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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________.
COMMISSION FILE NO. 0-20966
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CATALYTICA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-2262240
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
430 FERGUSON DRIVE
MOUNTAIN VIEW, CALIFORNIA 94043
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(415) 960-3000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. [X] Yes No [_]
The number of outstanding shares of the Registrant's Common Stock, $.001 par
value, was 20,302,254 as of July 30, 1997.
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CATALYTICA, INC.
FORM 10-Q
TABLE OF CONTENTS
JUNE 30, 1997
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheets as of June 30, 1997 and
December 31, 1996................................................... 3
Condensed Consolidated Statements of Operations for the three months
ended June 30, 1997 and June 30, 1996............................... 4
Condensed Consolidated Statements of Cash Flows for the three months
ended June 30, 1997 and June 30, 1996............................... 5
Notes to Condensed Consolidated Financial Statements................. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS......................................... 8
PART II. OTHER INFORMATION............................................. 21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............ 21
ITEM 5. OTHER INFORMATION.............................................. 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................... 28
SIGNATURES............................................................. 29
</TABLE>
2
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CATALYTICA, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
-------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 11,372 $ 15,540
Short-term investments................................. 4,490 8,281
Accounts receivable, net............................... 5,237 3,944
Accounts receivable from joint venture................. 332 865
Notes receivable from employees........................ 255 328
Inventory:
Raw materials........................................ 1,309 1,689
Work in process...................................... 265 249
Finished goods....................................... 131 1,479
-------- --------
1,705 3,417
Prepaid expenses and other acquisition costs........... 4,573 681
-------- --------
Total current assets................................. 27,964 33,056
Property and equipment:
Equipment.............................................. 11,163 9,260
Leasehold improvements................................. 9,230 8,173
-------- --------
20,393 17,433
Less accumulated depreciation and amortization......... (10,197) (9,536)
-------- --------
10,196 7,897
Notes receivable from employees.......................... 50 50
-------- --------
$ 38,210 $ 41,003
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................... $ 1,587 $ 2,055
Accrued payroll and related expenses................... 1,623 1,372
Deferred revenue....................................... 1,627 1,643
Accrued acquisition costs.............................. 1,069 0
Other accrued liabilities.............................. 749 949
Borrowings under line of credit........................ 3,498 2,300
Current portion of long-term debt...................... 784 833
-------- --------
Total current liabilities............................ 10,937 9,152
Long-term debt........................................... 1,285 1,524
Non-current deferred revenue............................. 4,287 5,064
Minority interest........................................ 8,000 8,000
Stockholders' equity:
Common stock........................................... 20 19
Additional paid-in capital............................. 66,050 65,482
Deferred compensation.................................. (19) (41)
Accumulated deficit.................................... (52,350) (48,197)
-------- --------
Total stockholders' equity........................... 13,701 17,263
-------- --------
$ 38,210 $ 41,003
======== ========
</TABLE>
See accompanying notes
3
<PAGE>
CATALYTICA, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------- ----------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Product sales............................ $ 6,262 $ 2,685 $ 9,321 $ 4,702
Research revenues........................ 1,500 1,424 3,226 2,747
------- ------- ------- -------
7,762 4,109 12,547 7,449
Costs and expenses:
Cost of sales............................ 6,013 2,433 9,087 4,443
Research and development................. 2,240 2,971 4,439 5,542
Selling, general and administrative...... 1,001 1,215 1,991 2,461
------- ------- ------- -------
Total costs and expenses................... 9,254 6,619 15,517 12,446
Operating loss............................. (1,492) (2,510) (2,970) (4,997)
Interest income............................ 239 294 505 539
Interest expense........................... (125) (99) (238) (227)
Gain on sale of assets..................... -- 505 -- 505
Loss on joint venture...................... (450) -- (1,450) --
------- ------- ------- -------
Net loss................................... $(1,828) $(1,810) $(4,153) $(4,180)
======= ======= ======= =======
Net loss per share......................... $ (0.09) $ (0.09) $ (0.21) $ (0.22)
======= ======= ======= =======
Shares used in computing net loss per
share..................................... 19,918 19,250 19,987 19,223
======= ======= ======= =======
</TABLE>
See accompanying notes.
4
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CATALYTICA, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................... $ (4,153) $ (4,180)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activity:
Depreciation and amortization............................ 630 412
Losses in affiliated company............................. 1,450 --
Changes in:
Accounts receivable.................................... (1,293) 99
Accounts receivable from joint venture................. 533 --
Inventory.............................................. 1,712 (1,128)
Prepaid expenses and other current assets.............. (3,892) (174)
Accounts payable....................................... (468) (292)
Accrued payroll and related expenses................... 251 (89)
Deferred revenue....................................... (793) 7,387
Accrued acquisition costs.............................. 1,069 0
Other accrued liabilities.............................. (200) 352
-------- --------
Net cash provided by (used in) operating activities.. (5,154) 2,387
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments................................... (13,184) (15,520)
Maturities of investments.................................. 17,028 24,000
Investment in affiliate company............................ (1,450) --
Acquisition of property and equipment...................... (2,960) (1,118)
-------- --------
Net cash provided by (used in) investing activities.. (566) 7,362
CASH FLOWS FROM FINANCING ACTIVITIES:
Net receipts on (issuance of) notes receivable from
employees................................................. 73 (224)
Additions to debt obligations.............................. 1,645 1,111
Payments on debt obligations............................... (735) (3,419)
Minority investment........................................ -- 8,000
Sale of common stock....................................... 569 189
-------- --------
Net cash provided by (used in) financing activities.. 1,552 5,657
-------- --------
Net increase (decrease) in cash and cash equivalents....... (4,168) 15,406
Cash and cash equivalents at beginning of period........... 15,540 5,021
-------- --------
Cash and cash equivalents at end of period................. $ 11,372 $ 20,427
======== ========
</TABLE>
See accompanying notes.
5
<PAGE>
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the six-month
period ended June 30, 1997, are not necessarily indicative of the results that
may be expected for the year ended December 31, 1997. For further information,
refer to the consolidated financial statements and footnotes thereto included
in the Catalytica, Inc. Annual Report on Form 10-K/A for the year ended
December 31, 1996.
2. NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of common
shares outstanding. Common equivalent shares from stock options and warrants
are excluded in the computation as their effect is antidilutive.
3. IMPACT OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior periods.
Under the new requirements for calculating primary earnings per share, the
dilutive effect of stock options will be excluded. There will be no impact on
earnings per share for the quarters ended June 30, 1997 and June 30, 1996, as
the Company is in a net loss position for the quarters then ended.
4. FINANCIAL INSTRUMENTS
For the purposes of the consolidated cash flows, all investments with
maturities of three months or less at the date of purchase held as available-
for-sale are considered to be cash and cash equivalents; instruments with
maturities of three months or less at the date of purchase which are held-to-
maturity ($1,306,000 at June 30, 1997) and investments with maturities greater
than three months which are available-for-sale (none at June 30, 1997) are
considered to be short-term investments; investments with maturities greater
than one year are considered to be long-term investments and are available-
for-sale (3,184,000 outstanding at June 30, 1997). All investments at June 30,
1997, were carried at amortized cost, which approximated fair market value.
The classification of investments is made at the time of purchase with
classification for held-to-maturity made when the Company has the positive
intent and ability to hold the investments to maturity.
5. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
6. FORMATION OF GENXON(TM) JOINT VENTURE WITH WOODWARD GOVERNOR COMPANY
On October 15, 1996 Catalytica's subsidiary Catalytica Combustion Systems
Inc. ("CCSI") and Woodward Governor Company formed a Delaware limited
liability company in connection with a 50/50 joint venture to serve the gas
turbine retrofit market for installed, out-of-warranty engines. The new
company, GENXON(TM)
6
<PAGE>
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS--(CONTINUED)
Power Systems, LLC, will initially provide gas turbine fleet asset planning
and utilization services for both power generation and mechanical drive
markets.
The initial capital commitment of the GENXON joint venture partners is $10
million--$2 million from CCSI and $8 million from Woodward--payable over time
as the funds are required by the joint venture. These capital infusions are
predicated upon reaching certain milestones, and neither joint venture partner
is contractually required to make further capital infusions if these
milestones are not met.
CCSI recognized its 50% share of GENXON losses for the three and six month
periods ending June 30, 1997 up to its committed capital contribution of $0.45
million and $1.45 million, respectively. Accordingly, losses on the joint
venture were recognized in the results of operations. GENXON recognized
$268,000 in revenues and had a loss amounting to $7.1 million for the six
months ending June 30, 1997.
As of June 30, 1997, an account receivable for $332,000 exists from the
joint venture for costs incurred by CCSI. Accordingly these costs have not
been included in the consolidated entity.
7. ACQUISITION OF GLAXO WELLCOME FACILITY
On July 31, 1997, Catalytica Pharmaceuticals, Inc. (formerly Catalytica Fine
Chemicals, Inc.), a subsidiary of the Company, acquired from Glaxo Wellcome
Inc. a pharmaceutical manufacturing facility (the "Facility") located in
Greenville, North Carolina (the "Acquisition"), in exchange for (i) $246.6
million in cash subject to a post-closing adjustment based on closing date
inventory levels; (ii) 250,000 shares of Junior Preferred Stock of Catalytica
Pharmaceuticals; (iii) warrants to purchase 2,000,000 shares of the Company's
Common Stock at an exercise price of $12.00 per share and (iv) 10% of the
earnings before interest and taxes in excess of an aggregate cumulative amount
of $10 million attributable to the sterile products portion of the Facility,
up to an aggregate cumulative payment to Glaxo Wellcome of an additional $25.0
million. In connection with the Acquisition, Glaxo Wellcome and Catalytica
Pharmaceuticals have entered into a supply agreement under which
Catalytica Pharmaceuticals will manufacture products for Glaxo Wellcome over
the next one and a half years for secondary products, the next three and a
half years for sterile products and the next five years for primary products
(the "Supply Agreement"). See "Item 5--Other Information."
With the closing of the Acquisition, the Company closed a sale of 13,270,000
shares of its Class A Common Stock and 16,730,000 shares of its Class B Common
Stock to Morgan Stanley Capital Partners III, L.P. and two affiliated funds
("MSCP") (collectively, the "Stock Sale"), at a price of $4.00 per share, for
an aggregate of $120,000,000. As a result of the Stock Sale, as of July 31,
1997, MSCP owns approximately 40% of the Company's outstanding voting
securities and approximately 60% of the Company's outstanding securities on a
fully converted basis. See "Item 5--Other Information--Financing of the
Acquisition" for a discussion of the Class A and B Common Stock.
In addition to the equity investment by MSCP, the Company, The Chase
Manhattan Bank ("Chase") and Chase Securities Inc. ("CSI") have entered into a
Credit Agreement pursuant to which a syndicate of banks led by Chase has
agreed to lend Catalytica Pharmaceuticals an aggregate of up to $200,000,000
(the "Debt Facilities"). The Debt Facilities consist of a senior secured term
loan facility (the "Term Debt Facility") in an aggregate principal amount of
$125,000,000 and a senior secured revolving facility (the "Revolving Debt
Facility") in an aggregate principal amount of $75,000,000. Up to $20,000,000
of the Revolving Debt Facility will be available for the issuance of letters
of credit. The Term Debt Facility will mature four and one-half years after
consummation of the Acquisition and will amortize in quarterly installments
commencing on the last day of the third fiscal quarter of 1998 in aggregate
annual amounts of (i) $50,000,000 in the year 1998, (ii) $37,500,000 in the
year 1999, (iii) $20,000,000 in the year 2000, and (iv) $17,500,000 in the
year 2001. The Revolving Debt Facility will mature four and one-half years
after consummation of the Acquisition. See "Item 5--Other Information--
Financing of the Acquisition" for a discussion of the Debt Facilities.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act,
including those statements which have been identified by an asterisk ("*") and
other statements regarding the Company's strategy, financial performance and
revenue sources. Actual results could differ materially from those projected
in the forward-looking statements as a result of certain factors set forth
under "Risk Factors" and elsewhere in this Report.
Catalytica is developing advanced products and manufacturing processes which
use the Company's proprietary chemical catalysis technologies by lowering
manufacturing costs and reducing hazardous byproducts. The Company has
developed significant expertise in catalysis, an essential step in the
production of many industrial products. The Company's product sales are
derived from sales of fine chemicals' products and its research and
development revenues are derived principally from the Company's Combustion
Systems and Advanced Technology businesses. In December 1993, the Company
acquired a manufacturing facility from Novartis (formerly Sandoz) to obtain
fine chemicals manufacturing capacity. As part of the acquisition, Novartis
entered into a five-year contract for the manufacture of a fine chemical
intermediate. Under the terms of the agreement, Novartis transferred certain
equipment and technology relating to the manufacture of the particular
intermediate, and agreed to purchase all of its requirements of such
intermediate from Catalytica Pharmaceuticals, subject to certain volume
limitations. These requirements represent approximately $3 million of revenue
per year. However, the timing of receipt of revenues under this contract
varies, depending on the timing of receipt of orders and shipment of products.
During the year ended December 31, 1996, and the six months ended June 30,
1997, 18% and 43%, respectively, of the Company's fine chemical product
revenues were derived from sales to Novartis. The Company has no contractual
volume commitments from Novartis beyond May 31, 1998, and there can be no
assurance the Novartis contract will be renewed. The Company plans to replace
the Novartis contractual products with higher margin product sales to new
customers in the pharmaceutical industry. The agreement may be terminated by
either party upon 30 days prior written notice for failure to perform a
material provision of the agreement, if such failure is not cured within 60
days after receipt of the notice.
On July 31, 1997, Catalytica Pharmaceuticals, Inc. (formerly Catalytica Fine
Chemicals, Inc.), a subsidiary of the Company, acquired from Glaxo Wellcome
Inc. a pharmaceutical manufacturing facility (the "Facility") located in
Greenville, North Carolina (the "Acquisition"), in exchange for (i) $246.6
million in cash subject to a post-closing adjustment based on closing date
inventory levels; (ii) 250,000 shares of Junior Preferred Stock of Catalytica
Pharmaceuticals; (iii) warrants to purchase 2,000,000 shares of the Company's
Common Stock at an exercise price of $12.00 per share and (iv) 10% of the
earnings before interest and taxes in excess of an aggregate cumulative amount
of $10 million attributable to the sterile products portion of the Facility,
up to an aggregate cumulative payment to Glaxo Wellcome of an additional $25.0
million. In connection with the Acquisition, Glaxo Wellcome and Catalytica
Pharmaceuticals have entered into a supply agreement under which Catalytica
Pharmaceuticals will manufacture products for Glaxo Wellcome over the next one
and a half years for secondary products, the next three and a half years for
sterile products and the next five years for primary products (the "Supply
Agreement").
With the closing of the Acquisition, the Company closed a sale of 13,270,000
shares of its Class A Common Stock and 16,730,000 shares of its Class B Common
Stock to Morgan Stanley Capital Partners III, L.P. and two affiliated funds
("MSCP") (collectively, the "Stock Sale"), at a price of $4.00 per share, for
an aggregate of $120,000,000. As a result of the Stock Sale, as of July 31,
1997, MSCP owns approximately 40% of the Company's outstanding voting
securities and approximately 60% of the Company's outstanding securities on a
fully converted basis. See "Item 5--Other Information--Financing of the
Acquisition" for a discussion of the Class A and B Common Stock.
8
<PAGE>
In addition to the equity investment by MSCP, the Company, The Chase
Manhattan Bank ("Chase") and Chase Securities Inc. ("CSI") have entered into a
Credit Agreement pursuant to which a syndicate of banks led by Chase has
agreed to lend Catalytica Pharmaceuticals an aggregate of up to $200,000,000
(the "Debt Facilities"). The Debt Facilities consist of a senior secured term
loan facility (the "Term Debt Facility") in an aggregate principal amount of
$125,000,000 and a senior secured revolving facility (the "Revolving Debt
Facility") in an aggregate principal amount of $75,000,000. Up to $20,000,000
of the Revolving Debt Facility will be available for the issuance of letters
of credit. The Term Debt Facility will mature four and one-half years after
consummation of the Acquisition and will amortize in quarterly installments
commencing on the last day of the third fiscal quarter of 1998 in aggregate
annual amounts of (i) $50,000,000 in the year 1998, (ii) $37,500,000 in the
year 1999, (iii) $20,000,000 in the year 2000, and (iv) $17,500,000 in the
year 2001. The Revolving Debt Facility will mature four and one-half years
after consummation of the Acquisition. See "Item 5--Other Information--
Financing of the Acquisition" for a discussion of the Debt Facilities.
The Company's business has not been profitable to date, and as of June 30,
1997, the Company had an accumulated deficit of $52.4 million. To achieve
profitable operations, Catalytica must successfully manage the operations of
the Facility, and, to a lesser extent, successfully develop, manufacture,
introduce and market or license its combustion systems and catalytic
processes. The Company's success will depend on its ability to complete the
transition from emphasizing research and development to full commercialization
and sale of its products. The Company began manufacturing, marketing and
selling pharmaceutical intermediates in 1994 and, with the Acquisition of the
Facility, will substantially increase its manufacturing of pharmaceutical
products in 1997.
The additional facilities, employees and business volumes resulting from the
Acquisition will substantially increase the expenses and working capital
requirements and place substantial burdens on the Company's management
resources. Furthermore, the success of the Acquisition and the Company's
future results depend, in significant part, on the levels of manufacturing
business developed by Catalytica Pharmaceuticals. In the event Catalytica
Pharmaceuticals does not obtain additional new customers, which could involve
additional business from Glaxo Wellcome, on terms sufficient to offset the
costs associated with operating and maintaining the Facility, and with
servicing the debt incurred in connection with the acquisition of the
Facility, the Company's consolidated results of operations and financial
condition would be materially adversely affected.
Due to the size of the Acquisition, the results of operations of Catalytica
Pharmaceuticals will have a material effect on the consolidated results of
operations of the Company, and the results of operations of the Company's
other businesses will be insignificant for the remainder of 1997 and 1998.*
The anticipated revenues from the Supply Agreement with Glaxo Wellcome are
expected to allow the Company to achieve profitable operations for Catalytica
Pharmaceuticals for the remainder of 1997 and for 1998.* After 1998,
Catalytica Pharmaceuticals' profitability will depend on its success and
timing in obtaining new customers, including possible new agreements with
Glaxo Wellcome.* The Company anticipates that its income (loss) per share will
be adversely affected in the second half of 1997, when it expects to
repurchase up to 5,000,000 shares of its Class B Common Stock from MSCP at a
price of $4.75 per share with the proceeds from a warrant issuance it expects
to occur during the third fiscal quarter of 1997.*
Manufacturing at the Facility is conducted in three district operations:
primary, secondary and sterile. There is excess manufacturing capacity
available at the primary facility beginning in mid-1998 and based on marketing
efforts to date Catalytica Pharmaceuticals expects it will have one or more
customers for some or all of the unused primary facility beginning in mid-
1998.* There is substantial excess manufacturing capacity immediately
available at the secondary and sterile facilities, but because of the long
lead times required to obtain necessary regulatory approvals to manufacture
secondary and sterile products at these facilities, Catalytica Pharmaceuticals
does not anticipate additional significant revenue from such facilities until
1998 or 1999 at the earliest. Catalytica Pharmaceuticals' inability to fill
additional available capacity or to reduce costs in conjunction with lower
levels of capacity utilization would have a material adverse effect on the
Company's results of operations.
On May 8, 1996, Catalytica Pharmaceuticals, announced that Pfizer Inc. had
signed an agreement to infuse $15 million in Catalytica Pharmaceuticals. These
funds provided Pfizer a 15 percent interest in Catalytica
9
<PAGE>
Pharmaceuticals and a five-year research and development ("R&D") commitment by
Catalytica Pharmaceuticals to develop new processes and technology for the
manufacture of Pfizer products. Prior to this investment, Catalytica
Pharmaceuticals was a wholly-owned subsidiary of Catalytica, Inc. Pursuant to
the terms of the Acquisition, Glaxo Wellcome received a 1.5% equity interest in
Catalytica Pharmaceuticals and the Company purchased additional stock so that
Pfizer's ownership interest was decreased to approximately 4.4%.
During the past four years, Catalytica Pharmaceuticals and Pfizer have
collaborated on the development of proprietary processes for key intermediate
products for several of Pfizer's promising new pharmaceuticals. The Pfizer
drugs are at varying stages of approval by the Food and Drug administration,
ranging from Phase II clinical trials through the New Drug Application stage.
Catalytica Pharmaceuticals currently manufactures intermediates for certain
Pfizer drugs and anticipates becoming a supplier of intermediates to Pfizer for
other pharmaceutical products in the future.* There can be no assurance,
however, that orders will be forthcoming from Pfizer.
On June 28, 1996, Catalytica completed the sale of substantially all the
assets of Advanced Sensor Devices, Inc. ("ASD") to Monitor Labs, Inc. Prior to
the sale, ASD produced continuous emission monitors ("CEMs") based on
proprietary catalytic sensors. The terms for selling substantially all of ASD's
assets included an initial payment of approximately $1.1 million at the
closing, a second payment of $0.5 million a year end, and a royalty stream
based on future revenues. The Company recorded a gain of $0.9 million on the
sale of these assets.
On October 15, 1996, Catalytica's subsidiary Catalytica Combustion Systems
Inc. ("CCSI") and Woodward Governor Company formed a Delaware limited liability
company in connection with a 50/50 joint venture to serve the gas turbine
retrofit market for installed, out-of-warranty engines. The new company,
GENXON(TM) Power Systems, LLC, will initially provide gas turbine fleet asset
planning and utilization services for both power generation and mechanical
drive markets. These planning services are expected to result in the delivery
of an integrated product portfolio which includes CCSI's XONON(TM) technology
for ultra low NOx emissions, Woodward's NetCon(R) control systems, turbine
overhaul and upgrades, as well as contract maintenance and service.*
The initial capital commitment of the GENXON joint venture partners is $10
million--$2 million from CCSI and $8 million from Woodward--payable over time
as the funds are required by the joint venture. These capital infusions are
predicated upon reaching certain milestones, and neither joint venture partner
is contractually required to make further capital infusions if these milestones
are not met. In addition to the capital commitment, CCSI has contributed to the
joint venture an exclusive license for the use of its catalytic combustion
technology, and Woodward contributed to the joint venture an exclusive license
for the use of its instrumentation and control systems for gas turbine
catalytic combustors. CCSI began accounting for its share of the joint venture
gain or loss upon the first cash infusion totaling $1.0 million which occurred
on January 3, 1997 upon completion of a milestone. Prior to January 3, 1997,
the joint venture was being funded entirely by Woodward Governor.
RESULTS OF OPERATIONS
Net revenues for the three and six months ended June 30, 1997 increased by
89% and 68% respectively, compared to the same quarter in fiscal 1996 largely
due to an increase in product sales coupled with higher research revenues.
Product sales during the second quarter and first half of 1996 were up 133% and
98% respectively when compared to the same periods of 1996 primarily due to
increased shipments of fine chemical products to Novartis and other customers.
The increase in research revenues reflects a funded research commitment
associated with the five-year R&D agreement between Catalytica Pharmaceuticals
and Pfizer to develop new processes and technology for the manufacture of
Pfizer products (See overview above).
Cost of goods sold increased 147% for the second quarter of 1997 and
increased 105% for the first six months of 1997. The increase in cost of goods
sold for both the three and six month periods reflects increased physical
volume of product sales of fine chemical products coupled with higher than
normal costs associated with production start-up of several new fine chemical
products. Margins on the fine chemical products are subject to fluctuations
from quarter to quarter due to various factors including the mix of products
being manufactured,
10
<PAGE>
manufacturing efficiencies achieved on production runs, the length of down-
time associated with setting up new productions runs, and numerous other
variables present in the chemical manufacturing environment.
Research and development expenses decreased 25% and 20% for the three and
six months ended June 30, 1997, as compared to the same periods in 1996. This
decrease is largely due to a shift of certain catalytic combustion research
and development costs from Catalytica to the GENXON joint venture (See
overview above). This transfer of R&D funding occurred August 1, 1996, and
resulted in approximately $1.1 million of research and development costs being
financed by the joint venture rather than Catalytica during the second quarter
of fiscal 1997. Cessation of all research activities of Advanced Sensor
Devices ("ASD") following the sale of its assets on June 28, 1996, also
contributed approximately $0.4 million towards the reduction of R&D expenses
(See overview above). This decrease in R&D expense during the second quarter
of 1997, due to the formation of the joint venture and sale of ASD, was
partially offset by increases in R&D expenses elsewhere in the Company
including the new research activities supporting the research commitment to
Pfizer Inc. Research and development expenses may fluctuate from quarter to
quarter.
Selling, general and administrative expenses ("SG&A") decreased 18% for the
second quarter of 1997 and decreased 19% for the first six months of 1997
compared to the same periods of 1996 largely due to the discontinuation of the
Advanced Sensor Devices business. The Company has incurred significant legal,
accounting, and other SG&A related expenditures as a result of the proposed
acquisition of the Facility. These costs have been capitalized as part of the
purchase price of the Facility.
Net interest income decreased 19% for the second quarter of 1997 and
decreased 6% for the first six months of 1997 when compared to the same
periods last year due to reduced balances of cash and short-term investments.
On January 3, 1997, Catalytica Combustion Systems, Inc. ("CCSI") made its
first cash infusion of $1.0 million into the GENXON joint venture. CCSI
recognized its 50% share of GENXON losses of $.45 million for the second
quarter of 1997 and $1.45 million for the first six months of 1997 up to its
committed capital contribution of $1.45 million. Accordingly, a $1.45 million
loss on the joint venture was recognized in the results of operations. The
Company estimates it may make additional capital contributions to the joint
venture of up to $1.0 million during the remaining two quarters of 1997. If
GENXON continues to generate losses during this time frame, the Company will
record its share of these losses to the extent of its capital contribution.
However, these losses may be partially offset by reimbursements for past R&D
expenses if certain GENXON milestones are achieved.
LIQUIDITY AND CAPITAL RESOURCES
Total cash and cash equivalents plus short-term investments decreased to
$15.9 million during the six months at June 30, 1997, compared to $23.8
million at December 31, 1996. This decrease is primarily due to the net loss
for the period coupled with capital spending at the Catalytica Pharmaceuticals
Bay View manufacturing facility and prepaid acquisition costs related to the
Acquisition. These cash outflows were partially offset by borrowings against
various credit facilities and funds received from the sale of common stock
through stock option exercises.
During the past several years, the Company has obtained various lines of
credit to fund capital purchases and future working capital needs. One of
these lines of credit collateralized with accounts receivable was increased to
$3.5 million in 1996. As of June 30, 1997, the Company had approximately $3.5
million outstanding under this line of credit. On July 31, 1997, this line of
credit was repaid with borrowings under a credit facility with a syndicate of
banks led by The Chase Manhattan Bank entered into in connection with the
Acquisition.
With the closing of the Acquisition, the Company closed a sale of 13,270,000
shares of its Class A Common Stock and 16,730,000 shares of its Class B Common
Stock to Morgan Stanley Capital Partners III, L.P. and two affiliated funds
("MSCP") (collectively, the "Stock Sale"), at a price of $4.00 per share, for
an aggregate of
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$120,000,000. As a result of the Stock Sale, as of July 31, 1997, MSCP owns
approximately 40% of the Company's outstanding voting securities and
approximately 60% of the Company's outstanding securities on a fully converted
basis. See "Item 5--Other Information--Financing of the Acquisition" for a
discussion of the Class A and B Common Stock.
In addition to the equity investment by MSCP, the Company, The Chase
Manhattan Bank ("Chase") and Chase Securities Inc. ("CSI") have entered into a
Credit Agreement pursuant to which a syndicate of banks led by Chase has
agreed to lend Catalytica Pharmaceuticals an aggregate of up to $200,000,000
(the "Debt Facilities"). The Debt Facilities consist of a senior secured term
loan facility (the "Term Debt Facility") in an aggregate principal amount of
$125,000,000 and a senior secured revolving facility (the "Revolving Debt
Facility") in an aggregate principal amount of $75,000,000. Up to $20,000,000
of the Revolving Debt Facility will be available for the issuance of letters
of credit. The Term Debt Facility will mature four and one-half years after
consummation of the Acquisition and will amortize in quarterly installments
commencing on the last day of the third fiscal quarter of 1998 in aggregate
annual amounts of (i) $50,000,000 in the year 1998, (ii) $37,500,000 in the
year 1999, (iii) $20,000,000 in the year 2000, and (iv) $17,500,000 in the
year 2001. The Revolving Debt Facility will mature four and one-half years
after consummation of the Acquisition. See "Item 5--Other Information--
Financing of the Acquisition" for a discussion of the Debt Facilities.
The Company's operations to date have required substantial amounts of cash.
As part of the financing of the Acquisition, Catalytica Pharmaceuticals
incurred approximately $140 million of long-term indebtedness. The Company and
its subsidiaries have guaranteed this indebtedness. As a result of this
increased leverage, Catalytica Pharmaceuticals' principal and interest
obligations will be increased substantially. The Company anticipates that cash
flows associated with the Supply Agreement will be sufficient to reduce
indebtedness incurred in connection with the Acquisition to a level
supportable by the current assets of the Company.* The degree to which
Catalytica Pharmaceuticals is leveraged could adversely affect Catalytica
Pharmaceuticals' and the Company's ability to obtain additional financing for
working capital, acquisitions or other purposes and could make Catalytica
Pharmaceuticals and the Company more vulnerable to economic downturns and
competitive pressures. The Company's future capital requirements will depend
on many factors, including Catalytica Pharmaceuticals level of business beyond
the Supply Agreement with Glaxo Wellcome, the rate of commercialization of the
Company's catalytic combustion systems, and the need to expand manufacturing
capacity for pharmaceutical or combustion systems business. Adequate funds for
future operations, whether from the financial markets or from collaborative or
other arrangements, may not be available when needed or on terms acceptable to
the Company and, if available or acceptable to the Company, may result in
significant dilution to existing stockholders.
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RISK FACTORS
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act,
including those statements which have been identified by an asterisk ("*") and
other statements regarding the Company's strategy, financial performance and
revenue sources. Actual results could differ materially from those projected
in the forward-looking statements as a result of the risk factors set forth
below and elsewhere in this report. In addition to the other information in
this report, the following factors should be carefully considered in
evaluating the Company and its business.
History of Operating Losses and Uncertainty of Future Results. The Company's
business has not been profitable to date, and as of June 30, 1997, the Company
had an accumulated deficit of $52.4 million. To achieve profitable operations,
Catalytica must successfully manage the operations of the Facility, and, to a
lesser extent, successfully develop, manufacture, introduce and market or
license its combustion systems and catalytic processes. The Company's success
will depend on its ability to complete the transition from emphasizing
research and development to full commercialization and sale of its products.
The Company began manufacturing, marketing and selling pharmaceutical
intermediates in 1994 and, with the Acquisition of the Facility, will
substantially increase its manufacturing of pharmaceutical products in 1997.
The additional facilities, employees and business volumes resulting from the
Acquisition will substantially increase the expenses and working capital
requirements and place substantial burdens on the Company's management
resources. Furthermore, the success of the Acquisition and the Company's
future results depend, in significant part, on the levels of manufacturing
business developed by Catalytica Pharmaceuticals. In the event Catalytica
Pharmaceuticals does not obtain additional new customers, which could involve
additional business from Glaxo Wellcome, on terms sufficient to offset the
costs associated with operating and maintaining the Facility, and with
servicing the debt incurred in connection with the acquisition of the
Facility, the Company's consolidated results of operations and financial
condition would be materially adversely affected.
Due to the size of the Acquisition, the results of operations of Catalytica
Pharmaceuticals will have a material effect on the consolidated results of
operations of the Company, and the results of operations of the Company's
other businesses will be insignificant for the remainder of 1997 and 1998.*
The anticipated revenues from the Supply Agreement with Glaxo Wellcome are
expected to allow the Company to achieve profitable operations for Catalytica
Pharmaceuticals for the remainder of 1997 and for 1998.* After 1998,
Catalytica Pharmaceuticals' profitability will depend on its success and
timing in obtaining new customers, including possible new agreements with
Glaxo Wellcome.* The Company anticipates that its income (loss) per share will
be adversely affected in the second half of 1997, when it expects to
repurchase up to 5,000,000 shares of its Class B Common Stock from MSCP at a
price of $4.75 per share with the proceeds from a warrant issuance it expects
to occur during the third fiscal quarter of 1997.* Manufacturing at the
Facility is conducted in three district operations: primary, secondary and
sterile. There is excess manufacturing capacity available at the primary
facility beginning in mid-1998 and based on marketing efforts to date
Catalytica Pharmaceuticals expects it will have one or more customers for some
or all of the unused primary facility beginning in mid-1998.* There is
substantial excess manufacturing capacity immediately available at the
secondary and sterile facilities, but because of the long lead times required
to obtain necessary regulatory approvals to manufacture secondary and sterile
products at these facilities, Catalytica Pharmaceuticals does not anticipate
additional significant revenue from such facilities until 1998 or 1999 at the
earliest. Catalytica Pharmaceuticals' inability to fill additional available
capacity or to reduce costs in conjunction with lower levels of capacity
utilization would have a material adverse effect on the Company's results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Management of Substantially Increased Operations and Need for New Computer
System. The Company currently expects that revenues from the operation of the
Facility will represent a substantial portion of the Company's consolidated
revenues for the foreseeable future. The acquisition of the Facility and the
associated Supply Agreement are expected to expand Catalytica's revenues from
$16.3 million during 1996 to an annualized revenue rate in excess of $300
million in the second half of 1997 and in 1998.* Existing management has only
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limited prior experience in managing a large and geographically dispersed
operation. The Company expects to experience certain inefficiencies as it
begins managing and integrating the operations of the Facility. Computer
systems are used at the Facility to properly track and record the processing
and distribution of products according to drug form, dose, packaging and
destination. Catalytica Pharmaceuticals believes that based on anticipated
changes in operations, the nature of serving multiple customers and the nature
of being a contract manufacturer versus an integrated pharmaceutical company,
that it will need to replace the computer system that is currently used at the
Facility over the next several years. The Company will need to carefully plan
a transition to a new computer system to avoid any disruption to its business.
If the transition is not successfully executed, it could have a material
adverse effect on the Company's results of operations.
Reliance on Relationship with Glaxo Wellcome. Catalytica Pharmaceuticals
estimates that aggregate payments by Glaxo Wellcome under the Supply Agreement
will total approximately $800 million, which include guaranteed revenues plus
the cost of raw materials.* The annual level of guaranteed revenues declines
significantly after 1998, but is expected to continue to represent a
significant source of revenue for Catalytica Pharmaceuticals.* Catalytica
Pharmaceuticals is substantially dependent on Glaxo Wellcome for the next two
and one half years and will continue to be dependent on Glaxo Wellcome in part
thereafter until the end of the term of the Supply Agreement. Catalytica
Pharmaceuticals' business and the Company's consolidated results of operations
would be adversely affected if Catalytica Pharmaceuticals does not
successfully perform its obligations under the Supply Agreement. This could
result in increased costs to the Company or in possible termination of the
Supply Agreement by Glaxo Wellcome.
New Operating Strategy and Need to Hire Additional Personnel. The Facility
has been operated primarily as a captive manufacturing facility by Glaxo
Wellcome with only a limited portion of the Facility devoted to third party
manufacturing. Accordingly, the employees currently operating the Facility and
the managers hired to manage the operations of the Facility have limited prior
experience in conducting operations as a third party manufacturer. There is
limited infrastructure and an insufficient number of personnel at the Facility
currently involved in sales and marketing, research and development, payroll,
purchasing, accounting and information systems functions. The Company will
need to establish and maintain the appropriate infrastructure and hire and
train qualified personnel to perform these functions at the Facility. There
can be no assurance that the Company will successfully establish the
infrastructure or be able to hire qualified personnel in a timely fashion.
There can be no assurance that Catalytica Pharmaceuticals will be able to
establish a successful sales and marketing capability. Any failure to
successfully establish these capabilities at the Facility on a timely basis
would have a material adverse effect on the Company's consolidated results of
operations.
Dependence on Key Personnel. The Company's success is dependent on the
retention of principal members of its management and scientific staff and on
the ability to continue to attract, motivate and retain additional key
personnel. Competition for such key personnel is intense, and the loss of the
services of key personnel or the failure to recruit necessary additional
personnel could have a material adverse effect on the Company's operations and
on its research and development efforts. The Company does not have non-
competition agreements with any of its key employees. The Company's
anticipated expansion into areas and activities requiring additional
expertise, such as manufacturing, marketing and distribution, are expected to
place increased demands on the Company's resources. These activities are
expected to require the addition of new personnel with expertise in these
areas and the development of additional expertise by existing personnel. The
successful integration of the Facility with the operations of Catalytica
Pharmaceuticals will be significantly dependent upon Catalytica
Pharmaceuticals' ability to attract and retain the personnel (including former
Glaxo Wellcome employees) necessary to effectively integrate, and thereafter
operate, the combined businesses. In this regard, Catalytica Pharmaceuticals
has hired certain key managers of the Facility. Any failure on the part of
Catalytica Pharmaceuticals to attract or retain necessary personnel would have
a material adverse effect on the Company's consolidated results of operations.
Uncertainties Related to Combustion Systems Business. The Company, through
its subsidiary Catalytica Combustion Systems, Inc. ("CCSI"), and the GENXON
joint venture, is still conducting research and development on its combustion
systems. Prior to commercialization of its combustion systems, the Company's
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products will be required to undergo rigorous testing by turbine
manufacturers. Ultimate sales of the Company's combustion system products will
depend upon the acceptance and use of the Company's technology by a limited
number of turbine manufacturers and the Company's ability to enter into
commercial relationships with these manufacturers. The Company's subsidiary,
CCSI, is currently working with leading turbine manufacturers, including:
General Electric in large turbines, Allison Engine Co., a subsidiary of Rolls
Royce, and Solar, a subsidiary of Caterpillar, Inc., in medium size turbines.
In addition, through its joint venture company GENXON, CCSI is developing
complete combustor systems for Affiliated Group of Companies (AGC), to be used
on small Kawasaki Heavy Industries turbines for mobile cogeneration
applications. GENXON is also developing complete combustor systems utilizing
Catalytica's combustion technology for end users to be retro fitted on older
out-of-warranty turbines no longer supported by OEM's. Neither the Company,
its subsidiary CCSI, nor the joint venture company GENXON have formal long-
term agreements in place with many of these companies. The Company's ability
to complete research and development and introduce commercial systems for
these markets would be adversely affected if any of these companies terminated
its relationship with the Company or GENXON. If such terminations occurred,
there is no assurance as to whether the Company could enter into a similar
relationship with another manufacturer.
The Company currently has limited manufacturing and marketing capability for
its combustion products. The Company's existing facilities are inadequate for
commercial production of the combustion products under development, and to the
extent that the Company chooses to produce commercial quantities of its
products, the Company will be required to develop or acquire manufacturing
capability. In order to market any of its combustion system products, the
Company will be required to develop marketing capability, either on its own or
in conjunction with others. There can be no assurance that the Company will be
able to manufacture its products successfully or develop an effective
marketing and sales organization. In addition, some of the Company's
combustion systems and processes are expected to be sold as components of
large systems such as natural gas turbines for electric power plants.
Accordingly, the rate of adoption of the Company's systems and processes may
depend in part on economic conditions which affect capital investment
decisions, as well as the regulatory environment. There can be no assurance
that the Company's combustion products will be economically attractive when
compared to competitive products.
In October 1996 Combustion Systems and Woodward Governor Company formed a
Delaware limited liability company in connection with a 50/50 joint venture to
serve the gas turbine retrofit market for installed, out-of-warranty engines.
The new company, GENXON(TM) Power Systems, LLC ("GENXON"), will initially
provide gas turbine fleet asset planning and utilization services for both
power generation and mechanical drive markets. GENXON plans to deliver an
integrated product portfolio which includes Combustion Systems' system for
ultra low NOx emissions, Woodward's control systems, turbine overhaul and
upgrades, as well as contract maintenance and service. Unlike Catalytica
Combustion Systems' efforts to date which have focused only on the design of
the catalyst assembly, GENXON is developing entire combustion systems. The
development of complete combustion systems by GENXON to serve the retrofit
market will require the design of new combustion chambers to be retrofitted on
existing turbines. This new combustion chamber will incorporate a XONON
catalyst. There can be no assurance that GENXON will be successful in
developing new combustion chambers that will work in lieu of the current
design that does not incorporate a catalyst. There can be no assurance that
GENXON's products will be economically attractive when compared to competitive
products.
The initial capital commitment of the GENXON joint venture partners is $10
million--$2 million from Combustion Systems and $8 million from Woodward--
payable over time as the funds are required by the joint venture. These
capital infusions are predicated upon reaching certain milestones, and neither
joint venture partner is contractually required to make further capital
infusions if these milestones are not met. If the milestones are not met, and
the Company desired to complete any projects being developed by the joint
venture, the Company could be required to fund the projects itself if Woodward
decides not to make any additional capital contributions to GENXON. If such an
event were to occur, it could have a material adverse effect on the Company's
results of operations and financial condition.
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On January 3, 1997, Catalytica Combustion Systems, Inc. (CCSI) made its
first cash infusion of $1.0 million into the GENXON joint venture. CCSI
recognized its 50% share of GENXON losses of $.45 million for the second
quarter of 1997 and $1.45 million for the first six months of 1997 up to its
committed capital contribution of $1.45 million. Accordingly, a $1.45 million
loss on the joint venture was recognized in the results of operations. The
Company estimates it may make additional capital contributions to the joint
venture of up to $1.0 million during the remaining two quarters of 1997. If
GENXON continues to generate losses during this time frame, the Company will
record its share of these losses to the extent of its capital contribution.
However, these losses may be partially offset by reimbursements for past R&D
expenses if certain GENXON milestones are achieved. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Future Capital Requirements and Uncertainty of Additional Funding; Increased
Leverage. The Company's operations to date have required substantial amounts
of cash. As part of the financing of the Acquisition, Catalytica
Pharmaceuticals incurred approximately $140 million of long-term indebtedness.
The Company and its subsidiaries have guaranteed this indebtedness. As a
result of this increased leverage, Catalytica Pharmaceuticals' principal and
interest obligations will be increased substantially. The Company anticipates
that cash flows associated with the Supply Agreement will be sufficient to
reduce indebtedness incurred in connection with the Acquisition to a level
supportable by the current assets of the Company.* The degree to which
Catalytica Pharmaceuticals is leveraged could adversely affect Catalytica
Pharmaceuticals' and the Company's ability to obtain additional financing for
working capital, acquisitions or other purposes and could make Catalytica
Pharmaceuticals and the Company more vulnerable to economic downturns and
competitive pressures. The Company's future capital requirements will depend
on many factors, including Catalytica Pharmaceuticals level of business beyond
the Supply Agreement with Glaxo Wellcome, the rate of commercialization of the
Company's catalytic combustion systems, and the need to expand manufacturing
capacity for pharmaceutical or combustion systems business. Adequate funds for
future operations, whether from the financial markets or from collaborative or
other arrangements, may not be available when needed or on terms acceptable to
the Company and, if available or acceptable to the Company, may result in
significant dilution to existing stockholders. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Risk of Product Liability. Although Catalytica Pharmaceuticals intends to
seek indemnification from its customers for any product liability claims that
may result from the pharmaceutical products it produces, there can be no
assurance that Catalytica Pharmaceuticals will not ultimately be found liable
for any product liability claims regarding products it manufactures.
Catalytica Pharmaceuticals expects it will be required to indemnify its
customers for product liability claims if a manufacturing defect results in
injury. There can be no assurance that Catalytica Pharmaceuticals will be able
to obtain or maintain product liability insurance in the future on acceptable
terms or with adequate coverage against potential liabilities. If Catalytica
Pharmaceuticals is found liable in a product liability claim and the Company
does not have adequate product liability insurance or indemnification, the
Company's consolidated results of operations could be materially adversely
effected. Additionally, under the Supply Agreement, Catalytica Pharmaceuticals
will be obligated to maintain $100,000,000 of product liability insurance. If
Catalytica Pharmaceuticals does not meet this requirement, it would be
considered a default under the Supply Agreement.
Hazardous Materials and Environmental Matters. The Company's research and
development activities and fine chemicals manufacturing involve the use of
many hazardous chemicals. The use of such chemicals will significantly
increase as a result of the acquisition of the Facility from Glaxo Wellcome.
The Company is subject to extensive federal, state and local laws and
regulations governing the use, manufacture, storage, handling and disposal of
such materials and associated waste products. The Company believes that its
properties and operations comply in all material respects with applicable
environmental laws; however, the risk of environmental liabilities cannot be
completely eliminated. Public awareness of environmental issues has increased
the impact of such laws on the conduct of manufacturing operations and
ownership of property. Any failure by the Company to comply with present or
future environmental laws could result in cessation of portions or all of the
Company's operations, impositions of fines, restrictions on the Company's
ability to carry on or expand its operations, significant expenditures by the
Company to comply with environmental laws and
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regulations, and/or liabilities in excess of the resources of the Company. The
Company has environmental impairment insurance with regard to first party and
third party liability in the amount of $25,000,000 (with a $1,000,000
retention) with respect to the Facility only. There can be no assurance that
the Company will not be required to make renovations or improvements to comply
with environmental laws and regulations in the future. The Company's
operations, business or assets could be materially adversely affected in the
event such environmental laws or regulations require the Company to modify
current facilities substantially or otherwise limit the Company's ability to
conduct or expand its operations.
Catalytica Pharmaceuticals expects that significant expenditures may be
incurred at the Facility as a result of new environmental regulations
currently under consideration. The United States Environmental Protection
Agency (the "EPA") is considering new regulations for the pharmaceutical
industry under the authority of the federal Clean Air Act. These proposed
regulations would require the installation of "Maximum Achievable Control
Technology" for certain hazardous air pollutant emissions sources
("Pharmaceutical MACT"). The EPA is also considering changes to its
particulate matter emissions regulations as well as regulation of certain
ozone precursor emissions. As these rules are in the early stages of
consideration by the EPA, and as there can be no assurance of their adoption,
the additional cost of complying with such regulations cannot be determined at
this time. There can be no assurance that Catalytica Pharmaceuticals will not
be required to make additional renovations or improvements to comply with
environmental laws and regulations in the future. Catalytica Pharmaceuticals'
operations, business and assets could be materially adversely affected in the
event such environmental laws or regulations require Catalytica
Pharmaceuticals to modify the current Facility substantially or otherwise
limit Catalytica Pharmaceuticals' ability to conduct or expand its operations.
Current and Potential Environmental Contamination at Catalytica
Pharmaceuticals' Two Sites. The Company through a subsidiary leases the land
on which its Bayview facility in East Palo Alto, California is located from
Rhone Poulenc, Inc., ("Rhone Poulenc"). The past activities of Rhone Poulenc's
predecessor caused significant soil and groundwater contamination of the
facility and a down gradient area located along the San Francisco Bay.
Consequently, the site is subject to a clean up and abatement order issued by
the Bay Area Regional Water Quality Control Board ("RWQCB") which currently
requires stabilization, containment and monitoring of the arsenic and volatile
organic contamination at the site and surrounding areas. The ground lease
between Rhone Poulenc and the Company includes an indemnity by Rhone Poulenc
against any costs and liabilities that the Company might incur to fulfill the
RWQCB order and to otherwise address the contamination that is the subject of
the order. The Company also has obtained an indemnification from Novartis (the
immediately preceding owner/operator of the facility) against any costs and
liability the Company may incur with respect to any contamination caused by
Novartis' operations. However, there can be no assurance that the Company will
not be held responsible with respect to the existing contamination or named in
an action brought by a governmental agency or a third party because of such
contamination. If the Company is held responsible and it has contributed to
the contamination, it will be liable for any damage to third parties, and will
be required to indemnify Rhone Poulenc and Novartis for any additional clean
up costs or liability they may incur, with respect to the contamination caused
by the Company. The determination of the existence and additional cost of any
such incremental contamination contribution by the Company could involve
costly and time-consuming negotiations and litigation. Further, any such
incremental contamination by the Company or the unenforceability of either of
the indemnity agreements described above could materially adversely affect the
Company's business and results of operations.
Glaxo Wellcome has been working with the EPA and the North Carolina
Department of Environment, Health and Natural Resources (the "NCDEHNR") to
investigate, identify and remediate contamination in the soil and groundwater
at the Facility. This investigation, carried out pursuant to the federal
Resource Conservation and Recovery Act, has identified 16 different areas of
the Facility where contamination has or may have occurred. Of these 16 areas,
at least five have been identified as requiring further investigation and
remediation by NCDEHNR ("Site Contamination"). Contaminants found in the soil
and groundwater at the Facility include solvents, petroleum hydrocarbons and
pesticides. As the new owner of the Facility, Catalytica Pharmaceuticals will
become liable for such contamination. Although it is unknown at this time what
further remediation will be
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required at the Facility and the cost of such remediation, Glaxo Wellcome has
agreed to be primarily liable for any contamination at the Facility site prior
to the closing of the Acquisition and to perform, at its cost, the remediation
required by law for contamination of the soil and groundwater existing at the
Facility as of the Closing. The Environmental Agreement with Glaxo Wellcome
also requires Catalytica Pharmaceuticals to provide access to the Facility and
certain facility services as required for the remediation, subject to
reimbursement by Glaxo Wellcome. However, there can be no assurance that the
Company or Catalytica Pharmaceuticals will not incur unreimbursed costs or
suffer an interference with ongoing operations as a result of Glaxo Wellcome's
remediation activities or the existence of contamination at the Facility. In
addition, the Company's future development of the Facility may be limited by
the existence of contamination or Glaxo Wellcome's remediation activities.
There also can be no assurance that Catalytica Pharmaceuticals' ongoing
operations at the Facility will not cause additional contamination. The
determination of the existence and cost of any such additional contamination
contributed by Catalytica Pharmaceuticals of the Company could involve costly
and time-consuming negotiations and litigation. Furthermore, any such
contamination caused by Catalytica Pharmaceuticals or the Company could
materially adversely affect the business, results of operations and financial
condition of Catalytica Pharmaceuticals and the consolidated results of
operations and financial condition of the Company.
In addition, a significant amount of asbestos containing material ("ACM") is
present at the Facility. Catalytica Pharmaceuticals believes that the ACM, in
its present condition, does not require abatement. Abatement will only be
required if and as renovations are performed in those areas containing ACM.
Catalytica Pharmaceuticals cannot presently predict whether, when or to what
extent it may need or desire to renovate areas of the Facility containing ACM.
However, should such renovations be necessary, the additional costs could be
substantial. The cash consideration for the Facility was reduced by
approximately $6,400,000, in exchange for the assumption by the Company and
Catalytica Pharmaceuticals of the liability associated with the abatement of
ACM present at the Facility. There is no assurance that such amount will be
adequate to cover the costs associated with any future abatement of ACM at the
Facility. See also "Hazardous Materials and Environmental Matters."
Catalytica Pharmaceuticals' Compliance with FDA Regulations. Many of the
fine chemicals products Catalytica Pharmaceuticals manufactures, or will
manufacture in the future, and the final drug products in which they are used
are subject to regulation for safety and efficacy by the FDA and foreign
regulatory authorities before such products can be commercially marketed. The
process of obtaining regulatory clearances for marketing is uncertain, costly
and time consuming. Catalytica Pharmaceuticals cannot predict how long the
necessary regulatory approvals will take or if its customers will ever obtain
such approval for their products. To the extent Catalytica Pharmaceuticals'
customers do not obtain the necessary regulatory approvals for marketing new
products, Catalytica Pharmaceuticals' fine chemicals product sales will be
adversely affected.
Products manufactured by Catalytica Pharmaceuticals at the facility require
Catalytica Pharmaceuticals to comply with the FDA's current Good Manufacturing
Practices ("cGMP") regulations, and certain of Catalytica Pharmaceuticals'
customers, including Glaxo Wellcome, also require Catalytica Pharmaceuticals
to adhere to cGMP regulations, even if not required by the FDA. In complying
with cGMP regulations, manufacturers must continue to expend time, money and
effort in production, recordkeeping and quality control to ensure that the
product meets applicable specifications and other requirements. The FDA
periodically inspects drug manufacturing facilities to ensure compliance with
applicable cGMP requirements. Failure to comply subjects the manufacturer to
possible FDA action, such as suspension of manufacturing. The FDA also may
require the submission of any lot of the product for inspection and may
restrict the release of any lot that does not comply with FDA regulations, or
may otherwise order the suspension of manufacture, recall or seizure. Failure
of Catalytica Pharmaceuticals' customers to obtain and to maintain FDA
clearance for marketing of the products manufactured by Catalytica
Pharmaceuticals, or failure of Catalytica Pharmaceuticals to comply with cGMP
regulations as required by the FDA or Catalytica Pharmaceuticals' customers,
would have a material adverse effect on the Company's results of operations.
18
<PAGE>
Influence of Environmental Regulations on Rate of Commercialization. The
rate at which the Company's catalytic combustion systems are adopted by
industrial companies will be heavily influenced by the enactment and
enforcement of environmental regulations at the federal, state and local
levels. Current federal law governing air pollution generally does not mandate
the specific means for controlling emissions, but instead, creates ambient air
quality standards for individual geographic regions to attain through
individualized planning on a regional basis in light of the general level of
air pollution in the region. Federal law requires state and local authorities
to determine specific strategies for reducing emissions or specific
pollutants. Among other strategies, state and local authorities in all areas
which do not meet ambient air quality standards must adopt performance
standards for all major new and modified sources of air pollution. The more
polluted the air in a particular region has become, the more stringent such
controls must be. The Company's revenues will depend, in part, on the
standards, permit requirements and programs these state and local authorities
promulgate for reducing emissions (including emissions of NOx) addressed by
the Company's combustion and monitoring products systems. Demand for the
Company's systems and processes will be affected by how quickly the standards
are implemented and the level of reductions required. Certain industries or
companies may successfully delay the implementation of existing or new
regulations or purchase or acquire emissions credits from other sources, which
could delay or eliminate their need to purchase the Company's systems and
processes. Moreover, new environmental regulations may impose different
requirements which may not be met by the systems and processes being developed
by Catalytica or which may require costly modifications of the Company's
products. The United States Congress is currently reviewing existing
environmental regulations. There can be no certainty as to whether Congress
will amend or modify existing regulations in a manner that could have an
adverse effect on demand for the Company's combustion system products.
Competition and Technological Change. There are numerous competitors in a
variety of industries in the United States, Europe and Japan which have
commercialized and are working on technologies that could be competitive with
those under development by the Company, including both catalytic and other
technological approaches. Some of these competitive products are in more
advanced stages of development and testing. The Company's competitors may
develop technologies and systems and processes that are more effective than
those being developed by the Company or that would render the Company's
technology and systems and processes less competitive or obsolete. In the fine
chemicals market, the Company faces its primary competition from
pharmaceutical companies that produce their own fine chemicals and from other
fine chemicals manufacturers such as Lonza AG and DSM Fine Chemicals. In the
combustion systems market, the Company faces its primary competition from
large gas turbine power generation manufacturers, such as General Electric Co.
("General Electric"), Allison Engine Company ("Allison") and Solar Turbines
Incorporated ("Solar"), each of which is developing competing DLN systems for
their own turbines. Many of the Company's competitors in the combustion
systems market are also potential customers of the Company, and the Company
expects to rely on these potential customers to help commercialize its
products. Most of these competitors have greater research and development
capabilities, financial resources, managerial resources, marketing experience
and manufacturing experience than the Company. If these companies are
successful in developing such products, the Company's ability to sell its
systems and processes would be materially adversely affected. Further, since
many of the Company's competitors are existing or potential customers, the
Company's ability to gain market share may be limited.
Patents and Intellectual Property. The Company has an active program of
pursuing patents for its inventions in the United States and in markets
throughout the world relevant to its business areas. The Company has 38 United
States patents and 13 pending United States patent applications, plus 70
foreign patents and patent applications.
The Company's success will depend on the ability to continue to obtain
patents, protect trade secrets and operate without infringing on the
proprietary rights of others in the United States and other countries. There
can be no assurance that the Company's patent applications will result in the
issuance of any patent, that any of the Company's existing patents or any
patents that may be issued in the future will provide significant proprietary
protection, that any such patents will be sufficiently broad to protect the
Company's technology, or that any such
19
<PAGE>
patents will not be challenged, circumvented or invalidated. There can also be
no assurance that the patents of others will not have an adverse effect on the
Company. Others may independently develop similar systems or processes or
design around patents issued to the Company. In addition, the Company may be
required to obtain licenses to patents or other proprietary rights. The
Company cannot assure that any licenses required under any such patents or
proprietary rights would be made available on terms acceptable to the Company,
if at all. If Catalytica requires and does not obtain such licenses, it could
encounter delays in system or process introductions while it attempts to
design around such patents, or it could find that the development,
manufacture, sale or licensing of systems or processes requiring such licenses
could be foreclosed. The Company could incur substantial costs in defending
itself or its licensees in litigation brought by others or prosecuting
infringement claims against third parties. The Company could incur substantial
costs in interference proceedings declared by the United States Patent and
Trademark Office in connection with one or more of the Company's or third
parties' patents or patent applications, and those proceedings could also
result in an adverse decision as to the priority of the Company's inventions.
The Company also protects its proprietary technology and processes in part by
confidentiality agreements with its collaborative partners, employees and
consultants. There can be no assurance that these agreements will not be
breached, that the Company will have adequate remedies for any breach, or that
the Company's trade secrets will not otherwise become known or be
independently discovered by competitors.
Concentration of Ownership. Morgan Stanley Capital Partners III, L.P. and
two affiliated funds (collectively, "MSCP") beneficially own approximately 40%
of the voting control of the Company and 60% of the outstanding capital stock
of the Company. Upon completion of a contemplated repurchase by the Company of
5,000,000 shares of Class B Common Stock from MSCP, MSCP will beneficially own
approximately 40% of the voting control of the Company and 48.5% of the
outstanding Capital Stock of the Company. As a result, MSCP is able to
exercise significant influence over all matters requiring stockholder
approval, including the election of directors and approval of all significant
corporate transactions such as any merger, consolidation or sale of all or
substantially all of the Company's assets. Moreover, the Company has granted
to MSCP certain contractual rights, including representation on the Company's
Board of Directors and committees of the Board of Directors, that will give
MSCP additional rights to participate in certain actions to be taken by the
Company. Such concentration of ownership and contractual rights may have the
effect of delaying, deferring or preventing a change of control of the
Company. The sale by MSCP of shares of the Company's capital stock could
constitute a change of control under the Company's credit agreement which
would trigger a default of the agreement. MSCP has agreed not to trigger a
change of control under the credit agreement. In addition, such concentration
of ownership and contractual rights could allow MSCP to prevent significant
corporate transactions. In addition, Glaxo Wellcome owns approximately 1.5% of
the outstanding capital stock of Catalytica Pharmaceuticals and owns a warrant
to purchase 2,000,000 shares of Common Stock which represents approximately
3.8% of the Company's outstanding capital stock. See "Item 5--Other
Information--Financing of the Acquisition."
20
<PAGE>
PART II--OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 29, 1996, at the annual stockholder's meeting, a quorum of
stockholders of the Company approved the following proposals: (1) the re-
election of the Board of Directors; (2) issuance of Class A and Class B Common
Stock and Common Stock Warrants for the Acquisition of the Greenville
Facility; (3) Amendment of the Company's Certificate of Incorporation; (4)
amendment of the Company's 1995 Director Stock Option Plan to increase the
number of Shares of Common Stock reserved thereunder by 100,000 shares; (5)
amendment to the Company's 1992 Employee Stock Purchase Plan to increase the
number of shares of Common Stock reserved for issuance thereunder by 1,500,000
shares; (6) amendment to the Company's 1992 Stock Option Plan to increase the
number of shares of Common Stock reserved for issuance thereunder by 1,100,000
shares; and (7) ratification of the appointment of Ernst & Young LLP to serve
as the Company's independent auditors for the ensuing year.
Proposal 1. Election of Directors
DIRECTOR FOR AGAINST ABSTAIN
-------- ---------- --------- -------
James A Cusumano.............................. 13,146,340 0 638,000
Utz Felcht.................................... 13,146,340 0 638,000
Richard Fleming............................... 13,144,340 0 640,000
Ricardo B. Levy............................... 13,146,340 0 638,000
Ernest Mario.................................. 13,144,340 0 640,000
Yoshindo Tomoi................................ 12,929,281 0 855,059
John A. Urquhart.............................. 13,143,500 0 640,840
Proposal 2. Issuance of Class A and Class B Common Stock and Common Stock
Warrants for the Acquisition of the Greenville Facility
FOR AGAINST ABSTAIN
---------- --------- -------
13,136,939 615,201 32,200
Proposal 3. Amendment of the Company's Certificate of Incorporation
FOR AGAINST ABSTAIN
---------- --------- -------
13,655,689 93,701 34,950
Proposal 4. Amendment of the Company's 1995 Director Stock Option Plan to
increase the number of shares of Common Stock reserved thereunder by 100,000
shares
FOR AGAINST ABSTAIN
---------- --------- -------
13,051,965 692,110 40,265
Proposal 5. Amendment to the Company's 1992 Employee Stock Purchase Plan to
increase the number of shares of Common Stock reserved for issuance thereunder
by 1,500,000 shares
FOR AGAINST ABSTAIN
---------- --------- -------
13,618,261 130,979 35,100
Proposal 6. Amendment to the Company's 1992 Stock Option Plan to increase the
number of shares of Common Stock reserved for issuance thereunder by 1,100,000
shares
FOR AGAINST ABSTAIN
---------- --------- -------
10,607,282 3,138,353 38,705
21
<PAGE>
Proposal 7. Ratification of Appointment of Independent Auditors
FOR AGAINST ABSTAIN
---------- ------- -------
13,747,169 7,171 30,000
ITEM 5. OTHER INFORMATION
ACQUISITION OF GLAXO WELLCOME MANUFACTURING FACILITY
GENERAL
On July 31, 1997 Catalytica Pharmaceuticals announced the completion of its
acquisition of a 1.8 million-square-foot pharmaceutical manufacturing facility
in Greenville, North Carolina (the "Facility") from Glaxo Wellcome Inc. (the
"Acquisition"). The transaction was financed through a combination of an
equity investment by Morgan Stanley Capital Partners and a debt facility with
a syndicate of banks led by The Chase Manhattan Bank. Shareholders approved
proposals necessary to complete the acquisition at Catalytica's annual meeting
on July 29, 1997.
Catalytica Pharmaceuticals will continue to manufacture many of the Glaxo
Wellcome pharmaceutical products that have been produced at the Facility in
recent years under a five-year, $800 million supply agreement between the two
companies. Plant capacity not dedicated to Glaxo Wellcome will be available to
fill orders from other Catalytica customers. The Greenville plant will be
managed by Gabriel R. Cipau, Ph.D., who has joined Catalytica Pharmaceuticals
as president and chief operating officer. Dr. Cipau was formerly senior vice
president in charge of the Greenville facility for Burroughs Wellcome Co.
prior to that company's merger with Glaxo in 1995.
DESCRIPTION OF THE ACQUISITION
Pursuant to an Asset Purchase Agreement dated June 25, 1997 by and among
Catalytica, Catalytica Pharmaceuticals and Glaxo Wellcome, on July 31, 1997,
Catalytica Pharmaceuticals acquired from Glaxo Wellcome (i) all the land,
buildings and improvements thereon and certain rights relating thereto
comprising the pharmaceutical manufacturing facility of Glaxo Wellcome located
in Greenville, North Carolina, and containing approximately 582 acres of land,
(ii) substantially all of the machinery, equipment, furniture, fixtures,
transportation and distribution equipment, waste treatment facilities,
computers, analytical equipment, instruments, communication equipment, control
systems, spare parts, supplies, materials and all other items of tangible
personal property owned by Glaxo Wellcome and located at the Facility, (iii)
certain permits and related regulatory requirements, certifications and
licenses from governmental or regulatory authorities used in operation of the
Facility and transferable by Glaxo Wellcome, (iv) certain contracts relating
to the operation of the Facility that are transferable or assignable by Glaxo
Wellcome and (v) certain existing inventories of work-in-process, raw
materials and other materials and supplies (collectively, the "Purchased
Assets").
The consideration paid by Catalytica Pharmaceuticals to Glaxo Wellcome for
the Purchased Assets consisted of (i) approximately $246.6 million in cash;
(ii) 250,000 shares of Junior Preferred Stock of Catalytica Pharmaceuticals;
(iii) warrants to purchase 2,000,000 shares of Common Stock of Catalytica at
an exercise price of $12.00 per share exercisable until July 31, 2003 (the
"Warrant Issuance"), and (iv) 10% of the earnings before interest and taxes in
excess of an aggregate cumulative amount of $10 million attributable to the
sterile products portion of the Facility, up to an aggregate cumulative
payment to Glaxo Wellcome of an additional $25.0 million.
The price of the Purchased Assets was determined on the basis of a
comprehensive analysis of the Facility and its capabilities, the Company's
prospects for additional pharmaceutical product business and the cash flows
the Company believed it could generate from operation of the Facility.
Following this analysis there was extensive negotiation with Glaxo Wellcome
with respect to the purchase price and the value of various elements of
Catalytica's acquisition proposal other than the cash payment. The Company did
not receive an independent
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<PAGE>
appraisal of the Facility, but conducted several internal evaluations and
produced various financial models related to the Acquisition.
FINANCING OF THE ACQUISITION
Simultaneous with the closing of the Acquisition, the Company closed a sale
of 13,270,000 shares of its Class A Common Stock and 16,730,000 shares of its
Class B Common Stock to Morgan Stanley Capital Partners III, L.P. and two
affiliated funds ("MSCP") (collectively, the "Stock Sale"), at a price of
$4.00 per share, for an aggregate of $120,000,000. As a result of the Stock
Sale, as of July 31, 1997 MSCP owns approximately 40% of the Company's
outstanding voting securities and approximately 60% of the Company's
outstanding securities on a fully converted basis.
The Class A Common Stock and Class B Common Stock have the following rights
and preferences:
Voting. The Class A Common Stock votes together with the Common Stock as a
single class, except that so long as MSCP owns in the aggregate not less than
20% of the Company's outstanding Common Stock, a separate class vote of the
Class A Common Stock will be required for (i) the issuance of any additional
capital stock that ranks senior or pari passu to the Class A Common Stock or
Class B Common Stock, (ii) any changes to the Company's Certificate of
Incorporation that would adversely affect the rights of the Class A Common
Stock or Class B Common Stock, and (iii) any merger or consolidation of the
Company that has an effect on the Class A Common Stock or Class B Common Stock
substantially similar to (i) or (ii) above. In addition, the approval of a
majority of the outstanding shares of Class A Common Stock will be required
before the Company can (a) enter into any arrangements which would affect the
capital structure or financing of the operations of the Company in excess of
$5,000,000 annually, other than an extension or renewal of any existing
indebtedness, (b) to authorize changes to the aggregate cash or equity
compensation of senior corporate officers of the Company and its subsidiaries,
or (c) to merge or consolidate the Company with or into another corporation or
the sale, transfer or lease all or substantially all of the assets of the
Company.
Dividends. There shall be no dividends on the Class A Common Stock. If a
dividend is paid on the Common Stock, the holders of the Class A Common Stock
shall be entitled to receive an amount equal to the amount which would have
been paid had the Class A Common Stock been converted to Common Stock in
accordance with its terms.
Catalytica has never declared or paid cash dividends on its capital stock.
The Company currently intends to retain its earnings to finance the operation
and expansion of its business and therefore does not expect to pay any cash
dividends in the foreseeable future.
Conversion. Each share of Class A Common Stock may be converted at the
option of the holder into shares of Common Stock at the then effective
conversion price. Each share of Class A Common Stock shall automatically
convert into Common Stock (i) upon any transfer by MSCP, including any
distribution to its partners or affiliated entities, or (ii) if less than 10%
of the shares of Class A Common Stock initially issued are outstanding. The
conversion price initially shall be $4.00 per share and shall be subject to
adjustment in certain cases as described below. The Company may issue up to
$25,000,000 of aggregate amount of capital stock or warrants to stockholders
of the Company prior to May 31, 1998 without triggering an adjustment to the
conversion price of the Class A Common Stock. In addition, the Company may
issue in the aggregate up to an additional $2,500,000 of capital stock or
warrants to stockholders of the Company without triggering an adjustment to
the conversion price of the Class A Common Stock provided that such additional
capital stock is issued in connection with the exercise of the warrants from
the Warrant Issuance.
Liquidation Preference. The liquidation preference of the Class A Common
Stock ranks senior to all other common stock and preferred stock at any time
outstanding of the Company unless agreed to by MSCP. The liquidation
preference of the Class A Common Stock will be equal to the greater of (i)
$4.00 per share plus any accrued and unpaid dividends (the "Liquidation
Preference"), and (ii) the amount that holders thereof would
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<PAGE>
have received in such liquidation had the Class A Common Stock been converted
to common stock in accordance with its terms. For purposes of this provision,
any merger, consolidation or other business combination as a result of which
the stockholders of the Company immediately before such transaction own less
than 50% of the total voting power of the surviving corporation or the sale of
all or substantially all of the assets of the Company shall in each case be
deemed a liquidation of the Company.
Other Terms. Appropriate adjustments shall be made to the liquidation and
conversion rights of the Class A Common Stock in cases of (a) stock splits,
reclassifications, stock dividends, rights offerings and similar events to
existing holders of Common Stock, and (b) in the event of issuance of Common
Stock or securities which are convertible into or which provide the right to
purchase Common Stock at less than fair market value at the time of issuance,
except in the case of shares or options issued or provided (i) upon conversion
of the Class A Common Stock or Class B Common Stock; (ii) to employees,
officers, directors and consultants of the Company pursuant to any employee
stock incentive plans or agreements; (iii) as a dividend or distribution on
the Class A Common Stock or Class B Common Stock; (iv) in connection with the
Acquisition of the assets or voting securities of another corporation or
entity; (v) upon exercise of warrants issued to Glaxo Wellcome in connection
with the Acquisition; (vi) upon issuance of up to $25,000,000 aggregate amount
of capital stock and/or warrants of the Company to stockholders of the Company
at any time prior to May 31, 1998; and (vii) in an underwritten public
offering that results in gross proceeds in excess of $5.0 million to the
Company.
The Class B Common Stock has the same powers, preferences and rights
described above as the Class A Common Stock, except that the Class B Common
Stock is convertible into Class A Common Stock, has no voting rights (except
as required by Delaware law) and has no right for the election of directors.
The shares of Class B Common Stock will, upon any transfer of such shares by
MSCP, be automatically converted into a like number of shares of Common Stock,
subject to adjustment upon certain events with respect to the Common Stock.
The shares of Class B Common Stock are convertible at the option of MSCP into
Common Stock or Class A Common Stock so long as such conversion results in
MSCP holding 40% or less of the Company's outstanding voting securities.
In addition, MSCP has the right, at any time after July 1, 1998, to request
the Company to effect a registration (a "Registration Request") of shares of
Common Stock issuable upon conversion of the Class A Common Stock and Class B
Common Stock held by it with an aggregate offering price of at least $15
million. MSCP is entitled to four Registration Requests. Registration Requests
may not be made within six months of any other Registration Request. In
addition, in the event the Company proposes to register any of its securities
for its own account or the account of any of its stockholders (other than
certain registrations relating solely to a stock option or other similar
employee benefit plan), MSCP will have the right, upon a timely request and
subject to a right of priority in favor of the Company, to have the Common
Stock issuable upon conversion of the Class A Common Stock and Class B Common
Stock included in such registration. All expenses of registration will be
borne by the Company, but any underwriters' fees, discounts or commissions
will be borne by MSCP.
In addition to the equity investment by MSCP, the Company, The Chase
Manhattan Bank ("Chase") and Chase Securities Inc. ("CSI") have entered into a
credit agreement pursuant to which a syndicate of banks led by Chase has
agreed to lend Catalytica Pharmaceuticals an aggregate of up to $200,000,000
(the "Debt Facilities"). The Debt Facilities consist of a senior secured term
loan facility (the "Term Debt Facility") in an aggregate principal amount of
$125,000,000 and a senior secured revolving facility (the "Revolving Debt
Facility") in an aggregate principal amount of $75,000,000. Up to $20,000,000
of the Revolving Debt Facility will be available for the issuance of letters
of credit. The Term Debt Facility will mature four and one-half years after
consummation of the Acquisition and will amortize in quarterly installments
commencing on the last day of the third fiscal quarter of 1998 in aggregate
annual amounts of (i) $50,000,000 in the year 1998, (ii) $37,500,000 in the
year 1999, (iii) $20,000,000 in the year 2000, and (iv) $17,500,000 in the
year 2001. The Revolving Debt Facility will mature four and one-half years
after consummation of the Acquisition.
All obligations of Catalytica Pharmaceuticals under the Debt Facilities are
guaranteed by the Company and each existing or subsequently acquired or
organized domestic (and, to the extent no adverse tax consequences
24
<PAGE>
would result, foreign) subsidiary of the Company. The Debt Facilities,
including the guarantees, are secured by (i) substantially all of the assets
of the Company, Catalytica Pharmaceuticals and each existing or subsequently
acquired or organized domestic (and, to the extent no adverse tax consequences
would result, foreign) subsidiary of Catalytica Pharmaceuticals and (ii) a
first-priority pledge of (a) all the capital stock of Catalytica
Pharmaceuticals held by the Company and (b) all the capital stock held by the
Company or held by any domestic (and, to the extent no adverse tax
consequences would result, foreign) subsidiary of the Company or each other
existing or subsequently acquired or organized subsidiary of the Company.
Both the Term Debt Facility and the Revolving Debt Facility will initially
bear interest at an annual rate equal to the Adjusted London Interbank Offered
Rate ("Adjusted LIBOR") plus 1.25% or the Alternate Base Rate ("ABR") plus
0.255. Catalytica Pharmaceuticals is also required to pay a commitment fee on
the undrawn portion of the Debt Facilities initially equal to 0.375% per
annum. Commencing after the last day of the fourth full fiscal quarter after
the closing date in which Catalytica Pharmaceuticals has delivered to Chase
its consolidated financial statements for the applicable period, the spread
over Adjusted LIBOR and ABR and the amount of the commitment fee will be
determined by the relationship between the Company's consolidated earnings
before interest, taxes, depreciation and amortization ("EBITDA") and the then
aggregate amount of the Company's consolidated total debt outstanding (between
0.5% and 1.75% in the case of Adjusted LIBOR elections, 0% and 0.75% in the
case of ABR elections and 0.2% and 0.375% in the case of the commitment fee).
Commencing in fiscal 1998, loans under the Debt Facilities must be prepaid
with 75% of excess cash flow, 100% of net cash proceeds of all non-ordinary
course asset sales or other disposition of property of the Company and its
subsidiaries net of amounts to be agreed upon to be reinvested in the same
line of business within one year of the receipt thereof, subject to certain
limited exceptions, and 100% of the net cash proceeds of issuances of debt
obligations of the Company and its subsidiaries, subject to certain limited
exceptions.
The Debt Facilities contain negative covenants that are customary for debt
facilities and transactions of this type, including but not limited to
limitations on dividends to be paid on capital stock (including the Class A
Common Stock and the Class B Common Stock to be issued to MSCP, the Junior
Preferred Stock to be issued to Glaxo Wellcome and other preferred stock),
limitations on redemptions and repurchases of capital stock (including the
Class A Common Stock and the Class B Common Stock to be issued to MSCP, the
Junior Preferred Stock to be issued to Glaxo Wellcome and other preferred
stock), limitations on debt, limitations on capital expenditures, and
limitations on mergers, acquisitions and asset sales. In addition, the Debt
Facilities will have selected financial covenants, including a minimum
interest coverage ratio and a maximum leverage ratio. Events of default under
the Debt Facilities include but are not limited to nonpayment of principal or
interest, violation of covenants, cross defaults, bankruptcy, invalidity of
the guarantee or the security documents, failure of the Supply Agreement to be
in full force and effect and a change in control of the Company and Catalytica
Pharmaceuticals.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
The following information sets forth the unaudited pro forma consolidated
balance sheet of the Company as of June 30, 1997 and gives effect to (a) the
Stock Sale and Warrant Issuance and the borrowings under the senior bank
financing and (b) the use of proceeds therefrom to consummate the Acquisition,
as if such events occurred on June 30, 1997. The unaudited pro forma
consolidated balance sheet is based upon the historical consolidated financial
statements of the Company and should be read in conjunction with the financial
statements and the related notes thereto included in the 1996 annual report on
Form 10-K/A and the quarterly report on Form 10-Q/A for period ended March 31,
1997.
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<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(ALL AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-----------------------------------------------------
ISSUANCE AND
AS REPORTED BORROWINGS ACQUISITION AS ADJUSTED
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents........... $ 11,372 $249,077 (1) $(248,575)(2) $ 11,874
Short-term investments. 4,490 -- -- 4,490
Accounts receivable,
net................... 5,237 -- -- 5,237
Accounts receivable
from joint venture.... 332 -- -- 332
Note receivable from
employees............. 255 -- -- 255
Inventory.............. 1,705 -- 120,000 (3) 121,705
Prepaid expenses and
other acquisition
costs................. 4,573 -- (863)(9) 3,710
-------- -------- --------- --------
Total current assets. 27,964 249,077 (129,438) 147,603
Property and equipment... 10,196 -- 145,338 (3) 155,534
Other assets............. 3,520 (1) 3,520
Notes receivable from
employees............... 50 -- -- 50
-------- -------- --------- --------
$ 38,210 $252,597 $ 15,900 $306,707
======== ======== ========= ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....... $ 1,587 $ -- $ -- $ 1,587
Accrued payroll and
related expenses...... 1,623 -- -- 1,623
Deferred revenue....... 1,627 -- -- 1,627
Accrued acquisition
costs................. 1,069 -- -- 1,069
Other accrued
liabilities........... 749 -- -- 749
Borrowings under line
of credit............. 3,498 (3,498)(1) -- --
Current portion of
long-term debt........ 784 (344)(1) -- 440
-------- -------- --------- --------
Total current
liabilities......... 10,937 (3,842) -- 7,095
Long-term debt........... 1,285 138,646 (1) -- 139,931
Non-current deferred
revenue................. 4,287 -- -- 4,287
Other accrued
liabilities............. -- -- 6,400 (4) 6,400
Minority interest........ 8,000 -- 3,000 (5) 11,000
Class A and B Common
Stock shares authorized,
13,320,000 and
16,680,000 shares issued
and outstanding,
respectively(2)......... -- 117,829 (1) -- 117,829
Stockholders' equity:
Common Stock, $.001 par
value................. 20 -- -- 20
Additional paid-in
capital............... 66,050 -- 6,500 (6) 72,550
Deferred compensation.. (19) -- -- (19)
Accumulated deficit.... (52,350) (36)(8) -- (52,386)
-------- -------- --------- --------
Total stockholders'
equity.............. 13,701 (36) 6,500 20,165
-------- -------- --------- --------
$ 38,210 $252,597 $ 15,900 $306,707
======== ======== ========= ========
</TABLE>
26
<PAGE>
- --------
(1) Represents (i) the proceeds of $120 million derived from the issuance of
the Class A Common Stock and Class B Common Stock, net of related issuance
costs of $2.171 million and (ii) $139.6 million from the assumed
borrowings under the Senior Credit Facility, net of related issuance costs
of $3.519 million and repayment of existing borrowings of approximately
$4.832 million. Terms of the Class A and Class B Common Stock enable the
holders, at any time after July 1, 2005, the option to require the Company
to repurchase the outstanding shares of Class A and Class B Common Stock
for cash based on the original consideration paid for such shares on the
Closing Date of the Acquisition. In accordance with SEC regulations, the
Class A and Class B Common Stock is therefore not shown as part of equity.
(2) Represents the cash consideration for the acquisition of all of the land,
buildings, machinery and equipment of the Facility and certain
inventories, subject to a post-closing adjustment, in addition to the
payment of other transaction-related costs of $2.84 million and other
prepaid expenses. The post-closing adjustment will be made to reflect the
difference in actual and forecast inventories at the time of Closing.
(3) Represents the estimated fair value of the assets to be acquired, subject
to a post closing adjustment to reflect the difference in actual and
forecast inventories at the time of Closing. In addition, the valuation of
such assets is subject to finalization which will be based upon
independent appraisals. Does not include depreciation of property and
equipment, which will be depreciated over its economic useful life.
(4) Represents a reduction in the cash consideration to be paid by Glaxo
Wellcome in exchange for assumption of the liability relating to any
required asbestos remediation by Catalytica Pharmaceuticals.
(5) Reflects the estimated fair value of the 250,000 shares of junior
convertible preferred stock of Catalytica Pharmaceuticals provided as
additional consideration in connection with the Acquisition.
(6) Reflects the fair value of the warrants provided as additional
consideration in connection with the Acquisition which entitle Glaxo
Wellcome, at its discretion, to purchase 2,000,000 shares of the Company's
Common Stock at $12.00 per share.
(7) Not reflected in the unaudited pro forma consolidated balance sheet is the
additional consideration to Glaxo Wellcome of 10% of the earnings before
interest and taxes in excess of an aggregate cumulative amount of $10
million attributable to the sterile products portion of the Facility for a
period of 10 years following the Closing, limited to an aggregate
cumulative payment of an additional $25 million. To the extent that any
additional cash payments are made to Glaxo Wellcome as a result of the
agreement related to the Acquisition, such payments will be capitalized to
property, plant and equipment and depreciated over the appropriate useful
life of the Sterile Facility.
(8) Reflects interest expense and prepayment penalties related to repayment of
existing borrowings.
(9) Reflects prepaid property taxes and prepaid computer maintenance contracts
included in the consideration paid to Glaxo Wellcome for the acquisition,
which was offset by a $2 million credit from Glaxo Wellcome that was
related to an escrow deposit.
27
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<C> <S>
3.1 Corrected Fourth Amended and Restated Certificate of Incorporation of
the Company
4.1 Stock Purchase Warrant for 2,000,000 Shares of the Registrants Common
Stock dated July 31, 1997
+10.1 Asset Purchase Agreement Among Glaxo Wellcome Inc. and Catalytica
Pharmaceuticals, Inc. and Catalytica, Inc., dated June 25, 1997*
+10.2 Supply Agreement Between Glaxo Wellcome Inc. and Catalytica
Pharmaceuticals, Inc., dated July 31, 1997
10.3 Investment Agreement dated as of June 25, 1997 among Morgan Stanley
Capital Partners III, L.P., Morgan Stanley Capital Investors, L.P.,
MSCP III 892 Investors, L.P. and Catalytica, Inc.
10.4 $200,000,000 Credit Agreement dated July 31, 1997, by and among
Catalytica, Inc., Catalytica Pharmaceuticals, Inc. and The Chase
Manhattan Bank
10.5 Pledge Agreement
10.6 Security Agreement
27.1 Financial Data Schedule
</TABLE>
- --------
+ Confidential treatment has been required as to a portion of this Agreement.
* The Company hereby undertakes to furnish supplementally a copy of any
omitted schedule of this Agreement to the Commission upon request.
(b) Reports on Form 8-K
None.
All information required by other items in Part II is omitted because the
items are inapplicable, the answer is negative or substantially the same
information has been previously reported by the registrant.
28
<PAGE>
CATALYTICA, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 14, 1997 CATALYTICA, INC.
(Registrant)
/s/ Lawrence W. Briscoe
By: _______________________________
Lawrence W. Briscoe
Vice President and Chief
Financial Officer
Signing on behalf of the
registrant and as principal
financial officer
29
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGES
------- ----------- ------------
<C> <S> <C>
3.1 Corrected Fourth Amended and Restated Certificate of
Incorporation of the Company
4.1 Stock Purchase Warrant for 2,000,000 Shares of the
Registrants Common Stock dated July 31, 1997
+10.1 Asset Purchase Agreement Among Glaxo Wellcome Inc. and
Catalytica Pharmaceuticals, Inc. and Catalytica, Inc.,
dated June 25, 1997*
+10.2 Supply Agreement Between Glaxo Wellcome Inc. and
Catalytica Pharmaceuticals, Inc., dated July 31, 1997
10.3 Investment Agreement dated as of June 25, 1997 among
Morgan Stanley Capital Partners III, L.P., Morgan
Stanley Capital Investors, L.P., MSCP III 892
Investors, L.P. and Catalytica, Inc.
10.4 $200,000,000 Credit Agreement dated July 31, 1997, by
and among Catalytica, Inc., Catalytica
Pharmaceuticals, Inc. and The Chase Manhattan Bank
10.5 Pledge Agreement
10.6 Security Agreement
27.1 Financial Data Schedule
</TABLE>
- --------
+ Confidential treatment has been required as to a portion of this Agreement.
* The Company hereby undertakes to furnish supplementally a copy of any
omitted schedule of this Agreement to the Commission upon request.
<PAGE>
EXHIBIT 3.1
CORRECTED FOURTH AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF CATALYTICA, INC.
Catalytica, Inc., a corporation organized and existing under the laws of
the State of Delaware (the "Corporation"), hereby certifies that:
A. The name of this Corporation, and the name under which it was
originally incorporated, is Catalytica, Inc.
B. The date of filing of this Corporation's original Certificate of
Incorporation with the Secretary of State of Delaware is April 1, 1992.
C. Pursuant to Sections 242 and 245 of the General Corporation Law of the
State of Delaware, an Amended and Restated Certificate of Incorporation to
restate, integrate and further amend the provisions of the corporation's Amended
and Restated Certificate of Incorporation was filed in the office of the
Secretary of State of Delaware on July 29, 1997.
D. Pursuant to Section 103 of the General Corporation Law of the State of
Delaware, this Corrected Fourth Amended and Restated Certificate of
Incorporation is being filed to correct Article Sixth D4(b), (c) and (d) by
adding the underlined text that appears therein, which refers to the exclusion
of capital stock of the Corporation issued pursuant to the exercise of certain
warrants, from the provisions relating to the adjustment of the Class A Common
Stock Conversion Price pursuant to Article Sixth D4.
E. The text of the Corrected Fourth Amended and Restated Certificate of
Incorporation of this Corporation as heretofore amended or supplemented is
corrected and restated to read in its entirety as follows:
<PAGE>
"FIRST
The name of this Corporation is Catalytica, Inc.
SECOND
The address of the Corporation's registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle, zip code 19801. The name of its registered agent at such
address is The Corporation Trust Company.
THIRD
The nature of the business or purposes of the Corporation is to engage in
any lawful act or activity for which a Corporation may be organized under the
General Corporation Law of Delaware.
FOURTH
The number of directors which constitutes the whole Board of Directors of
the Corporation shall be designated in the Bylaws of the Corporation, provided
that the number of directors which constitutes the whole Board of Directors
shall not be less than five (5).
FIFTH
The Corporation is authorized to issue two classes of stock, common stock
and preferred stock.
A. Common Stock. The common stock shall consist of one hundred twenty
------------
million (120,000,000) shares, of which seventy-three million (73,000,000) shares
are hereby designated "Common Stock," thirty million (30,000,000) shares are
hereby designated "Class A Common Stock" and seventeen million (17,000,000)
shares are hereby designated "Class B Common Stock." The par value of the
common stock shall be $0.001 per share.
B. Preferred Stock. The preferred stock shall consist of five million
---------------
(5,000,000) shares (the "Preferred Stock"). The par value of the Preferred
Stock shall be $0.001 per share. The shares of Preferred Stock authorized by
this Amended and Restated Certificate of Incorporation may be issued from time
to time in one or more series. The Board of Directors is hereby authorized to
determine and alter the powers, preferences and rights and the qualifications,
limitations or restrictions granted to or imposed upon any wholly unissued
series of Preferred Stock and within the limitations or restrictions stated in
any resolution or resolutions of the Board of Directors originally
-2-
<PAGE>
fixing the number of shares constituting any series, to increase or decrease
(but not below the number of shares of any such series then outstanding) the
number of shares of any such series subsequent to the issuance of that series,
to determine the designation of any series, and to fix the number of shares of
any series. If the number of shares of any series is so decreased, then the
shares constituting such decrease shall resume the status that they had prior to
the adoption of the resolution originally fixing the number of shares of such
series.
SIXTH
The voting powers, designations, preferences and qualifications,
limitations or restrictions relating to the Common Stock, Class A Common Stock
and Class B Common Stock are as follows:
A. Dividends.
---------
1. Common Stock. The holders of Common Stock of each class shall be
------------
entitled to receive dividends when and as declared by the Board of Directors out
of funds legally available therefor. Holders of shares of Common Stock shall be
entitled to share equally, share for share, in such dividends.
2. Class A Common Stock and Class B Common Stock. Holders of the
---------------------------------------------
then outstanding Class A Common Stock and Class B Common Stock shall be entitled
to receive a proportionate share of any cash dividend to the same extent as, on
the same basis as, at the same rate as, and contemporaneously with cash
dividends when, as and if declared by the Board of Directors with respect to
shares of Common Stock based upon the number of shares of Common Stock of the
Corporation into which their shares of Class A Common Stock or Class B Common
Stock, as the case may be, are convertible as of the record date fixed for the
determination of the holders of capital stock of the Corporation entitled to
receive such dividend.
B. Liquidation Preference. In the event of any liquidation, dissolution
----------------------
or winding up of the Corporation, either voluntary or involuntary (collectively
a "Liquidation"), distributions to the stockholders of the Corporation shall be
made in the following manner:
1. The holders of the Class A Common Stock and Class B Common Stock
shall be entitled to receive, prior and in preference to any distribution of any
of the assets or surplus funds of the Corporation to the holders of Common Stock
by reason of their ownership of such stock, an amount equal to the greater of
(i) $4.00 for each share of Class A Common Stock or Class B Common Stock, as the
case may be, then held by them, adjusted for any subdivisions, combinations,
consolidations or stock distributions or dividends with respect to such shares,
plus an amount equal to all declared but unpaid dividends on such shares of
Class A Common Stock and Class B Common Stock and (ii) the amount that the
holders of the Class A Common Stock or Class B Common Stock would have received
in such Liquidation had such holders converted their shares of Class A Common
Stock or Class B Common Stock, as the case may be, into Common Stock of the
Corporation prior
-3-
<PAGE>
to such Liquidation (the "Liquidation Price"). If upon the occurrence of such
event the assets and funds thus distributed among the holders of the Class A
Common Stock and Class B Common Stock shall be insufficient to permit the
payment to such holders of the full preferential amount, then the entire
remaining assets and funds of the Corporation legally available for distribution
shall be distributed ratably among the holders of the Class A Common Stock and
Class B Common Stock based on the number of shares of Class A Common Stock and
Class B Common Stock held by each holder. After payment has been made to the
holders of the Class A Common Stock and Class B Common Stock of the full amounts
to which they shall be entitled as aforesaid, the holders of the Common Stock
shall be entitled to share ratably in the remaining assets and funds of the
Corporation based on the number of shares of Common Stock held by each holder.
2. A consolidation or merger of this Corporation with or into any
other corporation or corporations as a result of which the stockholders of this
Corporation immediately prior to such transaction do not own more than 50% of
the voting power of the surviving corporation or its parent corporation, or a
sale, conveyance or disposition of all or substantially all of the assets of
this Corporation, shall be deemed to be a Liquidation within the meaning of this
Article Sixth Section B.
C. Voting Rights.
-------------
1. Except as otherwise provided herein or by law, each holder of
Common Stock shall be entitled to one vote in respect of each share held of
record on all matters submitted to a vote of stockholders.
2. Holders of Class B Common Stock shall not be entitled to vote
such shares for the election of directors or on any other matter except changes
or amendments to this Article Sixth, Section C or changes or amendments to this
Certificate of Incorporation which would adversely effect the rights, powers or
privileges of the Class B Common Stock; provided, however, that no such change
or amendment shall increase the rights of or, under any circumstances, provide
additional voting rights to the holders of Class B Common Stock.
3. Except as otherwise required by law or as otherwise set forth
herein, the holder of each share of Class A Common Stock shall be entitled to
the number of votes equal to the number of shares of Common Stock into which
such share of Class A Common Stock could be converted at the record date for
determination of the stockholders entitled to vote on such matters, or, if no
such record date is established, at the date such vote is taken or any written
consent of stockholders is solicited, such votes to be counted together with all
other shares of stock of the Corporation having general voting power and not
counted separately as a class. Holders of Common Stock and Class A Common Stock
shall be entitled to notice of any stockholders' meeting in accordance with the
Bylaws of the Corporation.
-4-
<PAGE>
D. Class A Common Stock Conversion Rights. The holders of the Class A
--------------------------------------
Common Stock have conversion rights as follows (the "Class A Conversion
Rights"):
1. Right to Convert. Subject to Sections B, E and F of this Article
----------------
Sixth, each share of Class A Common Stock shall be convertible, at the option of
the holder thereof, at any time after the date of issuance of such share at the
office of the Corporation or any transfer agent for the Class A Common Stock,
into such number of fully paid and non-assessable shares of Common Stock as is
determined by dividing $4.00 by the Class A Common Stock Conversion Price,
determined as hereinafter provided, in effect at the time of conversion. The
price at which shares of Common Stock shall be deliverable upon conversion of
the Class A Common Stock (the "Class A Common Stock Conversion Price") shall
initially be $4.00 per share of Common Stock. Such initial Class A Common Stock
Conversion Price shall be subject to adjustment as hereinafter provided. The
Class A Common Stock Conversion Price is sometimes referred to herein as the
"Conversion Price."
2. Automatic Conversion. Each share of Class A Common Stock shall
--------------------
automatically be converted into shares of Common Stock at the then effective
Class A Common Stock Conversion Price upon the earlier of (a) any transfer of
the Class A Common Stock by Morgan Stanley Capital Partners III, L.P., Morgan
Stanley Capital Investors, L.P. or MSCP III 892 Investors, L.P. (each, a "MSCP
Fund"), including any distribution or transfer to any partner or affiliated
entity not specifically named herein other than any transfers to any wholly-
owned subsidiaries of any MSCP Fund, or (b) at such time as less than ten
percent (10%) of the Class A Common Stock outstanding on the date on which the
first shares of Class A Common Stock are issued (the "Original Issue Date")
remains outstanding.
3. Mechanics of Conversion. No fractional shares of Common Stock
-----------------------
shall be issued upon conversion of the Class A Common Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Class A Common Stock Conversion Price. Before any holder of Class A
Common Stock shall be entitled to convert the same into full shares of Common
Stock and to receive certificates therefor, he or she shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
Corporation or of any transfer agent for the Class A Common Stock, and shall
give written notice to the Corporation at such office that he elects to convert
the same. The Corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Class A Common Stock, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled as aforesaid and a check payable to the holder in the amount of any
cash amounts payable as the result of a conversion into fractional shares of
Common Stock. Such con version shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of the shares of
Class A Common Stock to be converted, and the person or persons entitled to
receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock on such date.
-5-
<PAGE>
4. Adjustments to Conversion Price. The Class A Common Stock Conversion
-------------------------------
Price shall be subject to adjustment as follows:
(a) In case the Corporation shall at any time after the date of issue
of the Class A Common Stock declare a dividend or make a distribution on Common
Stock payable in Common Stock, subdivide or split the outstanding Common Stock,
combine or reclassify the outstanding Common Stock into a smaller number of
shares, issue any shares of its capital stock in a reclassification of Common
Stock (including any such reclassification in connection with a consolidation or
merger in which the Corporation is the continuing corporation), or consolidate
with or merge with or into, any other Person, the Class A Common Stock
Conversion Price in effect at the time of the record date for such dividend or
distribution, or of the effective date of such subdivision, split, combination,
consolidation, merger or reclassification, shall be proportionately adjusted so
that the conversion of the Class A Common Stock after such time shall entitle
the holder to receive the aggregate number of shares of Common Stock or other
securities of the Corporation (or shares of any security into which such shares
of Common Stock have been combined, consolidated, merged or reclassified) which,
if the Class A Common Stock had been converted immediately prior to such time,
such holder would have owned upon such conversion and been entitled to receive
by virtue of such dividend, distribution, subdivision, split, combination,
consolidation, merger or reclassification assuming such holder of Common Stock
(x) is not a Person with which the Corporation consolidated or into which the
Corporation merged or which merged into the Corporation or to which such
recapitalization sale or transfer was made, as the case may be (a "constituent
person"), or an affiliate of a constituent person and (y) failed to exercise any
rights of election as to the kind or amount of securities, cash and other
property receivable upon such reclassification, change, consolidation merger,
recapitalization, sale or transfer; provided, that if the kind or amount of
securities, cash and other property receivable upon such reclassification,
change, consolidation, merger, recapitalization, sale or transfer is not the
same for each share of Common Stock held immediately prior to such
reclassification, change, consolidation, merger, recapitalization, sale or
transfer by other than a constituent person or an affiliate thereof and in
respect of which such rights of election shall not have been exercised ("non-
electing share"), then for the purpose of this subparagraph D4(a) the kind and
amount of securities, cash and other property receivable upon such
reclassification, change, consolidation, merger, recapitalization, sale or
transfer by each non-electing share shall be deemed to be the kind and amount so
receivable per share by a plurality of the non-electing shares. Such adjustment
shall be made successively whenever any event listed above shall occur.
(b) In case the Corporation shall issue or sell any shares of Common
Stock (other than: (i) upon conversion of the Class A Common and Class B Common
Stock authorized herein; (ii) to employees, officers, directors and consultants
of the Corporation pursuant to any one or more employee stock incentive plans or
agreements in effect on the Original Issue Date or which are approved from time
to time by the stockholders of the Corporation; (iii) as a dividend or
distribution on the Class A Common Stock or Class B Common Stock authorized
herein or pursuant to any event for which adjustment is made pursuant to this
Section D4(b); (iv) in connection with the acquisition of the assets or voting
securities of another corporation or entity; (v) upon exercise or conversion of
-6-
<PAGE>
any security the issuance of which caused an adjustment under Sections D4(c) or
D4(d) hereof; (vi) upon exercise of warrants issued to Glaxo Wellcome Inc. in
connection with the transactions contemplated by the Asset Purchase Agreement
among Glaxo Wellcome Inc., Catalytica Fine Chemicals, Inc. and the Corporation
dated as of June 19, 1997; (vii) upon issuance of up to $25,000,000 aggregate
amount of capital stock and/or warrants of the Corporation to stockholders of
the Corporation (or an additional $2,500,000 aggregate amount of capital stock
--------------------------------------------------------------
of the Corporation issuable upon exercise of warrants to be issued to
- ---------------------------------------------------------------------
stockholders of the Corporation in the form of a dividend entitling stockholders
- --------------------------------------------------------------------------------
to purchase one share of Common Stock for every three shares of Common Stock
- ----------------------------------------------------------------------------
owned) at any time prior to May 31, 1998; and (viii) to an underwriter (as that
- ------
term is defined in Section 2 (11) of the Securities Act of 1933, as amended) in
a transaction that results in gross proceeds in excess of $5.0 million to the
Corporation), without consideration or for a consideration per share less than
the then Current Market Price Per Common Share, the Conversion Price to be in
effect after such issuance or sale shall be determined by multiplying the
Conversion Price in effect immediately prior to such issuance or sale by a
fraction, the numerator of which shall be the sum of (x) the number of Common
Stock outstanding immediately prior to the time of such issuance or sale
multiplied by the Current Market Price Per Common Share immediately prior to
such issuance or sale and (y) the aggregate consideration, if any, to be
received by the Corporation upon such issuance or sale and the denominator of
which shall be the product of the aggregate number of Common Stock outstanding
immediately after such issuance or sale and the Current Market Price Per Common
Share (as defined in Section D4(f)) immediately prior to such issuance or sale.
In case any portion of the consideration to be received by the Corporation shall
be in a form other than cash, the fair market value of such noncash
consideration shall be utilized in the foregoing computation. Such fair market
value shall be determined by the Board of Directors of the Corporation; provided
that if the holders of 25% of the Class A Common Stock shall object to any such
determination, the Board of Directors shall retain an independent appraiser
reasonably satisfactory to such holders to determine such fair market value.
The holders shall be notified promptly of any consideration other than cash to
be received by the Corporation and furnished with a description of the
consideration and the fair market value thereof as determined by the Board of
Directors.
(c) In case the Corporation shall fix a record date for the issuance
of rights, options (other than options issued pursuant to a plan described in
Section D4(b)) or warrants (other than warrants described in Section D4(b)(vii))
-----------------------------------------------------
to the holders of its Common Stock or other securities entitling such holders to
subscribe for or purchase Common Stock (or securities convertible into shares of
Common Stock) at a price per share (or having a conversion price per share, if a
security convertible into Common Stock) less than the Current Market Price Per
Common Share then in effect on such record date, the maximum number of shares of
Common Stock issuable upon exercise of such rights, options or warrants (or
conversion of such convertible securities) shall be deemed to have been issued
and outstanding as of such record date and the Conversion Price shall be
adjusted pursuant to Section D4(b), as though such maximum number of shares of
Common Stock had been so issued for an aggregate consideration payable by the
holders of such rights, options, warrants or convertible securities prior to
their receipt of such Common Stock. In case any portion of such consideration
shall be in a form other than cash, the fair market value of such noncash
consideration
-7-
<PAGE>
shall be determined as set forth in Section D4(b) hereof. Such adjustment shall
be made successively whenever such record date is fixed; and in the event that
such rights, options or warrants are not so issued or expire unexercised, or in
the event of a change in the number of shares of Common Stock to which the
holders of such rights, options or warrants are entitled (other than pursuant to
adjustment provisions therein comparable to those contained in this Section
D4(c)), the Class A Common Stock Conversion Price shall again be adjusted to be
the Class A Common Stock Conversion Price which would then be in effect if such
record date had not been fixed, in the former event, or the Class A Common Stock
Conversion Price which would then be in effect if such holder had initially been
entitled to such changed number of shares of Common Stock in the latter event.
(d) In case the Corporation shall issue rights, options (other than
options issued pursuant to a plan described in Section D4(b)) or warrants (other
------
than warrants described in Section D4(b)(vii)) entitling the holders thereof to
- ----------------------------------------------
subscribe for or purchase Common Stock (or securities convertible into Common
Stock) or shall issue convertible securities, and the price per share of Common
Stock of such rights, options, warrants or convertible securities (including, in
the case of rights, options or warrants, the price at which they may be
exercised) is less than the then Current Market Price Per Common Share, the
maximum number of shares of Common Stock issuable upon exercise of such rights,
options or warrants or upon conversion of such convertible securities shall be
deemed to have been issued and outstanding as of the date of such sale or
issuance, and the Class A Common Stock Conversion Price shall be adjusted
pursuant to Section D4(b) hereof as though such maximum number of shares of
Common Stock had been so issued for an aggregate consideration equal to the
aggregate consideration paid for such rights, options, warrants or convertible
securities and the aggregate consideration payable by the holders of such
rights, options, warrants or convertible securities prior to their receipt of
such shares of Common Stock. In case any portion of such consideration shall be
in a form other than cash, the fair market value of such noncash consideration
shall be determined as set forth in Section D4(b) hereof. Such adjustment shall
be made successively whenever such rights, options, warrants or convertible
securities are issued; and in the event that such rights, options or warrants
expire unexercised, or in the event of a change in the number of shares of
Common Stock to which the holders of such rights, options, warrants or
convertible securities are entitled (other than pursuant to adjustment
provisions therein comparable to those contained in this paragraph) the Class A
Common Stock Conversion Price shall again be adjusted to be the Class A Common
Stock Conversion Price which would then be in effect if such rights, options,
warrants or convertible securities had not been issued, in the former event, or
the Conversion Price which would then be in effect if such holders had initially
been entitled to such changed number of shares of Common Stock, in the latter
event. No adjustment of the Class A Common Stock Conversion Price shall be made
pursuant to this Section D4(d) to the extent that the Conversion Price shall
have been adjusted pursuant to Section D4(c) upon the setting of any record date
relating to such rights, options, warrants or convertible securities and such
adjustment fully reflects the number of Common Stock to which the holders of
such rights, options, warrants or convertible securities are entitled and the
price payable therefor.
-8-
<PAGE>
(e) In case the Corporation shall fix a record date for the making of
a distribution to holders of Common Stock (including any such distribution made
in connection with a consolidation or merger in which the Corporation is the
continuing corporation) of evidences of indebtedness, assets or other property
(other than (x) regular periodic cash dividends or (y) dividends payable in
Common Stock or rights, options or warrants referred to in, and for which an
adjustment is made pursuant to, Section D4(c) hereof), the Class A Common Stock
Conversion Price to be in effect after such record date shall be determined by
multiplying the Class A Common Stock Conversion Price in effect immediately
prior to such record date by a fraction, the numerator of which shall be the
Current Market Price Per Common Share on such record date, less the fair market
value (determined as set forth in Section D4(b) hereof) of the portion of the
assets, other property or evidence of indebtedness so to be distributed which is
applicable to one share of Common Stock, and the denominator of which shall be
the Current Market Price Per Common Share on such record date. Such adjustments
shall be made successively whenever such a record date is fixed; and in the
event that such distribution is not so made, the Class A Common Stock Conversion
Price shall again be adjusted to be the Class A Common Stock Conversion Price
which would then be in effect if such record date had not been fixed.
(f) For the purpose of any computation under this Section D4, on any
determination date, the "Current Market Price Per Common Share" shall be deemed
to be the average (weighted by daily trading volume) of the Daily Prices (as
defined below) per share of the applicable class of Common Stock for the 20
consecutive trading days ending on the date two days prior to such date. "Daily
Price" means, if the shares of such class of Common Stock are then listed and
traded on the Nasdaq National Market, the last reported sales price on such day,
or, if the shares of such class of Common Stock are not then traded on the
Nasdaq National Market, the average of the highest reported bid and lowest
reported asked price on such day as reported by Nasdaq. For purposes of any
computation under this paragraph the number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Corporation. The holders of a majority of the shares of
Class A Common Stock at any time outstanding may waive or modify the provisions
of this Section D4(f).
(g) No adjustment to the Class A Common Stock Conversion Price
pursuant to this Section D4 shall be required unless such adjustment would
require an increase or decrease of at least 1% in the Class A Common Stock
Conversion Price; provided that any adjustments which by reason of this Section
D4(g) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section D4
shall be made to the nearest four decimal points.
(h) In the event that at any time as a result of the provisions of
this paragraph the holder of the Class A Common Stock upon subsequent conversion
shall become entitled to receive any shares of capital stock of the Corporation
other than Common Stock, the number of such other shares so receivable upon
conversion of this Class A Common Stock shall thereafter be subject to
-9-
<PAGE>
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions contained herein.
5. No Impairment. The Corporation will not, by amendment of this
-------------
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation but will at
all times in good faith assist in the carrying out of all the provisions of this
Section D and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Class A Common Stock against impairment.
6. Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment or readjustment of the Class A Common Stock Conversion Price pursuant
to this Section D, the Corporation at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and furnish to
each holder of Class A Common Stock a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Class A Common Stock, furnish or cause to be furnished to
such holder a like certificate setting forth (i) such adjustments and
readjustments, (ii) the Class A Common Stock Conversion Price at the time in
effect, and (iii) the number of shares of Common Stock and the amount, if any,
of other property which at the time would be received upon the conversion of
Class A Common Stock.
7. Notices of Record Date. In the event that this Corporation shall
----------------------
propose at any time:
(a) to declare any dividend or distribution upon its shares of Common
Stock, whether in cash, property, stock or other securities, whether or not a
regular cash dividend and whether or not out of earnings or earned surplus;
(b) to offer for subscription pro rata to the holders of any class or
series of its stock any additional shares of stock of any class or series or
other rights;
(c) to effect any reclassification or recapitalization of its shares
of Common Stock outstanding involving a change in the Common Stock; or
(d) to merge or consolidate with or into any other corporation, or
sell, lease or convey all or substantially all its property or business, or to
liquidate, dissolve or wind up; then, in connection with each such event, this
Corporation shall send to the holders of the Class A Common Stock:
(1) at least ten (10) days' prior written notice of the date on
which a record shall be taken for such dividend, distribution or subscription
rights (and specifying the date on
-10-
<PAGE>
which the holders of Common Stock shall be entitled thereto) or for determining
rights to vote in respect of the matters referred to in (c) and (d) above; and
(2) in the case of the matters referred to in (c) and (d) above,
at least 20 days' prior written notice of the date when the same shall take
place (and specifying the date on which the holders of Common Stock shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon the occurrence of such event).
Each such written notice shall be delivered personally or given by first
class mail, postage prepaid, addressed to the holders of the Common Stock at the
address for each such holder as shown on the books of this Corporation.
8. Reservation of Stock Issuable Upon Conversion. This Corporation
---------------------------------------------
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of the
shares of the Class A Common Stock (and such number of shares of Class B Common
Stock which are convertible into shares of Class A Common Stock) such number of
its shares of Common Stock as shall from time to time be sufficient to effect
the conversion of all outstanding shares of the Class A Common Stock (and such
number of shares of Class B Common Stock which are convertible into shares of
Class A Common Stock); and if at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to effect the conversion of all
then outstanding shares of the Class A Common Stock (and such number of shares
of Class B Common Stock which are convertible into shares of Class A Common
Stock), in addition to such other remedies as shall be available to the holder
of such Class A Common Stock and Class B Common Stock, this Corporation will
take such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purposes.
E. Redemption of Class A Common Stock and Class B Common Stock.
-----------------------------------------------------------
1. The Corporation may at its option redeem up to five million
(5,000,000) shares of the Class A Common Stock and Class B Common Stock at a
price equal to the Redemption Price set forth below. During the period
beginning from the Original Issue Date through November 30, 1997, the redemption
price shall be $4.75 per share, as adjusted for stock splits, stock dividends,
combinations or other reclassifications. During the period from December 1,
1997 through May 31, 1998, the redemption price shall be $5.00 per share, as
adjusted for stock splits, stock dividends, combinations or other
reclassifications. The price at which the shares of Class A Common Stock or
Class B Common, as the case may be, are redeemed pursuant to this Section E is
referred to herein as the "Redemption Price." Prior to repurchasing any shares
of Class A Common Stock pursuant to this Section E, the Corporation must first
repurchase any outstanding shares of Class B Common Stock.
2. In the event of any redemption of only a part of the then
outstanding Class A Common Stock or Class B Common Stock, this Corporation shall
effect such redemption first, pro
-11-
<PAGE>
rata according to the number of shares of Class B Common Stock held by each
holder thereof and then, pro rata according to the number of shares of Class A
Common Stock held by each holder thereof.
3. At least 10 but no more than 60 days prior to the date fixed for
any redemption of Class A Common Stock or Class B Common Stock (the "Redemption
Date"), written notice shall be mailed, first class postage prepaid, to each
holder of record (at the close of business on the business day next preceding
the day on which notice is given) of the Class A Common Stock or Class B Common
Stock, as the case may be, to be redeemed, at the address last shown on the
records of this Corporation for such holder or given by the holder to this
Corporation for the purpose of notice or if no such address appears or is given
at the place where the principal executive office of the holder of record is
located, notifying such holder of the redemption to be effected, specifying the
number of shares to be redeemed from such holder, the Redemption Date, the
Redemption Price, the place at which payment may be obtained and calling upon
such holder to surrender to this Corporation, in the manner and at the place
designated, their certificate or certificates representing the shares to be
redeemed (the "Redemption Notice"). The "Redemption Price" shall be determined
in accordance with Section E(1). Except as provided in this Section E(3), on or
after the Redemption Date, each holder of Class A Common Stock or Class B Common
Stock, as the case may be, to be redeemed shall surrender to this Corporation
the certificate or certificates representing such shares, in the manner and at
the place designated in the Redemption Notice, and thereupon the Redemption
Price of such shares shall be payable to the order of the person whose name
appears on such certificate or certificates as the owner thereof and each
surrendered certificate shall be canceled. In the event less than all the
shares represented by any such certificate are redeemed, a new certificate shall
be issued representing the unredeemed shares.
4. From and after the Redemption Date, unless there shall have been
a default in payment of the Redemption Price, all rights of the holder(s) of
such shares as the holder(s) of Class A Common Stock or Class B Common Stock, as
the case may be (except the right to receive the Redemption Price without
interest upon surrender of their certificate or certificates), shall cease with
respect to such shares, and such shares shall not thereafter be transferred on
the books of this Corporation or be deemed to be outstanding for any purpose
whatsoever.
F. Covenants.
---------
1. In addition to any other rights provided by law, so long as the
Funds own in the aggregate not less than twenty percent (20%) of the outstanding
Common Stock of the Corporation, this Corporation shall not, without first
obtaining the affirmative vote or written consent of the holders of not less
than fifty percent (50%) of the then outstanding shares of Class A Common Stock,
voting as a separate class:
-12-
<PAGE>
(a) authorize or issue shares of any class of stock on a parity
with, or having any preference or priority as to dividends or assets superior to
any such preference or priority of the Class A Common Stock and Class B Common
Stock;
(b) reclassify any shares of Common Stock and any other shares of
this Corporation other than the Class A Common Stock and Class B Common Stock
into shares having any preference or priority as to dividends or assets superior
to any such preference or priority of the Class A Common Stock and Class B
Common Stock;
(c) amend or repeal any provision of, or add any provision to,
this Certificate of Incorporation which would adversely affect the rights of the
Class A Common Stock and Class B Common Stock;
(d) enter into any merger or consolidation that would have the
effect on the Class A Common Stock or Class B Common Stock substantially similar
to the events described in Section F(a), (b) or (c);
(e) enter into any agreements or arrangements which would affect
the capital structure or the financing of the operations of this Corporation in
excess of $5,000,000 annually, other than the extension or renewal of any
existing indebtedness on the Original Issue Date (as defined in Section D(2));
(f) authorize changes to the aggregate cash and equity
compensation of senior corporate officers of the Corporation or the senior
corporate officers of the subsidiaries of the Corporation;
(g) merge or consolidate this Corporation with or into another
corporation or sell, transfer or lease all or substantially all of the assets of
this Corporation.
G. Class B Common Stock Conversion Rights. The holders of the Class B
--------------------------------------
Common Stock have conversion rights as follows:
1. Right to Convert. Subject to Section E hereof, the holder of any
----------------
shares of Class B Common Stock shall have the right, at such holder's option, at
any time or from time to time, to convert each share of Class B Common Stock
held by such holder, so long as, after giving effect to such conversion, the
total number of Voting Shares (as defined in Section G5(5) hereof) held by such
holder or any Affiliate (as defined in Section G5(1) hereof) of such holder
shall be less than or equal to forty percent (40.0%) (by voting power) of the
total number of Voting Shares then issued and outstanding, into one (1) share of
Class A Common Stock. No conversion of shares of Class B Common Stock that
would have the effect of giving the holder or any Affiliate of such holder a
number of Voting Shares greater than forty percent (40.0%) (by voting power) of
the total number of Voting Shares then issued and outstanding shall be effected
pursuant to this Section G1. The holder
-13-
<PAGE>
of any shares of Class B Common Stock exercising the aforesaid right to convert
such shares into shares of Class A Common Stock shall be entitled to payment of
all declared but unpaid dividends, if any, payable on or with respect to such
shares of Class B Common Stock up to and including the Conversion Date (as
hereinafter defined).
2. Automatic Conversion. Upon any Transfer (as defined in Section
--------------------
G5(4) hereof) other than a Transfer to an Affiliate (as defined in Section
G5(1)) of any shares of Class B Common Stock by the original holder thereof,
other than a Transfer to an Affiliate of such original holder, such shares of
Class B Common Stock so Transferred shall, by virtue of, and simultaneously
with, the occurrence of the Transfer, without any action on the part of the
transferee, be automatically converted into such whole number of fully paid and
nonassessable shares of Common Stock as such holder would be entitled to receive
if such holder were to first convert such shares of Class B Common Stock into
shares of Class A Common Stock in accordance with Section G(1) above and convert
such shares of Class A Common Stock into shares of Common Stock in accordance
with the provisions of Section D (including, without limitation, Section D4)
hereof. The holder of any shares of Class B Common Stock converted into Common
Stock pursuant to this Section G(2) shall be entitled to payment on or with
respect to such shares of Class B Common Stock up to and including the
Conversion Date.
3. Mechanics of Conversion. The holder of any shares of Class B
-----------------------
Common Stock may exercise the conversion rights pursuant to Section G(1) hereof
as to any part thereof by delivering to the Corporation during regular business
hours, at the office of the Corporation or at such other place as may be
designated by the Corporation, the certificate or certificates for the shares to
be converted, duly endorsed or assigned in blank, accompanied by a written
notice stating that the holder elects to convert such shares and stating the
name or names (with address) in which the certifi cate or certificates for the
shares of Class A Common Stock or Common Stock (as the case may be) are to be
issued. Conversion shall be deemed to have been effected (A) with respect to
conversion under Section G(1) hereof, on the date when the aforesaid delivery is
made and (B) with respect to conversion under Section G(2) hereof, on the date
of occurrence of the Transfer, and such date, in either case, is referred to
herein as the "Conversion Date." As promptly as practicable after the
Conversion Date, and in the case of Section G(2) hereof, upon the delivery to
the Corporation during regular business hours, at the office of the Corporation
or at such other place as may be designated by the Corporation or at such other
place as may be designated by the Corporation, of the certificate or
certificates for the shares to be converted, duly endorsed or assigned in blank,
the Corporation shall issue and deliver to or upon the written order of such
holder, to the place designated by such holder, a certificate or certificates
for the number of full shares of Common Stock as provided in Section G(1) and
(2) hereof, and a check or cash in payment of all declared but unpaid dividends
(to the extent permissible under law), if any, payable with respect to the
shares of Class B Common so converted up to and including the Conversion Date.
The person in whose name the certificate or certificates for Common Stock are to
be issued shall be deemed to have become a stockholder of record on the
applicable Conversion Date unless the transfer books of the Corporation are
closed on that date, in which event he shall be deemed to have become a
stockholder of record on the next
-14-
<PAGE>
succeeding date on which the transfer books are open, but the Class B Common
Stock Conversion Rate shall be that in effect on the Conversion Date. Upon
conversion of only a portion of the number of shares covered by a certificate
representing shares of Class B Common surrendered for conversion, the
Corporation shall issue and deliver to or upon the written order of the holder
of the certificate as surrendered for conversion, at the expense of the
Corporation, a new certificate covering the number of shares of Class B Common
representing the unconverted portion of the certificate so surrendered, which
new certificate shall entitle the holder thereof to dividends on the shares of
Class B Common represented thereby to the same extent as if the certificate
theretofore covering such unconverted shares had not been surrendered for
conversion.
4. No Fractional Shares. No fractional shares of Class A Common
--------------------
Stock or Common Stock (as the case may be) or scrip shall be issued upon
conversion of shares of Class B Common. The number of full shares of Class A
Common Stock or Common Stock issuable upon conversion of Class B Common Stock
surrendered by a holder thereof for conversion shall be computed on the basis of
the aggregate number of shares of Class B Common so surrendered, rounded to the
next higher whole number.
5. Definitions. For purposes of Sections D and G, the following
-----------
definitions shall apply:
(1) "Affiliate" shall mean Morgan Stanley, Dean Witter, Discover
& Co., a Delaware corporation, any of its affiliates and any member of the Board
of Directors of the Corporation who was nominated for election by Morgan Stanley
Capital Partners III, L.P.
(2) "Initial Purchaser" shall mean Morgan Stanley Capital
Partners III, L.P., Morgan Stanley Capital Investors, L.P. or MSCP III 892
Investors, L.P.
(3) "Person" shall mean an individual, corporation, partnership,
limited liability company, association, trust or other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
(4) "Transfer" or "Transferred" shall mean to dispose, sell or in
any other way directly or indirectly transfer, assign, distribute, encumber or
otherwise dispose of, either voluntarily or involuntarily.
(5) "Voting Shares" shall mean any shares of the Corporation's
capital stock entitled, in the ordinary course, to vote in any election of
directors of the Corporation.
SEVENTH
The Corporation is to have perpetual existence.
-15-
<PAGE>
EIGHTH
Elections of directors need not be by written ballot unless the Bylaws of
the Corporation shall so provide.
NINTH
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend or repeal
the Bylaws of the Corporation.
TENTH
To the fullest extent permitted by the Delaware General Corporation Law as
the same exists or as may hereafter be amended, no director of the Corporation
shall be personally liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director.
The Corporation shall indemnify to the fullest extent permitted by law any
person made or threatened to be made a party to an action or proceeding, whether
criminal, civil, administrative or investigative, by reason of the fact that he
or she is or was a director of the Corporation or any predecessor of the
Corporation or serves or served any other enterprise as a director at the
request of the Corporation or any predecessor to the Corporation.
Neither any amendment nor repeal of this Article Tenth, nor the adoption of
any provision of this Amended and Restated Certificate of Incorporation
inconsistent with this Article Tenth, shall eliminate or reduce the effect of
this Article Tenth in respect of any matter occurring, or any cause of action,
suit or claim accruing or arising or that, but for this Article Tenth, would
accrue or arise, prior to such amendment, repeal or adoption of any inconsistent
provision.
ELEVENTH
At all elections of directors of the Corporation, each holder of stock of
any class or series shall be entitled to as many votes as shall equal the number
of votes which (except for this provision as to cumulative voting) such holder
would be entitled to cast for the election of directors with respect to his
shares of stock multiplied by the number of directors to be elected by him, and
the holder may cast all of such votes for a single director or may distribute
them among the number of directors to be voted for, or for any two or more of
them as such holder may see fit, so long as the name of the candidate for
director shall have been placed in nomination prior to the voting and the
-16-
<PAGE>
stockholder, or any other holder of the same class or series of stock, has given
notice at the meeting prior to the voting of the intention to cumulate votes.
TWELFTH
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
THIRTEENTH
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Amended and Restated Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation."
F. The correction, amendment and restatement herein set forth has been
duly approved by the Board of Directors and stockholders of Catalytica, Inc.
pursuant to Sections 242 and 245 of the Delaware General Corporation Law.
-17-
<PAGE>
IN WITNESS WHEREOF, Catalytica, Inc. has caused this Corrected Fourth
Amended and Restated Certificate of Incorporation to be signed by its President
and Secretary, who declares and certifies under penalty of perjury that this is
his act and deed, and that the facts stated herein are true, and accordingly has
set his hand hereunto this 30th day of July, 1997.
/S/ RICARDO B. LEVY
-------------------
Ricardo B. Levy
President and Secretary
[Signature Page to Corrected Fourth Amended and Restated Certificate of
Incorporation]
<PAGE>
EXHIBIT 4.1
STOCK PURCHASE WARRANT
TO PURCHASE 2,000,000 SHARES OF COMMON STOCK, $.001 PAR VALUE OF
CATALYTICA, INC.
THE SALE, ASSIGNMENT OR TRANSFER OF THIS WARRANT IS PROHIBITED OTHER THAN SALES,
ASSIGNMENTS OR TRANSFERS THAT ARE IN COMPLIANCE WITH THE TERMS AND CONDITIONS OF
A WARRANT PURCHASE AGREEMENT BY AND AMONG THE CORPORATION, CATALYTICA
PHARMACEUTICALS, INC. AND GLAXO WELLCOME INC. A COPY OF SUCH AGREEMENT MAY BE
OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION. THE RIGHTS
TO ACQUIRE SHARES REPRESENTED BY THIS WARRANT HAVE BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.
WARRANT NO. GW-1
ISSUE DATE: July 31, 1997
THIS CERTIFIES that, for value received, Glaxo Wellcome Inc. is entitled,
upon the terms and subject to the conditions hereinafter set forth, at any time
on or after the date hereof and during the term of this Warrant, to subscribe
for and purchase from Catalytica, Inc., a Delaware corporation (the "Company"),
up to 2,000,000 of the fully paid and non-assessable shares ("Shares") of the
Company's Common Stock, $.001 par value ("Common Stock") at a purchase price of
$12.00 per share ("Purchase Price"). The Purchase Price and the number of
shares for which the Warrant is exercisable shall be subject to adjustment as
provided herein. This Warrant is being issued pursuant to the Warrant Purchase
Agreement dated June 25, 1997.
1. Transferability of Warrant. Prior to its expiration hereof, this
--------------------------
Warrant may be held only by Glaxo Wellcome and may not be transferred,
assigned or sold to any other individual or entity other than by transfers,
assignments or sales that are in compliance with the terms and conditions
of the warrant purchase agreement by and among the Corporation, Catalytica
Pharmaceuticals, Inc. and Glaxo Wellcome Inc. A copy of such agreement may
be obtained upon written request to the secretary of the corporation.
2. Exercise of Warrant.
-------------------
a. The term of this Warrant shall commence on July 31, 1997, and
will expire at the close of business California time on July 31, 2003.
The Warrant may be exercised for all or part of the Shares, in whole
or in part, at any time during the term of this
<PAGE>
Warrant by the surrender of this Warrant and a duly executed Notice of
Warrant Exercise in the form of Exhibit 1 at the office of the Company
at 430 Ferguson Drive, Mountain View, California 94043 (or such other
office or agency of the Company as it may designate by notice in
writing to the holder of this Warrant), and upon payment of the
Purchase Price of the Shares thereby purchased (by wire transfer or by
certified check or by bank draft payable to the order of the Company
in an amount equal to the Purchase Price of the Shares thereby
purchased); whereupon the holder of this Warrant shall be entitled to
receive a certificate for the number of Shares so purchased. The
Shares so purchased shall be deemed issued to such holder as the
record owner of such Shares as of the close of business California
time on the date on which this Warrant shall have been exercised.
b. In the event of any exercise of the purchase right represented by
this Warrant, certificates for the Shares so purchased shall be
delivered to the holder hereof within fifteen (15) days of the
effective date of such purchase and, unless this Warrant has been
fully exercised or expired, a new Warrant representing the portion of
the Shares, if any, with respect to which this Warrant shall not then
have been exercised shall also be issued to the holder hereof within
such fifteen (15) day period. Upon the effective date of such
purchase, the holder shall be deemed to be the holder of record of the
Shares, notwithstanding that Certificates representing the Shares
shall not then be actually delivered to such holder or that such
Shares are not then set forth on the stock transfer books of the
Company.
c. The Company covenants that all Shares that may be issued upon the
exercise of rights represented by this Warrant will, upon exercise in
accordance with the terms of this Warrant, be fully paid and
nonassessable and free from all taxes, liens and charges in respect of
the issue (other than taxes in respect of any transfer occurring
contemporaneously with such issue).
