in which the Offer Closing Date
occurs; and (ii) 50% of the Company's forecast referred to in clause (i) above
for the fourth, fifth and sixth calendar months following the month in which the
Offer Closing Date occurs. The Pentoxifylline Agreement Amendment requires the
Company, until the Offer Closing Date, to conduct its business with respect to
pentoxifylline in the ordinary course of business. Pursuant to the
Pentoxifylline Agreement Amendment, HMRI will no longer be bound to sell
pentoxifylline only to the Company and may sell pentoxifylline to other parties
upon the earlier to occur of (i) the beginning of the fourth month after the
month in which the Offer Closing Date occurs and (ii) the beginning of the first
month in which the Company's forecast is 50% or less of the forecast for July
1999. The Pentoxifylline Agreement Amendment provides that the Original
Pentoxifylline Agreement shall terminate at the end of the sixth calendar month
following the month in which the Offer Closing Date occurs, except for each
party's rights and obligations relating to pentoxifylline purchased by the
Company prior to such termination. If Merger Sub shall not have purchased all
Shares tendered pursuant to the Offer, the Pentoxifylline Agreement Amendment
shall terminate and be of no further force and effect upon the occurrence of an
Applicable Termination Event.
THE REPRESENTATION LETTER
The following is a summary of certain material provisions of a
representation letter dated as of August 9, 1999 provided by Hoechst to the
Company and Parent regarding the continued availability of insurance coverage of
Hoechst and its affiliates with respect to the Company's albuterol related
product liability litigation following the consummation of the Merger (the
"Representation Letter"). Parent, as a condition to entering into the Merger
Agreement, required that the Representation Letter be provided by Hoechst to it
and the Company. This summary does not purport to be complete and is qualified
in its entirety by reference to the complete text of the Representation Letter,
a copy of which has been filed as Exhibit 11 to this Schedule 14D-9 and is
incorporated herein by reference.
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As a condition to its entering into the transaction, Parent required
Hoechst to provide it with the Representation Letter. In the Representation
Letter, Hoechst represented, warranted and confirmed to both the Company and
Parent that: (a) that product liability claims based on injuries alleged to have
been caused by the Company's albuterol products are covered, and after the Offer
and the Merger will continue to be covered, under insurance policies of Hoechst
and its affiliated companies, subject to (1) the conditions of such policies;
(2) the existing letter agreements (the "Insurance Agreements") among the
Company, Hoechst and certain of such insurers relating to the albuterol
settlement agreement; and (3) in the case of the coverage to which the Insurance
Agreements are not applicable, the requirement that such injuries are alleged to
have been caused after November 11, 1993 and prior to the consummation of the
Offer; (b) as to the limits on the Company's co-insurance obligation with
respect to albuterol product liability claims under the Insurance Agreements;
and (c) that in connection with the Insurance Agreements, neither Hoechst nor
the Company has, except as set forth in the Insurance Agreements, executed any
waiver of coverage under Hoechst's and its affiliated companies' insurance
policies relating to injuries alleged to have been caused by the Company's
albuterol products.
THE COPAXONE(R) ARRANGEMENT
In the first quarter of 1995, Teva Israel and Parent entered into a
collaborative arrangement with Marion Merrell Dow Inc. (which subsequent to its
acquisition by Hoechst Aktiengesellschaft became HMRI for the distribution and
marketing in North America of Copaxone(R) (Glatiramer Acetate), Teva Israel's
product for the treatment of relapsing remitting multiple sclerosis. Under this
arrangement, the parties formed a jointly owned partnership, Teva Marion
Partners, to be responsible for the marketing and promotion of Copaxone(R) in
North America. Teva Israel manufactures the product in Israel and supplies it to
HMRI through Parent. HMRI purchases Copaxone(R) from Parent and sells and
distributes it in the United States and Canada. During the fourth quarter of
1995, Teva Israel entered into another collaborative arrangement with HMRI for
the marketing of Copaxone(R) in Europe and other markets. Under the terms of
this arrangement, upon receipt of appropriate regulatory approvals, Copaxone(R)
will be co-promoted in certain European countries, and in others HMRI will be
the sole marketer and promoter. Copaxone(R) will be manufactured by Teva Israel
in Israel, and HMRI will purchase it from Teva Israel and sell and distribute
Copaxone throughout Europe and in other markets. Under these agreements, Teva
Israel is entitled to receive initial payments of up to $50 million in the
aggregate. To date, a total of $35 million has been received and, upon receipt
of regulatory approvals for Copaxone(R) in certain European countries,
additional payments of up to $15 million in the aggregate will become due. For
the first six months of 1999, global in-market sales of Copaxone(R) (including
in-market sales of Teva Israel and HMRI) totaled approximately $69.7 million.
THE MESALAMINE ARRANGEMENTS
On November 26, 1996, Parent, HMRI and the Company entered into three
agreements related to the development of a generic equivalent of mesalamine
asacol. Pursuant to such agreements, Parent (i) purchased certain assets of the
Company related to the development of generic mesalamine for a purchase price of
$1 million, payable within 180 days following the first commercial sale of
generic mesalamine, (ii) received a sub-license from the Company of certain
technology related to the development of generic mesalamine in exchange for an
agreement to pay royalties to the Company based on future net sales of generic
mesalamine and (iii) received $1 million in funding from HMRI to continue to
pursue the development of generic mesalamine, such funds to be repaid within 180
days following the first commercial sale of generic mesalamine.
THE JOINT VENTURE
In 1993, Parent and the Company, together with certain other entities,
formed a joint venture for the purposes of manufacturing and marketing generic
pharmaceutical products in the New Independent States of the former Soviet
Union. At no time were the activities of such joint venture material to either
Parent or the Company. The joint venture was wound down in 1998 and dissolved in
1999.
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INDEMNIFICATION
Pursuant to Section 145 of Delaware Law, corporations incorporated under
the laws of the State of Delaware are permitted to indemnify their current and
former directors, officers, employees and agents under certain circumstances
against certain liabilities and expenses incurred by them by reason of their
serving in such capacities, if such persons acted in good faith and in a manner
which they reasonably believed to be in or not opposed to the best interest of
the corporation, and with respect to any criminal action or proceeding, had no
reason to believe their conduct was unlawful.
The Company's Amended and Restated Certificate of Incorporation, as
amended, provides that each director and officer will be indemnified by the
Company to the fullest extent permitted under Delaware Law against liabilities
and expenses in connection with any threatened, pending or completed legal
proceeding to which he may be made a party or threatened to be made a party by
reason of being, agreeing to be or having been an officer or director of the
Company. The Company's Amended and Restated Certificate of Incorporation, as
amended, also provides that no director of the Company shall be personally
liable to the Company or its shareholders for monetary damages for breach of his
or her fiduciary duty as director. These provisions eliminate personal liability
to the extent permitted by Delaware Law and do not excuse any director for
breach of his duty of loyalty, for acts not taken in good faith or for
transactions in which the director derives an improper personal benefit.
The Company has also entered into indemnification agreements with each of
its directors and executive officers providing for the Company to indemnify
those persons to the fullest extent permitted by Delaware Law against
liabilities and expenses incurred as a result of, or arising from their acting
in that capacity.
OTHER COMMERCIAL ARRANGEMENTS
The Company from time to time in the ordinary course of its business has
purchased products from and sold products to Parent and its affiliates.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) Recommendation of the Board of Directors.
At a meeting on August 9, 1999, the Copley Board of Directors, including
the members of the Special Committee of Independent Directors, unanimously (i)
approved and declared advisable the Merger Agreement and the transactions
contemplated thereby, including the Offer and the Merger, (ii) determined that
each of the Offer and the Merger are fair to and in the best interests of the
holders of Shares and (iii) recommended that the Company's stockholders accept
the Offer and tender their Shares pursuant thereto.
(b) Background; Reasons for the Recommendation.
As used in this Item 4(b), "Teva" means one or more of Teva Israel, Parent
and Merger Sub.
In early 1996, a generic drug company contacted representatives of the
Company and Hoechst about the possibility of acquiring the Company. The Board of
Directors of the Company emphasized that the Company was not for sale, but
authorized management to respond to the inquiry. In mid 1996, informal contacts
with other companies resulted in the execution of confidentiality agreements,
provision of information regarding the Company and discussions with those
companies, which included Teva.
Also in 1996, (a) Hoechst, the majority owner of the Company, indicated
that generic drugs would not be part of its long-term business focus; (b) the
Company was engaged in time consuming and expensive class action litigation
arising from its recall of albuterol; (c) the Company was subject to Federal
grand jury and Food and Drug Administration ("FDA") investigations of certain of
its products and operations; and (d) conditions in the generic industry were
increasingly demanding, with more customers preferring "one-stop shopping,"
price competition increasing and a steady flow of new FDA-approved generic
products more important. The Board of Directors did not conclude that the
Company was for sale, but deemed it prudent to assess available opportunities.
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In September 1996, the Board of Directors authorized management to retain
an investment bank to assist in evaluating business opportunities and potential
strategic alliances, but emphasized that no decision had been made to sell the
Company. On September 27, 1996, the Company retained CIBC as its financial
advisor. On October 31, 1996, the Company publicly announced that it had
retained CIBC to evaluate strategic alternatives. CIBC developed a list of
potentially interested parties and provided information regarding the Company to
certain of those parties.
In January 1997, the Company received non-binding indications of interest
to acquire the Company from three parties, including proposals from Teva first
at $7.50 and then at $8.00 per Share, both payable in convertible subordinated
debentures. The indications of interest of Teva and the other two parties were
subject to significant preconditions, such as indemnification for albuterol
product liability, satisfactory resolution of the ongoing grand jury and FDA
investigations, and modification of the economic terms of certain product
agreements with HMRI. Discussions continued with these and other parties.
On May 15, 1997, Teva submitted a written proposal to acquire the Company
for $6.00 per Share in cash, subject to preconditions similar to those contained
in prior proposals. On May 28, 1997, the Company announced that it had entered
into a plea agreement pursuant to which it pled guilty to a criminal charge and
agreed to pay a fine of $10.65 million. The Company also announced that it had
agreed to an independent audit by the FDA of certain of the Company's products.
Ultimately, Teva determined not to pursue a transaction at that time. The Board
also determined that it was not in the best interests of the Company's
stockholders to pursue any transaction for the time being.
In October 1997, the Board of Directors believed it would be reasonable to
assess the continuing interest of third parties in pursuing an acquisition of
the Company. In November 1997, three parties submitted proposals to acquire the
Company or Hoechst's Shares, each again subject to significant preconditions.
One such party was Teva, which submitted a proposal to acquire the Company for
cash consideration of $8.00 per Share. Intensive discussions with Teva and
others continued until January 1998. Sporadic discussions continued through May
1998, but the parties were unable to reach agreement on the material terms of
any transaction.
On May 28, 1998, the Board of Directors decided not to actively pursue
strategic alternatives although it would consider unsolicited proposals and, in
early June, the Company announced that CIBC's engagement would not be renewed.
In December 1998, partly in response to the announcement that Hoechst would
be split into two companies and desired to sell its Shares during 1999, the
Board authorized management to re-engage CIBC to consider strategic alternatives
and transactions. CIBC was re-engaged on January 14, 1999. On January 28, 1999,
the Board of Directors established a Special Committee of Independent Directors.
CIBC prepared materials and solicited interest from approximately 30
companies in late February 1999. On March 26, 1999, four companies submitted
initial indications of interest and on March 31, 1999, three other companies
submitted indications of interest. Teva submitted an initial indication of
interest in the range of $13.00 to $15.00 in cash, subject to numerous
preconditions, including a financial due diligence review. In February and
March, CIBC and the Company provided information, made management presentations
and accommodated facility tours to interested parties.
The Company continued its discussions with several companies, two of which
submitted formal non-binding proposals on May 14 and May 17, 1999. Teva
submitted a proposal to acquire the Company by cash tender offer at $9.75 per
Share, again subject to numerous preconditions.
On June 11, 1999, the Company granted negotiating exclusivity to another
party. The Company terminated exclusivity on July 7, as the parties had not
reached agreement. The Company then continued discussions with that party and
began negotiations with two other parties, including Teva. On July 15, 1999,
Teva submitted a proposal for a cash tender offer at $11.00 per share and
requested exclusivity. The Company indicated to Teva that it would not grant
exclusivity but would continue to negotiate.
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On August 9, 1999, the Board of Directors, after consideration of the
presentations of legal counsel concerning the terms of the Offer and the Merger
Agreement and other ancillary agreements, the fairness opinion of CIBC, the
factors set forth below and the business and prospects of the Company,
unanimously approved and declared advisable the Merger Agreement and the
transactions contemplated thereby, including the Offer and the Merger. The
parties executed the Merger Agreement late in the evening on August 9, 1999 and
publicly announced the transaction at approximately 1:00 a.m., New York City
time, on August 10, 1999.
From February through and including August 9, 1999, the Board of Directors,
including the members of the Special Committee of Independent Directors, met
more than twenty times in person and by telephone conference to receive updates
on the progress of discussions, to analyze the terms of various proposals and
ask relevant questions, and to consider the business and prospects of the
Company. In arriving at its decision to approve the transactions contemplated by
the Merger Agreement, including to recommend acceptance of the Offer, the Board
of Directors, including the members of the Special Committee of Independent
Directors, considered a number of factors:
(i) the financial and other terms and conditions of the Offer, the
Merger and the Merger Agreement;
(ii) the fact that the structure of the acquisition of the Company by
Parent as provided for in the Merger Agreement involved a cash tender offer
for all outstanding Shares to be commenced within five business days of the
public announcement of the Merger Agreement to be followed as promptly as
practicable by the Merger for the same consideration, thereby enabling the
Company's stockholders to obtain cash for their Shares at the earliest
possible time;
(iii) the opinion of CIBC, dated August 9, 1999, to the effect that as
of such date and based upon and subject to the various assumptions and
limitations set forth therein, the cash consideration to be received by the
holders of Shares (other than Hoechst and its affiliates) in the Offer and
the Merger was fair to such stockholders from a financial point of view.
STOCKHOLDERS ARE URGED TO READ THE OPINION IN ITS ENTIRETY;
(iv) the stated intent of Hoechst to exit the generic drug industry
business and sell its ownership stake in the Company in 1999, which sale
could create significant downward pressure on the Company's stock price;
(v) that Hoechst, the majority owner of the Company, was willing to
agree, among other things, to tender all its Shares in the Offer;
(vi) the view of the Board, based in part upon the presentations of
management, knowledge of the industry, numerous contacts over an extended
period of time with potential buyers and inquiries from potential buyers,
that there was limited likelihood of a superior offer;
(vii) that the $11.00 per Share Offer Consideration represented a
meaningful premium over the closing sale price of $8.375 per Share as
reported on the Nasdaq National Market on August 6, 1999 (the last trading
day prior to the date the Board of Directors authorized and approved the
transaction); and that the per Share closing sale price had exceeded $11.00
on only three days in the six months preceding the decision to approve the
transaction and on only five days in the preceding 12 months;
(viii) the historical market price of, recent trading activity in, and
ownership of, the Shares, including in particular the low trading volumes
and the relatively large number of Shares held by Hoechst and officers and
directors of the Company;
(ix) that industry consolidation was resulting in large companies with
substantial resources to make the product development expenditures
necessary to compete favorably in the generic drug market;
(x) the familiarity of the Board with (i) the business, results of
operations, properties and financial condition of the Company, (ii) the
competition facing the Company from companies with substantially greater
financial resources and (iii) the prospects of the Company, including the
risks and benefits inherent in remaining independent;
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(xi) the likelihood that the proposed Merger would be consummated
based on the experience, reputation and financial condition of Parent and
Teva Israel and the conditions to the Offer as set forth in the Merger
Agreement; and
(xii) the fact that the Merger Agreement does not prohibit the Company
from responding to certain unsolicited offers to acquire the Company.
The foregoing discussion of factors considered by the Board is not intended
to be exhaustive. In view of the variety of factors and the amount of
information considered, the Board did not find it practicable to provide
specific assessments of, quantify or otherwise assign relative weights to the
specific factors considered in reaching its determination. In addition,
individual members of the Board may have given different weights to different
factors. The determination to recommend that the Company's stockholders accept
the Offer was made after consideration of all of the factors discussed above and
the business prospects of the Company, taken as a whole.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Company retained CIBC to provide financial advisory services in
connection with evaluating business opportunities and possible strategic
alliances for the Company, which includes the Merger and the transactions
contemplated by the Merger Agreement. Pursuant to a letter agreement dated
January 14, 1999 between the Company and CIBC, the Company, as compensation for
such services, agreed to pay CIBC a transaction fee equal to 0.8% of the total
consideration (as defined in the letter agreement) paid in connection with an
acquisitive transaction. This transaction fee is payable in full upon
consummation of the relevant transaction. The Company agreed to pay to CIBC a
fee in the amount of $400,000 upon the delivery to the Company of a fairness
opinion. This $400,000 fee will be credited against the transaction fee
described above. In addition, the Company agreed to pay CIBC a quarterly cash
fee of $25,000 for which the Company also receives a credit against the
transaction fee. The Company has also agreed to reimburse CIBC for its
reasonable out-of-pocket expenses incurred in connection with rendering
financial advisory services, including fees and disbursements of its legal
counsel. In addition, the Company has agreed to indemnify and hold harmless
CIBC, its managing directors, employees, agents, affiliates and controlling
persons, for certain claims, damages and liabilities related to or arising in
any manner out of any transaction, proposal or any other matter contemplated by
its engagement as financial advisor, including claims, damages and liabilities
arising under the Securities Act. In the ordinary course of its business, CIBC
and its affiliates may actively trade securities of the Company for their own
account and for the accounts of customers and, accordingly, may at any time hold
a long or short position in such securities.
Except as set forth above, neither the Company nor any person acting on its
behalf has or currently intends to employ, retain or compensate any person to
make solicitations or recommendations to the stockholders of the Company on its
behalf with respect to the Offer and the Merger.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) During the past 60 days, no transactions in Shares have been effected
by the Company or, to the Company's knowledge, by any of its executive officers,
directors, affiliates or subsidiaries, except (1) that the Company has granted
stock options in the ordinary course of business to, and issued stock upon the
exercise of outstanding stock options held by, executive officers, directors,
employees and consultants under its stock plans; and (2) for donative transfers
without the receipt of consideration therefor.
(b) To the Company's knowledge, each of its executive officers, directors,
affiliates and subsidiaries currently intends to tender in the Offer all Shares
over which he, she or it has sole dispositive power.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as set forth herein, no negotiation is being undertaken or is
underway by the Company in response to the Offer that relates to or would result
in (i) an extraordinary transaction, such as a merger or reorganization
involving the Company or any subsidiary thereof, (ii) a purchase, sale or
transfer of a material
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amount of assets by the Company or any subsidiary thereof, (iii) a tender offer
for or other acquisition of securities by or of the Company; or (iv) any
material change in the present capitalization or dividend policy of the Company.
(b) Except as set forth herein, there is no transaction, board resolution,
agreement in principle or signed contract in response to the Offer that relates
to or would result in one or more of the events referred to in Item 7(a) above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
(a) The information statement attached as Annex A hereto is being furnished
in connection with the possible designation by Parent, pursuant to the Merger
Agreement, of certain persons to be appointed to the Company's Board of
Directors other than at a meeting of the Company's stockholders as described in
Item 3 above.
(b) Section 203 of the Delaware General Corporation Law
As a Delaware corporation, the Company is subject to Section 203 ("Section
203") of Delaware Law. Under Section 203, certain "business combinations"
between a Delaware corporation whose stock is publicly traded or held of record
by more than 2,000 stockholders and an "interested stockholder" are prohibited
for a three-year period following the date that such a stockholder became an
interested stockholder, unless (i) the corporation has elected in its original
certificate of incorporation not to be governed by Section 203 (the Company did
not make such an election), (ii) the transaction in which the stockholder became
an interested stockholder or the business combination was approved by the Board
of Directors of the corporation before the other party to the business
combination became an interested stockholder, (iii) upon consummation of the
transaction that made it an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation outstanding at the
commencement of the transaction (excluding voting stock owned by directors who
are also officers or held in employee benefit plans in which the employees do
not have a confidential right to tender or vote stock held by the plan) or (iv)
the business combination was approved by the Board of Directors of the
corporation and ratified by 66 2/3% of the voting stock which the interested
stockholder did not own. The term "business combination" is defined generally to
include mergers or consolidations between a Delaware corporation and an
"interested stockholder," transactions with an "interested stockholder"
involving the assets or stock of the corporation or its majority-owned
subsidiaries and transactions which increase an "interested stockholder's"
percentage ownership of stock. The term "interested stockholder" is defined
generally as a stockholder who, together with affiliates and associates, owns
(or, within three years prior, did own) 15% or more of a Delaware corporation's
voting stock.
The Board, including the members of the Special Committee of Independent
Directors, has unanimously approved and declared advisable the Merger Agreement
and the transactions contemplated thereby, including the Offer and the Merger,
determined that the Offer and the Merger are fair to and in the best interests
of the Company's stockholders and recommended that the Company's stockholders
accept the Offer and tender their Shares pursuant to the Offer. The Board also
approved the Merger Agreement and the transactions contemplated thereby,
including the Offer and the Merger, for purposes of Section 203 of Delaware Law
so as to render the restrictions on business combinations contained in such
Section 203 of Delaware Law inapplicable with respect thereto.
23
<PAGE> 24
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
The following exhibits are filed herewith:
EXHIBIT INDEX
<TABLE>
<S> <C>
Exhibit 1 Excerpts from the Company's Proxy Statement for its 1999
Annual Meeting of Stockholders.
Exhibit 2 Confidentiality Agreement dated as of March 18, 1999 between
the Company and Parent.
Exhibit 3 Agreement and Plan of Merger dated as of August 9, 1999
among the Company, Parent and Merger Sub.
Exhibit 4 Stockholder Agreement dated as of August 9, 1999 between
Parent, Merger Sub and Hoechst.
Exhibit 5 Letter, dated August 16, 1999, from Daniel L. Korpolinski,
President and Chief Executive Officer of the Company, to the
stockholders of the Company concerning the Offer.
Exhibit 6 Press Release of the Company and Parent, dated August 10,
1999.
Exhibit 7 Opinion of CIBC World Markets Corp. dated August 9, 1999
(attached hereto as Annex B).
Exhibit 8 Registration Rights Agreement dated as of August 9, 1999
between the Company and Hoechst.
Exhibit 9 Purchase and Sale Agreement dated as of August 9, 1999
between the Company and Hoechst and, with respect to certain
provisions thereof, Parent.
Exhibit 10 Pentoxifylline Agreement Amendment dated as of August 9,
1999 between the Company and Hoechst Marion Roussel, Inc.
Exhibit 11 Representation Letter dated as of August 9, 1999 by Hoechst.
Exhibit 12 The Company's Information Statement pursuant to Section
14(f) of the Exchange Act and Rule 14f-1 thereunder
(attached hereto as Annex A).
</TABLE>
26
<PAGE> 25
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
COPLEY PHARMACEUTICAL, INC.
By: /s/ DANIEL L. KORPOLINSKI
------------------------------------
Daniel L. Korpolinski
President and Chief Executive
Officer
Dated: August 16, 1999
25
<PAGE> 26
ANNEX A
COPLEY PHARMACEUTICAL, INC.
25 JOHN ROAD
CANTON, MA 02021
INFORMATION STATEMENT
(PURSUANT TO SECTION 14(f) OF THE SECURITIES EXCHANGE ACT OF 1934
AND RULE 14f-1 THEREUNDER)
This Information Statement is being mailed on or about August 16, 1999, as
a part of the Solicitation/ Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") of Copley Pharmaceutical, Inc. (the "Company"), to the holders
of shares of Common Stock, par value $.0l per share (the "Shares"), of the
Company. You are receiving this Information Statement in connection with the
possible election of persons designated by Merger Sub (as defined below) to a
majority of the seats on the Board of Directors of the Company.
On August 9, 1999, the Company, Teva Pharmaceuticals USA, Inc., a Delaware
corporation ("Parent"), and Caribou Merger Corporation, a Delaware corporation
and a wholly owned subsidiary of Parent ("Merger Sub"), entered into an
Agreement and Plan of Merger (the "Merger Agreement") pursuant to which (i)
Parent will cause Merger Sub to commence a tender offer (the "Offer") for all
outstanding Shares at a price of $11.00 per Share to the stockholders of the
Company in cash and without interest thereon, and (ii) Merger Sub will be merged
with and into the Company (the "Merger"). Hoechst Corporation, the holder of
approximately 51% of the Company's outstanding Shares ("Hoechst"), has agreed to
tender (and not withdraw) the Shares it owns in the Offer. As a result of the
Offer and the Merger, the Company will become a wholly owned subsidiary of
Parent.
The Merger Agreement requires the Company to take all actions requested by
Merger Sub necessary to cause the directors designated by Merger Sub to be
elected to the Board of Directors of the Company under the circumstances
described therein.
This Information Statement is required by Section 14(f) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 14f-1
thereunder. You are urged to read this Information Statement carefully. YOU ARE
NOT, HOWEVER, REQUIRED TO TAKE ANY ACTION. This information is not being
provided in connection with a vote of the Company's stockholders. Capitalized
terms used herein and not otherwise defined herein shall have the meaning set
forth in the Schedule 14D-9.
Pursuant to the Merger Agreement, Merger Sub commenced the Offer on August
16, 1999. The Offer is scheduled to expire at 12:00 midnight, New York City
time, on September 13, 1999, unless the Offer is extended.
VOTING SECURITIES OF THE COMPANY
The Shares are the only class of voting securities of the Company
outstanding. Each Share has one vote. As of July 31, 1999, there were 19,343,766
shares of Common Stock outstanding.
MERGER SUB DESIGNEES TO THE COMPANY'S BOARD OF DIRECTORS
The Merger Agreement provides that promptly upon the purchase of Shares
pursuant to the Offer, Merger Sub shall be entitled to designate members of the
Board of Directors of the Company such that Merger Sub, subject to the
provisions of Section 14(f) of the Exchange Act, will have a number of
representatives on the Board of Directors equal to the product of (a) the total
number of directors on the Board of Directors (giving effect to the directors
elected pursuant to this sentence) multiplied by (b) the percentage that (i) the
number of Shares accepted for payment and paid for by Merger Sub or otherwise
owned by Merger Sub or its affiliates bears to (ii) the number of Shares
outstanding. The Company has
A-1
<PAGE> 27
agreed, at the option of Merger Sub, to promptly increase the size of the Board
of Directors and/or obtain the resignations of such number of directors as is
necessary to enable Merger Sub's designees to be elected to the Board of
Directors and has agreed to cause Merger Sub's designees to be so elected. The
Company has agreed to take all actions necessary to effect the foregoing.
Merger Sub has informed the Company that it currently intends to designate
a majority of the directors of the Company following the consummation of the
Offer. It is currently anticipated that Merger Sub will designate Eli Hurvitz,
William Fletcher, Abraham E. Cohen, Peter H. Jakes, Professor Elon Kohlberg and
Harold Snyder (collectively, the "Merger Sub Designees"). The names and ages of
the Merger Sub Designees and their present principal occupations are set forth
below.
ELI HURVITZ (67) has been the President and Chief Executive Officer of Teva
Pharmaceutical Industries Limited, of which Parent is an indirect wholly owned
subsidiary ("Teva Israel"), since 1976 and has been employed at Teva Israel for
over 30 years. He is the Chairman of the Board of Directors of Parent. He serves
as a director of Vishay Intertechnology and of Koor Industries Ltd. He served as
the President of the Israel Manufacturers Association from 1981 through 1986. He
received his B.A. in Economics and Business Administration from the Hebrew
University in 1957. Mr. Hurwitz is a citizen of Israel.
WILLIAM FLETCHER (52) has been President of Parent since 1983 and Vice
President of North American Pharmaceutical Sales of Teva Israel since 1995.
Prior to joining Parent, he was Business Development Manager and International
Marketing Manager of Synthelabo, a subsidiary of L'Oreal in Paris. He received a
degree in International Marketing from Woolwich Polytechnic, London (now
Greenwich University) in 1969. Mr. Fletcher is a director of both Parent and the
Purchaser. Mr. Fletcher is a citizen of the United Kingdom.
ABRAHAM E. COHEN (62) is a director of both Parent and Teva Israel. He is
an independent consultant. He serves as the Chairman of Vasomedical Inc., and
Neurobiological Technologies, Inc. and as a director of Agouron Pharmaceuticals,
Inc., Akzo NV., Chugai Pharmaceutical Co. Ltd., Smith Barney (Mutual Funds) and
Pharmaceutical Product Development, Inc. He worked at Merck & Company
Incorporated for 30 years and was Senior Vice President when he retired in
January 1992. Mr. Cohen is a citizen of the United States.
PETER H. JAKES (53) is a director of Parent and the Purchaser. He has been
a partner in the law firm of Willkie Farr & Gallagher since 1979. He received
his B.A. in International Relations from Brown University in 1968 and his J.D.
from Yale Law School in 1971. Mr. Jakes is a citizen of the United States.
PROFESSOR ELON KOHLBERG (53) is a director of both Parent and Teva Israel.
Professor Kohlberg is a Mathematician and Economist, and has been a full
Professor of Business Administration at Harvard University for the past five
years. Mr. Kohlberg is a citizen of both the United States and Israel.
HAROLD SNYDER (77) is a director of both Parent and Teva Israel. He retired
in May 1999 as the Senior Vice President of Teva Pharmaceuticals USA, Inc., a
position he held since May 1996. He is the former President of Biocraft
Laboratories, Inc., a company he founded in 1964. He received his B.S. in
Science from New York University in 1948 and his M.A. in Natural Science from
Columbia University in 1950. Mr. Snyder is a citizen of the United States.
------------------------
Mr. Eli Hurvitz was sentenced to the payment of a fine of 700,000 NIS
($170,000) and a suspended sentence of 18 months for a period of 3 years for the
same charge, following the decision in December 1998 of an Israeli court to
convict him on charges of assisting a third party in the avoidance of income
taxes. Mr. Hurvitz was acquitted of all the other charges that had been brought
against him. The Executive Committee of Teva Israel's Board of Directors
convened a meeting following the sentencing of Mr. Hurvitz. The Executive
Committee heard the opinion of Amihud Ben-Porath, who serves as an outside
counsel to the Board, to the effect that the sentence does not constitute an
impediment to Mr. Hurvitz's continuing to serve as Teva Israel's Chief Executive
Officer and Director. The Executive Committee again considered the best
interests of Teva Israel and its shareholders and has decided to reiterate the
Board's request to Mr. Hurvitz to continue in his present office. In addition,
it expressed its full confidence and support in him. During March 1999, Mr.
Hurvitz filed an appeal of the decision to Israel's Supreme Court. The State of
Israel has appealed the decision to acquit Mr. Eli Hurvitz from the additional
charges and the decision regarding the sentence.
A-2
<PAGE> 28
CURRENT DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
CLASS OF
NAME AND AGE DIRECTOR POSITION
- ------------ -------- --------
<S> <C> <C>
William K. Hoskins (64).............. III Director
Daniel L. Korpolinski (56)........... III President, Chief Executive Officer and Director
Charles T. Lay (59).................. III Director
Kenneth N. Larsen (74)............... II Director
Jess G. Thoene, M.D. (57)............ II Director
Martin Zeiger (62)................... II Director
Robert P. Cook (67).................. I Director
Jane C.I. Hirsh (57)................. I President of International Business and Director
David A. Jenkins (58)................ I Chairman of the Board
Gene M. Bauer (50)................... Executive Vice President, General Counsel and
Secretary
Daniel M.P. Caron (38)............... Chief Financial Officer, Treasurer and Vice President
of Finance
Wei-wei Chang (54)................... Executive Vice President -- Scientific and Regulatory
Affairs
</TABLE>
DIRECTORS
WILLIAM K. HOSKINS, designated by Hoechst to serve as a director of the
Company pursuant to the Governance Agreement (as hereinafter defined), has been
a director since October 1997. Mr. Hoskins served as Vice President, Secretary
and General Counsel of Hoechst Marion Roussel, Inc. ("HMRI"), and its
predecessors, from 1982 through June 1997. In addition, Mr. Hoskins has served
on the Board of Directors of J.C. Nichols Co. since November 1995 and, effective
May 1996, became Chairman of the Board.
DANIEL L. KORPOLINSKI, a director of the Company since August 1998, is the
Company's President and Chief Executive Officer. Mr. Korpolinski served as
President and Chief Executive Officer of Prodromics On Line from 1997 until
August of 1998, President and Chief Executive Officer of CoCensys, Inc. from
1991 through 1996, and President of Adria Laboratories North America from 1988
to 1991.
CHARLES T. LAY, a director of the Company since February 1999, was
President and Chief Executive Officer of Geneva Pharmaceuticals, Inc. from June
1988 through December 1998.
ROBERT P. COOK, a director of the Company since July 1997, is currently the
Senior Vice President of Marketing and Sales of Scinopharm Int. Ltd., which he
founded in January of 1995. Prior to that, Mr. Cook served as Director, Generics
Business of Syntex Laboratories, Inc. from October 1986 to December 1994.
JANE C.I. HIRSH, the founder of the Company, serves as its President of
International Business and as a director. Mrs. Hirsh has been a director of the
Company since 1972 and served as the Chairman of the Board of Directors from
1984 to May 1995. Mrs. Hirsh served as President of the Company from 1979 to
early 1984, and from 1985 to June 1993. Mrs. Hirsh also served as Treasurer from
1972 to 1992.
DAVID A. JENKINS, Chairman of the Board of Directors since May 1998 was
initially designated by Hoechst to serve as a director pursuant to the
Governance Agreement. Mr. Jenkins has served as the Vice President -- General
Counsel and a director of HNA Holdings, Inc. ("HNA") (formerly Hoechst Celanese
Corporation) since April 1989 and as President of HNA since December 1997. In
addition, he has been the President of Hoechst since December 1997, General
Counsel and Secretary from October 1995 through June 1999 and a director since
May 1994.
MARTIN ZEIGER, designated by Hoechst to serve as a director of the Company
pursuant to the Governance Agreement, has been a director of the Company since
November 1995. Mr. Zeiger serves as Vice President for HMRI. He served as Vice
President, Strategic Planning and Administration -- Generics of HMRI from
October 1995 through December 1997. He served as Executive Vice President,
Administration and Legal
A-3
<PAGE> 29
Affairs for The Rugby Group, a manufacturer and distributor of generic
pharmaceutical products and formerly an affiliate of HMRI or a predecessor, from
October 1993 through October 1995 and prior to that as Executive Vice President,
Administration and General Counsel of the Rugby-Darby Group Companies, Inc.,
from December 1986 to October 1993.
KENNETH N. LARSEN, a director since 1989 and President from November 1994
to May 1995 and July 1996 to January 1997, also served as Chairman of the Board
of the Company from May 1995 through May 1998, and as a director from September
1985 to November 1986. Mr. Larsen served as Managing Director of Midlar Pharma,
Inc., a pharmaceutical product development company from January 1996 to July
1996. Mr. Larsen has been a consultant and advisor to numerous healthcare
companies from 1989 to the present.
JESS G. THOENE, M.D., a director of the Company since October 1998, has
been a professor at the University of Michigan School of Medicine since 1977.
Dr. Thoene also served as a consultant to Mylan Laboratories, Inc. from 1992 to
1994. He also served on the Board of Scientific Advisors of Watson
Pharmaceuticals from 1992 to 1998 and currently serves on the Board of
Scientific Counselors, National Institute of Child Health and Human Development
of The National Institute of Health.
Pursuant to the Company's Certificate of Incorporation, the Company's Board
of Directors is divided into three classes: Class I Directors, whose terms
expire at the 2001 annual meeting of stockholders; Class II Directors, whose
terms expire at the 2000 annual meeting of stockholders; and Class III
Directors, whose terms expire at the 2002 annual meeting of stockholders. Each
director is elected for a three-year term of office, with one class of directors
being elected at each annual meeting of stockholders. Each director holds office
until his successor is elected and qualified or until his earlier death,
resignation or removal.
EXECUTIVE OFFICERS
GENE M. BAUER, assumed the title of Executive Vice President, Secretary and
General Counsel of the Company in July 1997. He joined the Company in May 1995
as Vice President, Secretary and General Counsel. Prior to joining the Company
he served as Associate General Counsel to The Cooper Companies, Inc. from
January 1993 through April 1995.
DANIEL M.P. CARON, assumed the title of Chief Financial Officer, Treasurer
and Vice President of Finance in June 1998. He joined the Company in November
1992 as Corporate Controller.
WEI-WEI CHANG, the Company's Executive Vice President-Scientific and
Regulatory Affairs since July 1997, joined the Company in August 1994 as Vice
President Quality Affairs. In September 1996, she became Vice President Quality
and Technical Affairs for the Company. Prior to joining the Company, she served
as President of NuTec Incorporated, a pharmaceutical and medical devices
consulting company, from 1991 through 1994.
Executive officers of the Company are elected by the Board of Directors on
an annual basis and serve until their successors have been duly elected and
qualified or until their earlier death, removal or resignation. There are no
family relationships among any of the executive officers or directors of the
Company.
THE COMPANY'S BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors of the Company met fourteen times during the year
ended December 31, 1998. The Board of Directors has a standing Audit Committee
and a standing Compensation Committee, the memberships of which were most
recently fixed by the Board of Directors on May 27, 1999, and does not have a
standing committee for nominating directors. The Audit Committee, which oversees
the accounting and financial functions of the Company, including matters
relating to the appointment and activities of the Company's independent
auditors, met twice during 1998. Messrs. Larsen, Hoskins and Lay are currently
members of the Audit Committee. Mr. Lay replaced Mr. Zeiger as a member of the
Audit Committee on May 27, 1999. The Compensation Committee of the Company,
which reviews and makes recommendations concerning executive compensation and
administers certain of the Company's stock plans, met four times during 1998.
Messrs. Thoene, Zeiger and Cook are currently members of the Compensation
Committee.
A-4
<PAGE> 30
Messrs. Thoene and Zeiger replaced Mrs. Hirsh and Mr. Cook as members of the
Compensation Committee on May 27, 1999.
All directors, other than Messrs. Cook and Thoene, attended at least 75
percent of the aggregate of the total number of meetings of the Board of
Directors and the total number of meetings of all committees of the Board on
which they served during 1998.
DIRECTOR COMPENSATION
Effective as of October 1, 1994, directors who are not employees of the
Company or of Hoechst receive an annual fee of $12,000 and a participation fee
of $500 for each meeting of the Board of Directors or committee thereof attended
(provided such meetings are held on separate dates). All directors are entitled
to be reimbursed for expenses in connection with attending Board of Directors
and Committee meetings.
