Exhibit 10.1
STOCK PURCHASE AGREEMENT, dated March 25, 1998, between Pharmaceutical
Resources, Inc., a New Jersey corporation (the "Company"), whose principal
offices are located at One Ram Ridge Road, Spring Valley, New York 10977, and
Lipha Americas, Inc., a Delaware corporation (the "Purchaser"), whose principal
offices are located at 1209 Orange Street, Wilmington, Delaware 19801.
WHEREAS, the Company desires to issue and sell to the Purchaser, and the
Purchaser desires to purchase from the Company, 10,400,000 restricted shares
(the "Shares") of the Company's common stock, par value $.01 per share ("Common
Stock");
WHEREAS, concurrently with the execution and delivery of this Agreement,
Merck KGaA, an affiliate of the Purchaser ("Merck"), and Clal Pharmaceutical
Industries, Ltd. ("Clal") are entering into a stock purchase agreement pursuant
to which Merck (or its designees) will, subject to the terms and conditions
thereof, purchase from Clal certain shares of Common Stock beneficially owned by
Clal (the "Clal Stock Purchase Agreement"), the consummation of which
transaction shall occur at the time of the consummation of the transactions
contemplated by this Agreement;
WHEREAS, concurrently with the execution and delivery of this Agreement and
as an inducement to the Company to enter into this Agreement, the Company and
Genpharm, Inc. ("Genpharm"), an affiliate of the Purchaser, are entering into a
distribution agreement pursuant to which, and subject to the conditions
contained therein, the Company shall distribute certain products of Genpharm,
substantially in the form of Exhibit A hereto (the "Distribution Agreement");
WHEREAS, at the Closing (as defined in Section 1.2 hereof), the Company and
Genpharm and Merck shall enter into services agreements substantially in the
form of Exhibit B hereto (collectively, the "Services Agreements"; each
individually referred to herein as a "Services Agreement") pursuant to which
Merck and Genpharm shall render certain significant services to the Company, in
consideration of, among other things, the issuance by the Company to Merck and
Genpharm of certain five-year stock options exercisable commencing in the year
2001 to acquire up to an aggregate of 1,171,040 additional shares of Common
Stock (the "Option Shares"), substantially in the form of Exhibit C hereto
(collectively, the "Options"; each individually referred to herein as an
"Option");
WHEREAS, the Company has received a fairness opinion from Gruntal & Co.,
L.L.C. ("Gruntal") to the effect that the Purchase Price (as defined in Section
1.1 hereof) and the transactions contemplated by this Agreement, the
Distribution Agreement, the Services Agreements and the Options are, taken as a
whole, from a financial point of view, fair to the holders of Common Stock;
WHEREAS, the Company's Board of Directors has approved the execution and
performance of this Agreement, the Distribution Agreement, the Services
Agreements and the Options, and has determined that the transactions
contemplated hereby and thereby are in the best interests of the Company and its
shareholders; and
WHEREAS, the Company and the Purchaser desire to set forth their mutual
agreements with respect to the sale and purchase of the Shares and as to the
other matters set forth herein.
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NOW, THEREFORE, in consideration of the premises and of the mutual
agreements set forth herein, the parties hereto agree as follows:
SECTION 1. Closing Transactions.
1.1 Purchase and Sale of Shares. At the Closing, the Company shall sell
to the Purchaser, and the Purchaser shall, or shall cause its designee to,
purchase from the Company, upon the terms and subject to the conditions
hereinafter set forth, the Shares for an aggregate cash purchase price of
$20,800,000 (the "Purchase Price"), or $2.00 per Share.
1.2 The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Hertzog, Calamari &
Gleason, 100 Park Avenue, 23rd Floor, New York, New York, at 10:00 A.M., on the
second business day following the date on which all of the conditions set forth
in Sections 4 and 5 hereof shall have been satisfied or, to the extent
permitted, waived, or at such other place, time and/or date as the parties may
agree (the "Closing Date"); provided, that the Closing Date shall not occur
before June 1, 1998.