3. No Fractional Shares or Scrip. No fractional shares or scrip
-----------------------------
representing fractional shares shall be issued upon the exercise of this
Warrant.
4. Adjustments. The purchase rights set forth herein are subject to
-----------
adjustment as provided below.
a. Stock Splits, Stock Combinations and Stock Dividends. If the
----------------------------------------------------
Company shall at any time subdivide the outstanding shares of Common
Stock, then the number of shares of Common Stock for which this
Warrant is exercisable immediately prior to that subdivision (the
"Number of Warrant Shares") shall be proportionately increased and the
purchase price therefor proportionately decreased, and if the Company
shall at any time combine the outstanding shares of Common Stock, then
the Number of Warrant Shares shall be proportionately decreased and
the purchase price therefor proportionately increased. If the Company
shall at any time declare or pay a dividend in shares of Common Stock
to holders of its outstanding Common Stock, the Number
<PAGE>
of Warrant Shares purchasable upon exercise of this Warrant
immediately prior thereto shall be adjusted so that the holder of this
Warrant shall be entitled to receive the kind and number of Shares or
other securities of the Company which the holder would have owned or
have been entitled to receive had such Warrant been exercised in
advance thereof. Any adjustment under this Section 4.1 shall become
effective at the close of business on the date the subdivision or
combination becomes effective.
b. Reclassification, Exchange and Substitution. If the Common Stock
-------------------------------------------
issuable on exercise of this Warrant shall be changed into the same or
a different number of shares of any other class or classes of stock,
whether by capital reorganization, reclassification, or otherwise
(other than a subdivision or combination of shares provided for
above), then the holder of this Warrant shall, upon its exercise, be
entitled to receive, in lieu of the Common Stock that the holder would
have become entitled to receive but for such change, that number of
shares of such other class or classes of stock that is equivalent to
the number of shares of Common Stock that would have been subject to
receipt by the holder on exercise of this Warrant immediately prior to
that change.
c. Reorganizations, Mergers or Consolidations. If at any time there
------------------------------------------
shall be a capital reorganization of the Common Stock (other than a
subdivision, combination, reclassification or exchange of shares
provided for elsewhere in this Warrant) or merger or consolidation of
the Company with or into another corporation, then as a part of such
reorganization, merger or consolidation, lawful provision shall be
made so that the holder of this Warrant shall thereafter be entitled
to receive upon exercise of this Warrant, during the period specified
in this Warrant, the number of shares of stock or other securities or
property of the Company, or of the successor corporation resulting
from such merger or consolidation, to which a holder of the Common
Stock deliverable upon exercise of this Warrant would have been
entitled on such capital reorganization, merger or consolidation if
this Warrant had been exercised immediately prior to that
reorganization, merger or consolidation. In any such case,
appropriate adjustment shall be made in the application of the
provisions of this Warrant with respect to the rights of the holder
after the reorganization, merger or consolidation to the end that the
provisions of this Warrant (including adjustment of the Number of
Warrant Shares then in effect) shall be applicable after that event in
a manner as nearly equivalent as may be practicable.
d. Notice of Adjustments. The Company shall promptly give written
---------------------
notice of each adjustment or readjustment of the number of shares of
Common Stock or other securities issuable upon exercise of this
Warrant, by first class mail, postage prepaid, to the registered
holder of this Warrant at the holder's address as shown on the
Company's books. This notice shall state that adjustment or
readjustment and show in reasonable detail the facts on which that
adjustment or readjustment is based.
<PAGE>
e. No Change Necessary. The form of this Warrant need not be changed
-------------------
because of any adjustment in the number of shares of Common Stock
issuable upon its exercise. A Warrant issued after any adjustment on
exercise or upon replacement may continue to express the same number
of shares of Common Stock as are stated on this Warrant as initially
issued, and such number of shares shall be considered to have been so
changed as of the close of business on the date of adjustment.
f. Reservation of Stock. The Company covenants that it will at all
--------------------
times reserve and keep available, solely for issuance upon exercise of
this Warrant, all shares of its Common Stock from time to time
issuable upon exercise of this Warrant, and if at any time the number
of authorized but unissued shares of Common Stock shall not be
sufficient to effect the exercise of this Warrant, the Company will
take such corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such
purpose.
5. Notices of Record Date. In the event of any taking by the Company of
----------------------
a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution in cash or securities or property other than shares of
Common Stock, the Company shall mail to the holder of this Warrant at least
fifteen days prior to the date specified therein, a notice specifying the
date on which any such record is to be taken for the purpose of such
dividend or distribution.
6. Charges, Taxes and Expenses. Issuance of certificates for shares of
---------------------------
Common Stock upon the exercise of this Warrant shall be made without charge
to the holder hereof for any issue or transfer tax or other incidental
expense in respect of the issuance of such certificate, all of which taxes
and expenses shall be paid by the Company. Such certificates shall be
issued in the name of the holder of this Warrant.
7. No Rights as Stockholder. This Warrant does not entitle the holder
------------------------
to any voting rights or other rights as a stockholder of the Company prior
to the exercise of this Warrant.
8. Investment Representations. The holder of this Warrant by receiving
--------------------------
this Warrant makes the representations contained in paragraph 2.1 of the
Warrant Purchase Agreement dated July 31, 1997.
a. Legends. Each certificate representing Shares shall be endorsed
-------
with the following legend (in addition to any legend required by
applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED
WITHOUT AN
<PAGE>
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
The Company need not register a transfer of Shares unless the conditions
specified in the foregoing legend are satisfied. The Company may also instruct
its transfer agent not to register the transfer of any of the Shares unless the
conditions specified in the foregoing legend are satisfied.
b. Removal of Legends and Transfer Restrictions. The legend
--------------------------------------------
relating to the Act endorsed on a stock certificate pursuant to
Section 8.1 and the stop transfer instructions with respect to the
Shares represented by such certificate shall be removed and the
Company shall issue a certificate without such legend to the holder of
such Shares if such holder provides to the Company an opinion of
counsel for such holder of the Shares reasonably satisfactory to the
Company or a no-action letter or interpretive opinion of the staff of
the Securities and Exchange Commission to the effect that a public
sale, transfer or assignment of such Shares may be made without
registration and without compliance with any restriction such as Rule
144.
9. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by
-------------------------------------------------
the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and
upon reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender and cancellation of this Warrant, if mutilated,
the Company will make and deliver a new Warrant of like tenor and dated as
of such cancellation, in lieu of this Warrant.
10. Saturdays, Sundays, Holidays, etc. If the last or appointed day for
----------------------------------
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday or a Sunday or shall be a legal holiday, then
such action may be taken or such right may be exercised on the next
succeeding day not a legal holiday.
11. Miscellaneous.
-------------
i. The provisions of this Warrant shall be construed and shall
be given effect in all respects as if it had been issued and
delivered by the Company on the date of this Warrant. This
Warrant shall be binding upon any successors or assigns of the
Company. This Warrant shall constitute a contract under the laws
of the State of Delaware and for all purposes shall be construed
in accordance with and governed by the laws of said state
(irrespective of its choice of law principles).
<PAGE>
ii. The holder acknowledges that the Common Stock acquired upon
the exercise of this Warrant shall have restrictions upon its
resale imposed by state and federal securities laws described in
the Warrant Purchase Agreement.
IN WITNESS WHEREOF, Catalytica, Inc. has caused this Warrant to be executed
by its duly authorized officer.
Dated: July 31, 1997
CATALYTICA, INC.
/S/ Ricardo B. Levy
-----------------------------
Ricardo B. Levy
President and Chief Executive Officer
<PAGE>
Exhibit 1
---------
NOTICE OF WARRANT EXERCISE
--------------------------
To: CATALYTICA, INC.
(1) The undersigned hereby elects to purchase _____________ shares of
Common Stock of Catalytica, Inc. pursuant to the terms of the attached Warrant,
and tenders herewith payment of the purchase price in full.
(2) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned. The undersigned's tax
identification number is _____________.
(3) The undersigned represents that the aforesaid shares of Common Stock
are being acquired for the account of the undersigned for investment and not
with a view to, or for resale in connection with, the distribution thereof. The
undersigned confirms and remakes as of the date of this notice the
representations contained in Section 2.1 of the Warrant Purchase Agreement dated
__________, 1997 with respect to such Shares of Common Stock.
__________________________ ___________________________________
(Date) (Signature)
<PAGE>
EXHIBIT 10.1
ASSET PURCHASE AGREEMENT
AMONG
GLAXO WELLCOME INC.
AND
CATALYTICA PHARMACEUTICALS, INC.
AND
CATALYTICA, INC.
DATED AS OF
JUNE 25, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I DEFINITIONS.......................................................... 2
1.1 Certain Definitions.................................................. 2
-------------------
1.2 Other Definitions.................................................... 15
-----------------
ARTICLE II SALE AND PURCHASE OF ASSETS.......................................... 18
2.1 Transfer of Assets................................................... 18
------------------
2.2 Purchased Assets..................................................... 18
----------------
(a) Owned Real Property........................................... 19
-------------------
(b) Tangible Personal Property.................................... 20
--------------------------
(c) Purchased Inventories......................................... 20
---------------------
(d) Vehicles...................................................... 20
--------
(e) Contracts..................................................... 20
---------
(f) Certain Intellectual Property................................. 21
-----------------------------
(g) Permits....................................................... 22
-------
(h) Prepaid Items................................................. 22
-------------
(i) Records....................................................... 22
-------
(j) Claims........................................................ 23
------
2.3 Excluded Assets...................................................... 23
---------------
(a) Cash.......................................................... 23
----
(b) Prepaid Items................................................. 23
-------------
(c) Personal Property Disposed Of................................. 23
-----------------------------
(d) Insurance..................................................... 23
---------
(e) Assets of Benefit Plans....................................... 23
-----------------------
(f) Retained Records.............................................. 23
----------------
(g) Claims........................................................ 23
------
(h) Retained Product Inventories.................................. 24
----------------------------
(i) Retained Intellectual Property................................ 24
------------------------------
(j) Nontransferable Permits....................................... 24
-----------------------
(k) Accounts Receivable........................................... 24
-------------------
(l) Other Excluded Assets......................................... 24
---------------------
2.4 Liabilities.......................................................... 24
-----------
(a) Real Property Liens........................................... 24
-------------------
(b) Other Purchased Assets........................................ 25
----------------------
(c) Permitted Liens............................................... 25
---------------
(d) Assumed Liabilities........................................... 25
-------------------
(e) Excluded Liabilities.......................................... 26
--------------------
ARTICLE III CONSIDERATION........................................................ 27
3.1 Cash Purchase Price.................................................. 27
-------------------
3.2 Additional Cash Consideration........................................ 28
-----------------------------
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
3.3 Additional Stock Consideration....................................... 28
------------------------------
3.4 Warrants............................................................. 28
--------
3.5 Escrow............................................................... 28
------
3.6 Adjustment of Purchase Price......................................... 28
----------------------------
(a) Final Statement............................................... 28
---------------
(b) Dispute Resolution............................................ 29
------------------
(c) Adjustment.................................................... 30
----------
3.7 Allocation........................................................... 31
----------
3.8 Proration of Certain Items........................................... 31
--------------------------
(a) Operating Expenses............................................ 31
------------------
(b) Taxes......................................................... 31
-----
(c) Utilities..................................................... 32
---------
(d) Personal Property Leases...................................... 32
------------------------
(e) Deposits...................................................... 32
--------
(f) Prepaid Items................................................. 32
-------------
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER............................. 33
4.1 Organization and Good Standing....................................... 33
------------------------------
4.2 Authority............................................................ 33
---------
4.3 No Conflict or Breach................................................ 34
---------------------
4.4 Consents and Approvals............................................... 35
----------------------
4.5 Books and Records; Financial Information............................. 35
----------------------------------------
(a) Actual Historical Financial Information....................... 35
---------------------------------------
(b) Historical Budgeted Financial Information..................... 37
-----------------------------------------
(c) Projected Financial Information............................... 37
-------------------------------
4.6 Title to Assets...................................................... 38
---------------
4.7 Real Property........................................................ 38
-------------
(a) Owned......................................................... 38
-----
(b) Leased........................................................ 40
------
(c) Improvements.................................................. 40
------------
4.8 Certain Purchased Property........................................... 40
--------------------------
4.9 Condition of Tangible Assets......................................... 41
----------------------------
4.10 Purchased Inventories................................................ 42
---------------------
4.11 Contracts............................................................ 42
---------
4.12 Intellectual Property................................................ 44
---------------------
4.13 Legal Proceedings.................................................... 46
-----------------
4.14 Permits.............................................................. 46
-------
4.15 Taxes................................................................ 47
-----
4.16 Insurance............................................................ 47
---------
4.17 Labor and Employment Matters......................................... 47
----------------------------
4.18 Employees; Compensation; Benefit Plans............................... 48
--------------------------------------
(a) Compensation, Agreements...................................... 48
------------------------
(b) Employee Benefit Plans........................................ 48
----------------------
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
4.19 Absence of Certain Changes........................................... 49
--------------------------
4.20 Names................................................................ 50
-----
4.21 Brokers.............................................................. 50
-------
4.22 Environmental Matters................................................ 50
---------------------
(a) Condition of the Purchased Assets............................. 50
---------------------------------
(b) Compliance With Environmental Laws............................ 51
----------------------------------
(c) Environmental Permits......................................... 51
---------------------
(d) CERCLA Liabilities............................................ 52
------------------
(e) Environmental Liabilities..................................... 52
-------------------------
(f) Environmental Reports......................................... 53
---------------------
4.23 Employee Health and Safety Matters................................... 54
----------------------------------
4.24 Seller Financial Condition........................................... 54
--------------------------
4.25 Multisite Contracts.................................................. 54
-------------------
ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER AND PARENT................... 54
5.1 Organization and Good Standing....................................... 55
------------------------------
5.2 Authority............................................................ 55
---------
5.3 No Conflict or Breach................................................ 56
---------------------
5.4 Consents and Approvals............................................... 56
----------------------
5.5 Capital Structure of Parent and Buyer................................ 57
-------------------------------------
(a) Parent........................................................ 57
------
(b) Buyer......................................................... 58
-----
5.6 Financial Statements................................................. 59
--------------------
5.7 Material Adverse Change.............................................. 60
-----------------------
5.8 Financial Plans...................................................... 60
---------------
5.9 Securities Documents................................................. 61
--------------------
5.10 Legal Proceedings.................................................... 62
-----------------
5.11 No Other Representations............................................. 62
------------------------
5.12 FDA.................................................................. 62
---
5.13 Financing............................................................ 63
---------
5.14 Brokers.............................................................. 63
-------
ARTICLE VI COVENANTS OF SELLER.................................................. 63
6.1 Conduct of Business.................................................. 63
-------------------
6.2 Access and Information............................................... 65
----------------------
6.3 No Other Solicitations............................................... 66
----------------------
6.4 Future Cash Flows.................................................... 66
-----------------
6.5 Environmental Reports................................................ 66
---------------------
6.6 Financial Statements................................................. 66
--------------------
6.7 Multisite Contracts.................................................. 66
-------------------
ARTICLE VII COVENANTS OF BUYER AND SELLER........................................ 67
7.1 Access............................................................... 67
------
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
7.2 Employee Terminations............................................... 68
---------------------
7.3 Establishment Registration and AFT Permit........................... 68
-----------------------------------------
7.4 Covenant Not to Compete............................................. 69
-----------------------
(a) General...................................................... 69
-------
(b) Time Period.................................................. 70
-----------
(c) Remedies..................................................... 70
--------
7.5 Retained Product Inventories........................................ 70
----------------------------
ARTICLE VIII MUTUAL COVENANTS.................................................... 71
8.1 Employment Matters.................................................. 71
------------------
(a) Employment................................................... 71
----------
(b) Retirement and Benefit Plans; Incentives..................... 73
----------------------------------------
(c) Service Credit for New Employees............................. 73
--------------------------------
(d) General...................................................... 73
-------
(e) WARN Act..................................................... 73
--------
(f) Tax Reporting................................................ 74
-------------
(g) No Third Party Beneficiaries................................. 74
----------------------------
8.2 Environmental Indemnification....................................... 74
-----------------------------
(a) Seller's Environmental Indemnity............................. 74
--------------------------------
(b) Buyer's Environmental Indemnity.............................. 75
-------------------------------
(c) Future Construction and Repair and Maintenance Activities.... 77
---------------------------------------------------------
(d) Seller's Obligation to Perform Remedial Activities........... 84
--------------------------------------------------
(e) Buyer's Obligation to Perform Remedial Activities............ 85
-------------------------------------------------
(f) The Procedure for Tendering An Indemnified Claim............. 86
------------------------------------------------
(g) Time for Indemnified Claims.................................. 87
---------------------------
(h) No Recovery for Loss of Profits.............................. 87
-------------------------------
(i) Independent Covenants........................................ 88
---------------------
(j) Notice of Environmental Occurrences.......................... 89
-----------------------------------
8.3 Best Efforts; Regulatory Approvals.................................. 89
----------------------------------
8.4 SWMU................................................................ 90
----
(a) SWMU Remedial Activity....................................... 90
----------------------
(b) Future Remediation of Pre-Existing Environmental Conditions.. 90
-----------------------------------------------------------
8.5 Termination of Confidentiality Agreement............................ 91
----------------------------------------
8.6 Confidentiality..................................................... 91
---------------
(a) General...................................................... 91
-------
(b) Nondisclosure................................................ 91
-------------
(c) Permitted Exceptions......................................... 92
--------------------
(d) Consent...................................................... 93
-------
(e) Excluded Information......................................... 93
--------------------
(f) Notification of Mandatory Disclosure......................... 94
------------------------------------
(g) Publicity.................................................... 95
---------
(h) Return of Confidential Information........................... 95
----------------------------------
8.7 Additional Material Contracts....................................... 96
-----------------------------
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C>
8.8 Unemployment Accounts............................................... 97
---------------------
8.9 Asbestos............................................................ 97
--------
8.10 Information Technology Matters...................................... 98
------------------------------
8.11 Maintenance of Representations and Warranties....................... 98
---------------------------------------------
8.12 Supply Agreement Charges............................................ 99
------------------------
8.13 Warren Encroachment.................................................100
-------------------
ARTICLE IX CONDITIONS PRECEDENT TO BUYER'S AND PARENT'S OBLIGATIONS............100
9.1 Representations and Warranties......................................100
------------------------------
9.2 Compliance with Covenants...........................................101
-------------------------
9.3 Absence of Litigation...............................................101
---------------------
9.4 Absence of Material Change..........................................101
--------------------------
9.5 Consents and Approvals and Permits..................................101
----------------------------------
9.6 Title Insurance; Survey.............................................102
-----------------------
9.7 Removal of Liens....................................................102
----------------
9.8 Financing...........................................................102
---------
9.9 Legal Opinion.......................................................102
-------------
9.10 Physical Condition of Purchased Assets..............................103
--------------------------------------
9.11 Litigation..........................................................103
----------
9.12 Transaction Agreements..............................................103
----------------------
ARTICLE X CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS........................103
10.1 Representations and Warranties......................................103
------------------------------
10.2 Compliance with Covenants...........................................104
-------------------------
10.3 Absence of Litigation...............................................104
---------------------
10.4 Consents and Approvals..............................................104
----------------------
10.5 Legal Opinion.......................................................104
-------------
10.6 Transaction Agreements..............................................104
----------------------
10.7 Insurance Coverages.................................................104
-------------------
ARTICLE XI CLOSING.............................................................105
11.1 Closing.............................................................105
-------
11.2 Deliveries by Seller................................................105
--------------------
11.3 Deliveries by Buyer and Parent......................................107
------------------------------
11.4 Deliveries by Seller and Buyer......................................108
------------------------------
11.5 Further Assurances..................................................109
------------------
ARTICLE XII INDEMNIFICATION.....................................................109
12.1 Indemnification by Seller...........................................109
-------------------------
12.2 Indemnification by Buyer and Parent.................................111
-----------------------------------
12.3 Notice of Claim.....................................................113
---------------
12.4 Defense.............................................................114
-------
(a) Third Party Claims...........................................114
------------------
</TABLE>
v
<PAGE>
<TABLE>
<S> <C>
(b) Indemnitee's Right to Assume Defense.........................115
------------------------------------
(c) Indemnitor's Failure to Assume Defense of Third Party Claim..116
-----------------------------------------------------------
(d) Statutes of Limitations......................................117
-----------------------
12.5 Time for Claims.....................................................117
---------------
12.6 Limitation..........................................................118
----------
12.7 Reduction by Insurance Proceeds.....................................118
-------------------------------
12.8 Maximum Indemnity Amount............................................119
------------------------
12.9 Known Matters.......................................................119
-------------
12.10 Exclusive Remedy....................................................120
----------------
12.11 Indemnities Related to Purchased Inventories........................120
--------------------------------------------
12.12 Exceptions..........................................................120
----------
ARTICLE XIII TERMINATION.........................................................121
13.1 Termination.........................................................121
-----------
13.2 Effect on Obligations...............................................122
---------------------
ARTICLE XIV MISCELLANEOUS.......................................................123
14.1 Survival of Representations.........................................123
---------------------------
14.2 Bulk Sales..........................................................123
----------
14.3 Risk of Loss........................................................123
------------
(a) Material.....................................................123
--------
(b) Not Material.................................................124
------------
14.4 Tax Filings.........................................................124
-----------
14.5 Expenses............................................................125
--------
14.6 Publicity...........................................................125
---------
14.7 Notices.............................................................125
-------
14.8 Governing Law.......................................................127
-------------
14.9 Jurisdiction........................................................127
------------
14.10 Counterparts........................................................128
------------
14.11 Assignment..........................................................128
----------
14.12 Third Party Beneficiaries...........................................128
-------------------------
14.13 Headings............................................................129
--------
14.14 Amendments..........................................................129
----------
14.15 Severability........................................................129
------------
14.16 Entire Agreement....................................................129
----------------
14.17 Drafting Ambiguities................................................129
--------------------
</TABLE>
vi
<PAGE>
SCHEDULES
---------
<TABLE>
<S> <C>
Section 1.1(a) Assumed Supply Contracts
Section 1.1(b) Data Room Catalog
Section 2.2(a) Owned Real Property
Section 2.2 (d) Vehicles
Section 2.2(f)(i) Transferred Processes
Section 2.2(f)(ii) Transferred Systems
Section 2.2(g) Transferred Permits
Section 2.3(f) Retained Records
Section 2.3(j) Nontransferable Permits
Section 2.3(l) Excluded Assets
Section 2.4(a) Real Property Liens
Section 3.8(c) Deposits
Section 4.1 Foreign Qualifications
Section 4.4 Required Consents
Section 4.5 Financial Information
Section 4.6 Liens
Section 4.9 Condition of Tangible Assets
Section 4.10 Purchased Inventories Greater than Six Months of Forward Demand
Section 4.11 Material Contracts
Section 4.12(b) Trademark Proceedings
Section 4.12(c) Intellectual Property
Section 4.13 Legal Proceedings
Section 4.16 Insurance
Section 4.18 Employee Benefit Plans
Section 4.19 Absence of Certain Changes
Section 4.22 Environmental Matters
Section 4.23 Employee Health and Safety Matters
Section 6.1 Conduct of Business
Section 8.1(a)(1) Categories of New Greenville Employees
Section 8.1(b) Buyer Retirement and Benefit Plans
Section 8.2(c)(1) Prohibited Areas
Section 8.7 Additional Material Contracts
</TABLE>
vii
<PAGE>
EXHIBITS
--------
<TABLE>
<S> <C>
Exhibit A Amended and Restated Certificate of Incorporation
Exhibit B Environmental Agreement
Exhibit C License Agreement
Exhibit D Memorandum of Understanding
Exhibit E Supply Agreement
Exhibit F Additional Cash Consideration
Exhibit G Allocation of Total Consideration
Exhibit H Morgan Stanley Stock Purchase Agreement
Exhibit I Chase Manhattan Commitment Letter
Exhibit J Asbestos Release
Exhibit K Special Warranty Deed and Quitclaim Deed
Exhibit L Bill of Sale
Exhibit M Assignment and Assumption of Liabilities
</TABLE>
viii
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (together with all Schedules and
Exhibits hereto, this "Agreement"), dated as of June _____, 1997, is entered
into in the State of North Carolina by and among GLAXO WELLCOME INC., a North
Carolina corporation ("Seller"), CATALYTICA PHARMACEUTICALS, INC., a Delaware
corporation ("Buyer") and CATALYTICA, INC., a Delaware corporation that is the
parent of Buyer (the "Parent").
R E C I T A L S :
1. Seller is the owner and operator of a pharmaceuticals
manufacturing facility located in Greenville, North Carolina (the "Facility").
2. Seller desires to sell, and Buyer desires to buy, certain assets
of Seller used in or relating to the Operation of the Facility (as defined
below), on the terms and conditions set forth in this Agreement, and Seller and
Buyer desire, and it is a condition to the parties' obligations under this
Agreement, that Buyer manufacture and supply to Seller and Seller purchase
certain secondary and sterile pharmaceutical products and certain bulk active
ingredients and intermediates for use in pharmaceutical products, all under the
terms of the Supply Agreement (as defined below).
THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties contained in this Agreement, the parties agree as
follows:
<PAGE>
ARTICLE I
DEFINITIONS
1.1 Certain Definitions. The following terms shall have the meanings
-------------------
set forth below:
Assigned Products. Those products that Buyer will manufacture for
-----------------
third parties under the Assumed Supply Contracts.
Assumed Supply Contracts. Those third party manufacturing contracts
------------------------
as set forth in Section 1.1(a) of the Disclosure Schedule which shall be
assigned by Seller to Buyer at the Closing.
Best Knowledge. Actual knowledge of the officers and directors of the
--------------
party in question after reasonable inquiry of the management personnel of such
party who are, in such party's judgment, best situated to know about the
subject.
Buyer Confidential Information. All confidential business and
------------------------------
technical communications, documents or other information, whether in written,
oral or other form, of Buyer, Parent or a Parent's Affiliate that are disclosed
to Seller by Buyer, Parent or a Parent's Affiliate or Seller otherwise learns in
connection with the negotiation or performance of this Agreement; provided,
however, that all information relating to the Products shall be Seller
Confidential Information except to the extent that information is part of or
constitutes a "Supplier Development" as described in the Supply Agreement.
Buyer Confidential Information shall include all of the above disclosed by
Buyer, Parent or a Parent's Affiliate or learned by Seller prior to the date of
this Agreement.
<PAGE>
Buyer Preferred Stock. Shares of junior convertible preferred stock,
---------------------
par value $.001 per share, of Buyer having precisely the rights and preferences
described in the Amended and Restated Certificate of Incorporation attached
hereto as Exhibit A (which rights and preferences have previously been fully
negotiated by the parties and are not subject to change).
Closing. The closing of the purchase and sale of the Purchased Assets
-------
pursuant to this Agreement.
Closing Date. The day on which the Closing occurs.
------------
COBRA. Consolidated Omnibus Budget Reconciliation Act, as amended.
-----
Code. The Internal Revenue Code of 1986, as amended, including
----
regulations and other guidance promulgated thereunder.
Continuing Release. Any release of a Hazardous Material that occurred
------------------
at any time on or before the Effective Time and also after the Effective Time
from a below ground structure (including without limitation, a sewer, pipe,
tank, sump, or drain); provided, however, that no release shall be a Continuing
Release to the extent that it occurs during any period of time following (i) the
time Buyer discovers or reasonably should have discovered the release and has a
reasonable opportunity to cure or (ii) the fifth (5) anniversary of the Closing
Date, whichever is earlier.
Data Room Catalog. That certain catalog of documents which has
-----------------
previously been made available by Seller to Buyer, a copy of which is attached
hereto as Section 1.1(b) of the Disclosure Schedule.
Disclosure Schedule. The schedule accompanying this Agreement, which
-------------------
is arranged in sections corresponding to the Sections of this Agreement.
<PAGE>
Environmental Agreement. Agreement in the form attached hereto as
-----------------------
Exhibit B (which form has previously been fully negotiated by the parties and is
not subject to change) to be entered into between the parties at the Closing in
accordance with Section 11.4.
Environmental Claim. Any and all losses, damages, judgments, fines,
-------------------
liens, penalties, costs and expenses (including without limitation reasonable
attorneys' fees, experts' fees, consultants' fees, but not including loss of
profits described in Section 8.2(h)), administrative, enforcement or judicial
actions, suits, orders, notices, notices of violations, investigations,
complaints, demands for Remedial Activity, requests for information,
proceedings, or other written communication, based upon, arising from, alleging,
or asserting any (i) violation of or liability under any Environmental Law,
including, without limitation, a violation of any permit, approval, memorandum
of understanding, or settlement agreement; (ii) violations or liability arising
from the conduct of Remedial Activity; (iii) Environmental Condition, of any
kind or character, whether known or unknown as of the Effective Time; or (iv)
exposure of any person to a Hazardous Material (without regard to whether a
health effect is manifested as of the Effective Time), except for persons
covered by Section 12.1(c) or Section 12.2(c), whose claims are described in the
provisions of that Section and whose exposures shall give rise to a "Loss" under
such Sections, rather than to an "Environmental Claim."
Environmental Condition. The presence in the environment, including
-----------------------
the soil, groundwater, surface water or air of any Hazardous Material at any
concentration (i) exceeding allowable levels under any Environmental Law, or
(ii) requiring Remedial Activity or other action under any Environmental Law.
<PAGE>
Environmental Law. Any and all federal, state, or local laws,
-----------------
statutes, ordinances, orders, codes, rules, regulations, judgments or agreements
with any Governmental Body relating to environmental matters involving
pollution, contamination or protection of the environment, including but not
limited to the Comprehensive Environmental Response, Compensation and Liability
Act, Clean Air Act, the Federal Water Pollution Control Act, the Hazardous
Material Transportation Act, the Resource Conservation and Recovery Act of 1976,
the Toxic Substances Control Act, the North Carolina Oil Pollution and
Hazardous Substances Control Act, and other local, state and federal laws of
similar import.
ERISA. The Employee Retirement Income Security Act of 1974, as
-----
amended, including regulations and other guidance promulgated thereunder.
Escrow Agent. Branch Banking and Trust Company.
------------
Escrow Agreement. That certain Escrow Agreement dated of even date
----------------
herewith between Seller, Buyer and Escrow Agent.
Exacerbation. Any exacerbation or worsening of an Environmental
------------
Condition to such an extent that Remedial Activities, or additional Remedial
Activities, which were not previously required, become necessary to fulfill the
Environmental Laws applicable to such Environmental Condition.
FDA. The United States Food and Drug Administration.
---
FD&C Act. The Federal Food, Drug and Cosmetic Act, as amended, and
--------
the rules and regulations thereunder.
GAAS. Generally accepted international auditing standards.
----
<PAGE>
Governmental Body. Any nation or government, any state, province or
-----------------
other political subdivision thereof or any entity with legal authority to
exercise executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
Greenville Employees. All persons employed by Seller in regular (full
--------------------
time, part-time or long term temporary) positions as of the Effective Time whose
regular place of employment is the Facility.
HSR Act. The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
-------
amended, and the rules and regulations thereunder.
Hazardous Material. Any material or substance designated by or
------------------
regulated by any Governmental Body as radioactive, toxic, hazardous or otherwise
a danger to health, reproduction or the environment (including without
limitation solvents, petroleum, crude oil fractions, pesticides, asbestos
containing materials, radon gas, radioactive materials, blood, biological
substances, medical "sharps" waste, and other chemicals, "hazardous substances,"
"hazardous waste," "hazardous materials," or "toxic substances" under the
Environmental Laws). Hazardous Material shall not include (1) products or
materials used to produce products at the Facility for ultimate sale to
customers and stored in compliance with applicable Environmental Laws or (2) any
asbestos containing materials in an Improvement, utility, fixture and equipment
or Tangible Personal Property.
Incremental Construction Costs. With respect to expansion or
------------------------------
modification of any existing improvement or construction of a new improvement
(hereinafter referred to as "Construction Activity") or repairs and maintenance
of any improvements, utilities, fixtures and equipment or tangible personal
property (herein a "Repair Activity") to or in an area affected by
<PAGE>
a Pre-Existing Environmental Condition, the excess of (A) costs reasonably
incurred by Buyer in connection with either the Construction Activity or Repair
Activity, to the extent that such costs result from the presence of a Pre-
Existing Environmental Condition, over (B) the costs that would have been
incurred by Buyer in connection with the Construction Activity or Repair
Activity, as the case may be, had such Pre-Existing Environmental Condition not
been present. In no event shall Incremental Construction Costs include any costs
relating to the presence of asbestos containing materials in an Improvement,
utility, fixture and equipment or Tangible Personal Property.
Intellectual Property. (i) Trademarks, trademark registrations,
---------------------
trademark applications, service marks, service mark registrations, service mark
applications, business marks, brand names, trade names, trade dress, names,
logos and slogans and all goodwill associated therewith; (ii) patents, patent
rights, provisional patent applications, patent applications, designs,
registered designs, registered design applications, industrial designs,
industrial design applications and industrial design registrations, including
any and all divisions, continuations, continuations-in-part, extensions,
substitutions, renewals, registrations, revalidations, reexaminations, reissues
or additions, including supplementary certificates of protection, of or to any
of the foregoing items; (iii) copyrights, copyright registrations, copyright
applications, original works of authorship fixed in any tangible medium of
expression, including literary works (including all forms and types of computer
software, including all source code, object code, firmware, development tools,
files, records and data and all documentation related to any of the foregoing,
musical, dramatic, pictorial, graphic and sculptured works; (iv) trade secrets,
technology, discoveries and improvements, know-how, proprietary rights,
formulae,
<PAGE>
confidential and proprietary information, technical information,
techniques, inventions, designs, drawings, procedures, processes, models,
formulations, manuals and systems, whether or not patentable or copyrightable,
including all biological, chemical, biochemical, toxicological, pharmacological
and metabolic material and information and data relating thereto and
formulation, clinical, analytical and stability information and data which have
actual or potential commercial value and are not available in the public domain;
and (v) all other intellectual property or proprietary rights, in each case
whether or not subject to statutory registration or protection.
Legal Requirements. Any and all laws, statutes, ordinances, rules,
------------------
regulations, judgments, injunctions, stipulations, decrees, orders, treaties or
protocols now or hereafter enacted or promulgated by any Governmental Body, any
covenant, condition or restriction contained in any agreement, and any insurance
underwriter's requirement, but not including any Environmental Laws or the FD&C
Act.
License Agreement. Agreement, in the form attached hereto as Exhibit
-----------------
C (which form has previously been fully negotiated by the parties and is not
subject to change), to be entered into between Seller and Buyer at the Closing,
pursuant to which Buyer shall license certain of the Transferred Intellectual
Property to Seller.
Lien. Any encumbrance, lien, charge, claim, option, pledge, security
----
interest, mortgage, deed of trust, easement, lease, occupancy agreement, license
or title defect of any nature.
Material Adverse Effect. A material adverse effect on the condition,
-----------------------
permitted use or value of the Purchased Assets or the Operation of the Facility.
<PAGE>
Medical Records Transfer Agreement. Agreement, in a form to be agreed
----------------------------------
upon by the parties, to be entered into between Seller and Buyer at the Closing
and which will govern the Seller's transfer of the medical records of the New
Employees to Buyer.
Memorandum of Understanding. That certain Memorandum of
---------------------------
Understanding, a draft of which is attached hereto as Exhibit D and which has
been negotiated between Buyer and Seller and filed with the North Carolina
Department of Environmental Health and Natural Resources ("DEHNR") with respect
to certain Pre-Existing Environmental Conditions, as said memorandum is amended
and renewed from time to time as required by the DEHNR.
Operation of the Facility. The use of the Purchased Assets by Seller
-------------------------
to manufacture and supply products in the manner and quantity being manufactured
and supplied by it at the Facility as of the Effective Time for its own use or
for the sale to any third party.
Parent's Affiliate. Any person controlling, controlled by or under
------------------
direct or indirect common control with Parent or in which Parent holds 30% or
more of the outstanding voting or equity interests.
Parent Common Stock. Shares of common stock, par value $.001 per
-------------------
share, of Parent.
Parent Subsidiaries. All those corporations, associations or other
-------------------
business entities, including without limitation the Buyer, of which the Parent
owns or controls 50% or more of the outstanding equity securities, either
directly or through an unbroken chain of entities as to each of which 50% or
more of the outstanding equity securities is owned directly or indirectly by its
parent.
<PAGE>
Permits. All permits, authorizations, certificates, approvals,
-------
licenses, exemptions and classifications required for the Operation of the
Facility and the ownership and operation of the Purchased Assets, except for
those required by the FD&C Act or the Environmental Laws.
Personnel Files Transfer Agreement. Agreement, in a form to be agreed
----------------------------------
upon by the parties, which will be entered into between Seller and Buyer at the
Closing and which will govern the Seller's transfer of the personnel files of
the New Employees to Buyer.
Post-Closing Environmental Condition. An Environmental Condition to
------------------------------------
the extent that it:
(1) exists on the Purchased Assets after the Effective Time, but is
not a Pre-Existing Environmental Condition (except as specifically set forth in
paragraph (3) below) or was not caused by Seller, or Seller's agents, employees,
consultants, contractors or hazardous waste haulers or handlers;
(2) exists at any other location to which Hazardous Materials
generated at the Owned Real Property after the Effective Time or at any time in
the course of a Remedial Activity conducted by or for the benefit of Buyer or
Buyer's agents, employees, consultants, contractors or hazardous waste haulers
or handlers under this Agreement, or the Environmental Agreement, have been
transferred, to the extent such Environmental Condition results from the
Hazardous Materials so generated; or
(3) is a Pre-Existing Environmental Condition that becomes subject to
Buyer's Environmental Indemnity Obligation under Section 8.2.
Pre-Existing Environmental Condition. An Environmental Condition to
------------------------------------
the extent that it:
<PAGE>
(1) exists on the Purchased Assets before the Effective Time,
including, without limitation, those identified in the "Phase II RCRA Facility
Investigation Report," dated October 1995, as amended, which was submitted by
Seller to the North Carolina Department of Environment, Health and Natural
Resources ("DEHNR") (hereinafter referred to as "the RFI Report");
(2) results from a Continuing Release;
(3) exists at any other location to which Hazardous Materials
generated at the Owned Real Property prior to the Effective Time or at any time
in the course of a Remedial Activity conducted by or for the benefit of Seller
or Seller's agents, employees, consultants, contractors or hazardous waste
haulers or handlers under this Agreement, or the Environmental Agreement, have
been transferred, to the extent such Environmental Condition results from the
Hazardous Material so generated; or
(4) has resulted or hereafter results from the migration or
transformation of any of the Environmental Conditions described in subparts (1)
through (3) of this definition.
Products. The Products, as defined in the Supply Agreement, that
--------
Buyer is obligated to manufacture for purchase by Seller under the Supply
Agreement following the Closing.
Purchased Inventories. The following inventories as they exist as of
---------------------
the Effective Time: (a) all primary raw materials; (b) all primary work in
process; (c) all primary finished goods; (d) all secondary and sterile raw
materials and packaging components; (e) all secondary and sterile work in
process; (f) all secondary and sterile finished goods not yet passed by quality
assurance, except for the Retained Product Inventories.
<PAGE>
Remedial Activity. Any reporting, investigation, feasibility study,
-----------------
remediation, treatment, removal, transport, disposal, characterization,
sampling, health assessment, risk assessment, encapsulation, monitoring, study,
report, assessment, analysis, or other activity with respect to an Environmental
Condition.
Rights. Any warrants, options, rights, convertible securities and
------
other arrangements or commitments which obligate an entity to issue or dispose
of any of its capital stock or other ownership interests, and stock appreciation
rights, performance units and similar stock-based rights, whether or not they
obligate the issuer thereof to issue stock or other securities or to pay cash.
Securities Documents. All reports, proxy statements, registration
--------------------
statements and all other documents filed, or required to be filed or sent to
shareholders, pursuant to the Securities Laws, including without limitation
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, annual reports to shareholders, proxy statements and registration
statements.
Securities Laws. The Securities Act of 1933, as amended; the
---------------
Securities Exchange Act of 1934, as amended; the Investment Company Act of 1940,
as amended; the Investment Advisers Act of 1940, as amended; the Trust Indenture
Act of 1939 as amended; and the rules and regulations of the Securities and
Exchange Commission promulgated thereunder.
Seller Confidential Information. All confidential business and
-------------------------------
technical communications, documents and other information, whether in written,
oral or other form, which Seller or a Seller's Affiliate furnishes or discloses
to Buyer or Parent or which Buyer or Parent otherwise learns in connection with
the negotiation and performance of this Agreement or any of
<PAGE>
the Transaction Agreements (whether relating to Seller, a Seller's Affiliate or
any third party for which Seller has an obligation of confidentiality),
including the terms of this Agreement, other than the existence of this
Agreement; price and cost information; customer and supplier lists; strategies;
forecasts; market research and analyses; computer programs; technical data and
know-how. Seller Confidential Information disclosed by Seller or a Seller's
Affiliate to Buyer, Parent or a Parent's Affiliate or learned by Buyer, Parent
or a Parent's Affiliate prior to the date of this Agreement, including without
limitation, pursuant to any confidentiality agreement between the parties, shall
be included in the definition of "Seller Confidential Information."
Seller's Affiliate. Any person controlling, controlled by or under
------------------
direct or indirect common control with Seller or in which Seller holds 30% or
more of the outstanding voting or equity interests.
Seller's Obligatory Remediation. All Remedial Activities required to
-------------------------------
comply with and fulfill Environmental Laws (including without limitation any
consent decrees, settlement agreements, permits, approvals, plans, agreements,
and memorandums of understanding) applicable to a Pre-Existing Environmental
Condition. If more than one alternative meets such requirements, the Remedial
Activity shall be the one that (A) can be achieved for the lowest financial cost
as compared with other alternatives and (B) does not restrict or interfere with
the operations of the Facility as they existed at the Effective Time. If more
than one alternative meets both (A) and (B), the Remedial Activity shall be the
one that minimizes any interference with other Facility operations and, to the
extent consistent with Facility operations, avoids or reduces the likelihood of
future liabilities.
<PAGE>
Statement of Final Inventories. A written statement to be prepared
------------------------------
following the Closing, describing the type and amount of the Purchased
Inventories as of the Effective Time based on Seller's 1997 standard costs. The
Statement of Final Inventories shall be based on the Seller's perpetual
inventory record for the month-end that coincides with the Closing Date or such
shorter part of a month as ends on the day of the Closing Date, if the Closing
Date is not the last day of the month.
Sterile Products Facility. That building known as Building #16,
-------------------------
including all equipment located therein, which is located on the Owned Real
Property, is predominately used for the manufacture of sterile products and is
commonly referred to as the "Sterile Products Facility".
Stock Purchase Agreement. That certain Stock Purchase Agreement
------------------------
entered into between Buyer and Seller simultaneously with this Agreement,
pursuant to which Buyer will issue to Seller shares of Buyer Preferred Stock.
Supply Agreement. Agreement in precisely the form attached hereto as
----------------
Exhibit E (which form has previously been fully negotiated by the parties and is
not subject to change, except that the agreement may be amended to the extent
provided in Section 8.12 and Exhibit B to the Supply Agreement may be amended to
include new agreements entered into as described in Section 8.7 of this
Agreement), to be entered into between Seller and Buyer at the Closing, pursuant
to which Buyer will manufacture for Seller and Seller will purchase from Buyer
specified quantities of the products listed in said agreement.
Taxes. Any and all federal, state, local and foreign taxes,
-----
assessments and other governmental charges, duties, impositions and liabilities,
including taxes based upon or
<PAGE>
measured by gross receipts, income, profits, sales, use and occupation, and
value added, ad valorem, transfer, franchise, withholding, payroll, recapture,
employment, licensing, privilege, excise and property taxes, together with all
interest, penalties and additions imposed with respect to such amounts and any
obligations under any agreements or arrangements with any other person with
respect to such amounts and including any liability for taxes of a predecessor
entity.
Transaction Agreements. The Escrow Agreement, the Supply Agreement,
----------------------
the Stock Purchase Agreement, the License Agreement, the Environmental
Agreement, the Memorandum of Understanding, the Personnel Files Transfer
Agreement, the Medical Records Transfer Agreement, the Warrant Purchase
Agreement, the Share Exchange Agreement (as defined in the Stock Purchase
Agreement) and the Asbestos Release.
UK GAAP. Generally accepted United Kingdom accounting principles.
-------
US GAAP. Generally accepted United States accounting principles.
-------
WARN Act. The Workers Adjustment Retraining and Notification Act, as
--------
amended, and the rules and regulations thereunder.
Warrant Purchase Agreement. That certain Warrant Purchase Agreement
--------------------------
entered into between Buyer and Seller simultaneously with this Agreement,
pursuant to which Buyer will deliver the Warrants.
Warrants. Warrants to purchase 2,000,000 shares of the common stock
--------
of Catalytica, Inc., which shall be delivered to Seller at the Closing, pursuant
to the Warrant Purchase Agreement.
1.2 Other Definitions. In addition, the following terms shall have
-----------------
the meanings given them in the following Sections of this Agreement:
<PAGE>
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Asbestos Consideration 8.9
Asbestos Release 8.9
Assumed Liabilities 2.4(d)
Buyer Indemnitees 8.2(a)
Buyer's Environmental Indemnity
Obligations 8.2(b)
Cash Purchase Price 3.1
Construction Activity 1.1
Contracts 2.2(e)
EBIT Payments Exhibit F
EBIT Period Exhibit F
EBIT Statement Exhibit F
Effective Time 11.1
Environmental Provisions 8.2(i)
Environmental Reports 4.22(f)
Escrow Amount 3.5
Excluded Assets 2.1
Excluded Liabilities 2.4(e)
Existing Environmental Permits 4.22(c)
Facility Recitals
GWI Projections 4.5
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Improvements 2.2(a)(iii)
Indemnified Party 12.3
Indemnity Obligor 12.3
Loss 12.1
Material Contracts 4.11
Multisite Contracts 4.25
New Employees 8.1
Nontransferable Permits 2.3(j)
Owned Real Property 2.2(a)(i)
Permitted Liens 2.4(c)
Plans 4.18(b)
Projections 5.8
Prohibited Areas 8.2(c)
Prospective Employees 8.1(a)
Purchased Assets 2.1
Raw Materials Purchase Orders 4.11
Repair Activity 1.1
Required Consents 4.4
Retained Intellectual Property 2.3(i)
Retained Product Inventories 2.3(h)
Seller Indemnitees 8.2(b)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Seller's Environmental Indemnity
Obligations 8.2(a)
Sterile EBIT Exhibit F
Tangible Personal Property 2.2(b)
Target Year Exhibit F
Tax Returns 4.15
Transferred Intellectual Property 2.2(f)(ii)
Transferred Processes 2.2(f)(i)
Transferred Systems 2.2(f)(ii)
Transferred Permits 2.2(g)
Utilities 4.7(a)(iv)
</TABLE>
ARTICLE II
SALE AND PURCHASE OF ASSETS
2.1 Transfer of Assets. Subject to the terms and conditions of this
------------------
Agreement, Seller agrees to sell, assign, transfer and deliver to Buyer, and
Buyer agrees to purchase and accept from Seller, at the Closing, free and clear
of all Liens, except Permitted Liens, those assets and properties of Seller
specifically described below in Section 2.2 which are used by Seller in
connection with the Operation of the Facility, but excluding certain assets
described in Section 2.3. The assets being sold hereunder are collectively
referred to as the "Purchased Assets," and the assets described in Section 2.3
are collectively referred to as the "Excluded Assets."
2.2 Purchased Assets. Except to the extent otherwise described in
----------------
Section 2.3,
<PAGE>
the Purchased Assets consist of the following:
(a) Owned Real Property. All of Seller's right, title and interest
-------------------
in and to the following:
(i) all that certain real property consisting of 17 separate
parcels of land consisting of approximately 582 acres, located in
Greenville, North Carolina and more particularly described in Section
2.2(a) of the Disclosure Schedule (the "Owned Real Property");
(ii) all rights, privileges and easements appurtenant to the
Owned Real Property, including, without limitation, all development
rights, air rights, water, water rights and riparian rights relating
to the Owned Real Property and any rights-of-way or other
appurtenances used in connection with the beneficial use and enjoyment
of the Owned Real Property and all of Seller's right, title and
interest in and to all roads and alleys adjoining or servicing the
Owned Real Property;
(iii) all the improvements and fixtures located on the Owned
Real Property, and any additions, improvements and replacements
thereto made between the date of this Agreement and the Closing Date,
including, without limitation, all buildings located on the Owned Real
Property, and all fixtures used in connection with the Operation of
the Facility or occupancy of the Owned Real Property or the foregoing
improvements, including, without limitation, the systems and
facilities used to provide any of the Utilities, refrigeration,
heating and air-conditioning, ventilation, garbage disposal, or other
services, along with
<PAGE>
all on-site parking (collectively, the "Improvements");
(b) Tangible Personal Property. All machinery, equipment, furniture,
--------------------------
fixtures, transportation, maintenance and distribution equipment, waste
treatment facilities, computers, analytical equipment, instruments,
communication equipment, control systems, spare parts, supplies, materials
and other items of tangible personal property of every kind owned by Seller
and contained in the Facility as of the date of this Agreement, except for
those items identified in Section 2.3(l) of the Disclosure Schedule and
except for those items disposed of or consumed prior to the Closing Date as
described in Section 2.3(c) (the "Tangible Personal Property"), and any
additions, improvements and replacements thereto made between the date of
this Agreement and the Closing Date, together with any express or implied
warranty by the manufacturers or sellers of any item or component part
thereof, and all maintenance records and other documents to the extent
available relating thereto.
(c) Purchased Inventories. The Purchased Inventories.
---------------------
(d) Vehicles. All motor vehicles owned by Seller and used primarily
--------
in connection with the Operation of the Facility, and all leases of motor
vehicles used primarily in connection with the Operation of the Facility,
as set forth in Section 2.2(d) of the Disclosure Schedule.
(e) Contracts. All contracts, commitments, agreements, leases
---------
(except leases of real property), licenses, understandings and obligations,
whether written or oral, entered into in connection with the conduct of
Operation of the Facility to which Seller is party or by which the
Purchased Assets are bound or affected, except for those that (i) are
<PAGE>
not legally transferable; (ii) apply to other facilities or sites of Seller
in addition to the Facility; or (iii) are identified in Section 2.3(l) of
the Disclosure Schedule (the "Contracts"), certain of which (referred to
herein as the "Material Contracts" and defined in Section 4.11) are listed
in Section 4.11 of the Disclosure Statement; provided, however, that the
Purchased Assets will not include any contract or any liabilities,
obligations or commitments made under any Contract which are Excluded
Liabilities under Section 2.4(e).
(f) Certain Intellectual Property.
-----------------------------
(i) all rights in and to manufacturing processes and procedures,
including, but not limited to, analytical procedures, quality
assurance and control procedures and sampling procedures, at the
Facility that are owned by Seller that: (1) relate generally to the
operation or layout of equipment or relate to general manufacturing
functions, and (2) are not limited in use, knowledge, application or
otherwise to a particular Product or family of Products (the
"Transferred Processes"). Section 2.2(f)(i) of the Disclosure
Schedule contains a list of the Transferred Processes that the
parties have identified and agreed to as of the date of this
Agreement. The parties acknowledge that additional items may
constitute Transferred Processes pursuant to the foregoing
definition, and each party agrees to promptly inform the other party
of any additional items that such party believes should be added to
the list of Transferred Processes. The parties agree to review in
good faith any proposed additional Transferred Processes; provided,
however, that Buyer's notification to Seller under this Section
2.2(f) shall in no way limit
<PAGE>
Seller's right to disagree with Buyer's characterization of any
process or procedure not listed in Section 2.2(f)(i) of the
Disclosure Schedule as a Transferred Process.
(ii) all rights in and to the computer software owned by Seller
and included within the information technology and automation
systems that are described in Section 2.2(f)(ii) of the Disclosure
Schedule (including, if any, all worldwide patent applications,
patents, inventor's certificates, copyrights and registrations
related to any of the foregoing) (the "Transferred Systems").
Together, the Transferred Processes and the Transferred Systems
shall be referred to herein as the "Transferred Intellectual
Property." Buyer's rights in and to the Transferred Intellectual
Property shall be subject to the rights and licenses granted to
Seller with respect to the Transferred Intellectual Property as set
forth in the License Agreement.
(g) Permits. All Permits which are legally transferable by Seller,
-------
including without limitation, those listed in Section 2.2(g) of the
Disclosure Schedule (the "Transferred Permits").
(h) Prepaid Items. Those prepaid items for which Buyer pays its pro
-------------
rata portion in connection with the prorations described in Section 3.8.
(i) Records. All records, technical data, asset ledgers, books of
-------
account, inventory records, budgets, contract manufacturing customer and
supplier lists, correspondence and other files of Seller created or
maintained in connection with the Operation of the Facility, unless
excluded pursuant to Section 2.3(f) below.
(j) Claims. Any and all causes of action and claims of Seller
------
arising out of or
<PAGE>
relating to the Purchased Assets, except tax refunds, and
except that causes of action or claims of Seller against third parties for
events that happened prior to the Closing shall be retained by Seller, to
the extent of the losses incurred by Seller.
2.3 Excluded Assets. The following assets shall be excluded from the
---------------
Purchased Assets and shall be retained by Seller:
(a) Cash. All cash on hand and on deposit in banks, petty cash
----
funds, cash equivalents and investments.
(b) Prepaid Items. Those prepaid items for which Buyer does not pay
-------------
its pro rata portion in connection with the prorations described in Section
3.8.
(c) Personal Property Disposed Of. All tangible personal property
-----------------------------
disposed of or consumed in the ordinary course of the Operation of the
Facility or with the written consent of Buyer between the date hereof and
the Closing Date.
(d) Insurance. All insurance policies relating to the Facility,
---------
including policies relating to property, boiler and machinery, liability,
facility interruption, business interruption, health and workers'
compensation and lives of officers of Seller.
(e) Assets of Benefit Plans. Assets relating to all employee benefit
-----------------------
plans.
(f) Retained Records. Those records described in Section 2.3(f) of
----------------
the Disclosure Schedule.
(g) Claims. Any and all causes of action and claims of Seller
------
arising out of or relating to events prior to the Closing Date, including
without limitation claims for tax refunds, but excluding any causes of
action and claims of Seller included in the Purchased Assets and described
in Section 2.2(j).
<PAGE>
(h) Retained Product Inventories. Inventories that, as of the
----------------------------
Effective Time, (i) cannot be used in the ordinary course of business
within six months and are not described on Section 4.10 of the Disclosure
Schedule, (ii) have been rejected in the final quality assurance
determination, or (iii) are obsolete (the "Retained Product Inventories").
(i) Retained Intellectual Property. All of the Intellectual
------------------------------
Property, other than the Transferred Intellectual Property (the "Retained
Intellectual Property"), and any royalty income or fees generated from the
Retained Intellectual Property, whether accruing before or after the
Effective Time, and all causes of action for infringement, including past
infringement, of the Retained Intellectual Property (whether accruing or
arising before or after the Effective Time).
(j) Nontransferable Permits. All Permits which are not legally
-----------------------
transferable by Seller, including without limitation those which are listed
in Section 2.3(j) of the Disclosure Schedule (the "Nontransferable
Permits").
(k) Accounts Receivable. All accounts receivable and trade accounts
-------------------
due to Seller as of the Effective Time, and the full benefit of any
security therefor.
(l) Other Excluded Assets. The assets, tangible and intangible,
---------------------
listed in Section 2.3(l) of the Disclosure Schedule.
2.4 Liabilities.
-----------
(a) Real Property Liens. The Owned Real Property shall be sold and
-------------------
conveyed to Buyer free and clear of all Liens, except for Liens described
in Section 2.4(a) of the Disclosure Schedule and such other interests of
that nature commonly found with respect to property of this type as (i) do
not adversely affect ownership or use of the
<PAGE>
Owned Real Property, all of which, considered in the aggregate, do not have
a Material Adverse Effect on the use of the Owned Real Property for the
purposes for which it is currently used or materially detract from its
value; and (ii) will not require an expenditure, individually or in the
aggregate, of more than $50,000 to remove.
(b) Other Purchased Assets. The remainder of the Purchased Assets
----------------------
(excluding the Owned Real Property) shall be sold and conveyed to Buyer
free and clear of all Liens, except for the following:
(i) imperfections of title and encumbrances, if any, which, in
the aggregate, are not material, do not materially detract from the
marketability or value of the properties subject thereto, and do not
have a Material Adverse Effect or require an expenditure, individually
or in the aggregate, of more than $50,000;
(ii) Liens for Taxes not yet due and payable; and
(iii) Liens described in Section 4.6 of the Disclosure Schedule,
all of which will be removed at or prior to Closing.
(c) Permitted Liens. The Liens described in Sections 2.4(a) and (b)
---------------
above are referred to collectively in this Agreement as the "Permitted
Liens."
(d) Assumed Liabilities. Subject to the terms and conditions
-------------------
contained herein, at the Effective Time Buyer shall assume and agree
thereafter to pay, perform and discharge only the obligations and
liabilities of Seller under the Contracts and Transferred Permits and for
purchase orders for goods or services ordered prior to the Effective Time
but not received until after the Effective Time (provided that such goods
and services are usable by Buyer in the ordinary course of business of the
operation of the Facility
<PAGE>
following the Effective Time), but Buyer shall not assume or pay, perform
or discharge any such obligations or liabilities arising out of any
performance by any other party or any breach or default by Seller under the
Contracts or the Transferred Permits prior to the Effective Time or any
such obligations or liabilities which are Excluded Liabilities. The
foregoing are hereinafter referred to collectively as the "Assumed
Liabilities." Buyer's assumption of the Assumed Liabilities is intended to
inure solely to the benefit of Seller, and, notwithstanding anything herein
to the contrary, such assumption is not intended and shall not be construed
to give any third parties any greater or additional benefits against Buyer
than they would have had against Seller.
(e) Excluded Liabilities. Notwithstanding anything in this Agreement
--------------------
to the contrary, except as expressly set forth in Section 2.4(d), Buyer
shall not assume or have any responsibility for any liability, obligation
or commitment of any nature of Seller, whether now or hereafter existing
(individually an "Excluded Liability" and collectively, the "Excluded
Liabilities"), and Seller covenants that it shall retain, perform and
discharge all of the Excluded Liabilities. The Excluded Liabilities shall
include without limitation the following:
(i) any liabilities for any Taxes of the Seller for any period
and any liabilities for any Taxes levied or imposed upon the Purchased
Assets, the Facility or the Operation of the Facility for any period
(or any portion of any period) ending on or prior to the Effective
Time;
(ii) except as set forth in Section 7.2, any liabilities,
obligations or commitments of Seller to its employees incurred or made
in connection with their
<PAGE>
employment at the Facility including, without limitation, under the
Plans, ERISA, the WARN Act, and COBRA;
(iii) any liabilities, obligations or commitments made by Seller
pursuant to any agreements not assumed by Buyer, except for
commitments under the purchase orders described in Section 2.4(d) of
this Agreement;
(iv) any liabilities, obligations or commitments arising from
the breach or performance of a Contract or Permit or the use of the
Purchased Assets by Seller that occurred prior to the Effective Time;
(v) all accounts payable, except for expenses attributable to
the Operation of the Facility to the extent that they are prorated to
the account of Buyer under Section 3.8 below; and
(vi) any liabilities, obligations, or commitments of Seller to
the extent that they are primarily associated with the Excluded Assets
and do not primarily relate to any Purchased Assets.
ARTICLE III
CONSIDERATION
3.1 Cash Purchase Price. Buyer shall pay at the Closing $246,600,000
-------------------
for the Purchased Assets (the "Cash Purchase Price"), subject to adjustment as
provided in Section 3.6 below. The Cash Purchase Price shall be payable on the
Closing Date by wire transfer of immediately available funds to an account
designated by Seller. It is anticipated that part of the Cash Purchase Price
will be evidenced by the Escrow Amount.
<PAGE>
3.2 Additional Cash Consideration. As additional consideration for
-----------------------------
the Purchased Assets, Buyer shall pay Seller additional cash consideration as
set forth in detail in Exhibit F.
3.3 Additional Stock Consideration. As additional consideration for
------------------------------
the Purchased Assets, Buyer shall deliver to Seller at the Closing 250,000
shares of Buyer Preferred Stock, which shall be issued pursuant to the Stock
Purchase Agreement.
3.4 Warrants. As additional consideration for the Purchased Assets,
--------
Buyer shall deliver to Seller at the Closing the Warrants, which shall be issued
pursuant to the Warrant Purchase Agreement.
3.5 Escrow. Simultaneously with the execution of this Agreement,
------
Buyer, Seller and the Escrow Agent have entered into the Escrow Agreement,
pursuant to which Buyer has deposited with the Escrow Agent the amount of
$2,000,000 in cash (such amount, together with interest thereon, referred to as
the "Escrow Amount"). In the event that the sale of the Purchased Assets
contemplated by this Agreement is consummated, Buyer and Seller shall give joint
written instructions to the Escrow Agent for the release of the Escrow Amount to
Seller, which Escrow Amount shall be applied towards the Cash Purchase Price.
3.6 Adjustment of Purchase Price.
----------------------------
(a) Final Statement. Within 45 days following the Closing Date,
---------------
Seller shall deliver to Buyer Seller's perpetual inventory report for the
month-end or such short period of a month that ends on the date that
coincides with the Closing Date, together with the Statement of Final
Inventories. Buyer's independent auditors shall be permitted, at or about
the time of the Closing Date, to conduct certain audit procedures to verify
the
<PAGE>
accuracy of Seller's perpetual inventory records and system and to test
specific accounts. Buyer and Buyer's independent auditors shall be
permitted to review the preparation of the Statement of Final Inventories,
and to review all work papers, books and records associated with such
preparation. Buyer and Seller shall cooperate with each other and their
respective independent auditors to the extent reasonable and practical in
the course of preparing the Statement of Final Inventories. Each party
shall bear its own expenses in the preparation of the Statement of Final
Inventories. The Statement of Final Inventories shall provide a credit, at
a rate consistent with the adjustments specified in Section 3.6(c) below,
for any of the following items which are determined after the Closing Date
to have been included in the Purchased Inventories: any secondary and
sterile work in process and finished goods that do not pass quality
assurance; any primary work in process and primary finished goods that do
not pass quality assurance and cannot be reworked; and any obsolete
inventories.
(b) Dispute Resolution. If Buyer objects to the Statement of Final
------------------
Inventories, it shall give written notice of such objection to Seller
within twenty days after its receipt thereof. Buyer shall, in such notice,
specify in reasonable detail the basis and reason for such objection and
the amount to which Buyer objects. If Buyer does not object to the
Statement of Final Inventories within such period, the Statement of Final
Inventories shall be final and binding upon Buyer and Seller. If Buyer
objects to the Statement of Final Inventories within such period and Seller
and Buyer are unable to resolve such objection within ten days after
written notice of Buyer's objection, then so much of the Statement of Final
Inventories as is not objected to shall become final and
<PAGE>
binding upon the parties, and the remainder shall be submitted to a
mutually agreed upon office of a nationally recognized independent
certified public accounting firm to be jointly selected by Seller and
Buyer, which shall not be the principal outside accountant for either
party, who shall act as an arbitrator. The arbitrator shall be instructed
to use its commercially reasonable efforts to resolve the dispute within
thirty days of the submission to it of the Statement of Final Inventories
and the related dispute and, in any case, as soon as practicable after such
submission. The decision of the arbitrator shall be final and binding on
the parties. Each of the parties shall bear all costs and expenses incurred
by it (including legal and accounting fees) in connection with such
arbitration; provided, however, that the fees and expenses of the public
accounting firm that acts as an arbitrator shall be shared equally by Buyer
and Seller.
(c) Adjustment. If the amount of the Purchased Inventories (the
----------
"Inventories Amount") shown on the Statement of Final Inventories (based on
Seller's 1997 standard costs), as finally determined in accordance with the
preceding subsection, is greater than $120,000,000, Buyer shall pay to
Seller an amount equal to sixty percent (60%) of the amount by which the
Inventories Amount is greater than $120,000,000, as well as interest
accrued on such amount from the Closing Date
<PAGE>
to the date of payment, at the annual rate of six percent (6%). If the
Inventories Amount shown on the Statement of Final Inventories (based on
Seller's 1997 standard costs), as finally determined in accordance with the
preceding subsection, is less than $120,000,000, Seller shall pay to Buyer
an amount equal to sixty percent (60%) of the amount by which the
Inventories Amount is less than $120,000,000, as well as interest accrued
on such amount from the Closing Date to the date of payment, at the annual
rate of six percent (6%). Any payments required by this subsection shall be
paid by wire transfer of immediately available funds to an account
designated by the recipient thereof, and shall be due within ten days after
the Statement of Final Inventories becomes final or is decided by the
arbitrator, and shall constitute adjustments to the Cash Purchase Price.
3.7 Allocation. Buyer and Seller agree that the total consideration
----------
(as finally adjusted) shall be allocated among the Purchased Assets as set forth
in Exhibit G.
3.8 Proration of Certain Items. With respect to certain expenses
--------------------------
incurred in the Operation of the Facility, the following prorations shall be
made:
(a) Operating Expenses. Subject to the specific provisions of this
------------------
Section, Seller shall continue to be responsible for all operating expenses
attributable to the Operation of the Facility, including under any Contract
or Permit, up to the Effective Time, and Buyer shall become responsible for
such operating expenses attributable to the operation of the Facility,
including under any Contract or Transferred Permit, after the Effective
Time; provided, however, that all Excluded Liabilities shall remain
obligations of Seller and all Assumed Liabilities shall become obligations
of Buyer.
(b) Taxes. Real and personal ad valorem property taxes attributable
-----
to the Purchased Assets or to the Facility shall be apportioned at the
Closing as of the Effective Time, based on current tax bills if available;
and if not available, based on the most recent tax bills available with
appropriate subsequent adjustment when bills for the current year are
received.
(c) Utilities. Utilities, water and sewer charges shall be paid
---------
directly to the
<PAGE>
obligee by the Seller and Buyer based on meter readings as of the Effective
Time and at the prevailing rates, if possible; otherwise such charges shall
be apportioned based on the number of operating days occurring before and
after the Effective Time during the billing period for each such charge.
(d) Personal Property Leases. Any payments due to lessors after the
------------------------
Effective Time with respect to any leased vehicles or equipment under the
Contracts assumed by Buyer at the Closing shall be apportioned between
Seller and Buyer based on the time in such period before and after the
Effective Time.
(e) Deposits. Deposits for utilities, leases, capital equipment
--------
commitments (except for those capital equipment commitments relating to the
bupropion capacity expansion project and to the regulatory/code compliance
projects described in Section 3.8(e) of the Disclosure Schedule) and other
deposits paid by Seller with respect to the Owned Real Property and other
Purchased Assets will be transferred to or for the benefit of Buyer and, to
the extent set forth on Section 3.8(e) of the Disclosure Schedule, Buyer
will pay Seller the full amount thereof.
(f) Prepaid Items. Prepaid expenses for spare parts, insurance
-------------
parts, fuel oil and other inventoried supply items, in each case, that will
benefit Buyer in the Operation of the Facility after the Closing shall not
be apportioned. Prepaid contracts for hardware maintenance and software
maintenance shall be prorated as of the Closing Date, and Buyer shall pay
to Seller that portion of such prepaid items attributable to periods
following the Closing Date.
<PAGE>
Appropriate cash payments by Seller or Buyer, as the case may require, shall be
made from time to time, as soon as practicable after the facts giving rise to
the obligation for such payments are known, to give effect to the prorations
provided in this Section.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
4.1 Organization and Good Standing. Seller is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
North Carolina. Seller has all requisite corporate power and authority to own,
operate and lease the Purchased Assets and to conduct the Operation of the
Facility as presently conducted. Seller is duly qualified to do business as a
foreign corporation and is in good standing in the jurisdictions listed in
Section 4.1 of the Disclosure Schedule. True, correct and complete copies of
the Articles of Incorporation and Bylaws of Seller have previously been
delivered to Buyer.
4.2 Authority. Seller has all requisite corporate power and
---------
authority to execute and deliver this Agreement and the Transaction Agreements
and to perform the transactions contemplated hereby and thereby. The execution,
delivery and performance by Seller of this Agreement and the Transaction
Agreements have been duly and validly authorized by all necessary corporate
action on the part of Seller. This Agreement and the Transaction Agreements
have been, or at the Closing will be, duly executed and delivered by Seller, and
each constitutes, or when executed and delivered will constitute, a valid and
binding obligation of Seller, enforceable against Seller in accordance with its
terms, except that enforceability thereof
<PAGE>
may be limited by bankruptcy, insolvency, reorganization or other similar laws
affecting creditors' rights generally and by principles of equity regarding the
availability of remedies.
4.3 No Conflict or Breach. The execution, delivery and performance
---------------------
of this Agreement and the Transaction Agreements by Seller do not and will not:
(a) conflict with or constitute a violation of the Articles of
Incorporation or Bylaws of Seller;
(b) assuming compliance with the requirements of the HSR Act and the
FD&C Act, conflict with or constitute a violation of any law, statute,
judgment, order, decree or regulation of any Governmental Body applicable
to or relating to Seller or the Purchased Assets;
(c) conflict with, constitute a default under, result in a breach or
acceleration of or, except as set forth in Section 4.4 of the Disclosure
Schedule, require notice to or the consent of any third party under any
Contract, Lien, Permit or other agreement, commitment, mortgage, note,
license or other instrument or obligation to which Seller is party or by
which it is bound or by which the Purchased Assets are affected, except for
any instances which do not and will not have a Material Adverse Effect or
require an expenditure by Buyer of more than $50,000 individually or in the
aggregate; or
(d) result in the creation or imposition of any Lien on any of the
Purchased Assets, except for any Permitted Lien that does not and will not
have a Material Adverse Effect or require an expenditure by Buyer of more
than $50,000 individually or in the aggregate.
4.4 Consents and Approvals. Section 4.4 of the Disclosure Schedule
----------------------
describes
<PAGE>
each of the following which is required in connection with the valid execution
and delivery by Seller of this Agreement and the Transaction Agreements or the
consummation by Seller of the transactions contemplated herein and therein
(including the transfer of the Purchased Assets to Buyer): (a) each consent,
approval, authorization, registration or filing with any Governmental Body,
other than as required under the HSR Act and the FD&C Act; and (b) each consent,
approval, authorization of or notice to any other third party; provided,
however, that Section 4.4 of the Disclosure Schedule does not describe any
consents, approvals, authorizations and notices the failure of which to obtain
or give would not result in a Material Adverse Effect or require an expenditure
of more than $50,000 individually or in the aggregate. The consents described in
Section 4.4 of the Disclosure Schedule are referred to herein as the "Required
Consents".
4.5 Books and Records; Financial Information. Attached as Section
----------------------------------------
4.5 of the Disclosure Schedule is an index of financial schedules for which the
Seller makes the following representations and warranties:
(a) Actual Historical Financial Information. Actual historical
---------------------------------------
financial information as of and for the year ended December 31, 1996 was
extracted, summarized or derived from the books and records of Seller which
were subject to certain annual audit procedures performed by Coopers &
Lybrand L.L.P. The books and records of Seller as of and for the year
ended December 31, 1996 were prepared according to UK GAAP and are correct
and complete in all material respects and appropriately reflect required
year-end adjustments. The financial schedules which were extracted,
summarized or derived from such books and records are correct in all
material respects and appropriately reflect required year-end adjustments.
<PAGE>
Year-to-date actual historical financial information as of and
for the five months ended May 31, 1997 was extracted, summarized or derived
from the books and records of Seller. The books and records of Seller as
of and for the five months ended May 31, 1997 were prepared according to UK
GAAP and are correct in all material respects and do not reflect year-end
adjustments which may be required. The financial schedules which were
extracted, summarized or derived from such books and records are correct in
all material respects and do not reflect year-end adjustments which may be
required.
Collectively, the actual historical information contained in the
financial schedules described in Section 4.5 of the Disclosure Schedule
provides a complete and accurate accounting in all materials respects for
all significant costs and expenses incurred by Seller to manufacture
product at and operate the Facility for the year ended December 31, 1996.
Accordingly, no other material costs or expenses required to operate the
Facility for the year ended December 31, 1996 were incurred by Seller but
not reflected in the financial schedules described in said Section 4.5 of
the Disclosure Schedule, except for costs or expenses incurred at other
sites, which are reflected in documents listed in the Data Room Catalog and
provided to Buyer.
Furthermore, Seller is not aware of any material changes to the
nature and extent of costs or expenses required to manufacture product and
operate the Facility for the six months ended June 30, 1997 as compared to
the year ended December 31, 1996.
(b) Historical Budgeted Financial Information. Historical budget
-----------------------------------------
information provided is correct and complete in all material respects and
was extracted, summarized
<PAGE>
or derived from the operating budgets of Glaxo Wellcome Inc. Such budgets
were subject to management review and control procedures appropriate in the
circumstances.
(c) Projected Financial Information. With respect to projections and
-------------------------------
forecasts provided during due diligence (the "GWI Projections"), Seller
represents only that the GWI Projections were prepared in good faith and on
what Seller believes is a reasonable basis. The GWI Projections are based
upon assumptions and estimates that, while presented with numerical
specificity and considered reasonable by Seller when taken as a whole, are
inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond the control of
Seller and are based upon specific assumptions with respect to Buyer's
future business decisions. The GWI Projections are necessarily speculative
in nature, and it can be expected that some or all of the assumptions
underlying the Projections may not materialize or may vary significantly
from actual results. Accordingly, the GWI Projections are only estimates.
Actual results will vary from the GWI Projections and variations may be
material. Consequently, the GWI Projections are not a representation by
Seller or any other person of results that will actually be achieved.
4.6 Title to Assets. Seller has good and marketable title to all of
---------------
the Purchased Assets, free and clear of any Liens, except for Liens described in
Section 4.6 of the Disclosure Schedule, all of which will be removed on or prior
to the Closing Date, and except for Permitted Liens.
4.7 Real Property.
-------------
(a) Owned.
-----
<PAGE>
(i) Section 2.2(a) of the Disclosure Schedule contains a true
and correct description of the Owned Real Property and the easements
and similar appurtenances, and there is no other real property which
is owned by the Seller and used exclusively for the Operation of the
Facility.
(ii) Seller is the legal and equitable owner of the fee title of
the Owned Real Property, with full right to convey the same, and
without limiting the generality of the foregoing, Seller has not
granted any option or right of first refusal or first opportunity to
any party to acquire any interest in any of the Owned Real Property.
(iii) To the Best Knowledge of Seller, there are no
condemnation, environmental, zoning or other land-use regulation
proceedings, either instituted or planned to be instituted with
respect to the Owned Real Property or any portion thereof, nor has
Seller received notice of any special assessment proceedings affecting
the Owned Real Property. Seller shall notify Buyer promptly of any
such proceedings of which Seller becomes aware prior to the Closing.
(iv) All water, sewer, gas, electric, telephone lines and
drainage facilities and all other utilities (the "Utilities") required
by law or necessary for the Operation of the Facility are installed to
the property lines of the Owned Real Property and are validly
connected and in use in the Operation of the Facility.
(v) Existing vehicular and pedestrian ingress to and egress
from the Owned Real Property to public streets abutting the Owned Real
Property, at current levels, is lawful.
<PAGE>
(vi) There is no litigation pending with respect to which Seller
or Seller's agent for service of process has been served, or, to the
Best Knowledge of Seller, threatened, against Seller that relates to
title to the Owned Real Property or that would materially and
adversely affect the value or the use or operation of the Owned Real
Property in the manner currently being made of the Owned Real
Property. Seller shall notify Buyer promptly of any such litigation
of which Seller becomes aware prior to the Closing.
(vii) Except as described in Section 4.11 of the Disclosure
Schedule or Section 4.19 of the Disclosure Schedule, at the time of
Closing there will be no outstanding written or oral contracts made by
Seller for any alterations or improvements on or to the Owned Real
Property, which have not been fully paid for, and Seller shall cause
to be discharged all mechanics' and materialmen's liens arising from
any labor or materials furnished to the Owned Real Property prior to
the time of Closing (or, with respect to any disputed Liens, shall
have posted a bond issued by a solvent corporate surety for an amount
equal to 1.25 times the disputed amount, so as to remove such Lien as
a cloud on the title of the Owned Real Property.
(viii) Seller is not a "foreign person" within the meaning of
Section 1445(f)(3) of the Code, and the purchase price payable to
Seller is not subject to withholding under any state or U.S. tax law.
(ix) To the Best Knowledge of Seller, no portion of the Owned
Real Property is located in a delineated wetland area, as defined by
Section 404 of the
<PAGE>
Clean Water Act, or in a designated or recognized floodplain,
floodplain district, flood hazard area or area of similar
characterization.
(b) Leased. Seller presently leases warehouse space in Pitt County,
------
North Carolina, to support the Operation of the Facility (the "Leased Real
Property"). No interest in such lease will be transferred to Buyer.
(c) Improvements. The Operation of the Facility complies with
------------
applicable zoning ordinances, except for any instances of noncompliance
that, in the aggregate, do not and will not have a Material Adverse Effect
or require an expenditure of Buyer of more than $50,000.
4.8 Certain Purchased Property. The Owned Real Property and
--------------------------
Improvements and the Tangible Personal Property (including, without limitation,
motor vehicles and records) include all real property, improvements and tangible
personal property necessary to (i) manufacture the Products for Seller in
accordance with present product Specifications (as defined in the Supply
Agreement) in the volumes set forth in the Supply Agreement, including Products
manufactured under the Supply Agreement pursuant to third party manufacturing
agreements, and (ii) manufacture the Assigned Products to the extent required by
and in accordance with the Assumed Supply Contracts as in effect at the
Effective Time. All Tangible Personal Property is located on the Owned Real
Property, except for inventories of digitalis leaf, storage racks and certain
records, which are located on the Leased Real Property.
4.9 Condition of Tangible Assets. Except as set forth in Section 4.9
----------------------------
of the Disclosure Schedule, the tangible assets included in the Purchased Assets
(including without limitation the Tangible Personal Property, the Utilities and
the Improvements) (a) have, in the
<PAGE>
aggregate, been regularly maintained in the ordinary course of business and in
accordance with customary industry practices; (b) are free of material defects,
except for defects attributable to wear and tear consistent with the age and
usage of such assets, and except for such defects as do not and will not, in the
aggregate, materially impair the ability to use such assets for the purposes now
used and as used by Seller as of the Effective Time for the Operation of the
Facility. SELLER EXPRESSLY DISCLAIMS ALL IMPLIED WARRANTIES OF MERCHANTABILITY
AND FITNESS FOR A PARTICULAR PURPOSE (except with respect to the fitness of the
tangible assets for the purpose of manufacturing Products and Assigned Products
in the manner that they are manufactured as of the Effective Time), AND ALL
OTHER WARRANTIES, EXPRESS AND IMPLIED, with respect to the condition or use of
such assets, except that no disclaimer is made which would impair the
representations set forth in the first sentence of Section 4.8 above and the
first sentence of Section 4.9. This Section contains all warranties of Seller
with respect to the condition of the tangible assets included in the Purchased
Assets, and is the sole and exclusive source of remedies for Buyer with respect
to the condition of the tangible assets included in the Purchased Assets.
4.10 Purchased Inventories. All items included in the Purchased
---------------------
Inventories are useable or saleable by Buyer in the ordinary course of
manufacturing the Products under the Supply Agreement (including Products
manufactured under the Supply Agreement pursuant to third party manufacturing
agreements) or manufacturing the Assigned Products under the Assumed Supply
Contracts based on the Binding Primary Commitment, Binding Secondary Commitment
and Replenishment Forecast (as those terms are defined in the Supply Agreement)
to be delivered to Buyer at Closing under the Supply Agreement either (a) within
six (6) months
<PAGE>
after the Effective Time or (b) over a period longer than six (6) months with
respect to those items described on Section 4.10 of the Disclosure Schedule. All
items included in the Purchased Inventories meet all applicable specifications
of Seller or the purchasers under the Assumed Supply Contracts related thereto.
4.11 Contracts. To the Best Knowledge of Seller, Section 4.11 of
---------
the Disclosure Schedule lists, among other Contracts, all Contracts (except for
Real Property Leases and except for commitments under purchase orders to
purchase raw materials ("Raw Materials Purchase Orders")) (i) that involve the
expenditure by any party of more than $500,000 following the Closing Date, or
that involve the provision by any party of services having a value of more than
$500,000 following the Closing Date; (ii) that are not terminable by either
party without penalty on 90 days' notice or less; or (iii) that have a remaining
term in excess of twelve months beyond the Closing Date. Section 4.11 of the
Disclosure Schedule also lists, among other Raw Materials Purchase Orders, all
Raw Materials Purchase Orders (i) that involve an expenditure by Buyer of more
than $2,000,000 following the Closing Date; (ii) that are not terminable by
Buyer without penalty on 90 days' notice or less; or (iii) that have a remaining
term in excess of twelve months beyond the Closing Date. The Contracts and Raw
Materials Purchase Orders listed on Section 4.11 of the Disclosure Schedule are
referred to collectively as the "Material Contracts." The Contracts, except for
the Raw Materials Purchase Orders, not listed in Section 4.11 of the Disclosure
Schedule will not, in the aggregate, require Buyer to
<PAGE>
make payments or provide services or create any liability on the part of Buyer
having a value in excess of $500,000 in the aggregate following the Closing
Date. The Contracts which are Raw Materials Purchase Orders not listed in
Section 4.11 of the Disclosure Schedule will not, in the aggregate, require
Buyer to make payments in excess of $2,000,000 following the Closing Date.
Seller has delivered to Buyer or made available for review by Buyer true and
complete copies of all written Material Contracts (including Raw Materials
Purchase Orders) listed on Section 4.11 of the Disclosure Schedule and true and
complete memoranda of all oral Material Contracts listed on Section 4.11 of the
Disclosure Schedule, including any and all amendments and other modifications
thereto. Each of the Contracts is valid, binding and enforceable in accordance
with its terms except that enforceability thereof may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting creditors' rights
generally and by principles of equity regarding the availability of remedies and
except for any instances of unenforceability that would not, either individually
or in the aggregate, have a Material Adverse Effect. Each of the Contracts is in
full force and effect except for any instances to the contrary that would not,
either individually or in the aggregate, have a Material Adverse Effect. There
are no existing defaults by Seller and, to the Best Knowledge of Seller, there
are no existing defaults by any other party nor any events or circumstances have
occurred which, with or without notice or lapse of time or both, would
constitute defaults, under any of the Contracts, which would have a Material
Adverse Effect or require the expenditure of more than $50,000 individually or
in the aggregate. The assignment of the Contracts by Seller to Buyer will not,
with respect to any Contract, (i) constitute a default thereunder, (ii) require
the consent of any person or party, except for the Required Consents or (iii)
affect the continuation, validity and effectiveness thereof or the terms
thereof, except with respect to clauses (i) through (iii) for such defaults,
consents and effects as do not and will not have a Material Adverse Effect or
require the expenditure of more than $50,000 individually or in the aggregate
<PAGE>
4.12 Intellectual Property. Seller owns all right, title and
---------------------
interest in and to each item included in the Transferred Intellectual Property.
Seller has not licensed any of the Transferred Intellectual Property to any
third party, and to the Best Knowledge of Seller no third party has any right to
use any of the Transferred Intellectual Property.
(a) The Transferred Intellectual Property and the Retained
Intellectual Property and the rights sublicensed under Section 14.3(b) of
the Supply Agreement constitute all Intellectual Property owned or used by
Seller at the Effective Time and which is necessary to (i) manufacture and
supply the Products for Seller in accordance with present product
Specifications (as defined in the Supply Agreement), including Products
manufactured under the Supply Agreement pursuant to third party
manufacturing agreements. The Assumed Supply Contracts provide rights to
all Intellectual Property owned or used by Seller and necessary to
manufacture the Assigned Products under the Assumed Supply Contracts.
(b) Except as described in Section 4.12(b) of the Disclosure Schedule,
Seller has not received notice from any third party that the Operation of
the Facility, including the manufacture and sale of any of the Products or
the Assigned Products, infringes or misappropriates the intellectual
property of any person or entity or constitutes unfair competition or trade
practices under the laws of any jurisdiction;
(c) Except as listed in Section 4.12(c) of the Disclosure Schedule,
there are no contracts, licenses and agreements between Seller and any
third party with respect to the Transferred Intellectual Property or
Retained Intellectual Property under which there is any dispute known to
Seller regarding the scope of such agreement, or performance under
<PAGE>
such agreement including with respect to any payments to be made or
received by Seller thereunder;
(d) To the Best Knowledge of Seller, no third party has infringed or
misappropriated or is infringing or misappropriating any of the Transferred
Intellectual Property; and
(e) No Transferred Intellectual Property or Retained Intellectual
Property is subject to any outstanding decree, order, judgment or
stipulation restricting in any manner the use or licensing thereof by
Seller, or which may affect the validity, use or enforceability of such
Transferred Intellectual Property or Retained Intellectual Property.
Except for the warranties set forth in this Section 4.12, SELLER EXPRESSLY
DISCLAIMS ALL WARRANTIES WITH RESPECT TO THE TRANSFERRED INTELLECTUAL PROPERTY,
WHETHER EXPRESS OR IMPLIED, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY
AND FITNESS FOR A PARTICULAR PURPOSE. This Section 4.12 contains all warranties
of Seller with respect to the Transferred Intellectual Property and is the sole
and exclusive source of remedies for Buyer with respect thereto. Pursuant to the
Supply Agreement to be executed at the Closing, Seller will license to Buyer
certain rights in the Retained Intellectual Property which are necessary for
Buyer to perform its obligations under the Supply Agreement.
4.13 Legal Proceedings. Except as described in Section 4.13 of
-----------------
the Disclosure Schedule, there are no actions, suits, claims, governmental
investigations or proceedings instituted, pending or, to the Best Knowledge of
Seller, threatened against Seller or with respect to any Purchased Asset or the
Operation of the Facility which, if decided adversely, would have a
<PAGE>
Material Adverse Effect, or require the expenditure of more than $50,000,
individually or in the aggregate, except for those concerning Pre-Existing
Environmental Conditions, if any, which shall be the sole responsibility of
Seller. There are no actual or, to the Best Knowledge of Seller, threatened
actions, suits or proceedings which present a claim to restrain or prohibit the
transactions contemplated herein, or in the Escrow Agreement.
4.14 Permits. Seller has obtained all Permits currently required
-------
for the Operation of the Facility by Seller (except for those Permits the
absence or violation of which does not have a Material Adverse Effect or require
an expenditure of more than $50,000, individually or in the aggregate). All
Permits of Seller are described in Section 2.2(g) and Section 2.3(j) of the
Disclosure Schedule. Seller has furnished, or will furnish prior to Closing, a
true, correct and complete copy of each of the Permits to Buyer. No proceedings
are pending or, to the Best Knowledge of Seller, threatened, to revoke or limit
any Permit. To the extent permitted by law, all of the Transferred Permits will
be assigned and transferred to Buyer at the Closing. No rights in the
Nontransferable Permits will be assigned or transferred to Buyer at the Closing.
4.15 Taxes. Seller has completed and duly and timely filed in
-----
correct form with the appropriate Governmental Body, all returns, reports and
declarations of estimated tax related to Taxes (the "Tax Returns") required to
be filed by it. Seller has paid in full or made adequate provision in its
financial statements for all amounts shown to be due on the Tax Returns. There
are no tax liens (other than Liens for Taxes for current and subsequent years
which are not yet due and payable) upon any of the Purchased Assets.
4.16 Insurance. Section 4.16 of the Disclosure Schedule
---------
describes all insurance
<PAGE>
policies maintained by Seller with respect to the Operation of the Facility and
the Purchased Assets. Except as described in Section 4.16 of the Disclosure
Schedule, no claims have been filed since January 1, 1995, or, to the Best
Knowledge of Seller, are anticipated to be filed with respect to the Operation
of the Facility or the Purchased Assets under any of said policies. All premiums
due on said policies have been paid and will be paid through the Effective Time.
4.17 Labor and Employment Matters. With respect to employment
----------------------------
matters:
(a) No employees of Seller who work at the Facility are currently
represented by a union or other labor organization or covered by any
collective bargaining agreement, and to the Best Knowledge of Seller, no
union is attempting to organize any such employees.
(b) There is no labor strike, work slowdown, work stoppage or similar
interruption of work pending or, to the Best Knowledge of Seller,
threatened, against Seller and affecting the Facility.
(c) To the Best Knowledge of Seller, Seller has not used, in any
capacity associated with or related to the manufacture of the Products, the
services of any person who has been, or is in the process of being,
debarred under 21 U.S.C. (S) 335a(a) or (b), nor, to the Best Knowledge of
Seller, has Seller or any of its officers, consultants or any current
Greenville Employee been convicted of an offense under either federal or
state law that is cited in 21 U.S.C. (S) 335a as a ground for debarment,
denial of approval or suspension.
4.18 Employees; Compensation; Benefit Plans.
--------------------------------------
(a) Compensation, Agreements. Seller has previously delivered to
------------------------
Buyer a
<PAGE>
complete and correct list of the name, position, date of hire, rate
of compensation, and any incentive compensation arrangements, bonuses or
commissions of each current Greenville Employee as of February 24, 1997.
(b) Employee Benefit Plans. Section 4.18 of the Disclosure Schedule
----------------------
contains an accurate and complete list of Seller's health and welfare
benefit plans, pension benefit plans and other qualified benefit plans in
which Greenville Employees currently participate ("Plan" or "Plans").
Buyer will not have, as a consequence of the transactions contemplated
hereby, any liability or obligation with respect to or under any Plan or
other benefit arrangements or practices of Seller with respect to
Greenville Employees or any other employees of Seller or any affiliate
thereof. Seller has complied and will comply with the health care
continuation requirements of COBRA with respect to Greenville Employees and
their spouses, former spouses and dependents. Each Plan has been
maintained and administered by Seller at all times substantially in
compliance with its terms and all applicable laws, rules and regulations,
including but not limited to ERISA and the Code, applicable to such Plan.
None of the Plans or any of the employee benefit plans maintained by the
Seller or any entity which, in the last five years, has been in common
control of or affiliated with the Seller, in which any Greenville Employee
is or was eligible to participate within the last five years are subject to
Title IV of ERISA or are "multi-employer plans" as such term is defined in
ERISA Section 3(37).
4.19 Absence of Certain Changes. Except as described in
--------------------------
subsections of Section 4.19 of the Disclosure Schedule, since December 31, 1996,
Seller has not:
<PAGE>
(a) Suffered any damage, destruction or loss to any of the Purchased
Assets, or any state of circumstances or facts that would have or
reasonably would be expected to have a Material Adverse Effect or result in
an expenditure of more than $50,000 individually or in the aggregate to
remedy or repair;
(b) Sold, transferred, distributed or otherwise disposed of any assets
used in the Operation of the Facility except for (i) assets consumed or
disposed of in the ordinary course of business; or (ii) assets disposed of
in connection with the acquisition of replacement property of equivalent
kind and value;
(c) Amended or terminated any Material Contract;
(d) Introduced any new method of management or accounting; or
(e) incurred, assumed or guaranteed any indebtedness for borrowed
money with respect to the Facility, other than in the ordinary course of
business and in amounts and on terms consistent with past practices, but in
any event not exceeding $50,000 in the aggregate;
(f) created or otherwise incurred any Lien on any Purchased Asset,
other than Permitted Liens in the ordinary course of business consistent
with past practices;
(g) made any change in compensation payable to any Greenville Employee
except changes made prior to February 24, 1997;
(h) experienced any labor dispute, other than routine individual
grievances, or any activity or proceeding by a labor union or
representative thereof to organize any Greenville Employees or any
lockouts, strikes, slowdowns, work stoppages or threats thereof by or with
respect to such employees;
<PAGE>
(i) made any capital expenditure, or commitment for a capital
expenditure, for additions or improvements to property, plant and equipment
for which total project costs exceed $10,000;
(j) entered into any license or assignment with respect to any of the
Transferred Intellectual Property (except as contemplated pursuant to this
Agreement); or
(k) Agreed to do any of the foregoing.
4.20 Names. During the past five years, the Facility has not
-----
been operated under any name other than Glaxo Wellcome Inc., Glaxo Wellcome USA
Inc. or Burroughs Wellcome Co.
4.21 Brokers. Seller has retained no finder, broker, agent or
-------
other intermediary to act for or on behalf of Seller in connection with the
negotiation or consummation of this Agreement, and no party has made any claims
for any brokerage commission, finder's fee or similar payment due from Seller.
4.22 Environmental Matters.
---------------------
(a) Condition of the Purchased Assets. Except as provided in Section
---------------------------------
4.22 of the Disclosure Schedule, to the Best Knowledge of Seller, no
Environmental Condition is present in or about the Purchased Assets or at
any other real property to which Hazardous Material generated with respect
to the Operation of the Facility has been delivered. To the Best Knowledge
of Seller, there is no Continuing Release present on the Purchased Assets.
(b) Compliance With Environmental Laws. Except as provided in
----------------------------------
Section 4.22 of the Disclosure Schedule, to the Best Knowledge of Seller,
the Purchased Assets
<PAGE>
and the Operation of the Facility (including without limitation any
Remedial Activity conducted in connection therewith) have complied and
currently comply, in all material respects, with all applicable
Environmental Laws (provided that no representation is made in this
sentence with respect to laws concerning asbestos or asbestos-containing
materials). All storage tanks containing Hazardous Materials present on the
Owned Real Property at the Effective Time comply and are being used in
compliance with applicable Environmental Laws in all material respects.
(c) Environmental Permits. All of the permits, authorizations,
---------------------
certificates, approvals, licenses, exemptions, or classifications required
(i) under any Environmental Law applicable to the Purchased Assets or the
Operation of the Facility (including any Remedial Activity conducted on the
Purchased Assets), or (ii) with respect to any Pre-Existing Environmental
Condition or Remedial Activity conducted with respect thereto, are
described in Section 4.22 of the Disclosure Schedule ("Existing
Environmental Permits"). All of said Existing Environmental Permits are in
full force and effect, and the Purchased Assets, the current Operation of
the Facility and the Remedial Activities being conducted in connection
therewith, comply with them in all material respects. To the Best
Knowledge of the Seller, no fact or circumstance peculiar to the Seller, or
applicable as of the Effective Time to the Purchased Assets or the
Operation of the Facility, exists which could cause any Existing
Environmental Permit to be revoked or not to be reissued to Buyer as of the
Effective Time on the same terms and conditions in all material respects
that are currently set forth in said permits. Any Remedial Activity
conducted under an Existing Environmental Permit complies with any consent
decrees,
<PAGE>
settlement agreements, approvals, plans, agreements and memoranda of
understanding issued by or entered into with any Governmental Authority
concerning such Remedial Activity.
(d) CERCLA Liabilities. Except as provided in Section 4.22 of the
------------------
Disclosure Schedule, to the Best Knowledge of Seller, no Hazardous Material
generated during the Operation of the Facility, or otherwise attributable
to the Operation of the Facility or in the course of any Remedial Activity
conducted by Seller, Seller's agents, employees, consultants, contractors,
or hazardous waste hauler or handlers prior to the Effective Time, has been
delivered (i) to any real property that is listed on the National
Priorities List pursuant to CERCLA, or (ii) to any other location with
respect to which Seller has received notice from the owner or from any
Governmental Body that the location is contaminated or is not otherwise
operating in compliance with applicable Environmental Laws in any material
respect.
(e) Environmental Liabilities. Except as provided in Section 4.22
-------------------------
of the Disclosure Schedule, no suit, proceeding, administrative action,
writ, injunction, or claim by a Governmental Body or third party under any
Environmental Law (i) is pending or, to the Best Knowledge of Seller,
threatened against Seller, or (ii) to the Best Knowledge of Seller, is
pending or threatened against Seller's agents, employees, consultants,
contractors or hazardous waste haulers or handlers, in either case with
respect to the Purchased Assets, the Operation of the Facility, the Pre-
Existing Environmental Conditions, and/or the Existing Environmental
Permits (including without limitation any Remedial Activity conducted in
connection with any of the foregoing). Further, to the
<PAGE>
Best Knowledge of Seller, no Purchased Asset is subject to any Lien under
any Environmental Law, and no action or investigation by a Governmental
Body or third party action has been taken or is in the process of being
taken.
(f) Environmental Reports. To the Best Knowledge of Seller, the
---------------------
reports, audits, tests, assessments, reviews, sampling analysis, and
studies described in Section 4.22 of the Disclosure Schedule are in all
material respects all of the reports, audits, tests, assessments, reviews,
sampling analysis, and studies prepared by third parties or Seller, which
(i) are in the possession or control of Seller, or (ii) were prepared at
the request of Seller, and which, in either case, meet one of the following
criteria: (A) were prepared in the last three years concerning a Pre-
Existing Environmental Condition or other Environmental Condition existing
prior to the Effective Time on or about the Facility or (B) were prepared
in the last three years with respect to any Remedial Activity conducted on
or about the Purchased Assets by or for the benefit of Seller, its agents,
employees, consultants, or contractors (herein collectively "Environmental
Reports"). True, complete and correct copies of all of the foregoing have
been made available for copying by Buyer. For the purpose of the foregoing,
Seller shall be required to only identify, provide or deliver the final
documents of the Environmental Reports and not any prior drafts of such
reports.
4.23 Employee Health and Safety Matters. Except as described in
----------------------------------
Section 4.23 of the Disclosure Schedule, the Operation of the Facility is in
compliance with applicable laws, regulations, rules, ordinances, codes or
requirements of any Governmental Body relating to health, sanitation, fire,
building and occupational safety and health, including, but not limited to,
<PAGE>
requirements under the state and federal Occupational Safety and Health Acts,
except where the failure to be in compliance would not have a Material Adverse
Effect or require expenditure of more than $50,000, individually or in the
aggregate.
4.24 Seller Financial Condition. Seller had free cash flow
--------------------------
(within the meaning of US GAAP) [*].
4.25 Multisite Contracts. To the Best Knowledge of Seller,
-------------------
Section 2.3(l) of the Disclosure Schedule lists all contracts of Seller for the
provision of goods or services which apply to other facilities or sites of
Seller in addition to the Facility (the "Multisite Contracts") as of the date of
this Agreement, except for those Multisite Contracts that pertain to
Intellectual Property or to the leasing of tangible personal property, and
except for Multisite Contracts the lack of which would not have a Material
Adverse Effect.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER AND PARENT
Buyer and Parent jointly and severally represent and warrant to Seller as
follows:
5.1 Organization and Good Standing. Each of Buyer and Parent is a
------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. Buyer is, or will be at the Closing, duly qualified
to do business as a foreign corporation and in good standing in North Carolina
and in all other jurisdictions in which the ownership of the Purchased Assets or
the operation of the Facility by it make such qualification necessary. True,
correct and complete copies of the Certificate of Incorporation and Bylaws of
Buyer and Parent have previously been delivered to Seller; however, Buyer and
Parent are
[*] = Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
<PAGE>
amending their respective Certificates of Incorporation to increase the
authorized number of shares of capital stock and create new series of capital
stock as necessary to complete the transactions contemplated by this Agreement
(the "Amendments").
5.2 Authority. Each of Buyer and Parent has all requisite power and
---------
authority to execute and deliver this Agreement and the Transaction Agreements
and to perform the transactions contemplated hereby and thereby. The execution,
delivery and performance of this Agreement and the Transaction Agreements
(including, without limitation, the issuance of the Buyer Preferred Stock and
the Warrants to Seller) have been duly and validly authorized by all necessary
corporate action, and as of the Effective Time all necessary stockholder action,
on the part of Buyer and Parent. This Agreement and the Transaction Agreements
have been, or at Closing will be, duly executed and delivered by Buyer and/or
Parent, as the case may be, and each constitutes, or when executed and delivered
will constitute, a valid and binding obligation of Buyer and/or Parent, as the
case may be, enforceable against Buyer or Parent in accordance with its terms,
except that enforceability thereof may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting creditors' rights generally and
by principles of equity regarding the availability of remedies.
5.3 No Conflict or Breach. The execution, delivery and performance
---------------------
of this Agreement and the Transaction Agreements by Buyer and/or Parent, as the
case may be, do not and will not (a) conflict with or constitute a violation of
the Certificate of Incorporation or Bylaws of Buyer or Parent; (b) assuming
compliance with the requirements of the HSR Act and the FD&C Act, conflict with
or constitute a violation of any law, statute, judgment, order, decree or
regulation of any Governmental Body applicable to or relating to Buyer or
Parent; or (c)
<PAGE>
conflict with, constitute a default under, result in a breach or acceleration of
or require notice to or the consent of any third party under any contract,
agreement, commitment, mortgage, note, license or other instrument or obligation
to which Buyer or Parent is party or by which it is affected which would have a
Material Adverse Effect on Buyer or Parent.
5.4 Consents and Approvals. No (a) consent, approval, authorization,
----------------------
registration or filing with any Governmental Body other than as required under
the HSR Act and the FD&C Act or (b) consent, approval, authorization of or
notice to any other third party (other than the Required Consents), is required
in connection with the valid execution and delivery by Buyer or Parent, as the
case may be, of this Agreement and the Transaction Agreements or in connection
with the consummation by Buyer or Parent of the transactions contemplated herein
or therein, except such consents and approvals as are required under the
Securities Laws in connection with the issuance of equity securities by Parent
to Morgan Stanley Capital Partners III, L.P. and affiliated funds and the
issuance of the Warrants to be delivered to Seller, or by the stockholders of
Parent and Buyer under Delaware law, and except that Buyer will be required to
obtain its own permits in place of the Nontransferable Permits and the Existing
Environmental Permits.
5.5 Capital Structure of Parent and Buyer.
-------------------------------------
(a) Parent. After the Amendments, the authorized capital stock of
------
Parent will consist of (i) 120,000,000 shares of Parent Common Stock, of
which 19,397,074 shares were issued and outstanding on December 31, 1996;
(ii) 30,000,000 shares of Parent Class A Common Stock, none of which were
issued and outstanding on December 31, 1996; (iii) 17,000,000 shares of
Parent Class B Common Stock, none of which were
<PAGE>
issued or outstanding on December 31, 1996; and (iv) 5,000,000 shares of
Parent Undesignated Preferred Stock, none of which were issued or
outstanding on December 31, 1996. All outstanding shares of Parent Common
Stock have been duly authorized and are validly issued, fully paid and
nonassessable. A sufficient number of shares of Parent Common Stock have
been reserved for the conversion of the Buyer Preferred Stock to be issued
as provided in Section 3.3 of this Agreement and for the Warrants to be
issued as provided in Section 3.4 of this Agreement, and such shares are
free of any Rights and have not been reserved for any other purpose. Such
shares of Parent Common Stock are available for issuance as provided
pursuant to the terms of the Stock Purchase Agreement and Warrant Purchase
Agreement and, when issued, will be duly authorized, validly issued, fully
paid and nonassessable. No holders of the capital stock of Parent have any
preemptive rights, or rights of first refusal which have not been or will
not have been exercised or waived as of the Closing Date.
(b) Buyer. After the Amendments, the authorized capital stock of
-----
Buyer will consist of (i) 25,000,000 shares of Buyer Common Stock, of which
800,000 shares were issued and outstanding on December 31, 1996, and (ii)
20,000,000 shares of Buyer Preferred Stock, $.001 par value, 3,400,000 of
which are designated as Series A Preferred Stock, and were issued and
outstanding on December 31, 1996; 150,000 of which are designated as Series
B Preferred Stock, and were issued and outstanding on December 31, 1996;
and 12,000,000 of which are designated as Series C Preferred Stock, none of
which are issued and outstanding and 250,000 of which are designated as
Series I Junior Preferred Stock, none of which are issued and outstanding.
All outstanding shares of
<PAGE>
Buyer Common Stock and any other class of capital stock of Buyer have been
duly authorized and are validly issued, fully paid and nonassessable. All
outstanding shares of Buyer Common Stock are owned beneficially and of
record by Parent, and none of such shares are subject to any Liens. The
shares of Buyer Preferred Stock to be issued as provided in Section 3.3 of
this Agreement will be free of any Rights and have not been reserved for
any other purpose. Such shares of Buyer Preferred Stock are available for
issuance as provided pursuant to this Agreement and, when issued, will be
duly authorized, validly issued, fully paid and nonassessable. No holders
of the capital stock of Buyer have any preemptive rights, or rights of
first refusal which have not been or will not have been exercised or waived
as of the Closing Date.
(c) Stock Options. Following the Amendments, the authorized capital
-------------
stock of each of Parent and Buyer will include a number of shares
sufficient to cover (i) all stock options to be issued by Buyer to the New
Employees within six months after the Effective Time and all other
obligations to issue capital stock pursuant to this Agreement or the
Transaction Agreements or the transactions contemplated hereby or thereby,
and (ii) all other options, warrants and Rights to purchase capital stock
within six months after the Effective Time.
5.6 Financial Statements. Buyer has previously delivered to Seller
--------------------
true and complete copies of (a) the audited balance sheets of Parent as of
December 31, 1994, December 31, 1995, and December 31, 1996, and the related
statements of operations, stockholders' equity and cash flows for the fiscal
years then ended, including the footnotes thereto, additional or supplemental
information supplied therewith and the report prepared in
<PAGE>
connection therewith by the independent certified public accountants reviewing
such financial statements; (b) interim unaudited financial statements of Parent
prepared for the quarter ended March 31, 1997; (c) the audited financial
statements of Buyer as of December 31, 1995 and 1996; and (d) interim unaudited
financial statements of Buyer prepared for the quarter ended March 31, 1997. All
of the documents described in clauses (a) through (d):
(a) have been prepared in accordance with the books and records of
Parent or Buyer, as the case may be;
(b) present fairly the assets, liabilities and financial condition of
Parent or Buyer, as the case may be, as of the respective dates thereof,
and the results of operations for the periods then ending; and
(c) have been prepared in accordance with US GAAP applied on a
consistent basis throughout the periods involved; provided that the
quarterly statements, as interim financial statements, do not reflect year-
end closing adjustments and procedures, and the unaudited statements do not
contain explanatory notes.
Parent had no material liability or obligation as of December 31, 1996 that is
not reflected or reserved against in its December 31, 1996 balance sheet, except
for those that are not required by US GAAP to be included therein.
5.7 Material Adverse Change. Since December 31, 1996, except
-----------------------
for this Agreement and the Transaction Agreements, neither Buyer, Parent, nor
any of the Parent Subsidiaries has incurred any material liability except for
and as described in this Agreement or as disclosed on Parent's most recent
financial statements delivered to Seller, or entered into any transactions with
Buyer's Affiliates or Parent's Affiliates, other than in the ordinary course of
<PAGE>
business consistent with past practices, nor has there been any material adverse
change, or any event involving a prospective material adverse change, in the
business, financial condition or results of operations of Buyer, Parent or the
Parent Subsidiaries which has had, or is reasonably likely to have, a material
adverse effect on Buyer or Parent, except that Parent and Buyer have continued
to incur, and expect to incur for at least the next two fiscal quarters,
operating losses, and Buyer and Seller have incurred obligations for significant
expenses associated with this Agreement.
5.8 Financial Plans. Parent has previously delivered to Seller true,
---------------
correct and complete copies of (a) the Parent's pro forma balance sheets
(including statements of stockholders' equity) and statements of operations and
(b) pro forma statements of operations and cash flows for the Facility, in each
case on a fiscal year basis for the period from June 30, 1997 through December
31, 2007. Such items so delivered to Seller are representative of and prepared
on a consistent basis with those delivered to Buyer's and Parent's investors and
lenders. The business plans have been prepared based on information provided in
good faith by Parent and Buyer. With respect to projections and forecasts
contained in the business plans (the "Projections"), Buyer and Parent represent
only that the Projections were prepared in good faith and on what Buyer and
Parent believe is a reasonable basis. The Projections are based upon a number of
assumptions and estimates that, while presented with numerical specificity and
considered reasonable by Buyer and Parent when taken as a whole, are inherently
subject to significant business, economic and competitive uncertainties and
contingencies, many of which are beyond the control of Buyer and Parent, and are
based upon specific assumptions with respect to future business decisions, some
of which will change. Projections are necessarily
<PAGE>
speculative in nature, and it can be expected that some or all of the
assumptions underlying the Projections will not materialize or will vary
significantly from actual results. Accordingly, the Projections are only
estimates. Actual results will vary from the Projections and the variations
will be material and will increase over time. Consequently, the inclusion of
the Projections is not a representation by Buyer or Parent or any other person
of results that will actually be achieved.
5.9 Securities Documents. Parent has timely filed, and heretofore
--------------------
delivered to Seller, all Securities Documents required by the Securities Laws
since December 31, 1993. As of their respective dates of filing, such
Securities Documents were prepared in accordance with the Securities Laws as
then in effect, and did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
5.10 Legal Proceedings. There are no actions, suits, claims,
-----------------
governmental investigations or proceedings instituted, pending or, to the Best
Knowledge of Buyer or Parent, threatened against Buyer, Parent or any of the
Parent Subsidiaries or against any asset, interest or right of any of them, or
against any officer, director or employee of any of them that in any such case,
if decided adversely, would have a material adverse effect on Buyer's, Parent's,
or the Parent Subsidiaries' business, financial condition or results of
operations. There are no actions, suits or proceedings instituted, pending or,
to the Best Knowledge of Buyer or Parent, threatened against any present or
former director or officer of Buyer, Parent, or any of the Parent Subsidiaries
that would reasonably be expected to give rise to a claim against Buyer, Parent
or any of the Parent Subsidiaries for indemnification. There are no actual or to
the Best Knowledge of Buyer or Parent threatened actions, suits or proceedings
against Buyer or Parent which present
<PAGE>
a claim to restrain or prohibit the transactions contemplated herein, or in the
Escrow Agreement.
5.11 No Other Representations. Each of Buyer and Parent
------------------------
acknowledges that neither it nor any of its representatives may rely on any
representation or warranty, express or implied, regarding the Facility or the
Purchased Assets which is not included in this Agreement or the Transaction
Agreements.
5.12 FDA. Neither Buyer, Parent or, to the Best Knowledge of
---
Buyer or Parent, any of their affiliates, has been or is in the process of being
debarred under 21 U.S.C. (S) 335a(a) or (b), nor does any one of them use, in
any capacity, the services of any person who (a) has been, or is in the process
of being, so debarred, or (b) has been convicted of an offense under either
federal or state law that is cited in 21 U.S.C. (S) 335a as a ground for
debarment, denial of approval or suspension.
5.13 Financing. Parent has entered into a definitive Investment
---------
Agreement with Morgan Stanley Capital Partners III, L.P. and affiliated funds
and a binding commitment letter with The Chase Manhattan Bank, which are subject
to certain conditions set forth or referred to therein, copies of which are
attached hereto as Exhibits H and I, setting forth their commitments to provide
to Parent and Buyer equity and debt financing, respectively, to enable Buyer to
acquire the Purchased Assets and to provide working capital to Buyer.
5.14 Brokers. No finder, broker, agent or other intermediary has
-------
acted for or on behalf of Buyer or Parent in connection with the negotiation or
consummation of this Agreement, and there are no claims for any brokerage
commission, finder's fee or similar payment due from Buyer or Parent, except
that Parent will issue 150,000 shares of Common Stock to Lehman Brothers, Inc.
for financial advisory services and Buyer will incur fees payable in connection
<PAGE>
with the debt financing incurred in connection with the consummation of this
Agreement.
ARTICLE VI
COVENANTS OF SELLER
Seller covenants and agrees with Buyer as follows:
6.1 Conduct of Business. Between the date of this Agreement and the
-------------------
Closing Date, Seller shall, except as described in Section 6.1 of the Disclosure
Schedule or otherwise specifically consented to in writing by Buyer:
(a) Conduct the Operation of the Facility in all material respects in
the same manner as it has been conducted during the past twelve months;
provided, however, that inventory levels will reflect stocking levels
consistent with expected market demands, Seller's product transfer
activities and preparation for an orderly transfer of the Purchased
Inventories to Buyer, and provided that Seller shall provide written notice
to Buyer describing any reduction in inventory levels outside of the
ordinary course of business which Seller makes under the foregoing proviso.
(b) Maintain and keep the tangible Purchased Assets in the same
condition as on the date of this Agreement, ordinary wear and tear
excepted;
(c) Keep in full force and effect the insurance coverages described in
Section 4.16 of the Disclosure Schedule;
(d) Perform all of its obligations under all Contracts and not amend,
alter or modify any provision except in the ordinary course of business;
<PAGE>
(e) Not create or permit to exist any Lien with respect to any of the
Purchased Assets, except for the Liens described in Section 4.6 of the
Disclosure Schedule, all of which will be removed at or prior to the
Closing, and except for the Permitted Liens;
(f) Not sell, transfer or dispose of any Purchased Assets, except in
the ordinary course of business of the Facility; and
(g) Promptly advise Buyer of any change in the list of employees
referred to in Section 4.18(a) and not make any material change in the base
salary or base hourly wage payable to any such employee (except for any
compensation adjustments made in connection with job promotions or similar
changes as to which Buyer shall promptly be notified.)
6.2 Access and Information. Following execution of this Agreement,
----------------------
Seller shall permit Buyer and its counsel, accountants, environmental
consultants, building inspectors, representatives of Morgan Stanley Capital
Partners III, L.P., representatives of The Chase Manhattan Bank and other
Buyer's representatives and counsel to the foregoing (the "Representatives")
full access during normal business hours to all the properties, assets, books,
records, agreements and other documents of Seller reasonably necessary to Buyer
or the Representatives relating to the Operation of Facility or the Purchased
Assets (including access sufficient to permit Buyer and the Representatives to
perform an environmental assessment or to comply with requests from any
regulatory body), and Seller shall furnish to Buyer and its Representatives all
information concerning the Purchased Assets or the Operation of the Facility as
Buyer or its representatives may reasonably request; provided that no medical
records or personnel files for Greenville Employees and no information or
documents included in the New
<PAGE>
Drug Applications relating to products manufactured at the Facility shall be
disclosed to Buyer or the Representatives, and provided further that only such
information as is prepared by the management and employees of Seller in the
ordinary course of business will be provided to Buyer or the Representatives.
Any investigation by Buyer or the Representatives pursuant to this Section shall
be conducted in such manner as not to interfere unreasonably with the normal
Operation of the Facility. Buyer and the Representatives shall be accompanied on
any visits to the premises of Seller by representatives of Seller. Buyer and the
Representatives shall not conduct interviews with any employees of Seller
without the prior written consent of Seller, which shall not be unreasonably
withheld or delayed.
6.3 No Other Solicitations. Seller agrees that it will not, until
----------------------
the occurrence of the Closing or July 31, 1997, whichever occurs first, directly
or indirectly solicit or entertain offers from, provide information to,
negotiate with or in any manner encourage, accept or consider any proposal from
any person other than Buyer or persons designated by Buyer relating to the
acquisition of the Purchased Assets or the manufacture of Products in lieu of
the arrangements described in the Supply Agreement.
6.4 Future Cash Flows. Seller agrees that in the event of any
-----------------
corporate reorganization, recapitalization, restructuring or transfer or sale of
assets involving Seller, it will retain sufficient assets and operations to
generate free cash flows (within the meaning of US GAAP) in excess of
[*] for ten years following the Closing Date.
6.5 Environmental Reports. Seller shall furnish to Buyer, as
---------------------
promptly as practicable following execution of this Agreement, copies of all
environmental reports which would have been required to be described in Section
4.22 of the Disclosure Schedule if the
[*] = Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
<PAGE>
representations in Section 4.22(f) were not limited to matters prepared in the
last three years.
6.6 Financial Statements. As soon as practicable following June 30,
--------------------
1997, Seller shall deliver to Buyer year-to-date actual historical financial
information as of and for the six months ended June 30. When delivered, such
financial information will be subject to the same representations and warranties
of Seller as are set forth in the second paragraph of Section 4.5(a) of this
Agreement, as if the references to the five months ended May 31, 1997 were
references to the six months ended June 30, 1997.
6.7 Multisite Contracts. Between the date of this Agreement and the
-------------------
Closing Date, Seller will (a) notify Buyer of any additional Multisite Contracts
of which it becomes aware which would have been required to be listed in Section
2.3(l) of the Disclosure Schedule if known to Seller on the date of this
Agreement, and (b) use commercially reasonable efforts to contact the providers
of goods and services, including Materials (as defined in the Supply Agreement)
under such Multisite Contracts on behalf of Buyer to facilitate Buyer's
procurement of goods or services or other benefits comparable to those that are
the subject of the Multisite Contracts. If any Multisite Contract provides for
the purchase of Materials that are essential to the manufacture of the Products,
Buyer will use its best efforts to procure the same or comparable Materials for
its own account. If Buyer cannot procure the same or comparable Materials under
any circumstance, and such condition would place Buyer in "Supplier Breach" as
defined in the Supply Agreement, then Seller will intervene with the supplier of
Material on behalf of Buyer and assign to Buyer Seller's rights to its Multisite
Contracts where legally possible.
<PAGE>
ARTICLE VII
COVENANTS OF BUYER AND SELLER
Buyer and Seller covenant and agree as follows:
7.1 Access. Following the Closing, Buyer shall grant to Seller and
------
its representatives full access during normal business hours to all records,
documents and information (whether in hard copy form or accessible by software
or other technology applications) transferred to it by Seller relating to the
ownership of the Purchased Assets and the Operation of the Facility prior to the
Closing Date, and shall permit Seller, at Seller's expense, to make copies of
the same. Any investigation by Seller pursuant to this Section shall be
conducted in such manner as not to interfere unreasonably with Buyer's normal
operation of the Facility. Seller and its representatives shall be accompanied
on any visits to the premises of Buyer by representatives of Buyer. Buyer will
not destroy any records, documents or other media related to the ownership of
the Purchased Assets and the Operation of the Facility by Seller prior to the
Effective Time, even if such destruction would otherwise be in accordance with
Buyer's record retention schedules unless Buyer gives Seller not less than
twenty days advance notice and an opportunity to reclaim any materials prior to
destruction. Buyer further agrees not to alter any of the records, documents or
information that is transferred to it by Seller, except for records, documents
or information altered in the ordinary course of business and consistent with
applicable law.
7.2 Employee Terminations. In the event that, following the
---------------------
Effective Time, Buyer shall cease to employ any one or more of the Greenville
Employees who become "New
<PAGE>
Employees" as described in Section 8.1 below, Buyer shall be solely responsible
for all obligations owed to such New Employees as a result of the termination of
employment of such New Employees, including but not limited to compensation
earned following the Effective Time, any severance pay entitlements, and all
liabilities and costs under COBRA (including liabilities for violations thereof)
for all "qualifying events" (as defined in COBRA) occurring with respect to New
Employees and their dependents after the Effective Time. Seller shall be
responsible after the Closing Date for the COBRA continuation coverage of all
Greenville Employees, dependents and former spouses of Greenville Employees who
elect or become entitled (because of the occurrence of a qualified event on or
before the Effective Time) to elect such coverage at or before the Effective
Time or who do not become New Employees.
7.3 Establishment Registration and AFT Permit. Buyer shall file a
-----------------------------------------
permit application with the U.S. Department of Treasury, Bureau of Alcohol,
Tobacco and Firearms, within ten days after the Closing Date, and Seller will
file its related letter. Buyer shall file an establishment registration with
the FDA immediately following the Closing under this Agreement, and in no event
later than the fifth day following the Closing Date. Buyer shall deliver a copy
of its establishment registration materials to Seller for Seller's approval
prior to delivery of the same to the FDA.
7.4 Covenant Not to Compete.
-----------------------
(a) General. Each of Buyer and Parent acknowledge that an important
-------
part of the benefits that Seller will recognize in connection with the
transactions contemplated by this Agreement is the Buyer's commitment of a
substantial part of its resources at the Facility to the production of
Seller's Products under the Supply Agreement and not to the
<PAGE>
development or production of competing products in the Facility. As a
result, as a separate and independent covenant, each of Buyer and Parent
agree that for the period described below, at the Facility, it will not
develop or manufacture for any party other than Seller or Seller's
Affiliates, and it will not, directly or indirectly, as an owner, member,
affiliate, operator, agent, consultant, lender or independent contractor of
or to any entity, develop any prescription or over the counter formulation
of, any Product of Seller or Seller's Affiliates that is produced at the
Facility during the term of the Supply Agreement, or formula, component,
agent, reagent or other ingredient used therein, or marketable byproduct
thereof, to which Seller has legally protectable proprietary rights,
excluding from the noncompetition provisions any Products manufactured
under the Supply Agreement pursuant to third party manufacturing
agreements.
(b) Time Period. Buyer's and Parent's obligations under this Section
-----------
7.4 shall remain in effect until the end of the calendar month in which
Buyer's aggregate "Conversion Charges" under the Supply Agreement during
the immediately preceding eleven calendar months are less than $18,000,000.
Notwithstanding the foregoing, the period of time during which this
covenant shall be in effect shall be extended by any length of time during
which Buyer or Parent is in breach of the terms of this Section 7.4; and in
no event shall this covenant be in effect in excess of ten years following
the Closing Date.
(c) Remedies. Each of Buyer and Parent acknowledges that its failure
--------
to comply with the provisions of this Section 7.4 will result in
irrevocable and continuing damage to the Seller for which there will be no
adequate remedy at law and that, in the
<PAGE>
event of a failure by Buyer or Parent to comply with this Section 7.4,
Seller and Seller's Affiliates and their successors, legal representatives
and assigns shall be entitled to injunctive relief and to such other and
further relief as may be proper and necessary to ensure compliance with the
provisions of this Section 7.4.
7.5 Retained Product Inventories. Following the Closing Date, Buyer
----------------------------
shall maintain custody of the Retained Product Inventories as Seller's bailee,
and shall store, ship or destroy the Retained Product Inventories at the
direction of and at the expense of Seller. Buyer agrees to execute such
documents as are necessary to evidence Seller's ownership of the Retained
Product Inventories and to prevent the Retained Product Inventories from
becoming subject to Liens of Buyer's lenders.
ARTICLE VIII
MUTUAL COVENANTS
8.1 Employment Matters.
------------------
(a) Employment. Buyer agrees to make offers of employment as of the
----------
Effective Time to the vast majority of the Greenville Employees. Buyer
expects to hire approximately the number of persons described and
identified by job category in Section 8.1(a)(1) of the Disclosure Schedule.
Such offers of employment shall be made in each case for a position that
bears a base salary or hourly wage rate that is no less than that paid by
Seller immediately prior to the Closing. At least twenty days prior to
Closing, Buyer shall notify Seller of the names of each Greenville Employee
to whom it intends to offer employment (the "Prospective Employees").
Seller will not take any action to
<PAGE>
impede, hinder or interfere with Buyer's efforts to hire the Prospective
Employees. Prospective Employees who accept Buyer's offer of employment and
become employees of Buyer on or after the Effective Time are referred to as
"New Employees." At least ten days prior to the Closing, Buyer shall notify
Seller of the name of each Prospective Employee who has accepted the offer
of employment made by Buyer. In addition, Buyer shall notify Seller within
fifteen days following the Closing Date of the names of all persons who
have then become New Employees. Seller shall not submit, disclose or
transfer to Buyer any personnel files or medical records about any
Greenville Employee prior to the Closing Date. Upon receipt of notice from
Buyer listing those individuals who have become New Employees of Buyer and
requesting that the records of such individuals be transferred to Buyer,
Seller shall transfer the personnel files of such New Employees to Buyer in
accordance with the Personnel Files Transfer Agreement and any and all
applicable laws, and Seller shall transfer certain agreed portions of
medical records related to such New Employees to Buyer in accordance with
the Medical Records Transfer Agreement and any and all applicable OSHA
regulations and other applicable laws. Nothing contained in this Agreement
is intended or shall be deemed to (a) require Buyer to employ New Employees
for any fixed or predetermined time, or (b) confer upon any New Employee
any rights of employment of any nature, it being understood and agreed that
the provisions of this Agreement are intended to set forth an agreement
among Buyer, Seller and Parent, and are not intended to benefit any persons
not party to this Agreement, including such employees. Seller shall be
responsible for any Plan obligations or employment contracts (including
responsibility for any bonuses and
<PAGE>
commissions accrued or payable with respect to any period ending on or
before the Closing Date) that arise from the acts of Seller relating to
Greenville Employees and that accrue or become payable on or before the
Closing Date. Seller shall be liable with respect to any discrimination or
other employment-based claims that arise from the acts of Seller brought at
any time by a Greenville Employee to the extent that such claims accrue or
arise before the Closing Date, and Buyer shall be liable with respect to
any discrimination or other employment-based claims that arise from acts of
Buyer brought at any time by a New Employee to the extent that such claims
accrue or arise after the Closing Date. Seller shall pay to all Greenville
Employees, in accordance with its ordinary practice, any liability arising
under Seller's policies or practices for accrued vacation, flexible time
off or similar benefits that accrue on or before the Closing Date.