The Company's 1995 Non-Employee Director Stock Option Plan (the "Director
Plan") provides for the automatic grant of stock options to directors of the
Company who are not employees or officers of the Company, or of an affiliate
(including Hoechst) thereof (a "Non-Employee Director"). The Director Plan was
approved by the shareholders at the Company's annual meeting held on May 24,
1995. Each Non-Employee Director, who was a serving director as of March 30,
1995, the date the Board of Directors approved the Director Plan (the "Board
Approval Date") and who had not received a grant of options under any other plan
maintained by the Company within a period of twelve months preceding the Board
Approval Date was granted an option to purchase 3,333 shares of Common Stock,
and will be granted an option to purchase an additional 3,333 shares of Common
Stock on the anniversary of such date each year thereafter, subject to such
person continuing to be a Non-Employee Director, at each such date. Each
Non-Employee Director who was ineligible for the above-described grant because
of having received a grant of options under any other plan maintained by the
Company within a period of twelve months preceding the Board Approval Date,
shall be automatically granted on the third anniversary of such grant an option
to purchase an additional 3,333 shares of Common Stock and an option to purchase
an additional 3,333 shares of Common Stock on the anniversary of such date each
year thereafter, subject to each person continuing to be a Non-Employee Director
at each such date. Each Non-Employee Director who first becomes a member of the
Board of Directors subsequent to the Board Approval Date, will be automatically
granted on the date such person is first elected or appointed to the Board of
Directors (the "Initial Election Grant Date") an option to purchase 15,000
shares of the Common Stock, and on the third anniversary of the Initial Election
Grant Date and each succeeding anniversary of the Initial Election Grant Date
thereafter, an option to purchase an additional 3,333 shares of Common Stock,
subject to such person continuing to be a Non-Employee Director at each such
date. Any director who was an employee or officer of the Company, or of an
affiliate thereof (an "Employee"), on the Board Approval Date or any person who
becomes a director thereafter while already an Employee or concurrently with
becoming an Employee, and who thereafter ceases to be an Employee but continues
thereafter as a member of the Board (i.e., a Non-Employee Director), shall be
automatically granted as of the date such person ceases to be an Employee, an
option to purchase 3,333 shares of Common Stock, and an option to purchase an
additional 3,333 shares of Common Stock on the anniversary of such date each
year thereafter, subject to such person continuing to be a Non-Employee Director
at each such date.
During the year ended December 31, 1998, Mr. Larsen received an option to
purchase 3,333 shares and Dr. Thoene received an option to purchase 15,000
shares of the Company's Common Stock pursuant to the Director Plan.
A-5
<PAGE> 31
EXECUTIVE COMPENSATION
The following table sets forth information for the years ended December 31,
1997 and 1998 concerning the total compensation awarded, earned by or paid to
the Company's President and Chief Executive Officer and each of the other most
highly compensated executive officers of the Company (other than the President
and Chief Executive Officer) whose salary and bonus earned during the year ended
December 31, 1998 exceeded $100,000, for services rendered to the Company in all
capacities. The persons listed below are hereinafter collectively referred to as
the "Named Executive Officers."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS(2)
------------
ANNUAL COMPENSATION OTHER SECURITIES
-------------------------- ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION OPTIONS(#) COMPENSATION(3)
--------------------------- ---- -------- -------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Daniel L. Korpolinski.......... 1998 $103,846 $45,000 101,323(4) 150,000 --
President and Chief Executive
Officer
Gene M. Bauer.................. 1998 175,356 37,180 -- 10,000 $6,483
Executive Vice President, 1997 161,039 17,324 -- 20,000 5,278
General Counsel and Secretary
Daniel M.P. Caron.............. 1998 125,803 28,600 -- 10,000 5,253
Vice President, Chief
Financial Officer and
Treasurer
Wei-wei Chang.................. 1998 208,536 44,000 -- 10,000 6,483
Executive Vice-President -- 1997 188,322 29,474 -- 20,000 8,869
Scientific and Regulatory
Affairs
</TABLE>
- ---------------
(1) Bonuses are reported in the year earned, even if actually paid in a
subsequent year.
(2) The Company did not make any restricted stock awards, grant any stock
appreciation rights or make any long term incentive plan payouts in 1997 or
1998.
(3) Consists of contributions made by the Company to vested and unvested defined
contribution plans. Amounts contributed by the Company under the Copley
Pharmaceutical, Inc. Retirement Plan are allocated among all eligible
employees who participate in the Retirement Plan in accordance with the
terms of the Retirement Plan.
(4) Consists of relocation expenses.
A-6
<PAGE> 32
OPTION GRANTS
The following table sets forth information concerning stock options granted
during the year ended December 31, 1998 under the Company's 1992 Stock Plan to
the Named Executive Officers (the Company did not grant any stock appreciation
rights during the year ended December 31, 1998):
OPTION GRANTS IN 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------- POTENTIAL REALIZABLE VALUE AT
PERCENT OF ASSUMED ANNUAL RATES OF
TOTAL OPTIONS STOCK PRICE APPRECIATION FOR
NO. OF GRANTED TO EXERCISE OPTION TERM(2)
OPTIONS EMPLOYEES PRICE PER EXPIRATION ------------------------------
NAME GRANTED IN YEAR(1) SHARE DATE 5% 10%
---- ------- ------------- --------- ---------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Daniel L. Korpolinski.... 150,000 26.8% $9.93755 8/24/08 $937,446 $2,375,672
Gene M. Bauer............ 10,000 1.8 6.25 5/28/08 39,306 99,306
Daniel M.P. Caron........ 10,000 1.8 6.25 5/28/08 39,306 99,306
Wei-wei Chang............ 10,000 1.8 6.25 5/28/08 39,306 99,306
</TABLE>
- ---------------
(1) A total of 558,700 options were granted to employees in the year ended
December 31, 1998 under the Company's 1992 Stock Plan.
(2) The 5% and 10% assumed rates of appreciation are required by the rules and
regulations of the Securities and Exchange Commission and do not represent
the Company's estimate or projection of the price of the Common Stock in the
future. There can be no assurances that the rates of appreciation in this
table can be achieved or that the amounts reflected will be received by the
Named Executive Officer.
OPTION EXERCISES AND UNEXERCISED OPTION HOLDINGS
The following table sets forth certain information concerning options held
by the Named Executive Officers on December 31, 1998. No options were exercised
by the Named Executive Officers during the year ended December 31, 1998.
AGGREGATED OPTION EXERCISES AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT YEAR-END OPTIONS AT YEAR-END
NAME EXERCISABLE/(UNEXERCISABLE)(#) EXERCISABLE/(UNEXERCISABLE)($)(1)
---- ------------------------------ ---------------------------------
<S> <C> <C>
Daniel L. Korpolinski................. 57,071/(92,929) 24,969/(40,656 )
Gene M. Bauer......................... 32,500/(17,500) 50,313/(70,938 )
Daniel M.P. Caron..................... 7,500/( 7,500) 10,313/(30,938 )
Wei-wei Chang......................... 50,000/(17,500) 50,313/(70,938 )
</TABLE>
- ---------------
(1) Value is based on the difference between the option exercise price and the
fair market value of the Company's Common Stock on December 31, 1998
($10.375, the last reported sale price of the Company's Common Stock on the
Nasdaq National Market on December 31, 1998, the last trading date in 1998)
multiplied by the number of shares underlying the options.
CERTAIN EMPLOYMENT AGREEMENTS
The Company and each of Mr. Korpolinski, Mrs. Hirsh, Mr. Bauer and Dr.
Chang are parties to employment agreements. The employment agreements provide
for initial annual base salaries of $300,000 for Mr. Korpolinski, $385,000 for
Mrs. Hirsh, $155,400 for Mr. Bauer and $175,000 for Dr. Chang. Under the
employment agreements, employment may be terminated for "cause," which includes:
the misappropriation of money, assets or property; willful, material and
repeated failure to perform reasonable assignments; conviction of a felony; and
breach of confidentiality, non-competition and non-solicitation provisions. If
the employee
A-7
<PAGE> 33
dies, or employment is terminated due to disability or without cause each
employee will be eligible for medical and other health insurance benefits for a
defined period of time, and all of the employee's stock options will be
accelerated and become fully exercisable for a period of 60 days after the date
of termination. In addition, each employment agreement provides for a defined
lump sum severance payment under such circumstances. Each is entitled to receive
discretionary bonuses as determined by the Board of Directors; provided,
however, that Mr. Korpolinski is entitled to a bonus of 30% of his base salary
for each of the Company's 1998 and 1999 years based upon the achievement of
certain performance goals. The original terms of the employment agreements will
expire in 2000 for Messrs. Korpolinski and Bauer and 1999 for Dr. Chang and Mrs.
Hirsh. Each agreement automatically renews for successive one-year periods
unless the Company gives the employee six months written notice of non-renewal,
which for purposes of each agreement is treated as termination without cause.
The employment agreements contain non-competition covenants which prohibit
competing with the Company for one year after employment terminates, during
which time the employment agreements also prohibit interfering with the
Company's business or its relationships with its customers and potential
customers and from soliciting the Company's employees.
Mr. Caron's employment agreement provides for (a) a severance payment equal
to (i) 100% of his then base salary and (ii) the pro rata portion of any bonus
to which he is otherwise entitled (as determined by the Board of Directors), (b)
medical and other health insurance benefits for one year and (c) acceleration of
all unvested stock options exercisable for a period of 60 days upon death,
disability or termination without cause. The initial term of this agreement
expires in 2000, but automatically renews for successive one-year periods unless
the Company gives Mr. Caron six months written notice of non-renewal, which for
the purposes of this agreement is treated as termination without cause.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors consisted of Robert P.
Cook, Jane C.I. Hirsh and David A. Jenkins during 1998. Mrs. Hirsh serves as the
Company's President of International Business. Mrs. Hirsh participated in two
Compensation Committee meetings as a subset of the Board of Directors while an
employee of the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has adopted a policy that all transactions between the Company
and its officers, directors, affiliates and principal shareholders be on terms
no less favorable to the Company than terms of transactions with unrelated
parties and be approved by a majority of disinterested directors. In addition,
under the terms of the Governance Agreement (as hereinafter defined), until
October 8, 1998 every transaction or series of related transactions between the
Company and Hoechst (or any of its affiliates) and every corporate action which
presents a potential conflict of interest between Hoechst (or any of its
affiliates) and the Company and its other shareholders was subject to the prior
approval of a majority of the Independent Directors (as defined in the
Governance Agreement).
Pursuant to the Product Agreement (as hereinafter defined) and certain
other product distribution agreements, the Company purchased in 1998 an
aggregate of approximately $45,163,000 in generic products from HMRI. The
Company obtains its comprehensive general liability, product liability, umbrella
liability and all risks property insurance coverage through an insurance and
risk sharing arrangement with Hoechst Aktiengesellschaft ("Hoechst AG"), and its
various subsidiaries, including Hoechst and HNA. Insurance coverage is provided
through a wholly-owned insurance subsidiary of HNA, as well as by external
parties. Total premiums paid by the Company for these insurance policies
aggregated approximately $4,563,000 for the year ended December 31, 1998.
At December 31, 1998, the Company was a 49% owner of Chia Tai Copley
Pharmaceutical ("CTCP") which, in turn, was an 85% owner of Wuxi Chia Tai Copley
Pharmaceutical ("WCTCP"). CTCP and WCTCP were formed to manufacture and market
multi-source drug products in the People's Republic of China. The Company's
investment in CTCP totaled $2.1 million at December 31, 1998. During 1995, the
Company's Board of Directors voted to decrease the Company's financial
commitment to and de-emphasize
A-8
<PAGE> 34
the Company's role in CTCP and WCTCP. Subsequently a subsidiary of Hoechst AG
indicated its desire to purchase an interest in WCTCP and it is anticipated that
upon transfer of its indirect ownership in WCTCP the Company will recover
approximately $2.1 million of its investment in CTCP. In 1998, the Company wrote
down its investment of $2.4 million to $2.1 million and reclassified it to a
long-term related party receivable.
GOVERNANCE AGREEMENT
On November 11, 1993, HCCP Acquisition Corporation ("HCCP"), a wholly-owned
subsidiary of HNA, acquired a 51% interest in the Company on a fully diluted
basis (the "Acquisition"). In connection with the Acquisition, the Company, HNA
and HCCP entered into a Corporate Governance and Standstill Agreement dated as
of October 8, 1993, as amended (the "Governance Agreement"), to govern the
relationship between the Company and HNA and its affiliates. On October 8, 1998,
the Governance Agreement expired by its terms, with the exception of certain
limited protections that will continue in force as described below. Effective
May 17, 1999, HCCP merged with and into Hoechst and, as a result of the merger,
(a) Hoechst became the direct beneficial owner of the Shares previously
beneficially owned by HCCP and (b) Hoechst succeeded to the rights and
obligations of HCCP under the Governance Agreement.
Some of the more significant protections in the Governance Agreement that
expired are: (a) the requirement that the Board of Directors consist of nine
members, three being Company Directors, three being Hoechst Directors and three
being Independent Directors (meaning jointly selected by the Company Directors
and Hoechst Directors), and that committees of the Board of Directors be
similarly constituted; (b) the prohibition against Hoechst and its affiliates
acquiring additional shares (other than as necessary to maintain its
pre-existing percentage ownership) or otherwise seeking to increase their
control of ownership of the Company without the Company's consent (including the
consent of at least one Company Director); (c) the prohibition against
amendments of the Company's charter and by-laws without the consent of at least
one Company Director; (d) the requirement that Hoechst vote its shares in
accordance with all recommendations of the Board of Directors and not vote in
opposition to any recommendation of the Board of Directors; (e) the requirement
that all transactions between the Company, on the one hand, and Hoechst and its
affiliates, on the other hand, and each transaction in which there is a
potential conflict of interest between the Company and its shareholders (other
than Hoechst and its affiliates) on the one hand, and Hoechst or its affiliates
on the other hand, must be approved by a majority of the Independent Directors;
and (f) the requirement that Hoechst not sell its shares to any person whom
Hoechst knows would own 5% or more of the outstanding shares unless such person
agrees in writing to be bound by the restrictions of the Governance Agreement
and to forego certain benefits under the Governance Agreement.
The restrictions that continue in effect are: (a) the prohibition against
Hoechst or its affiliates acquiring shares of the Company without the approval
of a majority of the Independent Directors, except in certain privately
negotiated, unsolicited transactions which do not reduce the liquidity of the
shares below the level expected to be necessary to maintain a viable market for
the shares and liquidity for the Company's shareholders; and (b) the requirement
that, so long as the Company is a public company, the Board of Directors include
at least three Independent Directors. For these purposes, an "Independent
Director" is a person who (i) is in fact independent, (ii) does not have any
direct financial interest or any material indirect financial interest in Hoechst
or the Company or any of their respective affiliates, and (iii) is not connected
with Hoechst or the Company or any of their respective affiliates as an officer,
employee, consultant, agent advisor, representative, trustee, partner, director
(other than of the Company) or person performing similar functions. Other than
these limited restrictions and subject only to such fiduciary duties as a
majority shareholder may have to minority shareholders under Delaware Law,
Hoechst, as a majority shareholder, will be able to exercise substantial control
of the Company, including the right to decide in its discretion most matters
requiring shareholder approval, such as the election of future members of the
Board of Directors and approval of any proposed merger or acquisition of the
Company.
PRODUCT AGREEMENT
The Company and HNA entered into a Product Agreement dated as of October 8,
1993 (the "Product Agreement") to establish certain relationships between the
Company and HNA and its affiliates concerning
A-9
<PAGE> 35
the supply of certain raw materials to the Company, the synthesis of certain new
bulk active ingredients, the establishment of a managed care market development
and sales organization with Hoechst-Roussel Pharmaceuticals Incorporated
("HRPI"), at that time an affiliate of HNA, and the right of the Company to act
as a generic arm of HRPI with respect to any HRPI products which HRPI may decide
to sell in a generic version as they come off patent. The Product Agreement also
contemplated the Company pre-launching generic versions of certain HRPI products
before the relevant patent expired. The Product Agreement expired on June 1,
1999.
On June 30, 1995, HNA transferred its ownership of HCCP to Hoechst (the
parent corporation of HNA), which assumed HNA's rights and obligations pursuant
to the Governance Agreement. On January 1, 1996, HRPI was merged into HMRI,
which was then a subsidiary of Hoechst and a sister corporation to HNA. On
December 19, 1996, HMRI became a subsidiary of HMR Pharma, Inc. HMRI agreed to
be bound by the Product Agreement to the extent that HRPI was bound; that is,
the Product Agreement was in effect for products manufactured by the former HRPI
but not for products manufactured by HMRI prior to the merger with HRPI nor for
products developed by HMRI after January 1, 1996. Since the date of the Product
Agreement, the Company has entered into specific distribution agreements with
HRPI with respect to glyburide, micronized glyburide and pentoxifylline; HRPI's
obligations under those agreements have also been assumed by HMRI. The Company
does not expect to distribute any new or additional products pursuant to the
Product Agreement.
A-10
<PAGE> 36
SECURITIES OWNERSHIP OF CERTAIN OWNERS AND MANAGEMENT
The following table sets forth as of July 31, 1999 certain information
regarding the ownership of shares of the Company's Common Stock by (i) each
person who, to the knowledge of the Company, beneficially owned more than 5% of
the shares of Common Stock outstanding at such date, (ii) each director of the
Company, (iii) each Named Executive Officer and (iv) all directors and executive
officers as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT
NAME AND ADDRESS* OF BENEFICIAL OWNER OWNERSHIP(1) OF CLASS
- ------------------------------------- ----------------- --------
<S> <C> <C>
Hoechst Corporation(2)...................................... 9,934,100 51.4%
30 Independence Blvd
Warren, New Jersey 07059
Jane C.I. Hirsh(3)**........................................ 1,404,563 7.2%
Theodore L. Iorio(4)**...................................... 1,386,546 7.2%
Kenneth N. Larsen(5)........................................ 135,370 ***
Daniel L. Korpolinski(6).................................... 101,089 ***
Wei-wei Chang(7)............................................ 63,952 ***
Gene M. Bauer(8)............................................ 40,966 ***
Daniel M.P. Caron(9)........................................ 16,047 ***
Robert P. Cook(10).......................................... 15,000 ***
Charles T. Lay(11).......................................... 5,000 ***
Jess G. Thoene(12).......................................... 5,200 ***
Martin Zeiger(13)........................................... 1,000 ***
William K. Hoskins(13)...................................... 0 ***
David A. Jenkins(13)........................................ 0 ***
All directors and executive officers as a group (12
persons)(14).............................................. 1,788,187 9.0%
</TABLE>
- ---------------
* Addresses furnished only for holders of five percent (5%) or more of the
Common Stock
** c/o Copley Pharmaceutical, Inc., 25 John Road, Canton, MA 02021
*** Less than 1%
(1) To the Company's knowledge, except as otherwise noted in the footnotes to
this table, each person or entity named in the table has sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by such person.
(2) Hoechst is wholly-owned by Hoechst AG, a large chemical and pharmaceutical
company headquartered in Frankfurt, Germany. For a description of certain
arrangements with respect to these shares, see "Certain Relationships and
Related Transactions."
(3) Consists of 112,500 shares issuable upon the exercise of outstanding stock
options exercisable on July 31, 1999 or within 60 days thereafter
("Presently Exercisable Securities") and 25,321 shares allocated under the
Company's Employee Stock Ownership Plan. Also includes: (i) 200,000 shares
held of record by NMJ Limited Partnership, of which Mrs. Hirsh is a general
partner; (ii) 886,016 shares held by Juliet Partners, of which Mrs. Hirsh
is a general partner; (iii) 170,569 shares held of record by Romeo
Partners, of which Mrs. Hirsh's husband, Dr. Mark Hirsh, is a general
partner; and (iv) 7,757 shares allocated under the Company's Employee Stock
Ownership Plan beneficially owned by Dr. Hirsh. Mrs. Hirsh has shared
voting and investment power with respect to all shares listed.
(4) Includes: (i) 45,000 shares issuable upon the exercise of Presently
Exercisable Securities; (ii) 22,202 shares allocated under the Company's
Employee Stock Ownership Plan; (iii) 653,454 shares held by The Theodore L.
Iorio Standard Trust, a revocable trust of which Mr. Iorio is the
beneficiary and settlor and over which Mr. Iorio has shared voting and
investment power; (iv) 163,932 shares held by the Theodore L. Iorio
Charitable Remainder Trust, of which Mr. Iorio is a co-trustee and over
which Mr. Iorio has shared voting and investment power; and (v) 260,073
shares held by trusts for the benefit
A-11
<PAGE> 37
of certain members of Mr. Iorio's family, for which Mr. Iorio's spouse is
custodian, the beneficial ownership of which Mr. Iorio disclaims. Mr. Iorio
also disclaims beneficial ownership of shares held by the Theodore L. Iorio
Charitable Remainder Trust.
(5) Includes 58,415 shares issuable pursuant to Presently Exercisable
Securities.
(6) Consists of Presently Exercisable Securities.
(7) Includes 57,500 shares issuable pursuant to Presently Exercisable
Securities.
(8) Includes 40,000 shares issuable pursuant to Presently Exercisable
Securities.
(9) Includes 10,000 shares issuable pursuant to Presently Exercisable
Securities.
(10) Consists of Presently Exercisable Securities.
(11) Consists of Presently Exercisable Securities.
(12) Includes 5,000 shares issuable pursuant to Presently Exercisable
Securities.
(13) Excludes 9,934,100 shares of common stock held by Hoechst, of which such
person may be deemed an affiliate. Mr. Zeiger is Vice President of HMRI, a
majority-owned subsidiary of HMR Pharma, Inc. which is wholly-owned by
Hoechst AG. Mr. Hoskins was Vice President and General Counsel of HMRI and
remains a consultant to HMRI. Mr. Jenkins is President of Hoechst, a
subsidiary of Hoechst AG. Each of Messrs. Zeiger, Hoskins and Jenkins
disclaims beneficial ownership of any shares held by Hoechst or any of its
affiliates.
(14) Includes 404,504 shares issuable pursuant to Presently Exercisable
Securities.
SECTION 16 (a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16 (a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than ten percent of a registered class of
the Company's equity securities, to file reports of ownership and changes in
ownership with the SEC. Officers, directors and greater-than-ten percent
stockholders are required by SEC regulation to furnish the Company with all
Section 16 (a) forms they file.
Based solely on a review of the forms received by the Company pursuant to
Section 16(a) of the Exchange Act and on written representations received by it,
the Company believes that during 1998, the Company's directors, executive
officers and persons who beneficially own more than ten percent of the Company's
Common Stock complied with all applicable Section 16 (a) filing requirements.
A-12
<PAGE> 38
ANNEX B
AUGUST 9, 1999
CIBC World Markets Corp.
425 Lexington Avenue
New York, NY 10017
Personal and Confidential
The Board of Directors
Copley Pharmaceutical, Inc.
25 John Road
Canton, MA 02021
Ladies and Gentlemen:
You have asked CIBC World Markets Corp. ("CIBC World Markets") to render a
written opinion ("Fairness Opinion") to the Board of Directors as to the
fairness to stockholders of Copley Pharmaceutical, Inc. ("Copley" or the
"Company"), other than Celanese AG, Hoechst Corporation, HCCP Acquisition
Corporation or any of their respective affiliates (collectively, "Hoechst"),
from a financial point of view, of the consideration to be received by such
stockholders pursuant to the Agreement and Plan of Merger (the "Merger
Agreement") by and among Teva Pharmaceuticals USA, Inc. ("Parent"), Caribou
Merger Corporation ("Merger Subsidiary"), a wholly owned subsidiary of Parent,
and Copley. The Parent is an indirect, wholly-owned subsidiary of Teva
Pharmaceutical Industries Limited which has guaranteed the full and faithful
performance of the obligations of Parent under the Merger Agreement. The Merger
Agreement provides for, among other things, a transaction whereby the Merger
Subsidiary will commence a tender offer (the "Offer") for all of the outstanding
common stock, par value $0.01 per share, of Copley ("Common Stock"), and
following the acceptance of shares tendered in the Offer, the Merger Subsidiary
shall merge with and into the Company (the "Merger") as a result of which all
remaining outstanding shares of Common Stock, other than shares (i) held in
treasury, (ii) held by the Parent or the Merger Subsidiary or any wholly-owned
subsidiary of Parent or the Company (iii) as to which appraisal rights are
perfected shall be converted into the right to receive the Purchase
Consideration (as defined below). The purchase price of the Common Stock in the
Offer shall be $11.00 in cash ("Purchase Consideration.") We understand that
approximately 51% of the outstanding shares of Common Stock is beneficially
owned by Hoechst. The Offer and the Merger are collectively referred to as the
"Transaction".
In arriving at our Fairness Opinion we:
(a) reviewed the draft Merger Agreement, dated August 5, 1999;
(b) reviewed Copley's Annual Reports to stockholders, Proxy Statements and
Annual Reports on Form 10-K, including the audited consolidated
financial statements; for the fiscal years ended December 31, 1996,
1997, and 1998;
(c) reviewed Copley's Quarterly Reports on Form 10-Q, including the
unaudited consolidated financial statements; for the three months ended
March 31, 1999 and the six months ended June 30, 1999;
(d) reviewed financial projections of Copley prepared by Copley's
management;
(e) reviewed the historical market prices and trading volume for the Common
Stock;
(f) held discussions with senior management of Copley with respect to the
business and prospects for future growth of Copley;
(g) performed discounted cash flow analyses of Copley using certain
assumptions of future performance provided to us by the management of
Copley;
(h) reviewed and analyzed certain publicly available financial data for
certain companies we deemed comparable to Copley;
(i) reviewed and analyzed certain publicly available financial information
for transactions that we deemed comparable to the Transaction; and
(j) performed such other analyses and reviewed such other information as we
deemed appropriate.
B-1
<PAGE> 39
The Board of Directors
Copley Pharmaceutical, Inc.
August 9, 1999
In rendering our Fairness Opinion we relied upon and assumed, without
independent verification or investigation, the accuracy and completeness of all
of the financial and other information provided to us by the Company and their
respective employees, representatives and affiliates. With respect to forecasts
of future financial condition and operating results of Copley and its
subsidiaries provided to us, we assumed at the direction of Copley's management,
without independent verification or investigation, that such forecasts were
reasonably prepared by Copley's management on bases reflecting the best
available information, estimates and judgement of Copley's management. We have
neither made nor obtained any independent evaluations or appraisals of the
assets or the liabilities of Copley or such subsidiaries. We are not expressing
any opinion as to the underlying valuation, future performance or long term
viability of Copley following the Transaction. Our opinion is necessarily based
on the information available to us and general economic, financial and stock
market conditions and circumstances as they exist and can be evaluated by us on
the date hereof. It should be understood that, although subsequent developments
may affect this opinion, we do not have any obligation to update, revise or
reaffirm the opinion.
As part of our investment banking business, we are regularly engaged in
valuations of businesses and securities in connection with acquisitions and
mergers, underwritings, secondary distributions of securities, private
placements and valuations for other purposes.
We acted as financial advisor to Copley in connection with the Transaction
and to the Board of Directors of Copley in rendering this Fairness Opinion and
will receive a fee for our services. CIBC World Markets has performed investment
banking and other services for Copley in the past and has been compensated for
such services. In the ordinary course of its business, CIBC World Markets and
its affiliates may actively trade securities of Copley for their own account and
for the accounts of customers and, accordingly, may at any time hold a long or
short position in such securities.
In arriving at our opinion, we were authorized to solicit, and did solicit,
interest from third parties with respect to the acquisition of the Company or
its assets over the period of February 12, 1999 to August 6, 1999.
Based upon and subject to the foregoing, and such other factors as we deem
relevant, it is our opinion that, as of the date hereof, the Purchase
Consideration to be received by the stockholders of the Company, other than
Hoechst as to which we render no opinion, pursuant to the Merger Agreement is
fair to such stockholders from a financial point of view. This Fairness Opinion
is for the exclusive use of the Board of Directors of Copley. Neither this
Fairness Opinion nor the services provided by CIBC World Markets in connection
herewith may be publicly disclosed or referred to in any manner by Copley
without the prior approval by CIBC World Markets, such approval not to be
unreasonably withheld or delayed. CIBC World Markets consents to the inclusion
of this opinion in its entirety in any prospectus, proxy statement or
solicitation/recommendation statement, as the case may be, filed with the
Securities and Exchange Commission and delivered to stockholders of the Company.
Very Truly Yours,
CIBC World Markets Corp.
B-2
<PAGE> 1
Draft 8/12/99
EXCERPTS FROM 1999 PROXY STATEMENT
EXECUTIVE COMPENSATION
Summary Compensation
The following table sets forth information for the years ended December
31, 1996, 1997 and 1998 concerning the total compensation awarded, earned by or
paid to the Corporation's President and Chief Executive Officer and each of the
other most highly compensated executive officers of the Corporation (other than
the President and Chief Executive Officer) whose salary and bonus earned during
the year ended December 31, 1998 exceeded $100,000, for services rendered to the
Corporation in all capacities. The persons listed below are hereinafter
collectively referred to as the "Named Executive Officers."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS (2)
---------------------------------- -------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION OPTIONS (#) OTHER COMPENSATION (3)
- --------------------------- ---- -------- ------- ------------ ------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Daniel L. Korpolinski 1998 $103,846 $45,000 101,323(4) 150,000 --
President and Chief
Executive Officer
Gene M. Bauer 1998 175,356 37,180 -- 10,000 $6,483
Executive Vice President, 1997 161,039 17,324 -- 20,000 5,278
General Counsel and
Secretary
Daniel M.P. Caron 1998 125,803 28,600 -- 10,000 5,253
Vice President, Chief
Financial Officer and
Treasurer
Wei-wei Chang 1998 208,536 44,000 -- 10,000 6,483
Executive Vice-President - 1997 188,322 29,474 -- 20,000 8,869
Scientific and Regulatory
Affairs
</TABLE>
- ----------
(1) Bonuses are reported in the year earned, even if actually paid in a
subsequent year.
(2) The Corporation did not make any restricted stock awards, grant any stock
appreciation rights or make any long term incentive plan payouts in 1996,
1997 or 1998.
(3) Consists of contributions made by the Corporation to vested and unvested
defined contribution plans. Amounts contributed by the Corporation under
the Copley Pharmaceutical, Inc. Retirement Plan are allocated among all
eligible employees who participate in the Retirement Plan in accordance
with the terms of the Retirement Plan.
(4) Consists of relocation expenses.
Option Grants
The following table sets forth information concerning stock options
granted during the year ended
<PAGE> 2
December 31, 1998 under the Corporation's 1992 Stock Plan to the Named Executive
Officers (the Corporation did not grant any stock appreciation rights during the
year ended December 31, 1998):
OPTION GRANTS IN 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------
PERCENT OF POTENTIAL REALIZABLE VALUE AT
TOTAL ASSUMED ANNUAL RATES
OPTIONS OF STOCK PRICE APPRECIATION FOR
GRANTED TO OPTION TERM (2)
NO. OF EMPLOYEES EXERCISE -------------------------------
OPTIONS IN PRICE PER EXPIRATION
NAME GRANTED YEAR(1) SHARE DATE 5% 10%
- ---- ------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Daniel L. Korpolinski...... 150,000 26.8% $ 9.93755 8/24/08 $937,446 $2,375,672
Gene M. Bauer.............. 10,000 1.8 6.25 5/28/08 39,306 99,306
Daniel M. P. Caron......... 10,000 1.8 6.25 5/28/08 39,306 99,306
Wei-wei Chang.............. 10,000 1.8 6.25 5/28/08 39,306 99,306
</TABLE>
- ----------
(1) A total of 558,700 options were granted to employees in the year ended
December 31, 1998 under the Corporation's 1992 Stock Plan.
(2) The 5% and 10% assumed rates of appreciation are required by the rules and
regulations of the Securities and Exchange Commission and do not represent
the Corporation's estimate or projection of the price of the Common Stock
in the future. There can be no assurances that the rates of appreciation in
this table can be achieved or that the amounts reflected will be received
by the Named Executive Officer.
OPTION EXERCISES AND UNEXERCISED OPTION HOLDINGS
The following table sets forth certain information concerning options
held by the Named Executive Officers on December 31, 1998. No options were
exercised by the Named Executive Officers during the year ended December 31,
1998.
AGGREGATED OPTION EXERCISES AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT
AT YEAR-END YEAR-END
EXERCISABLE/ EXERCISABLE/
NAME (UNEXERCISABLE)(#) (UNEXERCISABLE)($)(1)
---- -------------------- -------------------
<S> <C> <C>
Daniel L. Korpolinski................................... 57,071/(92,929) 24,969/40,656
Gene M. Bauer........................................... 32,500/(17,500) 50,313/70,938
Daniel M. P. Caron...................................... 7,500/(7,500) 10,313/30,938
Wei-wei Chang........................................... 50,000/(17,500) 50,313/70,938
</TABLE>
- ----------
(1) Value is based on the difference between the option exercise price and the
fair market value of the Corporation's Common Stock on December 31, 1998
($10.375, the last reported sale price of the Corporation's Common Stock on
the Nasdaq National Market on December 31, 1998, the last trading date in
1998) multiplied by the number of
<PAGE> 3
shares underlying the options.
EMPLOYMENT AND SEVERANCE AGREEMENTS
The Corporation and each of Mr. Korpolinski, Mrs. Hirsh, Mr. Bauer and
Dr. Chang are parties to employment agreements which are substantially similar,
except as set forth below. The employment agreements provide for initial annual
base salaries of $300,000 for Mr. Korpolinski, $385,000 for Mrs. Hirsh, $155,400
for Mr. Bauer and $175,000 for Dr. Chang. Under the employment agreements,
employment may be terminated for "cause," which includes: the misappropriation
of money, assets or property; willful, material and repeated failure to perform
reasonable assignments; conviction of a felony; and breach of confidentiality,
non-competition and non-solicitation provisions. If the employee dies, or
employment is terminated due to disability or without cause each employee will
be eligible for medical and other health insurance benefits for a defined period
of time, and all of the employee's stock options will be accelerated and become
fully exercisable for a period of 60 days after the date of termination. In
addition, each employment agreement provides for a defined lump sum severance
payment under such circumstances. Each is entitled to receive discretionary
bonuses as determined by the Board of Directors; provided, however, that Mr.
Korpolinski is entitled to a bonus of 30% of his base salary for each of the
Company's 1998 and 1999 fiscal years based upon the achievement of certain
performance goals. The original terms of the employment agreements will expire
in 2000 for Messrs. Korpolinski and Bauer and 1999 for Dr. Chang and Mrs. Hirsh.
Each agreement automatically renews for successive one-year periods unless the
Corporation gives the employee six months' written notice of non-renewal, which
for purposes of each agreement is treated as termination without cause. The
employment agreements contain non-competition covenants which prohibit competing
with the Corporation for one year after employment terminates, during which time
the employment agreements also prohibit interfering with the Corporation's
business or its relationships with its customers and potential customers and
from soliciting the Corporation's employees.
Mr. Caron's employment agreement provides for a severance payment of
50% of his then base salary, medical and other health insurance benefits for one
year, and acceleration of all unvested stock options exercisable for a period of
60 days upon death, disability or termination without cause if such event occurs
within one year of a change in control of the Corporation. In addition, if such
death, disability or termination without cause occurs within six months
following a change in control of the Corporation, Mr. Caron is entitled to an
additional severance payment of 50% of his then base salary. This agreement
expires one year following a change in control of the Corporation.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The business and affairs of the Corporation are managed under the
direction of its Board of Directors. The Board of Directors met fourteen (14)
times during the year ended December 31, 1998.
The Audit Committee of the Board of Directors currently consists of
Kenneth N. Larsen (Chairman), William K. Hoskins and Martin Zeiger. Mr. Larsen
was appointed to the Audit Committee by the Board of Directors on May 28, 1998,
replacing Jane C.I. Hirsh who had served since April 30, 1996. Mr. Zeiger was
appointed to the Audit Committee by the Board of Directors on May 28, 1998,
replacing Judith W. Fensterer who had served since May 24, 1995. The Audit
Committee is responsible for assisting the Board of Directors in fulfilling its
responsibilities by overseeing the annual audit process, including matters
relating to the appointment and activities of the Corporation's independent
auditors, assessing the adequacy of the Corporation's internal controls and
reviewing the reliability of the financial information provided to the
shareholders and others. The Audit Committee plans the scope of the
Corporation's annual audit and meets with the Corporation's independent auditors
to plan, and later to review the results of, the annual audit. The Audit
Committee met once as a Committee and met once as a committee of the entire
Board of Directors during the year ended December 31, 1998.
The Compensation Committee of the Board of Directors currently consists
of David A. Jenkins
<PAGE> 4
(Chairman), Robert P. Cook and Jane C.I. Hirsh. Mr. Cook was appointed to the
Compensation Committee by the Board of Directors on May 28, 1998, replacing
Martin Zeiger who had served since May 30, 1997. Mrs. Hirsh was appointed to the
Compensation Committee by the Board of Directors on May 28, 1998. Mr. Jenkins
was appointed to the Compensation Committee by the Board of Directors on May 28,
1998, replacing Kenneth N. Larsen who had served since April 30, 1996. Agnes
Varis, who had served on the Compensation Committee since March 24, 1992,
resigned from the Board of Directors and the Compensation Committee on July 24,
1998. The Compensation Committee reviews executive performance, equity and
non-equity executive compensation and advises the Board of Directors on the
Corporation's benefits and compensation policies. The Compensation Committee met
twice as a Committee and met twice as a committee of the entire Board of
Directors during the year ended December 31, 1998.
During 1998, each director, other than Messrs. Cook and Thoene,
attended at least 75% of the aggregate of (i) the total number of meetings of
the Board of Directors and (ii) the total number of meetings held by all
committees of the Board on which such director served. Each of Agnes Varis and
Judith Fensterer resigned from the Board of Directors effective July 24, 1998
and July 26, 1998, respectively.
COMPENSATION OF DIRECTORS
Effective as of October 1, 1994, directors who are not employees of the
Corporation or of Hoechst receive an annual fee of $12,000 and a participation
fee of $500 for each meeting of the Board of Directors or committee thereof
attended (provided such meetings are held on separate dates). All directors are
entitled to be reimbursed for expenses in connection with attending Board of
Directors and Committee meetings.
The Corporation's 1995 Non-Employee Director Stock Option Plan (the
"Director Plan") provides for the automatic grant of stock options to directors
of the Corporation who are not employees or officers of the Corporation, or of
an affiliate (including Hoechst) thereof (a "Non-Employee Director"). The
Director Plan was approved by the shareholders at the Corporation's annual
meeting held on May 24, 1995. Each Non-Employee Director, who was a serving
director as of March 30, 1995, the date the Board of Directors approved the
Director Plan (the "Board Approval Date") and who had not received a grant of
options under any other plan maintained by the Corporation within a period of
twelve months preceding the Board Approval Date was granted an option to
purchase Three Thousand Three Hundred and Thirty-Three (3,333) shares of Common
Stock, and will be granted an option to purchase an additional Three Thousand
Three Hundred and Thirty-Three (3,333) shares of Common Stock on the anniversary
of such date each year thereafter, subject to such person continuing to be a
Non-Employee Director, at each such date. Each Non-Employee Director who was
ineligible for the above-described grant because of having received a grant of
options under any other plan maintained by the Corporation within a period of
twelve months preceding the Board Approval Date, shall be automatically granted
on the third anniversary of such grant an option to purchase an additional Three
Thousand Three Hundred and Thirty-Three (3,333) shares of Common Stock and an
option to purchase an additional Three Thousand Three Hundred and Thirty-Three
(3,333) shares of Common Stock on the anniversary of such date each year
thereafter, subject to each person continuing to be a Non-Employee Director at
each such date. Each Non-Employee Director who first becomes a member of the
Board of Directors subsequent to the Board Approval Date, will be automatically
granted on the date such person is first elected or appointed to the Board of
Directors (the "Initial Election Grant Date") an option to purchase Fifteen
Thousand (15,000) shares of the Common Stock, and on the third anniversary of
the Initial Election Grant Date and each succeeding anniversary of the Initial
Election Grant Date thereafter, an option to purchase an additional Three
Thousand Three Hundred and Thirty-Three (3,333) shares of Common Stock, subject
to such person continuing to be a Non-Employee Director at each such date. Any
director who was an employee or officer of the Corporation, or of an affiliate
thereof (an "Employee"), on the Board Approval Date or any person who becomes a
director thereafter while already an Employee or concurrently with becoming an
Employee, and who thereafter ceases to be an Employee but continues thereafter
as a member of the Board (i.e., a Non-
<PAGE> 5
Employee Director), shall be automatically granted as of the date such person
ceases to be an Employee, an option to purchase Three Thousand Three Hundred and
Thirty-Three (3,333) shares of Common Stock, and an option to purchase an
additional Three Thousand Three Hundred and Thirty-Three (3,333) shares of
Common Stock on the anniversary of such date each year thereafter, subject to
such person continuing to be a Non-Employee Director at each such date.
