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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 28, 1998
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THERATECH, INC.
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(Exact name of registrant as specified in its charter)
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<S> <C>
Delaware 87-0420511
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(State of other jurisdiction of incorporation) (IRS Employer Identification Number)
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0-20063
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(Commission File Number)
417 Wakara Way, Salt Lake City, Utah 84108
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (801) 588-6200
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ITEM 5. OTHER EVENTS.
On October 25, 1998, TheraTech, Inc. ("TheraTech") announced that it
had entered into an Agreement and Plan of Merger (the "Merger Agreement") with
Watson Pharmaceuticals, Inc. ("Watson") and Jazz Merger Corp., a wholly-owned
subsidiary of Watson ("Watson Sub"). Pursuant to the Merger Agreement, (i)
Watson Sub will be merged with and into TheraTech and TheraTech will become a
wholly-owned subsidiary of Watson and (ii) each outstanding share of common
stock of TheraTech will be converted into the right to receive shares of common
stock of Watson in accordance with the following (the "Exchange Ratio"): Twelve
(12) divided by the average daily closing price of a share of Watson common
stock as reported on the NYSE and as reported in the Wall Street Journal for the
ten consecutive trading days ending on the second trading day immediately
preceding the Closing Date, provided however, that the Exchange Ratio shall not
be greater than 0.29589 nor less than 0.2663. A copy of the Merger Agreement
and the related press release is attached as an exhibit to this Current Report
on Form 8-K.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits.
See the Index to Exhibits attached hereto.
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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 who is duly authorized to execute this report.
THERATECH, INC.
(Registrant)
Dated: October 28, 1998 By: /s/ Alexander L. Searl
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Alexander L. Searl, Senior Vice President
and Chief Financial Officer
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INDEX TO EXHIBITS
Exhibit
Number
2.1 Agreement and Plan of Merger dated as of October 23, 1998 among Watson
Pharmaceuticals, Inc., Jazz Merger Corp. and TheraTech, Inc.
99.1 Press release dated October 25, 1998 announcing the proposed merger.
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EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is dated as of October 23, 1998 (the
"Agreement") by and among Watson Pharmaceuticals, Inc., a Nevada corporation
("Watson"), Jazz Merger Corp., a Delaware corporation and the wholly-owned
subsidiary of Watson ("Watson Sub"), and TheraTech, Inc., a Delaware corporation
(the "Company").
WHEREAS, the Board of Directors of each of Watson and the Company have
determined that a business combination between Watson and the Company merging
their respective pharmaceutical businesses is in the best interests of their
respective companies and stockholders and accordingly have agreed to effect the
merger provided for herein upon the terms and subject to the conditions set
forth herein; and
WHEREAS, it is the intention of the parties to this Agreement that (a) for
federal income tax purposes, the merger provided for herein shall qualify as a
"reorganization" within the meaning of Section 368 of the Internal Revenue Code
of 1986, as amended (the "Code"); and (b) for accounting purposes, the merger
provided for herein shall qualify as a "pooling of interests";
WHEREAS, the Company has delivered to Watson voting agreements executed by
Dinesh C. Patel and William I. Higuchi; and
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements set forth herein, the
parties hereto hereby agree as follows:
ARTICLE I
THE MERGER
1.1. The Merger. Upon the terms and subject to the conditions of this
Agreement, at the Effective Time (as defined in Section 1.3 of this Agreement),
Watson Sub shall be merged with and into the Company in accordance with the laws
of the State of Delaware and the terms of this Agreement (the "Merger"),
whereupon the separate corporate existence of Watson Sub shall cease, and the
Company shall be the surviving corporation of the Merger (the Company, as the
surviving corporation after the Merger is sometimes referred to herein as the
"Surviving Corporation").
1.2. Closing. Subject to the terms and conditions of this Agreement, the
closing of the Merger (the "Closing") shall take place (a) at the offices of
D'Ancona & Pflaum, 30 North LaSalle Street, Chicago, Illinois 60602 at 10:00
a.m. three business days after all the conditions set forth in Article VI of
this Agreement (other than those that are waived by the party or parties for
whose benefit such conditions exist) are satisfied; or (b) at such other place,
time, and/or date as the parties hereto may otherwise agree. The date upon
which the Closing shall occur is referred to herein as the "Closing Date."
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1.3. Effective Time. If all the conditions to the Merger set forth in
Article VI of this Agreement have been fulfilled or waived and this Agreement
shall not have been terminated as provided in Article VII hereof, the parties
hereto shall cause a certificate of merger (the "Certificate of Merger") to be
properly executed and filed in accordance with the laws of the State of Delaware
and the terms of this Agreement on or before the Closing Date. The parties
hereto shall also take such further actions as may be required under the laws of
the State of Delaware in connection with the consummation of the Merger. The
Merger shall become effective at such time as the Certificate of Merger is duly
filed with the Secretary of State of Delaware or at such later time as is
specified in the Certificate of Merger (the "Effective Time"). From and after
the Effective Time, the Surviving Corporation shall possess all the rights,
privileges, powers and franchises and be subject to all of the restrictions,
disabilities and duties of the Company and Watson Sub, all as provided under
applicable law.
1.4. Conversion of Shares.
(a) At the Effective Time:
(i) each share of Common Stock, par value $0.01 per share, of Watson
Sub outstanding at the Effective Time, by virtue of the Merger and
without any action on the part of the holders thereof, shall be converted
into and exchanged for one share of Common Stock, par value $0.01 per
share, of the Surviving Corporation; and
(ii) each share of Common Stock, $0.01 par value per share, of the
Company (the "Company Common Stock") outstanding at the Effective Time,
by virtue of the Merger and without any action on the part of the holders
thereof, except as otherwise provided in Section 1.4(c) hereof, shall be
converted into the right to receive the following portion of a share of
Watson Common Stock (the "Exchange Ratio"): Twelve (12) divided by the
Average Closing Price; provided, however, that the Exchange Ratio shall
not be greater than 0.29589 nor less than 0.2663.
(b) As a result of the Merger and without any action on the part of the
holder thereof, at the Effective Time, all shares of Company Common Stock shall
cease to be outstanding and shall be canceled and retired and shall cease to
exist, and each holder of shares of Company Common Stock shall thereafter cease
to have any rights with respect to such shares of Company Common Stock, except
for the right to receive, without interest, the consideration set forth in this
Section 1.4 and cash for fractional shares of Watson Common Stock in accordance
with Section 1.6 of this Agreement upon the surrender of a certificate (each, a
"Certificate") representing such shares of Company Common Stock in accordance
with the provisions of this Article I.
(c) Each share of Company Common Stock held by the Company as treasury
stock or owned by Watson or any Subsidiary (as defined in Section 1.4(d) of this
Agreement) of Watson at the Effective Time shall be canceled, and no payment
shall be made with respect thereto.
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(d) For purposes of this Agreement, (i) the term "Average Closing Price"
shall mean the average of the per share last daily closing price of Watson
Common Stock as quoted on the New York Stock Exchange ("NYSE") (and as reported
by The Wall Street Journal or, if not reported thereby, by another authoritative
source) during the ten (10) consecutive trading days ending on the second
trading day immediately preceding the Closing Date; (ii) the word "Subsidiary"
when used with respect to any Person means any corporation or other
organization, whether incorporated or unincorporated, of which (A) at least
fifty percent (50%) of the securities or other interests having by their terms
ordinary voting power to elect a majority of the board of directors or others
performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such Person or by
any one or more of its Subsidiaries; or (B) such Person or any other Subsidiary
of such Person is a general partner, it being understood that representations
and warranties of a Person concerning any former Subsidiary of such Person shall
be deemed to relate only to the periods during which such former Subsidiary was
a Subsidiary of such Person; and (iii) the word "Person" means an individual, a
corporation, a limited liability company, a partnership, an association, a trust
or any other entity or organization, including a government or political
subdivision or any agency or instrumentality thereof, or any affiliate (as that
term is defined in the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder (the "Exchange Act")) of any of the
foregoing.
1.5. Stock Options. All options and warrants to acquire Company Common
Stock (individually, a "Company Option" and collectively, the "Company Options")
outstanding at the Effective Time under the Company's Restated 1992 Employee
Stock Option Plan, the Company's 1992 Directors' Stock Option Plan or otherwise
(collectively, the "Company Stock Option Plans") shall remain outstanding
following the Effective Time. At the Effective Time, such Company Options, by
virtue of the Merger and without any further action on the part of the Company
or the holder of such Company Options, shall be assumed by Watson in such manner
that Watson (a) is a corporation (or a parent or a subsidiary corporation of
such corporation) "assuming a stock option in a transaction to which Section
424(a) applied" within the meaning of Section 424 of the Code; or (b) to the
extent that Section 424 of the Code does not apply to any such Company Options,
would be such a corporation (or a parent or a subsidiary corporation of such
corporation) were Section 424 applicable to such option. Each Company Option
assumed by Watson shall be exercisable upon the same terms and conditions as
under the applicable Company Stock Option Plan and the applicable option
agreement issued thereunder, except that (x) the unexercised portion of each
such Company Option shall be exercisable for that whole number of shares of
Watson Common Stock (rounded to the nearest whole share, with 0.5 rounded
upward) equal to the number of shares of Company Common Stock subject to the
unexercised portion of such Company Option multiplied by the Exchange Ratio; and
(y) the option exercise price per share of Watson Common Stock shall be an
amount equal to the option exercise price per share of Company Common Stock
subject to such Company Option in effect at the Effective Time divided by the
Exchange Ratio (the option price per share, as so determined, being rounded to
the nearest full cent, with $0.005 rounded upward). No payment shall be made
for fractional interests. The term, exercisability, vesting schedule, status as
an "incentive stock option" under Section 422 of the Code, if applicable, and
all of the other terms of the Company Options shall otherwise remain unchanged.
As soon as practicable after the Effective
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Time, Watson shall deliver to the holders of Company Options appropriate
notices setting forth such holders' rights pursuant to such Company Options, as
amended by this Section 1.5 as well as notice of Watson's assumption of the
Company's obligations with respect thereto (which occurs by virtue of this
Agreement). Watson shall take all corporate actions necessary to reserve for
issuance such number of shares of Watson Common Stock as will be necessary to
satisfy exercises in full of all Company Options after the Effective Time.
1.6. Exchange of Certificates Representing Company Common Stock.
(a) American Stock Transfer & Trust Company shall act as exchange agent
(the "Exchange Agent") in the Merger.
(b) At or promptly after the Effective Time and in any event, no later
than ten (10) business days after the Effective Time, Watson shall deposit or
cause to be deposited with the Exchange Agent for exchange in accordance with
this Article I, the shares of Watson Common Stock issuable pursuant to Section
1.4 in exchange for shares of Company Common Stock outstanding at the Effective
Time and a sufficient amount of cash to satisfy the cash payments to be made in
lieu of fractional share interests pursuant to the terms of Section 1.6(f)
hereof.
(c) At or promptly after the Effective Time, Watson shall cause the
Exchange Agent to mail to each holder of record of shares of Company Common
Stock (i) a letter of transmittal which shall specify that delivery shall be
effected, and risk of loss and title to such shares of Company Common Stock
shall pass, only upon delivery of the Certificates representing such shares to
Watson; and (ii) instructions for use in effecting the surrender of such
Certificates in exchange for the consideration to be received by such holder
pursuant to Sections 1.4 and 1.6 hereof. Upon surrender of a Certificate
representing shares of Company Common Stock for cancellation to Watson, together
with such letter of transmittal, duly executed and completed in accordance with
the instructions thereto, the holder of the shares represented by such
Certificate shall be entitled to receive in exchange therefor, a certificate
representing that number of whole shares of Watson Common Stock and a check
representing the amount of cash in lieu of fractional shares, if any, and unpaid
dividends and distributions, if any, which such holder has the right to receive
in respect of the Certificate surrendered pursuant to the provisions of this
Section 1.6, after giving effect to any required withholding tax, and the shares
represented by the Certificate so surrendered shall forthwith be canceled. No
interest will be paid or accrued on the cash in lieu of fractional shares and
unpaid dividends and distributions, if any, payable to holders of shares of
Company Common Stock who receive shares of Watson Common Stock pursuant to
Section 1.4 hereof. In the event of a transfer of ownership of Company Common
Stock which is not registered in the transfer records of the Company, the
consideration to be paid to such holder of Company Common Stock pursuant to
Sections 1.4 and 1.6 hereof may be issued to such a transferee if the
Certificate representing such Company Common Stock is presented to Watson,
accompanied by all documents required to evidence and effect such transfer and
to evidence that any applicable stock transfer taxes have been paid or,
alternatively, payments of such transfer tax to the Exchange Agent. Until so
surrendered, each Certificate that, at the Effective Time, represented shares of
Company Common Stock will be
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deemed from and after the Effective Time, for all corporate purposes other than
the payment of dividends (except to the extent provided in Section 1.6(d)
below), to evidence the consideration to be received by the holders of Company
Common Stock pursuant to Sections 1.4 and 1.6 hereof.
(d) Notwithstanding anything to the contrary contained herein, no dividends
or other distributions declared after the Effective Time on Watson Common Stock
shall be paid with respect to any shares of Company Common Stock represented by
a Certificate until such Certificate is surrendered for exchange as provided
herein. Subject to the effect of applicable laws, following surrender of any
such Certificate, there shall be paid to the holder of the certificates
representing whole shares of Watson Common Stock issued in exchange therefor,
without interest, (i) at the time of such surrender, the amount of dividends or
other distributions with a record date after the Effective Time theretofore
payable with respect to such whole shares of Watson Common Stock and not paid,
less the amount of any withholding taxes which may be required thereon; and (ii)
at the appropriate payment date, the amount of dividends or other distributions
with a record date after the Effective Time but prior to surrender and a payment
date subsequent to surrender payable with respect to such whole shares of Watson
Common Stock, less the amount of any withholding taxes which may be required
thereon.
(e) At or after the Effective Time, there shall be no transfers on the
stock transfer books of the Company of the shares of Company Common Stock which
were outstanding at the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation, they shall be canceled
and exchanged for the consideration set forth in this Article I deliverable in
respect thereof pursuant to this Agreement in accordance with the procedures set
forth in this Section 1.6. Certificates surrendered for exchange by any person
constituting an "affiliate" of the Company for purposes of Rule 145(c) under the
Securities Act of 1933, as amended (the "Securities Act") shall not be exchanged
until Watson has received an Affiliate Letter (as defined herein) from such
person as provided in Section 5.9.
(f) No fractional shares of Watson Common Stock shall be issued pursuant
hereto. In lieu of the issuance of any fractional share of Watson Common Stock
pursuant to Section 1.4, cash adjustments will be paid to holders in respect of
any fractional share of Watson Common Stock that would otherwise be issuable,
and the amount of such cash adjustment shall be equal to such fractional
proportion of the Average Closing Price of a share of Watson Common Stock.
(g) All former stockholders of the Company (each, a "Stockholder" and
collectively the "Stockholders") shall look only to Watson for payment of shares
of Watson Common Stock, cash in lieu of fractional shares and unpaid dividends
and distributions on the Watson Common Stock, deliverable in respect of each
share of Company Common Stock such Stockholder holds as determined pursuant to
this Agreement, in each case, without any interest thereon.
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(h) None of Watson, Watson Sub, the Company, the Surviving Corporation or
any other person shall be liable to any former holder of shares of Company
Common Stock for any amount properly delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
(i) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such Person of a bond in such reasonable
amount as the Surviving Corporation may direct as indemnity against any claim
that may be made against it with respect to such Certificate, Watson will issue
in exchange for such lost, stolen or destroyed Certificate, the consideration to
be received by the holder of such Certificate pursuant to Sections 1.4 and 1.6
hereof.
(j) Any portion of the property delivered to the Exchange Agent in
accordance with this Section 1.6 that remains unclaimed by the Stockholders one
year after the Effective Time shall be delivered to Watson. Any Stockholders
who have not theretofore complied with this Section 1.6 shall thereafter look
only to Watson for payment of their consideration to be received by such
Stockholder pursuant to Sections 1.4 and 1.6 hereof deliverable in respect of
each share of the Company Common Stock such Stockholder holds as determined
pursuant to this Agreement, in each case, without any interest thereon.
1.7. Adjustment of Exchange Ratio. In the event that, subsequent to the
date of this Agreement but prior to the Effective Time, the outstanding shares
of Watson Common Stock or Company Common Stock shall have been changed into a
different number of shares or a different class as a result of a stock split,
reverse stock split, stock dividend, subdivision, reclassification, split,
combination, exchange, recapitalization or other similar transaction, the
Exchange Ratio and the Average Closing Price shall be appropriately adjusted.
1.8. Tax Consequences and Accounting Treatment. It is intended by the
parties hereto that the Merger shall constitute a reorganization within the
meaning of Section 368 of the Code and that the transaction be accounted for as
a pooling of interests.
1.9. Taking of Necessary Action; Further Action. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company and Watson Sub, the officers and directors of the
Company and Watson Sub are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action, so long as such action is consistent with this Agreement.
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ARTICLE II
CERTAIN MATTERS RELATING TO
THE SURVIVING CORPORATION
2.1. Certificate of Incorporation of the Surviving Corporation. The
certificate of incorporation of Watson Sub in effect at the Effective Time shall
be the certificate of incorporation of the Surviving Corporation until amended
in accordance with its terms and pursuant to applicable law; provided however,
that Article I of the Certificate of Incorporation of the Surviving Corporation
shall be amended to read as follows: "The name of the corporation is TheraTech,
Inc."
2.2. By-Laws of the Surviving Corporation. The By-Laws of Watson Sub in
effect at the Effective Time shall be the By-Laws of the Surviving Corporation
until amended in accordance with the terms of such By-Laws and pursuant to
applicable law and the Certificate of Incorporation of the Surviving
Corporation.
2.3. Directors of the Surviving Corporation. The directors of the
Surviving Corporation immediately after the Effective Time shall consist of the
persons listed in the Certificate of Merger, to hold office until their
successors are duly appointed or elected in accordance with applicable law.
2.4. Officers of the Surviving Corporation. The officers of the Surviving
Corporation immediately after the Effective Time shall consist of the persons
listed in the Certificate of Merger, who shall hold the offices listed opposite
their respective names until their successors are duly appointed or elected in
accordance with applicable law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF WATSON AND WATSON SUB
Watson and Watson Sub represent and warrant to the Company that the
statements contained in this Article III are true and correct, except as set
forth in the disclosure statement delivered by Watson and Watson Sub to the
Company concurrently herewith and identified as the "Watson Disclosure
Statement." All exceptions noted in the Watson Disclosure Statement shall be
numbered to correspond to the applicable sections to which such exception
refers.