(b) Retirement and Benefit Plans; Incentives. Prior to Closing,
----------------------------------------
Buyer shall establish for New Employees those retirement, benefit and
incentive compensation plans described in Section 8.1(b) of the Disclosure
Schedule.
(c) Service Credit for New Employees. Buyer shall recognize all
--------------------------------
prior service of New Employees with the Seller and any affiliate that is
aggregated with the Seller under Section 414(b), 414(c) or 414(m) of the
Code (including Burroughs Wellcome Co.) for vacation pay purposes only,
under Buyer's corresponding vacation plans, policies or practices listed in
Section 8.1(b) of the Disclosure Schedule as in effect on the Closing Date.
(d) General. Seller and Buyer shall give any notices required by law
-------
and take whatever other actions with respect to the plans described in this
Section as may be
<PAGE>
necessary to carry out the arrangements described in this Section 8.1.
Seller and Buyer shall provide each other with such plan documents and
descriptions, employee data and other information as may reasonably be
required to carry out the arrangements described in this Section. If any
arrangement in this Section is determined by the Internal Revenue Service
or other Governmental Body to be prohibited by law, Seller and Buyer shall
modify such arrangement to as closely as possible retain the intent of the
parties, as reflected herein, in a manner that is not so prohibited.
(e) WARN Act. Seller shall be responsible for giving the
--------
notifications, if any, required by the WARN Act with respect to any
Greenville Employees who experience an employment loss within the meaning
of the WARN Act prior to the Effective Time, and Seller shall be
responsible for and assumes any liability arising from any failure to
provide such notifications. Buyer shall be responsible for giving the
notifications, if any, required by the WARN Act with respect to New
Employees who experience an employment loss within the meaning of the WARN
Act following the Effective Time, and Buyer shall be responsible for and
assumes any liability arising from any failure to provide such
notifications.
(f) Tax Reporting. Buyer shall prepare and furnish to all New
-------------
Employees Forms W-2 which shall reflect all wages and compensation paid to
such employees for that portion of the calendar year in which the Closing
Date occurs during which such employees were employed by Seller. Seller
shall furnish to the Buyer the most current on file Forms W-4 and W-5 of
each New Employee as of the Closing Date. Seller shall send to the
appropriate Social Security Administration office a duly completed Form W-3
and
<PAGE>
accompanying copies of the duly completed Form W-2. It is the intent of the
parties that the obligations of Buyer and Seller under this Section 8.1(f)
shall be carried out in accordance with Section 5 of the Internal Revenue
Service's Revenue Procedure 96-60.
(g) No Third Party Beneficiaries. Nothing in this Section 8.1 or
----------------------------
elsewhere in this Agreement shall be deemed to make any employee of Seller
a third party beneficiary of this Agreement.
8.2 Environmental Indemnification.
-----------------------------
(a) Seller's Environmental Indemnity. Seller shall protect,
--------------------------------
indemnify, defend (as provided under Article XII) and hold harmless Parent,
Buyer, Parent's Affiliates and their respective shareholders, directors,
officers, employees, lessees, lenders, successors and assigns, and each of
them (each of the foregoing with Buyer herein referred to as a "Buyer
Indemnitee") from and against any Environmental Claim, whether known or
unknown as of the Effective Time, to the extent arising at any time out of,
in connection with or resulting from (i) a Pre-Existing Environmental
Condition; (ii) any breach in the representations in Section 4.22 or this
Section 8.2, the Environmental Agreement, or the Memorandum of
Understanding; (iii) the active negligence or willful misconduct of Seller
or Seller's agents in the course of any activity conducted with respect to
a Pre-Existing Environmental Condition; (iv) the Exacerbation of a Post-
Closing Environmental Condition, to the extent the Exacerbation is caused
by the negligent activities of Seller or its agents, employees,
consultants, contractors, or hazardous waste haulers or handlers; and/or
(v) Exacerbation of a Pre-Existing Environmental Condition (except for such
Exacerbation as described in Section 8.2(b)(iii) below); excepting, in any
<PAGE>
case, to the extent the Environmental Claim is caused by or results from
(A) Exacerbation of an Environmental Condition as a consequence of the
negligent activities of a Buyer Indemnitee or its agents, employees,
consultants, contractors, or hazardous waste haulers or handlers, (B) the
gross negligence or willful misconduct of a Buyer Indemnitee, or (C) a
Buyer Indemnitee's breach of any obligations under Section 8.2 of this
Agreement, the Memorandum of Understanding or the Environmental Agreement.
The foregoing are collectively referred to herein as "Seller's
Environmental Indemnity Obligations."
(b) Buyer's Environmental Indemnity. Buyer shall protect, indemnify,
-------------------------------
defend (as provided under Article XII) and hold harmless Seller, Seller's
Affiliates and their respective shareholders, directors, officers,
employees, agents, lessees, lenders, successors and assigns, and each of
them (each of the foregoing with Seller herein referred to as a "Seller
Indemnitee"), from and against any Environmental Claim, whether known or
unknown as of the Effective Time, to the extent arising at any time out of,
in connection with or resulting from a (i) a Post-Closing Environmental
Condition; (ii) any breach in the representations in this Section 8.2, the
Environmental Agreement, or the Memorandum of Understanding; (iii)
Exacerbation of a Pre-Existing Environmental Condition, to the extent
caused by the operations of the Facility, Repair Activity, activities,
negligence or Construction Activity of Buyer or its agents, employees,
consultants, contractors or hazardous waste haulers or handlers; (iv)
subject to Section 8.2(c)(1) and (6), any disturbance or invasion of
subsurface conditions or soil in connection with a Construction Activity in
a "Prohibited Area" (as defined below); and/or
<PAGE>
(v) the Exacerbation of a Post-Closing Environmental Condition; excepting,
in any case, to the extent the Environmental Claim is caused by or results
from (A) Exacerbation of an Environmental Condition as a consequence of the
negligent activities of a Seller Indemnitee or its agents, employees,
consultants, contractors, or hazardous waste haulers or handlers, (B)
Exacerbation caused by performance of Repair Activities conducted with due
care under the circumstances, (C) the gross negligence or willful
misconduct of a Seller Indemnitee, or (D) a Seller Indemnitee's breach of
any obligations under Section 8.2 of this Agreement, the Memorandum of
Understanding and/or the Environmental Agreement. The foregoing are
collectively referred to herein as "Buyer's Environmental Indemnity
Obligations."
Neither the knowledge nor lack of knowledge of Seller or Buyer
shall limit in any manner the inclusion of any matters as a Seller's
Environmental Indemnity Obligations or a Buyer's Environmental Indemnity
Obligations.
(c) Future Construction and Repair and Maintenance Activities.
---------------------------------------------------------
(1) Prohibited Areas. Except with the consent of Seller or as
----------------
is necessary for a Repair Activity, Buyer agrees that it will not
disturb or invade subsurface conditions or the soil when undertaking
Construction Activity in those areas delineated on Section 8.2(c)(1)
of the Disclosure Schedule (the "Prohibited Areas"), and described
with more particularity in the restrictive covenant to be recorded as
set forth below. The parties intend that this provision is a covenant
running with the land and will apply to Buyer's successors and assigns
and subsequent purchasers. The parties agree to execute at the Closing
all appropriate
<PAGE>
documents to be filed with the Pitt County Register of Deeds to
reflect this covenant in the public record and to ensure that this
covenant runs with the land. An unintentional or intentional violation
of this Section 8.2(c)(1) constitutes a breach of contract.
Notwithstanding the foregoing, upon commencement of a Construction
Activity in violation of this Section 8.2(c)(1), subject to Section
8.2(c)(6) below, Seller shall be released from conducting Seller's
Obligatory Remediation of the soil and/or subsurface conditions at the
Construction Activity site which were disturbed or invaded, but Seller
shall nevertheless pay to Buyer the amount Buyer proves Seller would
have had to incur to complete Seller's Obligatory Remediation of said
soils and subsurface conditions had the breach not occurred.
If at any time after the Effective Time, Buyer, its
successors and assigns or subsequent purchasers, provides to Seller
evidence that an Environmental Condition no longer exists in a
Prohibited Area, Seller agrees that if (A) the appropriate
Governmental Body is in full agreement that the evidence establishes
that an Environmental Condition no longer exists in the Prohibited
Area, (B) Seller, in its sole and reasonable judgment, believes that
the evidence establishes that an Environmental Condition no longer
exists in the Prohibited Area, and (C) Buyer (or its successor or
assign, as the case may be) delivers to Seller a full and complete
release from any obligations for Seller's Obligatory Remediation,
payment of Incremental Construction Costs and Seller's Environmental
Indemnity Obligations for the soil and subsurface conditions with
<PAGE>
respect to the Prohibited Area, as well as an agreement to indemnify
Seller from any Environmental Conditions related to the soil and
subsurface conditions with respect to the Prohibited Area, then Seller
shall execute all necessary documentation, including documents to be
filed with the Pitt County Register of Deeds, to remove the
restrictions imposed on the Prohibited Area under this Agreement or
any recorded restriction.
(2) Initiation of Construction Activity After Notice and Testing.
------------------------------------------------------------
If Buyer undertakes Construction Activity on the Purchased Assets
which involves disturbance or invasion of subsurface conditions or
soils (other than in the Prohibited Areas), and prior to initiation of
such Construction Activity, (a) Buyer conducts testing in the proposed
construction area, (b) such testing demonstrates that the proposed
construction area contains a Pre-Existing Environmental Condition, (c)
Buyer provides Seller with notice of such Pre-Existing Environmental
Condition in accordance with and subject to Sections 12.3 and 12.4 of
this Agreement, and (d) Buyer provides notice to Seller of said
Construction Activity in the manner provided in Section 14.7, then
Seller shall promptly and diligently conduct Seller's Obligatory
Remediation of the Pre-Existing Environmental
<PAGE>
Condition identified by the testing and shall reimburse Buyer for any
and all Incremental Construction Costs resulting from such
Construction Activity. Alternatively, if so elected by Buyer, (i)
Seller, upon Buyer's request, shall pay to Buyer the amount Seller
would have had to incur to complete Seller's Obligatory Remediation of
any Pre-Existing Environmental Condition in the soil or subsurface
conditions at the Construction Activity site identified by the
testing, and (ii) Buyer shall proceed with the Remedial Activities of
such Pre-Existing Environmental Condition in the soil or subsurface
conditions in accordance with the requirements of Section 8.2(e) of
this Agreement; and (iii) after payment to Buyer of the amounts
payable by Seller pursuant to subpart (i) of this sentence, Buyer
shall forever release Seller, subject to the limitations set forth in
paragraph (6), from Seller's Obligatory Remediation of the Pre-
Existing Environmental Condition in the soil or subsurface conditions
for which Seller has made payment to Buyer pursuant to the foregoing.
(3) Effect of Construction. If (A) Buyer undertakes Construction
----------------------
Activity on the Purchased Assets (other than in the Prohibited Areas)
which invades or disturbs soil or subsurface conditions, and prior to
initiation of Construction Activity, either fails to demonstrate that
such soil and subsurface conditions in the area of planned
construction is, immediately prior to Construction Activity, not in
compliance with Environmental Laws or provide Seller with notice of
Buyer's planned Construction Activity as required under Section
8.2(c)(2) or (B) Buyer undertakes Construction Activity which invades
or disturbs soil or subsurface conditions in an area where Seller has
completed Seller's Obligatory Remediation, Buyer agrees that such
Construction Activity deems Seller forever released from Seller's
Obligatory Remediation for soil and subsurface conditions in the
particular area constructed on by Buyer; provided however that Seller
shall not be released from its obligations under paragraphs
<PAGE>
(1), (2) or (4) for any Seller's Obligatory Remediation resulting from
an Environmental Condition that (a) was not known prior to the
Effective Time, (b) existed as of the time of the Construction
Activity, and (c) was not caused or Exacerbated by the operations,
activities, Construction Activity or negligence of Buyer, Buyer's
agents, employees, consultants, contractors or hazardous waste haulers
or handlers.
(4) Repairs. Seller agrees to reimburse Buyer for Incremental
-------
Construction Costs incurred by Buyer during the performance of Repair
Activities. If the area where Buyer is performing a Repair Activity is
an area affected by a Pre-Existing Environmental Condition, Seller
shall promptly and diligently conduct Seller's Obligatory Remediation
following delivery to Seller of notice in accordance with Section
14.7. Alternatively, if so elected by Buyer, (a) Seller, upon Buyer's
request, shall pay to Buyer the amount Seller would have had to incur
to complete Seller's Obligatory Remediation of any Pre-Existing
Environmental Condition in the soil and subsurface conditions at the
Repair Activity site in accordance with Section 8.2(d) of this
Agreement, and (b) Buyer shall proceed with the Remedial Activities of
such Pre-Existing Environmental Condition in the soil and subsurface
conditions to fulfill the Remedial Action requirements of Section
8.2(e) of this Agreement as if such Pre-Existing Environmental
Condition in soil or subsurface conditions was within Buyer's
Environmental Indemnity Obligations; and (c) after payment to Buyer of
the amounts payable by Seller pursuant to subpart (a) of this
sentence, Buyer shall
<PAGE>
forever release Seller, subject to the limitations set forth in
Section 8.2(c)(6) below, from Seller's Obligatory Remediation of the
Pre-Existing Environmental Condition in the soil and subsurface.
(5) Further Assurances. Buyer and Seller agree to execute
------------------
appropriate documents to memorialize the releases under Section
8.2(c)(1), (2), (3), and (4) above, and any modifications and change
in responsibility for completing Remedial Activities, including
without limitation, such amendments to the Environmental Agreement and
Memorandum of Understanding, and any other documents necessary to
effectuate the releases of liability as set forth in paragraphs (2),
(3), and (4).
(6) Groundwater and Seller's Exacerbation. Notwithstanding
-------------------------------------
anything to the contrary in this Agreement, Seller shall remain
responsible under all circumstances for performance of Seller's
Obligatory Remediation of a Pre-Existing Environmental Condition in
groundwater (without regard to whether there has occurred any
Exacerbation of said Pre-Existing Environmental Condition due to the
acts of Buyer or otherwise). However, if and to the extent that (i)
the conduct by Buyer or its agents, employees, consultants,
contractors, or hazardous waste haulers or handlers or any
Construction Activity (whether intentional, unintentional, or
conducted with or without due care) or any Repair Activity conducted
without due care, or (ii) the operation of the Facility by Buyer
results in Exacerbation of a Pre-Existing Environmental Condition in
groundwater, then Buyer shall pay to Seller any amounts reasonably
incurred by
<PAGE>
Seller to conduct Seller's Obligatory Remediation of the Pre-Existing
Environmental Condition in groundwater in excess of the amount Seller
would have had to otherwise incur to conduct Seller's Obligatory
Remediation of the said Pre-Existing Environmental Condition in the
absence of such Exacerbation. Further no release of Seller pursuant to
this Subsection 8.2(c) shall release Seller from any of Seller's
Environmental Indemnity Obligations under Section 8.2(a)(iv) with
respect to Exacerbation of a Post-Closing Environmental Condition.
(7) Characterization of Certain Amounts. Any amount Buyer incurs
-----------------------------------
to perform Remedial Activities of Environmental Conditions pursuant to
the foregoing, in excess of any payment for Seller's Obligatory
Remediation with respect thereto as set forth above, shall constitute
Incremental Construction Costs.
(8) Limitations on Incremental Construction Costs. Buyer will be
---------------------------------------------
entitled to reimbursement from Seller for Incremental Construction
Costs up to an aggregate amount of $7,500,000. Thereafter, Seller
shall have no further obligation to Buyer for Incremental Construction
Costs. The right to receive Incremental Construction Costs is
personal to Buyer and shall not be assignable, with the sole exception
that such right may be assigned to Buyer's lenders and such lender's
successors and assigns, but Seller shall in no event be obligated to
make any payments to any such lender, lender's successors or assigns
for any Incremental Construction Costs incurred for any work performed
following the 54 month anniversary of the Closing Date.
<PAGE>
(9) Inapplicability of Certain Limitations. Any Seller's
--------------------------------------
Obligatory Remediation that Seller must conduct in accordance with
Seller's Environmental Indemnity Obligations is not subject to the
$7,500,000 limitation for Incremental Construction Costs. Neither (i)
such Seller's Obligatory Remediation nor (ii) any of Seller's
Environmental Indemnity Obligation or Buyer's Environmental Indemnity
Obligation for any matter described in subpart (iv) of the definition
of Environmental Claim shall be subject to the $1,000,000 threshold
requirement contained in Section 12.6 nor the $200,000,000 maximum
limit on liability contained in Section 12.8. All other matters
included within Seller's Environmental Indemnity Obligations or
Buyer's Environmental Indemnity Obligations are subject to the
$1,000,000 threshold requirement contained in Section 12.6 and the
$200,000,000 maximum limit on liability contained in Section 12.8.
(d) Seller's Obligation to Perform Remedial Activities. With respect
--------------------------------------------------
to an Environmental Claim for Remedial Activities that constitutes a
Seller's Environmental Indemnity Obligation, Seller shall (1) perform any
and all Seller's Obligatory Remediation, except to the extent that Seller
is released from such obligation pursuant to Subsections (c)(1), (2), (3),
or (4) above, (2) take, to the extent legally permitted, all "generator"
responsibility for Hazardous Material created by the performance of
Remedial Activities, and (3) enter, and obtain, if necessary, and comply
with any permits, authorizations or approvals necessary to conduct such
Seller's Obligatory Remediation to the extent legally required.
<PAGE>
Buyer shall notify Seller in accordance with and subject to
Sections 12.3 and 12.4 of this Agreement of Seller's Obligatory
Remediation. In that event, Seller shall promptly and diligently undertake
and complete such Seller's Obligatory Remediation in accordance with and
after execution of a mutually agreed upon site access agreement to be
entered into between Seller and Buyer. Seller agrees to consult fully with
Buyer with respect to any proposed Remedial Activities and the plans
therefor arising from the Seller's Obligatory Remediation and Seller and
Buyer agree to use good faith best efforts to reach mutual agreement on any
such Remedial Activities and plans. If mutual agreement cannot be reached
between Seller and Buyer, the parties agree that Seller may submit to the
applicable Governmental Body a proposed plan for Seller's Obligatory
Remediation as required to meet any deadlines not subject to extension, to
avoid fines and penalties, or for the protection of human health and Seller
may also proceed with implementation of any such plan as required to meet
any deadlines, not subject to extension, to avoid fines and penalties or
for the protection of human health. Such action, however, shall not
relieve Seller of its obligation to fulfill Seller's Obligatory
Remediation, nor limit Buyer's rights to object to the plan so submitted to
or approved by the applicable Governmental Body, nor Buyer's exercise of
any other rights or remedies (including injunctive relief) available under
law by reason of such actions by Seller, including without limitation those
arising from a cause of action for Seller's breach of this Agreement.
(e) Buyer's Obligation to Perform Remedial Activities. With respect
-------------------------------------------------
to an Environmental Claim for Remedial Activities that constitutes a
Buyer's Environmental
<PAGE>
Indemnity Obligation, Buyer shall (i) perform Remedial Activities required
by Environmental Law, including any consent decree, settlement agreement,
permit, approval, plan, agreement, or memorandums of understanding issued
by or entered into with any Governmental Body, for Post-Closing
Environmental Conditions, (ii) take, to the extent legally permitted, all
"generator" responsibility for Hazardous Material created by the
performance of Remedial Activities, and (iii) enter, and obtain, if
necessary, and to comply with any permits, authorizations or approvals
necessary to perform Buyer's Environmental Indemnity to the extent legally
required.
Buyer shall promptly and diligently undertake and complete any
Remedial Activities required to fulfill its Environmental Indemnity
Obligations. If Seller is conducting Seller's Obligatory Remediation at the
time Buyer is undertaking Remedial Activity in accordance with the
foregoing to fulfill its Environmental Indemnity Obligations, Buyer agrees
to consult fully with Seller with respect to any proposed Remedial
Activities arising from the Buyer's Environmental Indemnity Obligation
which will affect Sellers' Obligatory Remediation, and in such case Seller
and Buyer agree to use good faith best efforts to reach mutual agreement on
a plan for such Remedial Activities by Buyer. If mutual agreement cannot
be reached between Seller and Buyer, the parties agree that Buyer may
submit to the applicable Governmental Body its proposed plan as required to
meet any deadlines not subject to extension, to avoid fines and penalties
or for the protection of human health and Buyer may also proceed with
implementation of any such plan as required to meet any deadlines not
subject to extension, to avoid fines and penalties or for the protection of
human health. Such action
<PAGE>
however shall not relieve Buyer of its obligation to complete such Remedial
Activities nor limit Seller's rights to object to the plan submitted to or
approved by the applicable Governmental Body nor Seller's exercise of any
other rights or remedies available under law, by reason of such actions by
Buyer, including without limitation those arising from a cause of action
for Buyer's breach of this Agreement.
(f) The Procedure for Tendering An Indemnified Claim. Environmental
------------------------------------------------
Claims covered by an indemnity obligation which are asserted by a
Governmental Body or any third party shall be tendered in accordance with
Sections 12.3 and 12.4 of this Agreement.
(g) Time for Indemnified Claims. Environmental Claims (other than
---------------------------
for Seller's Obligatory Remediation) that are covered by an indemnity
obligation under Section 8.2 and that arise out of, in connection with or
as a result of a (i) Seller's breach of a representation contained in
Section 4.22, or (ii) a Pre-Existing Environmental Condition described in
subparts (1) or (2) of the definition of Pre-Existing Environmental
Condition or that has resulted or hereafter results from the migration or
transformation of any Environmental Condition described in such subparts
(1) or (2), and which is not disclosed in Section 4.22 of the Disclosure
Schedule are not recoverable unless notice of the general circumstances
giving rise to the Environmental Claim is provided on or before the tenth
anniversary of the Closing Date. Otherwise, there shall be no limitation
on the time for tendering an Environmental Claim, whether tendered by Buyer
or Seller or any Buyer Indemnitee or Seller Indemnitee. Notwithstanding
the foregoing provisions of this subsection (g), there shall be no
limitation on the time for tendering an
<PAGE>
Environmental Claim that is based on human exposure to an Environmental
Condition.
(h) No Recovery for Loss of Profits. In no event shall Seller or
-------------------------------
Buyer be liable to the other, or have any obligation to indemnify the other
under this Section 8.2, from any loss of profits however caused and on any
theory of liability; provided, however, that the foregoing shall not limit
Buyer's rights with respect to reduction in available Reactor Gallons (as
defined in the Supply Agreement) under Section 2.5 of the Supply Agreement.
Further, in no event shall Seller be liable to Buyer, or have any
obligation to indemnify Buyer under this Section 8.2, from any reduction in
the value of the Owned Real Property as a consequence of the inability of
Buyer to use or operate the Owned Real Property for purposes other than
pharmaceutical and intermediate manufacturing and dosage formulation
including without limitation the inability to use the Owned Real Property
for residential uses, agricultural uses, public recreation or public park
uses and commercial food facilities that are open to the public.
(i) Independent Covenants. The rights and obligations of the parties
---------------------
under Section 8.2, Section 8.4, Section 12.1(c) and Section 12.2(c) of
this Agreement and under the Memorandum of Understanding, the Environmental
Agreement and the Asbestos Release (collectively herein the "Environmental
Provisions") are in addition to, and independent and severable from, all
other rights and obligations of the parties under the provisions of this
Agreement (other than said Sections 8.2, 8.4, 12.1(c) and 12.2(c) hereof),
the Supply Agreement, and any other agreements now or hereafter entered
into between them. It is expressly acknowledged by all parties hereto that
any failure of any condition or breach of any covenant or representation
which is not included in the
<PAGE>
Environmental Provisions shall not in any manner impair the right of the
parties and their respective permitted successors and assigns to enforce
any covenant, indemnity, defense obligation, hold harmless covenant,
release, waiver and/or other agreement contained in the Environmental
Provisions; it being understood that the Environmental Provisions are given
in consideration of the closing of the transaction and not for any future
performance of any agreement not included in the Environmental Provisions
and that the Environmental Provisions are intended to allocate the risk of
loss, and to create rights and obligations between the parties, with
respect to environmental matters without regard to the breach or status of
any other agreement.
(j) Notice of Environmental Occurrences. Notwithstanding any other
-----------------------------------
provision of this Agreement, and without regard to a party's intent to seek
indemnity or exercise any other rights or remedies with respect to the
matter in question, each party to this Agreement shall give notice to the
other parties to this Agreement within ten days following the occurrence of
any spill, leak, discharge or other event or activity occurring in
connection with the use, ownership or operation of the Facility that
involves the presence of a Hazardous Material in the soil, groundwater,
surface water or air of the Facility, including as a consequence of
migration, at any concentration that: (i) requires investigation,
monitoring, remediation or removal under the Environmental Laws, or that
may adversely affect any solid waste management units on the Owned Real
Property or any Remedial Activity or (ii) is required to be reported to
such party's insurance carrier. Any party entitled to notice under this
Section 8.2(j) shall be relieved of its indemnity obligations under this
Section 8.2 and under Article XII only to the extent that it is
<PAGE>
prejudiced by any failure or delay of the other party or parties to give
such notice.
8.3 Best Efforts; Regulatory Approvals. Each party hereto agrees to
----------------------------------
use its best efforts to satisfy the conditions to the Closing set forth in this
Agreement and otherwise to consummate the transactions contemplated by this
Agreement by July 31, 1997. Specifically, but without limiting the generality
of the foregoing, each of Buyer and Seller shall use its best efforts to make or
obtain all consents, transfers, approvals, authorizations, registrations and
filings with all Governmental Bodies as are required in connection with the
consummation of the transactions contemplated by this Agreement. Buyer agrees
to pursue the issuance of new permits to Buyer in lieu of the Nontransferable
Permits and permits issued to Seller under the Environmental Laws (none of which
are transferrable), and Seller will cooperate with Buyer in its efforts to
obtain new permits. Buyer and Seller shall, as promptly as practicable
following the execution of this Agreement, in cooperation with each other,
complete and file with the appropriate authorities the premerger notification
forms and any other documents required under the HSR Act.
8.4 SWMU.
----
(a) SWMU Remedial Activity. As described in Section 4.22 of the
----------------------
Disclosure Schedule, certain Pre-Existing Environmental Conditions are and
will be present at the Facility as of the Effective Time, involving soil
and groundwater on and underlying the Facility emanating from solid waste
management units (SWMUs), identified and described in the RFI Report.
Seller will perform all Remedial Activities for such Pre-Existing
Environmental Conditions as required by DEHNR, or other applicable
Governmental Body, and in compliance with applicable Environmental Laws,
and,
<PAGE>
following the Effective Time, the Environmental Agreement and the
Memorandum of Understanding. The parties intend that, following the
Effective Time, the terms of the Environmental Agreement will govern the
process and procedures for the SWMUs and in the event there is a conflict
between this Agreement and the Environmental Agreement, the Environmental
Agreement governs the process and procedures for the SWMUs identified and
described in the RFI Report.
(b) Future Remediation of Pre-Existing Environmental Conditions.
-----------------------------------------------------------
Buyer and Seller have entered into or will at Closing enter into, an
Environmental Agreement and a Memorandum of Understanding with respect to
Remedial Activities for Pre-Existing Environmental Conditions at several
SWMUs at the Facility. Buyer and Seller agree to execute appropriate
documents to memorialize the responsibility for completing such Remedial
Activities and for Remedial Activities for any other Environmental
Condition at the Facility requiring such activities, consistent with this
Agreement, the Environmental Agreement, and the Memorandum of
Understanding.
8.5 Termination of Confidentiality Agreement. The parties have
----------------------------------------
previously entered into a Mutual Confidential Disclosure Agreement dated as of
October 17, 1996. The parties agree that such Mutual Confidential Disclosure
Agreement, as it may have been amended, shall terminate as of the Effective
Time, and that the rights and obligations of the parties with regard to
confidentiality requirements shall be governed by Section 8.6 below.
8.6 Confidentiality.
---------------
(a) General. At all times following the execution of this Agreement,
-------
Buyer, Parent and Parent's Affiliate shall treat all Seller Confidential
Information, and Seller and
<PAGE>
Seller's Affiliates shall treat all Buyer Confidential Information, in
accordance with the requirements of this Section 8.6. For convenience,
Seller Confidential Information and Buyer Confidential Information are both
referred to herein as "Confidential Information" for purposes of
establishing the obligations of each party with regard to the other party's
Confidential Information.
(b) Nondisclosure. Confidential Information of the other party shall
-------------
be kept strictly confidential by the receiving party and, except as
expressly permitted herein, shall not be disclosed to any third party by
the receiving party in any manner whatsoever, in whole or in part, without
first obtaining the other party's prior written consent to such disclosure.
The standard of care required of each party in protecting the
confidentiality of the other party's Confidential Information shall be at
least the same standard of care that the receiving party uses in protecting
its own confidential and trade secret information, but in no event shall
either party use less than a reasonable standard of care. Confidential
Information may be used by the receiving party only for the purpose of
performing under this Agreement. Buyer represents and warrants that prior
to the date of this Agreement, it has not used or disclosed to any third
party any Seller Confidential Information, except as would be permitted
hereunder.
(c) Permitted Exceptions. Each party may disclose the other party's
--------------------
Confidential Information only to its employees or outside advisors and
financing sources in connection with this Agreement or the Transaction
Agreements who reasonably need to know such information for the purpose of
advising or assisting it in connection with this Agreement (each, an
"Advisor"). Prior to disclosing any Confidential Information to
<PAGE>
any Advisor, the receiving party will inform such Advisor of the
proprietary nature of the Confidential Information and will require such
Advisor to agree in writing (except in the case of outside legal advisors,
who may orally agree) to be bound by the requirements of this Section 8.6
and not to use or disclose the Confidential Information except as permitted
herein. Each party agrees to be responsible for any breach of these
confidentiality obligations by its Advisors. It is specifically agreed that
(i) Seller may disclose Buyer Confidential Information to any Seller's
Affiliate under the same conditions provided in this Section 8.6 on a need-
to-know basis and (ii) Buyer may disclose Seller Confidential Information
to Parent or any Parent's Affiliate under the same conditions provided in
this Section 8.6 on a need-to-know basis.
(d) Consent. Confidential Information of the other party shall not
-------
be utilized by a receiving party except as expressly permitted herein,
without first obtaining the other party's prior written consent to such
utilization and without first entering into a separate agreement duly
executed by authorized representatives of the parties hereto.
(e) Excluded Information. Notwithstanding any provision herein to
--------------------
the contrary, the requirements of this Section 8.6 shall not apply to any
information of either party which:
(i) at the time of disclosure hereunder is generally available to
the public;
(ii) after disclosure hereunder becomes generally available to
the public, except through breach of this Section 8.6 by the receiving
party or its Advisors;
<PAGE>
(iii) was not acquired directly or indirectly from the
disclosing party or its Affiliates and which the receiving party
lawfully had in its possession prior to disclosure by the disclosing
party;
(iv) is independently developed by employees or agents of the
receiving party without the use of the Confidential Information of the
disclosing party; or
(v) becomes available to the receiving party from a third party
that is not legally prohibited from disclosing such Confidential
Information, provided such information was not acquired directly or
indirectly from the disclosing party or its Affiliates.
(f) Notification of Mandatory Disclosure.
------------------------------------
(i) Procedures. In the event that either party is required by
----------
applicable law or regulation or by judicial or administrative process
to disclose any part of the other party's Confidential Information,
such party shall (A) promptly notify the other party of each such
requirement and identify the documents so required thereby, so that
the other party may seek an appropriate protective order or other
remedy and/or waive compliance by the first party with the provisions
of this Section 8.6, (B) consult with the other party on the
advisability of taking legally available steps to resist or narrow the
scope of such requirement, (C) assist the other party in seeking a
protective order or equivalent, and (D) comply with any applicable
protective order or equivalent.
<PAGE>
(ii) Limitations. If, in the absence of such a protective order
-----------
or such a waiver by the other party of the provisions of this Section
8.6, the first party is nonetheless required by mandatory applicable
law to disclose any part of the other party's Confidential
Information, the first party may disclose such of the other party's
Confidential Information without liability under this Agreement,
except that the first party shall (i) furnish only that portion of the
other party's Confidential Information which is legally required and
(ii) use its best efforts to obtain an order or other reliable
assurances that confidential treatment will be accorded to the portion
of such Confidential Information so required to be disclosed.
(g) Publicity. Neither Buyer, Parent or any Parent's Affiliate will
---------
issue any press release or otherwise make any public statement or
advertisement with respect to this Agreement, the Transaction Agreements or
the transactions contemplated by this Agreement or the Transaction
Agreements without the prior written consent of Seller, and Seller will not
issue any press release or otherwise make any public statement with respect
to this Agreement or the Transaction Agreements without the prior written
consent of Buyer or Parent, provided, however, that either party shall be
entitled to make a public announcement of this Agreement after giving prior
written notice to the other party hereto, if, in the opinion of the
disclosing party's legal counsel, such announcement is required to comply
with applicable laws and provided to the extent practicable the other party
has received at least two (2) days' notice. Once consent is given by
Seller for a required disclosure in a filing made with the Securities and
Exchange Commission,
<PAGE>
Buyer may make additional disclosures in other filings made with the
Securities and Exchange Commission that do not materially differ therefrom
without any further consents, provided that the surrounding circumstances
have not changed.
(h) Return of Confidential Information. At any time upon the request
----------------------------------
of the other party, to the extent such Confidential Information is not
reasonably necessary to enable a party to perform its obligations under
this Agreement, the receiving party shall promptly return to the other
party or destroy the other party's Confidential Information, and shall
destroy all copies thereof, together with all notes, drawings, abstracts
and other information relating to the other party's Confidential
Information prepared by the receiving party or any of its Representatives,
regardless of the medium in which such information is stored; provided,
however, that the receiving party may maintain a single archival copy of
the other party's Confidential Information in its files for purposes of
establishing the extent of disclosures by the other party under this
Agreement. At either party's written request, such party's Confidential
Information that is otherwise required to be returned to it shall be
destroyed by the receiving party and such destruction shall be certified in
writing by an authorized officer of the receiving party. The return and/or
destruction of such Confidential Information as provided above shall not
relieve the receiving party of its other obligations under this Section
8.6.
8.7 Additional Material Contracts. Seller is presently negotiating
-----------------------------
arrangements whereby Seller may enter into contract manufacturing agreements
with certain third parties, either before or after the Closing Date. Certain of
these proposed contract manufacturing arrangements would be incidental to the
transfer of ownership rights in Seller
<PAGE>
products to the third parties in question. Buyer and Seller agree that, if
Seller enters into any contract manufacturing agreements, whether before or
after the Closing Date, the provisions of this Section 8.7 shall apply. If the
terms and conditions thereof are commercially reasonable to Buyer in its
reasonable discretion, Seller may, in its discretion, either subcontract or
assign such contract manufacturing agreements to Buyer and Buyer will assume the
same. Seller's present preference as to subcontracting or assigning certain of
such agreements is indicated in Section 8.7 of the Disclosure Schedule. If the
terms and conditions of any contract manufacturing agreement are not
commercially reasonable to Buyer in its sole discretion, Seller will subcontract
such agreements to Buyer and Buyer will assume the same; provided, however, that
(a) the terms of such subcontracting arrangements are not materially different
from the terms upon which Buyer has agreed to perform third party manufacturing
agreements included in Exhibit B to the Supply Agreement, (b) Buyer otherwise
would be required to produce the volumes of products thereunder in accordance
with the Supply Agreement, and (c) Seller shall pay to Buyer the applicable
"Conversion Charges" (as defined in the Supply Agreement) for any such products.
Buyer and Seller agree that, with respect to contract manufacturing agreements
entered into prior to the Closing Date, those agreements that are to be
subcontracted to Buyer shall be added to Section 2.3(1) of the Disclosure
Schedule and will be considered as Excluded Assets, and those agreements that
are to be assigned to Buyer shall be added to Section 1.1(a) and Section 4.11 of
the Disclosure Schedule and will be considered Material Contracts and Assumed
Contracts. Section 8.7 of the Disclosure Schedule summarizes the ongoing
negotiations with respect to these contract manufacturing agreements, as well as
other potential transactions that could result in the assignment or
subcontracting of contract manufacturing
<PAGE>
agreements to Buyer.
8.8 Unemployment Accounts. Seller agrees to cooperate with Buyer to
---------------------
facilitate Buyer's assumption of a proportionate amount of Seller's unemployment
experience rating with the North Carolina Employment Security Commission.
8.9 Asbestos. Notwithstanding any other provisions of this
--------
Agreement, Buyer will assume, as of the Effective Time, all responsibility for
the presence of any asbestos or asbestos-containing material in the
Improvements, Utilities, fixtures, equipment or other Tangible Personal
Property, whether such presence arose or existed before or after the Effective
Time and will release Seller from any and all claims with respect thereto;
provided, however, that Seller shall retain full responsibility for any
workplace asbestos exposure, to the extent that such exposure occurred prior to
the Effective Time, of certain persons as provided in Section 12.1(c) hereof.
At the Closing, Buyer will execute a general release in favor of Seller, in the
form attached hereto as Exhibit J (the "Asbestos Release"), to memorialize the
agreement and release described in this Section 8.9 and in Section 12.1(c). For
and in consideration of the foregoing release by Buyer and the assumption by
Buyer of the responsibility for asbestos as described in this Section, Seller
has agreed to reduce the Cash Purchase Price hereunder by the amount of
$6,400,000 (the "Asbestos Consideration").
8.10 Information Technology Matters. The parties have worked
------------------------------
together to create the "IT Transition Plan," which is attached hereto as
Schedule 15.3 to the Supply Agreement. The IT Transition Plan includes, among
other items, provisions regarding: (a) the transfer of Seller data and systems
from the Facility to Seller; and (b) provisions regarding the transfer of
responsibility for support of IT systems at the Facility from Seller to Buyer.
Each
<PAGE>
party agrees to perform the pre-Closing tasks assigned to it in the IT
Transition Plan. In addition, although the parties have reached agreement on the
current version of the IT Transition Plan, they acknowledge that it requires
refinement in several respects, and agree that it shall serve as a basis for a
more definitive and complete IT Transition Plan. The parties agree to work
together and agree in writing on a revised IT Transition Plan on or before
Closing, which will be deemed to supersede and replace the current IT Transition
Plan upon such agreement.
8.11 Maintenance of Representations and Warranties. Each of Seller
---------------------------------------------
and Buyer agrees that from the date of this Agreement to the Closing Date (it)
it will refrain from taking any action that would result in a breach of its
representations and warranties contained in Article IV (Buyer's Representations
and Warranties) or Article V (Seller's Representations and Warranties), as the
case may be, and (ii) in the event it learns of an occurrence giving rise to a
breach of any of its representations or warranties, it shall promptly notify the
other party.
8.12 Supply Agreement Charges. The parties acknowledge their mutual
------------------------
preference to establish conversion and materials charges under the Supply
Agreement at Seller's 1997 Product Standard Charges as reflected in Sections
5.1(a), 5.1(b) and 5.2 of Exhibit E hereto. The parties acknowledge, however,
that additional time is required to assess the appropriate conversion, materials
and other charges contained in Sections 5.1(a), 5.1(b) and 5.2 and Article XVIII
of Exhibit E. Seller agrees to provide to Buyer all information available to
Seller regarding the charges as reflected in Exhibit E, and Buyer agrees to use
reasonable efforts to evaluate and, if appropriate, agree to the provisions of
Section 5.1(a), 5.1(b) and 5.2 and Article XVIII as they are set forth in
Exhibit E. If Buyer cannot so agree, however, the parties agree to work together
to establish mutually acceptable conversion, materials and other charges
<PAGE>
under Sections 5.1 (a), 5.1(b), and 5.2 and Article XVIII. If the
parties have not reached agreement on these charges by the time all conditions
to Closing are satisfied or waived, (i) the parties shall proceed with the
Closing and (ii) the parties shall execute and deliver the Supply Agreement in
the form attached as Exhibit E at the Closing with only such changes as are
necessary and mutually agreed to reflect the provisions of the following
sentence. The parties shall continue to work together to establish mutually
acceptable charges as provided in this Section 8.12. If the parties have not
reached agreement on those charges by December 31, 1997, the conversion changes
for subsequent periods shall be based on 1996 Conversion Charges, declining over
time as agreed by the parties, until the parties establish mutually acceptable
conversion, materials and other charges under Sections 5.1(a), 5.1(b), 5.2 and
Article XVIII. The parties acknowledge that any alterations must have an impact
on Buyer, including the timing of cash flows, that is no less favorable than
contemplated if 1996 standards had been utilized with quarterly guaranteed
payments.
8.13 Warren Encroachment. The parties acknowledge that Mr. and Mrs.
-------------------
Warren, landowners adjoining the Owned Real Property, have constructed certain
structures that encroach on the Owned Real Property. Seller agrees that, prior
to the Closing Date, it will contact the Warrens to discuss the possibility of
quitclaiming or otherwise transferring to them the portion of the Owned Real
Property on which the encroachments exist. Buyer agrees to consent to such
transfer, the terms of which shall be mutually satisfactory to Buyer and Seller.
ARTICLE IX
CONDITIONS PRECEDENT TO BUYER'S AND PARENT'S OBLIGATIONS
<PAGE>
The obligations of each of Buyer and Parent to consummate its
obligations in connection with the transactions contemplated by this Agreement
are subject to the satisfaction of the following conditions on or before the
Closing Date, unless specifically waived in writing by Buyer or the Parent prior
to the Closing Date:
9.1 Representations and Warranties. The representations and
------------------------------
warranties of Seller contained in this Agreement shall have been true and
correct on the date of this Agreement and shall be true and correct in all
material respects on the Closing Date as though made on and as of the Closing
Date.
9.2 Compliance with Covenants. Seller shall have duly performed and
-------------------------
complied with in all material respects all covenants, agreements and obligations
required by this Agreement to be performed or complied with by it on or prior to
the Closing Date.
9.3 Absence of Litigation. No action or proceeding shall be pending
---------------------
by or before any Governmental Body seeking to restrain, prohibit or invalidate
the transactions contemplated by this Agreement.
9.4 Absence of Material Change. Between the date of this Agreement
--------------------------
and the Closing, no material adverse change shall have occurred in the condition
of the Purchased Assets or the Operation of the Facility.
9.5 Consents and Approvals and Permits. All (a) Required Consents
----------------------------------
shall have been obtained, or in the case of Required Consents that have not been
obtained, Seller shall have made arrangements reasonably acceptable to Buyer in
the exercise of its good faith business judgment, to provide to Buyer goods or
services and other benefits comparable to those that would have been provided by
the party whose consent was not obtained; (b) all other required or
<PAGE>
mandated orders or notifications of, or registrations, declarations or filings
with, or expiration of waiting periods imposed by, any applicable Governmental
Body in connection with the consummation of the transactions contemplated by of
this Agreement shall have been made or obtained or shall have occurred,
including without limitation the expiration or early termination of the waiting
period under the HSR Act; and (c) Buyer shall have been assigned or issued all
Permits described in Section 2.3(j) of the Disclosure Schedule and all
environmental permits and any other permits required by Buyer for the operation
of the Facility and performance of the Supply Agreements and Assumed Supply
Contracts, except any such Permits, other permits and environmental permits that
Buyer's failure to obtain will not cause a Material Adverse Effect; provided,
however, that if in Buyer's good faith business judgment any such Permits, other
permits or environmental permits could be obtained within 60 days, Buyer shall
have the option in its sole discretion to extend the Closing for up to 60 days
(but in no event beyond September 30, 1997) to allow Buyer to obtain them.
9.6 Title Insurance; Survey. Buyer shall have obtained at its own
-----------------------
expense a title insurance policy in form and with endorsement acceptable to
Buyer and Buyer's lenders in amount no less than $100,000,000 insuring good and
marketable title in fee simple absolute to all the Owned Real Property, free and
clear of all title defects, objections or Liens of any nature whatsoever, except
for Liens described in Section 2.4(a) of this Agreement. Correct surveys,
reasonably acceptable to Buyer and Buyer's lenders, shall have been certified to
Buyer at Buyer's own expense showing the boundaries of and the location of the
Owned Real Property and the locations of all Improvements, showing no
encroachment by the Improvements on property of others.
<PAGE>
9.7 Removal of Liens. All Liens described in Section 4.6 of the
----------------
Disclosure Schedule and any other Lien that is not a Permitted Lien shall have
been removed, and Seller shall have provided to Buyer evidence of such removal.
9.8 Financing. Buyer shall have obtained the necessary financing to
---------
fund the Cash Purchase Price.
9.9 Legal Opinion. Buyer shall have received the legal opinion of
-------------
Seller's counsel in a form to be agreed upon by the parties.
9.10 Physical Condition of Purchased Assets. The physical condition
--------------------------------------
of the Purchased Assets shall be substantially the same on the Closing Date as
on the date of Buyer's execution of this Agreement, reasonable wear and tear and
(subject to the provisions of Section 14.3 below) loss by casualty or
condemnation excepted.
9.11 Litigation. As of the Closing, there shall be no litigation or
----------
administrative agency or other governmental proceeding, pending or, to the Best
Knowledge of Buyer, threatened, which after Closing would materially adversely
affect the ownership, use or value of the Purchased Assets or the ability of
Buyer to operate the Facility as presently operated or to perform its
obligations under the Supply Agreement.
9.12 Transaction Agreements. Buyer and Seller shall have entered into
----------------------
all of the Transaction Agreements.
ARTICLE X
CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS
<PAGE>
The obligations of Seller to consummate the transaction contemplated
by this Agreement are subject to the satisfaction of each of the following
conditions on or before the Closing Date, unless specifically waived in writing
by Seller prior to the Closing:
10.1 Representations and Warranties. The representations and
------------------------------
warranties of Buyer and Parent contained in this Agreement shall have been true
and correct on the date of this Agreement, and shall be true and correct in all
material respects on the Closing Date as though made on and as of the Closing
Date.
10.2 Compliance with Covenants. Buyer and Parent shall have duly
-------------------------
performed and complied with in all material respects all covenants, agreements
and obligations required by this Agreement to be performed or complied with by
them on or before the Closing Date.
10.3 Absence of Litigation. No action or proceeding shall be pending
---------------------
by or before any Governmental Body seeking to restrain, prohibit or invalidate
the transactions contemplated by this Agreement.
10.4 Consents and Approvals. All (a) Required Consents and (b) other
----------------------
required or mandated orders or notifications of, or registrations, declarations
or filings with, or expiration of waiting periods imposed by, any applicable
Governmental Body in connection with the consummation of the transactions
contemplated by of this Agreement shall have been made or obtained or shall have
occurred, including without limitation the expiration or early termination of
the waiting period under the HSR Act.
10.5 Legal Opinion. Seller shall have received the legal opinion of
-------------
Buyer's and Parent's counsel in a form to be agreed upon by the parties.
10.6 Transaction Agreements. Seller and Buyer shall have entered
----------------------
into all of
<PAGE>
the Transaction Agreements.
10.7 Insurance Coverages. Buyer shall have delivered evidence to
-------------------
Seller that Buyer (i) has obtained all insurance coverages required to be
maintained by Buyer pursuant to the Supply Agreement; (ii) has named Seller as
an additional insured party under the product liability insurance required
thereunder; and (iii) has waived all subrogation rights under such policies.
ARTICLE XI
CLOSING
11.1 Closing. The Closing shall take place at the offices of
-------
Womble Carlyle Sandridge & Rice in Research Triangle Park, North Carolina (or
such other place as the parties may mutually agree) at 10:00 a.m., local time,
on July 31, 1997, or such other date as may be mutually agreed upon in writing
by the parties hereto; provided, however, that (a) if one or more conditions to
this Agreement is not satisfied by such date, the party benefitting from such
condition may elect, in its sole discretion, one or more postponements of the
Closing for the purpose of enabling such condition to be satisfied; and (b)
notwithstanding the provisions of the preceding subparagraph (a), in no event
may the Closing be postponed beyond September 30, 1997. The Closing when
completed shall be deemed to have occurred at the Effective Time. If the Closing
takes place on the last day of a month, the Effective Time shall be 11:59 p.m.
that day. If the Closing takes place on a day other than the last day of a
month, such day shall be a Monday, and the Effective Time shall be 12:01 a.m.
that day.
11.2 Deliveries by Seller. At the Closing, Seller shall deliver or
--------------------
cause to be
<PAGE>
delivered to Buyer the following:
(a) A certificate of an officer of Seller confirming the satisfaction
of the conditions set forth in Sections 9.1, 9.2, 9.3, 9.4, 9.5 (as to
Required Consents), 9.7, 9.10 and 9.11 hereof.
(b) A copy of all corporate resolutions authorizing the execution,
delivery and performance of this Agreement and the Transaction Agreements,
and the consummation of the transactions contemplated herein and therein,
accompanied by the certification of the Secretary or an Assistant Secretary
of Seller to the effect that such resolutions are in full force and effect
and have not been amended, modified or rescinded.
(c) Evidence of the removal of Liens, as described in Section 9.7.
(d) Evidence that all Required Consents have been obtained or
satisfied.
(e) A special warranty deed and a quitclaim deed in substantially the
forms attached hereto as Exhibit K transferring fee simple title to the
Owned Real Property.
(f) Certificates of title, duly endorsed for transfer and including
odometer readings, with respect to all titled motor vehicles included in
the Purchased Assets.
(g) Bills of Sale and Assignment and other such documents as may be
legally required to convey and vest in Buyer all of Seller's right, title
and interest in and to all of the remaining Purchased Assets, in
substantially the form attached hereto as Exhibit L.
(h) The legal opinion of Seller's counsel referred to in Section 9.9.
(i) A Certificate from the Secretary of State or other appropriate
government official of the State of North Carolina indicating that, as of
five business days prior to the Closing Date, there are no filings against
Seller in the office of the Secretary of State or
<PAGE>
other government official under the Uniform Commercial Code of the State of
North Carolina which would be a Lien on any Purchased Assets, other than
any filings which are released as of the Closing.
(j) To the extent held by or under the control of Seller (a) the
originals of the building permits and certificates of occupancy for the
Improvements; and (b) the operating manuals, guaranties and warranties for
the Tangible Personal Property.
(k) An Affidavit, duly executed by Seller, attesting that Seller is
not a "foreign person" within the meaning of Section 1445(e)(3) of the Code
and is not subject to withholding under any state or U.S. tax law, in form
reasonably acceptable to Buyer.
(l) A closing statement in form and content satisfactory to Buyer and
Seller indicating the prorations for costs and expenses as described in
Section 3.8.
(m) The Asbestos Release, which is delivered in exchange for the
Asbestos Consideration.
(n) Such other documents as are reasonably requested by Buyer's
lenders to complete the debt financing and by the title insurance company
in connection with issuing the policy referred to in Section 9.6, so long
as such documents are customary in transactions of this nature and are
consistent with the terms of this Agreement and the Transaction Agreements,
and so long as execution and delivery of the same by Seller do not involve
unreasonable expense or actions on the part of Seller.
11.3 Deliveries by Buyer and Parent. At the Closing, Buyer and
------------------------------
Parent shall deliver or cause to be delivered to Seller the following:
<PAGE>
(a) A certificate of an officer of each of Buyer and Parent confirming
the satisfaction of the conditions set forth in Sections 10.1, 10.2 and
10.3 hereof.
(b) A copy of all corporate resolutions of Buyer and Parent
authorizing the execution, delivery and performance of the Buyer
Transaction Agreements, and the consummation of the transactions
contemplated herein and therein, accompanied by the certification of the
Secretary or Assistant Secretary of the corporation adopting the same to
the effect that such resolutions are in full force and effect and have not
been amended, modified or rescinded.
(c) An Instrument of Assumption of the liabilities to be assumed by
Buyer pursuant to Section 2.4, in substantially the form attached hereto as
Exhibit M.
(d) The Cash Purchase Price, evidenced by a wire transfer of
immediately available funds from Buyer.
(e) 250,000 shares of Buyer Preferred Stock of Buyer, as described in
Section 3.3.
(f) The legal opinion of Buyer's counsel referred to in Section 10.5.
(g) The Asbestos Release, which is delivered in exchange for Asbestos
Consideration.
(h) Insurance certificates showing compliance with Section 10.7.
(i) The Warrants.
(j) Documents evidencing the restrictive covenants for the Prohibited
Areas, as described in Section 8.2(c)(1) of this Agreement.
11.4 Deliveries by Seller and Buyer. Each of Seller and Buyer shall
------------------------------
execute
<PAGE>
and deliver, or cause to be executed and delivered, to the other the following:
(a) The Supply Agreement.
(b) Joint instructions to the Escrow Agent for the release of the
Escrow Amount to Seller, to be applied to the Cash Purchase Price.
(c) Evidence of expiration or early termination of the waiting period
under the HSR Act.
(d) The License Agreement.
(e) The Environmental Agreement.
(f) The Memorandum of Understanding.
(g) The Personnel Files Transfer Agreement.
(h) The Medical Records Transfer Agreement.
11.5 Further Assurances. Seller shall, at any time on or after the
------------------
Closing Date, take any and all steps reasonably requested by Buyer to place
Buyer in possession, ownership and operating control of the Purchased Assets and
the Facility, and will do, execute, acknowledge and deliver all such further
acts, deeds and instruments as may be required for the more effective transfer
to and reduction to possession of Buyer, or its successors or assigns, of any of
the Purchased Assets.
ARTICLE XII
INDEMNIFICATION
12.1 Indemnification by Seller. Seller shall indemnify, defend and
-------------------------
hold harmless Buyer, Parent and Parent's Affiliates and their respective
officers, directors and
<PAGE>
employees (the "Buyer Indemnitees") from, against, and with respect to any and
all losses, damages, claims, obligations, suits, judgments, fines, liabilities,
costs and expenses (including without limitation reasonable attorneys' fees and
costs and expenses incurred in investigating, preparing, defending against or
prosecuting any litigation, claim, proceeding or demand), of any kind or
character (a "Loss") to the extent such Loss arises out of or in connection with
any of the following:
(a) any breach of any of the representations or warranties of Seller
contained in this Agreement;
(b) any failure by Seller to perform or observe, or to have performed
or observed, any covenant, agreement or condition to be performed or
observed by it pursuant to this Agreement;
(c) any adverse health effect, reproductive effect or bodily injury
(i) to any person engaged in the Operation of the Facility on the Owned
Real Property or engaged in any other activity conducted on the Owned Real
Property prior to the Effective Time (including, without limitation, full
time employees, temporary employees, or independent contractors of Seller
or Seller's Affiliates, agents or contractors, whether or not manifested at
the Effective Time, as a consequence of the exposure of such person (a) on
or before the Effective Time to asbestos (including, without limitation,
asbestos and asbestos-containing material which is Buyer's responsibility
under Section 8.9), a Hazardous Material or Pre-Existing Environmental
Condition located on the Purchased Assets or (b) on or before the Effective
Time to a product, or any material used to produce a product, stored, used,
consumed or manufactured at the Facility; or (ii) to any
<PAGE>
person retained or used by Seller or Seller's Affiliates, agents or
contractors following the Effective Time to conduct Remedial Activity or
discharge Seller's Environmental Indemnity Obligations on the Owned Real
Property as a consequence of the exposure of such person to the
Environmental Condition that such person is engaged in remediating;
(d) any product liability claim or intellectual property claim arising
from the Purchased Inventories;
(e) any severance pay, WARN Act liability or damages, discrimination
or other employee related claims or damages to the extent that they arise
from Seller's actions prior to, on or after the Closing Date, except to the
extent Buyer has indemnified Seller for such actions pursuant to Section
12.2;
(f) any Excluded Liability; or
(g) any failure to comply with the bulk sales laws of any jurisdiction
in connection with the sale of the Purchased Assets hereunder.
12.2 Indemnification by Buyer and Parent. Buyer and Parent, jointly
-----------------------------------
and severally, shall indemnify, defend and hold harmless Seller and Seller's
Affiliates and their respective officers, directors and employees (the "Seller
Indemnitees") from, against and with respect to any Loss to the extent such Loss
arises out of or in connection with any of the following:
(a) any breach of any of the representations and warranties of Buyer
or Parent contained in this Agreement;
(b) any failure by Buyer or Parent to perform or observe, or to have
performed or observed any covenant, agreement or condition to be performed
or observed by it
<PAGE>
pursuant to this Agreement;
(c) any adverse health effect, reproductive effect or bodily injury,
whether or not manifested at the Effective Time, to any person (including,
without limitation, full time employees, temporary employees or independent
contractors of Buyer or Buyer's Affiliates, agents or contractors, without
regard to whether such person was previously employed by Seller as a full
time, temporary employee or independent contractor) engaged in the
operation of the Facility by Buyer or any other activity conducted on the
Owned Real Property after the Effective Time, as a consequence of the
exposure of such person after the Effective Time to (i) asbestos, a
Hazardous Material or any Environmental Condition on the Owned Real
Property or (ii) a product, or any material used to produce a product
stored, used, consumed or manufactured at the Facility by Buyer; and
provided, however, that this Section 12.2(c) shall also not cover any
adverse health effect, reproductive effect or bodily injury to any person
to the extent that such effect or injury is described in Section
12.1(c)(ii) above;
(d) failure of Buyer to perform the obligations under the Assumed
Liabilities;
(e) any alleged or actual use by Buyer of information provided by
Seller, Seller's employees or Seller's records (including the personnel
files transferred pursuant to the Personnel Files Transfer Agreement), or
Buyer's involvement of Seller, Seller's employees or Seller's records
(including the personnel files transferred pursuant to the Personnel Files
Transfer Agreement), in the process of making decisions regarding the
organizational structure of Buyer's operations at the Facility, the number
of employees to be employed by Buyer at the Facility, the identity of
persons to be made offers of
<PAGE>
employment by Buyer, the terms and conditions of employment to be offered
by Buyer to the New Employees or Buyer's employment policies, procedures or
practices applicable to New Employees; provided, however, that Buyer shall
be relieved of its obligations under this subsection (e) to the extent that
Buyer relied on information in such records that was false or was
incomplete in any material respect so as to make such records misleading;
(f) any alleged or actual involvement of Seller, at Buyer's request,
in any communication made by Buyer to Greenville Employees or New
Employees, or any alleged or actual direct communication by Seller, at
Buyer's request, to Greenville Employees or New Employees; provided that
Seller's communications are not materially inconsistent with those
communications of Buyer that are known to Seller;
(g) any submission, disclosure or transfer requested by Buyer of
personnel records, medical records or other employment-related or health-
related information to Buyer about any Greenville Employee;
(h) any severance pay, WARN Act liability or damages, discrimination,
labor law or other employee related claims or damages to the extent that
they arise from Buyer's actions prior to, on, or after the Closing Date
with respect to New Employees; or
(i) except to the extent Buyer would be entitled to indemnity from
Seller under this Agreement and the Environmental Agreement or be excused
from indemnifying Seller pursuant to Section XXI of the Supply Agreement,
Buyer's operation of the Facility and ownership of the Purchased Assets
after the Effective Time.
12.3 Notice of Claim. Any party seeking to be indemnified under this
---------------
<PAGE>
Agreement (the "Indemnified Party") shall, reasonably promptly following
discovery of the matters giving rise to a Loss or Environmental Claim (and in
any event no later than ten days following discovery of matters as provided in
Section 8.2(j) which may give rise to an Environmental Claim or a Loss covered
by Section 12.1(c) or 12.2(c) hereof, notify the party from whom indemnity is
sought (the "Indemnity Obligor") in writing of any Loss or Environmental Claim,
specifying in reasonable detail the nature of the Loss or Environmental Claim
and, to the extent possible, the amount of the liability estimated to arise
therefrom. If the Indemnified Party does not so notify the Indemnity Obligor
within the time period specified above of its discovery of a claim for recovery,
such delay shall not relieve the Indemnity Obligor of its obligations hereunder
except to the extent that the Indemnity Obligor is prejudiced by such delay.
The Indemnified Party shall provide to the Indemnity Obligor as promptly as
practicable thereafter all unprivileged information and documentation reasonably
requested by the Indemnity Obligor to verify the claim asserted.
12.4 Defense.
-------
(a) Third Party Claims. If the facts pertaining to a Loss or
------------------
Environmental Claim arise out of the claim of any Governmental Body or
other third party (a "Third Party Claim"), the Indemnity Obligor shall
assume the defense or the prosecution thereof, including the employment of
counsel or accountants at its cost and expense; provided, however, that
during the interim the Indemnified Party shall use its best efforts to take
all action (not including Obligatory Remediation or settlement) reasonably
necessary to protect against further damage or loss with respect to the
Loss or Environmental Claim and all costs reasonably incurred by the
Indemnified Party shall be reimbursed to the
<PAGE>
Indemnified Party by the Indemnity Obligor not more frequently than
quarterly; provided, however, that the Indemnity Obligor shall be relieved
of its obligations hereunder on account of the Indemnified Party's failure
to take such action only to the extent of any prejudice caused thereby. The
Indemnified Party shall have the right to employ counsel separate from
counsel employed by the Indemnity Obligor in any such action and to
participate therein, but the fees and expenses of such counsel shall be at
the Indemnified Party's own expense. All the parties hereto shall cooperate
in the defense or prosecution thereof and shall furnish such unprivileged
records, information and testimony and shall attend such conferences,
discovery proceedings and trials as may be reasonably requested in
connection therewith. The Indemnity Obligor shall not be liable for any
settlement of any such claim effected without its prior written consent. In
the event of payment by the Indemnity Obligor to the Indemnified Party in
connection with any Loss or Environmental Claim arising out of a Third
Party Claim, the Indemnity Obligor shall be subrogated to and shall stand
in the place of the Indemnified Party as to any events or circumstances in
respect of which the Indemnified Party may have any right or claim against
such third party (other than a parent, affiliate or subsidiary of the
Indemnified Party) relating to such indemnified matter. The Indemnified
Party shall reasonably cooperate with the Indemnity Obligor in prosecuting
any subrogated claim, provided that the Indemnity Obligor shall reimburse
the Indemnified Party for out-of-pocket costs necessarily incurred in
connection with such cooperation.
(b) Indemnitee's Right to Assume Defense. Notwithstanding the
------------------------------------
foregoing, the Indemnitee may elect to defend itself from any Third Party
Claim or to take any other
<PAGE>
action which would be required to discharge an indemnification obligation
of its Indemnitor hereunder, if (i) the Loss or Environmental Claim (or the
resolution thereof) involves performance (other than the mere payment of
money), and (ii) in the case of Loss or Environmental Claim retained by the
Buyer, Parent or their successors or assigns, as the indemnitee, the Loss
or Environmental Claim is not for performance of the Seller's obligations
under the Environmental Agreement or the Memorandum of Understanding, and
(iii) in the case of Losses or Environmental Claims retained by the Seller,
or its successors or assigns, as the Indemnitee, the Claim is for
performance of the Seller's obligations under the Environmental Agreement
or the Memorandum of Understanding. Notwithstanding the foregoing, it is
expressly agreed that in the event of any Third Party Claim by an employee
of the Indemnitee at the time of the Claim, the Indemnitee, shall have the
absolute right to elect to defend itself from such Claim.
In either of the foregoing cases where the Indemnitee may elect to
defend itself, the Indemnitee may employ its own counsel, and defend, pay,
and/or settle such Third Party Claim on terms and conditions acceptable to
the Indemnitee in its sole discretion and the cost reasonably incurred by
the Indemnitee in taking such action shall be reimbursed by the Indemnitor
to the Indemnitee upon demand; provided, however, that the amount of the
fees and expenses of counsel incurred by the Indemnitee or the amount of
any other payment, defense or settlement by the Indemnitee shall not be
determinative of the liability of the Indemnitor to the Indemnitee pursuant
to this Agreement, and said liability of the Indemnitor shall be limited to
the reasonable amount that the Indemnitor would have incurred to discharge
its indemnity obligations with respect to the matters
<PAGE>
addressed by the Indemnitee, if the Indemnitor had acted to discharge such
obligations in accordance with the terms of this Agreement.
(c) Indemnitor's Failure to Assume Defense of Third Party Claim. If
-----------------------------------------------------------
the Indemnitor does not timely accept the tender of a Third Party Claim
covered by its indemnity obligations and tendered to it pursuant to the
foregoing, the Indemnitee may take such action (including any Remedial
Activity) to discharge, defend or settle such Third Party Claim as it deems
appropriate and, upon demand, the Indemnitor shall discharge, for the
benefit of the Indemnitee, the amount of any settlement of, or judgment
entered on, the Third Party Claim, and shall reimburse the Indemnitee for
all attorneys' fees and other costs and expenses incurred by the Indemnitee
with respect to the Third Party Claim.
(d) Statutes of Limitations. In any instance in which the Indemnitee
-----------------------
defends any Third Party Claim, it shall assert as a defense any applicable
statutes of limitation or statutes of repose respecting such Third Party
Claim, and the Indemnity Obligor shall be relieved of its indemnity
obligations hereunder to the extent that it is prejudiced by the
Indemnitee's failure to assert such defense.
12.5 Time for Claims. Any claim asserted with respect to the items
---------------
enumerated in Sections 12.1 or 12.2 must be submitted to the Indemnity Obligor
in writing, or invoked in official proceedings, within two years after the
Closing Date, except for claims resulting: (a) from a breach of Seller's
representations and warranties concerning title to the assets as set forth in
Section 4.6, which may be made at any time prior to the fifth anniversary of the
Closing Date; (b) from any Taxes of Seller which are Excluded Liabilities, which
may be made at any time
<PAGE>
within the statutes of limitations applicable to such claims; (c) from a product
liability claim arising from the Purchased Inventories under Section 12.1(d) or
from Section 12.1(c) or (f), or Section 12.2(c), (d) or (i) which may be made at
any time; (d) from an intellectual property claim arising from the Purchased
Inventories under Section 12.1(d) or from Section 12.1(e) or Section 12.2(e),
(f), (g) or (h), which may be made prior to the fifth anniversary of the Closing
Date; (e) from the representations and warranties contained in Section 4.2 and
Section 5.2 with respect to the authority of the parties and the enforceability
of this Agreement and the Transaction Agreements which may be made at any time;
and (f) from any claim under Section 12.1(b) or 12.2(b) with respect to a
covenant, agreement or condition required to be performed by a party following
the Closing Date, which may be made at any time that such performance is
required. If the matters giving rise to the claim occur prior to the end of the
time limits specified above, and if a notice of the claim is presented within
such time limits, then the Indemnity Obligor shall be entitled to recover any
Losses (whenever incurred) related to such claim.
12.6 Limitation.
----------
(a) Notwithstanding the provisions of Section 12.1, and subject to
Section 12.12 below, Seller shall not have any indemnification obligation
under this Agreement unless and until the aggregate amount of the Losses of
the Indemnified Party exceeds $1,000,000 in the aggregate, whereupon Seller
shall be liable to indemnify the Indemnified Party for all of such Losses.
(b) Notwithstanding the provisions of Section 12.2, and subject to
Section 12.12 below, Buyer shall not have any indemnification obligation
under Sections 12.2(a)
<PAGE>
or (b) of this Agreement unless and until the aggregate amount of the
Losses of the Indemnified Party exceeds $1,000,000 in the aggregate,
whereupon Buyer shall be liable to indemnify the Indemnified Party for all
such Losses.
12.7 Reduction by Insurance Proceeds. The amount payable by an
-------------------------------
Indemnity Obligor to an Indemnified Party with respect to a Loss shall be
reduced by the amount of any insurance proceeds actually received by the
Indemnified Party with respect to the Loss, and each of the parties hereby
agrees to use its reasonable commercial efforts to collect any and all insurance
proceeds to which it may be entitled in respect of any Loss; provided, however,
that insurance proceeds need not be collected prior to submission and payment of
a claim by the Indemnity Obligor for such Loss. Each party further agrees that
in the event of payment of insurance proceeds, the Indemnified Party who
receives such insurance proceeds shall promptly notify the Indemnity Obligor,
and, if the Indemnity Obligor has made a payment for a Loss, then the
Indemnified Party shall promptly remit to the Indemnity Obligor the amount of
insurance proceeds.
12.8 Maximum Indemnity Amount.
------------------------
(a) Subject to Section 12.12 below, in no event shall the amount for
which Seller shall be liable as an Indemnity Obligor hereunder exceed
$200,000,000.
(b) Subject to Section 12.12 below, in no event shall the amount for
which Buyer shall be liable as an Indemnity Obligor hereunder exceed
$200,000,000.
12.9 Known Matters. Seller shall not be required to indemnify any
-------------
Buyer Indemnitee for any Loss resulting from the breach of a representation or
warranty of Seller set forth in the first sentence of Section 4.9, the first two
sentences of Section 4.14 or the first two
<PAGE>
sentences of Section 4.22(c) if Seller proves that a Buyer Indemnitee knew and
Seller did not know at the time of Closing of the existence of the facts or
circumstances giving rise to such breach. The knowledge of any Buyer Indemnitee
as to any other matter shall not be a defense to a claim for indemnity by any
Buyer Indemnitee.
12.10 Exclusive Remedy. Except as expressly described in this
----------------
Agreement and the Transaction Agreements, neither Buyer or any Buyer Indemnitee
nor Seller or any Seller Indemnitee shall have any remedies (statutory,
equitable, common law or other) against the other with respect to any Loss or
Environmental Claim, including, without limitation, any right of recovery
against any other party for any Environmental Claim under any Environmental Law,
including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act and the North Carolina Air Pollution and
Hazardous Substances Control Act.
12.11 Indemnities Related to Purchased Inventories. In the event
--------------------------------------------
that Buyer brings an indemnification claim for breach of Seller's
representations in Section 4.10 with respect to the period of time in which
items included in the Purchased Inventories (including, without limitation,
those items listed on Section 4.10 of the Disclosure Schedule) are useable or
saleable, Buyer's sole remedy shall be as follows: Seller shall refund to Buyer
the amount of the Purchase Price paid by Buyer for such Purchased Inventories.
Seller may direct Buyer to ship such Purchased Inventories to Seller or a Seller
Affiliate, to hold the Purchased Inventories on behalf of Seller for future use,
or destroy the Purchased Inventories, in each case at Seller's cost. If Seller
directs destruction of a portion of the Purchased Inventories, Seller shall
reimburse the Buyer's actual out-of-pocket cost of the lawful destruction.
12.12 Exceptions.
----------
<PAGE>
(a) The limitations set forth in Section 12.6 and 12.8 shall not apply
to any claims of any Buyer Indemnitee arising out of the following: (i) any
Excluded Liability; (ii) any severance pay or WARN Act liability or
damages, to the extent they arise from Seller's actions prior to, on or
after the Closing Date; (iii) any product liability claim arising from the
Purchased Inventories; (iv) any matter described in Section 12.1(c); or (v)
any matter described in subpart (iv) of the definition of Environmental
Claim.
(b) The limitations set forth in Sections 12.6 and 12.8 shall not
apply to any claims of any Seller Indemnitee arising out of the following:
(i) any failure of Buyer to perform the obligations under the Assumed
Liabilities; (ii) any severance pay or WARN Act liability or damages, to
the extent that they arise from Buyer's actions prior to, on or after the
Closing Date with respect to New Employees; (iii) except to the extent
Buyer would be entitled to indemnity from Seller under this Agreement and
the Environmental Agreement or be excused from indemnifying Seller pursuant
to Article XXI of the Supply Agreement, Buyer's Operation of the Facility
and ownership of the Purchased Assets after the Effective Time; (iv) any
matter described in Section 12.2(c); or (v) any matter described in subpart
(iv) of the definition of Environmental Claim.
ARTICLE XIII
TERMINATION
13.1 Termination. This Agreement may be terminated at any time prior
-----------
to the Closing:
<PAGE>
(a) By the mutual written consent of Seller and Buyer;
(b) By Seller, if Buyer shall (i) breach any of its covenants
contained in Article VII entitled "Covenants of Buyer and Seller" or
Article VIII entitled "Mutual Covenants," or (ii) breach of any of its
obligations contained in Section 8.1, 8.3, 8.6, 8.10 or 8.11, which breach
or failure is not cured within ten days after Seller has notified Buyer of
its intent to terminate this Agreement pursuant to this subparagraph;
(c) By Buyer, if Seller shall (i) breach any of its covenants
contained in Article VI entitled "Covenants of Seller," Article VII
entitled "Covenants of Buyer and Seller," or Article VIII entitled "Mutual
Covenants," or (ii) breach of any of its obligations contained in Section
8.1, 8.3, 8.6, 8.10 or 8.11, which breach or failure is not cured within
ten days after Buyer has notified Seller of its intent to terminate this
Agreement pursuant to this subparagraph;
(d) By either Seller or Buyer, if there shall be any order, writ,
injunction or decree of any Governmental Body binding on Seller or Buyer
which prohibits or restrains Seller or Buyer from consummating the
transactions contemplated hereby; or
(e) By either Seller or Buyer, if the Closing has not occurred by
September 30, 1997, for any reason other than delay or nonperformance of
the party seeking such termination.
13.2 Effect on Obligations. Termination of this Agreement
---------------------
pursuant to this Article shall terminate all obligation of the parties
hereunder, except for the obligations under Sections 14.5 (with respect to
expenses) and 14.6 (with respect to publicity); provided, however, that
termination pursuant to subparagraphs (b) or (c) of Section 13.1 shall not
relieve the
<PAGE>
defaulting or breaching party from any liability to the other party hereto; and
provided, further, that the parties' obligations under Section 8.5 of this
Agreement shall survive any such termination. The effect of termination of the
Agreement on the Escrow Amount shall be as provided in the Escrow Agreement.
ARTICLE XIV
MISCELLANEOUS
14.1 Survival of Representations. All representations and
---------------------------
warranties of the parties hereto contained in this Agreement shall survive the
Closing, and any claim made with respect to such representations and warranties
must be made within the period described in Section 12.5 of this Agreement, or
be forever barred.
14.2 Bulk Sales. Buyer acknowledges that Seller will not comply
----------
with the provisions of any bulk sales laws of any jurisdiction in connection
with the sale of the Purchased Assets hereunder.
14.3 Risk of Loss.
------------
(a) Material. In the event of any casualty loss, damage or
--------
destruction of the Purchased Assets which is of such a magnitude that, were
it not remedied, it would prevent Buyer from producing Products with
"Conversion Charges" that would be equivalent to five percent or more of
the "Guaranteed Revenues" (each as defined in the Supply Agreement) for the
period consisting of the first six months following the anticipated Closing
Date, the parties agree that (i) they will attempt in good faith to
renegotiate for a period of 15 days following the occurrence of the
casualty loss to
<PAGE>
renegotiate this Agreement and the Supply Agreement to reflect new terms
that are mutually acceptable to the parties in light of the casualty loss
and (ii) if they are unable to reach mutually acceptable new terms within
such 15-day period, any party may, at its option, terminate this Agreement.
(b) Not Material. In the event of any casualty loss, damage or
------------
destruction of the Purchased Assets which does not meet the description set
forth in Section 14.3(a) above, then (i) the parties shall proceed to close
under this Agreement; (ii) Buyer shall undertake the repair, restoration
and replacement of any damaged Purchased Assets after the Closing Date in
as prompt a manner as is practicable; (iii) Seller shall assign to Buyer
the right to receive all insurance proceeds payable in connection with such
damage and reimburse Buyer for any costs of such repair, restoration or
replacement not covered by such proceeds; (iv) the "Guaranteed Revenues"
shall be reduced by an amount equal to 40% of the "Conversion Charges"
(each as defined in the Supply Agreement) that would have been payable by
Seller under the Supply Agreement for Products, if any, that Buyer is
prevented from producing as a result of the casualty loss or damage; and
(v) the parties shall make such other adjustments to the terms of the
Supply Agreement as are appropriate to reflect the occurrence of the
casualty loss or damage.
14.4 Tax Filings. Each of the parties acknowledges its understanding
-----------
of the requirement under Section 1060 of the Code for the filing by each of Form
8594 for their respective tax years in which the Closing occurs. Each of Seller
and Buyer agrees to timely file all forms and information required by said
Section 1060 and the regulations promulgated thereunder, and to show the
allocation of the Purchase Price among the Purchased Assets in
<PAGE>
accordance with the Exhibit described in Section 3.7. In the event that Buyer is
required by any taxing authority to make any changes in the amounts so
allocated, it shall within 30 days following its agreement to such adjustment
notify Seller of the adjustment.
14.5 Expenses. Each party will pay its own direct costs and
--------
expenses, including the fees of attorneys, accountants, brokers and other
advisors, incurred in connection with the negotiation and consummation of this
Agreement and the transactions contemplated hereby. Seller will pay all sales,
use and transfer taxes (including excise or transfer taxes on the transfer of
the Owned Real Property) arising in North Carolina. Buyer will pay all
recording, filing, title and registration fees in connection with the Closing,
as well as its filing fees under the HSR Act and transfer taxes arising outside
of North Carolina.
14.6 Publicity. No public announcement of the parties' negotiations,
---------
the signing of this Agreement or any of the terms, conditions or other aspects
of the transactions proposed in this Agreement shall be made by either party
without the prior written consent of the other; provided, however, that either
party shall be entitled to make a public announcement of the proposed
transaction after giving prior written notice to the other party hereto, if, in
the opinion of the disclosing party's legal counsel, such announcement is
required to comply with applicable laws and provided to the extent practicable
the other party has received at least two days' notice.
14.7 Notices. All notices, demands and other communications made
-------
hereunder shall be in writing and shall be given either by personal delivery, by
nationally recognized overnight courier (with charges prepaid) or by facsimile
transmission (with telephone confirmation), and shall be deemed to have been
given or made if personally delivered, on the day of such personal delivery; if
sent by overnight courier, on the next business day following
<PAGE>
the date deposited with such overnight courier service; or if by facsimile
transmission, on the business day transmitted to receiving facsimile machine
with receipt confirmed by telephone, in each case addressed to the respective
parties at the following addresses (or such other address for a party as shall
be specified by like notice):
If to the Seller:
Glaxo Wellcome Inc.
Five Moore Drive
Research Triangle Park, North Carolina 27709
Attention: Richard J. Wallace, Vice President, Business
Development
Telephone: (919) 483-7430
Facsimile: (919) 483-0768
With a copy (which shall not constitute notice) to:
Glaxo Wellcome Inc.
Five Moore Drive
Research Triangle Park, North Carolina 27709
Attention: General Counsel
Telephone: (919) 483-2106
Facsimile: (919) 315-0478
If to Buyer:
Catalytica Pharmaceuticals, Inc.
430 Ferguson Drive
Mountain View, California 94043
Attention: Chief Executive Officer and Chief Financial Officer
Telephone: (415) 960-3000
Facsimile: (415) 968-8754
Catalytica Pharmaceuticals, Inc.
Intersection of U.S. 13/N.C. 11 and Hwy. 264
Greenville, NC 27834
Attention: President
Telephone: (919) 758-3436
Facsimile: (919) 707-7050
With a copy (which shall not constitute notice) to:
<PAGE>
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Barry E. Taylor, Esq.
Telephone: (415) 493-9300
Facsimile: (415) 496-4092
If to Parent:
Catalytica, Inc.
430 Ferguson Drive
Mountain View, California 94043
Attention: Chief Executive Officer and Chief Financial Officer
Telephone: (415) 960-3000
Facsimile: (415) 968-8754
With a copy (which shall not constitute notice) to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Barry E. Taylor, Esq.
Telephone: (415) 493-9300
Facsimile: (415) 496-4092
14.8 Governing Law. This agreement is entered into in the State of
-------------
North Carolina and shall be governed by the laws of the State of North Carolina
applicable to agreements made and to be performed entirely within the State of
North Carolina.
14.9 Jurisdiction. Any action or proceeding seeking to enforce any
------------
provision of, or based on any right arising out of, this Agreement may be
brought against any of the parties in the courts of the State of North Carolina,
County of Wake, or, if it has or can acquire jurisdiction, in the United States
District Court for the Middle District of North Carolina, and each of the
parties consents to the jurisdiction of such courts (and of the appropriate
appellate courts) in any such action or proceeding and waives any objection to
venue laid therein. Process
<PAGE>
in any action or proceeding referred to in the preceding sentence may be served
on any party anywhere in the world.
14.10 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
14.11 Assignment. This Agreement shall be binding upon and inure
----------
to the benefit of the parties hereto and their respective successors and
permitted assigns. Neither this Agreement nor any of the rights, interest or
obligations hereunder shall be assigned by any of the parties hereto without the
prior written consent of all other parties hereto, and any purported assignment
without such consent shall be void. Notwithstanding the provisions of this
Section, Buyer shall be permitted to assign its rights and obligations under
this Agreement to any Parent's Affiliate, provided that Parent agrees to
guarantee, assume and discharge any and all liabilities, obligations, duties and
covenants assumed by such Parent's Affiliate hereunder, as if such liabilities,
obligations, duties and covenants were expressly required to be performed or
discharged directly by Parent. Furthermore, Buyer shall be permitted, in
connection with the Closing, to assign its rights under Article XII and under
Sections 8.2 through 8.4 and other rights to payment or performance by Seller
under this Agreement, and its rights to enforce such rights to payment or
performance, to its lenders (or the financial institution acting as agent for
such lenders) and such lenders' successors and assigns.
14.12 Third Party Beneficiaries. Except for certain parties
-------------------------
entitled to indemnification under Section 8.2, Section 12.1 and Section 12.2,
none of the provisions of this Agreement or any document contemplated hereby is
intended to grant any right or benefit to any
<PAGE>
person or entity which is not a party or a permitted assignee (as described in
Section 4.11) to this Agreement.
14.13 Headings. The article and section headings contained in this
--------
Agreement are solely for the purpose of reference, are not part of this
Agreement and shall not in any way affect the meaning or interpretation of this
Agreement.
14.14 Amendments. Any waiver, amendment, modification or
----------
supplement of or to any term or condition of this Agreement shall be effective
only if in writing and signed by all parties hereto, and the parties hereto
waive the right to amend the provisions of this Section orally.
14.15 Severability. In the event that any provision in this
------------
Agreement shall be determined to be invalid, illegal or unenforceable in any
respect, the remaining provisions of this Agreement shall not be in any way
impaired, and the illegal, invalid or unenforceable provision shall be fully
severed from this Agreement and there shall be automatically added in lieu
thereof a provision as similar in terms and intent to such severed provision as
may be legal, valid and enforceable.
14.16 Entire Agreement. This Agreement and the Schedules and
----------------
Exhibits hereto constitute the entire contract between the parties hereto
pertaining to the subject matter hereof, and supersede all prior and
contemporaneous agreements and understandings between the parties with respect
to such subject matter including without limitation the Letter of Intent dated
February 5, 1997, which are hereby expressly terminated.
14.17 Drafting Ambiguities. Each party to this Agreement and its
--------------------
counsel have reviewed and revised this Agreement. The normal rule of
construction to the effect that any
<PAGE>
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of this Agreement or of any amendments, Schedules or
Exhibits to this Agreement.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be signed by its duly authorized officer as of the date first above
written.
SELLER:
------
GLAXO WELLCOME INC.
By: \S\ Robert A. Ingram
___________________________________
Name: Robert A. Ingram
Title: President and Chief Executive
Officer
BUYER:
-----
CATALYTICA PHARMACEUTICALS, INC.
By: \s\ James A. Cusumano
__________________________________
Name: James A. Cusumano
Title: President and CEO
PARENT:
------
CATALYTICA, INC.
By: \s\ Ricardo B. Levy
__________________________________
Name: Ricardo B. Levy
Title: President, CEO
<PAGE>
EXHIBIT 10.2
SUPPLY AGREEMENT
BETWEEN
GLAXO WELLCOME INC.
AND
CATALYTICA PHARMACEUTICALS, INC.
DATED AS OF
JULY 31, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
R E C I T A L S.......................................................... 1
ARTICLE IDEFINITIONS..................................................... 2
1.1 General........................................................ 2
-------
ARTICLE II SUPPLY AND PURCHASE OF PRIMARY PRODUCTS....................... 17
2.1 Purchase and Sale.............................................. 17
-----------------
2.2 Primary Product Forecasts and Orders........................... 17
------------------------------------
2.3 Capacity Reservation........................................... 20
--------------------
2.4 Certain Limitations............................................ 23
-------------------
2.5 Effect of Certain Activities................................... 25
----------------------------
2.6 Primary Product Obligations at Effective Time.................. 26
---------------------------------------------
2.7 Product Transition............................................. 26
------------------
ARTICLE III SUPPLY AND PURCHASE OF SECONDARY/STERILES PRODUCTS........... 27
3.1 Purchase and Sale.............................................. 27
-----------------
3.2 Replenishment Forecast and Production.......................... 28
-------------------------------------
3.3 Purchase Orders................................................ 29
---------------
3.4 Third Party Manufacturing Agreements........................... 32
------------------------------------
3.5 Secondary/Steriles Product Obligations at Effective Time....... 32
--------------------------------------------------------
3.6 Product Transition............................................. 33
------------------
ARTICLE IV PRODUCTION COORDINATION AND OBLIGATIONS....................... 34
4.1 Monthly Meetings and Reports................................... 34
----------------------------
4.2 Scheduling..................................................... 34
----------
4.3 Prioritization................................................. 35
--------------
4.4 Cooperation of the Parties..................................... 36
--------------------------
ARTICLE V PAYMENTS FOR PRODUCTS.......................................... 37
5.1 Conversion Charge.............................................. 37
-----------------
5.2 Materials Charge............................................... 40
----------------
5.3 Certain Capacity Charges....................................... 43
------------------------
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
ARTICLE VI GUARANTEED REVENUES........................................... 44
6.1 Annual Amounts................................................. 44
--------------
6.2 Interim Payments............................................... 45
----------------
6.3 Annual Accounting.............................................. 46
-----------------
6.4 Secondary/Steriles Allowance.................................. 47
----------------------------
6.5 Required Payment.............................................. 48
----------------
ARTICLE VII MANUFUCTURE OF PRODUCTS...................................... 48
7.1 Specifications................................................ 48
--------------
7.2 Packaging..................................................... 53
---------
7.3 Storage Obligations........................................... 53
-------------------
7.4 Validations and Stability Studies............................. 53
---------------------------------
7.5 Changes in CGMP or Legal Requirements......................... 54
-------------------------------------
7.6 Supplier's Change Control..................................... 55
-------------------------
ARTICLE VIII MATERIALS SOURCING......................................... 55
8.1 Materials Sourcing............................................ 55
------------------
8.2 Key Ingredients............................................... 57
---------------
8.3 Inventory..................................................... 60
---------
ARTICLE IX TESTING AND QUALITY ASSURANCE................................ 61
9.1 Quality Assurance; Quality Control............................ 61
----------------------------------
9.2 Nonconformity................................................. 61
-------------
9.3 Testing; Certificates of Analysis............................. 62
---------------------------------
9.4 GWI Rejection................................................. 63
-------------
9.5 Product Complaints............................................ 64
------------------
9.6 Adverse Events................................................ 64
--------------
9.7 Investigations; Supplier's Obligations......................... 65
--------------------------------------
9.8 Certain Product Events........................................ 67
----------------------
9.9 Disposition of Certain Products............................... 68
-------------------------------
9.10 Credits....................................................... 69
-------
9.11 Product Returns from the Field................................ 69
------------------------------
9.12 Quantitative Deficiencies..................................... 70
-------------------------
9.13 Information Sharing........................................... 70
-------------------
ARTICLE X REGULATORY MATTERS............................................ 71
10.1 General....................................................... 71
-------
10.2 Consents...................................................... 71
--------
10.3 Inspections................................................... 72
-----------
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
10.4 Import/Export Matters......................................... 73
---------------------
10.5 Procurement and Subcontracting, and Non-Discrimination in
---------------------------------------------------------
Employment................................................... 74
----------
ARTICLE XI INVOICE, SHIPMENT AND PAYMENT................................ 75
11.1 Invoicing..................................................... 75
---------
11.2 Shipment; Title; Transport.................................... 76
--------------------------
11.3 Payment....................................................... 78
-------
ARTICLE XII ACCESS, INSPECTION AND AUDITS................................ 79
12.1 On-Site Personnel............................................. 79
-----------------
12.2 Inspection Rights............................................. 80
-----------------
12.3 Records....................................................... 80
-------
12.4 Audit Rights.................................................. 81
------------
ARTICLE XIII GWI SERVICES................................................ 84
13.1 Production Support............................................ 84
------------------
ARTICLE XIV INTELLECTUAL PROPERTY........................................ 85
14.1 Ownership..................................................... 85
---------
14.2 New Developments and Modifications............................ 86
----------------------------------
14.3 Grant of Licenses............................................. 88
-----------------
ARTICLE XV INFORMATION TECHNOLOGY MATTERS................................ 90
15.1 Introduction.................................................. 90
------------
15.2 IT Support Services........................................... 91
-------------------
15.3 IT Transition Plan............................................ 94
------------------
15.4 Year 2000..................................................... 94
---------
15.5 Migration of GWI Systems and Data............................. 97
---------------------------------
15.6 Data.......................................................... 97
----
15.7 Systems; GWI Access........................................... 98
-------------------
15.8 Security...................................................... 99
--------
15.9 Disaster Recovery and Backup.................................. 100
----------------------------
ARTICLE XVI REPRESENTATIONS AND WARRANTIES............................... 100
16.1 Representations and Warranties of Supplier.................... 100
------------------------------------------
16.2 Representations and Warranties of GWI......................... 101
-------------------------------------
16.3 Information................................................... 103
-----------
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
ARTICLE XVII GENERAL COVENANTS........................................... 103
17.1 Covenants of Supplier......................................... 103
---------------------
17.2 Covenants of GWI.............................................. 107
----------------
ARTICLE XVIII TRANSITION OF PRODUCTS..................................... 108
18.1 Product Transition............................................ 108
------------------
18.2 Supplier Obligations.......................................... 108
--------------------
18.3 Transition Payments........................................... 109
-------------------
ARTICLE XIX TERM......................................................... 109
19.1 General....................................................... 109
-------
19.2 Primary Term.................................................. 110
------------
19.3 Specialty Term................................................ 111
--------------
19.4 Secondary Term............................................... 111
--------------
19.5 Steriles Term................................................ 113
-------------
ARTICLE XX TERMINATION AND REMEDIES..................................... 114
20.1 Supplier Material Default.................................... 114
-------------------------
20.2 Other Supplier Default....................................... 116
----------------------
20.3 GWI Material Default......................................... 117
--------------------
20.4 Other GWI Default............................................ 117
-----------------
20.5 Effect of Supplier Default................................... 118
--------------------------
20.6 Effect of GWI Default........................................ 120
---------------------
20.7 Termination; Product and Materials Disposition............... 121
----------------------------------------------
20.8 Change in Control of Supplier................................ 121
-----------------------------
20.9 No Suspension of Obligations................................. 122
----------------------------
20.10 Remedies..................................................... 123
--------
20.11 Injunctive Relief............................................ 123
-----------------
ARTICLE XXI LIABILITY AND INDEMNIFICATION............................... 123
21.1 Indemnity by Supplier........................................ 123
---------------------
21.2 Indemnity by GWI............................................. 125
----------------
21.3 Environmental Indemnity...................................... 126
-----------------------
21.4 Procedures................................................... 126
----------
21.5 Limitations.................................................. 127
-----------
ARTICLE XXII CONFIDENTIALITY............................................ 128
22.1 Definition of "GWI Confidential Information"................. 128
--------------------------------------------
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C>
22.2 Definition of "Supplier Confidential Information"............ 129
-------------------------------------------------
22.3 Treatment of Confidential Information........................ 129
-------------------------------------
22.4 Excluded Information......................................... 131
--------------------
22.5 Notification of Mandatory Disclosure......................... 132
------------------------------------
22.6 Publicity.................................................... 133
---------
22.7 Return of Confidential Information........................... 133
----------------------------------
ARTICLE XXIII INSURANCE................................................. 134
23.1 General...................................................... 134
-------
23.2 Certificates of Insurance.................................... 135
-------------------------
23.3 Additional Insured and Waiver of Subrogation................. 135
--------------------------------------------
ARTICLE XXIV FORCE MAJEURE.............................................. 135
24.1 Force Majeure Event.......................................... 135
-------------------
24.2 Extended Force Majeure Event................................. 136
----------------------------
24.3 Tolling of Certain Obligations............................... 137
------------------------------
ARTICLE XXV MISCELLANEOUS............................................... 137
25.1 Standard Forms............................................... 137
--------------
25.2 Notices...................................................... 137
-------
25.3 Independent Contractors...................................... 139
-----------------------
25.4 Entire Understanding......................................... 140
--------------------
25.5 Unintentional Omissions...................................... 140
-----------------------
25.6 Transferability; Binding Effect.............................. 140
-------------------------------
25.7 Amendment.................................................... 145
---------
25.8 Severability................................................. 145
------------
25.9 Waiver....................................................... 145
------
25.10 Survival..................................................... 146
--------
25.11 Drafting Ambiguities......................................... 146
--------------------
25.12 Headings; Schedules; Counterparts............................ 146
---------------------------------
25.13 Governing Law................................................ 146
-------------
25.14 Parent Guaranty.............................................. 147
---------------
</TABLE>
v
<PAGE>
EXHIBITS
- --------
Exhibit A - Primary Product Obligations at Effective Date
Exhibit B - Third Party Manufacturing Arrangements
Exhibit C - Secondary/Steriles Product Obligations at Effective Date
Exhibit D - CFR Small Business Regulations and Subcontracting Plan
Exhibit E - Certificate of Non-Segregated Facilities
Exhibit F - Form of Invoice
Exhibit G - Deed of Easement
SCHEDULES
- ---------
SCHEDULE 1 - PRIMARY PRODUCTS
SCHEDULE 2 - SECONDARY/STERILES PRODUCTS
SCHEDULE 2.2(b) - REACTOR GALLON FACTORS
SCHEDULE 2.2(c) - GWI APPROVED CARRIERS
SCHEDULE 2.4(a) - CONTRACT RESERVATION CALCULATIONS
SCHEDULE 2.4(b)(i) - PROFILE PLANT
SCHEDULE 2.4(b)(ii) - LINEAR PROGRAMMING MODEL
SCHEDULE 2.4(c) - LE"D TIMES
SCHEDULE 3.2(c) - REPLENISHMENT GUIDELINES
SCHEDULE 5.1(a) - 1997 PRODUCT STANDARD COSTS
SCHEDULE 5.2(a) - 1997 STANDARD MATERIALS CONVERSION RATES
SCHEDULE 5.2(c) - 1997 MATERIAL COST STANDARDS
SCHEDULE 7.1(a) - SPECIFICATIONS
SCHEDULE 7.1(i) - CHANGE CONTROL
SCHEDULE 7.6 - CHANGE CONTROL SUPPLIER'S OPERATING PROCEDURE
SCHEDULE 8.1(a) - KEY INGREDIENTS
SCHEDULE 8.1(d) - LIST OF SUPPLIERS
SCHEDULE 8.3(a) - INVENTORY GUIDELINES
SCHEDULE 9.3(a) - CERTIFICATE OF ANALYSIS
SCHEDULE 11.2(d) - MINIMUM DATING
SCHEDULE 12.2 - HEALTH, SAFETY AND ENVIRONMENTAL GUIDELINES
SCHEDULE 14.1(a) - PATENTS
SCHEDULE 14.1(b) - TRADEMARKS
SCHEDULE 14.1(c) - PRODUCT RECIPE FILES
SCHEDULE 15.2(a) - IT SUPPORT SERVICES
SCHEDULE 15.3 - IT TRANSITION PLAN
SCHEDULE 15.4(a) - THIRD-PARTY SYSTEM SOFTWARE PRODUCTS
SCHEDULE 15.8 - SECURITY MEASURES
SCHEDULE 16.2(b) - FOREIGN COUNTRIES/JURISDICTIONS
SCHEDULE 16.2(d) - LITIGATION
vi
<PAGE>
SCHEDULE 17.2(d) - MAINTENANCE OF FACILITY
SCHEDULE 18.2 - TRANSITION SERVICES
SCHEDULE 18.3 - TRANSITION PAYMENTS
vii
<PAGE>
SUPPLY AGREEMENT
THIS SUPPLY AGREEMENT (together with all Schedules and Exhibits
hereto, this "Agreement"), dated as of July 31, 1997, is entered into in the
State of North Carolina by and between GLAXO WELLCOME INC., a North Carolina
corporation ("GWI"), and CATALYTICA PHARMACEUTICALS, INC., a Delaware
corporation ("Supplier").
R E C I T A L S :
---------------
A. Pursuant to the Asset Purchase Agreement between GWI and
Supplier, dated as of June 25, 1997 (the "Purchase Agreement"), on this date GWI
is selling to Supplier certain assets of GWI used in or relating to the
operation of GWI's pharmaceutical manufacturing facility located in Greenville,
North Carolina (the "Facility").
B. GWI and Supplier desire, and it is a condition to the
parties' obligations under the Purchase Agreement, that Supplier manufacture at
the Facility and GWI shall purchase certain bulk active ingredients and
intermediates for use in pharmaceutical products and certain secondary and
sterile pharmaceutical products under the terms of this Agreement.
C. In entering into the Purchase Agreement and this Agreement,
GWI is relying on the anticipated benefits to be received by it from (i) a
stable base of employees at the Facility who are familiar with the Products,
(ii) the controlling management of Supplier and (iii) the other characteristics
of Supplier that demonstrate its capability of meeting GWI's needs for supply of
Products from the Facility.
NOW, THEREFORE, in consideration of the recitals, mutual covenants,
agreements, representations and warranties contained herein, the parties hereby
agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
1.1 General. As used herein, the following terms shall have the
-------
meanings set forth below:
"Additional Purchased Capacity" shall have the meaning provided
-----------------------------
in Section 2.3(b) of this Agreement.
"Adverse Event" shall have the meaning provided in Section 9.6 of
-------------
this Agreement.
"Agreement" shall mean this Supply Agreement, as hereafter
---------
amended.
"Approved Supplier" shall mean an entity designated in the
-----------------
Specifications which has been approved by GWI in writing for the supply of
Materials.
"Average RG Revenue" shall have the meaning provided in Section
------------------
5.3(b).
"Binding Primary Commitment" shall have the meaning provided in
--------------------------
Section 2.2(a) of this Agreement.
"Binding Secondary/Steriles Commitment" shall have the meaning
-------------------------------------
provided in Section 3.3(a) of this Agreement.
"CDA" shall have the meaning provided in Section 25.4 of this
---
Agreement.
"Clinical Materials" shall have the meaning provided in Section
------------------
3.1 of this Agreement.
"Computing Devices" shall have the meaning provided in Section
-----------------
15.4(c)(i) of this Agreement.
2
<PAGE>
"Confidential Information" shall have the meaning provided in
------------------------
Section 22.3 of this Agreement.
"Consent" shall mean any consent, authorization, permit,
-------
with, any certificate, license or approval of, exemption by, or filing or
registration Governmental Body or other Person.
"Contract Reservation" shall have the meaning provided in Section
--------------------
2.4(a) of this Agreement.
"Conversion Charge" shall have the meaning provided in Section
-----------------
5.1(a) of this Agreement.
"Current Good Manufacturing Practices" or "CGMPs" shall mean all
-----------------------------------------------
applicable standards relating to manufacturing practices for fine chemicals,
intermediates, bulk products or finished pharmaceutical products (i)
promulgated by any Governmental Body having jurisdiction over the manufacture of
the Products, in the form of laws or regulations, (ii) promulgated by any
Governmental Body having jurisdiction over the manufacture of the Products, in
the form of guidance documents (including but not limited to advisory opinions,
compliance policy guides and guidelines) which guidance documents are being
implemented within the pharmaceutical manufacturing industry for such products
or (iii) which Supplier knows or reasonably should have known to be current and
shown to be feasible and valuable in ensuring drug quality within the
pharmaceutical manufacturing industry for such products, in each case as in
effect at the Effective Time and as amended, promulgated or accepted from time
to time during the term of this Agreement.
"Customs" shall have the meaning provided in Section 10.4(a) of
-------
this Agreement.
"Data" shall have the meaning provided in Section 15.6(a) of this
----
Agreement.
3
<PAGE>
"DDI Report" shall have the meaning provided in Section
----------
15.4(c)(iii) of this Agreement.
"Deed of Easement" shall mean the deed in the form of Exhibit G
---------------- ---------
attached hereto which has been executed and delivered as provided in Section
20.5 below.
"Delivery Date" shall have the meaning provided in Section 2.2(c)
-------------
of this Agreement.
"Designated Materials" shall mean those Materials which
--------------------
collectively accounted for 75% of the Materials Charge for Products manufactured
at the Facility in the calendar year immediately prior to the referenced year.
"Deviation Report" shall have the meaning provided in Section
----------------
9.3(b) of this Agreement.
"EDI" shall have the meaning provided in Section 11.1(b) of this
---
Agreement.
"Effective Time" shall mean 11:59 P.M., local time in Greenville,
--------------
North Carolina, on the date of closing under the Purchase Agreement.
"Environmental Agreement" shall mean the Environmental Agreement
-----------------------
dated of even date herewith between Supplier and GWI, executed and delivered in
accordance with the terms of the Purchase Agreement.
"Environmental Condition" shall mean the presence in the
-----------------------
environment, including the soil, groundwater, surface water or air of any
Hazardous Material at any concentration (i) exceeding allowable levels under any
Environmental Law, or (ii) requiring Remedial Activity or other action under any
Environmental Law.
4
<PAGE>
"Environmental Laws" shall mean any and all federal, state, or
------------------
local laws, statutes, ordinances, orders, codes, rules, regulations, judgments
or agreements with any Governmental Body relating to environmental matters
involving pollution, contamination or protection of the environment, including
but not limited to the Comprehensive Environmental Response, Compensation and
Liability Act, Clean Air Act, the Federal Water Pollution Control Act, the
Hazardous Material Transportation Act, the Resource Conservation and Recovery
Act of 1976, the Toxic Substances Control Act, the North Carolina Oil Pollution
and Hazardous Substances Control Act, and other local, state and federal laws of
similar import.
"Environmental Losses" shall mean any and all losses, damages,
--------------------
judgments, fines, liens, penalties, costs and expenses (including without
limitation reasonable attorneys' fees, experts' fees, consultants' fees),
administrative, enforcement or judicial actions, suits, orders, notices,
notices of violations, investigations, complaints, demands for Remedial
Activity, requests for information, proceedings, or other written communication,
based upon, arising from, alleging, or asserting any (i) violation of or
liability under any Environmental Law, including, without limitation, a
violation of any permit, approval, memorandum of understanding, or settlement
agreement; (ii) violations or liability arising from the conduct of Remedial
Activity; (iii) Environmental Condition, of any kind or character, whether known
or unknown as of the Effective Time; or (iv) exposure of any person to a
Hazardous Material (without regard to whether a health effect is manifested as
of the Effective Time).
"Facility" shall have the meaning provided in Recital A of this
--------
Agreement.
"Failure" shall have the meaning provided in Section 15.4(c)(i)
-------
of this Agreement.
5
<PAGE>
"FDA" shall mean the United States Food and Drug Administration,
---
or any successor entity.
"FD&C Act" shall mean the United States Federal Food, Drug and
--------
Cosmetic Act, as amended.
"Firm Capacity Committed" shall have the meaning provided in
-----------------------
Section 2.2(b) of this Agreement.
"Flex Capacity" shall have the meaning provided in Section
-------------
2.4(a)(i) of this Agreement.
"Force Majeure Event" shall have the meaning provided in Section
-------------------
24.1 of this Agreement.
"Governmental Body" shall mean any nation or government, any
-----------------
state, province, or other political subdivision thereof or any entity with legal
authority to exercise executive, legislative, judicial, regulatory or
administrative functions or pertaining to government in a country listed on
Schedule 16.2(b), as may be amended by GWI pursuant to Section 17.2(c) below.
- ----------------
"Guaranteed Revenues" shall have the meaning provided in Section
-------------------
6.1 of this Agreement.
"GWI "Affiliate" shall mean any Person controlling, controlled by
--------------
or under direct or indirect common control with GWI or in which GWI holds 30% or
more of the outstanding voting or equity interests.
"GWI Assets" shall have the meaning provided in Section 7.1(e) of
----------
this Agreement.
"GWI Confidential Information" shall have the meaning provided in
----------------------------
Section 22.1 of this Agreement.
6
<PAGE>
"GWI Developments" shall have the meaning provided in Section
----------------
14.2(b) of this Agreement.
"GWI Indemnitee" shall have the meaning provided in Section 21.1
--------------
of this Agreement.
"GWI Material Default" shall have the meaning provided in Section
--------------------
20.3 of this Agreement.
"GWI Rights" shall have the meaning provided in Section 14.3(a)
----------
of this Agreement.
"GWI Visitors" shall have the meaning provided in Section 12.1(b)
------------
of this Agreement.
"Hazardous Material" shall mean any material or substance
------------------
designated by or regulated by any Governmental Body as radioactive, toxic,
hazardous or otherwise a danger to health, reproduction or the environment
(including without limitation solvents, petroleum, crude oil fractions,
pesticides, asbestos containing materials, radon gas, radioactive materials,
blood, biological substances, medical "sharps" waste, and other chemicals,
"hazardous substances," "hazardous waste," "hazardous materials," or "toxic
substances" under the Environmental Laws). Hazardous Material shall not include
(1) products or materials used to produce Products at the Facility for ultimate
sale to customers and stored in compliance with applicable Environmental Laws or
(2) any asbestos containing materials in an improvement, utility, fixture and
equipment or tangible personal property transferred to Supplier pursuant to the
terms of the Purchase Agreement.
"HSE Guidelines" shall have the meaning provided in Section 12.2
--------------
of this Agreement.
7
<PAGE>
"Indemnified Party" shall have the meaning provided in Section
-----------------
21.4 of this Agreement.
"Indemnifying Party" shall have the meaning provided in Section
------------------
21.4 of this Agreement.
"Intellectual Property" shall mean (i) trademarks, trademark
---------------------
registrations, trademark applications, service marks, service mark
registrations, service mark applications, business marks, brand names, trade
names, trade dress, names, logos and slogans and all goodwill associated
therewith; (ii) patents, patent rights, provisional patent applications, patent
applications, designs, registered designs, registered design applications,
industrial designs, industrial design applications and industrial design
registrations, including any and all divisions, continuations, continuations-in-
part, extensions, substitutions, renewals, registrations, revalidations,
reexaminations, reissues or additions, including supplementary certificates of
protection, of or to any of the foregoing items; (iii) copyrights, copyright
registrations, copyright applications, original works of authorship fixed in any
tangible medium of expression, including literary works (including all forms and
types of computer software, including all source code, object code, firmware,
development tools, files, records and data, and all documentation related to any
of the foregoing), musical, dramatic, pictorial, graphic and sculptured works;
(iv) trade secrets, technology, discoveries and improvements, know-how,
proprietary rights, formulae, confidential and proprietary information,
technical information, techniques, inventions, designs, drawings, procedures,
processes, models, formulations, manuals and systems, whether or not patentable
or copyrightable, including all biological, chemical, biochemical,
toxicological, pharmacological and metabolic material and information and data
relating thereto and formulation, clinical, analytical and stability information
8
<PAGE>
and data which have actual or potential commercial value and are not available
in the public domain; and (v) all other intellectual property or proprietary
rights, in each case whether or not subject to statutory registration or
protection.
"IT Support Services" shall have the meaning provided in Section
-------------------
15.2(a) of this Agreement.
"IT Transition Plan" shall have the meaning provided in Section
------------------
15.3 of this Agreement.
"IT" shall have the meaning provided in Section 15.1 of this
--
Agreement.
"Key Ingredients" shall have the meaning provided in Section
---------------
8.1(a) of this Agreement.
"Legal Requirements" shall mean any and all local, state, federal
------------------
and international laws, statutes, ordinances, rules or regulations now or
hereafter enacted or promulgated by any Governmental Body, but not including any
Environmental Laws or the FD&C Act.
"Licensed Technology" shall have the meaning provided in Section
-------------------
16.2(c) of this Agreement.
"Lien" shall mean any lien, mortgage, pledge, security interest,
----
charge or encumbrance of any kind, including any conditional sales or other
title retention agreement, any lease in the nature thereof and any agreement to
give any of the foregoing.
"Losses" shall mean, collectively, any and all claims,
------
liabilities, damages, costs, expenses, including reasonable fees and
disbursements of counsel (except as herein limited) and any consultants or
experts and expenses of investigation, obligations, Liens, assessments,
judgments, fines and penalties imposed upon or incurred by an Indemnified Party.
9
<PAGE>
"Marks" shall have the meaning provided in Section 14.1(c) of
-----
this Agreement.
"Materials" shall mean (i) all raw materials, components and other
---------
ingredients (including excipients and active ingredients in the case of
Secondary/Steriles Products) required to manufacture the Products and (ii) all
packaging materials used in the manufacture, storage and shipment of Products.
"Materials Charge" shall have the meaning provided in Section
----------------
5.2(a) of this Agreement.
"Millennium Compliance Plan" shall have the meaning provided in
--------------------------
Section 15.4(c)(ii) of this Agreement.
"New Presentation" shall have the meaning provided in Section 3.1
----------------
of this Agreement.
"Nonconformity" shall have the meaning provided in Section 9.2 of
-------------
this Agreement.
"Other GWI Default" shall have the meaning provided in Section
-----------------
20.4 of this Agreement.
"Other Supplier Default" shall have the meaning provided in
----------------------
Section 20.2 of this Agreement.
"Outside Facility" shall mean any pharmaceutical manufacturing
----------------
facility, including without limitation a facility owned or leased by GWI or any
GWI Affiliate, at which Products are or are sought by GWI to be manufactured,
other than the Facility.
"Parent" shall mean Catalytica, Inc., a Delaware corporation, and
------
its successors and assigns.
10
<PAGE>
"Person" shall mean any individual or corporation, company,
------
partnership, trust, incorporated or unincorporated association, joint venture or
other entity of any kind.
"POs" shall have the meaning provided in Section 2.2(c) of this
---
Agreement.
"Potential Contaminants" shall have the meaning provided in
----------------------
Section 17.1(h) of this Agreement.
"Pre-Closing Systems" shall have the meaning provided in Section
-------------------
15.2(g) of this Agreement.
"Primary Facility" shall mean the production facilities of the
----------------
Facility used during the term of this Agreement in the manufacture of bulk
active ingredients, intermediates and fine chemicals which are Primary Products,
including Buildings 3 (modules 1-7 and pmo lab), 5, 9, 10, 11, 19 (Recovery
Area), 22 and 34.
"Primary Inventory" shall have the meaning provided in Section
-----------------
2.2(a) of this Agreement.
"Primary Products" shall mean those bulk active ingredients and
----------------
intermediates for use in pharmaceutical products that are identified on Schedule
--------
1 attached hereto and incorporated herein by reference that are manufactured or
- -
to be manufactured by Supplier pursuant to this Agreement.
"Primary Term" shall have the meaning provided in Section 19.2(a)
------------
of this Agreement.
"Primary Termination Notice" shall have the meaning provided in
--------------------------
Section 19.2(b) of this Agreement.
11
<PAGE>
"Producer Price Index" shall mean the index known as the United
--------------------
States Bureau of Labor Statistics, Producer Price Index, Drugs and
Pharmaceuticals (Code 063).
"Production Support" shall have the meaning provided in Section
------------------
13.1 of this Agreement.
"Products" shall mean Primary Products, Secondary/Steriles
--------
Products and Clinical Materials, collectively.
"Profile Plant" shall have the meaning provided in Section 2.4(b)
-------------
of this Agreement.
"Proposal" shall have the meaning provided in Section 25.6(b) of
--------
this Agreement.
"Proposed Change in Control Transaction" shall have the meaning
--------------------------------------
provided in Section 20.8 of this Agreement.
"Purchase Agreement" shall have the meaning provided in Recital A
------------------
of this Agreement.
"Purchased Inventories" shall mean the inventories Supplier
---------------------
purchased from GWI under the Purchase Agreement.
"Reactor Gallon" shall mean the nominal measurement of production
--------------
capacity of the reactor modules in the Primary Facility over the course of one
year. As of the Effective Time, the Primary Facility provides at least [*]
Reactor Gallons. For purposes of calculations involving Reactor Gallons in this
Agreement, [*] as set forth in Schedule 2.2(b) attached hereto and incorporated
--------------
herein by reference reflecting the number of Reactor Gallons necessary, based on
[*] capacity utilization standards [*] to produce one (1) kilogram of that
Primary Product.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
12
<PAGE>
"Rejected Quantity" shall have the meaning provided in Section
-----------------
9.4 of this Agreement.
"Released Capacity" shall have the meaning provided in Section
-----------------
2.3(c) of this Agreement.
"Remedial Activity" shall mean any reporting, investigation,
-----------------
feasibility study, remediation, treatment, removal, transport, disposal,
characterization, sampling, health assessment, risk assessment, encapsulation,
monitoring, study, report, assessment, analysis, or other activity with respect
to an Environmental Condition.
"Replenishment Forecast" shall have the meaning provided in
----------------------
Section 3.2(a) of this Agreement.
"Replenishment Guidelines" shall mean the guidelines set forth in
------------------------
Schedule 3.2(c) attached hereto and incorporated herein by reference.
- ---------------
"Replenishment Production" shall have the meaning provided in
------------------------
Section 3.2(a) of this Agreement.
"Replenishment Products" shall have the meaning provided in
----------------------
Section 3.2(a) of this Agreement.
"Reportable Materials" shall have the meaning provided in Section
--------------------
8.1(c) of this Agreement.
"Representative" shall have the meaning provided in Section
--------------
22.3(b) of this Agreement.
"Secondary Extension" shall have the meaning provided in Section
-------------------
19.4(b) of this Agreement.
13
<PAGE>
"Secondary Facility" shall mean Building 1 at the Facility as it
------------------
exists as of the date of this Agreement.
"Secondary Materials" shall mean associated by-products,
-------------------
chemicals, intermediates, wastes, hazardous substances, recycled materials, or
returned products related to, arising from, or in any way connected with the
manufacturing, generation, processing, storage, transportation, distribution,
treatment, disposal or other management of Products or Materials, or otherwise
arising out of the operation, ownership or control of Supplier's facilities,
including the Facility.
"Secondary/Steriles Products" shall mean the secondary and sterile
---------------------------
pharmaceutical products that are identified on Schedule 2 attached hereto and
----------
incorporated herein by reference that are to be manufactured and sold by
Supplier pursuant to this Agreement, including any New Presentations of the
foregoing. "Secondary Product" means any secondary pharmaceutical product
included on Schedule 2 and "Steriles Product" means any sterile pharmaceutical
----------
product identified on Schedule 2.
----------
"Secondary Term" shall have the meaning provided in Section
--------------
19.4(a) of this Agreement.
"Selected Accounting Firm" shall mean any national independent
------------------------
accounting firm selected from time to time by the joint consent of the parties
to this Agreement.
"Serious Adverse Event" shall have the meaning provided in
---------------------
Section 9.6 of this Agreement.
"Significant Price Increase" shall have the meaning provided in
--------------------------
Section 8.1(c) of this Agreement.
14
<PAGE>
"Specialty Products" shall mean those Primary Products marked
------------------
with an asterisk on Schedule 1.
----------
"Specialty Term" shall have the meaning provided in Section
--------------
19.3(a) of this Agreement.
"Specialty Termination Notice" shall have the meaning provided in
----------------------------
Section 19.3(b) of this Agreement.
"Specifications" shall mean, with respect to any Product, all
--------------
specifications for materials, approved suppliers, formula, manufacturing,
analytical and testing procedures, release, packaging, labeling, artwork and
other processes contained in any documents relating to Products as identified on
Schedule 8.1(a) attached hereto, and incorporated herein by reference,
- ---------------
including all master formulas, process flow diagrams and all packaging and
filling work orders as may be revised from time to time in accordance with this
Agreement.
"Specified Volumes" shall have the meaning provided in Section
-----------------
2.2(a) of this Agreement.
"Steriles Extension" shall have the meaning provided in Section
------------------
19.5(b) of this Agreement.
"Steriles Facility" shall mean Building 16 at the Facility as it
-----------------
exists as of the date of this Agreement.
"Steriles Products" shall mean Products manufactured in the
-----------------
Steriles Facility.
"Steriles Term" shall have the meaning provided in Section
-------------
19.5(a) of this Agreement.
15
<PAGE>
"Supplier Affiliate" shall mean any Person controlling,
------------------
controlled by or under direct or indirect common control with Supplier or in
which Supplier holds 30% or more of the outstanding voting or equity interests.
"Supplier Confidential Information" shall have the meaning
---------------------------------
provided in Section 22.2 of this Agreement.
"Supplier Developments" shall have the meaning provided in
---------------------
Section 14.2(a) of this Agreement.
"Supplier Indemnitee" shall have the meaning provided in Section
-------------------
21.2 of this Agreement.
"Supplier Material Default" shall have the meaning provided in
-------------------------
Section 20.1 of this Agreement.
"Term" shall mean the Primary Term, the Specialty Term, the
----
Secondary Term or the Steriles Term, as the context indicates.
"Termination Date" shall have the meaning provided in Section
----------------
19.1 of this Agreement.
"TPMAs" shall have the meaning provided in Section 3.4(a) of this
-----
Agreement.
"TPMA Products" shall have the meaning provided in Section 3.1 of
-------------
this Agreement.
"Transition" shall have the meaning provided in Section 18.1 of
----------
this Agreement.
16
<PAGE>
ARTICLE II
SUPPLY AND PURCHASE OF PRIMARY PRODUCTS
2.1 Purchase and Sale. Subject to the terms and conditions of
-----------------
this Agreement, Supplier agrees to manufacture at the Facility and sell the
Primary Products to GWI and GWI agrees to purchase the Primary Products from
Supplier. Supplier may manufacture Primary Products at locations other than the
Facility only with the prior consent of GWI and in accordance with the
applicable procedures set forth in Schedule 7.1(i) attached hereto and
---------------
incorporated herein by reference. Supplier shall have only the authority
provided under this Agreement with respect to the manufacture, testing,
packaging, labeling, delivery or sale of the Primary Products, and Supplier
shall in no manner otherwise deal with the Primary Products.
2.2 Primary Product Forecasts and Orders.
------------------------------------
(a) Primary Product Forecasts. On or before the last business day of
-------------------------
each month during the Primary Term and the Specialty Term, GWI shall provide to
Supplier a projection for the next succeeding [*] of the anticipated volumes of
each Primary Product to be (a) shipped as directed by GWI pursuant to Section
2.2(c) below or (b) transferred into Supplier's inventory of Primary Products
("Primary Inventory") (i) for production of Secondary/Steriles Products
consistent with the Replenishment Forecast or (ii) for shipment under POs issued
by GWI pursuant to this Agreement during each month. The requirements for each
Primary Product set forth with respect to [*] will be a binding commitment to
purchase (i) the indicated volumes of such Primary Products pursuant to POs or
as part of Secondary/Steriles Products based on conversion of Primary Products
into Secondary/Steriles
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
17
<PAGE>
Products [*], (ii) certain Specified Volumes as provided in Section 2.2(d) below
or (iii) to purchase Materials as provided in Section 8.1(e) below (the "Binding
Primary Commitment"). With respect to each Binding Primary Commitment, GWI
shall specify what volumes are to be purchased pursuant to POs delivered during
the period covered thereby (the "Specified Volumes") and what volumes are to be
transferred into Primary Inventory. Supplier's obligations to provide Primary
Products to GWI shall be subject to the limitations set forth in Sections 2.3,
2.4 and Section 2.5 below, unless otherwise agreed in writing by Supplier in its
sole discretion. The Primary Product volumes specified for the [*] shall be
nonbinding estimates of future requirements.
(b) Reactor Gallon Forecasts. On or before the last business day of
------------------------
each calendar quarter during the Primary Term and the Specialty Term, GWI shall
provide to Supplier a projection for the next succeeding [*] of the anticipated
number of Reactor Gallons, calculated from the volumes forecast delivered under
Section 2.2(a) above and the Reactor Gallon Factors shown in Schedule 2.2(b)
---------------
attached hereto and incorporated herein by reference [*] required for the
manufacture of Primary Products to be shipped or transferred into Primary
Inventory during the applicable quarterly periods, annualized by multiplying by
four (4). The amounts set forth with respect to the [*] will be a binding
commitment by GWI for the projected Reactor Gallons ("Firm Capacity Committed").
Supplier's obligation to provide the Firm Capacity Committed is subject to the
limitations of Sections 2.3, 2.4 and Section 2.5 below, unless otherwise agreed
in writing by Supplier
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
18
<PAGE>
in its sole discretion. The amounts specified for the [*] shall be nonbinding
estimates of future requirements.
(c) Purchase Orders. GWI shall deliver to Supplier purchase orders
---------------
("POs") for that portion of the Binding Primary Commitment to be shipped to
other sites and for quantities to be shipped from Primary Inventory. The PO
shall specify the volumes of Primary Products ordered, the requested date of
delivery (the "Delivery Date") and the destination for delivery. Supplier shall
be obligated to make such Primary Products available for shipment so that
delivery occurs on a date [*]. Supplier shall be entitled to rely on the carrier
delivery times set forth in Schedule 2.4(c) attached hereto and incorporated
---------------
herein by reference and shall have no liability for any delivery delay
occasioned by any carrier's failure to meet its committed delivery schedule. POs
issued shall be binding on Supplier to the extent consistent with the Binding
Primary Commitment and Supplier's obligations under Sections 2.3. 2.4 and 2.5
below, but inconsistent POs shall not be binding unless the inconsistent PO is
expressly accepted in writing by Supplier or, to the extent inconsistent, can be
filled out of Primary Inventory (provided that the provisions of Section 4.3
shall apply in the event of a conflict between such PO and demands on Primary
Inventory required to fill Binding Primary Commitments). Supplier shall promptly
notify GWI of the acceptance or rejection of any portions of a PO considered by
Supplier to be not consistent with the Binding Primary Commitment portion of a
forecast or Supplier's obligations under Sections 2.3, 2.4 or 2.5 below. In any
event, GWI shall issue POs to Supplier not less [*] specified in any such PO.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
19
<PAGE>
(d) Primary Inventory. [*] Supplier shall, from time to time upon
-----------------
GWI's reasonable request, execute such documents as are necessary to evidence
GWI's ownership of Specified Volumes purchased by GWI and held by Supplier in
Primary Inventory and to prevent such Specified Volumes from becoming subject to
Liens of Supplier's lenders.
2.3 Capacity Reservation.
--------------------
(a) General. Subject to the limitations set forth in Sections 2.4
-------
and 2.5 below, Supplier shall at all times during the term of this Agreement
reserve for the manufacture of Primary Products during each calendar year
sufficient appropriate capacity to meet the Binding Primary Commitments. Without
limiting the foregoing, Supplier shall reserve [*] and otherwise as agreed by
the parties. Supplier shall at all times during the Term of this Agreement
schedule Primary Facility production in a manner to enable it to supply Products
to meet the Binding Primary Commitments in accordance with and subject to the
limitations of this Agreement. Except as described in Section 2.2 above
regarding Binding Primary
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
20
<PAGE>
Commitments or as otherwise expressly agreed by the parties, nothing in this
Agreement shall be deemed to obligate GWI to purchase any given Primary Product,
or any specific quantity of a Primary Product, under this Agreement.
Notwithstanding the foregoing, GWI shall be obligated with respect to Guaranteed
Revenues as described in Article VI below.
(b) Additional Purchased Capacity. To the extent Supplier at any time
-----------------------------
has available Reactor Gallons in excess of the applicable Contract Reservation
and Flex Capacity amounts, GWI may, by advance written notice [*] commit to
reserve an amount of such Reactor Gallons ("Additional Purchased Capacity") for
(i) a minimum period of [*] if the total Reactor Gallons included in such
Additional Purchased Capacity does not exceed by more than [*]% the total
Reactor Gallons which were required to be made available to GWI for the calendar
quarter immediately prior to the beginning of that [*] or (ii) in any other
event, a minimum period of [*] In no event shall Supplier be obligated to
provide GWI Additional Purchased Capacity beyond the Primary Term. Reactor
Gallons will be deemed to be available for purchase as Additional Purchased
Capacity, taking into account practical constraints such as maximum efficient
utilization, unless [*] The Profile Plant for the period in which any Additional
Purchased Capacity is reserved by GWI will be revised by the mutual agreement of
the parties to include the Additional Purchased Capacity.
(c) Release of Reactor Gallons. By advance written notice to
--------------------------
Supplier, GWI may from time to time release for other use by Supplier an amount
of Reactor Gallons for a minimum
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
21
<PAGE>
period [*] ("Released Capacity") which Supplier would otherwise be obligated
pursuant to this Agreement to make available for the production of Primary
Products. In such event, Supplier shall use its reasonable efforts to utilize
the Released Capacity for other customers of Supplier. If Supplier uses the
Released Capacity for itself or another customer, or otherwise receives any
payment from another customer to reserve such Released Capacity (whether or not
utilized), Supplier shall provide GWI a credit against other amounts payable by
GWI pursuant to this Agreement. If Supplier uses the Released Capacity for
another customer, the credit shall be in an amount equal to [*] The effective
price per gallon of Released Capacity shall be determined in good faith by the
mutual agreement of the parties, taking into account all amounts (other than
amounts equal to Supplier's costs for any materials calculated in a manner
consistent with the provisions of the second sentence of Section 5.2(a)) paid by
the customer to Supplier for such products), divided by the aggregate Reactor
Gallons required to produce such products delivered by Supplier to that customer
or otherwise reserved for that customer, [*] In determining such effective
price, the parties shall consider and appropriately
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
22
<PAGE>
account for the effect, if any, of any special pricing arrangements with the
customers using or reserving any Released Capacity.