During the year ended December 31, 1998, Mr. Larsen received an option
to purchase Three Thousand Three Hundred Thirty-Three (3,333) shares and Dr.
Thoene received an option to purchase Fifteen Thousand (15,000) shares of the
Corporation's Common Stock pursuant to the Director Plan.
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors currently consists
of David A. Jenkins (Chairman), Robert P. Cook and Jane C.I. Hirsh. Mr. Cook was
appointed to the Compensation Committee by the Board of Directors on May 28,
1998, replacing Martin Zeiger who had served since May 30, 1997. Mrs. Hirsh was
appointed to the Compensation Committee by the Board of Directors on May 28,
1998. Mr. Jenkins was appointed to the Compensation Committee by the Board of
Directors on May 28, 1998 replacing Kenneth N. Larsen who had served since April
30, 1996. Agnes Varis, who had served on the Compensation Committee since March
24, 1992, resigned from the Board of Directors and the Compensation Committee on
July 24, 1998. The Compensation Committee reviews executive performance, equity
and non-equity executive compensation and advises the Board of Directors on the
Corporation's benefits and compensation policies. The Board of Directors,
however, has approval over all such matters. The Compensation Committee met
twice as a Committee and met twice as a committee of the entire Board of
Directors during the year ended December 31, 1998.
The Compensation Committee is responsible for developing the
compensation programs for the Corporation's executive officers, key employees
and other senior management. The Compensation Committee also recommends the
option grants under the Corporation's 1992 Stock Plan and has oversight
responsibilities with respect to the Corporation's stock purchase plan and
Retirement Plan.
The Compensation Committee has designated three basic components of the
Corporation's compensation program to implement its philosophy. First, base
salaries are the fixed regular component of executive compensation and are
measured against (i) base salary levels among a competitive peer group, (ii) the
Corporation's past financial performance and future expectations, (iii) the
general and industry-specific business environment and (iv) individual
performance. The Compensation Committee does not assign relative weights or
rankings to these factors, but instead makes a subjective determination based
upon the consideration of all of these factors as well as the progress made with
respect to the Corporation's long-term goals and strategies. Second, annual
bonus compensation, paid in accordance with the Corporation's bonus plan for key
employees, is linked to the financial performance of the Corporation and is
designed to provide additional incentive in the form of cash compensation
determined as a function of the individual performance of eligible key employees
in a given year. Consideration is also given to exemplary performance in the
accomplishment of special and particularly difficult tasks. Third, stock option
grants under the Corporation's 1992 Stock Plan are designed to motivate the
executive officers and other employees to deliver value to the Corporation's
shareholders over a period of several years. The objective of these awards is to
advance the longer-term interests of the Corporation and its shareholders and to
complement the incentives tied to annual performance. These awards provide
rewards to executives upon the creation of incremental shareholder value and the
attainment of long-term earnings goals. Stock options only produce value to
executives if the price of the Corporation's stock appreciates, thereby directly
linking the interests of executives with those of shareholders. The number of
stock options granted is based, among other things, on the level of an
executive's position and the executive's performance in the prior year. Stock
options granted for this purpose generally vest over a period of three years.
Chief Executive Officer Compensation
<PAGE> 6
Daniel L. Korpolinski served as the President and Chief Executive
Officer of the Corporation since August 1998. Mr. Korpolinski's initial base
salary was based on a number of factors, including the base salaries of
executives performing similar functions for peer companies, his level of
expertise in the industry, prior accomplishments as president and chief
executive officer of other companies, the Corporation's existing compensation
structure and anticipated preparation and implementation of a long term
strategic plan. Additionally, these factors played a key role in determine Mr.
Korpolinski's target bonus, initial option grant and severance provisions.
Deductibility of Executive Compensation
In general, under Section 162(m) of the Internal Revenue Code of 1986,
as amended (the "Code"), the Corporation cannot deduct, for United States
federal income tax purposes, compensation in excess of $1,000,000 paid to
certain executive officers. This deduction limitation does not apply, however,
to compensation that constitutes "performance-based compensation" within the
meaning of Section 162(m) of the Code and the regulations promulgated
thereunder. In order for certain forms of compensation, such as stock options,
to qualify as "performance-based compensation," among other things, the granting
board or committee must consist solely of "outside directors" as defined in the
regulations promulgated under Section 162(m). As the Compensation Committee did
not consist solely of "outside directors" in 1998, stock options granted under
the Corporation's 1992 Stock Plan and 1995 Non-Employee Director Stock Option
Plan during the year will not constitute "performance-based compensation" and,
therefore, any compensation resulting from the exercise of such options will be
aggregated with all other compensation to the executive officer and to the
extent compensation exceeds $1,000,000 the Corporation will not receive the
benefit of a tax deduction for United States federal income tax purposes. The
Board of Directors intends to periodically review the potential consequences of
Section 162(m) to the Corporation and may structure the performance-based
portion of its executive compensation in the future to constitute
"performance-based compensation" within the meaning of Section 162(m).
<TABLE>
<CAPTION>
COMPENSATION COMMITTEE BOARD OF DIRECTORS
<S> <C>
David A. Jenkins, Chairman David A. Jenkins, Chairman
Robert P. Cook Robert P. Cook
Jane C.I. Hirsh Jane C. I. Hirsh
William K. Hoskins
Daniel L. Korpolinski
Kenneth N. Larsen
Charles T. Lay
Jess G. Thoene
Martin Zeiger
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors currently consists
of Robert P. Cook, Jane C.I. Hirsh and David A. Jenkins. Mrs. Hirsh currently
serves as the Corporation's President of International Business. Mrs. Hirsh
participated in two Compensation Committee meetings as a subset of the Board of
Directors while an employee of the Corporation.
STOCK PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the
cumulative total stockholder return on the Corporation's Common Stock during the
period from December 31, 1993 through December 31, 1998 with the cumulative
total return on (i) the Nasdaq Market Index, (ii) a peer group index
<PAGE> 7
prepared by the Corporation consisting of the following publicly-traded
companies: Alza Corporation; A.L. Pharma, Inc.; Barr Laboratories, Inc.; Cygnus
Therapeutic Systems, Inc.; Elan Corporation, p.l.c.; Forest Laboratories, Inc.;
Halsey Drug Co. Inc.; Ivax Corp.; K-V Pharmaceutical Company; Mylan
Laboratories, Inc.; Noven Pharmaceuticals, Inc. (Class A Stock); Pharmaceutical
Resources, Inc.; Taro Pharmaceuticals Industries Ltd.; Teva Pharmaceuticals
Industries Ltd.; and Watson Pharmaceuticals, Inc. (the "New Peer Group"), and
(iii) a peer group index prepared by the Corporation consisting of the following
publicly-traded companies: A.L. Pharma, Inc.; Barr Laboratories, Inc.;
Carrington Laboratories Inc.; Duramed Pharmaceuticals, Inc.; Elan Corporation,
p.l.c.; Faulding, Inc.; Forest Laboratories, Inc., Gensia Pharmaceuticals, Inc.;
Halsey Drug Co. Inc.; Ivax Corp.; Jones Medical Industries Inc.; K-V
Pharmaceutical Company; Mylan Laboratories Inc.; Noven Pharmaceuticals Inc.
(Class A Stock); Perrigo Company; Pharmaceutical Resources, Inc.; Roberts
Pharmaceutical Corp.; Taro Pharmaceutical Industries Ltd.; and Teva
Pharmaceutical Industries Ltd. (the "Old Peer Group").
The Corporation believes that, prior to this year, the Old Peer Group
included those publicly traded companies which had the most comparable operating
characteristics of the Corporation. The Corporation also believes, however, that
the business activities of certain other companies are closer to that of the
Corporation than some of the companies included in the Old Peer Group, and that
as a result, the Old Peer Group now (i) doesn't include all of those companies
with which a comparison would be meaningful, and (ii) includes certain companies
with which a comparison is now less meaningful. The Corporation has replaced
Carrington Laboratories, Inc., Duramed Pharmaceuticals, Inc., Faulding, Inc.,
Gensia Pharmaceuticals, Inc., Jones Medical Industries Inc., Perrigo Company and
Roberts Pharmaceutical, Corp. of the Old Peer Group with Cygnus Therapeutic
Systems, Inc., and Watson Pharmaceuticals Inc. in the New Peer Group. The
Corporation believes that the performances of the members of the New Peer Group
provide the most meaningful basis for comparison with the Corporation's
performance and intends to include the New Peer Group for comparison purposes in
this and future proxy statements. The comparison assumes $100 was invested on
December 31, 1993 in the Corporation's Common Stock, the foregoing Nasdaq Market
Index, the New Peer Group Index and the Old Peer Group Index and assumes
reinvestment of dividends, if any.
Comparison of Cumulative Total Return of
Company, Old Peer Group, New Peer Group and
NASDAQ Market Index
[Performance Graph]
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Copley Pharmaceutical 100.00 33.54 34.81 23.42 14.24 26.27
Old Peer Group 100.00 75.35 98.14 87.26 105.90 140.43
New Peer Group 100.00 84.68 117.09 100.91 125.82 188.38
NASDAQ Market Index 100.00 104.99 136.18 169.23 207.00 291.96
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Corporation has adopted a policy that all transactions between the
Corporation and its officers, directors, affiliates and principal shareholders
be on terms no less favorable to the Corporation than terms of transactions with
unrelated parties and be approved by a majority of disinterested directors. In
addition, under the terms of the Governance Agreement (as hereinafter defined),
until October 8, 1998 every transaction or series of related transactions
between the Corporation and Hoechst (or any of its affiliates) and every
corporate action which presents a potential conflict of interest between Hoechst
(or any of its affiliates) and the Corporation and its other shareholders was
subject to the prior approval of a majority of the Independent Directors (as
defined in the Governance Agreement).
<PAGE> 8
Pursuant to the Product Agreement (as hereinafter defined) and certain
other product distribution agreements, the Corporation purchased in 1998 an
aggregate of approximately $45,163,000 worth of generic products from HMRI. The
Corporation obtains its comprehensive general liability, product liability,
umbrella liability and all risks property insurance coverage through an
insurance and risk sharing arrangement with Hoechst AG, and its various
subsidiaries, including Hoechst and HNA. Insurance coverage is provided through
a wholly-owned insurance subsidiary of HNA, as well as by external parties.
Total premiums paid by the Corporation for these insurance policies aggregated
approximately $4,563,000 for the year ended December 31, 1998.
At December 31, 1998, the Corporation was a 49% owner of Chia Tai Copley
Pharmaceutical ("CTCP") which, in turn, was an 85% owner of Wuxi Chia Tai Copley
Pharmaceutical ("WCTCP"). CTCP and WCTCP were formed to manufacture and market
multi-source drug products in the People's Republic of China. The Corporation's
investment in CTCP totaled $2.1 million at December 31, 1998. During 1995, the
Company's Board of Directors voted to decrease the Company's financial
commitment to and de-emphasize the Company's role in CTCP and WCTCP.
Subsequently a subsidiary of Hoechst AG indicated its desire to purchase an
interest in WCTCP and it is anticipated that upon transfer of its indirect
ownership in WCTCP the Company will recover approximately $2.1 million of its
investment in CTCP. In 1998, the Company wrote down its investment of $2.4
million to $2.1 million and reclassified it to a long-term related party
receivable.
Governance Agreement
On November 11, 1993, HCCP Acquisition Corporation ("HCCP"), a
wholly-owned subsidiary of HNA, acquired a 51% interest in the Corporation on a
fully diluted basis (the "Acquisition"). In connection with the Acquisition, the
Corporation, HNA and HCCP entered into a Corporate Governance and Standstill
Agreement dated as of October 8, 1993, as amended (the "Governance Agreement"),
to govern the relationship between the Corporation and HNA and its affiliates.
On October 8, 1998, the Governance Agreement expired by its terms, with the
exception of certain limited protections that will continue in force as
described below.
Some of the more significant protections in the Governance Agreement
that expired are: (a) the requirement that the Board of Directors consist of
nine members, three being Corporation Directors, three being Hoechst Directors
and three being Independent Directors (meaning jointly selected by the
Corporation Directors and Hoechst Directors), and that committees of the Board
of Directors be similarly constituted; (b) the prohibition against Hoechst and
its affiliates acquiring additional shares (other than as necessary to maintain
its pre-existing percentage ownership) or otherwise seeking to increase their
control of ownership of the Corporation without the Corporation's consent
(including the consent of at least one Corporation Director); (c) the
prohibition against amendments of the Corporation's charter and by-laws without
the consent of at least one Corporation Director; (d) the requirement that
Hoechst vote its shares in accordance with all recommendations of the Board of
Directors and not vote in opposition to any recommendation of the Board of
Directors; (e) the requirement that all transactions between the Corporation, on
the one hand, and Hoechst and its affiliates, on the other hand, and each
transaction in which there is a potential conflict of interest between the
Corporation and its shareholders (other than Hoechst and its affiliates) on the
one hand, and Hoechst or its affiliates on the other hand, must be approved by a
majority of the Independent Directors; and (f) the requirement that Hoechst not
sell its shares to any person whom Hoechst knows would own 5% or more of the
outstanding shares unless such person agrees in writing to be bound by the
restrictions of the Governance Agreement and to forego certain benefits under
the Governance Agreement.
The restrictions that continue in effect, are: (a) the prohibition
against Hoechst or its affiliates acquiring shares of the Corporation without
the approval of a majority of the Independent Directors, except in certain
privately negotiated, unsolicited transactions which do not reduce the liquidity
of the shares below the level expected to be necessary to maintain a viable
market for the shares and liquidity for the Corporation's shareholders; and (b)
the requirement that, so long as the Corporation is a public company,
<PAGE> 9
the Board of Directors include at least three Independent Directors. For these
purposes, an "Independent Director" is a person who (i) is in fact independent,
(ii) does not have any direct financial interest or any material indirect
financial interest in Hoechst or the Corporation or any of their respective
affiliates, and (iii) is not connected with Hoechst or the Corporation or any of
their respective affiliates as an officer, employee, consultant, agent advisor,
representative, trustee, partner, director (other than of the Corporation) or
person performing similar functions. Other than these limited restrictions and
subject only to such fiduciary duties as a majority shareholder may have to
minority shareholders under Delaware law, Hoechst, as a majority shareholder,
will be able to exercise substantial control of the Corporation, including the
right to decide in its discretion most matters requiring shareholder approval,
such as the election of future members of the Board of Directors and approval of
any proposed merger or acquisition of the Corporation.
Product Agreement
The Corporation and HNA also entered into a Product Agreement dated as
of October 8, 1993 (the "Product Agreement") to establish certain relationships
between the Corporation and HNA and its affiliates concerning the supply of
certain raw materials to the Corporation, the synthesis of certain new bulk
active ingredients, the establishment of a managed care market development and
sales organization with Hoechst-Roussel Pharmaceuticals Incorporated ("HRPI"),
at that time an affiliate of HNA, and the right of the Corporation to act as a
generic arm of HRPI with respect to any HRPI products which HRPI may decide to
sell in a generic version as they come off patent. The Product Agreement also
contemplated the Corporation pre-launching generic versions of certain HRPI
products before the relevant patent has expired. The Product Agreement will
expire on June 1, 1999.
On June 30, 1995, HNA transferred its ownership of HCCP to Hoechst
Corporation (the parent corporation of HNA), which assumed HNA's rights and
obligations pursuant to the Governance Agreement. On January 1, 1996, HRPI was
merged into HMRI, which was then a subsidiary of Hoechst and a sister
corporation to HNA. On December 19, 1996, HMRI became a subsidiary of HMR
Pharma, Inc. HMRI has agreed to be bound by the Product Agreement to the extent
that HRPI was bound; that is, the Product Agreement continues to be in effect
for products manufactured by the former HRPI but not for products manufactured
by HMRI prior to the merger with HRPI nor for products developed by HMRI after
January 1, 1996. Since the date of the Product Agreement, the Corporation has
entered into specific distribution agreements with HRPI with respect to
glyburide, micronized glyburide and pentoxyfylline; HRPI's obligations under
those agreements have also been assumed by HMRI. The Corporation does not expect
to distribute any new or additional products pursuant to the Product Agreement.
<PAGE> 1
[CIBC OPPENHEIMER LETTERHEAD]
March 18, 1999
Teva Pharmaceuticals USA, Inc.
650 Cathill Rd.
Sellersville, PA 18960
Attention:
Gentlemen:
In connection with your consideration of a possible acquisition by you
and/or your affiliate of an equity interest in, or other business arrangement
with, Copley Pharmaceutical, Inc. (the "Company"), you have requested financial
and other information (the "Evaluation Material") concerning the business and
affairs of the Company. The term "Evaluation Material" includes written and/or
oral information furnished to you or your Representatives (as defined below) by
the Company (which shall be deemed to include its directors, officers,
employees, agents and representatives), whether furnished before or after the
date of this Confidentiality Agreement, together with all analyses,
compilations, studies or other documents or records prepared by you or your
representatives which contain or otherwise reflect or are generated from such
information, but does not include information which (i) was or becomes generally
available to the public or the pharmaceutical industry other than as a result of
a disclosure by you or your directors, officers, affiliates, employees, agents
or advisors or the respective representatives of your agents or advisors (all of
the foregoing collectively referred to as "your Representatives"), or (ii) was
or becomes available to you on a non-confidential basis from a source other than
the Company or its advisors, provided that such source is not bound by a
confidentiality agreement with the Company, or (iii) was within your possession
prior to its being furnished to you by or on behalf of the Company provided that
the source of such information was not bound by a confidentiality agreement with
the Company in respect thereof or (iv) was independently developed by you.
Notwithstanding the restrictions on use and disclosure contained herein, you
shall be entitled to develop the same or similar products through an independent
development program without using the Evaluation Material therefor and the fact
that such program shall develop the same or substantially equivalent products or
technology as those for which the Company has disclosed information to you shall
not, in and of itself, create any liability on your part to the Company and
shall not result in any restriction on the use or disclosure by you of such
independently developed products or technology. As a condition to your and your
Representatives being furnished with any evaluation Material, you agree as
follows:
<PAGE> 2
Teva Pharmaceuticals USA, Inc.
Confidentiality Agreement
March 18, 1999
Page 2
(1) You recognize and acknowledge the competitive value and
confidential nature of the Evaluation Material and the damage that could result
to the Company if information contained therein is disclosed to any third party.
The Evaluation Material will not be used by you or your affiliates or your
Representatives in any way detrimental the Company without limitation.
(2) You recognize and acknowledge that the Company is a public company
and as such is subject to the rules and regulations of the United States
Securities and Exchange Commission. You further recognize and acknowledge that
all or any portion of the Evaluation Material may constitute material non-public
information and that any transactions in any securities of the Company may be
prohibited by the Federal securities laws in addition to the prohibitions set
forth in this Confidentiality Agreement.
(3) You agree that the Evaluation Material will be used solely for the
purpose of evaluating a possible transaction involving or relating to the
Company (including its stockholders) and you. You also agree that you and your
Representatives will keep the Evaluation Material confidential and will not
disclose any of the Evaluation Material now or hereafter received or obtained
from the Company or any of its representatives to any third party without the
prior written consent of the Company; provided, however, that, subject to
Paragraph 12 hereof, any of the Evaluation Material may be disclosed (a) to the
extent required by applicable law or legal process, or (b) to your President,
Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer and
Chairman of the Board of Directors and to your Representatives who need to know
the information contained in the Evaluation Material for the purpose of
evaluating a possible acquisition by you of an equity interest in, or other
business arrangement with, the Company and who agree to keep such information
confidential and to be bound by this agreement to the same extent as if they
were parties hereto (it being understood and agreed that your Representatives
shall be informed by you of the confidential and material non-public nature of
the Evaluation Material and shall be directed by you to treat the Evaluation
Material confidentially). In any event, you shall be responsible for any
improper use of the Evaluation material by your representatives.
(4) In addition, without the prior written consent of the Company, you
and your Representatives will not disclose to any person (which shall include,
without limitation, any corporation, company, group, partnership or individual)
(a) that the Evaluation Material has been made available to you, (b) that you
have inspected any portion thereof, (c) that discussions or negotiations are
taking place concerning a possible transaction with the Company or (d) any of
the terms, conditions or other
<PAGE> 3
Teva Pharmaceuticals USA, Inc.
Confidentiality Agreement
March 18, 1999
Page 3
facts with respect to any such possible transaction, including the status
thereof.
(5) You agree that for a period of one year from the date hereof you
and your affiliates as defined in Rule 12b-2 promulgated pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), will not (and
you and they will not assist or encourage others to), directly or indirectly, in
any manner, unless specifically invited in writing in advance by the Company's
Board of Directors:
(a) acquire, offer or propose to acquire, solicit an offer to
sell or agree to acquire, directly or indirectly, alone or in concert with
others, by purchase, gift or otherwise, any direct or indirect beneficial
ownership (within the meaning of Rule 13d-3 under the Exchange Act) or interest
in any securities or direct or indirect rights, warrants or options to acquire,
or securities convertible into or exchangeable for, any securities of the
Company;
(b) make, or in any way participate in, directly or
indirectly, alone or in concert with others, any "solicitation" or "proxies" to
vote (as such terms are used in the proxy rules of the Securities and Exchange
Commission promulgated pursuant to Section 14 of the Exchange Act) or seek to
advise or influence in any manner whatsoever any person with respect to the
voting of any voting securities of the Company;
(c) for, join or in any way participate in a "group" within
the meaning of Section 13(d)(3) of the Exchange Act with respect to any voting
securities of the Company;
(d) acquire, offer to acquire or agree to acquire, directly or
indirectly, alone or in concert with others, by purchase, exchange or otherwise,
(i) any of the assets, tangible and intangible, of the Company or (ii) direct or
indirect rights, warrants or options to acquire any assets of the Company,
except for such assets as are then being offered for sale by the Company;
(e) arrange, or in any way participate, directly or
indirectly, in any financing for the purchase of any securities or securities
convertible or exchangeable into or exercisable for any securities or assets of
the Company, except for such assets as are then being offered for sale by the
Company;
(f) otherwise act, alone or in concert with others, to seek to
propose to the Company or any of its stockholders any business combination,
restructuring, recapitalization or similar transaction to or with the Company or
otherwise seek, alone or in concert with others, to control, change or influence
the management, board of directors or policies of the Company or
<PAGE> 4
Teva Pharmaceuticals USA, Inc.
Confidentiality Agreement
March 18, 1999
Page 4
nominate any person as a director of the Company who is not nominated by the
then incumbent directors, or propose any matter to be voted upon by the
stockholders of the Company; or
(g) announce an intention to do, or enter into any arrangement
or understanding with others to do, any of the actions restricted or prohibited
under clauses (a) through (f) of this paragraph.
However, the restrictions and prohibitions under paragraph 4 and clauses (a)
through (g) of this paragraph 5 do not apply to any negotiated transaction that
may be entered into between you and Hoechst Corp. or its affiliates relating
solely to the purchase by you of the shares of Copley currently owned by Hoechst
Corp. or its affiliates.
(6) You agree that neither you nor your Representatives will initiate
any communications with any employee (other than the President and Chief
Executive Officer, Chief Financial Officer or Chairman of the Company's Board of
Directors), customer, supplier, distributor or stockholder of the Company
concerning the Evaluation Material or the Company without the prior written
consent of the Company. You agree that, unless otherwise agreed to by the
Company in writing, all (i) communications regarding any possible transaction,
(ii) requests for additional information, (iii) requests for facility tours or
management meetings, and (iv) discussions or questions regarding procedures,
will be submitted or directed to CIBC Oppenheimer Corp.
(7) Neither you nor your Representatives will initiate discussions with
respect to the prospective employment of any of the Company's employees with you
or any of your Representatives for a period of one year after the date of
signing this Agreement, except as part of the proposed transaction between you
and the Company (and only then after a definitive acquisition agreement has been
executed by both you and the Company).
(8) The Company and its representatives do not make any representations
or warranties as to the accuracy or completeness of the Evaluation Material. You
agree that neither the Company nor any of its respective officers, directors,
employees, agents or representatives shall have any liability to you or your
Representatives resulting from the use of the Evaluation Material supplied by
the Company or any of its representatives, except as may be set forth in a
definitive agreement between the Company and you.
(9) In the event that the transaction contemplated by this
Confidentiality Agreement is not consummated, or upon the Company's request, all
Evaluation Materials (and all copies, extracts or other reproductions in whole
or in part thereof)
<PAGE> 5
Teva Pharmaceuticals USA, Inc.
Confidentiality Agreement
March 18, 1999
Page 5
shall be returned to the Company or, with the Company's written permission,
destroyed (such destruction to be certified in writing to the Company by an
authorized officer supervising such destruction) and not retained by you or your
Representatives in any form or for any reason. All documents, memoranda, notes
and other writings whatsoever prepared by you or your Representatives based on
the Evaluation Material shall be destroyed, and such destruction shall be
certified in writing to the Company by an authorized officer supervising such
destruction.
(10) No delay or failure in exercising any right, power or privilege
hereunder shall be construed to be a waiver thereof, nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any right, power or privilege hereunder.
(11) Notwithstanding anything to the contrary set forth herein, in the
event that you or any of your Representatives are requested or become legally
compelled (by oral questions, interrogatories, request for information or
documents, subpoena, civil investigative demand or similar process) to disclose
any of the Evaluation Material or take any other action prohibited hereby, you
will provide the Company with prompt written notice so that the Company may seek
a protective order or other appropriate remedy and/or waive compliance with the
provisions of this Agreement. In the event that such protective order or other
remedy is not obtained, or that the Company waives compliance with the
provisions of this Agreement, you will furnish only that portion of the
Evaluation Material or take only such action which is legally required and will
exercise your best efforts to obtain reliable assurance that confidential
treatment will be accorded any Evaluation Material so furnished.
(12) This Agreement shall be binding on and inure to the benefit of the
parties hereto and their respective successors and assigns. It is understood
that the Company may institute appropriate proceedings against you to enforce
its rights hereunder. Money damages would not be a sufficient remedy for any
violation of the terms of this Agreement and, accordingly, the Company shall be
entitled to specific performance and injunctive relief as remedies for any
violation. These remedies shall not be deemed to be the exclusive remedies for a
violation of the terms of this Agreement but shall be in addition to all other
remedies available to the Company at law or equity. This Agreement shall be
governed and construed in accordance with the laws of the Commonwealth of
Massachusetts without giving effect to the conflicts of law provisions thereof.
This Agreement shall have a term of three years from the date of
countersignature by you, except as otherwise specifically provided in any
provision hereof.
<PAGE> 6
Teva Pharmaceuticals USA, Inc.
Confidentiality Agreement
March 18, 1999
Page 6
Please acknowledge your agreement to the foregoing by countersigning
this letter in the place provided below.
Very truly yours,
COPLEY PHARMACEUTICAL, INC.
/s/ Gene M. Bauer
--------------------------------
By: Gene M. Bauer
Title: Executive Vice President,
General Counsel and Secretary
AGREED TO AND ACCEPTED:
Teva Pharmaceuticals USA, Inc.
By: /s/ William A. Fletcher
----------------------------------
Name: William A. Fletcher
Title: President & CEO
Date: March 30, 1999
<PAGE> 1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
TEVA PHARMACEUTICALS USA, INC.,
CARIBOU MERGER CORPORATION
AND
COPLEY PHARMACEUTICAL, INC.
DATED AS OF AUGUST 9, 1999
<PAGE> 2
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AGREEMENT AND PLAN OF MERGER
TABLE OF CONTENTS
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ARTICLE I THE OFFER........................................................ 1
SECTION 1.01. The Offer.................................................. 1
SECTION 1.02. Offer Documents............................................ 3
SECTION 1.03. Company Actions............................................ 3
ARTICLE II THE MERGER...................................................... 4
SECTION 2.01. The Merger................................................. 4
SECTION 2.02. Closing.................................................... 5
SECTION 2.03. Effective Time............................................. 5
SECTION 2.04. Effect of the Merger....................................... 5
SECTION 2.05. Certificate of Incorporation; By-Laws...................... 5
SECTION 2.06. Directors and Officers..................................... 5
ARTICLE III CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES............. 6
SECTION 3.01. Effect on Capital Stock.................................... 6
SECTION 3.02. Conversion of Securities................................... 6
SECTION 3.03. Payment for Shares......................................... 7
SECTION 3.04. Treatment of Options....................................... 9
SECTION 3.05. Company Employee Stock Purchase Plan....................... 9
SECTION 3.06. Dissenting Shares.......................................... 10
SECTION 3.07. Lost, Stolen or Destroyed Certificates..................... 10
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY................... 11
SECTION 4.01. Organization and Qualification; Subsidiaries............... 11
SECTION 4.02. Certificate of Incorporation and By-Laws................... 12
SECTION 4.03. Capitalization............................................. 12
SECTION 4.04. Authority Relative to This Agreement....................... 12
SECTION 4.05. No Conflict; Required Filings and Consents................. 13
SECTION 4.06. Material Contracts; Permits................................ 14
SECTION 4.07. SEC Filings; Financial Statements.......................... 15
SECTION 4.08. Absence of Certain Changes or Events....................... 16
SECTION 4.09. No Undisclosed Material Liabilities........................ 17
SECTION 4.10. Absence of Litigation...................................... 17
SECTION 4.11. Employee Benefit Plans; Employment Agreements.............. 17
SECTION 4.12. Labor Matters.............................................. 19
SECTION 4.13. Intellectual Property...................................... 19
SECTION 4.14. Taxes...................................................... 21
SECTION 4.15. Compliance with Laws....................................... 22
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SECTION 4.16. Brokers.................................................... 23
SECTION 4.17. Vote Required.............................................. 23
SECTION 4.18. Interested Party Transactions.............................. 23
SECTION 4.19. Insurance.................................................. 23
SECTION 4.20. Real Estate................................................ 24
SECTION 4.21. Personal Property.......................................... 24
SECTION 4.22. Liens and Encumbrances..................................... 25
SECTION 4.23. Environmental Matters...................................... 25
SECTION 4.24. Regulatory Compliance...................................... 26
SECTION 4.25. Suppliers and Customers.................................... 29
SECTION 4.26. Information Supplied....................................... 29
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND
MERGER SUB...................................................... 30
SECTION 5.01. Organization and Qualification............................. 30
SECTION 5.02. Authority Relative to this Agreement....................... 30
SECTION 5.03. No Conflict; Required Filings and Consents................. 30
SECTION 5.04. Information Supplied....................................... 31
SECTION 5.05. Absence of Litigation...................................... 32
SECTION 5.06. Financing.................................................. 32
SECTION 5.07. Ownership of Company Common Stock.......................... 32
ARTICLE VI CONDUCT OF BUSINESS OF THE COMPANY.............................. 32
SECTION 6.01. Conduct of Business of the Company......................... 32
ARTICLE VII ADDITIONAL AGREEMENTS.......................................... 35
SECTION 7.01. Stockholder Approval....................................... 35
SECTION 7.02. Access to Information; Confidentiality..................... 36
SECTION 7.03. Consents; Approvals........................................ 37
SECTION 7.04. Indemnification and Insurance.............................. 38
SECTION 7.05. Employee Benefit Plans..................................... 39
SECTION 7.06. Notification of Certain Matters............................ 40
SECTION 7.07. Further Action............................................. 40
SECTION 7.08. Public Announcements....................................... 40
SECTION 7.09. Conveyance Taxes........................................... 41
SECTION 7.10. Conduct of Business of Merger Sub.......................... 41
SECTION 7.11. No Solicitation............................................ 41
SECTION 7.12. Directors.................................................. 43
ARTICLE VIII CONDITIONS TO THE MERGER...................................... 44
SECTION 8.01. Conditions of all Parties to the Merger.................... 44
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ARTICLE IX TERMINATION..................................................... 45
SECTION 9.01. Termination............................................... 45
SECTION 9.02. Effect of Termination..................................... 47
SECTION 9.03. Fees and Expenses Payable by the Company.................. 47
SECTION 9.04. Fees and Expenses Payable by Parent....................... 47
SECTION 9.05 Termination Fee........................................... 48
ARTICLE X GENERAL PROVISIONS............................................... 48
SECTION 10.01. Effectiveness of Representations, Warranties and Agreements 48
SECTION 10.02. Notices................................................... 48
SECTION 10.03. Certain Definitions....................................... 49
SECTION 10.04. Amendment................................................. 50
SECTION 10.05. Waiver.................................................... 50
SECTION 10.06. Headings.................................................. 50
SECTION 10.07. Severability.............................................. 50
SECTION 10.08. Entire Agreement.......................................... 51
SECTION 10.09. Assignment................................................ 51
SECTION 10.10. Parties in Interest....................................... 51
SECTION 10.11. Failure or Indulgence Not Waiver; Remedies Cumulative..... 51
SECTION 10.12. Governing Law............................................. 51
SECTION 10.13. Counterparts.............................................. 51
</TABLE>
SIGNATURES
ANNEX A Conditions of the Offer
<PAGE> 5
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of August 9, 1999 (this
"Agreement"), among Teva Pharmaceuticals USA, Inc., a Delaware corporation
("Parent"), Caribou Merger Corporation, a Delaware corporation and a wholly
owned subsidiary of Parent ("Merger Sub"), and Copley Pharmaceutical, Inc., a
Delaware corporation (the "Company").
W I T N E S S E T H :
WHEREAS, the Boards of Directors of Parent, Merger Sub and the Company
have each determined that it is advisable and in the best interests of their
respective stockholders for Parent and Merger Sub to enter into a business
combination with the Company, by means of the merger (the "Merger") of Merger
Sub with and into the Company, upon the terms and subject to the conditions set
forth herein;
WHEREAS, Hoechst Corporation, a Delaware corporation ("HC"), is the
beneficial owner of a majority of the issued and outstanding shares of Company
Common Stock and simultaneously with the execution and delivery of this
Agreement, and as a condition and inducement to Parent's willingness to enter
into this Agreement, has entered into a Stockholder Agreement (the "Stockholder
Agreement") providing for certain matters with respect to its shares of Company
Common Stock (as hereinafter defined), the tender of such shares and certain
other actions relating to the Offer (as hereinafter defined) and the other
transactions contemplated by this Agreement;
WHEREAS, to effectuate the Merger, Parent and the Company each desire that
Parent cause Merger Sub to commence a cash tender offer to purchase all of the
outstanding shares of common stock, par value $.01 per share, of the Company
(the "Company Common Stock"), upon the terms and subject to the conditions set
forth in this Agreement and the Offer Documents (as defined in Section 1.02),
and the Board of Directors of the Company has approved the Offer (as defined in
Section 1.01) and is recommending to its stockholders that they accept the Offer
and tender their shares of Company Common Stock pursuant thereto;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Parent, Merger Sub and the Company hereby agree as follows:
ARTICLE I
THE OFFER
SECTION 1.01. THE OFFER. (a) Provided that none of the events set forth in
clause (iii) of Annex A hereto shall have occurred and be continuing, as
promptly as practicable (but in any event not later than five business days
after the public announcement of the execution and
<PAGE> 6
-2-
delivery of this Agreement), Parent shall cause Merger Sub to commence (within
the meaning of Rule 14d-2 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act")), a tender offer to purchase (the "Offer") all the
outstanding shares of Company Common Stock at a price of $11.00 per share, net
to the seller in cash (the "Offer Consideration"). The obligation of Parent and
Merger Sub to accept for payment and to pay for shares of Company Common Stock
validly tendered in the Offer and not withdrawn shall be subject only to those
conditions set forth in Annex A hereto.
(b) Merger Sub reserves the right to modify the terms of the Offer, except
that, without the prior written consent of the Company, Merger Sub shall not
(and Parent shall cause Merger Sub not to) (i) decrease the Offer Consideration
or change the form of consideration therefor or decrease the number of shares of
Company Common Stock sought pursuant to the Offer, (ii) change the conditions to
the Offer (other than to increase the Offer Consideration), (iii) impose
additional conditions to the Offer, (iv) waive the condition that there shall be
validly tendered and not withdrawn prior to the time the Offer expires a number
of shares of Company Common Stock which, together with any shares of Company
Common Stock beneficially owned by Parent and its affiliates, constitutes at
least a majority of the shares of Company Common Stock outstanding on a
fully-diluted basis (excluding options the exercise price of which is equal to
or greater than the Offer Consideration) as of the date of purchase, (v)
terminate or withdraw the Offer or extend the expiration date of the Offer
(except as required by law), or (vi) amend any term of the Offer in any manner
adverse to holders of shares of Company Common Stock; provided, however, that:
(A) except as set forth above, Merger Sub may waive any other condition to the
Offer, in whole or in part, in its sole discretion; (B) the Offer may be
extended in connection with an increase in the consideration to be paid pursuant
to the Offer so as to comply with applicable rules and regulations of the United
States Securities and Exchange Commission (the "SEC"); (C) if all of the
conditions to the Offer set forth on Annex A are not satisfied on any scheduled
expiration date, and if all of such conditions are then still reasonably capable
of being satisfied prior to the Termination Date, Merger Sub shall extend the
Offer from time to time (each such individual extension not to exceed ten (10)
business days after the previously scheduled expiration date) until such
conditions are satisfied or waived; provided, however, that Merger Sub shall not
be required to extend the Offer beyond the Termination Date; and (D) the Offer
may be extended for one additional period of up to ten (10) business days, if on
such expiration date the conditions of the Offer described on Annex A hereto
shall have been satisfied or earlier waived, but the number of shares of Company
Common Stock that have been validly tendered and not withdrawn represents less
than ninety (90) percent of the then issued and outstanding shares of Company
Common Stock on a fully diluted basis (excluding options the exercise price of
which is equal to or greater than the Offer Consideration); provided, however,
that as to such final extension any condition satisfied or waived at the
commencement of such extension (other than a requirement of law) shall deemed
satisfied at the end of such extension. Assuming the prior satisfaction or
waiver of the conditions to the Offer, Merger Sub shall accept for payment, and
pay for, in accordance with the terms of the Offer, all shares of Company Common
Stock validly tendered and not withdrawn pursuant to the Offer as soon as it is
permitted to do so under applicable law.
<PAGE> 7
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SECTION 1.02. OFFER DOCUMENTS. As soon as practicable on the date of
commencement of the Offer, Parent and Merger Sub shall (x) file or cause to be
filed with the SEC a Tender Offer Statement on Schedule 14D-1 (the "Schedule
14D-1") with respect to the Offer which shall contain the offer to purchase and
related letter of transmittal and other ancillary Offer documents and
instruments pursuant to which the Offer will be made (collectively with any
supplements or amendments thereto, the "Offer Documents") and shall contain (or
shall be amended in a timely manner to contain) all information which is
required to be included therein in accordance with the Exchange Act and the
rules and regulations thereunder and any other applicable law, and shall comply
in all material respects with the requirements of the Exchange Act and any other
applicable law and (y) mail or cause to be mailed the Offer Documents to the
record holders of the Company Common Stock. Parent, Merger Sub and the Company
each agree promptly to correct any information provided by them for use in the
Offer Documents if and to the extent that it shall have become false or
misleading in any material respect and Merger Sub further agrees to take all
lawful action necessary to cause the Offer Documents as so corrected to be filed
promptly with the SEC and disseminated to the holders of Company Common Stock,
in each case as and to the extent required by applicable law. In conducting the
Offer, Parent and Merger Sub shall comply in all material respects with the
provisions of the Exchange Act and any other applicable law. The Company and its
counsel shall be given the opportunity to review and comment on the Offer
Documents and any amendments thereto prior to the filing thereof with the SEC.