3.1 Existence, Good Standing, Corporate Authority. Each of Watson, Watson
Sub and each Watson Material Subsidiary (as defined below) (i) is a corporation
duly incorporated, validly existing and in good standing under the laws of its
respective jurisdiction of incorporation; (ii) has all requisite power and
authority to (A) own or lease and operate its properties and assets and to carry
on its business as now conducted and as currently proposed to be conducted,
except where the failure to have such power and authority would not reasonably
be expected to have a Watson Material Adverse Effect (as defined herein), and
(B) consummate the transactions contemplated
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hereby; (iii) is duly qualified or licensed to do business and is in good
standing in all jurisdictions in which it owns or leases property or in which
the conduct of its business requires it to so qualify or be licensed, except
where the failure to so qualify, individually or in the aggregate, would not
reasonably be expected to have a Watson Material Adverse Effect; and (iv) has
obtained all licenses, permits, franchises and other governmental authorizations
necessary to the ownership or operation of its properties or the conduct of its
business, except where the failure to have obtained such licenses, permits,
franchises or authorizations would not reasonably be expected to have a Watson
Material Adverse Effect. For purposes of this Agreement, (x) a "Material
Adverse Effect" when used with respect to any Person means (i) a material
adverse effect on the business, assets, results of operations, financial
condition, or the Products and Technology of such Person and its Subsidiaries,
in each case taken as a whole; or (ii) an impairment in the ability of such
Person or its Subsidiaries to perform any of their material obligations under
this Agreement or to consummate the Merger; (y) a "Watson Material Subsidiary"
shall mean each Subsidiary of Watson which has total assets or total revenues
for the previous fiscal year in excess of $10,000,000; and (z) "Products and
Technology," with respect to a Person, means such Person's products (including
products in development) technology and Intellectual Property (as defined
herein).
3.2 Authorization of Agreement and Other Documents. The execution and
delivery of this Agreement and the other documents executed or to be executed in
connection herewith to which Watson or Watson Sub is a party (collectively, the
"Watson Ancillary Documents"), have been duly authorized by the Board of
Directors of each of Watson and Watson Sub and no other proceedings on the part
of Watson or Watson Sub or their stockholders are necessary to authorize the
execution, delivery or performance of this Agreement or any Watson Ancillary
Document. This Agreement is, and, as of the Closing Date, each of the Watson
Ancillary Documents will be, a valid and binding obligation of Watson and/or
Watson Sub, as the case may be, enforceable against Watson and/or Watson Sub, as
the case may be, in accordance with its terms, except to the extent that
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or other similar laws affecting enforcement of
creditors' rights generally, and by general principles of equity (regardless of
whether enforcement is considered in a proceeding at law or in equity).
3.3 No Violation. Neither the execution and delivery by Watson or Watson
Sub of this Agreement or the Watson Ancillary Agreements, nor the consummation
by Watson or Watson Sub of the transactions contemplated hereby and thereby in
accordance with their respective terms, will (a) conflict with or result in a
breach of any provisions of the Articles or Certificate of Incorporation or
By-Laws of Watson or any of the Watson Material Subsidiaries; (b) result in a
breach or violation of, a default under, or the triggering of any payment or
other material obligations pursuant to, or accelerate vesting under, any of the
Watson stock option plans, or any grant or award made under any of the
foregoing; (c) violate, conflict with, result in a breach of any provision of,
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, result in the termination, or in a right of
termination or cancellation of, accelerate the performance required by, result
in the triggering of any payment or other material obligations pursuant to,
result in the creation of any lien, security interest, charge or encumbrance
upon any of the material properties of Watson or any Watson Material Subsidiary
under, or result in being declared void,
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voidable, or without further binding effect, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust or any material
license, franchise, permit, lease, contract, agreement or other instrument,
commitment or obligation to which Watson or any Watson Material Subsidiary is a
party, or by which Watson or any Watson Material Subsidiary or any of their
respective properties is bound, except for any of the foregoing matters which
would not reasonably be expected to have a Watson Material Adverse Effect; (d)
contravene or conflict with or constitute a violation of any provision of any
law, regulation, judgement, injunction, order or decree binding upon or
applicable to Watson or any Watson Material Subsidiary, except for any of the
foregoing matters which would not reasonably be expected to have a Watson
Material Adverse Effect; or (e) other than the filings provided for in Sections
1.3 and 5.7, filings required under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 (the "HSR Act"), the Exchange Act, the Securities Act, or applicable
state securities and "Blue Sky" laws or filings in connection with the
maintenance of qualification to do business in other jurisdictions
(collectively, the "Regulatory Filings"), require any material consent, approval
or authorization of, or declaration of, or filing or registration with, any
domestic governmental or regulatory authority, the failure to obtain or make
which would reasonably be expected to have a Watson Material Adverse Effect.
3.4 SEC Documents. Watson has delivered or made available to the Company
each registration statement, report, proxy statement or information statement
(as defined in Regulation 14C under the Exchange Act) prepared by it since
January 1, 1997, which reports constitute all of the documents required to be
filed by Watson with the Securities and Exchange Commission ("SEC") since such
date, each in the form (including exhibits and any amendments thereto) filed
with the SEC (collectively, the "Watson Reports"). As of their respective
dates, the Watson Reports and any Watson Reports filed after the date hereof and
prior to the Effective Time (a) complied as to form in all material respects
with the applicable requirements of the Securities Act or the Exchange Act, as
the case may be, and the rules and regulations thereunder; and (b) 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 made therein,
in the light of the circumstances under which they were made, not misleading.
Watson has timely filed with the SEC all reports required to be filed under
Sections 13, 14 and 15(d) of the Exchange Act since January 1, 1997. Each of
the consolidated balance sheets of Watson included in or incorporated by
reference into the Watson Reports (including the related notes and schedules)
fairly present in all material respects the consolidated financial position of
Watson and its Subsidiaries as of its date (subject, in the case of unaudited
statements, to normal year-end audit adjustments which are not reasonably
expected to be material in amount or effect), and each of the consolidated
statements of income, retained earnings and cash flows of Watson included in or
incorporated by reference into the Watson Reports (including any related notes
and schedules) fairly present in all material respects the results of
operations, retained earnings or cash flows, as the case may be, of Watson and
its Subsidiaries for the periods set forth therein (subject, in the case of
unaudited statements, to normal year-end audit adjustments which are not
reasonably expected to be material in amount or effect). The financial
statements of Watson, including the notes thereto, included in or incorporated
by reference into the Watson Reports comply as to form in all material respects
with applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto, and have been prepared in
accordance with generally accepted accounting
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principles consistently applied ("GAAP") (except as may be indicated in the
notes thereto). Since January 1, 1997, there has been no material change in
Watson's accounting methods or principles except as described in the notes to
such Watson financial statements.
3.5 No Brokers. Watson has not entered into any contract, arrangement or
understanding with any person or firm which may result in the obligation of the
Company, Watson, Watson Sub or their respective Subsidiaries to pay any finder's
fee, brokerage or agent's commissions or other like payments in connection with
the negotiations leading to this Agreement or the consummation of the
transactions contemplated hereby, except that Watson has retained Bear, Stearns
& Co. Inc. as its financial advisor.
3.6 Opinion of Financial Advisor. Watson has received the opinion of
Bear, Stearns & Co. Inc., to the effect that, as of the date of such opinion,
the consideration to be paid by Watson pursuant to the Merger is fair to Watson
from a financial point of view.
3.7 Watson Common Stock. The issuance and delivery by Watson of shares of
Watson Common Stock in connection with the Merger and this Agreement have been
duly and validly authorized by all necessary corporate action on the part of
Watson. The shares of Watson Common Stock to be issued in connection with the
Merger and this Agreement, when issued in accordance with the terms of this
Agreement, will be validly issued, fully paid and nonassessable and free of
preemptive rights, and may be sold by "Affiliates (as defined below) under
paragraph (d) of Rule 145 promulgated under the Securities Act.
3.8 Capitalization.
(a) The total authorized capital stock of Watson consists of (i)
500,000,000 shares of Watson Common Stock, 89,414,516 shares of which are issued
and outstanding as of October 1, 1998 and 6,100,000 shares of which have been
reserved for issuance pursuant to the Merger and (ii) 2,500,000 shares of
preferred stock, none of which are issued and outstanding as of the date of this
Agreement. The authorized capital stock of Watson Sub consists of 1,000 shares
of Common Stock, $0.01 par value per share, 100 shares of which, as of the date
hereof, are issued and outstanding and are held by Watson. There are no shares
of capital stock of Watson or Watson Sub of any other class authorized, issued
or outstanding. All of such outstanding shares of Watson Common Stock have been
validly issued, are fully paid and nonassessable and were issued in compliance
with all preemptive rights. The issuance of Watson Common Stock pursuant to the
Merger is not subject to any pre-emptive or other similar rights to acquire
Watson Common Stock.
(b) As of October 1, 1998, except as set forth in the Watson Reports,
there are no outstanding (i) securities convertible into or exchangeable for any
capital stock of Watson, (ii) options, warrants or other rights to purchase or
subscribe to capital stock of Watson or securities convertible into or
exchangeable for capital stock of Watson, or (iii) contracts, commitments,
agreements, understandings, arrangements, calls or claims of any kind relating
to the issuance of any capital stock of Watson.
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3.9 Disclosure Documents. The Proxy Statement/Prospectus to be delivered
to the Stockholders in connection with the approval of the transactions
contemplated by this Agreement, or any amendment or supplement thereto (the
"Proxy Statement") at the time of mailing thereof and at the time of the meeting
of Stockholders, or, in the case of the Form S-4 (as defined in Section 5.7 of
this Agreement) and each amendment or supplement thereto, at the time it is
filed or becomes effective under the Securities Act, will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the foregoing shall not apply to the extent that any such untrue statement
of a material fact or omission to state a material fact was made by Watson in
reliance upon and in conformity with written information concerning the Company
furnished to Watson by the Company specifically for use in the Proxy Statement.
3.10 Tax Reorganization; Accounting Matters. To its knowledge, after
consulting with its independent auditors, neither Watson nor any of its
Subsidiaries has taken or failed to take any action which would prevent the
Merger from (a) constituting a reorganization within the meaning of section
368(a) of the Code; or (b) being treated as a "pooling or interests" in
accordance with Accounting Principles Board Opinion No. 16, the interpretative
releases issued pursuant thereto, and the pronouncements of the SEC.
3.11 Material Adverse Change. Since June 30, 1998, Watson and its
Subsidiaries, taken as a whole, have not suffered, and no event or occurrence
has taken place that would reasonably be expected to have, a Watson Material
Adverse Effect; provided, that a Watson Material Adverse Effect will not be
deemed to have occurred solely as a result of fluctuations in the value of
Watson Common Stock.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Watson and Watson Sub that the
statements contained in this Article IV are true and correct, except as set
forth in the disclosure statement delivered by the Company to Watson and Watson
Sub concurrently herewith and identified as the "Disclosure Statement." All
exceptions noted in the Disclosure Statement shall be numbered to correspond to
the applicable sections to which such exception refers. The Company represents
and warrants that the Disclosure Statement has been prepared in good faith, in a
commercially reasonable manner consistent with the requirements of this
Agreement and any material violation of this representation shall be deemed to
be a violation of Section 6.2(b) and 7.1(g) of this Agreement.
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4.1. Organization, Standing and Qualification. Each of the Company and
each of its Subsidiaries (i) is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation; (ii)
has all requisite power and authority to (A) own or lease and operate its
properties and assets and to carry on its business as now conducted and as
currently proposed to be conducted, except where the failure to have such power
and authority would not reasonably be expected to have a Company Material
Adverse Effect, and (B) consummate the transactions contemplated hereby; (iii)
is duly qualified or licensed to do business and is in good standing in all
jurisdictions in which it owns or leases property or in which the conduct of its
business requires it to so qualify or be licensed, except where the failure to
so qualify, individually or in the aggregate, would not reasonably be expected
to have a Company Material Adverse Effect; and (iv) has obtained all licenses,
permits, franchises and other governmental authorizations necessary to the
ownership or operation of its properties or the conduct of its business, except
where the failure to have obtained such licenses, permits, franchises or
authorizations would not reasonably be expected to have a Company Material
Adverse Effect. The Disclosure Statement lists each jurisdiction in which the
Company or any of its Subsidiaries is qualified or licensed to do business.
4.2. Capitalization.
(a) Except for shares of Company Common Stock issued upon the exercise of
outstanding options to purchase Company Common Stock listed in the Disclosure
Statement, the total authorized capital stock of the Company consists of (i)
50,000,000 shares of common stock, par value $0.01 per share, 21,293,762 shares
of which are issued and outstanding; and (ii) 5,000,000 shares of preferred
stock, none of which are issued and outstanding. There are no shares of capital
stock of the Company of any other class authorized, issued or outstanding.
(b) Each share of the outstanding Company Common Stock is (i) duly
authorized and validly issued; (ii) fully paid and nonassessable and free of
preemptive and similar rights; and (iii) to the knowledge of the Company, free
and clear of all liens, pledges, security interests, claims or other
encumbrances and restrictions on voting and transfer other than restrictions on
transfer imposed by Federal and state securities laws.
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(c) There are currently no outstanding, and, as of the Closing, there will
be no outstanding (i) securities convertible into or exchangeable for any
capital stock of the Company or any of its Subsidiaries, (ii) options, warrants
or other rights to purchase or subscribe to capital stock of the Company or any
of its Subsidiaries or securities convertible into or exchangeable for capital
stock of the Company or any of its Subsidiaries, or (iii) contracts,
commitments, agreements, understandings, arrangements, calls or claims of any
kind to which the Company or any of its Subsidiaries is a party or is bound
relating to the issuance of any capital stock of the Company or any of its
Subsidiaries. The Disclosure Statement identifies, as of the date hereof, the
option holder, the number of shares subject to each option, the exercise price,
the vesting schedule and the expiration date of each outstanding option or
warrant to purchase capital stock of the Company or any of its Subsidiaries. All
options, warrants or other rights to purchase Company Common Stock have been
duly authorized and validly issued. All options issued under the Company Stock
Option Plans have been issued in accordance with the terms of such plans. The
Company has reserved out of the authorized and unissued shares of Company Common
Stock a sufficient number of shares that will be issued upon the exercise of all
outstanding options, warrants or other rights to purchase Company Common Stock.
4.3. Subsidiaries. The Company owns directly or indirectly each of the
outstanding shares of capital stock (or other ownership interests having by
their terms ordinary voting power to elect a majority of directors or others
performing similar functions with respect to such Subsidiary) of each of the
Company's Subsidiaries indicated in the Disclosure Schedule as being owned by
the Company. Each of the outstanding shares of capital stock owned by the
Company of each of the Company's Subsidiaries is duly authorized, validly
issued, fully paid and nonassessable, and is owned, directly or indirectly, by
the Company free and clear of all liens, pledges, security interests, claims or
other encumbrances. The following information for each Subsidiary of the
Company is listed in the Disclosure Schedule, if applicable: (a) its name and
jurisdiction of incorporation or organization; (b) the location of its chief
executive office; (c) a summary of its lines of business and products; (d) its
authorized capital stock or share capital; (e) the number of issued and
outstanding shares of capital stock or share capital and the owner(s) thereof;
and (f) the officers and directors of such Subsidiary.
4.4. Ownership Interests. Except for the interests in the Company's
Subsidiaries listed in the Disclosure Statement, neither the Company nor any of
its Subsidiaries owns any direct or indirect interest in any Person. Since
January 1, 1996, the Company has not (i) disposed of the capital stock (other
than Company Common Stock) or all or substantially all of the assets of any
ongoing business, or (ii) purchased the business and/or all or substantially all
of the assets of another Person (whether by purchase of stock, assets, merger or
otherwise).
4.5. Constituent Documents. True and complete copies of the Certificate or
Articles of Incorporation and all amendments thereto or other appropriate
formation documents, the By-Laws as amended and currently in force and all
corporate minute books and records of the Company and each of its Subsidiaries
have been furnished or made available by the Company to Watson for inspection.
The corporate minute books and records of the Company and its Subsidiaries
contain true and complete copies of all resolutions adopted by the stockholders
or the Board of Directors of the Company and its Subsidiaries or any committees
thereof.
4.6. Authorization of Agreement and Other Documents. The execution and
delivery of this Agreement and the other documents executed or to be executed in
connection herewith to which the Company is a party (collectively, the "Company
Ancillary Documents"), have been duly authorized by the Board of Directors of
the Company and no other corporate or stockholder approvals are necessary to
authorize the execution, delivery or performance of this Agreement or any
Company Ancillary Document, except the approval of the Merger by the
Stockholders. This Agreement is, and, as of the Closing Date, each of the
Company Ancillary Documents will be, a valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, except to
the extent that enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws
affecting enforcement of creditors' rights generally, and by general principles
of equity (regardless of whether enforcement is considered in a proceeding at
law or in equity) and subject to the receipt of Stockholder approval of the
Merger.
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4.7. No Violation. Neither the execution and delivery by the Company of
this Agreement or the Company Ancillary Documents, nor the consummation by the
Company of the transactions contemplated hereby and thereby in accordance with
their respective terms, will (a) conflict with or result in a breach of any
provisions of the Certificate or Articles of Incorporation or By-Laws of the
Company or any of its Subsidiaries; (b) result in a breach or violation of, a
default under, or the triggering of any payment or other material obligations
pursuant to, or accelerate vesting under, any of the Company Stock Option Plans,
or any grant or award made under any of the foregoing; (c) violate, conflict
with, result in a breach of any provision of, constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under,
result in the termination, or in a right of termination or cancellation of,
cause the forfeiture or adversely affect any material right of, accelerate the
performance required by, result in the triggering of any payment or other
material obligations pursuant to, result in the creation of any lien, security
interest, charge or encumbrance upon any of the material properties of the
Company (including Intellectual Property) or any of its Subsidiaries under, or
result in being declared void, voidable, or without further binding effect, any
of the terms, conditions or provisions of any material note, bond, mortgage,
indenture, deed of trust or any material license, franchise, permit, lease,
contract, agreement or other material instrument, commitment or obligation to
which the Company or any of its Subsidiaries is a party, or by which the Company
or any of its Subsidiaries or any of their respective properties is bound; (d)
contravene or conflict with or constitute a violation of any provision of any
material law, regulation, judgment, injunction, order or decree binding upon or
applicable to the Company or any of its Subsidiaries, except for any of the
foregoing matters which would not reasonably be expected to have a Company
Material Adverse Effect; or (e) other than the Regulatory Filings, require any
consent, approval or authorization of, or declaration of, or filing or
registration with, any domestic governmental or regulatory authority, except for
any of the foregoing matters which would not reasonably be expected to have a
Company Material Adverse Effect.
4.8. Compliance with Laws--General.
(a) To the Company's knowledge, the Company and each of its Subsidiaries
hold, in its own name, all material permits, licenses, variances, exemptions,
orders and approvals of any court, arbitral, tribunal, administrative agency or
commissioner or other governmental or other regulatory authority or agency
("Governmental Entities") necessary for the lawful conduct of its business (the
"Permits"), each of which is listed on the Disclosure Statement. To the
Company's knowledge, all such material Permits are valid and in full force and
effect and will remain so upon consummation of the transactions contemplated by
this Agreement. To the knowledge of the Company, no suspension, cancellation or
termination of any Permit is threatened. True and correct copies of all Permits
have been provided or made available to Watson prior to the date hereof. The
Company has provided to Watson copies of all notices from any Governmental
Entity relating to any material alleged violation or material non-compliance
with any law, ordinance or regulation of any Governmental Entity by the Company
during the last three years and all such matters have been resolved as of the
date hereof.