2.4 Certain Limitations. Each Binding Primary Commitment for
-------------------
delivery after June 30, 1998 and thereafter must satisfy the conditions of
Section 2.4(a), 2.4(b) and 2.4(c) below.
(a) Reactor Gallon Limitations. The following table sets forth a
--------------------------
stipulated number of Reactor Gallons ("Contract Reservation") for each calendar
quarter during the period from July 1, 1998 through December 31, 2001 against
which each Binding Primary Commitment for those periods must be tested as a
condition to Supplier's obligation to manufacture those volumes of Primary
Products.
Contract Reservation/(a)/:
-------------------------
<TABLE>
<CAPTION>
1997 1998/1H 1998/2H 1999 2000 2001/1H 2001/2H 2002/1H
- ---- ------- ------- ---- ---- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
/(b)/ /(c)/ [*] [*] [*] [*] [*] [*]
</TABLE>
/(a)/ The Contract Reservation amounts set forth above apply to each calendar
quarter during a year such that the volumes used in the Reactor Gallon
calculations must be annualized by multiplying by four (4) as illustrated
on Schedule 2.4(a) attached hereto and incorporated herein by reference.
---------------
(b) Exclusive access for GWI.
(c) GWI to have exclusive access to those portions of the Facility which
comprised [*] (i.e., any additional capacity added after the Effective Time
shall not be available for the production of Products), [*].
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
23
<PAGE>
(d) Does not include Reactor Gallons utilized by Supplier to manufacture
Specialty Products in these periods.
The following two tests shall be applied to determine if Supplier shall be
obligated to supply all Products designated within a given Binding Primary
Commitment as provided in notes (b) and (c) above:
(i) In order to determine whether Firm Capacity Committed for a given
calendar quarter falls with the Contract Reservation for that period, the
Reactor Gallons for each calendar quarter covered by Firm Capacity Committed,
must be equal to or less than the Contract Reservation for the applicable
calendar quarter, plus any Additional Purchased Capacity for that period, on an
annualized basis, [*] and
(ii) In order to determine whether the Reactor Gallons required to
produce the volumes of Primary Products for each calendar quarter covered by the
Binding Primary Commitment could be produced within the Firm Capacity Committed
for that quarter, the Reactor Gallons required to produce the Primary Products
for that calendar quarter (including volumes projected for any non-binding
portion of the forecast falling within a calendar quarter covered by the Primary
Binding Commitment), based on the Reactor Gallon Factors shown in Schedule
--------
2.2(b), will be multiplied by four (4) and compared to the Firm Capacity
- ------
Committed for the same quarter.
(b) Profile Plant. Schedule 2.4(b)(i) attached hereto and
------------- ------------------
incorporated herein by reference sets forth a stipulated profile plant for each
calendar year from 1998 (second half only) to 2001 (the "Profile Plant"). A
Binding Primary Commitment is within the parameters of the applicable Profile
Plant if (i) the volume of Primary Products contained in the Binding Primary
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
24
<PAGE>
Commitments during that calendar year and (ii) if applicable, the volume of
Primary Products projected by GWI for the remainder of that calendar year in the
nonbinding portion of the then current forecast can be manufactured within the
parameters of the applicable Profile Plant. This determination will be made
using the linear programming model described in Schedule 2.4(b)(ii) attached
-------------------
hereto and incorporated herein by reference and GWI's 1997 Reactor Gallon
Factors as shown on Schedule 2.2(b).
---------------
(c) Materials and Lead Time Constraints. As long as Binding Product
-----------------------------------
Commitments are consistent with customary lead times for Materials procurement,
Supplier shall be obligated to produce Primary Products in accordance with the
terms of this Agreement. Schedule 2.4(c) attached hereto and incorporated
---------------
herein by reference sets forth the agreed upon customary lead times for
procurement of Materials with lead times of [*] The parties acknowledge,
however, that occasional delays in the availability of Materials beyond the
reasonable control of Supplier may from time to time occur. Provided that
Supplier maintains an inventory of Materials consistent with the parameters set
forth in Section 8.3 below, the Delivery Dates for any Primary Products and
Secondary/Steriles Products affected by such a delay shall be extended to the
earliest practicable date following the date that the necessary Materials become
available.
2.5 Effect of Certain Activities. If the activities of GWI
----------------------------
conducted at the Facility pursuant to the Environmental Agreement cause a loss
of Reactor Gallon capacity (based on the manner of operations at the Facility
immediately prior to the Effective Time), [*] To support any assertion by
Supplier of lost capacity, Supplier shall provide
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
25
<PAGE>
reasonable substantiation (A) of Supplier's lost revenue as a consequence of
such loss of Reactor Gallons caused by GWI's activities, and (B) that such lost
hours cannot otherwise reasonably be recovered or replaced by Supplier [*]
without additional cost to Supplier. Otherwise, only those Reactor Gallons
necessary (calculated pursuant to the Reactor Gallon Factors on Schedule 2.2(b))
to produce Products delivered
---------------
to GWI in accordance with this Agreement shall count against Firm Capacity
Committed. Reactor Gallons utilized to rework Products described in Section 9.9
shall count against Firm Capacity Committed only if such Products have been
reworked to comply with the terms of this Agreement (and then only in the
amounts calculated pursuant to the Reactor Gallon Factors in Schedule 2.2(b)).
---------------
Reactor Gallons utilized in connection with the manufacture of Specialty
Products after June 30, 2001 shall not be counted against Firm Capacity
Committed.
2.6 Primary Product Obligations at Effective Time. Exhibit A
--------------------------------------------- ---------
attached hereto and incorporated herein by reference sets forth (i) the
Binding Primary Commitment for the period commencing on the date hereof and
ending January 31, 1998, and (ii) the forecasts required under Section 2.2(a)
above and Section 2.2(b) above. As of the Effective Time, GWI shall have placed
orders for or transferred under the Purchase Agreement Materials to the extent
necessary, taking into account lead times, to enable Supplier to meet the
initial Binding Primary Commitment.
2.7 Product Transition. After GWI has informed Supplier of
------------------
the final date for Transition of any Primary Product, Supplier and GWI shall
work together to manage and plan the production process with respect to such
Primary Product. Supplier shall continue to meet GWI's demands for such Primary
Product under Section 2.2 above prior to the Transition while managing down
inventory with the objective that as of the Transition date, Supplier will have
no work-in-
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
26
<PAGE>
process or raw Materials with respect to such Primary Product. At the
Transition date, GWI and Supplier shall mutually determine whether Supplier
shall complete any work-in-process remaining and the terms of the disposition of
any remaining inventory or Materials.
ARTICLE III
SUPPLY AND PURCHASE OF SECONDARY/STERILES PRODUCTS
3.1 Purchase and Sale. Subject to the terms and conditions of
-----------------
this Agreement, Supplier agrees to manufacture at the Facility and sell to GWI,
and GWI agrees to purchase from Supplier, the Secondary/Steriles Products,
including those Products that are currently being produced pursuant to certain
manufacturing agreements with third parties which are identified on Schedule 2
-----------
as "TPMA" (the "TPMA Products"). GWI may from time to time request Supplier to
manufacture Secondary/Steriles Products in package or dosage sizes other than
those listed on Schedule 2 ("New Presentation"). Upon the request of GWI, and
----------
subject to the other provisions of this Agreement, Supplier shall manufacture at
the Facility and GWI shall purchase the New Presentations. Supplier shall also
manufacture at the Facility and sell to GWI, for use in clinical trials,
Products (in bulk or finished form as agreed by the parties) that are produced
at the Facility for use in clinical trials (the "Clinical Materials"). Supplier
shall produce the Clinical Materials in such quantities and with Delivery Dates
as GWI may reasonably request. Supplier shall have only the authority provided
under this Agreement with respect to the manufacture, testing, packaging,
labeling, delivery or sale of the Secondary/Steriles Products and the Clinical
Materials, and Supplier shall in no manner otherwise deal with the
Secondary/Steriles Products (including New Presentations) and the Clinical
Materials.
27
<PAGE>
3.2 Replenishment Forecast and Production.
-------------------------------------
(a) Replenishment Forecast. On or before the tenth (10th) business
----------------------
day of each calendar month during the Secondary Term and the Steriles Term, or
more frequently as desired by GWI, GWI shall provide Supplier with a forecast
(the "Replenishment Forecast"), [*] sales for Secondary Products and Steriles
Products, other than TPMA Products, identified on Schedule 2 as "Replenishment"
----------
(the "Replenishment Products"). As soon as practicable following receipt of the
Replenishment Forecast, but in no event later than the time required for
delivery of reports under Section 4.1 below, Supplier shall deliver to GWI a
forecast of production of Secondary/Steriles Products, including
Secondary/Steriles Products production to meet the Replenishment Forecast
("Replenishment Production"), for the next [*]
(b) GWI Responsibilities. As between GWI and Supplier, GWI shall be
--------------------
responsible to include in its Binding Primary Commitment quantities of Primary
Products needed for Replenishment Production, based on the information contained
in the reports received from Supplier pursuant to Section 3.2(a) such that if
GWI's failure to do so results in a need to prioritize orders as provided in
Section 4.3(c) below, such failure shall be deemed within the primary control of
GWI for purposes of such Section.
(c) Replenishment Production. Except as provided in Section 3.2(b),
------------------------
Supplier shall plan, manufacture, store and ship Replenishment Products to GWI
in quantities and at times sufficient to enable GWI to receive Replenishment
Products consistent with the Replenishment
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
28
<PAGE>
Forecast. Subject to Section 4.3 and except as provided in Section 3.2(b),
Supplier shall be responsible for all aspects of production, planning and
shipment of Replenishment Products to GWI consistent with the service levels and
inventory policies contained in the Replenishment Guidelines contained in
Schedule 3.2(c) attached hereto and
- ---------------
incorporated herein by reference. Supplier's responsibilities under this
Section 3.2(c) shall include, without limitation, the responsibility for
obtaining quantities of the Primary Products from Primary Inventory and other
Materials and for shipping adequate finished goods inventory of the
Replenishment Products as provided in the Replenishment Guidelines and the
inventory planning parameters described therein.
(d) MRP System. Any MRP system or major component thereof that
----------
Supplier proposes to utilize in connection with the Products, other than the
system in use at the Facility prior to the Effective Time and sold and
transferred to Supplier under the Purchase Agreement, must (i) provide features
and functionality at least equivalent to those provided by the MRP system
utilized by GWI as of the Effective Time, (ii) be properly validated in
accordance with CGMP and (iii) have been approved by GWI, which approval may not
be unreasonably withheld.
3.3 Purchase Orders.
---------------
(a) General. At any time during this Agreement, GWI may elect to
-------
terminate the provisions of Section 3.2 above with respect to any or all
Secondary/Steriles Products and submit POs under this Section 3.3 for any or all
Replenishment Products. In such event, the parties shall review and make any
mutually agreed changes to the inventory guidelines set forth on Schedule
--------
8.3(a). Orders for Secondary/Steriles Products (other than WL Products as
- ------
defined in Section 1.7 of Exhibit B attached hereto and incorporated herein by
---------
reference or Clinical Materials) not included in the Replenishment Forecast and
identified on Schedule 2 as "Other", and for all
----------
29
<PAGE>
Secondary/Steriles Products except WL Products if the parties discontinue use of
a Replenishment Forecast, shall be made in accordance with this Section 3.3. As
between GWI and Supplier, GWI shall be responsible to include in its Binding
Primary Commitment quantities of Primary Products needed for the Binding
Secondary/Steriles Commitment based on information contained in the reports
received from Supplier pursuant to Section 3.2(a) above such that if GWI's
failure to do so results in a need to prioritize orders as provided in Section
4.3(c) below, such failure shall be deemed within the primary control of GWI for
purposes of such Section 4.3(c). Supplier agrees to deliver the reports
described in Section 3.2(a) until the later to terminate of the Secondary Term
or the Steriles Term, notwithstanding any other termination of the provisions of
Section 3.2 with respect to any or all Secondary/Steriles Products as provided
in the first sentence of this Section 3.3(a). Except as otherwise provided in
the foregoing sentence, Supplier's responsibilities under this Section 3.3 shall
include, without limitation, the responsibility for obtaining quantities of the
Primary Products from Primary Inventory and other Materials and for shipping
finished goods inventory in accordance with POs delivered pursuant to Section
3.3(b) below.
On or before the last day of each calendar month during the Secondary
Term and the Steriles Term, GWI shall provide to Supplier [*] volumes of each
Secondary/Steriles Product not included in Replenishment Production to be
shipped by Supplier as directed by GWI during each month.
The requirements for each Secondary/Steriles Product in [*] will be a
binding commitment to purchase the specified volumes of those Secondary/Steriles
Products (the "Binding Secondary/Steriles Commitment"). Any changes in the
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSIONS. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
30
<PAGE>
volume of Secondary/Steriles Products to be produced hereunder during [*] shall
be made by mutual written agreement only. The projections for [*] shall be non-
binding estimates of future requirements.
(b) Purchase Orders. GWI shall deliver to Supplier POs for
---------------
Secondary/Steriles Products to be purchased pursuant to its Binding
Secondary/Steriles Commitments, specifying the volumes of Secondary/Steriles
Products ordered, the requested date of delivery (the "Delivery Date") and the
destination for delivery. Supplier shall be obligated to make such
Secondary/Steriles Products available for shipment so that delivery occurs on a
date [*] of the requested Delivery Date specified in the applicable PO. Supplier
shall have no liability for delivery delays occasioned by any carrier's failure
to meet its committed delivery times as set forth in Section 2.4(c). POs issued
--------------
shall be binding on Supplier to the extent consistent with the Binding
Secondary/Steriles Commitment, but inconsistent POs shall not be binding unless
the inconsistent PO is expressly accepted in writing by Supplier. Supplier shall
promptly notify GWI of the acceptance or rejection of any portions of a PO
considered by Supplier to be not consistent with the Binding Secondary/Steriles
Commitment portion of a forecast. In any event, GWI shall issue POs to Supplier
not [*] to the earliest Delivery Date specified in any such PO.
(c) Clinical Materials. GWI may also submit POs for Clinical
------------------
Materials in bulk active or finished dosage form from time to time. Supplier
agrees that it will manufacture and deliver Clinical Materials in accordance
with the POs.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
31
<PAGE>
3.4 Third Party Manufacturing Agreements.
------------------------------------
(a) Subcontracts. The parties acknowledge that GWI is party to
------------
certain manufacturing agreements with third parties for the production of TPMA
Products, as described in Exhibit B attached hereto and incorporated herein by
---------
reference (the "TPMAs"). Exhibit B attached hereto and incorporated herein by
---------
reference sets forth certain additional provisions governing the rights and
obligations of Supplier with respect to the TPMAs. Supplier hereby acknowledges
that it has received a copy of each TPMA and [*] subject to the provisions set
forth in Exhibit B. Nothing in this Agreement or Exhibit B shall obligate GWI to
--------- ---------
obtain for the benefit of Supplier additional manufacturing contracts for
Supplier or exercise any option or right under a TPMA for the benefit of
Supplier.
(b) Conflict Provisions. In the event of a conflict between the
-------------------
provisions of this Agreement (other than this Article III) and Exhibit B with
---------
respect to any TPMA Product, the provisions of Exhibit B shall control. In the
---------
event of a conflict between the provisions of this Article III and Exhibit B,
---------
the provisions of this Article III shall control.
3.5 Secondary/Steriles Product Obligations at Effective Time.
---------------------------------------------------------
Exhibit C attached hereto and incorporated herein by reference sets forth (i)
- ---------
the Replenishment Forecast [*] (iii) certain binding commitments for Clinical
Materials and (iv) the forecast required under Section 3.3(a). GWI shall have
placed orders for or transferred under the Purchase Agreement Materials to the
extent necessary, taking into account lead times, to enable Supplier to meet the
initial Binding Secondary/Steriles Commitment,
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
32
<PAGE>
the Replenishment Forecast and POs for Clinical Materials for the [*]
3.6 Product Transition. Upon Transition of a Product to an
------------------
Outside Facility, any use of the Replenishment Forecast and Supplier's
obligations under Section 3.2 above for that Product shall be terminated. After
GWI has informed Supplier of the final date for Transition of any
Secondary/Steriles Product, GWI shall, at its election, either: (i) if it has
not yet done so, commence submitting POs for any amounts of such
Secondary/Steriles Product to be Transitioned for the period of not [*] to the
Transition date, (ii) submit a binding commitment to Supplier to purchase such
Secondary/Steriles Products for the period of not [*] to the Transition Date or
(iii) continue including the Secondary/Steriles Product in the Replenishment
Forecast and adjust the applicable inventory guidelines in a manner to
approximately reflect such Transition. Supplier and GWI shall work together to
manage and plan the production process with respect to such Secondary/Steriles
Product. Supplier shall continue to meet GWI's demands for such
Secondary/Steriles Product under this Agreement prior to the Transition while
managing down inventory with the objective that as of the Transition date,
Supplier will have no work-in-process or raw Materials with respect to such
Secondary/Steriles Product. At the Transition date, GWI and Supplier shall
mutually determine whether Supplier shall complete any work-in-process remaining
and the terms of the disposition of such inventory or Materials.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
33
<PAGE>
ARTICLE IV
PRODUCTION COORDINATION AND OBLIGATIONS
4.1 Monthly Meetings and Reports. The parties shall meet no
----------------------------
less than monthly to discuss the forecasts delivered by GWI pursuant to Articles
II and III above and to discuss production matters relating to delivery of
Products as requested by GWI. [*] to the monthly meeting, Supplier shall
deliver to personnel designated by GWI the following reports, each in a form
mutually agreed by the parties:
(i) inventory activity for raw Materials, other Materials and, on a
per Product basis, work-in-progress, finished goods and Primary Inventory
(including beginning inventories, receipts, issues, adjustments and ending
inventories); and
(ii) order fulfillment report for Products showing [*] by area for the
Primary Facility, the Secondary Facility and the Steriles Facility; and
(iii) order fulfillment report for Products showing projected
manufacture for [*] by area for the Primary Facility, the Secondary Facility and
the Steriles Facility, to support all forecasted demand.
4.2 Scheduling. Subject to Section 4.3 below, Supplier shall be
----------
responsible to schedule production of Products throughout the Facility in a
manner that enables it to ship Products and transfer Primary Products to Primary
Inventory as directed by GWI and subject to the other terms of this Agreement.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
34
<PAGE>
4.3 Prioritization.
--------------
(a) Supplier Notice. If Supplier determines that based on a new
---------------
Binding Primary Commitment, Binding Secondary/Steriles Commitment, a PO for
Clinical Materials, Replenishment Forecast or a PO for Primary Inventory, or
other factors that: (i) there are not sufficient volumes of Primary Products in
Primary Inventory to support Supplier's obligations to ship Secondary/Steriles
Products or Clinical Materials under Article III or fill POs for Primary
Products out of Primary Inventory at the times and in the quantities required
under this Agreement or (ii) the requirements for Primary Products cannot be met
within the applicable Contract Reservation plus Additional Purchased Capacity
plus Flex Capacity or within the Profile Plant, Supplier shall promptly notify
GWI and provide GWI with supporting information relating to Supplier's
determination. Supplier's notice under this Section 4.3(a) must be given no
less than fifteen (15) days after obtaining information indicating those
problems.
(b) GWI Notice. If GWI determines following receipt of notice from
----------
Supplier under Section 4.3(a) above or otherwise that, based on information
available to it, Supplier is unlikely to be able to schedule production for
Primary Products needed to support Supplier's obligations under this Agreement
or the requirements for Primary Products cannot be met within the applicable
Contract Reservation plus Additional Purchased Capacity plus Flex Capacity or
the Profile Plant, GWI shall inform Supplier and provide Supplier with
supporting information relating to GWI's determination. Nothing contained in
this Section 4.3(b) shall, however, relieve Supplier from its obligations to
deliver a notice required by Section 4.3(a) above or to supply Products in
accordance with the terms of this Agreement and the priority of orders as
determined by GWI under Section 4.3(c) below.
35
<PAGE>
(c) Priority of Orders. If GWI determines that Supplier is unlikely
------------------
to be able to schedule production as indicated in Section 4.3(b) above, then GWI
shall advise Supplier of the priority of production within the Primary Facility
for GWI's Binding Primary Commitments, Binding Secondary/Steriles Commitments,
POs for Clinical Materials or for Primary Inventory and Replenishment Products.
If a change in a Replenishment Forecast previously delivered by GWI, the
issuance by GWI of a new PO for Secondary/Steriles Products or for Primary
Products from Primary Inventory or other causes under GWI's primary control (but
not under Supplier's control) is the basis for the delivery of such notice, the
parties' obligations with respect to the production, purchase and sale of
Products, including without limitation obligations with respect to service
level, shall be modified in accordance with the adjustments in scheduled
delivery dates made by GWI pursuant to this Section 4.3.
4.4 Cooperation of the Parties. In recognition of the fact that
--------------------------
GWI's business is dynamic and evolving based on market demand, regulatory
approvals and other factors, Supplier shall in good faith, but subject to the
provisions of this Agreement, seek to accommodate any GWI request to manufacture
quantities of Products in excess of the Supplier's obligations hereunder, on
commercially reasonable terms, so long as such request is reasonably related to
marketing of, supply of or demand for the Products, and such manufacturing
activities will not have a material adverse impact on Supplier's other business
activities.
36
<PAGE>
ARTICLE V
PAYMENTS FOR PRODUCTS
5.1 Conversion Charge.
-----------------
(a) General. GWI shall pay Supplier, [*] as provided in Schedule
-------
5.1(a) attached hereto and incorporated herein by reference. The Conversion
- ------
Charge for a Primary Product used in any Secondary/Steriles Product (the
quantity of Primary Product used [*] standards) shall be included on the invoice
issued by Supplier for those Secondary/Steriles Products.
(b) Specialty Products. The Conversion Charge of the Specialty
------------------
Products for all periods after the fourth (4th) anniversary of this Agreement
shall be negotiated by the parties in good faith as provided in this Section
5.1(b). Prior to the second (2nd) anniversary of this Agreement (and, if
applicable, each succeeding anniversary of this Agreement at which no Specialty
Termination Notice has been delivered as provided in Section 19.3(b) below), GWI
shall deliver to Supplier a forecast of production for the Specialty Products
for [*] from such anniversary of this Agreement. The parties shall then
negotiate in good faith the price and volume of any Specialty Products to be
purchased during the period covered by such forecast and Supplier shall reserve
for the manufacture of Specialty Products Reactor Gallon production capacity
reasonably requested by GWI and sufficient to manufacture and supply volumes of
Specialty Products at a level sufficient for indications approved as of the
Effective Time by the FDA or other regulatory bodies having jurisdiction over
the Specialty Products. The parties acknowledge that the price of the Specialty
Products should reflect then relevant circumstances
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
37
<PAGE>
between the parties. If the parties are unable to agree on such price [*] days
prior to the fourth (4th) anniversary of this Agreement (or applicable
subsequent anniversary), the price of the Specialty Products for the applicable
period shall be [*] (adjusted for the percentage increase, if any, in the
Producer Price Index from the Effective Time until such anniversary), plus a
[*]% margin.
(c) New Presentations. The Conversion Charge for any New
-----------------
Presentations shall be calculated as follows:
[*]
where (A) is the average per unit (e.g., tablet) Conversion Charge for those
presentations of such Secondary/Steriles Product having the same dosage size as
the New Presentation; (B) is the unit size of the New Presentation; [*] where
(W) is the average per dosage unit (e.g., mg) Conversion Charge for those
presentations of such Secondary/Steriles Product having the same package size as
the New Presentation; (X) is the dosage size (in units) of the New Presentation;
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
38
<PAGE>
[*]
The Conversion Charge for each New Presentation shall be recalculated
following the [*] the New Presentation is supplied under this Agreement (or
until that New Presentation is no longer supplied, whichever first occurs), [*]
by Supplier with respect to that New Presentation and the actual unit volumes of
that New Presentation with Delivery Dates during the period. Incremental costs
used in the recalculation shall include only the types of costs included in the
initial calculation, and only increases or decreases therein shall be reflected
in the recalculation. If the recalculated Conversion Charge exceeds the
Conversion Charge calculated prior to the commencement of supply of any such New
Presentation, GWI shall promptly pay to Supplier an amount equal to the excess
times the number of units of that New Presentation with Delivery Dates in such
period. If the recalculated Conversion Charge is less than the Conversion Charge
calculated prior to the commencement of supply of any such New Presentation,
Supplier shall credit to GWI an amount equal to the difference times the number
of units of such New Presentation with Delivery Dates in such period on
Supplier's next invoices for Products until fully recovered. The amount of any
credits not applied against invoices to GWI as of the Termination Date shall be
paid by Supplier to GWI within [*] the Termination Date.
(d) Clinical Materials. The Conversion Charge for Clinical Materials
------------------
shall be determined in the same manner as provided in Section 5.1(c) above for
different pack or dosage sizes, as applicable; provided, appropriate reduction
shall be made in the Conversion Charge so
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
39
<PAGE>
calculated for steps in production or packaging not required to be taken in
connection with the production of such Clinical Materials.
(e) Certain Bupropion Charges. To the extent Supplier must utilize
-------------------------
the pilot plant for the production of bupropion in order to meet GWI's Binding
Primary Commitment for Primary Products to be delivered in 1997, the Conversion
Charge for any bupropion required to be and actually manufactured [*] on or
after September 1, 1997 shall be increased by [*]
5.2 Materials Charge.
----------------
(a) General. GWI shall pay Supplier, as a materials charge for each
-------
Product delivered, Supplier's actual costs (except as described below for
Purchased Inventory) on a per unit basis for (i) drug and chemicals (excluding
in-bound assay costs), (ii) packaging, and (iii) outside services related to the
manufacture of such Product, multiplied by the applicable conversion factor
where the conversion factor assumes conversion of raw materials and conversion
of Primary Products into Secondary/Steriles Products [*] materials conversion
rates, as provided in Schedule 5.2(a) attached hereto and incorporated herein by
---------------
reference (the "Materials Charge"). For the avoidance of doubt, it is understood
and agreed that the cost of Materials shall mean, for the purpose of this
Agreement, the out-of-pocket purchase price for the Materials including
applicable taxes and fees, net of any vendor discounts, rebates or similar
arrangements, plus out-of-pocket transportation, duties and insurance expenses
actually incurred by Supplier for such Materials. The Materials Charge for
Purchased Inventories, shall be [*] costs. The Materials Charge used in
computing the invoice price hereunder shall not be changed as a result of
Supplier achieving materials conversion rates varying from [*] The Materials
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
40
<PAGE>
Charge for Primary Products included in Secondary/Steriles Products shall be
included on the invoice for such Secondary/Steriles Products.
(b) Invoice Prices. The per unit cost of Materials included in the
--------------
price invoiced upon shipment shall be [*] per unit for the Products as set forth
in Schedule 5.1(a).
---------------
(c) Certain Interim Adjustments. In any event, by the tenth (10th)
---------------------------
day of each April, July, October and January during the Term of this Agreement
(other than October 10, 1997), Supplier shall deliver to GWI Supplier's good-
faith estimate of the aggregate amount paid by Supplier to purchase Designated
Materials purchased for Products shipped under the terms of this Agreement
during that calendar year (or, in the case of January, the immediately preceding
calendar year) through the end of the immediately preceding calendar quarter. In
the event that such estimate less any payments under this Section made through
such date varies from the amount calculated by multiplying [*] costs for the
Designated Materials as provided in Schedule 5.2(c) attached hereto and
---------------
incorporated herein by reference by the volume of the Designated Materials
purchased for Products shipped by Supplier for the time period in question by an
amount greater than [*] then Supplier shall, as the case may be, either deliver
an invoice to GWI for the shortfall, payable within [*] receipt by GWI, or
provide GWI with one or more credits in the aggregate amount of the overpayment
on Supplier's next invoices for Products until fully recovered. The amount of
any credits not applied against invoices to GWI as of the Termination Date shall
be paid by Supplier to GWI within [*] the Termination Date. In this Section
5.2(c), "Materials purchased for Products shipped" shall include the Designated
Materials purchased for Primary Products and Secondary/Steriles Products,
including without limitation, Replenishment
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
41
<PAGE>
Production, that were shipped and invoiced to GWI during the applicable period.
Notwithstanding the foregoing, Supplier shall bear certain increases in the
Designated Materials costs as provided in Section 7.1(h) below.
(d) Annual Materials Charge True-Up. On or before March 30 of each
-------------------------------
year during the Term of this Agreement, Supplier shall prepare and deliver to
GWI a final accounting of its actual costs for all Materials actually utilized
in Products shipped under the terms of this Agreement the previous year,
together with verification of the actual costs in a manner reasonably
acceptable to GWI. In this Section 5.2(d), "Materials actually utilized in
Products shipped" shall include Materials actually utilized in the manufacture
of Primary Products and Secondary/Steriles Products, including without
limitation, Replenishment Production, that were shipped and invoiced to GWI
during the applicable period. GWI shall have [*] receipt of the required
detailed schedule to notify Supplier in writing of its acceptance thereof or
of any objection thereto. If a written objection is made by GWI and not
resolved by the parties within [*] issuance by GWI, then a Selected Accounting
Firm shall conclusively determine the amount of Supplier's Materials costs for
the prior year. If the aggregate actual Materials costs exceed that paid by
GWI pursuant to (i) invoices for the Products as provided in Section 5.2(b),
and (ii) Section 5.2(c) above, GWI shall pay the difference to Supplier within
[*] the final determination thereof and receipt of an invoice from Supplier
for such amount. If the aggregate actual Materials costs are less than the
total payments made by GWI pursuant to such invoices and Section 5.2(c) above,
then Supplier shall provide GWI with one or more credits in the aggregate
amount of the overpayment on Supplier's next invoices for Products until fully
recovered. The amount of any
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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credits not applied against invoices to GWI as of the Termination Date shall be
paid by Supplier to GWI within [*] after the Termination Date.
5.3 Certain Capacity Charges.
------------------------
(a) Amount and Calculation. Reactor Gallons up to a maximum of [*]
----------------------
per calendar year will be deemed Flex Capacity for purposes of the additional
payment due Supplier as provided in this Section 5.3(a) if Reactor Gallons
included in the Firm Capacity Committed for a given calendar year exceed the
number of Contract Reservation plus Additional Purchased Capacity Reactor
Gallons for that year. For each Reactor Gallon treated as Flex Capacity and any
Additional Purchased Capacity, GWI shall pay to Supplier an amount equal to [*]
The effective rate per Reactor Gallon then charged by Supplier to its other
customers shall be determined in good faith by the mutual agreement of the
parties, taking into account all amounts (other than amounts equal to Supplier's
costs for any materials calculated in a manner consistent with the provisions of
the second sentence of Section 5.2(a)) [*] or otherwise reserved for that
customer. In determining such effective rate, the parties shall consider and
appropriately account for the effect, if any, of any special pricing
arrangements with the customer.
(b) Credit. Provided that GWI has met its Guaranteed Revenues
------
obligation for the applicable period as provided in Article VI below and subject
to this Section 5.3(b), GWI shall
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
43
<PAGE>
receive a credit against amounts payable pursuant to Section 5.3(a) above
determined with respect to each calendar year during the Term of this Agreement
as follows:
[*]
(c) Payment. The charge for Flex Capacity, offset by applicable
-------
credits, shall be paid in three (3) equal installments on June 30, September 30
and December 31 of each year in which the Firm Capacity Commitments include Flex
Capacity. The charge for Additional Purchased Capacity shall be paid in equal
installments at the end of each calendar quarter in the period covered by the
Additional Purchased Capacity.
ARTICLE VI
GUARANTEED REVENUES
6.1 Annual Amounts. In order to provide Supplier with assurance
--------------
of certain economic benefits of this Agreement, GWI guarantees to Supplier that
the Conversion Charges for
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
44
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all Products through December 31, 2001 in the periods shown below and payments
for Transition of Products made to Supplier pursuant to Section 18.3 of this
Agreement shall be not less than the aggregate annual amounts as follows
("Guaranteed Revenues"):
For the period ending December 31, 1997 $ 77.0 million
For the year ending December 31, 1998 $166.4 million
For the year ending December 31, 1999 $ 94.0 million
For the year ending December 31, 2000 $ 72.6 million
For the year ending December 31, 2001 $ 22.6 million
Conversion Charges for Products shall be credited toward GWI's Guaranteed
Revenues obligation as of the Delivery Date or, in the case of Replenishment
Products, as of the date on which shipment to GWI would be required to meet
Supplier's obligations under Section 3.2. Conversion Charges for Primary
Products required for use in Secondary/Steriles Products shall, for purposes of
this Section 6.1 and Sections 6.2 and 6.3 below, be treated as part of the
Conversion Charge for the Secondary/Steriles Products regardless of how
designated on the applicable invoice. The Conversion Charges with respect to
Products for which the Delivery Date falls in one year, but which were not
delivered until a subsequent year as a result of Supplier not timely making
available the Products for shipment (as required in Sections 2.2(c), 3.2(c) or
3.3(b) above) without GWI's consent, shall be credited in the year in which the
Delivery Date fell. Any amounts payable by GWI to Supplier pursuant to Section
18.3 shall be credited against GWI's Guaranteed Revenue obligations as of the
invoice date.
6.2 Interim Payments.
----------------
(a) By the tenth (10th) day of each month during the Term of this
Agreement Supplier will deliver to GWI Supplier's good faith estimate of the
aggregate Conversion Charges for that calendar year (or, in the case of January,
the immediately preceding calendar year) through the
45
<PAGE>
end of the immediately preceding month. GWI shall, within 30 days of its
receipt of an invoice, pay to Supplier the amount if any by which the Guaranteed
Revenues for the applicable calendar year through the end of such month
(assuming, except as provided in Section 6.2(b) below, that Guaranteed Revenues
are earned and accrued in twelve equal monthly installments) exceed the
cumulative aggregate Conversion Charges for Products with Delivery Dates in the
applicable calendar year through the end of such month. All payments made to
Supplier pursuant to this Section 6.2 shall be credited towards GWI's Guaranteed
Revenue obligation.
(b) For purposes of the interim payments to be made pursuant to
Section 6.2(a) above, it shall be deemed that the Guaranteed Revenues for 1998
are earned as follows:
For each month ending on or before June 30, 1998 [*] million
For each month after June 30, 1998 and on or before
December 31, 1998 [*] million
(c) For purposes of the interim payments to be made pursuant to
Section 6.2(a) above, it shall be deemed that the Guaranteed Revenues for 2001
are earned as follows:
For each month ending on or before June 30, 2001 [*] million
For each month after June 30, 2001 and on or before
December 31, 2001 [*] million
6.3 Annual Accounting.
-----------------
(a) On or before March 30 of each year during the Term of this
Agreement, Supplier shall prepare and deliver to GWI a final accounting of the
aggregate Conversion Charges hereunder for the preceding calendar year.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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<PAGE>
(b) GWI shall have thirty (30) days from receipt of the final
accounting to notify Supplier in writing of its acceptance thereof or of any
objection thereto. If a written objection is made by GWI and not resolved by
the parties within sixty (60) days after issuance by GWI, then Selected
Accounting Firm shall conclusively determine the amount of the aggregate
Conversion Charges for the prior year. GWI shall pay to Supplier within thirty
(30) days after receipt of an invoice therefor (or following the final
determination if GWI issues an objection) the amount, if any, by which the
Guaranteed Revenues specified in Section 6.1 above for such year exceed the
aggregate Conversion Charges for that year, taking into account all payments
made under Section 6.2 above. If the aggregate Conversion Charges for that
year, plus all payments made under Section 6.2 above, exceed accrued Guaranteed
Revenues, then Supplier shall provide GWI with one or more credits on Supplier's
next invoices for the Products as provided below. The aggregate amount of such
credits shall be equal to (i) all of the payments made pursuant to Section 6.2
during the immediately preceding year, if the aggregate Conversion Charges
exceed Guaranteed Revenues or (ii) the amount by which all the payments made
pursuant to Section 6.2 during the immediately preceding year, plus the
aggregate Conversion Charges exceed Guaranteed Revenues, if the aggregate
Conversion Charges were less than Guaranteed Revenues. The amount of any
credits not applied against invoices to GWI as of the Termination Date shall be
paid by Supplier to GWI within thirty (30) days after the Termination Date.
6.4 Secondary/Steriles Allowance. GWI shall credit against its
----------------------------
Guaranteed Revenue obligation for a given year Conversion Charges for Primary
Products used in Secondary/Steriles Products which such Primary Products were or
should have been manufactured by Supplier in such year to meet delivery
requirements for Replenishment Production or Delivery
47
<PAGE>
Dates in that year. In no event, however, shall GWI receive a credit against
Guaranteed Revenues for the same Conversion Charge twice.
6.5 Required Payment. During the term of this Agreement, GWI's
----------------
obligation to pay Guaranteed Revenues under this Article VI shall remain in
effect except as expressly provided in Sections 20.5(b) or 24.3.
ARTICLE VII
MANUFACTURE OF PRODUCTS
7.1 Specifications.
--------------
(a) General. Supplier shall manufacture, test, package, label and
-------
deliver all Products in accordance with the Specifications as revised from time
to time in accordance with the provisions of this Agreement. GWI represents
that the Specifications in Schedule 7.1(a) attached hereto and incorporated
---------------
herein by reference (i) with respect to Products other than TPMA Products, are
GWI's specifications for the Products identified on Schedule 7.1(a) immediately
---------------
prior to the Effective Time and (ii) with respect to TPMA Products, are the
Specifications in effect under the applicable TPMA immediately prior to the
Effective Time.
(b) GWI Requested Changes. GWI shall be entitled to change the
---------------------
Specifications for a Product from time to time, and Supplier shall make and
validate all revisions to the Specifications requested by GWI in accordance with
this Section 7.1.
(c) Evaluation of Changes. GWI may request Supplier to evaluate a
---------------------
potential revision to the Specifications, and Supplier shall promptly provide to
GWI at no charge a detailed written estimate of all expenses outside the
ordinary course of business that such evaluation will
48
<PAGE>
require. Upon GWI's approval of the written estimate, Supplier shall proceed
with such evaluation and GWI shall reimburse Supplier for its actual expenses
outside the ordinary course of business involved in such evaluation consistent
with the approved estimate. GWI shall be obligated to reimburse Supplier for
expenses in excess of the approved estimate only if the basis for the excess
costs is substantiated by Supplier and approved in writing by GWI, which
approval shall not be unreasonably withheld.
(d) Certain Expenditures. If a revision to Specifications, other
--------------------
than revisions described in Section 7.1(h) below or Section 7.5 below, requires
Supplier to pay for additional equipment or otherwise pay for costs that, either
on a one-time or an on-going basis, exceed the [*] (including Materials and
Conversion Charges) for that Product projected to be paid to Supplier under this
Agreement pursuant to the most recent applicable forecasts, then GWI shall bear
all necessary and reasonable costs incurred by Supplier directly as a result of
such revision to the Specifications to the extent the same are incurred outside
of Supplier's ordinary course of business. Supplier shall pay all costs
associated with any revisions to Specifications that (i) are described in
Section 7.1(h) below or for which Supplier is responsible pursuant to Section
7.5 below or (ii) GWI is not obligated to bear under this Section 7.1(d).
(e) Ownership of Assets. If GWI bears the costs of changes in
-------------------
Specifications under Section 7.1(d) for the purchase of capital assets (the "GWI
Assets"), title to such GWI Assets shall be vested in Supplier. GWI and
Supplier shall determine, however, prior to the installation of GWI Assets at
the Facility whether such GWI Assets are (i) easily removable, in which case GWI
may elect at GWI's expense to remove the GWI Assets from the Facility at the
completion of the
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
49
<PAGE>
applicable Term, or, if earlier, upon completion of the Transition(s) for each
Product for which the GWI Assets are utilized and, without further obligation to
Supplier, have title to the GWI Assets transferred to GWI; (ii) removable from
the Facility but are either integral to the functioning of certain of Supplier's
assets or would require extensive renovations if removed, in which case at the
earlier of completion of the applicable Term or upon Transition of the relevant
Products for which the GWI Assets are utilized, GWI may, at GWI's expense and
provided it can do so without unreasonably interfering with Supplier's
operations at the Facility, remove the GWI Assets from the Facility and restore
the Facility to a condition comparable (less ordinary wear and tear) to that
existing immediately prior to the installation of such GWI Assets and have title
transferred to GWI, subject to a right of Supplier to acquire the GWI Assets
from GWI at the amount that would have been GWI's depreciated cost on the date
of transfer of title to GWI if GWI had owned the assets; or (iii) are not
practicably removable from the Facility, in which case Supplier shall retain
title to the GWI Assets and have no further obligation to GWI. During any
period that the GWI Assets are at the Facility, except as otherwise provided in
Section 7.1(d), Supplier shall have all rights and obligations of ownership and
shall be responsible for maintaining, repairing and insuring such GWI Assets as
Supplier, in its reasonable discretion, deems necessary.
(f) Development Work. For all changes to the Specifications requested
----------------
by GWI, GWI shall, in its discretion, either (x) perform, or arrange for the
performance of, all development work in connection therewith or (y) have
Supplier perform such development work at the Facility. GWI shall reimburse
Supplier for expenses reasonably incurred in connection with such work which are
outside the costs of Supplier's ordinary course of business, except that any
development work required as a result of changes described in Section 7.1(h)
below or the first sentence of Section 7.5
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<PAGE>
below shall be conducted at Supplier's sole expense. In the event that Supplier
has insufficient non-financial resources, including equipment, to validate any
revision or to undertake any development activities requested of it, GWI shall
have the right, subject to Section 12.1 below, to employ its own or any third
party's personnel at the Facility in order to conduct such validation
activities, subject further to the provisions of Article XXII hereof. The
timing of the implementation, including validation, of any such revisions shall
be agreed to by Supplier and GWI, with payment by GWI based on completion of
agreed-upon milestones or otherwise as agreed by Supplier and GWI, but in no
event less frequently than once every sixty (60) days.
(g) Supplier Changes. Supplier shall not make any revisions to the
----------------
Specifications without the prior written consent of GWI. If Supplier desires to
change any Specifications (including changes described in Section 7.1(h) below),
Supplier shall notify GWI, in writing and in reasonable detail, of: (i)
Supplier's suggested change; (ii) the reasons for the suggested change; (iii)
the perceived benefits to Supplier and GWI, respectively, of the suggested
change; and (iv) the estimated costs and timing of implementing such change, all
in accordance with the procedures set forth in Schedule 7.1(i) attached hereto
---------------
and incorporated herein by reference. GWI shall be under no obligation to
accept, approve or bear the costs of any suggested changes. In the event
Supplier is proposing any change to the Specifications on the basis that the
change is required to bring the Specifications into conformity with CGMP or any
Legal Requirements, then Supplier shall notify GWI of the basis of its
determination. If GWI does not concur with Supplier's determination, then GWI
shall be liable for any Losses incurred by Supplier (other than special or
consequential damages) or GWI arising in connection with Supplier's performance
of its obligations under this Agreement to the extent due to GWI's failure to
implement the change requested by Supplier, except
51
<PAGE>
to the extent Supplier withheld material information or misrepresented the
material information upon which GWI made its determination.
(h) Other Changes. In the event that any revision to the
-------------
Specifications is required as a result of Supplier's negligence or willful
misconduct, Supplier shall bear any increased additional costs of producing that
Product and capital expenditures incurred to implement any revision, including
any costs of additional Materials and one-time expenditures, without any
increase in the price of that Product under this Agreement.
(i) Amendment Documentation. Promptly after GWI requests any
-----------------------
revisions to be made to the Specifications, or upon submission by Supplier of a
request to GWI to revise the Specifications in accordance with Section 7.1(g)
above, Supplier shall provide to GWI, for approval or revision or, as provided
in Section 7.1(g) above, rejection, copies of the proposed written amendments to
the Specifications required to reflect the requested or proposed revisions. GWI
shall promptly notify Supplier of its approval, rejection or revisions required
in accordance with Schedule 7.1(i).
---------------
(j) Reporting. Within sixty (60) days after the end of each calendar
---------
year, Supplier shall provide to GWI a report summarizing all such revisions made
to the Specifications as provided in Section 7.1(i) above during the prior year.
In addition, Supplier shall provide to GWI copies (in electronic or hard-copy
form, as requested by GWI) of any Specifications requested from time to time by
GWI.
7.2 Packaging.
---------
(a) Parties' Obligations. Except where otherwise required by
--------------------
applicable law or regulation, GWI shall be responsible for (i) providing to
Supplier all copy to be used in packaging
52
<PAGE>
and labeling of the Secondary/Steriles Products and (ii) compliance of the copy
so provided by GWI with all applicable laws and regulations. Supplier shall use
only copy provided by GWI or otherwise required by the Specifications in the
packaging and labeling of the Products unless prohibited by applicable law or
regulation, in which event Supplier shall notify GWI and GWI shall submit other
copy for Supplier's use. Supplier shall package the Secondary/Steriles Products
in accordance with the Specifications, unless the parties otherwise agree in
writing. The processes of packaging and labeling the Products shall be
conducted in accordance with all applicable legal and regulatory requirements.
At GWI's request, Supplier shall send samples of any packaging, cartons, labels
and package inserts for any of the Secondary/Steriles Products to GWI.
(b) Changes. At GWI's request, Supplier shall implement all changes
-------
in package configurations, provided that the provisions of Section 7.1(d) above
shall apply to the payment of any significant costs associated therewith.
7.3 Storage Obligations. When storing Products, Supplier shall
-------------------
comply with, and shall maintain all storage facilities in compliance with, the
Specifications and in accordance with Current Good Manufacturing Practices and
Legal Requirements.
7.4 Validations and Stability Studies.
---------------------------------
(a) General. Supplier shall perform [*] on an on-going basis all
-------
validations and stability studies (i) required in connection with the Products
and otherwise required for the performance of its obligations under this
Agreement and (ii) necessary as provided on Schedule 18.2 to complete the
-------------
Transition of Products, in any such case at its own expense, except as provided
in Section 7.4(b) below, including the work reflected under this Article VII.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARTELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
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(b) Special Studies. In addition to the activities contemplated in
---------------
Section 7.4(a) above, Supplier shall continue and complete all other GWI studies
in progress as of the Effective Time at the Facility and will conduct future
agreed stability studies related to Products for fees to be negotiated by the
parties on a per test/per sample basis.
(c) Duties. In connection with the conduct of the work described in
------
Section 7.4(a) above and Section 7.4(b) above, Supplier shall perform the
following tasks:
(i) prepare and provide to GWI the data package for regulatory
submissions;
(ii) support GWI's studies at the Facility with respect to TPMA
Products and Product Transitions;
(iii) pull, store and analyze data and maintain database
containing applicable information; and
(iv) provide analytical and data support for transfer of
Products from the portion of the Secondary Facility known as SPD to the Steriles
Facility; provided the parties understand that Supplier has no obligation to
manufacture Products in the SPD portion of the Secondary Facility (other than
pursuant to the TPMAs with Monarch Pharmaceuticals, Inc.) after January 1, 1998.
7.5 Changes in CGMP or Legal Requirements. [*] as a result of
-------------------------------------
changes in the CGMP or Legal Requirements implemented after the Effective Time.
[*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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expenses incurred by Supplier to comply with Legal Requirements of any country
or nationality not listed on Schedule 16.2(b) as of the Effective Time.
----------------
7.6 Supplier's Change Control. Supplier's internal Change
------------------------- ------
Control Operating Procedure to be effective at the Facility at the Effective
- ---------------------------
Time, a copy of which is attached to Schedule 7.6 hereto, has been accepted by
------------
GWI and Supplier agrees to comply with such procedure. Supplier shall not
modify its Change Control Operating Procedure in effect with respect to the
----------------------------------
Products without the prior written consent of GWI, which consent shall not be
unreasonably withheld.
ARTICLE VIII
MATERIALS SOURCING
8.1 Materials Sourcing.
------------------
(a) General. Supplier shall source Materials, other than those
-------
Materials specified on Schedule 8.1(a) attached hereto and incorporated herein
---------------
by reference (the "Key Ingredients"), as provided in this Section 8.1.
(b) Approved Suppliers. Where the Specifications name one or more
------------------
Approved Supplier(s) for a Material, Supplier shall obtain that Material only
from an Approved Supplier.
(c) Price Substantiation. Price increases for any Material item
--------------------
with respect to which Supplier's aggregate annual costs under this Agreement in
the prior year were, or in the current year are projected to be, in excess of
(i) [*] in the case of drug and chemical ingredients, (ii) [*] in the
case of packaging components or (iii) [*] in the case of outside charges
(collectively, the "Reportable Materials"), shall be subject to reporting and
substantiation in
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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<PAGE>
accordance with this Section 8.1(c). Unless impractical to do so because of
existing demand or commitments for Products, Supplier shall provide to GWI prior
written notice of any increase of [*] in the costs of Designated Materials and
of any increase of [*] in the costs of any other Reportable Materials (each, a
"Significant Price Increase"). In the event of a proposed Significant Price
Increase, Supplier shall demonstrate to GWI its efforts to obtain the most
favorable Materials' price and will cooperate with GWI in obtaining such
Materials at the most favorable price under acceptable terms. If Supplier
intends to change the Approved Supplier used for a Reportable Material, and such
change will result in a Significant Price Increase, then unless the existing
Approved Supplier is increasing the cost of the Reportable Material by a
comparable amount, Supplier shall either (i) be responsible for the cost of the
Significant Price Increase or (ii) have received the prior written consent of
GWI for the use of such Approved Supplier. Any reductions in the cost of
Materials shall be reflected in the price charged under this Agreement for all
Product(s) in which the Material is used.
(d) Testing and Acceptance. Upon receipt of Materials, Supplier shall
----------------------
review and determine the sufficiency of any applicable certificate of analysis
accompanying any Materials shipment or conduct the required appropriate testing,
in all cases as provided in the applicable Specifications. Schedule 8.1(d)
---------------
attached hereto and incorporated herein by reference, lists those suppliers
that can provide a certificate of analysis and those suppliers that make
Materials that GWI will require Supplier to test. GWI may revise Schedule
--------
8.1(d) from time to time by delivery of not less than thirty (30) days written
- ------
notice to Supplier in accordance with the provisions of Section 25.2 below;
provided, that GWI shall have the right by delivery of such written notice to
immediately require testing by Supplier of Materials supplied by any Person
subject to any judgment, order or
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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<PAGE>
investigation by a Governmental Body affecting such Materials. For all
suppliers listed on Schedule 8.1(d) which GWI has indicated may provide a
---------------
certificate of analysis, Supplier shall be entitled to rely on any such
certificate of analysis in determining whether testing of such Materials is
necessary. Nothing under this Section 8.1 shall, however, relieve Supplier from
any of its obligations regarding the Materials.
(e) Unused Materials. If Supplier acquires Materials with respect to
----------------
a Binding Secondary/Steriles Commitment, and GWI subsequently fails to purchase
Secondary/Steriles Products in accordance therewith, Supplier shall seek to
utilize any such Materials, other than Key Ingredients, in the ordinary course
of its business. If at the end of [*] from the end of the quarter
for which the Materials were purchased GWI has not purchased Secondary/Steriles
Products or submitted a subsequent Binding Secondary/Steriles Commitment using
those Materials, [*]
8.2 Key Ingredients.
---------------
(a) Definition and Procedures. From time to time, GWI shall select
-------------------------
each supplier for the Key Ingredients specified on Schedule 8.1(a) and shall
---------------
designate to Supplier the quantity of each Key Ingredient to be purchased from a
designated supplier for any Key Ingredient. The initial suppliers for the Key
Ingredients are specified on Schedule 8.1(a). GWI may revise Schedule 8.1(a)
--------------- ---------------
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
57
<PAGE>
from time to time by delivery of a written notice to Supplier in accordance with
the provisions of Section 25.2 below. GWI shall negotiate the price, terms of
payment and quantity of supply with each designated supplier of a Key Ingredient
and obtain for Supplier the right, as GWI's designee, without the prior written
consent of GWI, to order Key Ingredients for use in the manufacture of Products
under this Agreement. Subject to Section 17.1(g) below, [*] Supplier shall be
responsible for all other communications and arrangements with the designated
supplier, including placing orders, specifying delivery, testing and acceptance
or rejection of Key Ingredients so supplied. Supplier shall be responsible for
all use of the accepted Key Ingredients in the Primary Products upon acceptance
of Key Ingredients by Supplier following testing, subject to Section 8.2(c)
below. If any arrangement with a designated supplier of a Key Ingredient
requires orders to be placed at particular times or in designated increments,
Supplier shall undertake the order and delivery arrangements specified by GWI
[*]
(b) Additional Suppliers. As of the date of the Purchase Agreement,
--------------------
GWI has advised Supplier of all terms affecting Supplier in effect with respect
to each Key Ingredient, and the terms of this Agreement have been negotiated on
the basis of that information. As soon as practicable upon designating a new
supplier of a Key Ingredient, GWI shall inform Supplier of all proposed
nonfinancial terms of the arrangement with such supplier, and Supplier shall
promptly inform GWI of any issues or concerns it may have with such terms. GWI
and Supplier agree that they shall work together in good faith to allocate the
rights, responsibilities and contingencies
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
58
<PAGE>
relating to that new supplier of Key Ingredients in substantially the same
manner allocated under this Agreement with respect to Key Ingredients.
(c) Warranty Pass Through. Supplier shall be entitled to the full
---------------------
benefit of any warranty provided by a supplier of Key Ingredient to GWI, unless
prohibited by the terms of any written contract between GWI and such supplier.
If an event occurs relating to such a warranty, at its sole discretion, GWI may
either (i) assume all responsibility for all communications with the supplier
and ensuring performance of the warranty, or (ii) promptly assign to Supplier
its claims under any such warranty relating to Supplier's complaints, provided
that in such event GWI shall be relieved from any liability with respect to such
claim and Supplier shall inform GWI as to the status and resolution of such
claims.
(d) Certain Information; Release of Supplier. Supplier shall
----------------------------------------
immediately advise GWI of any of the following occurrences with respect to the
purchase of Key Ingredients under this Section 8.2: (i) failure of the supplier
to make timely delivery, (ii) quantitative shortfalls in Materials ordered by
Supplier, (iii) failure of any batch of Key Ingredients to meet the tests
required under the Specifications or (iv) any other issues or concerns relating
to the supply of Key Ingredients from designated suppliers. [*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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8.3 Inventory.
---------
(a) Agreed Parameters. Supplier and GWI shall mutually agree from
-----------------
time to time (but at least [*] and more frequently if reasonably requested by
either party) on inventory planning parameters for the Products (including Key
Ingredients and other Materials inventory). Initially, such parameters shall be
as described in Schedule 8.3(a) attached hereto and incorporated herein by
---------------
reference. The inventory planning parameters will be established in good faith
to provide inventory levels necessary to achieve service levels consistent with
service levels for Products as of the Effective Time without requiring Supplier
to hold excessive inventory. Supplier may draw down inventories below the then
applicable inventory planning parameters to the extent necessary to meet that
portion of the demand in the [*] of a Replenishment Forecast that is in excess
of the demand forecasted for those calendar months in any previously delivered
Replenishment Forecast. In such event Supplier will have a reasonable period,
based on lead times for Materials and the availability of capacity subject to
the provisions of Sections 2.3, 2.4 and 2.5, to rebuild inventories to the
levels specified in the inventory planning parameters.
(b) Penalty. If, as a result of a failure to comply with the policies
-------
listed on Schedule 8.3(a), Supplier (i) fails to make delivery of any shipment
---------------
of [*] derived therefrom within [*] the specified Delivery Date or
(ii) is on back order for [*] derived therefrom for more than [*] from a
distribution center with respect to any of those Products that is a
Replenishment Product, Supplier shall pay to GWI an amount equal to [*] is due
to (i) GWI's failure
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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to release all or a portion of a shipment meeting the Specifications within the
seven (7) day period provided in Section 9.3(a), or (ii) the failure of a
carrier to deliver within the carrier delivery times set forth on Schedule
--------
2.4(c). The foregoing penalty shall not be due with respect to
- ------
any non-delivery that is directly attributable to a reduction in inventories
below the then applicable inventory planning parameters to the extent required
to meet increased demand in the [*] of a Replenishment Forecast as provided in
Section 8.3(a) above. This penalty shall be in addition to, and not exclusive
of, any remedies which may be otherwise available to GWI pursuant to Section
20.1.
ARTICLE IX
TESTING AND QUALITY ASSURANCE
9.1 Quality Assurance; Quality Control. Supplier shall
----------------------------------
implement and perform operating procedures and controls for sampling, stability
and other testing, validation, documentation and release of the Products and
such other quality assurance and quality control procedures consistent with the
Specifications and CGMP.
9.2 Nonconformity. In the event that either party becomes aware
-------------
that any shipment of Products has a Nonconformity, despite Supplier's testing
and quality assurance activities and despite GWI's acceptance under Section
9.3(a) below, such party shall immediately notify the other party.
"Nonconformity" shall mean a product characteristic attributable to Supplier's
failure to manufacture, test, package or store any Product in accordance with
the Specifications and CGMP which was not discovered prior to release of such
Product.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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9.3 Testing; Certificates of Analysis.
---------------------------------
(a) Review and Acceptance. Prior to shipment of any complete or
---------------------
partial batch of any Product, Supplier shall: (i) perform testing and quality
assurance activities for each production batch of Product in accordance with
Section 9.1 above; (ii) provide to GWI a certificate of analysis in electronic
form and containing the information specified in Schedule 9.3(a) attached hereto
---------------
and incorporated herein by reference with respect to each production batch
(or portion thereof to be shipped) of Product, certifying, warranting and
reflecting that all Products therein fully and completely comply with the
Specifications; (iii) deliver, if applicable, a Deviation Report as provided in
Section 9.3(b) below; and (iv) in the case of Primary Products and TPMA
Products, have received from GWI in writing or electronic form GWI's specific
authorization, based on GWI's review of the certificate of analysis and other
supporting documentation, for Supplier to ship such complete or partial batch of
Product, which may be evidenced in the case of TPMA Products by a
countersignature by GWI on the applicable certificate of analysis. GWI or a GWI
designee may inspect and test any Products upon receipt thereof or may, in
reliance on Supplier's quality assurance activities and the information
contained in the certificate of analysis pursuant to this Agreement, accept or
reject Products upon Supplier's certificate of analysis. GWI covenants to
conduct such inspection, testing or review and to accept or reject Products and
use reasonable efforts to provide such authorization within seven (7) business
days from receipt of such Products with a valid certificate of analysis and all
necessary supporting documentation.
(b) Deviation Report. In the event that during the manufacture or
----------------
other handling of a Product by Supplier (i) the process or analytical limits
exceed established report ranges, (ii) other events occur which could affect
quality or otherwise are unusual or not expected, (iii) there
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is any reason to doubt full compliance of such Product with the Specifications,
or (iv) an unplanned processing event leads to a deviation outside registered or
defined processing parameters, then Supplier shall investigate and prepare a
written report detailing such factors (a "Deviation Report"). Attached as an
exhibit to such Deviation Report shall be copies of all relevant batch records.
Any such investigations and reports regarding Primary Products to be used in the
manufacture of Secondary/Steriles Products shall be reviewed and approved by GWI
prior to incorporation of such Products into any Secondary/Steriles Products.
(c) Exceptions. Supplier shall in good faith endeavor to commence
----------
delivery of the certificates of analysis as soon after the Effective Time as
possible, but may, notwithstanding the provisions of Section 9.3(a) above,
substitute certificates of compliance in lieu of the certificates of analysis
required to be delivered pursuant to such Section 9.3(a) above for a period not
to exceed twelve (12) months from the Effective Time in the form attached to
Schedule 9.3(a). Notwithstanding the foregoing, Supplier shall deliver any
- ---------------
certificates of analysis required by the terms of any TPMA, upon request of the
FDA or a GWI Affiliate or in order to comply with any applicable Legal
Requirements.
9.4 GWI Rejection. GWI shall notify Supplier of GWI's rejection
-------------
of any batch (or part thereof) of any Product (the "Rejected Quantity") within
[*] after receipt of such Rejected Quantity by GWI or GWI's designee that
received such Product. GWI's notice of rejection shall state the basis for such
rejection, including any information contained in the certificate of analysis
delivered by Supplier or any testing or inspection results. Failure to so notify
Supplier within such [*] period shall constitute acceptance of any Product
delivered; provided, however, that Supplier shall continue to be liable for
------- ----
(i) the failure of any Products to conform to
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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Specifications and CGMP in accordance with the provisions of this Agreement and
(ii) the failure of Supplier to comply with all Legal Requirements,
Environmental Laws and the FD&C Act. If the parties disagree as to whether a
Rejected Quantity meets the Specifications, then samples and/or batch records,
as appropriate, from the batch which is in dispute shall promptly be submitted
for testing and evaluation to an independent third party (including a testing
laboratory) as shall be agreed to in writing by both parties. The determination
of such third party as to whether the Rejected Quantity meets the Specifications
will be final and binding. The cost of the testing and evaluation by the third
party shall be borne by Supplier if the third party determines that the Rejected
Quantity in question does not meet the Specifications and by GWI if the third
party determines the Rejected Quantity meets the Specifications. If any sampled
Rejected Quantity is found by the third party not to conform to the
Specifications, the Rejected Quantity may be handled as provided in Section 9.9
below.
9.5 Product Complaints. Any and all complaints of which
------------------
Supplier becomes aware relating to any Product shall promptly be forwarded to
the Vice President of Quality Assurance of GWI. GWI shall promptly inform
Supplier of any and all complaints that GWI receives which implicate Supplier's
manufacturing or other processes at the Facility. Notification shall be given
by telephone, with a facsimile confirmation immediately following.
9.6 Adverse Events. For the purposes of this Agreement,
--------------
"Adverse Event" shall mean any adverse event associated with the use of any
Product in humans, whether or not considered drug-related. The definition
includes an adverse event occurring in the course of the use of a Product in
professional practice, in studies, in investigations or in tests. The
definition also includes an adverse event occurring from Product overdose
(whether accidental or intentional), from Product
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<PAGE>
abuse, or from Product withdrawal, as well as any toxicity, sensitivity, failure
of expected pharmacological action, or laboratory abnormality which is or is
thought by the reporter to be serious or associated with relevant clinical signs
or symptoms. For the purposes of this Agreement, "Serious Adverse Event" shall
mean an Adverse Event that is fatal, life-threatening, permanently disabling or
incapacitating, results in new or prolonged in-patient hospitalization, is a
congenital anomaly, cancer or an overdose. With respect to any Product,
Supplier shall notify the GWI North American Product Surveillance Department, or
any successor department specified by GWI, as soon as possible, but (i) no later
than twenty-four (24) hours following its receipt of information concerning a
possible Serious Adverse Event and (ii) no later than forty-eight (48) hours
following its receipt of information of a possible Adverse Event that is not a
Serious Adverse Event. Notification shall be given by telephone, with a
facsimile confirmation immediately following. Supplier shall provide GWI all the
information Supplier has available concerning the Adverse Event and shall
cooperate fully with any investigation conducted or directed by GWI as set forth
in Section 9.7 below. To the extent an Adverse Event of which GWI becomes aware
implicates Supplier's manufacturing or other processes at the Facility, GWI
shall inform Supplier of such Adverse Event and shall disclose to Supplier any
information GWI has regarding that Adverse Event which implicates Supplier's
manufacturing or other processes at the Facility. Notification shall be given
by telephone, with a facsimile confirmation immediately following.
9.7 Investigations; Supplier's Obligations.
--------------------------------------
(a) Direction. GWI shall have the sole right to control and direct
---------
the investigation of all Product complaints and Adverse Events. GWI shall
advise Supplier of GWI's intentions
65
<PAGE>
regarding control and direction of the investigation with respect to any Product
complaint or Adverse Event of which Supplier has been notified.
(b) Supplier's Assistance. Upon written request by GWI, Supplier
---------------------
shall provide all reasonably requested testing, assistance and information to
GWI in connection with an investigation of any Product complaint or Adverse
Event, including chemical/microbial analysis of complaint samples (if
available), analysis of retained samples and review of batch documentation.
Supplier shall have the right to conduct at its own expense any further tests it
deems appropriate regarding such investigation provided that it shall share the
results with GWI.
(c) Reporting. Supplier shall provide to GWI (i) a written report of
---------
its determinations and conclusions from any such investigation, testing or other
requested assistance related to such investigation as soon as reasonably
practicable, but in no event later than thirty (30) days from receipt of GWI's
request and (ii) samples (if available) of the affected Product. All
communications related to such investigation, testing or other requested
assistance shall be held in confidence by Supplier and shall be subject to the
terms of Article XXII hereof.
(d) Reimbursement. GWI shall reimburse Supplier for costs incurred by
-------------
Supplier at the request of GWI pursuant to this Section 9.7, to the extent: (i)
such costs are outside of the ordinary cost of doing business, and (ii) the
Product complaint or Adverse Event is determined not to be the result of (x)
failure of Supplier to manufacture, package or store Products in accordance with
the Specifications, or CGMP, or (y) a Nonconformity. Payment shall be made by
GWI upon completion of agreed-upon milestones or as otherwise agreed by Supplier
and GWI.
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9.8 Certain Product Events.
----------------------
(a) Notification and Cooperation. In the event GWI shall be required
----------------------------
(or shall voluntarily decide) to initiate a recall, withdrawal or field
correction of, or field alert report with respect to, any Product manufactured
by Supplier pursuant to this Agreement, whether or not such recall, withdrawal,
field correction or field alert report has been requested or ordered by any
Governmental Body, GWI shall notify Supplier's Vice President of Quality
Assurance, and Supplier shall fully cooperate with GWI to implement the same.
(b) Coordination of Efforts. In the event Supplier determines that a
-----------------------
recall, withdrawal, field correction or field alert report with respect to any
Product by GWI may be necessary and/or appropriate, Supplier shall immediately
notify GWI's Vice President of Quality Assurance of its determination. The
parties shall cooperate with each other in determining the necessity and nature
of such action; provided, however, that Supplier shall take no action to effect
the same without the written concurrence of GWI. If GWI does not concur with
any recall, withdrawal, field correction or field alert recommended by Supplier,
then GWI shall be liable for any Losses incurred by Supplier or GWI arising
solely out of the delay caused by GWI in implementing the same, except to the
extent Supplier withheld material information or misrepresented the material
information upon which GWI made its determination.
(c) Contacts and Statements. With respect to any recall, withdrawal,
-----------------------
field correction or field alert report with respect to any Product, GWI shall
make all contacts with the FDA and shall be responsible for coordinating all of
the necessary activities in connection with any such recall, withdrawal, field
correction or field alert report, and GWI shall make all statements to the
media, including press releases and interviews for publication or broadcast as
provided in
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Section 22.6 below. Supplier agrees to make no statement to the media, unless
otherwise required by law and in any such event, Supplier shall collaborate with
GWI on the content of any such statement.
(d) Remedies. If any recall, withdrawal, field correction or field
--------
alert report with respect to any Product is initiated because of a defect
arising from Supplier's failure to manufacture, test, package or store that
Product in compliance with the Specifications and CGMP, GWI shall, in addition
to any other remedies available to it, be entitled to handle the affected
Product and changes relating thereto as provided in Section 9.9 below and
Section 9.11 below.
9.9 Disposition of Certain Products. In the event any Rejected
-------------------------------
Quantity is found not to comply with Specifications, or in the event any recall,
withdrawal, field correction or third-party return of any Product is determined
to be a result of Supplier's failure to manufacture, test, package or store that
Product in accordance with this Agreement, then [*] the remedies provided in
this Section 9.9 shall be GWI's sole remedy with respect to any Rejected
Quantity not distributed to third parties, and Supplier shall have no other
liability therefor. The party undertaking destruction of the Product shall be
solely responsible for compliance with all Legal Requirements, Environmental
Laws and the provisions of the FD&C Act in
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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<PAGE>
connection with the destruction and shall be liable for any Environmental Losses
resulting from such destruction.
9.10 Credits. In the event any Rejected Quantity is found not to
-------
comply with Specifications, or in the event any recall, withdrawal, field
correction or third-party return of any Product is determined to be a result of
Supplier's failure to manufacture, test, package or store that Product in
accordance with the Specifications or CGMP, [*] If there is outstanding credit
to GWI on the termination of this Agreement, Supplier shall reimburse GWI the
amount of such credit within thirty (30) days after this Agreement is
terminated.
9.11 Product Returns from the Field. GWI shall instruct its
------------------------------
distributors and customers to direct any returns of Secondary/Steriles Products
to GWI. Supplier shall promptly notify GWI in writing (including all
information Supplier has relating thereto) in the event that any distributor,
consumer or other third party returns any Secondary/Steriles Product to
Supplier. Supplier shall, at GWI's expense, promptly forward all such
Secondary/Steriles Product to the
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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<PAGE>
location specified by GWI, and shall take no other action regarding such
Secondary/Steriles Product (except for safeguarding such Product), unless
requested in writing by GWI or required by applicable law or regulation.
9.12 Quantitative Deficiencies. GWI shall inform Supplier of any
-------------------------
claim relating to quantitative deficiencies in any shipment of Products within
[*] following receipt of any shipment. In the event GWI determines there is a
quantitative deficiency in any shipment, GWI shall, at its option: (i) only pay
for actual quantities delivered; or (ii) require Supplier to rectify any such
deficiency by promptly shipping the appropriate quantities of any relevant
Product to or as directed by GWI or a GWI Affiliate, in which case GWI shall be
obligated to pay for any such quantities pursuant to the terms and conditions of
this Agreement.
9.13 Information Sharing. GWI shall promptly provide Supplier
-------------------
with all relevant information, including if applicable pertinent samples
supporting its claims, regarding (i) any events described in this Article IX,
(ii) investigations and audits conducted pursuant to the provisions hereof or
(iii) which otherwise implicates Supplier's manufacturing or other processes at
the Facility, except to the extent GWI's counsel advises that the same is
covered by the attorney-client privilege (which GWI in its sole discretion may
elect to waive). GWI also shall afford Supplier reasonable advance notice and a
reasonable opportunity to monitor investigations and audits involving Products
to the extent necessary to understand the implications for Supplier.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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ARTICLE X
REGULATORY MATTERS
10.1 General. GWI shall, at its expense, obtain and maintain any
-------
Consents which may from time to time be required by any Governmental Body with
respect to ownership of the New Drug Applications or Abbreviated New Drug
Applications or with respect to the marketing, distribution, clinical
investigation, import or export of the Products. GWI shall, with Supplier's
assistance and cooperation, be responsible for responding to all requests for
information required by GWI's Consents from, and making all legally required
filings relating to GWI's Consents (including all required annual reports for
all of the Products) with, any Governmental Body having jurisdiction to make
such requests or require such filings. The parties anticipate that Supplier
shall, in the ordinary course of its business, maintain sufficient staff to
assist and cooperate with GWI in connection with the making of all legally
required filings with respect to the Products. GWI shall reimburse Supplier for
costs incurred by it under this Section 10.1 outside the ordinary course of
Supplier's business.
10.2 Consents. Supplier holds all Consents now required by
--------
Supplier for the performance of its obligations under this Agreement and shall
at all times maintain the Consents necessary from time to time to perform such
obligations. Supplier shall be responsible, at its expense, for obtaining,
maintaining and complying with all Consents which may from time to time be
required by any Governmental Body having jurisdiction with respect to its
manufacturing operations and facilities and otherwise to be obtained by Supplier
to permit the performance of its obligations hereunder. In the event any
Consent held by Supplier relating to the Facility or its ability to manufacture
the Products in accordance with this Agreement is hereafter suspended or revoked
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or Supplier has material restrictions imposed upon it by any Governmental Body
affecting (i) any of the Products or (ii) the Facility, Supplier shall
immediately notify GWI and shall promptly provide a schedule of compliance and
such other information related thereto as is reasonably requested by GWI. In
the event any Consent held by GWI relating directly to any of the Products is
hereafter suspended or revoked, GWI shall promptly notify Supplier of the event
and shall promptly inform Supplier of GWI's general intentions with respect to
the affected Product. Notwithstanding the absence, suspension or
revocation of any such GWI Consent, or the suspension or revocation of any
Consent of Supplier resulting directly therefrom or relating directly thereto,
GWI shall be obligated with respect to Guaranteed Revenues as provided in
Article VI above.
10.3 Inspections.
-----------
(a) Procedures. In the event that Supplier is notified that any
----------
Product or the Facility will be subject to an inspection by any Governmental
Body, Supplier shall follow the procedures set forth below:
(i) Immediately advise GWI's Vice President of Quality Assurance by
telephone and facsimile when Supplier is notified that such an inspection will
occur, such notice to provide all relevant information known to Supplier
regarding such investigation, including whether the inspector is with the FDA
office of criminal investigations;
(ii) Fully cooperate and allow any such inspection by
representatives of such Governmental Body to the extent required by applicable
law;
(iii) Except as otherwise required by law, Supplier shall not
permit any inspections involving any Product or GWI's confidential matters
covered by Article XXII of this Agreement until further instructions in writing
are received from GWI's Vice President of Quality
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Assurance, and Supplier agrees that GWI shall have the right to be present at
any inspection involving any Product; and
(iv) Promptly send GWI a copy of any inspection report observations
related to the manufacture, generation, processing, storage, transportation,
distribution, treatment, disposal or other management of Products, Materials or
Secondary Materials received or available as a result of any such inspection as
well as responses to any inspection reports prepared in accordance with Section
10.3(b) below.
(b) Notification. In the event that any Governmental Body shall take
------------
any action which shall require a response or action by Supplier with respect to
any Product, Material, Secondary Material or the Facility, Supplier agrees, in
light of GWI's interest in the Products, immediately to notify GWI of the
required response or action and shall proceed only with the advice and consent
of GWI, which shall not be unreasonably withheld. GWI acknowledges Supplier's
responsibility with respect to responding to any Governmental Body and shall
respond accordingly.
10.4 Import/Export Matters.
---------------------
(a) Drawback. GWI shall retain all rights to any claim for drawback
--------
associated with and/or arising out of the transactions contemplated herein.
Supplier acknowledges GWI's rights, as exporter, to claim drawback and Supplier
affirmatively disavows any right to, or right to reserve any right to, any
drawback claim in connection with the transactions contemplated herein.
Supplier shall assist GWI in perfecting any drawback claim made by GWI and
Supplier will cooperate with the United States Customs Services ("Customs") in
any verification of such drawback claims made by GWI. Supplier will provide any
necessary documentation to Customs in support of such claims, including, but not
limited to, certificates of manufacture and delivery, any other form
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<PAGE>
or certification required by Customs, and such records which will allow
Customs officials to trace all articles manufactured or produced from
importation, through production, to exportation. Supplier shall maintain all
records with respect to the production, which records may be necessary in
connection with such drawback claims, for at least three (3) years after payment
of any drawback claim to GWI.
(b) NAFTA. Supplier shall assist in perfecting any claim that shall
-----
be made under NAFTA in connection with exportations to Canada and/or Mexico,
including, but not limited to, Supplier providing necessary documentation in
support of such NAFTA claims.
(c) Expenses. GWI shall promptly pay or reimburse Supplier for
--------
amounts incurred by Supplier outside the ordinary course of Supplier's business
in connection with Supplier's performance of its obligations pursuant to
Sections 10.4(a) and (b) above.
10.5 Procurement and Subcontracting, and Non-Discrimination in
---------------------------------------------------------
Employment. (a) GWI and the U.S. Department of Veterans Affairs have
- ----------
entered into a contract which obligates GWI to provide equal opportunities for
small business concerns to engage in the performance of GWI's contracts. In
addition, GWI is obligated to include the clause contained in Title 48, Part
52.219-8 of the Code of Federal Regulations, Utilization of Small, Small
Disadvantaged and Women-Owned Small Business Concerns in all GWI contracts that
offer further subcontracting opportunities. A copy of the language of Title 48,
Part 52.219-8 of the Code of Federal Regulations is attached as Exhibit D.
---------
Supplier shall provide to GWI a Small, Small Disadvantaged and Women-Owned Small
Business Subcontracting Plan, in the form prescribed from time to time by GWI,
the current form of which is attached as a part of Exhibit D.
---------
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(b) To the extent required by law, the equal opportunity clause in
Section 202 of the Executive Order 11246 (Title 41, Part 60-1.4 of the Code of
Federal Regulations), the affirmative action clause for disabled veterans and
veterans of the Vietnam era (Title 41, Part 60-250.4 of the Code of Federal
Regulations), and the equal opportunity clause for otherwise qualified workers
(Title 41, Part 60-741.4 of the Code of Federal Regulations) are incorporated
herein by reference. Supplier agrees to execute and shall execute the
Certificate of Non-Segregated Facilities, Exhibit E, attached hereto and
---------
incorporated herein, prior to beginning work under this Agreement.
ARTICLE XI
INVOICE, SHIPMENT AND PAYMENT
11.1 Invoicing.
---------
(a) General. All Products manufactured under this Agreement other
-------
than quantities of Primary Products for production of Secondary/Steriles
Products shall be invoiced by Supplier to GWI in duplicate upon shipment to the
destination designated by GWI. Except as provided in Section 2.2(d) with
respect to Specified Volumes for which no POs have been issued, Primary Products
for the production of Secondary/Steriles Products shall be invoiced to GWI only
at the time such Secondary/Sterile Products into which such Primary Products
have been incorporated are shipped. Each such invoice shall state GWI's
aggregate and unit purchase price for Products in a given shipment, plus any
freight, taxes or insurance costs incident to the purchase or shipment initially
paid by Supplier but to be borne by GWI pursuant to the terms of this Agreement.
(b) Format; Submission Requirements. [*]
-------------------------------
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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Prior to the implementation of such system, invoices shall initially be in the
form of Exhibit F hereto. Supplier shall transmit one copy of each invoice to
---------
GWI's Disbursing Department in the manner prescribed by GWI to Supplier from
time to time in writing. Supplier shall also deliver two paper copies of each
invoice to the billing contacts for this Agreement designated in writing by GWI
from time to time. In any event, the invoice shall be in a form mutually
acceptable to the parties from time to time and include the following
information: (i) cost center, (ii) account number, (iii) GWI contact, and, where
applicable, (iv) codes for the PO, project, contract, subaccount, CAR and PAR.
11.2 Shipment; Title; Transport.
--------------------------
(a) General. Products (other than quantities of Primary Products for
-------
production of Secondary/Steriles Products) shall be shipped [*] Supplier shall
arrange for shipment and insurance [*] for Products (other than quantities of
Primary Products to be used by Supplier in the manufacture of Secondary/Steriles
Products) in accordance with GWI's instructions and for the account and expense
of GWI, provided that if GWI does not provide instructions with respect to the
carrier to be used within ten (10) days of submitting the applicable PO,
Supplier shall select the carrier. [*] for duties and insurance related to
Products shipped upon receipt of evidence of such payment. Title to and risk of
loss with respect to any Products shall pass from Supplier to GWI when such
Products are placed in [*]
(b) Export Regulations. GWI shall comply with applicable export
------------------
restrictions including the U.S. Federal Food, Drug and Cosmetic Act, Sections
801 and 802, and regulations and policies promulgated pursuant thereto, and the
Export Administration Regulations of the U.S.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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Department of Commerce regarding export controls or Section 999 of the U.S.
Internal Revenue Code of 1986, as amended, regarding boycott participation and
similar laws of other countries. GWI shall also obtain and maintain at its
expense all appropriate export permits and approvals.
(c) Single Order. To the extent possible, Products which are
------------
purchased in a single order shall be delivered by Supplier in a single shipment
unless GWI directs that such Products should be delivered to more than one
location.
(d) Delivery Timing. Time is of the essence with respect to each
---------------
Delivery Date; provided, delays of a duration less than those specified in
Section 20.1(b) below, described in Section 8.2(d) or occasioned by GWI's
failure to release all or a portion of a shipment meeting the Specifications
within the seven (7) day period provided in Section 9.3(a) or a carrier's
failure to meet the schedule set forth on Schedule 2.4(c) shall not constitute a
---------------
Supplier Material Default. Further, in no event shall any Primary Product
shipped to GWI or a GWI Affiliate which has a shelf life of [*] have less than
the minimum dating provided on Schedule 11.2(d) attached hereto and incorporated
----------------
herein by reference.
(e) Taxes. When Supplier has the legal obligation to collect and/or
-----
pay sales, use and excise taxes or duties imposed by any governmental agency
that are applicable to the export or import of the Products, the actual amount
thereof shall be added to GWI's invoice delivered in accordance with Section
11.1 above and paid by GWI, unless GWI provides Supplier with a valid tax
exemption certificate authorized by the appropriate taxing authority. Any taxes
with respect to the Products which GWI has the direct obligation to pay shall be
paid by GWI as required by
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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applicable law. All other taxes, levies or assessments of any kind in effect at
the date of this Agreement and related to Supplier's manufacture of the Products
for purchase by GWI, including income, payroll and business licensing (including
privilege) taxes, shall be paid by Supplier. In the event new types or
classifications of taxes related to GWI's purchase of the Products are imposed
after the date of this Agreement, the parties shall negotiate in good faith to
allocate the burden of taxes in a manner to provide the parties hereto with the
relative benefits and burdens presently provided under this Section 11.2(e). If
the parties cannot so agree, then Selected Accounting Firm shall conclusively
determine the allocation of the new taxes.
11.3 Payment. Payments for Products invoiced under Section 11.1
-------
above shall be due [*] subject in each case to GWI's receipt (except with
respect to certain Specified Volumes invoiced by Supplier pursuant to Section
2.2(d)) of shipment of such invoiced Products and acceptable certificates of
analysis for each of such Products as provided in Section 10.3(a) above and
provided that a discount of [*] The amount of any such discount applied shall be
deducted from the amount of GWI's Guaranteed Revenue obligation for the year in
which earned. During any time periods in which the total receivables due
Supplier pursuant to invoices issued under this Agreement which [*] Supplier may
charge interest at the annual rate of [*] following the date of the applicable
invoice.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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ARTICLE XII
ACCESS, INSPECTION AND AUDITS
12.1 On-Site Personnel.
-----------------
(a) General. [*]
-------
(b) GWI Personnel and Representatives at the Facility. Supplier shall
-------------------------------------------------
provide personnel of GWI or its designee(s) undertaking work at the Facility
under this Agreement (collectively, the "GWI Visitors") with reasonable access
to the Facility, which shall mean during customary business hours and periods of
production at the Facility, unless the [*] GWI will ensure that the GWI Visitors
conduct their activities at the Facility so as to cause minimum interference to
the normal operation of the Facility. GWI shall be responsible for all actions
of the GWI Visitors at the Facility and shall require them to comply with all
policies generally established by Supplier with respect to the Facility,
including policies generally applicable to all non-employees at the Facility.
Receipt and use by any GWI Visitor of any Supplier Confidential Information
shall be subject to the provisions of Article XXII of this Agreement.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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12.2 Inspection Rights. Without limiting its rights under
-----------------
Section 12.1 above, GWI or its designee shall have the right to inspect those
portions of Supplier's facilities used in the manufacture, generation, storage,
testing, treatment, holding, transportation, distribution or other management or
receiving of the Products and their components, Materials or Secondary
Materials. GWI shall have the right to inspect all inventory of Products and
Materials contained at such facilities. Such inspections shall occur during
business hours and shall be scheduled by GWI at least [*] business days in
advance, provided, however, that in the event of an Adverse Event or any
-------- -------
proposed or actual inspection by the FDA or other Governmental Body or other
emergency involving any Product, Material, Secondary Material or the Facility,
GWI shall have the right at any time upon [*] to conduct an inspection
hereunder. Purposes for such inspections may include CGMP compliance, system
audits, compiling information for reporting obligations, compliance with
Specifications and/or investigations of complaints and/or compliance with any
Legal Requirements, Environmental Laws, the Health, Safety and Environmental
Guidelines attached as Schedule 12.2 hereto and incorporated by reference (the
-------------
"HSE Guidelines"), or provisions of the FD&C Act or the terms of this Agreement.
12.3 Records. Supplier shall retain all information, documents,
-------
materials, items, records (in electronic or hard-copy form, as designated by
GWI) and samples of Products related to Supplier's performance under this
Agreement, including: (i) samples of the Materials and other constituents used
in the manufacture of each batch of Product, (ii) samples of each batch of any
Product, (iii) all batch production, stability study, testing and quality
control records, (iv) all records relating to complaint investigations for each
Product, (v) all component labeling records, (vi) all records relating to or
required for compliance with applicable laws and regulations, (vii) all
inventory
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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records relating to the Products, (viii) all records relating to environmental
monitoring and issues, (ix) historical financial records relating to the
Facility (to the extent relevant in connection with any tax audit of GWI); and
(x) all records relating to compliance with any Legal Requirements,
Environmental Laws or provisions of the FD&C Act and the terms of this
Agreement, to the extent required and for at least the periods of time required
by applicable laws and regulations and product registrations or licenses, but in
no event for less than seven (7) years from the date of manufacture. Following
the date that Supplier is no longer required to retain the foregoing items
pursuant to this Section 12.3, Supplier may at any time destroy such items
provided it gives GWI not less than twenty (20) days advance notice and an
opportunity to reclaim any materials prior to destruction. In addition, Supplier
shall retain all other financial books and records relating to the Products
during the Term of this Agreement and for a period of at least two (2) years
thereafter. On request from GWI, Supplier will provide GWI or its designee with
access to the documents and items set forth in this Section 12.3 and shall make
available to GWI or its designee copies of any of the foregoing documents or
items for review at the Facility in connection with GWI's audit rights under
Section 12.4 below. In any event, Supplier shall afford GWI the right to inspect
and copy such materials at GWI's expense prior to any destruction thereof
otherwise permitted hereunder. GWI will have no right to inspect or copy
documents or items related to products other than the Products.
12.4 Audit Rights.
------------
(a) General. Subject to the other provisions of this Section 12.4,
-------
during the period that Supplier is supplying any Product hereunder and until the
later of the expiration of the applicable period set forth in Section 12.3 or
such longer period in which Supplier is obligated by law to retain such
documentation or materials, GWI may audit and inspect Supplier in connection
with the
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following related to Products and their components; Materials; Secondary
Materials; and GWI's operation of the Facility prior to the Effective Time: (i)
Supplier's facilities and records pertaining to the Products or the manufacture,
packaging, storage, testing, holding, shipping or receiving of the Products and
their components; (ii) inventory levels; (iii) compliance with Specifications
and CGMP; (iv) product complaints; (v) financial calculations called for in this
Agreement; (vi) Supplier's compliance with all Legal Requirements, Environmental
Laws or provisions of the FD&C Act pertaining to the Products or the
manufacture, generation, processing, transportation, distribution, treatment,
packaging, storage, testing, holding, disposal or other management of the
Products and their components, Materials and Secondary Materials, including the
HSE Guidelines; (vii) historical financial records regarding the Facility (to
the extent relevant in connection with any tax audit of GWI); and (viii) other
compliance by Supplier with the provisions of this Agreement.
(b) Scope. The scope of any audit conducted by GWI in accordance with
-----
this Section 12.4 may include, without limitation: (i) [*] (ii) [*] (iii) [*]
(iv) [*] (v) supporting documentation related to amounts reimbursable to
Supplier under the terms of this Agreement for Product transportation and
delivery; and (vi) [*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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(c) CGMP Compliance. In the event of any audit of Supplier's
---------------
compliance with CGMP, GWI shall submit to Supplier a written report of GWI's
findings within thirty (30) days of completion of the audit. Within thirty (30)
days after receipt of this report, Supplier shall submit its written response to
the report.
(d) Audit of Materials Suppliers. GWI shall also have the right to
----------------------------
audit Supplier's sources of all Materials and shall use reasonable efforts to
notify Supplier of the occurrence of such audits and provide Supplier the right
to be present so long as the scope of such audit covers one or more Products
specifically and is not limited to GWI's relationship to such supplier existing
apart from this Agreement. Supplier shall use commercially reasonable efforts
to require any suppliers from whom it purchases Materials (other than suppliers
of the Key Ingredients) to permit GWI audit and inspection rights commensurate
with this Section 12.4 at least on an annual basis or otherwise upon the
occurrence of a material increase in cost of Materials purchased from such
supplier or the occurrence of any event described in Sections 9.5, 9.6, 9.8, 9.9
or 9.11 with respect to any Product utilizing such supplier's Materials.
(e) Conditions. All audits under this Section 12.4 shall occur during
----------
business hours and shall be scheduled by GWI at least two (2) business days in
advance, provided, however, that in the event of an Adverse Event or any
-------- -------
proposed or actual inspection by the FDA or other Governmental Body or other
emergency involving any Product, Material, Secondary Material or the Facility,
GWI shall have the right at any time upon one hour's notice to conduct an audit
hereunder. Such audits shall be conducted subject to the requirements of
Article XXII of this Agreement.
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ARTICLE XIII
GWI SERVICES
13.1 Production Support. Under the terms of this Section 13.1,
------------------
GWI shall make available to Supplier reasonable levels of production support in
connection with technical production problems or technical issues relating to
the manufacturing, quality control and supply of Products under this Agreement
and shall provide to Supplier in response to specific inquiries relating to such
technical problems or issues all relevant technical information derived from or
relating to operations at the Facility in GWI's possession reasonably necessary
for Supplier to manufacture and supply Products meeting the Specifications
("Production Support"). All requests for Production Support by Supplier shall
be directed to the GWI employee designated by GWI in writing prior to the
Effective Time or to such other Person or Persons as may be designated by GWI
from time to time. GWI shall use all reasonable efforts to make available in
response to reasonable requests for Production Support the current GWI employee
who has particular knowledge of the issue. Production Support shall be provided
during normal business hours. To the extent possible, Production Support shall
be provided at the place of employment for the responding GWI employee or, when
such efforts are not successful, at the Facility. GWI shall not be obligated to
provide Production Support for any process or system improvements under
consideration or implemented by Supplier. Supplier agrees not to request
Production Support until it has made a good-faith effort to resolve the issue or
problem, including investigation and review of documentation. Nothing in this
Section 13.1 shall, however, be deemed to eliminate or modify Supplier's
obligation to manufacture and supply the Products in accordance with this
Agreement.
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ARTICLE XIV
INTELLECTUAL PROPERTY
14.1 Ownership.
---------
(a) GWI Rights. Supplier acknowledges and agrees that, as between GWI
----------
and Supplier, GWI owns all rights in and to the Retained Intellectual Property
(as defined in the Purchase Agreement), including all Intellectual Property
rights in and to the Products, the Data (as defined below) and documentation,
specifications and processes associated with the Products and Data, except to
the extent that such items are in the public domain or owned by a third party.
In particular, Supplier acknowledges and agrees that: (i) subject to Section
22.4 below, all of the Specifications contain valuable trade secret and
confidential information of GWI and are and shall remain the copyrighted works
of GWI, (ii) Schedule 14.1(a) to this Agreement is intended (but not represented
----------------
or warranted) to be a complete list of patents owned by GWI which apply to the
manufacture, use or sale of Products, (iii) Schedule 14.1(b) to this Agreement
----------------
is intended (but not represented or warranted) to be a complete list of
trademarks owned by GWI that are as of the Effective Time used in connection
with any of the Products, and (iv) Schedule 14.1(c) for this Agreement is
intended (but not represented or warranted) to be a complete list of Product-
specific process automation software owned by GWI which are used by GWI in
connection with the manufacture, use or sale of the Products. Except as
expressly provided in Section 14.3 below, nothing in the Agreement shall be
deemed to transfer or convey, expressly or by implication, any GWI Rights to
Supplier.
(b) Supplier Rights. GWI acknowledges and agrees that, subject to the
---------------
License Agreement (as defined in the Purchase Agreement), Supplier owns all
rights in and to the Transferred Intellectual Property (as defined in the
Purchase Agreement).
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(c) Trademark Rights. Supplier acknowledges and recognizes the great
----------------
value of the publicity and goodwill associated with the trademarks set forth in
Schedule 14.1(b) as well as such other tradenames owned by GWI that GWI may use
- ----------------
in connection with the Products from time to time after the Effective Time
(collectively, the "Marks"), and acknowledges that all such goodwill belongs
exclusively to GWI. At GWI's request and reasonable expense, Supplier shall
cooperate reasonably and in good faith with GWI for the purpose of securing and
preserving GWI's rights in and to the Marks. Except as set forth in Section
14.3 below, nothing in this Agreement shall be construed as an assignment or
grant to Supplier of any right, title or interest in or to the Marks. Supplier
shall not register or attempt to register any of the Marks, alone or in
combination with other elements, as a trademark, service mark, corporate name,
trade name or other designation of origin. GWI's failure to register or
election not to register any of the Marks shall not be deemed an abandonment or
waiver of any such rights.
14.2 New Developments and Modifications.
----------------------------------
(a) Supplier Developments. All Intellectual Property conceived,
---------------------
reduced to practice or otherwise developed solely by or on behalf of Supplier in
connection with the Agreement, unless made at the request of GWI pursuant to
Section 14.2(b) below, including any inventions, whether patentable or not,
trade secrets or copyrights ("Supplier Developments") shall be owned by
Supplier.
(i) As soon as practicable, Supplier shall inform GWI in writing of
any proposal to develop a Supplier Development utilizing or based on any of the
GWI Rights prior to such development, and shall not begin substantial work in
connection therewith without the prior written consent of GWI. In addition,
Supplier shall inform GWI of any Supplier Development not
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utilizing or based on any of the GWI Rights promptly after reduction to practice
of such Supplier Development. Supplier may not implement or use any Supplier
Development that would require a change to the Specifications without the prior
written consent of GWI, in accordance with Section 7.1(g) above. Supplier's
failure to give notice required under this Section 14.2(a)(i) will neither (i)
affect Supplier's ownership of any Supplier Development, nor (ii) be deemed to
grant Supplier any rights to use the GWI Rights.
(ii) Upon GWI's request, Supplier and GWI shall enter into good faith
negotiations regarding the terms of Supplier's license to GWI of the right to
use and/or exploit a Supplier Development, including royalty terms. The parties
contemplate that such license terms would provide GWI with the nonexclusive,
nontransferable right to make, have made, use and sell products that practice
such Supplier Development at any location.
(iii) Supplier will inform GWI in writing of those countries
in which Supplier will file a patent application covering any Supplier
Development prior to filing such patent application. GWI will have the right
to, at its option: (a) file a patent application in other countries in
Supplier's name covering such Supplier Development at its own expense, or (b)
require Supplier to file and prosecute patent applications in other countries
covering such Supplier Development at GWI's expense. All fees and expenses paid
by GWI under this Section 14.2(a)(iii) with regard to patent activities relative
to a particular Supplier Development shall be deducted from any royalties due to
Supplier pursuant to an agreement entered into under Section 14.2(a)(ii) above
with respect to the applicable Supplier Development. Supplier will use
reasonable efforts to provide GWI with the opportunity to review any publication
by Supplier or any Supplier Affiliate relating to a patentable Supplier
Development prior to such publication, and will upon GWI's request delay
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publication for up to 60 days so that a patent application may be filed for such
Supplier Development.
(b) GWI Developments. All Intellectual Property conceived, reduced to
----------------
practice or otherwise developed by or on behalf of GWI, including any
developments by Supplier made at the request of GWI pursuant to a further
written agreement, including any inventions, whether patentable or not, any
trademarks, trade dress, trade secrets or copyrights ("GWI Developments") shall
be owned by GWI; provided, it is understood that Supplier shall have no
obligation to conduct any development activities on behalf of GWI.
14.3 Grant of Licenses.
-----------------
(a) By GWI. Under the terms and subject to the conditions of this
------
Agreement, GWI hereby grants Supplier the non-exclusive, royalty-free right
during the Term of this Agreement, under the Retained Intellectual Property and
the GWI Developments (collectively, the "GWI Rights") to make, manufacture and
supply Products solely for GWI and solely to perform Supplier's obligations
under this Agreement. Supplier will have no right or license to make,
manufacture, supply, distribute or sell Products for any other purpose or for or
to any other Person, and, further, Supplier may not use any GWI Rights to make,
manufacture, supply, distribute or sell any products other than the Products.
Except as expressly set forth in this Agreement, GWI shall have no obligation to
provide Supplier with technical information concerning the Products, nor to
otherwise provide technical assistance to Supplier. All license rights with
respect to each Product granted to Supplier hereunder immediately shall
terminate and revert to GWI upon the termination of the manufacture of such
Product at the Facility pursuant to the terms of this Agreement. Except on
behalf of GWI, as expressly required under Section 7.4 or conducted pursuant to
Section 14.2(b) of
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this Agreement, Supplier will have no right or license to use directly or
indirectly the Specifications, any Products or any GWI Rights in connection with
any research and development activities, provided, Supplier may, subject to the
noncompete provision of the Purchase Agreement (Section 7.4 therein) and any
other applicable provisions of this Agreement, use any information within the
GWI Rights obtained independently of this Agreement which enters the public
domain through no breach of this Agreement by Supplier. GWI reserves all rights
not expressly granted herein.
(b) Sublicenses. Solely to the extent: (i) necessary for Supplier to
-----------
perform under this Agreement and (ii) that GWI has the right to grant such
sublicense, GWI hereby grants Supplier a non-exclusive, royalty-free sublicense
to make, manufacture and supply Products solely for GWI or any GWI Affiliate
under any and all patent rights, trade secrets, trademarks, know-how and other
proprietary non-patented information owned by a third party which GWI or a GWI
Affiliate has licensed or otherwise has rights to during the Term of this
Agreement ("Sublicense Agreements"). Supplier agrees to comply with all
restrictions and other terms and conditions contained in any agreements or
licenses with third parties of which it is aware relating to the foregoing
rights; provided, GWI and its Affiliates shall be responsible for all payment
obligations due to third parties pursuant to such Sublicense Agreements. GWI
agrees not to terminate any Sublicense Agreement while Supplier continues to
manufacture and supply Product(s) subject to such a Sublicensed Agreement
pursuant to this Agreement.
(c) Trademark License. Subject to the terms and conditions of this
-----------------
Agreement, GWI grants Supplier during the Term of this Agreement the personal,
nonexclusive and nontransferable license to use the Marks solely in accordance
with the Specifications on and in connection with the packaging, sale, and
distribution of Products as permitted by this Agreement.
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Supplier shall in no event have any right or license to use any other Marks in
connection with the Products. The parties acknowledge that Supplier's
obligation to comply with the Specifications is important to preserve the
quality of the products associated with the Marks and GWI's good will associated
with the Marks. In this connection, Supplier's use of the Marks is expressly
conditioned on compliance with the provisions of Article 9 of this Agreement
regarding testing and quality assurance. All of the other license limitations
in Section 14.3(a) above shall also apply to the license set forth in this
Section 14.3(c).
ARTICLE XV
INFORMATION TECHNOLOGY MATTERS
15.1 Introduction. This Article XV sets forth the terms and
------------
conditions regarding certain information technology ("IT") issues, including the
transition of support for IT systems at the Facility from GWI to Supplier. In
accordance with the terms of this Article XV, Schedule 15.2(a) and Schedule
---------------- --------
15.3, the parties agree to work together in good faith in an efficient fashion
to: (a) transfer certain IT knowledge and support responsibilities from GWI to
Supplier; (b) transfer certain GWI information, data and systems from the
Facility to GWI; (c) allow GWI reasonable ongoing access to information, data
and systems at the Facility for the purposes set forth in Section 15.7; and (d)
maintain systems required for the manufacture of Products in an operational
status.
15.2 IT Support Services.
-------------------
(a) General Obligation. Schedule 15.2(a), attached hereto and
------------------ ----------------
incorporated herein by reference, contains a description of the interim support
services to be provided by GWI for
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Supplier after the Effective Time (the "IT Support Services"). GWI agrees to
respond to requests for IT Support Services in a prompt and timely manner, and
to use reasonable efforts to make available (at the Facility in the event of a
critical system failure affecting Product delivery that is not resolved via
phone or e-mail) in response to such requests the current GWI employee who has
particular knowledge of the subject matter of such request. Supplier shall
reimburse GWI for reasonable travel expenses incurred in connection with visits
to the Facility to provide IT Support Services. In the event of any conflict
between the terms of Schedule 15.2(a) and the terms of this Article XV, the
----------------
terms of this Article XV shall control.
(b) Time Period. GWI's obligation to provide the IT Services will
-----------
begin at the Effective Time and end on the date specified in the IT Support
Services, or, if no expiration date is included for a specific support
obligation, on the earlier of: (a) 18 months after the Effective Time or (b)
such date as the parties mutually agree.
(c) Supplier Obligations. GWI will be obligated to perform only the
--------------------
tasks and obligations expressly set forth in Schedule 15.2(a). Without limiting
----------------
the generality of the foregoing, Supplier will be solely responsible for: (a)
supporting all process automation systems at the Facility; (b) providing project
management/leadership, software enhancement or consulting services relating to
proposed information technology acquisitions, development projects or
enhancements; and (c) providing any validation services.
(d) Obligations in Conversion Charge. GWI and Supplier acknowledge
--------------------------------
their respective intent that the IT Support Services not include any obligations
that are or reasonably can be performed by Supplier personnel or contractors.
Whether or not Supplier assumes responsibility
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for any such obligations included in the IT Support Services, there shall be no
payment or other adjustments to charges due under this Agreement between the
parties.
(e) Agreements. Supplier will be responsible for administering and
----------
making payments under all hardware and software license, lease, maintenance and
other agreements relating to hardware and software at the Facility, including
the agreements set forth in Schedule 4.12(c) of the Purchase Agreement, except
----------------
for one-time relicensing or transfer payments arising from GWI's transfer of
agreements to Supplier under the Purchase Agreement for which GWI shall be
responsible for paying, regardless if due prior to or after the Effective Time.
All such relicensing or transfers shall be completed by the [*] of the Effective
Time, unless otherwise agreed by the parties. In addition, unless otherwise
expressly set forth herein, Supplier will be responsible for acquiring and
paying for all hardware replacement parts and machines.
(f) Service Level. GWI shall provide the IT Support Services at a
-------------
service level and in a manner comparable to the service level and manner in
which those services were provided by GWI for the Facility prior to the date of
this Agreement, with such reductions and modifications to the manner of services
that are reasonable in light of changes implemented by Supplier after the
Effective Time in the mainframe computing and communications environment at the
Facility. GWI will use reasonable efforts to respond to critical problems
involving systems supported by GWI under Schedule 15.2(a) in a timely fashion to
----------------
avoid a negative impact on Product delivery. GWI shall not be required to
respond to a level of demand for IT Support Services that is higher than the
level of demand for comparable services provided by GWI for the Facility during
the six (6) months prior to the date of this Agreement. Except as set forth in
Section 15.4(a) below, GWI support obligations will be limited to support for
the computing environment (e.g., hardware, network
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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infrastructure and system software) and software release levels in place at the
Facility at the Effective Time.
(g) New Systems. GWI will cooperate with Supplier and provide
-----------
reasonable assistance to Supplier in connection with certain new systems at the
Facility [*] but may not have been fully implemented at the Effective Time,
including new payroll, human resources, benefits withholding and certain
financial systems (the "Pre-Closing Systems") to the extent set forth in
Schedule 15.2(a). GWI's obligations set forth in the prior sentence shall not
- ----------------
extend past [*] after any such Pre-Closing System has become functionally
operational at the Facility. [*] After the Effective Time, Supplier will provide
GWI with sufficient advance notice of any proposed acquisition of new systems to
allow GWI an opportunity to comment on possible issues regarding access to GWI
Data and/or effect on the supply of Products under this Agreement, but GWI will
have no obligation to investigate, provide, fund or assist in the implementation
of any new Supplier system or related services, unless expressly set forth in
the IT Support Services or otherwise agreed in writing by the parties.
15.3 IT Transition Plan. Schedule 15.3 (the "IT Transition Plan"),
------------------ -------------
attached hereto and incorporated herein by reference, contains certain
additional terms agreed to by the parties regarding: (a) the IT Support
Services; (b) the transfer of GWI data and systems from the Facility to GWI; and
(c) the transfer of responsibility for support of IT systems at the Facility
from GWI to Supplier. Each party agrees to perform the tasks assigned to it in
the IT Transition Plan. The parties
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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may agree in writing from time to time to modifications to the IT Transition
Plan. In the event of any conflict between the terms of the IT Transition Plan
and the terms of this Article XV, the terms of this Article XV shall control.
As part of the IT Transition Plan, it may be necessary for Supplier to obtain
access on a temporary basis to certain GWI applications. Supplier agrees to
access such applications only for the purposes agreed to under the IT Transition
Plan, and will promptly notify GWI if Supplier learns of any information or
obtains access to any systems which Supplier has no right to access under the IT
Transition Plan. In the event Supplier gains any such access, the accessed
information and data shall be deemed GWI Confidential Information.
15.4 Year 2000.
---------
(a) Software Obligations of GWI. If a Year-2000 compliant version of
---------------------------
any of the third-party system software products (such as a compiler or operating
system) set forth in Schedule 15.4(a), attached hereto and incorporated herein
----------------
by reference, is available to replace a noncompliant version of such software
product at the Effective Time or within eighteen (18) months after the Effective
Time, then [*] unless the parties agree after good-faith discussions that such
installation would cause unacceptable operational problems. Supplier shall be
responsible for verifying whether application systems are functional and
validated after the installation of any such new system software release.
(b) Payment Obligations of GWI. In consideration of Supplier's
--------------------------
handling of the Year 2000 issue at the Facility as provided in Section 15.4(c)
below, GWI shall pay Supplier [*] subject to and conditioned upon delivery by
Supplier of the
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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Millennium Compliance Plan or quarterly updates thereto required to be delivered
by such date pursuant to Section 15.4(c)(iii):
10/31/97
01/31/98
03/31/98
06/30/98
09/30/98
12/31/98
03/31/99
06/30/99
(c) Obligations of Supplier. Supplier agrees as follows:
-----------------------
(i) Supplier will use reasonable efforts to ensure that there will be
no failure or production of erroneous results as a result of the inability to
receive, store, process or output date information regardless of the date or
dates utilized, including without limitation related to the change of century in
any computer software, computer hardware, automation systems and devices owned,
licensed or used by Supplier or any suppliers of Supplier (collectively, the
"Computing Devices") that would result in either: (a) the inability of Supplier
to manufacture and supply Products and supporting documentation and information
under this Agreement, or (b) the failure of defined system interfaces and
connections between Supplier systems and GWI systems (each, a "Failure").
(ii) Supplier will use reasonable efforts to perform within six (6)
months after the Effective Time such additional testing and assessment of the
Computing Devices not being replaced by Supplier necessary to determine whether
any such Computing Devices may have a Failure as described in Section 15.4(c)(i)
above. Supplier will also, within ninety (90) days after the Effective Time,
prepare a preliminary written plan of action to ensure that the Computing
Devices will not be the subject of a Failure (the "Millennium Compliance Plan").
To the extent
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reasonably necessary to ensure Supplier's compliance with Section 15.4(c)(i)
above, Supplier will also, within six (6) months after the Effective Time,
contact and use reasonable efforts to determine whether suppliers of goods or
services to Supplier, including without limitation suppliers of computer
software, computer hardware, automation systems and devices, will warrant that
each of the Computing Devices owned, licensed or used by such supplier will not
be the subject of Failures. Supplier will inform GWI in writing of all such
suppliers who will not make such warranties.
(iii) Supplier shall deliver to GWI a copy of the preliminary
Millennium Compliance Plan not later than ninety (90) days after the Effective
Time, and deliver to GWI a detailed Millennium Compliance Plan within six (6)
months after the Effective Time. Supplier thereafter shall deliver GWI at the
end of each calendar quarter a written report on updates, issues, progress and
changes in schedule, if any, made in relation to the Millennium Compliance Plan.
Supplier shall also use reasonable efforts to implement a plan promptly after
the Effective Time the goal of which is to prevent the purchase or license of
Computing Devices that may be the subject of Failures. Supplier shall notify GWI
in writing and provide GWI with details promptly in the event that Supplier
obtains: (a) information (other than information already included in the Year
2000 report prepared by Data Dimension, Inc. for GWI prior to the Effective Time
(the "DDI Report")) that any Computing Devices owned, licensed or used by
Supplier may be the subject of a Failure, or (b) any material supplements,
modifications or clarifications of the DDI Report. Supplier shall also notify
GWI in the event Supplier becomes aware that any computer software or systems
owned, licensed or used by GWI and related to the Facility may be the subject of
a Failure. Upon GWI's written request, Supplier agrees to participate at GWI's
expense in additional tests to be conducted
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at agreed times of the Computing Devices owned, licensed or otherwise used by
Supplier to determine whether such Computing Devices may be the subject of
Failures.
15.5 Migration of GWI Systems and Data.
---------------------------------
The parties acknowledge that, during the first 24 months after the
date of this Agreement, GWI will have the right to transfer GWI systems and data
from the IBM mainframe computer at the Facility to other GWI computing
facilities. Supplier agrees to provide GWI with reasonable access, cooperation,
assistance and information as necessary for GWI to accomplish this transfer.
15.6 Data.
----
(a) Ownership. As between Supplier and GWI, GWI shall be and remain
---------
the sole and exclusive owner of any and all data and information relating to:
(i) the business of GWI or any GWI Affiliate, (ii) customers or suppliers of GWI
or any GWI Affiliate, as it relates to any Product; (iii) any of the Products,
including any forecasts therefor and any data reflected in POs or the MRP system
(or replacement therefor permitted by the terms of this Agreement), and (iv) any
GWI Rights (collectively, the "Data"). The Data shall include current,
historical, archived and outcomes information, whether or not present at the
Facility or in electronic or hard-copy form. GWI shall own all Intellectual
Property rights that may subsist in the Data.
(b) Supplier Access. Supplier agrees to access and use the Data only
---------------
as and to the extent necessary and appropriate for the performance of Supplier
under this Agreement. Neither Supplier nor any of its employees, agents,
consultants or assigns shall have any ownership or (except as set forth in the
preceding sentence) usage rights in any of the Data in any form, including raw
data,
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stripped data, cumulated data, usage information, summary information and
statistical information derived from or in connection with the Data.
(c) GWI Access. During the Term of this Agreement and for a
----------
reasonable period of time after the expiration or termination of this Agreement,
GWI and its designees shall have the right to [*] during the Term of this
Agreement on-site at the Facility. Supplier shall provide GWI with reasonable
assistance and cooperation in connection with GWI's exercise of this right. GWI
shall not attempt to learn or obtain access to any systems or information: (i)
that are related to business other than GWI's, or (ii) for purposes not related
to any of the purposes described in Section 15.7; Supplier agrees to take
reasonable steps to segregate such information from that which GWI has the right
to access. GWI shall promptly notify Supplier if it learns of or obtains access
to any information other than Data or other information which GWI has the right
to access hereunder.
15.7 Systems; GWI Access. Subject to the terms of this Section
-------------------
15.7, GWI and its designees shall have the right during the Term of this
Agreement to access and monitor Supplier's information technology systems at the
Facility or connected to the Facility used in connection with the performance of
Supplier's obligations under this Agreement; provided, except pursuant to
Article XII hereunder, GWI shall have no access to Supplier's process automation
systems. In addition, GWI and its designees shall have the right during the Term
of this Agreement [*] or connected to the Facility, and to integrate the same
with Supplier systems at the Facility or connected to the Facility. GWI's
rights under this Section 15.7 shall be exercised in connection with one or more
of the following purposes: (i) obtain access to or copies of any of the Data;
(ii) facilitate the ordering of Products or processing of
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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payments to Supplier; (iii) monitor the inventory and status of Products and
Materials; and (iv) exercise any of GWI's rights under Articles IX, X and XII
herein. Supplier shall provide GWI with reasonable technical assistance and
cooperation as required to facilitate the rights of GWI or its designees
described in this Section 15.7. Supplier shall also cooperate with and provide
reasonable assistance to GWI in the [*] (except process automation systems). GWI
agrees not to exercise any of the rights in this Section 15.7 in a manner that
affects Supplier's ability to manufacture and supply Products under this
Agreement or otherwise operate the Facility. Unless otherwise agreed by the
parties or set forth in Schedule 15.3, GWI further agrees to provide at least
-------------
[*] advance notice prior to exercising any of its rights in this Section 15.7
and to access the Facility pursuant to this Section 15.7 only during business
hours.
15.8 Security. Supplier shall follow all [*] relating to the
--------
accessed systems and the Data that are in place at the Effective Time, until
such policies are replaced with new policies that may be different but provide
equivalent or greater levels of security. In addition, Supplier shall take
necessary and appropriate security measures to ensure the integrity of, and
limit the accessability to, the Data. The security measures provided by Supplier
shall include the security measures listed in Schedule 15.8 to this Agreement.
-------------
15.9 Disaster Recovery and Backup. Supplier will implement
----------------------------
within twelve (12) months after the Effective Time a written disaster recovery
plan for Computing Devices at the Facility (prior to such time, Supplier will
follow such disaster recovery plans and policies in the process of being,
debarred under 21 U.S.C. (S) 335a(a) or (b). Furthermore, neither Supplier nor
any of its officers, employees, or consultants has been convicted of an offense
under either federal or place at the Effective Time). Thereafter, Supplier will
maintain and update such plan as required to reflect changes in the computing
environment at the Facility, and will test the plan annually. GWI will have
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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the right to receive a copy of Supplier's disaster recovery plan upon request.
In the event of a disaster affecting the Facility, Supplier will execute the
disaster recovery plan. Supplier also agrees to implement appropriate data
backup and recovery procedures, including off-site backups for the Data.
ARTICLE XVI
REPRESENTATIONS AND WARRANTIES
16.1 Representations and Warranties of Supplier.
------------------------------------------
(a) Status; Enforceability. Supplier and Parent are validly existing
----------------------
corporations in good standing under the laws of the jurisdiction of their
incorporation; the execution, delivery and performance of this Agreement by
Supplier has been duly authorized by all requisite corporate action; this
Agreement constitutes the legal, valid and binding obligation of Supplier,
enforceable against Supplier in accordance with the terms hereof, subject to the
effect of bankruptcy, insolvency, reorganization, receivership, moratorium and
other similar laws affecting the rights and remedies of creditors generally and
the effect of general principles of equity, whether applied by a court of law or
equity; and the execution, delivery and performance of this Agreement by it will
not violate or conflict with any other agreement or instrument to which it is a
party.
(b) Certain Persons. Supplier has not used, in any capacity associated
---------------
with or related to the manufacture of the Products, the services of any persons
who have been, or are in the process of being, debarred under 21 U.S.C. (S)
335(a) or (b). Furthermore, neither Supplier nor any of its officers,
employees, or consultants has been convicted of an offense under either federal
or
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state law that is cited in 21 U.S.C. (S) 335a as a ground for debarment, denial
of approval, or suspension.
16.2 Representations and Warranties of GWI. GWI represents and
-------------------------------------
warrants to Supplier that:
(a) Status; Enforceability. GWI is a validly existing corporation and
----------------------
is in good standing under the laws of North Carolina; the execution, delivery
and performance of this Agreement by GWI has been duly authorized by all
requisite corporate action; this Agreement constitutes the legal, valid and
binding obligation of GWI, enforceable against GWI in accordance with the terms
hereof, subject to the effect of bankruptcy, insolvency, reorganization,
receivership, moratorium and other similar laws affecting the rights and
remedies of creditors generally and the effect of general principles of equity,
whether applied by a court of law or equity; and the execution, delivery and
performance of this Agreement will not violate or conflict with any other
agreement or instrument to which it is a party.
(b) Foreign Countries. Schedule 16.2(b) attached hereto and
----------------- ----------------
incorporated herein by reference includes a list of all foreign countries and
jurisdictions into which GWI intends as of the Effective Time to ship Products
after the Effective Time.
(c) Intellectual Property. The GWI Rights and other Intellectual
---------------------
Property licensed to Supplier pursuant to Section 14.3(a) and, to GWI's best
knowledge with respect to Intellectual Property which is sublicensed pursuant to
Section 14.3(b) (collectively, the "Licensed Technology") are free and clear of
any lien, encumbrance, security interest or restriction on license inconsistent
with the rights granted to Supplier herein, and GWI has not previously granted
and will not grant to
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any third party during the Term of this Agreement, any right, license or
interest in or to the Licensed Technology, or any portion thereof, inconsistent
with the rights granted to Supplier herein;
(d) Litigation. Except as provided on Schedule 16.2(d) attached
---------- ----------------
hereto and incorporated herein by reference, there are no suits, investigations,
claims or proceedings pending or, to GWI's best knowledge, threatened in any way
relating to the Products, the GWI Rights and other Intellectual Property
licensed to Supplier pursuant to Section 14.3(a) or, to GWI's best knowledge,
relating to the Intellectual Property which is sublicensed pursuant to Section
14.3(b);
(e) Licensed Property. The manufacture and supply of Products
-----------------
pursuant to this Agreement does not and shall not require a license under any
Intellectual Property owned or controlled by GWI or a GWI Affiliate or any third
party which is not licensed to Supplier hereunder;
(f) Noninfringement. To the knowledge of GWI, the manufacture and
---------------
supply of Products pursuant to this Agreement in accordance with the
Specifications will not infringe the intellectual property rights of any third
party; and
(g) Sufficient Rights. The Retained Intellectual Property together
-----------------
with the Licensed Technology comprises all Intellectual Property necessary for
Supplier to manufacture and supply Products in accordance with the
Specifications in effect as of the Effective Time pursuant to this Agreement.
The foregoing representations and warranties shall apply to computer
systems and software owned by third parties only to the extent use of those
systems or software is specifically required by the Specifications, but shall
not apply to other uses of such computer software or systems.
16.3 Information. The parties will provide to each other such
-----------
information (to the extent reasonably available and not subject to any
confidentiality agreement with any third party) as
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may be requested with reasonable prior notice to permit and evidence compliance
with Section 16.1 above and Section 16.2 above.
ARTICLE XVII
GENERAL COVENANTS
17.1 Covenants of Supplier.
---------------------
(a) Compliance. The manufacture, generation, processing,
----------
distribution, transport, treatment, storage, disposal and other management of
any Materials, Products or Secondary Materials by Supplier until delivery to a
shipper shall (i) be in accordance with and conform to the Specifications and
CGMP; (ii) be in accordance with and conform to any applicable standards
specified by the United States Pharmacopeia and Pharmacopeial Forum and the
European Pharmacopeia and Pharmacopeial Forum, and (iii) otherwise conform to
any provisions of the FD&C Act not reflected in CGMP, all Environmental Laws,
all Legal Requirements and the HSE Guidelines. THE WARRANTIES AND COVENANTS
PROVIDED IN THIS AGREEMENT DO NOT APPLY TO PRODUCTS TO THE EXTENT THAT, AFTER
SHIPMENT BY SUPPLIER AND THROUGH NO FAULT OF OR BREACH BY SUPPLIER HEREUNDER,
THE PRODUCTS: (i) HAVE BEEN ALTERED OR ADULTERATED, (ii) HAVE NOT BEEN
MAINTAINED IN ACCORDANCE WITH CGMP, APPLICABLE TRANSPORTATION, STORAGE, HANDLING
OR MAINTENANCE REQUIREMENTS, (iii) HAVE BEEN DAMAGED BY NEGLIGENCE OR ACCIDENT,
OR (iv) HAVE BEEN DAMAGED BY ACTS OF NATURE, VANDALISM, BURGLARY, NEGLECT OR
MISUSE OTHER THAN BY SUPPLIER OR ITS REPRESENTATIVES. EXCEPT AS EXPRESSLY SET
FORTH IN THIS
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SECTION 17.1, SUPPLIER DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS
FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT OF THE INTELLECTUAL PROPERTY OF ANY
THIRD PARTY.
(b) Maintenance of Facility. During the Term of this Agreement,
-----------------------
Supplier shall maintain the Facility, all personal property, equipment,
machinery, systems, intangibles, intellectual property and contract rights in
use at the Facility during the Term of this Agreement in the ordinary course of
business, and free of material defects, except for defects attributable to wear
and tear consistent with the age and usage of such assets, and except for such
defects as do not and will not, in the aggregate, materially impair the ability
to use such assets as now used in connection with the manufacture, generation,
processing, distribution, transport, treatment, storage, disposal or other
management of any Materials, Product or Secondary Materials. Supplier shall
also use reasonable efforts to maintain its relationship with suppliers and
other Persons to the extent necessary to perform its obligations under this
Agreement.
(c) Certain Persons. Supplier shall not use, in any capacity
---------------
associated with or related to the manufacture of the Products, the services of
any person who has been, or is in the process of being, debarred under 21 U.S.C.
(S) 335a(a) or (b) or any other applicable provision of federal law.
Furthermore, Supplier shall not hire or retain as an officer, employee, or
consultant, any person who has been convicted of an offense under either federal
or state law that is cited in 21 U.S.C. (S) 335a or any other applicable
provision of federal law, as a ground for debarment, denial of approval, or
suspension.
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(d) Books and Records. Supplier and Parent will maintain books of
-----------------
account in accordance with generally accepted accounting principles,
consistently applied.
(e) Certain Events. Supplier will furnish to GWI with reasonable
--------------
promptness [*] Parent's obligation under this Section 17.1(e) shall relate only
to its activities in connection with the production of pharmaceutical products,
including fine chemicals.
(f) Other Defaults. Supplier and Parent will, within [*] days of
--------------
receipt thereof, advise GWI of any notification of default by Supplier or Parent
issued by a third party with respect to any material loan or material contract
of Supplier, or any material loan or material contract of Parent relating to the
manufacturing of fine chemicals or pharmaceutical products, or the financing of
any facility for the same as a result of which notice such third party is
accelerating the repayment of the loan or seeking to terminate the contract.
Supplier and Parent will also furnish GWI with a written explanation of the
circumstances involved in connection with the notice of default.
(g) Negative Pledge. Supplier shall not pledge or otherwise transfer,
---------------
without GWI's prior written consent, Key Ingredients or any work-in-progress or
finished goods inventory of Products, other than (i) to GWI or a GWI Affiliate
as expressly provided in this Agreement, or (ii) to Supplier's primary lenders
and/or lending syndicate or to the financial institution acting as agent for
such lenders or to any other transferee in connection with an exercise of
remedies by such lenders or lending syndicate or financial institution acting as
agent therefor pursuant to a security agreement; provided that such security
agreement expressly provides (in the case of security agreements entered into
after the Effective Time, in terms reasonably acceptable to GWI), that (a)
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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in the event of foreclosure of the pledge such lenders, syndicate or agent, as
the case may be, before exercising any other remedies with respect to Key
Ingredients, work-in-process inventory of Products or finished goods inventory
of Products, must offer in writing to sell to GWI (i) any Key Ingredients and
any work-in-process inventory of Products at Supplier's cost, plus a reasonable
portion of the applicable Conversion Charge with respect to work-in-progress
inventory, and (ii) the finished Products at the price determined in accordance
with the terms of this Agreement, (b) GWI shall have a period of [*] following
receipt of such offer to elect to and to purchase such Key Ingredients, work-in-
progress and finished goods inventory, (c) the provisions of the security
agreement described in this Section 17.1(g) shall not be amended without the
prior written consent of GWI, which consent (in the case of amendments as to
form, but not as to substance) shall not be unreasonably withheld and (d) GWI is
a third-party beneficiary of such provisions with full rights at law and in
equity to enforce the same.
(h) Certain Prohibitions. Supplier shall not manufacture, store or
--------------------
process any Product in the same building in which Supplier manufactures, stores
or processes cephalosporins, sex hormones, anabolic steroids, and infectious
agents (e.g., spore-bearing and live viruses), (collectively, "Potential
Contaminants") unless the Potential Contaminants are stored or manufactured in
contained environments and in compliance with cleaning, validation and
changeover standards of all CGMPs, subject to GWI's reasonable satisfaction.
Supplier shall promptly notify GWI if any of the Potential Contaminants are
manufactured, processed or stored in the Facility or any other facility where
Supplier manufactures, processes or stores Products. Supplier shall notify GWI
by not later than the earlier to occur of (i) 120 days prior to such event or
(ii) Supplier's knowledge of such event, if Supplier intends to change the
nature or use of any portion
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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of the Facility or any module, including the use of any of the Potential
Contaminants, and Supplier shall not make such changes if there would result
material adverse effect on its ability to fully perform its obligations under
this Agreement, including the timely supply and delivery of Products.
(i) Security Measures. Supplier shall maintain security policies at
-----------------
the Facility sufficient to protect the integrity of the Products and all other
GWI assets, tangible and intangible, at the Facility. The security policies
shall include, at a minimum, the security measures identified in Schedule 15.8
-------------
to this Agreement.
17.2 Covenants of GWI.
----------------
(a) Compliance. All changes made to the Specifications by GWI after
----------
the date of this Agreement shall comply with all Legal Requirements,
Environmental Laws and the provisions of the FD&C Act.
(b) Sale of Product. GWI shall (i) not give any purchaser of Products
---------------
any guarantee or warranty on behalf of Supplier and (ii) enter into all sale
contracts for the Products as a principal.
(c) Additional Export Locations. GWI shall notify Supplier as soon as
---------------------------
reasonably practicable of any foreign country or nationality into which it
intends to ship Products in addition to those listed on Schedule 16.2(b) and in
----------------
any event prior to the commencement of any such shipment in order to allow
Supplier a reasonable period of time to comply with applicable Legal
Requirements and shall provide Supplier with an amended Schedule.
(d) GWI agrees that it shall complete [*] and certain regulatory
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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and/or code compliance capital projects, all as described in more detail on
Schedule 17.2(d) as attached hereto and incorporated herein by reference.