SECTION 1.03. COMPANY ACTIONS. The Company hereby consents to the Offer
and represents that (a) its Board of Directors (at a meeting duly called and
held) has (i) determined that each of the Offer and the Merger is fair to and in
the best interests of the holders of Company Common Stock, (ii) approved and
declared advisable this Agreement and the transactions contemplated hereby,
including the Offer and the Merger, and such approval constitutes approval of
the Offer, this Agreement and the transactions contemplated hereby, including
the Merger, for purposes of Section 203 of the Delaware General Corporation Law,
as amended (the "DGCL"), and (iii) resolved to recommend acceptance of the Offer
and approval and adoption of this Agreement and the Merger by the holders of
Company Common Stock (subject to the fiduciary duties of the Board of Directors
under Delaware Law), and (b) CIBC World Markets Corp. has delivered to the Board
of Directors of the Company its written opinion that the consideration to be
received by the holders of Company Common Stock (other than HC and its
affiliates) in the Offer and the Merger is fair, from a financial point of view,
to such holders, subject to the assumptions and qualifications set forth in such
opinion (a photocopy of which has been delivered to Parent). The Company hereby
agrees to file with the SEC a Solicitation/Recommendation Statement on Schedule
14D-9 (together with all amendments and supplements thereto, the "Schedule
14D-9") containing the recommendation of the Board of Directors of the Company
referred to in clause (a) (iii) of the preceding sentence (subject to the
fiduciary duties of the Board of Directors under Delaware Law) and shall mail or
cause to be mailed the Schedule 14D-9 to the holders of the Company Common
Stock. The Company will use its reasonable efforts to cause the Schedule 14D-9
to be filed with the SEC on the same date as Parent's and Merger Sub's Schedule
14D-1 is filed with the SEC and mailed together with the Offer Documents;
provided that in any event the Schedule 14D-9 shall be filed with the SEC and
mailed to the holders of Company Common Stock no later than 10 business days
following the
<PAGE> 8
-4-
commencement of the Offer. The Schedule 14D-9 shall comply in all material
respects with the Exchange Act and any other applicable law and shall contain
(or shall be amended in a timely manner to contain) all information which is
required to be included therein in accordance with the Exchange Act and the
rules and regulations thereunder and any other applicable law. The information
contained in the Schedule 14D-9 (other than information furnished in writing by
Parent or Merger Sub expressly for inclusion in the Schedule 14D-9, as to which
the Company makes no representations or warranties) will not, at the respective
times the Schedule 14D-9 is filed with the SEC (or such filings are amended or
supplemented) and first published, sent or given to holders of Company Common
Stock, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The Company, Parent and Merger Sub each agree promptly to
correct any information provided by them for use in the Schedule 14D-9 if and to
the extent that it shall have become false or misleading in any material respect
and the Company further agrees to take all lawful action necessary to cause the
Schedule 14D-9 as so corrected to be filed promptly with the SEC and
disseminated to the holders of Company Common Stock, in each case as and to the
extent required by applicable law. Parent, Merger Sub and their counsel shall be
given the opportunity to review and comment on the Schedule 14D-9 and any
amendments thereto prior to the filing thereof with the SEC. In connection with
the Offer, the Company shall promptly furnish Merger Sub with security position
listings and all available listings or computer files containing the names and
addresses of the record holders of the Company Common Stock as of the latest
practicable date and shall furnish Parent and Merger Sub with such information
and assistance (including updated lists of stockholders and lists of security
positions) as Parent and Merger Sub or any of their agents may reasonably
request in communicating the Offer to the record and beneficial holders of
Company Common Stock. Subject to the requirements of applicable law, and except
for such actions as are necessary to disseminate the Offer Documents and any
other documents necessary to consummate the Offer and the Merger, Parent and
Merger Sub and each of their affiliates, associates, partners, employees, agents
and advisors shall hold in confidence the information contained in such lists
and files, shall use such information only in connection with the Offer and the
Merger, and, if this Agreement is terminated, shall deliver promptly to the
Company all copies of such information then in their possession.
ARTICLE II
THE MERGER
SECTION 2.01. THE MERGER. At the Effective Time (as defined in Section
2.03), and subject to and upon the terms and conditions of this Agreement and
the laws of the State of Delaware ("Delaware Law"), Merger Sub shall be merged
with and into the Company, the separate corporate existence of Merger Sub shall
cease, and the Company shall continue as the surviving corporation. The Company
as the surviving corporation after the Merger is hereinafter sometimes referred
to as the "Surviving Corporation."
<PAGE> 9
-5-
SECTION 2.02. CLOSING. Unless this Agreement shall have been terminated
and the transactions herein contemplated shall have been abandoned pursuant to
Section 9.01, the consummation of the Merger (the "Closing") will take place at
10:00 a.m., New York time, as soon as practicable (but in no event later than
the second business day) after satisfaction or waiver of the conditions set
forth in Article VIII (the "Closing Date"), at the offices of Testa, Hurwitz &
Thibeault, LLP, 125 High Street, Boston, Massachusetts, unless another date,
time or place is agreed to in writing by the parties hereto.
SECTION 2.03. EFFECTIVE TIME. On the Closing Date, the parties hereto
shall cause the Merger to be consummated by filing a certificate of merger (the
"Certificate of Merger") as contemplated by Section 251 of the DGCL, together
with any required related certificates, with the Secretary of State of the State
of Delaware, in such form as required by, and executed in accordance with the
relevant provisions of, Delaware Law (the time of such filing being the
"Effective Time").
SECTION 2.04. EFFECT OF THE MERGER. At the Effective Time, the effect of
the Merger shall be as provided in this Agreement, the Certificate of Merger and
the applicable provisions of Delaware Law. Without limiting the generality of
the foregoing, and subject thereto, at the Effective Time all the property,
rights, privileges, powers and franchises of the Company and Merger Sub shall
vest in the Surviving Corporation, and all debts, liabilities and duties of the
Company and Merger Sub shall become the debts, liabilities and duties of the
Surviving Corporation.
SECTION 2.05. CERTIFICATE OF INCORPORATION; BY-LAWS .
(a) Certificate of Incorporation. At the Effective Time, the
Certificate of Incorporation of Merger Sub, as in effect immediately prior to
the Effective Time, shall be the Certificate of Incorporation of the Surviving
Corporation until thereafter amended as provided by Delaware Law and such
Certificate of Incorporation; provided, however, that Article I of the
Certificate of Incorporation of the Surviving Corporation shall be amended to
read as follows: "FIRST: The name of the corporation is Copley Pharmaceutical,
Inc."; and provided further, however, that the Certificate of Incorporation of
the Surviving Corporation shall include the provisions contemplated by Section
7.04(a).
(b) By-Laws. At the Effective Time, the By-Laws of Merger Sub, as in
effect immediately prior to the Effective Time, shall be the By-Laws of the
Surviving Corporation until thereafter amended as provided by Delaware Law, the
Certificate of Incorporation of the Surviving Corporation and such By-Laws.
SECTION 2.06. DIRECTORS AND OFFICERS. The directors of Merger Sub
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Certificate of
Incorporation and By-Laws of the Surviving Corporation, and the officers of
Merger Sub immediately prior to the Effective Time shall be the initial officers
of the Surviving Corporation, in each case until their respective successors are
duly elected or appointed and qualified.
<PAGE> 10
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ARTICLE III
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 3.01. EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue of
the Merger and without any action on the part of Merger Sub, the Company, the
holders of any shares of Company Common Stock or the holders of any capital
stock of Merger Sub:
(a) Capital Stock of Merger Sub. Each share of the capital stock of
Merger Sub issued and outstanding immediately prior to the Effective Time shall
be converted into and become one fully paid and nonassessable share of Common
Stock, par value $1.00 per share, of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Parent-Owned Stock. Each
share of Company Common Stock and all other shares of capital stock of the
Company that are owned by the Company and all shares of Company Common Stock and
other shares of capital stock of the Company owned by Parent, Merger Sub or any
other wholly-owned subsidiary of Parent or the Company shall be canceled and
retired and shall cease to exist and no consideration shall be delivered or
deliverable in exchange therefor. As used in this Agreement, the word
"subsidiary," with respect to any party, means any corporation, partnership,
joint venture, limited liability company or partnership, or other organization,
whether incorporated or unincorporated, of which: (i) such party or any other
subsidiary of such party is a general partner; (ii) voting power to elect a
majority of the Board of Directors or others performing similar functions with
respect to such corporation, partnership, joint venture, limited liability
company or partnership, or other organization is held by such party or by any
one or more of its subsidiaries, or by such party and any one or more of its
subsidiaries; or (iii) at least 51% of the equity, other securities or other
interests is, directly or indirectly, owned or controlled by such party or by
any one or more of its subsidiaries, or by such party and any one or more of its
subsidiaries; provided, however, that the term "subsidiary" with respect to the
Company shall not include MIR Partnership or Chia Tai-Copley Pharmaceutical
Limited.
SECTION 3.02. CONVERSION OF SECURITIES. At the Effective Time, by virtue
of the Merger and without any action on the part of Merger Sub, the Company, the
holders of any shares of Company Common Stock or the holders of any capital
stock of Merger Sub:
(a) Subject to Section 3.01(b) and to the other provisions of this
Section 3.02, each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time (excluding Dissenting Shares (as defined
in Section 3.06)) shall be converted into the right to receive the Offer
Consideration (or the highest price paid for each share of Company Common Stock
pursuant to the Offer, if greater than the Offer Consideration), without any
interest thereon (the "Merger Consideration").
<PAGE> 11
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(b) All such shares of Company Common Stock, when converted as
provided herein, no longer shall be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each Certificate (as defined
in Section 3.03) previously evidencing shares of Company Common Stock shall
thereafter represent only the right to receive the Merger Consideration. The
holders of Certificates previously evidencing shares of Company Common Stock
outstanding immediately prior the Effective Time shall cease to have any rights
with respect to the Company Common Stock except as otherwise provided herein or
by law and, upon the surrender of Certificates in accordance with the provisions
of Section 3.03, shall only represent the right to receive for their shares of
Company Common Stock, the Merger Consideration, without any interest thereon. At
the Effective Time, the stock transfer books of the Company shall be closed and
there shall be no further registration of transfers of shares of Company Common
Stock thereafter on the records of the Company or the Surviving Corporation.
SECTION 3.03. PAYMENT FOR SHARES.
(a) Paying Agent. Within five (5) business days of the date of this
Agreement Parent shall select, and then Parent shall promptly appoint, a United
States bank or trust company which is acceptable to the Company to act as paying
agent (the "Paying Agent") for the payment of the Merger Consideration, and
prior to the Effective Time Parent shall deposit or shall cause to be deposited
with the Paying Agent in a separate fund established for the benefit of the
holders of shares of Company Common Stock, for payment in accordance with this
Article III, through the Paying Agent (the "Payment Fund"), cash in United
States dollars in immediately available funds in amounts necessary to make the
payments pursuant to Section 3.02(a) and Section 3.03(b). The Paying Agent
shall, pursuant to irrevocable instructions, pay the Merger Consideration out of
the Payment Fund as provided in Section 3.03(b).
The Paying Agent shall invest the Payment Fund as Parent directs in
obligations of or guaranteed by the United States of America, in commercial
paper obligations receiving the highest investment grade rating from both
Moody's Investors Services, Inc. and Standard & Poor's Corporation, or in
certificates of deposit, bank repurchase agreements or banker's acceptances of
commercial banks with capital exceeding $1,000,000,000 (collectively, "Permitted
Investments"); provided, however, that the maturities of Permitted Investments
shall be such as to permit the Paying Agent to make prompt payment to former
holders of Company Common Stock entitled thereto as contemplated by this Section
3.03. All earnings on Permitted Investments shall be paid to Parent at such
times and in such amounts as Parent directs the Paying Agent. If for any reasons
(including losses) the Payment Fund is inadequate to pay the amounts to which
holders of shares of Company Common Stock shall be entitled under this Section
3.03, Parent shall in any event be liable for payment thereof. The Payment Fund
shall not be used for any purpose except as expressly provided in this
Agreement.
(b) Payment Procedures. As soon as practicable after the Effective
Time, Parent shall instruct the Paying Agent to mail to each holder of record
(other than the Company or any subsidiary of the Company or Parent, Merger Sub
or any other subsidiary of Parent, or holders of Dissenting Shares) of a
Certificate or Certificates which, immediately prior to the
<PAGE> 12
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Effective Time, evidenced outstanding shares of Company Common Stock (the
"Certificates") (i) a form of letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon proper delivery of the Certificates to the Paying Agent, and
shall be in such form and have such other provisions as Parent reasonably may
specify) and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for payment therefor. Upon surrender of a Certificate
for cancellation to the Paying Agent together with such letter of transmittal,
duly executed, and such other customary documents as may be required pursuant to
such instructions, the holder of such Certificate shall be entitled to receive,
and the Paying Agent shall promptly pay, in respect thereof cash in an amount
equal to the product of (x) the number of shares of Company Common Stock
represented by such Certificate and (y) the Merger Consideration, and the
Certificate so surrendered shall forthwith be canceled. Absolutely no interest
shall be paid or accrued on the Merger Consideration payable upon the surrender
of any Certificate. If payment is to be made to a person other than the person
in whose name the surrendered Certificate is registered, it shall be a condition
of payment that the Certificate so surrendered shall be promptly endorsed or
otherwise in proper form for transfer and that the person requesting such
payment shall pay any transfer or other Taxes required by reason of the payment
to a person other than the registered holder of the surrendered Certificate or
established to the satisfaction of the Surviving Corporation that such Tax has
been paid or is not applicable. Until surrendered in accordance with the
provisions of this Section 3.03(b), each Certificate (other than Certificates
representing shares of Company Common Stock owned by Parent or any subsidiary of
Parent or held in the treasury of the Company) shall represent for all purposes
only the right to receive the Merger Consideration.
(c) Termination of Payment Fund; Interest. Any portion of the
Payment Fund which remains undistributed to the holders of Company Common Stock
for six months after the Effective Time shall be delivered to Parent, upon
demand, and any holders of Company Common Stock who have not theretofore
complied with this Article III and the instructions set forth in the letter of
transmittal mailed to such holder after the Effective Time shall thereafter look
only to Parent for payment of the Merger Consideration to which they are
entitled. All interest accrued in respect of the Payment Fund shall inure to the
benefit of and be paid to Parent.
(d) No Liability. Neither Parent nor the Surviving Corporation shall
be liable to any holder of shares of Company Common Stock for any cash or
interest thereon from the Payment Fund delivered to a public official pursuant
to any applicable abandoned property, escheat or similar law.
(e) Withholding Rights. Parent and Paying Agent, as applicable,
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of shares of Company Common
Stock such amounts as is required to be deducted and withheld with respect to
the making of such payment under the Internal Revenue Code of 1986, as amended
(the "Code"), or any provision of state, local or foreign Tax law. To the extent
that amounts are so deducted and withheld by Parent or Paying Agent (on behalf
of Parent), such deducted and withheld amounts shall be treated for all purposes
of this Agreement as having been paid to the holder of the shares of Company
Common Stock in respect of which such deduction and withholding was made by
Parent or Paying Agent.
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SECTION 3.04. TREATMENT OF OPTIONS. At the Effective Time, each then
outstanding option to purchase shares of Company Common Stock under the
Company's 1986 Incentive Stock Option Plan, 1990 Stock Option Plan, Amended and
Restated 1992 Stock Plan, 1992 Non-Employee Director Stock Option Plan and 1995
Non-Employee Director Stock Option Plan (collectively, the "Company Stock Option
Plans," which term expressly does not include the Company's 1992 Employee Stock
Purchase Plan (the "Common Stock Purchase Plan")), whether or not then
exercisable or vested (individually, an "Option" and collectively, the
"Options"), shall be cancelled, and in consideration for such cancellation each
holder thereof shall receive at the Effective Time from the Surviving
Corporation for each share of Company Common Stock subject to such Option
(whether or not such Option is then vested or exercisable for each such share of
Company Common Stock) an amount (subject to any applicable withholding Tax) in
cash equal to the difference, if any, between the Merger Consideration and the
per share exercise price of such Option to the extent such difference is a
positive number (such amount being hereinafter referred to as the "Option
Consideration"). Upon receipt of the Option Consideration, the Option
Consideration shall be deemed a release of any and all rights the holder had or
may have had in respect of such Option. The Company has obtained all consents or
releases from holders of Options under the Company Stock Option Plans (including
any consents or releases in connection with the cancellation of the Options
where the difference between the Merger Consideration and the per share exercise
price of any such Option is a negative number) as are necessary to give effect
to the transactions contemplated by this Section 3.04. Except as otherwise
agreed to by the Company and Parent, the Company shall use its reasonable best
efforts to ensure that (i) all Company Stock Option Plans shall terminate as of
the Effective Time and the provisions in any other plan, program or arrangement
providing for the issuance or grant of any other interest in respect of the
capital stock of the Company or any subsidiary thereof shall be canceled as of
the Effective Time, and (ii) following the Effective Time no participant in any
Company Stock Option Plan or any other plan, program or arrangement providing
for the issuance or grant of any other interest in respect of the capital stock
of the Company or any subsidiary thereof shall have any right thereunder to
acquire equity securities of the Company, the Surviving Corporation or any
subsidiary or affiliate thereof and to terminate all such plans.
SECTION 3.05. COMPANY EMPLOYEE STOCK PURCHASE PLAN. Effective immediately
prior to the Effective Time, the Board of Directors of the Company shall
terminate the Common Stock Purchase Plan and no other further issuances of
Company Common Stock under the Common Stock Purchase Plan shall be permitted.
Each participant in the Common Stock Purchase Plan shall, in consideration for
the termination of the right to purchase shares of Company Common Stock
thereunder, receive at the Effective Time from the Surviving Corporation in lieu
of each share of Company Common Stock that could have been purchased under the
Common Stock Purchase Plan had the then applicable Payment Period (as defined in
the Common Stock Purchase Plan) ended on such termination date, an amount
(subject to any applicable withholding Tax) in cash equal to the difference
between the Merger Consideration and the Option Price (as defined in the Common
Stock Purchase Plan) determined with reference only to the first business day of
the applicable Payment Period (as defined in the Common Stock Purchase Plan) to
the extent such difference is a positive number. All funds contributed to the
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Common Stock Purchase Plan which have not been used to purchase Company Common
Stock as of the termination date shall be returned, in cash, without interest,
to participants of the Common Stock Purchase Plan as soon as administratively
feasible after such termination date.
SECTION 3.06. DISSENTING SHARES. Notwithstanding any other provisions of
this Agreement to the contrary, shares of Company Common Stock that are
outstanding immediately prior to the Effective Time and which are held by
stockholders who shall have not voted in favor of the Merger or consented
thereto in writing and who shall have demanded properly in writing appraisal for
such shares in accordance with Section 262 of the DGCL (collectively, the
"Dissenting Shares") shall not be converted into or represent the right to
receive the Merger Consideration. Such stockholders shall be entitled to receive
payment in cash of the appraised value of such shares of Company Common Stock
held by them in accordance with the provisions of such Section 262, except that
all Dissenting Shares held by stockholders who shall have failed to perfect or
who effectively shall have withdrawn or lost their rights to appraisal of such
shares of Company Common Stock under such Section 262 shall thereupon be deemed
to have been converted into and to have become exchangeable, as of the Effective
Time, for the right to receive, without any interest thereon, the Merger
Consideration upon surrender, in the manner provided in Section 3.03, of their
Certificate or Certificates. The Company shall give Parent (i) prompt notice of
any written demand for appraisal received by the Company pursuant to the
applicable provisions of the DGCL and (ii) the opportunity to participate in all
negotiations and proceedings with respect to such demands. The Company shall
not, except with the prior written consent of Parent, voluntarily make any
payment with respect to any such demands or offer to settle or settle any such
demands.
SECTION 3.07. LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
Certificates shall have been lost, stolen or destroyed, the Paying Agent shall
make payment of the Merger Consideration in exchange for such lost, stolen or
destroyed Certificates, upon the making of an affidavit of that fact by the
holder thereof; provided, however, that Parent may, in its discretion and as a
condition precedent to the payment of the Merger Consideration, require the
owner of any such lost, stolen or destroyed Certificate or Certificates to
either (i) deliver a bond in such sum as Parent may reasonably direct as
indemnity against any claim that may be made against the Surviving Corporation,
Parent or the Paying Agent with respect to the Certificates alleged to have been
lost, stolen or destroyed or (ii) agree in writing in customary form to fully
indemnify the Surviving Corporation, Parent and the Paying Agent against any
claim that may be made against them with respect to the Certificates alleged to
have been lost, stolen or destroyed.
<PAGE> 15
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each of Parent and Merger
Sub as follows:
SECTION 4.01. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. Each of the
Company and its subsidiaries is an entity duly organized, validly existing and
in good standing under the laws of its respective jurisdiction of incorporation
or organization and has the power and authority necessary to own, lease and
operate the properties it purports to own, operate or lease and to carry on its
business as it is now being conducted. Each of the Company and its subsidiaries
is duly qualified or licensed as a foreign entity to do business, and is in good
standing, in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its activities makes such
qualification or licensing necessary, except where the failure to be so duly
qualified or licensed and in good standing would not have a Material Adverse
Effect (as defined below) on the Company. A true and complete list of all of the
Company's subsidiaries, together with the jurisdiction of organization of each
subsidiary and the percentage of each subsidiary's outstanding capital stock or
interest owned by the Company or another subsidiary, is set forth in Section
4.01 of the written disclosure schedule delivered by the Company to Parent
("Company Disclosure Schedule"). All of such capital stock or other interest has
been duly authorized by the subsidiary that is the issuer thereof, is validly
issued and is fully paid and nonassessable, is not subject to, nor was it issued
in violation of, any preemptive rights, and is owned, of record and
beneficially, directly or indirectly, by the Company, free and clear of all
Liens (other than Permitted Liens). No shares of capital stock of any of the
Company's subsidiaries are reserved for issuance and there are no outstanding or
authorized options, warrants, rights, subscriptions, claims of any character,
agreements, obligations, convertible or exchangeable securities, or other
commitments, contingent or otherwise, relating to the issued or unissued capital
stock or other securities of any subsidiary of the Company, pursuant to which
such subsidiary is or may become obligated to issue or purchase or otherwise
acquire, deliver or sell any shares of capital stock of such subsidiary or any
securities convertible into, exchangeable for, or evidencing the right to
subscribe for, any shares of capital stock of such subsidiary. Except as set
forth in Section 4.01 of the Company Disclosure Schedule and except for
restrictions imposed by applicable law, there are no restrictions of any kind
which prevent the payment of dividends by any of the Company's subsidiaries.
Except as set forth in Section 4.01 of the Company Disclosure Schedule, the
Company does not directly or indirectly own any equity or similar interest in,
or any interest convertible into or exchangeable or exercisable for, any equity
or similar interest in, any corporation, partnership, joint venture or other
business association or entity. The Company does not have any subsidiaries that
would constitute a "significant subsidiary" within the meaning of Rule 1-02 of
Regulation S-X promulgated by the SEC. For purposes of this Agreement, a
"Material Adverse Change" or a "Material Adverse Effect" shall mean, with
respect to Parent on the one hand and the Company on the other hand, the result
of one or more events, changes or effects which, individually or in the
aggregate, has had or would reasonably be expected to have a material adverse
effect or impact on the business,
<PAGE> 16
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results of operations or financial condition of such party and its subsidiaries,
taken as a whole, or on such party's ability to consummate the transactions
contemplated hereby.
SECTION 4.02. CERTIFICATE OF INCORPORATION AND BY-LAWS. The Company has
heretofore furnished to Parent a complete and correct copy of its Certificate of
Incorporation and By-Laws, as amended to date. Such Certificate of Incorporation
and By-Laws are in full force and effect. The Company is not in violation of any
of the provisions of its Certificate of Incorporation or By-Laws. The Company
has heretofore furnished to Parent complete and correct copies of the
Certificate of Incorporation and By-laws or other governing document of each of
its subsidiaries, as amended to, and in effect on, the date hereof. No corporate
action is required by or on behalf of any of the Company's subsidiaries to
authorize this Agreement or the transactions contemplated hereby.
SECTION 4.03. CAPITALIZATION. The authorized capital stock of the Company
consists of (i) 3,000,000 shares of Preferred Stock, par value $.01 per share,
of which no shares are issued and outstanding, and (ii) 60,000,000 shares of
Common Stock, par value $.01 per share, of which 19,343,766 shares were issued
and outstanding as of July 30, 1999 (excluding 6,026,979 shares of Company
Common Stock held by the Company in its treasury). All issued and outstanding
shares of Company Common Stock are duly authorized, validly issued, fully paid
and nonassessable, and are not subject to preemptive or other similar rights.
Except as set forth in the first sentence of this Section 4.03 or in Section
4.03 of the Company Disclosure Schedule, as of July 30, 1999 there were no
outstanding (i) shares of capital stock or other voting securities of the
Company, (ii) securities of the Company convertible into or exchangeable for
shares of capital stock or voting securities of the Company or (iii) options,
warrants, exchange rights, subscription rights or other agreements, commitments
or rights to purchase or otherwise acquire from the Company, or agreements,
commitments or obligations of the Company to issue or sell, any capital stock,
voting securities or securities convertible into or exchangeable for capital
stock or voting securities of the Company, in each case to which the Company is
a party or by which the Company is bound (the items in clauses (i), (ii) and
(iii) being referred to collectively as the "Company Securities"). Section 4.03
of the Company Disclosure Schedule sets forth a complete and correct list
(including number of shares, exercise price and the plans under which such
options were granted) of all Company Securities described in clause (iii) of the
definition of Company Securities. Except for the issuance of shares of Common
Stock upon the exercise of Options identified in Section 4.03 of the Company
Disclosure Schedule, since July 30, 1999, the Company has not issued or reserved
for issuance any Company Securities.
SECTION 4.04. AUTHORITY RELATIVE TO THIS AGREEMENT. The Company has all
necessary corporate power and authority to execute and deliver this Agreement
and, subject, if required with respect to the consummation of the Merger, to the
approval of the Merger by the holders of a majority of the outstanding shares of
Company Common Stock at any meeting of such stockholders called for such purpose
(the "Company Stockholders Meeting"), to perform its obligations hereunder and
to consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement by the Company and the consummation by the Company
of the transactions contemplated hereby have been duly and validly authorized by
all necessary corporate action on the part of the Company, and no other
corporate proceedings on
<PAGE> 17
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the part of the Company are necessary to authorize this Agreement or to
consummate the transactions so contemplated (other than the approval of the
Merger by the holders of a majority of the outstanding shares of Company Common
Stock at the Company Stockholders Meeting, if required). This Agreement has been
duly and validly executed and delivered by the Company and, assuming approval of
the Merger by the holders of a majority of the outstanding shares of Company
Common Stock at the Company Stockholders Meeting, if required, and the due
authorization, execution and delivery hereof by Parent and Merger Sub, as
applicable, constitutes the legal, valid and binding obligation of the Company,
except that the enforcement hereof may be limited by (a) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally and (b) general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity). The Company has complied with, or has taken all actions necessary to
render inapplicable, any state takeover statute or similar statute or regulation
applicable to the Merger, this Agreement and the transactions contemplated
hereby.
SECTION 4.05. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) Except as set forth in Section 4.05(a) of the Company Disclosure
Schedule, the execution and delivery of this Agreement by the Company do not,
and the consummation of the transactions contemplated hereby and the compliance
with and the performance of this Agreement by the Company will not, (i) conflict
with or violate the Certificate of Incorporation or By-Laws or equivalent
organizational documents of the Company or any of its subsidiaries, (ii)
conflict with or violate any law, rule, regulation, order, judgment or decree
applicable to the Company or any of its subsidiaries or by which its or any of
their respective properties is bound or affected, (iii) result in any breach of
or constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or impair the Company's or any of its
subsidiaries' rights or alter the rights or obligations of any third party
under, any Material Contract (as hereinafter defined), (iv) give to others any
rights of termination, amendment, acceleration or cancellation of any Material
Contract, or (v) result in the creation of a lien or encumbrance on any of the
properties or assets of the Company or any of its subsidiaries, except in the
case of clauses (ii), (iii), (iv) and (v) for any such conflicts, violations,
breaches, defaults or other occurrences that would not individually or in the
aggregate have a Material Adverse Effect on the Company.
(b) Except as set forth in Section 4.05(b) of the Company Disclosure
Schedule, the execution and delivery of this Agreement by the Company do not,
and the consummation of the transactions contemplated hereby and the compliance
with and the performance of its obligations under this Agreement by the Company
will not, require any consent, approval, authorization or permit of, or filing
with or notification to, any governmental or regulatory authority, domestic or
foreign, except (i) for applicable requirements, if any, of the Exchange Act,
the pre-merger notification requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), and the filing and
recordation of appropriate merger or other documents as required by Delaware Law
and (ii) where the failure to obtain such consents, approvals, authorizations or
permits, or to make such filings or notifications, would not have a Material
Adverse Effect on the Company.
<PAGE> 18
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SECTION 4.06. MATERIAL CONTRACTS; PERMITS.
(a) Section 4.06(a) of the Company Disclosure Schedule sets forth a
list of all of the following agreements, contracts and commitments, written or
oral, to which the Company or any of its subsidiaries is a party or by which any
of them or any of their respective properties is bound as of the date of this
Agreement: (i) mortgages, indentures, security agreements and other material
agreements and instruments relating to the borrowing of money by or extension of
credit to the Company or any of its subsidiaries or the guarantee by the Company
or any of its subsidiaries of the indebtedness of any person where the amount of
such borrowed money, credit extension or indebtedness exceeds $50,000
individually; (ii) employment agreements; (iii) consulting agreements not
cancelable by the Company or its subsidiaries on not more than 90 days notice as
well as all other consulting agreements which involved payments in excess of
$25,000 for the period from January 1, 1999 through and including June 30, 1999
or requiring payments in excess of $50,000 for 1999; (iv) union, guild or
collective bargaining agreements; (v) agreements, orders or commitments not
cancelable by the Company or its subsidiaries (without penalty) on not more than
90 days notice for the purchase by the Company or any of its subsidiaries of
supplies or finished products exceeding $150,000 per year; (vi) motor vehicle,
equipment and other personal property leases involving payments in excess of
$25,000 per year; (vii) agreements or commitments for capital expenditures
involving payments in excess of $100,000 for any single item or $250,000 in the
aggregate for all items that do not involve payments in excess of $100,000
singly; (viii) brokerage or finder's agreements; (ix) agreements that restrict
the Company's or any of its subsidiaries' ability to compete in any business or
in any geographic region; (x) agreements, contracts and commitments other than
those described in the foregoing clauses (i) through (ix) which in any case
involve aggregate payments or receipts of more than $75,000 per year (excluding
purchases of raw materials in amounts and at prices consistent with past
practice and in the ordinary course of business) and which are not cancelable
with no more than 90 days' notice without penalty; (xi) agreements pursuant to
which the Company or any subsidiary of the Company manufactures products for
third parties, other than products manufactured for private label; (xii)
Insurance Agreements (as defined below); (xiii) indemnification agreements or
subrogation agreements; (xiv) agreements for the development, manufacture,
marketing, distribution, and/or purchase of raw materials used in the production
of any Product (as defined below) which (A) accounted for more than $100,000 of
the consolidated revenues of the Company and its subsidiaries during the fiscal
year ended December 31, 1998, (B) involved the Company or any of its
subsidiaries receiving or paying royalty, license or other fees in excess of
$100,000 during the said fiscal year or (C) is reasonably expected to account
for more than $50,000 of the consolidated revenues of the Company and its
subsidiaries in the first 12 months following its launch or is reasonably
expected to require the payment of royalty, license or other fees of more than
$100,000 in the first 12 months following its launch; and (xv) agreements,
contracts and commitments which are currently effective and which have been, or
as of the date of this Agreement will be, required to be filed by the Company
with the SEC pursuant to the requirements of the Exchange Act and the rules and
regulations thereunder (the items in (i) through (xv) above being, collectively,
the "Material Contracts"). The Company has heretofore furnished to Parent a
complete and correct copy of each Material Contract (unless any such Material
Contract has not been reduced to writing, in which case the Company has provided
<PAGE> 19
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a complete and correct written description thereof). Each such Material Contract
identified in Section 4.06(a) of the Company Disclosure Schedule is a valid and
binding obligation of the Company or one of its subsidiaries, as the case may
be, and is in full force and effect without amendment, except where not being a
valid and binding obligation or in full force and effect without amendment would
not have a Material Adverse Effect on the Company. Except as set forth in
Section 4.06(a) of the Company Disclosure Schedule, the Company or one of its
subsidiaries, as the case may be, has performed, and to the Company's knowledge,
each other party to any such Material Contract has performed, in all material
respects, the obligations required to be performed by it under the Material
Contracts, the Company is not, and to the Company's knowledge, no other party to
any such Material Contract is (with or without lapse of time or the giving of
notice, or both), in material breach or default thereunder, and to the Company's
knowledge no event has occurred which, after notice or the passage of time or
both, would constitute a default under any such Material Contract or impair the
Company's or any of its subsidiaries material rights under any Material
Contract, or give to any person rights of termination, amendment, acceleration
or cancellation of the Material Contract.
(b) Except as set forth in Section 4.06(b) of the Company Disclosure
Schedule, (i) the Company and its subsidiaries hold all material permits,
licenses, easements, variances, exemptions, consents, certificates, orders and
approvals from governmental authorities which are necessary to the operation of
the business of the Company and its subsidiaries taken as a whole as currently
conducted (collectively, the "Company Permits"); and (ii) the Company and its
subsidiaries are in compliance in all material respects with the terms of the
Company Permits.
SECTION 4.07. SEC FILINGS; FINANCIAL STATEMENTS.
(a) The Company and its subsidiaries have filed, and the Company has
provided Parent with complete and correct copies of, all forms, reports,
statements and other documents required to be filed from January 1, 1998 through
the date of this Agreement (A) with the SEC, including without limitation (u)
all Annual Reports on Form 10-K, (v) all Quarterly Reports on Form 10-Q, (w) all
proxy statements relating to meetings of stockholders (whether annual or
special), (x) all Current Reports on Form 8-K, (y) all other reports, schedules,
registration statements or other documents, and (z) all amendments and
supplements to the items set forth in clauses (u), (v), (w), (x) and (y) above
(the items set forth in clauses (u), (v), (w), (x), (y) and (z) above
collectively referred to as the "Company SEC Reports"), and (B) with any
applicable state securities authorities (all such forms, reports, statements and
other documents referred to in this Section 4.07(a) being referred to herein,
collectively, as the "Company Reports"). From the date hereof through the
Effective Time, the Company will furnish to Parent copies of any reports and
registration statements to be filed with the SEC after the date hereof (the
"Interim SEC Reports") within a reasonable amount of time prior to the filing
thereof. The Company Reports complied, and the Interim SEC Reports will comply,
in all material respects with the requirements of applicable law (including,
with respect to the Company SEC Reports and the Interim SEC Reports, the
Securities Act of 1933 or the Exchange Act, as the case may be, and the rules
and regulations of the SEC promulgated thereunder applicable to such Company SEC
Reports and Interim SEC Reports) and the Company SEC Reports did not at the time
they were filed and the Interim SEC Reports will not at the time they are filed
contain any untrue
<PAGE> 20
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statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. None of
the Company's subsidiaries is required to file any forms, reports or other
documents with the SEC.
(b) The audited consolidated balance sheets of the Company as of
December 31, 1998 and December 31, 1997, together with the related audited
consolidated statements of operations, equity and cash flows of the Company for
the years ended December 31, 1998, 1997 and 1996, and the notes thereto,
accompanied by the reports thereon of the Company's independent public
accountants for such years (such audited financial statements collectively being
referred to as the "Financial Statements") set forth in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998, were prepared in
accordance with generally accepted accounting principles in the United States
("GAAP") applied on a consistent basis throughout the periods covered thereby
(except to the extent disclosed therein or required by changes in GAAP) and
present fairly in all material respects the consolidated financial position,
results of operations and changes in shareholders' equity and cash flows of the
Company and its subsidiaries as of such dates and for the periods then ended.
The consolidated financial statements (including, in each case, any related
notes thereto) relating to any period subsequent to December 31, 1998 contained
in the Company SEC Reports filed subsequent to January 1, 1999 or to be
contained in the Interim SEC Reports (A) complied (or, in the case of the
Interim SEC Reports, will comply) as to form in all material respects with the
published rules and regulations of the SEC; (B) have been (or, in the case of
the Interim SEC Reports, will be) prepared in accordance with GAAP applied on a
consistent basis throughout the periods involved (except (1) to the extent
required by changes in GAAP, (2) as may be indicated in the notes thereto, and
(3) in the case of the unaudited financial statements, as permitted by the rules
and regulations of the SEC); (C) fairly present (or in the case of the Interim
SEC Reports, will fairly present) in all material respects the consolidated
financial position of the Company and its subsidiaries as of the respective
dates thereof and the consolidated results of operations and changes in
shareholders' equity and cash flows for the periods indicated, except that the
unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments which were not or are not reasonably expected to
be material in amount and (D) are (or, in the case of the Interim SEC Reports,
will be) in all material respects in agreement with the books and records of the
Company and its subsidiaries.
(c) The Company and its subsidiaries keep proper accounting records
in which all material assets and liabilities, and all material transactions, of
the Company and its subsidiaries are recorded in conformity with GAAP. No part
of the Company's or any subsidiary's accounting system or records, or access
thereto, is under the control of a person who is not an employee of the Company
or such subsidiary.
SECTION 4.08. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
Section 4.08 of the Company Disclosure Schedule or in the Company SEC Reports or
as contemplated by this Agreement, during the period commencing on January 1,
1999 through and including the date of this Agreement, the Company and each of
its subsidiaries has conducted its business in the ordinary course and there has
not occurred: (i) any Material Adverse Change with
<PAGE> 21
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respect to the Company; or (ii) any action or event that would have required the
consent of Parent pursuant to Section 6.01 had such action or event occurred
after the date of this Agreement.
SECTION 4.09. NO UNDISCLOSED MATERIAL LIABILITIES. Except as set forth in
Section 4.09 of the Company Disclosure Schedule or as disclosed in the Company
SEC Reports, there are no liabilities (absolute, accrued, contingent or
otherwise) of the Company or any of its subsidiaries that individually or in the
aggregate could reasonably be expected as of the date hereof to have a Material
Adverse Effect on the Company, except liabilities (a) adequately provided for in
the Company's audited balance sheet (including any related notes thereto) for
the year ended December 31, 1998 included in the Company's Annual Report on Form
10-K for the year ended December 31, 1998, as filed with the SEC on March 31,
1999 (the "Company Balance Sheet"), or (b) incurred in the ordinary course of
business and not required under GAAP to be reflected on the Company Balance
Sheet or on any balance sheet contained in the Company SEC Reports filed for any
subsequent period.