(b) To the Company's knowledge, the Company and its Subsidiaries are not
in violation of, in any material respect, and are in material compliance with,
the terms of its material Permits.
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(c) To the Company's knowledge, the Company and its Subsidiaries are not
in violation of, and are in substantial compliance with, all laws, ordinances or
regulations of all Governmental Entities (including, but not limited to, those
related to occupational health and safety, controlled substances or employment
and employment practices) that are applicable to the Company or any of its
Subsidiaries or affect or relate to this Agreement or the transactions
contemplated hereby, except for any of the foregoing matters which would not
reasonably be expected to have a Company Material Adverse Effect.
(d) No investigation, review, inquiry or proceeding by any Governmental
Entity with respect to the Company or any of its Subsidiaries is pending or, to
the knowledge of the Company, threatened, other than those related to FDA
product approvals requested by the Company, and in the good faith opinion of the
Senior Officers (as defined herein), based upon their actual knowledge after
reasonable inquiry ("Good Faith Opinion"), there are no facts which could
reasonably be expected to form a legitimate basis for any of the foregoing.
(e) Neither the Company nor any of its Subsidiaries are subject to any
agreement, contract or decree with any Governmental Entities arising out of any
current or previously existing violations of any laws, ordinances or regulations
applicable to the Company or any of its Subsidiaries.
(f) To the Company's knowledge, all finished products purchased from third
party manufacturers by the Company or its Subsidiaries meet the specifications
therefor in all material respects and there is no material violation of any
applicable law by any third party manufacturer.
4.9. Compliance with Laws--FDA.
(a) To the Company's knowledge, as to each drug of the Company or any of
its Subsidiaries for which a new drug application ("NDA") or abbreviated new
drug application ("ANDA") has been approved by the U.S. Food and Drug
Administration ("FDA"), which drugs are described in the Disclosure Statement
and such NDAs and ANDAs are exclusively owned by the Company or one of its
Subsidiaries, the applicant and all Persons performing operations covered by the
application are not in violation of, in any material respect, and are in
material compliance with, 21 U.S.C. Section Section 355, 21 C.F.R. Parts 314
et. seq., respectively, and all terms and conditions of the application.
(b) The Company does not manufacture, sell or distribute, and has not
developed and is not currently developing any "biologic product," "medical
devices" or "antibiotics."
(c) To the Company's knowledge, the Company and each of its Subsidiaries
are not in violation of, in any material respect, and are in material compliance
with, all applicable registration and listing requirements set forth in 21
U.S.C. Section 360 and 21 C.F.R. Part 207. To the Company's knowledge, to the
extent required, the Company and each of its Subsidiaries have obtained licenses
from the U.S. Drug Enforcement Agency ("DEA") and are not in violation of, in
any material respect, and are in material compliance with, all such licenses and
all applicable regulations promulgated by
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the DEA.
(d) To the Company's knowledge, all manufacturing operations conducted by
or for the benefit of the Company and its Subsidiaries are not in violation of,
in any material respect, and have been and are being conducted in material
compliance with, the good manufacturing practice regulations set forth in 21
C.F.R. Parts 210 and 211.
(e) To the Company's knowledge, neither the Company, its Subsidiaries nor
their respective officers, employees, or agents have made an untrue statement of
material fact or fraudulent statement to the FDA or the DEA, failed to disclose
a material fact required to be disclosed to the FDA or the DEA, or committed an
act, made a statement, or failed to make a statement that could reasonably be
expected to provide a basis for the FDA to invoke its policy respecting "Fraud,
Untrue Statements of Material Facts, Bribery, and Illegal Gratuities," set forth
in 56 Fed. Reg 46191 (September 10, 1991) and any amendments thereto.
(f) No reports of inspection observations, establishment inspection
reports or warning letters have been received from or issued by the FDA or the
DEA within the last three years that allege lack of compliance with the FDA or
the DEA regulatory requirements by the Company, its Subsidiaries or, to the
Company's knowledge, persons covered by product applications or otherwise
performing services for the benefit of the Company or its Subsidiaries.
(g) Neither the Company nor its Subsidiaries have received any written
notice or has knowledge that the FDA or the DEA has commenced or threatened to
initiate, any action to withdraw its approval or request the recall of any
product of the Company or its Subsidiaries or commenced or threatened to
initiate, any action to enjoin production at any facility owned or used by the
Company or its Subsidiaries or any facility at which any of the Company's or its
Subsidiaries' products are manufactured, processed, packaged, labeled, stored,
distributed, tested or otherwise handled (the "Manufacturing Locations").
(h) To the Company's knowledge, as to each article of drug or consumer
product currently manufactured and/or distributed by the Company or its
Subsidiaries, which products are described in the Disclosure Statement, such
article is not adulterated or misbranded within the meaning of the FDCA, 21
U.S.C. Section Section 321 et. seq.
(i) To the Company's knowledge, as to each drug referred to in Section
4.9(a), the Company, its Subsidiaries and their respective officers, employees,
agents and affiliates have included or caused to be included in the application
for such drug, where required, the certification described in 21 U.S.C. Section
335a(k)(l) and the list described in 21 U.S.C. Section 335a(k)(2), and such
certification and such list was in each case true and accurate, in all material
respects, when made and remained true and accurate in all material respects
thereafter.
(j) Neither the Company, its Subsidiaries, nor, to the knowledge of the
Company, their respective officers, employees, agents or affiliates, has been
convicted of any crime or engaged in any
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conduct for which debarment is mandated by 21 U.S.C. Section 335a(a) or
authorized by 21 U.S.C. Section 335a(b).
(k) As to each application or abbreviated application submitted to, but
not approved by, the FDA, and not withdrawn by the Company or its Subsidiaries,
or applicants acting on its behalf as of the date of this Agreement, the Company
and its Subsidiaries have complied, in all material respects, and are in
material compliance with, the requirements of 21 U.S.C. Section Section 355 and
21 C.F.R. Parts 312 and 314 et. seq. and has provided all additional information
and taken all additional action reasonably requested by the FDA in connection
with the application.
(l) In the Company's Good Faith Opinion, there are no facts or
circumstances that would reasonably be expected to delay, in any material
respect, outside the ordinary course of business, or prevent approval of any
pending NDAs or ANDAs, or any amendments and/or supplements thereto.
(m) To the Company's knowledge, there are no lawsuits, actions,
arbitrations or legal or administrative or regulatory proceedings, charges,
complaints, or investigations by the FDA or any other Governmental Entity
pending against the Company or any of its Subsidiaries with respect to any
Permit. To the Company's knowledge, there are no proceedings pending with
respect to a violation by the Company or any Subsidiary of the Food, Drug and
Cosmetic Act, FDA regulations adopted thereunder, or any other legislation or
regulation promulgated by any other Governmental Entity which might result in
the revocation, cancellation, suspension, limitation or adverse modification of
any Permit.
(n) Neither the Company nor any of its Subsidiaries have been served with
any complaint or received any other notices of lawsuits, arbitrations, legal or
administrative or regulatory proceedings, charges, complaints or investigations
by any federal, state or foreign regulatory agency threatened or pending against
or relating to the Company or any of its Subsidiaries or any Permit of the
Company or any of its Subsidiaries. There have been no product recalls or
similar actions by the Company or any of its Subsidiaries since January 1, 1994.
(o) To the Company's knowledge, the Company and each of its Subsidiaries
are not in violation of, in any material respect, and are in material compliance
with, all applicable laws and regulations regarding the conduct of pre-clinical
and clinical investigations including but not limited to good laboratory
practices, investigational new drug requirements, and requirements regarding
informed consent and Institutional Review Boards designed to ensure the
protection of the rights and welfare of human subjects, including but not
limited to the requirements provided in 21 C.F.R. Parts 50, 56, 58 and 312.
(p) To the Company's knowledge, the Disclosure Statement identifies all
the countries in which the Company's or its Subsidiaries' products have been or
are being registered and/or approved for manufacturing, marketing or sale and
the products approved in each respective country. To the Company's knowledge,
the Company or its Subsidiaries are authorized to sell products in each of the
countries in which such products are currently being sold and all Permits
necessary for such sale are
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held by the Company or one of its Subsidiaries. The Disclosure Statement
describes the owners of the approvals or registrations for the manufacture,
marketing or sale of the Company's or its Subsidiaries' products.
4.10. Books and Records. The Company's and its Subsidiaries' books,
accounts and records are, and have been, in all material respects, maintained in
the Company's and its Subsidiaries usual, regular and ordinary manner, in
accordance with GAAP, and all material transactions to which the Company or any
of its Subsidiaries is or has been a party are properly reflected therein. To
the Compnay's knowledge, all documents or information that the Company or its
Subsidiaries have provided or made available to Watson are true and correct
copies of such documents or information as they exist in the Company's or its
Subsidiaries' books and records.
4.11. SEC Documents. The Company has delivered or made available to Watson
each registration statement, report, proxy statement or information statement
(as defined in Regulation 14C under the Exchange Act) prepared by it since
January 1, 1997, which reports constitute all of the documents required to be
filed by the Company with the SEC since such date, each in the form (including
exhibits and any amendments thereto) filed with the SEC (collectively, the
"Company Reports"). As of their respective dates, the Company Reports and any
Company Reports filed after the date hereof and prior to the Effective Time (a)
complied as to form in all material respects with the applicable requirements of
the Securities Act or the Exchange Act, as the case may be, and the rules and
regulations thereunder; and (b) 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 made therein, in the light of the circumstances
under which they were made, not misleading. The Company has timely filed with
the SEC all reports required to be filed under Section 13, 14 and 15(d) of the
Exchange Act since January 1, 1997. Each of the consolidated balance sheets of
the Company included in or incorporated by reference into the Company Reports
(including any related notes and schedules) fairly present in all material
respects the consolidated financial position of the Company and its Subsidiaries
as of its date (subject, in the case of unaudited statements, to normal year-end
audit adjustments which are not reasonably expected to be material in amount or
effect), and each of the consolidated statements of income, retained earnings
and cash flows of the Company included in or incorporated by reference into the
Company Reports (including any related notes and schedules) fairly present in
all material respects the results of operations, retained earnings or cash
flows, as the case may be, of the Company and its Subsidiaries for the periods
set forth therein (subject, in the case of unaudited statements, to normal
year-end audit adjustments which are not reasonably expected to be material in
amount or effect). The financial statements of the Company, including the notes
thereto, included in or incorporated by reference into the Company Reports
comply as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, and have been prepared in accordance with GAAP (except as may
be indicated in the notes thereto). Since January 1, 1997, there has been no
material change in the Company's accounting methods or principles except as
described in the notes to such Company financial statements.
4.12. Accounts Receivables. To the Company's knowledge, none of the trade
receivables
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and notes receivable which are reflected in the financial statements contained
in the Company Reports or which arose subsequent to June 30, 1998, is or was
subject to any counterclaim or set off (other than claims in the ordinary course
of business or otherwise covered by the reserve for doubtful accounts in the
Company's financial statements). All of such trade receivables arose out of
bona fide, arms-length transactions for the sale of goods, performance of
services or the right to receive royalty income, and to the Company's knowledge,
all such trade receivables and notes receivable are good and collectible (or
have been collected) in the ordinary course of business at the aggregate
recorded amounts thereof, less the amount of applicable reserves for doubtful
accounts and for allowances and discounts.
4.13. Inventory. To the Company's knowledge, all inventory of the Company
or any of its Subsidiaries which is held for sale or resale, including raw
materials, work in process and finished goods (collectively, "Inventory"),
consists of items of a quality historically useable and/or saleable in the
normal course of business, net of any applicable reserves.
4.14. Bank Accounts. The Disclosure Statement contains a list showing: (a)
the name of each bank, safe deposit company or other financial institution in
which the Company or any of its Subsidiaries has an account, lock box or safe
deposit box; and (b) the names of all persons authorized to draw thereon or to
have access thereto and the names of all Persons, if any, holding powers of
attorney from the Company or any of its Subsidiaries.
4.15. Intellectual Property.
(a) The Disclosure Statement lists all Patents, registered and applied
for Trademarks and material unregistered trademarks, service marks and trade
names owned by (or registered in the name of) the Company or any of its
Subsidiaries. The Disclosure Statement includes as to each Patent or Trademark
listed thereon: a Patent registration or application number, as applicable for
each listed Trademark and non-U.S. Patent, and a docket or patent number for
each listed U.S. Patent; the country or countries in which each Patent or
Trademark is issued, registered or applied for, as applicable; the application
date or registration date for each listed Trademark and the docket number or
issue date for each listed Patent, as applicable; and the owner of such Patent
or Trademark. To the Company's knowledge, all Patents and Trademarks listed on
the Disclosure Statement exist and have been maintained in good standing,
including without limitation, the timely payment of any maintenance fees and
annuities thereon. The Company has taken all commercially reasonable actions
and made all commercially reasonable applications and filings pursuant to
applicable laws to secure, perfect and protect its rights in the Intellectual
Property, necessary, required or desirable for the conduct of its business as
presently conducted and, to the Company's knowledge, as currently proposed to be
conducted; and, to the Company's knowledge, neither the Company, its
Subsidiaries nor any of their respective agents has practiced inequitable
conduct under the Patent laws or other applicable laws with respect to any of
the foregoing. The Company and each of its Subsidiaries has taken all
commercially reasonable steps (including without limitation entering into
appropriate confidentiality, non-disclosure and non-competition agreements with
all officers, directors and employees of the Company and its Subsidiaries with
access to or knowledge of the Intellectual
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Property of the Company or its Subsidiaries (and the products and technology of
the Company and its Subsidiaries)) to safeguard and maintain the secrecy and
confidentiality of, and to assign to the Company or its Subsidiaries, as
applicable, all of such employee's rights in all such Intellectual Property
invented or developed by such employee within the scope of such employee's
employment. All full-time employees of the Company and its Subsidiaries have
signed a confidentiality and invention assignment agreement for the benefit of
the Company or one of its Subsidiaries to assign such employee's rights in
Intellectual Property to the Company or one of its Subsidiaries.
(b) To the Company's knowledge, the Company and its Subsidiaries own, are
duly licensed or otherwise have the right to use all of the Intellectual
Property used or required for use in connection with the business of the Company
and its Subsidiaries as presently conducted and, to the Company's knowledge, as
currently proposed to be conducted; and, to the Company's knowledge, all such
Intellectual Property is valid and enforceable against third parties. Except as
set forth in the Disclosure Statement, to the Company's knowledge, the Company
and its Subsidiaries own, on an exclusive basis, free and clear of any Liens,
and have the unrestricted right to use, license, sell or dispose of, and the
right to bring infringement actions with respect to all the Intellectual
Property owned by the Company and its Subsidiaries. Except as set forth in the
Disclosure Statement, to the Company's knowledge, the Company and its
Subsidiaries do not pay, and have no obligation (whether absolute or contingent)
to pay, royalties, honoraria, fees or other payments to any Person by reason of
the ownership, use, license, sale or disposition of any Intellectual Property by
the Company or its Subsidiaries. Except as set forth in the Disclosure
Statement, to the Company's knowledge, neither the Company nor any of its
Subsidiaries has received notice (written or oral) of any claim of any Person
asserting rights in, or a conflict with, the Intellectual Property used or
required for use in connection with the business of the Company and its
Subsidiaries as presently conducted and as currently proposed to be conducted
(including without limitation the Patents and Trademarks listed in the
Disclosure Statement); and, in the Company's Good Faith Opinion, there is no
reasonable basis for such a claim. Without limiting the foregoing, to the
Company's knowledge, no other Person has claimed the right to use in connection
with substantially similar or closely related goods and in the same geographic
area any Trademark which is identical or confusingly similar to any Trademark
used by the Company or its Subsidiaries, except pursuant to written agreements
with the Company or its Subsidiaries which are listed in the Disclosure
Statement. To the Company's knowledge, neither the Company nor any of its
Subsidiaries has provided notice (written or oral) to any Person of infringement
of any Intellectual Property right held by the Company or its Subsidiaries; and,
in the Company's Good Faith Opinion, there is no reasonable basis for such a
claim. There is no agreement, arrangement or understanding (written or oral)
between the Company or any of its Subsidiaries and another Person which would
prevent or restrict Watson and its Subsidiaries after the Merger from using,
selling, licensing or disposing of any material Intellectual Property of the
Company and its Subsidiaries on substantially the same terms and conditions
applicable to the Company and its Subsidiaries immediately prior to the Merger.
(c) The Disclosure Statement lists all material agreements, arrangements
or understandings (whether written or oral, and if oral, the Disclosure
Statement contains a brief description of the principal terms thereof) pursuant
to which the Company or its Subsidiaries has
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either purchased, sold, licensed, secured or disposed of rights in Intellectual
Property from or to another Person or agreed to do any of the foregoing (other
than licenses to commercially available off-the-shelf computer software acquired
or entered into by the Company or its Subsidiaries in the ordinary course of
business) ("Intellectual Property Agreements"). To the Company's knowledge,
each of the parties thereto have performed, in all material respects, all
obligations under each Intellectual Property Agreement which are required to be
performed by such party, and there is no default (or event which with notice or
lapse of time would constitute a default) thereunder. To the Company's
knowledge, each Intellectual Property Agreement is enforceable against each of
the parties thereto pursuant to its terms.
(d) To the Company's knowledge, the operation of the business of the
Company and its Subsidiaries as presently conducted and, to the Company's
knowledge, as currently proposed to be conducted (including without limitation
the manufacture, sale, use, trade dress, packaging, license, or other
exploitation of products and technology currently marketed or in development)
does not and will not infringe, trespass or otherwise violate the Intellectual
Property rights of any Person. Without limiting the foregoing, to the Company's
knowledge, neither the Company nor any of its Subsidiaries has received a notice
(written or oral) of infringement of any Intellectual Property right held by
another Person; and, in the Company's Good Faith Opinion, there is no reasonable
basis for such a claim. Except as set forth in the Intellectual Property
Agreements, neither the Company nor any of its Subsidiaries is obligated to
indemnify any Person for any liability, cost or expense arising from such
Person's use, sale, licensing or disposition of any Intellectual Property or
such Person's manufacture, use, sale, license or other exploitation of any
product or technology.
(e) As used herein, the following capitalized terms shall have the
meanings ascribed to them as set forth below: "Intellectual Property" shall mean
any and all intellectual or proprietary property, including without limitation
Patents, Trademarks, and Know-How. "Patents" shall mean patents, including U.S.
and foreign patents and counterparts (whether original, reissue, reexamine,
division, continuation, continuation-in-part, or extension thereof), patent
applications, and invention disclosures. "Trademarks" shall mean trademarks,
trade names, trade dress, domain names, service marks, or copyrights (in each
case, whether registered or not) as well as any applications therefor or
registrations thereof and all goodwill associated therewith. "Know-How" shall
mean any research and development records and results, stability data, clinical
data, raw data and lab journals, technology, processes and methods, technical
information, trade secrets, manufacturing and other know-how (including without
limitation proprietary know-how and use and application know-how), formulas,
formulations, production records and specifications, raw material
specifications, manufacturing processes, procedures and records, test
procedures, quality control records and data, product specifications,
algorithms, adverse drug experience information and complaints, marketing and
competition analysis, customer and supplier lists or proprietary information.