- ----------------
ARTICLE XVIII
TRANSITION OF PRODUCTS
18.1 Product Transition. GWI intends over the term of this
------------------
Agreement to transfer the manufacture of one or more Primary Products and each
Secondary/Steriles Product from the Facility to an Outside Facility or to
qualify other Outside Facilities to manufacture one or more Products (a
"Transition"). GWI will endeavor to advise Supplier of the specific plan for
the Transition of each such Product and to advise Supplier of changes in such
plans from time to time, and the parties in any event shall meet quarterly, or
more often if necessary, to discuss transfer timelines, milestones, progress and
forward tasks to be completed. Nothing in this Section limits GWI's sole
discretion to revise and update any or all of such plans at any time. After the
Transition of a Product, GWI may but shall not be obligated to request Supplier
to produce that Product at the Facility in accordance with terms of this
Agreement. The Transition of any or all Products shall in no way affect or
limit the term of this Agreement.
18.2 Supplier Obligations. In connection with any Transition of
--------------------
a Product, Supplier shall provide GWI reasonable levels of support as described
in Schedule 18.2 attached hereto and incorporated herein by reference. Supplier
--------------
understands that timely response to requests and timely completion of tasks (as
directed by GWI) is necessary to assure the Transition of Products within the
applicable transfer plan. Supplier shall also provide technical advice to GWI
(based upon previous experience with Products and procedures at the Facility or
otherwise) as needed in a timely
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manner in order to facilitate the Transition of Products. GWI may request
Supplier, upon reasonable advance notice, to send its employees to visit
nominated manufacturing sites in order to provide technical advice. GWI shall
in such event reimburse Supplier for reasonable travel expenses for such visits.
In any event, Supplier shall use all its reasonable efforts to make available in
response to requests for support and advice for Product Transition the current
Supplier employee who has particular knowledge of the Product or process.
18.3 Transition Payments. In consideration of the performance by
-------------------
Supplier of the services contemplated by this Agreement with respect to the
Transition of Products, including without limitation the services set forth in
this Article XVIII, GWI shall pay to Supplier the amounts set forth on Schedule
--------
18.3 attached hereto and incorporated herein by reference, which amounts shall
- ----
be invoiced to GWI by Supplier monthly in arrears and due within thirty (30)
days after receipt of such invoice. The parties acknowledge and agree that they
will mutually work to complete Schedule 18.3 promptly after the Effective Time
-------------
and will evidence their agreement by attaching an initialed copy of such
Schedule to each original execution copy of this Agreement.
ARTICLE XIX
TERM
19.1 General. The term of this Agreement shall commence on the
-------
date hereof and shall continue until the last to expire of (i) the Primary Term,
(ii) the Specialty Term, (iii) the Secondary Term or (iv) the Steriles Term, in
each case as provided in Sections 19.2 through 19.5 below, unless earlier
terminated pursuant to the provisions of Article XX or Article XXIV of this
Agreement (the "Termination Date").
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19.2 Primary Term.
------------
(a) General. Subject to the provisions of Section 19.1 above,
-------
Supplier shall be obligated to produce Primary Products to be made available for
shipment to meet Delivery Dates through December 31, 2001, if a Primary
Termination Notice has been delivered pursuant to Section 19.2(b) below
specifying such date as the termination of the Primary Term, or such later date
specified in a Primary Termination Notice validly delivered pursuant to Section
19.2(b) below (the "Primary Term").
(b) Primary Termination Notice. At any time on or after the second
--------------------------
(2nd) anniversary of the date of this Agreement, either party may terminate the
Primary Term with respect to all Primary Products (other than Specialty
Products) by delivery of a written notice to the other party ("Primary
Termination Notice") specifying the termination date of the Primary Term, which
date shall not be less than two (2) years from the date on which the Primary
Termination Notice is given. Notwithstanding the foregoing, no Primary
Termination Notice may terminate Supplier's obligations to deliver bupropion
prior to December 31, 2001.
(c) Pricing. Notwithstanding the provisions of Section 5.1(b) above,
-------
pricing for the Primary Products (other than Specialty Products, which shall be
governed by Section 5.1(b) above, and bupropion, which is set through December
31, 2001) for periods following the fourth (4th) anniversary of this Agreement
shall be negotiated by the parties commencing three (3) months prior to the
second (2nd) anniversary of this Agreement.
19.3 Specialty Term.
--------------
(a) General. Subject to the provisions of Section 19.1 above,
-------
Supplier shall be obligated to produce Specialty Products to be made available
for shipment to meet Delivery Dates
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through July 31, 2002, if a Specialty Termination Notice has been delivered
pursuant to Section 19.3(b) below specifying such date as the termination of the
Specialty Term, or such later date specified in a Specialty Termination Notice
validly delivered pursuant to Section 19.3(b) below (the "Specialty Term").
(b) Specialty Termination Notice. At any time on or after the second
----------------------------
(2nd) anniversary of the date of this Agreement, either party may terminate the
Specialty Term with respect to all Specialty Products by delivery of a written
notice to the other party ("Specialty Termination Notice") specifying the
termination date of the Specialty Term, which date shall be not less than three
(3) years from the date the Specialty Termination Notice is given.
(c) Pricing. Pricing for Specialty Products for all periods after the
-------
fourth (4th) anniversary of the date of this Agreement shall be determined as
provided in Section 5.1(b) above.
19.4 Secondary Term.
--------------
(a) General. Subject to the provisions of Section 19.1 above,
-------
Supplier shall be obligated to produce Secondary Products other than NIX and
cytotoxic products, designated on Schedule 2 as "cyto" to be made available for
----------
shipment to meet Delivery Dates through December 31, 1998 ("Secondary Term"),
unless such date is extended as provided in Section 19.4(b) below.
(b) Secondary Extension. GWI may extend the Secondary Term for a
-------------------
period not to exceed twelve (12) months with respect to one or more Secondary
Products by delivery of a written notice to Supplier not less than six (6)
months prior to December 31, 1998 specifying the length of the extended
obligation and the Secondary Products covered thereby ("Secondary
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Extension"). The price of any Secondary Product for the period after December
31, 1998, including any applicable Conversion Charge, shall be mutually agreed
by the parties in advance and Supplier agrees to negotiate in good faith with
GWI to determine such price and fees.
(c) Secondary Utilization. If Supplier reasonably determines that the
---------------------
Secondary Facility [*] The procedures set forth in Section 19.4(b) above shall
govern the determination of the Secondary Product pricing during such extended
Secondary Term. If [*] GWI did not elect to extend the Secondary Term, GWI
shall have a right of first refusal, to be exercised within thirty (30) days
after the specified date, to have one or more Secondary Products made by
Supplier in the Secondary Facility. The price for Secondary Products shall be
an amount determined at the best terms and rates then offered by Supplier to
other Persons. Nothing in this Section 19.4(c) shall affect GWI's ability to
extend the Secondary Term with respect to NIX or any cytotoxics Products subject
to negotiation of the parties as to the price(s) therefor for any period after
December 31, 2000.
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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(d) Cytotoxics; NIX. This Agreement shall remain in effect with
---------------
respect to, and Supplier shall be obligated to manufacture and supply, NIX and
cytotoxics products through December 31, 2000.
19.5 Steriles Term.
-------------
(a) General. Subject to the provisions of Section 19.1 above,
-------
Supplier shall be obligated to produce Steriles Products to be made available
for shipment to meet Delivery Dates through December 31, 2000 ("Steriles Term"),
unless such term is extended as provided in Section 19.5(b) below.
(b) Steriles Products Extension. GWI may extend the Steriles Term for
---------------------------
up to four (4) consecutive quarterly periods (each a "Steriles Extension") with
respect to one or more Steriles Products being manufactured by Supplier in the
prior Steriles Extension period beyond December 31, 2000 by delivery of a
written notice not less than six (6) months prior to December 31, 2000 or the
end of any applicable Steriles Extension specifying the Steriles Products
covered thereby. During any Steriles Extension, Supplier shall manufacture
Steriles Products in an amount not greater than the amount produced in the last
quarter of 2000, and for the aggregate Product price (as established pursuant to
Section 5.1 above) equal to that paid with respect to the last quarter of 2000.
ARTICLE XX
TERMINATION AND REMEDIES
20.1 Supplier Material Default. "Supplier Material Default"
-------------------------
shall mean the occurrence of any of the following, regardless of whether the
occurrence is voluntary or involuntary,
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provided, however, that none of the following occurrences shall constitute a
"Supplier Material Default" to the extent such occurrence is a direct result of
(i) a breach by GWI of a representation, warranty or covenant hereunder or under
the Purchase Agreement or the Environmental Agreement; or (ii) any failure by
GWI to comply with the FD&C Act or the provisions of Section 10.1 of this
Agreement; or (iii) Supplier's compliance with the Specifications or an order of
a Governmental Body directed to Supplier specifically regarding its compliance
with CGMPs, the FD&C Act, Environmental Laws or Legal Requirements:
(a) Supplier's breach or failure of any material obligation to GWI
under Article XXII which is not cured within 10 days after Supplier receives
notice thereof;
(b) Supplier's inability, failure or refusal for any [*] period (i) to
achieve at least a [*] with respect to GWI's POs placed with Supplier within [*]
or (ii) with respect to Replenishment Products to achieve at least a [*] for POs
placed in GWI's distribution centers, all with Products that meet
Specifications. Any inability, failure or refusal to meet these line fill rates
will be excluded from the calculation of the line fill rate (i) to the extent it
is a direct result of material delays outside Supplier's control in the delivery
of Key Ingredients meeting the applicable quality standards or Legal
Requirements, (ii) to the extent it is a direct result of GWI's failure to
release all or a portion of a shipment meeting the Specifications within the
seven (7) day period provided in Section 9.3(a) or (iii) if such manufacture,
delivery or sale of the Products would, as a result of actions or inactions or
outside Supplier's control, be in violation of the FD&C Act, Environmental Laws
or Legal Requirements;
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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(c) GWI's reasonable apprehension that a Supplier Material Default
under Section 20.1(b) above is imminent, based on objective circumstances and
communicated to Supplier in writing, and the failure of Supplier to provide
adequate assurances in writing and take adequate actions in connection therewith
within [*] days after receiving notice thereof, unless Supplier in good faith,
promptly commences pursuing such cure and diligently and continually does so,
but in no event to exceed [*] days from the date of GWI's notice; provided,
however, that if Supplier does not believe a Supplier Material Default is
imminent, it shall be entitled to submit its basis for such determination to GWI
and either party may submit the matter to binding arbitration by one agreed
independent arbitrator. Such arbitration shall be completed within thirty (30)
days of its commencement;
(d) An assignment or attempted assignment by Supplier, in violation of
this Agreement;
(e) Insolvency or general failure of Supplier to pay its debts as they
become due; entrance of Supplier into receivership or any arrangement with
creditors generally; filing of a voluntary or involuntary petition or other
action or proceeding for bankruptcy or reorganization or dissolution or winding-
up of Supplier; a general assignment for the benefit of Supplier's
creditors; or a foreclosure or sale of a material part of Supplier's assets by
or for the benefit of any creditor or governmental agency; other than such
actions initiated by Supplier's primary lender and/or syndicate or the agent for
such lenders or syndicate as permitted under Section 25.6.
(f) A material breach or failure by Supplier with respect to any
material obligation or covenant under this Agreement, other than a breach or
failure otherwise described in this Section 20.1, that is not remedied by
Supplier within thirty (30) days after receiving notice
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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thereof or, if such breach or failure is susceptible of cure but cannot be
reasonably cured within [*] unless Supplier in good faith promptly commences
pursuing such cure and diligently and continually does so, but in no event to
exceed [*] days from the date of GWI's notice;
(g) A Material Default (as defined therein) by Supplier under any
other supply agreement between GWI and Supplier;
(h) A breach by Supplier of Supplier's obligations under Section 7.4
(covenant not to compete) of the Purchase Agreement that is not remedied by
Supplier within [*] days after receiving notice thereof; or
(i) Upon a Change of Control Transaction if Supplier or Parent failed
to provide GWI notice as required under Section 20.8 below.
20.2 Other Supplier Default. "Other Supplier Default" shall mean
----------------------
the breach or failure by Supplier with respect to any obligation, covenant,
representation, warranty or condition under this Agreement that is not remedied
by Supplier within [*] days after receiving written notice thereof from GWI,
other than a "Supplier Material Default", or if such breach or failure is
susceptible of cure but cannot be reasonably cured within [*] unless Supplier in
good faith promptly commences pursuing such cure and diligently and continually
does so but in no event to exceed [*] days from the date of GWI's notice.
Notwithstanding the foregoing, none of the foregoing occurrences shall
constitute an Other Supplier Default to the extent such occurrence is a direct
result of (i) a breach by GWI of a representation, warranty or covenant
hereunder or under the Purchase Agreement or the Environmental Agreement; or
(ii) any failure by GWI to comply with the FD&C Act or the provisions of Section
10.1 of this Agreement; or (iii) Supplier's compliance with
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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the Specifications or an order of a Governmental Body directed to Supplier
specifically regarding its compliance with CGMPs, the FD&C Act, Environmental
Laws or Legal Requirements.
20.3 GWI Material Default. If GWI fails to pay an amount
--------------------
specified in this Agreement [*] due to Supplier under this Agreement other than
the portion of any payment hereunder which is the subject of a pending dispute
identified by GWI in a written notice delivered to Supplier following receipt of
an invoice or other demand for payment made hereunder stating the amount and
basis of GWI's good faith objection or challenge pursuant to Sections 5.1(c),
5.2(d), 5.3(a), 6.3(b), 7.1(c), 7.1(d), 8.1(c), 9.10, 9.12 or 15.4(b) of this
Agreement within ten (10) days after receiving written notice of non-payment
from Supplier (such notice to be accompanied by copies of invoices, shipping
manifests and other relevant documentation supporting Supplier's claim for
payment), then Supplier may issue to GWI written notice of Supplier's intent to
terminate this Agreement. If the nonpayment is not cured by GWI within [*] after
receiving written notice of Supplier's intention, it shall constitute a "GWI
Material Default."
20.4 Other GWI Default. "Other GWI Default" shall mean the
-----------------
breach or failure by GWI with respect to any obligation, covenant,
representation, warranty or condition under this Agreement or the Deed of
Easement that is not remedied by GWI within [*] after receiving written notice
thereof from Supplier, other than a "GWI Material Default", or if such breach or
failure is susceptible of cure but cannot be reasonably cured within [*], unless
GWI in good faith promptly commences pursuing such cure and diligently and
continually does so.
20.5 Effect of Supplier Default.
--------------------------
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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(a) Supplier Material Default. Upon the occurrence of a Supplier
-------------------------
Material Default, GWI shall have the right to: (i) terminate this Agreement
immediately and (ii) seek all other remedies available under law or in equity.
(b) Certain Supplier Material Defaults. Upon the occurrence of a
----------------------------------
Supplier Material Default described in either Section 20.1(b) or 20.1(c), GWI
may elect (in lieu of pursuing its remedies under Section 20.5(a)) to occupy
portions of the Facility necessary for the manufacture of Products affected by
the Supplier Material Default and manufacture the affected Product(s) if no
Outside Facilities in the United States are available and FDA-approved for the
manufacturing for GWI and GWI Affiliates of those Product(s). GWI shall only
have the right to occupy the Facility as provided above if the Supplier Material
Default has not been cured within [*] days of GWI providing reasonable
levels of technical assistance to Supplier at Supplier's cost. In addition, GWI
may seek all other remedies available under law or in equity and may terminate
this Agreement upon the later to occur of (i) 12 months from the occurrence
of the Supplier Material Default or (ii) GWI obtaining the right to manufacture
such Product(s) at a United States FDA-approved facility on terms satisfactory
to GWI. GWI's right to occupy portions of the Facility under this Agreement will
run until the earlier to occur of: (a) Supplier having remedied the Supplier
Material Default or (b) GWI having obtained the right to manufacture the
affected Product(s) at a U.S. FDA-approved facility on terms reasonably
satisfactory to GWI (it being understood that (i) GWI will use commercially
reasonable best efforts to obtain such right and (ii) terms that are no less
favorable to GWI from a financial perspective than the terms of this Agreement
will be deemed satisfactory to GWI). GWI's right to occupy all or any portion of
the Facility as herein provided shall be evidenced by, and subject to, the
additional terms and conditions provided in the Deed of Easement attached as
Exhibit G to
- ---------
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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this Agreement. Supplier shall make available to GWI, on a contract basis,
employees of Supplier reasonably requested by GWI in connection with GWI's
manufacture of the Products at the Facility. If the aggregate revenues for the
Product(s) affected by the Supplier Material Default for the then current
calendar year (based on binding Product commitments and relevant forecasts for
that year) equal or exceed [*] then GWI shall not be obligated to pay Guaranteed
Revenues pursuant to Article VI for the period of its occupancy and GWI's
obligation with respect to Guaranteed Revenues during such period and year shall
be reduced for the period of occupancy by the Occupancy Credit. The Occupancy
Credit shall be an amount determined as follows:
[*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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If the aggregate annual revenues for the Product(s) affected by the Supplier
Material Default for the then current year (based on binding Product commitments
and relevant forecasts for that year) are less than [*] then (i) the Conversion
Charges for those Products manufactured by GWI during the period of its
occupancy shall be reduced by [*] and (ii) the Guaranteed Revenues for the
period of GWI's occupancy shall be reduced by an amount equal to the aggregate
reduction in Conversion Charges under the immediately preceding subparagraph
(i).
(c) Other Supplier Default. Upon the occurrence of an Other Supplier
----------------------
Default, GWI shall have no right to terminate this Agreement, but GWI shall have
all rights to pursue all remedies otherwise available under law.
20.6 Effect of GWI Default.
---------------------
(a) Rights and Remedies. Upon the occurrence of a GWI Material
-------------------
Default, Supplier shall have the right to terminate this Agreement and to seek
all other remedies available under law or in equity. In the event Supplier
terminates this Agreement following a GWI Material Default, Supplier shall be
under no obligation to minimize its damages; provided, that Supplier agrees that
the use of the Facility for manufacturing pharmaceutical products for its own
account and/or for third parties following such termination shall be considered
in determining damages to Supplier.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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(b) Limitation on Other Termination. Upon the occurrence of an Other
-------------------------------
GWI Default, Supplier shall have no right to terminate this Agreement or to seek
relief in equity, but Supplier shall have all rights to pursue all remedies
otherwise available under law. Notwithstanding the foregoing, Supplier may seek
injunctive relief with respect to an Other GWI Default occasioned by the breach
or failure by GWI described in Section 20.4 above under the Deed of Easement.
20.7 Termination; Product and Materials Disposition. In the
----------------------------------------------
event of a termination of this Agreement, Supplier shall promptly complete all
work in progress and GWI shall purchase from Supplier, at the price set forth in
Section 5.1 or as otherwise provided in this Agreement, all Products resulting
from such completion or otherwise in Supplier's inventory.
20.8 Change in Control of Supplier. Parent or Supplier shall
-----------------------------
notify GWI not less than ninety (90) days in advance of (i) any proposed
transaction involving the acquisition by a party who is, directly or through one
or more affiliates, primarily engaged in the development, manufacture or
distribution of pharmaceutical products, of more than 50% of the voting
securities, on a fully diluted basis, of either Supplier or Parent or (ii) any
proposed transaction involving the acquisition by any party on or before June
30, 2000 of more than 50% of the voting securities, on a fully diluted basis, of
either Supplier or Parent, other than any transaction permitted by Section
25.6(b) below (either, a "Proposed Change in Control Transaction"), which shall
not include the issuance of Class A and Class B Common Stock by Parent as of the
Effective Time. Notwithstanding the foregoing, if neither Supplier nor Parent
knows or has reason to know of a Proposed Change in Control Transaction at least
ninety (90) days prior thereto, then Supplier or Parent shall notify GWI of the
Proposed Change in Control Transaction promptly upon Supplier or Parent learning
of, or having reason to know of, the Proposed Change in Control Transaction.
For
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a period of sixty (60) days after receipt of a written notice from Supplier or
Parent of a Proposed Change in Control Transaction, GWI may elect to terminate
this Agreement by providing written notice to Supplier of such election, and any
such termination shall be effective not less than six (6) months from the date
of the GWI notice of election to terminate. Failure of GWI to notify Supplier of
its election to terminate within sixty (60) days of receipt of a written notice
from Supplier or Parent of a Proposed Change in Control Transaction will be
deemed a waiver by GWI of its right to terminate, but GWI's right to terminate
this Agreement with respect to a given Proposed Change in Control Transaction
shall be reinstated, if Supplier or Parent provides GWI with a written notice of
a Proposed Change in Control Transaction, and such Proposed Change in Control
Transaction is not consummated within 180 days of delivery of such notice by
Supplier or Parent.
20.9 No Suspension of Obligations. Notwithstanding anything to
----------------------------
the contrary herein, if any dispute arises between the parties, in no event nor
for any reason (i) shall Supplier interrupt, slow down or reduce in any way the
manufacturing, packaging, testing, delivery, supply or Transition of Products,
unless authority to do so has been granted by GWI or specifically conferred by a
court of competent jurisdiction or (ii) shall GWI fail to make any payment when
due to Supplier unless specifically permitted by a court of competent
jurisdiction or the portion of any payment hereunder which is the subject of a
pending dispute identified by GWI in a written notice delivered to Supplier
following receipt of an invoice or other demand for payment made hereunder
stating the amount and basis of GWI's good faith objection or challenge pursuant
to Sections 5.1(c), 5.2(d), 5.3(a), 6.3(b), 7.1(c), 7.1(d), 8.1(c), 9.10, 9.12
or 15.4(b) of this Agreement.
20.10 Remedies. Except as expressly set forth in this Agreement,
--------
none of the remedies set forth in this Agreement are intended to be exclusive,
and each party shall have available
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to it all remedies available under law or in equity. The parties specifically
acknowledge and agree that GWI will have available the remedy of specific
performance under this Agreement upon a Supplier Material Default.
20.11 Injunctive Relief. In the event that Supplier breaches or
-----------------
threatens to breach any provision of Article XXII of this Agreement, irreparable
harm to GWI should be presumed and the damage to GWI would probably be very
difficult to ascertain and would be inadequate. Accordingly, in the event of
such circumstances, Supplier agrees that, in addition to any other right and
remedies available at law or in equity, GWI shall have the right to obtain
injunctive relief from any court of competent jurisdiction.
ARTICLE XXI
LIABILITY AND INDEMNIFICATION
21.1 Indemnity by Supplier. Subject to the limitation set forth
---------------------
in Section 9.9, with respect to Rejected Quantities not distributed to third
parties and the provisions of Section 21.5 below, Supplier shall indemnify,
defend and hold GWI and each GWI Affiliate who receives a Product subject to
indemnity hereunder and their respective directors, officers, employees and
agents (each a "GWI Indemnitee") harmless from and against all Losses arising
from, based upon or caused by the failure of any Products to conform to the
Specifications prior to placement with the carrier, or Supplier's (a) negligence
or willful misconduct, including any such negligence or willful misconduct which
results in an event described in Section 9.6 (in which case the Losses of GWI
to be indemnified by Supplier, subject to Section 9.7(d), may also include the
price paid by GWI to Supplier for such an affected Product and all costs
incurred by GWI in connection therewith,
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including any implementation, storage and destruction costs), (b) failure to
obtain, maintain or comply in any respect with any of its Consents which are
required to perform any of its obligations hereunder or under other Legal
Requirements, the Environmental Laws or the FD&C Act, (c) material breach of any
of Supplier's covenants, obligations, representations or warranties under this
Agreement or(d) destruction of any Product by Supplier in accordance with the
terms of this Agreement. The foregoing indemnification obligations shall not
apply in each case to the extent any particular Loss is a direct result of (i)
the negligence or intentional misconduct of a GWI Indemnitee; (ii) a breach by
GWI of a representation or covenant hereunder or under the Purchase Agreement;
(iii) any failure by GWI to comply with the FD&C Act or the provisions of
Section 10.1 of this Agreement; or (iv) Supplier's compliance with the
Specifications or an order of a Governmental Body directed to Supplier
specifically regarding its compliance with CGMPs, the FD&C Act, Environmental
Laws or Legal Requirements or (v) the sale, use or administration of any Product
to the extent that after shipment by Supplier and through no fault or breach by
Supplier hereunder, such Products (a) have been altered or adulterated, (b) have
not been maintained in accordance with CGMP, applicable transportation, storage,
handling or maintenance requirements, (c) have been damaged by negligence or
accident or (d) have been damaged by acts of nature, vandalism, burglary,
neglect or misuse other than by Supplier or its representatives. Nothing in this
Section 21.1 or Section 21.3 below shall be construed to limit, and these
provisions shall be in addition to, any indemnification provision in the
Purchase Agreement and any other agreement between the parties.
To the extent any breach of a representation and warranty hereunder constitutes
a breach of a representation and warranty under the Purchase Agreement, then the
indemnified party's exclusive
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remedy with respect to such breach shall be to seek indemnification pursuant to
the provisions of the Purchase Agreement.
21.2 Indemnity by GWI. Subject to Section 21.5 below, GWI shall
----------------
indemnify, defend and hold Supplier and the Supplier Affiliates and their
respective directors, officers, employees and agents (each a "Supplier
Indemnitee") harmless from and against all Losses not otherwise reimbursed by
GWI to Supplier arising from, based upon or caused by (a) the distribution or
marketing of Products by GWI or any GWI Affiliate acquiring Product directly or
indirectly pursuant to this Agreement and/or the administration or use thereof,
(b) GWI's failure to obtain, maintain or comply in any respect with any of its
Consents which are required to perform any of its obligations hereunder, or
export permits or under other Legal Requirements, the Environmental Laws or the
FD&C Act, (c) material breach of any of GWI's covenants, obligations,
representations or warranties under this Agreement or the Deed of Easement or
GWI's representations, warranties, covenants or obligations under the Purchase
Agreement, (d) Supplier's compliance with the Specifications or use of any Key
Ingredients provided Supplier complies with the provisions of this Agreement
relating to testing of such Key Ingredients and could not have reasonably
discovered the defects contributing to such Loss, (e) destruction of any Product
by GWI in accordance with the terms of this Agreement or (f) any claim that the
practice of the Licensed Technology by Supplier, or the manufacture, use or sale
of the Materials or Products constitutes trade secret misappropriation or
infringes the intellectual property rights of any third party. The foregoing
indemnification obligations shall not apply in each case to the extent any
particular Loss is a direct result of the negligence or intentional misconduct
of a Supplier Indemnitee or for which Supplier is obligated to indemnify GWI
pursuant to Section 21.1 above. Nothing in this Section 21.2 or Section 21.3
below
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shall be construed to limit, and these provisions shall be in addition to, any
indemnification provision in the Purchase Agreement and any other agreement
between the parties. To the extent any breach of a representation and warranty
hereunder constitutes a breach of a representation and warranty under the
Purchase Agreement, then the indemnified party's exclusive remedy with respect
to such breach shall be to seek indemnification pursuant to the provisions of
the Purchase Agreement.
21.3 Environmental Indemnity. Without limiting the generality of
-----------------------
Section 21.1 above or any other obligation of Supplier under any other agreement
between Supplier and GWI, Supplier shall indemnify, defend and hold GWI and each
GWI Affiliate harmless from and against Environmental Losses as provided in, and
subject to the limitations of, Section 8.2 and Article XII of the Purchase
Agreement. GWI shall indemnify, defend and hold Supplier and each Supplier
Affiliate harmless from and against Environmental Losses to the extent such
Environmental Losses arise from acts under GWI's control during any period in
which GWI occupies a portion of the Facility under the provisions of Section
20.5 hereunder and the terms of Exhibit G hereto.
21.4 Procedures. Any indemnification of GWI, GWI Affiliates,
----------
Supplier or Supplier Affiliates hereunder shall include and extend to the
benefit of their respective shareholders, directors, officers and employees.
Any person that may be entitled to indemnification under this Agreement (an
"Indemnified Party") shall give written notice to the Person obligated to
indemnify it (an "Indemnifying Party") with reasonable promptness upon becoming
aware of any claim or other facts upon which a claim for indemnification will be
based; the notice shall set forth such information with respect thereto as is
then reasonably available to the Indemnified Party. The Indemnifying Party
shall have the right to undertake the defense of any such claim asserted by a
third party with counsel reasonably satisfactory to the Indemnified Party and
the Indemnified Party shall
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cooperate in such defense and make available all records, materials and
witnesses reasonably requested by the Indemnifying Party in connection therewith
at the Indemnifying Party's expense. If the Indemnifying Party shall have
assumed the defense of the claim with counsel reasonably satisfactory to the
Indemnified Party, the Indemnifying Party shall not be liable to the Indemnified
Party for any legal or other expenses (other than for reasonable costs of
investigation) subsequently incurred by the Indemnified Party in connection with
the defense thereof. The Indemnifying Party shall not be liable for any claim
settled without its consent, which consent shall not be unreasonably withheld or
delayed. The Indemnifying Party shall obtain the written consent of the
Indemnified Party prior to ceasing to defend, settling or otherwise disposing of
any claim if as a result thereof the Indemnified Party would become subject to
injunctive or other equitable relief or if the Indemnified Party may reasonably
object to such disposition of such claim based on a continuing adverse effect on
the Indemnified Party.
21.5 Limitations. In no event shall either party be liable to
-----------
the other, or have any obligation to indemnify any GWI Indemnitee, or Supplier
Indemnitee, as the case may be, for any consequential or indirect damages or
Losses including any loss of profits suffered by GWI or Supplier, however caused
and on any theory of liability. This limitation shall apply notwithstanding any
failure of essential purpose of any remedy available under this Agreement. [*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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ARTICLE XXII
CONFIDENTIALITY
22.1 Definition of "GWI Confidential Information". As used
--------------------------------------------
herein, the term "GWI Confidential Information" shall mean all confidential
----------------------------
business and technical communications, documents and other information, whether
in written, oral or other form, which GWI or a GWI Affiliate furnishes or
discloses to Supplier or which Supplier otherwise learns in connection with the
negotiation and performance of this Agreement (whether relating to GWI, a GWI
Affiliate or any third party for which GWI has an obligation of
confidentiality), including Specifications; the terms of this Agreement, other
than the existence of this Agreement; the Data; GWI Rights; Product volumes;
Product plans; price and cost information; customer and supplier lists;
strategies; forecasts; market research and analyses; computer programs;
technical data and know-how. Supplier agrees that the provisions of this
Agreement shall apply to all GWI need-to-know basis and (ii) Supplier may
disclose Confidential Information disclosed by
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GWI or a GWI Affiliate to Supplier or learned by Supplier prior to the date of
this Agreement, including without limitation, pursuant to any confidentiality
agreement between the parties and to all GWI Developments developed by Supplier
and assigned to GWI pursuant to Section 14.2(b) above. Supplier represents and
warrants that prior to the date of this Agreement, it has not used or disclosed
to any third party any GWI Confidential Information, except as would be
permitted hereunder.
22.2 Definition of "Supplier Confidential Information". As used
------------------------------------------------
herein, the term "Supplier Confidential Information" shall mean all confidential
---------------------------------
business and technical communications, documents or other information, whether
in written, oral or other form, of Supplier or a Supplier Affiliate that are
disclosed to GWI by Supplier or a Supplier Affiliate or GWI otherwise learns in
connection with the negotiation or performance of this Agreement; provided,
however, that all information relating to the Products shall be GWI Confidential
Information except to the extent that information is part of or constitutes a
Supplier Development. GWI agrees that the provisions of this Agreement shall
apply to all Supplier Confidential Information disclosed by Supplier or any
Supplier Affiliate or learned by GWI prior to the date of this Agreement.
22.3 Treatment of Confidential Information. Both during the Term
-------------------------------------
of this Agreement and thereafter, Supplier shall treat all GWI Confidential
Information and GWI shall treat all Supplier Confidential Information in
accordance with the requirements of this Article XXII. For convenience, GWI
Confidential Information and Supplier Confidential Information are both referred
to herein as "Confidential Information" for purposes of establishing the
obligations of each party with regard to the other party's Confidential
Information.
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(a) Nondisclosure. Confidential Information of the other party shall
-------------
be kept strictly confidential by the receiving party and, except as expressly
permitted herein, shall not be disclosed to any third party by the receiving
party in any manner whatsoever, in whole or in part, without first obtaining the
other party's prior written consent to such disclosure. The standard of care
required of each party in protecting the confidentiality of the other party's
Confidential Information shall be at least the same standard of care that the
receiving party uses in protecting its own confidential and trade secret
information, but in no event shall either party use less than a reasonable
standard of care. Confidential Information may be used by the receiving party
only for the purpose of performing under this Agreement.
(b) Permitted Exceptions. Each party may disclose the other party's
--------------------
Confidential Information only to its employees or outside advisors and financing
sources in connection with this Agreement or the Purchase Agreement who
reasonably need to know such information for the purpose of advising or
assisting it in connection with this Agreement (each, a "Representative").
Prior to disclosing any Confidential Information to any Representative, the
receiving party will inform such Representative of the proprietary nature of the
Confidential Information and will require such Representative to agree in
writing (except in the case of outside legal advisors, who may orally agree) to
be bound by the requirements of this Article XXII and not to use or disclose the
Confidential Information except as permitted herein. Each party agrees to be
responsible for any breach of these confidentiality obligations by its
Representatives. It is specifically agreed that (i) GWI may disclose Supplier
Confidential Information to any GWI Affiliate under the same conditions provided
in this Article XXII, on a need to know basis and (ii) supplier may disclose
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GWI Confidential Information to any Supplier Affiliate under the same conditions
provided in this Article XXII, on a need-to-know basis.
(c) Consent. Confidential Information of the other party shall not be
-------
utilized by a receiving party except as expressly permitted herein, without
first obtaining the other party's prior written consent to such utilization and
without first entering into a separate agreement duly executed by authorized
representatives of the parties hereto.
22.4 Excluded Information. Notwithstanding any provision herein
--------------------
to the contrary, the requirements of this Article XXII shall not apply to any
information of either party which:
(a) at the time of disclosure hereunder is generally available to the
public;
(b) after disclosure hereunder becomes generally available to the
public, except through breach of this Article XXII by the receiving party or its
Representatives;
(c) was not acquired directly or indirectly from the disclosing party
or its Affiliates and which the receiving party lawfully had in its possession
prior to disclosure by the disclosing party;
(d) is independently developed by employees or agents of the receiving
party without the use of the Confidential Information of the disclosing party;
or
(e) becomes available to the receiving party from a third party that
is not legally prohibited from disclosing such Confidential Information,
provided such information was not acquired directly or indirectly from the
disclosing party or its Affiliates.
22.5 Notification of Mandatory Disclosure.
-------------------------------------
(a) Procedures. In the event that either party is required by
----------
applicable law or regulation or by judicial or administrative process to
disclose any part of the other party's
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Confidential Information, such party shall (i) promptly notify the other party
of each such requirement and identify the documents so required thereby, so that
the other party may seek an appropriate protective order or other remedy and/or
waive compliance by the first party with the provisions of this Article XXII,
(ii) consult with the other party on the advisability of taking legally
available steps to resist or narrow the scope of such requirement, (iii) assist
the other party in seeking a protective order or equivalent, and (iv) comply
with any applicable protective order or equivalent.
(b) Limitations. If, in the absence of such a protective order or
-----------
such a waiver by the other party of the provisions of this Article XXII, the
first party is nonetheless required by mandatory applicable law to disclose any
part of the other party's Confidential Information, the first party may disclose
such of the other party's Confidential Information without liability under this
Agreement, except that the first party shall (i) furnish only that portion of
the other party's Confidential Information which is legally required and (ii)
use its best efforts to obtain an order or other reliable assurances that
confidential treatment will be accorded to the portion of such Confidential
Information so required to be disclosed.
22.6 Publicity. Supplier will not issue any press release or
---------
otherwise make any public statement or advertisement with respect to this
Agreement, any of the Products, or the transactions contemplated hereby without
the prior written consent of GWI, and GWI will not issue any press release or
otherwise make any public statement with respect to this Agreement or that
refers directly or indirectly to Supplier as a manufacturer of the Products
without the prior written consent of Supplier, provided, however, that either
party shall be entitled to make a public announcement of this Agreement after
giving prior written notice to the other party hereto, if, in the opinion of the
disclosing party's legal counsel, such announcement is required to comply with
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applicable laws and provided to the extent practicable the other party has
received at least two (2) days' notice. Once consent is given by GWI for a
required disclosure in a filing made with the Securities and Exchange
Commission, Supplier may make additional disclosures in other filings made with
the Securities and Exchange Commission that do not materially differ therefrom
without any further consents, provided that the surrounding circumstances have
not changed.
22.7 Return of Confidential Information. At any time upon the
----------------------------------
request of the other party, to the extent such Confidential Information is not
reasonably necessary to enable a party to perform its obligations under this
Agreement, the receiving party shall promptly return to the other party or
destroy the other party's Confidential Information, and shall destroy all copies
thereof, together with all notes, drawings, abstracts and other information
relating to the other party's Confidential Information prepared by the receiving
party or any of its Representatives, regardless of the medium in which such
information is stored; provided, however, that the receiving party may maintain
a single archival copy of the other party's Confidential Information in its
files for purposes of establishing the extent of disclosures by the other party
under this Agreement. At either party's written request, such party's
Confidential Information that is otherwise required to be returned to it shall
be destroyed by the receiving party and such destruction shall be certified in
writing by an authorized officer of the receiving party. The return and/or
destruction of such Confidential Information as provided above shall not relieve
the receiving party of its other obligations under this Article XXII. In the
event of a conflict between the provisions of this Section 22.7 and Article XII,
the provisions of Article XII shall control.
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ARTICLE XXIII
INSURANCE
23.1 General. Supplier shall at all times maintain in full force
-------
and effect with financially sound and reputable carriers reasonably satisfactory
to GWI the following: (i) product liability insurance with limits of not less
than $100 million per claim/annual aggregate; (ii) general liability insurance
with limits of not less than $100 million per claim/annual aggregate; (iii)
worker's compensation insurance in not less than the amount required by law;
(iv) property insurance (highly protected risk insurer only) providing full
replacement cost, business interruption, continuing expenses, extra and
expediting expenses and boiler and machinery coverage with limits of not less
than [*] (v) product recall (malicious tampering) insurance with limits of not
less than [*] and (vi) environmental liability with limits of not less than [*]
In no event shall Supplier have greater self-retention liability (including
deductibles) than [*] Supplier shall increase the types and amounts of coverage
upon GWI's request if GWI pays for any additional incremental cost pursuant to
the insurer's invoice.
23.2 Certificates of Insurance. Supplier shall have its
-------------------------
insurance carrier or carriers furnish to GWI certificates that all insurance
required under this Agreement is in force, such certificates to indicate any
deductible and/or self-insured retention, and the effective expiration dates of
policies, and such certificates to stipulate that GWI shall be given thirty (30)
days written notice of all cancellation, non-renewal or material changes in the
policy.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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23.3 Additional Insured and Waiver of Subrogation. GWI shall be
--------------------------------------------
named as an additional insured on all product liability policies of Supplier.
Supplier also agrees to waive and will require its insurers to waive all rights
of subrogation against GWI, its directors, officers and employees on all of the
foregoing coverages.
ARTICLE XXIV
FORCE MAJEURE
24.1 Force Majeure Event. Neither party shall be liable to the
-------------------
other on account of any failure to perform or on account of any delay in
performance of any obligation under this Agreement, if and to the extent that
such failure or delay shall be due to a cause beyond the control of the relevant
party and which, by the exercise of its commercially reasonable efforts of
diligence and care, such party could not reasonably have been expected to avoid
(a "Force Majeure Event"). The party affected shall promptly notify in writing
the non-affected party of the specific causes beyond the control of that party
and the probable duration of the delay and be excused from such performance of
such obligation to the extent that it is necessarily prevented, hindered or
delayed thereby during the continuance of any such happening or event. This
Agreement, in so far as it relates to such obligation, shall be deemed suspended
so long as and to the extent that such cause delays the performance of any Force
Majeure Event obligation.
24.2 Extended Force Majeure Event. Notwithstanding Section 24.1
----------------------------
above, (i) in the event that Supplier is unable to supply for any period of [*]
of the then applicable Binding Primary Commitment because of any Force Majeure
Event, GWI may, upon written notice to Supplier, terminate this Agreement; (ii)
in the event that Supplier is unable to
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supply any Products for any period of [*] due to such Force Majeure Event, GWI
may, upon written notice to Supplier, effect a Transition with respect to such
Product(s); or (iii) in the event of either clause (i) or (ii) occurring, GWI
may agree to and implement a recovery plan with respect to Supplier's
obligations for supplying such Product in a manner that ensures continuity of
supply. Part of any such recovery plan may include, if GWI so elects, temporary
relocation of the manufacture of such Product to an Outside Facility. In the
event that Supplier fails to perform under any recovery plan, GWI shall have the
right, in addition to any of its other rights hereunder, upon notice to Supplier
immediately to manufacture such Product or have such Product manufactured by a
third party supplier at an Outside Facility or pursuant to an arrangement
substantially similar to that described in Section 20.5 above until Supplier is
able to resume the manufacture and supply of such Product. Supplier shall
promptly cooperate with and provide all necessary technical assistance to GWI,
in effecting any manufacture of any Product at another facility as if it were a
Transition of such Product. The expenses of such assistance shall be borne by
Supplier if the affected Products are being permanently Transitioned out of the
Facility and shall be shared equally by the parties if the transition is
temporary.
24.3 Tolling of Certain Obligations. During the continuance of
------------------------------
any Force Majeure Event, the Guaranteed Revenues payable by GWI under Article VI
shall be reduced by the amount of the Conversion Charges for the affected
Products contained in the relevant Binding Product Commitment and relevant
forecast.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
136
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ARTICLE XXV
MISCELLANEOUS
25.1 Standard Forms. In all communications relating to the
--------------
order, delivery and sale of Products, GWI and Supplier may employ their
standard forms, but nothing in those forms shall be construed to modify or amend
the terms and conditions of this Agreement, and, in the case of any conflict
herewith, the terms and conditions of this Agreement shall control.
25.2 Notices. In addition to the other specific procedures for
-------
notification required herein, all notices, demands, requests and other
communications made hereunder shall be in writing and shall be given either by
personal delivery, by nationally recognized overnight courier (with charges
prepaid) or by facsimile transmission (with telephone confirmation), and shall
be deemed to have been given or made: (i) if personally delivered, on the day
of such delivery; (ii) if sent by overnight courier, on the day following the
date deposited with such overnight courier service; or (iii) if by facsimile
transmission, on the date transmitted to receiving facsimile machine and
confirmed by telephone, in each case pending the designation of another address,
addressed as follows:
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If to GWI:
---------
Glaxo Wellcome Inc.
Five Moore Drive
Research Triangle Park, NC 27709
Attention: Senior Vice President, Technical Operations
Facsimile: (919) 315-4264
and
Attention: Director, Product Outsourcing
Facsimile: (919) 483-3203
and
Attention: Any other Person to whom notice is to be
directed as provided in this Agreement at the
address set forth above.
With a copy (which shall not constitute notice) to:
--------------------------------------------------
Glaxo Wellcome Inc.
Five Moore Drive
Research Triangle Park, NC 27709
Attention: General Counsel
Facsimile: (919) 549-9074
If to Supplier:
--------------
Catalytica Pharmaceuticals, Inc.
430 Ferguson Drive
Mountain View, California 94043
Attention: Chief Executive Officer, President and Chief
Financial Officer
Facsimile: (415) 968-8754
and
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<PAGE>
Catalytica Pharmaceuticals, Inc.
Intersection US13/NC11 & US 264
Greenville, NC 27834
Attention: President
Facsimile: 919-707-2130
With a copy (which shall not constitute notice) to:
--------------------------------------------------
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Barry E. Taylor, Esq.
Facsimile: (415) 493-6811
If to Parent:
------------
Catalytica, Inc.
430 Ferguson Drive
Mountain View, California 94043
Attention: Chief Executive Officer, President and Chief
Financial Officer
Facsimile: (415) 968-8754
With a copy (which shall not constitute notice) to:
--------------------------------------------------
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Barry E. Taylor, Esq.
Facsimile: (415) 493-6811
25.3 Independent Contractors. In the exercise of its obligations
-----------------------
and in respect of its rights and entitlements hereunder or in respect hereof,
Supplier is and shall in all respects be treated as an independent contractor of
GWI. Neither party shall be deemed to be a co-venturer or partner of the other.
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25.4 Entire Understanding. Except as set forth in this Section
--------------------
25.4, this Agreement, including the Exhibits, Schedules and Attachments thereto,
represents the entire understanding and agreement between the parties hereto
with respect to the subject matter hereof, and supersedes all prior and
contemporaneous agreements and understandings between the parties with respect
to such subject matter, which are hereby expressly terminated. In particular,
the Mutual Confidential Disclosure Agreement between the parties dated as of
October 17, 1996 (the "CDA"), as it may be amended from time to time, is hereby
superseded and is no longer in full force and effect. In the event of any
conflict between the terms of this Agreement and the CDA, then: (a) with respect
to information used or made known to others by the party allegedly in breach of
the applicable restrictions prior to the Effective Time, the CDA shall control,
and (b) with respect to information used or made known to others by the party
allegedly in breach of the applicable restrictions after the Effective Time,
this Agreement shall control.
25.5 Unintentional Omissions. The parties acknowledge that they
-----------------------
have expended substantial effort in preparing this Agreement and attempting to
describe, in the Schedules, as thoroughly and precisely as possible,
Specifications, Products, GWI Rights and other information. However, despite
these efforts, the parties acknowledge the possibility of involuntary or
inadvertent omissions from the Schedules. The parties will agree in writing to
the changes to be made to the Schedules to add these inadvertent or involuntary
omissions and any such written agreement executed by the parties shall serve as
an amendment to this Agreement.
25.6 Transferability; Binding Effect.
-------------------------------
(a) Except as provided in Section 25.6(b) below, neither this
Agreement, nor any of the rights or obligations of Supplier may be directly or
indirectly assigned, subcontracted, Agreement to the contrary, sold,
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<PAGE>
delegated or otherwise disposed of by Supplier without the prior written consent
of GWI (which consent may be given or withheld by GWI in it sole discretion),
including any assignment by operation of law or as a result of a Proposed Change
in Control Transaction, provided, however, that (i) Supplier or Supplier's
primary lenders or lending syndicate or the agent for such lenders or syndicate
(for purposes of this Section 25.6(a), the "Lenders") may assign this Agreement
pursuant to a Proposed Change in Control Transaction with respect to which
Supplier has complied with the provisions of Section 20.8 above, (ii) Supplier
may assign to the Lenders Supplier's right to payments and to enforce payments
due from GWI under this Agreement and the Deed of Easement in the form attached
as Exhibit G, and (iii) Supplier may assign as collateral to the
---------
Lenders Supplier's interests under this Agreement and the Deed of Easement in
the form attached hereto as Exhibit G, provided that any such collateral
---------
assignment shall expressly provide that (A) the Lenders' rights to foreclose
upon or otherwise dispose of Supplier's interests in this Agreement will be
subject to the condition that such foreclosure or disposition occur in
connection with a foreclosure or sale in lieu of foreclosure of the Lenders'
security interests in the Facility and/or the capital stock of Supplier and/or
Parent, (B) the Lenders shall not be entitled to exercise any remedy with
respect to this Agreement other than (x) a foreclosure sale and assignment of
this Agreement to a Permitted Transferee subject to and upon the terms contained
in Section 25.6(b) of this Agreement, (y) to enforce rights to payment as
provided in clause (a) (ii) above and (z) upon the occurrence and during the
continuance of an event of default as defined in the applicable security
agreement or other instrument or agreement pursuant to or in connection with
which such collateral assignment shall have been made, the right to demand that
payments be remitted directly to the Lenders, (C) the Permitted Transferee
who shall so succeed through foreclosure to Supplier's rights under this
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<PAGE>
Agreement must also acquire the Facility and/or the capital stock of Supplier
and/or Parent, (D) in no event shall the Lenders be entitled to assume, perform,
satisfy or discharge any of Supplier's obligations other than with respect to
payment of money or issuance of credits to GWI due by Supplier under this
Agreement, (E) the provisions described in this Section 25.6 (a) shall not be
amended without the prior written consent of GWI, which consent (in the case of
amendments as to form, but not as to substance) shall not be unreasonably
withheld and (F) GWI is a third-party beneficiary of such provisions with full
rights at law and in equity to enforce the same. GWI and each GWI Affiliate may
assign its rights (but not its obligations) under this Agreement to any GWI
Affiliate. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns. Except as
otherwise expressly provided herein, none of the provisions of this Agreement is
intended to grant any right or benefit to any person or entity other than GWI,
the GWI Affiliates, Supplier, the Supplier Affiliates, Parent or the GWI
Affiliates.
(b) This Agreement may be assigned to a "Permitted Transferee" as
defined below in connection with a foreclosure or sale in lieu of foreclosure of
any security interests in (i) the Facility and/or (ii) the capital stock of
Supplier and/or Parent by Supplier's primary lender(s) or lending syndicate or
the agent for such lenders or syndicate (collectively the "Foreclosing Party").
GWI acknowledges and agrees that any action of the Foreclosing Party in
foreclosing on a pledge of the capital stock of Parent or Supplier and any sale
(including any sale in lieu of foreclosure) of such capital stock to a Permitted
Transferee shall not be subject to the provisions of Section 20.8 hereof. The
parties acknowledge that notwithstanding anything in this Agreement to the
contrary
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<PAGE>
the provisions of this Section 25.6(b) may be enforced by, and shall be deemed
for the benefit of, the Foreclosing Party.
As used herein, "Permitted Transferee" shall mean only a Person who:
(i) shall agree in writing to assume Supplier's obligations under this
Agreement and to be bound by all the terms and provisions of this Agreement;
(ii) is not at the time of the assignment of this Agreement engaged,
directly or indirectly, for itself, through any affiliate, or any other Person,
in the manufacture, sale, distribution or marketing of any (a) generic
equivalent of any Product or (b) any congener of a Product;
(iii) is experienced in or has, or will have as a condition to such
assignment, senior and operating management, together with personnel retained at
the Facility, who are experienced in pharmaceutical manufacturing under CGMP,
including fine chemicals, intermediates and bulk actives and secondary dosage
forms;
(iv) has sufficient financial resources and liquidity (including lines
of credit) to satisfy the requirements for working capital necessary to operate
the Facility in the manner required to manufacture and supply Products and
perform all the obligations of Supplier under this Agreement;
(v) shall agree in writing to abide by the provisions of a
noncompetition agreement on the terms provided in Section 7.4 of the Purchase
Agreement;
(vi) is in good standing with the FDA and has for the five (5) year
period prior to the assignment of this Agreement a satisfactory record of
regulatory compliance with the FDA, the U.S. Environmental Protection Agency,
the U.S. Occupational Safety and Health Administration and the counterpart state
agencies or divisions thereof as (demonstrated to the reasonable satisfaction of
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<PAGE>
GWI), except to the extent any noncompliance would not reasonably be expected to
have a material adverse effect on the ability of such Permitted Transferee to
operate a pharmaceutical manufacturing facility of the type described in (iii)
above; and
(vii) is not, and has no affiliate that is, at the time of assignment
or during any time within the two (2) year period prior thereto has been engaged
in any litigation or arbitration involving GWI or any GWI Affiliate involving
claims, or Products with annual revenues, in excess of at least [*]
In the event that the Foreclosing Party desires to sell the Facility
and/or the stock of Parent and/or Supplier in connection with an exercise of the
Foreclosing Party's rights under security interests therein and in this
Agreement to the extent permitted under Section 25.6(a), the Foreclosing Party
shall make a proposal to GWI for the sale thereof at a specified price (the
"Proposal"). The Foreclosing Party shall provide GWI with a period within which
to elect to purchase the Facility or stock at the price and on the terms
contained in the Proposal, which period shall end no earlier than [*] from the
date of delivery of the Proposal if the Proposal is made prior to a foreclosure
or [*] from the date of delivery of the Proposal, provided that the Foreclosing
Party has provided GWI with notice at [*] delivery of the Proposal of the
Foreclosing Party's intent to effect a foreclosure or sale in lieu of
foreclosure. In no event may the Foreclosing Party sell less than the entire
Facility; provided, the Foreclosing Party may sell either (i) the Steriles
Facility on a stand alone basis or (ii) the combination of the Primary Facility
and the Secondary Facility on a stand alone basis, in each case if (x) the
transferee has received all Consents that would be required to operate the
Steriles Facility and (y) the sale would not be reasonably expected to result in
a disruption of supply of Products throughout the Facility. If GWI does not
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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<PAGE>
elect within such notice period to consummate the purchase or if GWI does so
elect but fails, within [*] from the date of such election, to effect the
purchase, the Foreclosing Party may sell the Facility, and/or stock at a price
equal to or higher than that contained in the Proposal and on terms no more
favorable to the buyer within [*] after (i) the deadline for GWI to respond to
the Proposal or (ii) if GWI accepts the Proposal but fails to effect the
purchase [*] after its acceptance of the Proposal, after the end of such [*]
(such 12-month period, the "Sale Period"). The Foreclosing Party must repeat the
procedures set forth above prior to any sale at a lower price or on terms more
favorable to the buyer after the Sale Period.
25.7 Amendment. Any amendment, modification or supplement of or
---------
to any provision of this Agreement shall be effective only if in writing and
signed by all parties hereto. The parties hereto waive the right to amend the
provisions of this Section 25.7 orally.
25.8 Severability. If and to the extent that any court of
------------
competent jurisdiction holds any provision (or any part thereof) of this
Agreement to be invalid or unenforceable, such holding shall in no way affect
the validity or enforceability of the remainder of this Agreement, and the
invalid or unenforceable provision shall be fully severed from this Agreement
and there shall automatically be added in lieu thereof a provision as similar in
terms and intent to such severed provision as may be legal, valid and
enforceable.
25.9 Waiver. Any failure of Supplier or GWI to comply with any
------
obligation, covenant, agreement or condition herein contained may be expressly
waived, in writing only, by the other party hereto and such waiver shall be
effective only in the specific instance and for the specific purpose for which
made or given.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
145
<PAGE>
25.10 Survival. Sections 7.3, 8.2(c), 9.5, 9.6, 9.7, 9.8, 9.13,
--------
10.4, 12.3, 12.4, 15.4(b), 20.5, 20.6 and 20.7 and Articles XXI, XXII and XXV,
and any other provision which by its terms specifically shall so state, together
with any obligation to make accrued but unpaid payments due hereunder, shall
survive the termination or expiration of this Agreement.
25.11 Drafting Ambiguities. Each party to this Agreement and its
--------------------
counsel have reviewed and revised this Agreement. The rule of construction to
the effect that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of this Agreement or any amendment,
Schedules or Exhibits to this Agreement.
25.12 Headings; Schedules; Counterparts.
---------------------------------
(a) Headings. The headings of the Sections of this Agreement are for
--------
reference purposes only, are not part of this Agreement and shall not in any way
affect the meaning or interpretation of this Agreement.
(b) Exhibits; Schedules. All Exhibits and Schedules delivered
-------------------
pursuant to this Agreement shall be deemed part of this Agreement and
incorporated herein by reference, as if fully set forth herein. All statements
contained in any Schedule delivered by or on behalf of the parties hereto, or in
connection with the transactions contemplated hereby, are an integral part of
this Agreement.
(c) Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
25.13 Governing Law. This Agreement shall be governed, construed
-------------
and enforced in accordance with the laws of the State of North Carolina without
regard to the applicable principles
146
<PAGE>
of conflicts of laws that might otherwise govern. In the event of any legal
suit, action or proceeding arising out of or relating in any way to this
Agreement, the parties agree to submit to the jurisdiction of any Federal court
of the United States sitting in the Middle District of North Carolina, or, if
jurisdiction cannot be obtained there, in any North Carolina state court sitting
in Wake County, and any appellate court from any such court. Each party
irrevocably consents to service of process on it or any agent for service
appointed from time to time in the manner provided for notices in Section 25.2
with respect to any suit, action or proceeding. Nothing in this Agreement shall
affect the right of any party to service process in any other manner permitted
by law.
25.14. Parent Guaranty. Catalytica, Inc., a Delaware corporation
---------------
and the majority stockholder of Supplier, by its execution of this Agreement,
and as a material inducement and condition precedent to the execution and
delivery by GWI of this Agreement and the consummation of the transactions
described in the Purchase Agreement by GWI, hereby guarantees to GWI the full
performance by Supplier of its obligations under this Agreement. The provisions
of this Section 25.14 shall terminate on June 30, 2000, but shall survive any
earlier termination of this Agreement.
147
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed as of the date first written above.
GLAXO WELLCOME INC.
Name: Clifford H. Disbrow
Title: Senior Vice President,
Technical Operations
CATALYTICA PHARMACEUTICALS, INC.
Name: Gabriel Cipau
Title: President
CATALYTICA, INC.*
Name: Ricardo B. Levy
Title: President and Chief Executive
Officer
*Executing this Agreement for the purposes specified in Section 25.14 of this
Agreement.
148
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149
<PAGE>
150
<PAGE>
EXHIBIT 10.3
INVESTMENT AGREEMENT
dated as of
JUNE 25, 1997
among
MORGAN STANLEY CAPITAL PARTNERS III, L.P.,
MORGAN STANLEY CAPITAL INVESTORS, L.P.,
MSCP III 892 INVESTORS, L.P.,
and
CATALYTICA, INC.
<PAGE>
TABLE OF CONTENTS
-----------
<TABLE>
<CAPTION>
Page
----
ARTICLE 1
---------
DEFINITIONS
-----------
<S> <C>
Section 1.01. Definitions............................................. 1
ARTICLE 2
---------
PURCHASE AND SALE
-----------------
Section 2.01. Purchase and Sale....................................... 6
Section 2.02. Closing................................................. 6
Section 2.03. Legending of Securities................................. 6
ARTICLE 3
---------
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
Section 3.01. Corporate Existence and Power........................... 7
Section 3.02. Corporate Authorization................................. 7
Section 3.03. Governmental Authorization.............................. 8
Section 3.04. Non-contravention....................................... 8
Section 3.05. Capitalization.......................................... 9
Section 3.06. Subsidiaries............................................ 9
Section 3.07. SEC Filings............................................. 10
Section 3.08. Financial Statements.................................... 10
Section 3.09. Absence of Certain Changes.............................. 11
Section 3.10. No Undisclosed Material Liabilities..................... 12
Section 3.11. Compliance with Contracts............................... 13
Section 3.12. Proxy Materials......................................... 13
Section 3.13. Litigation.............................................. 14
Section 3.14. Compliance with Laws and Court Orders; No Defaults...... 14
Section 3.15. Insurance Coverage...................................... 14
Section 3.16. Finders' Fees........................................... 14
Section 3.17. Employee Benefit Plans.................................. 15
Section 3.18. Taxes................................................... 17
Section 3.19. Environmental Matters................................... 17
Section 3.20. Properties.............................................. 19
Section 3.21. Receivables............................................. 19
Section 3.22. Products................................................ 19
Section 3.23. Greenville Purchase Agreement and Supply Agreement...... 20
</TABLE>
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<TABLE>
ARTICLE 4
---------
REPRESENTATIONS AND WARRANTIES OF THE FUNDS
-------------------------------------------
<S> <C>
Section 4.01. Corporate Existence and Power............................ 20
Section 4.02. Corporate Authorization.................................. 20
Section 4.03. Governmental Authorization............................... 20
Section 4.04. Non-contravention........................................ 20
Section 4.05. Proxy Materials.......................................... 21
Section 4.06. Finders' Fees............................................ 21
Section 4.07. Purchase for Investment.................................. 21
Section 4.08. Disclosure of Information................................ 21
Section 4.09. Restricted Securities.................................... 21
ARTICLE 5
---------
COVENANTS OF THE COMPANY
-------------------------
Section 5.01. Conduct of Business...................................... 22
Section 5.02. Access to Information.................................... 23
Section 5.03. Notices of Certain Events................................ 23
Section 5.04. Registration Rights...................................... 24
Section 5.05. Stockholder Meeting; Proxy Materials..................... 24
Section 5.06. Access to Book and Records............................... 24
Section 5.07. Other Offers............................................. 24
ARTICLE 6
---------
COVENANTS OF tHE FUNDS
----------------------
Section 6.01. Notices of Certain Events................................ 25
Section 6.02. Agreement to Provide Information......................... 25
ARTICLE 7
---------
COVENANTS OF THE COMPANY AND THE FUNDS
--------------------------------------
Section 7.01. Filings; Consents; Reasonable Best Efforts............... 26
ARTICLE 8
---------
ADDITIONAL COVENANTS
--------------------
Section 8.01. Board Representation; Committees......................... 26
</TABLE>
ii
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<TABLE>
<S> <C>
Section 8.02. Reports.................................................. 27
Section 8.03. Sale or Transfer of Restricted Securities................ 27
Section 8.04. Right to Cause Repurchase................................ 27
Section 8.05. Capital Expenditures..................................... 28
Section 8.06. Acquisition of Greenville Facility....................... 28
Section 8.07. No Transfer or Assignment................................ 28
ARTICLE 9
---------
CONDITIONS TO CLOSING
---------------------
Section 9.01. Conditions to Obligations of Each Party.................. 29
Section 9.02. Conditions to Obligations of the Funds................... 29
Section 9.03. Conditions to Obligation of the Company.................. 30
ARTICLE 10
----------
SURVIVAL; INDEMNIFICATION
-------------------------
Section 10.01. Survival................................................ 31
Section 10.02. Indemnification by the Company.......................... 31
Section 10.03. Indemnification by the Funds............................ 32
Section 10.04. Procedures.............................................. 32
ARTICLE 11
----------
TERMINATION
-----------
Section 11.01. Grounds for Termination................................. 32
Section 11.02. Effect of Termination................................... 33
ARTICLE 12
----------
MISCELLANEOUS
-------------
Section 12.01. Notices................................................. 33
Section 12.02. Amendments and Waivers.................................. 34
Section 12.03. Expenses................................................ 35
Section 12.04. Successors and Assigns.................................. 35
Section 12.05. GOVERNING LAW........................................... 35
Section 12.06. Counterparts; Third Party Beneficiaries................. 35
Section 12.07. Public Announcements.................................... 35
Section 12.08. Entire Agreement; Exhibits.............................. 36
Section 12.09. Headings................................................ 36
</TABLE>
iii
<PAGE>
INVESTMENT AGREEMENT
AGREEMENT dated as of June 25, 1997 among Morgan Stanley Capital Partners
III, L.P., a Delaware limited partnership ("MSCP III Fund"), MSCP III 892
Investors L.P., a Delaware limited partnership ("892 Investors Fund"), Morgan
Stanley Capital Investors, L.P., a Delaware limited partnership ("Employee
Fund") and Catalytica, Inc., a Delaware corporation (the "Company").
The parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions. (a) The following terms, as used herein, have
the following meanings:
"1933 Act" means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
"1934 Act" means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.
"Affiliate" means, with respect to any Person, any other Person directly or
indirectly controlling, controlled by, or under common control with such Person.
"Balance Sheet" means the audited consolidated balance sheet of the Company
and the Subsidiaries as of December 31, 1996.
"Balance Sheet Date" means December 31, 1996.
"Beneficial Ownership" and "Beneficially Own" shall be determined in
accordance with Rules 13d-3 and 13d-5 under the 1934 Act.
"Benefit Arrangement" means any employment, severance or similar contract
or arrangement (whether or not written) or any plan, policy, fund, program or
contract or arrangement (whether or not written) providing for compensation,
bonus, profit-sharing, stock option, or other stock related rights or other
forms of incentive or deferred compensation, vacation benefits, insurance
1
<PAGE>
coverage (including any self-insured arrangements), health or medical benefits,
disability benefits, worker's compensation, supplemental unemployment benefits,
severance benefits and post-employment or retirement benefits (including
compensation, pension, health, medical or life insurance or other benefits) that
(i) is not an Employee Plan, (ii) is entered into, maintained, administered or
contributed to, as the case may be, by the Company, any of its Affiliates or
Subsidiaries and (iii) covers any employee or former employee of the Company or
any Subsidiary of the Company.
"Change of Control" means the occurrence of any of the following: (A) any
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation) in one or a series of related transactions, of all or
substantially all of the assets of the Company and its subsidiaries taken as a
whole to any "person" (as defined in Section 13(d) of the 1934 Act) or "group"
(as defined in Section 13(d)(3) and 14(d)(2) of the 1934 Act); (B) the Company
consolidates with, or merges with or into, another "person" (as defined above)
or "group" (as defined above) in a transaction or series of related transactions
in which the voting stock of the Company is converted into or exchanged for
cash, securities or other property, other than any transaction where (1) the
outstanding voting stock of the Company is converted into or exchanged for
voting stock of the surviving corporation and (2) the "beneficial owners" (as
defined in Rule 13d-3 under the 1934 Act) of the voting stock of the Company
immediately prior to such transaction own, directly or indirectly through one or
more subsidiaries, not less than a majority of the total voting stock of the
surviving corporation immediately after such transaction; (C) the consummation
of any transaction or series of related transactions (including, without
limitation, by way of merger or consolidation) the result of which is that any
"person" (as defined above) or "group" (as defined above) other than the Funds
becomes the "beneficial owner" (as defined above) of more than 50% of the voting
power of the voting stock of the Company or (D) the first day on which a
majority of the members of the Board of Directors of the Company are not
directors who were nominated for election or elected to the Board of Directors
of the Company with the approval of a majority of the directors who were members
of the Board at the time of such nomination or election.
"Class A Common Stock" means the Class A Common Stock of the Company, par
value $.001 per share, having the terms set forth in the Company's Fourth
Amended and Restated Certificate of Incorporation attached hereto as Exhibit A.
"Class B Common Stock" means the Class B Common Stock of the Company, par
value $.001 per share, having the terms set forth in the Company's
2
<PAGE>
Fourth Amended and Restated Certificate of Incorporation attached hereto as
Exhibit A.
"Closing Date" means the date of the Closing.
"Code" means the United States Internal Revenue Code of 1986, as amended.
"Commission" means the United States Securities and Exchange Commission.
"Common Stock" means the Common Stock of the Company, par value $.001 per
share.
"Employee Plan" means any "Employee Benefit Plan", as defined in Section
3(3) of ERISA, that (i) is subject to any provision of ERISA, (ii) is
maintained, administered or contributed to by the Company, any of its Affiliates
or Subsidiaries and (iii) covers any employee or former employee of the Company
or any Subsidiary of the Company.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute thereto, and the rules and regulations
promulgated thereunder.
"ERISA Affiliate" of any entity means any other entity which, together with
such entity, would be treated as a single employer under Section 414 of the
Code.
"Fund" means each or any of the MSCP III Fund, the 892 Investors Fund and
the Employee Fund.
"Greenville Purchase Agreement" means the Asset Purchase Agreement dated of
even date herewith among the Company, Catalytica Pharmaceuticals, Inc. and
Glaxo Wellcome Inc. including the exhibits and schedules thereto as the same may
be amended in accordance with the terms thereof.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
"Lien" means, with respect to any property or asset, any mortgage, lien,
pledge, charge, security interest, encumbrance or other adverse claim of any
kind in respect of such property or asset. For the purposes of this Agreement,
a Person
3
<PAGE>
shall be deemed to own subject to a Lien any property or asset which it has
acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
relating to such property or asset.
"Material Adverse Effect" means a material adverse effect on the condition
(financial or otherwise), business, assets or results of operations of the
Company and the Subsidiaries, taken as a whole.
"Mitsubishi Stock Purchase Agreement" means the Stock Purchase Agreement
dated December 10, 1992 between the Company and Mitsubishi Oil Co., Ltd.
"MSCP III" means the program of investment funds comprising the MSCP III
Fund, the 892 Investors Fund and the Employee Fund.
"Multiemployer Plan" means a multiemployer plan, as defined in Section
3(37) of ERISA.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means an individual, corporation, partnership, limited liability
company, association, trust or other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"Proxy Materials" means each document filed by the Company with the
Commission in connection with the meeting of the stockholders of the Company
described in Section 5.05 including, without limitation, the proxy statement of
the Company and any amendment or supplement thereto.
"Restricted Securities" means the shares of Class A Common Stock and Class
B Common Stock to be purchased by the Funds pursuant to this Agreement and any
other securities or rights convertible into or exchangeable or exercisable
(whether immediately or otherwise) for such shares.
"Shareholder Group" means the MSCP III Fund, the 892 Investors Fund and the
Employee Fund and their respective Affiliates.
"Subsidiary" means any entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are at the time directly
or indirectly owned by the Company.
4
<PAGE>
"Supply Agreement" means the Supply Agreement for primary, secondary and
sterile products to be entered into as of the Closing Date between Catalytica
Pharmaceuticals, Inc. and Glaxo Wellcome Inc., including the exhibits and
schedules thereto.
"Tax" (and, with correlative meaning, "Taxes" and "Taxable") means (i) any
net income, alternative or add-on minimum tax, gross income, gross receipts,
sales, use, ad valorem, value added, transfer, franchise, profits, license,
withholding on amounts paid to or by any Person, payroll, employment, excise,
severance, stamp, occupation, premium, property, environmental or windfall
profit tax, custom, duty or other tax, governmental fee or other like assessment
or charge of any kind whatsoever, together with any interest or any penalty,
addition to tax or additional amount imposed by any governmental authority (a
"Taxing Authority") responsible for the imposition of any such tax (domestic or
foreign), (ii) liability of any Person for the payment of any amounts of the
type described in (i) as a result of being a member of any affiliated,
consolidated, combined or unitary group or being a party to any agreement or
arrangement whereby liability of a Person for payments of such amounts was
determined or taken into account with reference to the liability of any other
Person for any period, and (iii) liability of any Person for the payment of any
amounts of the type described in (i) as a result of any express or implied
obligation to indemnify any other Person.
"Total Voting Power" means the aggregate number of votes which may be cast
by holders of outstanding Voting Securities.
"Voting Securities" means all securities of the Company entitled, in the
ordinary course, to vote in the election of Directors of the Company.
(b) Each of the following terms is defined in the Section set forth
opposite such term:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Acquisition Proposal 5.07
Bank Letter 3.10
Company Securities 3.05
Closing 2.02
Company 10-K 3.07
Company 10-Q 3.07
Damages 10.02
Fund Nominee 8.01
Greenville Facility 8.06
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Proxy Materials 3.03
Purchase Price 2.01
Put Price 8.04
Stockholder Approval 3.02
Subsidiary Securities 3.06
</TABLE>
ARTICLE 2
PURCHASE AND SALE
SECTION 2.01. Purchase and Sale. Upon the terms and subject to the
conditions of this Agreement, the Company agrees to sell and the Funds agree to
purchase for cash an aggregate of 30,000,000 shares of Class A Common Stock and
Class B Common Stock for a purchase price equal to $4.00 per share (the
"Purchase Price"). The Funds shall not purchase at Closing a number of shares
of Class A Common Stock which would result in the Funds beneficially owning
40.1% or more of the Total Voting Power. The actual number of shares of Class A
Common Stock and Class B Common Stock that each Fund will purchase shall be
determined by the Funds at Closing.
The Purchase Price shall be paid in accordance with Section 2.02.
----
SECTION 2.02. Closing. The closing (the "Closing") of the transactions
contemplated hereby shall take place at the offices of Womble Carlyle Sandridge
& Rice in Research Triangle Park at 10:00 a.m. EST on July 31, 1997 or at such
other time or place as the parties may agree. At the Closing:
(a) The Company shall deliver to each Fund one or more certificates for the
Class A Common Stock and Class B Common Stock, registered in the name of such
Fund and representing the number of shares of Class A Common Stock and Class B
Common Stock to be purchased by such Fund; and
(b) Each Fund shall deliver to the Company an amount equal to the number of
shares of Class A Common Stock and Class B Common Stock to be purchased by such
Fund at the Closing multiplied by the Purchase Price in immediately available
funds by wire transfer to an account of the Company designated by the Company,
by notice to each Fund, no later than two business days prior to the Closing.
Section 2.03. Legending of Securities. (a) All securities to be issued to
each Fund by the Company hereunder shall bear the following legend:
6
<PAGE>
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR SECURITIES LAWS OF ANY STATE AND MAY
NOT BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OF THE UNITED STATES
AND THE SECURITIES REGULATORY AUTHORITIES OF APPLICABLE STATES OR UNLESS AN
EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. THE SECURITIES REPRESENTED
BY THIS CERTIFICATE ARE SUBJECT TO AN INVESTMENT AGREEMENT DATED JUNE 25,
1997 (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY) WHICH
PROVIDES, AMONG OTHER THINGS, FOR CERTAIN RESTRICTIONS ON TRANSFER THEREOF.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED EXCEPT IN COMPLIANCE WITH SAID AGREEMENT."
(b) At the request of the Funds, the Company agrees to remove the foregoing
legend from securities transferred as permitted in accordance with paragraphs
(c) or (d) of Section 8.03 hereof.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to each Fund as of the date hereof and
as of the Closing Date that:
SECTION 3.01. Corporate Existence and Power. (a) The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation and has all corporate powers and all
governmental licenses, authorizations, permits, consents and approvals required
to carry on its business as now conducted, except for those licenses,
authorizations, permits, consents and approvals the absence of which would not,
individually or in the aggregate, have a Material Adverse Effect. The Company
is duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction where such qualification is necessary, except for
those jurisdictions where failure to be so qualified or in good standing would
not, individually or in the aggregate, have a Material Adverse Effect. The
Company has heretofore delivered to each Fund true and complete copies of the
amended and restated certificate of incorporation and bylaws of the Company as
currently in effect.
SECTION 3.02. Corporate Authorization. (a) The execution, delivery and
performance by the Company of this Agreement are within the Company's corporate
powers and, except for any required approval of the Company's
7
<PAGE>
stockholders ("Stockholder Approval"), have been duly authorized by all
necessary corporate action on the part of the Company. This Agreement
constitutes a valid and binding agreement of the Company enforceable against the
Company in accordance with its terms, except as the indemnification under the
Registration Rights Agreement may be limited by applicable law and except as the
enforcement hereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally and by equitable principles.
(b) The Class A Common Stock and the Class B Common Stock, when issued and
delivered to and paid for by each Fund pursuant to this Agreement, will be
validly issued, fully paid and non-assessable, and the issuance of such Class A
Common Stock and the Class B Common Stock is not subject to any preemptive or
similar rights, other than such rights as have been waived prior to the date
hereof. The shares of Common Stock reserved for issuance upon conversion of the
Class A Common Stock and the Class B Common Stock have been duly authorized by
the Company and reserved for issuance upon such conversion and, when issued upon
such conversion in accordance with the terms of the Class A Common Stock and the
Class B Common Stock, will have been validly issued, fully paid and non-
assessable, and, except as set forth on Schedule 3.02(b), the issuance of shares
of Common Stock will not be subject to any preemptive or similar rights. The
preemptive rights under the Mitsubishi Stock Purchase Agreement with respect to
the issuance of the Class A Common Stock and Class B Common Stock pursuant to
this Agreement have been waived.
SECTION 3.03. Governmental Authorization. The execution, delivery and
performance by the Company of this Agreement require no action by or in respect
of, or filing with, any governmental body, agency, or official other than (i)
compliance with any applicable requirements of the HSR Act; (ii compliance with
the rules and regulations of The Nasdaq Stock Market; (ii compliance with any
applicable requirements of the 1934 Act including the filing of the definitive
Proxy Materials for the Stockholder Approval (the "Proxy Materials"); (iv any
filings to be made in Delaware in connection with the proposed amendment to the
Company's amended and restated certificate of incorporation; and (v) any action
or filing as to which the failure to make or obtain would not, individually or
in the aggregate, have a Material Adverse Effect.
SECTION 3.04. Non-contravention. The execution, delivery and performance
by the Company of this Agreement do not and will not (i) violate the amended and
restated certificate of incorporation or bylaws of the Company or any
Subsidiary, (ii) assuming compliance with the matters referred to in Section
3.03, violate any applicable law, rule, regulation, judgment, injunction, order
or
8
<PAGE>
decree, (iii) except as set forth on Schedule 3.04, require any consent or
other action by any Person under, constitute a default under, or give rise to
any right of termination, cancellation or acceleration of any right or
obligation of the Company or any Subsidiary or to a loss of any benefit to which
the Company or any Subsidiary is entitled under, any agreement or other
instrument binding upon the Company or any Subsidiary or any license, franchise,
permit or other similar authorization held by the Company or any Subsidiary, or
(iv) result in the creation or imposition of any Lien on any asset of the
Company or any Subsidiary.
SECTION 3.05. Capitalization. (a) The authorized capital stock of the
Company consists of (i) 40,000,000 shares of Common Stock, of which 19,863,297
shares are issued and outstanding as of April 30, 1997, (ii) 5,000,000 shares of
undesignated preferred stock, none of which are issued or outstanding as of the
date hereof and (iii) options outstanding to purchase 1,196,114 shares of Common
Stock as of April 30, 1997. Upon consummation of the Closing, an aggregate of
30,000,000 shares of Class A Common Stock and Class B Common Stock will be
outstanding and the number of shares of authorized Common Stock will be
120,000,000. All outstanding shares of Common Stock and any other class of
capital stock of the Company have been duly authorized and are validly issued,
fully paid and nonassessable.
(b) Except as set forth in this Section 3.05, there are no outstanding (i)
shares of capital stock or 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) except as set forth on Schedule
3.05(b), options or other rights to acquire from the Company, or other
obligations of the Company to issue, any capital stock, Voting Securities or
securities convertible into or exchangeable for capital stock or Voting
Securities of the Company (the items in clauses 3.05(b)(i),(ii) and (iii) being
referred to collectively as the "Company Securities"). There are no outstanding
obligations of the Company or any Subsidiary to repurchase, redeem or otherwise
acquire any Company Securities.
SECTION 3.06. Subsidiaries. (a) Each Subsidiary is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation, has all corporate powers and all governmental
licenses, authorizations, permits, consents and approvals required to carry on
its business as now conducted, except for those licenses, authorizations,
permits, consents and approvals the absence of which would not, individually or
in the aggregate, have a Material Adverse Effect, is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
where such qualification is necessary, except for those jurisdictions where the
failure to be so qualified or in good standing would not, individually or in the
aggregate, have a
9
<PAGE>
Material Adverse Effect. All Subsidiaries and their respective jurisdictions of
incorporation are identified on Schedule 3.06.
(b) Except as disclosed in Schedule 3.06, all of the outstanding capital
stock of, or other voting securities or ownership interests in, each Subsidiary,
is owned by the Company, directly or indirectly, free and clear of any Lien and
free of any other limitation or restriction (including any restriction on the
right to vote, sell or otherwise dispose of such capital stock or other voting
securities or ownership interests). Except as disclosed in Schedule 3.06, there
are no outstanding (i) securities of the Company or any Subsidiary convertible
into or exchangeable for shares of capital stock or other voting securities or
ownership interests in any Subsidiary or (ii) options or other rights to acquire
from the Company or any Subsidiary, or other obligation of the Company or any
Subsidiary to issue, any capital stock or other voting securities or ownership
interests in, or any securities convertible into or exchangeable for any capital
stock or other voting securities or ownership interests in, any Subsidiary (the
items in clauses 3.06(b)(i) and (ii) being referred to collectively as the
"Subsidiary Securities"). Except as set forth on Schedule 3.06, there are no
outstanding obligations of the Company or any Subsidiary to repurchase, redeem
or otherwise acquire any outstanding Subsidiary Securities.
SECTION 3.07. SEC Filings. (a) The Company has delivered to each Fund (i)
the annual report on Form 10-K for its fiscal year ended December 31, 1995, (ii)
the annual report on Form 10-K/A for its fiscal year ended December 31, 1996
(the "Company 10-K"), (iii) its quarterly report on Form 10-Q for its fiscal
quarter ended March 31, 1997, (iv) its quarterly report on Form 10-Q/A for its
fiscal quarter ended March 31, 1997 (the "Company 10-Q"), (v) its proxy or
information statements relating to meetings of, or actions taken without a
meeting by, the stockholders of the Company since December 31, 1995 and (vi) all
of its other reports, statements, schedules and registration statements filed
with the Commission since December 31, 1995 (the items in clauses 3.07(i)
through (vi) being referred to collectively as the "SEC Reports").
(b) As of its filing date, or, if such SEC Report was amended, on the date
of filing of such amendment, each SEC Report did not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading.
SECTION 3.08. Financial Statements. The audited consolidated balance
sheets as of December 31, 1995 and 1996 and the related audited consolidated
statements of income and cash flows for each of the years ended December 31,
10
<PAGE>
1995 and 1996 included in the Company 10-K and the unaudited interim
consolidated balance sheet for the three months ended March 31, 1997 and the
related unaudited interim consolidated statements of income and cash flows for
the three months ended March 31, 1997 included in the Company 10-Q, of the
Company fairly present, in conformity with generally accepted accounting
principles applied on a consistent basis (except as may be indicated in the
notes thereto), the consolidated financial position of the Company as of the
dates thereof and its consolidated results of operations and cash flows for the
periods then ended (subject to normal year-end adjustments in the case of any
unaudited interim financial statements).
SECTION 3.09. Absence of Certain Changes. Except as set forth in the
Company 10-K or the Company 10-Q or on Schedule 3.09, and as contemplated by
this Agreement, since December 31, 1996, the businesses of the Company and its
Subsidiaries have been conducted in the ordinary course consistent with past
practices and there has not been:
(i) any event, occurrence, development or state of circumstances or
facts which has had or would reasonably be expected to have a Material
Adverse Effect; provided that for purposes of this Section 3.09(i) the
continued incurrence of operating losses by the Company at a rate per
quarter not greater than $1,600,000 shall be deemed not to constitute a
Material Adverse Effect;
(ii) any declaration, setting aside or payment of any dividend or
other distribution with respect to any shares of capital stock of the
Company, or any repurchase, redemption or other acquisition by the Company
or any Subsidiary of any outstanding shares of capital stock or other
securities of, or other ownership interests in, the Company or any
Subsidiary;
(iii) any amendment of any material term of any outstanding security
of the Company or any Subsidiary;
(iv) any incurrence, assumption or guarantee by the Company or any
Subsidiary of any indebtedness for borrowed money, except in the ordinary
course of business consistent with past practices;
(v) any creation or assumption by the Company or any Subsidiary of
any Lien on any material asset other than in the ordinary course of
business consistent with past practices but not in any event exceeding
$100,000;
11
<PAGE>
(vi) any making of any loan, advance or capital contributions to or
investment in any Person other than loans, advances or capital
contributions to or investments in Subsidiaries made in the ordinary course
of business consistent with past practices;
(vii) any damage, destruction or other casualty loss (whether or not
covered by insurance) affecting the business or assets of the Company or
any Subsidiary which, individually or in the aggregate, has had or would
reasonably be expected to have a Material Adverse Effect;
(viii) any change in any method of accounting or application thereof
by the Company or any Subsidiary;
(ix) any (A) employment, deferred compensation, severance,
retirement or other similar agreement entered into with any director,
officer or employee of the Company or any Subsidiary (or any amendment to
any such existing agreement), (B) grant of any severance or termination pay
to any director, officer or employee of the Company or any Subsidiary, or
(C) change in compensation or other benefits payable to any director,
officer or employee of the Company or any Subsidiary pursuant to any
severance or retirement plans or policies thereof, other than in the
ordinary course of business consistent with past practices; or
(x) any labor dispute, other than routine individual grievances, or
any activity or proceeding by a labor union or representative thereof to
organize any employees of the Company or any Subsidiary, which employees
were not subject to a collective bargaining agreement at December 31, 1996,
or any lockouts, strikes, slowdowns, work stoppages or threats thereof by
or with respect to any employees of the Company or any Subsidiary.
SECTION 3.10. No Undisclosed Material Liabilities. There are no
liabilities of the Company or any Subsidiary of any kind whatsoever, whether
accrued, contingent, absolute, determined, determinable or otherwise, and there
is no existing condition, situation or set of circumstances which could
reasonably be expected to result in such a liability, other than:
(a) liabilities disclosed or provided for in the Balance Sheet;
(b) liabilities incurred in the ordinary course of business consistent
with past practice since the December 31, 1996, which in the aggregate
12
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are not material to the Company and the Subsidiaries, taken as a
whole;
(c) liabilities under this Agreement;
(d) obligations under the Greenville Purchase Agreement, including the
Escrow Agreement and the other agreements to be entered into in
connection therewith, and obligations for expenses related to the
transactions contemplated hereby; and
(e) the Commitment Letter and Fee Letter with The Chase Manhattan Bank
and Chase Securities Inc. (collectively, the "Bank Letter").
SECTION 3.11. Compliance with Contracts. Neither the Company nor any of
its Subsidiaries is in default under, and no condition exists that with notice
or lapse of time or both would constitute a default under, (i) any mortgage,
loan agreement, indenture or evidence of indebtedness for borrowed money to
which the Company or any of its Subsidiaries is a party or by which the Company
or any of its Subsidiaries or any material amount of their assets is bound, (ii)
any contract or agreement filed as an exhibit to any SEC Reports or (iii) any
judgment, order or injunction of any court, arbitrator or governmental body,
agency, official or authority, which, individually or in the aggregate, under
(i), (ii) or (iii) would reasonably be expected to have a Material Adverse
Effect.
SECTION 3.12. Proxy Materials. (a) The Proxy Materials will, when filed,
comply as to form in all material respects with the applicable requirements of
the 1934 Act.
(b) Each time any Proxy Materials are distributed to stockholders of the
Company or any other solicitation of stockholders of the Company is made by or
on behalf of the Company or any Affiliate of the Company, and at the time the
stockholders of the Company vote on the issuance of the Class A Common Stock and
the Class B Common Stock pursuant to this Agreement, the Proxy Materials (as
supplemented and amended, if applicable) will not include an untrue statement of
a material fact or omit to state any material fact necessary in order to make
the statements made therein, in the light of the circumstances under which the
statements were made, not misleading or necessary to correct any statement in
any earlier communication with respect to the solicitation of a proxy for the
same meeting or subject matter which has become false or misleading. The
representations and warranties contained in this Section 3.12 will not apply to
statements or omissions included in the Proxy Materials based upon information
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furnished to the Company in writing by any of the Funds specifically for use
therein.
SECTION 3.13. Litigation. Except as set forth on Schedule 3.13, there is
no action, suit, investigation or proceeding pending against, or to the
knowledge of the Company threatened against or affecting, the Company or any
Subsidiary or any of their respective properties before any court or arbitrator
or any governmental body, agency or official (i) which would reasonably be
expected to have a Material Adverse Effect or (ii) which in any manner
challenges or seeks to prevent, enjoin, alter or materially delay the
transactions contemplated by this Agreement.
SECTION 3.14. Compliance with Laws and Court Orders; No Defaults. Neither
the Company nor any Subsidiary is in violation of any applicable law, rule,
regulation, judgement, injunction, order or decree except for any violation
which, individually or in the aggregate, would not reasonably be expected to
result in a Material Adverse Effect.
SECTION 3.15. Insurance Coverage. The Company has furnished to each Fund a
list of, and true and complete copies of, all insurance policies and fidelity
bonds relating to the assets, business, operations, employees, officers or
directors of the Company and the Subsidiaries. There is no claim by the Company
or any Subsidiary pending under any of such policies or bonds as to which
coverage has been questioned, denied or disputed by the underwriters of such
policies or bonds or in respect of which such underwriters have reserved their
rights. All premiums payable under all such policies and bonds have been paid
timely and the Company and the Subsidiaries have otherwise complied in all
material respects with the terms and conditions of all such policies and bonds.
Such policies of insurance and bonds (or other policies and bonds providing
substantially similar insurance coverage) have been in effect since January 1,
1997 and remain in full force and effect. The Company does not know of any
threatened termination of, premium increase with respect to, or material
alteration of coverage under, any of such policies or bonds. Such policies and
bonds are of the type and in amounts customarily carried by Persons conducting
businesses similar to those of the Company or any Subsidiary.
SECTION 3.16. Finders' Fees. Except as set forth on Schedule 3.16, there
is no investment banker, broker, finder or other intermediary which has been
retained by or is authorized to act on behalf of the Company who might be
entitled to any fee or commission in connection with the transactions
contemplated by this Agreement.
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SECTION 3.17. Employee Benefit Plans. (a) Schedule 3.17 identifies each
Employee Plan. The Company has furnished or made available to each Fund copies
of the Employee Plans (and, if applicable, related trust agreements) and all
amendments thereto and written interpretations thereof together with (i) the
most recent annual report prepared in connection with any Employee Plan (Form
5500 including, if applicable, Schedule B thereto) and (ii) the most recent
actuarial valuation report prepared in connection with any Employee Plan.
Neither the Company nor any of its ERISA Affiliates contributes to or maintains
(i) a Multiemployer Plan, (ii) a Title IV Plan or (iii) a plan maintained in
connection with any trust described in 501(c)(9) of the Code.
(b) Neither the Company nor any of its ERISA Affiliates has incurred, or
reasonably expects to incur prior to the Closing Date, any liability under Title
IV of ERISA arising in connection with the termination of, or complete or
partial withdrawal from, any plan covered or previously covered by Title IV of
ERISA that could become a liability of any Fund or any of its ERISA Affiliates
after the Closing Date.
(c) As of December 31, 1996, except as would not have a Material Adverse
Effect, there is no aggregate unfunded liability of the Company and any
Subsidiary in respect of all Employee Plans or Benefit Arrangements described
under Sections 4(b)(5) or 401(a)(1) of ERISA, computed using reasonable
actuarial assumptions and determined as if all benefits under such plans were
vested and payable as of such date.
(d) No transaction prohibited by Section 406 of ERISA or Section 4975 of
the Code, has occurred with respect to any employee benefit plan or arrangement
which is covered by Title I of ERISA which transaction has or will cause the
Company or any of its Subsidiaries to incur any liability under ERISA, the Code
or otherwise, excluding transactions effected pursuant to and in compliance with
a statutory or administrative exemption and excluding such transaction or
transactions, individually or in the aggregate that would not have a Material
Adverse Effect. Neither the Company nor any ERISA Affiliate of the Company has
engaged in, or is a successor or parent corporation to an entity that has
engaged in, a transaction described in Sections 4069 or 4212(c) of ERISA.
(e) Each Employee Plan that is intended to be qualified under Section
401(a) of the Code is so qualified and has been so qualified during the period
since its adoption; each trust created under any such Plan is exempt from tax
under Section 501(a) of the Code and has been so exempt since its creation. The
Company has provided each Fund with the most recent determination letter of the
Internal Revenue Service relating to each such Employee Plan. Each Employee
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Plan has been maintained in substantial compliance with its terms and with the
requirements prescribed by any and all applicable statutes, orders, rules and
regulations, including but not limited to ERISA and the Code.
(f) Schedule 3.17 identifies each Benefit Arrangement. The Company has
made available to each Fund copies or descriptions of each Benefit Arrangement
(and, if applicable, related trust agreements) and all amendments thereto and
written interpretations thereof. Each Benefit Arrangement has been maintained
in compliance with its terms and with the requirements prescribed by any and all
applicable statutes, orders, rules and regulations and has been maintained in
good standing with applicable regulatory authorities except to the extent such
failure to comply would not have a Material Adverse Effect.
(g) Neither the Company nor any Subsidiary has any current or projected
liability in respect of post-employment or post-retirement health or medical or
life insurance benefits for retired, former or current employees of the Company
or any Subsidiary, except as required to avoid excise tax under Section 4980B of
the Code. Except in the ordinary course of business, there has been no
amendment to, written interpretation of or announcement (whether or not written)
by the Company or any Subsidiary relating to, or change in employee
participation or coverage under, any Employee Plan or Benefit Arrangement that
would increase materially the expense of maintaining such Employee Plan or
Benefit Arrangement above the level of the expense incurred in respect thereof
for the most recent fiscal year ended prior to the date hereof.
(h) Except as set forth in Schedule 3.17, there is no contract, plan or
arrangement (written or otherwise) covering any employee or former employee of
the Company or any Subsidiary that, individually or collectively, could give
rise to the payment of any amount that would not be deductible pursuant to the
terms of Section 280G of the Code.
(i) There has been no failure of a group health plan (as defined in
Section 5000(b)(1) of the Code) to meet the requirements of Code Section
4980B(f) with respect to a qualified beneficiary (as defined in Section
4980B(g)) except to the extent that the failure to meet such requirements would
not have a Material Adverse Effect. Neither the Company nor any of its
Subsidiaries has contributed to a nonconforming group health plan (as defined in
Section 5000(c)) and no ERISA Affiliate of the Company or any of its
Subsidiaries has incurred a tax under Section 5000(a) which is or could become a
liability of the Company or any of its Subsidiaries.
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(j) Except as set forth on Schedule 3.17, no employee or former employee
of the Company or any Subsidiary will become entitled to any bonus, retirement,
severance, job security or similar benefit or enhanced such benefit (including
acceleration of vesting or exercise of an incentive award) as a result of the
transactions contemplated hereby.
SECTION 3.18. Taxes. Except as disclosed in the financial statements
included in the Company 10-K (including the notes thereto) or except in respect
of Taxes, the liability for which would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect, (i) all Tax returns,
statements, reports and forms required to be filed with any Taxing authority by
or on behalf of the Company or any Subsidiary (collectively, the "RETURNS"),
have been or will be filed when due in accordance with all applicable laws
except where failure to so file would not subject the Company or any Subsidiary
to liabilities or penalties; (ii) as of the time of filing, the Returns
correctly reflected in all material respects (and, as to any Returns not filed
as of the date hereof, will correctly reflect in all material respects) the
facts regarding the income, business, assets, operations, activities and status
of the Company and each Subsidiary; (iii) the Company and each Subsidiary has
timely paid, withheld or made provision for all Taxes shown as due and payable
on the Returns that have been filed; (iv) the charges, accruals and reserves for
Taxes with respect to the Company and its Subsidiaries for any Tax period (or
portion thereof) ending on or before the Closing Date (excluding any provision
for deferred income taxes) reflected on the books of the Company and its
Subsidiaries are adequate to cover such Taxes; (v) neither the Company nor any
Subsidiary is delinquent in the payment of any Tax and has not requested any
extension of time within which to file or send any Return, which Return has not
since been filed or sent; (vi) neither the Company nor any Subsidiary (or any
member of any affiliated or combined group of which the Company or any
Subsidiary is or has been a member) has been granted any extension or waiver of
the limitation period applicable to any Returns; (vii) there is no claim, audit,
action, suit, proceeding or investigation now pending or threatened against or
with respect to the Company or any Subsidiary of which the Company is aware in
respect of any Tax or assessment; and (viii) there are no liens for Taxes upon
the assets of the Company or any Subsidiary except liens for current Taxes not
yet due.
SECTION 3.19. Environmental Matters. (a) Except as set forth in the
Company 10-K:
(i) no notice, notification, demand, request for information,
citation, summons or order has been received, no complaint has been filed,
no penalty has been assessed, no investigation, action, claim, suit,
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proceeding or review is pending, or, to the knowledge of the Company or any
Subsidiary, threatened by any governmental entity or other Person with
respect to any matters relating to the Company or any Subsidiary and
relating to or arising out of any Environmental Law which, individually or
in the aggregate, could reasonably be expected to result in a Material
Adverse Effect;
(ii) the Company is in compliance with all Environmental Laws and has,
and is in compliance with, all Environmental Permits, except where any
noncompliance or failure to receive Environmental Permits could not
reasonably be expected to result in a Material Adverse Effect; and
(iii) there are no liabilities of, or relating to, the Company or any
Subsidiary of any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise, arising under or relating to any
Environmental Law which, individually or in the aggregate, would reasonably
be expected to have a Material Adverse Effect, and there are no facts,
conditions, situations or set of circumstances which could reasonably be
expected to result in or be the basis for any such liability.
(b) The Company and Subsidiaries, to their knowledge, have made
available to the Fund's environmental consultant all (1) environmental
assessments; (2) environmental investigations; (3) environmental studies; (4)
environmental audits; (5) environmental tests; or (6) environmental reviews, in
the Company's or Subsidiaries' possession or control, relating to the current or
prior business of the Company or any Subsidiary or any property or facility now
or previously owned, leased or operated by the Company or any Subsidiary, other
than routine operation and maintenance records.
(c) Neither the Company nor any Subsidiary owns, leases or operates or
has owned, leased or operated any real property, or conducts or has conducted
any operations, in New Jersey or Connecticut.
(d) For purposes of this Section, the following terms shall have the
meanings set forth below:
(A) "Company" and "Subsidiary" shall include any entity which is,
in whole or in part, a predecessor of the Company or any Subsidiary,
but shall not include any assets acquired pursuant to the Greenville
Purchase Agreement;
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(B) "Environmental Laws" means any federal, state, local and
foreign law (including, without limitation, common law), treaty,
judicial decision, regulation, rule, judgment, order, decree,
injunction, permit or governmental restriction or any agreement or
contract with any governmental authority or other third party, whether
now or hereafter in effect, relating to human health and safety, the
environment or to pollutants, contaminants, wastes or chemicals or
toxic, radioactive, ignitable, corrosive, reactive or otherwise
hazardous substances, wastes or materials; and
(C) "Environmental Permits" means all permits, licenses,
franchises, certificates, approvals and other similar authorizations
of governmental authorities relating to or required by Environmental
Laws and affecting, or relating in any way to, the business of the
Company or any Subsidiary as currently conducted.
SECTION 3.20. Properties. (a) Except as set forth in Schedule 3.20, the
Company and the Subsidiaries have good title to, or in the case of leased
property have valid leasehold interests in, all property and assets (whether
real or personal, tangible or intangible) reflected on the Balance Sheet or
acquired after December 31, 1996, except for property and assets sold since
December 31, 1996 in the ordinary course of business consistent with past
practices.
(b) The plants, buildings, structures and equipment owned or leased by
the Company and the Subsidiaries (i) have no material defects, are in good
operating condition and repair and have been reasonably maintained consistent
with standards generally followed in the industry (giving due account to the age
and length of use of same, ordinary wear and tear excepted) and (ii) comply in
all material respects with applicable zoning and other applicable land-use
regulations.
SECTION 3.21. Receivables. All accounts receivable of the Company and the
Subsidiaries are fully collectible in the aggregate amount thereof, subject to
normal and customary trade discounts, less any reserves for doubtful accounts
recorded on the Balance Sheet and subsequent to December 31, 1996 in the
ordinary course of business consistent with past practices except to the extent
the inability of the Company to collect such accounts receivable would not have
a Material Adverse Effect.
SECTION 3.22. Products. Each of the products produced or sold by the
Company or any Subsidiary is, and at all times up to and including the sale
thereof has been, (i) in compliance in all material respects with all applicable
federal,
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state, local and foreign laws and regulations and (ii) conforms in all material
respects to any warranty (express or implied) made with respect to such product.
SECTION 3.23. Greenville Purchase Agreement and Supply Agreement. The
representations and warranties of the Company or any Subsidiary contained in the
Greenville Purchase Agreement and Supply Agreement and, to the knowledge of the
Company, each other party thereto, shall be true in all material respects on the
Closing Date.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE FUNDS
Each Fund represents and warrants to the Company, severally as to itself
and not jointly, as of the date hereof and as of the Closing Date that:
SECTION 4.01. Corporate Existence and Power. Such Fund is organized under
the laws of the State of Delaware.
SECTION 4.02. Corporate Authorization. The execution, delivery and
performance by such Fund of this Agreement are within the powers of such Fund
and have been duly authorized by all necessary action on the part of such Fund.
This Agreement constitutes a valid and binding agreement of such Fund
enforceable against such Fund in accordance with its terms, except as the
indemnification under the Registration Rights Agreement may be limited by
applicable law and except as the enforcement hereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally and by equitable
principles.
SECTION 4.03. Governmental Authorization. The execution, delivery and
performance by such Fund of this Agreement require no action by or in respect
of, or filing with, any governmental body, agency or official other than
compliance with any applicable requirements of the HSR Act; and (ii) any such
action or filing as to which the failure to make or obtain would not,
individually or in the aggregate, have a material adverse effect on the
condition (financial or otherwise), business, assets or results of operations of
such Fund.
SECTION 4.04. Non-contravention. The execution, delivery and performance
by such Fund of this Agreement do not and will not (i) violate the certificate
of limited partnership of such Fund or (ii) assuming compliance with the matters
referred to in Section 4.03, violate (x) any applicable law, rule or regulation,
that, in the experience of such Fund, is normally applicable to general
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business entities in relation to transactions of the type contemplated by this
Agreement or (y) any judgment, injunction, order or decree binding on such Fund.
SECTION 4.05. Proxy Materials. The information with respect to such Fund
that has been furnished to the Company in writing specifically for use in any
Proxy Materials, each time any Proxy Materials are distributed to stockholders
of the Company or any other solicitation of stockholders of the Company is made
by or on behalf of the Company or any Affiliate of the Company, and at the time
the stockholders of the Company vote on the issuance of the Class A Common Stock
and Class B Common Stock pursuant to this Agreement will not include any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in the light of the circumstances
under which such statements were made, not misleading or necessary to correct
any statement in any earlier communication with respect to the solicitation of a
proxy for the same meeting or subject matter which has become false or
misleading.
SECTION 4.06. Finders' Fees. There is no investment banker, broker, finder
or other intermediary which has been retained by or is authorized to act on
behalf of such Fund who might be entitled to any fee or commission from such
Fund or any of its Affiliates upon consummation of the transactions contemplated
by this Agreement.
SECTION 4.07. Purchase for Investment. Such Fund is acquiring its shares
of the Class A Common Stock and Class B Common Stock for investment for its own
account and not with a view to, or for sale in connection with, any distribution
thereof. Such Fund is an "Accredited Investor" as such term is defined in
Regulation D under the 1933 Act.
SECTION 4.08. Disclosure of Information. Each Fund believes it has
received all the information it considers necessary or appropriate for deciding
whether to purchase the Restricted Securities (and the Common Stock underlying
the Restricted Securities). Each Fund further represents that it has had an
opportunity to ask questions and receive answers from the Company regarding the
terms and conditions of the sale of the Restricted Securities (and the Common
Stock underlying the Restricted Securities).
SECTION 4.09. Restricted Securities. Each Fund understands that the
Restricted Securities (and the Common Stock underlying the Restricted
Securities) it is purchasing are characterized as "restricted securities" under
the federal securities laws inasmuch as they are being acquired from the Company
in a transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the 1933 Act, only in certain limited circumstances. In this connection each
Fund represents that it is familiar with Rule 144 under the
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1933 Act, as presently in effect, and understands the resale limitations imposed
thereby and by the 1933 Act.
ARTICLE 5
COVENANTS OF THE COMPANY
The Company agrees that:
SECTION 5.01. Conduct of Business. (a) From the date hereof until the
Closing Date, the Company shall conduct, and shall cause each Subsidiary to
conduct, its businesses in the ordinary course consistent with past practice
and to use its reasonable best efforts to preserve intact its business
organizations and relationships with third parties and to keep available the
services of its present officers and employees. Without limiting the generality
of the foregoing, from the date hereof until the Closing Date, except as
described in the Proxy Materials or as contemplated by the Greenville Purchase
Agreement, the Supply Agreement and the Bank Letter, the Company will not, and
will not permit any Subsidiary to:
(i) adopt or propose any change in its amended and restated
certificate of incorporation or bylaws;
(ii) adopt any stockholders rights plan (or any arrangement which is
designed to disadvantage any Fund on the basis of the size of its
shareholdings);
(iii) make any material change in its capital structure or issue any
capital stock except pursuant to any outstanding securities or options;
(iv) merge or consolidate with any other Person or acquire a material
amount of assets of any other Person;
(v) except as previously disclosed to the Funds, modify or enter into
any employee benefit arrangements or any agreements with employees or grant
any severance or termination compensation rights to employees or grant
options to any employee or consultant of the Company or any Subsidiary;
(vi) sell, lease, license or otherwise dispose of any material assets
or property except (A) pursuant to existing contracts or commitments and
(B) in the ordinary course consistent with past practice; or
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(vii) except as aforesaid, agree or commit to do any of the foregoing.
(b) the Company will not, and will not permit any of its Subsidiaries to
(A) take or agree or commit to take any action that would make any
representation and warranty of the Company hereunder inaccurate in any material
respect at, or as of any time prior to, the Closing Date or (B) omit or agree or
commit to omit to take any action necessary to prevent any such representation
or warranty from being inaccurate in any material respect at any such time.
SECTION 5.02. Access to Information. From the date hereof until the
Closing Date, the Company will (i) give, and will cause each Subsidiary to give,
to each Fund, its counsel, financial advisors, auditors and other authorized
representatives reasonable access to the offices, properties, books and records
of the Company and the Subsidiaries, (ii) furnish, and will cause each
Subsidiary to furnish, to each Fund, its counsel, financial advisors, auditors
and other authorized representatives such financial and operating data and other
information relating to the Company and the Subsidiaries as such Persons may
reasonably request and (iii) instruct the employees, counsel and financial
advisors of the Company and each Subsidiary to cooperate with each Fund in its
investigation of the Company and each Subsidiary. Notwithstanding the foregoing,
the Funds' access to information shall be subject to confidentiality obligations
owed by the Company to third parties and to requirements of law.
SECTION 5.03. Notices of Certain Events. The Company shall promptly notify
each Fund of:
(i) 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;
(ii) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Agreement; and
(iii) any actions, suits, claims, investigations or proceedings
commenced or, to its knowledge threatened against, relating to or involving
or otherwise affecting the Company or any Subsidiary that, if pending on
the date of this Agreement, would have been required to have been disclosed
pursuant to Section 3.13 or that relate to the consummation of the
transactions contemplated by this Agreement.
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SECTION 5.04. Registration Rights. At any time after July 1, 1998, each
Fund shall have the registration rights set forth in Exhibit B.
SECTION 5.05. Stockholder Meeting; Proxy Materials. The Company shall
cause a meeting of its stockholders to be duly called and held as soon as
reasonably practicable for the purpose of approving the transactions
contemplated by this Agreement. The board of directors of the Company shall,
subject to their fiduciary duties under applicable law as advised by counsel,
recommend to the Company's stockholders approval of the transactions
contemplated by this Agreement. In connection with such meeting, the Company
(i) will promptly prepare and file with the SEC, will use its best efforts to
have cleared by the SEC and will thereafter mail to its stockholders as promptly
as practicable a proxy statement and all other Proxy Materials for such meeting
as may be required under applicable law, and (ii) will use its reasonable best
efforts to obtain the necessary approval by its stockholders of the transactions
contemplated by this Agreement.
SECTION 5.06. Access to Book and Records. The Company agrees that, after
Closing and for so long as the Funds in the aggregate beneficially own directly
or indirectly at least 10% of the outstanding shares of Common Stock on a fully
diluted basis, each Fund will have access on reasonable terms to the books,
records and employees of the Company and its Subsidiaries and to the provision
by the Company of all information reasonably requested by such Fund, subject to
confidentiality obligations that at the time may be owed by the Company to third
parties, to appropriate confidentiality arrangements and requirements of law.
SECTION 5.07. Other Offers. From the date hereof until the earlier of the
termination hereof or the Closing Date, except pursuant to the transactions
contemplated by this Agreement, the Company and the Subsidiaries and the
officers, directors, employees or other agents of the Company and the
Subsidiaries will not, directly or indirectly, (i) take any action to solicit,
initiate or encourage any Acquisition Proposal or (ii) subject to the fiduciary
duties of the Board of Directors under applicable law as advised by counsel,
engage in negotiations with, or disclose any nonpublic information relating to
the Company or any Subsidiary or afford access to the properties, books or
records of the Company or any Subsidiary to, any Person that may be considering
making, or has made, an Acquisition Proposal. The Company will promptly notify
each Fund after receipt of any Acquisition Proposal or any request for nonpublic
information relating to the Company or any Subsidiary or for access to the
properties, books or records of the Company or any Subsidiary by any Person that
may be considering making, or has made, an Acquisition Proposal and will keep
each Fund fully informed of the status and details of any such Acquisition
Proposal, indication or request.
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"Acquisition Proposal" means any offer or proposal for, or any indication of
interest in, a merger or other business combination involving the Company or any
Subsidiary or the acquisition of any equity interest in excess of 10% of the
outstanding Common Stock in, or a substantial portion of the assets of, the
Company or any Subsidiary, other than the transactions contemplated by this
Agreement and the Greenville Purchase Agreement or described in the Proxy
Materials.
ARTICLE 6
COVENANTS OF THE FUNDS
Each Fund agrees that:
SECTION 6.01. Notices of Certain Events. Such Fund shall promptly notify
the Company of:
(i) 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; and
(ii) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Agreement.
SECTION 6.02. Agreement to Provide Information. (a) Such Fund agrees to
provide to the Company in writing all information concerning such Fund as may be
reasonably necessary for the Company to prepare the Proxy Material and any other
current or future securities or regulatory reports or filings of the Company.
(b) Such Fund will not (A) take or agree or commit to take any action that
would make any representation and warranty of the Fund hereunder inaccurate in
any material respect at, or as of any time prior to, the Closing Date or (B)
omit or agree or commit to omit to take any action necessary to prevent any such
representation or warranty from being inaccurate in any material respect at any
such time.
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ARTICLE 7
COVENANTS OF THE COMPANY AND THE FUNDS
The parties hereto agree that:
SECTION 7.01. Filings; Consents; Reasonable Best Efforts. (a) Each
party hereto agrees to cooperate with each other in good faith and to use its
reasonable best efforts in making all required governmental filings and
obtaining at the earliest practicable date all necessary approvals and consents
from governmental entities and third parties.
(b) Each of the parties hereto agrees to use its reasonable best efforts to
consummate the transactions contemplated hereby and to fulfill the conditions
set forth herein.
ARTICLE 8
ADDITIONAL COVENANTS
SECTION 8.01. Board Representation; Committees. (a) The Company
agrees that MSCP III Fund shall have the right, so long as the Funds, in the
aggregate, shall continue to beneficially own at least 30% of the outstanding
common stock of the Company, to cause the Company to include, as nominees for
the Company's Board of Directors recommended by the Board, up to 3 Directors
(each, a "Fund Nominee"); provided that one of the Fund Nominees shall be Howard
Hoffen for so long as he remains an officer of Morgan Stanley Capital Partners
III, Inc.; and provided further that initially MSCP III Fund intends to
designate 2 Fund Nominees. In the event that the Funds' beneficial ownership of
outstanding common stock of the Company shall be (i) less than 30% but equal to
or greater than 10%, MSCP III Fund shall have the right to designate 2 Fund
Nominees or (ii) less than 10% but equal to or greater than 6%, MSCP III Fund
shall have the right to designate 1 Fund Nominee. The Company agrees to increase
the size of the Board of Directors promptly after the Closing by 2 Directors (or
3 Directors in the event that MSCP III Fund elects to designate an additional
Fund Nominee) and shall appoint as Directors of the Company those persons
designated by MSCP III Fund. The Company further agrees that until the
termination of this Agreement the Board of Directors shall consist of no more
than 10 Directors.
(b) At the request of MSCP III Fund, the Company agrees to place at least
one of the Fund Nominees acting as a Director of the Company on each committee
of the Board of Directors of the Company.
26
<PAGE>
SECTION 8.02. Reports. The Company agrees that the financial
statements of the Company shall be audited as of the end of each fiscal year by
the Company's independent certified public accountants. The Company's current
independent public accountants are Ernst & Young LLP. In the event that Ernst &
Young LLP ceases to be the Company's accountants, the Company agrees that its
independent public accountants thereafter shall be a nationally recognized
independent certified public accounting firm.
SECTION 8.03. Sale or Transfer of Restricted Securities. Each Fund
will not, and will not permit its Affiliates to, sell, pledge, encumber,
transfer or otherwise dispose of any Restricted Securities, except:
(a) to an Affiliate or partner of such Fund; provided that such
Affiliate or partner who would beneficially own Voting Securities
representing in the aggregate 5% or more of Total Voting Power agrees in
writing to be bound by the terms of this Agreement;
(b) to any Person who, after giving effect to such sale, pledge,
encumbrance or transfer, would beneficially own Voting Securities
representing in the aggregate 10% or less of Total Voting Power (except for
an institutional investor which may own up to 20% of the Total Voting
Power);
(c) pursuant to a firm commitment, underwritten distribution to the
public, registered under the 1933 Act in accordance with the registration
rights set forth in Exhibit B hereto, in which the Shareholder Group uses
its reasonable best efforts to effect as wide a distribution of such
Restricted Securities as is reasonably practicable;
(d) pursuant to Rule 144 under the 1933 Act in compliance with the
provisions of Section 8.03(b);
(e) pursuant to a tender or exchange offer made (i) by the Company or
(ii) to the Company's stockholders and not opposed by the Company's Board
of Directors; or
(f) with the prior written consent of the Company, which consent shall
not be unreasonably withheld.
SECTION 8.04. Right to Cause Repurchase. (a) At any time after July 1,
2005 and in any year thereafter upon six months prior written notice, the Funds
shall have the right to cause the Company to purchase during any annual period
27
<PAGE>
commencing July 1 and ending June 30 up to one-third of the shares of Class A
Common Stock and Class B Common Stock initially acquired by the Funds at a price
per share payable in cash equal to the liquidation preference of such share plus
accrued, but unpaid, dividends thereon, if any (the "Put Price").
(b) In addition, upon a Change of Control, the Funds shall have the right
to cause the Company to purchase all of the shares of Class A Common Stock and
Class B Common Stock initially acquired by the Funds at the Put Price. The
Company shall effect such repurchase within 180 days of receipt of written
notice to the Company from the Funds requesting repurchase hereunder. In the
event of the inability or failure of the Company to comply with the terms of
this Section 8.04 and in addition to any other remedies available to the Funds,
----
the Funds shall be entitled to appoint a number of additional Directors to the
Board of Directors of the Company such that the total number of Directors
appointed by MSCP III Fund would constitute a majority of the Directors of the
Company.
SECTION 8.05. Capital Expenditures. The Company agrees that for so long as
the Funds own in the aggregate not less than 20% of the outstanding common stock
of the Company, the Company shall not, without first obtaining the written
consent of MSCP III Fund, (a) authorize capital expenditures in excess of the
amount approved in the Company's annual operating plan or (b) make significant
decisions relating to the expansion of the Company's products or activities
beyond the scope of the business plan prepared in connection with the
acquisition of the GlaxoWellcome Inc. pharmaceutical manufacturing facility
located in Greenville, North Carolina ("Greenville Facility").
SECTION 8.06. Acquisition of Greenville Facility. The Company shall not,
directly or indirectly, acquire the Greenville Facility without the Funds
participating in the financing of such acquisition in accordance with the terms
of this Agreement. MSCP shall not, directly or indirectly, provide any
financing to any Person for the acquisition of the Greenville Facility other
than in accordance with the terms of this Agreement.
SECTION 8.07. No Transfer or Assignment. The provisions of this Article 8
-
shall not be transferrable or assignable by any of the Funds to any Person other
than wholly-owned subsidiaries of such Funds.
28
<PAGE>
ARTICLE 9
CONDITIONS TO CLOSING
SECTION 9.01. Conditions to Obligations of Each Party. The obligations of
the Company and the Funds to consummate the Closing are subject to the
satisfaction of the following conditions:
(i) Any applicable waiting period under the HSR Act relating to the
transactions contemplated hereby shall have expired or been terminated.
(ii) No provision of any applicable law or regulation and no judgment,
injunction, order or decree shall prohibit the consummation of the Closing.
(iii) The issuance of the Class A Common Stock and Class B Common
Stock pursuant to this Agreement and the related amendment to the Company's
amended and restated certificate of incorporation shall have been approved
by the stockholders of the Company in accordance with the Delaware General
Corporation Law and the applicable rules and regulations of The Nasdaq
Stock Market.
(iv) The Company shall have obtained all necessary debt financing to
consummate the transactions contemplated by the Greenville Purchase
Agreement.
SECTION 9.02. Conditions to Obligations of the Funds. The obligation of
each Fund to consummate the Closing is subject to the satisfaction of the
following further conditions:
(i) (A) The Company shall have performed in all material respects all
of its obligations hereunder required to be performed by it on or prior to
the Closing Date, (B) the representations and warranties of the Company
contained in this Agreement and in any certificate or other writing
delivered by the Company pursuant hereto shall be true in all material
respects at and as of the Closing Date, as if made at and as of such date,
and (C) each Fund shall have received a certificate signed on the Company's
behalf by an executive officer of the Company to the foregoing effect.
(ii) Each Fund shall have received an opinion of Wilson Sonsini
Goodrich & Rosati, Professional Corporation, special counsel to the
29
<PAGE>
Company, dated the Closing Date, in form and substance reasonably
satisfactory to each Fund. In rendering such opinion, such counsel may rely
upon certificates of public officers and, as to matters of fact, upon
certificates of officers of the Company, copies of which certificates shall
be contemporaneously delivered to each Fund.
(iii) The Greenville Purchase Agreement shall be closed substantially
simultaneously herewith.
(iv) There shall have been no material amendment or waiver of the
Greenville Purchase Agreement and no material change to the form of the
Supply Agreement since the date hereof.
(v) Each Fund shall have received all documents it may reasonably
request relating to the existence of each of the Company and its
Subsidiaries and the Company's authority for this Agreement, all in form and
substance reasonably satisfactory to such Fund.
SECTION 9.03. Conditions to Obligation of the Company. The obligation of
the Company to consummate the Closing is subject to the satisfaction of the
following further conditions:
(i) (A) Each Fund shall have performed in all material respects all
of its obligations hereunder required to be performed by it at or prior to
the Closing Date, (B) the representations and warranties of each Fund
contained in this Agreement and in any certificate or other writing
delivered by each Fund pursuant hereto shall be true in all material
respects at and as of the Closing Date, as if made at and as of such date,
and (C) the Company shall have received a certificate signed on behalf of
each Fund by the General Partner of each Fund to the foregoing effect.
(ii) The Company shall have received an opinion of Davis Polk &
Wardwell, special counsel to the Funds, in form and substance reasonably
satisfactory to the Company. In rendering such opinion, such counsel may
rely upon certificates of public officers and, as to matters of fact, upon
certificates of officers of the Funds, copies of which certificates shall
be contemporaneously delivered to the Company.
(iii) The Greenville Purchase Agreement shall be closed simultaneously
herewith.
30
<PAGE>
(iv) The Company shall have received all documents it may reasonably
request relating to the existence of each Fund and the authority of each
Fund for this Agreement, all in form and substance reasonably satisfactory
to the Company.
ARTICLE 10
SURVIVAL; INDEMNIFICATION
SECTION 10.01. Survival. The covenants, agreements, representations and
warranties of the parties hereto contained in this Agreement or in any
certificate or other writing delivered pursuant hereto or in connection herewith
shall survive the Closing until two years after the Closing Date; provided that
(i) the covenants and agreements contained in Article 8 and Section 10.02(b)
- --------
shall survive indefinitely and (ii) the covenants, agreements, representations
and warranties contained in Section 3.19 shall survive until expiration of the
statute of limitations applicable to the matters covered thereby (giving effect
to any waiver, mitigation or extension thereof), if later. Notwithstanding the
preceding sentence, any covenant, agreement, representation or warranty in
respect of which indemnity may be sought under this Agreement shall survive the
time at which it would otherwise terminate pursuant to the preceding sentence,
if notice of the inaccuracy or breach thereof giving rise to such right of
indemnity shall have been given to the party against whom such indemnity may be
sought prior to such time.
SECTION 10.02. Indemnification by the Company. (a) The Company hereby
agrees to indemnify and hold harmless each Fund and its Affiliates against and
from any and all damage, loss, liability and expense (including, without
limitation, reasonable expenses of investigation and reasonable attorneys' fees
and expenses in connection with any action, suit or proceeding) ("Damages")
incurred or suffered by such Fund or any Affiliate of such Fund arising out of
any misrepresentation or breach of warranty, covenant or agreement made or to be
performed by the Company pursuant to this Agreement.
(b) Notwithstanding anything to the contrary in this Agreement, the
Company agrees to indemnify each Fund and each of its Affiliates from and
against all Damages (including without limitation all reasonable costs and
expenses of investigation by engineers, environmental consultants and similar
technical personnel, but not including any diminution in the value of the Funds'
investment in the Company or its Subsidiaries), whether accrued, contingent,
absolute, determined, determinable or otherwise, incurred or suffered by each
Fund or any of such Affiliates which relate to the Company or any Subsidiary and
which arise out of or relate to (i) any Environmental Law and (ii) actions
31
<PAGE>
occurring or conditions existing on or prior to the Closing Date (including
without limitation matters disclosed or required to be disclosed in the Company
10-K).
SECTION 10.03. Indemnification by the Funds. Each of the Funds hereby
agrees to indemnify and hold harmless the Company and its Affiliates against and
from any and all Damages incurred or suffered by the Company or any Affiliate of
the Company arising out of any misrepresentation or breach of warranty, covenant
or agreement made or to be performed by any of the Funds pursuant to this
Agreement.
SECTION 10.04. Procedures. The party seeking indemnification under Section
10.02 or 10.03, as the case may be, (the "Indemnified Party") agrees to give
- ----- -----
prompt notice to the party against whom indemnity is sought (the "Indemnifying
Party") of the assertion of any claim, or the commencement of any suit, action
or proceeding in respect of which indemnity may be sought under such Section.
The Indemnifying Party may at the request of the Indemnified Party participate
in and control the defense of any such suit, action or proceeding at its own
expense. The Indemnifying Party shall not be liable under Section 10.02 or
-----
10.03, as the case may be, for any settlement effected without its consent of
- -----
any claim, litigation or proceeding in respect of which indemnity may be sought
hereunder.
ARTICLE 11
TERMINATION
SECTION 11.01. Grounds for Termination. This Agreement may be terminated at
any time:
(i) by mutual written agreement of the Company and each Fund;
(ii) prior to the Closing, by either the Company or (solely with
respect to the obligations of such Fund) any Fund upon termination of the
Greenville Purchase Agreement (but in any event not later than September
30, 1997);
(iii) by the Funds with respect to all of their respective obligations
hereunder if the Company within a reasonable time after Closing shall fail
to nominate for election or appoint to the Company's Board of Directors the
persons designated by MSCP III Fund pursuant to Section 8.01; or
(iv) prior to the Closing, by either the Company or (solely with
respect to the obligation of such Fund) any Fund if there shall be any law
32
<PAGE>
or regulation that makes consummation of the transactions contemplated
hereby illegal or otherwise prohibited or if consummation of the
transactions contemplated hereby would violate any nonappealable final
order, decree or judgment of any court or governmental body having
competent jurisdiction.
The party desiring to terminate this Agreement shall give notice of such
termination to each other party.
SECTION 11.01. Effect of Termination. If this Agreement is terminated as
permitted by Section 11.01, termination shall be without liability of any party
(or any stockholder, director, officer, employee, agent, consultant or
representative of such party) to the other parties to this Agreement; provided
that if such termination shall result from the willful failure of any party to
fulfill a condition to the performance of the obligations of any other party or
to perform a covenant of this Agreement or from a willful breach by any party to
this Agreement, such party shall be fully liable for any and all damage, loss or
expense incurred or suffered by the other party or parties as a result of such
failure or breach. The provisions of Article 10 and Sections 8.06, 12.03 and
-- -----
12.05 shall survive any termination hereof pursuant to Section 11.01; provided
- ---- -----
that Section 8.06 shall terminate if MSCP delivers written notice to the Company
of MSCP's decision to terminate this Agreement pursuant to Section 11.01.
ARTICLE 12
MISCELLANEOUS
SECTION 12.01. Notices. All notices, requests and other communications
to any party hereunder shall be in writing (including facsimile transmission)
and shall be given,
if to the Funds, to:
Morgan Stanley Capital Partners
1221 Avenue of the Americas
33rd Floor
New York, NY 10020
Attention: Howard Hoffen
Fax: (212) 762-7951
33
<PAGE>
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Attention: John A. Bick, Esq.
Fax: (212) 450-4800
if to the Company, to:
Catalytica, Inc.
430 Ferguson Drive
Mountain View, CA 94043-5272
Attention: Chief Financial Officer
Fax: (415) 968-8754
with a copy to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, CA 94304
Attention: Barry E. Taylor, Esq.
Fax: (415) 493-6811
All such notices, requests and other communications shall be deemed received on
the date of receipt by the recipient thereof if received prior to 5 p.m. in the
place of receipt and such day is a business day in the place of receipt.
Otherwise, any such notice, request or communication shall be deemed not to have
been received until the next succeeding business day in the place of receipt.
SECTION 12.02. Amendments and Waivers. (a) Any provision of this Agreement
may be amended or waived prior to the Closing Date if, but only if, such
amendment or waiver is in writing and is signed, in the case of an amendment, by
each party to this Agreement, or in the case of a waiver, by the party against
whom the waiver is to be effective.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
34
<PAGE>
SECTION 12.03. Expenses. All costs and expenses incurred by the parties
hereto in connection with the transactions contemplated by this Agreement shall
be the responsibility of such party; provided, however, that, if the Closing
occurs as contemplated hereby or the Closing does not occur because the
requisite stockholder adoption and approval shall not have been obtained by the
Company, the costs and expenses incurred by the parties hereto in connection
with the preparation of this Agreement shall be paid by the Company.
Notwithstanding anything to the contrary contained in this Section 12.03, all
reasonable fees and disbursements of Ernst & Young LLP arising in connection
with the transactions contemplated by this Agreement and the Greenville Purchase
Agreement shall be paid by the Company; provided, however, that if the Closing
does not occur for any reason, the Company and the Funds shall each pay 50% of
such fees and disbursements.