SECTION 4.10. ABSENCE OF LITIGATION. Except as set forth in Section 4.10
of the Company Disclosure Schedule or as disclosed in the Company SEC Reports,
there are no claims, actions, suits, proceedings or investigations pending or,
to the knowledge of the Company, threatened against the Company or any of its
subsidiaries or affecting their respective businesses or properties, before any
court, arbitrator or administrative, governmental or regulatory authority or
body, domestic or foreign, that individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect on the Company. Except
as disclosed in Section 4.10 of the Company Disclosure Schedule, neither the
Company nor any of its subsidiaries is subject to any judgment, order,
injunction or decree entered in any lawsuit or proceeding to which the Company
or any of its subsidiaries is a party which could reasonably be expected to have
a Material Adverse Effect on the Company.
SECTION 4.11. EMPLOYEE BENEFIT PLANS; EMPLOYMENT AGREEMENTS.
(a) Section 4.11(a) of the Company Disclosure Schedule lists all
employee benefit plans (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), regardless of whether ERISA
is applicable thereto, all other bonus, stock option, stock purchase, incentive,
deferred compensation, supplemental retirement, change in control, severance or
termination pay, medical or life insurance, supplemental unemployment benefits,
profit-sharing, pension or retirement plans, agreements or arrangements, and any
employment or executive compensation or severance agreements, written or
otherwise, for the benefit of, or relating to, any employee (or former employee
for which a current or future obligation exists) of the Company or any other
entity which is treated as a single employer with the Company under Section 414
of the Code (each an "ERISA Affiliate" ), which the Company or any ERISA
Affiliate maintains or to which the Company or any ERISA Affiliate has any
obligations or liability to contribute (together, the "Employee Plans"), and
true, correct and complete copies of (i) each such Employee Plan and its Summary
Plan description (if applicable), (ii) the most recent Form 5500 Annual Report
and actuarial reports, if applicable, and (iii) any currently applicable
material communications with any governmental entity or to
<PAGE> 22
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employees or former employees with respect to such Employee Plan have previously
been made available or delivered to Parent.
(b) Except as set forth in Section 4.11(b) of the Company Disclosure
Schedule, (i) none of the Employee Plans promises or provides retiree medical or
other retiree welfare benefits to any person and none of the Employee Plans is a
"multi-employer plan" as such term is defined in Section 3(37) of ERISA; (ii)
there has been no transaction or failure to act with respect to any Employee
Plan which could reasonably be expected to have a Material Adverse Effect on the
Company; (iii) all Employee Plans have been administered in accordance with
their respective terms and are in compliance with the requirements prescribed by
any and all statutes, orders, or governmental rules and regulations currently in
effect with respect thereto, and the Company and each of its ERISA Affiliates
have performed all obligations required to be performed by them under, and are
not in default under or violation of any of the Employee Plans, except for such
failures to administer, comply or perform and for such defaults and violations
which, individually and in the aggregate, would not result in a material
liability to the Company or to any ERISA Affiliate; (iv) each Employee Plan
intended to qualify under Section 401(a) of the Code has received, and is
entitled to rely upon, a favorable determination letter from the Internal
Revenue Service ("IRS"), and nothing has occurred with respect to the operation
of any such Employee Plan which could cause the loss of such qualification; (v)
all contributions required to be made to any Employee Plan pursuant to the terms
of the Employee Plan or any collective bargaining agreement have been made on or
before their due dates and a reasonable amount has been accrued in accordance
with prior funding and accrual practices for contributions to each Employee Plan
for the current plan years; (vi) neither the Company nor any ERISA Affiliate
maintains any Employee Plan subject to Title IV of ERISA or Section 412 of the
Code; and (vii) the Company and each ERISA Affiliate that maintains a "group
health plan," as defined in Section 4980B of the Code, has complied in all
material respects with the notice and coverage continuation requirements of
Section 4980B of the Code and Section 601 of ERISA, and the regulations
thereunder.
(c) With respect to each Employee Plan, to the extent applicable,
(i) no event has occurred and no condition exists that would subject the Company
or any ERISA Affiliate, either directly or by reason of their affiliation with
any ERISA Affiliate, to any material tax, fine, lien, penalty or other material
liability imposed by ERISA, the Code or other applicable laws, rules and
regulations; (ii) no material change, except changes to the investment options,
investment providers and similar changes has occurred with respect to the
matters covered by the most recent Form 5500 since the date thereof; and (iii)
no "reportable event" (as such term is defined in ERISA section 4043),
"prohibited transaction" (as such term is defined in ERISA section 406 and Code
section 4975) or "accumulated funding deficiency" (as such term is defined in
ERISA section 302 and Code section 412 (whether or not waived)) has occurred
with respect to any Employee Plan.
(d) Neither the Company nor any ERISA Affiliate has any liability or
contributes to any plan that is subject to Title IV of ERISA or Section 412 of
the Code or to any multiemployer plan within the meaning of ERISA Section
4001(a)(3).
<PAGE> 23
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(e) With respect to any Employee Plan, no actions, suits or claims
(other than routine claims for benefits in the ordinary course) are pending or,
to the Company's knowledge, threatened, that individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect on the Company.
(f) Except as set forth in Section 4.11(a) of the Company Disclosure
Schedule or as contemplated in this Agreement, no Employee Plan exists that
could result in the payment to any present or former employee of the Company or
its subsidiaries of any money or other property or accelerate or provide any
other rights or benefits to any present or former employee of the Company or its
subsidiaries as a result of the transactions contemplated by this Agreement,
whether or not such payment would constitute a parachute payment within the
meaning of Code Section 280G.
(g) Neither the Company nor any subsidiary of the Company has any
contract, plan or commitment, whether legally binding or not, to create any
additional employee benefit plan or to modify any existing Employee Plans in
such a way that would materially increase the expense of maintaining such
Employee Plans, except with respect to changes required by ERISA, the Code or
other applicable law.
SECTION 4.12. LABOR MATTERS. Except as set forth in Section 4.12 of the
Company Disclosure Schedule: (i) there are no unfair labor practice charges,
grievances, claims or complaints pending or, to the knowledge of the Company,
threatened, by or on behalf of any employee or group of employees of the Company
or any of its subsidiaries which, if resolved against the Company or any such
subsidiary, have had or could reasonably be expected to have a Material Adverse
Effect on the Company; (ii) neither the Company nor any of its subsidiaries is a
party to any collective bargaining agreement or other labor union contract
applicable to persons employed by the Company or its subsidiaries nor does the
Company or any of its subsidiaries know of any activities or proceedings of any
labor union to organize any such employees; and (iii) neither the Company nor
any of its subsidiaries has any knowledge of any strikes, slowdowns, work
stoppages, lockouts, or threats thereof, pending or threatened against or
involving the Company or any of its subsidiaries.
SECTION 4.13. INTELLECTUAL PROPERTY.
(a) "Intellectual Property" means all of the following as they exist
in all jurisdictions throughout the world, in each case, owned by, licensed to,
or otherwise used by the Company or a subsidiary of the Company:
(i) patents, patent applications, and other patent rights
(including any divisions, continuations, continuations-in-part, substitutions,
or reissues thereof, whether or not patents are issued on any such applications
and whether or not any such applications are modified, withdrawn, or
resubmitted);
(ii) trademarks, service marks, trade dress, trade names,
brand names, Internet domain names and Web sites, designs, logos, or corporate
names, whether registered or
<PAGE> 24
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unregistered, and all registrations and applications for registration thereof
and all goodwill associated therewith;
(iii) copyrights, including all renewals and extensions
thereof, copyright registrations and applications for registration thereof, and
non-registered copyrights;
(iv) trade secrets, concepts, ideas, designs, research,
processes, procedures, techniques, methods, know-how, data, mask works,
discoveries, inventions, modifications, extensions, improvements, and other
proprietary rights (whether or not patentable or subject to copyright, mask
work, or trade secret protection) (collectively, "Technology"); and
(v) computer software programs, including, without limitation,
all source code, object code, and documentation related thereto (the
"Software").
(b) Section 4.13(b) of the Company Disclosure Schedule:
(i) sets forth all United States and foreign patents and
patent applications, trademark and service mark registrations and applications,
Internet domain name registrations and applications, and copyright registrations
and applications owned by or licensed to the Company or a subsidiary of the
Company;
(ii) sets forth all material licenses, sublicenses, and other
agreements or permissions under which the Company or a subsidiary of the Company
is a licensor or licensee or otherwise is authorized to use or practice any
Intellectual Property, other than "off the shelf" software; and
(iii) sets forth and describes the status of any material
agreements involving Intellectual Property currently in negotiation or proposed
by the Company or a subsidiary of the Company.
(c) Except as set forth in Section 4.13(c) of the Company Disclosure
Schedule, the Company or a subsidiary of the Company owns or has the right to
use all Intellectual Property necessary to the conduct of the business of the
Company or a subsidiary of the Company. Except as set forth in Section 4.13(c)
of the Company Disclosure Schedule, all Intellectual Property, excluding
Intellectual Property used pursuant to a license to the Company, necessary to
the conduct of the business of the Company or a subsidiary of the Company, is
owned by the Company or a subsidiary of the Company free and clear of all Liens
other than Permitted Liens.
(d) Except as set forth on Section 4.13(d) of the Company Disclosure
Schedule, to the Company's knowledge, none of its Intellectual Property
infringes on the intellectual property or other proprietary rights of third
parties.
(e) Except as set forth in Section 4.13(d) of the Company Disclosure
Schedule, neither the Company nor any subsidiary of the Company is or has been,
during the
<PAGE> 25
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three (3) years preceding the date hereof, a party to any claim or action, nor,
to the knowledge of the Company, is any claim or action threatened, that
challenges the validity, enforceability, ownership, or right to use, sell, or
license any Intellectual Property, or alleges the infringement of or by the
Intellectual Property, except for claims that would not have a Material Adverse
Effect on the Company. To the knowledge of the Company, no third party is
infringing upon any Intellectual Property.
(f) The Company or a subsidiary of the Company has taken all
necessary action to maintain and protect each item of Intellectual Property
owned by the Company or a subsidiary of the Company, except for failures to take
such actions as would not have a Material Adverse Effect on the Company.
(g) The Company or a subsidiary of the Company has taken all
reasonable precautions to protect the secrecy, confidentiality, and value of its
trade secrets and the proprietary nature and value of the Technology, except for
failures to take such precautions as would not have a Material Adverse Effect on
the Company.
(h) All material Software (other than related documentation) is
described in Section 4.13(h) of the Company Disclosure Schedule.
(i) Except as set forth in the Company SEC Reports or in Section
4.13(i) of the Company Disclosure Schedule, all Software, hardware, databases,
and embedded control systems used by the Company or a subsidiary of the Company
(collectively, the "Systems") are Year 2000 Compliant, except for failures to be
Year 2000 Compliant as would not have a Material Adverse Effect on the Company.
The Company has substantially completed its Year 2000 contingency plan (a copy
of which has been previously provided to Parent) and believes that it adequately
addresses all Year 2000 contingencies in all material respects. As used herein,
the term "Year 2000 Compliant" means that the Systems (i) accurately process
date and time data (including, without limitation, calculating, comparing, and
sequencing) from, into, and between the twentieth and twenty-first centuries,
the years 1999 and 2000, and leap year calculations and (ii) operate accurately
with other software and hardware that use standard date format (4 digits) for
representation of the year.
SECTION 4.14. TAXES.
(a) For purposes of this Agreement, "Tax" or "Taxes" shall mean
taxes, fees, levies, duties, tariffs, imposts and governmental impositions or
charges of any kind in the nature of (or similar to) taxes, payable to any
federal, state, provincial, local or foreign taxing authority, including,
without limitation (i) income, franchise, profits, gross receipts, ad valorem,
net worth, value added, sales, use, service, real or personal property, special
assessments, capital stock, license, payroll, withholding, employment, social
security, workers' compensation, unemployment compensation, utility, severance,
production, excise, stamp, occupation, premiums, windfall profits, transfer and
gains taxes and (ii) interest, penalties, additional taxes and additions to tax
imposed with respect thereto; and "Tax Returns" shall mean returns, reports and
information statements with respect to Taxes required to be filed with the IRS
or any other
<PAGE> 26
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taxing authority, domestic or foreign, including, without limitation,
consolidated, combined and unitary tax returns.
(b) Except as set forth in Section 4.14 of the Company Disclosure
Schedule, each of the Company and its subsidiaries has filed within the time and
in the manner prescribed by law, or has timely applied for extensions of time to
file, all material Tax Returns required to be filed, and all such Tax Returns
which have been filed are accurate and complete in all material respects. Except
as set forth in Section 4.14 of the Company Disclosure Schedule, each of the
Company and its subsidiaries has paid and discharged (or there has been paid and
discharged on its behalf) within the time and manner prescribed by law all Taxes
required to be paid, withheld or deducted or for which any of the Company or its
subsidiaries is liable, except such Taxes as are being contested in good faith
by appropriate proceedings (to the extent that such proceedings are required)
and with respect to which the Company has set up an adequate reserve under GAAP
for the payment of such Taxes. The Company has set up an adequate reserve under
GAAP on the Company Balance Sheet for all Taxes required to be paid by the
Company and each of its subsidiaries through the date thereof and no Taxes have
been incurred by the Company or any of its subsidiaries after such date which
were not incurred in the ordinary course of business. Except as set forth in
Section 4.14 of the Company Disclosure Schedule, no material deficiencies for
any Taxes have been proposed to, or asserted or assessed against the Company or
any of its subsidiaries or are pending, and no requests for waivers of time to
assess any such Taxes are pending or have been consented to by the Company or
any of its subsidiaries. Except as set forth in Section 4.14 of the Company
Disclosure Schedule, neither the Company nor any subsidiary has requested any
extension of time within which to file any Tax Return in respect of any taxable
year, which Tax Return has not since been filed. Except as set forth in Section
4.14 of the Company Disclosure Schedule, the federal income Tax Returns of the
Company and its subsidiaries have not been examined by the IRS during the past
three years. None of the Company or its subsidiaries has filed a consent under
Section 341(f) of the Code, or has been a member of an affiliated group of
corporations which has filed a consolidated federal income Tax Return (other
than the group of which the Company is the common parent) or otherwise has any
liability for the Taxes of any person (other than the Company and its
subsidiaries) under Treas. Reg. Section 1.1502-6, any similar provision of
state, local or foreign law, or by reason of its status as a transferee,
successor, indemnitor or otherwise. The Company will not be required to include
any item of income in any taxable period (or portion thereof) ending after the
Effective Time as a result of any (x) change in method of accounting made by the
Company prior to the Offer Closing Date (except for any changes of general
applicability required by the SEC or any tax or accounting authority effective
after December 31, 1998) for a taxable period ending on or prior to the Offer
Closing Date, (y) "closing agreement," as described in Section 7121 of the Code
(or any corresponding provision of state, local or foreign Tax law) entered into
on or prior to the Offer Closing Date, or (z) ruling received from the IRS on or
prior to the Offer Closing Date; except in each case to the extent of any
reserve for Taxes set forth in the Company Balance Sheet or any balance sheet
set forth in the Company SEC Reports.
SECTION 4.15. COMPLIANCE WITH LAWS. Except as set forth in Section 4.15 of
the Company Disclosure Schedule or as disclosed in the Company SEC Reports and
except with respect to environmental matters (which are covered exclusively by
Section 4.23 hereof) and
<PAGE> 27
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regulatory matters (which are covered exclusively by Section 4.24 hereof),
neither the Company nor any of its subsidiaries is in violation of any
applicable laws, regulations and ordinances relating to its business and
operations, or any judgment, order or injunction relating to its business and
operations, except for violations which have not had, and (if determined
adversely to the Company and its subsidiaries) could not reasonably be expected
as of the date hereof to have, individually or in the aggregate, a Material
Adverse Effect on the Company, and to the Company's knowledge there is no
pending inspection or investigation relating to any violation thereof nor has
any government agency indicated an intention to conduct the same.
SECTION 4.16. BROKERS. No broker, finder, investment banker or other
person or entity (other than CIBC World Markets Corp.) is entitled to any
brokerage or finder's fee or commission from the Company in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company. The Company has heretofore furnished to Parent a
complete and correct copy of all agreements between the Company and CIBC World
Markets Corp. pursuant to which such firm would be entitled to any payment
relating to the transactions contemplated hereunder.
SECTION 4.17. VOTE REQUIRED. Unless a meeting of the holders of the
Company Common Stock is not required pursuant to Section 253 of the DGCL, the
affirmative vote of the holders of a majority of the outstanding shares of the
Company Common Stock is the only vote of the holders of any class or series of
the Company's capital stock necessary to approve the Merger.
SECTION 4.18. INTERESTED PARTY TRANSACTIONS. Except as contemplated by
this Agreement, disclosed in Section 4.18 of the Company Disclosure Schedule or
disclosed in the Company SEC Reports, since December 31, 1998, no event has
occurred that would be required to be reported pursuant to Item 404 of
Regulation S-K promulgated by the SEC.
SECTION 4.19. INSURANCE. Section 4.19 of the Company Disclosure Schedule
sets forth a list of all fire, general liability, malpractice liability, theft
and other forms of insurance and all fidelity bonds held by or applicable to the
Company or any of its subsidiaries (the "Insurance Agreements"). All such
Insurance Agreements (i) are with insurance companies that are, to the knowledge
of the Company, financially sound and reputable and are in full force and
effect; (ii) are sufficient in all material respects for compliance with all
requirements of law and of all applicable agreements; and (iii) are valid,
outstanding and enforceable policies to their fullest extent. To the knowledge
of the Company, no event has occurred, including, without limitation, the
failure by the Company or any of its subsidiaries to give any notice or
information or the delivery of any inaccurate or erroneous notice or
information, which limits or impairs the rights of the Company or any of its
subsidiaries under any Insurance Agreements in such a manner as could have a
Material Adverse Effect on the Company. Excluding Insurance Agreements that have
expired and been replaced in the ordinary course of business, no Insurance
Agreement has been canceled within the last two years prior to the date hereof.
<PAGE> 28
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SECTION 4.20. REAL ESTATE.
(a) Each of the Company and its subsidiaries has good and marketable
title in fee simple to all real properties owned by it and valid leaseholds in
the Leased Real Property (as defined herein), subject only to Permitted Liens
(as defined in Section 4.22). Section 4.20 of the Company Disclosure Schedule
sets forth the street address and use description of each parcel of real
property owned by the Company or any of its subsidiaries (the "Owned Real
Property") and (ii) the street address and use description of each parcel of
real property leased by the Company or any of its subsidiaries (the "Leased Real
Property" and, together with Owned Real Property, "Real Property"). The Company
has no leases or subleases of the Owned Real Property. The Company has
heretofore delivered to Parent true, correct and complete copies of all real
property leases (including all modifications, amendments and supplements, "Real
Property Leases") of Leased Real Property. Each Real Property Lease is valid,
binding and in full force and effect, except where the failure to be valid,
binding and in full force and effect would not have a Material Adverse Effect on
the Company. All rent and other sums and charges payable by the Company or a
subsidiary as tenant under such Real Property Leases are current, no notice of
default or termination under any Real Property Lease has been received by the
Company or any of its subsidiaries which remains uncured, and no termination
event or condition or uncured default on the part of the Company or the
applicable subsidiary or, to the Company's knowledge, the lessor, exists under
any Real Property Lease (and to the Company's knowledge no event has occurred
which, with due notice or lapse of time or both, may constitute such a default).
Neither the Company nor any of its subsidiaries has knowledge of nor has
received notice of any condemnation proceeding or any casualty affecting any
Owned Real Property or any Leased Real Property.
(b) To the Company's knowledge, there are no outstanding
requirements or recommendations by any insurance company which has issued a
policy covering any such property, or by any board of fire underwriters or other
body exercising similar functions, requiring or recommending any repairs or work
to be done on any such property.
(c) The Company has furnished Parent with a true, correct and
complete copy of all of the policies of title insurance insuring the Company's
or its subsidiaries' interest in the Owned Real Properties (collectively, the
"Title Policies"). All of the Title policies are in full force and effect. There
is no claim by the Company, its subsidiaries or any other person pending under
any of the Title Policies as to which coverage has been questioned, denied or
disputed by the underwriters or issuers of such Title Policies.
SECTION 4.21. PERSONAL PROPERTY. The Company or a subsidiary of the
Company has good title to all the items of machinery, equipment, furniture,
fixtures, inventory, receivables and other tangible or intangible personal
property reflected on the Balance Sheet and all such property acquired since the
Balance Sheet Date, except for any such property or assets sold or otherwise
disposed of in the ordinary course of business and consistent with past
practices since such date or which would not have a Material Adverse Effect on
the Company. The tangible property owned or used by the Company and its
subsidiaries and that are necessary for the continued operation of the Company
and its subsidiaries' business are in good operating
<PAGE> 29
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condition and repair (subject to normal wear and tear). The Company or any of
its subsidiaries owns or holds under valid leases all of the tangible personal
property and fixtures necessary to conduct the business of the Company and its
subsidiaries as presently conducted except where the failure to own or hold
under valid lease any tangible property or fixtures would not have a Material
Adverse Effect on the Company.
SECTION 4.22. LIENS AND ENCUMBRANCES. All Owned Real Property and assets,
including leases, owned by the Company and its subsidiaries are free and clear
of all liens, pledges, claims, security interests, restrictions, mortgages,
tenancies and other possessory interests, conditional sale or other title
retention agreements, assessments, easements, rights of way, covenants,
restrictions, rights of first refusal, defects in title, encroachments and other
burdens, options or encumbrances of any kind (collectively, "Liens") except (i)
statutory Liens securing payments not yet delinquent or the validity of which
are being contested in good faith by appropriate actions, (ii) purchase money
Liens arising in the ordinary course, (iii) Liens for taxes not yet due or
delinquent, (iv) Liens reflected in the Balance Sheet (which have not been
discharged), (v) Liens which in the aggregate do not materially detract from the
value of, or materially impair the present and continued use or operation of,
the properties or assets subject thereto in the usual and normal conduct of the
business of the Company and the subsidiaries, (vi) any liens set forth on the
title reports for the Owned Real Property, copies of which reports have been
provided to Parent and (vii) any other Liens set forth in Section 4.22 of the
Company Disclosure Schedule (the Liens referred to in clauses (i) through (vii)
being "Permitted Liens"). None of the Permitted Liens materially interferes with
or has interfered with the maintenance, use or operation of the Real Property as
such Real Property is maintained, used or operated as of the date hereof.
SECTION 4.23. ENVIRONMENTAL MATTERS.
Except as set forth in Section 4.23 of the Company Disclosure
Schedule, as disclosed in the Company SEC Reports or to the extent the
inaccuracy of any of the following would not have a Material Adverse Effect on
the Company:
(a) The Company and its subsidiaries are in compliance with,
and for the past three years have been in compliance with, all applicable
federal, state and local laws, statutes, codes, rules, regulations, ordinances,
orders, determinations or rules of common law pertaining to the environment,
natural resources and public or employee health and safety including, without
limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, ("CERCLA"), the Superfund Amendments and
Reauthorization Act of 1986, as amended, the Resource Conservation and Recovery
Act of 1976, as amended, the Oil Pollution Act of 1990, as amended, the Safe
Drinking Water Act, as amended, the Hazardous Materials Transportation Act, as
amended, the Toxic Substances Control Act, as amended, and other environmental
conservation or protection laws ("Environmental Laws").
<PAGE> 30
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(b) No judicial or administrative proceedings are pending or,
to the Company's knowledge, threatened against the Company or its subsidiaries
alleging the violation of, or liability under, Environmental Laws.
(c) The Company and its subsidiaries have obtained all
permits, registrations, licenses, authorizations required to be obtained or
filed by each of the Company and its subsidiaries under any Environmental Laws
in connection with the Company's and its subsidiaries' operations and each of
the Company and its subsidiaries are in compliance with the terms and conditions
of all such Permits.
(d) There have been no reports of environmental
investigations, studies, audits, tests, reviews or other analyses conducted
within the past three years by, on behalf of, or which are in the possession of
the Company or its subsidiaries with respect to any property or facility
currently or formerly owned, operated or leased by the Company or its
subsidiaries which have not been delivered to Parent prior to execution of this
Agreement.
(e) No Liens have been placed upon any assets of the Company
or any of its subsidiaries in connection with any actual or alleged liability
under Environmental Laws.
(f) There are no hazardous or toxic substances, wastes,
materials, chemicals, petroleum or petroleum products, asbestos or asbestos
containing materials, pollutants or contaminants as defined under any
Environmental Law present (x) on, at, or beneath any facility currently or (y)
to the knowledge of the Company, on, at or beneath any facility formerly owned
or operated by the Company or its subsidiaries, except in each case as used in
the ordinary course of business and in compliance with Environmental Laws.
SECTION 4.24. REGULATORY COMPLIANCE.
(a) As to each product subject to the jurisdiction of the U.S.
Food and Drug Administration ("FDA") under the Federal Food, Drug and Cosmetic
Act and the regulations thereunder ("FDCA") that is manufactured, tested,
distributed and/or marketed by the Company or any of its subsidiaries (each such
product, a "Product"), such Product is being manufactured, tested, distributed
and/or marketed in substantial compliance with all applicable requirements under
FDCA and similar state and foreign laws and regulations, including but not
limited to those relating to good manufacturing practices, labeling,
advertising, record keeping, filing of reports and security.
(b) Section 4.24(b) of the Company Disclosure Schedule sets
forth a list of each Product manufactured, marketed, sold or licensed by the
Company or any subsidiary as of the date hereof.
(c) Except as set forth in Section 4.24(c) of the Company
Disclosure Schedule, no Products have been recalled, withdrawn, suspended or
discontinued (other than voluntary discontinuance for legitimate business
reasons) by the Company or any of its subsidiaries in the United States and
outside the United States during the period commencing
<PAGE> 31
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January 1, 1997 and ending on the date hereof, and (ii) no proceedings in the
United States or outside of the United States of which the Company has knowledge
(whether completed or pending) seeking the recall, withdrawal, suspension or
seizure of any Product are pending against the Company or any of its
subsidiaries, nor have any such proceedings been pending at any time during the
period commencing January 1, 1997 and ending on the date hereof.
(d) Section 4.24(d) of the Company Disclosure Schedule sets
forth a list of each of the Company's and its subsidiaries' approved and pending
Abbreviated New Drug Applications ("ANDAs") and any similar state or foreign
regulatory filings, as of the date hereof. True and complete copies of such
ANDAs, including all supplements, amendments and annual reports, have heretofore
been made available to Parent. Neither the Company nor any subsidiary has any
approved or pending New Drug Application. Copies of correspondence from the FDA,
and any similar state or foreign regulatory authorities, and the Company's and
its subsidiaries' responses have heretofore been made available to Parent. As to
each drug for which an ANDA has been approved, the Company and its subsidiaries
are in substantial compliance with 21 U.S.C. Section 355 and 21 C.F.R. Part 314,
and similar state and foreign laws and regulations and all terms and conditions
of such applications. As to each drug that is the subject of such an ANDA, the
Company is in substantial compliance with all applicable provisions of the
Federal Food, Drug, and Cosmetic Act, 21 U.S.C. Sections 321 et seq., and
of the implementing regulations thereunder as codified in Title 21 of the Code
of Federal Regulations, and with similar state and foreign laws and regulations
and with all terms and conditions of such applications. As to each such drug,
the Company and any relevant subsidiary, and the officers, employees or agents
of the Company or such subsidiary, have included in the application for such
drug, where required, the certification described in 21 U.S.C. Section 335 a
(k)(1) or any similar state or foreign law or regulation and the list described
in 21 U.S.C. Section 335 a (k)(2) or any similar state or foreign law or
regulation, and the certification and/or disclosure described in 21 C.F.R. Part
54 or any similar state or foreign law or regulation, and such certification,
list, and/or disclosure was in each case true and accurate in all material
respects when made and remained true and accurate in all material respects
thereafter. In addition, the Company and its subsidiaries are in substantial
compliance with all applicable registration and listing requirements set forth
in 21 U.S.C. Section 360 and 21 C.F.R. Part 207 and all similar state and
foreign laws and regulations.
(e) To the Company's knowledge, no Product manufactured and/or
distributed by the Company or any of its subsidiaries is adulterated within the
meaning of 21 U.S.C. Section 351 (or similar state or foreign laws or
regulations) or misbranded within the meaning of 21 U.S.C. Section 352 (or
similar state or foreign laws or regulations), or, except as set forth in
Section 4.24(e) of the Company Disclosure Schedule, is a product that is in
violation of 21 U.S.C. Section 355 (or similar state or foreign laws or
regulations).
(f) Section 4.24(f) of the Company Disclosure Schedule sets
forth a list of (i) Forms 483, (ii) Notices of Adverse Findings and (iii)
warning letters or other correspondence from the FDA or state or foreign
regulatory authorities in which the FDA or any such authority asserted that the
operations of the Company or any subsidiary may not be in compliance with
applicable laws, regulations, orders, judgments or decrees, in each case
received by the Company or such subsidiary from the FDA or any such authority
since January 1, 1996 to
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the date hereof and the response of the Company or such subsidiary to the FDA or
any such authority to such notices from the FDA or any such authority. True and
complete copies of such Forms 483, Notices of Adverse Findings, letters and
other correspondence and the Company's or subsidiary's responses have heretofore
been made available to Parent. All manufacturing operations of the Company and
its subsidiaries are being conducted in substantial compliance with the good
manufacturing practice regulations set forth in 21 C.F.R. Parts 210 and 211 and
similar state or foreign regulations.
(g) Section 4.24(g) of the Company Disclosure Schedule sets
forth all Adverse Reaction Reports filed by the Company and its subsidiaries
with the FDA or state or foreign regulatory authorities during the period
commencing January 1, 1997 and ending on the date hereof.
(h) Except as set forth in Section 4.24(h) of the Company
Disclosure Schedule, to the Company's knowledge, neither the Company, nor any
subsidiary, nor any officer, employee or agent of either the Company or any
subsidiary has made an untrue statement of a material fact or fraudulent
statement to the FDA or any state or foreign regulatory authority, failed to
disclose a material fact required to be disclosed to the FDA or any state or
foreign regulatory authority, or committed an act, made a statement, or failed
to make a statement that, at the time such disclosure was made, could reasonably
be expected to provide a basis for the FDA or any state or foreign regulatory
authority to invoke its policy respecting "Fraud, Untrue Statements of Material
Facts, Bribery, and Illegal Gratuities", set forth in 56 Fed. Reg. 46191
(September 10, 1991) or any similar policy. Except as set forth on Section
4.24(h) of the Company Disclosure Schedule, neither the Company nor any
subsidiary, nor any officer, employee or agent of either the Company or any
subsidiary, has been convicted of any crime or engaged in any conduct for which
debarment is mandated by 21 U.S.C. Section 335a(a) or any similar state or
foreign law or regulation or authorized by 21 U.S.C. Section 335a(b) or any
similar state or foreign law or regulation.
(i) Except as disclosed in Section 4.24(i) of the Company
Disclosure Schedule, neither the Company nor any subsidiary has received any
written notice that the FDA or any state or foreign regulatory authority has
commenced, or threatened to initiate, any action to withdraw its approval or
request the recall of any product of the Company or any subsidiary, or
commenced, or overtly threatened to initiate, any action to enjoin production at
any facility of the Company or any subsidiary.
(j) The Company and its subsidiaries are, and have at all
times since January 1, 1998 been, in substantial compliance with federal and
state Health Care Fraud and Abuse statutes and regulations, including but not
limited to, the Medicare Anti-kickback Statute, 42 U.S.C. Section 1320a-7b, and
implementing regulations codified at 42 C.F.R. Section 1001 and with all similar
state or foreign laws and regulations. The Company and its subsidiaries have not
been excluded from any federal or state health care program for violation of
Health Care Fraud and Abuse statutes or regulations
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(k) As to each Product that is a controlled substance, such
Product is being manufactured, tested, distributed and/or marketed in
substantial compliance with all federal, state and foreign laws and regulations
applicable to such controlled substances, including but not limited to those
relating to labeling, record keeping, filing of reports and security. Neither
the Company nor any subsidiary has at any time received notice of any proceeding
or investigation by any federal governmental agency or authority (including but
not limited to the U.S. Drug Enforcement Administration (the "DEA"), and the
U.S. Department of Justice) or any state or foreign governmental agency or
authority involving any controlled substance manufactured, tested, distributed
and/or marketed by the Company. The Company has received all required licenses
and permits required by the DEA and comparable state authorities, and such
licenses and permits are in full force and effect.
SECTION 4.25. SUPPLIERS AND CUSTOMERS. Except as set forth in Section 4.25
of the Company Disclosure Schedule, the Company has good commercial
relationships with each of its suppliers of active ingredients, bulk chemical
products and finished drug products and to the Company's knowledge, there are no
facts concerning such suppliers that would reasonably be expected to result in
any material interruption in the timely supply by such suppliers to the Company
of any such materials other than ordinary course delays experienced from time to
time. No such supplier has notified the Company in writing that it intends to
terminate or materially alter the terms of its supply relationship with the
Company. The Company has provided Parent with a list of the Products (including
the name of the supplier) for which the Company has only one FDA approved source
for the active ingredient raw material. Except as set forth in Section 4.25 of
the Company Disclosure Schedule, the Company has good commercial relationships
with its customers of finished drug products and no such customer has notified
the Company in writing that it intends to terminate or materially alter its
relationship with the Company.
SECTION 4.26. INFORMATION SUPPLIED. None of the information supplied or to
be supplied by the Company in writing for inclusion or incorporation by
reference in (i) any of the Offer Documents will, at the time the Offer
Documents are first published, sent or given to holders of Company Common Stock
and at any time they are amended or supplemented, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading, (ii) the Schedule 14D-1
and all amendments or supplements thereto will, at the respective times filed
with the SEC, stock exchange or any other regulatory agency, and on the date
mailed to the holders of Company Common Stock, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they are made, not misleading, and (iii) the proxy statement or
information statement relating to the Company Stockholders' Meeting (such proxy
statement or information statement as amended or supplemented from time to time
being hereinafter referred to as the "Proxy Statement") will, at the respective
times filed with the SEC, stock exchange or any other regulatory agency, on the
date mailed to the holders of Company Common Stock and at the time of the
Company Stockholders Meeting contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in
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light of the circumstances under which they are made, not misleading. If at any
time prior to the Effective Time any event relating to the Company or any of its
subsidiaries, affiliates, officers or directors should be discovered by the
Company which is required to be set forth in a supplement to the Proxy Statement
or an amendment or supplement to the Offer Documents or the Schedule 14D-9, the
Company shall promptly inform Parent and Merger Sub. The Proxy Statement will
comply as to form in all material respects with the applicable provisions of the
Exchange Act and the rules and regulations thereunder. Notwithstanding the
foregoing, the Company makes no representation or warranty with respect to any
information supplied by Parent or Merger Sub which is contained in any of the
foregoing documents.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Each of Parent and Merger Sub hereby jointly and severally represents and
warrants to the Company that:
SECTION 5.01. ORGANIZATION AND QUALIFICATION. Each of Parent and Merger
Sub is a corporation duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation and has the power and
authority necessary to own, lease and operate the properties it purports to own,
operate or lease and to carry on its business as it is now being conducted.
SECTION 5.02. AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Parent and
Merger Sub has all necessary corporate power and authority to execute and
deliver this Agreement and to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement by Parent and Merger Sub and the consummation by
Parent and Merger Sub of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action on the part of Parent and
Merger Sub, and no other corporate proceedings on the part of Parent or Merger
Sub are necessary to authorize this Agreement or to consummate the transactions
so contemplated. This Agreement has been duly and validly executed and delivered
by Parent and Merger Sub and, assuming the due authorization, execution and
delivery hereof by the Company, constitutes the legal, valid and binding
obligation of Parent and Merger Sub, except that the enforcement hereof may be
limited by (a) bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights generally
and (b) general principles of equity (regardless of whether enforceability is
considered in a proceeding at law or in equity).
SECTION 5.03. NO CONFLICT; REQUIRED FILINGS AND CONSENTS. (a) the
execution and delivery of this Agreement by Parent and Merger Sub do not, and
the consummation of the transactions contemplated hereby and the compliance with
and the performance of this Agreement by Parent and Merger Sub will not, (i)
conflict with or violate the Certificate of Incorporation or By-Laws of Parent
or the Certificate of Incorporation or By-Laws of Merger Sub, (ii) conflict with
or violate any law, rule, regulation, order, judgment or decree applicable to
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Parent, Merger Sub or any of their subsidiaries or by which they or their
respective properties are bound or affected, or (iii) except as set forth in
Section 5.03(a) of the written disclosure schedule delivered by Parent to the
Company ("Parent Disclosure Schedule"), result in any breach of or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or impair Parent's, Merger Sub's or any of their subsidiaries'
rights or alter the rights or obligations of any third party under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
any material contract, agreement, commitment, arrangement, lease or other
instrument to which Parent, Merger Sub or any of their subsidiaries is a party
or by which Parent, Merger Sub or any of their subsidiaries is bound, or result
in the creation of a lien or encumbrance on any of the properties or assets of
Parent, Merger Sub or any of their subsidiaries pursuant to any material note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Parent, Merger Sub or any
of their subsidiaries is a party or by which Parent, Merger Sub or any of their
subsidiaries or any of their respective properties are bound or affected, except
in the case of clauses (ii) and (iii) for any such breaches, defaults or other
occurrences that would not have a Material Adverse Effect on Parent.
(b) The execution and delivery of this Agreement by Parent and
Merger Sub do not, and the consummation of the transactions contemplated hereby
and the compliance with and the performance of this Agreement by Parent and
Merger Sub will not, require any consent, approval, authorization or permit of,
or filing with or notification to, any governmental or regulatory authority,
domestic or foreign, except (i) for applicable requirements, if any, of the
Exchange Act, the pre-merger notification requirements of the HSR Act and the
filing and recordation of appropriate merger and other documents as required by
Delaware Law and (ii) where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not
have a Material Adverse Effect on Parent.
SECTION 5.04. INFORMATION SUPPLIED. The Offer Documents and the Schedule
14D-1 will contain (or will be amended in a timely manner so as to contain) all
information which is required to be included therein in accordance with the
Exchange Act and the rules and regulations thereunder and any other applicable
law, and will conform in all material respects with the requirements of the
Exchange Act and any other applicable law. The information contained in the
Schedule 14D-1 and the Offer Documents (other than information furnished in
writing by the Company expressly for inclusion in the Schedule 14D-1 or the
Offer Documents, as to which Parent and Merger Sub make no representations or
warranties) will not, at the respective times the Schedule 14D-1 and such Offer
Documents are filed with the SEC, stock exchange or other regulatory agency (or
such filings are amended or supplemented) and first published, sent or given to
holders of Company Common Stock, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading. None of the information supplied or to be
supplied by Parent or Merger Sub or any affiliate of Parent for inclusion or
incorporation by reference in (i) the Schedule 14D-9 will, at the time the
Schedule 14D-9 is filed with the SEC, stock exchange or any other regulatory
agency, and at any time it is amended or supplemented, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make
<PAGE> 36
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the statements therein, in light of the circumstances under which they are made,
not misleading or (ii) the Proxy Statement will, at the respective times filed
with the SEC, stock exchange or any other regulatory agency, on the date it is
mailed to the holders of Company Common Stock or at the time of the Company
Stockholders Meeting, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading. If at any time prior to the Effective Time any event
relating to Parent, Merger Sub or any of their respective subsidiaries,
affiliates, officers or directors should be discovered by Parent or Merger Sub
which is required to be set forth in a supplement to the Proxy Statement or an
amendment or supplement to the Offer Documents, the Schedule 14D-1 or the
Schedule 14D-9, Parent and Merger Sub shall promptly inform the Company.