4.16. Title to Properties. Attached to the Disclosure Statement is a list
and description of each item of real or tangible personal property owned by the
Company or any of its Subsidiaries which has a net book value in excess of
$50,000. To the Company's knowledge, the Company or its Subsidiaries has good,
marketable, legal and valid title to such property free and clear of all liens,
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claims, encumbrances or security interests (collectively, "Liens"), except for
(A) Liens set forth on the Disclosure Statement and (B) (w) mechanic's,
materialmen's, and similar liens, (x) liens arising under worker's compensation,
unemployment insurance, social security, retirement, and similar legislation,
(y) liens on goods in transit incurred pursuant to documentary letters of
credit, and (z) other immaterial items. The Company and its Subsidiaries enjoy
peaceful and undisturbed possession under all material leases to which it is a
party as lessee. To the Company's knowledge, all of the material leases to
which the Company or any of its Subsidiaries is a party (other than leases for
Leased Premises) are legal, valid and binding obligations of the Company or its
Subsidiaries and in full force and effect, and no default by the Company or its
Subsidiaries, or any other party thereto has occurred or is continuing
thereunder. The Disclosure Schedule lists all material properties and assets
used by the Company or any of its Subsidiaries in connection with the operation
of their respective businesses which are held under any lease or under any
conditional sale or other title retention agreement. Except for such assets and
facilities, taken as a whole, as are immaterial to the business of the Company
or its Subsidiaries, all tangible assets and facilities of the Company and its
Subsidiaries are in good operating condition and repair (ordinary wear and tear
excepted) and, in the aggregate with the intangible assets of the Company, are
sufficient to conduct the business of the Company and its Subsidiaries as
presently conducted or as currently proposed to be conducted prior to the date
hereof.
4.17. Real Estate.
(a) Neither the Company nor any of its Subsidiaries owns any real estate,
or has the option to acquire any real estate, other than the premises identified
in the Disclosure Statement (the "Real Estate"). The Disclosure Statement
accurately sets forth the street addresses of the Real Estate. The Company has
provided Watson with true and correct copies of all title insurance policies,
surveys and environmental reports in its possession relating to the Real Estate.
The Company or one of its Subsidiaries holds fee simple title to the Real
Estate, subject only to real estate taxes not delinquent and to covenants,
conditions, restrictions and easements of record and other immaterial items,
none of which would reasonably be expected to have a Company Material Adverse
Effect. The Real Estate is not subject to any leases or tenancies. To the
Company's knowledge, none of the improvements comprising the Real Estate or the
businesses conducted or proposed to be conducted by the Company or its
Subsidiaries thereon, are in violation of any material use or occupancy
restriction, limitation, condition or covenant of record or any zoning or
building law, code, ordinance or public utility easement, except for violations
which do not materially interfere with the conduct of the business of the
Company or its Subsidiaries as presently conducted or proposed to be conducted.
To the Company's knowledge, no material expenditures are required to be made in
the next twenty-four months for the repair or maintenance of the Real Estate or
any improvements thereon for the business conducted or currently proposed to be
conducted by the Company or its Subsidiaries.
(b) Neither the Company nor any of its Subsidiaries leases any real
estate other than the premises identified in the Disclosure Statement as being
so leased (the "Leased Premises"). The Disclosure Statement accurately sets
forth the street address for each of the Leased Premises. The Leased Premises
are leased to the Company or its Subsidiaries, pursuant to written leases, true
and
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complete copies of which have been provided to Watson or its counsel. To the
Company's knowledge, none of the improvements comprising the Leased Premises, or
the businesses conducted or proposed to be conducted by the Company or its
Subsidiaries thereon, are in violation of any building line or use or occupancy
restriction, limitation, condition or covenant of record or any zoning or
building law, code or ordinance, public utility or other easements or other
applicable law, except for violations which do not materially interfere with the
conduct of the business of the Company or its Subsidiaries as presently
conducted or proposed to be conducted. To the Company's knowledge, no material
expenditures are required to be made in the next twenty-four months for the
repair or maintenance of the Leased Premises or any improvements thereon for the
business conducted or currently proposed to be conducted by the Company or its
Subsidiaries. To the Company's knowledge, neither the Company nor its
Subsidiaries are in default (nor in the Company's Good Faith Opinion, there are
no facts that would reasonably give rise to a default) under any agreement
relating to the Leased Premises nor, to the knowledge of the Company, is any
other party thereto in default thereunder. There are no options in favor of the
Company or its Subsidiaries to purchase any of the Leased Premises.
(c) Except as would not reasonably be expected to have a Company Material
Adverse Effect, the Real Estate, the Leased Premises, each facility located on
the Real Estate and the Leased Premises and, to the Company's knowledge, each of
the Company's or its Subsidiaries' Manufacturing Locations are currently served
by gas, electricity, water, sewage and waste disposal and other utilities
adequate to operate such Real Estate, Leased Premises, Manufacturing Locations
and/or facility at its current rate of production, and none of the utility
companies serving any such Real Estate, Leased Premises, any facility and, to
the Company's knowledge, each of such Manufacturing Locations has threatened the
Company, its Subsidiaries or, to the knowledge of the Company, any other Person
with any reduction in service.
(d) Except as would not reasonably be expected to have a Company Material
Adverse Effect, there are no challenges or appeals pending or, to the Company's
knowledge, threatened regarding the amount of the Taxes on, or the assessed
valuation of, the Real Estate or the Leased Premises, and no special
arrangements or agreements exist with any governmental authority with respect
thereto (the representations and warranties contained in this Section 4.17(d)
shall not be deemed to be breached by any prospective general increase in real
estate tax rates).
(e) There are no condemnation proceedings pending against the Company or,
to the Company's knowledge, threatened with respect to any portion of the Real
Estate or the Leased Premises.
(f) Except as would not reasonably be expected to have a Company Material
Adverse Effect, there is no tax assessment (in addition to the normal, annual
general real estate tax assessment) pending against the Company or, to the
Company's knowledge, threatened with respect to any portion of the Real Estate
or, to the extent the Company or its Subsidiaries is liable for payment
therefor, the Leased Premises.
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(g) Except as would not reasonably be expected to have a Company Material
Adverse Effect, the buildings and other facilities located on the Real Estate
and the Leased Premises are free of any material latent structural or
engineering defects known to the Company or any material patent structural or
engineering defects.
4.18. Contracts.
(a) Neither the Company nor any of its Subsidiaries is a party to, or
bound by, or the issuer or beneficiary of, any undischarged written or oral: (i)
agreement or arrangement obligating the Company or its Subsidiaries to pay or
receive (other than pursuant to indemnification arrangements where no claim has
been asserted) an amount in excess of $100,000 (excluding purchase and sale
orders not in excess of $250,000 entered into by the Company or its Subsidiaries
in the ordinary course of business consistent with past practices); (ii)
employment or consulting agreement or arrangement; (iii) plan or contract or
arrangement providing for bonuses, severance, options, deferred compensation,
retirement payments, profit sharing, medical and dental benefits or the like
covering employees of the Company or any of its Subsidiaries, other than the
Benefit Plans (as defined herein) described in the Disclosure Statement; (iv)
agreement restricting in any manner the Company's or any of its Subsidiaries'
right to compete with any other Person, the Company's or any of its
Subsidiaries' right to purchase, develop, manufacture, sell or distribute any
product, the right of any other Person to compete with the Company or any of its
Subsidiaries, or the ability of the Company or any of its Subsidiaries to employ
or hire any Person; (v) secrecy or confidentiality agreements entered into
outside the ordinary course of business; (vi) any material distributorship,
development, co-promotion, manufacturing, collaborative, non-employee commission
or marketing agent, representative or franchise agreement providing for the
purchase, distribution, marketing, development, manufacture and/or sale of the
products or services of the Company or any of its Subsidiaries; (vii) agreement
between the Company and any of its affiliates or other Related Parties (as
herein defined); (viii) guaranty, performance, bid or completion bond, or surety
or indemnification agreement other than such provisions as are contained in any
of the agreements listed in the Disclosure Statement; (ix) requirements
contract; (x) loan or credit agreement, pledge agreement, note, security
agreement, mortgage, debenture, indenture, factoring agreement or letter of
credit; (xi) material agreement for the treatment or disposal of Materials of
Environmental Concern (as defined herein); (xii) any agreement relating to the
ownership or control of any interest in any Person; (xiii) any contract,
agreement or arrangement containing change of control provisions; or (xiv) any
agreement for the purchase or sale of all or substantially all of the equity
interests or assets of a business, or an agreement relating to a merger or
consolidation to which the Company or any of its Subsidiaries is or was a party.
True and correct copies of all agreements listed in the Disclosure Statement
have been provided or made available to Watson. Neither the Company nor any of
its Subsidiaries are currently negotiating any transaction involving (i) a
license or other disposition of any material Intellectual Property; or (ii) an
aggregate payment by the Company or its Subsidiaries and/or receipts to the
Company or its Subsidiaries in excess of $250,000.
(b) To the Company's knowledge, all agreements, leases, subleases and
other instruments referred to in this Section 4.18, are, in accordance with and
subject to their terms, in full force and
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binding upon the Company or its Subsidiaries, and the other parties thereto. To
the Company's knowledge, neither the Company nor any of its Subsidiaries is and
none of the other parties thereto are in default of a material provision under
any such agreement, lease, sublease or other instrument. In the Company's Good
Faith Opinion, there is no event, occurrence or condition which, with the lapse
of time, the giving of notice, or both, would become a default of a material
provision under any such agreement, lease, sublease or other instrument by the
Company or its Subsidiaries, or, to the knowledge of the Company, the other
contracting party. Since January 1, 1997, neither the Company nor any of its
Subsidiaries has released or waived any material right under any such agreement,
lease, sublease or other instrument other than in the ordinary course of
business consistent with past practices.
(c) Immediately after the Closing, except as contemplated by this
Agreement, neither the Company nor any of its Subsidiaries will be bound by the
terms of any stock option agreement, registration rights agreement, stockholders
agreement, management agreement, consulting agreement or any other agreement
relating to the equity or management of the Company or its Subsidiaries.
4.19. Insurance. The Disclosure Statement contains a true and correct list
of all insurance policies to which the Company or any of its Subsidiaries is a
party, including without limitation those which pertain to the Company's or its
Subsidiaries' assets, employees or operations. To the Company's knowledge, all
such insurance policies are in full force and effect. Neither the Company nor
any of its Subsidiaries have received notice of cancellation of any such
insurance policies. In the two (2) year period ending on the date hereof,
neither the Company nor any of its Subsidiaries have received any written notice
from, or on behalf of, any insurance carrier of non-renewal of a policy, or
requiring alteration of any of the Company's or its Subsidiaries' assets,
purchase of additional equipment, or modification of any of the Company's or its
Subsidiaries' methods of doing business, in each case, which would reasonably be
likely to have a Company Material Adverse Effect. Neither the Company nor any
of its Subsidiaries made any claim for reimbursement from its insurance carriers
since June 30, 1996. The insurance coverages listed in the Disclosure Statement
provide the Company and its Subsidiaries with coverages of risks as the Company
believes are comparable to companies of established repute engaged in a similar
business.
4.20. Litigation. To the Company's knowledge, there is no material claim,
arbitration, litigation or proceeding, in law or in equity, and there are no
material proceedings or governmental investigations before any commission or
other administrative authority, pending or threatened against the Company or any
of its Subsidiaries, or any of the Company's or its Subsidiaries' respective
officers, directors or affiliates, with respect to the Company's or its
Subsidiaries' respective operations, businesses, products, sales practices or
financial condition, or relate to the consummation of the transactions
contemplated hereby, by the Watson Ancillary Documents or the Company Ancillary
Documents. In the Company's Good Faith Opinion, there are no facts which, if
known by a potential claimant or governmental authority, would reasonably give
rise to a claim or proceeding which, if asserted or conducted with results
unfavorable to the Company or its Subsidiaries, would have a Company Material
Adverse Effect. Neither the Company nor any of its Subsidiaries are bound by
any order, judgment or decree issued by any Governmental Entity.
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4.21. Warranties. Neither the Company nor any of its Subsidiaries has made
any oral or written warranties with respect to the quality or absence of defects
of its products or services which they have sold or performed which are in force
as of the date hereof. To the Company's knowledge, there are no material claims
pending or threatened against the Company or any of its Subsidiaries with
respect to the quality of or absence of defects in such products or services.
In the Company's Good Faith Opinion, there are no facts relating to the quality
of or absence of defects in such products or services which, if known by a
potential claimant or Governmental Entity, would reasonably give rise to a
material claim or proceeding. The Disclosure Statement sets forth a summary,
which is accurate in all material respects, of all returns of products during
the period beginning January 1, 1996 and ending on the date hereof, and all
credits and allowances for returned products given to customers during said
period and said summary contains a description of any reoccurring product
defects (other than returns due to date expirations).
4.22. Products Liability. Neither the Company nor any of its Subsidiaries
have received any written notice relating to any material claim involving any
product manufactured, produced, distributed or sold by or on behalf of the
Company or its Subsidiaries resulting from an alleged defect in design,
manufacture, materials or workmanship, or any alleged failure to warn, or from
any breach of implied warranties or representations, other than notices or
claims that have been settled or resolved by the Company or its Subsidiaries
prior to the date of this Agreement. In the Company's Good Faith Opinion, there
are no facts which would reasonably give rise to any of the foregoing.
4.23. Arbitration. Neither the Company nor any of its Subsidiaries is a
party to, or bound by, any decree, order or arbitration award (or agreement
entered into in any administrative, judicial or arbitration proceeding with any
Governmental Entity) with respect to or affecting the properties, assets,
personnel or business activities of the Company or its Subsidiaries.
4.24. Taxes.
(a) As used in this Agreement, (i) the term "Taxes" means all federal,
state, local, foreign and other net income, gross income, gross receipts, sales,
use, ad valorem, transfer, franchise, profits, license, lease, service, service
use, withholding, payroll, employment, excise, severance, stamp, occupation,
premium, property, windfall profits, customs, duties or other taxes, fees,
assessments or charges of any kind whatever of a nature similar to taxes,
together with any interest and any penalties, additions to tax or additional
amounts with respect thereto, and the term "Tax" means any one of the foregoing
Taxes; and (ii) the term "Returns" means all returns, declarations, reports,
statements and other documents required to be filed in respect of Taxes, and the
term "Return" means any one of the foregoing Returns.
(b) To the Company's knowledge, the Company has completed and filed on a
timely basis and in correct form all Returns required to be filed by the Company
or any of its Subsidiaries. To the Company's knowledge, as of the time of
filing, the foregoing Returns were correct and complete in all material
respects. To the Company's knowledge, an extension of time within which to file
any Return which has not been filed has not been requested or granted.
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(c) With respect to all amounts in respect of Taxes imposed upon the
Company or any of its Subsidiaries, or for which the Company or any of its
Subsidiaries is or could be liable, whether to taxing authorities (as, for
example, under law) or to other persons or entities (as, for example, under tax
allocation agreements), with respect to all taxable periods or portions of
periods ending on or before September 30, 1998, (i) all applicable tax laws and
agreements have been complied with in all material respects, and (ii) all
amounts required to be paid by the Company or its Subsidiaries, to taxing
authorities or others, on or before the date hereof have been paid or adequately
reserved for on the financial statements contained in the Company Reports, and
any Taxes accrued but not due and payable as of September 30, 1998 have been
accrued or otherwise reserved for in financial statements contained in the most
recent Company Report. There are no Liens filed against any asset of the
Company or any of its Subsidiaries resulting from the failure to pay any Tax
when due.
(d) To the Company's knowledge, no issues have been raised (and are
currently pending) by any taxing authority in connection with any of the
Returns. No waivers of statutes of limitation with respect to the Returns have
been given by the Company or any of its Subsidiaries (or with respect to any
Return which a taxing authority has asserted should have been filed by the
Company or any of its Subsidiaries) which waivers are still in effect. The
Disclosure Statement sets forth those years for which examinations are presently
being conducted. All deficiencies asserted or assessments made as a result of
any examinations have been fully paid, or are fully reflected as a liability in
the financial statements contained in the Company Report, or are being contested
and an adequate reserve therefor has been established and is fully reflected as
a liability in the financial statements contained in the most recent Company
Report.
(e) The unpaid Taxes of the Company or any of its Subsidiaries do not
materially exceed the reserve for tax liability (excluding any reserve for
deferred Taxes established to reflect timing differences between book and tax
income) set forth or included in the financial statements included in the most
recent Company Report, as adjusted for the passage of time through the Closing.
(f) Neither the Company nor any of its Subsidiaries is or at any time has
been a party to or bound by (nor will the Company or any of its Subsidiaries
become a party to or bound by) any tax indemnity, tax sharing or tax allocation
agreement.
(g) Neither the Company nor any of its Subsidiaries has ever been a
member of an affiliated group of corporations, within the meaning of section
1504 of the Code other than a group the common parent of which was the Company.
4.25. ERISA.
(a) The Disclosure Schedule contains a list of all "employee pension
benefit plans" (as defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") (sometimes referred to herein as
"Pension Plans"), "employee welfare benefit plans" (as defined in Section 3(1)
of ERISA and referred to herein as a "Welfare Plan") and all other Benefit Plans
(defined herein as any Pension Plan, Welfare Plan and any other plan, fund,
program,
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arrangement or agreement to provide employees, directors, independent
contractors, or officers of any Commonly Controlled Entity (as defined below)
with medical, health, life, bonus, stock (option, ownership or purchase),
deferred compensation, severance, salary continuation, vacation, sick leave,
material fringe, incentive insurance or other benefits) maintained, or
contributed to, or required to be contributed to, by the Company or any of its
Subsidiaries or any other Person that, together with the Company at any time
during the last six years, is or was treated as a single employer under Section
414(b), (c), (m) or (o) of the Code (the Company and each such other Person, a
"Commonly Controlled Entity") for the benefit of any current or former
employees, officers or directors of any Commonly Controlled Entity
(collectively, the "Benefit Plans") and no Commonly Controlled Entity has any
liability, direct or indirect, under any Benefit Plan not listed on the
Disclosure Statement.
(b) Each Benefit Plan has been established, funded, maintained and
administered in all material respects in accordance with its terms and is in
material compliance with, and has been maintained in material compliance with,
the applicable provisions of ERISA, the Code, all other applicable laws and all
applicable collective bargaining agreements.
(c) All Pension Plans which are intended to be tax-qualified have been the
subject of favorable and up-to-date (through any applicable remedial amendment
period) determination letters from the Internal Revenue Service, true and
complete copies of which have been delivered to Watson, or have filed, or will
file, a timely application therefor, to the effect that such Pension Plans are
qualified and exempt from federal income taxes under Section 401(a) and 501(a),
respectively, of the Code, and no such determination letter has been revoked,
nor has any such Pension Plan been amended since the date of its most recent
determination letter or application therefor in any respect that could adversely
affect its qualification or materially increase its costs.
(d) To the Company's knowledge, no Commonly Controlled Entity has ever
adopted or been obligated to contribute to, or has, or has ever had, any
liability under, any "defined benefit pension plan" as defined in Section 3(35)
of ERISA subject to Title IV of ERISA or any pension plan to which the minimum
funding requirements of Section 412 of the Code are applicable or any
single-employer pension plan which is subject to Title IV of ERISA. No Commonly
Controlled Entity currently has any liability under any such plans.