SECTION 12.04. Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that except as expressly provided
herein no party may assign, delegate or otherwise transfer any of its rights or
obligations under this Agreement without the consent of each other party hereto.
SECTION 12.05. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK, WITHOUT REGARD TO
THE CONFLICTS OF LAW RULES OF SUCH STATE.
SECTION 12.06. Counterparts; Third Party Beneficiaries. This Agreement
may be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. No provision of this Agreement is intended to confer upon any
Person other than the parties hereto any rights or remedies hereunder.
SECTION 12.07. Public Announcements. The Company and each Fund shall
agree on the form and content of any public announcements which shall be made
concerning this Agreement or the transactions contemplated hereby, and neither
the Company nor any Fund shall make any such public announcement without the
consent of the other, except with respect to any public announcement or other
public disclosure, to the extent either party determines, in good faith and with
the advice of counsel, such announcement or disclosure is required by law or the
rules or regulations of any exchange on which such party's securities are listed
or to avoid undue risk that the transactions contemplated hereby will be
enjoined or that such party, its officers, directors or representatives will be
liable for damages as a result thereof.
35
<PAGE>
SECTION 12.08. Entire Agreement; Exhibits. This Agreement constitutes
the entire agreement among the parties with respect to the subject matter of
this Agreement and supersedes all prior agreements and understandings, both oral
and written, among the parties with respect to the subject matter of this
Agreement, except for the Confidentiality Agreement dated September 12, 1996
between the Company and MSCP III. No representation, inducement, promise,
understanding, condition or warranty not set forth herein has been made or
relied upon by any party hereto. All exhibits hereto constitute part of this
Agreement and are expressly incorporated herein.
SECTION 12.09. Headings. The headings and the table of contents
appearing in this Agreement are inserted only as a matter of convenience and for
reference and in no way define, limit or describe the scope and intent of this
Agreement or any of the provisions hereof.
36
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
CATALYTICA, INC.
By: /s/Ricardo B. Levy
-------------------
Name: Ricardo B. Levy
Title: Chief Executive Officer
MORGAN STANLEY CAPITAL PARTNERS III, L.P.
By: MSCP III, L.P.
its General Partner
By: Morgan Stanley Capital Partners III, Inc.,
its General Partner
By: /s/Alan E. Goldberg
--------------------
Name: Alan E. Goldberg
Title: Managing Director
By: /s/Lawrence B. Sorrel
----------------------
Name:Lawrence B. Sorrel
Title: Managing Director
MORGAN STANLEY CAPITAL INVESTORS, L.P.
By: MSCP III, L.P.
its General Partner
By: Morgan Stanley Capital Partners III, Inc.,
its General Partner
By: /s/Alan E. Goldberg
--------------------
Name: Alan E. Goldberg
Title: Managing Director
By: /s/Lawrence B. Sorrel
----------------------
Name:Lawrence B. Sorrel
Title: Managing Director
37
<PAGE>
MSCP III 892 INVESTORS, L.P.
By: MSCP III, L.P.,
its General Partner
By: Morgan Stanley Capital Partners III, Inc.,
its General Partner
By: /s/Alan E. Goldberg
--------------------
Name: Alan E. Goldberg
Title: Managing Director
By: /s/Lawrence B. Sorrel
----------------------
Name:Lawrence B. Sorrel
Title: Managing Director
38
<PAGE>
EXHIBIT B
REGISTRATION RIGHTS
-------------------
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions. Terms defined in the Investment Agreement (the
"Agreement") dated as of June 19, 1997 among Catalytica, Inc., a Delaware
corporation (the "Company"), Morgan Stanley Capital Partners III, L.P., a
Delaware limited partnership ("MSCP III Fund"), MSCP III 892 Investors L.P., a
Delaware limited partnership ("892 Investors Fund"), and Morgan Stanley Capital
Investors, L.P., a Delaware limited partnership ("Employee Fund" and together
with MSCP III Fund and 892 Investors Fund, the "Shareholder") are used herein as
therein defined. In addition, the following terms, as used herein, have the
following meanings:
"Demand Registration" means a Demand Registration as defined in Section
2.01.
"Piggyback Registration" means a Piggyback Registration as defined in
Section 2.02.
"Registrable Securities" means shares of Common Stock owned from time to
time by the Shareholder and its Affiliates, and any other securities issued by
the Company in exchange for or upon conversion of any such securities.
"Underwriter" means a securities dealer who purchases any Registrable
Securities as principal and not as part of such dealer's market-making
activities.
<PAGE>
ARTICLE 2
REGISTRATION RIGHTS
SECTION 2.01. Demand Registration. (a) At any time after July 1, 1998
Shareholder may make up to four written requests for registration under the 1933
Act of all or part of its Registrable Securities (a "Demand Registration");
provided that the Company shall not be obligated to effect (i) more than one
Demand Registration in any 6-month period or (ii a Demand Registration for
Registrable Securities having an aggregate offering price of less than $15
million. Such request will specify the number of shares of Registrable
Securities proposed to be sold and will also specify the intended method of
disposition thereof. A registration will not count as a Demand Registration
until a registration statement relating to such Demand Registration has become
effective.
(b) If Shareholder so elects, the offering of such Registrable Securities
pursuant to such Demand Registration shall be in the form of an underwritten
offering. Shareholder shall select the book-running and other managing
Underwriters in connection with such offering and any additional investment
bankers and managers to be used in connection with the offering. The Company
shall be obligated to cause senior management of the Company to participate in
any "road-show" in connection with the offering.
SECTION 2.02. Piggyback Registration. If the Company proposes to file a
registration statement under the 1933 Act with respect to an offering of Common
Stock (i) for the Company's own account (other than a registration statement on
Form S-4 or S-8 (or any substitute form that may be adopted by the Commission))
or relating solely to securities issued pursuant to any present or future
restricted stock, stock option, stock purchase or dividend reinvestment plan or
other similar type of plan of the Company which provides for the issuance of
equity securities or options or rights to purchase equity securities of the
Company, or (ii for the account of any of its holders of Common Stock, then the
Company shall give written notice of such proposed filing to Shareholder as soon
as practicable (but in no event less than 15 days before the anticipated filing
date), and such notice shall offer, subject to the terms and conditions hereof,
Shareholder the opportunity to register such Registrable Securities as
Shareholder may request on the same terms and conditions as the Company's or
such holders' shares (a "Piggyback Registration").
SECTION 2.03. Reduction of Offering. Notwithstanding anything contained
herein, if the managing Underwriter or Underwriters of an offering described in
Section 2.01 or 2.02 shall advise the Company that (i) the size of the offering
that Shareholder, the Company and any other Persons intend to make or (ii) the
kind of securities that Shareholder, the Company and such other Persons intend
to include in such offering are
2
<PAGE>
such that the success of the offering would be materially and adversely
affected, then (A) if the size of the offering is the basis of such
Underwriter's advice, the amount of Registrable Securities to be offered for the
account of Shareholder shall be reduced to the extent necessary to reduce the
total amount of securities to be included in such offering to the amount
recommended by such managing Underwriter or Underwriters; provided that (x) in
the case of a Demand Registration, the amount of Registrable Securities to be
offered for the account of the Shareholder shall be reduced only after the
amount of securities to be offered for the account of the Company and such other
Persons has been reduced to zero, and (y) in the case of a Piggyback
Registration, if securities are being offered for the account of Persons other
than the Company, then the proportion by which the amount of such Registrable
Securities intended to be offered for the account of Shareholder is reduced
shall not exceed the proportion by which the amount of such securities intended
to be offered for the account of such other Persons is reduced; and (B) if the
combination of securities to be offered is the basis of such Underwriter's
advice, (x) the Registrable Securities to be included in such offering shall be
reduced as described in clause (A) above (subject to the proviso in clause (A)),
or (y) in the case of a Piggyback Registration, if the actions described in sub-
clause (x) of this clause (B) would, in the judgment of the managing
Underwriter, be insufficient to eliminate the adverse effect that inclusion of
the Registrable Securities requested to be included would have on such offering,
such Registrable Securities will be excluded from such offering.
ARTICLE 3
REGISTRATION PROCEDURES
SECTION 3.01. Filings; Information. Whenever Shareholder requests a Demand
Registration, the Company will use its best efforts to effect the registration
of such Registrable Securities as quickly as practicable, and in connection with
any such request:
(a) The Company will as expeditiously as possible prepare and file with the
Commission a registration statement on any form for which the Company then
qualifies and which counsel for the Company shall deem appropriate and available
for the sale of the Registrable Securities to be registered thereunder in
accordance with the intended method of distribution thereof, and use reasonable
best efforts to cause such filed registration statement to become and remain
effective for a period of not less than 90 days; provided that if the Company
shall furnish to Shareholder a certificate signed by its Chairman, Chief
Executive Officer or Chief Financial Officer stating that in his or her good
faith judgment it would be detrimental or otherwise disadvantageous to the
Company or its shareholders for such a registration statement to be filed, or,
in the case of an effective registration statement, for sales to be effected
thereunder, the Company shall have a period of not more than 90 days within
which to file such registration statement
3
<PAGE>
measured from the date of receipt of the request in accordance with Section 2.01
or, in the case of an effective registration statement, the Company shall be
entitled to require Shareholder to refrain from selling Registrable Securities
under such registration statement for a period of up to 90 days; provided
further that, in the case of a registration statement to be filed, the Company
shall be entitled to only one 90 day delay in any 360 day period, and, in the
case of an effective registration statement, the Company shall be entitled to
require Shareholder to refrain from selling Registrable Securities under such
Registration Statement for an aggregate of 90 days in any 360 day period. If the
Company furnishes a notice under this paragraph at a time when a registration
statement filed pursuant to this Agreement is effective, the Company shall
extend the period during which such registration statement shall be maintained
effective as provided in this Section 3.01(a) hereof by the number of days
during the period from and including the date of the giving of notice under this
paragraph to the date when sales under the registration statement may
recommence.
(b) The Company will, if requested, prior to filing such registration
statement or any amendment or supplement thereto, furnish to Shareholder and
each managing Underwriter, if any, copies thereof, and thereafter furnish to
Shareholder and each such Underwriter, if any, such number of copies of such
registration statement, each amendment and supplement thereto (in each case
including all exhibits thereto and documents incorporated by reference therein)
and the prospectus included in such registration statement (including each
preliminary prospectus) as Shareholder or such Underwriter may reasonably
request in order to facilitate the sale of the Registrable Securities.
(c) After the filing of the registration statement, the Company will
promptly notify Shareholder of any stop order issued or, to the knowledge of the
Company, threatened to be issued by the Commission and take all necessary
actions required to prevent the entry of such stop order or to remove it if
entered.
(d) The Company will use its reasonable best efforts to qualify the
Registrable Securities for offer and sale under such other securities or blue
sky laws of such jurisdictions in the United States as Shareholder reasonably
(in light of Shareholder's intended plan of distribution) requests; provided
that the Company will not be required to (i) qualify generally to do business in
any jurisdiction where it would not otherwise be required to qualify but for
this paragraph (d), (ii) subject itself to taxation in any such jurisdiction or
(iii) generally consent to service of process in any such jurisdiction.
(e) The Company shall, as promptly as practicable, notify
Shareholder, at any time when a prospectus relating to the sale of the
Registrable Securities is required by law to be delivered in connection with
sales by an Underwriter or dealer, of the occurrence of an event requiring the
preparation of a supplement or amendment to such registration
4
<PAGE>
statement or prospectus so that, as thereafter delivered to the purchasers of
such Registrable Securities, such registration statement or prospectus will not
contain an 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 the light of the circumstances under which they were made, not misleading,
and as promptly as practicable make available to Shareholder and to the
Underwriters any such supplement or amendment. Shareholder agrees that, upon
receipt of any notice from the Company of the happening of any event of the kind
described in the preceding sentence, Shareholder will forthwith discontinue the
offer and sale of Registrable Securities pursuant to the registration statement
covering such Registrable Securities until receipt of the copies of such
supplemented or amended prospectus and, if so directed by the Company,
Shareholder will deliver to the Company all copies, other than permanent file
copies then in Shareholder's possession, of the most recent prospectus covering
such Registrable Securities at the time of receipt of such notice. In the event
the Company shall give such notice, the Company shall extend the period during
which such registration statement shall be maintained effective as provided in
Section 3.01(a) hereof by the number of days during the period from and
including the date of the giving of such notice to the date when the Company
shall make available to Shareholder such supplemented or amended prospectus.
(f) The Company will enter into customary agreements (including an
underwriting agreement in customary form and satisfactory in form and substance
to the Company in its reasonable judgment) and take such other actions as are
reasonably required in order to expedite or facilitate the sale of such
Registrable Securities.
(g) The Company will furnish to Shareholder and to each managing
Underwriter, if any, a signed counterpart, addressed to Shareholder and each
Underwriter, of (i) an opinion or opinions of counsel to the Company and (ii a
comfort letter or comfort letters from the Company's independent public
accountants, each in customary form and covering such matters of the type
customarily covered by opinions or comfort letters delivered to such parties.
(h) The Company will make generally available to its securityholders, as
soon as reasonably practicable, an earnings statement covering a period of 12
months, beginning within three months after the effective date of the
registration statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the 1933 Act.
(i) The Company will use its best efforts to cause all such
Registrable Securities to be listed on each securities exchange on which similar
securities issued by the Company are then listed.
5
<PAGE>
The Company may require Shareholder promptly to furnish in writing to the
Company such information regarding Shareholder, the plan of distribution of the
Registrable Securities and other information as the Company may from time to
time reasonably request or as may be legally required in connection with such
registration.
SECTION 3.02. Registration Expenses. In connection with any Demand
Registration or Piggyback Registration, the Company shall pay the following
expenses incurred in connection with such registration (the "Registration
Expenses"): (i) all filing fees with the Commission and the National Association
of Securities Dealers, (ii) fees and expenses of compliance with securities or
blue sky laws (including reasonable fees and disbursements of counsel in
connection with blue sky qualifications of the Registrable Securities), (iii)
printing expenses, (iv) the fees and expenses incurred in connection with the
listing of the Registrable Securities, (v) fees and expenses of counsel and
independent certified public accountants for the Company (including the expenses
of any comfort letters pursuant to Section 3.01(g) hereof) and (vi) the
reasonable fees and expenses of any additional experts retained by the Company
in connection with such registration. The Shareholder shall pay any underwriting
fees, discounts or commissions attributable to the sale of Registrable
Securities of the Shareholder. The Company shall pay (i) internal Company
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties) and (ii) the
reasonable out-of-pocket expenses of Shareholder (excluding the fees and
expenses of counsel to Shareholder).
ARTICLE 4
INDEMNIFICATION AND CONTRIBUTION
SECTION 4.01. Indemnification by the Company. The Company agrees to
indemnify and hold harmless Shareholder, its officers and directors, and each
Person, if any, who controls Shareholder within the meaning of either Section 15
of the 1933 Act or Section 20 of the 1934 Act from and against any and all
losses, claims, damages and liabilities caused by any untrue statement or
alleged untrue statement of a material fact contained in any registration
statement or prospectus relating to the Registrable Securities (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) or any preliminary prospectus (including documents incorporated by
reference therein), or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages or liabilities are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information furnished in writing
to the Company by or on behalf of Shareholder expressly for use therein;
provided that the foregoing indemnity agreement with respect to any
6
<PAGE>
preliminary prospectus shall not inure to the benefit of Shareholder if a copy
of the then current prospectus was not provided to purchaser at or prior to the
time of such purchase and such current prospectus would have cured the defect
giving rise to such loss, claim, damage or liability or for any sales occurring
during the period in which the Company is not required to keep the registration
statement effective as provided in Section 3.01(a) or after the Company has
informed Shareholder under Section 3.01(e) and prior to the delivery by the
Company of any supplement or amendment to such prospectus. The Company also
agrees to indemnify any Underwriters of the Registrable Securities, their
officers and directors and each person who controls such underwriters on
substantially the same basis as that of the indemnification of Shareholder
provided in this Section 4.01.
SECTION 4.02. Indemnification by Shareholder. Shareholder agrees to
indemnify and hold harmless the Company, its officers and directors, and each
Person, if any, who controls the Company within the meaning of either Section 15
of the 1933 Act or Section 20 of the 1934 Act to the same extent as the
foregoing indemnity from the Company to Shareholder, but only with reference to
information furnished in writing by or on behalf of Shareholder expressly for
use in any registration statement or prospectus relating to the Registrable
Securities, or any amendment or supplement thereto, or any preliminary
prospectus. Shareholder also agrees to indemnify and hold harmless Underwriters
of the Registrable Securities, their officers and directors and each person who
controls such Underwriters on substantially the same basis as that of the
indemnification of the Company provided in this Section 4.02.
SECTION 4.03. Conduct of Indemnification Proceedings. In case any
proceeding (including any governmental investigation) shall be instituted
involving any Person in respect of which indemnity may be sought pursuant to
Section 4.01 or 4.2, such Person (the "Indemnified Party") shall promptly notify
the Person against whom such indemnity may be sought (the "Indemnifying Party")
in writing and the Indemnifying Party, upon the request of the Indemnified
Party, shall retain counsel reasonably satisfactory to such Indemnified Party to
represent such Indemnified Party and any others the Indemnifying Party may
designate in such proceeding and shall pay the fees and disbursements of such
counsel related to such proceeding. In any such proceeding, any Indemnified
Party shall have the right to retain its own counsel, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party unless (i) the
Indemnifying Party and the Indemnified Party shall have mutually agreed to the
retention of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the Indemnified Party and the
Indemnifying Party and representation of both parties by the same counsel would,
in the opinion of counsel reasonably acceptable to the Indemnifying Party, be
inappropriate due to actual or potential differing interests between them. It is
understood that the Indemnifying Party shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for the
fees and expenses of more than one separate firm of attorneys (in addition to
any
7
<PAGE>
local counsel) at any time for all such Indemnified Parties, and that all such
fees and expenses shall be reimbursed as they are incurred. In the case of any
such separate firm for the Indemnified Parties, such firm shall be designated in
writing by the Indemnified Parties. The Indemnifying Party shall not be liable
for any settlement of any proceeding effected without its written consent, but
if settled with such consent, or if there be a final judgment for the plaintiff,
the Indemnifying Party shall indemnify and hold harmless such Indemnified
Parties from and against any loss or liability (to the extent stated above) by
reason of such settlement or judgment.
SECTION 4.04. Contribution. If the indemnification provided for in this
Article 4 is unavailable to the Indemnified Parties in respect of any losses,
claims, damages or liabilities referred to herein, 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, claims,
damages or liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company and Shareholder from the offering of
the securities, or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) but also the relative fault
of the Company and Shareholder in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. The relative benefits received by the
Company and Shareholder shall be deemed to be in the same proportion as the
total proceeds from the offering (net of underwriting discounts and commissions
but before deducting expenses) received by each of the Company and Shareholder,
in each case as set forth in the table on the cover page of the prospectus, bear
to the aggregate public offering price of the securities. The relative fault of
the Company and Shareholder shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by such party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and Shareholder agree that it would not be just and equitable
if contribution pursuant to this Section 4.04 were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an Indemnified Party as a result of the losses,
claims, damages or liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such Indemnified Party
in connection with investigating or defending any such action or claim. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
8
<PAGE>
ARTICLE 5
MISCELLANEOUS
SECTION 5.01. Participations in Underwritten Registrations. No Person may
participate in any underwritten registered offering contemplated hereunder
unless such Person (a) agrees to sell its securities on the basis provided in
any underwriting arrangements and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements and these
Registration Rights.
SECTION 5.02. Rule 144. The Company covenants that it will use best efforts
to file any reports required to be filed by it under the 1933 Act and the 1934
Act and that it will take such further action as Shareholder may reasonably
request, all to the extent required from time to time to enable Shareholder to
sell Registrable Securities without registration under the 1933 Act within the
limitation of the exemptions provided by Rule 144 under the 1933 Act, as such
Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission. Upon the request of Shareholder, the
Company will deliver to Shareholder a written statement as to whether it has
complied with such requirements.
SECTION 5.03. Holdback Agreements. (a) Shareholder agrees not to offer,
sell, contract to sell or otherwise dispose of any Registrable Securities, or
any securities convertible into or exchangeable or exercisable for such
securities, from the date of filing of a registration statement relating to the
sale of Registrable Securities through the 90 day period beginning on the date
of the first sale of Registrable Securities pursuant to the registration
statement other than the Registrable Securities to be sold pursuant to such
registration statement.
(b) The Company agrees not to offer, sell, contract to sell or otherwise
dispose of any securities similar to the Registrable Securities to be sold
pursuant hereto, or any securities convertible into or exchangeable or
exercisable for such securities, during the 14 days prior to, and during the 90
day period beginning on, the effective date of any registration statement
registering the Registrable Securities other than any shares of Common Stock
sold upon the exercise of an option or warrant or the conversion of a security
outstanding at such date or pursuant to any Company stock option plan or issued
by the Company as consideration for an acquisition.
SECTION 5.04. Termination of Company Obligation. All registration rights
provided hereunder shall terminate at such time as Shareholder holds less than
5% of the outstanding common stock and is able to sell all of its Registrable
Securities without registration under the 1933 Act during any single three month
period.
9
<PAGE>
SECTION 5.05. No Transfer or Assignment of Registration Rights. The
registration rights set forth in this Agreement shall not be transferrable or
assignable by the Shareholder except to permitted transferees under Section
8.03(a) of the Investment Agreement.
10
<PAGE>
- --------------------------------------------------------------------------------
CONFORMED COPY
EXHIBIT 10.4
CATALYTICA, INC.
CATALYTICA PHARMACEUTICALS, INC.
$200,000,000
Credit Agreement
July 31, 1997
The Lenders Party Hereto
The Chase Manhattan Bank
as Administrative Agent
and as Documentation Agent
Chase Securities Inc.
as Arranger
[CHASE LOGO]
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
<TABLE>
<CAPTION>
ARTICLE I
Definitions
-----------
<S> <C> <C>
SECTION 1.01. Defined Terms 2
SECTION 1.02. Classification of Loans and Borrowings 24
SECTION 1.03. Terms Generally 24
SECTION 1.04. Accounting Terms; GAAP 24
ARTICLE II
The Credits
-----------
SECTION 2.01. Commitments.............................................. 25
SECTION 2.02. Loans and Borrowings..................................... 25
SECTION 2.03. Requests for Borrowings.................................. 26
SECTION 2.04. Letters of Credit........................................ 26
SECTION 2.05. Funding of Borrowings.................................... 30
SECTION 2.06. Interest Elections....................................... 31
SECTION 2.07. Termination and Reduction of Commitments................. 32
SECTION 2.08. Repayment of Loans; Evidence of Debt..................... 33
SECTION 2.09. Amortization of Term Loans............................... 34
SECTION 2.10. Prepayment of Loans...................................... 35
SECTION 2.11. Fees..................................................... 36
SECTION 2.12. Interest................................................. 37
SECTION 2.13. Alternate Rate of Interest............................... 37
SECTION 2.14. Increased Costs.......................................... 38
SECTION 2.15. Break Funding Payments................................... 39
SECTION 2.16. Taxes.................................................... 39
SECTION 2.17. Payments Generally; Pro Rata Treatment; Sharing of
Setoffs................................................ 41
SECTION 2.18. Mitigation Obligations; Replacement of Lenders........... 42
</TABLE>
ARTICLE III
<PAGE>
Representations and Warranties
------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 3.01. Organization; Powers......................................43
SECTION 3.02. Authorization; Enforceability.............................43
SECTION 3.03. Governmental Approvals; No Conflicts......................43
SECTION 3.04. Financial Condition; No Material Adverse Change...........44
SECTION 3.05. Properties................................................44
SECTION 3.06. Litigation and Environmental Matters......................45
SECTION 3.07. Compliance with Laws and Agreements.......................45
SECTION 3.08. Investment and Holding Company Status.....................46
SECTION 3.09. Taxes.....................................................46
SECTION 3.10. ERISA.....................................................46
SECTION 3.11. Disclosure................................................46
SECTION 3.12. Subsidiaries..............................................46
SECTION 3.13. Insurance.................................................47
SECTION 3.14. Labor Matters.............................................47
SECTION 3.15. Solvency..................................................47
SECTION 3.16. Security Documents........................................47
SECTION 3.17. Federal Reserve Regulations...............................48
ARTICLE IV
Conditions
----------
SECTION 4.01. Effective Date............................................49
SECTION 4.02. Each Credit Event.........................................54
ARTICLE V
Affirmative Covenants
---------------------
SECTION 5.01. Financial Statements and Other Information................55
SECTION 5.02. Notices of Material Events................................56
SECTION 5.03. Information Regarding Collateral..........................57
SECTION 5.04. Existence; Conduct of Business............................58
SECTION 5.05. Payment of Obligations....................................58
SECTION 5.06. Maintenance of Properties.................................58
SECTION 5.07. Insurance.................................................58
SECTION 5.08. Casualty and Condemnation.................................59
SECTION 5.09. Books and Records; Inspection and Audit Rights............59
SECTION 5.10. Compliance with Laws......................................60
SECTION 5.11. Use of Proceeds and Letters of Credit.....................60
SECTION 5.12. Additional Subsidiaries...................................60
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 5.13. Further Assurances...................................... 60
ARTICLE VI
Negative Covenants
------------------
SECTION 6.01. Indebtedness; Certain Equity Securities................. 61
SECTION 6.02. Liens................................................... 62
SECTION 6.03. Fundamental Changes..................................... 63
SECTION 6.04. Investments, Loans, Advances, Guarantees and
Acquisitions..................................... 64
SECTION 6.05. Asset Sales............................................. 65
SECTION 6.06. Sale and Lease-Back Transactions........................ 66
SECTION 6.07. Hedging Agreements...................................... 66
SECTION 6.08. Restricted Payments..................................... 66
SECTION 6.09. Transactions with Affiliates............................ 67
SECTION 6.10. Restrictive Agreements.................................. 67
SECTION 6.11. Sterile Facility Pay-Out................................ 67
SECTION 6.12. Amendment of Material Documents......................... 68
SECTION 6.13. Capital Expenditures.................................... 68
SECTION 6.14. Leverage Ratio.......................................... 68
SECTION 6.15. Consolidated Interest Expense Coverage Ratio............ 69
ARTICLE VII
Events of Default............................ 69
-----------------
ARTICLE VIII
The Administrative Agent......................... 72
------------------------
ARTICLE IX
Miscellaneous
-------------
SECTION 9.01. Notices................................................. 74
SECTION 9.02. Waivers; Amendments..................................... 74
SECTION 9.03. Expenses; Indemnity; Damage Waiver...................... 75
SECTION 9.04. Successors and Assigns.................................. 77
SECTION 9.05. Survival................................................ 79
SECTION 9.06. Counterparts; Integration; Effectiveness................ 79
SECTION 9.07. Severability............................................ 80
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 9.08. Right of Setoff........................................ 80
SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of
Process.......................................... 80
SECTION 9.10. Waiver of Jury Trial................................... 81
SECTION 9.11. Headings............................................... 81
SECTION 9.12. Confidentiality........................................ 81
SECTION 9.13. Interest Rate Limitation............................... 82
</TABLE>
SCHEDULES:
- ---------
Schedule 1.01(a) - Mortgaged Properties
Schedule 2.01 - Commitments
Schedule 3.05 - Real Property
Schedule 3.06 - Disclosed Matters
Schedule 3.12 - Subsidiaries
Schedule 3.13 - Insurance
Schedule 3.16(d) - Mortgage Filing Offices
Schedule 6.01 - Existing Indebtedness
Schedule 6.02 - Existing Liens
Schedule 6.04 - Existing Investments
Schedule 6.10 - Existing Restrictions
EXHIBITS:
- --------
Exhibit A - Form of Assignment and Acceptance
Exhibit B - Form of Opinion of Borrower's Counsel
Exhibit C - Form of Opinion Local Counsel
Exhibit D - Form of Parent Guarantee Agreement
Exhibit E - Form of Guarantee Agreement
Exhibit F - Form of Indemnity, Subrogation and
Contribution Agreement
Exhibit G - Form of Pledge Agreement
Exhibit H - Form of Security Agreement
Exhibit I - Form of Mortgage
<PAGE>
CREDIT AGREEMENT dated as of July 31, 1997, among
CATALYTICA, INC., a Delaware corporation, CATALYTICA
PHARMACEUTICALS, INC., a Delaware corporation, as Borrower, the
LENDERS party hereto, and THE CHASE MANHATTAN BANK, as
Administrative Agent and as Documentation Agent.
Pursuant to an Asset Purchase Agreement dated as of June 25, 1997 (the
"Asset Purchase Agreement"), among Catalytica (such term and each other
- -------------------------
capitalized term used but not defined herein having the meaning assigned to it
in Article I), the Borrower and GWI, the Borrower will purchase the Acquired
Facilities for consideration (the "Purchase Price") consisting of (a)
--------------
$246,600,000 in cash (subject to adjustments as provided in the Asset Purchase
Agreement) payable by the Borrower to GWI, (b) the issuance to GWI on the
Effective Date of (i) 250,000 shares of the Junior Preferred Stock and (ii) the
Warrants and (c) the Sterile Facility Pay-Out.
In connection with the Acquisition; (a) the Borrower will receive an
aggregate cash amount of not less than $120,000,000 pursuant to the Equity
Financing from MSCP (through Catalytica); (b) the Borrower will enter into a
Supply Agreement with GWI. Pursuant to the terms of the Supply Agreement, GWI
will be required to pay to the Borrower revenues of at least $427,600,000 in the
aggregate (plus certain of the Borrower's costs incurred in connection with the
Supply Agreement) during a four and one-half year term, upon the terms and
subject to the conditions set forth in the Supply Agreement; and (c) Catalytica
will issue 150,000 shares of common stock of Catalytica to Lehman Brothers Inc.
in exchange for services rendered to Catalytica in connection with the
Transactions.
The Borrower has requested the Lenders to extend credit in the form of (a)
Term Loans on the Effective Date, in an aggregate principal amount not in excess
of $125,000,000, and (b) Revolving Loans at any time and from time to time prior
to the Maturity Date, in an aggregate principal amount at any time outstanding
not in excess of $75,000,000 less the LC Exposure at such time. The Borrower
has requested the Issuing Bank to issue letters of credit, in an aggregate face
amount at any time outstanding not in excess of $20,000,000, to support payment
obligations incurred in the ordinary course of business by the Borrower.
The proceeds of the Term Loans, together with up to $14,600,000 in
principal amount of Revolving Loans and the proceeds of the Equity Financing,
will be used only for the payment of (a) the cash portion of the Purchase Price,
(b) the Existing Indebted ness and (c) up to $8,000,000 in cash fees and
expenses payable in connection with the Transactions. The proceeds of the
Revolving Loans (other than Revolving Loans used for
<PAGE>
2
the purposes specified in the preceding sentence) are to be used for general
corporate purposes.
The Lenders are willing to extend such credit to the Borrower and the
Issuing Bank is willing to issue letters of credit for the account of the
Borrower on the terms and subject to the conditions set forth herein.
Accordingly, the parties hereto agree as follows:
ARTICLE I
Definitions
-----------
SECTION 1.01. Defined Terms. As used in this Agreement, the
--------------
following terms have the meanings specified below:
"ABR", when used in reference to any Loan or Borrowing, refers to
---
whether such Loan, or the Loans comprising such Borrowing, are bearing interest
at a rate determined by reference to the Alternate Base Rate.
"Acquired EBITDA" means, with respect to any Acquired Entity or
---------------
Business or any Sold Entity or Business for any period, the sum of the amounts
for such period of net income or loss of such Acquired Entity or Business or
Sold Entity or Business determined on a consolidated basis in accordance with
GAAP, plus, without duplication and to the extent deducted from revenues in
determining such consolidated net income or loss, the sum of (a) the aggregate
amount of interest expense, both expensed and capitalized (including the
interest component in respect of Capital Lease Obligations but excluding
capitalized interest included as an addition to property, plant and equipment or
other capital expenditure for tangible assets in accordance with GAAP), accrued
or paid by such Acquired Entity or Business or Sold Entity or Business and its
subsidiaries during such period, in each case as determined on a consolidated
basis in accordance with GAAP, (b) the aggregate amount of letter of credit fees
paid during such period, (c) the aggregate amount of income tax expense for such
period, (d) all amounts attributable to depreciation, amortization and other
similar non-cash charges for such period and (e) all extraordinary charges
during such period, and minus, without duplication and to the extent added to
revenues in determining such consolidated net income or loss for such period,
all extraordinary gains during such period, with all of the foregoing determined
on a consolidated basis with respect to such Acquired Entity or Business or Sold
Entity or Business in accordance with GAAP.
"Acquired Entity or Business" has the meaning assigned to such term in
---------------------------
the definition of Adjusted Consolidated EBITDA.
"Acquired Facilities" means (a) certain real property consisting of 17
-------------------
separate parcels of land consisting of approximately 582 acres, located in
Greenville,
<PAGE>
3
North Carolina, including (i) all rights, privileges and easements appurtenant
to such property and (ii) all the improvements and fixtures located on such
property, (b) certain machinery, equipment, furniture, fixtures, transportation,
maintenance and distribution equipment, waste treatment facilities, computers,
analytical equipment, instruments, communication equipment, control systems,
spare parts, supplies, materials and other items of tangible personal property,
(c) certain motor vehicles and (d) certain intellectual and other property, in
each case as specified in the Asset Purchase Agreement.
"Acquisition" means the acquisition, pursuant to the Asset Purchase
-----------
Agreement, by the Borrower from GWI of the Acquired Facilities for consideration
consisting of (a) $246,600,000 in cash (subject to adjustments as provided in
the Asset Purchase Agreement) payable by the Borrower to GWI, (b) the issuance
to GWI on the Effective Date of (i) 250,000 shares of the Junior Preferred Stock
and (ii) the Warrants and (c) the payment by the Borrower to GWI from time to
time after the Effective Date of the Sterile Facility Pay-Out.
"Acquisition Documents" means the Asset Purchase Agreement, the Junior
---------------------
Preferred Purchase Agreement, the Warrant Purchase Agreement, the Investment
Agreement, the Share Exchange Agreement, the Supply Agreement and any other
document entered into in connection with the Acquisition to which the Borrower,
Catalytica, MSCP or GWI is a party.
"Adjusted Consolidated EBITDA" means, for any period, Consolidated
----------------------------
EBITDA for such period, calculated by (a) including in the determination thereof
the Acquired EBITDA of any Person, property, business or asset in Catalytica's,
the Borrower's or any Subsidiary's line of business acquired pursuant to a
transaction permitted under Section 6.04 and not subsequently sold, transferred
or otherwise disposed of (but not including the Acquired EBITDA of any related
Person, property, business or assets to the extent not so acquired) by
Catalytica, the Borrower or any of the Subsidiaries during such period (each
such Person, property, business or asset in Catalytica's, the Borrower's or any
Subsidiary's line of business acquired and not subsequently so disposed of, an
"Acquired Entity or Business"), based on the actual Acquired EBITDA of such
Acquired Entity or Business for such period (including the portion thereof
occurring prior to such acquisition) and (b) excluding in the determination
thereof the Acquired EBITDA of any Person, property, business or asset sold,
transferred or otherwise disposed of by Catalytica, the Borrower or any of the
Subsidiaries during such period (each such Person, property, business or asset
so sold or disposed of, a "Sold Entity or Business") based on the actual
Acquired EBITDA of such Sold Entity or Business for such period (including the
portion thereof occurring prior to such sale, transfer or disposition).
"Adjusted LIBO Rate" means, with respect to any Eurodollar Borrowing
------------------
for any Interest Period, an interest rate per annum (rounded upwards, if
necessary, to the
<PAGE>
4
next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied
by (b) the Statutory Reserve Rate.
"Administrative Agent" means The Chase Manhattan Bank, in its capacity
--------------------
as administrative agent for the Lenders hereunder.
"Administrative Questionnaire" means an Administrative Questionnaire
----------------------------
in a form supplied by the Administrative Agent.
"Advanced Sensor" means Advanced Sensor Devices, Inc., a California
---------------
corporation.
"Advanced Technologies" means Catalytica Advanced Technologies, Inc.,
---------------------
a Delaware corporation.
"Advisory Compensation" means the issuance by Catalytica of 150,000
---------------------
shares of common stock of Catalytica to Lehman Brothers Inc. for services
rendered in connection with the Acquisition.
"Affiliate" means, with respect to a specified Person, another Person
---------
that directly, or indirectly through one or more intermediaries, Controls or is
Controlled by or is under common Control with the Person specified.
"Alternate Base Rate" means, for any day, a rate per annum equal to
-------------------
the greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate
in effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect
on such day plus 1/2 of 1%. Any change in the Alternate Base Rate due to a
change in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate
shall be effective from and including the effective date of such change in the
Prime Rate, the Base CD Rate or the Federal Funds Effective Rate, respectively.
"Applicable Percentage" means, with respect to any Revolving Lender,
---------------------
the percentage of the total Revolving Commitments represented by such Lender's
Revolving Commitment. If the Revolving Commitments have terminated or expired,
the Applicable Percentages shall be determined based upon the Revolving
Commitments most recently in effect, giving effect to any assignments made in
accordance with Section 9.04.
"Applicable Rate" means, for any day with respect to any ABR Loan or
---------------
Eurodollar Loan, or with respect to the commitment fees payable hereunder, as
the case may be, the applicable rate per annum set forth below under the caption
"ABR Spread", "Eurodollar Spread" or "Commitment Fee Rate", as the case may be,
based upon the Leverage Ratio as of the most recent determination date; provided
--------
that until the third day after the delivery to the Administrative Agent,
pursuant to Section 5.01, of Catalytica's
<PAGE>
5
consolidated financial statements for Catalytica's first four full fiscal
quarters after the Effective Date, the "Applicable Rate" shall be the applicable
rate per annum set forth below in Category 3:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
ABR Eurodollar Commitment Fee
Leverage Ratio: --- ---------- --------------
--------------- Spread Spread Rate
------ ------ ----
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Category 1
---------- .75% 1.75%
Equal to or greater than 4.00 to 1.00
- -------------------------------------------------------------------------------------------
Category 2
----------
Less than 4.00 to 1.00 but equal to or greater .50% 1.50%
than 3.50 to 1.00
- -------------------------------------------------------------------------------------------
Category 3
----------
Less than 3.50 to 1.00 but equal to or greater .25% 1.25%
than 3.00 to 1.00
- -------------------------------------------------------------------------------------------
Category 4
----------
Less than 3.00 to 1.00 but equal to or greater 0.00% 1.00%
than 2.50 to 1.00
- -------------------------------------------------------------------------------------------
Category 5
----------
Less than 2.50 to 1.00 but equal to or greater 0.00% .75%
than 2.00 to 1.00
- -------------------------------------------------------------------------------------------
Category 6
----------
Less than 2.00 to 1.00 0.00% .50% .20%
- -------------------------------------------------------------------------------------------
</TABLE>
For purposes of the foregoing, (a) the Leverage Ratio shall be
determined as at the last day of each fiscal quarter of Catalytica's fiscal year
based upon Catalytica's consolidated financial statements delivered pursuant to
Section 5.01(a) or (b) and (b) each change in the Applicable Rate resulting from
a change in the Leverage Ratio shall be effective during the period commencing
on and including the third day (such day, the "Applicable Rate Determination
Date") after the date of delivery to the Administrative Agent of such
consolidated financial statements indicating such change and ending on the date
immediately preceding the effective date of the next such change; provided that
--------
the Leverage Ratio shall be deemed to be in Category 1 (i) at any time that an
Event of Default (other than an Event of Default described in paragraph (e) of
Article VII) has occurred and is continuing or (ii) if Catalytica fails to
deliver the consolidated financial statements required to be delivered by it
pursuant to Section 5.01(a) or (b), during the period from the expiration of the
time for delivery thereof until such consolidated financial statements are
delivered.
"Assessment Rate" means, for any day, the annual assessment rate in
---------------
effect on such day that is payable by a member of the Bank Insurance Fund
classified as "well-capitalized" and within supervisory subgroup "B" (or a
comparable successor risk classification) within the meaning of 12 C.F.R. Part
327 (or any successor provision) to the Federal Deposit Insurance Corporation
for insurance by such Corporation of time deposits made in dollars at the
offices of such member in the United States; provided that
--------
<PAGE>
6
if, as a result of any change in any law, rule or regulation, it is no longer
possible to determine the Assessment Rate as aforesaid, then the Assessment Rate
shall be such annual rate as shall be determined by the Administrative Agent to
be representative of the cost of such insurance to the Lenders.
"Asset Purchase Agreement" means the Asset Purchase Agreement dated as
------------------------
of June 25, 1997, among GWI, the Borrower and Catalytica.
"Assignment and Acceptance" means an assignment and acceptance entered
-------------------------
into by a Lender and an assignee (with the consent of any party whose consent is
required by Section 9.04), and accepted by the Administrative Agent, in the form
of Exhibit A or any other form approved by the Administrative Agent.
"Base CD Rate" means the sum of (a) the Three-Month Secondary CD Rate
------------
multiplied by the Statutory Reserve Rate plus (b) the Assessment Rate.
"Board" means the Board of Governors of the Federal Reserve System of
-----
the United States of America.
"Borrower" means Catalytica Pharmaceuticals, Inc., a Delaware
--------
corporation.
"Borrowing" means Loans of the same Class and Type, made, converted or
---------
continued on the same date and, in the case of Eurodollar Loans, as to which a
single Interest Period is in effect.
"Borrowing Request" means a request by the Borrower for a Borrowing or
-----------------
Borrowings in accordance with Section 2.03.
"Business Day" means any day that is not a Saturday, Sunday or other
------------
day on which commercial banks in New York City are authorized or required by law
to remain closed; provided that, when used in connection with a Eurodollar Loan,
--------
the term "Business Day" shall also exclude any day on which banks are not open
------------
for dealings in dollar deposits in the London interbank market.
"Capital Expenditures" means, for any period, without duplication, (a)
--------------------
the additions to property, plant and equipment and other capital expenditures
for tangible assets of Catalytica and its consolidated subsidiaries that are (or
would be) set forth in a consolidated statement of cash flows of Catalytica as
additions to property, plant and equipment or other capital expenditures for
such period prepared in accordance with GAAP and (b) Capital Lease Obligations
with respect to property, plant and equipment and other tangible assets that are
incurred by Catalytica and its consolidated subsidiaries during such period.
<PAGE>
7
"Capital Lease Obligations" of any Person means the obligations of
-------------------------
such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP,
and the amount of such obligations shall be the capitalized amount thereof
determined in accordance with GAAP.
"Catalytica" means Catalytica, Inc., a Delaware corporation.
----------
"Catalytica Bayview" means Catalytica Bayview, Inc., a Delaware
------------------
corporation.
"Catalytica Combustion" means Catalytica Combustion Systems, Inc., a
---------------------
Delaware corporation.
"Catalytica Combustion Release Date" means, so long as no Event of
----------------------------------
Default or Default that upon lapse of time would become an Event of Default
under paragraph (b) of Article VII has occurred and is continuing, the date on
which (a) Catalytica Combustion has received at least $10,000,000 in Net
Proceeds from the issuance after the date of this Agreement of its capital stock
to any Person other than Catalytica or its subsidiaries, (b) Catalytica
Combustion and its subsidiaries have repaid in full all Indebtedness arising
after the date of this Agreement and owed by any of them to, and returned in
full the amount of any investment made in any of them after the date of this
Agreement by, Catalytica, the Borrower or any Subsidiary (other than Catalytica
Combustion and its subsidiaries) and (c) all Guarantees by Catalytica, the
Borrower or any Subsidiary (other than Catalytica Combustion and its
subsidiaries) of obligations of Catalytica Combustion or any of its subsidiaries
(other than any such Guarantees that (i) constitute Indebtedness permitted by
Section 6.01 and (ii) are permitted under Section 6.04(i)) shall have been
irrevocably released in full.
"CERCLA" means the Comprehensive Environmental Response, Compensation,
------
and Liability Act, 42 U.S.C. (S) 9601 et seq.
"Change in Control" means (a)(i) at any time, the acquisition of
-----------------
ownership, directly or indirectly, beneficially or of record, by any Person or
group (within the meaning of the Securities Exchange Act of 1934 and the rules
of the Securities and Exchange Commission thereunder as in effect on the date
hereof) other than MSCP and its Affiliates, of shares representing more than 30%
of the aggregate ordinary voting power represented by the issued and outstanding
capital stock of Catalytica and (ii) MSCP and its Affiliates owning, directly or
indirectly, less than 30% of the aggregate ordinary voting power represented by
the issued and outstanding capital stock of
<PAGE>
8
Catalytica; (b) at any time on or before July 31, 1999, MSCP and its Affiliates
cease to be the beneficial owners (within the meaning of the Securities Exchange
Act of 1934 and the rules of the Securities and Exchange Commission thereunder
as in effect on the date hereof) of at least 16.5 million shares of Catalytica
common stock (adjusted for stock splits, reverse stock splits and other similar
transactions); (c) after July 31, 1999, and solely as of the last day of the
month immediately preceding the date on which MSCP and its Affiliates initially
cease to be the beneficial owners (within the meaning of the Securities Exchange
Act of 1934 and the rules of the Securities and Exchange Commission thereunder
as in effect on the date hereof) of at least 16.5 million shares of Catalytica
common stock (adjusted for stock splits, reverse stock splits and other similar
transactions), (i) the aggregate principal amount of Loans outstanding as of
such day minus the amount of cash and Permitted Investments set forth (or that
would be set forth) on a consolidated balance sheet of Catalytica, the Borrower
and the Subsidiaries as of such day, determined on a consolidated basis in
accordance with GAAP, is greater than or equal to $60,000,000 or (ii) the ratio
of (A) the consolidated current assets of Catalytica, the Borrower and the
Subsidiaries set forth (or that would be set forth) on a consolidated balance
sheet of Catalytica, the Borrower and the Subsidiaries as of such day,
determined on a consolidated basis in accordance with GAAP, to (B) the aggregate
principal amount of Loans outstanding as of such day is less than or equal to
1.5 to 1.0; or (d) at any time, occupation of a majority of the seats (other
than vacant seats) on the board of directors of Catalytica by Persons who were
neither (i) nominated or appointed by the board of directors of Catalytica nor
(ii) nominated or appointed by directors so nominated or appointed.
"Change in Law" means (a) the adoption of any law, rule or regulation
-------------
after the date of this Agreement, (b) any change in any law, rule or regulation
or in the interpretation or application thereof by any Governmental Authority
after the date of this Agreement or (c) compliance by any Lender or the Issuing
Bank (or, for purposes of Section 2.14(b), by any lending office of such Lender
or by such Lender's or the Issuing Bank's holding company, if any) with any
request, guideline or directive (whether or not having the force of law) of any
Governmental Authority made or issued after the date of this Agreement.
"Class", when used in reference to any Loan or Borrowing, refers to
-----
whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans
or Term Loans and, when used in reference to any Commitment, refers to whether
such Commitment is a Revolving Commitment or Term Commitment.
"Code" means the Internal Revenue Code of 1986, as amended from time
----
to time.
"Collateral" means any and all "Collateral", as defined in any
----------
applicable
<PAGE>
9
Security Document.
"Commitment" means a Revolving Commitment or Term Commitment, or any
----------
combination thereof (as the context requires).
"Commitment Letter" means the Commitment Letter dated June 25, 1997,
-----------------
among The Chase Manhattan Bank, Chase Securities Inc. and Catalytica, Inc.
"Consolidated Cash Interest Income" means, for any period, the cash
---------------------------------
interest income of Catalytica, the Borrower and the Subsidiaries during such
period, determined on a consolidated basis in accordance with GAAP.
"Consolidated EBITDA" means, for any period, Consolidated Net Income
-------------------
for such period, plus, without duplication and to the extent deducted from
revenues in determining Consolidated Net Income, the sum of (a) the aggregate
amount of Consolidated Interest Expense for such period, (b) the aggregate
amount of letter of credit fees paid during such period, (c) the aggregate
amount of income tax expense for such period, (d) all amounts attributable to
depreciation, amortization and other similar non-cash charges for such period
and (e) all extraordinary charges during such period, and minus, without
duplication and to the extent added to revenues in determining Consolidated Net
Income for such period, all extraordinary gains during such period, with all of
the foregoing determined on a consolidated basis with respect to Catalytica, the
Borrower and the Subsidiaries in accordance with GAAP.
"Consolidated Interest Expense" means, for any period, the interest
-----------------------------
expense, both expensed and capitalized (including the interest component in
respect of Capital Lease Obligations but excluding capitalized interest included
as a Capital Expenditure), accrued or paid by Catalytica, the Borrower and the
Subsidiaries during such period, determined on a consolidated basis in
accordance with GAAP.
"Consolidated Net Income" means, for any period, net income or loss of
-----------------------
Catalytica, the Borrower and the Subsidiaries for such period determined on a
consolidated basis in accordance with GAAP, provided that, except for purposes
of the definition of the term "Leverage Ratio", there shall be excluded the
income (or loss) of any Person accrued prior to the date it becomes a subsidiary
or is merged into or consolidated with Catalytica, the Borrower or any of the
Subsidiaries or the date that Person's assets are acquired by Catalytica or any
of its subsidiaries.
"Control" means the possession, directly or indirectly, of the power
-------
to direct or cause the direction of the management or policies of a Person,
whether through the ability to exercise voting power, by contract or otherwise.
"Controlling" and "Controlled" have meanings correlative thereto.
----------- ----------
<PAGE>
10
"Deed of Easement" means the Deed of Easement dated as of July [ ],
----------------
1997, among the Borrower and GWI.
"Default" means any event or condition that constitutes an Event of
-------
Default or that upon notice, lapse of time or both would, unless cured or
waived, become an Event of Default.
"Disclosed Matters" means the actions, suits and proceedings and the
-----------------
environmental matters disclosed in Schedule 3.06.
"dollars" or "$" refers to lawful money of the United States of
------- -
America.
"Effective Date" means the date on which the conditions specified in
--------------
Section 4.01 are satisfied (or waived in accordance with Section 9.02).
"Environmental Laws" means all laws, rules, regulations, codes,
------------------
ordinances, orders, decrees, judgments, injunctions, notices or binding
agreements issued, promulgated or entered into by or with any Governmental
Authority, relating in any way to the environment, preservation or reclamation
of natural resources, the handling, treatment, storage, disposal, Release or
threatened Release of any Hazardous Material or to health and safety matters
arising in connection with Hazardous Materials.
"Environmental Liability" means any liability, contingent or otherwise
-----------------------
(including any liability for damages, natural resource damage, costs of
environmental investigation, monitoring or remediation, administrative oversight
costs, fines, penalties or indemnities), of Catalytica, the Borrower or any
Subsidiary directly or indirectly resulting from or based upon (a) violation of
any Environmental Law, (b) the generation, use, handling, transportation,
storage, treatment or disposal of any Hazardous Materials, (c) exposure to any
Hazardous Materials, (d) the Release or threatened Release of any Hazardous
Materials into the environment or (e) any contract, agreement or other
consensual arrangement pursuant to which liability is assumed or imposed with
respect to any of the foregoing.
"Equity Financing" means (a) the contribution by MSCP to Catalytica of
----------------
an aggregate cash amount of not less than $120,000,000 in exchange for MSCP
Stock and (b) the contribution by Catalytica to the Borrower as common equity of
the amount so received by Catalytica.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time.
<PAGE>
11
"ERISA Affiliate" means any trade or business (whether or not incor
---------------
porated) that, together with the Borrower, is treated as a single employer under
Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of
ERISA and Section 412 of the Code, is treated as a single employer under Section
414 of the Code.
"ERISA Event" means (a) any "reportable event", as defined in Section
-----------
4043 of ERISA or the regulations issued thereunder with respect to a Plan (other
than an event for which the 30-day notice period is waived); (b) the existence
with respect to any Plan of an "accumulated funding deficiency" (as defined in
Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the
filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an
application for a waiver of the minimum funding standard with respect to any
Plan; (d) the incurrence by the Borrower or any of its ERISA Affiliates of any
liability (other than for premiums under Section 4007 (a) of ERISA) under Title
IV of ERISA with respect to the termination of any Plan; (e) the receipt by the
Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any
notice relating to an intention to terminate any Plan or Plans or to appoint a
trustee to administer any Plan; (f) the incurrence by the Borrower or any of its
ERISA Affiliates of any liability with respect to the withdrawal or partial
withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by the
Borrower or any ERISA Affiliate of any notice, or the receipt by any
Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice,
concerning the imposition of Withdrawal Liability or a determination that a
Multiemployer Plan is, or is expected to be, insolvent or in reorganization,
within the meaning of Title IV of ERISA.
"Eurodollar", when used in reference to any Loan or Borrowing, refers
----------
to whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to the Adjusted LIBO Rate.
"Event of Default" has the meaning assigned to such term in Article
----------------
VII.
"Excess Cash Flow" means, for any period, the sum (without
----------------
duplication) of:
(a) the Consolidated Net Income for such period, adjusted to exclude
any gains or losses attributable to Prepayment Events; plus
----
(b) depreciation, amortization and other non-cash charges or losses
deducted in determining Consolidated Net Income for such period; plus
----
(c) the sum of (i) the amount, if any, by which Net Working Capital
decreased during such period plus (ii) the amount, if any, by which the con
solidated deferred revenues of Catalytica and its consolidated subsidiaries
<PAGE>
12
increased during such period plus (iii) the aggregate principal amount of
Capital Lease Obligations and other Indebtedness incurred during such
period to finance Capital Expenditures, to the extent that mandatory
principal payments in respect of such Indebtedness would not be excluded
from clause (f) below when made; minus
-----
(d) the sum of (i) any non-cash gains included in determining Con
solidated Net Income for such period plus (ii) the amount, if any, by which
Net Working Capital increased during such period plus (iii) the amount, if
any, by which the consolidated deferred revenues of Catalytica and its
consolidated subsidiaries decreased during such period; minus
-----
(e) Capital Expenditures for such period, except to the extent such
Capital Expenditures (i) are financed with the proceeds of asset
dispositions (including casualty and condemnation events) or (ii) result
from an exchange of assets; minus
-----
(f) the aggregate principal amount of Indebtedness repaid or prepaid
by Catalytica and its consolidated subsidiaries during such period,
excluding (i) Indebtedness in respect of Revolving Loans and Letters of
Credit (other than to the extent that the Revolving Commitments are
permanently reduced by such repayments or prepayments), (ii) Term Loans
prepaid pursuant to Section 2.10(b) or (c), (iii) repayments or prepayments
of Indebtedness financed by incurring other Indebtedness, to the extent
that mandatory principal payments in respect of such other Indebtedness
would, pursuant to this clause (f), be deducted in determining Excess Cash
Flow when made, (iv) Indebtedness referred to in clauses (iii) and (iv) of
Section 6.01(a) and (v) Indebtedness referred to in clause (vii) of Section
6.01(a) that can be reborrowed at the election of the borrowing entity.
"Excluded Taxes" means, with respect to the Administrative Agent, any
--------------
Lender, the Issuing Bank or any other recipient of any payment to be made by or
on account of any obligation of the Borrower hereunder, (a) income or franchise
Taxes imposed on (or measured by) its net income by the United States of
America, or by the jurisdiction under the laws of which such recipient is
organized or in which its principal office is located or, in the case of any
Lender, in which its applicable lending office is located, (b) any branch
profits Taxes imposed by the United States of America or any similar Tax imposed
by any other jurisdiction under the laws of which such recipient is organized or
in which its principal office is located or, in the case of any Lender, in which
its applicable lending office is located and (c) in the case of a Foreign Lender
(other than an assignee pursuant to a request by the Borrower under Section
2.18(b)), any withholding Tax that is imposed on amounts payable to such Foreign
Lender under this
<PAGE>
13
Agreement because of its failure to comply with Section 2.16(e) unless (and to
the extent that) (i) such withholding Tax liability arises or is increased by
reason of a Change in Law occurring after such Foreign Lender becomes a Lender
under this Agreement or (ii) such Foreign Lender (or its assignor, if any) was
entitled, at the time of designation of a new lending office or assignment, to
receive additional amounts from the Borrower with respect to such withholding
Tax liability pursuant to Section 2.16(a).
"Existing Indebtedness" means the principal of and interest on and all
---------------------
other amounts (including prepayment penalties) due with respect to the Existing
Security and Loan Agreement.
"Existing Loan and Security Agreement" means the Loan and Security
------------------------------------
Agreement dated as of November 18, 1994, among Catalytica Bayview and Silicon
Valley Bank, as amended by the Loan Modification Agreement dated as of November
30, 1995, and the Amendment to the Loan and Security Agreement dated as of
September 24, 1996.
"Existing Preferred Stock" means (a) the 3,400,000 shares of Series A
------------------------
Preferred Stock of the Borrower and (b) the 150,000 shares of Series B Preferred
Stock of the Borrower.
"FD&C Act" means the Federal Drug and Cosmetic Act, as amended, and
--------
the rules and regulations thereunder.
"Federal Funds Effective Rate" means, for any day, the weighted
----------------------------
average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day that is a Business Day, the average (rounded upwards, if
necessary, to the next 1/100 of 1%) of the quotations for such day for such
transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it.
"Financial Officer" means the chief financial officer, principal
-----------------
accounting officer, treasurer or controller of the Borrower or of Catalytica, as
the case may be.
"Financing Transactions" means (a) the execution, delivery and
----------------------
performance by each Loan Party of the Loan Documents to which it is to be a
party, the borrowing of Loans and the issuance of Letters of Credit hereunder
and (b) the Equity Financing.
"Foreign Lender" means any Lender that is organized under the laws of
--------------
a jurisdiction other than the United States of America, a State thereof or the
District of
<PAGE>
14
Columbia.
"Foreign Subsidiary" means any Subsidiary that is organized under the
------------------
laws of a jurisdiction other than the United States of America or any State
thereof or the District of Columbia.
"GAAP" means generally accepted accounting principles in the United
----
States of America.
"Governmental Authority" means the government of the United States of
----------------------
America, any other nation or any political subdivision thereof, whether state or
local, and any agency, authority, instrumentality, regulatory body, court,
central bank or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or pertaining to
government.
"Guarantee" of or by any Person (the "guarantor") means any
--------- ---------
obligation, contingent or otherwise, of the guarantor guaranteeing or having the
economic effect of guaranteeing any Indebtedness or other obligation of any
other Person (the "primary obligor") in any manner, whether directly or
---------------
indirectly, and including any obligation of the guarantor, direct or indirect,
(a) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness or other obligation or to purchase (or to advance or
supply funds for the purchase of) any security for the payment thereof, (b) to
purchase or lease property, securities or services for the purpose of assuring
the owner of such Indebtedness or other obligation of the payment thereof, (c)
to maintain working capital, equity capital or any other financial statement
condition or liquidity of the primary obligor so as to enable the primary
obligor to pay such Indebtedness or other obligation or (d) as an account party
in respect of any letter of credit or letter of guaranty issued to support such
Indebtedness or obligation; provided that the term "Guarantee" shall not include
--------
endorsements for collection or deposit in the ordinary course of business.
"Guarantee Agreement" means the Guarantee Agreement, substantially in
-------------------
the form of Exhibit E, made by Catalytica and the Subsidiary Loan Parties in
favor of the Administrative Agent for the benefit of the Secured Parties.
"Guaranteed Revenues" shall have the meaning assigned to such term in
-------------------
the Supply Agreement.
"GWI" means Glaxo Wellcome Inc., a North Carolina corporation.
---
"Hazardous Materials" means all explosive or radioactive substances or
-------------------
wastes and all hazardous or toxic substances, wastes or other pollutants,
including
<PAGE>
15
petroleum or petroleum distillates, asbestos or asbestos containing materials,
poly chlorinated biphenyls, radon gas, infectious or medical wastes and all
other substances or wastes of any nature regulated pursuant to any Environmental
Law, including any material listed as a hazardous substance under Section
101(14) of CERCLA.
"Hedging Agreement" means any interest rate protection agreement,
-----------------
foreign currency exchange agreement, commodity price protection agreement or
other interest or currency exchange rate or commodity price hedging arrangement.
"Inactive Subsidiary" means any Subsidiary that (a) has total assets
-------------------
not in excess of $50,000, (b) conducts no business and (c) has no Indebtedness
other than (in the case of Advanced Sensor) Indebtedness owed to a Loan Party.
"Indebtedness" of any Person means, without duplication, (a) all
------------
obliga tions of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such Person
under conditional sale or other title retention agreements relating to property
acquired by such Person, (d) all obligations of such Person incurred, issued or
assumed as the deferred purchase price of property or services (excluding
current accounts payable incurred in the ordinary course of business and the
Sterile Facility Pay-Out), (e) all Indebtedness of others secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien on property owned or acquired by such
Person, whether or not the Indebtedness secured thereby has been assumed
(provided that if the obligations so secured have not been assumed by such
Person, such obligations shall be deemed to be in an amount equal to the lesser
of (i) the fair market value of such property, as determined in good faith by
the board of directors of such Person, and (ii) the amount of such obligations),
(f) all Guarantees by such Person of Indebtedness of others, (g) all Capital
Lease Obligations of such Person, (h) all obligations, contingent or otherwise,
of such Person as an account party in respect of letters of credit and letters
of guaranty and (i) all obligations, contingent or otherwise, of such Person in
respect of bankers' acceptances. The Indebtedness of any Person shall include
the Indebtedness of any other entity (including any partnership in which such
Person is a general partner) to the extent such Person is legally liable
therefor as a result of such Person's ownership interest in or other
relationship with such entity, except to the extent the terms of such
Indebtedness provide that such Person is not liable therefor.
"Indemnified Taxes" means Taxes other than Excluded Taxes.
-----------------
"Indemnity, Subrogation and Contribution Agreement" means the
-------------------------------------------------
Indemnity, Subrogation and Contribution Agreement, substantially in the form of
Exhibit F, among the Borrower, the Subsidiary Loan Parties and the
Administrative
<PAGE>
16
Agent.
"Information Memorandum" means the Confidential Information Memorandum
----------------------
dated July 1997, relating to the Borrower and the Transactions.
"Interest Election Request" means a request by the Borrower to convert
-------------------------
or continue a Revolving Borrowing or Term Borrowing in accordance with Section
2.06.
"Interest Payment Date" means (a) with respect to any ABR Loan, the
---------------------
last Business Day of each March, June, September and December and (b) with
respect to any Eurodollar Loan, the last day of the Interest Period applicable
to the Borrowing of which such Loan is a part and, in the case of a Eurodollar
Borrowing with an Interest Period of more than three months' duration, each
Business Day prior to the last day of such Interest Period that occurs at
intervals of three months' duration after the first day of such Interest Period.
"Interest Period" means, with respect to any Eurodollar Borrowing, the
---------------
period commencing on the date of such Borrowing and ending on the numerically
corresponding day in the calendar month that is one, two, three or six months
thereafter or, subject to availability from all Lenders as determined by the
Administrative Agent, nine or twelve months thereafter, as the Borrower may
elect; provided, that (i) if any Interest Period would end on a day other than a
--------
Business Day, such Interest Period shall be extended to the next succeeding
Business Day unless such next succeeding Business Day would fall in the next
calendar month, in which case such Interest Period shall end on the next
preceding Business Day and (ii) any Interest Period that commences on the last
Business Day of a calendar month (or on a day for which there is no numerically
corresponding day in the last calendar month of such Interest Period) shall end
on the last Business Day of the last calendar month of such Interest Period.
For purposes hereof, the date of a Borrowing initially shall be the date on
which such Borrowing is made and thereafter shall be the effective date of the
most recent Interest Rate Election for such Borrowing.
"Investment Agreement" means the Investment Agreement dated as of June
--------------------
25, 1997, between Catalytica and MSCP.
"Issuing Bank" means The Chase Manhattan Bank, in its capacity as the
------------
issuer of Letters of Credit hereunder, and its successors in such capacity as
provided in Section 2.04(i). The Issuing Bank may, in its discretion, arrange
for one or more Letters of Credit to be issued by Affiliates of the Issuing
Bank, in which case the term "Issuing Bank" shall include any such Affiliate
with respect to Letters of Credit issued by such Affiliate; provided that, at
--------
the time any such Letter of Credit is issued by any such Affiliate, demand
deposits made with such Affiliate shall have a credit rating of not less
<PAGE>
17
than the credit rating of demand deposits made with The Chase Manhattan Bank.
"Junior Preferred Purchase Agreement" means the Stock Purchase
-----------------------------------
Agreement dated as of June 25, 1997, among the Borrower, Catalytica and GWI.
"Junior Preferred Stock" means the Series 1 Junior Preferred Stock of
----------------------
the Borrower.
"LC Availability Period" means the period from and including the
----------------------
Effective Date to but excluding the earlier of (a) the date that is five
Business Days prior to the Maturity Date and (b) the date of termination of the
Revolving Commitments.
"LC Disbursement" means a payment made by the Issuing Bank pursuant to
---------------
a Letter of Credit.
"LC Exposure" means, at any time, the sum of (a) the aggregate undrawn
-----------
amount of all outstanding Letters of Credit at such time plus (b) the aggregate
amount of all LC Disbursements that have not yet been reimbursed (from the
proceeds of a Borrowing or otherwise) by or on behalf of the Borrower at such
time. The LC Exposure of any Revolving Lender at any time shall be its
Applicable Percentage of the total LC Exposure at such time.
"Lenders" means the Persons listed on Schedule 2.01 and any other
-------
Person that shall have become a party hereto pursuant to an Assignment and
Acceptance permitted under Section 9.04, other than any such Person that ceases
to be a party hereto pursuant to an Assignment and Acceptance.
"Letter of Credit" means any letter of credit issued pursuant to this
----------------
Agreement.
"Leverage Ratio" means, on any date, the ratio of (a) Total Debt as of
--------------
such date minus cash and Permitted Investments in excess of $1,000,000 set forth
-----
(or that would be set forth) on a consolidated balance sheet of Catalytica, the
Borrower and the Subsidiaries as of such date to (b) Adjusted Consolidated
EBITDA for the period of four consecutive fiscal quarters (except as otherwise
specified in Section 6.14(a) or (b)) of Catalytica most recently ended as of
such date, all determined on a consolidated basis in accordance with GAAP.
"LIBO Rate" means, with respect to any Eurodollar Borrowing for any
---------
Interest Period, the rate appearing on Page 3750 of the Telerate Service (or on
any successor or substitute page of such Service, or any successor to or
substitute for such Service, providing rate quotations comparable to those
currently provided on such page of such Service, as determined by the
Administrative Agent from time to time for purposes
<PAGE>
18
of providing quotations of interest rates applicable to dollar deposits in the
London interbank market) at approximately 11:00 a.m., London time, two Business
Days prior to the commencement of such Interest Period, as the rate for dollar
deposits with a maturity comparable to such Interest Period. In the event that
such rate is not available at such time for any reason, then the "LIBO Rate"
---------
with respect to such Eurodollar Borrowing for such Interest Period shall be the
rate at which dollar deposits of $5,000,000 and for a maturity comparable to
such Interest Period are offered by the principal London office of the
Administrative Agent in immediately available funds in the London interbank
market at approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period.
"Lien" means, with respect to any asset, (a) any mortgage, deed of
----
trust, lien, pledge, hypothecation, encumbrance, charge or security interest in,
on or of such asset, (b) the interest of a vendor or a lessor under any
conditional sale agreement, capital lease or title retention agreement (or any
financing lease having substantially the same economic effect as any of the
foregoing) relating to such asset and (c) in the case of securities, any
purchase option, call or similar right of a third party with respect to such
securities.
"Loan Documents" means this Agreement, the Letters of Credit, the
--------------
Parent Guarantee Agreement, the Guarantee Agreement, the Indemnity, Subrogation
and Contribution Agreement and the Security Documents.
"Loan Parties" means Catalytica, the Borrower and the Subsidiary Loan
------------
Parties.
"Loans" means the loans made and to be made by the Lenders to the
-----
Borrower pursuant to this Agreement.
"Margin Stock" shall have the meaning assigned to such term in
------------
Regulation U.
"Material Adverse Effect" means a material adverse effect on (a) the
-----------------------
business, assets, operations, properties, financial condition, contingent
liabilities (including but not limited to potential environmental liabilities),
prospects or material agreements of or relating to Catalytica, the Borrower and
the Subsidiaries taken as a whole, (b) the ability of any Loan Party to perform
any of its material obligations under any Loan Document or (c) the material
rights of or benefits available to the Lenders under any Loan Document.
"Material GWI Occupancy" means, as of the date of any Borrowing, that
----------------------
(a) GWI has been occupying a portion of the Acquired Facilities pursuant to the
Deed of
<PAGE>
19
Easement for a period of at least fifteen consecutive days immediately prior to
the date of such Borrowing and, as a result thereof, the Guaranteed Revenues
could reasonably be expected to be reduced by at least $10,000,000, taking into
reasonable account all pertinent factors, and (b) the Guaranteed Revenues that
are to be paid after such date exceed $50,000,000.
"Material Indebtedness" means Indebtedness (other than the Loans and
---------------------
Letters of Credit), or obligations in respect of one or more Hedging Agreements,
of any one or more of Catalytica, the Borrower and the Subsidiaries in an
aggregate principal amount exceeding $3,000,000. For purposes of determining
Material Indebtedness, the "principal amount" of the obligations of Catalytica,
the Borrower or any Subsidiary in respect of any Hedging Agreement at any time
shall be the maximum aggregate amount (giving effect to any netting agreements)
that Catalytica, the Borrower or such Subsidiary would be required to pay if
such Hedging Agreement were terminated at such time.
"Maturity Date" means December 31, 2001.
-------------
"Moody's" means Moody's Investors Service, Inc.
-------
"Mortgage" means a mortgage, deed of trust, assignment of leases and
--------
rents, leasehold mortgage or other security document, substantially in the form
of Exhibit I, granting a Lien on any Mortgaged Property to secure the
Obligations. Each Mortgage shall be satisfactory in form and substance to the
Administrative Agent.
"Mortgaged Property" means, initially, each parcel of real property
------------------
and the improvements thereto owned by a Loan Party (other than a Non-Borrower
Subsidiary) that is identified on Schedule 1.01(a), and includes each other
parcel of real property and improvements thereto with respect to which a
Mortgage is granted pursuant to Section 5.12 or 5.13.
"MSCP" means (a) Morgan Stanley Capital Partners III, L.P., a Delaware
----
limited partnership, (b) MSCP III 892 Investors L.P., a Delaware limited
partnership, and (c) Morgan Stanley Capital Investors, L.P., a Delaware limited
partnership.
"MSCP Redemption" means the use of the Net Proceeds received by
---------------
Catalytica from either (a) the exercise after the Effective Date of warrants
issued to Catalytica's stockholders to acquire shares of Catalytica's common
stock or (b) the sale in a public offering of shares of Catalytica's common
stock or from any combination of (a) and (b) above to redeem, at any time after
the Effective Date and on or prior to July 31, 1998, in accordance with the
terms of the MSCP Stock, shares of MSCP Stock for an aggregate redemption price
equal to the lesser of (a) $25,000,000 and (b) the amount of such net proceeds,
provided that, at the time of such redemption, no Default has occurred
<PAGE>
20
and is continuing.
"MSCP Stock" means convertible Class A Common Stock and Class B Common
----------
Stock issued by Catalytica to MSCP pursuant to the Investment Agreement.
"Multiemployer Plan" means a multiemployer plan as defined in Section
------------------
4001(a)(3) of ERISA.
"Net Proceeds" means, with respect to any event or series of related
------------
events (other than (1) any sale, transfer or other disposition or any series of
related sales, transfers or other dispositions of any property or assets if the
aggregate proceeds from such sale, transfer or other disposition or from such
series of related sales, transfers or other dispositions are not in excess of
$500,000 and (2) other dispositions resulting in aggregate proceeds of not in
excess of $2,000,000 in any fiscal year) (a) the cash proceeds received in
respect of such event or series of events, including (i) any cash received in
respect of any non-cash proceeds, but only as and when received, (ii) in the
case of a casualty, insurance proceeds in excess of $2,000,000, and (iii) in the
case of a condemnation or similar event, condemnation awards and similar
payments in excess of $2,000,000; in each case net of (b) the sum of (i) all
fees and out-of-pocket expenses reasonably incurred (and payable during the year
in which such event occurred or the next succeeding year) or paid by Catalytica,
the Borrower and/or the Subsidiaries to third parties in connection with such
event, (ii) in the case of a sale, transfer or other disposition of an asset
(including pursuant to a sale and leaseback transaction or a casualty or other
insured damage or condemnation or similar proceeding), the amount of all
payments required to be made by Catalytica, the Borrower and the Subsidiaries as
a result of such event to repay Indebtedness (other than Loans) secured by such
asset or otherwise subject to mandatory prepayment as a result of such event,
and (iii) the amount of all taxes that are directly attributable to such event
and are paid (or reasonably estimated to be payable) by Catalytica, the Borrower
and/or the Subsidiaries, and the amount of any reserves established by
Catalytica, the Borrower and/or the Subsidiaries to fund contingent liabilities
reasonably estimated to be payable in connection with such event, in each case
during the year in which such event occurred or the next succeeding year (as
determined reasonably and in good faith by the chief financial officer of the
Borrower, provided that, to the extent and at the time any such unexpended
--------
amounts are released from any such reserve, such amounts shall constitute Net
Proceeds); provided, however, that, with respect to any sale, transfer or other
-------- -------
disposition of an asset (including pursuant to a sale and leaseback transaction
or, subject to Section 5.08, a casualty or other insured damage or condemnation
or similar proceeding), if (A) the Borrower intends, and (B) in the case of any
such sale, transfer or other disposition the proceeds of which exceed
$5,000,000, the Borrower delivers a certificate of a Financial Officer to the
Administrative Agent at the time of such sale, transfer or other disposition
setting forth the Borrower's intent, to use the proceeds of such sale, transfer
or other disposition to
<PAGE>
21
acquire or repair assets to be used in the same line of business within 365 days
of receipt of such proceeds, and no Event of Default shall have occurred and
shall be continuing at the time of such sale, transfer or other disposition or
at the proposed time of the application of such proceeds, such proceeds shall
not constitute Net Proceeds except (x) to the extent not so used at the end of
such 365-day period or (y) in the case of insurance proceeds from a casualty, if
the Borrower shall deliver a certificate of a Financial Officer to the
Administrative Agent before the end of such 365-day period certifying that the
Borrower has begun (and is diligently proceeding with) repairing, restoring or
replacing such assets within 365 days after the end of the first such 365-day
period, to the extent such proceeds are not so used at the end of such second
365-day period, at which time such proceeds shall be deemed Net Proceeds at the
end of the second such 365-day period.
"Net Working Capital" means, at any date, (a) the consolidated current
-------------------
assets of Catalytica and its consolidated subsidiaries as of such date
(excluding cash and Permitted Investments) minus (b) the consolidated current
liabilities of Catalytica and its consolidated subsidiaries as of such date
(excluding current liabilities in respect of Indebtedness), in each case as
determined in accordance with GAAP. Net Working Capital at any date may be a
positive or negative number. Net Working Capital increases when it becomes more
positive or less negative and decreases when it becomes less positive or more
negative.
"Non-Borrower Subsidiary" means any Subsidiary other than any
-----------------------
subsidiary of the Borrower.
"Obligations" has the meaning assigned to such term in (a) the
-----------
Security Agreement and (b) the Pledge Agreement.
"Operating Lease" means, as applied to any Person, any lease
---------------
(including leases that may be terminated by the lessee at any time) by such
person of any property (whether real, personal or mixed) that is not required to
be classified and accounted for as a capital lease on such person's balance
sheet in accordance with GAAP, other than any such lease under which such person
is the lessor.
"Other Taxes" means any and all current or future stamp or documentary
-----------
taxes or any other excise or property taxes, charges or similar levies arising
from any payment made under any Loan Document or from the execution, delivery or
enforcement of, or otherwise with respect to, any Loan Document.
"Parent Guarantee Agreement" means the Parent Guarantee Agreement,
--------------------------
substantially in the form of Exhibit D, made by Catalytica in favor of the
Administrative Agent for the benefit of the Secured Parties.
<PAGE>
22
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
----
defined in ERISA and any successor entity performing similar functions.
"Perfection Certificate" means a certificate in the form of Annex 2 to
----------------------
the Security Agreement or any other form approved by the Administrative Agent.
"Permitted Encumbrances" means:
----------------------
(a) Liens imposed by law for Taxes that are not yet delinquent or are
being contested in compliance with Section 5.04;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's
and other like Liens imposed by law, arising in the ordinary course of
business and securing obligations that are not overdue by more than 30 days
or are being contested in compliance with Section 5.04;
(c) pledges and deposits made in the ordinary course of business in
compliance with workers' compensation, unemployment insurance and other
social security laws and other similar laws and regulations;
(d) deposits to secure the performance of bids, trade contracts,
leases, statutory obligations, surety and appeal bonds, performance bonds
and other obligations of a like nature, in each case in the ordinary course
of business;
(e) judgment liens in respect of judgments that do not constitute an
Event of Default under clause (k) of Article VII;
(f) easements, zoning restrictions, restrictions on use, rights-of-
way, encumbrances not securing monetary obligations and covered by title
insurance and similar encumbrances on real property imposed by law or
arising in the ordinary course of business that do not secure any monetary
obligations and do not materially detract from the value of the affected
property or materially interfere with the ordinary conduct of business of
Catalytica, the Borrower or any Subsidiary;
(g) Liens of sellers of goods arising under Article 2 of the Uniform
Commercial Code or other provisions of applicable law in the ordinary
course of business, covering only the goods sold and securing only the
unpaid purchase price therefor; and
(h) exceptions and encumbrances covered in Schedule B to title
insurance policies being issued to insure the Lien of each Mortgage.
<PAGE>
23
provided that the term "Permitted Encumbrances" shall not include any Lien
- --------
securing Indebtedness.
"Permitted Investments" means:
---------------------
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States of
America (or by any agency thereof to the extent such obligations are backed
by the full faith and credit of the United States of America), in each case
maturing within one year from the date of acquisition thereof;
(b) investments in commercial paper maturing within 270 days from the
date of acquisition thereof and having, at such date of acquisition, a
credit rating of A1 or better from S&P or P1 or better from Moody's;
(c) investments in certificates of deposit, banker's acceptances and
time deposits maturing within one year from the date of acquisition thereof
issued or guaranteed by or placed with, and money market deposit accounts
issued or offered by, any domestic office of any commercial bank that has a
combined capital and surplus and undivided profits of not less than
$250,000,000 or a rating of A1 or better from S&P or P1 or better from
Moody's;
(d) readily marketable direct obligations of any State of the United
States of America or any political subdivision of any such State having, at
such date of acquisition, a rating of at least AA by S&P and Aa2 by
Moody's, in each case maturing within one year after the date of
acquisition thereof;
(e) fully collateralized repurchase agreements with a term of not more
than 30 days for securities described in clause (a) above and entered into
with a financial institution (whether or not a commercial bank) satisfying
the criteria described in clause (c) above; and
(f) other investment instruments approved in writing by the Required
Lenders.
"Person" means any natural person, corporation, limited liability
------
company, trust, joint venture, association, company, limited partnership,
partnership, Governmental Authority or other entity.
"Pfizer" means Pfizer, Inc., a Delaware corporation.
------
<PAGE>
24
"Plan" means any employee pension benefit plan (other than a
----
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or
any ERISA Affiliate is (or, if such plan were terminated, would under Section
4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of
ERISA.
"Pledge Agreement" means the Pledge Agreement, substantially in the
----------------
form of Exhibit G, among Catalytica, the Borrower, the Subsidiaries that are
party thereto and the Administrative Agent for the benefit of the Secured
Parties.
"Prepayment Event" means:
----------------
(a) any sale, transfer or other disposition (including pursuant to a
sale and leaseback transaction) of any property or asset of Catalytica, the
Borrower or any Subsidiary, other than dispositions described in Section
6.05 (other than Section 6.05(c)); or
(b) any casualty or other insured damage to, or any taking under power
of eminent domain or by condemnation or similar proceeding of, any property
or asset of Catalytica, the Borrower or any Subsidiary; or
(c) the incurrence by Catalytica, the Borrower or any Subsidiary of
any Indebtedness, other than Indebtedness permitted by Section 6.01(a).
"Prime Rate" means the rate of interest per annum publicly announced
----------
from time to time by The Chase Manhattan Bank as its prime rate in effect at its
principal office in New York City; each change in the Prime Rate shall be
effective from and including the date such change is publicly announced as being
effective.
"Register" has the meaning set forth in Section 9.04(c).
--------
"Regulation G" shall mean Regulation G of the Board as from time to
------------
time in effect and all official rulings and interpretations thereunder or
thereof.
"Regulation U" shall mean Regulation U of the Board as from time to
------------
time in effect and all official rulings and interpretations thereunder or
thereof.
"Regulation X" shall mean Regulation X of the Board as from time to
------------
time in effect and all official rulings and interpretations thereunder or
thereof.
"Related Parties" means, with respect to any specified Person, such
---------------
Person's Affiliates and the respective directors, officers, employees, agents
and advisors
<PAGE>
25
of such Person and of such Person's Affiliates.
"Release" has the meaning set forth in Section 101(22) of CERCLA.
-------
"Required Lenders" means, at any time, Lenders having Revolving
----------------
Exposures, Term Loans and unused Commitments representing more than 50% of the
sum of the total Revolving Exposures, outstanding Term Loans and unused
Commitments at such time.
"Restricted Payment" means any dividend or other distribution (whether
------------------
in cash, securities or other property) with respect to any shares of any class
of capital stock of Catalytica, the Borrower or any Subsidiary, or any payment
(whether in cash, securities or other property), including any sinking fund or
similar deposit, on account of the purchase, redemption, retirement,
acquisition, cancelation or termination of (a) any such shares of capital stock
of Catalytica, the Borrower or any Subsidiary or (b) any option, warrant or
other right to acquire any such shares of capital stock of Catalytica, the
Borrower or any Subsidiary.
"Revolving Availability Period" means the period from and including
-----------------------------
the Effective Date to but excluding the earlier of the Maturity Date and the
date of termination of the Revolving Commitments.
"Revolving Commitment" means, with respect to each Lender, the
--------------------
commitment, if any, of such Lender to make Revolving Loans and to acquire
participa tions in Letters of Credit hereunder, expressed as an amount
representing the maximum aggregate amount of such Lender's Revolving Exposure
hereunder, as such commitment may be (a) reduced from time to time pursuant to
Section 2.08 and (b) reduced or increased from time to time pursuant to
assignments by or to such Lender pursuant to Section 9.04. The initial amount
of each Lender's Revolving Commitment is set forth on Schedule 2.01, or in the
Assignment and Acceptance pursuant to which such Lender shall have assumed its
Revolving Commitment, as applicable. The initial aggregate amount of the
Lenders' Revolving Commitments is $75,000,000.
"Revolving Exposure" means, with respect to any Lender at any time,
------------------
the sum of the outstanding principal amount of such Lender's Revolving Loans and
its LC Exposure at such time.
"Revolving Lender" means a Lender with a Revolving Commitment or, if
----------------
the Revolving Commitments have terminated or expired, a Lender with Revolving
Exposure.
"Revolving Loan" means a Loan made pursuant to clause (b) of
--------------
<PAGE>
26
Section 2.01.
"S&P" means Standard & Poor's Ratings Service.
---
"Secured Parties" shall have the meaning assigned to such term in the
---------------
Security Agreement.
"Security Agreement" means the Security Agreement, substantially in
------------------
the form of Exhibit H, among Catalytica, the Borrower, each Subsidiary Loan
Party that is a subsidiary of the Borrower and the Administrative Agent for the
benefit of the Secured Parties.
"Security Documents" means the Security Agreement, the Pledge
------------------
Agreement, the Mortgages and each other security agreement or other instrument
or document executed and delivered pursuant to Section 5.12 or 5.13 to secure
any of the Obligations.
"Share Exchange Agreement" means the share exchange agreement dated as
------------------------
of June 25, 1997, among Catalytica, the Borrower and GWI.
"Sold Entity or Business" has the meaning assigned to such term in the
-----------------------
definition of Adjusted Consolidated EBITDA.
"Statutory Reserve Rate" means a fraction (expressed as a decimal),
----------------------
the numerator of which is the number one and the denominator of which is the
number one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board to which the Administrative Agent is subject (a) with
respect to the Base CD Rate, for new negotiable nonpersonal time deposits in
dollars of over $100,000 with maturities approximately equal to three months and
(b) with respect to the Adjusted LIBO Rate, for eurocurrency funding (currently
referred to as "Eurocurrency Liabilities" in Regulation D of the Board). Such
reserve percentages shall include those imposed pursuant to such Regulation D or
any successor regulation or law. Eurodollar Loans shall be deemed to constitute
eurocurrency funding and to be subject to such reserve requirements without
benefit of or credit for proration, exemptions or offsets that may be available
from time to time to any Lender under such Regulation D or any comparable
regulation. The Statutory Reserve Rate shall be adjusted automatically on and
as of the effective date of any change in any reserve percentage.
"Sterile Facility Pay-Out" means the Borrower's payments to GWI from
------------------------
time to time after the Effective Date of an aggregate amount of up to
$25,000,000, as provided in Exhibit F to the Asset Purchase Agreement; provided
--------
that such payments
<PAGE>
27
shall be subject to the limitations set forth in Section 6.11.
"Sterile Products Facility" means the building included in the
-------------------------
Acquired Facilities used predominantly for the manufacture of sterile products.
"Subordinated Indebtedness" means any Indebtedness of the Borrower or
-------------------------
any Subsidiary that is subordinated in any manner in right of payment to any of
the Obligations.
"subsidiary" means, with respect to any Person (the "parent") at any
---------- ------
date, any corporation, limited liability company, limited partnership,
partnership, association or other entity the accounts of which would be
consolidated with those of the parent in the parent's consolidated financial
statements if such financial statements were prepared in accordance with GAAP as
of such date, as well as any other corporation, limited liability company,
limited partnership, partnership, association or other entity (a) of which
securities or other ownership interests representing more than 50% of the equity
or more than 50% of the ordinary voting power or, in the case of a partnership,
more than 50% of the general partnership interests are, as of such date, owned,
controlled or held, or (b) that is, as of such date, otherwise Controlled, by
the parent or one or more subsidiaries of the parent or by the parent and one or
more subsidiaries of the parent.
"Subsidiary" means any subsidiary of Catalytica other than the
----------
Borrower, provided, however, that Genxon/tm Power Systems, LLC shall be deemed
-------- -------
not to be a Subsidiary.
"Subsidiary Loan Party" means any Subsidiary that is not (a) a Foreign
---------------------
Subsidiary or (b) an Inactive Subsidiary, provided, however, that Catalytica
-------- -------
Combustion and its subsidiaries shall be deemed not to be Subsidiary Loan
Parties after the Catalytica Combustion Release Date.
"Supply Agreement" means the Supply Agreement dated as of July 31,
----------------
1997, among Catalytica, the Borrower and GWI.
"Taxes" means any and all present or future taxes, levies, imposts,
-----
duties, deductions, charges or withholdings imposed by any Governmental
Authority.
"Term Commitment" means, with respect to each Lender, the commit ment,
---------------
if any, of such Lender to make a Term Loan hereunder on the Effective Date,
expressed as an amount representing the maximum principal amount of the Term
Loan to be made by such Lender hereunder, as such commitment may be (a) reduced
from time to time pursuant to Section 2.07 and (b) reduced or increased from
time to time pursuant to assignments by or to such Lender pursuant to Section
9.04. The initial amount of each
<PAGE>
28
Lender's Term Commitment is set forth on Schedule 2.01, or in the Assignment and
Acceptance pursuant to which such Lender shall have assumed its Term Commitment.
The initial aggregate amount of the Lenders' Term Commitments is $125,000,000.
"Term Loan" means a Loan made pursuant to clause (a) of Section 2.01.
---------
"Term Loan Lender" means a Lender with a Term Commitment or an
----------------
outstanding Term Loan.
"Three-Month Secondary CD Rate" means, for any day, the secondary
-----------------------------
market rate for three-month certificates of deposit reported as being in effect
on such day (or, if such day is not a Business Day, the next preceding Business
Day) by the Board through the public information telephone line of the Federal
Reserve Bank of New York (which rate will, under the current practices of the
Board, be published in Federal Reserve Statistical Release H.15(519) during the
week following such day) or, if such rate is not so reported on such day or such
next preceding Business Day, the average of the secondary market quotations for
three-month certificates of deposit of major money center banks in New York City
received at approximately 10:00 a.m., New York City time, on such day (or, if
such day is not a Business Day, on the next preceding Business Day) by the
Administrative Agent from three negotiable certificate of deposit dealers of
recognized standing selected by it.
"Total Debt" means, as of any date of determination, without
----------
duplication, the aggregate principal amount of Indebtedness of Catalytica, the
Borrower and the Subsidiaries outstanding as of such date, determined on a
consolidated basis in accordance with GAAP (other than Indebtedness of the type
referred to in clause (h) of the definition of the term "Indebtedness", except
to the extent of any unreimbursed drawings thereunder).
"Transactions" means the Acquisition, the Financing Transactions, the
------------
execution of the Supply Agreement, the Advisory Compensation and the other
transactions contemplated by the Acquisition Documents.
"Type", when used in reference to any Loan or Borrowing, refers to
----
whether the rate of interest on such Loan, or on the Loans comprising such
Borrowing, is determined by reference to the Adjusted LIBO Rate or the Alternate
Base Rate.
"Warrant Purchase Agreement" means the Warrant Purchase Agreement
--------------------------
dated as of June 25, 1997, among Catalytica, the Borrower and GWI.
"Warrants" means the warrants to purchase 2,000,000 shares of
--------
Catalytica's common stock issued to GWI pursuant to the Warrant Purchase
Agreement.
<PAGE>
29
"Withdrawal Liability" means liability to a Multiemployer Plan as a
--------------------
result of a complete or partial withdrawal from such Multiemployer Plan, as such
terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Classification of Loans and Borrowings. For purposes
---------------------------------------
of this Agreement, Loans may be classified and referred to by Class (e.g., a
----
"Revolving Loan") or by Type (e.g., a "Eurodollar Loan") or by Class and Type
----
(e.g., a "Eurodollar Revolving Loan"). Borrowings also may be classified and
- -----
referred to by Class (e.g., a "Revolving Borrowing") or by Type (e.g., a
---- ----
"Eurodollar Borrowing") or by Class and Type (e.g., a "Eurodollar Revolving
----
Borrowing").
SECTION 1.03. Terms Generally. The definitions of terms herein shall
----------------
apply equally to the singular and plural forms of the terms defined. Whenever
the context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include", "includes" and "including"
shall be deemed to be followed by the phrase "without limitation". The word
"will" shall be construed to have the same meaning and effect as the word
"shall". Unless the context requires otherwise (a) any definition of or
reference to any agreement, instrument or other document herein shall be
construed as referring to such agreement, instrument or other document as from
time to time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set forth herein),
(b) any reference herein to any Person shall be construed to include such
Person's successors and permitted assigns, (c) the words "herein", "hereof" and
"hereunder", and words of similar import, shall be construed to refer to this
Agreement in its entirety and not to any particular provision hereof, (d) unless
otherwise more definitely identified, all references herein to Articles,
Sections, Exhibits and Schedules shall be construed to refer to Articles and
Sections of, and Exhibits and Schedules to, this Agreement and (e) the words
"asset" and "property" shall be construed to have the same meaning and effect
and to refer to any and all tangible and intangible assets and properties,
including cash, securities, accounts and contract rights.
SECTION 1.04. Accounting Terms; GAAP. Except as otherwise expressly
-----------------------
provided herein, all terms of an accounting or financial nature shall be
construed in accordance with GAAP, as in effect from time to time; provided
--------
that, if the Borrower notifies the Administrative Agent that the Borrower
requests an amendment to any provision hereof to eliminate the effect of any
change occurring after the date hereof in GAAP or in the application thereof on
the operation of such provision (or if the Administrative Agent notifies the
Borrower that the Required Lenders request an amendment to any provision hereof
for such purpose), regardless of whether any such notice is given before or
after such change in GAAP or in the application thereof, then such provision
shall be interpreted on the basis of GAAP as in effect and applied
<PAGE>
30
immediately before such change shall have become effective until such notice
shall have been withdrawn or such provision amended in accordance herewith.
ARTICLE II
The Credits
-----------
SECTION 2.01. Commitments. Subject to the terms and conditions set
------------
forth herein, each Lender agrees (a) to make a Term Loan to the Borrower on the
Effective Date in a principal amount not exceeding its Term Commitment and (b)
to make Revolving Loans to the Borrower from time to time during the Revolving
Availability Period in an aggregate principal amount that will not result in
such Lender's Revolving Exposure exceeding such Lender's Revolving Commitment.
Within the foregoing limits and subject to the terms and conditions set forth
herein, the Borrower may borrow, prepay and reborrow Revolving Loans. Amounts
repaid in respect of the Term Loans may not be reborrowed.
SECTION 2.02. Loans and Borrowings. (a) Each Loan shall be made as
---------------------
part of a Borrowing consisting of Loans of the same Class and Type made by the
Lenders ratably in accordance with their respective Commitments of the
applicable Class. The failure of any Lender to make any Loan required to be
made by it shall not relieve any other Lender of its obligations hereunder;
provided that the Commitments of the Lenders are several and no Lender shall be
- --------
responsible for any other Lender's failure to make Loans as required.
(b) Subject to Section 2.13, each Revolving Borrowing and Term
Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans as the
Borrower may request for such Borrowing in accordance herewith. Each Lender at
its option may make any Eurodollar Loan by causing any domestic or foreign
branch or Affiliate of such Lender to make such Loan; provided that (i) such
--------
branch or Affiliate is subject to the provisions of Section 2.18, (ii) the
Borrower shall have no obligation under Section 2.14 or 2.16 to pay any amount
on account of any Lender causing any Loan to be made through any such branch or
Affiliate in excess of any such amount that the Borrower would have been
required to pay had such Lender made such Loan itself and (iii) any exercise of
such option shall not affect the obligation of the Borrower to repay such Loan
in accordance with the terms of this Agreement.
(c) At the commencement of each Interest Period for any Eurodollar
Borrowing, such Borrowing shall be in an aggregate amount that is an integral
multiple of $1,000,000 and not less than $5,000,000. At the time that each ABR
Revolving Borrowing is made, such Borrowing shall be in an aggregate amount that
is an integral
<PAGE>
31
multiple of $1,000,000; provided that an ABR Revolving Borrowing may be in an
--------
aggregate amount that is equal to the entire unused balance of the total
Revolving Commitments or that is required to finance the reimbursement of an LC
Disbursement as contemplated by Section 2.04(e). Borrowings of more than one
Type and Class may be outstanding at the same time; provided that there shall
--------
not at any time be more than a total of 15 Eurodollar Borrowings outstanding.
(d) Notwithstanding any other provision of this Agreement, the
Borrower shall not be entitled to request, or to elect to convert or continue,
any Borrowing if the Interest Period requested with respect thereto would end
after the Maturity Date.
SECTION 2.03. Requests for Borrowings. To request a Revolving
------------------------
Borrowing or Term Borrowing, the Borrower shall notify the Administrative Agent
of such request by telephone (a) in the case of a Eurodollar Borrowing, not
later than 11:00 a.m., New York City time, three Business Days before the date
of the proposed Borrowing or (b) in the case of an ABR Borrowing, not later than
10:00 a.m., New York City time, on the date of the proposed Borrowing. Each
such telephonic Borrowing Request shall be irrevocable and shall be confirmed
promptly by hand delivery or telecopy to the Administrative Agent of a written
Borrowing Request in a form approved by the Administrative Agent (which approval
shall not be unreasonably withheld) and signed by the Borrower. Each such
telephonic and written Borrowing Request shall specify the following information
in compliance with Section 2.02:
(i) whether the requested Borrowing is to be a Revolving Borrowing or
Term Borrowing;
(ii) the aggregate amount of such Borrowing;
(iii) the date of such Borrowing, which shall be a Business Day;
(iv) whether such Borrowing is to be an ABR Borrowing or a Eurodollar
Borrowing;
(v) in the case of a Eurodollar Borrowing, the initial Interest Period
to be applicable thereto, which shall be a period contemplated by the
definition of the term "Interest Period"; and
(vi) the location and number of the Borrower's account to which funds
are to be disbursed, which shall comply with the requirements of Section
2.05.
If no election as to the Type of Borrowing is specified, then the requested
Borrowing shall be an ABR Borrowing. If no Interest Period is specified with
respect to any
<PAGE>
32
requested Eurodollar Revolving Borrowing, then the Borrower shall be deemed to
have selected an Interest Period of one month's duration. Promptly following
receipt of a Borrowing Request in accordance with this Section, the
Administrative Agent shall advise each Lender of the details thereof and of the
amount of such Lender's Loan to be made as part of the requested Borrowing.
SECTION 2.04. Letters of Credit. (a) General. Subject to the terms
------------------ --------
and conditions set forth herein, the Borrower may request the issuance of
Letters of Credit for its own account, in a form reasonably acceptable to the
Administrative Agent and the Issuing Bank, at any time and from time to time
during the LC Availability Period. In the event of any inconsistency between
the terms and conditions of this Agreement and the terms and conditions of any
form of letter of credit application or other agreement submitted by the
Borrower to, or entered into by the Borrower with, the Issuing Bank relating to
any Letter of Credit, the terms and conditions of this Agreement shall control.
(b) Notice of Issuance, Amendment, Renewal, Extension; Certain
----------------------------------------------------------
Conditions. To request the issuance of a Letter of Credit (or the amendment,
- -----------
renewal or extension of an outstanding Letter of Credit), the Borrower shall
hand deliver or telecopy (or transmit by electronic communication, if
arrangements for doing so have been approved by the Issuing Bank) to the Issuing
Bank and the Administrative Agent (reasonably in advance of the requested date
of issuance, amendment, renewal or extension) a notice requesting the issuance
of a Letter of Credit, or identifying the Letter of Credit to be amended,
renewed or extended, and specifying the date of issuance, amendment, renewal or
extension (which shall be a Business Day), the date on which such Letter of
Credit is to expire (which shall comply with paragraph (c) of this Section), the
amount of such Letter of Credit, the name and address of the beneficiary thereof
and such other information as shall be necessary to prepare, amend, renew or
extend such Letter of Credit. If requested by the Issuing Bank, the Borrower
also shall submit a letter of credit application on the Issuing Bank's standard
form in connection with any request for a Letter of Credit. A Letter of Credit
shall be issued, amended, renewed or extended only if (and upon issuance,
amendment, renewal or extension of each Letter of Credit the Borrower shall be
deemed to represent and warrant that), after giving effect to such issuance,
amendment, renewal or extension (i) the LC Exposure shall not exceed $20,000,000
and (ii) the total Revolving Exposures shall not exceed the total Revolving
Commitments.
(c) Expiration Date. Each Letter of Credit shall expire at or prior
----------------
to the close of business on the earlier of (i) the date one year after the date
of the issuance of such Letter of Credit (or, in the case of any renewal or
extension thereof, one year after such renewal or extension) and (ii) the date
that is five Business Days prior to the Maturity Date; provided that any Letter
--------
of Credit issued in respect of workmen's compensation obligations may provide
for the automatic renewal thereof for additional
<PAGE>
33
one-year periods (which shall in no event extend beyond the date referred to in
clause (ii) above) if the Issuing Bank does not notify the beneficiary thereof
that such Letter of Credit will not be extended.
(d) Participations. By the issuance of a Letter of Credit (or an
---------------
amendment to a Letter of Credit increasing the amount thereof) and without any
further action on the part of the Issuing Bank or the Lenders, the Issuing Bank
hereby grants to each Revolving Lender, and each Revolving Lender hereby
acquires from the Issuing Bank, a participation in such Letter of Credit equal
to such Lender's Applicable Percentage of the aggregate amount available to be
drawn under such Letter of Credit. In consideration and in furtherance of the
foregoing, each Revolving Lender hereby absolutely and unconditionally agrees to
pay to the Administrative Agent, for the account of the Issuing Bank, such
Lender's Applicable Percentage of each LC Disbursement made by the Issuing Bank
and not reimbursed by the Borrower on the date due as provided in paragraph (e)
of this Section, or of any reimbursement payment required to be refunded to the
Borrower for any reason. Each Lender acknowledges and agrees that its
obligation to acquire participations pursuant to this paragraph in respect of
Letters of Credit is absolute and unconditional and shall not be affected by any
circumstance whatsoever, including any amendment, renewal or extension of any
Letter of Credit or the occurrence and continuance of a Default or reduction or
termination of the Commitments, and that each such payment shall be made without
any offset, abatement, withholding or reduction whatsoever.
(e) Reimbursement. If the Issuing Bank shall make any LC
--------------
Disbursement in respect of a Letter of Credit, the Borrower shall reimburse such
LC Disbursement by paying to the Administrative Agent an amount equal to such LC
Disbursement not later than 1:00 p.m., New York City time, on the date that such
LC Disbursement is made, if the Borrower shall have received notice of such LC
Disbursement prior to 10:00 a.m., New York City time, on such date, or, if such
notice has not been received by the Borrower prior to such time on such date,
then not later than 1:00 p.m., New York City time, on (i) the Business Day that
the Borrower receives such notice, if such notice is received prior to 10:00
a.m., New York City time, on the day of receipt, or (ii) the Business Day
immediately following the day that the Borrower receives such notice, if such
notice is not received prior to such time on the day of receipt; provided that
--------
the Borrower may, subject to the conditions to borrowing set forth herein,
request in accordance with Section 2.03 that such payment be financed with an
ABR Revolving Borrowing in an equivalent amount and, to the extent so financed,
the Borrower's obligation to make such payment shall be discharged and replaced
by the resulting ABR Revolving Borrowing. If the Borrower fails to make such
payment when due, the Administrative Agent shall notify each Revolving Lender of
the applicable LC Disbursement, the payment then due from the Borrower in
respect thereof and such Lender's Applicable Percentage thereof. Promptly
following receipt of such notice, each
<PAGE>
34
Revolving Lender shall pay to the Administrative Agent its Applicable Percentage
of the payment then due from the Borrower, in the same manner as provided in
Section 2.05 with respect to Loans made by such Lender (and Section 2.05 shall
apply, mutatis mutandis, to the payment obligations of the Revolving Lenders),
----------------
and the Administrative Agent shall promptly pay to the Issuing Bank the amounts
so received by it from the Revolving Lenders. Promptly following receipt by the
Administrative Agent of any payment from the Borrower pursuant to this
paragraph, the Administrative Agent shall distribute such payment to the Issuing
Bank or, to the extent that Revolving Lenders have made payments pursuant to
this paragraph to reimburse the Issuing Bank, then to such Lenders and the
Issuing Bank as their interests may appear. Any payment made by a Revolving
Lender pursuant to this paragraph to reimburse the Issuing Bank for any LC
Disbursement (other than the funding of ABR Revolving Loans as contemplated
above) shall not constitute a Loan and shall not relieve the Borrower of its
obligation to reimburse such LC Disbursement.
(f) Obligations Absolute. The Borrower's obligation to reimburse LC
---------------------
Disbursements as provided in paragraph (e) of this Section shall be absolute,
unconditional and irrevocable, and shall be performed strictly in accordance
with the terms of this Agreement under any and all circumstances whatsoever and
irrespective of (i) any lack of validity or enforceability of any Letter of
Credit or this Agreement, or any term or provision therein, (ii) any draft or
other document presented under a Letter of Credit proving to be forged,
fraudulent or invalid in any respect or any statement therein being untrue or
inaccurate in any respect, (iii) payment by the Issuing Bank under a Letter of
Credit against presentation of a draft or other document that does not comply
with the terms of such Letter of Credit, or (iv) any other event or circumstance
whatsoever, whether or not similar to any of the foregoing, that might, but for
the provisions of this Section, constitute a legal or equitable discharge of, or
provide a right of setoff against, the Borrower's obligations hereunder.
Neither the Administrative Agent, the Lenders nor the Issuing Bank, nor any of
their Related Parties, shall have any liability or responsibility by reason of
or in connection with the issuance or transfer of any Letter of Credit or any
payment or failure to make any payment thereunder (irrespective of any of the
circumstances referred to in the preceding sentence), or any error, omission,
interruption, loss or delay in transmission or delivery of any draft, notice or
other communication under or relating to any Letter of Credit (including any
document required to make a drawing thereunder), any error in interpretation of
technical terms or any consequence arising from causes beyond the control of the
Issuing Bank. Notwithstanding the Borrower's obligation to reimburse LC
Disbursements, the foregoing shall not be construed to excuse the Issuing Bank
from liability to the Borrower to the extent of any direct damages (as opposed
to consequential damages, claims in respect of which are hereby waived by the
Borrower to the extent permitted by applicable law) suffered by the Borrower
that are caused by the Issuing Bank's failure to exercise care when determining
whether drafts and other documents presented under a Letter of Credit comply
with the
<PAGE>
35
terms thereof. The parties hereto expressly agree that, in the absence of gross
negligence or wilful misconduct on the part of the Issuing Bank (as finally
determined by a court of competent jurisdiction), the Issuing Bank shall be
deemed to have exercised care in each such determination. In furtherance of the
foregoing and without limiting the generality thereof, the parties agree that,
with respect to documents presented that appear on their face to be in
substantial compliance with the terms of a Letter of Credit, the Issuing Bank
may, in its sole discretion, either accept and make payment upon such documents
without responsibility for further investigation, regardless of any notice or
information to the contrary, or refuse to accept and make payment upon such
documents if such documents are not in strict compliance with the terms of such
Letter of Credit.
(g) Disbursement Procedures. The Issuing Bank shall, promptly
------------------------
following its receipt thereof, examine all documents purporting to represent a
demand for payment under a Letter of Credit. The Issuing Bank shall promptly
notify the Administrative Agent and the Borrower by telephone (confirmed by
telecopy) of such demand for payment and whether the Issuing Bank has made or
will make an LC Disbursement thereunder; provided that any failure to give or
--------
delay in giving such notice shall not relieve the Borrower of its obligation to
reimburse the Issuing Bank and the Revolving Lenders with respect to any such LC
Disbursement.
(h) Interim Interest. If the Issuing Bank shall make any LC
-----------------
Disbursement, then, unless the Borrower shall reimburse such LC Disbursement in
full on the date such LC Disbursement is made, the unpaid amount thereof shall
bear interest, for each day from and including the date such LC Disbursement is
made to but excluding the date that the Borrower reimburses such LC
Disbursement, at the rate per annum then applicable to ABR Revolving Loans;
provided that, if the Borrower fails to reimburse such LC Disbursement when due
- --------
pursuant to paragraph (e) of this Section, then Section 2.12(c) shall apply.
Interest accrued pursuant to this paragraph shall be for the account of the
Issuing Bank, except that interest accrued on and after the date of payment by
any Revolving Lender pursuant to paragraph (e) of this Section to reimburse the
Issuing Bank shall be for the account of such Lender to the extent of such
payment.
(i) Replacement of the Issuing Bank. The Issuing Bank may be
--------------------------------
replaced at any time by written agreement among the Borrower, the Administrative
Agent, the replaced Issuing Bank and the successor Issuing Bank. The
Administrative Agent shall notify the Lenders of any such replacement of the
Issuing Bank. At the time any such replacement shall become effective, the
Borrower shall pay all unpaid fees accrued for the account of the replaced
Issuing Bank pursuant to Section 2.11(b). From and after the effective date of
any such replacement, (i) the successor Issuing Bank shall have all the rights
and obligations of the Issuing Bank under this Agreement with respect to Letters
of Credit to be issued thereafter and (ii) references herein to the term
"Issuing Bank" shall be deemed to refer to such successor or to any previous
Issuing Bank, or to such successor
<PAGE>
36
and all previous Issuing Banks, as the context shall require. After the
replacement of an Issuing Bank hereunder, the replaced Issuing Bank shall remain
a party hereto and shall continue to have all the rights and obligations of an
Issuing Bank under this Agreement with respect to Letters of Credit issued by it
prior to such replacement, but shall not be required to issue additional Letters
of Credit.
(j) Cash Collateralization. If any Event of Default shall occur and
-----------------------
be continuing, on the Business Day that the Borrower receives notice from the
Administrative Agent or the Required Lenders (or, if the maturity of the Loans
has been accelerated, Revolving Lenders with LC Exposure representing greater
than 50% of the total LC Exposure) demanding the deposit of cash collateral
pursuant to this paragraph, the Borrower shall deposit in an account with the
Administrative Agent, in the name of the Administrative Agent and for the
benefit of the Lenders, an amount in cash equal to the LC Exposure as of such
date plus any accrued and unpaid interest thereon; provided that the obligation
--------
to deposit such cash collateral shall become effective immediately, and such
deposit shall become immediately due and payable, without demand or other notice
of any kind, upon the occurrence of any Event of Default with respect to the
Borrower described in clause (i) or (j) of Article VII. Each such deposit shall
be held by the Administrative Agent as collateral for the payment and
performance of the obligations of the Borrower under this Agreement. The
Administrative Agent shall have exclusive dominion and control, including the
exclusive right of withdrawal, over such account. Other than any interest
earned on the investment of such deposits, which investments shall be made at
the option and sole discretion of the Administrative Agent and at the Borrower's
risk and expense, such deposits shall not bear interest. Interest or profits,
if any, on such investments shall accumulate in such account. Moneys in such
account shall be applied by the Administrative Agent to reimburse the Issuing
Bank for LC Disbursements for which it has not been reimbursed and, to the
extent not so applied, shall be held for the satisfaction of the reimbursement
obligations of the Borrower for the LC Exposure at such time or, if the maturity
of the Loans has been accelerated (but subject to the consent of Revolving
Lenders with LC Exposure representing greater than 50% of the total LC
Exposure), be applied to satisfy other obligations of the Borrower under this
Agreement. If the Borrower is required to provide an amount of cash collateral
hereunder as a result of the occurrence of an Event of Default, such amount (to
the extent not applied as aforesaid) shall be returned to the Borrower within
three Business Days after all Events of Default have been cured or waived.
SECTION 2.05. Funding of Borrowings. (a) Each Lender shall make
----------------------
each Loan to be made by it hereunder on the proposed date thereof by wire
transfer of immediately available funds by 12:00 noon, New York City time, to
the account of the Administrative Agent most recently designated by the
Administrative Agent for such purpose by notice to the Lenders. The
Administrative Agent will make such Loans available to the Borrower by promptly
crediting the amounts so received, in like funds, to
<PAGE>
37
an account of the Borrower maintained with the Administrative Agent in New York
City and designated by the Borrower in the applicable Borrowing Request on or
before the close of business on the proposed date of the Borrowing; provided
--------
that ABR Revolving Loans made to finance the reimbursement of an LC Disbursement
as provided in Section 2.04(e) shall be remitted by the Administrative Agent to
the Issuing Bank.
(b) Unless the Administrative Agent shall have received notice from a
Lender prior to the proposed date of any Borrowing that such Lender will not
make available to the Administrative Agent such Lender's share of such
Borrowing, the Administrative Agent may assume that such Lender has made such
share available on such date in accordance with paragraph (a) of this Section
and may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. In such event, if a Lender has not in fact made its share
of the applicable Borrowing available to the Administrative Agent, then such
amount shall not be deemed a Loan under this Agreement and the applicable Lender
and the Borrower severally agree to pay to the Administrative Agent forthwith on
demand such corresponding amount with interest thereon, for each day from and
including the date such amount is made available to the Borrower to but
excluding the date of payment to the Administrative Agent, at (i) in the case of
such Lender, the greater of the Federal Funds Effective Rate and a rate
determined by the Administrative Agent in accordance with banking industry rules
on interbank compensation or (ii) in the case of the Borrower, the interest rate
applicable to ABR Loans. If such Lender pays such amount to the Administrative
Agent, then such amount shall constitute such Lender's Loan included in such
Borrowing.
SECTION 2.06. Interest Elections. (a) Each Revolving Borrowing and
-------------------
Term Borrowing initially shall be of the Type specified in the applicable
Borrowing Request and, in the case of a Eurodollar Borrowing, shall have an
initial Interest Period as specified in such Borrowing Request. Thereafter, the
Borrower may elect to convert such Borrowing to a different Type or to continue
such Borrowing and, in the case of a Eurodollar Borrowing, may elect Interest
Periods therefor, all as provided in this Section. The Borrower may elect
different options with respect to different portions of the affected Borrowing,
in which case each such portion shall be allocated ratably among the Lenders
holding the Loans comprising such Borrowing, and the Loans comprising each such
portion shall be considered a separate Borrowing.
(b) To make an election pursuant to this Section, the Borrower shall
notify the Administrative Agent of such election by telephone by the time that a
Borrowing Request would be required under Section 2.03 if the Borrower were
requesting a Revolving Borrowing of the Type resulting from such election to be
made on the effective date of such election. Each such telephonic Interest
Election Request shall be irrevocable and shall be confirmed promptly by hand
delivery or telecopy to the Administrative Agent of a written Interest Election
Request in a form approved by the
<PAGE>
38
Administrative Agent and signed by the Borrower.
(c) Each telephonic and written Interest Election Request shall
specify the following information in compliance with Section 2.02 and paragraph
(f) of this Section:
(i) the Borrowing to which such Interest Election Request applies
and, if different options are being elected with respect to different
portions thereof, the portions thereof to be allocated to each resulting
Borrowing (in which case the information to be specified pursuant to
clauses (iii) and (iv) below shall be specified for each resulting
Borrowing);
(ii) the effective date of the election made pursuant to such
Interest Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR Borrowing or a
Eurodollar Borrowing; and
(iv) if the resulting Borrowing is a Eurodollar Borrowing, the
Interest Period to be applicable thereto after giving effect to such
election, which shall be a period contemplated by the definition of the
term "Interest Period".
If any such Interest Election Request requests a Eurodollar Borrowing but does
not specify an Interest Period, then the Borrower shall be deemed to have
selected an Interest Period of one month's duration.
(d) Promptly following receipt of an Interest Election Request, the
Administrative Agent shall advise each Lender of the details thereof and of such
Lender's portion of each resulting Borrowing.
(e) If the Borrower fails to deliver a timely Interest Election
Request with respect to a Eurodollar Borrowing prior to the end of the Interest
Period applicable thereto, then, unless such Borrowing is repaid as provided
herein, at the end of such Interest Period such Borrowing shall be converted to
an ABR Borrowing. Notwith standing any contrary provision hereof, if an Event
of Default has occurred and is continuing and the Administrative Agent, at the
request of the Required Lenders, so notifies the Borrower, then, so long as an
Event of Default is continuing (i) no out standing Borrowing may be converted
to or continued as a Eurodollar Borrowing and (ii) unless repaid, each
Eurodollar Borrowing shall be converted to an ABR Borrowing at the end of the
Interest Period applicable thereto.
(f) A Borrowing of any Class may not be converted to or continued as
a Eurodollar Borrowing if after giving effect thereto (i) the Interest Period
therefor would
<PAGE>
39
commence before and end after a date on which any principal of the Loans of such
Class is scheduled to be repaid and (ii) the sum of the aggregate principal
amount of out standing Eurodollar Borrowings of such Class with Interest Periods
ending on or prior to such scheduled repayment date plus the aggregate principal
amount of outstanding ABR Borrowings of such Class would be less than the
aggregate principal amount of Loans of such Class required to be repaid on such
scheduled repayment date.
SECTION 2.07. Termination and Reduction of Commitments.
-----------------------------------------
(a) Unless previously terminated, (i) the Term Commitments shall
terminate at 5:00 p.m., New York City time, on the Effective Date and (ii) the
Revolving Commitments shall terminate on the Maturity Date.
(b) The Borrower may at any time terminate, or from time to time
reduce, the Commitments of any Class; provided that (i) each reduction of the
--------
Commitments of any Class shall be in an amount that is an integral multiple of
$500,000 and not less than $1,000,000 and (ii) the Borrower shall not terminate
or reduce the Revolving Commitments if, after giving effect to any concurrent
prepayment of the Revolving Loans in accordance with Section 2.10, the sum of
the Revolving Exposures would exceed the total Revolving Commitments.
(c) The Borrower shall notify the Administrative Agent of any
election to terminate or reduce the Commitments under paragraph (b) of this
Section at least three Business Days prior to the effective date of such
termination or reduction, specifying such election and the effective date
thereof. Promptly following receipt of any such notice, the Administrative
Agent shall advise the Lenders of the contents thereof. Each notice delivered
by the Borrower pursuant to this Section shall be irrevocable; provided that a
--------
notice of termination of the Revolving Commitments delivered by the Borrower may
state that such notice is conditioned upon the effectiveness of other credit
facilities, in which case such notice may be revoked by the Borrower (by notice
to the Administrative Agent on or prior to the specified effective date) if such
condition is not satisfied. Any termination or reduction of the Commitments of
any Class shall be permanent. Each reduction of the Commitments of any Class
shall be made ratably among the Lenders in accordance with their respective
Commitments of such Class.
SECTION 2.08. Repayment of Loans; Evidence of Debt. (a) The
-------------------------------------
Borrower hereby unconditionally promises to pay (i) to the Administrative Agent
for the account of each Lender the then unpaid principal amount of each
Revolving Loan of such Lender on the Maturity Date and (ii) to the
Administrative Agent for the account of each Lender the then unpaid principal
amount of each Term Loan of such Lender as provided in Section 2.09.
(b) Each Lender shall maintain in accordance with its usual practice
an
<PAGE>
40
account or accounts evidencing the indebtedness of the Borrower to such Lender
resulting from each Loan made by such Lender, including the amounts of principal
and interest payable and paid to such Lender from time to time hereunder.
(c) The Administrative Agent shall maintain accounts in which it
shall record (i) the amount of each Loan made hereunder, the Class and Type
thereof and the Interest Period applicable thereto, (ii) the amount of any
principal or interest due and payable or to become due and payable from the
Borrower to each Lender hereunder and (iii) the amount of any sum received by
the Administrative Agent hereunder for the account of the Lenders and each
Lender's share thereof.
(d) The entries made in the accounts maintained pursuant to paragraph
(b) or (c) of this Section shall be prima facie evidence of the existence and
----- -----
amounts of the obligations recorded therein; provided that the failure of any
--------
Lender or the Administrative Agent to maintain such accounts or any error
therein shall not in any manner affect the obligation of the Borrower to repay
the Loans in accordance with the terms of this Agreement.
(e) Any Lender may request that Loans of any Class made by it be
evidenced by a promissory note. In such event, the Borrower shall prepare,
execute and deliver to such Lender a promissory note payable to the order of
such Lender (or, if requested by such Lender, to such Lender and its registered
assigns) in accordance with the terms of this Agreement and in a form approved
by the Administrative Agent. There after, the Loans evidenced by such
promissory note and interest thereon shall at all times (including after
assignment pursuant to Section 9.04) be represented by one or more promissory
notes in such form payable to the order of the payee named therein (or, if such
promissory note is a registered note, to such payee and its registered assigns).
SECTION 2.09. Amortization of Term Loans. (a) Subject to adjustment
---------------------------
pursuant to paragraph (c) of this Section, the Borrower shall repay Term
Borrowings on each date set forth below in the aggregate principal amount set
forth opposite such date:
Date Amount
---- ------
September 30, 1998 $25,000,000.00
December 31, 1998 $25,000,000.00
March 31, 1999 $ 9,375,000.00
June 30, 1999 $ 9,375,000.00
September 30, 1999 $ 9,375,000.00
December 31, 1999 $ 9,375,000.00
March 31, 2000 $ 5,000,000.00
June 30, 2000 $ 5,000,000.00
<PAGE>
41
September 30, 2000 $ 5,000,000.00
December 31, 2000 $ 5,000,000.00
March 31, 2001 $ 4,375,000.00
June 30, 2001 $ 4,375,000.00
September 30, 2001 $ 4,375,000.00
December 31, 2001 $ 4,375,000.00
(b) To the extent not previously paid, all Term Loans shall be due
and payable on the Maturity Date.
(c) If the initial aggregate amount of the Lenders' Term Commitment
exceeds the aggregate principal amount of Term Loans that are made on the
Effective Date, then the scheduled repayments of Term Borrowings to be made
pursuant to this Section shall be reduced ratably by an aggregate amount equal
to such excess. Any prepayment of a Term Borrowing shall be applied to reduce
the subsequent scheduled repayments of the Term Borrowings to be made pursuant
to this Section ratably; provided that (i) any prepayment made pursuant to
--------
Section 2.10(a) shall be applied, first, to reduce the next two scheduled
repayments of the Term Borrowings to be made pursuant to this Section in order
of maturity (to the extent that such scheduled repayments would otherwise occur
within 12 months of such prepayment made pursuant to Section 2.10(a)) unless and
until such next two scheduled repayments have been eliminated as a result of
reductions hereunder and, second, to reduce the remaining scheduled repayments
of the Term Borrowings to be made pursuant to this Section ratably and (ii) any
prepayment made pursuant to Section 2.10(c) shall be applied, first, to reduce
the scheduled repayments of the Term Borrowings to be made pursuant to this
Section on the last day of each of the next four succeeding fiscal quarters
ending after the date of such prepayment in order of maturity unless and until
such next scheduled repayments have been eliminated as a result of reductions
hereunder and, second, to reduce the remaining scheduled repayments of the Term
Borrowings to be made pursuant to this Section ratably.
(d) Prior to any repayment of any Term Borrowings hereunder, the
Borrower shall select the Borrowing or Borrowings to be repaid and shall notify
the Administrative Agent by telephone (confirmed by telecopy) of such selection
not later than 11:00 a.m., New York City time, three Business Days before the
scheduled date of such repayment; provided that each repayment of Term
--------
Borrowings shall be applied to repay any outstanding ABR Term Borrowings before
any other Borrowings. Each repayment of a Borrowing shall be applied ratably to
the Loans included in the repaid Borrowing. Repayments of Term Borrowings shall
be accompanied by accrued interest on the amount repaid.
SECTION 2.10. Prepayment of Loans. (a) The Borrower shall have the
--------------------
right at any time and from time to time to prepay any Borrowing in whole or in
part,
<PAGE>
42
subject to the requirements of this Section.
(b) In the event and on each occasion that any Net Proceeds are
received by or on behalf of Catalytica, the Borrower or any Subsidiary in
respect of any Prepayment Event, the Borrower shall, within three Business Days
after such Net Proceeds are received, prepay Term Borrowings in an aggregate
amount equal to such Net Proceeds.
(c) Following the end of each fiscal year of the Borrower, commencing
with the fiscal year ending December 31, 1998, the Borrower shall prepay Term
Borrowings in an aggregate amount equal to 75% of Excess Cash Flow (i) for the
period from the Effective Date through December 31, 1998 (in the case of the
fiscal year ending December 31, 1998), and (ii) for each fiscal year thereafter.
Each prepayment pursuant to this paragraph shall be made on or before the date
on which financial statements are delivered pursuant to Section 5.01 with
respect to the fiscal year for which (or the fiscal year included in the period
for which) Excess Cash Flow is being calculated (and in any event within 90 days
plus 3 Business Days after the end of such fiscal year). The portion of Excess
Cash Flow that is not required to be applied to prepay Term Borrowings pursuant
to this Section 2.10(c) may be used for general corporate and other purposes,
subject to the terms and conditions of this Agreement.
(d) Prior to any optional or mandatory prepayment of Borrowings
hereunder, the Borrower shall select the Borrowing or Borrowings to be prepaid
and shall specify such selection in the notice of such prepayment pursuant to
paragraph (e) of this Section; provided that each prepayment of Borrowings of
--------
any Class shall be applied to prepay ABR Borrowings of such Class before any
other Borrowings of such Class.
(e) The Borrower shall notify the Administrative Agent by telephone
(confirmed by telecopy) of any prepayment hereunder (i) in the case of
prepayment of a Eurodollar Borrowing, not later than 11:00 a.m., New York City
time, three Business Days before the date of prepayment or (ii) in the case of
prepayment of an ABR Borrowing, not later than 10:00 a.m., New York City time,
on the date of prepayment. Each such notice shall be irrevocable and shall
specify the prepayment date, the principal amount of each Borrowing or portion
thereof to be prepaid and, in the case of a mandatory prepayment, a reasonably
detailed calculation of the amount of such prepayment; provided that, if a
--------
notice of optional prepayment is given in connection with a conditional notice
of termination of the Revolving Commitments as contemplated by Section 2.07,
then such notice of prepayment may be revoked if such notice of termination is
revoked in accordance with Section 2.07. Promptly following receipt of any such
notice, the Administrative Agent shall advise the Lenders of the contents
thereof. Each partial prepayment of any Borrowing shall be in an amount that
would be permitted in the case of an advance of a Borrowing of the same Type as
provided in
<PAGE>
43
Section 2.02(c), except as necessary to apply fully the required amount of a
mandatory prepayment. Each prepayment of a Borrowing shall be applied ratably to
the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by
accrued interest to the extent required by Section 2.12.
SECTION 2.11. Fees. (a) The Borrower agrees to pay to the
-----
Administrative Agent for the account of each Lender a commitment fee, which
shall accrue at the Applicable Rate on the average daily unused amount of the
Revolving Commitment of such Lender during the period from and including the
Effective Date to but excluding the date on which such Commitment terminates.
Accrued commitment fees shall be payable in arrears on the last Business Day of
March, June, September and December of each year and on the date on which the
Revolving Commitments terminate, commencing on the first such date to occur
after the date hereof. All commitment fees shall be computed on the basis of a
year of 360 days and shall be payable for the actual number of days elapsed
(including the first day but excluding the last day). For purposes of computing
commitment fees with respect to Revolving Commitments, a Revolving Commitment of
a Lender shall be deemed to be used to the extent of the outstanding Revolving
Loans and LC Exposure of such Lender.