SECTION 5.05. ABSENCE OF LITIGATION. There are no claims, actions, suits,
proceedings or investigations pending or, to the knowledge of Parent or Merger
Sub, threatened against Parent, Merger Sub or any of their subsidiaries, before
any court, arbitrator or administrative, governmental or regulatory authority or
body, domestic or foreign, that, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect on Parent. Neither
Parent, Merger Sub nor any of their subsidiaries is subject to any judgment,
order, injunction or decree entered in any lawsuit or proceeding to which
Parent, Merger Sub or any of their subsidiaries is a party which is reasonably
likely to have a Material Adverse Effect on Parent.
SECTION 5.06. FINANCING. Parent and/or Merger Sub have available funds
sufficient in amount to consummate the Offer and the Merger and the respective
transactions contemplated hereby, and to pay related fees and expenses.
SECTION 5.07. OWNERSHIP OF COMPANY COMMON STOCK. As of the date hereof,
neither Parent nor Merger Sub, nor any of their affiliates, beneficially owns
any shares of Company Common Stock except as set forth in Section 5.07 of the
Parent Disclosure Schedule.
ARTICLE VI
CONDUCT OF BUSINESS OF THE COMPANY
SECTION 6.01. CONDUCT OF BUSINESS OF THE COMPANY. During the period from
the date of this Agreement and continuing until the earlier of the termination
of this Agreement or the date of acceptance for payment of and payment for
shares of Company Common Stock by Merger Sub in the Offer (the "Offer Closing
Date"), the Company covenants and agrees that, unless Parent shall otherwise
agree in writing or except as set forth in Section 6.01 of the Company
Disclosure Schedule, the Company shall conduct its business and shall cause the
businesses of its subsidiaries to be conducted only in, and the Company and its
subsidiaries shall not take any action except in, the ordinary course of
business and in a manner consistent with past practice; and the Company shall
use reasonable commercial efforts to preserve substantially intact the business
organization of the Company and its subsidiaries, to keep available the services
of the present officers, employees and consultants of the Company and its
subsidiaries,
<PAGE> 37
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to prevent the loss, cancellation, abandonment, forfeiture or expiration of any
intellectual property rights of the Company and its subsidiaries, to preserve in
full force and effect all material licenses and approvals held by the Company
and its subsidiaries and to preserve the present relationships of the Company
and its subsidiaries with customers, suppliers and other persons with which the
Company or any of its subsidiaries has significant business relations. By way of
amplification and not limitation, except as expressly contemplated or permitted
by this Agreement or except as set forth in Section 6.01 of the Company
Disclosure Schedule, neither the Company nor any of its subsidiaries shall,
during the period from the date of this Agreement and continuing until the
earlier of the termination of this Agreement or the Offer Closing Date, directly
or indirectly do, or propose to do, any of the following without the prior
written consent of Parent:
(a) amend or otherwise change the Company's or any of its
subsidiaries' Certificate of Incorporation or By-Laws;
(b) issue or sell, pledge, dispose or encumber, or authorize the
issuance or sale, pledge, disposition or encumbrance of, any shares of capital
stock of any class, or any options, warrants, convertible securities or other
rights of any kind to acquire any shares of capital stock, or any other
ownership interest (including, without limitation, any phantom interest) of the
Company or any of its subsidiaries (except for the issuance of shares of Company
Common Stock issuable pursuant to Options under the Company Stock Option Plans
or pursuant to rights to purchase such shares under the Common Stock Purchase
Plan, which Options or rights, as the case may be, are outstanding on the date
of this Agreement or are issued after the date of this Agreement in accordance
with the following proviso); provided, however, that the Company may grant stock
options pursuant to the formula grant provisions of the Company's 1995
Non-Employee Director Stock Option Plan and may continue to offer rights to
purchase Company Common Stock pursuant to the Company Stock Purchase Plan as in
effect on the date of this Agreement;
(c) sell, pledge, dispose of or encumber any material assets of the
Company or any of its subsidiaries (except for (i) sales of assets in the
ordinary course of business and in a manner consistent with past practice and
(ii) dispositions of obsolete or worthless assets);
(d) (i) declare, set aside, make or pay any dividend or other
distribution (whether in cash, stock or property or any combination thereof) in
respect of any of its capital stock, except that a wholly owned subsidiary of
the Company may declare and pay a dividend to its parent, (ii) split, combine or
reclassify any of its capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock; or (iii) amend the terms of, repurchase, redeem
or otherwise acquire, or permit any subsidiary to repurchase, redeem or
otherwise acquire, any of its securities or any securities of its subsidiaries;
(e) (i) acquire (by merger, consolidation, or acquisition of stock
or assets) any corporation, partnership or other business organization or
division thereof or make any investment therein (other than the acquisition of
equity and debt securities of issuers for
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investment purposes where such securities represent less than 5% of the issuer's
outstanding voting securities on an as-converted basis); (ii) incur any
indebtedness for borrowed money or issue any debt securities or assume,
guarantee (other than guarantees of bank debt of the Company's subsidiaries
entered into in the ordinary course of business) or endorse or otherwise as an
accommodation become responsible for, the obligations of any person, or make any
loans or advances, except in each case in the ordinary course of business
consistent with past practice and except that the Company may incur short-term
indebtedness for borrowed money in an amount not to exceed in the aggregate
$1,000,000 on terms that do not include the payment of any prepayment penalty or
premium and which the Company will repay within five (5) business days from the
proceeds of maturing short-term investments; (iii) enter into any agreement or
arrangement that would have qualified as a Material Contract if it had been in
effect on the date of this Agreement, or amend or terminate any Material
Contract; (iv) authorize any capital expenditures or purchase of fixed assets or
bioequivalence studies other than in the ordinary course of business consistent
with Section 6.01 of the Company Disclosure Schedule; or (v) enter into or amend
any contract, agreement, commitment or arrangement to effect any of the matters
prohibited by this Section 6.01(e);
(f) amend or enter into any employment, severance or change of
control agreement, increase the compensation payable or to become payable to its
officers or employees, except for increases in salary or wages of employees of
the Company or its subsidiaries who are not officers of the Company in
accordance with past practices, and except for any such increases in salary of
officers of the Company approved by the Board of Directors prior to the date of
this Agreement and identified in Section 6.01 of the Company Disclosure Schedule
and payment of bonuses to Company officers with respect to the fiscal year ended
December 31, 1998 in accordance with the Company's bonus plan or agreements
previously approved by the Board of Directors (a copy of which has been provided
to Parent and identified in Section 6.01 of the Company Disclosure Schedule); or
grant any severance or termination pay to (other than pursuant to pre-existing
arrangements which are identified in Section 6.01 of the Company Disclosure
Schedule), or enter into any employment or severance agreement with any
director, officer or other employee of the Company or any of its subsidiaries;
or establish, adopt, enter into, amend or terminate any Employee Plan except as
may be required by law;
(g) take any action, other than as required by GAAP or the SEC, to
change accounting policies or procedures (including, without limitation,
procedures with respect to revenue recognition, payments of accounts payable and
collection of accounts receivable);
(h) make any material Tax election inconsistent with past practices
or settle or compromise any material Federal, state, local or foreign Tax
liability or agree to an extension of a statute of limitations for any
assessment of any Tax, except to the extent the amount of any such settlement
has been reserved for on the financial statements included in the Company's most
recent Company SEC Report;
(i) waive or release any rights material to the Company and its
subsidiaries or pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction (A) in
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the ordinary course of business and consistent with past practice of liabilities
reflected or reserved against in the financial statements of the Company or
incurred in the ordinary course of business and consistent with past practice or
(B) of claims for injury related to use of the Company's albuterol sulfate
solution consistent with past practice; or
(j) take, or agree in writing or otherwise to take, any of the
actions described in Sections 6.01(a) through (i) above, or any action which
would make any of the representations or warranties of the Company contained in
this Agreement untrue or incorrect in any material respect or prevent the
Company from performing in any material respect or cause the Company not to
perform in any material respect its covenants hereunder or result in any of the
conditions to the Merger set forth herein not being satisfied.
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.01. STOCKHOLDER APPROVAL. (a) To the extent stockholder approval
of this Agreement is required by law, the Company will take all action necessary
in accordance with Delaware law, the Company's Certificate of Incorporation, as
amended, and its By-laws to convene the Company Stockholders' Meeting as
promptly as practicable following the Offer Closing Date to consider and vote
upon the Merger, this Agreement and the transactions contemplated hereby.
(b) The Proxy Statement shall include the recommendation of the
Board of Directors of the Company to the holders of Company Common Stock that
they vote in favor of the adoption of this Agreement and the Merger, except to
the extent that the Board of Directors of the Company shall have withdrawn or
modified its approval or recommendation of this Agreement or the Merger in
accordance with Section 7.11.
(c) Subject to its fiduciary duties under Delaware Law, the
Company's Board of Directors shall (i) cause the Company to use its reasonable
best efforts (through its agents or otherwise) to solicit from the holders of
the Company Common Stock proxies in favor of the Merger, this Agreement and the
transactions contemplated hereby and (ii) cause the Company to take all other
lawful action reasonably necessary to secure stockholder approval of the Merger,
this Agreement and the transactions contemplated hereby.
(d) Notwithstanding the foregoing, if Merger Sub shall acquire at
least 90% of the outstanding Company Common Stock in the Offer, the parties
shall take all necessary and appropriate action to cause the Merger to become
effective as soon as practicable after the expiration of the Offer without a
meeting of stockholders in accordance with Section 253 of the DGCL.
(e) To the extent stockholder approval of this Agreement is required
by law, the Company shall prepare a preliminary Proxy Statement relating to the
Company Stockholders
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Meeting and a form of proxy for use at the Company Stockholders' Meeting
relating to the vote of the holders of the Company Common Stock with respect to
the Merger, this Agreement and the transactions contemplated hereby. The Company
shall cause the preliminary Proxy Statement to be filed with the SEC at the
earliest practicable date following the Offer Closing Date. Parent and the
Company shall cooperate with each other in the preparation of the Proxy
Statement, and the Company shall notify Parent of the receipt of any comments of
the SEC with respect to the preliminary Proxy Statement and of any requests by
the SEC for any amendment or supplement thereto or for additional information
and shall provide to Parent promptly copies of all correspondence between the
Company or any representative of the Company and the SEC. As promptly as
practicable after comments are received from the SEC with respect to the
preliminary Proxy Statement, the Company shall use its commercially reasonable
efforts to respond to the comments of the SEC and, to the extent comments of the
SEC relate to Parent or Merger Sub, Parent and Merger Sub shall use their
commercially reasonable efforts to respond to the comments of the SEC. The
Company shall give Parent and its counsel the opportunity to review all
amendments and supplements to the Proxy Statement and all responses to requests
for additional information and replies to comments of the SEC prior to their
being filed with or sent to the SEC and Parent and Merger Sub shall provide the
Company with such information about them as may be required to be included in
the Proxy Statement or as may be reasonably required to respond to any comment
of the SEC. After all the comments received from the SEC have been cleared by
the SEC staff and all information required to be contained in the Proxy
Statement has been included therein by the Company, the Company shall file with
the SEC the definitive Proxy Statement and the Company shall use its
commercially reasonable efforts to have the Proxy Statement cleared by the SEC
as soon thereafter as practicable. The Company shall cause the Proxy Statement
to be mailed to record holders of Company Common Stock as promptly as
practicable after clearance by the SEC.
(f) Parent and Merger Sub agree to cause all shares of Company
Common Stock purchased pursuant to the Offer and all other shares of Company
Common Stock owned by Parent, Merger Sub or any affiliate of Parent, or with
respect to which Parent, Merger Sub or any affiliate of Parent exercise voting
control, to be voted in favor of the approval and adoption of the Merger and
this Agreement. Parent, in its capacity as the sole stockholder of Merger Sub,
by its execution hereof, approves and adopts the Merger, this Agreement and the
transactions contemplated hereby.
SECTION 7.02. ACCESS TO INFORMATION; CONFIDENTIALITY. Upon reasonable
notice and subject to restrictions contained in confidentiality agreements to
which the Company and its subsidiaries are subject, the Company shall (and shall
cause its subsidiaries to) afford to the officers, employees, accountants,
counsel and other representatives of Parent and Merger Sub and their financing
sources, reasonable access during normal business hours, during the period prior
to the Effective Time, to all its properties, books, contracts, commitments and
records and, during such period, the Company shall (and shall cause its
subsidiaries to) furnish promptly to Parent and Merger Sub all information
concerning its business, properties and personnel as Parent and Merger Sub
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may reasonably request, and the Company shall make available to Parent and
Merger Sub the appropriate individuals (including attorneys, accountants and
other professionals) for discussion of its business, properties and personnel as
Parent and Merger Sub may reasonably request. The Company will deliver to Parent
all of the Company's regularly prepared monthly and quarterly financial
statements for periods and dates subsequent to June 30, 1999, as soon as
practicable after the same are available to the Company. Parent and Merger Sub
shall keep such information confidential in accordance with the terms of the
currently effective confidentiality agreement dated March 30, 1999 (the
"Confidentiality Agreement") between Teva Pharmaceuticals USA, Inc. and the
Company. Any investigation pursuant to this Section 7.02 shall not affect the
representations and warranties contained in this Agreement.
SECTION 7.03. CONSENTS; APPROVALS. (a) The Company, Parent and Merger Sub
shall each (i) use their best efforts to file as soon as practicable
notifications under the HSR Act in connection with the Offer, the Merger and the
transactions contemplated hereby, and to respond as promptly as practicable to
any inquiries received from the Federal Trade Commission and the Antitrust
Division of the Department of Justice for additional information or
documentation and to respond as promptly as practicable to all inquiries and
requests received from any State Attorney General or other governmental
authority in connection with antitrust matters and (ii) use their reasonable
best efforts to obtain all consents, waivers, approvals, authorizations or
orders (including, without limitation, all United States and foreign
governmental and regulatory rulings and approvals) from, and the Company, Parent
and Merger Sub shall promptly make all filings (including, without limitation,
all filings with United States and foreign governmental or regulatory agencies)
with, any governmental or regulatory agency having jurisdiction, in each case to
the extent required in connection with the authorization, execution and delivery
of this Agreement by the Company, Parent and Merger Sub and the consummation by
them of the transactions contemplated hereby; provided, however, that nothing
contained in this Agreement shall require either party or its affiliates to
enter into a divestiture, hold-separate, business limitation or similar
agreement or undertaking except any such divestiture, hold-separate, business
limitation or similar agreement or undertaking which would not, individually or
in the aggregate, in the reasonable judgment of the board of directors of
Parent, materially and adversely impact the economic or business benefits to
Parent and its affiliates of the transactions contemplated by this Agreement or
the ability of Parent or the Surviving Corporation to conduct its business
(including without limitation, its product development efforts) substantially in
the manner such business is being conducted as of the date of this Agreement.
The Company and Parent shall furnish all information required to be included in
any application or other filing to be made pursuant to the rules and regulations
of any United States or foreign governmental or regulatory agency in connection
with the transactions contemplated by this Agreement. If either party receives a
request for additional information or documentary material from any governmental
or regulatory agency with respect to the transactions contemplated hereby, then
such party shall use its reasonable best efforts to make, or cause to be made,
as soon as reasonably practicable and after consultation with the other party,
an appropriate response in compliance with such request.
(b) After the date hereof and prior to the Closing, the Company
shall use its reasonable best efforts to obtain the written consent from any
party to an agreement or instrument identified in Section 7.03(b) of the Company
Disclosure Schedule.
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SECTION 7.04. INDEMNIFICATION AND INSURANCE.
(a) The Certificate of Incorporation of the Surviving Corporation
shall contain the provisions with respect to indemnification (including, without
limitation, Article SEVENTH thereof) set forth in the Certificate of
Incorporation of the Company as of the date of this Agreement, which provisions
shall not be amended, repealed or otherwise modified for a period of six years
after the Effective Time in any manner that would adversely affect the rights
thereunder existing at the Effective Time of individuals who at the Effective
Time were directors, officers, employees or agents of the Company, unless such
modification is required by law.
(b) From and after the Effective Time, the Surviving Corporation and
Parent shall, to the fullest extent permitted under applicable law, indemnify,
defend and hold harmless each person who is now, or has been at any time prior
to the date of this Agreement or who becomes prior to the Effective Time, a
director, officer, employee, fiduciary or agent of the Company or any of its
subsidiaries (collectively, the "Indemnified Parties") against any costs or
expenses (including reasonable attorneys' fees and expenses), judgments, fines,
losses, claims, damages, liabilities and amounts paid in settlement in
connection with any threatened or actual claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of or pertaining to (in whole or in part) any action or omission occurring
at or prior to the Effective Time (including, without limitation, the
transactions contemplated by this Agreement) and will pay expenses in advance of
the final disposition of any such claim, action, suit, proceeding or
investigation to the fullest extent permitted by law. In the event of any such
claim, action, suit, proceeding or investigation (whether arising before or
after the Effective Time), (i) the Indemnified Parties may retain counsel
satisfactory to them, provided that any counsel retained by the Indemnified
Parties shall be reasonably satisfactory to the Surviving Corporation and
Parent, (ii) after the Effective Time, the Surviving Corporation and Parent
shall pay the reasonable fees and expenses of such counsel in a timely manner
after statements therefor are received, and (iii) the Surviving Corporation and
Parent will cooperate in the defense of any such matter; provided, however, that
neither the Surviving Corporation nor Parent shall be liable for any settlement
effected without its written consent (which consent shall not be unreasonably
withheld). The Indemnified Parties as a group may retain only one law firm to
represent them with respect to any single action unless there is, under
applicable standards of professional conduct, a conflict on any significant
issue between the positions of any two or more Indemnified Parties.
(c) From and after the Effective Time, Parent and the Surviving
Corporation shall honor all of the indemnity agreements entered into prior to
the date of this Agreement by the Company with its officers, employees,
directors and consultants (each of which has been identified in Section 4.06(a)
of the Company Disclosure Schedule), whether or not such persons continue in
their positions with Parent or the Surviving Corporation following the Effective
Time. Each indemnity agreement referred to in the preceding sentence either (i)
is substantially in the form provided to Parent prior to the date hereof or (ii)
has been previously provided to Parent.
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(d) From and after the Effective Time until at least six years after
the Effective Time, Parent shall, or shall cause the Surviving Corporation to,
maintain in effect directors' and officers' liability insurance covering those
persons who are currently covered by the Company's directors' and officers'
liability insurance policies (a copy of which has been heretofore delivered to
Parent) of at least the same coverage and amounts, containing terms that are no
less advantageous with respect to claims arising at or before the Effective Time
than the Company's policies in effect immediately prior to the Effective Time;
provided, however, that in no event shall Parent or the Surviving Corporation be
required to pay an annual premium in excess of 150% of the last annual premium
paid by the Company for such coverage prior to the date of this Agreement, in
which event the Parent shall purchase such coverage as is available for such
150% of such annual premium.
(e) The provisions of this Section 7.04 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party, his heirs and
his personal representatives and shall be binding on all successors and assigns
of Parent, Merger Sub, the Company and the Surviving Corporation. In the event
Parent, Merger Sub or the Surviving Corporation or any of their successors or
assigns transfers or conveys all or substantially all of its properties or
assets to any person, then, in each such case, to the extent necessary to
effectuate the purposes of this Section 7.04, proper provision shall be made so
that such person assumes the obligations of Parent, Merger Sub or the Surviving
Corporation, as applicable, set forth in this Section 7.04.
SECTION 7.05. EMPLOYEE BENEFIT PLANS. From and after the Effective Time,
Parent shall cause the Surviving Corporation to honor and satisfy all
obligations and liabilities that are vested as of the Effective Time under any
Employee Plan. The Surviving Corporation hereby reserves the right to amend or
terminate any Employee Plan after the Effective Time, in accordance with its
terms and applicable law; provided that, until at least the first anniversary of
the Effective Time, Parent shall either (a) continue the Employee Plans as
currently in effect, except for the Common Stock Purchase Plan and the Company
Stock Option Plans, or (b) arrange for each individual who is then a participant
in any Employee Plan which is to be terminated to participate in a comparable
benefit plan (both as to type of plan and to the benefits provided thereunder)
maintained by Parent or any of its affiliates in accordance with the eligibility
criteria thereof, provided further that (i) such participants shall receive full
credit for years of service with the Company or any of its subsidiaries prior to
the Merger for all purposes for which such service was recognized under the
applicable Employee Plan, including, but not limited to, recognition of service
for eligibility, vesting (including acceleration thereof pursuant to the terms
of the applicable Employee Plan) and, to the extent not duplicative of benefits
received under such Employee Plan, the amount of benefits and (ii) to the extent
individuals who are participants in Employee Plans become participants in Parent
or Parent affiliate benefit plans, such participants shall participate in the
Parent or Parent affiliate benefit plans on terms no less favorable than those
offered by Parent or the Parent affiliate to similarly situated employees of
Parent or the Parent affiliate.
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SECTION 7.06. NOTIFICATION OF CERTAIN MATTERS. The Company shall give
prompt notice to Parent, and Parent shall give prompt notice to the Company, of:
(a) any notice or other communication from any person alleging that
the consent of such person is or may be required in connection with the
transactions contemplated by this Agreement;
(b) any notice or other communication from any governmental entity
in connection with the transactions contemplated by this Agreement;
(c) any actions, suits, claims, investigations or proceedings
commenced or, to the best of its knowledge threatened against, relating to or
involving or otherwise affecting any of Parent, Merger Sub or the Company, as
the case may be, or any of their respective subsidiaries which relate to the
consummation of the transactions contemplated by this Agreement; and
(d) (i) any event known to the Company or Parent the occurrence or
non-occurrence of which would be likely to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate in any material respect,
and (ii) any failure of the Company, Parent or Merger Sub, as the case may be,
materially to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the delivery
of any notice pursuant to this Section shall not limit or otherwise affect the
remedies available hereunder to the party receiving such notice; and provided
further, that failure to give such notice shall not be treated as a breach of
covenant for purposes of this Agreement unless the failure to give such notice
is willful by the party required to give notice or results in material prejudice
to the other party.
SECTION 7.07. FURTHER ACTION. Upon the terms and subject to the conditions
hereof, each of the parties hereto in good faith shall use their reasonable best
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all other things necessary, proper or advisable to consummate and make
effective as promptly as practicable the transactions contemplated by this
Agreement, to obtain in a timely manner all necessary waivers, consents and
approvals and to effect all necessary registrations and filings, and to
otherwise satisfy or cause to be satisfied all conditions precedent to its
obligations under this Agreement; provided, however, that nothing contained in
this Agreement shall require either party or its affiliates to enter into a
divestiture, hold-separate, business limitation or similar agreement or
undertaking except any such divestiture, hold-separate, business limitation or
similar agreement or undertaking which would not, individually or in the
aggregate, in the reasonable judgment of the board of directors of Parent,
materially and adversely impact the economic or business benefits to Parent and
its affiliates of the transactions contemplated by this Agreement or the ability
of Parent or the Surviving Corporation to conduct its business (including,
without limitation, its product development efforts) substantially in the manner
such business is being conducted as of the date of this Agreement.
SECTION 7.08. PUBLIC ANNOUNCEMENTS. Parent and the Company shall consult
with each other before issuing any press release or otherwise making any public
statements with
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respect to the Merger or this Agreement and shall not issue any such press
release or make any such public statement without the prior consent of the other
party, which shall not be unreasonably withheld or delayed; provided, however,
that a party may, without the prior consent of the other party, issue such press
release or make such public statement as may upon the advice of counsel be
required by law, the National Association of Securities Dealers or the Nasdaq
National Market if it has provided prior notice to the other party and used all
reasonable best efforts to consult with the other party prior thereto.
SECTION 7.09. CONVEYANCE TAXES. Parent and the Company shall cooperate in
the preparation, execution and filing of all returns, questionnaires,
applications or other documents regarding any real property transfer or gains,
sales, use, transfer, value added, stock transfer and stamp Taxes, any transfer,
recording, registration and other fees, and any similar Taxes which become
payable in connection with the transactions contemplated hereby that are
required or permitted to be filed on or before the Effective Time.
SECTION 7.10. CONDUCT OF BUSINESS OF MERGER SUB. Prior to the Effective
Time, Merger Sub shall not engage in any activities of any nature except as
provided in or contemplated by this Agreement.
SECTION 7.11. NO SOLICITATION. (a) From the date hereof until the
termination of this Agreement, except as permitted hereby, the Company shall
not, nor shall it permit any of its subsidiaries, or any of its or their
respective officers, directors, employees, agents or representatives (including,
without limitation, any investment banker, attorney or accountant retained by
the Company or any of its subsidiaries) (collectively, the "Company
Representatives"), to, directly or indirectly, (i) initiate, solicit or
knowingly encourage any inquiries, offers or proposals that constitute, or could
reasonably be expected to lead to, an Acquisition Proposal, (ii) engage in
negotiations or discussions concerning, or provide to any person or entity any
non-public information or data relating to the Company or any of its
subsidiaries for the purposes of making, or take any other action to facilitate
knowingly, the making of any Acquisition Proposal or inquiry that could
reasonably be expected to lead to an Acquisition Proposal, or (iii) agree to,
approve or recommend any Acquisition Proposal; provided, however, that, subject
to the Company's compliance with this Section 7.11, nothing contained in this
Agreement shall prevent the Company or its Board of Directors, prior to the
adoption of this Agreement at the Company Stockholder Meeting, from (A) entering
into a definitive agreement providing for the implementation of a Superior
Proposal (as defined below) if the Company or the Board of Directors is
simultaneously terminating this Agreement pursuant to Section 9.01(f), (B)
providing non-public information or data to, entering into customary
confidentiality agreements with, or entering into discussions or negotiations
with, any person or entity in connection with an unsolicited (the existence of
discussions or negotiations with a person prior to the date of this Agreement
shall not create a presumption that a proposal from that person was "solicited")
bona fide, written Acquisition Proposal to the Company or its stockholders, if
the Board of Directors of the Company, by action of a majority of Independent
Directors (as defined below) determines in good faith after consultation with
nationally-recognized independent financial advisors that such Acquisition
Proposal, if accepted, constitutes, or is reasonably likely to lead to, a
Superior Proposal or (C) taking and disclosing to
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its stockholders a position with respect to such Acquisition Proposal
contemplated by Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act or
making any other public disclosure that, after consultation with and based on
the advice of outside legal counsel, is determined to be required by applicable
law; provided, further, that except as otherwise permitted in this Section 7.11,
the Company does not withdraw or modify its position with respect to the Merger
or approve or recommend an Acquisition Proposal. For purposes of this Agreement,
"Superior Proposal" means a bona fide written Acquisition Proposal (i) for which
financing, to the extent required, is committed, (ii) which in the good faith
judgment of a majority of the Independent Directors is reasonably likely to be
consummated without undue delay and (iii) which a majority of the Independent
Directors determine in their good faith judgment (based upon the opinion
(written or oral) of nationally-recognized independent financial advisors that
the value of the consideration provided for in such proposal exceeds the value
of the consideration provided for in the Offer and the Merger) and after taking
into account all legal, financial, regulatory and other material aspects of the
Acquisition Proposal, and the person making the proposal, to be more favorable
to the Company's stockholders than the Merger. For purpose of this Agreement,
"Independent Directors" shall be such members of the Company's Board of
Directors who are directors on the date hereof and who are otherwise not (1)
employees, officers, directors, appointees, nominees or affiliates of HC or any
of its affiliates (other than the Company), Parent or Merger Sub or any of their
affiliates, or (2) employees or officers of the Company. The Company will
immediately cease and cause to be terminated any existing discussions or
negotiations with any third parties conducted heretofore with respect to any
Acquisition Proposals, and will promptly inform the Company Representatives of
the obligations undertaken in this Section 7.11(a).
(b) The Company shall (i) promptly, and in any event within 24
hours, notify Parent orally and in writing after receipt by the Company (or its
advisors) of any Acquisition Proposal or any inquiries which could reasonably be
expected to lead to an Acquisition Proposal, including the material terms and
conditions thereof and the identity of the person making it, (ii) (x) promptly,
and in any event within 24 hours, notify Parent orally and in writing after
receipt of any request for non-public information relating to it or any of its
subsidiaries or for access to its or any of its subsidiaries' properties, books
or records by any person that, to the Company's knowledge, is considering
making, or has made, an Acquisition Proposal and (y) promptly provide to Parent
any nonpublic information regarding the Company provided to any such person
which was not previously provided to Parent, (iii) receive from any person
identified in clause (ii) an executed confidentiality letter in reasonably
customary form and containing terms that are as stringent in all material
respects as those contained in the Confidentiality Agreement prior to delivery
of any such non-public information, and (iv) keep Parent advised on a prompt
basis of the status of any such Acquisition Proposal, inquiry or request
(including notifying Parent within 24 hours of any material changes to the terms
and conditions of any Acquisition Proposal).
(c) The Company will not withdraw or modify, in any manner adverse
to Parent, its approval or recommendation of this Agreement or the Merger and
will not approve or recommend an Acquisition Proposal, except in each case in
connection with a Superior Proposal and then only upon or after the termination
of this Agreement pursuant to Section 9.01(f). For
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purposes of this Agreement, "Acquisition Proposal" shall mean any of the
following (other than the transactions between the Company, Parent and Merger
Sub contemplated hereunder and the transactions contemplated by the Stockholder
Agreement and the Registration Rights Agreement dated as of the date hereof
between HC and the Company) involving the Company or any of its subsidiaries:
(i) a proposal for any transaction pursuant to which any person or its
affiliates (a "Third Party") proposes to acquire beneficial ownership of at
least twenty percent (20%) of the outstanding equity securities of the Company,
whether from the Company or pursuant to a tender offer, exchange offer,
recapitalization, reorganization or otherwise, (ii) a proposal for any merger,
consolidation or other business combination involving the Company pursuant to
which any Third Party proposes to acquire beneficial ownership of at least
twenty percent (20%) of the outstanding equity securities of the Company or the
entity surviving such merger, consolidation or other business combination, (iii)
a proposal for any other transaction or series of related transactions pursuant
to which any Third Party proposes to acquire control of assets (including for
this purpose the outstanding equity securities of subsidiaries of the Company,
and the entity surviving any merger, consolidation or business combination
including any of them) of the Company and its subsidiaries having a fair market
value equal to or greater than twenty percent (20%) of the fair market value of
all of the assets of the Company and its subsidiaries, taken as a whole,
immediately prior to such transaction, or (iv) any public announcement of a
proposal, plan or intention to do any of the foregoing or any agreement to
engage in any of the foregoing.
SECTION 7.12. DIRECTORS. (a) Promptly upon the Offer Closing Date, Merger
Sub shall be entitled to designate such number of directors on the Board of
Directors of the Company as will give Merger Sub, subject to compliance with
Section 14(f) of the Exchange Act, representation on such Board of Directors
equal to that number of directors, rounded up to the next whole number (and in
no event less than a majority of the Board of Directors), which is the product
of (a) the total number of directors on such Board of Directors (giving effect
to the directors elected pursuant to this sentence) multiplied by (b) the
percentage that (i) such number of shares of Company Common Stock so accepted
for payment and paid for by Merger Sub or otherwise owned by Merger Sub and its
affiliates bears to (ii) the number of shares of Company Common Stock
outstanding, and the Company shall, at such time, cause Merger Sub's designees
to be so elected; provided, however, that in the event that Merger Sub's
designees are appointed or elected to the Board of Directors of the Company,
until the Effective Time of the Merger such Board of Directors shall have at
least two Independent Directors, provided further that, in such event, if the
number of Independent Directors shall be reduced below two for any reason
whatsoever, any remaining Independent Director shall be entitled to designate
such a person to fill any such vacancy who shall be deemed to be an Independent
Director for purposes of this Agreement or, if no Independent Directors then
remain, the other directors shall designate two persons to fill such vacancies
who shall not be (1) employees, officers, directors, appointees, nominees or
affiliates of HC or any of its affiliates (other than the Company), Parent or
Merger Sub or (2) employees or officers of the Company, to serve as the
Independent Directors, and such persons shall be deemed to be Independent
Directors for purposes of this Agreement. Subject to applicable law, the Company
shall take all action requested by Merger Sub necessary to effect any such
election, including mailing to its shareholders the Information Statement
containing the information required by Section 14(f) of the Exchange Act and
Rule 14f-1 promulgated thereunder, and the Company agrees to make such mailing
with the mailing of the Schedule 14D-
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9 (provided that Merger Sub shall have provided to the Company on a timely basis
all information required to be included in the Information Statement with
respect to Merger Sub's designees). In connection with the foregoing, the
Company will promptly, at the option of Merger Sub, either increase the size of
the Company's Board of Directors or obtain the resignation of such number of its
current directors as is necessary to enable Merger Sub's designees to be elected
to the Company's Board of Directors as provided above.
(b) Following the election or appointment of Merger Sub's designees
pursuant to this Section and prior to the Effective Time, in addition to any
approval required by Section 10.04 or 10.05 hereof, the approval of the
Independent Directors shall be required to authorize any matter relating to this
Agreement or the Merger on behalf of the Company, including without limitation
any termination of this Agreement by the Company, any amendment of this
Agreement, the selection of a Paying Agent, any extension of time for the
performance of any obligation or any other act of Parent or Merger Sub under
this Agreement and any waiver of compliance by Parent or Merger Sub with any
provision of this Agreement for the benefit of the Company or the holders of the
Company Common Stock (including, without limitation, Section 7.05).
ARTICLE VIII
CONDITIONS TO THE MERGER
SECTION 8.01. CONDITIONS OF ALL PARTIES TO THE MERGER. The respective
obligations of each party to effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(a) Stockholder Approval. This Agreement and the Merger shall have
been approved and adopted by the requisite vote of the stockholders of the
Company if and as required by Delaware Law and the Company's Certificate of
Incorporation and By-laws;
(b) HSR Act. The waiting period (and any extension thereof)
applicable to the consummation of the Merger under the HSR Act shall have
expired or been terminated;
(c) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Merger shall be in effect; and there shall
not be any action taken, or any statute, rule, regulation or order enacted,
entered, enforced or deemed applicable to the Merger, which makes the
consummation of the Merger illegal; and
(d) Acceptance for Payment and Payment. Merger Sub shall have
accepted for payment and paid for shares of Company Common Stock tendered
pursuant to the Offer, provided that this condition will be deemed satisfied if
(i) Merger Sub fails to accept for payment and pay for Company Common Stock
pursuant to the Offer in violation of the terms thereof or
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(ii) Parent or any affiliate of Parent acquires any shares of Company Common
Stock other than pursuant to the Offer, which shares, when added to the shares
acquired by Parent pursuant to any stock options and the Offer would result in
Parent owning at least a majority of the outstanding shares of Company Common
Stock on a fully diluted basis (excluding options the exercise price of which is
equal to or greater than the Offer Consideration).
ARTICLE IX
TERMINATION
SECTION 9.01. TERMINATION. This Agreement may be terminated and the Offer
and Merger abandoned at any time prior to the Offer Closing Date or the
Effective Time, as set forth below, notwithstanding approval thereof by the
stockholders of the Company:
(a) prior to the Effective Time, by mutual written consent of Parent
and the Company for any reason, or by mutual action of their respective Boards
of Directors;
(b) prior to the Effective Time, by Parent or the Company if there
shall be any law or regulation of any competent authority that makes
consummation of the Merger illegal or otherwise prohibited or if a court of
competent jurisdiction or governmental, regulatory or administrative agency or
commission shall have issued a non-appealable final order, decree or ruling or
taken any other action, in each case having the effect of permanently
restraining, enjoining or otherwise prohibiting the Merger;
(c) prior to the Offer Closing Date, by the Company if (i) any of
the representations and warranties of Parent or Merger Sub set forth herein
shall fail to be true and correct (in the case of representations and warranties
qualified as to materiality) or true and correct in all material respects (in
the case of other representations and warranties), in each case as of a given
date as though made on and as of such date (except for representations and
warranties made as of a specified date, which shall fail to be so true and
correct as of such date), or (ii) either Parent or Merger Sub shall have failed
to perform or comply in all material respects with its obligations, agreements
or covenants contained in this Agreement, which failure, in the case of (i) or
(ii), is not curable or, if curable, is not cured by the earlier of (x) 15
calendar days after written notice of such failure is given by the Company to
Parent or Merger Sub and (y) the Termination Date;
(d) prior to the Offer Closing Date, by Parent if (i) the
representations and warranties of the Company set forth herein (without giving
effect to any materiality limitations contained therein) shall fail to be true
and correct on a given date as though made on and as such date (except for
representations and warranties made as of a specified date, which shall fail to
be so true and correct as of such date) and the failure of such representations
and warranties to be so true and correct in the aggregate has a material adverse
effect on the business, financial condition or results of operations of the
Company and its subsidiaries taken as a whole, or (ii) the Company shall have
failed to perform or comply in all material respects with its obligations,
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agreements or covenants contained in this Agreement, which failure, in the case
of (i) or (ii), is not curable or, if curable, is not cured by the earlier of
(x) 15 calendar days after written notice of such failure is given by Merger Sub
to the Company and (y) the Termination Date;
(e) prior to the Effective Time, by Parent or the Company, if, at
the Company Stockholders Meeting (including any adjournment or postponement
thereof), if required, the requisite vote of the stockholders of the Company
shall not have been obtained (provided that the right to terminate this
Agreement under this Section 9.01(e) shall not be available to Parent if it has
failed to vote as specified in Section 7.01(f));
(f) prior to the Effective Time, by the Company, if prior to the
adoption of this Agreement at the Company Stockholder Meeting the Board of
Directors of the Company shall have approved, and the Company shall concurrently
enter into, a definitive agreement providing for the implementation of a
Superior Proposal; but only if (i) the Company is not then in breach of Section
7.11, (ii) the Company's Board of Directors shall have authorized the Company,
subject to complying with the terms of this Agreement, to enter into a binding
written agreement concerning a transaction that constitutes a Superior Proposal
and the Company shall have notified the Parent in writing that it intends to
enter into such an agreement, (iii) during the ten (10) business day period
after the Company's notice, (A) the Company shall have offered to negotiate
with, and, if accepted, negotiate in good faith with, Parent to attempt to make
such commercially reasonable adjustments in the terms and conditions of this
Agreement as would enable the Company to proceed with the Merger and (B) the
Board of Directors of the Company shall have concluded, after considering the
results of such negotiations and the revised proposals made by the Parent, if
any, that any Superior Proposal giving rise to the Company's notice continues to
be a Superior Proposal; (iv) such termination is within five (5) business days
following the ten (10) business day period referred to above, and (v) no
termination pursuant to this Section 9.01(f) shall be effective unless the
Company shall simultaneously make the payment of the termination fee required by
Section 9.05;
(g) prior to the Offer Closing Date, by the Company, if Merger Sub
shall have failed to commence the Offer within five (5) business days following
the date of the initial public announcement of the Offer;
(h) prior to the Offer Closing Date, by the Company, (x) if the
Offer shall have expired or have been withdrawn or terminated without any shares
of Company Common Stock being purchased thereunder or (y) if no shares of
Company Common Stock have been purchased thereunder on or prior to the
Termination Date; provided, however, that the Company's right to terminate this
Agreement pursuant to Section 9.01(h) (y) shall not be available to the Company
if the Company is in material breach of this Agreement and such breach has been
the proximate cause of the failure of the Offer to be consummated; or
(i) prior to the Offer Closing Date, by Parent, (x) if the Offer
shall have been withdrawn or terminated without any shares of Company Common
Stock being purchased thereunder, whether or not the Offer has commenced, or (y)
if no shares of Company Common Stock have been purchased thereunder on or prior
to the Termination Date, or (z) if the
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Stockholder Agreement shall have been terminated by HC in accordance with its
terms as in effect on the date hereof; provided, however, that Parent's right to
terminate this Agreement pursuant to this Section 9.01(i) shall not be available
to Parent if Merger Sub has withdrawn or terminated the Offer or failed to
extend the Offer in breach of this Agreement or if Parent or Merger Sub is in
material breach of this Agreement and such breach has been the proximate cause
of the failure of the Offer to be consummated.