(e) To the Company's knowledge, no Commonly Controlled Entity is currently,
or has ever been required to contribute to any "multiemployer plan" (as defined
in Section 4001(a)(3) of ERISA ), and no employee of any Commonly Controlled
Entity may reasonably expect to participate in any multiemployer plan on account
of his or her employment with a Commonly Controlled Entity. No Commonly
Controlled Entity has any liability, potential liability or contingent liability
(including without limitation liability for past due contributions) to any
multiemployer plan or, to the Company's knowledge, has withdrawn from any
multiemployer plan where such withdrawal has either: (i) resulted or could
result in any "withdrawal liability" (within the meaning of Section 4201 of
ERISA, and without regard to subsequent reduction or waiver of such liability
under Sections 4207 or 4208 thereof) that has not been fully paid; or (ii)
engaged in a transaction that might have resulted in withdrawal liability but
for the application of Section 4204 of ERISA.
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(f) With respect to any Welfare Plan, (i) no such Welfare Plan is funded
through a "welfare benefits fund", as such term is defined in Section 419(e) of
the Code, (ii) no such Welfare Plan is self-insured, and (iii) each such Welfare
Plan that is a "group health plan", as such term is defined in Section
5000(b)(1) of the Code, complies with the applicable requirements of Section
4980B(f) of the Code.
(g) Neither the Company or any Commonly Controlled Entity nor any Person
acting on behalf of the Company or any Commonly Controlled Entity has, in
contemplation of any corporate transaction involving Watson, issued any written
communication to, or otherwise made or entered into any legally binding
commitment with, any employees of the Company or of any Commonly Controlled
Entity to the effect that, following the date hereof, (i) except in the normal
course of business, any benefits or compensation provided to such employees
under existing Benefit Plans or under any other plan or arrangement will be
enhanced, (ii) except in the normal course of business, any new plans or
arrangements providing benefits or compensation will be adopted, (iii) any
Benefit Plans will be continued for any period of time or cannot be amended or
terminated at any time or for any reason, or (iv) any plans or arrangements
provided by Watson will be made available to such employees.
(h) To the Company's knowledge, no Commonly Controlled Entity has ever
promised or been obligated to provide former employees with coverage or benefits
under Benefit Plans, other than as required by benefit continuation rights
granted by state or federal law, including but not limited to the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended. No Commonly Controlled
Entity has any liability to provide such coverage.
(i) With respect to all Pension Plans of the Commonly Controlled Entities,
all required contributions for all Plan years ending prior to the Closing Date
have been timely made. Contributions with respect to all current Plan years
(i.e. from the first day of the current plan year to the Closing Date) shall be
made or accrued prior to the Closing Date by the Company in accordance with the
terms of the plan and past practice, with respect to each Pension Plan which is
a qualified defined contribution plan. With respect to all other Plans, all
required or recommended (in accordance with plan terms and past practice)
payments, premiums, contributions, reimbursements or accruals for all periods
ending prior to or as of the Closing Date shall have been made or properly
accrued on the financial statements. None of the Plans has any unfunded
liabilities which are not reflected on the financial statements of the Company
contained in the Company Reports. None of the Pension Plans is a "top-heavy"
plan, as defined in Section 416 of the Code. Neither the Company nor any of its
subsidiaries has any plans, programs, arrangements or made any other commitments
to its employees, former employees or their beneficiaries under which it has any
obligation to provide any retiree or other employee benefit payments which are
not adequately funded through a trust or other funding arrangement. There have
been no changes in the operation or interpretation of any of the Benefit Plans
since the most recent annual report which would have any material effect on the
cost of operating or maintaining such Plans. Commonly Controlled Entities are
not obligated to contribute with respect to any
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Benefit Plan that involves a retroactive contribution, assessment or funding
waiver arrangement. All administrative costs attributable to Benefit Plans have
been paid when due, and all such costs which are customarily paid by the
Company, have been paid or will be paid or accrued prior to the Closing Date.
(j) There have been no prohibited transactions as defined in Section 406 of
ERISA or Section 4975 of the Code for which there is or may be any material
liability, directly or indirectly, to any Commonly Controlled Entity, under
Section 4975 of the Code or Section 502 of ERISA, with respect to any of the
Pension Plans or the Welfare Plans or any parties in interest or disqualified
persons with respect to such Benefit Plans.
(k) There are no pending or threatened claims (other than routine claims
for benefits), lawsuits, arbitrations or audits which have been asserted or
instituted against any Benefit Plan, any fiduciary (as defined by Section 3(21)
of ERISA) thereof, any Commonly Controlled Entity or any employee or
administrator thereof in connection with the existence, operation or
administration of a Benefit Plan, or in connection with the assets of any
Benefit Plan, and the Company has no knowledge of any facts which would give
rise to or could reasonably be expected to give rise to any such claims,
lawsuits, arbitrations or audits. Neither the Company, nor any subsidiary of
the Company, nor any of their directors, officers, employees or any other
"fiduciary", as such term is defined in Section 3(21) of ERISA, has any
liability for failure to comply with ERISA or the Code or failure to act in
connection with the administration or investment of any Plan.
(l) Nothing in this Agreement or the transaction contemplated hereunder
will: (i) cause the termination or, to the best knowledge of the Company,
repricing of any insurance contract to which a Commonly Controlled Entity or
Benefit Plan is a party for the purposes of providing employee benefits; (ii)
trigger a right of any employee of any Commonly Controlled Entity to severance,
deferred compensation or retirement benefits; or (iii) cause any early
withdrawal or premature termination penalty with respect to any asset held in
connection with any Benefit Plan.
(m) No Commonly Controlled Entity maintains any unfunded plan of deferred
compensation.
(n) The Company has delivered or made available to Watson true, complete
and correct copies of (i) each Benefit Plan (or, in the case of any unwritten
Benefit Plans, descriptions thereof), (ii) the most recent annual reports on
Forms 5500 and 990, if any, filed with the Internal Revenue Service, and the
most recent financial statements (to the extent not included with a Form 5500),
with respect to each Benefit Plan, (iii) the most recent summary plan
description for each Benefit Plan for which such summary plan description is
required, together with any summaries of material modifications for such Benefit
Plan that have been distributed to Benefit Plan participants subsequent to
distribution of the most recent summary plan description, and with respect to
each Benefit Plan for which summary plan descriptions are not required, a copy
of the most recent booklets, brochures or other explanatory material provided to
employees; (iv) each trust agreement, group annuity contract or other funding
vehicle, relating to any Benefit Plan; (v) the most recent determination
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letters received from the Internal Revenue Service regarding the Pension Plans
and copies of any pending applications, filings, or notices with respect to any
of the Benefit Plans with the Internal revenue Service, the Pension Benefit
Guaranty Corporation, the Department of Labor or any other governmental agency;
(vii) copies of any investment management agreements under any of the Benefit
Plans and copies of any fiduciary insurance policies, surety bonds, rules,
regulations or policies of the trustees or of any committee member under any of
the Benefit Plans; and (viii) a list of all assets and liabilities of, allocated
to or accounted for separately with respect to every Benefit Plan (including
insurance contracts associated with every Benefit Plan regardless of whether any
current cash value exists).
4.26. Labor Matters. (a) There is no labor strike, dispute, slowdown, work
stoppage or lockout pending or, to the knowledge of the Company, threatened
against or affecting the Company or any of its Subsidiaries and during the past
three years, there has not been any such action; (b) neither the Company nor any
of its Subsidiaries is a party to or bound by any collective bargaining or
similar agreement with any labor organization, or work rules or practices agreed
to with any labor organization or employee association applicable to employees
of the Company or any of its Subsidiaries; (c) none of the employees of the
Company or any of its Subsidiaries are represented by any labor organization and
the Company does not have any knowledge of any union organizing activities
during the last three years among the employees of the Company or any of its
Subsidiaries; (d) to the Company's knowledge, the Company and its Subsidiaries
are, and has at all times been in compliance with all applicable employment laws
and practices, including, without limitation, any such laws relating to
employment discrimination, occupational safety and health and unfair labor
practices, except such as would not be reasonably expected to have a Company
Material Adverse Effect; (e) there is no unfair labor practice charge or
complaint against the Company or any of its Subsidiaries pending or, to the
knowledge of the Company, threatened before the National Labor Relations Board
or, to the knowledge of the Company, any charges or complaints pending or
threatened with any Governmental Entity who has jurisdiction over unlawful
employment practices; (f) there is no grievance or arbitration proceeding
arising out of any collective bargaining agreement or other grievance procedure
pending or, to the knowledge of the Company, threatened relating to the Company
or any of its Subsidiaries; (g) neither the Company nor any of its Subsidiaries
is materially delinquent in payments to any of its employees for any wages,
salaries, commissions, bonuses or other direct compensation for any services
performed by them to the date of this Agreement or amounts required to be
reimbursed to such employees; (h) upon termination of the employment of any of
the employees of the Company or any of its Subsidiaries after the Closing,
neither the Company nor any of its Subsidiaries will be liable to any of its
employees for severance pay, except as otherwise required by federal law or by
agreements or policies listed in the Disclosure Statement; (i) the employment of
each of the Company's or its Subsidiaries' employees is terminable at will
without cost to the Company or any of its Subsidiaries except for payments
required under the Benefit Plans, under agreements or policies listed in the
Disclosure Statement and payment of accrued salaries or wages and vacation pay;
(j) no employee or former employee of the Company or any of its Subsidiaries has
any right to be rehired by the Company or its Subsidiaries prior to the
Company's or its Subsidiaries' hiring a person not previously employed by the
Company or its Subsidiaries; and (k) the Company has separately furnished to
Watson a true and complete list of all employees who are employed by
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the Company or any of its Subsidiaries as of October 1, 1998, and said list
correctly reflects their salaries, wages, other compensation (other than
benefits under the Benefit Plans), dates of employment and positions. Neither
the Company nor any of its Subsidiaries owes any past or present employee any
sum in excess of $25,000 individually or $100,000 in the aggregate other than
for accrued wages or salaries for the current payroll period, and amounts
payable under Benefit Plans. No employee owes any sum to the Company or any of
its Subsidiaries in excess of $25,000, and all employees together do not owe the
Company or any of its Subsidiaries in excess of $100,000.
4.27. Environmental Matters. To the Company's knowledge,
(a) The Company, its Subsidiaries and their respective assets and
businesses are in material compliance with all Environmental Laws and
Environmental Permits (as herein defined) applicable to them. A copy of any
notice, citation, inquiry or complaint which the Company or any of its
Subsidiaries has received in the past three years of any alleged material
violation of any Environmental Law or Environmental Permit is contained in the
Disclosure Statement, and all violations alleged in said notices have been or
are being corrected. A description of all such material violations currently
being corrected is contained in the Disclosure Statement. To the Company's
knowledge, the Company and its Subsidiaries possess all material Environmental
Permits which are required for the operation of their respective businesses, and
are in material compliance with the provisions of all such material
Environmental Permits. Copies of all material Environmental Permits issued to
the Company or any of its Subsidiaries have been provided or made available to
Watson or its counsel. The Company has delivered to Watson copies of all
environmental reports with respect to the Real Estate and the Leased Premises in
its possession which were conducted during the last five years.
(b) True and correct copies of all material safety data sheets of all
Materials of Environmental Concern stored, treated, generated, used, transported
or Released (as herein defined) in connection with the operation of the
Company's or any of its Subsidiaries' respective businesses have been provided
to Watson. There has been no storage, treatment, generation, transportation or
Release of any Materials of Environmental Concern by the Company or any of its
Subsidiaries, or, to the knowledge of the Company, by any other Person for which
the Company or any of its Subsidiaries is or may be held responsible, at any
Facility (as herein defined) or any Offsite Facility (as herein defined) which
could give rise to any Company Material Adverse Effect.
(c) To the Company's knowledge, the Disclosure Statement sets forth a
complete list of all Containers (as herein defined) that are now present at, or
have heretofore been removed from, the Real Estate or the Leased Premises. All
Containers which have been heretofore removed from the Real Estate or the Leased
Premises have been removed in material compliance with all applicable
Environmental Laws.
(d) For the purposes of this Agreement: (i) "Environmental Laws" means all
applicable federal, state and local statutes, regulations, ordinances, rules,
regulations and policies, all court orders and decrees and arbitration awards,
and the common law, which pertain to environmental
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matters or contamination of any type whatsoever; and Environmental Laws include,
without limitation, those relating to: manufacture, processing, use,
distribution, treatment, storage, disposal, generation or transportation of
Materials of Environmental Concern; air, surface or ground water or noise
pollution; Releases; protection of wildlife, endangered species, wetlands or
natural resources; Containers; health and safety of employees and other persons;
and notification requirements relating to the foregoing; (ii) "Environmental
Permits" means licenses, permits, registrations, governmental approvals,
agreements and consents which are required under or are issued pursuant to
Environmental Laws; (iii) "Materials of Environmental Concern" means (A)
pollutants, contaminants, pesticides, radioactive substances, solid wastes or
hazardous or extremely hazardous, special, dangerous or toxic wastes,
substances, chemicals or materials within the meaning of any Environmental Law,
including without limitation any (i) "hazardous substance" as defined in CERCLA,
and (ii) any "hazardous waste" as defined in the Resource Conservation and
Recovery Act ("RCRA"), 42 U.S.C., Sec. 6902 et. seq., and all amendments thereto
and reauthorizations thereof; (iv) "Release" means any spill, discharge, leak,
emission, escape, injection, dumping, or other release of any Materials of
Environmental Concern into the environment, whether or not notification or
reporting to any governmental agency was or is, required, including without
limitation any Release which is subject to CERCLA; (v) "Facility" means any
facility as defined in the Comprehensive Environmental Response, Compensation
and Liability Act, 42 U.S.C. 9601, et. seq., as amended and reauthorized
("CERCLA"); (vi) "Offsite Facility" means any Facility which is not presently,
and has not heretofore been, owned, leased or occupied by the Company or any of
its Subsidiaries; and (vii) "Containers" means above-ground storage tanks in
excess of 250 gallons, all under-ground storage tanks and all other related
vessels and related equipment and containers.
4.28. Interim Conduct of Business. Except as otherwise contemplated by
this Agreement, since June 30, 1998, neither the Company nor any of its
Subsidiaries has:
(a) sold, assigned, leased, exchanged, transferred or otherwise disposed of
any material portion of its assets or property, except for sales of Inventory in
the usual and ordinary course of business in accordance with the Company's or
its Subsidiaries' past practices;
(b) written off any asset which has a net book value which exceeds $25,000
individually or $100,000 in the aggregate in value, or suffered any casualty,
damage, destruction or loss of any material asset, property or portion of
Inventory (whether or not covered by insurance), on account of fire, flood,
riot, strike or other hazard or Act of God;
(c) waived any material right arising out of the conduct of, or with
respect to, its business;
(d) made (or committed to make) capital expenditures in an amount which
exceeds $50,000 for any item or $100,000 in the aggregate;
(e) made any change in accounting methods or principles or voluntarily
elected to alter the manner of keeping its books, accounts and records;
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(f) borrowed any money or issued any bonds, debentures, notes or other
corporate securities (other than equity securities) or guaranteed the debt of
any other Person, including without limitation, those evidencing borrowed money;
(g) increased the compensation payable to, or entered into or amended any
employment agreement with, any employee, except for normal pay increases in the
ordinary course of business consistent with past practices, but in no event, in
an amount in excess of five percent (5%) of the annual salary of each such
employee as set forth in the Disclosure Statement;
(h) paid or incurred any management or consulting fees, or engaged any
consultants, except in the ordinary course of business consistent with past
practices;
(i) hired any employee who has an annual salary in excess of $75,000;
(j) terminated any employee having an annual salary or wages in excess of
$75,000;
(k) adopted any new Benefit Plan or amended any existing Benefit Plan in
any material respect;
(l) issued or sold any securities of any class, except for the exercise of
options to purchase Company Common Stock under the Company Option Plans or the
issuance of Company Common Stock under the Company's stock purchase plan;
(m) discharged any material liability except in the usual and ordinary
course of business in accordance with past practices, or prepaid any liability;
(n) not settled or initiated any litigation or threatened litigation with
any Person with an amount in controversy in excess of $50,000 individually or
$100,000 in the aggregate; or
(o) paid, declared or set aside any dividend or other distribution on its
securities of any class or other ownership interests, or, directly or
indirectly, purchased, exchanged, redeemed or otherwise acquired any of its
securities of any class or made any commitment for any such action.
Notwithstanding the foregoing, the Company shall not be deemed to have breached
the terms of this Section 4.28 by entering into this Agreement or by
consummating the transactions contemplated hereby.
4.29. Affiliated Transactions. Since January 1, 1997, neither the Company
nor any of its Subsidiaries has been a party to any transaction (other than
employee compensation) with a "Related Party". For purposes of this Agreement,
the term "Related Party" shall mean: any present or former officer or director,
10% stockholder or present affiliate of the Company or any of its Subsidiaries,
any present or former known spouse, ancestor or descendant of any of the
aforementioned persons or any trust or other similar entity for the benefit of
any of the foregoing persons. No property or interest
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in any property (including, without limitation, designs and drawings concerning
machinery or rights in Intellectual Property) which relates to and is necessary
in the present or currently contemplated future operation of the Company's or
its Subsidiaries' respective businesses, is presently owned by or leased or
licensed by or to any Related Party. Except for the ownership of securities
representing less than a 2% equity interest in various publicly traded
companies, neither the Company, its Subsidiaries, nor to the Company's
knowledge, any Related Party has an interest, directly or indirectly, in any
business, corporate or otherwise, which is in competition with the Company's or
its Subsidiaries' respective businesses.
4.30. Significant Customers, Suppliers, Joint Venture Partners and
Employees. The Disclosure Statement sets forth an accurate list of the
Company's and its Subsidiaries' Significant Customers (as defined herein),
Significant Suppliers (as defined herein); Joint Venture Partners (as defined
herein) and Significant Employees (as defined herein). The Company has no
knowledge nor has it received any notice of any intention by a (a) Significant
Customer to terminate its business relationship with the Company or its
Subsidiaries or to limit or alter its business relationship with the Company or
its Subsidiaries in any material respect; (b) Significant Supplier to terminate
its business relationship with the Company or its Subsidiaries or to limit or
alter its business relationship with the Company or its Subsidiaries in any
material respect; (c) Joint Venture Partner to terminate its business
relationship with the Company or its Subsidiaries or to limit or alter its
business relationship with the Company or its Subsidiaries in any material
respect; or (d) Significant Employee intends to terminate his employment with
the Company or its Subsidiaries. As used herein, (w) "Significant Customer"
means the 10 largest customers of the Company and its Subsidiaries, taken as a
whole, including distributors of the Company's products, measured in terms of
sales volume in dollars for the years ended December 31, 1996 and 1997 and for
the ten month period ending September 30, 1998, (x) "Significant Supplier" means
any supplier of the Company and its Subsidiaries from whom the Company or its
Subsidiaries has purchased $250,000 or more of goods during the years ended
December 31, 1996 and 1997 or $208,333 or more goods during the ten month period
ending September 30, 1998, for use in the Company's or its Subsidiaries'
respective businesses; (y) "Joint Venture Partner" means any Person that has
entered into an agreement with the Company or its Subsidiaries relating to the
purchase, development, distribution, manufacture and/or sale of any of the
Company's or its Subsidiaries' products or technologies; and (z) "Significant
Employee" means the Chief Executive Officer, the President, the Senior Director
of Research and Development or any Vice President of the Company or its
Subsidiaries.