(b) The Borrower agrees to pay (i) to the Administrative Agent for
the account of each Revolving Lender a participation fee with respect to its
participations in Letters of Credit, which shall accrue at the same Applicable
Rate as interest on Eurodollar Revolving Loans on the average daily amount of
such Lender's LC Exposure (excluding any portion thereof attributable to
unreimbursed LC Disbursements) during the period from and including the
Effective Date to but excluding the later of the date on which such Lender's
Revolving Commitment terminates and the date on which such Lender ceases to have
any LC Exposure, and (ii) to the Issuing Bank a fronting fee, which shall accrue
at the rate of 3/8 of 1% per annum on the average daily amount of the LC
Exposure (excluding any portion thereof attributable to unreimbursed LC Disburse
ments) during the period from and including the Effective Date to but excluding
the later of the date of termination of the Revolving Commitments and the date
on which there ceases to be any LC Exposure, as well as the Issuing Bank's
standard fees with respect to the issuance, amendment, renewal or extension of
any Letter of Credit or processing of drawings thereunder. Participation fees
and fronting fees accrued through and including the last Business Day of March,
June, September and December of each year shall be payable on the third Business
Day following such last day, commencing on the first such date to occur after
the Effective Date; provided that all such fees shall be payable on the date on
--------
which the Revolving Commitments terminate and any such fees accruing after the
date on which the Revolving Commitments terminate shall be payable on demand.
Any other fees payable to the Issuing Bank pursuant to this paragraph shall be
payable within 10 days after demand. All participation fees and fronting fees
shall be computed on the basis of a year of 360 days and shall be payable for
the actual number of days elapsed
<PAGE>
44
(including the first day but excluding the last day).
(c) The Borrower agrees to pay to the Administrative Agent, for its
own account, fees payable in the amounts and at the times separately agreed upon
between the Borrower and the Administrative Agent.
(d) All fees payable hereunder shall be paid on the dates due, in
immediately available funds, to the Administrative Agent (or to the Issuing
Bank, in the case of fees payable to it) for prompt distribution, in the case of
commitment fees and participation fees, to the Lenders entitled thereto. Fees
paid shall not be refundable under any circumstances other than manifest error.
SECTION 2.12. Interest. (a) The Loans comprising each ABR Borrowing
---------
shall bear interest at the Alternate Base Rate plus the Applicable Rate.
(b) The Loans comprising each Eurodollar Borrowing shall bear
interest at the Adjusted LIBO Rate for the Interest Period in effect for such
Borrowing plus the Applicable Rate.
(c) Notwithstanding the foregoing, if any principal of or interest on
any Loan or any fee or other amount payable by the Borrower hereunder is not
paid when due, whether at stated maturity, upon acceleration or otherwise, such
overdue amount shall bear interest, after as well as before judgment, at a rate
per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the
rate otherwise applicable to such Loan as provided in the preceding paragraphs
of this Section or (ii) in the case of any other amount, 2% plus the rate
applicable to ABR Revolving Loans as provided in paragraph (a) of this Section.
(d) Accrued interest on each Loan shall be payable in arrears on each
Interest Payment Date for such Loan and, in the case of Revolving Loans, upon
termination of the Revolving Commitments; provided that (i) interest accrued
--------
pursuant to paragraph (c) of this Section shall be payable on demand, (ii) in
the event of any repayment or prepayment of any Loan (other than a prepayment of
an ABR Revolving Loan prior to the end of the Revolving Availability Period),
accrued interest on the principal amount repaid or prepaid shall be payable on
the date of such repayment or prepayment and (iii) in the event of any
conversion of any Eurodollar Loan prior to the end of the current Interest
Period therefor, accrued interest on such Loan shall be payable on the effective
date of such conversion.
(e) All interest hereunder shall be computed on the basis of a year
of 360 days, except that interest computed by reference to the Alternate Base
Rate at times when the Alternate Base Rate is based on the Prime Rate shall be
computed on the basis
<PAGE>
45
of a year of 365 days (or 366 days in a leap year), and in each case shall be
payable for the actual number of days elapsed (including the first day but
excluding the last day). The applicable Alternate Base Rate or Adjusted LIBO
Rate shall be determined by the Administrative Agent, and such determination
shall be conclusive absent manifest error.
SECTION 2.13. Alternate Rate of Interest. If prior to the
---------------------------
commencement of any Interest Period for a Eurodollar Borrowing:
(a) the Administrative Agent determines (which determination shall be
conclusive absent manifest error) that adequate and reasonable means do not
exist for ascertaining the Adjusted LIBO Rate for such Interest Period; or
(b) the Administrative Agent is advised by the Required Lenders that
the Adjusted LIBO Rate for such Interest Period will not adequately and
fairly reflect the cost to such Lenders (or Lender) of making or
maintaining their Loans (or its Loan) included in such Borrowing for such
Interest Period;
then the Administrative Agent shall give notice thereof to the Borrower and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Administrative Agent notifies the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist, (i) any Interest
Election Request that requests the conversion of any Borrowing to, or
continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective
and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such
Borrowing shall be made as an ABR Borrowing.
SECTION 2.14. Increased Costs. (a) If any Change in Law shall:
----------------
(i) impose, modify or deem applicable any reserve, special deposit or
similar requirement against assets of, deposits with or for the account of,
or credit extended by, any Lender (except any such reserve requirement
reflected in the Adjusted LIBO Rate) or the Issuing Bank; or
(ii) impose on any Lender or the Issuing Bank or the London interbank
market any other condition (other than imposition of Taxes) affecting this
Agreement or Eurodollar Loans made by such Lender or any Letter of Credit
or participation therein;
and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurodollar Loan (or of maintaining its
obligation to make any such Loan) or to increase the cost to such Lender or the
Issuing Bank of participating in, issuing or maintaining any Letter of Credit or
to reduce the amount of any sum received or receivable by such Lender or the
Issuing Bank hereunder (whether of principal, interest
<PAGE>
46
or otherwise), then the Borrower will pay to such Lender or the Issuing Bank, as
the case may be, such additional amount or amounts as will compensate such
Lender or the Issuing Bank, as the case may be, for such additional costs
incurred or reduction suffered.
(b) If any Lender or the Issuing Bank determines that any Change in
Law regarding capital requirements has or would have the effect of reducing the
rate of return on such Lender's or the Issuing Bank's capital or on the capital
of such Lender's or the Issuing Bank's holding company, if any, as a consequence
of this Agreement or the Loans made by, or participations in Letters of Credit
held by, such Lender, or the Letters of Credit issued by the Issuing Bank, to a
level below that which such Lender or the Issuing Bank or such Lender's or the
Issuing Bank's holding company could have achieved but for such Change in Law
(taking into consideration such Lender's or the Issuing Bank's policies and the
policies of such Lender's or the Issuing Bank's holding company with respect to
capital adequacy), then from time to time the Borrower will pay to such Lender
or the Issuing Bank, as the case may be, such additional amount or amounts as
will compensate such Lender or the Issuing Bank or such Lender's or the Issuing
Bank's holding company for any such reduction suffered.
(c) A certificate of a Lender or the Issuing Bank setting forth the
amount or amounts necessary to compensate such Lender or the Issuing Bank or its
holding company, as the case may be, as specified in paragraph (a) or (b) of
this Section shall be delivered to the Borrower and shall be conclusive absent
manifest error. The Borrower shall pay such Lender or the Issuing Bank, as the
case may be, the amount shown as due on any such certificate (absent manifest
error) within 10 days after receipt thereof.
(d) Failure or delay on the part of any Lender or the Issuing Bank to
demand compensation pursuant to this Section shall not constitute a waiver of
such Lender's or the Issuing Bank's right to demand such compensation; provided
--------
that the Borrower shall not be required to compensate a Lender or the Issuing
Bank pursuant to this Section for any increased costs or reductions incurred
more than 180 days prior to the date that such Lender or the Issuing Bank, as
the case may be, notifies the Borrower of the Change in Law giving rise to such
increased costs or reductions and of such Lender's or the Issuing Bank's
intention to claim compensation therefor; provided further that, if the Change
-------- -------
in Law giving rise to such increased costs or reductions is retroactive, then
the 180-day period referred to above shall be extended to include the period of
retroactive effect thereof.
SECTION 2.15. Break Funding Payments. In the event of (a) the
-----------------------
payment of any principal of any Eurodollar Loan other than on the last day of an
Interest Period applicable thereto (including as a result of an Event of
Default), (b) the conversion of any Eurodollar Loan other than on the last day
of the Interest Period applicable thereto, (c) the failure to borrow, convert,
continue or prepay any Revolving Loan or Term Loan on the
<PAGE>
47
date specified in any notice delivered pursuant hereto (regardless of whether
such notice may be revoked under Section 2.10(g) and is revoked in accordance
therewith), or (d) the assignment of any Eurodollar Loan other than on the last
day of the Interest Period applicable thereto as a result of a request by the
Borrower pursuant to Section 2.18, then, in any such event, the Borrower shall
compensate each Lender for the loss, cost and expense attributable to such
event. In the case of a Eurodollar Loan, such loss, cost or expense to any
Lender shall be deemed to include an amount determined by such Lender to be the
excess, if any, of (i) the amount of interest that would have accrued on the
principal amount of such Loan had such event not occurred, at the Adjusted LIBO
Rate that would have been applicable to such Loan, for the period from the date
of such event to the last day of the then current Interest Period therefor (or,
in the case of a failure to borrow, convert or continue, for the period that
would have been the Interest Period for such Loan), over (ii) the amount of
interest that would accrue on such principal amount for such period at the
interest rate that such Lender would bid were it to bid, at the commencement of
such period, for dollar deposits of a comparable amount and period from other
banks in the Eurodollar market. A certifi cate of any Lender setting forth any
amount or amounts that such Lender is entitled to receive pursuant to this
Section shall be delivered to the Borrower and shall be conclusive absent
manifest error. The Borrower shall pay such Lender the amount shown as due on
any such certificate (absent manifest error) within 10 days after receipt
thereof.
SECTION 2.16. Taxes. (a) Any and all payments by or on account of
------
any obligation of the Borrower hereunder or under any other Loan Document shall
be made free and clear of and without deduction for any Indemnified Taxes or
Other Taxes; provided that if the Borrower shall be required to deduct any
--------
Indemnified Taxes or Other Taxes from such payments, then, to the extent
permitted by law, (i) the sum payable shall be increased as necessary so that
after making all required deductions (including deductions applicable to
additional sums payable under this Section) the Administrative Agent, Lender or
Issuing Bank (as the case may be) receives an amount equal to the sum it would
have received had no such deductions been made, (ii) the Borrower shall make
such deductions and (iii) the Borrower shall pay the full amount deducted to the
relevant Governmental Authority in accordance with applicable law.
(b) In addition, the Borrower shall pay any Other Taxes to the
relevant Governmental Authority in accordance with applicable law.
(c) The Borrower shall indemnify the Administrative Agent, each
Lender and the Issuing Bank, within 10 days after written demand therefor, for
the full amount of any Indemnified Taxes or Other Taxes paid by the
Administrative Agent, such Lender or the Issuing Bank, as the case may be, on or
with respect to any payment by or on account of any obligation of the Borrower
hereunder or under any other Loan Document (including Indemnified Taxes or Other
Taxes imposed or asserted on or attributable to
<PAGE>
48
amounts payable under this Section) and any penalties, interest and reasonable
expenses arising therefrom or with respect thereto from causes other than the
breach of the Loan Documents or the gross negligence of the party demanding
reimbursement, whether or not such Indemnified Taxes or Other Taxes were
correctly or legally imposed or asserted by the relevant Governmental Authority.
A certificate as to the amount of such payment or liability delivered to the
Borrower by a Lender or the Issuing Bank, or by the Administrative Agent on its
own behalf or on behalf of a Lender or the Issuing Bank, shall be conclusive
absent manifest error.
(d) If any Indemnified Taxes or Other Taxes are incorrectly or
illegally imposed or asserted, the Borrower and Lender agree to reasonably
cooperate to contest such Taxes.
(e) As soon as practicable after any payment of Indemnified Taxes or
Other Taxes by the Borrower to a Governmental Authority, the Borrower shall
deliver to the Administrative Agent the original or a certified copy of a
receipt issued by such Governmental Authority evidencing such payment, a copy of
the return reporting such payment or other evidence of such payment reasonably
satisfactory to the Administrative Agent.
(f) Any Foreign Lender that is entitled to an exemption from or
reduction of withholding tax under the law of the jurisdiction in which the
Borrower is located, or any treaty to which such jurisdiction is a party, with
respect to payments under this Agreement shall deliver to the Borrower (with a
copy to the Administrative Agent), at the time or times prescribed by applicable
law after receipt of written notice from the Borrower, such properly completed
and executed documentation prescribed by applicable law or reasonably requested
by the Borrower as will permit such payments to be made without withholding or
at a reduced rate.
(g) If the Administrative Agent or Lender (or Transferee) receives a
refund solely in respect of Taxes or Other Taxes, it shall pay over such refund
to the Borrower to the extent that it has already received indemnity payments or
additional amounts pursuant to this Section 2.18 with respect to such Taxes or
Other Taxes giving rise to the refund, net of all out-of-pocket expenses and
without interest (other than interest paid by the relevant Governmental
Authority with respect to such refund); provided, however, that the Borrower
-------- -------
shall, upon request of the Administrative Agent or Lender (or Transferee), repay
such refund (plus penalties, interest or other charges imposed by the relevant
Governmental Authority) to the Administrative Agent or Lender (or Transferee) if
the Administrative Agent or Lender (or Transferee) is required to repay such
refund to such Governmental Authority. Nothing contained herein shall require
the Administrative Agent or Lender (or Transferee) to make its tax returns (or
any other information relating to its taxes which it deems confidential)
available to the Borrower or
<PAGE>
49
any other person.
SECTION 2.17. Payments Generally; Pro Rata Treatment; Sharing of
--------------------------------------------------
Setoffs. (a) The Borrower shall make each payment required to be made by it
- --------
hereunder or under any other Loan Document (whether of principal, interest, fees
or reimbursement of LC Disbursements, or of amounts payable under Section 2.14,
2.15 or 2.16, or otherwise) prior to 1:00 p.m., New York City time, on the date
when due, in immediately available funds, without set-off or counterclaim. Any
amounts received after such time on any date may, in the discretion of the
Administrative Agent, be deemed to have been received on the next succeeding
Business Day for purposes of calculating interest thereon. All such payments
shall be made to the Administrative Agent c/o The Loan and Agency Services Group
at its offices at One Chase Manhattan Plaza, 8th Floor, New York, New York,
10081, except payments to be made directly to the Issuing Bank as expressly
provided herein and except that payments pursuant to Sections 2.14, 2.15, 2.16
and 9.03 shall be made directly to the Persons entitled thereto and payments
pursuant to other Loan Documents shall be made to the Persons specified therein.
The Administrative Agent shall distribute promptly any such payments received by
it for the account of any other Person to the appropriate recipient promptly
following receipt thereof. If any payment under any Loan Document shall be due
on a day that is not a Business Day, the date for payment shall be extended to
the next succeeding Business Day, and, in the case of any payment accruing
interest, interest thereon shall be payable for the period of such extension.
All payments under each Loan Document shall be made in dollars.
(b) If at any time insufficient funds are received by and available
to the Administrative Agent to pay fully all amounts of principal, unreimbursed
LC Disburse ments, interest and fees then due hereunder, such funds shall be
applied (i) first, towards payment of interest and fees then due hereunder,
ratably among the parties entitled thereto in accordance with the amounts of
interest and fees then due to such parties, and (ii) second, towards payment of
principal and unreimbursed LC Disbursements then due hereunder, ratably among
the parties entitled thereto in accordance with the amounts of principal and
unreimbursed LC Disbursements then due to such parties.
(c) If any Lender shall, by exercising any right of set-off or
counterclaim or otherwise, obtain payment in respect of any principal of or
interest on any of its Revolving Loans, Term Loans or participations in LC
Disbursements resulting in such Lender receiving payment of a greater proportion
of the aggregate amount of its Revolving Loans, Term Loans and participations in
LC Disbursements and accrued interest thereon than the proportion received by
any other Lender, then the Lender receiving such greater proportion shall
purchase (for cash at face value) participations in the Revolving Loans, Term
Loans and participations in LC Disbursements of other Lenders to the extent
necessary so that the benefit of all such payments shall be shared by
<PAGE>
50
the Lenders ratably in accordance with the aggregate amount of principal of and
accrued interest on their respective Revolving Loans, Term Loans and
participations in LC Disbursements; provided that (i) if any such participations
--------
are purchased and all or any portion of the payment giving rise thereto is
recovered, such participations shall be rescinded and the purchase price
restored to the extent of such recovery, without interest, and (ii) the
provisions of this paragraph shall not be construed to apply to any payment made
by the Borrower pursuant to and in accordance with the express terms of this
Agreement or any payment obtained by a Lender as consideration for the
assignment of or sale of a participation in any of its Loans or participations
in LC Disbursements to any assignee or participant, other than to the Borrower,
any Subsidiary or any Affiliate thereof (as to which the provisions of this
paragraph shall apply). The Borrower consents to the foregoing and agrees, to
the extent it may effectively do so under applicable law, that any Lender
acquiring a participation pursuant to the foregoing arrangements may exercise
against the Borrower rights of set-off and counterclaim with respect to such
participation as fully as if such Lender were a direct creditor of the Borrower
in the amount of such participation.
(d) Unless the Administrative Agent shall have received notice from
the Borrower prior to the date on which any payment is due to the Administrative
Agent for the account of the Lenders or the Issuing Bank hereunder that the
Borrower will not make such payment, the Administrative Agent may assume that
the Borrower has made such payment on such date in accordance herewith and may,
in reliance upon such assumption, distribute to the Lenders or the Issuing Bank,
as the case may be, the amount due. In such event, if the Borrower has not in
fact made such payment, then each of the Lenders or the Issuing Bank, as the
case may be, severally agrees to repay to the Administrative Agent forthwith on
demand the amount so distributed to such Lender or Issuing Bank with interest
thereon, for each day from and including the date such amount is distributed to
it to but excluding the date of payment to the Administrative Agent, at the
greater of the Federal Funds Effective Rate and a rate determined by the
Administrative Agent in accordance with banking industry rules on interbank
compensation provided, however, that the Borrower shall not be required to
-------- -------
reimburse any Lender for the payment of any such interest.
(e) If any Lender shall fail to make any payment required to be made
by it pursuant to Section 2.04(d) or (e), 2.05(b), 2.17(d) or 9.03(c), then the
Administrative Agent may, in its discretion (notwithstanding any contrary
provision hereof), apply any amounts thereafter received by the Administrative
Agent for the account of such Lender to satisfy such Lender's obligations under
such Sections until all such unsatisfied obligations are fully paid.
SECTION 2.18. Mitigation Obligations; Replacement of Lenders. (a)
-----------------------------------------------
If any Lender requests compensation under Section 2.14, or if the Borrower is
required to
<PAGE>
51
pay any additional amount to any Lender or any Governmental Authority for the
account of any Lender pursuant to Section 2.16, then such Lender shall use
reasonable efforts to designate a different lending office for funding or
booking its Loans hereunder or to assign its rights and obligations hereunder to
another of its offices, branches or affiliates, if, in the judgment of such
Lender, such designation or assignment (i) would eliminate or reduce amounts
payable pursuant to Section 2.14 or 2.16, as the case may be, in the future and
(ii) would not subject such Lender to any unreimbursed cost or expense and would
not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to
pay all reasonable costs and expenses incurred by any Lender in connection with
any such designation or assignment.
(b) If any Lender requests compensation under Section 2.14, or if the
Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 2.16,
or if any Lender defaults in its obligation to fund Loans hereunder, then the
Borrower may, at its sole expense and effort, upon notice to such Lender and the
Administrative Agent, require such Lender to assign and delegate, without
recourse (in accordance with and subject to the restrictions contained in
Section 9.04), all its interests, rights and obligations under this Agreement to
an assignee that shall assume such obligations (which assignee may be another
Lender, if a Lender accepts such assignment, or any other party); provided that
--------
(i) the Borrower shall have received the prior written consent of the
Administrative Agent (and, if a Revolving Commitment is being assigned, the
Issuing Bank), which consent shall not unreasonably be withheld, (ii) such
Lender shall have received payment of an amount equal to the outstanding
principal of its Loans and participations in LC Disbursements, accrued interest
thereon, accrued fees and all other amounts payable to it hereunder, from the
assignee (to the extent of such outstanding principal and accrued interest and
fees) or the Borrower (in the case of all other amounts) and (iii) in the case
of any such assignment resulting from a claim for compensation under Section
2.14 or payments required to be made pursuant to Section 2.16, such assignment
will result in a reduction in such compensation or payments. A Lender shall not
be required to make any such assignment and delegation if, prior thereto, as a
result of a waiver by such Lender or otherwise, the circumstances entitling the
Borrower to require such assignment and delegation cease to apply.
ARTICLE III
Representations and Warranties
------------------------------
Each of Catalytica and the Borrower represents and warrants to the
Lenders that:
<PAGE>
52
SECTION 3.01. Organization; Powers. Each of Catalytica, the Borrower
---------------------
and the Subsidiaries is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization, has all requisite power
and authority to carry on its business as now conducted and, except where the
failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect, is qualified to do business in,
and is in good standing in, every jurisdiction where such qualification is
required.
SECTION 3.02. Authorization; Enforceability. The Transactions to be
------------------------------
entered into by each Loan Party are within such Loan Party's corporate powers
and have been duly authorized by all necessary corporate and, if required,
stockholder action. This Agreement has been duly executed and delivered by each
of Catalytica and the Borrower and constitutes, and each other Loan Document to
which any Loan Party is to be a party, when executed and delivered by such Loan
Party, will constitute, a legal, valid and binding obligation of Catalytica, the
Borrower or such Loan Party (as the case may be), enforceable in accordance with
its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights generally and subject to
general principles of equity, regardless of whether considered in a proceeding
in equity or at law.
SECTION 3.03. Governmental Approvals; No Conflicts. The Trans
-------------------------------------
actions (a) do not require any material consent or approval of, registration or
filing with, or any other action by, any Governmental Authority, except (i) as
required by the FD&C Act in connection with the Acquisition, (ii) as required
for the Borrower to operate the Acquired Facilities (including environmental
permits and any other permits) and (iii) such as have been obtained or made and
are in full force and effect and except filings necessary to perfect Liens
created under the Loan Documents, (b) will not violate any applicable law or
regulation material to Catalytica, the Borrower and the Subsidiaries, taken as a
whole, or the charter, by-laws or other organizational documents of Catalytica,
the Borrower or any of the Subsidiaries or any order of any Governmental
Authority, (c) will not violate or result in a default under any indenture,
agreement (including any Acquisition Document) or other instrument binding upon
Catalytica, the Borrower or any of the Subsidiaries or its assets and material
to Catalytica, the Borrower and the Subsidiaries, taken as a whole, or, except
as specifically contemplated by the Acquisition Documents, give rise to a right
thereunder to require any payment in excess of $3,000,000 to be made by
Catalytica, the Borrower or any of the Subsidiaries, and (d) will not result in
the creation or imposition of any Lien on any material asset of Catalytica, the
Borrower or any of the Subsidiaries, except Liens created under the Loan
Documents, Liens created by the Deed of Easement and the Liens described in
Schedule 6.02 that have been created in connection with the Transactions.
SECTION 3.04. Financial Condition; No Material Adverse Change.
------------------------------------------------
<PAGE>
53
(a) Catalytica has heretofore furnished to the Lenders its consolidated balance
sheet and statements of income, stockholders equity and cash flows (i) as of and
for the fiscal year ended December 31, 1996, reported on by Ernst & Young LLP,
independent public accountants, and (ii) as of and for the fiscal quarter and
the portion of the fiscal year ended March 31, 1997, certified by its chief
financial officer. Such financial statements present fairly, in all material
respects, the financial position and results of operations and cash flows of
Catalytica and its consolidated subsidiaries as of such dates and for such
periods in accordance with GAAP as consistently applied by Catalytica, subject
to year-end audit adjustments and the absence of footnotes in the case of the
statements referred to in clause (ii) above.
(b) Catalytica has heretofore furnished to the Lenders its pro forma
consolidated balance sheet as of June 30, 1997, prepared giving effect to the
Transactions as if the Transactions had occurred on such date. Such pro forma
consolidated balance sheet (i) has been prepared in good faith based on the same
assumptions used to prepare the pro forma financial statements included in the
Information Memorandum (which assumptions are believed by Catalytica and the
Borrower to be reasonable under the circumstances at such time and on the date
of this Agreement), (ii) is consistent in all material respects with the
forecasts and other information previously provided to the Lenders, (iii) is
based on the best information available to Catalytica and the Borrower after due
inquiry, (iv) accurately reflects all adjustments necessary to give effect to
the Transactions and (v) presents fairly, in all material respects, the pro
forma financial position of the Borrower and its consolidated Subsidiaries as of
June 30, 1997, as if the Transactions had occurred on such date.
(c) Except as disclosed in the financial statements referred to above
or the notes thereto or in the Information Memorandum and except for the
Disclosed Matters, after giving effect to the Transactions, none of Catalytica,
the Borrower or the Subsidiaries has, as of the Effective Date, any material
contingent liabilities, unusual long-term commitments or unrealized losses.
(d) Since December 31, 1996 (or, in the case of the Acquired
Facilities, since June 25, 1997), there has been no material adverse change in
the business, assets, operations, properties, condition, financial or otherwise,
contingent liabilities (including potential environmental liabilities),
prospects or material agreements of or relating to Catalytica, the Borrower, the
Subsidiaries and the Acquired Facilities, taken as a whole.
SECTION 3.05. Properties. (a) Each of Catalytica, the Borrower and
-----------
the Subsidiaries has good title to, or valid leasehold interests in, all its
real and personal property material to its business (including its Mortgaged
Properties), except for Liens permitted by Section 6.02 and minor defects in
title that do not materially interfere with its ability to conduct its business
as currently conducted.
<PAGE>
54
(b) Each of Catalytica, the Borrower and the Subsidiaries owns, or is
licensed to use, all trademarks, tradenames, copyrights, patents and other
intellectual property material to the business of Catalytica, the Borrower and
the Subsidiaries, taken as a whole, and the use thereof by Catalytica, the
Borrower and the Subsidiaries does not infringe upon the rights of any other
Person, except for any such infringements that, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect.
(c) Schedule 3.05 sets forth the address of each real property that
is owned or material real property that is leased by Catalytica, the Borrower or
any of the Subsidiaries as of the Effective Date after giving effect to the
Transactions.
(d) As of the Effective Date, none of Catalytica, the Borrower or any
of the Subsidiaries has received notice of, or has knowledge of, any pending or
contem plated condemnation proceeding affecting any Mortgaged Property or any
sale or disposition thereof in lieu of condemnation. Neither any Mortgaged
Property nor any interest therein is subject to any material right of first
refusal, option or other contractual right to purchase such Mortgaged Property
or interest therein.
SECTION 3.06. Litigation and Environmental Matters. (a) There are
-------------------------------------
no actions, suits or proceedings by or before any arbitrator or Governmental
Authority pending against or, to the knowledge of Catalytica or the Borrower,
threatened against or affecting Catalytica, the Borrower or any of the
Subsidiaries (i) as to which there is a reasonable possibility of an adverse
determination and that, if adversely determined, could reasonably be expected,
individually or in the aggregate, to result in a Material Adverse Effect (other
than the Disclosed Matters) or (ii) that involve any of the Loan Documents or
the Transactions.
(b) Except for the Disclosed Matters and except with respect to any
other matters that, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect, none of Catalytica, the
Borrower or any of the Subsidiaries (i) has failed to comply with any
Environmental Law or to obtain, maintain or comply with any permit, license or
other approval required under any Environmental Law, (ii) has become subject to
any Environmental Liability, (iii) has received notice of any claim against it
of any Environmental Liability or (iv) knows of any basis for any Environmental
Liability against it.
(c) Since the date of this Agreement, there has been no change in the
status of the Disclosed Matters that, individually or in the aggregate, has
resulted in (i) a Material Adverse Effect or (ii) a material increase in the
likelihood that a Material Adverse Effect is reasonably likely to occur.
<PAGE>
55
SECTION 3.07. Compliance with Laws and Agreements. Each of
------------------------------------
Catalytica, the Borrower and the Subsidiaries is in compliance with all laws,
regulations and orders of any Governmental Authority applicable to it or its
property and all indentures, agreements and other instruments binding upon it or
its property, except where the failure to be in such compliance, individually or
in the aggregate, could not reasonably be expected to result in a Material
Adverse Effect.
SECTION 3.08. Investment and Holding Company Status. None of
--------------------------------------
Catalytica, the Borrower or any of the Subsidiaries is (a) an "investment
company" as defined in, or subject to regulation under, the Investment Company
Act of 1940 or (b) a "holding company" as defined in, or subject to regulation
under, the Public Utility Holding Company Act of 1935.
SECTION 3.09. Taxes. Each of Catalytica, the Borrower and the
------
Subsidiaries has timely filed or caused to be filed all Tax returns and reports
required to have been filed and has paid or caused to be paid all Taxes required
to have been paid by it, except (a) Taxes that are being contested in good faith
by appropriate proceedings and for which Catalytica, the Borrower or such
Subsidiary, as applicable, has set aside on its books adequate reserves or (b)
to the extent that the failure to do so could not reasonably be expected to
result in a Material Adverse Effect.
SECTION 3.10. ERISA. No ERISA Event has occurred or is reasonably
------
expected to occur that, when taken together with all other such ERISA Events for
which liability is reasonably expected to occur, could reasonably be expected to
result in a Material Adverse Effect. The present value of all accumulated
benefit obligations under each Plan (based on the assumptions used for purposes
of Statement of Financial Accounting Standards No. 87) did not, as of the date
of the most recent financial statements reflecting such amounts, exceed by more
than $3,000,000 the fair market value of the assets of such Plan, and the
present value of all accumulated benefit obligations of all underfunded Plans
(based on the assumptions used for purposes of Statement of Financial Accounting
Standards No. 87) did not, as of the date of the most recent financial
statements reflecting such amounts, exceed by more than $3,000,000 the fair
market value of the assets of all such underfunded Plans.
SECTION 3.11. Disclosure. The Borrower has disclosed to the Lenders
-----------
all agreements, instruments and corporate or other restrictions to which
Catalytica, the Borrower or any of the Subsidiaries is subject, and all other
matters known to any of them, that, individually or in the aggregate, could
reasonably be expected to result in a Material Adverse Effect. Neither the
Information Memorandum nor any of the other reports, financial statements,
certificates or other information furnished by or on behalf of any Loan Party to
the Administrative Agent or any Lender in connection with the
<PAGE>
56
negotiation of this Agreement or any other Loan Document or delivered hereunder
or thereunder (as modified or supplemented by other information so furnished
prior to the time when this representation is being made or deemed made)
considered as a whole contains any material misstatement of fact or omits to
state any material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading in any material
respect; provided that, with respect to projected financial information,
--------
Catalytica and the Borrower represent only that such information was prepared in
good faith based upon assumptions believed to be reasonable at the time.
SECTION 3.12. Subsidiaries. (a) As of the Effective Date,
-------------
Catalytica does not have any direct subsidiaries other than the Borrower,
Catalytica Combustion and Advanced Technologies. Schedule 3.12 sets forth the
name of, and the ownership interest of Catalytica, the Borrower and each of the
Subsidiaries in, each of their respective subsidiaries and identifies each
Subsidiary that is a Subsidiary Loan Party, in each case as of the Effective
Date.
(b) Advanced Sensor is an Inactive Subsidiary, or if such Subsidiary
ceases to be an Inactive Subsidiary, it has complied with Section 5.14. As of
the Effective Date, Advanced Sensor is the only Inactive Subsidiary.
SECTION 3.13. Insurance. Schedule 3.13 sets forth a description of
----------
all insurance maintained by or on behalf of the Borrower and the Subsidiaries as
of the Effective Date. As of the Effective Date, all due and payable, material
premiums in respect of such insurance have been paid.
SECTION 3.14. Labor Matters. As of the Effective Date, there are no
--------------
strikes, lockouts or slowdowns against Catalytica, the Borrower or any
Subsidiary pending or, to the knowledge of Catalytica or the Borrower,
threatened. The hours worked by and payments made to employees of Catalytica,
the Borrower and the Subsidiaries have not been in violation of the Fair Labor
Standards Act or any other applicable Federal, state, local or foreign law
dealing with such matters, except for such violations that, individually or in
the aggregate, could not reasonably be expected to have a Material Adverse
Effect. All payments due from Catalytica, the Borrower or any Subsidiary, or
for which any claim may be made against Catalytica, the Borrower or any
Subsidiary, on account of wages and employee health and welfare insurance and
other benefits that are, individually or in the aggregate, material to
Catalytica, the Borrower and the Subsidiaries, taken as a whole, have been paid
or accrued as a liability on the books of Catalytica, the Borrower or such
Subsidiary. The consummation of the Transactions will not give rise to any
right of termination or right of renegotiation on the part of any union under
any collective bargaining agreement to which Catalytica, the Borrower or any
Subsidiary is bound.
<PAGE>
57
SECTION 3.15. Solvency. Immediately after the consummation of the
---------
Transactions to occur on the Effective Date and immediately following the making
of each Loan made on the Effective Date and after giving effect to the
application of the proceeds of such Loans, (a) the fair value of the assets of
the Loan Parties, taken as a whole, at a fair valuation, will exceed their debts
and liabilities, subordinated, contingent or otherwise; (b) the present fair
saleable value of the property of the Loan Parties, taken as a whole, will be
greater than the amount that will be required to pay the probable liability of
their debts and other liabilities, subordinated, contingent or otherwise, as
such debts and other liabilities become absolute and matured; (c) the Loan
Parties, taken as a whole, will be able to pay their debts and liabilities,
subordinated, contingent or otherwise, as such debts and liabilities become
absolute and matured; and (d) the Loan Parties, taken as a whole, will not have
unreasonably small capital with which to conduct the business in which they are
engaged as such business is now conducted and is proposed to be conducted
following the Effective Date.
SECTION 3.16. Security Documents. (a) The Pledge Agreement is
-------------------
effective to create in favor of the Administrative Agent, for the ratable
benefit of the Secured Parties, a legal, valid and enforceable security interest
in the Collateral (as defined in the Pledge Agreement) and, when the Collateral
is delivered to the Administrative Agent and duly endorsed, the Pledge Agreement
shall create a fully perfected Lien on, and security interest in, all right,
title and interest of the pledgor thereunder in such Collateral, in each case
prior and superior in right to any other person, other than with respect to
Liens that are permitted by Section 6.02 and have a priority as a matter of law.
(b) The Security Agreement is effective to create in favor of the
Administrative Agent, for the ratable benefit of the Secured Parties, a legal,
valid and enforceable security interest in the Collateral (as defined in the
Security Agreement) and, when financing statements in appropriate form are filed
in the offices specified on Schedule 6 to the Perfection Certificate, such
security interest shall constitute a fully perfected Lien on, and security
interest in, all right, title and interest of the grantors thereunder in such
Collateral (other than the Intellectual Property (as defined in the Security
Agreement) in which a security interest may be perfected by filing, recording or
registering a security agreement, financing statement or analogous document in
the United States Patent and Trademark Office or the United States Copyright
Office, as applicable), to the extent a security interest in such Collateral may
be perfected by the filing of financing statements, in each case prior and
superior in right to any other person, other than with respect to Liens that are
permitted by Section 6.02 and have a priority as a matter of law.
(c) When the Security Agreement is filed in the United States Patent
and Trademark Office and the United States Copyright Office, the security
interest created
<PAGE>
58
thereunder shall constitute a fully perfected Lien on, and security interest in,
all right, title and interest of the Loan Parties (other than the Non-Borrower
Subsidiaries) in the Intellectual Property (as defined in the Security
Agreement) in which a security interest may be perfected by filing, recording or
registering a security agreement, financing statement or analogous document in
the United States Patent and Trademark Office or the United States Copyright
Office, as applicable, in each case prior and superior in right to any other
person, other than with respect to Liens expressly permitted by Section 6.02 (it
being understood that subsequent recordings in the United States Patent and
Trademark Office and the United States Copyright Office may be necessary to
perfect a lien on registered trademarks, trademark applications and copyrights
acquired by the Loan Parties after the date hereof).
(d) The Mortgages are effective to create, subject to the exceptions
listed in or covered by each title insurance policy covering such Mortgages and
the Liens on the Mortgaged Properties described in Schedule 6.02, in favor of
the Administrative Agent, for the ratable benefit of the Secured Parties, a
legal, valid and enforceable Lien on all of the right, title and interest of the
respective grantors under the Mortgages in and to the Mortgaged Properties
thereunder and the proceeds thereof in which a Lien may be perfected by the
filing of a mortgage, and when the Mortgages are recorded in the offices
specified on Schedule 3.16(d), each such Lien shall constitute a Lien on, and
security interest in, all right, title and interest of such grantors in such
Mortgaged Properties and the proceeds thereof in which a Lien may be perfected
by the filing of a mortgage, in each case prior and superior in right to any
other person, other than with respect to the rights of persons pursuant to Liens
that are permitted by Section 6.02 and have a priority as a matter of law.
SECTION 3.17. Federal Reserve Regulations. (a) Neither Catalytica,
----------------------------
the Borrower nor any of the Subsidiaries is engaged principally, or as one of
its important activities, in the business of extending credit for the purpose of
buying or carrying Margin Stock.
(b) No part of the proceeds of any Loan or any Letter of Credit will
be used, whether directly or indirectly, and whether immediately, incidentally
or ultimately, for any purpose that entails a violation of, or that is
inconsistent with, the provisions of the Regulations of the Board, including
Regulation G, U or X.
ARTICLE IV
Conditions
----------
SECTION 4.01. Effective Date. The obligations of the Lenders to make
---------------
<PAGE>
59
Loans and of the Issuing Bank to issue Letters of Credit hereunder shall not
become effective until the date on which each of the following conditions is
satisfied (or waived in accordance with Section 9.02):
(a) The Administrative Agent (or its counsel) shall have received
from each party hereto either (i) a counterpart of this Agreement signed on
behalf of such party or (ii) written evidence satisfactory to the
Administrative Agent (which may include telecopy transmission of a signed
signature page of this Agreement) that such party has signed a counterpart
of this Agreement.
(b) The Administrative Agent shall have received a favorable written
opinion (addressed to the Administrative Agent and the Lenders and dated
the Effective Date) of each of (i) Wilson, Sonsini, Goodrich and Rosati,
counsel for Catalytica and the Borrower, substantially in the form of
Exhibit B and (ii) local counsel in each jurisdiction where a Mortgaged
Property is located, substantially in the form of Exhibit C, and, in the
case of each such opinion required by this paragraph, covering such other
matters relating to the Loan Parties, the Loan Documents or the
Transactions as the Required Lenders shall reasonably request. The Borrower
hereby requests such counsel to deliver such opinions.
(c) The Administrative Agent shall have received such documents and
certificates as the Administrative Agent or its counsel may reasonably
request relating to the organization, existence and good standing of each
Loan Party, the authorization of the Transactions and any other legal
matters relating to the Loan Parties, the Loan Documents or the
Transactions, all in form and substance satisfactory to the Administrative
Agent and its counsel.
(d) The Administrative Agent shall have received a certificate, dated
the Effective Date and signed by the President, a Vice President or a
Financial Officer of the Borrower, confirming compliance with the
conditions set forth in paragraphs (a) and (b) of Section 4.02.
(e) The Administrative Agent shall have received all fees and other
amounts due and payable on or prior to the Effective Date, including, to
the extent invoiced, reimbursement or payment of all out-of-pocket expenses
required to be reimbursed or paid by any Loan Party hereunder or under any
other Loan Document.
(f) The Administrative Agent shall have received counterparts of the
Pledge Agreement signed on behalf of Catalytica, the Borrower and each
Subsidiary Loan Party (unless such required signatory does not own Pledged
Securities, as such term is defined in the Pledge Agreement), together with
stock
<PAGE>
60
certificates representing all the outstanding shares of capital stock of
the Borrower and each Subsidiary owned by or on behalf of any Loan Party as
of the Effective Date after giving effect to the Transactions (except that
stock certificates representing shares of common stock of a Foreign
Subsidiary may be limited to 65% (or such smaller percentage as may be
necessary to avoid adverse tax consequences to the Loan Parties) of the
outstanding shares of common stock of such Foreign Subsidiary), promissory
notes evidencing all intercompany Indebtedness owed to any Loan Party by
Catalytica, the Borrower or any Subsidiary as of the Effective Date after
giving effect to the Transactions and undated stock powers and instruments
of transfer, endorsed in blank, with respect to such stock certificates and
intercompany promissory notes.
(g) The Administrative Agent shall have received counterparts of the
Security Agreement signed on behalf of Catalytica, the Borrower and each
Subsidiary Loan Party that is a subsidiary of the Borrower, together with
the following:
(i) all documents and instruments, including Uniform Commercial
Code financing statements, required by law or reasonably requested by
the Administrative Agent to be filed, registered or recorded to create
or perfect the Liens intended to be created under the Security
Agreement; and
(ii) a completed Perfection Certificate dated the Effective Date
and signed by an executive officer(s) or Financial Officer(s) of
Catalytica and the Borrower, together with all attachments
contemplated thereby, including the results of a search of the Uniform
Commercial Code (or equivalent) filings made with respect to
Catalytica, the Borrower and the Subsidiary Loan Parties that are
subsidiaries of the Borrower in the jurisdictions contemplated by the
Perfection Certificate and copies of the financing statements (or
similar documents) disclosed by such search and evidence reasonably
satisfactory to the Administrative Agent that the Liens indicated by
such financing statements (or similar documents) are permitted by
Section 6.02 or have been released.
(h) The Administrative Agent shall have received (i) counterparts of
a Mortgage with respect to each Mortgaged Property signed on behalf of the
record owner of such Mortgaged Property, (ii) a policy or policies of title
insurance issued by a nationally recognized title insurance company,
insuring the Lien of each such Mortgage as a valid Lien on the Mortgaged
Property described therein, free of any other Liens except as permitted by
Section 6.02, in form and substance reasonably acceptable to the
Administrative Agent, together with such endorsements, coinsurance and
reinsurance as the Administrative Agent or the
<PAGE>
61
Required Lenders may reasonably request, (iii) such surveys as may be
required pursuant to such Mortgages or as the Administrative Agent or the
Required Lenders may reasonably request, (iv) evidence in form and
substance reasonably acceptable to the Administrative Agent that each
improvement on the Mortgaged Properties may be legally occupied for the use
being made or intended to be made of such improvement and (v) written
confirmation from the applicable zoning commission or other appropriate
Governmental Authority stating that with respect to each Mortgaged Property
as built it complies with existing land use and zoning ordinances,
regulations and restrictions applicable to such Mortgaged Property.
(i) The Administrative Agent shall have received (i) counterparts of
the Parent Guarantee Agreement signed on behalf of Catalytica, (ii)
counterparts of the Guarantee Agreement signed on behalf of each Subsidiary
Loan Party and (iii) counterparts of the Indemnity, Subrogation and
Contribution Agreement signed on behalf of the Borrower and each Subsidiary
Loan Party, and each of the Parent Guarantee Agreement, the Guarantee
Agreement and the Indemnity, Subrogation and Contribution Agreement shall
be in full force and effect.
(j) The Administrative Agent shall have received a letter
satisfactory in form and substance to it, from Marsh & McLennan, that the
insurance of Catalytica, the Borrower and the Subsidiaries required by
Section 5.07 is in effect.
(k) The Lenders shall have received, and shall be reasonably
satisfied with the results of, an environmental report prepared by Pilko &
Associates, Inc. with respect to any Environmental Liabilities that may be
attributable to such properties or operations as have been specified by the
Administrative Agent for review.
(l) Catalytica shall have received gross cash proceeds of not less
than $120,000,000 from the Equity Financing. Catalytica shall have
contributed all such cash proceeds to the Borrower as common equity.
(m) The Acquisition shall be consummated on the Effective Date in
accordance with applicable law and the Asset Purchase Agreement and the
other Acquisition Documents (without giving effect to any waivers thereof
or changes therein that are adverse to the Lenders and not approved by the
Lenders).
(n) The Lenders shall be reasonably satisfied with (i) the
Acquisition Documents and any waivers or amendments thereto, (ii) the
corporate and capital structure and equity ownership of Catalytica, the
Borrower and the Subsidiaries after giving effect to the Transactions (it
being understood that such corporate and capital structure and equity
ownership are, to the extent specifically described in
<PAGE>
62
this Agreement, satisfactory), including the terms and conditions of the
MSCP Stock, the Existing Preferred Stock, the Junior Preferred Stock and
the Warrants, and (iii) all legal, tax and accounting matters relating to
the Transactions.
(o) The Lenders shall be reasonably satisfied as to the amount and
nature of any Environmental Liabilities and employee health and safety
exposures to which the Borrower and the Subsidiaries may be subject, and
the plans of the Borrower with respect thereto, after giving effect to the
Transactions and the consummation of the other transactions contemplated
hereby.
(p) All material consents and approvals required to be obtained from
and all material registrations and filings with any Governmental Authority
or other Person in connection with the Acquisition and the other
Transactions (including (i) all registrations and filings required by the
FD&C Act (other than those that are not required to be made until after the
Effective Date) and (ii) all environmental permits and other permits
referred to in Section 3.03) shall have been obtained, all applicable
waiting periods and appeal periods shall have expired, in each case without
the imposition of any materially burdensome conditions and there shall be
no action by any Governmental Authority, actual or threatened, that has a
reasonable likelihood of restraining, preventing or imposing materially
burdensome conditions on the Transactions or the other transactions
contemplated hereby. The Administrative Agent shall have received copies
of the Acquisition Documents and all certificates, opinions and other
documents delivered thereunder, certified by a Financial Officer as
complete and correct.
(q) The Lenders shall have received (i) audited consolidated balance
sheets and related statements of income, stockholders' equity and cash
flows for Catalytica for the three fiscal years ended prior to the
Effective Date, (ii) unaudited consolidating balance sheets and related
statements of income, stockholders' equity and cash flows for Catalytica
for fiscal years 1995 and 1996 and (iii) unaudited consolidated and
consolidating balance sheets and related statements of income,
stockholders' equity and cash flows for Catalytica for the fiscal quarters
ended March 31, 1997, and June 30, 1997, which financial statements shall
not be materially inconsistent with the financial statements or forecasts
previously provided to the Lenders. After giving effect to the
Transactions, none of Catalytica, the Borrower nor any of the Subsidiaries
shall have outstanding any shares of preferred stock or any Indebtedness,
other than (i) Indebtedness incurred under the Loan Documents, (ii)
Indebtedness set forth on Schedule 6.01, (iii) the Junior Preferred Stock
and (v) the Existing Preferred Stock. The aggregate amount of fees and
expenses (including underwriting discounts and commissions) payable or
otherwise borne by Catalytica, the Borrower and its subsidiaries in
connection with the Transactions shall not exceed
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63
$8,000,000.
(r) The Administrative Agent shall have received a solvency
certificate from a Financial Officer of Catalytica, in form and substance
reasonably satisfactory to the Lenders, with respect to the solvency of the
Loan Parties on a consolidated basis after giving effect to the
Transactions.
(s) The Administrative Agent shall have received a Borrowing Request
executed by the Borrower.
(t) The Administrative Agent shall be reasonably satisfied with any
arrangements for the retention of qualified management of Catalytica and
the Borrower after giving effect to the Transactions.
(u) Substantially simultaneously with or prior to the initial
borrowing under this Agreement, (i) the Existing Indebtedness shall have
been repaid in full, (ii) all commitments to lend under the Existing
Security and Loan Agreement shall have been permanently terminated and
(iii) all obligations under or relating to the Existing Security and Loan
Agreement (other than indemnification and similar obligations that
customarily survive a termination) and all security interests related
thereto shall have been discharged, and the Administrative Agent shall have
received or substantially simultaneously with or prior to the initial
borrowing under this Agreement shall receive satisfactory evidence of such
repayment, termination and discharge.
(v) Catalytica and the Borrower shall have entered into the Supply
Agreement, which shall be legally binding on the parties thereto and in
full force and effect, in the form previously approved by the
Administrative Agent (subject to changes that are not adverse to the
Lenders), and the Lenders shall be reasonably satisfied with the terms and
conditions of the Supply Agreement (including, without limitation, the
amounts of guaranteed revenues thereunder and the payment terms thereunder,
the duration thereof and the termination provisions thereof).
(w) The Lenders shall have received a report from Ernst & Young LLP,
in form and substance reasonably satisfactory to the Administrative Agent,
with respect to the historical cost structure of the Acquired Facilities.
(x) The Lenders shall have received a report from Fitzmaurice &
Company, LLC, in form and substance reasonably satisfactory to the
Administrative Agent, with respect to the benefits and benefit savings to
be realized by the Borrower and the Acquired Facilities following the
consummation
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64
of the Acquisition.
(y) The Administrative Agent shall be reasonably satisfied with all
the material agreements of Catalytica and the Subsidiaries with their
respective customers and suppliers (including but not limited to any supply
contracts in addition to the Supply Agreement to be entered into with GWI
or any of its subsidiaries in connection with the Acquisition), after
giving effect to the Transactions.
(z) There shall be no litigation or administrative proceeding that
would reasonably be expected to have a Material Adverse Effect.
(aa) The Lenders shall be reasonably satisfied in all respects with
the tax position and the contingent tax and other liabilities of
Catalytica, the Borrower and the Subsidiaries after giving effect to the
Transactions and the other transactions contemplated hereby, and with the
plans of Catalytica with respect thereto.
(bb) The Administrative Agent shall be reasonably satisfied with the
sufficiency of amounts available under the Revolving Commitments to meet
the ongoing working capital requirements of the Borrower and its
subsidiaries following the consummation of the Transactions and the other
transactions contemplated hereby.
(cc) The Administrative Agent shall have received such information,
satisfactory in form and substance to the Administrative Agent, regarding
the value of the real property, personal property and other assets of
Catalytica and the Subsidiaries after giving effect to the Transactions as
shall be reasonably requested by the Administrative Agent.
(dd) The Administrative Agent shall have received updated financial
projections for Catalytica, the Borrower and the Subsidiaries after giving
effect to the Transactions, as of the Effective Date, certified in writing
by a Financial Officer of Catalytica. Such projections shall (a) be in the
same form, and cover the same fiscal periods, as the base case projections
that were included in the Information Memorandum (the "Existing
Projections"), (b) be based on the same assumptions as the assumptions used
in preparing the Existing Projections (which assumptions shall be
reasonable under the circumstances as of the Effective Date) and (c)
project Consolidated EBITDA for Catalytica, the Borrower and the
Subsidiaries after giving effect to the Transactions for the future periods
covered thereby in amounts not less than the projected Consolidated EBITDA
of such operations for such periods set forth in the Existing Projections.
<PAGE>
65
The Administrative Agent shall notify the Borrower and the Lenders of the
Effective Date, and such notice shall be conclusive and binding.
Notwithstanding the foregoing, the obligations of the Lenders to make Loans and
of the Issuing Bank to issue Letters of Credit hereunder shall not become
effective unless each of the foregoing conditions is satisfied (or waived
pursuant to Section 9.02) at or prior to 3:00 p.m., New York City time, on
September 30, 1997 (and, in the event such conditions are not so satisfied or
waived, the Commitments shall terminate at such time).
SECTION 4.02. Each Credit Event. The obligation of each Lender to
------------------
make a Loan on the occasion of any Borrowing, and of the Issuing Bank to issue,
amend, renew or extend any Letter of Credit, is subject to the satisfaction of
the following conditions:
(a) The representations and warranties of each Loan Party set forth
in the Loan Documents shall be true and correct on and as of the date of
such Borrowing or the date of issuance, amendment, renewal or extension of
such Letter of Credit, as applicable, except to the extent that such
representations and warranties expressly relate to an earlier date, in
which case such representations and warranties, shall, to such extent, be
true and correct as of such earlier date.
(b) At the time of and immediately after giving effect to such
Borrowing or the issuance, amendment, renewal or extension of such Letter
of Credit, as applicable, no Default shall have occurred and be continuing.
(c) On the date of such Borrowing, no Material GWI Occupancy is
continuing.
(d) No default shall have occurred and be continuing under the Supply
Agreement (i) that enables or permits GWI to terminate the Supply
Agreement, if at the time the Guaranteed Revenues that are to be paid after
such date exceed $50,000,000, or (ii) that enables or permits the Borrower
to terminate the Supply Agreement, if at the time the Guaranteed Revenues
that are to be paid after such date exceed $50,000,000, and GWI has not
paid in excess of $25,000,000 due and owed to the Borrower under the Supply
Agreement.
Each Borrowing and each issuance, amendment, renewal or extension of a Letter of
Credit shall be deemed to constitute a representation and warranty by Catalytica
and the Borrower on the date thereof as to the matters specified in paragraphs
(a) and (b) of this Section.
ARTICLE V
<PAGE>
66
Affirmative Covenants
---------------------
Until the Commitments have expired or been terminated and the
principal of and interest on each Loan and all fees payable hereunder and all
other expenses or amounts payable under any Loan Document shall have been paid
in full and all Letters of Credit shall have expired or terminated and all LC
Disbursements shall have been reimbursed, each of Catalytica and the Borrower
covenants and agrees with the Lenders that:
SECTION 5.01. Financial Statements and Other Information. Catalytica
-------------------------------------------
will furnish to the Administrative Agent and each Lender:
(a) within 90 days after the end of each fiscal year of Catalytica,
its audited consolidated and unaudited consolidating balance sheet and
related statements of operations, stockholders' equity and cash flows as of
the end of and for such year, setting forth in each case in comparative
form the figures for the previous fiscal year, in the case of such
consolidated financial statements, reported on by Ernst & Young LLP or
other independent public accountants of recognized national standing
(without a "going concern" or like qualification or exception and without
any qualification or exception as to the scope of such audit) to the effect
that such consolidated financial statements present fairly in all material
respects the financial condition and results of operations of Catalytica
and its consolidated subsidiaries on a consolidated basis in accordance
with GAAP consistently applied;
(b) within 45 days after the end of each of the first three fiscal
quarters of each fiscal year of Catalytica, its consolidated and
consolidating balance sheet and related statements of operations,
stockholders' equity and cash flows as of the end of and for such fiscal
quarter and the then elapsed portion of the fiscal year, setting forth in
each case in comparative form the figures for the corresponding period or
periods of (or, in the case of the balance sheet, as of the end of) the
previous fiscal year, all certified by one of its Financial Officers as
presenting fairly in all material respects the financial condition and
results of operations of Catalytica and its consolidated subsidiaries on a
consolidated basis in accordance with GAAP consistently applied, subject to
normal year-end audit adjustments and the absence of footnotes;
(c) within 30 days after the end of each of the first two fiscal
months of each fiscal quarter of Catalytica, its consolidated and
consolidating balance sheet and related statements of operations,
stockholders' equity and cash flows as of the end of and for such fiscal
month and the then elapsed portion of the fiscal year, all
<PAGE>
67
certified by one of its Financial Officers as presenting in all material
respects the financial condition and results of operations of Catalytica
and its consolidated subsidiaries on a consolidated basis in accordance
with GAAP consistently applied, subject to normal year-end audit
adjustments and the absence of footnotes;
(d) concurrently with any delivery of financial statements under
clause (a) or (b) above, a certificate of a Financial Officer of the
Borrower (i) certifying as to whether a Default of which Catalytica or the
Borrower is aware has occurred and is continuing and, if such a Default has
occurred and is continuing, specifying the details thereof and any action
taken or proposed to be taken with respect thereto, (ii) setting forth
reasonably detailed calculations demonstrating compliance with Sections
6.13, 6.14 and 6.15 and (iii) stating whether any change in GAAP or in the
application thereof not previously disclosed to the Lenders has occurred
since the date of Catalytica's audited financial statements referred to in
Section 3.04 and, if any such change has occurred, specifying the effect of
such change on the financial statements accompanying such certificate;
(e) concurrently with any delivery of financial statements under
clause (a) above, a certificate of the accounting firm that reported on
such financial statements stating whether they obtained knowledge during
the course of their examination of such financial statements of any Default
(which certificate may be limited to the extent required by accounting
rules or guidelines);
(f) (i) at least 30 days prior to the commencement of each fiscal
year of Catalytica and the Borrower, a detailed preliminary consolidated
budget for such fiscal year (including a projected consolidated balance
sheet and related statements of projected operations and cash flow as of
the end of and for such fiscal year), (ii) within one month after the end
of the prior fiscal year, a final version of such preliminary budget and
(iii) promptly when available, any significant revisions of any such
budget;
(g) promptly after the same become publicly available, copies of all
periodic and other reports, proxy statements and other materials filed by
Catalytica, the Borrower or any Subsidiary with the Securities and Exchange
Commission, or any Governmental Authority succeeding to any or all of the
functions of said Commission, or with any national securities exchange, as
the case may be; and
(h) promptly following any request therefor, such other information
regarding the operations, business affairs and financial condition of
Catalytica, the
<PAGE>
68
Borrower or any Subsidiary (including information for each of Catalytica's
and the Borrower's business lines), or compliance with the terms of any
Loan Document, as the Administrative Agent or any Lender may reasonably
request.
SECTION 5.02. Notices of Material Events. Catalytica and the
---------------------------
Borrower will furnish to the Administrative Agent and each Lender prompt written
notice of the following events of which Catalytica, the Borrower or any
Subsidiary is aware:
(a) the occurrence of any Default;
(b) the filing or commencement of any action, suit or proceeding by or
before any arbitrator or Governmental Authority against or affecting
Catalytica, the Borrower or any Affiliate thereof that, if adversely
determined, could reasonably be expected to result in a Material Adverse
Effect;
(c) the occurrence of any ERISA Event that, alone or together with any
other ERISA Events that have occurred, could reasonably be expected to
result in liability of Catalytica, the Borrower and the Subsidiaries in an
aggregate amount exceeding $3,000,000;
(d) the occurrence of a Material GWI Occupancy or the existence of
circumstances giving either party to the Supply Agreement the right to
terminate the Supply Agreement; and
(e) any other development that results in, or could reasonably be
expected to result in, a Material Adverse Effect.
Each notice delivered under this Section shall be accompanied by a statement of
a Financial Officer or other executive officer of Catalytica setting forth the
details of the event or development requiring such notice and any action taken
or proposed to be taken with respect thereto.
SECTION 5.03. Information Regarding Collateral. (a) The Borrower
---------------------------------
will furnish to the Administrative Agent prompt written notice of any change (i)
in any Loan Party's corporate name or in any trade name used to identify it in
the conduct of its business or in the ownership of its properties, (ii) in the
location of any Loan Party's chief executive office, its principal place of
business, any office in which it maintains books or records relating to
Collateral owned by it or any office or facility at which Collateral owned by it
is located (including the establishment of any such new office or facility),
(iii) in any Loan Party's identity or corporate structure or (iv) in any Loan
Party's Federal Taxpayer Identification Number. Each of Catalytica and the
Borrower agrees not to effect or permit any change referred to in the preceding
sentence unless all filings have been made under the Uniform Commercial Code or
otherwise that are required in order
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69
for the Administrative Agent to continue at all times following such change to
have a valid, legal and perfected security interest in all the Collateral. The
Borrower also agrees promptly to notify the Administrative Agent if any material
portion of the Collateral is damaged or destroyed.
(b) Each year, at the time of delivery of annual financial statements
with respect to the preceding fiscal year pursuant to clause (a) of Section
5.01, the Borrower shall deliver to the Administrative Agent a certificate of a
Financial Officer of the Borrower (i) setting forth the information required
pursuant to Section 2 of the Perfection Certificate or confirming that there has
been no change in such information since the date of the Perfection Certificate
delivered on the Effective Date or the date of the most recent certificate
delivered pursuant to this Section and (ii) certifying that all Uniform
Commercial Code financing statements (including fixture filings, as applicable)
or other appropriate filings, recordings or registrations, including all
refilings, rerecordings and reregistrations, containing a description of the
Collateral have been filed of record in each governmental, municipal or other
appropriate office in each jurisdiction identified pursuant to clause (i) above
to the extent necessary to protect and perfect the security interests under the
Security Agreement for a period of not less than 18 months after the date of
such certificate (except as noted therein with respect to any continuation
statements to be filed within such period).
SECTION 5.04. Existence; Conduct of Business. Each of Catalytica and
-------------------------------
the Borrower will, and will cause each of the Subsidiaries to, do or cause to be
done all things necessary to preserve, renew and keep in full force and effect
its legal existence and the rights, licenses, permits, privileges, franchises,
patents, copyrights, trademarks and trade names material to the conduct of its
business; provided that the foregoing shall not prohibit any merger,
--------
consolidation, liquidation or dissolution permitted under Section 6.03.
SECTION 5.05. Payment of Obligations. Each of Catalytica and the
-----------------------
Borrower will, and will cause each of the Subsidiaries to, pay its Indebtedness
and other obligations, including Tax liabilities, before the same shall become
delinquent or in default, except where the failure to make payment could not
reasonably be expected to result in a Material Adverse Effect.
SECTION 5.06. Maintenance of Properties. Each of Catalytica and the
--------------------------
Borrower will, and will cause each of the Subsidiaries to, keep and maintain all
property material to the conduct of its business in good working order and
condition, ordinary wear and tear excepted.
SECTION 5.07. Insurance. (a) Each of Catalytica and the Borrower
----------
will, and will cause each of the Subsidiaries to, maintain, with financially
sound and reputable
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70
insurance companies:
(i) insurance, in such amounts and with such deductibles and self-
insured retention as are customarily maintained by companies in the same or
similar business operating in the same or similar locations; and
(ii) such other insurance as may be required by law.
(b) Fire and extended coverage policies (and any policies required to
be maintained pursuant to paragraph (c) below) maintained with respect to any
Collateral shall be endorsed or otherwise amended to include (i) a non-
contributing mortgage clause (regarding improvements to real property) and
lenders' loss payable clause (regarding personal property), in each case in
favor of the Administrative Agent and providing for losses thereunder to be
payable to the Administrative Agent or its designee, (ii) a provision to the
effect that neither the Borrower, the Administrative Agent nor any other party
shall be a coinsurer and (iii) such other provisions as the Administrative Agent
may reasonably require from time to time to protect the interests of the
Lenders. Commercial general liability policies shall be endorsed to name the
Administrative Agent as an additional insured. Business interruption policies
shall name the Administrative Agent as loss payee. Each such policy referred to
in this paragraph also shall provide that it shall not be canceled, modified or
not renewed (i) by reason of nonpayment of premium except upon not less than 10
days' prior written notice thereof by the insurer to the Administrative Agent
(giving the Administrative Agent the right to cure defaults in the payment of
premiums) or (ii) for any other reason except upon not less than 30 days' prior
written notice thereof by the insurer to the Administrative Agent. The Borrower
shall deliver to the Administrative Agent, prior to the cancelation,
modification or nonrenewal of any such policy of insurance, a copy of a renewal
or replacement policy (or other evidence of renewal of a policy previously
delivered to the Administrative Agent) together with evidence satisfactory to
the Administrative Agent of payment of the premium therefor.
(c) If at any time the area in which any Mortgaged Property is
located is designated (i) a "flood hazard area" in any Flood Insurance Rate Map
published by the Federal Emergency Management Agency (or any successor agency),
the Borrower shall obtain flood insurance in such total amount as is customarily
maintained by companies in the same or similar business with respect to similar
properties, and otherwise comply with the National Flood Insurance Program as
set forth in the Flood Disaster Protection Act of 1973, as amended from time to
time, or (ii) a "Zone 1" area, the Borrower shall obtain earthquake insurance in
such total amount as is customarily maintained by companies in the same or
similar business with respect to similar properties.
SECTION 5.08. Casualty and Condemnation. (a) The Borrower will
--------------------------
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71
furnish to the Administrative Agent and the Lenders prompt written notice of any
casualty or other insured damage to any portion of any Collateral having a fair
market value (as determined in good faith by the board of directors of the
Borrower) in excess of $2,000,000 or the commencement of any action or
proceeding for the taking of any Collateral or any part thereof or interest
therein having a fair market value (as determined in good faith by the board of
directors of the Borrower) in excess of $2,000,000 under power of eminent domain
or by condemnation or similar proceeding.
(b) If any event described in paragraph (a) of this Section results
in Net Proceeds (whether in the form of insurance proceeds, condemnation award
or otherwise), the Administrative Agent is authorized to collect such Net
Proceeds and, if received by Catalytica, the Borrower or any Subsidiary, such
Net Proceeds shall be paid over to the Administrative Agent; provided that (i)
to the extent the aggregate Net Proceeds in respect of such event (other than
proceeds of business income insurance) are less than or equal to $15,000,000,
such Net Proceeds shall be paid over to the Borrower unless an Event of Default
has occurred and is continuing, and (ii) all proceeds of business income
insurance shall be paid over to the Borrower unless an Event of Default has
occurred and is continuing. All such Net Proceeds retained by or paid over to
the Administrative Agent shall be held by the Administrative Agent and released
from time to time to pay the costs of repairing, restoring or replacing the
affected property in accordance with the terms of the applicable Security
Document, subject to the provisions of the applicable Security Document
regarding application of such Net Proceeds during a Default.
(c) If any Net Proceeds retained by or paid over to the
Administrative Agent as provided above continue to be held by the Administrative
Agent on the date that is 365 days after the receipt of such Net Proceeds, then
such Net Proceeds shall be applied to prepay Term Borrowings as provided in
Section 2.10(b), except as otherwise provided in the definition of the term Net
Proceeds.
SECTION 5.09. Books and Records; Inspection and Audit Rights. Each
-----------------------------------------------
of Catalytica and the Borrower will, and will cause each of the Subsidiaries to,
keep proper books of record and account in which full, true and correct entries
are made of all dealings and transactions in relation to its business and
activities. Each of Catalytica and the Borrower will, and will cause each of
the Subsidiaries to, permit any representatives designated by the Administrative
Agent or any Lender, upon reasonable prior notice, to visit and inspect its
properties, to examine and make extracts from its books and records, and to
discuss its affairs, finances and condition with its officers and independent
accountants, all at such reasonable times and as often as reasonably requested
(but not more frequently than one time each year if no Default exists), subject
to the right of Catalytica and the Borrower to have a representative present.
SECTION 5.10. Compliance with Laws. Each of Catalytica and the
---------------------
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72
Borrower will, and will cause each of the Subsidiaries to, comply with all laws,
rules, regulations and orders (including but not limited to (i) registration as
required by the FD&C Act and (ii) maintenance of permits required under
Environmental Laws and any other permits as required in connection with the
Acquired Facilities) of any Govern mental Authority applicable to it or its
property, except where the failure to do so, individually or in the aggregate,
could not reasonably be expected to result in a Material Adverse Effect.
SECTION 5.11. Use of Proceeds and Letters of Credit. The proceeds of
--------------------------------------
the Loans will be used only for the purposes set forth in the fourth paragraph
of the preliminary statement. No part of the proceeds of any Loan will be used,
whether directly or indirectly, for any purpose that entails a violation of any
of the Regulations of the Board, including Regulations G, U and X. Letters of
Credit will be issued only for ordinary course purposes.
SECTION 5.12. Additional Subsidiaries. If any additional Subsidiary
------------------------
that is not an Inactive Subsidiary is formed or acquired after the Effective
Date, the Borrower will notify the Administrative Agent and the Lenders thereof
and (a) if such Subsidiary is a Subsidiary Loan Party, the Borrower will cause
such Subsidiary to become a party to the Guarantee Agreement and the Indemnity,
Subrogation and Contribution Agreement in the manner provided therein within
three Business Days after such Subsidiary is formed or acquired, (b) if such
Subsidiary is a Subsidiary Loan Party that is a subsidiary of the Borrower, the
Borrower will cause such Subsidiary to become a party to each applicable
Security Document in the manner provided therein within three Business Days
after such Subsidiary is formed or acquired and promptly take such actions to
create and perfect Liens on such Subsidiary's assets to secure the Obligations
as the Administrative Agent or the Required Lenders shall reasonably request,
and (c) if any shares of capital stock or Indebtedness of any additional
Subsidiary are owned by or on behalf of any Loan Party, the Borrower will cause
such shares and promissory notes evidencing such Indebtedness to be pledged
pursuant to the Pledge Agreement within three Business Days after such
Subsidiary is formed or acquired (except that, if such Subsidiary is a Foreign
Subsidiary, shares of common stock of such Subsidiary to be pledged pursuant to
the Pledge Agreement may be limited to 65% (or such lesser percentage as is
necessary to avoid adverse tax consequences to any Loan Party) of the
outstanding shares of common stock of such Subsidiary).
SECTION 5.13. Further Assurances. (a) Each of Catalytica and the
-------------------
Borrower will, and will cause each Subsidiary Loan Party to, execute any and all
further documents, financing statements, agreements and instruments, and take
all such further actions (including the filing and recording of financing
statements, fixture filings, mortgages, deeds of trust and other documents),
that may be required under any
<PAGE>
73
applicable law, or which the Administrative Agent or the Required Lenders may
reasonably request, to effectuate the transactions contemplated by the Loan
Documents or to grant, preserve, protect or perfect the Liens created or
intended to be created by the Security Documents or the validity or priority of
any such Lien, all at the expense of the Loan Parties. Catalytica and the
Borrower also agree to provide to the Administrative Agent, from time to time
upon request, evidence reasonably satisfactory to the Administrative Agent as to
the perfection and priority of the Liens created or intended to be created by
the Security Documents.
(b) If any material assets (including any real property or
improvements thereto or any interest therein) are acquired by Catalytica, the
Borrower or any Subsidiary that is a subsidiary of the Borrower after the
Effective Date (other than assets constituting Collateral under the Security
Agreement that become subject to the Lien of the Security Agreement upon
acquisition thereof), the Borrower will notify the Administrative Agent and the
Lenders thereof, and, if requested by the Administrative Agent or the Required
Lenders, the Borrower will cause such assets to be subjected to a Lien securing
the Obligations and will take, and cause such Subsidiary Loan Parties to take,
such actions as shall be necessary or reasonably requested by the Administrative
Agent to grant and perfect such Liens, including actions described in paragraph
(a) of this Section, all at the expense of the Borrower.
ARTICLE VI
Negative Covenants
------------------
Until the Commitments have expired or terminated and the principal of
and interest on each Loan and all fees payable hereunder have been paid in full
and all Letters of Credit have expired or terminated and all LC Disbursements
shall have been reimbursed, each of Catalytica and the Borrower covenants and
agrees with the Lenders that:
SECTION 6.01. Indebtedness; Certain Equity Securities. (a)
----------------------------------------
Catalytica and the Borrower will not, and Catalytica and the Borrower will not
permit any Subsidiary to, create, incur, assume or permit to exist any
Indebtedness, except:
(i) Indebtedness created under the Loan Documents;
(ii) Indebtedness existing on the date hereof and set forth in
Schedule 6.01 and extensions, renewals and replacements of any such
Indebtedness that do not
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74
increase the outstanding principal amount thereof by more than 5% or result
in an earlier maturity date or decreased weighted average life thereof;
(iii) Indebtedness arising from loans and advances permitted by
Section 6.04(e);
(iv) Guarantees by one Loan Party or Subsidiary of Indebtedness of
another Loan Party or Subsidiary; provided that (A) Guarantees by
--------
Catalytica, the Borrower or any Subsidiary Loan Party of Indebtedness of
any Subsidiary that is not a Loan Party, (B) Guarantees by Catalytica, the
Borrower or any subsidiary of the Borrower of Indebtedness of Non-Borrower
Subsidiaries and (C) Guarantees by Catalytica Combustion or Advanced
Technologies of Indebtedness of other Non-Borrower Subsidiaries all shall
be subject to Section 6.04;
(v) Indebtedness of the Borrower or any Subsidiary incurred to
finance Capital Expenditures, including Capital Lease Obligations and any
Indebtedness assumed in connection Capital Expenditures or secured by a
Lien on any fixed or capital assets prior to the acquisition thereof, and
extensions, renewals and replacements of any such Indebtedness that do not
increase the outstanding principal amount thereof by more than 5% or result
in an earlier maturity date or decreased weighted average life thereof;
provided that (A) such Indebtedness is incurred prior to or within 90 days
--------
after the completion of such Capital Expenditures and (B) the aggregate
principal amount of Indebtedness permitted by this clause (v) shall not
exceed $25,000,000 at any time outstanding;
(vi) Indebtedness of any Person that becomes a Subsidiary after the
date hereof; provided that (A) such Indebtedness exists at the time such
--------
Person becomes a Subsidiary or is created in contemplation of or in
connection with such Person becoming a Subsidiary and (B) the aggregate
principal amount of Indebtedness permitted by this clause (vi) shall not
exceed $10,000,000 at any time outstanding;
(vii) other unsecured Indebtedness in an aggregate principal amount
not exceeding $25,000,000 at any time outstanding; and
(viii) after the Catalytica Combustion Release Date, other
Indebtedness of Catalytica Combustion or its subsidiaries in an aggregate
principal amount not exceeding $20,000,000 at any time outstanding.
(b) Neither Catalytica nor the Borrower will, nor will they permit
any Subsidiary to, issue any preferred stock or be or become (except to the
extent permitted by Section 6.08)) liable in respect of any obligation
(contingent or otherwise) to purchase,
<PAGE>
75
redeem, retire, acquire or make any other payment in respect of any shares of
capital stock of Catalytica, the Borrower or any Subsidiary or any option,
warrant or other right to acquire any such shares of capital stock other than
(i) the issuance of the Junior Preferred Stock by the Borrower pursuant to the
Junior Preferred Purchase Agreement, (ii) the issuance of Series C Preferred
Stock by the Borrower pursuant to the Share Exchange Agreement, (iii) the
redemption of the MSCP Stock upon a change of control as defined in the
Investment Agreement or in connection with any obligation to repurchase at any
time after July 1, 2005, the Class A Common Stock and the Class B Common Stock,
as described in the Investment Agreement, and (iv) the redemption of the Series
B Preferred Stock of the Borrower on or after October 1, 2002, in accordance
with the terms of such Preferred Stock and (v) the issuance of capital stock of
Catalytica Combustion.
SECTION 6.02. Liens. Catalytica and the Borrower will not, and
------
Catalytica and the Borrower will not permit any Subsidiary to, create, incur,
assume or permit to exist any Lien on any property or asset now owned or
hereafter acquired by it, or assign or sell any income or revenues (including
accounts receivable) or rights in respect of any thereof, except:
(a) Liens created under the Loan Documents;
(b) Permitted Encumbrances;
(c) Liens created under the Deed of Easement;
(d) any Lien on any property or asset of Catalytica, the Borrower or
any Subsidiary existing on the date hereof and set forth in Schedule 6.02;
provided that (i) such Lien shall not apply to any other property or asset
--------
of Catalytica, the Borrower or any Subsidiary and (ii) such Lien shall
secure only those obligations that it secures on the date hereof and
extensions, renewals and replacements thereof that do not increase the
outstanding principal amount thereof by more than 5%;
(e) any Lien existing on any property or asset prior to the
acquisition thereof by Catalytica, the Borrower or any Subsidiary or
existing on any property or asset of any Person that becomes a Subsidiary
after the date hereof prior to the time such Person becomes a Subsidiary;
provided that (i) such Lien is not created in contemplation of or in
--------
connection with such acquisition or such Person becoming a Subsidiary, as
the case may be, (ii) such Lien shall not apply to any other property or
assets of Catalytica, the Borrower or any Subsidiary and (iii) such Lien
shall secure only those obligations that it secures on the date of such
acquisition or the date such Person becomes a Subsidiary, as the case may
be, and extensions, renewals and replacements thereof that do not increase
the
<PAGE>
76
outstanding principal amount thereof by more than 5%;
(f) Liens on fixed or capital assets acquired, constructed or improved
by Catalytica, the Borrower or any Subsidiary; provided that (i) such
--------
security interests secure Indebtedness permitted by clause (v) of Section
6.01(a), (ii) such security interests and the Indebtedness secured thereby
are incurred prior to or within 90 days after such acquisition or the
completion of such construction or improvement, (iii) the Indebtedness
secured thereby does not exceed the cost of acquiring, constructing or
improving such fixed or capital assets and (iv) such security interests
shall not apply to any other property or assets of Catalytica, the Borrower
or any Subsidiary; and
(g) after the Catalytica Combustion Release Date, Liens on assets of
Catalytica Combustion and its subsidiaries securing Indebtedness permitted
by Section 6.01(a)(viii).
SECTION 6.03. Fundamental Changes. (a) Catalytica and the Borrower
--------------------
will not and will not permit any Subsidiary to, merge into or consolidate with
any other Person, or permit any other Person to merge into or consolidate with
it, or liquidate or dissolve, except that, if at the time thereof and
immediately after giving effect thereto no Event of Default shall have occurred
and be continuing (i) any Subsidiary may merge into the Borrower in a
transaction in which the Borrower is the surviving corporation, (ii) any
Subsidiary may merge into any Subsidiary Loan Party in a transaction in which
the surviving entity is a Subsidiary Loan Party, (iii) any Subsidiary that is
not a Loan Party may merge into any Subsidiary that is not a Loan Party and (iv)
any Subsidiary may liquidate or dissolve if the Borrower determines in good
faith that such liquidation or dissolution is in the best interests of the
Borrower and is not materially disadvantageous to the Lenders; provided that any
--------
such merger involving a Person that is not a wholly owned Subsidiary immediately
prior to such merger shall not be permitted unless also permitted by Section
6.04.
(b) Catalytica and the Borrower will not, and will not permit any of
the Subsidiaries to, engage to any material extent in any business other than
businesses of the type conducted by Catalytica, the Borrower and the
Subsidiaries on the date of execution of this Agreement and businesses
reasonably related thereto.
SECTION 6.04. Investments, Loans, Advances, Guarantees and
--------------------------------------------
Acquisitions. Catalytica and the Borrower will not, and will not permit any of
- -------------
the Subsidiaries to, purchase, hold or acquire (including pursuant to any merger
with any Person that was not a wholly owned Subsidiary prior to such merger) any
capital stock, evidences of indebtedness or other securities (including the
purchase or exercise of any option, warrant or other right to acquire any of the
foregoing) of, make or permit to exist
<PAGE>
any loans or advances to, Guarantee any obligations of, or make or permit to
exist any investment or any other interest in, any other Person, or purchase or
otherwise acquire (in one transaction or a series of transactions) any assets of
any other Person constituting a business unit, except:
(a) the Acquisition;
(b) Permitted Investments;
(c) investments existing on the date hereof and set forth on Schedule
6.04, to the extent such investments would not be permitted under any other
clause of this Section;
(d) subject to the final paragraph of this Section, investments by
Catalytica, the Borrower and the Subsidiaries in Catalytica, the Borrower
and the Subsidiaries; provided that any shares of capital stock issued in
--------
connection with such investments shall be pledged pursuant to the Pledge
Agreement (subject to the limitations applicable to common stock of a
Foreign Subsidiary referred to in Section 5.12);
(e) subject to the final paragraph of this Section, loans or advances
made by Catalytica, the Borrower and the Subsidiaries to Catalytica, the
Borrower and the Subsidiaries; provided that any such loans and advances
--------
made by a Loan Party shall be evidenced by a promissory note pledged
pursuant to the Pledge Agreement;
(f) Subject to the final paragraph of this Section, Guarantees
constituting Indebtedness permitted by Section 6.01;
(g) investments, securities or other interests received in connection
with the bankruptcy or reorganization of, or settlement of delinquent
accounts and disputes with, customers and suppliers, in each case in the
ordinary course of business;
(h) loans and advances to officers, directors and employees of
Catalytica and its subsidiaries made in the ordinary course of business and
not exceeding $2,500,000 in the aggregate at any time outstanding; and
(i) investments, loans, advances and Guarantees not otherwise
permitted above so long as the amount of such investments, loans, advances
and Guarantees does not exceed $15,000,000 in the aggregate at any time
outstanding.
<PAGE>
78
Notwithstanding the provisions of Section 6.04(d), (e) and (f), (a)
the amount of (i) investments by the Loan Parties made after the Effective Date
in subsidiaries that are not Loan Parties, (ii) loans and advances by Loan
Parties made after the Effective Date to Subsidiaries that are not Loan Parties
and (iii) Guarantees entered into by any Loan Party after the Effective Date of
Indebtedness of Subsidiaries that are not Loan Parties shall not exceed
$5,000,000 in the aggregate at any time outstanding, (b) the amount of (i)
investments made by Catalytica, the Borrower or any subsidiary of the Borrower
after the Effective Date in Catalytica Combustion or any of its subsidiaries,
(ii) loans and advances made by Catalytica, the Borrower or any subsidiary of
the Borrower after the Effective Date to Catalytica Combustion or any of its
subsidiaries and (iii) Guarantees entered into by Catalytica, the Borrower or
any subsidiary of the Borrower after the Effective Date of Indebtedness of
Catalytica Combustion or any of its subsidiaries shall not exceed $5,000,000 in
the aggregate in any fiscal year of Catalytica, provided that any portion of
such amount not used in such fiscal year (including any portion attributable to
this proviso) will be added to the permitted amount for the succeeding fiscal
year, (c) the aggregate amount of (i) investments made by Catalytica, the
Borrower or any subsidiary of the Borrower after the Effective Date in Advanced
Technologies or any of its subsidiaries, (ii) loans and advances made by
Catalytica, the Borrower or any subsidiary of the Borrower after the Effective
Date to Advanced Technologies or any of its subsidiaries and (iii) Guarantees
entered into by Catalytica, the Borrower or any subsidiary of the Borrower after
the Effective Date of Indebtedness of Advanced Technologies or any of its
subsidiaries shall not exceed $1,000,000 in the aggregate in any fiscal year of
Catalytica, provided that any portion of such amount not used in such fiscal
year (including any portion attributable to this proviso) will be added to the
permitted amount for the succeeding fiscal year, (d) none of Catalytica, the
Borrower or any subsidiary of the Borrower shall after the Effective Date make
any investment in or loan or advance to or Guarantee any Indebtedness of any
Non-Borrower Subsidiary other than Catalytica Combustion, Advanced Technologies
and their respective subsidiaries, (e) none of Catalytica Combustion, Advanced
Technologies or any of their subsidiaries shall make after the Effective Date
any investment in or loan or advance to or Guarantee any Indebtedness of any
other Non-Borrower Subsidiaries other than their respective subsidiaries and (f)
on and after the Catalytica Combustion Release Date, none of Catalytica, the
Borrower or any Subsidiary other than Catalytica Combustion and its subsidiaries
shall make any investment in or loan or advance to or Guarantee any Indebtedness
of Catalytica Combustion or any of its subsidiaries.
SECTION 6.05. Asset Sales. Catalytica and the Borrower will not, and
------------
will not permit any of the Subsidiaries to, sell, transfer, lease or otherwise
dispose of any asset, including any capital stock, nor will Catalytica or the
Borrower permit the Borrower or any Subsidiary to issue any additional shares of
its capital stock or other ownership interest in the Borrower or such
Subsidiary, as the case may be, except:
<PAGE>
79
(a) sales or leases of inventory, used or surplus furniture, used or
surplus equipment and Permitted Investments in the ordinary course of
business;
(b) sales, transfers and dispositions to Catalytica, the Borrower or a
Subsidiary; provided that any such sales, transfers or dispositions
--------
involving a Subsidiary that is not a Loan Party shall be made in compliance
with Section 6.09;
(c) sales, transfers and dispositions of assets (other than capital
stock of the Borrower or a Subsidiary) that are not permitted by any other
clause of this Section; provided that the aggregate fair market value of
--------
all assets sold, transferred or otherwise disposed of in reliance upon this
clause (c) shall not exceed $10,000,000 during any fiscal year of the
Borrower or $25,000,000 during the term of this Agreement; provided that
(i) all sales, transfers, leases and other dispositions permitted pursuant
to this Section 6.05(c) shall be made for fair value and for consideration
at least 75% of which is cash, (ii) Catalytica and its subsidiaries may
sell, transfer, lease or otherwise dispose of assets having an aggregate
value of $2,000,000 in each fiscal year of Catalytica without regard to
clause (i) of this proviso solely for non-cash consideration or for
consideration less than 75% of which is cash, and (iii) any such sale,
transfer or other disposition may be made for consideration consisting of
assets to be used in the same line of business as the assets disposed of
without regard to clause (i) of this proviso.
(d) issuances by the Borrower of Junior Preferred Stock and Series C
Preferred Stock in accordance with the Acquisition Documents;
(e) issuances of capital stock by Catalytica Combustion;
(f) Restricted Payments permitted by Section 6.08; and
(g) issuances of the capital stock of any Subsidiary (i) pro rata to
the holders of such Subsidiary's capital stock or (ii) to any Loan Party;
provided that such capital stock issued to a Loan Party shall be pledged
--------
pursuant to the Pledge Agreement.
SECTION 6.06. Sale and Lease-Back Transactions. Enter into any
---------------------------------
arrangement, directly or indirectly, with any person whereby it shall sell or
transfer any property, real or personal, used or useful in its business, whether
now owned or hereafter acquired, and thereafter rent or lease such property or
other property which it intends to use for substantially the same purpose or
purposes as the property being sold or transferred, provided that, subject to
Section 6.05, the Borrower and the Subsidiaries may enter into any such
transaction to the extent the Capital Lease Obligation and Liens
<PAGE>
80
associated therewith would be permitted by Sections 6.01(a)(v) and 6.02.
SECTION 6.07. Hedging Agreements. Catalytica and the Borrower will
-------------------
not, and will not permit any of the Subsidiaries to, enter into any Hedging
Agreement, other than Hedging Agreements entered into in the ordinary course of
business to hedge or mitigate risks to which Catalytica, the Borrower or any
Subsidiary is exposed in the conduct of its business or the management of its
interest rate exposures and similar liabilities.
SECTION 6.08. Restricted Payments. Catalytica and the Borrower will
--------------------
not, and will not permit any Subsidiary to, declare or make, or agree to pay or
make, directly or indirectly, any Restricted Payment, except (a) Catalytica and
its subsidiaries may declare and pay dividends pro rata to their stockholders
with respect to their capital stock payable solely in additional shares of their
capital stock, (b) the Borrower and the Subsidiaries may declare and pay
dividends to Loan Parties, (c) after the Catalytica Combustion Release Date,
Catalytica Combustion and its subsidiaries may declare and pay dividends ratably
with respect to their capital stock (d) Catalytica may effect the MSCP
Redemption and (e) Catalytica may make Restricted Payments, not exceeding
$2,000,000 during any fiscal year, with respect to stock option plans or other
benefit plans for management or employees of Catalytica, the Borrower and the
Subsidiaries approved by their respective boards of directors.
SECTION 6.09. Transactions with Affiliates. Catalytica and the
-----------------------------
Borrower will not, and will not permit any Subsidiary to, sell, lease or
otherwise transfer any property or assets to, or purchase, lease or otherwise
acquire any property or assets from, or otherwise engage in any other
transactions with, any of its Affiliates, except (a) transactions that are at
prices and on terms and conditions not less favorable to Catalytica, the
Borrower or such Subsidiary than could be obtained on an arm's-length basis from
unrelated third parties, (b) subject to Section 6.04 and the other provisions of
this Article VI, transactions between or among Catalytica, the Borrower and the
Subsidiary Loan Parties not involving any other Affiliate, (c) any Restricted
Payment permitted by Section 6.08 and (d) payments in respect of Taxes made by
the Borrower or any of the Subsidiaries to Catalytica.
SECTION 6.10. Restrictive Agreements. Catalytica and the Borrower
-----------------------
will not, and will not permit any Subsidiary to, directly or indirectly, enter
into, incur or permit to exist any agreement or other arrangement that
prohibits, restricts or imposes any condition upon (a) the ability of
Catalytica, the Borrower or any Subsidiary to create, incur or permit to exist
any Lien upon any of its property or assets, or (b) the ability of any
Subsidiary to pay dividends or other distributions with respect to any shares of
its capital stock or to make or repay loans or advances to the Borrower or any
other Subsidiary or to Guarantee Indebtedness of the Borrower or any other
Subsidiary; provided that (i) the foregoing shall not apply to restrictions and
--------
conditions imposed by
<PAGE>
81
law or by any Loan Document, (ii) the foregoing shall not apply to restrictions
and conditions existing on the date hereof identified on Schedule 6.10 (but
shall apply to any amendment or modification expanding the scope of any such
restriction or condition), (iii) the foregoing shall not apply to customary
restrictions and conditions contained in agreements relating to the sale of a
Subsidiary pending such sale, provided such restrictions and conditions apply
only to the Subsidiary that is to be sold and such sale is permitted hereunder,
(iv) clause (a) of the foregoing shall not apply to restrictions or conditions
imposed by any agreement relating to secured Indebtedness permitted by this
Agreement if such restrictions or conditions apply only to the property or
assets securing such Indebtedness and (v) clause (a) of the foregoing shall not
apply to customary provisions in leases restricting the assignment thereof.
SECTION 6.11. Sterile Facility Pay-Out. The Borrower will not make
------------------------
any payment to GWI in connection with the Sterile Facility Pay-Out at any time
when (a) an Event of Default has occurred or (b) a failure by the Borrower to
make any payment when due under this Agreement has occurred, provided that all
--------
such payments in connection with the Sterile Facility Pay-Out that were deferred
following the occurrence of an Event of Default or during the continuance of a
payment default under this Agreement, together with interest thereon at the rate
of 10% per annum from the date originally due to the date actually paid, may be
made (i) upon 60 days following the waiver, as provided in Section 9.02, of all
such Events of Default or (ii) immediately upon the cure of all such payment
defaults, provided that the Borrower's Obligations have not been declared to be
or become immediately due and payable pursuant to Article VII or that any such
acceleration of such Obligations has been duly rescinded.
SECTION 6.12. Amendment of Material Documents. (a) Catalytica and
--------------------------------
the Borrower will not, and will not permit any Subsidiary to, amend, modify or
waive any of its rights under (i) its certificate of incorporation, by-laws or
other organizational documents, (ii) the Asset Purchase Agreement, (iii) the
Environmental Agreement dated June 22, 1997, between GWI and Catalytica or (iv)
the other Acquisition Documents (other than the Supply Agreement), except for
amendments, modifications or waivers that are not materially adverse to the
Lenders.
(b) The Borrower will not (i) amend the Supply Agreement to reduce
the amounts of the Guaranteed Revenues or extend the scheduled date of payment
of any Guaranteed Revenues, or (ii) otherwise amend, modify or waive any of its
rights under the Supply Agreement, except for amendments, modifications or
waivers under this clause (ii) that are not materially adverse to the Lenders.
SECTION 6.13. Capital Expenditures. Catalytica and the Borrower will
---------------------
not permit the aggregate amount of Capital Expenditures (other than the
reinvestment in accordance with the definition of Net Proceeds of the proceeds
of dispositions of assets)
<PAGE>
82
made by Catalytica, the Borrower and the Subsidiaries in any fiscal year to
exceed the amount (the "Base Amount") set forth below opposite such year:
Fiscal Year Amount
----------- -----------
1997 $ 9,500,000
1998 $25,000,000
1999 $27,500,000
2000 $22,500,000
2001 $15,000,000
The amount of permitted Capital Expenditures set forth above in respect of any
fiscal year shall be increased by the lesser of (a) the Base Amount for the
immediately preceding fiscal year and (b) the difference between (i) the sum of
the Base Amount for the immediately preceding fiscal year and the unused Base
Amount for the second preceding fiscal year and (ii) the amount of Capital
Expenditures made during the immediately preceding fiscal year.
SECTION 6.14. Leverage Ratio. Catalytica will not permit (a) as of
--------------
March 31, 1998, the Leverage Ratio, which shall be calculated using Adjusted
Consolidated EBITDA for the two-fiscal-quarter period ending March 31, 1998,
multiplied by two, to be in excess of the ratio 4.50 to 1.00, (b) as of June 30,
1998, the Leverage Ratio, which shall be calculated using Adjusted Consolidated
EBITDA for the three-fiscal-quarter period ending June 30, 1998, multiplied by
4/3, to be in excess of the ratio 4.25 to 1.00 or (c) as of the end of any four-
fiscal-quarter period ending on any date or during any period set forth below,
the Leverage Ratio to be in excess of the ratio set forth below opposite such
period:
Period Amount
------ ------------
September 30, 1998 4.00 to 1.00
December 31, 1998 3.50 to 1.00
March 31, 1999 3.50 to 1.00
June 30, 1999 and thereafter 3.00 to 1.00
SECTION 6.15. Consolidated Interest Expense Coverage Ratio.
---------------------------------------------
Catalytica will not permit the ratio of (a) Consolidated EBITDA of Catalytica
and the Subsidiaries to (b) Consolidated Interest Expense less Consolidated Cash
Interest Income (i) for the two-fiscal-quarter period ending March 31, 1998, to
be less than 2.50 to 1.00, (ii) for the three-fiscal-quarter period ending June
30, 1998, to be less than 2.75 to 1.00 or (iii) for any four-fiscal-quarter
period ending on any date during any period set forth below to be less than the
ratio set forth below opposite such period:
<PAGE>
83
Period Ratio
------ -----
September 30, 1998 3.00 to 1.00
December 31, 1998 and thereafter 3.50 to 1.00
ARTICLE VII
Events of Default
-----------------
If any of the following events ("Events of Default") shall occur:
-----------------
(a) the Borrower shall fail to pay any principal of any Loan or any
reimbursement obligation in respect of any LC Disbursement when and as the
same shall become due and payable, whether at the due date thereof or at a
date fixed for prepayment thereof or otherwise;
(b) the Borrower shall fail to pay any interest on any Loan or any fee
or any other amount (other than an amount referred to in clause (a) of this
Article) payable under this Agreement or any other Loan Document, when and
as the same shall become due and payable, and such failure shall continue
unremedied for a period of five Business Days;
(c) any representation or warranty that is qualified as to materiality
and made or deemed made by or on behalf of Catalytica, the Borrower or any
Subsidiary in or in connection with any Loan Document or any amendment or
modification thereof or waiver thereunder, or in any report, certificate,
financial statement or other document furnished pursuant to or in
connection with any Loan Document or any amendment or modification thereof
or waiver thereunder, shall prove to have been incorrect when made or
deemed made or any such representation or warranty that is not qualified as
to materiality shall prove to have been incorrect in any material respect
when made or deemed made;
(d) Catalytica or the Borrower shall fail to observe or perform any
covenant, condition or agreement contained in Section 5.02, 5.04 (with
respect to the existence of Catalytica or the Borrower) or 5.11 or in
Article VI;
(e) any Loan Party shall fail to observe or perform any covenant,
condition or agreement contained in any Loan Document (other than those
specified in clause (a), (b) or (d) of this Article), and such failure
shall continue unremedied for a period of 30 days after notice thereof from
the Administrative Agent to the Borrower (which notice will be given at the
request of any Lender);
<PAGE>
84
(f) Catalytica, the Borrower or any Subsidiary shall fail to make any
payment (whether of principal or interest and regardless of amount) in
respect of any Material Indebtedness, when and as the same shall become due
and payable;
(g) the Supply Agreement shall cease to be in full force and effect
for any reason prior to December 31, 2001, if at the time the Guaranteed
Revenues that are to be paid after such date exceed $50,000,000;
(h) any event or condition occurs that results in any Material
Indebtedness becoming due prior to its scheduled maturity or that enables
or permits the holder or holders of any Material Indebtedness or any
trustee or agent on its or their behalf to cause any Material Indebtedness
to become due, or to require the prepayment, repurchase, redemption or
defeasance thereof, prior to its scheduled maturity; provided that this
--------
clause (h) shall not apply to secured Indebtedness that becomes due as a
result of the voluntary sale or transfer of the property or assets securing
such Indebtedness;
(i) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed seeking (i) liquidation, reorganization or other
relief in respect of Catalytica, the Borrower or any Subsidiary or its
debts, or of a substantial part of its assets, under any Federal, state or
foreign bankruptcy, insolvency, receivership or similar law now or
hereafter in effect or (ii) the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for Catalytica,
the Borrower or any Subsidiary or for a substantial part of its assets,
and, in any such case, such proceeding or petition shall continue
undismissed for 60 days or an order or decree approving or ordering any of
the foregoing shall be entered;
(j) Catalytica, the Borrower or any Subsidiary shall (i) voluntarily
commence any proceeding or file any petition seeking liquidation,
reorganization or other relief under any Federal, state or foreign
bankruptcy, insolvency, receivership or similar law now or hereafter in
effect, (ii) consent to the institution of, or fail to contest in a timely
and appropriate manner, any proceeding or petition described in clause (i)
of this Article, (iii) apply for or consent to the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar official
for Catalytica, the Borrower or any Subsidiary or for a substantial part of
its assets, (iv) file an answer admitting the material allegations of a
petition filed against it in any such proceeding, (v) make a general
assignment for the benefit of creditors or (vi) take any action for the
purpose of effecting any of the foregoing;
(k) Catalytica, the Borrower or any Subsidiary shall become unable,
admit
<PAGE>
85
in writing its inability or fail generally to pay its debts as they
become due;
(l) one or more judgments for the payment of money in an aggregate
amount in excess of $3,000,000 shall be rendered against Catalytica, the
Borrower, any Subsidiary or any combination thereof and the same shall
remain undischarged for a period of 30 consecutive days during which
execution shall not be effectively stayed, or any action shall be legally
taken by a judgment creditor to attach or levy upon any assets of
Catalytica, the Borrower or any Subsidiary to enforce any such judgment;
(m) an ERISA Event shall have occurred that, in the opinion of the
Required Lenders, when taken together with all other ERISA Events that have
occurred, could reasonably be expected to result in liability of the
Borrower and the Subsidiaries in an aggregate amount exceeding (i)
$3,000,000 in any year or (ii) $3,000,000 for all periods;
(n) there shall have been a failure on the part of GWI to undertake a
"Seller Obligatory Remediation" or to indemnify Catalytica, the Borrower or
any Subsidiary for an "Environmental Claim" or "Third Party Claim", as
those terms are defined in the Asset Purchase Agreement, or to conduct any
remediation required at the "RFI SWMUs" as that term is defined in the
Environmental Agreement dated June 22, 1997, between GWI and Catalytica (i)
which individually or in the aggregate could reasonably be expected to
result in liability of Catalytica, the Borrower and the Subsidiaries in an
aggregate amount exceeding $5,000,000 in any year or $10,000,000 for all
periods, taking into account the proceeds of any insurance coverage
actually received by Catalytica, the Borrower or any Subsidiary or the
amount of any such liability for which coverage has been definitively and
unambiguously acknowledged, without reservation of rights, by the
appropriate insurance carrier and (ii) which GWI refuses to or will not
correct at the conclusion of the dispute resolution procedure set forth in
Section 4.7 of the Environmental Agreement, or for which GWI refuses to
accept responsibility for thirty (30) days after the conclusion of the
procedure for defense and indemnity set forth in Section 12.4(c) of the
Asset Purchase Agreement, as applicable;
(o) (i) Any Loan Document shall, at any time, cease to be in full
force and effect (unless released by the Administrative Agent, at the
direction of the Required Lenders or as otherwise permitted under this
Agreement) or shall be declared null and void, or the validity or
enforceability in any material respect thereof shall be contested by any
Loan Party or (ii) any Lien purported to be created under any Security
Document shall cease to be a valid and perfected Lien on any material
amount of Collateral or shall be asserted by any Loan Party not to
<PAGE>
86
be a valid and perfected Lien on any Collateral, in each case with the
priority required by the applicable Security Document, except (A) as a
result of the sale or other disposition of the applicable Collateral in a
transaction permitted under the Loan Documents or (B) as a result of the
Administrative Agent's failure to maintain possession of any stock
certificates, promissory notes or other instruments delivered to it under
the Pledge Agreement; or
(p) a Change in Control shall occur;
then, and in every such event (other than an event with respect to the Borrower
described in clause (i) or (j) of this Article), and at any time thereafter
during the continuance of such event, the Administrative Agent shall, at the
request of the Required Lenders, by notice to the Borrower, take either or both
of the following actions, at the same or different times: (i) terminate the
Commitments, and thereupon the Commitments shall terminate immediately, and (ii)
declare the Loans then outstanding to be due and payable in whole (or in part,
in which case any principal not so declared to be due and payable may thereafter
be declared to be due and payable), and thereupon the principal of the Loans so
declared to be due and payable, together with accrued interest thereon and all
fees and other obligations of the Borrower accrued hereunder, shall become due
and payable immediately, without presentment, demand, protest or other notice of
any kind, all of which are hereby waived by the Borrower; and in case of any
event with respect to the Borrower described in clause (i) or (j) of this
Article, the Commitments shall automatically terminate and the principal of the
Loans then outstanding, together with accrued interest thereon and all fees and
other obligations of the Borrower accrued hereunder, shall automatically become
due and payable, without presentment, demand, protest or other notice of any
kind, all of which are hereby waived by the Borrower.
ARTICLE VIII
The Administrative Agent
------------------------
Each of the Lenders and the Issuing Bank hereby irrevocably appoints
the Administrative Agent as its agent and authorizes the Administrative Agent to
take such actions on its behalf and to exercise such powers as are delegated to
the Administrative Agent by the terms of the Loan Documents, together with such
actions and powers as are reasonably incidental thereto.
The bank serving as the Administrative Agent hereunder shall have the
same rights and powers in its capacity as a Lender as any other Lender and may
exercise the same as though it were not the Administrative Agent, and such bank
and its Affiliates may accept deposits from, lend money to and generally engage
in any kind of business
<PAGE>
87
with Catalytica, the Borrower or any Subsidiary or other Affiliate thereof as if
it were not the Administrative Agent hereunder.
The Administrative Agent shall not have any duties or obligations
except those expressly set forth in the Loan Documents. Without limiting the
generality of the foregoing, (a) the Administrative Agent shall not be subject
to any fiduciary or other implied duties, regardless of whether a Default has
occurred and is continuing, (b) the Administrative Agent shall not have any duty
to take any discretionary action or exercise any discretionary powers, except
discretionary rights and powers expressly contemplated by the Loan Documents
that the Administrative Agent is required to exercise in writing by the Required
Lenders (or such other number or percentage of the Lenders as shall be necessary
under the circumstances as provided in Section 9.02), and (c) except as
expressly set forth in the Loan Documents, the Administrative Agent shall not
have any duty to disclose, and shall not be liable for the failure to disclose,
any information relating to Catalytica, the Borrower or any of the Subsidiaries
that is communicated to or obtained by the bank serving as Administrative Agent
or any of its Affiliates in any capacity. The Administrative Agent shall not be
liable for any action taken or not taken by it with the consent or at the
request of the Required Lenders (or such other number or percentage of the
Lenders as shall be necessary under the circumstances as provided in Section
9.02) or in the absence of its own gross negligence or wilful misconduct. The
Administrative Agent shall be deemed not to have knowledge of any Default unless
and until written notice thereof is given to the Administrative Agent by
Catalytica, the Borrower or a Lender, and the Administrative Agent shall not be
responsible for or have any duty to ascertain or inquire into (i) any statement,
warranty or representation made in or in connection with any Loan Document, (ii)
the contents of any certificate, report or other document delivered thereunder
or in connection therewith, (iii) the performance or observance of any of the
covenants, agreements or other terms or conditions set forth in any Loan
Document, (iv) the validity, enforceability, effectiveness or genuineness of any
Loan Document or any other agreement, instrument or document, or (v) the
satisfaction of any condition set forth in Article IV or elsewhere in any Loan
Document, other than to confirm receipt of items expressly required to be
delivered to the Administrative Agent.
The Administrative Agent shall be entitled to rely upon, and shall not
incur any liability for relying upon, any notice, request, certificate, consent,
statement, instrument, document or other writing believed by it to be genuine
and to have been signed or sent by the proper Person. The Administrative Agent
also may rely upon any statement made to it orally or by telephone and believed
by it to be made by the proper Person, and shall not incur any liability for
relying thereon. The Administrative Agent may consult with legal counsel (who
may be counsel for the Borrower), independent accountants and other experts
selected by it, and shall not be liable for any action taken or not taken by it
in accordance with the advice of any such counsel, accountants or experts.
<PAGE>
88
The Administrative Agent may perform any and all its duties and
exercise its rights and powers by or through any one or more sub-agents
appointed by the Administrative Agent. The Administrative Agent and any such
sub-agent may perform any and all its duties and exercise its rights and powers
through their respective Related Parties. The exculpatory provisions of the
preceding paragraphs shall apply to any such sub-agent and to the Related
Parties of each Administrative Agent and any such sub-agent, and shall apply to
their respective activities in connection with the syndication of the credit
facilities provided for herein as well as activities as Administrative Agent.
Subject to the appointment and acceptance of a successor
Administrative Agent as provided in this paragraph, the Administrative Agent may
resign at any time by notifying the Lenders, the Issuing Bank and the Borrower.
Upon any such resignation, the Required Lenders shall have the right, with the
approval, unless an Event of Default has occurred or is continuing, of the
Borrower, to appoint a successor. If no successor shall have been so appointed
by the Required Lenders and shall have accepted such appointment within 30 days
after the retiring Administrative Agent gives notice of its resignation, then
the retiring Administrative Agent may, on behalf of the Lenders and the Issuing
Bank, appoint a successor Administrative Agent that shall be a bank with an
office in New York, New York, or an Affiliate of any such bank. Upon the
acceptance of its appointment as Administrative Agent hereunder by a successor,
such successor shall succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Administrative Agent, and the retiring
Administrative Agent shall be discharged from its duties and obligations
hereunder. The fees payable by the Borrower to a successor Administrative Agent
shall be the same as those payable to its predecessor unless otherwise agreed
between the Borrower and such successor. After the Administrative Agent's
resignation hereunder, the provisions of this Article and Section 9.03 shall
continue in effect for the benefit of such retiring Administrative Agent, its
sub-agents and their respective Related Parties in respect of any actions taken
or omitted to be taken by any of them while it was acting as Administrative
Agent.
Each Lender acknowledges that it has, independently and without
reliance upon the Administrative Agent or any other Lender and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall from time to time deem appropriate, continue to make its
own decisions in taking or not taking action under or based upon this Agreement,
any other Loan Document or related agreement or any document furnished hereunder
or thereunder.
ARTICLE IX
<PAGE>
89
Miscellaneous
-------------
SECTION 9.01. Notices. Except in the case of notices and other
--------
communications expressly permitted to be given by telephone, all notices and
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:
(a) if to Catalytica or the Borrower, to it at Catalytica, 430
Ferguson Drive, Mountain View, California 94043-5272, Attention of Lawrence
Briscoe (Telecopy No. (415) 968-7129);
(b) if to the Administrative Agent, to The Chase Manhattan Bank, Loan
and Agency Services Group, One Chase Manhattan Plaza, 8th Floor, New York,
New York 10081, Attention of Janet Belden (Telecopy No. (212) 552-5658),
with a copy to The Chase Manhattan Bank, 270 Park Avenue, New York 10017,
Attention of Joan Garvin (Telecopy No. (212) 270-5127);
(c) if to the Issuing Bank, to The Chase Manhattan Bank, Loan and
Agency Services Group, One Chase Manhattan Plaza, 8th Floor, New York, New
York 10081, Attention of Janet Belden (Telecopy No. (212) 552-5658) with a
copy to The Chase Manhattan Bank, 270 Park Avenue, New York, New York
10017, Attention of Joan Garvin (Telecopy No. (212) 270-5127); and
(d) if to any other Lender, to it at its address (or telecopy number)
set forth in its Administrative Questionnaire.
Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto. All notices and
other communications given to any party hereto in accordance with the provisions
of this Agreement shall be deemed to have been given on the date of receipt.
SECTION 9.02. Waivers; Amendments. (a) No failure or delay by the
--------------------
Administrative Agent, the Issuing Bank or any Lender in exercising any right or
power hereunder or under any other Loan Document shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power, or
any abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Administrative Agent, the
Issuing Bank and the Lenders hereunder and under the other Loan Documents are
cumulative and are not exclusive of any rights or remedies that they would
otherwise have. No waiver of any provision of any Loan Document or
<PAGE>
90
consent to any departure by any Loan Party therefrom shall in any event be
effective unless the same shall be permitted by paragraph (b) of this Section,
and then such waiver or consent shall be effective only in the specific instance
and for the purpose for which given. Without limiting the generality of the
foregoing, the making of a Loan or issuance of a Letter of Credit shall not be
construed as a waiver of any Default, regardless of whether the Administrative
Agent, any Lender or the Issuing Bank may have had notice or knowledge of such
Default at the time.
(b) Neither this Agreement nor any other Loan Document nor any
provision hereof or thereof may be waived, amended or modified except, in the
case of this Agreement, pursuant to an agreement or agreements in writing
entered into by Catalytica, the Borrower and the Required Lenders or, in the
case of any other Loan Document, pursuant to an agreement or agreements in
writing entered into by the Administrative Agent and the Loan Party or Loan
Parties that are parties thereto, in each case with the consent of the Required
Lenders; provided that no such agreement shall (i) increase the Commitment of
--------
any Lender without the written consent of such Lender, (ii) reduce the principal
amount of any Loan or LC Disbursement or reduce the rate of interest thereon, or
reduce any fees payable hereunder, without the written consent of each Lender
affected thereby, (iii) postpone the scheduled date of payment of the principal
amount of any Loan or LC Disbursement, or any interest thereon, or any fees
payable hereunder, or reduce the amount of, waive or excuse any such payment, or
postpone the scheduled date of expiration of any Commitment, without the written
consent of each Lender affected thereby, (iv) change Section 2.17(b) or (c) in a
manner that would alter the pro rata sharing of payments required thereby,
without the written consent of each Lender, (v) change any of the provisions of
this Section or the definition of the term "Required Lenders" or any other
provision of any Loan Document specifying the number or percentage of Lenders
(or Lenders of any Class) required to waive, amend or modify any rights
thereunder or make any determination or grant any consent thereunder, without
the written consent of each Lender (or each Lender of such Class, as the case
may be), (vi) release Catalytica or any Subsidiary Loan Party (other than
Catalytica Combustion and any of its subsidiaries) from its Guarantee
obligations under the Guarantee Agreement (except as expressly provided in the
Guarantee Agreement), or limit its liability in respect of such Guarantee
obligations, without the prior written consent of each Lender, (vii) release all
or any substantial part of the Collateral (other than Collateral pledged by
Catalytica Combustion or its subsidiaries under the Pledge Agreement) from the
Liens of the Security Documents, without the prior written consent of each
Lender or (viii) change any provisions of any Loan Document in a manner that by
its terms adversely affects the rights in respect of payments due to Lenders
holding Loans of any Class differently than those holding Loans of any other
Class, without the prior written consent of Lenders holding a majority in
interest of the outstanding Loans and unused Commitments of each affected Class;
provided further that (A) no such agreement shall amend, modify or otherwise
- ----------------
affect the rights or duties of the Administrative Agent
<PAGE>
91
or the Issuing Bank without the prior written consent of the Administrative
Agent or the Issuing Bank, as the case may be, and (B) any waiver, amendment or
modification of this Agreement that by its terms affects the rights or duties
under this Agreement of the Revolving Lenders (but not the Term Loan Lenders) or
the Term Loan Lenders (but not the Revolving Lenders) may be effected by an
agreement or agreements in writing entered into by Catalytica, the Borrower and
the requisite percentage in interest of the affected Class of Lenders.
SECTION 9.03. Expenses; Indemnity; Damage Waiver. (a) The Borrower
-----------------------------------
shall pay (i) all reasonable out-of-pocket expenses incurred by the
Administrative Agent and its Affiliates, including the reasonable fees, charges
and disbursements of counsel for the Administrative Agent, in connection with
the syndication of the credit facilities provided for herein, the preparation
and administration of the Loan Documents or any amendments, modifications or
waivers of the provisions thereof (whether or not the transactions contemplated
hereby or thereby shall be consummated), (ii) all reasonable out-of-pocket
expenses incurred by the Issuing Bank in connection with the issuance,
amendment, renewal or extension of any Letter of Credit or any demand for
payment thereunder and (iii) all out-of-pocket expenses incurred by the
Administrative Agent, the Issuing Bank or any Lender, including the fees,
charges and disbursements of any counsel for the Administrative Agent, the
Issuing Bank or any Lender, in connection with the enforcement or protection of
its rights in connection with the Loan Documents, including its rights under
this Section, or in connection with the Loans made or Letters of Credit issued
hereunder, including all such out-of-pocket expenses incurred during any
workout, restructuring or negotiations in respect of such Loans or Letters of
Credit.
(b) The Borrower shall indemnify the Administrative Agent, the
Issuing Bank and each Lender, and each Related Party of any of the foregoing
Persons (each such Person being called an "Indemnitee") against, and hold each
----------
Indemnitee harmless from, any and all losses, claims, damages, liabilities and
related expenses, including the fees, charges and disbursements of any counsel
for any Indemnitee, incurred by or asserted against any Indemnitee arising out
of, in connection with, or as a result of (i) the execution or delivery of any
Loan Document or any other agreement or instrument contemplated hereby, the
performance by the parties to the Loan Documents of their respective obligations
thereunder or the consummation of the Transactions or any other transactions
contemplated hereby, (ii) any Loan or Letter of Credit or the use of the
proceeds therefrom (including any refusal by the Issuing Bank to honor a demand
for payment under a Letter of Credit if the documents presented in connection
with such demand do not strictly comply with the terms of such Letter of
Credit), (iii) any actual or alleged presence or Release of Hazardous Materials
on, under or from any Mortgaged Property or any other property currently or
formerly owned or operated by the Borrower or any of the Subsidiaries, or any
Environmental Liability related in any way to the
<PAGE>
92
Borrower or any of the Subsidiaries, or (iv) any actual or prospective claim,
litigation, investigation or proceeding relating to any of the foregoing,
whether based on contract, tort or any other theory and regardless of whether
any Indemnitee is a party thereto; provided that such indemnity shall not, as to
--------
any Indemnitee, be available to the extent that such losses, claims, damages,
liabilities or related expenses resulted from the gross negligence or wilful
misconduct of such Indemnitee or any Affiliate of such Indemnitee (or of any
officer, director, employee, advisor or agent of such Indemnitee or any such
Indemnitee's Affiliates).
(c) To the extent that the Borrower fails to pay any amount required
to be paid by it to the Administrative Agent or the Issuing Bank under paragraph
(a) or (b) of this Section, each Lender severally agrees to pay to the
Administrative Agent or the Issuing Bank, as the case may be, such Lender's pro
rata share (determined as of the time that the applicable unreimbursed expense
or indemnity payment is sought) of such unpaid amount; provided that the
--------
unreimbursed expense or indemnified loss, claim, damage, liability or related
expense, as the case may be, was incurred by or asserted against the
Administrative Agent or the Issuing Bank in its capacity as such. For purposes
hereof, a Lender's "pro rata share" shall be determined based upon its share of
the sum of the total Revolving Exposures, outstanding Term Loans and unused
Commitments at the time.
(d) To the extent permitted by applicable law, Catalytica and the
Borrower shall not assert, and each hereby waives, any claim against any
Indemnitee, on any theory of liability, for special, indirect, consequential or
punitive damages (as opposed to direct or actual damages) arising out of, in
connection with, or as a result of, this Agreement or any agreement or
instrument contemplated hereby, the Transactions, any Loan or Letter of Credit
or the use of the proceeds thereof.
(e) All amounts due under this Section shall be payable promptly
after written demand therefor.
SECTION 9.04. Successors and Assigns. (a) The provisions of this
-----------------------
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns permitted hereby (including any
Affiliate of the Issuing Bank that issues any Letter of Credit), except that the
Borrower may not assign or other wise transfer any of its rights or obligations
hereunder without the prior written consent of each Lender (and any attempted
assignment or transfer by the Borrower without such consent shall be null and
void). Nothing in this Agreement, expressed or implied, shall be construed to
confer upon any Person (other than the parties hereto, their respective
successors and assigns permitted hereby (including any Affiliate of the Issuing
Bank that issues any Letter of Credit) and, to the extent expressly contemplated
hereby, the Related Parties of each of the Administrative Agent, the Issuing
Bank and the Lenders) any legal or equitable right, remedy or claim under or by
reason of this Agreement.
<PAGE>
93
(b) Any Lender may assign to one or more assignees all or a portion
of its rights and obligations under this Agreement (including all or a portion
of its Commit ment and the Loans at the time owing to it); provided that (i)
--------
except in the case of an assignment to a Lender or an Affiliate of a Lender,
each of the Borrower and the Administrative Agent (and, in the case of an
assignment of all or a portion of a Revolving Commitment or any Lender's
obligations in respect of its LC Exposure, the Issuing Bank) must give their
prior written consent to such assignment (which consent shall not be
unreasonably withheld), (ii) except in the case of an assignment to a Lender or
an Affiliate of a Lender or an assignment of the entire remaining amount of the
assigning Lender's Commitment or Loans, the amount of the Commitment or Loans of
the assigning Lender subject to each such assignment (determined as of the date
the Assignment and Acceptance with respect to such assignment is delivered to
the Administrative Agent) shall not be less than $5,000,000 unless each of the
Borrower and the Administrative Agent otherwise consent, (iii) each partial
assignment shall be made as an assignment of a proportionate part of all the
assigning Lender's rights and obligations under this Agreement, except that this
clause (iii) shall not be construed to prohibit the assignment of a
proportionate part of all the assigning Lender's rights and obligations in
respect of one Class of Commitments or Loans, (iv) the parties to each
assignment shall execute and deliver to the Administrative Agent an Assignment
and Acceptance, together with a processing and recordation fee of $3,500,
provided, however, that the Borrower shall not be required to reimburse any such
- -------- -------
party for the payment of such fee, and (v) the assignee, if it shall not be a
Lender, shall deliver to the Administrative Agent an Administrative
Questionnaire; and provided further that any consent of the Borrower otherwise
----------------
required under this paragraph shall not be required if an Event of Default under
clause (i) or (j) of Article VII has occurred and is continuing. Subject to
acceptance and recording thereof pursuant to paragraph (d) of this Section, from
and after the effective date specified in each Assignment and Acceptance the
permitted assignee thereunder shall be a party hereto and, to the extent of the
interest which is permitted to be assigned and is assigned by such Assignment
and Acceptance, have the rights and obligations of a Lender under this
Agreement, and the assigning Lender thereunder shall, to the extent of the
interest so assigned by such Assignment and Acceptance, be released from its
obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all of the assigning Lender's rights and obligations under
this Agreement, such Lender shall cease to be a party hereto but shall continue
to be entitled to the benefits of Sections 2.14, 2.15, 2.16 and 9.03). Any
assignment or transfer by a Lender of rights or obligations under this Agreement
that does not comply with this paragraph shall be treated for purposes of this
Agreement as a sale by such Lender of a participation in such rights and
obligations in accordance with paragraph (e) of this Section.
(c) The Administrative Agent, acting for this purpose as an agent of
the
<PAGE>
94
Borrower, shall maintain at one of its offices in The City of New York a
copy of each Assignment and Acceptance delivered to it and a register for the
recordation of the names and addresses of the Lenders, and the Commitment of,
and principal amount of the Loans and LC Disbursements owing to, each Lender
pursuant to the terms hereof from time to time (the "Register"). The entries in
--------
the Register shall be conclusive absent manifest error, and Catalytica, the
Borrower, the Administrative Agent, the Issuing Bank and the Lenders may treat
each Person whose name is recorded in the Register pursuant to the terms hereof
as a Lender hereunder for all purposes of this Agreement, notwithstanding notice
to the contrary. The Register shall be available for inspection by the
Borrower, the Issuing Bank and any Lender, at any reasonable time and from time
to time upon reasonable prior notice.
(d) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and a permitted assignee, the assignee's
completed Administrative Questionnaire (unless the assignee shall already be a
Lender hereunder), the processing and recordation fee referred to in paragraph
(b) of this Section and any written consent to such assignment required by
paragraph (b) of this Section, the Administrative Agent shall accept such
Assignment and Acceptance and record the information contained therein in the
Register. No assignment shall be effective for purposes of this Agreement
unless it has been recorded in the Register as provided in this paragraph.
(e) Any Lender may, without the consent of the Borrower, the
Administrative Agent or the Issuing Bank, sell participations to one or more
banks or other entities (a "Participant") in all or a portion of such Lender's
-----------
rights and obligations under this Agreement (including all or a portion of its
Commitment and the Loans owing to it); provided that (i) such Lender's
--------
obligations under this Agreement shall remain unchanged, (ii) such Lender shall
remain solely responsible to the other parties hereto for the performance of
such obligations and (iii) Catalytica, the Borrower, the Administrative Agent,
the Issuing Bank and the other Lenders shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement. Any agreement or instrument pursuant to which
a Lender sells such a participation shall provide that such Lender shall retain
the sole right to enforce the Loan Documents and to approve any amendment,
modification or waiver of any provision of the Loan Documents; provided that
--------
such agreement or instrument may provide that such Lender will not, without the
consent of the Participant, agree to any amendment, modification or waiver
described in the first proviso to Section 9.02(b) that affects such Participant.
Subject to paragraph (f) of this Section, the Borrower agrees that each
Participant shall be entitled to the benefits of Sections 2.14, 2.15 and 2.16 to
the same extent as if it were a Lender and had acquired its interest by
assignment pursuant to paragraph (b) of this Section. To the extent permitted
by law, each Participant also shall be entitled to the benefits of Section 9.08
as though it were a Lender, provided such
<PAGE>
95
Participant agrees to be subject to Section 2.18(c) as though it were a Lender.
(f) A Participant shall not be entitled to receive any greater
payment under Section 2.14 or 2.16 than the applicable Lender would have been
entitled to receive with respect to the participation sold to such Participant,
unless the sale of the participation to such Participant is made with the
Borrower's prior written consent. A Participant that would be a Foreign Lender
if it were a Lender shall not be entitled to the benefits of Section 2.16 unless
the Borrower is notified of the participation sold to such Participant and such
Participant agrees, for the benefit of the Borrower, to comply with Section
2.16(e) as though it were a Lender.
(g) Any Lender may at any time pledge or assign a security interest
in all or any portion of its rights under this Agreement to secure obligations
of such Lender, including any pledge or assignment to secure obligations to a
Federal Reserve Bank, and this Section shall not apply to any such pledge or
assignment of a security interest; provided that no such pledge or assignment of
--------
a security interest shall release a Lender from any of its obligations hereunder
or substitute any such pledgee or assignee for such Lender as a party hereto.
SECTION 9.05. Survival. All covenants, agreements, representations
---------
and warranties made by the Loan Parties in the Loan Documents and in the
certificates or other instruments delivered in connection with or pursuant to
this Agreement or any other Loan Document shall be considered to have been
relied upon by the other parties hereto and shall survive the execution and
delivery of the Loan Documents and the making of any Loans and issuance of any
Letters of Credit, regardless of any investigation made by any such other party
or on its behalf and notwithstanding that the Administrative Agent, the Issuing
Bank or any Lender may have had notice or knowledge of any Default or incorrect
representation or warranty at the time any credit is extended hereunder, and
shall continue in full force and effect as long as the principal of or any
accrued interest on any Loan or any fee or any other amount payable under this
Agreement is outstanding and unpaid or any Letter of Credit is outstanding and
so long as the Commitments have not expired or terminated. The provisions of
Sections 2.14, 2.15, 2.16 and 9.03 and Article VIII shall survive and remain in
full force and effect regardless of the consummation of the transactions
contemplated hereby, the repayment of the Loans, the expiration or termination
of the Letters of Credit and the Commitments or the termination of this
Agreement or any provision hereof.
SECTION 9.06. Counterparts; Integration; Effectiveness. This
-----------------------------------------
Agreement may be executed in counterparts (and by different parties hereto on
different counterparts), each of which shall constitute an original, but all of
which when taken together shall constitute a single contract. This Agreement,
the other Loan Document and any separate letter agreements with respect to fees
payable to the Administrative Agent
<PAGE>
constitute the entire contract among the parties relating to the subject matter
hereof and supersede any and all previous agreements and understandings, oral or
written, relating to the subject matter hereof. Except as provided in Section
4.01, this Agreement shall become effective when it shall have been executed by
the Administra tive Agent and when the Administrative Agent shall have received
counterparts hereof that, when taken together, bear the signatures of each of
the other parties hereto, and thereafter shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
Delivery of an executed counterpart of a signature page of this Agreement by
telecopy shall be effective as delivery of a manually executed counterpart of
this Agreement.
SECTION 9.07. Severability. Any provision of this Agreement held to
-------------
be invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without affecting the validity, legality and enforceability of
the remaining provisions hereof; and the invalidity of a particular provision in
a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.
SECTION 9.08. Right of Setoff. If an Event of Default shall have
----------------
occurred and be continuing, each Lender and each of its Affiliates is hereby
authorized at any time and from time to time, to the fullest extent permitted by
law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other obligations at any time
owing by such Lender or Affiliate to or for the credit or the account of the
Borrower against any of and all the obligations of the Borrower now or hereafter
existing under this Agreement held by such Lender, irrespective of whether or
not such Lender shall have made any demand under this Agreement and although
such obligations may be unmatured. The rights of each Lender under this Section
are in addition to other rights and remedies (including other rights of setoff)
that such Lender may have.
SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of
--------------------------------------------------
Process. (a) This Agreement shall be construed in accordance with and governed
- --------
by the law of the State of New York.