SECTION 9.02. EFFECT OF TERMINATION. In the event of the termination of
this Agreement pursuant to Section 9.01, written notice thereof shall forthwith
be given to the other party or parties specifying the provision hereof pursuant
to which such termination is made, and this Agreement, except as provided in
Section 10.01, shall forthwith become void and there shall be no liability on
the part of any party hereto or any of its affiliates, directors, officers or
stockholders except (i) as set forth in Section 9.03, Section 9.04 and 9.05
hereof, and (ii) nothing herein shall relieve any party from liability for any
breach hereof.
SECTION 9.03. FEES AND EXPENSES PAYABLE BY THE COMPANY.
(a) Except as set forth in Section 9.04(b), all fees and expenses
incurred by the Company in connection with this Agreement and the transactions
contemplated hereby shall be paid by the Company, whether or not the Merger is
consummated.
(b) Upon the termination of this Agreement by Parent pursuant to
Section 9.01(d) or by the Company pursuant to Section 9.01(f), the Company shall
reimburse Parent for actual, documented and reasonable out-of-pocket expenses of
Parent and Merger Sub incurred in connection with this Agreement and the
transactions contemplated by this Agreement (including, but not limited to, fees
and expenses of Parent's counsel, accountants and financial advisors) in an
aggregate amount not to exceed $1,000,000.
(c) The expenses to be reimbursed pursuant to Section 9.03(b) shall
be paid by wire transfer of immediately available funds to an account designated
by Parent or by check if Parent fails to designate an account, in either case
within ten (10) days following written demand from Parent to the Company.
SECTION 9.04. FEES AND EXPENSES PAYABLE BY PARENT.
(a) Except as set forth in Section 9.03(b), all fees and expenses
incurred by Parent or Merger Sub in connection with this Agreement and the
transactions contemplated hereby shall be paid by Parent and/or Merger Sub,
whether or not the Merger is consummated.
(b) Upon the termination of this Agreement by the Company pursuant
to Section 9.01(c), Parent shall reimburse the Company for actual, documented
and reasonable out-of-pocket expenses of the Company incurred in connection with
this Agreement and the transactions contemplated by this Agreement (including,
but not limited to, fees and expenses of the Company's counsel, accountants and
financial advisors) in an aggregate amount not to exceed $1,500,000.
<PAGE> 52
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(c) The expenses to be reimbursed pursuant to Section 9.04(b) shall
be paid by wire transfer of immediately available funds to an account designated
by the Company or by check if the Company fails to designate an account, in
either case within ten (10) days following written demand from the Company to
Parent.
SECTION 9.05. TERMINATION FEE. The Company shall pay Parent $10,000,000
if: (i) this Agreement is terminated by the Company pursuant to Section 9.01(f)
or (ii) this Agreement is terminated by Parent pursuant to Section 9.01(d) and
on or prior to the 180th day after the date of termination the Company enters
into a definitive agreement providing for a Qualified Acquisition and on or
prior to the first anniversary of the date of termination, such Qualified
Acquisition is consummated. Any payment due under Section 9.05(i) shall be made
concurrently with the termination of this Agreement pursuant to Section 9.01(f),
and any payment due under Section 9.05(ii) shall be made upon consummation of
such Qualified Acquisition, in each case by wire transfer of immediately
available funds to an account designated by Parent or, if no wire transfer
instructions have been provided to the Company by Parent, by check. A "Qualified
Acquisition" shall mean an Acquisition Proposal in which the amount to be
received with respect to each share of Company Common Stock equals or exceeds
the Merger Consideration.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.01. EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. Except as otherwise provided in this Section 10.01, the
representations, warranties and agreements of each party hereto shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any other party hereto, any person controlling any such party or
any of their officers or directors, whether prior to or after the execution of
this Agreement. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 9.01, as the case may be, except that the agreements set
forth in Article III, Sections 7.04, 7.05, 7.08, 9.03, 9.04 and Article X shall
survive the Effective Time indefinitely and those set forth in Sections 7.08,
9.02, 9.03, 9.04, 9.05 and Article X shall survive termination indefinitely. The
Confidentiality Agreement shall survive termination of this Agreement.
SECTION 10.02. NOTICES. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date delivered if delivered personally, three days after being
sent by registered or certified mail (postage prepaid, return receipt requested)
(five business days, if mailed outside the country of the recipient), one day
after dispatch by recognized overnight courier (provided delivery is confirmed
by the carrier) and upon transmission by telecopy, confirmed received, to the
parties at the following addresses (or at such other address for a party as
shall be specified by like changes of address):
<PAGE> 53
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(a) If to Parent or Merger Sub:
Teva Pharmaceuticals USA, Inc.
650 Cathill Road
Sellersville, PA 18960
Attn: President
Tel: (215) 256-8400
Fax: (215) 723-6184
With a copy to:
Willkie Farr & Gallagher
787 Seventh Avenue
New York, NY 10019
Attn: Peter H. Jakes, Esq.
Tel: (212) 728-8000
Fax: (212) 728-8111
(b) If to the Company:
Copley Pharmaceutical, Inc.
25 John Road
Canton, MA 02021
Attn: President
General Counsel
Tel: (781) 821-6111
Fax: (781) 575-1856
With a copy to:
Testa, Hurwitz & Thibeault, LLP
125 High Street
Boston, MA 02110
Attn: Steven C. Browne, Esq.
Tel: (617) 248-7000
Fax: (617) 248-7100
SECTION 10.03. CERTAIN DEFINITIONS. For purposes of this Agreement, the
term:
(a) "affiliate" means a person that directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is under common
control with, the first mentioned person;
<PAGE> 54
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(b) "business day" means any day other than a day on which banks in
Boston, Massachusetts are required or authorized to be closed;
(c) "person" means an individual, corporation, partnership,
association, trust, limited liability company or partnership, unincorporated
organization, other entity or group (as defined in Section 13(d)(3) of the
Exchange Act); and
(d) "Termination Date" means October 31, 1999; provided, however,
that if on October 31, 1999 the only condition to the Offer set forth on Annex A
attached hereto that has not been satisfied or waived is the condition in clause
(ii) that any applicable waiting periods under the HSR Act shall not have
expired or been terminated prior to the expiration of the Offer, then the term
"Termination Date" shall mean December 31, 1999.
SECTION 10.04. AMENDMENT. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Boards of Directors
(subject to the provisions of Section 7.12(b)) at any time prior to the
Effective Time; provided, however, that, after approval of the Merger by the
stockholders of the Company, if necessary, no amendment may be made which by law
requires further approval by such stockholders without such further approval;
provided, further, however, that, after the Offer Closing Date, no amendment may
be made to any of Article III, Sections 7.04, 7.05, 7.08, 9.03, 9.04, 9.05 or
Article X without the approval of all persons who would be adversely affected by
the amendment of any provisions of such Articles or Sections. This Agreement may
not be amended except by an instrument in writing signed by the parties hereto.
SECTION 10.05. WAIVER. At any time prior to the Effective Time, any party
hereto may, with respect to any other party hereto, (a) extend the time for the
performance of any of the obligations or other acts, (b) waive any inaccuracies
in the representations and warranties contained herein or in any document
delivered pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein; provided, however, the parties agree that any
waiver of any provisions of Article III, Sections 7.04, 7.05, 7.08, 9.03, 9.04,
9.05 or Article X shall require the consent of all persons who would be
adversely affected by the waiver of any provisions of such Articles or Sections.
Any such extension or waiver shall be valid if set forth in an instrument in
writing signed by the party or parties to be bound thereby.
SECTION 10.06. HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 10.07. SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an
<PAGE> 55
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acceptable manner to the end that transactions contemplated hereby are fulfilled
to the extent possible.
SECTION 10.08. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and supersedes all prior agreements and undertakings (other than the
Confidentiality Agreement), both written and oral, among the parties, or any of
them, with respect to the subject matter hereof and, except as otherwise
expressly provided herein, are not intended to confer upon any other person any
rights or remedies hereunder.
SECTION 10.09. ASSIGNMENT. This Agreement shall not be assigned by
operation of law or otherwise, except that Parent and Merger Sub may assign all
or any of their rights hereunder to any affiliate provided that no such
assignment shall relieve the assigning party of its obligations hereunder.
Parent guarantees the full and punctual performance by Merger Sub and the
Surviving Corporation of all of their respective obligations hereunder.
SECTION 10.10. PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, expressed or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement, other than Section 7.04 (which is intended to be for the
benefit of the Indemnified Parties and may be enforced by such Indemnified
Parties) and Section 7.05 (which is intended to be for the benefit of the
Company's employees and may be enforced by such Company employees).
SECTION 10.11. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude other or
further exercise thereof or of any other right. All rights and remedies existing
under this Agreement are cumulative to, and not exclusive of, any rights or
remedies otherwise available.
SECTION 10.12. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware and shall in all
respects be interpreted, enforced and governed under the internal and domestic
laws of such state, without giving effect to the principles of conflicts of laws
of such state. Any claims or legal actions by one party against the other
arising out of the relationship between the parties contemplated herein (whether
or not arising under this Agreement) shall be governed by the laws of the State
of Delaware.
SECTION 10.13. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 56
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IN WITNESS WHEREOF, Parent, Merger Sub and the Company have each caused
this Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.
TEVA PHARMACEUTICALS USA, INC.
By: /s/ William A. Fletcher
------------------------------------
Name: William A. Fletcher
Title: President
CARIBOU MERGER CORPORATION
By: /s/ William A. Fletcher
------------------------------------
Name: William A. Fletcher
Title: President
COPLEY PHARMACEUTICAL, INC.
By: /s/ Daniel L. Korpolinski
------------------------------------
Name: Daniel L. Korpolinski
Title: President and Chief Executive Officer
<PAGE> 57
ANNEX A
CONDITIONS OF THE OFFER
Notwithstanding any other provision of the Offer, Merger Sub shall not be
required to accept for payment or, subject to any applicable rules and
regulations of the SEC, including Rule 14e-1(c) under the Exchange Act (relating
to Merger Sub's obligation to pay for or return tendered shares of Company
Common Stock promptly after expiration or termination of the Offer), to pay for
any shares of Company Common Stock tendered, and may postpone the acceptance for
payment or, subject to the restriction referred to above, payment for any shares
of Company Common Stock tendered, and (subject to Section 1.01(b) of the Merger
Agreement) may amend or terminate the Offer (whether or not any shares of
Company Common Stock have theretofore been purchased or paid for) if, (i) there
have not been validly tendered and not withdrawn prior to the time the Offer
shall otherwise expire a number of shares of Company Common Stock which,
together with any shares of Company Common Stock beneficially owned by Parent
and its affiliates, constitutes at least a majority of the shares of Company
Common Stock outstanding on a fully-diluted basis (excluding options the
exercise price of which is equal to or greater than the Offer Consideration) or
(ii) any applicable waiting periods under the HSR Act shall not have expired or
been terminated prior to the expiration of the Offer or (iii) at any time on or
after the date of the Merger Agreement and before acceptance for payment of such
shares of Company Common Stock any of the following events shall occur and be
continuing:
(A) any U.S. or foreign governmental entity or foreign,
federal, state or local court of competent jurisdiction shall have
enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, executive order, decree, injunction or other order
(other than the application to the Offer and the Merger of
applicable waiting periods under the HSR Act) which is in effect and
which (1) prevents or prohibits consummation of the Offer or the
Merger, (2) prohibits or limits the ownership or operation by the
Company, Parent or any of their affiliates or subsidiaries of all or
any material portion of the business or assets of the Company and
its subsidiaries taken as a whole, (3) imposes material limitations
on the ability of Parent, Merger Sub or any other subsidiary of
Parent to hold or to exercise effectively full rights of ownership
of the shares of Company Common Stock, including, without
limitation, the right to vote the shares of Company Common Stock,
acquired by Merger Sub pursuant to the Offer or otherwise on all
matters properly presented to the Company's stockholders, including,
without limitation, the approval and adoption of the Merger
Agreement and the transactions contemplated thereby, (4) requires
divestiture by Parent, Merger Sub or any other affiliate of Parent
of the shares of Company Common Stock, or (5) requires Parent, the
Company or any of their respective affiliates to enter into a
divestiture, hold-separate, business limitation or similar agreement
or undertaking, except in the case of clauses (2), (3), (4) and (5)
for any prohibition, limitation or requirement which would not,
individually or in the aggregate, in the reasonable judgment of the
board of directors of Parent, materially and adversely impact the
<PAGE> 58
economic or business benefits to Parent and its affiliates of the
transactions contemplated by this Agreement or the ability of Parent
or the Surviving Corporation to conduct its business (including,
without limitation, its product development efforts) substantially
in the manner such business is being conducted as of the date of the
Merger Agreement; or
(B) the representations and warranties of the Company
contained in Article IV of this Agreement (without giving effect to
any materiality limitations contained therein) shall fail to be true
and correct (except for representations and warranties made as of a
specified date, which shall fail to be so true and correct as of
such date) and the failure of such representations and warranties to
be so true and correct in the aggregate has a material adverse
effect on the business, financial condition or results of operations
of the Company and its subsidiaries taken as a whole; or
(C) the Company shall not have performed or complied in all
material respects with its obligations, agreements or covenants
under the Merger Agreement to be performed or complied with by it;
or
(D) the Merger Agreement shall have been terminated in
accordance with its terms; or
(E) there shall have occurred a material adverse change in the
business, financial condition or results of operations of the
Company and its subsidiaries taken as a whole, excluding any change
resulting from or attributable to general economic conditions; or
(F) there shall have occurred (i) any general suspension of,
or limitation on prices for, trading in securities on any national
securities exchange or the over-the-counter market in the United
States (other than a shortening of trading hours or any coordinated
trading halt triggered solely as a result of a specified increase or
decrease in a market index) for a continuous period of five (5)
days, (ii) a declaration of a banking moratorium or any suspension
of payments in respect of banks in the United States, (iii) any
material limitation (whether or not mandatory) by any U.S. or
foreign governmental entity on the extension of credit by banks or
other lending institutions in the United States, (iv) a commencement
of a war or armed hostilities or other national calamity directly
involving the United States and Parent shall have determined that
there is a reasonable likelihood that such event would have a
material adverse significance to Parent, its subsidiaries, the
Company and its subsidiaries all taken as a whole, or (v) in the
case of any of the foregoing existing at the time of the execution
of the Merger Agreement, a material acceleration or worsening
thereof; or
(G) the Company's Board of Directors (i) shall have withdrawn
or modified in a manner adverse to Parent or Merger Sub (including
by amendment
2
<PAGE> 59
of the Schedule 14D-9) its approval or recommendation of the Merger
Agreement or the transactions contemplated thereby, including the
Offer or the Merger, (ii) shall have recommended an Acquisition
Proposal or (iii) shall have adopted any resolution to effect any of
the foregoing;
which, in the reasonable judgment of Merger Sub in any such case, and regardless
of the circumstances (including any action or inaction by Parent or Merger Sub
other than any action or inaction by Parent or Merger Sub constituting a breach
of the Merger Agreement) giving rise to any condition, makes it inadvisable to
proceed with such acceptance for payment or payments.
The foregoing conditions are for the sole benefit of Merger Sub and its
affiliates and may be asserted by Merger Sub regardless of the circumstances
(including any action or inaction by Parent or Merger Sub other than any action
or inaction by Parent or Merger Sub constituting a breach of the Merger
Agreement) giving rise to any such conditions, and may be waived by Merger Sub,
in whole or in part, from time to time in its sole discretion, except as
otherwise provided in the Merger Agreement. The failure by Merger Sub at any
time to exercise any of the foregoing rights shall not be deemed a waiver of any
such right and each such right shall be deemed an ongoing right and may be
asserted at any time and from time to time. Unless otherwise defined herein,
capitalized terms used herein shall have the meanings ascribed to them in the
Agreement and Plan of Merger (the "Merger Agreement") among Parent, Merger Sub
and the Company to which this Annex A is attached.
3
<PAGE> 1
STOCKHOLDER AGREEMENT
STOCKHOLDER AGREEMENT, dated as of August 9, 1999
("Agreement"), is made and entered into by and among Teva Pharmaceuticals USA,
Inc., a Delaware corporation ("Parent"), Caribou Merger Corporation, a wholly
owned subsidiary of Parent and a Delaware corporation ("Merger Sub"), and
Hoechst Corporation, a Delaware corporation (the "Stockholder").
WITNESSETH:
WHEREAS, on the date hereof, Parent, Merger Sub, and Copley
Pharmaceutical, Inc., a Delaware corporation (the "Company"), entered into an
Agreement and Plan of Merger (as such agreement may hereafter be amended,
restated or renewed from time to time, the "Merger Agreement"), pursuant to
which Merger Sub will commence the Offer. Capitalized terms used and not defined
herein shall have the respective meanings ascribed to them in the Merger
Agreement;
WHEREAS, the Stockholder is the Beneficial Owner (as defined
below) and has the sole right to vote and dispose of 9,934,100 shares of the
Company Common Stock; and
WHEREAS, as an inducement and a condition to their entering
into the Merger Agreement and incurring the obligations set forth therein,
Parent and Merger Sub have required that the Stockholder enter into this
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements contained herein and in
the Merger Agreement, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. DEFINITIONS. For purposes of this Agreement:
(a) "Affiliate" means, with respect to any specified Person, any
Person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, the Person
specified; provided that the Company shall not be deemed an Affiliate of the
Stockholder.
(b) "Beneficially Own" or "Beneficial Owner" or "Beneficial
Ownership" with respect to any securities shall mean having "beneficial
ownership" of such securities (as determined pursuant to Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")), including
pursuant to any agreement, arrangement or understanding, whether or not in
writing. Without duplicative counting of the same securities by the same holder,
securities Beneficially Owned by a Person shall include securities Beneficially
Owned by Persons with whom such
<PAGE> 2
Person would constitute a "group" within the meaning of Section 13(d)(3) of the
Exchange Act.
(c) "Person" shall mean an individual, corporation, partnership,
joint venture, association, trust, unincorporated organization or other entity.
(d) "Representative" means, with respect to any Person, as
applicable, such Person's officers, directors, employees, agents and
representatives (including any investment banker, financial advisor, agent,
representative or expert retained by or acting on behalf of such Person or its
subsidiaries).
(e) "Termination Event" shall mean the first to occur of (i) the
Effective Time; (ii) the termination of the Merger Agreement by any party
thereto in accordance with its terms; (iii) Merger Sub's failure to commence the
Offer within five (5) business days following the date of the initial public
announcement of the Offer; (iv) the termination of the Offer, or expiration of
the Offer without Merger Sub's having accepted for payment and paid for all
shares of Company Common Stock tendered pursuant thereto, provided that
Stockholder's right to terminate pursuant to this clause (iv) shall not be
available to Stockholder if it is then in material breach of this Agreement and
such breach has been the proximate cause of the Offer having so expired or
having been terminated; (v) any modification of any term or condition of the
Offer which would require the prior written consent of the Company pursuant to
Section 1.01(b) of the Merger Agreement in the form executed and delivered as of
the date hereof (whether or not such consent is obtained); and (iv) December 31,
1999.
2. AGREEMENT TO TENDER; VOTING OF THE SHARES.
(a) During the period commencing on the date hereof and until a
Termination Event, the Stockholder shall (i) validly tender and sell (and not
withdraw), pursuant to and in accordance with the terms of the Offer, not later
than the fifth business day after the receipt by the Stockholder of the offer to
purchase, transmittal letter and other relevant Offer Documents (or as soon as
practicable thereafter as shall be permitted by the relevant court or
governmental authority), the Shares (for purposes of this Agreement the "Shares"
shall mean, collectively, 9,934,100 shares of Company Common Stock Beneficially
Owned by the Stockholder on the date hereof (the "Existing Shares") and any
shares of Company Common Stock acquired by the Stockholder after the date hereof
and prior to a Termination Event, whether upon exercise of options, warrants or
rights, the conversion or exchange of convertible or exchangeable securities, or
by means of purchase, dividend, distribution or otherwise); provided that at any
time after October 31, 1999, the Stockholder shall be permitted to withdraw up
to 4,967,050 Shares in order to sell and transfer such withdrawn shares in
compliance with Section 6(a)
-2-
<PAGE> 3
hereof, and (ii) at any meeting of the Company's stockholders (whether annual or
special, and whether or not an adjourned or postponed meeting), however called
or in connection with any written consent of the Company's stockholders, vote
(or cause to be voted) all of its Shares (x) in favor of the Merger, the
execution and delivery by the Company of the Merger Agreement and the approval
and adoption of the Merger and the terms thereof and each of the other actions
contemplated by the Merger Agreement and this Agreement and any actions required
in furtherance thereof and hereof; (y) against any action or agreement that
would (A) result in a breach of any covenant, representation or warranty or any
other obligation or agreement of the Company under the Merger Agreement or of
such Stockholder under this Agreement or (B) impede, interfere with, delay,
postpone, or adversely affect the Merger or the transactions contemplated
thereby or hereby; and (z) except as otherwise agreed to in writing in advance
by Parent or Merger Sub, against the following actions (other than the Merger
and the transactions contemplated by the Merger Agreement and this Agreement):
(A) any extraordinary corporate transaction, such as a merger, consolidation or
other business combination, involving the Company or any of its subsidiaries;
(B) any sale, lease or transfer of a material amount of the assets or business
of the Company or its subsidiaries, or any reorganization, restructuring,
recapitalization, special dividend, dissolution, liquidation or winding up of
the Company or its subsidiaries; (C) any change in the present capitalization of
the Company, including any proposal to sell any equity interest in the Company
or any of its subsidiaries or any amendment of the Certificate of Incorporation
or By-laws of the Company; (D) any change in the majority of the Company's Board
of Directors; (E) any other change in the Company's corporate structure or
business; and (F) any other action which is intended or could reasonably be
expected to impede, interfere with, delay, postpone, discourage or adversely
affect the Merger, the transactions contemplated by the Merger Agreement or this
Agreement or the contemplated economic benefits of any of the foregoing. The
Stockholder shall not enter into any agreement, arrangement or understanding
with any Person the effect of which would be inconsistent with or violative of
the provisions and agreement contained in this Section 2(a).
(b) The Stockholder hereby acknowledges that Merger Sub's obligation
to accept for payment shares of the Company Common Stock purchased pursuant to
the Offer, including the Shares, is subject to the terms and conditions of the
Offer. Upon the terms and subject to the conditions of the Offer, Parent shall
cause Merger Sub to accept for payment and pay for all shares of Company Common
Stock (including the Shares) validly tendered and not withdrawn pursuant to the
Offer as soon as Merger Sub is permitted to do so under applicable law.
(c) The Stockholder shall permit Merger Sub to publish and to
disclose in the Offer Documents and, if
-3-
<PAGE> 4
stockholder approval is required under applicable law, the Proxy Statement, if
any (including all documents and schedules filed with the SEC), the
Stockholder's identity and ownership of the Company Common Stock and the
Stockholder's commitments, arrangements and understandings under this Agreement.
Parent and Merger Sub shall permit the Stockholder to disclose the terms of this
Agreement in the Stockholder's Schedule 13D with respect to the Shares and in
any prospectus or offering circular for a Hoechst Offering permitted by Section
6(a) hereof.
3. TERMINATION AND TERMINATION FEE. Except as provided in this Section
3, all liabilities and obligations of the Stockholder under this Agreement shall
terminate upon a Termination Event. The Stockholder shall pay to Parent
$10,000,000 in cash in same day funds if the Merger Agreement is terminated in
accordance with its terms and the proximate cause of such termination has been
the Stockholder's breach of any of its representations or warranties under this
Agreement or the Stockholder's breach or failure to perform any of its covenants
or agreements under this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER. The Stockholder
hereby represents and warrants to Parent and Merger Sub as follows:
(a) OWNERSHIP OF SHARES. The Stockholder is the Beneficial Owner of
the Shares. As of the date hereof, the Existing Shares constitute all of the
shares of the Company Common Stock owned of record or Beneficially Owned by the
Stockholder. The Stockholder has sole power to issue instructions with respect
to the matters set forth in Section 2 hereof, sole power of disposition, sole
power to demand appraisal rights and sole power to agree to all of the matters
set forth in this Agreement, in each case with respect to the Shares with no
material limitations, qualifications or restrictions on such rights, subject to
applicable securities laws and the terms of this Agreement.
(b) ORGANIZATION, STANDING AND CORPORATE POWER. The Stockholder is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, and the Stockholder has the corporate power and
authority to enter into and perform all of its obligations under this Agreement
and to consummate the transactions contemplated hereby.
(c) NO CONFLICTS. (i) Except for filings under the Exchange Act or
the HSR Act no filing with, and no permit, authorization, consent or approval
of, any state or federal public body or authority is necessary for the execution
of this Agreement by the Stockholder and the consummation by the Stockholder of
the transactions contemplated hereby, except where the failure to obtain such
consent, permit, authorization, approval or filing would not interfere with the
Stockholder's ability to perform its obligations hereunder, and (ii) none of
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<PAGE> 5
the execution and delivery of this Agreement by the Stockholder, the
consummation by the Stockholder of the transactions contemplated hereby or
compliance by the Stockholder with any of the provisions hereof shall (x)
conflict with or result in any breach of the charter or by-laws of the
Stockholder, (y) result in a violation or breach of, or constitute (with or
without notice or lapse of time or both) a default (or give rise to any third
party right of termination, cancellation, material modification or acceleration)
under any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, contract, commitment, arrangement, understanding, agreement
or other instrument or obligation of any kind to which the Stockholder is a
party or by which the Stockholder or any of the Stockholder's properties or
assets may be bound, including, without limitation, the Corporate Governance and
Standstill Agreement, by and among the Company and the Stockholder, dated as of
October 8, 1993 and as amended (the "Standstill Agreement"), or (z) violate any
order, writ, injunction, decree, judgment, order, statute, rule or regulation
applicable to the Stockholder or any of the Stockholder's properties or assets,
in each such case except to the extent that any conflict, breach, default or
violation would not interfere with the ability of the Stockholder to perform its
obligations hereunder.
(d) EXECUTION, DELIVERY AND PERFORMANCE. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of the Stockholder. This Agreement constitutes the valid and binding
obligation of Stockholder and is enforceable in accordance with its terms,
except as enforceability may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally and general principles of equity.
(e) NO ENCUMBRANCES. Subject to Section 6(a), the Shares are now,
and at all times during the term hereof will be, held by the Stockholder, or by
a nominee or custodian for the benefit of the Stockholder, free and clear of all
liens, claims, security interests, proxies, voting trusts or agreements,
understandings or arrangements or any other encumbrances whatsoever, except this
Agreement, the Standstill Agreement and applicable securities laws.
(f) RELIANCE. The Stockholder understands and acknowledges that
Parent and Merger Sub are entering into the Merger Agreement, and are incurring
the obligations set forth therein, in reliance upon the Stockholder's execution
and delivery of this Agreement.
5. REPRESENTATIONS OF PARENT AND MERGER SUB. Parent and Merger Sub
hereby represent and warrant to the Stockholder as follows:
-5-
<PAGE> 6
(a) ORGANIZATION, STANDING AND CORPORATE POWER. Parent is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and Merger Sub is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and each
has adequate corporate power and authority to own its properties and carry on
its business as presently conducted. Each of Parent and Merger Sub has the
corporate power and authority to enter into and perform all of its obligations
under this Agreement and to consummate the transactions contemplated hereby.
(b) NO CONFLICTS. (i) Except, for filings under the Exchange Act and
the HSR Act, no filing with, and no permit, authorization, consent or approval
of, any state or federal public body or authority is necessary for the execution
of this Agreement by either Parent or Merger Sub and the consummation by Parent
and Merger Sub of the transactions contemplated hereby, except where the failure
to obtain such consent, permit, authorization, approval or filing would not
interfere with its ability to perform their respective obligations hereunder,
and (ii) none of the execution and delivery of this Agreement by Parent or
Merger Sub, the consummation by Parent or Merger Sub of the transactions
contemplated hereby or compliance by Parent and Merger Sub with any of the
provisions hereof shall (x) conflict with or result in any breach of any
applicable organizational documents applicable to Parent or Merger Sub, (y)
result in a violation or breach of, or constitute (with or without notice or
lapse of time or both) a default (or give rise to any third party right of
termination, cancellation, material modification or acceleration) under any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
license, contract, commitment, arrangement, understanding, agreement or other
instrument or obligation of any kind to which Parent or Merger Sub is a party or
by which Parent or Merger Sub or any of Parent's or Merger Sub's properties or
assets may be bound, or (z) violate any order, writ, injunction, decree,
judgment, order, statute, rule or regulation applicable to Parent or Merger Sub
or any of Parent's or Merger Sub's properties or assets, in each such case
except to the extent that any conflict, breach, default or violation would not
interfere with the ability of Parent or Merger Sub to perform their respective
obligations hereunder.
(c) EXECUTION, DELIVERY AND PERFORMANCE. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of Parent and Merger Sub. This Agreement constitutes the valid and
binding obligations of Parent and Merger Sub and is enforceable in accordance
with its terms, except as enforceability may be subject to bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally and general principles of equity.
-6-
<PAGE> 7
6. CERTAIN COVENANTS
(a) RESTRICTION ON TRANSFER, PROXIES AND NON-INTERFERENCE. Prior to
the occurrence of a Termination Event, except as required by this Agreement, the
Stockholder shall not directly or indirectly without the prior written consent
of Parent and Merger Sub: (i) offer for sale, sell, transfer, tender, pledge,
encumber, assign or otherwise dispose of, or enter into any contract, option or
other arrangement or understanding with respect to the offer for sale, sale,
transfer, tender, pledge, encumbrance, assignment or other disposition of, any
or all of the Shares, or any interest therein, (ii) grant any proxies or powers
of attorney, deposit any of the Shares into a voting trust or enter into a
voting agreement, understanding or arrangement with respect to any of the
Shares, or (iii) take any action that could reasonably be expected to (x) make
any representation or warranty of Stockholder contained in this Agreement untrue
or incorrect; (y) result in a breach by Stockholder of its obligations under
this Agreement or a breach by the Company of its obligations under the Merger
Agreement; or (z) have the effect of preventing or disabling the Stockholder
from performing the Stockholder's obligations under this Agreement.
Notwithstanding the foregoing or anything else in this Agreement or the Merger
Agreement to the contrary, the Stockholder, the Company and their
Representatives shall be permitted (i) from and after the date hereof, to take
customary actions in preparation for a registered or unregistered secondary
offering (a "Hoechst Offering") of up to 4,967,050 of the Shares (including,
without limitation, conducting discussions and negotiations with prospective
placement agents and due diligence activities involving the Company, and
drafting any related registration statement or offering circular); (ii) after
September 30, 1999, to file with the Securities and Exchange Commission any
registration statement for a Hoechst Offering, distribute any related prospectus
or other offering circular for a Hoechst Offering and any amendments or
supplements thereto to prospective investors, and commence marketing efforts
with respect to a Hoechst Offering; and (iii) after October 31, 1999, to
consummate any Hoechst Offering with respect to a maximum of 4,967,050 Shares;
provided, that sales of such Shares shall be made to no more than ten (10)
Persons and the Stockholder shall cause each Person who or which acquires Shares
in any Hoechst Offering to agree in writing, in form and substance reasonably
satisfactory to Parent, to have with respect to such Shares the same rights and
obligations hereunder as the Stockholder (except that no such Person shall have
the right to withdraw Shares from the Offer or transfer such Shares other than
pursuant to the Offer). Any breach by any such Person of any such obligations
shall be deemed a breach of this Agreement by the Stockholder.
(b) RESTRICTIVE LEGEND. The Stockholder shall, until the occurrence
of a Termination Event, place the following legend on any and all certificates
representing any Shares:
-7-
<PAGE> 8
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER PURSUANT
TO THAT CERTAIN STOCKHOLDERS AGREEMENT, DATED AS OF
AUGUST 9, 1999, BY AND AMONG TEVA PHARMACEUTICALS
USA, INC., CARIBOU MERGER CORPORATION AND HOECHST
CORPORATION, AND ANY TRANSFER OF SUCH SHARES IN
VIOLATION OF THE TERMS OF SUCH AGREEMENT SHALL BE
NULL AND VOID AND OF NO EFFECT WHATSOEVER.
(c) WAIVER OF APPRAISAL RIGHTS. The Stockholder hereby waives any
rights of appraisal or rights to dissent from the Merger that the Stockholder
may have.
(d) NO SOLICITATION.
(i) Until the occurrence of a Termination Event, except with
respect to directors of the Company serving at the request of the Stockholder or
its Affiliates (whose actions shall be restricted by the terms of the Merger
Agreement), and except in connection with a Hoescht Offering permitted hereby,
the Stockholder and its Affiliates shall not, and shall instruct their
respective Representatives not to, (A) directly or indirectly solicit, initiate,
or encourage (including by way of furnishing nonpublic information or
assistance), or take any other action to facilitate, any inquiries or proposals
from any Person that constitute, or may reasonably be expected to lead to, an
Acquisition Proposal, (B) enter into, maintain, or continue discussions or
negotiations with any party (other than Parent or Merger Sub) in furtherance of
such inquiries or to obtain an Acquisition Proposal, (C) agree to or endorse any
Acquisition Proposal, or (D) authorize or permit the Stockholder's or any of its
Affiliates' Representatives to take any such action.
(ii) Until the occurrence of a Termination Event, without the
prior written consent of Parent, and except in connection with a Hoechst
Offering permitted hereby, the Stockholder and its Affiliates shall not, and
shall instruct their respective Representatives not to, issue any press release
or make any public statement or take any action that would otherwise require any
public disclosure concerning the Merger, the Offer or the transactions
contemplated by the Merger Agreement or this Agreement; provided, however, that
the Stockholder may, without the prior written consent of Parent, issue such
press release or make such public statement or take such action as may upon the
advice of counsel be required by law, if it has provided prior notice to Parent
and used all reasonable efforts to consult with Parent.
(e) STOP TRANSFER. Prior to a Termination Event, the Stockholder
shall not request that the Company register the transfer (book-entry or
otherwise) of any certificate or uncertificated interest representing any of the
Shares, unless such transfer is made in compliance with this Agreement.
-8-
<PAGE> 9
(f) HSR ACT. Stockholder acknowledges that its ultimate parent
entity (which is currently Hoechst AG, but which would be Celanese AG upon the
proposed demerger of Celanese AG from Hoechst AG) is the "acquired person"
within the meaning of the HSR Act with respect to the transaction contemplated
by the Merger Agreement by virtue of such entity's indirect ownership of the
Shares. Accordingly, Stockholder shall fulfill or cause such entity to fulfill
the obligations of Section 7.03(a) of the Merger Agreement relating to HSR
filings with respect to the Company.
(g) FURTHER ASSURANCES. From time to time, at the other parties'
reasonable request and without further consideration, the Stockholder, Parent
and Merger Sub shall execute and deliver such additional documents as may be
reasonably necessary or desirable to consummate and make effective, in the most
expeditious manner practicable, the tender of the Shares by the Stockholder
contemplated by Section 2 of this Agreement.
7. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all other prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof.
(b) RECAPITALIZATION. In the event of a stock dividend or
distribution, or any change in shares of Company Common Stock by reason of any
stock dividend, split-up, recapitalization, combination, exchange of shares of
Company Common Stock or the like, the term "Shares" shall be deemed to refer to
and include the Shares as well as all such stock dividends and distributions and
any shares into which or for which any or all of the Shares may changed or
exchanged.
(c) ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned or delegated, in
whole or in part, by operation of law or otherwise, by any of the parties hereto
without the prior written consent of the other parties, except that Merger Sub
may assign its rights and obligations, in whole or in part, to any of its
Affiliates, but no such assignment shall relieve Merger Sub of its obligations
hereunder if such assignee does not perform such obligations, and except that
the Stockholder may assign its rights and obligations hereunder in compliance
with Section 6(a) hereof. Subject to the preceding sentence, this Agreement will
be binding upon, inure to the benefit of, and be enforceable by, the parties and
their respective successors and assigns.
-9-
<PAGE> 10
(d) AMENDMENT, WAIVERS, ETC. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated, except upon
the execution and delivery of a written agreement executed by the parties
hereto.
(e) NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by hand delivery, or by mail
(registered or certified mail, postage prepaid, return receipt requested), or by
any courier service, such as Federal Express, providing proof of delivery, or by
transmission by telecopy, confirmed received. All communications hereunder shall
be delivered to the respective parties at the following addresses:
If to Parent or Merger Sub: Teva Pharmaceuticals USA, Inc.
650 Cathill Road
Sellersville, Pennsylvania 18960
Attn: President
Fax: (215) 723-6184
copies to: Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019-6099
Attn: Peter H. Jakes, Esq.
Fax: (212) 728-8111
If to the Stockholder: Hoechst Corporation
86 Morris Avenue
Summit, New Jersey 07901
Facsimile: 908-522-7216
Attention: President
copies to: Kevin Barnette
Skadden, Arps, Slate, Meagher
& Flom LLP
1440 New York Avenue N.W.
Washington, D.C. 20005
Facsimile: 202-393-5760
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
-10-
<PAGE> 11
(f) SEVERABILITY. Whenever possible, each provision or portion of
any provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
(g) SPECIFIC PERFORMANCE. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained in
this Agreement will cause the other party to sustain damages for which it would
not have an adequate remedy at law for money damages, and therefore each of the
parties hereto agrees that in the event of any such breach the aggrieved party
shall be entitled to the remedy of specific performance of such covenants and
agreements and injunctive and other equitable relief in addition to any other
remedy to which it may be entitled, at law or in equity, including, without
limitation, pursuant to Section 3 hereof.
(h) REMEDIES CUMULATIVE. All rights, powers and remedies provided
under this Agreement or otherwise available in respect hereof at law or in
equity shall be cumulative and not alternative, and the exercise of any thereof
by any party shall not preclude the simultaneous or later exercise of any other
such right, power or remedy by such party.
(i) NO WAIVER. The failure of any party hereto to exercise any
right, power or remedy provided under this Agreement or otherwise available in
respect hereof at law or in equity, or to insist upon compliance by any other
party hereto with its obligations hereunder, and any custom or practice of the
parties at variance with the terms hereof, shall not constitute a waiver by such
party of its right to exercise any such or other right, power or remedy or to
demand such compliance.
(j) NO THIRD-PARTY BENEFICIARIES. This Agreement is not intended to
be for the benefit of, and shall not be enforceable by, any person or entity who
or which is not a party hereto.
-11-
<PAGE> 12
(k) GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware, without giving effect to the
principles of conflicts of law thereof.
(l) DESCRIPTIVE HEADINGS. The descriptive headings used 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.
(m) COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which, taken
together, shall constitute one and the same Agreement. This Agreement shall not
be effective as to any party hereto until such time as this Agreement or a
counterpart thereof has been executed and delivered by each party hereto.
-12-
<PAGE> 13
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed by their duly authorized officers effective as of the date and
year first above written.
TEVA PHARMACEUTICALS USA, INC.