4.31. Material Adverse Change. Since June 30, 1998, neither the Company
nor its Subsidiaries has suffered, and no event or occurrence has taken place
that would reasonably be expected to have, a Company Material Adverse Effect.
4.32. Bribes. Neither the Company, its Subsidiaries nor, to the Company's
knowledge, any of their respective officers, directors, employees, agents or
representatives has made, directly or indirectly, with respect to the Company,
its Subsidiaries or their respective business activities, any bribes or
kickbacks, illegal political contributions, payments from corporate funds not
recorded on the books and records of the Company or its Subsidiaries, payments
from corporate funds to
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governmental officials, in their individual capacities, for the purpose of
affecting their action or the action of the government they represent, to obtain
favorable treatment in securing business or licenses or to obtain special
concessions, or illegal payments from corporate funds to obtain or retain
business.
4.33. Absence of Indemnifiable Claims, etc. There are no pending or
threatened claims by any director or officer of the Company or its Subsidiaries
to indemnification by the Company or its Subsidiaries under applicable law, the
Certificate or Articles of Incorporation or By-laws of the Company or its
Subsidiaries or any insurance policy maintained by the Company or its
Subsidiaries. Other than pursuant to applicable law or the certificate of
incorporation or by-laws of the Company or its Subsidiaries, no officer,
director or employee of the Company or its Subsidiaries has any right to
indemnification by the Company or any of its Subsidiaries.
4.34. No Undisclosed Liabilities. To the Company's knowledge, there are no
liabilities or obligations of any nature whatsoever (whether accrued, absolute,
contingent or otherwise) of the Company or its Subsidiaries other than (i)
liabilities disclosed or provided for in the most recent financial statements
contained in the Company Reports; (ii) liabilities which, individually or in the
aggregate, would not reasonably be expected to have a Company Material Adverse
Effect; (iii) liabilities under this Agreement (or contemplated hereby) or
disclosed in the Disclosure Statement and (iv) liabilities incurred since June
30, 1998 in the ordinary course of business and consistent with past practices.
4.35. Employees of Company and Subsidiaries. To the Company's knowledge,
neither the Company nor any of its Subsidiaries have taken any actions which
were calculated to dissuade any present employees, representatives or agents of
the Company or any of its Subsidiaries from continuing an association with the
Company or any of its Subsidiaries after the Merger.
4.36. Year 2000 Compliance. The Company and each of its Subsidiaries have
conducted a commercially reasonable inventory of the hardware and software (the
"Computer Systems") used by the Company and its Subsidiaries in its business, in
order to determine which parts of the Computer Systems are not Year 2000
compliant (as defined below) and to estimate the cost of rendering such Computer
Systems Year 2000 compliant prior to January 1, 2000 or such earlier date on
which the Computer Systems may shut down (a "hard crash") or produce incorrect
calculations or otherwise malfunction without becoming totally inoperable (a
"soft crash"). Based on the above inventory, the estimated total cost of
rendering the Computer Systems Year 2000 compliant is $100,000. For purposes of
this Agreement, "Year 2000 compliant" means that all of the hardware and
software comprising the Computer Systems will correctly differentiate between
years, in different centuries, that end in the same two digits, and will
accurately process date/time data (including, but not limited to, calculating,
comparing, and sequencing) from, into, and between the twentieth and
twenty-first centuries, including leap year calculations.
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4.37. No Brokers. Neither the Company nor any of its Subsidiaries has
entered into any contract, arrangement or understanding with any Person which
may result in the obligation of the Company, Watson, Watson Sub or their
respective Subsidiaries to pay any finder's fee, brokerage or agent's
commissions or other like payments in connection with negotiations leading to
this Agreement or the consummation of the transactions contemplated hereby,
except that the Company has retained CIBC Oppenheimer Corp. and William Blair &
Co. as its financial advisors, the arrangements with which have been disclosed
in writing to Watson prior to the date hereof.
4.38. Tax Reorganization. To the Company's knowledge, after consulting
with its independent advisors, neither the Company nor any of its Subsidiaries
has taken or failed to take any action which would prevent the Merger from (a)
constituting a reorganization within the meaning of section 368(a) of the Code
or (b) being treated as a "pooling or interests" in accordance with Accounting
Principles Board Opinion No. 16, the interpretative releases issued pursuant
thereto, and the pronouncements of the SEC.
4.39. Opinion of Financial Advisor. The Company has received the opinion
of CIBC Oppenheimer, Inc. to the effect that, as of the date hereof, the
consideration to be received by the Stockholders pursuant to the Merger is fair
to such Stockholders from a financial point of view.
4.40. Information Supplied. The information supplied or to be supplied in
writing by the Company, its Subsidiaries, or any of their respective officers,
directors, representatives, agents or employees, for inclusion or incorporation
by reference in (a) the Proxy Statement will not, at the time the Proxy
Statement is first mailed to the Stockholders and at the time such Stockholders
vote on adoption of this Agreement, 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 light of the circumstances under which they were
made, not misleading and (b) the Form S-4, together with all amendments and
supplements thereto, will not, at the time the Form S-4 is filed or becomes
effective under the Securities Act and at the Effective Time, contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements made therein, in light of the circumstances under which
they were made, not misleading. No representation is made by the Company with
respect to statements made or incorporated by reference therein based on
information supplied by Watson or any of Watson's Subsidiaries specifically for
inclusion or incorporation by reference in the Proxy Statement or the Form S-4.
4.41. Takeover Statutes. Section 203 of the Delaware General Corporation
Law is not applicable to the Company, its Subsidiaries or (by reason of the
Company's participation therein) the Merger. No other "fair price,"
"moratorium," "control share acquisition," or other similar anti-takeover
statute or regulation is applicable to the Company, its Subsidiaries or (by
reason of the Company's participation therein) the Merger or the other
transactions contemplated by this Agreement.
4.42. Definition of Knowledge. For purposes of this Agreement, the phrase
"to the Company's knowledge" shall only be deemed to include the knowledge of
Dinesh C. Patel, Ph.D.,
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Charles D. Ebert, Ph.D., Alexander L. Searl, Reyn Gallacher, Norman A. Mazor,
William R. Good, Ph.D., Don Mantle, Warren Dudley, Ray Varnakis, Debra Eppstein,
Chad Briggs, Ramesh Acharya, Ph.D. and Ichiro Nakatomi, Ph.D. (the "Senior
Officers").
ARTICLE V
COVENANTS
5.1 Alternative Proposals.
(a) Prior to the Effective Time, the Company agrees (i) that neither it nor
any of its Subsidiaries shall, and it shall direct and cause its and its
Subsidiaries' respective officers, directors, employees, agents and
representatives (including, without limitation, any investment banker, attorney
or accountant retained by it or any of its Subsidiaries) not to, initiate,
solicit, encourage or take any other action to facilitate, directly or
indirectly, any inquiries or the making or implementation of any proposal or
offer that constitutes, or may reasonably be expected to lead to, any
Alternative Proposal (as defined below) or engage in any negotiations
concerning, or provide any confidential information or data to, or have any
discussions with, any Person relating to an Alternative Proposal, or otherwise
facilitate any effort or attempt to make or implement an Alternative Proposal;
(ii) that it will immediately terminate any existing activities, discussions or
negotiations with any Person conducted heretofore with respect to any of the
foregoing; and (iii) that it will notify Watson immediately if any such
inquiries or proposals are received by, any such information is requested from,
or any such negotiations or discussions are sought to be initiated or continued
with, it; provided, however, that the Board of Directors of the Company may, in
response to any unsolicited written bona-fide proposal from a third party
regarding a Superior Proposal (as defined below), furnish or cause to be
furnished information to, and engage in discussions with, such third party, but
only if (v) the Board of Directors of the Company determines in good faith,
after consultation with its independent financial and legal advisors to take
such action pursuant to the exercise of its fiduciary duties under applicable
law; (w) prior to furnishing such information to, or entering into discussions
or negotiations with such third party, the Company receives from such third
party an executed confidentiality agreement with terms no less favorable than
those contained in the Confidentiality Agreement (as defined herein); (x) prior
to furnishing such information to, or entering into discussions or negotiations
with, such third party, the Company provides written notice to Watson to the
effect that it is furnishing information to, or entering into discussions or
negotiations with, such third party; (y) the Company provides to Watson all of
the relevant details relating to all inquiries and proposals that the Company
may receive relating to any of such matters (including the identity of the
Person making such inquiry or proposal and the material terms and conditions of
any such proposal) and provides Watson with copies of all materials delivered to
such Person; and (z) the Company keeps Watson informed of the status of any such
discussions or negotiations. Notwithstanding anything to the contrary contained
in this Section 5.1, in response to the Company's or its agent's receipt of an
unsolicited written bona-fide proposal from any Person regarding an Alternative
Proposal, the Company or its agents may make inquiries to such Person and its
agents to clarify questions relating to ambiguities of the terms of such
proposal
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in order for the Company to determine whether such proposal is a Superior
Proposal, but the Company and its agents shall continue to be prohibited from
entering into any other discussions or negotiations with respect to such
proposal until such time as the Board of Directors of the Company determines, in
accordance with and pursuant to the terms of this Section 5.1, that such
proposal is a Superior Proposal.
(b) As used herein, the term (i) "Alternative Proposal" means (in each case
other than the transactions contemplated hereby) (A) a tender offer or exchange
offer for 25% or more of the then outstanding shares of Company Common Stock;
(B) a merger, consolidation or other business combination with the Company or
any of its Subsidiaries, or any agreement or letter of intent or understanding
relating to any such transaction; (C) any sale, lease, exchange, mortgage,
pledge, transfer, or other disposition (whether in one transaction or a series
of related transactions) involving a substantial part of the Company's
consolidated assets, or any agreement or letter of intent or understanding
relating to such transaction; (D) the acquisition by any Person (other than
Watson or one of its Subsidiaries) of beneficial ownership (within the meaning
of Rule 13d-3 under the Exchange Act, which will be deemed for purposes hereof
to provide that a Person beneficially owns any shares of Company Common Stock
that may be acquired by such Person pursuant to any right, option, warrant, or
other agreement, regardless of when such acquisition would be permitted by the
terms thereof) of 25% or more of the outstanding shares of Company Common Stock
(including Company Common Stock currently beneficially owned by such Person);
(E) any reclassification of securities or recapitalization of the Company or
other transaction that has the effect, directly or indirectly, of increasing the
proportionate share of any class of equity security (including securities
convertible into equity securities) of the Company that is owned by any Person,
or any agreement or letter of intent or understanding relating to such
transaction; (F) any transaction having an effect similar to those described in
(A) through (E) above; or (G) a public announcement with respect to a proposal,
plan, or intention by the Company or another Person to effect any of the
foregoing transactions (which may include publication of notice of filing or any
similar notice under applicable law); and (ii) a "Superior Proposal" means a
bona fide, written and unsolicited proposal or offer made by any Person (other
than Watson or any of its Subsidiaries) with respect to an Alternative Proposal
on terms which the Board of Directors of the Company determines in good faith,
and in the exercise of reasonable judgment (based on the advice or independent
financial advisors and legal counsel), to be more favorable to the Company and
its Stockholders than the transactions contemplated hereby (including taking
into account the financing thereof).
(c) Nothing in this Section 5.1 shall (i) permit the Company to terminate
this Agreement (except as specifically provided in Article VII hereof); (ii)
permit the Company to enter into any agreement with respect to an Alternative
Proposal during the term of this Agreement (it being agreed that during the term
of this Agreement, the Company shall not enter into any agreement with any
person that provides for, or in any way facilitates, an Alternative Proposal
(other than a confidentiality agreement in customary form)); or (iii) affect any
other obligation of the Company under this Agreement.
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5.2 Interim Operations.
(a) During the period from the date of this Agreement and continuing until
the earlier of the termination of this Agreement or the Effective Time, except
as set forth in the Disclosure Statement (provided, that, disclosures in the
Disclosure Statement regarding negotiations with third parties shall not permit
the Company to enter into any binding agreement or arrangement with respect to
such disclosures if such agreement or arrangement would be prohibited by the
terms of this Section 5.2) unless Watson has consented in writing thereto (which
consent shall not be unreasonably withheld), the Company shall, and shall cause
each of its Subsidiaries to,:
(i) conduct their respective operations according to their usual,
regular and ordinary course consistent with past practice;
(ii) to the extent consistent with their respective businesses, use
commercially reasonable efforts to preserve intact their respective business
organizations and goodwill, keep available the services of their respective
officers and employees and maintain satisfactory relationships with those
Persons having business relationships with them;
(iii) not amend their respective Certificates or Articles of
Incorporation or By-Laws or comparable governing instruments;
(iv) promptly notify Watson of any material emergency or other
Company Material Adverse Effect, any material correspondence with, or any
investigation by, the FDA or other Governmental Entities, any material
litigation or material governmental complaints, investigations or hearings (or
communications indicating that the same may be contemplated), or the material
breach by the Company of any of its representations or warranties contained
herein;
(v) promptly deliver to Watson true and correct copies of any
report, statement or schedule filed with the SEC subsequent to the date of this
Agreement;
(vi) not (A) effect any stock split or otherwise change its
capitalization as it existed on the date hereof; (B) grant, confer or award any
option, warrant, conversion right or other right not existing on the date hereof
to acquire any shares of its capital stock; or (C) grant any severance or
termination package to any employee or consultant, other than in the ordinary
course of business consistent with the policies of the Company disclosed to
Watson prior to the date hereof;
(vii) not enter into any agreement or transaction, or agree to enter
into any agreement or transaction involving a sale, license or other disposition
of any Intellectual Property, a merger, consolidation, joint venture, license
agreement, partial or complete liquidation or dissolution, reorganization,
recapitalization, restructuring or a purchase, sale, lease or other disposition
of a material portion of assets or capital stock;
(viii) not enter into any contract or arrangement of any type
described in Section
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4.18 hereof or amend or terminate any of the contracts or arrangements listed in
the Disclosure Statement;
(ix) not make any loans or capital contributions to, or investments
in, any other Person;
(x) not perform any of the actions described in Sections 4.28(c),
(e), (f), (h), (i), (j), (k), (l), (m), (o) or (p) hereof;
(xi) not settle or initiate any litigation or threatened litigation,
other than a settlement of such matters resulting in a payment of less than
$50,000, or $100,000 in the aggregate for all such matters;
(xii) not make (or commit to make) capital expenditures in an amount
which exceeds $369,400 in the aggregate;
(xiii) not enter into any transaction with, or made any payment to, or
incurred any liability to, any Related Party (except for payment of salary and
other customary expense reimbursements made in the ordinary course of business
to Related Parties who are employees of the Company or its Subsidiaries);
(xiv) not increase the compensation payable to, enter into or amend
any employment agreement with, or pay any bonus or other compensation to, any
employee, except for (A) normal pay increases in the ordinary course of business
consistent with past practices, but in no event, in an amount in excess of five
percent (5%) of the annual salaries of all employees of the Company and its
Subsidiaries as of the date hereof, in the aggregate; and (B) year end bonuses
not to exceed $485,000 in the aggregate;
(xv) not grant or make any mortgage or pledge or subject itself or
any of its material properties or assets to any lien, charge or encumbrance of
any kind, except Liens for taxes not currently due and liens granted to incur
the indebtedness contemplated by Section 5.2(a)(x) hereof; and
(xvi) maintain insurance on its tangible assets and its businesses in
such amounts as are substantially similar to those currently in effect.
(b) During the period from the date of this Agreement and continuing until
the earlier of the termination of this Agreement or the Effective Time, except
as set forth in the Disclosure Statement, unless the Company has consented in
writing thereto (which consent shall not be unreasonably withheld), Watson
shall, and shall cause each of its Subsidiaries to,:
(i) promptly deliver to the Company true and correct copies of any
report, statement or schedule filed with the SEC subsequent to the date of this
Agreement;
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(ii) promptly notify the Company of any material emergency or other
Watson Material Adverse Effect, any material litigation or material governmental
complaints, investigations or hearings (or communications indicating that the
same may be contemplated), or the material breach by Watson or Watson Sub of any
of their respective representations or warranties contained herein;
(iii) not amend their respective Certificates or Articles of
Incorporation or By-laws or comparable governing instruments; and
(iv) not take any action that would result in a failure to maintain
the trading of Watson Common Stock on the New York Stock Exchange.
5.3 Meetings of Stockholders. The Company will take all action necessary
in accordance with applicable law and its Certificate of Incorporation and
Bylaws to convene a meeting of the Stockholders as promptly as practicable to
consider and vote upon the approval of the Merger, this Agreement and the
transactions contemplated hereby. The Board of Directors of the Company shall
recommend such approval and the Company shall take all lawful action to solicit
such approval, including, without limitation, timely mailing the Proxy Statement
to the Stockholders; provided, however, that such recommendation or solicitation
is subject to any action (including any withdrawal or change of its
recommendation) taken by, or upon authority of, the Board of Directors of the
Company in the exercise of its good faith judgment as to its fiduciary duties to
the Stockholders imposed by law.
5.4 Filings; Other Action. Subject to the terms and conditions herein
provided, the Company and Watson shall: (a) promptly make their respective
filings and thereafter make any other required submissions under the HSR Act
with respect to the Merger; (b) use all reasonable efforts to cooperate with one
another in (i) determining which filings are required to be made prior to the
Effective Time with, and which consents, approvals, permits or authorizations
are required to be obtained prior to the Effective Time from, governmental or
regulatory authorities of the United States, the several states and foreign
jurisdictions in connection with the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby; and (ii) timely
making all such filings and timely seeking all such consents, approvals, permits
or authorizations; (c) use commercially reasonable efforts to obtain all
consents under or with respect to, any contract, lease, agreement, purchase
order, sales order or other instrument, Permit or Environmental Permit, where
the consummation of the transactions contemplated hereby would be prohibited or
constitute an event of default, or grounds for acceleration or termination, in
the absence of such consent; and (d) take, or cause to be taken, all other
commercially reasonable actions as are reasonably necessary, proper or
appropriate to consummate and make effective the transactions contemplated by
this Agreement. If, at any time after the Effective Time, any further
commercially reasonable action is necessary or desirable to carry out the
purpose of this Agreement, the proper officers and directors of Watson and the
Surviving Corporation shall take all such necessary action.