(b) Each of Catalytica and the Borrower hereby irrevocably and
unconditionally submits, for itself and its property, to the nonexclusive
jurisdiction of the Supreme Court of the State of New York sitting in New York
County and of the United States District Court of the Southern District of New
York, and any appellate court from any thereof, in any action or proceeding
arising out of or relating to any Loan Document, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the
<PAGE>
97
extent permitted by law, in such Federal court. Each of the parties hereto
agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. Nothing in this Agreement or any other Loan
Document shall affect any right that the Administrative Agent, the Issuing Bank
or any Lender may otherwise have to bring any action or proceeding relating to
this Agreement or any other Loan Document against Catalytica, the Borrower or
its properties in the courts of any jurisdiction.
(c) Each of Catalytica and the Borrower hereby irrevocably and
unconditionally waives, to the fullest extent it may legally and effectively do
so, any objection that it may now or hereafter have to the laying of venue of
any suit, action or proceeding arising out of or relating to this Agreement or
any other Loan Document in any court referred to in paragraph (b) of this
Section. Each of the parties hereto hereby irrevocably waives, to the fullest
extent permitted by law, the defense of an inconvenient forum to the maintenance
of such action or proceeding in any such court.
(d) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 9.01 (including by
telecopy, provided that written confirmation of any such telecopy shall be
delivered by certified or registered mail following such service of process).
Nothing in this Agreement or any other Loan Document will affect the right of
any party to this Agreement to serve process in any other manner permitted by
law.
SECTION 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES,
---------------------
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANS ACTIONS
CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH
PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION.
SECTION 9.11. Headings. Article and Section headings and the Table
---------
of Contents used herein are for convenience of reference only, are not part of
this Agree ment and shall not affect the construction of, or be taken into
consideration in interpreting, this Agreement.
<PAGE>
98
SECTION 9.12. Confidentiality. Each of the Administrative Agent, the
----------------
Issuing Bank and the Lenders agrees to maintain the confidentiality of the
Information (as defined below), except that Information may be disclosed (a) to
its and its Affiliates' directors, officers, employees and agents, including
accountants, legal counsel and other advisors (it being understood that the
Persons to whom such disclosure is made will be informed of the confidential
nature of such Information and agree to keep such Information confidential in
accordance with this Section), (b) to the extent requested by any regulatory
authority, (c) to the extent required by applicable laws or regulations or by
any subpoena or similar legal process, (d) to any other party to this Agreement,
(e) in connection with the exercise of any remedies hereunder or any suit,
action or proceeding relating to this Agreement or any other Loan Document or
the enforcement of rights hereunder or thereunder, (f) subject to an agreement
containing provisions substantially the same as those of this Section, to any
assignee of or Participant in, or any prospective assignee of or Participant in,
any of its rights or obligations under this Agreement, (g) with the consent of
the Borrower or (h) to the extent such Information (i) becomes publicly
available other than as a result of a breach of this Section or (ii) becomes
available to the Administrative Agent, the Issuing Bank or any Lender on a non
confidential basis from a source other than Catalytica, the Borrower or any
Subsidiary. For the purposes of this Section, "Information" means all
-----------
information received from Catalytica, the Borrower or any Subsidiary relating to
Catalytica, the Borrower or such Subsidiary or its business, other than any such
information that is available to the Administrative Agent, the Issuing Bank or
any Lender on a nonconfidential basis prior to disclosure by Catalytica, the
Borrower or such Subsidiary; provided that, in the case of information received
--------
from Catalytica, the Borrower or any Subsidiary after the date hereof, such
information is clearly identified at the time of delivery as confidential;
provided further that all information received from the Asset Purchase Agreement
- -------- -------
or Supply Agreement shall be subject to Section 8.6 of the Asset Purchase
Agreement and Section XXII of the Supply Agreement, as applicable. Any Person
required to maintain the confidentiality of Information as provided in this
Section shall be considered to have complied with its obligation to do so if
such Person has exercised the same degree of care to maintain the
confidentiality of such Information as such Person would accord to its own
confidential information.
SECTION 9.13. Interest Rate Limitation. Notwithstanding anything
-------------------------
herein to the contrary, if at any time the interest rate applicable to any Loan,
together with all fees, charges and other amounts that are treated as interest
on such Loan under applicable law (collectively the "Charges"), shall exceed the
-------
maximum lawful rate (the "Maximum Rate") that may be contracted for, charged,
------------
taken, received or reserved by the Lender holding such Loan in accordance with
applicable law, the rate of interest payable in respect of such Loan hereunder,
together with all Charges payable in respect thereof, shall be limited to the
Maximum Rate and, to the extent lawful, the interest and Charges
<PAGE>
99
that would have been payable in respect of such Loan but were not payable as a
result of the operation of this Section shall be cumulated and the interest and
Charges payable to such Lender in respect of other Loans or periods shall be
increased (but not above the Maximum Rate therefor) until such cumulated amount,
together with interest thereon at the Federal Funds Effective Rate to the date
of repayment, shall have been received by such Lender.
<PAGE>
100
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
CATALYTICA, INC.,
by
/s/ Lawrence W. Briscoe
-----------------------
Name: Lawrence W. Briscoe
Title: Chief Financial Officer and
Vice President
CATALYTICA PHARMACEUTICALS, INC.,
by
/s/ Lawrence W. Briscoe
-----------------------
Name: Lawrence W. Briscoe
Title: Chief Financial Officer and
Vice President
THE CHASE MANHATTAN BANK,
individually and as Administrative Agent,
by
/s/ Lawrence Palumbo, Jr.
-------------------------
Name: Lawrence Palumbo, Jr.
Title: Vice President
<PAGE>
101
BANK OF TOKYO-MITSUBISHI TRUST
COMPANY,
by
/s/ V. Bulzacchelli
-------------------
Name: V. Bulzacchelli
Title: Vice President and Manager
BANQUE PARIBAS,
by
/s/ Don L. Unruh
----------------
Name: Don L. Unruh
Title: Assistant Vice President
by
/s/ Stanley P. Berkman
----------------------
Name: Stanley P. Berkman
Title: General Manager Western
Region
COMERICA BANK,
by
/s/ Emmanuel Skevofilax
-----------------------
Name: Emmanuel Skevofilax
Title: Corporate Banking Officer
COOPERATIVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A.,
"RABOBANK NEDERLAND", NEW
YORK BRANCH,
by
/s/ Ian Reece
-------------
Name: Ian Reece
<PAGE>
102
Title: Senior Credit Officer
by
/s/ Stuart L. Barrowcliff
-------------------------
Name: Stuart L. Barrowcliff
Title: Vice President
DRESDNER BANK AG, New York Branch
and Grand Cayman Branch,
by
/s/ John W. Sweeney
-------------------
Name: John W. Sweeney
Title: Assistant Vice President
by
/s/ Christopher E. Sarisky
--------------------------
Name: Christopher E. Sarisky
Title: Assistant Treasurer
FIRST UNION NATIONAL BANK,
by
/s/ Thomas M. Cambem
--------------------
Name: Thomas M. Cambem
Title: Vice President
FLEET NATIONAL BANK,
by
/s/ Dorothy E. Bambach
----------------------
Name: Dorothy E. Bambach
Title: Senior Vice President
NATEXIS BANQUE (previously known as
Banque Francaise Du Commerce Exterieur),
by
<PAGE>
103
/s/ Iain A. Whyte
-----------------
Name: Iain A. Whyte
Title: Vice President
by
/s/ Daniel Touffu
-----------------
Name: Daniel Touffu
Title: First VP and Regional
Manager
THE BANK OF NOVA SCOTIA,
by
/s/ John Quick
--------------
Name: John Quick
Title: Senior Regional Manager
THE INDUSTRIAL BANK OF JAPAN,
LIMITED,
by
/s/ Takahide Akiyama
--------------------
Name: Takahide Akiyama
Title: General Manager
THE MITSUBISHI TRUST AND
BANKING CORPORATION,
by
/s/ Genichiro Chiba
-------------------
Name: Genichiro Chiba
Title: Deputy General Manager
THE ROYAL BANK OF SCOTLAND
PLC,
by
/s/ Russell M. Gibson
---------------------
Name: Russell M. Gibson
Title: Vice President & Deputy
Manager
UNION BANK OF CALIFORNIA, N.A.,
by
/s/ Wanda Headrick
------------------
Name: Wanda Headrick
<PAGE>
104
Title: Vice President
WACHOVIA BANK, N.A.,
by
/s/ David K. Alexander
----------------------
Name: David K. Alexander
Title: Senior Vice President
<PAGE>
EXHIBIT 10.5
PLEDGE AGREEMENT dated as of July 31, 1997, among
CATALYTICA, INC., a Delaware corporation ("Catalytica"),
CATALYTICA PHARMACEUTICALS, INC., a Delaware corporation (the
"Borrower"), each Subsidiary of Catalytica listed on Schedule I
hereto (each such subsidiary individually a "Subsidiary Pledgor"
and collectively, the "Subsidiary Pledgors"; Catalytica, the
Borrower and the Subsidiary Pledgors are referred to collectively
herein as the "Pledgors") and THE CHASE MANHATTAN BANK, a New
York banking corporation ("Chase"), as collateral agent (in such
capacity, the "Collateral Agent") for the Secured Parties (as
defined in the Credit Agreement referred to below).
Reference is made to (a) the Credit Agreement dated as of July 31, 1997 (as
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), among Catalytica, the Borrower, the lenders from time to time party
thereto (the "Lenders"), Chase, as issuing bank (in such capacity, the "Issuing
Bank"), as administrative agent for the Lenders and Collateral Agent, (b) the
Guarantee Agreement dated as of July 31, 1997 (as amended, supplemented or
otherwise modified from time to time, the "Guarantee Agreement") among each
Subsidiary listed on Schedule I thereto and the Collateral Agent and (c) the
Parent Guarantee Agreement dated as of July 31, 1997 (as amended, supplemented
or otherwise modified from time to time the "Parent Guarantee Agreement")
between Catalytica and the Collateral Agent.
The Lenders have agreed to make Loans to the Borrower and the Issuing Bank
has agreed to issue Letters of Credit for the account of the Borrower, pursuant
to, and upon the terms and subject to the conditions specified in, the Credit
Agreement. The Guarantors have agreed to guarantee, among other things, all the
obligations of the Borrower under the Credit Agreement. The obligations of the
Lenders to make Loans and of the Issuing Bank to issue Letters of Credit are
conditioned upon, among other things, the execution and delivery by the Pledgors
of a Pledge Agreement in the form hereof to secure (a) the due and punctual
payment by the Borrower of (i) the principal of and premium, if any, and
interest (including interest accruing during the pendency of any bankruptcy,
insolvency, receivership or other similar proceeding, regardless of whether
allowed or allowable in such proceeding) on the Loans, when and as due, whether
at maturity, by acceleration, upon one or more dates set for prepayment or
otherwise, (ii) each payment required to be made by the Borrower under the
Credit Agreement in respect of any Letter of Credit, when and as due, including
payments in respect of reimbursement of disbursements, interest thereon and
obligations to provide cash collateral and (iii) all other monetary obligations,
including fees, costs, expenses and indemnities, whether primary, secondary,
direct, contingent, fixed or otherwise (including monetary obligations incurred
during the pendency of any bankruptcy, insolvency, receivership or other similar
proceeding, regardless of whether allowed or allowable in such proceeding), of
the Borrower to the Secured Parties under the Credit Agreement and the other
Loan Documents, (b) the due and punctual performance of all covenants,
agreements, obligations and liabilities of the Borrower under or pursuant to the
Credit Agreement and the other Loan Documents, (c) the due and punctual payment
and performance of all the covenants, agreements, obligations and liabilities of
Catalytica and each Subsidiary Pledgor under or pursuant to the Guarantee
Agreement or the other Loan Documents and (d) the due and punctual payment and
performance of all obligations of the Borrower under each Hedging Agreement
entered into with any counterparty that was a Lender at the time such Hedging
Agreement was entered into (all the
<PAGE>
monetary and other obligations referred to in the preceding clauses (a) through
(d) being referred to collectively as the "Obligations"). Capitalized terms used
herein and not defined herein shall have meanings assigned to such terms in the
Credit Agreement.
Accordingly, the Pledgors and the Collateral Agent, on behalf of itself and
each Secured Party (and each of their respective successors or permitted
assigns), hereby agree as follows:
SECTION 1. Pledge. As security for the payment and performance, as the
case may be, in full of the Obligations, each Pledgor hereby transfers, grants,
bargains, sells, conveys, hypothecates, pledges, sets over and delivers unto the
Collateral Agent, its successors and assigns, and hereby grants to the
Collateral Agent, its successors and assigns, for the ratable benefit of the
Secured Parties, a security interest in all of the Pledgor's right, title and
interest in, to and under (a) the shares of capital stock owned by it and listed
on Schedule II hereto and any shares of capital stock of any Subsidiary obtained
in the future by the Pledgor and the certificates representing all such shares
(the "Pledged Stock"); provided that the Pledged Stock shall not include (i)
more than 65% (or such lesser percentage of stock as will not result in the
adverse tax consequences to the Pledgor or any other Subsidiary of Catalytica
(direct or indirect) or to Catalytica) of the issued and outstanding shares of
stock of any Foreign Subsidiary or (ii) to the extent that applicable law
requires that a Subsidiary of the Pledgor issue directors' qualifying shares,
such qualifying shares; (b)(i) the debt securities listed opposite the name of
the Pledgor on Schedule II hereto (but excluding notes evidencing loans and
advances to employees of Catalytica and its subsidiaries as permitted by Section
6.04(h) of the Credit Agreement), (ii) any debt securities in the future issued
to the Pledgor (but excluding notes evidencing loans and advances to employees
of Catalytica and its subsidiaries as permitted by Section 6.04(h) of the Credit
Agreement) and (iii) the promissory notes and any other instruments evidencing
such debt securities (the "Pledged Debt Securities"); (c) all other property
that may be delivered to and held by the Collateral Agent pursuant to the terms
hereof; (d) subject to Section 5, all payments of principal or interest,
dividends, cash, instruments and other property from time to time received,
receivable or otherwise distributed, in respect of, in exchange for or upon the
conversion of the securities referred to in clauses (a) and (b) above; (e)
subject to Section 5, all rights and privileges of the Pledgor with respect to
the securities and other property referred to in clauses (a), (b), (c) and (d)
above (which property does not include Catalytica Combustion's ownership
interest in Genxon Power Systems, LLC); and (f) all proceeds of any of the
foregoing (the items referred to in clauses (a) through (f) above being
collectively referred to as the "Collateral"). Upon delivery to the Collateral
Agent, (a) any stock certificates, notes or other securities now or hereafter
included in the Collateral (the "Pledged Securities") shall be accompanied by
stock powers duly executed in blank or other instruments of transfer
satisfactory to the Collateral Agent and by such other instruments and documents
as the Collateral Agent may reasonably request and (b) all other property
comprising part of the Collateral shall be accompanied by proper instruments of
assignment duly executed by the applicable Pledgor and such other instruments or
documents as the Collateral Agent may reasonably request. Each delivery of
Pledged Securities shall be accompanied by a schedule describing the securities
theretofore and then being pledged hereunder, which schedule shall be attached
hereto as Schedule II and made a part hereof. Each schedule so delivered shall
supersede any prior schedules so delivered.
TO HAVE AND TO HOLD the Collateral, together with all right, title,
interest, powers, privileges and preferences pertaining or incidental thereto,
unto the Collateral Agent, its successors and permitted assigns, for the ratable
benefit of the Secured Parties, forever; subject, however, to the terms,
covenants and conditions hereinafter set forth.
SECTION 2. Delivery of the Collateral. (a) Each Pledgor agrees promptly
to deliver or cause to be delivered to the Collateral Agent any and all Pledged
Securities, and any and all certificates or other instruments or documents
representing the Collateral.
<PAGE>
(b) Each Pledgor will cause any Indebtedness for borrowed money owed to the
Pledgor by any person to be evidenced by a duly executed promissory note that is
pledged and delivered to the Collateral Agent pursuant to the terms thereof.
SECTION 3. Representations, Warranties and Covenants. Each Pledgor hereby
represents, warrants and covenants, as to itself and the Collateral pledged by
it hereunder, to and with the Collateral Agent that:
(a) the Pledged Stock represents that percentage as set forth on
Schedule II of the issued and outstanding shares of each class of the
capital stock or other equity interest of the issuer with respect thereto
as of the date of this Agreement;
(b) except for the security interest granted hereunder, the Pledgor
(i) is and will at all times continue to be the direct owner, beneficially
and of record, of the Pledged Securities indicated on Schedule II, (ii)
holds the same free and clear of all Liens (other than Liens permitted by
Section 6.02 of the Credit Agreement), (iii) will make no assign ment,
pledge, hypothecation or transfer of, or create or permit to exist any
security interest in or other Lien on, the Collateral, other than pursuant
hereto and other than the Liens permitted by Section 6.02 of the Credit
Agreement, and (iv) subject to Section 5, will cause any and all
Collateral, whether for value paid by the Pledgor or otherwise, to be
forthwith deposited with the Collateral Agent and pledged or assigned
hereunder;
(c) the Pledgor (i) has the power and authority to pledge the
Collateral in the manner hereby done or contemplated and (ii) will defend
its title or interest thereto or therein against any and all Liens (other
than the Lien created by this Agreement and the Liens permitted by Section
6.02 of the Credit Agreement), however arising, of all persons whomsoever;
(d) no consent of any other person (including stockholders or
creditors of any Pledgor) and no consent or approval of any Governmental
Authority or any securities exchange was or is necessary to the validity of
the pledge effected hereby;
(e) by virtue of the execution and delivery by the Pledgors of this
Agreement, when the Pledged Securities, certificates or other documents
representing or evidencing the Collateral are delivered to the Collateral
Agent in accordance with this Agreement, the Collateral Agent will obtain a
valid and perfected first lien upon and security interest in such Pledged
Securities as security for the payment and performance of the Obligations;
(f) the pledge effected hereby is effective to vest in the Collateral
Agent, on behalf of the Secured Parties, the rights of the Collateral Agent
in the Collateral as set forth herein;
(g) all of the Pledged Stock has been duly authorized and validly
issued and is fully paid and nonassessable;
(h) all information set forth herein relating to the Pledged Stock is
accurate and complete in all material respects as of the date hereof; and
<PAGE>
(i) the pledge of the Pledged Stock pursuant to this Agreement does
not violate Regulation G, T, U or X of the Federal Reserve Board or any
successor thereto as of the date hereof.
SECTION 4. Registration in Nominee Name; Denominations. Except to the
extent prohibited by law, the Collateral Agent, on behalf of the Secured
Parties, shall have the right (in its sole and absolute discretion) to hold the
Pledged Securities in its own name as pledgee, the name of its nominee (as
pledgee or as sub-agent) or the name of the Pledgors, endorsed or assigned in
blank or in favor of the Collateral Agent. Each Pledgor will promptly give to
the Collateral Agent copies of any notices or other communications received by
it with respect to Pledged Securities registered in the name of such Pledgor.
The Collateral Agent shall at all times have the right to exchange the
certificates representing Pledged Securities for certificates of smaller or
larger denominations for any purpose consistent with this Agreement.
SECTION 5. Voting Rights; Dividends and Interest, etc. (a) Unless and
until an Event of Default shall have occurred and be continuing:
(i) Each Pledgor shall be entitled to exercise any and all voting
and/or other consensual rights and powers inuring to an owner of Pledged
Securities or any part thereof for any purpose consistent with the terms of
this Agreement, the Credit Agreement and the other Loan Documents;
provided, however, that such Pledgor will not be entitled to exercise any
such right if the result thereof could materially and adversely affect the
rights inuring to a holder of the Pledged Securities or the rights and
remedies of any of the Secured Parties under this Agreement or the Credit
Agreement or any other Loan Document or the ability of the Secured Parties
to exercise the same.
(ii) The Collateral Agent shall execute and deliver to each Pledgor,
or cause to be executed and delivered to each Pledgor, all such proxies,
powers of attorney and other instruments as such Pledgor may reasonably
request for the purpose of enabling such Pledgor to exercise the voting
and/or consensual rights and powers it is entitled to exercise pursuant to
subparagraph (i) above and to receive the cash dividends and cash proceeds
it is entitled to receive pursuant to subparagraph (iii) below.
(iii) Each Pledgor shall be entitled to receive and retain any and all
cash dividends, interest and principal and other cash proceeds received
with respect to or paid on the Pledged Securities to the extent and only to
the extent that such cash dividends, interest and principal and cash
proceeds are permitted by, and otherwise paid in accordance with, the terms
and conditions of the Credit Agreement, the other Loan Documents and
applicable laws. All noncash dividends, interest and principal, and all
dividends, interest and principal paid or payable in cash or otherwise in
connection with a partial or total liquidation or dissolution, return of
capital, capital surplus or paid-in surplus, and all other distributions
(other than distributions referred to in the preceding sentence) made on or
in respect of the Pledged Securities, whether paid or payable in cash or
otherwise, whether resulting from a subdivision, combination or
reclassification of the outstanding capital stock of the issuer of any
Pledged Securities or received in exchange for Pledged Securities or any
part thereof, or in redemption thereof, or as a result of any merger,
consolidation, acquisition or other exchange of assets to which such issuer
may be a party
<PAGE>
or otherwise, shall be and become part of the Collateral, and upon the
occurrence and during the continuance of an Event of Default, if received
by any Pledgor, shall not be commingled by such Pledgor with any of its
other funds or property but shall be held separate and apart therefrom,
shall be held in trust for the benefit of the Collateral Agent and shall be
forthwith delivered to the Collateral Agent in the same form as so received
(with any necessary endorsement).
(b) Upon the occurrence and during the continuance of an Event of Default,
all rights of any Pledgor to dividends, interest or principal and cash proceeds
that such Pledgor is authorized to receive pursuant to paragraph (a)(iii) above
shall cease, and all such rights shall thereupon become vested in the Collateral
Agent, which shall have the sole and exclusive right and authority to receive
and retain such dividends, interest or principal. All dividends, interest or
principal received by the Pledgor contrary to the provisions of this Section 5
shall be held in trust for the benefit of the Collateral Agent, shall be
segregated from other property or funds of such Pledgor and shall be forthwith
delivered to the Collateral Agent upon demand in the same form as so received
(with any necessary endorsement). Any and all money and other property paid over
to or received by the Collateral Agent pursuant to the provisions of this
paragraph (b) shall be retained by the Collateral Agent in an account to be
established by the Collateral Agent upon receipt of such money or other property
and shall be applied in accordance with the provisions of Section 7. After all
Events of Default have been cured or waived, the Collateral Agent shall, within
five Business Days after all such Events of Default have been cured or waived,
repay to each Pledgor all cash dividends, interest or principal (without
interest), that such Pledgor would otherwise be permitted to retain pursuant to
the terms of paragraph (a)(iii) above and which remain in such account.
(c) Upon the occurrence and during the continuance of an Event of Default,
all rights of any Pledgor to exercise the voting and consensual rights and
powers it is entitled to exercise pursuant to paragraph (a)(i) of this Section
5, and the obligations of the Collateral Agent under paragraph (a)(ii) of this
Section 5, shall cease, and all such rights shall thereupon become vested in the
Collateral Agent, which shall have the sole and exclusive right and authority to
exercise such voting and consensual rights and powers; provided that, unless
otherwise directed by the Required Lenders, the Collateral Agent shall have the
right from time to time following and during the continuance of an Event of
Default to permit the Pledgors to exercise such rights. After all Events of
Default have been cured or waived, such Pledgor will have the right to exercise
the voting and consensual rights and powers that it would otherwise be entitled
to exercise pursuant to the terms of paragraph (a)(i) above.
SECTION 6. Remedies upon Default. Upon the occurrence and during the
continuance of an Event of Default, subject to applicable regulatory and legal
requirements, the Collateral Agent may sell in a commercially reasonable manner
the Collateral, or any part thereof, at public or private sale or at any
broker's board or on any securities exchange, for cash, upon credit or for
future delivery as the Collateral Agent shall deem appropriate. The Collateral
Agent shall be authorized at any such sale (if it deems it advisable to do so)
to restrict the prospective bidders or purchasers to persons who will represent
and agree that they are purchasing the Collateral for their own account for
investment and not with a view to the distribution or sale thereof, and upon
consummation of any such sale the Collateral Agent shall have the right to
assign, transfer and deliver to the purchaser or purchasers thereof the
Collateral so sold. Each such purchaser at any such sale shall hold the
property sold absolutely free from any claim or right on the part of any
<PAGE>
Pledgor, and, to the extent permitted by applicable law, the Pledgors hereby
waive all rights of redemption, stay, valuation and appraisal any Pledgor now
has or may at any time in the future have under any rule of law or statute now
existing or hereafter enacted.
The Collateral Agent shall give a Pledgor 10 days' prior written notice
(which each Pledgor agrees is reasonable notice within the meaning of Section 9-
504(3) of the Uniform Commercial Code as in effect in the State of New York or
its equivalent in other jurisdictions) of the Collateral Agent's intention to
make any sale of such Pledgor's Collateral. Such notice, in the case of a
public sale, shall state the time and place for such sale and, in the case of a
sale at a broker's board or on a securities exchange, shall state the board or
exchange at which such sale is to be made and the day on which the Collateral,
or portion thereof, will first be offered for sale at such board or exchange.
Any such public sale shall be held at such time or times within ordinary
business hours and at such place or places as the Collateral Agent may fix and
state in the notice of such sale. At any such sale, the Collateral, or portion
thereof, to be sold may be sold in one lot as an entirety or in separate
parcels, as the Collateral Agent may (in its sole and absolute discretion)
determine. The Collateral Agent shall not be obligated to make any sale of any
Collateral if it shall determine not to do so, regardless of the fact that
notice of sale of such Collateral shall have been given. The Collateral Agent
may, without notice or publication, adjourn any public or private sale or cause
the same to be adjourned from time to time by announcement at the time and place
fixed for sale, and such sale may, without further notice, be made at the time
and place to which the same was so adjourned. In case any sale of all or any
part of the Collateral is made on credit or for future delivery, the Collateral
so sold may be retained by the Collateral Agent until the sale price is paid in
full by the purchaser or purchasers thereof, but the Collateral Agent shall not
incur any liability in case any such purchaser or purchasers shall fail to take
up and pay for the Collateral so sold and, in case of any such failure, such
Collateral may be sold again upon like notice. At any public (or, to the extent
permitted by applicable law, private) sale made pursuant to this Section 6, any
Secured Party may bid for or purchase, free from any right of redemption, stay
or appraisal on the part of any Pledgor (all said rights being also hereby
waived and released), the Collateral or any part thereof offered for sale and
may make payment on account thereof by using any claim then due and payable to
it from such Pledgor as a credit against the purchase price, and it may, upon
compliance with the terms of sale, hold, retain and dispose of such property
without further accountability to such Pledgor therefor. For purposes hereof,
(a) a written agreement to purchase the Collateral or any portion thereof shall
be treated as a sale thereof, (b) the Collateral Agent shall be free to carry
out such sale pursuant to such agreement and (c) such Pledgor shall not be
entitled to the return of the Collateral or any portion thereof subject thereto,
notwithstanding the fact that after the Collateral Agent shall have entered into
such an agreement all Events of Default shall have been remedied and the
Obligations paid in full. As an alternative to exercising the power of sale
herein conferred upon it, the Collateral Agent may proceed by a suit or suits at
law or in equity to foreclose upon the Collateral and to sell the Collateral or
any portion thereof pursuant to a judgment or decree of a court or courts having
competent jurisdiction or pursuant to a proceeding by a court-appointed
receiver. Any sale pursuant to the provisions of this Section 6 shall be deemed
to conform to the commercially reasonable standards as provided in Section 9-
504(3) of the Uniform Commercial Code as in effect in the State of New York or
its equivalent in other jurisdictions.
SECTION 7. Application of Proceeds of Sale. The proceeds of any sale of
Collateral pursuant to Section 6, as well as any Collateral consisting of cash,
shall be applied by the Collateral Agent as follows:
<PAGE>
FIRST, to the payment of all costs and expenses incurred by the
Collateral Agent in connection with such sale or otherwise in connection
with this Agreement, any other Loan Document or any of the Obligations,
including all court costs and the reasonable fees and expenses of its
agents and legal counsel, the repayment of all advances made by the
Collateral Agent hereunder or under any other Loan Document on behalf of
any Pledg or and any other costs or expenses reasonably incurred in
connection with the exercise of any right or remedy hereunder or under any
other Loan Document;
SECOND, to the payment in full of the Obligations (the amounts so
applied to be distributed among the Secured Parties pro rata in accordance
with the amounts of the Obligations owed to them on the date of any such
distribution); and
THIRD, to the Pledgors, their successors or assigns, or as a court of
competent jurisdiction may otherwise direct.
The Collateral Agent shall have absolute discretion as to the time of
application of any such proceeds, moneys or balances in accordance with this
Agreement. Upon any sale of the Collateral by the Collateral Agent (including
pursuant to a power of sale granted by statute or under a judicial proceeding),
the receipt of the purchase money by the Collateral Agent or of the officer
making the sale shall be a sufficient discharge to the purchaser or purchasers
of the Collateral so sold and such purchaser or purchasers shall not be
obligated to see to the application of any part of the purchase money paid over
to the Collateral Agent or such officer or be answerable in any way for the
misapplication thereof.
SECTION 8. Reimbursement of Collateral Agent. (a) Each Pledgor agrees to
pay upon demand to the Collateral Agent the amount of any and all reasonable
expenses, including the reasonable fees, other charges and disbursements of its
counsel and of any experts or agents, that the Collateral Agent may incur in
connection with (i) the administration of this Agreement, (ii) the custody or
preservation of, or the sale of, collection from, or other realization upon, any
of the Collateral, (iii) the exercise or enforcement of any of the rights of the
Collateral Agent hereunder or (iv) the failure by such Pledgor to perform or
observe any of the provisions hereof.
(b) Without limitation of its indemnification obligations under the other
Loan Documents, each Pledgor agrees to indemnify the Collateral Agent and the
Indemnitees (as defined in Section 9.03 of the Credit Agreement) against, and
hold each Indemnitee harmless from, any and all losses, claims, damages,
liabilities and related reasonable expenses, including reasonable counsel fees,
other charges and disbursements, incurred by or asserted against any Indemnitee
arising out of, in any way connected with, or as a result of (i) the execution
or delivery of this Agreement or any other Loan Document or any agreement or
instrument contemplated hereby or thereby, the performance by the parties hereto
of their respective obligations thereunder or the consummation of the
Transactions and the other transactions contemplated thereby or (ii) any claim,
litigation, investigation or proceeding relating to any of the foregoing,
whether or not any Indemnitee is a party thereto, provided that such indemnity
shall not, as to any Indemnitee, be available to the extent that such losses,
claims, damages, liabilities or related expenses are determined by a court of
competent jurisdiction by final and nonappealable judgment to have resulted from
the gross negligence or wilful misconduct of such Indemnitee.
<PAGE>
(c) Any amounts payable as provided hereunder shall be additional
Obligations secured hereby and by the other Security Documents. The provisions
of this Section 8 shall remain operative and in full force and effect regardless
of the termination of this Agreement, the consummation of the transactions
contemplated hereby, the repayment of any of the Obligations, the invalidity or
unenforceability of any term or provision of this Agreement or any other Loan
Document or any investigation made by or on behalf of the Collateral Agent or
any other Secured Party. All amounts due under this Section 8 shall be payable
on written demand therefor and shall bear interest at the rate specified in
Section 2.12 of the Credit Agreement.
SECTION 9. Collateral Agent Appointed Attorney-in-Fact. Each Pledgor
hereby appoints the Collateral Agent the attorney-in-fact of such Pledgor for
the purpose of carrying out the provisions of this Agreement and taking any
action and executing any instrument that the Collateral Agent may reasonably
deem necessary or advisable to accomplish the purposes hereof, which appointment
is irrevocable and coupled with an interest. Without limiting the generality of
the foregoing, the Collateral Agent shall have the right, upon the occurrence
and during the continuance of an Event of Default, with full power of
substitution either in the Collateral Agent's name or in the name of such
Pledgor, to ask for, demand, sue for, collect, receive and give acquit tance
for any and all moneys due or to become due under and by virtue of any
Collateral, to endorse checks, drafts, orders and other instruments for the
payment of money payable to the Pledgor representing any interest or dividend or
other distribution payable in respect of the Collat eral or any part thereof or
on account thereof and to give full discharge for the same, to settle,
compromise, prosecute or defend any action, claim or proceeding with respect
thereto, and to sell, assign, endorse, pledge, transfer and to make any
agreement respecting, or otherwise deal with, the same; provided, however, that
nothing herein contained shall be construed as requiring or obligating the
Collateral Agent to make any commitment or to make any inquiry as to the nature
or sufficiency of any payment received by the Collateral Agent, or to present or
file any claim or notice, or to take any action with respect to the Collateral
or any part thereof or the moneys due or to become due in respect thereof or any
property covered thereby. The Collateral Agent and the other Secured Parties
shall be accountable only for amounts actually received as a result of the
exercise of the powers granted to them herein, and neither they nor their
officers, directors, employees or agents shall be responsible to any Pledgor for
any act or failure to act hereunder, except for their own gross negligence or
wilful misconduct.
SECTION 10. Waivers; Amendment. (a) No failure or delay of the
Collateral Agent in exercising any power or right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the exercise of any
other right or power. The rights and remedies of the Collateral Agent hereunder
and of the other Secured Parties under the other Loan Documents are cumulative
and are not exclusive of any rights or remedies that they would otherwise have.
No waiver of any provisions of this Agreement or consent to any departure by any
Pledgor therefrom shall in any event be effective unless the same shall be
permitted by paragraph (b) below, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No
notice or demand on any Pledgor in any case shall entitle such Pledgor to any
other or further notice or demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived, amended
or modified except pursuant to a written agreement entered into between the
Collateral Agent and the
<PAGE>
Pledgor or Pledgors with respect to which such waiver, amendment or modification
is to apply, subject to any consent required in accordance with Section 9.02 of
the Credit Agreement.
SECTION 11. Securities Act, etc. In view of the position of the Pledgors
in relation to the Pledged Securities, or because of other current or future
circumstances, a question may arise under the Securities Act of 1933, as now or
hereafter in effect, or any similar statute hereafter enacted analogous in
purpose or effect (such Act and any such similar statute as from time to time in
effect being called the "Federal Securities Laws") with respect to any
disposition of the Pledged Securities permitted hereunder. Each Pledgor
understands that compliance with the Federal Securities Laws might very strictly
limit the course of conduct of the Collateral Agent if the Collateral Agent were
to attempt to dispose of all or any part of the Pledged Securities, and might
also limit the extent to which or the manner in which any subsequent transferee
of any Pledged Securities could dispose of the same. Similarly, there may be
other legal restrictions or limitations affecting the Collateral Agent in any
attempt to dispose of all or part of the Pledged Securities under applicable
Blue Sky or other state securities laws or similar laws analogous in purpose or
effect. Each Pledgor recognizes that in light of such restrictions and
limitations the Collateral Agent may, with respect to any sale of the Pledged
Securities, limit the purchasers to those who will agree, among other things, to
acquire such Pledged Securities for their own account, for investment, and not
with a view to the distribution or resale thereof. Each Pledgor acknowledges
and agrees that in light of such restrictions and limitations, the Collateral
Agent, in its sole and absolute discretion, to the extent permitted by law (a)
may proceed to make such a sale whether or not a registration statement for the
purpose of registering such Pledged Securities or part thereof shall have been
filed under the Federal Securities Laws and (b) may approach and negotiate with
a single potential purchaser to effect such sale. Each Pledgor acknowledges and
agrees that any such sale might result in prices and other terms less favorable
to the seller than if such sale were a public sale without such restrictions.
In the event of any such sale, the Collateral Agent shall incur no
responsibility or liability for selling all or any part of the Pledged
Securities at a price that the Collateral Agent, in its sole and absolute
discretion, may in good faith deem reasonable under the circumstances,
notwithstanding the possibility that a substantially higher price might have
been realized if the sale were deferred until after registration as aforesaid or
if more than a single purchaser were approached. The provisions of this Section
11 will apply notwithstanding the existence of a public or private market upon
which the quotations or sales prices may exceed substantially the price at which
the Collateral Agent sells.
SECTION 12. Registration, etc. Each Pledgor agrees that, upon the
occurrence and during the continuance of an Event of Default hereunder, if for
any reason the Collateral Agent desires to sell any of the Pledged Securities of
the Borrower at a public sale, it will, at any time and from time to time, upon
the written request of the Collateral Agent, use its best efforts to take or to
cause the issuer of such Pledged Securities to take such action and prepare,
distribute and/or file such documents, as are required or advisable in the
reasonable opinion of counsel for the Collateral Agent to permit the public sale
of such Pledged Securities. Each Pledgor further agrees to indemnify, defend
and hold harmless the Collateral Agent, each other Secured Party, any
underwriter and their respective officers, directors, affiliates and controlling
persons from and against all loss, liability, expenses, costs of counsel
(including, without limitation, reasonable fees and expenses to the Collateral
Agent of legal counsel), and claims (including the costs of investigation) that
they may incur insofar as such loss, liability, expense or claim arises out of
or is based upon any alleged untrue statement of a material fact contained in
any prospectus (or any amendment or supplement thereto) or in any notification
or offering circular prepared by or based
<PAGE>
on information provided by the Pledgor or its agents, employees, consultants or
contractors, or arises out of or is based upon any alleged omission to state a
material fact required to be stated therein or necessary to make the statements
in any thereof not misleading, except insofar as the same may have been caused
by any untrue statement or omission based upon information furnished in writing
to such Pledgor or the issuer of such Pledged Securities by the Collateral Agent
or any other Secured Party expressly for use therein. Each Pledgor further
agrees, upon such written request referred to above, to use its best efforts to
qualify, file or register, or cause the issuer of such Pledged Securities to
qualify, file or register, any of the Pledged Securities under the Blue Sky or
other securities laws of such states as may be reasonably requested by the
Collat eral Agent and keep effective, or cause to be kept effective, all such
qualifications, filings or regis trations. Each Pledgor will bear all costs and
expenses of carrying out its obligations under this Section 12. Each Pledgor
acknowledges that there is no adequate remedy at law for failure by it to comply
with the provisions of this Section 12 and that such failure would not be
adequately compensable in damages, and therefore agrees that its agreements
contained in this Section 12 may be specifically enforced.
SECTION 13. Security Interest Absolute. All rights of the Collateral
Agent hereunder, the grant of a security interest in the Collateral and all
obligations of each Pledgor hereunder, shall be absolute and unconditional
irrespective of (a) any lack of validity or enforceability of the Credit
Agreement, any other Loan Document, any agreement with respect to any of the
Obligations or any other agreement or instrument relating to any of the
foregoing, (b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations, or any other amendment or waiver
of or any consent to any departure from the Credit Agreement, any other Loan
Document or any other agreement or instrument relating to any of the foregoing,
(c) any exchange, release or nonperfection of any other collateral, or any
release or amendment or waiver of or consent to or departure from any guaranty,
for all or any of the Obligations or (d) any other circumstance that might
otherwise constitute a defense available to, or a discharge of, any Pledgor in
respect of the Obligations or in respect of this Agreement (other than the
indefeasible payment in full of all the Obligations).
SECTION 14. Termination or Release. (a) This Agreement and the security
interests granted hereby shall terminate when all the Obligations have been
indefeasibly paid in full and the Lenders have no further commitment to lend
under the Credit Agreement, the L/C Exposure has been reduced to zero and the
Issuing Bank has no further obligation to issue Letters of Credit under the
Credit Agreement.
(b) Upon any sale or other transfer by any Pledgor of any Collateral that
is permitted under the Credit Agreement to any person that is not a Pledgor, or,
upon the effectiveness of any written consent to the release of the security
interest granted hereby in any Collateral pursuant to Section 9.02(b) of the
Credit Agreement, the security interest in such Collateral shall be
automatically released.
(c) Notwithstanding anything to the contrary in this Agreement, on the
Catalytica Combustion Release Date, the security interest in the Collateral
granted by Catalytica Combustion and each other Grantor that is a subsidiary of
Catalytica Combustion shall automatically be released, and Catalytica Combustion
and such other Grantors shall automatically be released from their obligations
under this Agreement, in each case without any further action by the Collateral
Agent or any other party.
<PAGE>
(d) In connection with any termination or release pursuant to paragraph
(a), (b) or (c), the Collateral Agent shall execute and deliver to any Pledgor,
at such Pledgor's expense, all documents that such Pledgor shall reasonably
request to evidence such termination or release. Any execution and delivery of
documents pursuant to this Section 14 shall be without recourse to or warranty
by the Collateral Agent.
SECTION 15. Notices. All communications and notices hereunder shall be in
writing and given as provided in Section 9.01 of the Credit Agreement. All
communications and notices hereunder to any Subsidiary Pledgor shall be given to
it at the address for notices set forth on Schedule I or such other address as
the Subsidiary Pledgor shall specify by delivery of written notice to the
Collateral Agent.
SECTION 16. Further Assurances. Each Pledgor agrees to do such further
acts and things, and to execute and deliver such additional conveyances,
assignments, agreements and instruments, as the Collateral Agent may at any time
reasonably request in connection with the administration and enforcement of this
Agreement or with respect to the Collateral or any part thereof or in order
better to assure and confirm unto the Collateral Agent its rights and remedies
hereunder.
SECTION 17. Binding Effect; Several Agreement; Assignments. Whenever in
this Agreement any of the parties hereto is referred to, such reference shall be
deemed to include the successors and permitted assigns of such party; and all
covenants, promises and agreements by or on behalf of any Pledgor that are
contained in this Agreement shall bind and inure to the benefit of its
successors and permitted assigns. This Agreement shall become effective as to
any Pledgor when a counterpart hereof executed on behalf of such Pledgor shall
have been delivered to the Collateral Agent and a counterpart hereof shall have
been executed on behalf of the Collateral Agent, and thereafter shall be binding
upon such Pledgor and the Collateral Agent and their respective successors and
permitted assigns, and shall inure to the benefit of such Pledgor, the
Collateral Agent and the other Secured Parties, and their respective successors
and permitted assigns, except that no Pledgor shall have the right to assign its
rights hereunder or any interest herein or in the Collateral (and any such
attempted assignment shall be void), except as expressly contemplated by this
Agreement or the other Loan Documents. If all of the capital stock of a Pledgor
is sold, transferred or otherwise disposed of to a person that is not an
Affiliate of the Borrower pursuant to a transaction permitted by Section 6.05 of
the Credit Agreement, such Pledgor shall be released from its obligations under
this Agreement without further action. This Agreement shall be construed as a
separate agreement with respect to each Pledgor and may be amended, modified,
supplemented, waived or released with respect to any Pledgor without the
approval of any other Pledgor and without affecting the obligations of any other
Pledgor hereunder
SECTION 18. Survival of Agreement; Severability. (a) All covenants,
agreements, representations and warranties made by each Pledgor herein and in
the certificates or other instruments prepared or delivered in connection with
or pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the Collateral Agent and the other Secured Parties and
shall survive the making by the Lenders of the Loans and the issuance of the
Letters of Credit by the Issuing Bank, regardless of any investigation made by
the Secured Parties or on their behalf, and shall continue in full force and
effect as long as the principal of or any accrued interest on any Loan or any
other fee or amount payable under this Agreement or any
<PAGE>
other Loan Document is outstanding and unpaid or the L/C Exposure does not equal
zero and as long as the Commitments and the L/C Commitments have not been
terminated.
(b) In the event any one or more of the provisions contained in this
Agreement should be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby (it being understood
that the invalidity of a particular provision in a particular jurisdiction shall
not in and of itself affect the validity of such provision in any other
jurisdiction). The parties shall endeavor in good-faith negotiations to replace
the invalid, illegal or unenforceable provisions with valid provisions the
economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
SECTION 19. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 20. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute a single contract, and shall become effective
as provided in Section 17. Delivery of an executed counterpart of a signature
page to this Agreement by facsimile transmission shall be as effective as
delivery of a manually executed counterpart of this Agreement.
SECTION 21. Rules of Interpretation. The rules of interpretation
specified in Section 1.03 of the Credit Agreement shall be applicable to this
Agreement. Section headings used herein are for convenience of reference only,
are not part of this Agreement and are not to affect the construction of, or to
be taken into consideration in interpreting this Agreement.
SECTION 22. Jurisdiction; Consent to Service of Process. (a) Each
Pledgor hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or the other Loan Documents, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that, to the extent permitted by applicable law, all
claims in respect of any such action or proceeding may be heard and determined
in such New York State or, to the extent permitted by law, in such Federal
court. Each of the parties hereto agrees that a final judgment in any such
action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Agreement shall affect any right that the Collateral Agent or
any other Secured Party may otherwise have to bring any action or proceeding
relating to this Agreement or the other Loan Documents against any Pledgor or
its properties in the courts of any jurisdiction.
(b) Each Pledgor hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection that it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or the other Loan Documents in any
New York State or Federal court. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.
<PAGE>
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 15 (including by telecopy,
provided that written confirmation of any such telecopy shall be delivered by
certified or registered mail following such service of process). Nothing in
this Agreement will affect the right of any party to this Agreement to serve
process in any other manner permitted by law.
SECTION 23. Waiver Of Jury Trial. EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER
OR IN CONNECTION WITH THIS AGREEMENT. EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
SECTION 24. Additional Pledgors. Pursuant to Section 5.12 of the Credit
Agreement, each Subsidiary of the Borrower that was not in existence or not a
Subsidiary or was an Inactive Subsidiary on the date of the Credit Agreement is
required to enter in this Agreement as a Subsidiary Pledgor upon becoming a
Subsidiary if such Subsidiary owns or possesses property of a type that would be
considered Collateral hereunder. Upon execution and delivery by the Collateral
Agent and a Subsidiary of an instrument in the form of Annex 1, such Subsidiary
shall become a Subsidiary Pledgor hereunder with the same force and effect as if
originally named as a Subsidiary Pledgor herein. The execution and delivery of
such instrument shall not require the consent of any Pledgor hereunder. The
rights and obligations of each Pledgor hereunder shall remain in full force and
effect notwithstanding the addition of any new Subsidiary Pledgor as a party to
this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
CATALYTICA, INC.,
by /s/ Lawrence W. Briscoe
_____________________________
Name: Lawrence W. Briscoe
Title: Chief Financial Officer
CATALYTICA PHARMACEUTICALS, INC.,
by /s/ Lawrence W. Briscoe
_____________________________
Name: Lawrence W. Briscoe
Title: Chief Financial Officer
THE SUBSIDIARY PLEDGORS LISTED ON
SCHEDULE I HERETO,
by /s/ Lawrence W. Briscoe
_____________________________
Name: Lawrence W. Briscoe
Title: Authorized Officer
THE CHASE MANHATTAN BANK, as
Collateral Agent,
by /s/ Lawrence Palumbo, Jr.
_____________________________
Name: Lawrence Palumbo, Jr.
Title: Vice President
<PAGE>
Annex 1 to the
Pledge Agreement
SUPPLEMENT NO. dated as of , to the PLEDGE AGREEMENT
dated as of July 31, 1997, among CATALYTICA, INC., a Delaware
corporation ("Catalytica"), CATALYTICA PHARMACEUTICALS, INC., a
Delaware corporation (the "Borrower") and each Subsidiary of
Catalytica listed on Schedule I hereto (each such subsidiary
individually a "Subsidiary Pledgor" and collectively, the
"Subsidiary Pledgors"; Catalytica, the Borrower and the
Subsidiary Pledgors are referred to collectively herein as the
"Pledgors") and THE CHASE MANHATTAN BANK, a New York banking
corporation ("Chase"), as collateral agent (in such capacity, the
"Collateral Agent") for the Secured Parties (as defined in the
Credit Agreement referred to below)
A. Reference is made to (a) the Credit Agreement dated as of July 31,
1997, (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among Catalytica, the Borrower, the lenders from time to
time party thereto (the "Lenders"), Chase, as issuing bank (in such capacity,
the "Issuing Bank"), as administrative agent (in such capacity, the
"Administrative Agent") for the Lenders and Collateral Agent, (b) the Guarantee
Agreement dated as of July 31, 1997 (as amended, supplemented or otherwise
modified from time to time, the "Guarantee Agreement") among each Subsidiary
listed on Schedule I thereto and the Collateral Agent and (c) the Parent
Guarantee Agreement dated as of July 31, 1997 (as amended, supplemented or
otherwise modified from time to time, the "Parent Guarantee Agreement") between
Catalytica and the Collateral Agent.
B. Capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned to such terms in the Credit Agreement.
C. The Pledgors have entered into the Pledge Agreement in order to induce
the Lenders to make Loans and the Issuing Bank to issue Letters of Credit.
Pursuant to Section 5.12 of the Credit Agreement, each Subsidiary of the
Borrower that was not in existence or not a Subsidiary or was an Inactive
Subsidiary on the date of the Credit Agreement is required to enter into the
Pledge Agreement as a Subsidiary Pledgor upon becoming a Subsidiary if such
Subsidiary owns or possesses property of a type that would be considered
Collateral under the Pledge Agreement. Section 24 of the Pledge Agreement
provides that such Subsidiaries may become Subsidiary Pledgors under the Pledge
Agreement by execution and delivery of an instrument in the form of this
Supplement. The undersigned Subsidiary (the "New Pledgor") is executing this
Supplement in accordance with the requirements of the Credit Agreement to become
a Subsidiary Pledgor under the Pledge Agreement in order to induce the Lenders
to make additional Loans and the Issuing Bank to issue additional Letters of
Credit and as consideration for Loans previously made and Letters of Credit
previously issued.
Accordingly, the Collateral Agent and the New Pledgor agree as follows:
SECTION 1. In accordance with Section 24 of the Pledge Agreement, the New
Pledgor by its signature below becomes a Pledgor under the Pledge Agreement with
the same force and effect as if originally named therein as a Pledgor and the
New Pledgor hereby agrees (a) to all the terms and provisions of the Pledge
Agreement applicable to it as a Pledgor thereunder and (b) represents and
warrants that the representations and warranties made by it as a Pledgor
thereunder are true and correct on and as of the date hereof. In furtherance of
the foregoing, the New Pledgor, as security for the payment and performance in
full of the Obligations (as defined in the Pledge Agreement), does hereby create
and grant to the Collateral Agent, its successors and assigns, for the benefit
of the Secured Parties, their
<PAGE>
successors and assigns, a security interest in and lien on all of the New
Pledgor's right, title and interest in and to the Collateral (as defined in the
Pledge Agreement) of the New Pledgor. Each reference to a "Subsidiary Pledgor"
or a "Pledgor" in the Pledge Agreement shall be deemed to include the New
Pledgor. The Pledge Agreement is hereby incorporated herein by reference.
SECTION 2. The New Pledgor represents and warrants to the Collateral Agent
and the other Secured Parties that this Supplement has been duly authorized,
executed and delivered by it and constitutes its legal, valid and binding
obligation, enforceable against it in accordance with its terms.
SECTION 3. This Supplement may be executed in counterparts, each of which
shall constitute an original, but all of which when taken together shall
constitute a single contract. This Supplement shall become effective when the
Collateral Agent shall have received counterparts of this Supplement that, when
taken together, bear the signatures of the New Pledgor and the Collateral Agent.
Delivery of an executed signature page to this Supplement by facsimile
transmission shall be as effective as delivery of a manually signed counterpart
of this Supplement.
SECTION 4. The New Pledgor hereby represents and warrants that set forth
on Schedule I attached hereto is a true and correct schedule of all its Pledged
Securities.
SECTION 5. Except as expressly supplemented hereby, the Pledge Agreement
shall remain in full force and effect.
SECTION 6. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 7. In case any one or more of the provisions contained in this
Supplement should be held invalid, illegal or unenforceable in any respect,
neither party hereto shall be required to comply with such provision for so long
as such provision is held to be invalid, illegal or unenforceable, but the
validity, legality and enforceability of the remaining provisions contained
herein and in the Pledge Agreement shall not in any way be affected or impaired.
The parties hereto shall endeavor in good-faith negotiations to replace the
invalid, illegal or unenforceable provisions with valid provisions the economic
effect of which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.
SECTION 8. All communications and notices hereunder shall be in writing
and given as provided in Section 15 of the Pledge Agreement. All communications
and notices hereunder to the New Pledgor shall be given to it at the address set
forth under its signature hereto or such other address as the New Pledgor shall
notify the Collateral Agent in writing.
SECTION 9. The New Pledgor agrees to reimburse the Collateral Agent for
its reasonable out-of-pocket expenses in connection with this Supplement,
including the reasonable fees, other charges and disbursements of counsel for
the Collateral Agent.
IN WITNESS WHEREOF, the New Pledgor and the Collateral Agent have duly
executed this Supplement to the Pledge Agreement as of the day and year first
above written.
[Name of new pledgor],
by
Name:
<PAGE>
Title:
Address:
THE CHASE MANHATTAN BANK, as
Collateral Agent,
by
Name:
Title:
<PAGE>
EXHIBIT 10.6
SECURITY AGREEMENT dated as of July 31, 1997 among CATALYTICA,
INC. a Delaware corporation ("Catalytica"), CATALYTICA
PHARMACEUTICALS, INC. (the "Borrower"), each Subsidiary that is a
subsidiary of the Borrower listed on Schedule I hereto (each such
subsidiary individually a "Subsidiary Grantor" and collectively, the
"Subsidiary Grantors"; the Subsidiary Grantors, Catalytica and the
Borrower are referred to collectively herein as the "Grantors") and
THE CHASE MANHATTAN BANK, a New York banking corporation ("Chase"), as
collateral agent (in such capacity, the "Collateral Agent") for the
Secured Parties (as defined herein).
Reference is made to (a) the Credit Agreement dated as of July 31, 1997 (as
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), among Catalytica, the Borrower, the lenders from time to time party
thereto (the "Lenders"), Chase, as issuing bank (in such capacity, the "Issuing
Bank"), as administrative agent for the Lenders (in such capacity, the
"Administrative Agent") and Collateral Agent, (b) the Guarantee Agreement dated
as of July 31, 1997 (as amended, supplemented or otherwise modified from time to
time, the "Guarantee Agreement"), among each Subsidiary listed on Schedule I
thereto and the Collateral Agent and (c) the Parent Guarantee Agreement dated as
of July 31, 1997 (as amended, supplemented or otherwise modified from time to
time, the "Parent Guarantee Agreement"), among Catalytica and the Collateral
Agent.
The Lenders have agreed to make Loans to the Borrower, and the Issuing Bank
has agreed to issue Letters of Credit for the account of the Borrower, pursuant
to, and upon the terms and subject to the conditions specified in, the Credit
Agreement. Each of the Guarantors has agreed to guarantee, among other things,
all the obligations of the Borrower under the Credit Agreement. The obligations
of the Lenders to make Loans and of the Issuing Bank to issue Letters of Credit
are conditioned upon, among other things, the execution and delivery by the
Grantors of an agreement in the form hereof to secure (a) the due and punctual
payment by the Borrower of (i) the principal of and premium, if any, and
interest (including interest accruing during the pendency of any bankruptcy,
insolvency, receivership or other similar proceeding, regardless of whether
allowed or allowable in such proceeding) on the Loans, when and as due, whether
at maturity, by acceleration, upon one or more dates set for prepayment or
otherwise, (ii) each payment required to be made by the Borrower under the
Credit Agreement in respect of any Letter of Credit, when and as due, including
payments in respect of reimbursement of disbursements, interest thereon and
obligations to provide cash collateral and (iii) all other monetary obligations,
including fees, costs, expenses and indemnities, whether primary, secondary,
direct, contingent, fixed or otherwise (including monetary obligations incurred
during the pendency of any bankruptcy, insolvency, receivership or other similar
proceeding, regardless of whether allowed or allowable in such proceeding), of
the Borrower to the Secured Parties under the Credit Agreement and the other
Loan Documents, (b) the due and punctual performance of all covenants,
agreements, obligations and liabilities of the Borrower under or pursuant to the
Credit Agreement and the other Loan Documents, (c) the due and punctual payment
and performance of all the covenants, agreements, obligations and liabilities of
each Loan Party under or pursuant to this Agreement and the other Loan Documents
and (d) the due and punctual payment and performance of all obligations of the
Borrower under each Hedging Agreement entered into with any counterparty that
was a Lender at the time such Hedging Agreement was entered into (all the
monetary and other obligations described in the preceding clauses (a) through
(d) being collectively called the "Obligations").
<PAGE>
Accordingly, the Grantors and the Collateral Agent, on behalf of itself and
each Secured Party (and each of their respective successors or permitted
assigns), hereby agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Definition of Terms Used Herein. Unless the context otherwise
requires, all capitalized terms used but not defined herein shall have the
meanings set forth in the Credit Agreement.
SECTION 1.02. Definition of Certain Terms Used Herein. As used herein, the
following terms shall have the following meanings:
"Account Debtor" shall mean any person who is or who may become obligated
to any Grantor under, with respect to or on account of an Account.
"Accounts" shall mean any and all right, title and interest of any Grantor
to payment for goods and services sold or leased, including any such right
evidenced by chattel paper, whether due or to become due, whether or not it has
been earned by performance, and whether now or hereafter acquired or arising in
the future, including accounts receivable from Affiliates of the Grantors.
"Accounts Receivable" shall mean all Accounts and all right, title and
interest in any returned goods, together with all rights, titles, securities and
guarantees with respect thereto, including any rights to stoppage in transit,
replevin, reclamation and resales, and all related security interests, liens and
pledges, whether voluntary or involuntary, in each case whether now existing or
owned or hereafter arising or acquired.
"Collateral" shall mean all (a) Accounts Receivable, (b) Documents, (c)
Equipment, (d) General Intangibles, (e) Inventory, (f) cash and cash accounts
and (g) Proceeds.
"Copyright License" shall mean any written agreement, now or hereafter in
effect, granting any right to any third party under any Copyright now or
hereafter owned by any Grantor or which such Grantor otherwise has the right to
license, or granting any right to such Grantor under any Copyright now or
hereafter owned by any third party, and all rights of such Grantor under any
such agreement.
"Copyrights" shall mean all of the following now owned or hereafter
acquired by any Grantor: (a) all copyright rights in any work subject to the
copyright laws of the United States or any other country, whether as author,
assignee, transferee or otherwise, and (b) all registrations and applications
for registration of any such copyright in the United States or any other
country, including registrations, recordings, supplemental registrations and
pending applications for registration in the United States Copyright Office,
including those listed on Schedule II.
"Credit Agreement" shall have the meaning assigned to such term in the
preliminary statement of this Agreement.
"Documents" shall mean all instruments, files, records, ledger sheets and
documents covering or relating to any of the Collateral.
<PAGE>
"Environmental Agreement" shall mean the Environmental Agreement dated as
of June 22, 1997, between GWI and Catalytica.
"Equipment" shall mean all equipment, furniture and furnishings, and all
tangible personal property similar to any of the foregoing, including tools,
parts and supplies of every kind and description, and all improvements,
accessions or appurtenances thereto, that are now or hereafter owned by any
Grantor (other than the RCAA Production Equipment, as such term is defined in
the Supply Agreement dated as of September 28, 1993 between Sandoz Agro, Inc., a
New York corporation and Catalytica, Inc., where such Supply Agreement expressly
prohibits a grant of a security interest in the RCAA Production Equipment). The
term Equipment shall include Fixtures.
"Fixtures" shall mean all items of Equipment, whether now owned or
hereafter acquired, of any Grantor that become so related to particular real
estate that an interest in them arises under any real estate law applicable
thereto.
"General Intangibles" shall mean all choses in action and causes of action
and all other assignable intangible personal property of any Grantor of every
kind and nature (other than Accounts Receivable) now owned or hereafter acquired
by any Grantor, including corporate or other business records, indemnification
claims, contract rights (including rights under leases (other then real property
leases of ten years or less), whether entered into as lessor or lessee, Hedging
Agreements, the Supply Agreement, the Environmental Agreement, the Asset
Purchase Agreement (to the extent permitted by Section 14.11 thereof) and other
agreements) (other than rights under contracts that prohibit assignments or a
grant of a security interest therein), Intellectual Property, goodwill,
registrations, franchises, tax refund claims and any letter of credit,
guarantee, claim, security interest or other security held by or granted to any
Grantor to secure payment by an Account Debtor of any of the Accounts
Receivable.
"Intellectual Property" shall mean all intellectual and similar property of
any Grantor of every kind and nature now owned or hereafter acquired by any
Grantor (other than property acquired from third parties under production
arrangements which by their terms prohibit assignment, license or a grant of a
security interest by such Grantor thereunder), including inventions, designs,
Patents, Copyrights, Licenses, Trademarks, trade secrets, confidential or
proprietary technical and business information, know-how, show-how or other data
or information, software and databases and all embodiments or fixations thereof
and related documentation, registrations and franchises, and all additions,
improvements and accessions to, and books and records describing or used in
connection with, any of the foregoing.
"Inventory" shall mean all goods of any Grantor, whether now owned or
hereafter acquired, held for sale or lease, or furnished or to be furnished by
any Grantor under contracts of service, or consumed in any Grantor's business,
including raw materials, intermediates, work in process, packag ing materials,
finished goods, semi-finished inventory, scrap inventory, manufacturing supplies
and spare parts, and all such goods that have been returned to or repossessed by
or on behalf of any Grantor.
"License" shall mean any Patent License, Trademark License, Copyright
License or other license or sublicense to which any Grantor is a party,
including those listed on Schedule III (other than those license agreements
which by their terms prohibit assignment or a grant of a security
<PAGE>
interest by such Grantor as licensee thereunder).
"Obligations" shall have the meaning assigned to such term in the
preliminary statement of this Agreement.
"Patent License" shall mean any written agreement, now or hereafter in
effect, granting to any third party any right to make, use or sell any invention
on which a Patent, now or hereafter owned by any Grantor or which any Grantor
otherwise has the right to license, is in existence, or granting to any Grantor
any right to make, use or sell any invention on which a Patent, now or hereafter
owned by any third party, is in existence, and all rights of any Grantor under
any such agreement.
"Patents" shall mean all of the following now owned or hereafter acquired
by any Grantor: (a) all letters patent of the United States or any other
country, all registrations and recordings thereof, and all applications for
letters patent of the United States or any other country, including
registrations, recordings and pending applications in the United States Patent
and Trademark Office or any similar offices in any other country, including
those listed on Schedule IV, and (b) all reissues, continuations, divisions,
continuations-in-part, renewals or extensions thereof, and the inventions
disclosed or claimed therein, including the right to make, use and/or sell the
inventions disclosed or claimed therein.
"Perfection Certificate" shall mean a certificate substantially in the form
of Annex 1 hereto, completed and supplemented with the schedules and attachments
contemplated thereby, and duly executed by a Financial Officer of the Borrower.
"Proceeds" shall mean any consideration received from the sale, exchange,
license, lease or other disposition of any asset or property that constitutes
Collateral, any value received as a consequence of the possession of any
Collateral and any payment received from any insurer or other person or entity
as a result of the destruction, loss, theft, damage or other involuntary
conversion of whatever nature of any asset or property which constitutes
Collateral, and shall include (a) any claim of any Grantor against any third
party for (and the right to sue and recover for and the rights to damages or
profits due or accrued arising out of or in connection with) (i) past, present
or future infringement of any Patent now or hereafter owned by any Grantor, or
licensed under a Patent License, (ii) past, present or future infringement or
dilution of any Trademark now or hereafter owned by any Grantor or licensed
under a Trademark License or injury to the goodwill associated with or
symbolized by any Trademark now or hereafter owned by any Grantor, (iii) past,
present or future breach of any License and (iv) past, present or future
infringement of any Copyright now or hereafter owned by any Grantor or licensed
under a Copyright License and (b) any and all other amounts from time to time
paid or payable under or in connection with any of the Collateral.
"Secured Parties" shall mean (a) the Lenders, (b) the Administrative Agent,
(c) the Collateral Agent, (d) the Issuing Bank, (e) each counterparty to a
Hedging Agreement entered into with the Borrower if such counterparty was a
Lender at the time the Hedging Agreement was entered into, (f) the beneficiaries
of each indemnification obligation undertaken by any Grantor under any Loan
Document and (g) the successors and permitted assigns of each of the foregoing.
"Security Interest" shall have the meaning assigned to such term in Section
2.01.
<PAGE>
"Trademark License" shall mean any written agreement, now or hereafter in
effect, granting to any third party any right to use any Trademark now or
hereafter owned by any Grantor or which any Grantor otherwise has the right to
license, or granting to any Grantor any right to use any Trademark now or
hereafter owned by any third party, and all rights of any Grantor under any such
agreement.
"Trademarks" shall mean all of the following now owned or hereafter
acquired by any Grantor: (a) all trademarks, service marks, trade names,
corporate names, company names, business names, fictitious business names, trade
styles, trade dress, logos, other source or business identifiers, designs and
general intangibles of like nature, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and all registration and
recording applications filed in connection therewith, including registrations
and registration applications in the United States Patent and Trademark Office,
any State of the United States or any similar offices in any other country or
any political subdivision thereof, and all extensions or renewals thereof,
including those listed on Schedule V, (b) all goodwill associated therewith or
symbolized thereby and (c) all other intangible assets, rights and interests
that uniquely reflect or embody such goodwill.
SECTION 1.03. Rules of Interpretation. The rules of interpretation
specified in Section 1.03 of the Credit Agreement shall be applicable to this
Agreement.
ARTICLE II
Security Interest
SECTION 2.01. Security Interest. As security for the payment or
performance, as the case may be, in full of the Obligations, each Grantor hereby
bargains, sells, conveys, assigns, sets over, mortgages, pledges, hypothecates
and transfers to the Collateral Agent, its successors and permitted assigns, for
the ratable benefit of the Secured Parties, and hereby grants to the Collateral
Agent, its successors and permitted assigns, for the ratable benefit of the
Secured Parties, a security interest in, all of such Grantor's right, title and
interest in, to and under the Collateral except to the extent prohibited by law
(the "Security Interest"). Without limiting the foregoing, the Collateral Agent
is hereby authorized to file one or more financing statements (including fixture
filings), continuation statements, filings with the United States Patent and
Trademark Office or United States Copyright Office (or any successor office or
any similar office in any other country) or other documents for the purpose of
perfecting, confirming, continuing, enforcing or protecting the Security
Interest granted by each Grantor, without the signature of any Grantor, and
naming any Grantor or the Grantors as debtors and the Collateral Agent as
secured party.
SECTION 2.02. No Assumption of Liability. The Security Interest is
granted as security only and shall not subject the Collateral Agent or any other
Secured Party to, or in any way alter or modify, any obligation or liability of
any Grantor with respect to or arising out of the Collateral.
ARTICLE III
Representations and Warranties
<PAGE>
The Grantors jointly and severally represent and warrant to the Collateral
Agent and the Secured Parties that:
SECTION 3.01. Title and Authority. Each Grantor has good and valid rights
in and title to the Collateral with respect to which it has purported to grant a
Security Interest hereunder and has full power and authority to grant to the
Collateral Agent the Security Interest in such Collateral pursuant hereto and to
execute, deliver and perform its obligations in accordance with the terms of
this Agreement, without the consent or approval of any other person other than
any consent or approval which has been obtained.
SECTION 3.02. Filings. (a) The Perfection Certificate has been duly
prepared, completed and executed and the information set forth therein is
correct and complete in all material respects. Fully executed Uniform Commercial
Code financing statements (including fixture filings, as applicable) containing
a description of the Collateral have been delivered to the Collateral Agent for
filing in each governmental, municipal or other office specified in Schedule 6
to the Perfection Certificate, which are all the filings, recordings and
registrations (other than filings required to be made in the United States
Patent and Trademark Office and the United States Copyright Office in order to
perfect the Security Interest in Collateral consisting of United States Patents,
Trademarks and Copyrights) that are necessary to publish notice of and protect
the validity of and to establish a legal, valid and perfected security interest
in favor of the Collateral Agent (for the ratable benefit of the Secured
Parties) in respect of all Collateral in which the Security Interest may be
perfected by the filing, the recording or the registration of financing
statements in the United States (or any political subdivision thereof) and its
territories and possessions, and no further or subsequent filing, refiling,
recording, rerecording, registration or reregistration is necessary in any such
jurisdiction with respect to such Collateral, except as provided under
applicable law with respect to the filing of continuation statements.
(b) Each Grantor represents and warrants that fully executed security
agreements in the form hereof and containing a description of all Collateral
consisting of Intellectual Property shall have been delivered to the Collateral
Agent for recording by the United States Patent and Trademark Office and the
United States Copyright Office pursuant to 35 U.S.C. (S) 261, 15 U.S.C. (S) 1060
or 17 U.S.C. (S) 205 and the regulations thereunder, as applicable, and
otherwise as may be required pursuant to the laws of any other necessary
jurisdiction, to protect the validity of and to establish a legal, valid and
perfected security interest in favor of the Collateral Agent (for the ratable
benefit of the Secured Parties) in respect of all Collateral consisting of
Patents, Trademarks and Copyrights in which a security interest may be perfected
by filing, recording or registration in the United States (or any political
subdivision thereof) and its territories and possessions, or in any other
necessary jurisdiction, and no further or subsequent filing, refiling,
recording, rerecording, registration or reregistration is necessary (other than
such actions as are necessary to perfect the Security Interest with respect to
any Collateral consisting of Patents, Trademarks and Copyrights (or registration
or application for registration thereof) acquired or developed after the date
hereof).
SECTION 3.03. Validity of Security Interest. The Security Interest
constitutes (a) a legal and valid security interest in all the Collateral
securing the payment and performance of the Obligations, (b) subject to the
filings described in Section 3.02 above, a perfected security interest in all
Collateral in which a security interest may be perfected by filing, recording or
registering a financing statement or analogous document in the United States (or
any political subdivision
<PAGE>
thereof) and its territories and possessions pursuant to the Uniform Commercial
Code or other applicable law in such jurisdictions and (c) a security interest
that shall be perfected in all Collateral in which a security interest may be
perfected upon the receipt and recording of this Agreement with the United
States Patent and Trademark Office and the United States Copyright Office, as
applicable. The Security Interest is and shall be prior to any other Lien on any
of the Collateral, other than Liens expressly permitted to be prior to the
Security Interest pursuant to Section 6.02 of the Credit Agreement.
SECTION 3.04. Absence of Other Liens. The Collateral is owned by the
Grantors free and clear of any Lien, except for Liens expressly permitted
pursuant to Section 6.02 of the Credit Agreement. The Grantor has not filed or
consented to the filing of (a) any financing statement or analogous document
under the Uniform Commercial Code or any other applicable laws covering any
Collateral, (b) any assignment in which any Grantor assigns any Collateral or
any security agreement or similar instrument covering any Collateral with the
United States Patent and Trademark Office or the United States Copyright Office
or (c) any assignment in which any Grantor assigns any Collateral or any
security agreement or similar instrument covering any Collateral with any
foreign governmental, municipal or other office, which, in each case, such
financing statement or analogous document, assignment, security agreement or
similar instrument is still in effect, except, in each case, for Liens expressly
permitted pursuant to Section 6.02 of the Credit Agreement.
ARTICLE IV
Covenants
SECTION 4.01. Change of Name; Location of Collateral; Records; Place of
Business. (a) Each Grantor agrees promptly to notify the Collateral Agent in
writing of any change (i) in its corporate name or in any trade name used to
identify it in the conduct of its business or in the ownership of its
properties, (ii) in the location of its chief executive office, its principal
place of business, any office in which it maintains books or records relating to
Collateral owned by it or any office or facility at which Collateral owned by it
is located (including the establishment of any such new office or facility),
(iii) in its identity or corporate structure or (iv) in its Federal Taxpayer
Identification Number. Each Grantor agrees not to effect or permit any change
referred to in the preceding sentence unless all filings have been made under
the Uniform Commercial Code or otherwise that are required in order for the
Collateral Agent to continue at all times following such change to have a valid,
legal and perfected first priority security interest in all the Collateral.
Each Grantor agrees promptly to notify the Collateral Agent if any material
portion of the Collateral owned or held by such Grantor is damaged or destroyed.
(b) Each Grantor agrees to maintain, at its own cost and expense, such
complete and accurate records with respect to the Collateral owned by it as is
consistent with its current practices and in accordance with such prudent and
standard practices used in industries that are the same as or similar to those
in which such Grantor is engaged, but in any event to include complete
accounting records indicating all payments and proceeds received with respect to
any part of the Collateral, and, at such time or times as the Collateral Agent
may reasonably request, promptly to prepare and deliver to the Collateral Agent
a duly certified schedule or schedules in form and detail reasonably
satisfactory to the Collateral Agent showing the identity, amount and location
<PAGE>
of any and all Collateral.
SECTION 4.02. Periodic Certification. Each year, at the time of delivery
of annual financial statements with respect to the preceding fiscal year
pursuant to Section 5.03 of the Credit Agreement, the Borrower shall deliver to
the Collateral Agent a certificate executed by a Financial Officer of the
Borrower (a) setting forth the information required pursuant to Section 2 of the
Perfection Certificate or confirming that there has been no change in such
information since the date of such certificate or the date of the most recent
certificate delivered pursuant to Section 4.02 and (b) certifying that all
Uniform Commercial Code financing statements (including fixture filings, as
applicable) or other appropriate filings, recordings or registrations, including
all refilings, rerecordings and reregistrations, containing a description of the
Collateral have been filed of record in each governmental, municipal or other
appropriate office in each jurisdiction identified pursuant to clause (a) above
to the extent necessary to protect and perfect the Security Interest for a
period of not less than 18 months after the date of such certificate (except as
noted therein with respect to any continuation statements to be filed within
such period). Each certificate delivered pursuant to this Section 4.02 shall
identify in the format of Schedule II, III, IV or V, as applicable, all
Intellectual Property of any Grantor in existence on the date thereof and not
then listed on such Schedules or previously so identified to the Collateral
Agent.
SECTION 4.03. Protection of Security. Each Grantor shall, at its own cost
and expense, take any and all actions reasonably necessary to defend title to
the Collateral against all persons and to defend the Security Interest of the
Collateral Agent in the Collateral and the priority thereof against any Lien not
expressly permitted pursuant to Section 6.02 of the Credit Agreement.
SECTION 4.04. Further Assurances. Each Grantor agrees, at its own
expense, to execute, acknowledge, deliver and cause to be duly filed all such
further instruments and documents and take all such actions as the Collateral
Agent may from time to time request to better assure, preserve, protect and
perfect the Security Interest and the rights and remedies created hereby,
including the payment of any fees and taxes required in connection with the
execution and delivery of this Agree ment, the granting of the Security
Interest and the filing of any financing statements (including fixture filings)
or other documents in connection herewith or therewith. If any amount payable
under or in connection with any of the Collateral shall be or become evidenced
by any promissory note or other instrument, such note or instrument shall be
immediately pledged and delivered to the Collateral Agent, duly endorsed in a
manner satisfactory to the Collateral Agent in accordance with the Pledge
Agreement entered into concurrently herewith.
Without limiting the generality of the foregoing, each Grantor hereby
authorizes the Collateral Agent, with prompt notice thereof to the Grantors, to
supplement this Agreement by supplementing Schedule II, III, IV or V hereto or
adding additional schedules hereto to specifically identify any asset or item
that may constitute Copyrights, Licenses, Patents or Trademarks; provided,
however, that any Grantor shall have the right, exercisable within 10 days after
it has been notified by the Collateral Agent of the specific identification of
such Collateral, to advise the Collateral Agent in writing of any inaccuracy of
the representations and warranties made by such Grantor hereunder with respect
to such Collateral. Each Grantor agrees that it will use its best efforts to
take such action as shall be necessary in order that all representations and
warranties hereunder shall be true and correct with respect to such Collateral
within 30 days after the date it has been notified by the Collateral Agent of
the specific identification of such Collateral.
<PAGE>
SECTION 4.05. Inspection and Verification. The Collateral Agent and such
persons as the Collateral Agent may reasonably designate and who shall agree to
be bound by Section 9.12 of the Credit Agreement shall have the right, at the
Grantors' own cost and expense, to inspect the Collateral, all records related
thereto (and to make extracts and copies from such records) and the premises
upon which any of the Collateral is located, to discuss the Grantors' affairs
with the officers of the Grantors designated by the Grantors as its
representative and their independent accountants and to verify under reasonable
procedures the validity, amount, quality, quantity, value, condition and status
of, or any other matter relating to, the Collateral, including, in the case of
Accounts or Collateral in the possession of any third person, by contacting
Account Debtors or the third person possessing such Collateral for the purpose
of making such a verification. The Collateral Agent shall have the absolute
right to share any information it gains from such inspection or verification
with any Secured Party (it being understood that any such information shall be
deemed to be "Information" subject to the provisions of Section 9.12).
SECTION 4.06. Taxes; Encumbrances. At its option, the Collateral Agent
may discharge past due taxes, assessments, charges, fees, Liens, security
interests or other encumbrances at any time levied or placed on the Collateral
and not permitted pursuant to Section 6.02 of the Credit Agreement, and may pay
for the maintenance and preservation of the Collateral to the extent any Grantor
fails to do so as required by the Credit Agreement or this Agreement, and each
Grantor jointly and severally agrees to reimburse the Collateral Agent on demand
for any payment made or any expense reasonably incurred by the Collateral Agent
pursuant to the foregoing authorization; provided, however, that nothing in this
Section 4.06 shall be interpreted as excusing any Grantor from the performance
of, or imposing any obligation on the Collateral Agent or any Secured Party to
cure or perform, any covenants or other promises of any Grantor with respect
to taxes, assessments, charges, fees, liens, security interests or other
encumbrances and maintenance as set forth herein or in the other Loan Documents.
SECTION 4.07. Assignment of Security Interest. If at any time any Grantor
shall take a security interest in any property of an Account Debtor or any other
person to secure payment and performance of an Account, such Grantor shall
promptly assign such security interest to the Collateral Agent. Such assignment
need not be filed of public record unless necessary to continue the perfected
status of the security interest against creditors of and transferees from the
Account Debtor or other person granting the security interest.
SECTION 4.08. Continuing Obligations of the Grantors. Each Grantor shall
remain liable to observe and perform all the conditions and obligations to be
observed and performed by it under each contract, agreement or instrument
relating to the Collateral, all in accordance with the terms and conditions
thereof, and each Grantor jointly and severally agrees to indemnify and hold
harmless the Collateral Agent and the Secured Parties from and against any and
all liability for such performance.
SECTION 4.09. Use and Disposition of Collateral. None of the Grantors
shall make or permit to be made an assignment, pledge or hypothecation of the
Collateral or shall grant any other Lien in respect of the Collateral, except as
expressly permitted by Section 6.02 of the Credit Agreement. None of the
Grantors shall make or permit to be made any transfer of the Collateral in
violation of this Agreement or the Credit Agreement and each Grantor shall
remain at all times in possession of the Collateral owned by it, except that (a)
Inventory may be sold in the ordinary course of business and (b) unless and
until the Collateral Agent shall notify the Grantors that an
<PAGE>
Event of Default shall have occurred and be continuing and that during the
continuance thereof the Grantors shall not sell, convey, lease, assign, transfer
or otherwise dispose of any Collateral (which notice may be given by telephone
if promptly confirmed in writing), the Grantors may use and dispose of the
Collateral in any lawful manner not inconsistent with the provisions of this
Agreement, the Credit Agreement or any other Loan Document. Without limiting the
generality of the foregoing, each Grantor agrees that it shall not permit any
Inventory to be in the possession or control of any warehouseman, bailee, agent
or processor at any time unless such warehouseman, bailee, agent or processor
shall have been notified of the Security Interest and shall have agreed in
writing to hold the Inventory subject to the Security Interest and the
instructions of the Collateral Agent and to waive and release any Lien held by
it with respect to such Inventory, whether arising by operation of law or
otherwise.
SECTION 4.10. Limitation on Modification of Accounts. None of the
Grantors will, without the Collateral Agent's prior written consent, grant any
extension of the time of payment of any of the Accounts Receivable, compromise,
compound or settle the same for less than the full amount thereof, release,
wholly or partly, any person liable for the payment thereof or allow any credit
or discount whatsoever thereon, other than extensions, credits, discounts,
compromises or settlements granted or made in the ordinary course of business
and consistent with its current practices and in accordance with such prudent
and standard practices used in industries that are the same as or similar to
those in which such Grantor is engaged.
SECTION 4.11. Insurance. The Grantors, at their own expense, shall
maintain or cause to be maintained insurance covering physical loss or damage to
the Inventory and Equipment in accor dance with Section 5.07 of the Credit
Agreement. Each Grantor irrevocably makes, constitutes and appoints the
Collateral Agent (and all officers, employees or agents designated by the
Collateral Agent) as such Grantor's true and lawful agent (and attorney-in-fact)
for the purpose, during the continuance of an Event of Default, of making,
settling and adjusting claims in respect of Collateral under policies of
insurance, endorsing the name of such Grantor on any check, draft, instrument or
other item of payment for the proceeds of such policies of insurance and for
making all determinations and decisions with respect thereto. In the event that
any Grantor at any time or times shall fail to obtain or maintain any of the
policies of insurance required hereby or to pay any premium in whole or part
relating thereto, the Collateral Agent may, without waiving or releasing any
obligation or liability of the Grantors hereunder or any Event of Default, in
its sole discretion, obtain and maintain such policies of insurance and pay such
premium and take any other actions with respect thereto as the Collateral Agent
deems in its reasonable, good faith judgment to be advisable. All sums
disbursed by the Collateral Agent in connection with this Section 4.11,
including reasonable attorneys' fees, court costs, expenses and other charges
relating thereto, shall be payable, upon demand, by the Grantors to the
Collateral Agent and shall be additional Obligations secured hereby.
SECTION 4.12. Legend. Each Grantor shall legend, in form and manner
satisfactory to the Collateral Agent, its Accounts Receivable and its books,
records and documents evidencing or pertaining thereto with an appropriate
reference to the fact that such Accounts Receivable have been assigned to the
Collateral Agent for the benefit of the Secured Parties and that the Collateral
Agent has a security interest therein.
SECTION 4.13. Use of Proceeds from Casualty and Condemnation. Net proceeds
retained by the Collateral Agent pursuant to Section 5.08 of the Credit
Agreement shall be released
<PAGE>
from time to time upon the delivery of a certificate of a Financial Officer to
the Collateral Agent at the time of such casualty or condemnation to or of the
Collateral setting forth the intent to use the proceeds of such casualty or
condemnation to pay the cost of repairing, restoring or replacing the affected
property (the "Work") and upon request for payment by Grantor, provided that:
(i) the Grantor must promptly commence the restoration process or the
location, acquisition and replacement process in connection with the
Collateral;
(ii) Grantor shall retain the services as reasonably required of an
independent architect or engineer and before the Grantor commences any
Work, other than temporary work to protect property or prevent interference
with business, the Collateral Agent shall have received the plans and
specifications and the general contract for the Work from the Grantor. The
plans and specifications shall provide for such Work that, upon completion
thereof, the improvements shall be at least equal in value and general
utility to the improvements that were on such Collateral (or that were on
the Collateral that has been replaced, if applicable) prior to the casualty
or condemnation, and in the case of a condemnation, subject to the effect
of such condemnation;
(iii) except as provided in (iv) below, each request for payment shall
be made on seven days' prior notice to the Collateral Agent and shall be
accompanied by a certificate to be made by such architect or engineer,
stating (A) that all the Work completed has been done in substantial
compliance with the plans and specifications, (B) that the sum requested is
justly required to reimburse the Grantor for payments by the Grantor to, or
is justly due to, the contractor, subcontractors, materialmen, laborers,
engineers, architects or other persons rendering services or materials for
the Work (giving a brief description of such services and materials) and
that, when added to all sums previously paid out by the Collateral Agent,
does not exceed the value of the Work done to the date of such certificate;
(iv) each request for payment in connection with the acquisition of
replacement Collateral shall be made on 15 days' prior notice to the
Collateral Agent and, in connection therewith, (A) each such request shall
be accompanied by a copy of the sales contract or other document governing
the acquisition of the replacement property by the Grantor and a
certificate of the Grantor stating that the sum requested represents the
sales price under such contract or document and the related reasonable
transaction fees and expenses and setting forth in sufficient detail the
various components of such requested sum and (B) the Grantor shall take
such other actions as the Collateral Agent may reasonably deem necessary or
appropriate (including actions with respect to the delivery to the
Collateral Agent of a perfected security interest prior in right and
superior in right to any person with respect to such property for the
ratable benefit of the Secured Parties);
(v) upon request of Collateral Agent, by waivers of lien satisfactory
to the Collateral Agent covering that part of the Work for which payment or
reimbursement is being requested or by other evidence satisfactory to the
Collateral Agent, that there has not been filed with respect to such
Collateral any mechanics' or other lien or instrument for the retention of
a security interest in respect of any part of the Work not discharged of
record or bonded to the reasonable satisfaction of the Collateral Agent;
<PAGE>
(vi) there shall be no Default or Event of Default that has occurred
and is continuing; and
(vii) after commencing the Work, the Grantor shall continue to perform
the Work diligently and in good faith to completion in accordance with the
approved plans and specifications.
SECTION 4.14. Covenants Regarding Patent, Trademark and Copyright
Collateral. (a) Each Grantor agrees that it will not, nor will it permit any of
its licensees to, do any act, or omit to do any act, whereby any Patent which is
material to the conduct of such Grantor's business may become invalidated or
dedicated to the public, and agrees that it shall continue to mark any products
covered by a Patent with the relevant patent number as necessary and sufficient
to establish and preserve its maximum rights under applicable patent laws.
(b) Each Grantor (either itself or through its licensees or its
sublicensees) will, for each Trademark material to the conduct of such Grantor's
business, (i) maintain such Trademark in full force free from any claim of
abandonment or invalidity for non-use, (ii) maintain the quality of products and
services offered under such Trademark, (iii) display such Trademark with notice
of Federal or foreign registration to the extent necessary and sufficient to
establish and preserve its maximum rights under applicable law and (iv) not
knowingly use or knowingly permit the use of such Trademark in violation of any
third party rights.
(c) Each Grantor (either itself or through licensees) will, for each work
covered by a Copyright material to the conduct of Grantor's business, continue
to publish, reproduce, display, adopt and distribute the work with appropriate
copyright notice as necessary and sufficient to establish and preserve its
maximum rights under applicable copyright laws.
(d) Each Grantor shall notify the Collateral Agent immediately if it knows
or has reason to know that any Patent, Trademark or Copyright material to the
conduct of its business may become abandoned, lost or dedicated to the public,
or of any adverse determination or development (including the institution of, or
any such determination or development in, any proceeding in the United States
Patent and Trademark Office, United States Copyright Office or any court or
similar office of any country) regarding such Grantor's ownership of any such
Patent, Trademark or Copyright, its right to register the same, or to keep and
maintain the same in all material respects.
(e) In no event shall any Grantor, either itself or through any agent,
employee, licensee or designee, file an application for any Patent, Trademark or
Copyright (or for the registration of any Trademark or Copyright) with the
United States Patent and Trademark Office, United States Copyright Office or any
office or agency in any political subdivision of the United States or in any
other country or any political subdivision thereof, unless it promptly informs
the Collateral Agent, and, upon request of the Collateral Agent, executes and
delivers any and all agreements, instruments, documents and papers as the
Collateral Agent may request to evidence the Collateral Agent's security
interest in such Patent, Trademark or Copyright, and each Grantor hereby
appoints the Collateral Agent as its attorney-in-fact to execute and file such
writings for the foregoing purposes, all acts of such attorney being hereby
ratified and confirmed; such power, being coupled with an interest, is
irrevocable.
<PAGE>
(f) Each Grantor will take all necessary steps that are consistent with
the practice in any proceeding before the United States Patent and Trademark
Office, United States Copyright Office or any office or agency in any political
subdivision of the United States or in any other country or any political
subdivision thereof, to maintain and pursue each application relating to the
Patents, Trademarks and/or Copyrights material to the conduct of the Grantor's
business (and to obtain the relevant grant or registration) and to maintain each
issued Patent and each registration of the Trademarks and Copyrights that is
material to the conduct of any Grantor's business, including timely filings of
applications for renewal, affidavits of use, affidavits of incontestability and
payment of maintenance fees, and, if consistent with good business judgment, to
initiate opposition, interference and cancellation proceedings against third
parties.
(g) In the event that any Grantor has reason to believe that any
Collateral consisting of a Patent, Trademark or Copyright material to the
conduct of any Grantor's business has been or is about to be infringed,
misappropriated or diluted by a third party, such Grantor promptly shall notify
the Collateral Agent and shall, if consistent with good business judgment,
promptly sue for infringement, misappropriation or dilution and to recover any
and all damages for such infringement, misappropriation or dilution, and take
such other actions as are appropriate under the circumstances to protect such
Collateral.
(h) Upon and during the continuance of an Event of Default, each Grantor
shall use its best efforts to obtain all requisite consents or approvals by the
licensor of each Copyright License, Patent License or Trademark License to
effect the assignment of all of such Grantor's right, title and interest
thereunder to the Collateral Agent or its designee.
SECTION 4.15. Segregation of Materials and Products. All Materials
and Products, as such terms are defined in the Supply Agreement, that have been
purchased and paid for by GWI in accordance with the Supply Agreement shall be
segregated from all other materials and products present at the Acquired
Facilities or any other facilities owned or used by the Borrower and shall be
clearly identified as the property of GWI. Without limiting the foregoing, such
purchased Materials and Products shall be segregated from (i) those Materials
and Products (whether finished or work-in-progress) that are not owned by GWI,
(ii) all Products (whether finished or work-in-progress) owned by or
manufactured for third parties ("Third-Party Products"), and (iii) all raw
--------------------
materials, components, other ingredients or packaging materials used in the
manufacture, storage and shipment of Third-Party Products.
ARTICLE V
Power of Attorney
Each Grantor irrevocably makes, constitutes and appoints the Collateral
Agent (and all officers, employees or agents designated by the Collateral Agent)
as such Grantor's true and lawful agent and attorney-in-fact, and in such
capacity the Collateral Agent shall have the right, with power of substitution
for each Grantor and in each Grantor's name or otherwise, for the use and
benefit of the Collateral Agent and the Secured Parties, upon the occurrence and
during the continuance of an Event of Default (a) to receive, endorse, assign
and/or deliver any and all notes, acceptances, checks, drafts, money orders or
other evidences of payment relating to the Collateral or any part thereof; (b)
to demand, collect, receive payment of, give receipt for and give discharges
<PAGE>
and releases of all or any of the Collateral; (c) to sign the name of any
Grantor on any invoice or bill of lading relating to any of the Collateral; (d)
to send verifications of Accounts Receivable to any Account Debtor; (e) to
commence and prosecute any and all suits, actions or proceedings at law or in
equity in any court of competent jurisdiction to collect or otherwise realize on
all or any of the Collateral or to enforce any rights in respect of any
Collateral; (f) to settle, compromise, compound, adjust or defend any actions,
suits or proceedings relating to all or any of the Collateral; (g) to notify, or
to require any Grantor to notify, Account Debtors to make payment directly to
the Collateral Agent during the continuance of an Event of Default; and (h) to
use, sell, assign, transfer, pledge, make any agreement with respect to or
otherwise deal with all or any of the Collateral, and to do all other acts and
things necessary to carry out the purposes of this Agreement, as fully and
completely as though the Collateral Agent were the absolute owner of the
Collateral for all purposes; provided, however, that nothing herein contained
shall be construed as requiring or obligating the Collateral Agent or any
Secured Party to make any commitment or to make any inquiry as to the nature or
sufficiency of any payment received by the Collateral Agent or any Secured
Party, or to present or file any claim or notice, or to take any action with
respect to the Collateral or any part thereof or the moneys due or to become due
in respect thereof or any property covered thereby, and no action taken or
omitted to be taken by the Collateral Agent or any Secured Party with respect to
the Collateral or any part thereof shall give rise to any defense, counterclaim
or offset in favor of any Grantor or to any claim or action against the
Collateral Agent or any Secured Party. It is understood and agreed that the
appointment of the Collateral Agent as the agent and attorney-in-fact of the
Grantors for the purposes set forth above is coupled with an interest and is
irrevocable. The provisions of this Section shall in no event relieve any
Grantor of any of its obligations hereunder or under any other Loan Document
with respect to the Collateral or any part thereof or impose any obligation on
the Collateral Agent or any Secured Party to proceed in any particular manner
with respect to the Collateral or any part thereof, or in any way limit the
exercise by the Collateral Agent or any Secured Party of any other or further
right which it may have on the date of this Agreement or hereafter, whether
hereunder, under any other Loan Document, by law or otherwise.
ARTICLE VI
Remedies
SECTION 6.01. Remedies upon Default. Upon the occurrence and during the
continuance of an Event of Default, each Grantor agrees to deliver each item of
Collateral to the Collateral Agent on demand, and it is agreed that the
Collateral Agent shall have the right to take any of or all the following
actions at the same or different times: (a) with respect to any Collateral
consisting of Intellectual Property, on demand, to cause the Security Interest
to become an assignment, transfer and conveyance of any of or all such
Collateral by the applicable Grantors to the Collateral Agent, or to license or
sublicense, whether general, special or otherwise, and whether on an exclusive
or non-exclusive basis, any such Collateral throughout the world on such terms
and conditions and in such manner as the Collateral Agent shall determine (other
than in violation of any then-existing licensing arrangements to the extent that
waivers cannot be obtained or as otherwise precluded by law), and (b) with or
without legal process and with or without prior notice or demand for
performance, to take possession of the Collateral and without liability for
trespass to enter any premises where the Collateral may be located for the
purpose of taking possession of or removing the Collateral and, generally, to
exercise any and all rights afforded to a
<PAGE>
secured party under the Uniform Commercial Code or other applicable law in a
commercially reasonable manner. Without limiting the generality of the
foregoing, each Grantor agrees that the Collateral Agent shall have the right,
subject to the mandatory requirements of applicable law, to sell or otherwise
dispose of all or any part of the Collateral, at public or private sale or at
any broker's board or on any securities exchange, for cash, upon credit or for
future delivery as the Collateral Agent shall deem appropriate. The Collateral
Agent shall be authorized at any such sale (if it reasonably deems it advisable
to do so) to restrict the prospective bidders or purchasers to persons who will
represent and agree that they are purchasing the Collateral for their own
account for investment and not with a view to the distribution or sale thereof,
and upon consummation of any such sale the Collateral Agent shall have the right
to assign, transfer and deliver to the purchaser or purchasers thereof the
Collateral so sold. Each such purchaser at any such sale shall hold the property
sold absolutely, free from any claim or right on the part of any Grantor, and
each Grantor hereby waives (to the extent permitted by law) all rights of
redemption, stay and appraisal which such Grantor now has or may at any time in
the future have under any rule of law or statute now existing or hereafter
enacted.
The Collateral Agent shall give the Grantors 10 days' written notice (which
each Grantor agrees is reasonable notice within the meaning of Section 9-504(3)
of the Uniform Commercial Code as in effect in the State of New York or its
equivalent in other jurisdictions) of the Collateral Agent's intention to make
any sale of Collateral. Such notice, in the case of a public sale, shall state
the time and place for such sale and, in the case of a sale at a broker's board
or on a securities exchange, shall state the board or exchange at which such
sale is to be made and the day on which the Collateral, or portion thereof, will
first be offered for sale at such board or exchange. Any such public sale shall
be held at such time or times within ordinary business hours and at such place
or places as the Collateral Agent may fix and state in the notice (if any) of
such sale. At any such sale, the Collateral, or portion thereof, to be sold may
be sold in one lot as an entirety or in separate parcels, as the Collateral
Agent may (in its sole and absolute discretion) determine. The Collateral Agent
shall not be obligated to make any sale of any Collateral if it shall determine
not to do so, regardless of the fact that notice of sale of such Collateral
shall have been given. The Collateral Agent may, without notice or publication,
adjourn any public or private sale or cause the same to be adjourned from time
to time by announcement at the time and place fixed for sale, and such sale may,
without further notice, be made at the time and place to which the same was so
adjourned. In case any sale of all or any part of the Collateral is made on
credit or for future delivery, the Collateral so sold may be retained by the
Collateral Agent until the sale price is paid by the purchaser or purchasers
thereof, but the Collateral Agent shall not incur any liability in case any such
purchaser or purchasers shall fail to take up and pay for the Collateral so sold
and, in case of any such failure, such Collateral may be sold again upon like
notice. At any public (or, to the extent permitted by law, private) sale made
pursuant to this Section, any Secured Party may bid for or purchase, free (to
the extent permitted by law) from any right of redemption, stay, valuation or
appraisal on the part of any Grantor (all said rights being also hereby waived
and released to the extent permitted by law), the Collateral or any part thereof
offered for sale and may make payment on account thereof by using any claim then
due and payable to such Secured Party from any Grantor as a credit against the
purchase price, and such Secured Party may, upon compliance with the terms of
sale, hold, retain and dispose of such property without further accountability
to any Grantor therefor. For purposes hereof, a written agreement to purchase
the Collateral or any portion thereof shall be treated as a sale thereof; the
Collateral Agent shall be free to carry out such sale pursuant to such agreement
and no Grantor shall be entitled to the return of the Collateral or any portion
thereof subject thereto, notwithstanding the fact that after the Collateral
Agent shall have entered into such an agreement all Events of Default shall have
been remedied and the
<PAGE>
Obligations paid in full. As an alternative to exercising the power of sale
herein conferred upon it, the Collateral Agent may proceed by a suit or suits at
law or in equity to foreclose this Agreement and to sell the Collateral or any
portion thereof pursuant to a judgment or decree of a court or courts having
competent jurisdiction or pursuant to a proceeding by a court-appointed
receiver.
Notwithstanding anything to the contrary in this Agreement, (a) the
Collateral Agent's right to foreclose upon or otherwise dispose of the
Borrower's interests in the Supply Agreement (including Borrower's interests in
certain Retained Intellectual Property, as such term is defined in the Supply
Agreement, licensed to the Borrower thereunder) will be subject to the condition
that any such foreclosure or disposition occur in connection with a foreclosure
or sale in lieu of foreclosure of the Secured Parties's security interest in the
Acquired Facilities and/or the capital stock of the Borrower and/or Catalytica,
(b) the Collateral Agent shall not be entitled to exercise any remedy with
respect to the Supply Agreement (including Borrower's interests in certain
Retained Intellectual Property, as such term is defined in the Supply Agreement,
licensed to the Borrower thereunder) other than (i) a foreclosure sale and
assignment of the Supply Agreement to a Permitted Transferee, as such term is
defined in the Supply Agreement, subject to and upon the terms contained in
Section 25.6(b) of the Supply Agreement, (ii) to enforce rights to payment from
GWI under the Supply Agreement and the Deed of Easement and (iii) upon the
occurrence and during the continuance of an Event of Default, the right to
demand that payments owed by GWI under the Supply Agreement be remitted directly
to the Collateral Agent, (c) the Permitted Transferee who shall so succeed
through foreclosure to the Borrower's rights under the Supply Agreement must
also acquire Acquired Facilities (in accordance with Section 25.6(b) of the
Supply Agreement) and/or the capital stock of the Borrower and/or Catalytica and
(d) in no event shall the Collateral Agent be entitled to assume, perform,
satisfy or discharge any of the Borrower's obligations under the Supply
Agreement other than with respect to payment of money or issuance of credits to
GWI due by the Borrower under the Supply Agreement.
Notwithstanding anything to the contrary in this Agreement, (a) in the
event of foreclosure of the Security Interests, before exercising any other
remedies with respect to Key Ingredients, work-in-process inventory of Products
or finished goods inventory of Products, as such terms are defined in the Supply
Agreement, the Collateral Agent must offer in writing to sell to GWI (i) any Key
Ingredients and any work-in-process inventory of Products at the Borrower's cost
(which shall not include the cost of any Materials (as defined in the Supply
Agreement) purchased by GWI from the Borrower and paid for by GWI or purchased
by GWI from a party other than the Borrower that have been incorporated into
such work-in-process inventory), plus a reasonable portion of the applicable
Conversion Charge, as such term is defined in the Supply Agreement, with respect
to work-in-process inventory, and (ii) the finished Products at the price
determined in accordance with the terms of the Supply Agreement, and (b) GWI
shall have a period of fifteen (15) days following receipt of such offer to
elect to and to purchase such Key Ingredients, work-in-process and finished
goods inventory. Notwithstanding the provisions of Section 5.2(b) of the Supply
Agreement, the purchase price described in clause (a)(ii) of the immediately
preceding sentence shall not include any charge for Materials (as defined in the
Supply Agreement) purchased by GWI from the Borrower and paid for by GWI or
purchased by GWI from a party other than the Borrower, in either case that have
been incorporated into the applicable finished Products.
SECTION 6.02. Application of Proceeds. The Collateral Agent shall apply
the proceeds of any collection or sale of the Collateral, as well as any
Collateral consisting of cash, as follows:
<PAGE>
FIRST, to the payment of all costs and expenses incurred by the
Administrative Agent or the Collateral Agent (in its capacity as such
hereunder or under any other Loan Document) in connection with such
collection or sale or otherwise in connection with this Agreement or any of
the Obligations, including all court costs and the fees and expenses of its
agents and legal counsel, the repayment of all advances made by the
Collateral Agent hereunder or under any other Loan Document on behalf of
any Grantor and any other costs or expenses incurred in connection with the
exercise of any right or remedy hereunder or under any other Loan Document;
SECOND, to the payment in full of the Obligations (the amounts so
applied to be distributed among the Secured Parties pro rata in accordance
with the amounts of the Obligations owed to them on the date of any such
distribution); and
THIRD, to the Grantors, their successors or assigns, or as a court of
competent jurisdiction may otherwise direct.
The Collateral Agent shall have absolute discretion as to the time of
application of any such proceeds, moneys or balances in accordance with this
Agreement. Upon any sale of the Collateral by the Collateral Agent (including
pursuant to a power of sale granted by statute or under a judicial proceeding),
the receipt of the Collateral Agent or of the officer making the sale shall be a
sufficient discharge to the purchaser or purchasers of the Collateral so sold
and such purchaser or purchasers shall not be obligated to see to the
application of any part of the purchase money paid over to the Collateral Agent
or such officer or be answerable in any way for the misapplication thereof.
SECTION 6.03. Grant of License to Use Intellectual Property. For the
purpose of enabling the Collateral Agent to exercise rights and remedies under
this Article at such time as the Collateral Agent shall be lawfully entitled to
exercise such rights and remedies (except to the extent prohibited by law), each
Grantor hereby grants to the Collateral Agent an irrevocable, non-exclusive
license (exercisable without payment of royalty or other compensation to the
Grantors) to use, license or sub-license any of the Collateral consisting of
Intellectual Property now owned or hereafter acquired by such Grantor, and
wherever the same may be located, and including in such license reasonable
access to all media in which any of the licensed items may be recorded or stored
and to all computer software and programs used for the compilation or printout
thereof. The use of such license by the Collateral Agent shall be exercised, at
the option of the Collateral Agent, upon the occurrence and during the
continuation of an Event of Default; provided that any license, sub-license or
other transaction entered into by the Collateral Agent in accordance herewith
shall be binding upon the Grantors notwithstanding any subsequent cure of an
Event of Default.
ARTICLE VII
Miscellaneous
SECTION 7.01. Notices. All communications and notices hereunder shall
(except as otherwise expressly permitted herein) be in writing and given as
provided in Section 9.01 of the Credit Agreement. All communications and
notices hereunder to any Guarantor shall be given to it at its address or
telecopy number set forth on Schedule I or such other address the Grantor shall
<PAGE>
designate by delivery of written notice to the Administrative Agent, with a copy
to the Borrower.
SECTION 7.02. Security Interest Absolute. All rights of the Collateral
Agent hereunder, the Security Interest and all obligations of the Grantors
hereunder shall be absolute and unconditional irrespective of (a) any lack of
validity or enforceability of the Credit Agreement, any other Loan Document, any
agreement with respect to any of the Obligations or any other agreement or
instrument relating to any of the foregoing, (b) any change in the time, manner
or place of payment of, or in any other term of, all or any of the Obligations,
or any other amendment or waiver of or any consent to any departure from the
Credit Agreement, any other Loan Document or any other agreement or instrument,
(c) any exchange, release or non-perfection of any Lien on other collateral, or
any release or amendment or waiver of or consent under or departure from any
guarantee, securing or guaranteeing all or any of the Obligations, or (d) any
other circumstance that might otherwise constitute a defense available to, or a
discharge of, any Grantor in respect of the Obligations or this Agreement.
SECTION 7.03. Survival of Agreement. All covenants, agreements,
representations and warranties made by any Grantor herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement shall be considered to have been relied upon by the
Secured Parties and shall survive the making by the Lenders of the Loans, and
the execution and delivery to the Lenders of any notes evidencing such Loans,
regardless of any investigation made by the Lenders or on their behalf, and
shall continue in full force and effect until this Agreement shall terminate.
SECTION 7.04. Binding Effect; Several Agreement. This Agreement shall
become effective as to any Grantor when a counterpart hereof executed on behalf
of such Grantor shall have been delivered to the Collateral Agent and a
counterpart hereof shall have been executed on behalf of the Collateral Agent,
and thereafter shall be binding upon such Grantor and the Collateral Agent and
their respective successors and permitted assigns, and shall inure to the
benefit of such Grantor, the Collateral Agent and the other Secured Parties and
their respective successors and permitted assigns, except that no Grantor shall
have the right to assign or transfer its rights or obligations hereunder or any
interest herein or in the Collateral (and any such assignment or transfer shall
be void) except as expressly contemplated by this Agreement or the Credit
Agreement. This Agreement shall be construed as a separate agreement with
respect to each Grantor and may be amended, modified, supplemented, waived or
released with respect to any Grantor without the approval of any other Grantor
and without affecting the obligations of any other Grantor hereunder.
SECTION 7.05. Successors and Assigns. Whenever in this Agreement any of
the parties hereto is referred to, such reference shall be deemed to include the
successors and permitted assigns of such party; and all covenants, promises and
agreements by or on behalf of any Grantor or the Collateral Agent that are
contained in this Agreement shall bind and inure to the benefit of their
respective successors and permitted assigns.
SECTION 7.06. Collateral Agent's Fees and Expenses; Indemnification. (a)
Each Grantor jointly and severally agrees to pay upon demand to the Collateral
Agent the amount of any and all reasonable expenses, including the reasonable
fees, disbursements and other charges of its counsel and of any experts or
agents, which the Collateral Agent may reasonably incur in connection with (i)
the administration of this Agreement, (ii) the custody or preservation of, or
the
<PAGE>
sale of, collection from or other realization upon any of the Collateral, (iii)
the exercise, enforcement or protection of any of the rights of the Collateral
Agent hereunder or (iv) the failure of any Grantor to perform or observe any of
the provisions hereof.
(b) Without limitation of its indemnification obligations under the other
Loan Documents, each Grantor jointly and severally agrees to indemnify the
Collateral Agent and the other Indemnitees against, and hold each of them
harmless from, any and all losses, claims, damages, liabilities and related
expenses, including reasonable fees, disbursements and other charges of counsel,
incurred by or asserted against any of them arising out of, in any way connected
with, or as a result of, the execution, delivery or performance of this
Agreement or any claim, litigation, investigation or proceeding relating hereto
or to the Collateral, whether or not any Indemnitee is a party thereto; provided
that such indemnity shall not, as to any Indemnitee, be available to the extent
that such losses, claims, damages, liabilities or related expenses are
determined by a court of competent jurisdiction by final and nonappealable
judgment to have resulted from the gross negligence or willful misconduct of
such Indemnitee.
(c) Any such amounts payable as provided hereunder shall be additional
Obligations secured hereby and by the other Security Documents. The provisions
of this Section 7.06 shall remain operative and in full force and effect
regardless of the termination of this Agreement or any other Loan Document, the
consummation of the transactions contemplated hereby, the repayment of any of
the Loans, the invalidity or unenforceability of any term or provision of this
Agreement or any other Loan Document, or any investigation made by or on behalf
of the Collateral Agent or any Lender. All amounts due under this Section 7.06
shall be payable on written demand therefor.
SECTION 7.07. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
SECTION 7.08. Waivers; Amendment. (a) No failure or delay of the
Collateral Agent in exercising any power or right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the exercise of any
other right or power. The rights and remedies of the Collateral Agent hereunder
and of the Collateral Agent, the Issuing Bank, the Administrative Agent and the
Lenders under the other Loan Documents are cumulative and are not exclusive of
any rights or remedies that they would otherwise have. No waiver of any
provisions of this Agreement or any other Loan Document or consent to any
departure by any Grantor therefrom shall in any event be effective unless the
same shall be permitted by paragraph (b) below, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given. No notice to or demand on any Grantor in any case shall entitle such
Grantor or any other Grantor to any other or further notice or demand in similar
or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived, amended
or modified except pursuant to an agreement or agreements in writing entered
into by the Collateral Agent and the Grantor or Grantors with respect to which
such waiver, amendment or modification is to apply, subject to any consent
required in accordance with Section 9.02 of the Credit Agreement.
<PAGE>
(c) Notwithstanding paragraph (b) above, the Collateral Agent shall not
amend the third or fourth paragraphs of Section 6.01 without the prior written
consent of GWI, which consent (in the case of amendments as to form, but not as
to substance) shall not be unreasonably withheld. The Collateral Agent
acknowledges and agrees that GWI is a third party beneficiary of the third and
fourth paragraphs of Section 6.01 with full rights at law and in equity to
enforce the same.
SECTION 7.09. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS.
EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 7.09.
SECTION 7.10. Severability. In the event any one or more of the
provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby (it being understood that the invalidity of a particular
provision in a particular jurisdiction shall not in and of itself affect the
validity of such provision in any other jurisdiction). The parties shall
endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
SECTION 7.11. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original but all of which when
taken together shall constitute but one contract (subject to Section 7.04), and
shall become effective as provided in Section 7.04. Delivery of an executed
signature page to this Agreement by facsimile transmission shall be effective as
delivery of a manually executed counterpart hereof.
SECTION 7.12. Headings. Article and Section headings used herein are for
the purpose of reference only, are not part of this Agreement and are not to
affect the construction of, or to be taken into consideration in interpreting,
this Agreement.
SECTION 7.13. Jurisdiction; Consent to Service of Process. (a) Each
Grantor hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or the other Loan Documents, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. Each of the parties hereto agrees that
a final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in
<PAGE>
this Agreement shall affect any right that the Collateral Agent, the
Administrative Agent, the Issuing Bank or any Lender may otherwise have to bring
any action or proceeding relating to this Agreement or the other Loan Documents
against any Grantor or its properties in the courts of any jurisdiction.
(b) Each Grantor hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or the other Loan Documents in any
New York State or Federal court. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 7.01 (including by
telecopy, provided that written confirmation of any such telecopy shall be
delivered by certified or registered mail following such service of process).
Nothing in this Agreement will affected the right of any party to this Agreement
to serve process in any other manner permitted by law.
SECTION 7.14. Termination. This Agreement and the Security Interest shall
terminate when all the Obligations have been indefeasibly paid in full, the
Lenders have no further commitment to lend, the L/C Exposure has been reduced to
zero and the Issuing Bank has no further commitment to issue Letters of Credit
under the Credit Agreement, at which time the Collateral Agent shall execute and
deliver to the Grantors, at the Grantors' expense, all Uniform Commercial Code
termination statements and similar documents which the Grantors shall reasonably
request to evidence such termination. Any execution and delivery of termination
statements or documents pursuant to this Section 7.14 shall be without recourse
to or warranty by the Collateral Agent. The Security Interest upon any item of
Collateral created hereby shall terminate upon any sale, transfer or other
disposition of such item that is permitted under the Credit Agreement to a
person that is not a Grantor under this Agreement, and the Security Interest
created by this Agreement in such item shall automatically be released without
any action by such person, provided, that the Collateral Agent shall execute and
deliver to the Grantors, at the Grantors' expense, all Uniform Commercial Code
termination statements, and similar documents which the Grantors will reasonably
request to evidence such release. A Grantor shall automatically be released
from its obligations hereunder and the Security Interest in the Collateral of
such Grantor shall be automatically released in the event that all the capital
stock of such Grantor shall be sold, transferred or otherwise disposed of to a
person that is not an Affiliate of the Borrower in accordance with the terms of
the Credit Agreement; provided that the Required Lenders shall have consented to
such sale, transfer or other disposition (to the extent required by the Credit
Agreement) and the terms of such consent did not provide otherwise.
SECTION 7.15. Additional Grantors. Upon execution and delivery by the
Collateral Agent and a Subsidiary of an instrument in the form of Annex 3
hereto, such subsidiary shall become a Grantor hereunder with the same force and
effect as if originally named as a Grantor herein. The execution and delivery
of any such instrument shall not require the consent of any Grantor hereunder.
The rights and obligations of each Grantor hereunder shall remain in full force
and effect notwithstanding the addition of any new Grantor as a party to this
Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
CATALYTICA, INC.,
by /s/ Lawrence W. Briscoe
________________________________
Name: Lawrence W. Briscoe
Title: Chief Financial Officer
CATALYTICA PHARMACEUTICALS, INC.,
by /s/ Lawrence W. Briscoe
________________________________
Name: Lawrence W. Briscoe
Title: Chief Financial Officer
EACH OF THE SUBSIDIARY GRANTORS
LISTED ON SCHEDULE I HERETO,
by /s/ Lawrence W. Briscoe
________________________________
Name: Lawrence W. Briscoe
Title: Authorized Officer
THE CHASE MANHATTAN BANK, as
Collateral Agent,
by Lawrence Palumbo, Jr.
________________________________
Name: Lawrence Palumbo, Jr.
Title: Vice President
<PAGE>
Annex 1 to the
Security Agreement
[Form Of]
PERFECTION CERTIFICATE
Reference is made to (a) the Credit Agreement dated as of July [ ], 1997 (as
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), among Catalytica, the Borrower, the lenders from time to time party
thereto (the "Lenders"), and The Chase Manhattan Bank, as issuing bank (in such
capacity, the "Issuing Bank"), as administrative agent for the Lenders (in such
capacity, the "Administrative Agent") and Collateral Agent, (b) the Guarantee
Agreement dated as of July [ ], 1997 (as amended, supplemented or otherwise
modified from time to time, the "Guarantee Agreement"), among each Subsidiary
listed on Schedule I thereto and the Collateral Agent and (c) the Parent
Guarantee Agreement dated as of July [ ], 1997 (as amended, supplemented or
otherwise modified from time to time, the "Parent Guarantee Agreement"), between
Catalytica and the Collateral Agent.
The undersigned, a Financial Officer of the Borrower, hereby certify to the
Collateral Agent and each other Secured Party as follows:
1. Names. (a) The exact corporate name of each Grantor, as such name appears
in its respective certificate of incorporation, is as follows:
(b) Set forth below is each other corporate name each Grantor has had in the
past five years, together with the date of the relevant change:
(c) Except as set forth in Schedule 1 hereto, no Grantor has changed its
identity or corporate structure in any way within the past five years. Changes
in identity or corporate structure would include mergers, consolidations and
acquisitions, as well as any change in the form, nature or jurisdiction of
corporate organization. If any such change has occurred, include in Schedule 1
the information required by Sections 1 and 2 of this certificate as to each
acquiree or constituent party to a merger or consolidation.
(d) The following is a list of all other names (including trade names or
similar appellations) used by each Grantor or any of its divisions or other
business units in connection with the conduct of its business or the ownership
of its properties at any time during the past five years:
(e) Set forth below is the Federal Taxpayer Identification Number of each
Grantor:
2. Current Locations. (a) The chief executive office of each Grantor is
located at the address set forth opposite its name below:
Grantor Mailing Address County State
- ------- --------------- ------ -----
(b) Set forth below opposite the name of each Grantor are all locations where
such Grantor maintains any books or records relating to any Accounts Receivable
(with each location at which
<PAGE>
chattel paper, if any, is kept being indicated by
an "*"):
Grantor Mailing Address County State
- ------- --------------- ------ -----
(c) Set forth below opposite the name of each Grantor are all the places of
business of such Grantor not identified in paragraph (a) or (b) above:
Grantor Mailing Address County State
- ------- --------------- ------ -----
(d) Set forth below opposite the name of each Grantor are all the locations
where such Grantor maintains any Collateral not identified above:
Grantor Mailing Address County State
- ------- --------------- ------ -----
(e) Set forth below opposite the name of each Grantor are the names and
addresses of all persons other than such Grantor that have possession of any of
the Collateral of such Grantor:
Grantor Mailing Address County State
- ------- --------------- ------ -----
3. Unusual Transactions. All Accounts Receivable have been originated by the
Grantors and all Inventory has been acquired by the Grantors in the ordinary
course of business.
4. File Search Reports. Attached hereto as Schedule 4(A) are true copies of
file search reports from the Uniform Commercial Code filing offices where
filings are to be made. Attached hereto as Schedule 4(B) is a true copy of each
financing statement or other filing identified in such file search reports.
5. UCC Filings. Duly signed financing statements on Form UCC-1 in
substantially the form of Schedule 5 hereto have been prepared for filing in the
Uniform Commercial Code filing office in each jurisdiction where a Grantor has
Collateral as identified in Section 2 hereof.
6. Schedule of Filings. Attached hereto as Schedule 6 is a schedule setting
forth, with respect to the filings described in Section 5 above, each filing and
the filing office in which such filing is to be made.
7. Filing Fees. All filing fees and taxes payable in connection with the
filings described in Section 5 above have been paid.
8. Stock Ownership. Attached hereto as Schedule 8 is a true and correct list
of all the duly authorized, issued and outstanding stock of each Subsidiary and
the record and beneficial owners of such stock. Also set forth on Schedule 8 is
each equity Investment of the Borrower and each Subsidiary that represents 50%
or less of the equity of the entity in which such investment was made.
9. Notes. Attached hereto as Schedule 9 is a true and correct list of all
notes held by the Borrower and each Subsidiary and all intercompany notes
between the
<PAGE>
Borrower and each Subsidiary of the Borrower and between each Subsidiary of the
Borrower and each other such Subsidiary.
10. Advances. Attached hereto as Schedule 10 is (a) a true and correct list
of all advances made by the Borrower to any Subsidiary of the Borrower or made
by any Subsidiary of the Borrower to the Borrower or any other Subsidiary of the
Borrower, which advances will be on and after the date hereof evidenced by one
or more intercompany notes pledged to the Collateral Agent under the Pledge
Agreement, and (b) a true and correct list of all unpaid intercompany transfers
of goods sold and delivered by or to the Borrower or any Subsidiary of the
Borrower.
11. Mortgage Filings. Attached hereto as Schedule 11 is a schedule setting
forth, with respect to each Mortgaged Property, (i) the exact corporate name of
the corporation that owns such property as such name appears in its certificate
of incorporation, (ii) if different from the name identified pursuant to clause
(i), the exact name of the current record owner of such property reflected in
the records of the filing office for such property identified pursuant to the
following clause and (iii) the filing office in which a Mortgage with respect to
such property must be filed or recorded in order for the Collateral Agent to
obtain a perfected security interest therein.
IN WITNESS WHEREOF, the undersigned have duly executed this certificate on this
[ ] day of [ ].
CATALYTICA PHARMACEUTICALS, INC.
by
------------------------------
Name:
Title: Financial Officer
<PAGE>
Annex 2 to the
Security Agreement
SUPPLEMENT NO. __ dated as of , to the Security
Agreement dated as of July 31, 1997, among CATALYTICA, INC., a
Delaware corporation ("Catalytica"), CATALYTICA PHARMACEUTICALS, INC.,
a Delaware corporation (the "Borrower"), each Subsidiary that is a
subsidiary of the Borrower listed on Schedule I thereto (each such
subsidiary individually a "Subsidiary Grantor" and collectively, the
"Subsidiary Grantors"; the Subsidiary Grantors, Catalytica and the
Borrower are referred to collectively herein as the "Grantors") and
THE CHASE MANHATTAN BANK, a New York banking corporation ("Chase"), as
collateral agent (in such capacity, the "Collateral Agent") for the
Secured Parties (as defined herein).
A. Reference is made to (a) the Credit Agreement dated as of July 31, 1997
(as amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), among Catalytica, the Borrower, the lenders from time to time party
thereto (the "Lenders"), Chase, as issuing bank (in such capacity, the "Issuing
Bank"), as administrative agent for the Lenders (in such capacity, the
"Administrative Agent") and Collateral Agent, (b) the Guarantee Agreement dated
as of July 31, 1997 (as amended, supplemented or otherwise modified from time to
time, the "Guarantee Agreement"), among each Subsidiary listed on Schedule I
thereto and the Collateral Agent and (c) the Parent Guarantee Agreement dated as
of July 31, 1997 (as amended, supplemented or otherwise modified from time to
time, the "Parent Guarantee Agreement"), between Catalytica and the Collateral
Agent.
B. Capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned to such terms in the Security Agreement and the
Credit Agreement.
C. The Grantors have entered into the Security Agreement in order to induce
the Lenders to make Loans and the Issuing Bank to issue Letters of Credit.
Section 7.15 of Security Agreement provides that additional Subsidiaries may
become Grantors under the Security Agreement by execution and delivery of an
instrument in the form of this Supplement. The undersigned Subsidiary (the "New
Grantor") is executing this Supplement in accordance with the requirements of
the Credit Agreement to become a Grantor under the Security Agreement in order
to induce the Lenders to make additional Loans and the Issuing Bank to issue
additional Letters of Credit and as consideration for Loans previously made and
Letters of Credit previously issued.
Accordingly, the Collateral Agent and the New Grantor agree as follows:
SECTION 1. In accordance with Section 7.15 of the Security Agreement, the
New Grantor by its signature below becomes a Grantor under the Security
Agreement with the same force and effect as if originally named therein as a
Grantor and the New Grantor hereby (a) agrees to all the terms and provisions of
the Security Agreement applicable to it as a Grantor thereunder and (b)
represents and warrants that the representations and warranties made by it as a
Grantor thereunder are true and correct on and as of the date hereof. In
furtherance of the foregoing, the New Grantor, as security for the payment and
performance in full of the Obligations (as defined in the Security Agreement),
does hereby create and grant to the Collateral Agent, its successors and
assigns, for the benefit of the Secured Parties, their successors and assigns, a
security interest in and lien on all of the New Grantor's right, title and
interest in and to the Collateral (as defined in the Security Agreement) of the
New Grantor. Each reference to a "Grantor" in the Security Agreement shall be
deemed to include the New Grantor. The Security Agreement is hereby incorporated
herein by reference.
<PAGE>
SECTION 2. The New Grantor represents and warrants to the Collateral Agent
and the other Secured Parties that this Supplement has been duly authorized,
executed and delivered by it and constitutes its legal, valid and binding
obligation, enforceable against it in accordance with its terms.
SECTION 3. This Supplement may be executed in counterparts (and by
different parties hereto on different counterparts), each of which shall
constitute an original, but all of which when taken together shall constitute a
single contract. This Supplement shall become effective when the Collateral
Agent shall have received counterparts of this Supplement that, when taken
together, bear the signatures of the New Grantor and the Collateral Agent.
Delivery of an executed signature page to this Supplement by facsimile
transmission shall be as effective as delivery of a manually signed counterpart
of this Supplement.
SECTION 4. The New Grantor hereby represents and warrants that (a) set
forth on Schedule I attached hereto is a true and correct schedule of the
location of any and all Collateral of the New Grantor and (b) set forth under
its signature hereto, is the true and correct location of the chief executive
office of the New Grantor.
SECTION 5. Except as expressly supplemented hereby, the Security Agreement
shall remain in full force and effect.
SECTION 6. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 7. In case any one or more of the provisions contained in this
Supplement should be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein and in the Security Agreement shall not in any way be affected or
impaired thereby (it being understood that the invalidity of a particular
provision in a particular jurisdiction shall not in and of itself affect the
validity of such provision in any other jurisdiction). The parties hereto shall
endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
SECTION 8. All communications and notices hereunder shall be in writing and
given as provided in Section 7.01 of the Security Agreement. All communications
and notices hereunder to the New Grantor shall be given to it at the address set
forth under its signature below or at such other address as the New Grantor
shall notify the Collateral Agent in writing.
<PAGE>
SECTION 9. The New Grantor agrees to reimburse the Collateral Agent for its
reasonable out-of-pocket expenses in connection with this Supplement, including
the reasonable fees, other charges and disbursements of counsel for the
Collateral Agent.
IN WITNESS WHEREOF, the New Grantor and the Collateral Agent have duly
executed this Supplement to the Security Agreement as of the day and year first
above written.
[Name Of New Grantor],
by
-----------------------------------
Name:
Title:
Address:
THE CHASE MANHATTAN BANK, as
Collateral Agent,
by
-----------------------------------
Name:
Title:
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> APR-01-1997 JAN-01-1997
<PERIOD-END> JUN-30-1997 JUN-01-1997
<CASH> 11,372 0
<SECURITIES> 4,490 0
<RECEIVABLES> 5,337 0
<ALLOWANCES> 100 0
<INVENTORY> 1,705 0
<CURRENT-ASSETS> 27,964 0
<PP&E> 20,393 0
<DEPRECIATION> 10,197 0
<TOTAL-ASSETS> 38,210 0
<CURRENT-LIABILITIES> 10,937 0
<BONDS> 1,285 0
0 0
0 0
<COMMON> 66,070 0
<OTHER-SE> (52,369) 0
<TOTAL-LIABILITY-AND-EQUITY> 38,210 0
<SALES> 6,262 9,321
<TOTAL-REVENUES> 7,762 12,547
<CGS> 6,013 9,087
<TOTAL-COSTS> 9,254 15,517
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 125 238
<INCOME-PRETAX> (1,828) (4,153)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,828) (4,153)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,828) (4,153)
<EPS-PRIMARY> (.09) (.09)
<EPS-DILUTED> (.09) (.09)
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