By: /s/ WILLIAM A. FLETCHER
----------------------------------
Name: William A. Fletcher
Title: President and CEO
CARIBOU MERGER CORPORATION
By: /s/ GEORGE BARRETT
----------------------------------
Name: George Barrett
Title: Executive Vice President
HOECHST CORPORATION
By: /s/ DAVID A. JENKINS
----------------------------------
Name: David A. Jenkins
Title: President
-13-
<PAGE> 1
COPLEY PHARMACEUTICAL, INC.
25 JOHN ROAD
CANTON, MA 02021
August 16, 1999
To Our Stockholders:
I am pleased to inform you that Copley Pharmaceutical, Inc. (the
"Company"), Teva Pharmaceuticals USA, Inc. ("Parent") and Caribou Merger
Corporation, a wholly owned subsidiary of Parent ("Merger Sub"), have entered
into an Agreement and Plan of Merger dated as of August 9, 1999 (the "Merger
Agreement") pursuant to which Merger Sub has commenced a cash tender offer (the
"Offer") to purchase all of the outstanding shares of the Company's Common Stock
(the "Shares") for $11.00 per share. Under the Merger Agreement, the Offer will
be followed by a merger of Merger Sub with and into the Company (the "Merger")
in which any remaining Shares (other than Shares held in the treasury of the
Company, Shares owned by Parent, Merger Sub or any other wholly owned subsidiary
of Parent or the Company, and Shares as to which appraisal rights have been
properly exercised) will be converted into the right to receive $11.00 per Share
in cash, without interest. The Offer is conditioned upon, among other things,
the tender of a majority of the number of Shares outstanding on a fully diluted
basis (excluding options with an exercise price of $11.00 or more).
YOUR BOARD OF DIRECTORS, INCLUDING THE MEMBERS OF THE SPECIAL COMMITTEE OF
INDEPENDENT DIRECTORS, HAS UNANIMOUSLY APPROVED AND DECLARED ADVISABLE THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER
AND THE MERGER, DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR TO AND IN THE
BEST INTERESTS OF THE COMPANY'S STOCKHOLDERS, AND RECOMMENDS THAT STOCKHOLDERS
ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER.
In arriving at its recommendations, the Board of Directors gave careful
consideration to a number of factors described in the attached Schedule 14D-9
that has been filed with the Securities and Exchange Commission, including,
among other things, the opinion of CIBC World Markets Corp., the financial
advisor retained by the Board of Directors, to the effect that, as of August 9,
1999, the $11.00 in cash to be received by the holders of Shares (other than
Hoechst Corporation or any of its affiliates) in the Offer and Merger is fair to
such holders from a financial point of view.
Pursuant to a Stockholder Agreement dated as of August 9, 1999 by and among
Parent, Merger Sub and Hoechst Corporation, the holder of approximately 51% of
the Company's outstanding Shares ("Hoechst"), Hoechst has agreed to tender (and
not withdraw) the Shares it owns in the Offer.
In addition to the attached Schedule 14D-9 relating to the Offer, also
enclosed is the Offer to Purchase, dated August 16, 1999, of Merger Sub,
together with related materials, including a Letter of Transmittal to be used
for tendering your Shares. These documents set forth the terms and conditions of
the Offer and the Merger and provide instructions as to how to tender your
Shares. We urge you to read the enclosed material carefully.
Sincerely,
/s/ Daniel L. Korpolinski
Daniel L. Korpolinski
President and Chief Executive Officer
<PAGE> 1
Page 1 of 3
TEVA PHARMACEUTICAL INDUSTRIES LTD TO ACQUIRE COPLEY
Pharmaceutical, Inc. -- Strengthens Teva-USA's Leadership in the U.S. Generic
Market
JERUSALEM, Israel & CANTON, Mass.--(BUSINESS WIRE)--Aug. 10, 1999--Teva
Pharmaceutical Industries Ltd, (Nasdaq: TEVIY) and Copley Pharmaceutical, Inc.
(Nasdaq: CPLY) announced today that Copley and Teva Pharmaceuticals USA, Inc.,
Teva's U.S. subsidiary, have executed a definitive merger agreement providing
for the acquisition by Teva-USA of all the outstanding shares of Copley for
$11.00 per share in cash. The transaction is valued at approximately $220
million.
The merger agreement provides for a cash tender offer by Caribou Merger
Corporation, a subsidiary of Teva-USA, for all outstanding Copley shares at
$11.00 per share. The tender offer will be commenced within five business days.
The tender offer will be conditioned upon, among other things, there being
validly tendered and not withdrawn, at least a majority of the outstanding
shares of Copley, and the expiration of appropriate waiting periods under the
Hart-Scott-Rodino Antitrust Act. The offer is not subject to any financing
condition, and the obligations of Teva-USA under the merger agreement have been
guaranteed by Teva Pharmaceutical Industries Limited. Any Copley shares not
purchased pursuant to the tender offer will be acquired in a subsequent merger
at the same $11.00 per share cash price.
In connection with the execution of the merger agreement, Teva-USA has
entered into an agreement with Hoechst Corporation, the holder of approximately
52% of Copley's outstanding shares, under which Hoechst has agreed to tender its
shares in the tender offer.
Mr. Eli Hurvitz, President and Chief Executive Officer of Teva, said,
"The merger will strengthen Teva's position in the U.S. generic drug market and
further enhance the breadth of the generic product line being offered in the
U.S. by Teva. As part of the worldwide Teva group, Copley will bring with it
personnel, facilities, an existing product line and a development pipeline which
will complement our existing operations in the U.S."
Mr. Daniel Korpolinski, Copley's President and Chief Executive Officer,
said, "The acquisition of Copley by Teva is a testament to the many capabilities
that Copley will bring to the Teva Group. We have said that being a first-tier
company is essential to success in our industry, and joining with one of the
world's largest multisource pharmaceutical companies fulfills that objective."
<PAGE> 2
Page 2 of 3
Copley Pharmaceutical, Inc., headquartered in Canton, MA, is a leading
manufacturer and marketer of a broad range of multi-source prescription and
over-the-counter pharmaceuticals. The Company markets its products to
distributors, retail chains, wholesalers, hospitals, government agencies, and
managed health-care entities.
Teva Pharmaceutical Industries Ltd., is Israel's largest pharmaceutical
company, with 80% of its sales outside Israel, mainly in the United States. The
Company develops, manufactures, and markets generic and branded human
pharmaceuticals, active pharmaceutical ingredients, medical disposables and
veterinary products.
Safe Harbor Statement: This release contains forward-looking statements which
express the beliefs and expectations of management. Such statements are based on
current expectations and involve a number of known and unknown risks and
uncertainties that could cause the Company's future results, performance or
achievements to differ significantly from the results, performance or
achievements expressed or implied by such forward-looking statements. Important
factors that could cause or contribute to such differences include the impact of
pharmaceutical industry regulation, the difficulty of predicting FDA and other
regulatory authority approvals, the regulatory environment and changes in the
health policies and structure of various countries, acceptance and demand for
new pharmaceutical products and new therapies, the impact of competitive
products and pricing, the availability and pricing of ingredients used in the
manufacture of pharmaceutical products, uncertainties regarding market
acceptance of innovative products newly launched, currently being sold or in
development, the impact of restructuring of clients, reliance on strategic
alliances, fluctuations in currency, exchange and interest rates, operating
results, the impact of the year 2000 issue and other factors that are discussed
in the Company's Annual Report on Form 20-F and the Company's other filings with
the US Securities and Exchange Commission.
CONTACT: Company Contacts:
Dan Suesskind
Chief Financial Officer
Teva Pharmaceutical Industries, Ltd.
(011) 972-25-892-811
or
Daniel Korpolinski
President and Chief Executive Officer
Copley Pharmaceutical, Inc.
(781) 575-7664
<PAGE> 3
Page 3 of 3
or
Investor Relations Contact:
Donna N. Stein/Cindy Reid/Jill Meleski
Morgen-Walke Associates, Inc.
(212) 850-5600
or
Press Contact:
Gregory Tiberend
Morgen-Walke Associates, Inc.
(212) 850-5600
<PAGE> 1
REGISTRATION RIGHTS AGREEMENT
August 9, 1999
To Hoechst Corporation
86 Morris Avenue
Summit, NJ 07901
Dear Sirs:
This will confirm that in consideration of our mutual agreements in
connection with the proposed acquisition of Copley Pharmaceutical, Inc. (the
"Company") by Teva Pharmaceuticals USA, Inc. ("T") pursuant to the Agreement and
Plan of Merger between the Company, T and Caribou Merger Corporation ("TS")
dated the date hereof (the "Merger Agreement"), the Company covenants and agrees
with you as follows:
1. Certain Definitions. As used in this Registration Rights Agreement, the
following terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission, or any
other federal agency at the time administering the Securities Act.
"Common Stock" shall mean the Common Stock, $0.1 par value, of the
Company.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Registration Expenses" shall mean the expenses so described in Section
4.
"Restricted Stock" shall mean the 9,934,100 shares of Common Stock owned
by you on the date hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean the expenses so described in Section 4.
2. Required Registration. (a) At any time after September 30, 1999, you may
request the Company to register under the Securities Act up to 4,967,050 shares
of Restricted
<PAGE> 2
-2-
Stock held by you for sale to not more than ten (10) purchasers as contemplated
in the Stockholder Agreement dated the date hereof between you, T and TS (the
"Stockholder Agreement"), for the sole purpose contemplated by Section 6(a) of
the Stockholder Agreement, as in effect on the date hereof (the "Relevant
Section"), and the Company shall use its reasonable best efforts to so register
such securities. The Company shall not include in any such registration any
securities other than shares of Restricted Stock. Nothing in this Agreement
shall require the Company to take any action that would, or would reasonably be
expected to, breach or result in a breach of the Company's obligations under the
Merger Agreement or of your obligations under the Stockholder Agreement (as such
term is defined in the Merger Agreement).
(b) The Company shall be obligated to file only one registration
statement pursuant to this Section 2. Such registration statement shall, if you
so request and subject to the terms and conditions of this Agreement and the
Relevant Sections, permit the sale of Restricted Stock on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act.
3. Registration Procedures. If and whenever the Company is required by the
provisions of Section 2 to use its reasonable best efforts to effect the
registration of any shares of Restricted Stock under the Securities Act, the
Company will, as expeditiously as possible:
(a) prepare and file with the Commission a registration statement with
respect to such securities and use its reasonable best efforts to cause such
registration statement to become effective by October 31, 1999;
(b) prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective for the period
specified in Section 8(f) below and comply with the provisions of the Securities
Act with respect to the disposition of all Restricted Stock covered by such
registration statement;
(c) furnish to you such number of copies of the registration statement
and the prospectus included therein (including each preliminary prospectus and
any amendments and supplements thereto) you reasonably may request in order to
facilitate the disposition of the Restricted Stock covered by such registration
statement in accordance with this Agreement and the Relevant Sections;
(d) use its reasonable best efforts to register or qualify the
Restricted Stock covered by such registration statement under the securities or
"blue sky" laws of such jurisdictions as you reasonably shall request, provided,
however, that the Company shall not for any such purpose be required to qualify
generally to transact business as a foreign corporation in any jurisdiction
where it is not so qualified or to consent to general service of process in any
such jurisdiction;
(e) immediately notify you at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the happening
of any event of which the Company has knowledge as a result of which the
prospectus contained in such registration
<PAGE> 3
-3-
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing and, at your request, as soon as reasonably practicable and subject to
Section 8(g), prepare and furnish to you a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such Restricted Stock, such prospectus
shall not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing;
(f) make available for inspection by you and any attorney, accountant or
other agent retained by you, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors and employees to supply all information reasonably requested
by you or your attorney, accountant or agent in connection with such
registration statement.
In connection with any registration hereunder, you will furnish to the
Company in writing such information with respect to yourself and the proposed
distribution by you as reasonably shall be necessary in order to assure
compliance with federal and applicable state securities laws.
The Company shall not be required to enter into an underwriting agreement
in connection with any registration hereunder.
4. Expenses. All out-of-pocket expenses incurred by the Company in
complying with Sections 2 and 3 that it would not have incurred absent taking
the actions required by Sections 2 and 3 hereunder, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel and independent public accountants for the Company,
fees and expenses (including counsel fees) incurred in connection with complying
with state securities or "blue sky" laws, fees of the National Association of
Securities Dealers, Inc., transfer taxes, fees of transfer agents and
registrars, costs of insurance and fees and disbursements of your counsel are
called "Selling Expenses". Expenses that the Company would have incurred absent
taking the actions required by Sections 2 and 3 hereunder are called
"Registration Expenses."
The Company will pay all Registration Expenses in connection with any
registration under Sections 2 and 3. All Selling Expenses shall be borne by you.
5. Indemnification and Contribution. (a) In the event of a registration of
any of the Restricted Stock under the Securities Act pursuant to Section 2, the
Company will indemnify and hold harmless you and each other person, if any, who
controls you within the meaning of the Securities Act, against any losses,
claims, damages or liabilities, joint or several (collectively "Losses"), to
which you or such controlling person may become subject under the Securities
Act, insofar as such Losses arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in any registration
statement under which such Restricted Stock was registered under the Securities
Act pursuant to Section 2, any preliminary
<PAGE> 4
-4-
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse you and each such
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such Losses, provided,
however, that the Company will not be liable in any such case if and to the
extent that any such Losses arise out of or are based upon an untrue statement
or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished by you or any such controlling person in
writing specifically for use in such registration statement or prospectus or
arise from any act by you or any of your affiliates not disclosed in writing to
the Company including, without limitation, breach of the Stockholder Agreement.
(b) In the event of a registration of any of the Restricted Stock under
the Securities Act pursuant to Section 2, you will indemnify and hold harmless
the Company, each person, if any, who controls the Company within the meaning of
the Securities Act, each officer of the Company who signs the registration
statement and each director of the Company, against all Losses, to which the
Company or such officer, director or controlling person may become subject under
the Securities Act or otherwise, insofar as such Losses arise out of or are
based upon any untrue statement or alleged untrue statement of any material fact
contained in the registration statement under which such Restricted Stock was
registered under the Securities Act pursuant to Section 2, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse the Company and each
such officer, director and controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such Losses, provided, however, that you will be liable hereunder in any such
case if and only to the extent that any such Losses arise out of or are based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with information pertaining to
you furnished to the Company by you specifically for use in such registration
statement or prospectus or arises from any act by you or any of your affiliates
not disclosed in writing to the Company, including, without limitation, breach
of the Stockholder Agreement.
(c) Promptly after receipt by an indemnified party hereunder of notice
of the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party hereunder, notify
the indemnifying party in writing thereof, but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
such indemnified party other than under this Section 5 and shall only relieve it
from any liability which it may have to such indemnified party under this
Section 5 if and to the extent the indemnifying party is prejudiced by such
omission. In case any such action shall be brought against any indemnified party
and it shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be
<PAGE> 5
-5-
liable to such indemnified party under this Section 5 for any legal expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation and of liaison with counsel
so selected, provided, however, that, if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be reasonable
defenses available to it which are different from or additional to those
available to the indemnifying party or if the interests of the indemnified party
reasonably may be deemed to conflict with the interests of the indemnifying
party, the indemnified party shall have the right to select a separate counsel
and to assume such legal defenses and otherwise to participate in the defense of
such action, with the expenses and fees of such separate counsel and other
expenses related to such participation to be reimbursed by the indemnifying
party as incurred.
(d) If the indemnification provided for in this Section 5 is unavailable
to an indemnified party in respect of any Losses or is insufficient to hold such
indemnified party harmless, then each indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such Losses, in such proportion
as is appropriate to reflect the relative fault of the indemnifying party, on
the one hand, and such indemnified party, on the other hand, in connection with
the actions, statements or omissions that resulted in such Losses. The relative
fault of such indemnifying party, on the one hand, and the indemnified party, on
the other hand, shall be determined by reference to, among other things, whether
any action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact, has been
taken by, or relates to information supplied by, such indemnifying party or
indemnified party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent any such action, statement or
omission. The parties hereto agree that it would not be just and equitable if
such contribution were determined by pro rata allocation or by any other method
of allocation that does not take account of the equitable considerations
referred to in the immediately preceding paragraph. Notwithstanding the
foregoing provisions of this Section 5(d), (A) you will not be required to
contribute any amount in excess of the public offering price of all the
Restricted Stock offered pursuant to such registration statement; and (B) no
person or entity guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) will be entitled to contribution from any
person or entity who was not guilty of such fraudulent misrepresentation.
6. Changes in Common Stock. If, and as often as, there is any change in the
Common Stock by way of a stock split, stock dividend, combination or
reclassification, or through a merger, consolidation, reorganization or
recapitalization, or by any other means, appropriate adjustment shall be made in
the provisions hereof so that the rights and privileges granted hereby shall
continue with respect to the Restricted Stock as so changed that you then own.
7. Representations and Warranties of the Company. The Company represents
and warrants to you as follows:
(a) The execution, delivery and performance of this Agreement by the
Company
<PAGE> 6
-6-
have been duly authorized by all requisite corporate action and will not violate
any provision of law, any order of any court or other agency of government, the
Charter or By-laws of the Company or any provision of any indenture, agreement
or other instrument to which it or any or its properties or assets is bound,
conflict with, result in a breach of or constitute (with due notice or lapse of
time or both) a default under any such indenture, agreement or other instrument
or result in the creation or imposition of any lien, charge or encumbrance of
any nature whatsoever upon any of the properties or assets of the Company.
(b) This Agreement has been duly executed and delivered by the Company
and constitutes the legal, valid and binding obligation of the Company.
8. Miscellaneous.
(a) All covenants and agreements contained in this Agreement by or on
behalf of any of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto, whether so expressed or
not, provided, however, that registration rights conferred herein on you shall
only inure to the benefit of a transferee of Restricted Stock that is controlled
by you, controls you or is under common control with you.
(b) All notices, requests, consents and other communications hereunder
shall be in writing and shall be delivered in person, mailed by certified or
registered mail, return receipt requested, or sent by telecopier or telex,
addressed at such address or addresses as shall have been furnished in writing
to the Company (in the case of a holder of Restricted Stock) or to the holders
of Restricted Stock (in the case of the Company) in accordance with the
provisions of this paragraph.
(c) This Agreement shall be governed by and construed in accordance with
the laws of the the State of Delaware, without giving effect to the principles
of conflicts of law thereof.
(d) This Agreement may not be amended or modified, and no provision
hereof may be waived, without the written consent of the Company and you.
(e) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
(f) The obligations of the Company to register shares of Restricted
Stock under Section 2 or keep effective a registration statement hereunder shall
terminate on the earliest of (i) January 10, 2000, (ii) termination of the
Merger Agreement, (iii) termination of the Stockholder Agreement or (iv)
termination, withdrawal or expiration of the Offer (as defined in the Merger
Agreement) without TS accepting for payment thereunder shares of Common Stock.
(g) Notwithstanding any provisions of this Agreement to the contrary,
the Company's obligation to file a registration statement, or cause such
registration statement to
<PAGE> 7
-7-
become and remain effective, shall be suspended for a period not to exceed 10
days if there exists at the time material non-public information relating to the
Company, the premature disclosure of which would, in the reasonable opinion of
the Company, adversely affect the Company.
(h) If any provision of this Agreement shall be held to be illegal,
invalid or unenforceable, such illegality, invalidity or unenforceability shall
attach only to such provision and shall not in any manner affect or render
illegal, invalid or unenforceable any other provision of this Agreement, and
this Agreement shall be carried out as if any such illegal, invalid or
unenforceable provision were not contained herein.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 8
-8-
Please indicate your acceptance of the foregoing by signing and returning the
enclosed counterpart of this letter, whereupon this Agreement shall be a binding
agreement between the Company and you.
Very truly yours,
Copley Pharmaceutical, Inc.
By: /s/ Daniel Korpolinski
Title: President and CEO
AGREED TO AND ACCEPTED as of the date first above written.
Hoechst Corporation
By: /s/ David Jenkins
Title: President
<PAGE> 1
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT dated as of August 9, 1999
(this "Agreement") is by and between Copley Pharmaceutical, Inc., a Delaware
corporation ("Copley"), and Hoechst Corporation, a Delaware corporation
("Hoechst").
W I T N E S S E T H:
WHEREAS, Copley and Chia Tai Healthcare Group, a Hong Kong
corporation ("CT") entered into an agreement, dated as of May 20, 1994 and
amended on October 13, 1995 (the "JV Agreement"); and
WHEREAS, pursuant to the JV Agreement, Copley and CT formed
Chia Tai-Copley Pharmaceutical Limited, a corporation formed under the laws of
the British Virgin Islands (the "BVI Joint Venture"); and
WHEREAS, the BVI Joint Venture has formed, with another
investor, Wuxi Chia Tai-Copley Pharmaceutical Co., Ltd, a corporation formed
under the laws of the Peoples Republic of China (the "China Joint Venture"); and
WHEREAS, in December 1995, Copley and Hoechst reached an
agreement that Hoechst would purchase Copley's interest in the BVI Joint Venture
for $2,107,000 in cash; and
NOW, THEREFORE, in consideration of the foregoing and the
mutual premises, representations, warranties, covenants and agreements contained
herein, and as a condition and inducement to the willingness of Copley and
Parent (as defined herein) to enter into the Merger Agreement (as defined
herein), the parties hereto, intending to be legally bound hereby, agree as
follows:
1. Effectiveness of Agreement; Sale of Ownership Interest.
This Agreement is being entered into in connection with the Agreement and Plan
of Merger, of even date herewith (the "Merger Agreement"), among Copley, Teva
Pharmaceuticals USA, Inc. ("Parent") and Caribou Merger Corporation ("Merger
Sub"), and the Stockholder Agreement, of even date herewith (the "Stockholder
Agreement"), among Hoechst, Parent and Merger Sub. At any time prior to the six
month anniversary of the date on which Merger Sub first accepts shares of
Copley's common stock for payment pursuant to the Offer, at the written request
of Copley (the "Put Request"), Hoechst shall as promptly as practicable, but in
any event within ten business days following delivery of the Put Request,
purchase all of Copley's ownership interest in the BVI Joint Venture. At the
closing of such purchase (the "Closing"), Hoechst shall deliver to Copley
U.S.$2,107,000 in immediately available funds, by wire transfer to an account
designated by Copley, and Copley shall deliver to Hoechst appropriate
instruments of transfer.
<PAGE> 2
2. Assumption and Indemnification. Effective as of the
Closing, Hoechst shall assume, and agrees to indemnify Copley and Parent
against, any and all liabilities of Copley or Parent as of the Closing in
respect of or arising out of the JV Agreement, the BVI Joint Venture or the
China Joint Venture, including any such liability arising out of any termination
of the JV Agreement, any assignment thereof to Hoechst or the exercise by Copley
of its rights under Section 1 hereof. Hoechst shall have the right to control,
and, at Hoechst's expense, Copley shall reasonably cooperate with Hoechst in
connection with, the defense of any claim in respect of which Copley may seek
such indemnification. Copley shall not settle any such claim without Hoechst's
prior consent (which shall not be unreasonably withheld or delayed).
3. Liabilities. Until the earlier of the Closing or the
expiration of Copley's right to deliver the Put Request without such right
having been exercised, Copley shall not agree to incur any liabilities in
respect of or arising out of the JV Agreement, the BVI Joint Venture or the
China Joint Venture, without the prior written consent of Hoechst. In addition,
at all times after the date hereof, Copley shall take such reasonable action as
Hoechst may request in order to minimize liabilities assumed under Section 2
hereof, or any liabilities of Hoechst in respect of or arising out of the JV
Agreement, the BVI Joint Venture or the China Joint Venture and incurred on or
after the Closing, and Hoechst agrees to appropriately compensate Copley for
Copley's cost in taking any such action.
4. Representations and Warranties of Copley. Copley hereby
represents and warrants to Hoechst as follows:
(a) Copley is duly organized and validly existing under the
laws of the State of Delaware and is in good standing under the laws of the
State of Delaware. Copley has all necessary corporate power and authority to
execute and deliver this Agreement and perform its obligations hereunder.
(b) This Agreement has been duly and validly executed and
delivered by Copley and constitutes the valid and binding agreement of Copley,
enforceable against Copley in accordance with its terms except (i) to the extent
limited by applicable bankruptcy, insolvency or similar laws affecting creditors
rights and (ii) that equitable relief may be subject to equitable defenses and
to the discretion of the court before which any proceeding therefor may be
brought.
(c) To Copley's knowledge, (i) Copley's ownership interest in
the BVI Joint Venture represents approximately 49% of the total ownership
interest in the BVI Joint Venture; (ii) the BVI Joint Venture's ownership
interest in the China Joint Venture represents approximately 85% of the total
ownership interest in the China Joint Venture; and (iii) Copley has no material
liabilities in respect of or arising out of the JV Agreement, the BVI Joint
Venture or the China Joint Venture.
2
<PAGE> 3
5. Representations and Warranties of Hoechst. Hoechst hereby
represents and warrants to Copley as follows:
(a) Hoechst is a corporation duly organized and validly
existing under the laws of the State of Delaware and is in good standing under
the laws of the State of Delaware. Hoechst has all necessary corporate power and
authority to execute and deliver this Agreement and perform its obligations
hereunder.
(b) This Agreement has been duly and validly executed and
delivered by Hoechst and constitutes a valid and binding agreement of Hoechst,
enforceable against it in accordance with its terms except (i) to the extent
limited by applicable bankruptcy, insolvency or similar laws affecting creditors
rights and (ii) that equitable relief may be subject to equitable defenses and
to the discretion of the court before which any proceeding therefor may be
brought.
6. Further Assurances. From time to time, at the other party's
request, each party hereto shall execute and deliver such additional documents
and take all such further lawful action as may be reasonably necessary or
desirable to consummate and make effective the transactions contemplated by this
Agreement.
7. Termination. This Agreement is entered into in
contemplation of consummation of the transactions contemplated by the Merger
Agreement. If Merger Sub shall not have purchased all Shares (as defined in the
Merger Agreement) tendered pursuant to the Offer (as defined in the Merger
Agreement), then this Agreement shall terminate automatically upon the
occurrence of a Termination Event (as such term is defined (excluding clause (i)
of such definition) in the Stockholder Agreement). If this Agreement is
terminated, the rights and obligations of Hoechst and Copley with respect to the
subject matter hereof shall be as they were immediately prior to entering into
this Agreement. Without limiting the generality of the foregoing, termination of
this Agreement shall not extinguish the existing obligation of Hoechst, subject
to any existing conditions to such obligation, to purchase and pay for Copley's
interest in the BVI Joint Venture.
8. Miscellaneous.
(a) Subject to Section 7 hereof, this Agreement constitutes
the entire agreement between the parties with respect to the subject matter
hereof and supersedes all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof.
(b) Except as otherwise expressly provided herein, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses.
3
<PAGE> 4
(c) This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors and permitted assigns and
Parent, but neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by either party without the prior
written consent of the other party and Parent. Nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person any
rights, benefits or remedies of any nature whatsoever under or by reason of this
Agreement.
(d) This Agreement may not be amended except by a written
agreement executed by each of the parties hereto and Parent. The parties may
waive compliance by the other parties hereto with any representation or
agreement otherwise required to be complied with by such other party hereunder,
but any such waiver shall be effective only if in writing executed by the
waiving party and Parent.
(e) All notices and other communications hereunder shall be in
writing and shall be deemed given upon (i) transmitter's confirmation of a
receipt of a facsimile transmission, (ii) confirmed delivery by a standard
overnight carrier or when delivered by hand or (iii) the expiration of five
business days after the day when mailed by certified or registered mail, postage
prepaid, addressed at the following addresses (or at such other address for a
party as shall be specified by like notice):
If to Hoechst:
Hoechst Corporation
86 Morris Avenue
Summit, New Jersey 07901
Attention: General Counsel
Telecopier No.: (908) 522-7216
If to Copley:
Copley Pharmaceutical, Inc.
25 John Road
Canton, Massachusetts 02021
Attention: General Counsel
Telecopier No.: (617) 575-7374
or to such other address or facsimile number as the party to whom notice is
given shall have previously furnished to the other in writing in the manner set
forth above.
4
<PAGE> 5
(f) This Agreement shall be governed and construed in
accordance with the laws of the State of New York, without giving effect to the
principles of conflicts of law thereof or of any other jurisdiction.
(g) The descriptive headings used 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.
(h) This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, but all of which, taken together, shall
constitute one and the same instrument.
5
<PAGE> 6
IN WITNESS WHEREOF, Hoechst and Copley have caused this
Agreement to be duly executed as of the day and year first above written.
HOECHST CORPORATION
By:/s/ David A. Jenkins
-----------------------------------
Name: David A. Jenkins
Title: President
COPLEY PHARMACEUTICAL, INC.
By: /s/ Daniel L. Korpolinski
-----------------------------------
Name: Daniel L. Korpolinski
Title: Vice President & CEO
Teva Pharmaceuticals USA, Inc. is executing this Agreement solely for the
purpose of agreeing to be bound by the provisions of Section 3 and the second
and third sentences of Section 2 hereof to the same extent as Copley is bound by
such provisions.
TEVA PHARMACEUTICALS USA, INC.
By:/s/ William A. Fletcher
-----------------------------------
Name: William A. Fletcher
Title: President and Chief
Executive Officer
6
<PAGE> 1
PENTOXIFYLLINE AGREEMENT AMENDMENT
This Agreement Amendment (this "Agreement") is entered into as of
August 9, 1999 by and between Copley Pharmaceutical, Inc., a Delaware
corporation (the "Company"), and Hoechst Marion Roussel, Inc., a Delaware
corporation ("HMRI").
WITNESSETH
WHEREAS, the Company and HMRI entered into an agreement dated January
1, 1997 (the "Pentoxifylline Agreement") whereby HMRI would supply
pentoxifylline to the Company for resale for an agreed profit split; and
WHEREAS, the Company, concurrently with the execution of
this Agreement, is entering into an Agreement and Plan of Merger
(the "Merger Agreement") with Teva Pharmaceuticals USA, Inc.
("Parent") and Caribou Merger Corporation ("Merger Sub"); and
WHEREAS, Parent and Merger Sub, concurrently with the execution of this
Agreement, are entering into a Stockholder Agreement (the "Stockholder
Agreement") with Hoechst Corporation.
NOW, THEREFORE, in consideration of the premises and the covenants and
obligations set forth herein, and as a condition and inducement to Parent's
willingness to enter into the Merger Agreement, the parties hereto agree as
follows:
1. Capitalized terms used but not defined herein shall have the
meanings assigned to such terms in the Pentoxifylline
Agreement.
2. Until the Offer Closing Date (as defined in the Merger
Agreement), the Company shall conduct its business with
respect to the Products in the ordinary course of
business, including, without limitation, regarding the
Company's marketing and pricing decisions and forecasts
of its Product requirements as required by the
Pentoxifylline Agreement. For avoidance of doubt,
nothing herein shall prevent the Company from
increasing or decreasing such forecasted requirements
to the extent permitted by the Pentoxifylline
Agreement.
3. With respect to any determination of Copley Net Profit Margin
made on or after the Offer Closing Date, (i) HMRI shall
continue to receive 80% of such Copley Net Profit Margin,
assuming such Copley Net Profit Margin is a positive amount,
but in no event shall HMRI be charged with, or otherwise
required to bear, any losses
<PAGE> 2
if such Copley Net Profit Margin is a negative amount and (ii)
no such determination shall give effect to any shelf stock
adjustments made after the Offer Closing Date. With respect to
any determination of Copley Net Profit Margin prior to the
Offer Closing Date, the profit and loss sharing provisions
contained in Section 1.7 of the Pentoxifylline Agreement shall
continue to apply.
4. Every obligation of the Company to purchase Products shall
terminate at the Offer Closing Date, except that
(a) the Company shall be obligated to continue to
purchase the Products, at the price set forth in the
Pentoxifylline Agreement, in a quantity equal to 100%
of the quantity set forth in its last forecast
delivered before the Offer Closing Date, for the
three calendar months following the month in which
the Offer Closing Date occurs; and
(b) the Company shall be obligated to continue to
purchase the Products, at the price set forth in the
Pentoxifylline Agreement, in a quantity equal to 50%
of the quantities set forth in the forecast
referenced above for the fourth, fifth and sixth
calendar months following the month in which the
Offer Closing Date occurs.
5. From and after the Offer Closing Date, HMRI shall not be
obligated to sell Products to the Company except for the
Products the Company is required to purchase pursuant to
Section 4 above.
6. From and after the Offer Closing Date, HMRI shall be
permitted to agree to sell Products to any other party
to the extent such sales would occur after HMRI is
relieved of its obligation to sell Products only to the
Company. From and after the earlier of (i) the
beginning of the fourth calendar month referred to in
Section 4(b) hereof and (ii) the beginning of the first
calendar month in which the Company's forecasted
requirement of Products is 50% or less of such
forecasted requirement for July 1999, HMRI shall be
relieved of its obligation to sell Products only to the
Company and may sell Products to any other party, at
its discretion.
7. If Merger Sub shall not have purchased all Shares (as defined
in the Merger Agreement) tendered pursuant to the Offer (as
defined in the Merger Agreement), then this Agreement shall
terminate and be of no further force or effect, and shall be
null and void in all
<PAGE> 3
respects, upon the occurrence of a Termination Event (as such
term is defined (excluding clause (i) of such definition) in
the Stockholder Agreement).
8. The Pentoxifylline Agreement shall terminate
automatically at the end of the sixth calendar month
following the month in which the Offer Closing Date
occurs, without regard to Section 11.2 thereof;
provided that following such termination the parties
shall continue to have their respective rights and
obligations thereunder to the extent relating to
Products purchased by the Company prior to such
termination, including HMRI's right to receive 80% of
Copley Net Profit Margin on such Products; and
provided, further, that provisions in the
Pentoxifylline Agreement expressly intended to survive
termination shall survive as set forth therein.
9. This Agreement shall be governed by the Laws of the State of
Delaware, without giving effect to the principles of conflicts
of law thereof.
10. The provisions of this Agreement shall inure to the benefit
of, and be binding upon, the Company, Parent and HMRI, and
their respective successors and assigns.
11. This Agreement may be executed in counterparts, each of which
shall be deemed to be an original, but all of which together
shall constitute one and the same instrument.
12. Except as amended and modified hereby, the terms and
provisions of the Pentoxifylline Agreement shall continue to
be in full force and effect.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
COPLEY PHARMACEUTICAL, INC.
By: /s/ Daniel L. Korpolinski
-------------------------------
Title: President & CEO
Date: August 9, 1999
HOECHST MARION ROUSSEL, INC.
By: /s/ Martin Zeiger
--------------------------------
Title: Vice President
Date: August 9, 1999
<PAGE> 1
August 9, 1999
Copley Pharmaceutical, Inc.
25 John Road
Canton, Massachusetts 02021
Teva Pharmaceuticals USA, Inc.
650 Cathill Road
Sellersville, Pennsylvania 18960
Ladies and Gentlemen:
Reference is made to the Agreement and Plan of Merger, of even date
herewith (the "Merger Agreement") among Copley Pharmaceutical, Inc. (the
"Company"), Teva Pharmaceuticals USA, Inc. ("Parent") and Caribou Merger
Corporation ("Merger Sub"), and to the Stockholder Agreement, of even date
herewith (the "Stockholder Agreement"), among Hoechst Corporation ("HC"), Parent
and Merger Sub. Capitalized terms used but not defined herein shall have the
meanings assigned to such terms in the Merger Agreement.
As a condition and inducement to the Company's and Parent's willingness
to enter into the Merger Agreement, HC hereby represents, warrants and confirms
to the Company and Parent that:
(i) product liability claims based on injuries alleged to have been
caused by the Company's albuterol products are covered, and after the Offer and
the Merger will continue to be covered, under the insurance policies of HC and
its affiliated companies described on Schedule A hereto, subject to (a) the
conditions of such policies; (b) the existing letter agreements (the "Insurance
Agreements") among the Company, HC and certain of such insurers relating to the
albuterol settlement agreement; and (c) in the case of the coverage to which the
Insurance Agreements are not applicable (as described in Schedule A hereto), the
requirement that such injuries are alleged to have been caused after November
11, 1993 and prior to the consummation of the Offer;
(ii) the Company's co-insurance obligation with respect to albuterol
product liability claims under the Insurance Agreements is limited to the extent
described on Schedule A hereto;
<PAGE> 2
(iii) in connection with the Insurance Agreements, neither HC nor the
Company has, except as set forth in the Insurance Agreements, executed any
waiver of coverage under the policies described in Schedule A hereto relating to
injuries alleged to have been caused by the Company's albuterol products; and
(iv) following the consummation of the Offer, at the reasonable request
of the Company or Parent, HC shall (i) provide such information regarding the
insurance policies described on Schedule A and (ii) execute such documents, in
each case as may be reasonably necessary to permit the Company to obtain the
benefits of the coverage provided by such policies.
If Merger Sub shall not have purchased all Shares tendered pursuant to
the Offer, then this letter shall terminate and have no further force or effect
upon the occurrence of a Termination Event (as such term is defined (excluding
clause (i) of such definition) in the Stockholder Agreement).
Very truly yours,
Hoechst Corporation
By: /s/ David A. Jenkins
------------------------
President
2
<PAGE> 3
SCHEDULE A
<TABLE>
<CAPTION>
Copley Co-
Limits Subject insurance Under Amount Paid
to Insurance Insurance Through 7/27/99
Insurer Policy Limits Agreements Agreements (Insurer & Copley)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Zurich $ 5,000,000 $ (1) $ 0 $ 5,000,000
- --------------------------------------------------------------------------------------
Zurich 5,000,000 (1) 0 5,000,000
XS 5,000,000
- --------------------------------------------------------------------------------------
Reliance 5,000,000 (1) 0 5,000,000
XS 10,000,000
- --------------------------------------------------------------------------------------
HCIC 25,000,000 (2) 0 25,000,000
XS 15,000,000
- --------------------------------------------------------------------------------------
Gerling 70,000,000 70,000,000 10,500,000 70,000,000
XS 40,000,000
- --------------------------------------------------------------------------------------
London/HCIC 25,000,000 25,000,000 3,750,000 0(3)
XS 110,000,000
- --------------------------------------------------------------------------------------
Tortuga 25,000,000 25,000,000 3,750,000 0
XS 135,000,000
- --------------------------------------------------------------------------------------
XL 100,000,000 20,000,000(4) 8,000,000 0
XS 160,000,000
- --------------------------------------------------------------------------------------
Tortuga 25,000,000 N/A N/A 0
XS 250,000,000
- --------------------------------------------------------------------------------------
American 75,000,000 N/A N/A 0
Excess XS 285,000,000
- --------------------------------------------------------------------------------------
ACE 150,000,000 N/A N/A 0
XS 380,000,000
- --------------------------------------------------------------------------------------
Global/ 100,000,000 N/A N/A 0
Bowring XS 510,000,000
- --------------------------------------------------------------------------------------
ACE 50,000,000 N/A N/A 0
XS 810,000,000
- --------------------------------------------------------------------------------------
</TABLE>
- ------------
1. Limits spent and/or reserved for defense and indemnity expense for
albuterol claims, but not part of Copley Albuterol MDL settlement.
2. $16,000,000 paid to fund the Copley Albuterol MDL settlement, balance of
$8,000,000 reserved and/or spent for defense and indemnity expense for
albuterol claims, but not part of Copley Albuterol MDL settlement.
3. The Special Master supervising the settlement of the Copley Albuterol MDL
is expected in the near future to request $20,000,000 from the London
layer.
4. The Insurance Agreement applies to the first $20,000,000 of XL's limits,
but not the remaining $80,000,000.