5.5 Inspection of Records. From the date hereof to the Effective Time,
the Company shall (a) allow all designated officers, attorneys, accountants and
other representatives of Watson
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reasonable access at all reasonable times to the offices, records and files,
correspondence, audits and properties, as well as to all information relating to
commitments, contracts, titles and financial position, or otherwise pertaining
to the business and affairs of the Company and its Subsidiaries; (b) furnish to
Watson, its counsel, financial advisors, auditors and other authorized
representatives such financial and operating data and other information as such
persons may reasonably request; and (c) instruct the employees, counsel and
financial advisors of the Company and its Subsidiaries to cooperate with Watson
and its investigation of the business of the Company and its Subsidiaries and
provide access to such employees to Watson. From the date hereof to the
Effective Time, Watson shall (a) furnish to the Company, its counsel, financial
advisors, auditors and other authorized representatives such financial and
operating data and other information as such persons may reasonably request, and
(b) instruct the officers, counsel and financial advisors of Watson to cooperate
with the Company in its investigation of the business of Watson or its
Subsidiaries. All information disclosed by the Company to Watson and its
representatives or by Watson to the Company and its representatives shall be
subject to the terms of that certain Non-Disclosure Agreement (the
"Confidentiality Agreement") dated as of February 19, 1997 between Watson and
the Company.
5.6 Publicity. Neither party hereto shall make any press release or
public announcement with respect to this Agreement, the Merger or the
transactions contemplated hereby without the prior written consent of the other
party hereto (which consent shall not be unreasonably withheld); provided,
however, that each party hereto may make any disclosure or announcement which
such party, in the reasonable opinion of its legal counsel, is obligated to make
pursuant to applicable law or regulation of any national securities exchange, in
which case, the party desiring to make the disclosure shall consult with the
other party hereto prior to making such disclosure or announcement and shall
provide a copy of such disclosure to the other party for comment prior to
release.
5.7 Registration Statement. Watson and the Company shall cooperate and
promptly prepare and Watson shall file with the SEC as soon as practicable a
Registration Statement on Form S-4 (the "Form S-4") under the Securities Act,
with respect to the Watson Common Stock issuable in the Merger, a portion of
which Registration Statement shall also serve as the Proxy Statement. The
respective parties will cause the Proxy Statement and the Form S-4 to comply as
to form in all material respects with the applicable provisions of the
Securities Act, the Exchange Act and the rules and regulations promulgated
thereunder. Watson shall use all reasonable efforts, and the Company will
cooperate with Watson, to have the Form S-4 declared effective by the SEC as
promptly as practicable. Watson shall use reasonable commercial efforts to
obtain, prior to the effective date of the Form S-4, all necessary state
securities law or "Blue Sky" permits or approvals required to carry out the
transactions contemplated by this Agreement and will pay all expenses incident
thereto. No amendment or supplement to the Proxy Statement will be made by
Watson or the Company without the approval of the other party, which approval
shall not be unreasonably withheld. Watson will advise the Company, promptly
after it receives notice thereof, of the time when the Form S-4 has become
effective or any supplement or amendment has been filed, the issuance of any
stop order, the suspension of the qualification of the Watson Common Stock
issuable in connection with the Merger for offering or sale in any jurisdiction,
or any request by the SEC for
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amendment of the Proxy Statement or the Form S-4 or comments thereon and
responses thereto or requests by the SEC for additional information and Watson
shall use reasonable commercial efforts to promptly resolve any such stop order,
suspension or qualification.
5.8 Stock Exchange Listing. Watson shall use all reasonable efforts to
cause the shares of Watson Common Stock to be issued in the Merger and the
shares of Watson Common Stock to be reserved for issuance upon exercise of
Company Stock Options to be approved for listing on the NYSE, subject to
official notice of issuance.
5.9 Indemnification.
(a) From and after the Effective Time, Watson agrees that it will, and
will cause the Surviving Corporation to, indemnify and hold harmless each
present and former director and officer of the Company (the "Indemnified
Parties"), against any costs or expenses (including attorneys' fees), judgments,
fines, losses, claims, damages, liabilities or amounts paid in settlement
(collectively, "Costs") incurred in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of or pertaining to matters existing or occurring at
or prior to the Effective Time, whether asserted or claimed prior to, at or
after the Effective Time, to the fullest extent that the Company would have been
permitted under Delaware law and its certificate of incorporation or bylaws in
effect on the date hereof to indemnify such Indemnified Party (and Watson and
the Surviving Corporation shall also advance expenses as incurred to the fullest
extent permitted under applicable law, provided the Indemnified Party to whom
expenses are advanced provides an undertaking to repay such advances if it is
ultimately determined that such Indemnified Party is not entitled to
indemnification.
(b) For a period of two (2) years after the Effective Time, Watson shall
cause the Surviving Corporation to maintain (to the extent available in the
market) in effect a directors' and officer's liability insurance policy covering
those persons who are currently covered by the Company's directors' and
officers' liability insurance policy (a copy of which has been heretofore
delivered to Watson) with coverage in amount and scope at least as favorable as
the Company's existing coverage; provided however that Watson shall not be
required to pay an annual premium for such insurance in excess of 150% of the
last annual premium paid prior to the date hereof, but in such case shall
purchase as much coverage as possible for such amount.
(c) The provisions of this Section 5.9 are intended to be an addition to
the rights otherwise available to the current officers and directors of the
Company by law, charter, statute or by-law, and shall operate for the benefit
of, and shall be enforceable by, each of the Indemnified Parties, their heirs
and their representatives.
5.10 Affiliate Letters. At least 30 days prior to the Closing Date, the
Company shall deliver to Watson a list of names and addresses of those persons
who were or will be, in the Company's reasonable judgment, at the record date
for its Stockholders' meeting to approve the Merger, "affiliates" (each such
person, an "Affiliate") of the Company within the meaning of Rule 145 of the
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rules and regulations promulgated under the Securities Act. The Company shall
provide Watson such information and documents as Watson shall reasonably request
for purposes of reviewing such list. The Company shall use commercially
reasonable efforts to deliver or cause to be delivered to Watson, prior to the
Closing Date, from each of the Affiliates of the Company identified in the
foregoing list, an Affiliate Letter in substantially the form attached hereto as
Exhibit A. Watson shall be entitled to place legends as specified in such
Affiliate Letters on the certificates evidencing any Watson Common Stock to be
received by such Affiliates pursuant to the terms of this Agreement, and to
issue appropriate stop transfer instructions to the transfer agent for the
Watson Common Stock, consistent with the terms of such Affiliate Letters.
5.11 Expenses. Whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses, except
(a) as otherwise expressly provided for herein; and (b) the expenses incurred in
connection with printing and mailing the Form S-4 and the Proxy Statement shall
be shared equally by the Company and Watson.
5.12 Tax Treatment of Merger. From and after the date hereof and until the
Effective Time, neither Watson nor the Company nor any of their respective
Subsidiaries or other affiliates shall (a) knowingly take any action, or
knowingly fail to take any action, that would jeopardize qualification of the
Merger as (i) a reorganization within the meaning of Section 368(a) of the Code;
or (ii) a "pooling of interests" for accounting purposes; or (b) enter into any
contract, agreement, commitment or arrangement with respect to the foregoing.
After the Effective Time, Watson shall not take or fail to take (and shall cause
the Surviving Corporation not to take or fail to take) any action that is
reasonably likely to jeopardize qualification of the Merger as a reorganization
within the meaning of Section 368(a) of the Code, including, but not limited to,
(i) a failure to satisfy the continuity of business enterprise requirements of
Treas. Reg. Section 1.368-1(d)(1) and (ii) a failure to satisfy the continuity
of interest requirements of Treas. Reg. Section 1.368-1(e)(1).
5.13 Company Options. As soon as reasonably practicable after the Closing
Date, but in any event, no later than sixty (60) days after the Closing Date,
Watson shall register the shares of Watson Common Stock issuable upon exercise
of the Company Options with the SEC on Form S-8, to the extent that such Company
Options may be registered on such form. To the extent that all or any portion
of the Company Options may not be registered on Form S-8 (the "Non-Employee
Options"), Watson and the Company shall cooperate and promptly prepare and
Watson shall file with the SEC as soon as reasonably practicable after the
Closing Date, but in any event, no later than sixty (60) days after the Closing
Date, a Registration Statement on Form S-3 (the "Form S-3") under the Securities
Act, with respect to the Watson Common Stock issuable upon exercise of the
Non-Employee Options. Watson shall use all reasonable efforts, and the Company
will cooperate with Watson, to have the Form S-3 declared effective by the SEC
as soon as practicable after the filing thereof and to keep such Registration
Statement effective until such time as all such Non-employee Options (or the
underlying Watson Common Stock) has been sold into the public market or is
eligible to be so sold pursuant to Rule 145(d) promulgated under the Securities
Act. Watson will advise holders of such Non-Employee Options, promptly after it
receives notice thereof, of the time when
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the Form S-3 has become effective, the issuance of any stop order or the
suspension of the qualification of the Watson Common Stock issuable in
connection with the exercise of the Non-Employee Options for offering or sale in
any jurisdiction and Watson shall use reasonable commercial efforts to promptly
resolve any such stop order, suspension or qualification.
5.14 Supplement to Watson Disclosure Statement and the Disclosure Statement
Each of Watson and the Company shall promptly supplement or amend the Watson
Disclosure Statement and the Disclosure Statement, respectively, with respect to
any matter hereafter arising that, if existing or occurring at the date of this
Agreement, would have been required to be set forth or described in the Watson
Disclosure Statement or the Disclosure Statement, as the case may be. No
supplement or amendment to the Watson Disclosure Statement or the Disclosure
Statement will have any effect for the purpose of determining satisfaction of
the conditions set forth in Article VI hereof.
5.15 Report to Watson. The Company will promptly advise Watson in writing
of all actions taken by the directors and stockholders of the Company at
meetings or in connection with written consents filed with the Company and will
furnish Watson with copies of all monthly and other interim financial
information of the Company and its Subsidiaries as they become available to the
officers and/or the directors of the Company or its Subsidiaries.
5.16 Delivery of Stockholder List. The Company shall arrange to have its
transfer agent deliver to Watson or its designee, immediately prior to the
Closing Date, a true and complete list setting forth the names and addresses of
the Stockholders. From time to time prior to the Closing Date, the Company
shall deliver to Watson such information as Watson may request regarding the
holdings of stock of Persons who may be affiliates of the Company and such other
stockholder information as Watson may reasonably request.
5.17 Letter of the Company's Accountant. At the request of Watson, the
Company shall use commercially reasonable efforts to cause to be delivered to
Watson "cold comfort" letters of Ernst & Young, LLP, the Company's independent
public accountant, dated as of the date of which the Registration Statement
shall become effective and the Effective Time, respectively, and addressed to
Watson, reasonably customary in form, scope, and substance for letters delivered
by independent public accountants in connection with the procedures undertaken
by them with respect to the financial statements and other financial information
of the Company and its Subsidiaries contained in registration statements similar
to the Registration Statement and other matters contemplated by AICPA Statement
No. 72 and customarily included in comfort letters relating to transactions
similar to transactions such as those contemplated by the Agreement.
5.18 Employee Benefit Plans. Watson covenants and agrees that to the
extent the existing benefit plans and arrangements provided by the Company to
its employees are terminated after the Effective Date, all employees of the
Surviving Corporation shall be entitled to participate in all benefit plans and
arrangements that are available and subsequently become available to Watson's
employees on the same basis as Watson's employees in similar positions are
eligible to participate so long as such employees remain employees of the
Surviving Corporation. For purposes of satisfying the terms and
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conditions of such plans, Watson shall give full credit for eligibility, vesting
or benefit accrual for each participant's period of service with the Company
prior to the Effective Time. To the extent Watson's benefit plans provide
medical or dental welfare benefits after the Closing Date, Watson shall cause
all pre-existing condition exclusions and actively at work requirements to be
waived and Watson shall provide that any expenses incurred on or before the
Closing Date shall be taken into account under Watson's benefit plans for
purposes of satisfying the applicable deductible, coinsurance and maximum
out-of-pocket provisions for such employees and their covered dependents.
ARTICLE VI
CONDITIONS
6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Closing Date of each of the following
conditions (unless waived by each of the parties hereto in accordance with the
provisions of Section 7.3 hereof):
(a) This Agreement and the Merger and other transactions contemplated
hereby shall have been approved and adopted by the requisite vote of the
Stockholders.
(b) The waiting period applicable to the consummation of the Merger under
the HSR Act shall have expired or been terminated.
(c) No preliminary or permanent injunction or other order or decree by any
federal or state court which prevents the consummation of the Merger or
materially changes the terms or conditions of this Agreement shall have been
issued and remain in effect. In the event any such order or injunction shall
have been issued, each party agrees to use its reasonable efforts to have any
such injunction lifted.
(d) The Form S-4 shall have been declared effective by the SEC and shall
be effective at the Effective Time, and no stop order suspending the
effectiveness of the Form S-4 shall have been issued, no action, suit,
proceeding or investigation by the SEC to suspend the effectiveness thereof
shall have been initiated and be continuing, and all necessary approvals under
state securities laws relating to the issuance or trading of the Watson Common
Stock to be issued to the Stockholders in connection with the Merger shall have
been received.
(e) All material consents, authorizations, orders and approvals of (or
filings or registrations with) any governmental commission, board or other
regulatory body required in connection with the execution, delivery and
performance of this Agreement shall have been obtained or made, except for
filings in connection with the Merger and any other documents required to be
filed after the Effective Time.
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(f) The Watson Common Stock to be issued to the Stockholders in connection
with the Merger shall have been authorized for trading on the New York Stock
Exchange subject only to official notice of issuance.
(g) Watson shall have received the opinion of Price Waterhouse LLP, dated
the Closing Date, to the effect that the Merger will be treated as a "pooling of
interests" for accounting purposes.
(h) The Company shall have received from Ernst & Young, LLP a letter,
dated the Closing Date, indicating that the Company has not taken any action
that would preclude it from entering into a transaction that would be treated as
a "pooling of interests" for accounting purposes.
6.2 Conditions to Obligation of the Company to Effect the Merger. The
obligation of the Company to effect the Merger shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions (unless
waived by the Company in accordance with the provisions of Section 7.3 hereof):
(a) Watson shall have performed, in all material respects, all of its
agreements contained herein that are required to be performed by Watson on or
prior to the Closing Date, and the Company shall have received a certificate of
an executive officer of Watson, dated the Closing Date, certifying to such
effect.
(b) As of the date hereof, the representations and warranties of Watson
and Watson Sub contained in this Agreement shall be true and correct, in all
material respects (or to the extent representations or warranties contain
materiality modifiers, true and correct as modified), and the Company shall have
received a certificate of an executive officer of Watson and Watson Sub, dated
as of the Closing Date, certifying to such effect. As of the Closing Date, the
representations and warranties of Watson and Watson Sub contained in this
Agreement shall be true and correct, except as would not reasonably be expected
to have a Watson Material Adverse Effect, and the Company shall have received a
certificate of an executive officer of Watson and Watson Sub, dated as of the
Closing Date, certifying to such effect.
(c) The Company shall have received from Watson certified copies of the
resolutions of Watson's and Watson Sub's Boards of Directors and from the sole
stockholder of Watson Sub approving and adopting this Agreement, the Watson
Ancillary Documents and the transactions contemplated hereby and thereby.
(d) The Company shall have received the opinion of D'Ancona & Pflaum
covering customary opinions in a form reasonably acceptable to Watson and its
counsel.
(e) The Company shall have received the opinion of D'Ancona & Pflaum,
counsel to Watson, dated the Closing Date, to the effect that the Merger will be
treated for federal income tax purposes as a reorganization within the meaning
of Section 368(a) of the Code, and that the Company and Watson will each be a
party to that reorganization within the meaning of Section 368(b) of the
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Code. In rendering such opinion, counsel shall be entitled to rely upon, among
other things, reasonable assumptions as well as representations and covenants of
Watson, Watson Sub and the Company.
(f) From the date of this Agreement through the Effective Time, there
shall not have occurred any event that has had, would have or would be
reasonably likely to have a Watson Material Adverse Effect; provided, that such
an event will not be deemed to have occurred solely as a result of fluctuations
in the value of Watson Common Stock.
6.3 Conditions to Obligation of Watson and Watson Sub to Effect the
Merger. The obligations of Watson and Watson Sub to effect the Merger shall be
subject to the fulfillment at or prior to the Closing Date of the following
conditions (unless waived by the Company in accordance with the provisions of
Section 7.3 hereof):
(a) The Company shall have performed, in all material respects, all of its
agreements contained herein that are required to be performed by the Company on
or prior to the Closing Date, and Watson shall have received a certificate of an
executive officer of the Company, dated the Closing Date, certifying to such
effect.
(b) As of the date hereof, the representations and warranties of the
Company contained in this Agreement shall be true and correct, in all material
respects (or to the extent representations or warranties contain materiality
modifiers, true and correct as modified), and Watson shall have received a
certificate of an executive officer of the Company, dated as of the Closing
Date, certifying to such effect. As of the Closing Date, the representations
and warranties of the Company contained in this Agreement shall be true and
correct, except as would not reasonably be expected to have a Company Material
Adverse Effect, and Watson shall have received a certificate of an executive
officer of the Company, dated as of the Closing Date, certifying to such effect.
(c) Watson shall have received from the Company certified copies of the
resolutions of the Company's Board of Directors and Stockholders approving and
adopting this Agreement, the Company Ancillary Documents and the transactions
contemplated hereby and thereby.
(d) Watson shall have received the opinion of Kirkland & Ellis covering
customary opinions in a form reasonably acceptable to the Company and its
counsel.
(e) From the date of this Agreement through the Effective Time, there
shall not have occurred any event that has had, would have or would be
reasonably likely to have a Company Material Adverse Effect.
(f) The Company shall have received the consents from the Persons listed
on Schedule 6.3(f).
(g) Watson shall have received the opinion of Kirkland & Ellis, counsel to
the Company,
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dated the Closing Date, to the effect that the Merger will be treated for
federal income tax purposes as a reorganization within the meaning of Section
368(a) of the Code, and that the Company and Watson will each be a party to that
reorganization within the meaning of Section 368(b) of the Code. In rendering
such opinion, counsel shall be entitled to rely upon, among other things,
reasonable assumptions as well as representations and covenants of Watson,
Watson Sub and the Company.
(h) Dinesh C. Patel, Ph.D. and Charles D. Ebert shall have entered into an
amendment to their respective Employment Agreements in substantially the form
attached hereto as Exhibit B and C, respectively.
(i) Dinesh C. Patel, Ph.D. and Charles D. Ebert shall have entered into
Non-Competition Agreements in substantially the form attached hereto as Exhibit
D and E, respectively.
(j) Watson shall have received the written resignations effective as of
the Closing Date of such of the directors and officers of the Company's
Subsidiaries as are designated by Watson to resign.
(k) The Company shall have delivered to Watson, Affiliate Letters executed
by each of the Affiliates of the Company.
ARTICLE VII
TERMINATION
7.1 Termination. This Agreement may be terminated and the Merger may be
abandoned at any time before the Closing Date notwithstanding the approval or
adoption of this Agreement by the Stockholders and subject to the payment
obligations contained in Section 7.2 hereof:
(a) By the mutual written consent of Watson and the Company.
(b) By written notice from the Board of Directors of either Watson or the
Company if (i) the Merger shall not have been consummated by March 31, 1999;
provided, however, that the right to terminate this Agreement under this Section
7.1(b)(i) will not be available to any party whose failure to fulfill any
obligation under this Agreement has been the cause of, or resulted in, the
failure of the Merger to occur on or before such date; (ii) the approval of the
Stockholders required by Section 6.1(a) shall not have been obtained at a
meeting duly convened therefor or at any adjournment thereof; provided, however,
that the Company shall not have the right to terminate this Agreement under this
Section 7.1(b)(ii) if the Company withdrew, modified, or amended in any adverse
respect its recommendation that the Stockholders vote in favor of this
Agreement; or (iii) a court of competent jurisdiction or a governmental,
regulatory or administrative agency or commission shall have issued an order,
decree or ruling or taken any other action either (A) permanently restraining,
enjoining or otherwise prohibiting the transactions contemplated by this
Agreement; or
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(B) compelling Watson, Watson Sub or the Surviving Corporation to dispose of or
hold separate all or a material portion of the respective businesses or assets
of Watson, the Company or any of their respective Subsidiaries, or sell or
license any material product of Watson, the Company or any of their respective
Subsidiaries, and such order, decree, ruling or other action shall have become
final and non-appealable.
(c) By written notice from the Board of Directors of Watson, if without
the prior written approval of Watson, (i) the Company (A) shall have withdrawn,
modified, or amended in any adverse respect its approval or recommendation of
this Agreement or the transactions contemplated hereby, (B) shall not have
recommended or shall have withdrawn, modified, or amended in any respect its
recommendation that the Stockholders vote in favor of this Agreement, or (C)
shall not have included such recommendation in the Proxy Statement; (ii) the
Board of Directors of the Company shall have resolved to do any of the
foregoing; or (iii) any director of the Company shall take any action
inconsistent with such approval or recommendation and such action has not been
renounced by the Board of Directors of the Company; provided that, in each of
subparagraphs (i), (ii) or (iii) above, other than upon the happening of an
event described in Section 7.1(f).
(d) By written notice from the Board of Directors of Watson if (A) there
is an Alternative Proposal initiated or made by or relating to the Company which
is approved of or agreed to by the Board of Directors of the Company; or (B) any
Person shall have solicited proxies in opposition to the approval of the Merger,
and the Board of Directors of the Company has taken action or a public position
consistent with approving such Person's proxy solicitation.
(e) By written notice from the Board of Directors of the Company, if the
Board of Directors of the Company shall have reasonably determined, after
consultation with its legal and financial advisors, that a proposal for an
Alternative Proposal constitutes a Superior Proposal and shall have decided to
accept such Superior Proposal pursuant to its fiduciary duties under applicable
law; provided, however, that the Company may not have the right to terminate
this Agreement pursuant to this subparagraph (e) unless (i) five (5) business
days shall have elapsed after delivery to Watson of a written notice of such
determination by the Board of Directors of the Company and, during such five (5)
business day period, the Company shall have informed Watson of the material
terms and conditions and financing arrangements of such proposal for an
Alternative Proposal and the identity of the Person or group making such
proposal for an Alternative Proposal and (ii) at the end of such five (5)
business day period, such board shall continue to reasonably believe that such
proposal for an Alternative Proposal constitutes a Superior Proposal and
promptly thereafter the Company shall enter into a definitive acquisition,
merger or similar agreement to effect such Superior Proposal. Notwithstanding
the foregoing, the Company shall not have the right to terminate this Agreement
pursuant to this subsection (e) unless it has simultaneously or previously paid
the $5,000,000 fee owed to Watson pursuant to Section 7.2.
(f) By written notice from the Board of Directors of the Company, if (i)
as of the date hereof, the representations and warranties made by Watson and
Watson Sub are not true and correct, in all material respects; (ii) there has
been a breach by Watson or Watson Sub of any representation
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or warranty contained in this Agreement which would reasonably be expected to
have a Watson Material Adverse Effect; or (iii) there has been a material breach
of any of the material covenants or agreements set forth in this Agreement on
the part of Watson, which breach is not curable or, if curable, is not cured
within thirty (30) days after written notice of such breach is given by the
Company to Watson.
(g) By written notice from the Board of Directors of Watson, if (i) as of
the date hereof, the representations and warranties made by the Company are not
true and correct, in all material respects; (ii) there has been a breach by the
Company of any representation or warranty contained in this Agreement which
would reasonably be expected to have a Company Material Adverse Effect; or (iii)
there has been a material breach of any of the material covenants or agreements
set forth in this Agreement on the part of the Company, which breach is not
curable or, if curable, is not cured within thirty (30) days after written
notice of such breach is given by Watson to the Company.
Any termination notice delivered pursuant to the provisions of this Section
7.1 shall specify the particular section of this Agreement under which this
Agreement is being terminated.
7.2 Effect of Termination and Abandonment.
(a) If this Agreement or the transactions contemplated hereby are
terminated and if any one of the following conditions has been satisfied, then
the Company shall pay to Watson, no later than five (5) business days after the
date on which one of the following conditions is satisfied (except as otherwise
provided in Section 7.1(e) hereof), a fee equal to $5,000,000: (i) this
Agreement is terminated by the Company pursuant to Section 7.1(e); (ii) this
Agreement is terminated by Watson pursuant to Section 7.1(d); (iii)(A) this
Agreement is terminated by the Company pursuant to Section 7.1(b)(i) or by
Watson pursuant to Section 7.1(g); and (B) within four months after the
termination of this Agreement, the Company enters into an agreement or an
understanding with respect to an Alternative Proposal or consummates a
transaction with respect to an Alternative Proposal; and (iv)(A) this Agreement
is terminated by Watson pursuant to Section 7.1(c); and (B) within one (1) year
after the termination of this Agreement, the Company enters into an agreement or
an understanding with respect to an Alternative Proposal or consummates a
transaction with respect to an Alternative Proposal. In the event of and upon
payment of the full Five Million Dollar ($5,000,000) termination fee pursuant to
this Section 7.2(a), the Company shall have no further liability to Watson in
connection with this Agreement or the transactions contemplated hereby.
(b) If the Company terminates this Agreement pursuant to Section 7.1(f),
Watson shall reimburse the Company for all actual out-of-pocket costs and
expenses incurred by the Company in connection with this Agreement and the
consummation and negotiation of the transactions contemplated hereby, including,
without limitation, reasonable legal, professional and service fees and
expenses, which amount shall be payable by wire transfer of same day funds no
later than ten (10) business days after receiving detailed documentation
detailing such costs and expenses.
(c) If Watson terminates this Agreement pursuant to Section 7.1(c) or
7.1(g), the
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Company shall reimburse Watson for all actual out-of-pocket costs and expenses
incurred by Watson and Watson Sub in connection with this Agreement and the
consummation and negotiation of the transactions contemplated hereby, including,
without limitation, reasonable legal, professional and service fees and
expenses, which amount shall be payable by wire transfer of same day funds no
later than ten (10) business days after receiving detailed documentation
detailing such costs and expenses.
(d) If this Agreement is terminated for any reason other than the reasons
set forth in Sections 7.2(a), (b) or (c), no amounts shall be payable pursuant
to this Section 7.2 by either party and neither party shall have any further
liability to the other in connection with this Agreement and the transactions
contemplated hereby.
(e) The parties acknowledge that the agreements contained in this Section
7.2 are an integral part of the transactions contemplated by this Agreement, and
that, without these agreements, they would not enter into this Agreement.
Accordingly, if any party fails to promptly pay the amounts due pursuant to this
Section 7.2, and, in order to obtain such payment, the other party commences a
suit which results in a final, non-appealable judgment for the amounts or fees
set forth in this Section 7.2, such party shall pay to the other its costs and
expenses (including attorneys' fees) incurred in connection with such suit,
together with interest on the amount of the fee at the rate of 10% per annum.
(f) In the event of termination of this Agreement and the abandonment of
the Merger pursuant to this Article VII, all obligations of the parties hereto
shall terminate, except the obligations of the parties pursuant to this Section
7.2 and the provisions of Sections 5.6 and 5.10, which obligations shall survive
the termination of this Agreement.
7.3 Extension; Waiver. At any time prior to the Effective Time, any
party hereto, by action taken by its Board of Directors, may, to the extent
legally allowed, (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto; (b) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto; and (c) waive compliance
with any of the agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
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ARTICLE VIII
GENERAL PROVISIONS
8.1 Nonsurvival of Representations, Warranties and Agreements. All
representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement between Watson and the Company
shall be conditions to the Merger and shall not survive the Merger, provided,
however, that the agreements contained in Sections 1.4, 1.5, 1.6, 1.7, 1.9, 5.6,
5.8, 5.9, 5.10, 5.11, 5.12 and 5.17, and Articles 2 and 8 (except Section
8.11)and the agreements delivered pursuant to this Agreement shall survive the
Merger. No director, officer, shareholder, employee or agent of the Company,
Watson or any of their respective Subsidiaries shall have any personal liability
to any other party for any breach of any representation, warranty or obligation
contained in this Agreement.
8.2 Notices. All notices required or permitted to be given hereunder
shall be in writing and may be delivered by hand, by facsimile, by nationally
recognized private courier, or by United States mail. Notices delivered by mail
shall be deemed given three (3) business days after being deposited in the
United States mail, postage prepaid, registered or certified mail. Notices
delivered by hand by facsimile, or by nationally recognized private carrier
shall be deemed given on the day following receipt; provided, however, that a
notice delivered by facsimile shall only be effective if such notice is also
delivered by hand, or deposited in the United States mail, postage prepaid,
registered or certified mail, on or before two (2) business days after its
delivery by facsimile. All notices shall be addressed as follows:
If to Watson or Watson Sub: If to the Company:
Watson Pharmaceuticals, Inc. TheraTech, Inc.
311 Bonnie Circle 417 Wakara Way
Corona, California 91720 Salt Lake City, Utah 84108
Fax: (909) 270-1429 Fax: (801) 588-6200
Attn: Chairman & CEO Attn: Chairman & CEO
With copies to: With copies to:
Watson Pharmaceuticals, Inc. Kirkland & Ellis
311 Bonnie Circle 153 East 53rd Street
Corona, California 91720 New York, NY 10022-4675
Fax: (909) 270-1429 Fax: (212) 446-4900
Attn: Legal Department Attn: Stephen P.H. Johnson
or to such other address as any party shall specify by written notice so given,
and such notice shall
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be deemed to have been delivered as of the date so telecommunicated, personally
delivered or mailed.
8.3 Assignment, Binding Effect. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective permitted successors and assigns. Notwithstanding
anything contained in this Agreement to the contrary, except for the provisions
of Sections 1.4, 1.5, 1.6, 1.7, 5.9, 5.13 and 5.18, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto or their respective heirs, successors, executors, administrators and
assigns any rights, remedies, obligations or liabilities under or by reason of
this Agreement.
8.4 Entire Agreement. This Agreement, the Exhibits, the Disclosure
Statement, the Watson Disclosure Statement, the Confidentiality Agreement, the
Company Ancillary Documents, the Watson Ancillary Agreements, and any other
documents delivered by the parties in connection herewith constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings among the parties with respect
thereto. No addition to or modification of any provision of this Agreement
shall be binding upon any party hereto unless made in writing and signed by all
parties hereto.
8.5 Amendment. This Agreement may be amended by the parties hereto, by
action taken by their respective Boards of Directors, at any time before or
after approval of matters presented in connection with the Merger by the
Stockholders, but after any such Stockholder approval, no amendment shall be
made which by law requires the further approval of Stockholders without
obtaining such further approval. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
8.6 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to its rules of
conflict of laws.
8.7 Counterparts. This Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument.
8.8 Headings. Headings of the Articles and Sections of this Agreement are
for the convenience of the parties only and shall be given no substantive or
interpretive effect whatsoever.
8.9 Interpretation. In this Agreement, unless the context otherwise
requires, words describing the singular number shall include the plural and vice
versa, and words denoting any gender shall include all genders and words
denoting natural persons shall include corporations and partnerships and vice
versa.
8.10 Waivers. Except as provided in this Agreement, no action taken
pursuant to this
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Agreement, including, without limitation, any investigation by or on behalf of
any party, shall be deemed to constitute a waiver by the party taking such
action of compliance with any representations, warranties, covenants or
agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision hereunder shall not operate or be construed as a waiver
of any prior or subsequent breach of the same or any other provision hereunder.
8.11 Incorporation of Exhibits. The Disclosure Statement, the Watson
Disclosure Statement and all Exhibits attached hereto and referred to herein
are hereby incorporated herein and made a part hereof for all purposes as if
fully set forth herein.
8.12 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
8.13 Enforcement of Agreement. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement was
not performed in accordance with its specific terms or was otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of competent jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
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IN WITNESS WHEREOF, the parties have executed this Agreement and caused the
same to be duly delivered on their behalf on the day and year first written
above.
WATSON PHARMACEUTICALS, INC.
By: /s/ Allen Chao, Ph.D.
-------------------------------
Title: Chairman, CEO and President
---------------------------
JAZZ MERGER CORP.
By: /s/ Allen Chao, Ph.D.
-------------------------------
Title: President
----------------------------
THERATECH, INC.
By: /s/ Dinesh C. Patel, Ph.D.
-------------------------------
Title: Chairman, CEO and President
----------------------------
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EXHIBIT 99.1
WATSON PHARMACEUTICALS TO ACQUIRE THERATECH; TRANSACTION TO ENHANCE WATSON'S
RESEARCH & DEVELOPMENT CAPABILITIES
PR NEWSWIRE, SUNDAY, OCTOBER 25, 1998 AT 13:49
CORONA, Calif., Oct. 25 /PRNewswire/ -- Watson Pharmaceuticals, Inc.
(NYSE:WPI) and TheraTech, Inc. (NASDAQ:THRT) announced today that the companies
have entered into a definitive merger agreement under which Watson
Pharmaceuticals will acquire TheraTech. TheraTech, Inc. is a leading drug
delivery company that develops, manufacturers and markets innovative products
based on its patented and proprietary technologies and systems.
Under the terms of the agreement, Watson will acquire all of TheraTech's
outstanding stock in a tax-free, stock-for-stock transaction. TheraTech
shareholders will receive a fixed exchange ratio of 0.26630 shares of Watson
common stock if the average closing price of Watson common stock (for the 10
trading day period ending two days prior to closing) is above $45.06, a floating
exchange ratio between 0.26630 and 0.29589 shares of Watson common stock if the
average closing price is between $45.06 and $40.56, or a fixed exchange ratio of
0.29589 of Watson common stock if the average closing price of Watson common
stock is below $40.56. The total transaction value is approximately $300
million. Upon the closing, TheraTech will become a wholly owned subsidiary of
Watson Pharmaceuticals.
The transaction, which is subject to TheraTech stockholder approval and
other customary closing conditions, is expected to close in the first quarter of
1999. Watson intends to account for the transaction as a "pooling-of-interests."
A one-time charge of approximately $14 million in connection with the
transaction is anticipated at the time of closing. Watson expects the
transaction to be non-dilutive to earnings in 1999.
TheraTech is a research and development company specializing in innovative
pharmaceutical products based on its proprietary controlled-release drug
delivery technologies. These include: a variety of transdermal patches; oral
transmucosal systems for delivery of peptides and other drugs requiring rapid
onset (i.e. pain medications); a range of oral controlled-release systems;
pulmonary technologies for local and systemic drug administration; topical
preparations; and cell targeted delivery technologies. TheraTech currently has
four products on the market, over 20 products in its development pipeline and
holds 50 issued, allowed and/or pending U.S. patents, with international
counterparts granted and/or filed. TheraTech has research, development and/or
marketing agreements, with leading multi-national as well as regional
pharmaceutical companies, including: Eli Lilly, Procter & Gamble, Pfizer,
SmithKline Beecham, Wyeth-Ayerst, Astra AB and Schwarz Pharma AG.
"This transaction further broadens our strategic research and development
technology platform," remarked Dr. Allen Chao, Chairman, Chief Executive Officer
and President of Watson Pharmaceuticals. "TheraTech's unique technological
capabilities, particularly in the area of controlled-release drug delivery,
expand our existing technology base, presenting us with many new opportunities.
These include the development of additional products that can be supported by
our
<PAGE> 2
growing sales force as well as existing and potential product and technology
alliances with large pharmaceutical companies," Dr. Chao concluded.
"We are delighted to become a part of one of the fastest growing U.S.
pharmaceutical companies and look forward to contributing to the proprietary
research and development activities of Watson," said TheraTech's Chairman,
President and Chief Executive Officer, Dr. Dinesh Patel. "TheraTech focuses its
research and development efforts on the design and development of improved
delivery systems for off-patent and proprietary drugs. As part of Watson, we
will have the potential to market internally developed products utilizing the
TheraTech technology platform and the strength of Watson's sales force,"
concluded Patel.
Dr. Patel also announced that the TheraTech Board of Directors has
rescinded its action of December 15, 1997, that had authorized TheraTech to
repurchase up to one million shares of its outstanding common stock.
Watson Pharmaceuticals, Inc., headquartered in Corona, CA, is engaged in
the development, manufacture and sale of proprietary and off-patent
pharmaceutical products. Watson pursues a strategy of generating revenue
through established proprietary and off-patent businesses, capitalizing on its
proven ability to support the development of these drugs in the therapeutic
areas of primary care, women's health, dermatology and neurology/psychiatry.
TheraTech, Inc. is a leading drug delivery company that develops,
manufactures and markets innovative products based on its patented and
proprietary technologies and systems.
To the extent any statements made in this release deal with information
that is not historical, these statements are necessarily forward-looking. As
such, they are subject to the occurrence of many events outside of Watson's and
TheraTech's control and are subject to various risk factors that could cause the
transaction described above not to be consummated or cause the anticipated
results to differ materially from those expressed in any forward-looking
statement. The risk factors related to the ongoing activities of Watson and
TheraTech, many of which are described in Watson's and TheraTech's reports as
filed with the Securities and Exchange Commission, include, without limitation,
risks related to technology and product development, regulatory compliance,
manufacturing, the availability and cost of raw materials and other third party
sourced products, regulatory approval and market acceptance of Watson's and
TheraTech's products, the impact of competitive products and pricing, and timely
regulatory approval of the transaction described above.
This and past press releases of Watson Pharmaceuticals, Inc. are available
at Watson's web site at http://www.watsonpharm.com. In addition, press releases
are available through PR Newswire's Company On-Call fax service at 800-758-5804,
extension 112856, and at http://www.prnewswire.com.
For additional information on TheraTech, visit TheraTech, Inc.'s web site
at http://www.thrt.com, or e-mail requests to [email protected].
<PAGE> 3
SOURCE Watson Pharmaceuticals
-0- 10/25/98
/CONTACT: Allen Chao, Ph.D., Chairman, Chief Executive Officer and
President of Watson Pharmaceuticals, 909-270-1400; or Carolyn Bass, Jim Byers or
Doug Sherk, 415-296-7383, or Patricia Walsh or Mark Owen, 212-850-5600, all of
Morgen-Walke Associates; or Dinesh Patel, Ph.D., Chairman, President and Chief
Executive Officer of TheraTech, 801-588-6200/
/Company News On-Call: http://www.prnewswire.com/comp/112856.html or fax,
800-758-5804, ext. 112856/
/Web site: http://www.thrt.com
http://www.watsonpharm.com/