1.3 Closing Deliveries. (a) At the Closing, the Company shall deliver to
the Purchaser, Merck and Genpharm, as applicable:
(i) a stock certificate or certificates representing
the Shares, registered in the name of the Purchaser or, subject to
Section 13.2 hereof, its designee on the Company's books and containing
no legends other than as set forth in Section 9.2 hereof and as
required under the Rights Agreement (as defined in Section 7.11
hereof);
(ii) a registration rights agreement, duly executed
by the Company, substantially in the form of Exhibit D hereto (the
"Registration Rights Agreement");
(iii) the certificates of officers of the Company
referred to in Sections 5.1 and 5.2 hereof;
(iv) the agreements covering the Options, duly
executed by the Company;
(v) the opinion of counsel referred to in
Section 5.3 hereof;
(vi) the Services Agreements, duly executed by
the Company;
(vii) the agreement of the Chairman of the
Company referred to in Section 7.10 hereof; and
(viii) the agreement of Kenneth Sawyer referred to in
Section 7.3(e) hereof.
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(b) At the Closing, the Purchaser, Merck and Genpharm, as applicable,
shall deliver to the Company:
(i) the Purchase Price, in the form of a wire transfer of
immediately available funds to an account designated by the
Company;
(ii) the Registration Rights Agreement, duly executed by the
Purchaser, Merck and Genpharm;
(iii) the certificates of officers of the Purchaser referred to in
Sections 4.1 and 4.2 hereof;
(iv) the opinion of counsel referred to in Section 4.3 hereof;
(v) the Services Agreements, duly executed by Merck or Genpharm,
as applicable;
(vi) the agreements covering the Options, duly executed by Merck or
Genpharm, as applicable; and
(vii) the agreement of the Purchaser (and its Affiliates) referred
to in Section 7.3(e) hereof.
SECTION 2. Representations and Warranties of the Company. The Company
hereby represents and warrants to the Purchaser as follows:
2.1 Organization. Each of the Company, and any corporation with respect to
which the Company owns a majority of the common stock, or has the power to vote
or direct the voting of sufficient securities to elect a majority of the
directors, or has the power to control or direct the actions of such
corporation, all of which are set forth on Schedule 2.11 hereto (collectively,
the "Subsidiaries", each individually referred to herein as a "Subsidiary"), is
a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, as set forth on Schedule 2.11.
Each of the Company and its Subsidiaries has all necessary corporate power and
authority to own or lease its properties and to conduct its business as now
being conducted. Each of the Company and its Subsidiaries is duly qualified to
do business and is in good standing as a foreign corporation in each
jurisdiction in which the property owned, leased or operated by it, or the
nature of the business conducted by it, requires such qualification under
applicable law, except where the failure to be so qualified would not result in
a Material Adverse Effect (as defined in Section 2.10 hereof).
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2.2 Authorization. The execution, delivery and, subject to obtaining the
approval (the "Shareholders' Approval") of the holders of (i) a majority of the
outstanding shares of Common Stock for the issuance of the Shares, the delivery
of the Options and the issuance of the Option Shares, (ii) a majority of the
outstanding shares of Common Stock for the amendment of the Company's
certificate of incorporation in order to increase the number of authorized
shares of Common Stock and (iii) a plurality of the shares of Common Stock voted
at a meeting for the election of the Nominees (as defined in Section 7.3 hereof)
(the preceding clauses (i), (ii) and (iii) to be individually referred to herein
as a "Proposal" and collectively as the "Proposals"), the performance by the
Company of this Agreement, the other agreements referred to herein and the
transactions contemplated hereby and thereby have been duly authorized by all
requisite corporate action by the Company. This Agreement constitutes, and each
other agreement referred to herein, upon due execution and delivery, will
constitute, the valid and binding obligation of the Company, enforceable against
the Company in accordance with its terms, except as such enforceability may be
limited by (i) bankruptcy laws and other similar laws affecting creditors'
rights generally and (ii) general principles of equity, regardless of whether
asserted in a proceeding in equity or at law.
2.3 Non-contravention. Neither the execution, delivery or performance of
this Agreement and the other agreements referred to herein nor the consummation
of the transactions contemplated hereby or thereby will, subject to obtaining
the Shareholders' Approval, violate or be in conflict with any provision of the
certificate of incorporation or by-laws of any of the Company and its
Subsidiaries; subject to obtaining the Shareholders' Approval, and except as set
forth on Schedule 2.3 hereto, violate or be in conflict with any material note,
bond, lease, mortgage, indenture, license, contract, commitment, franchise,
permit, instrument or other material agreement or obligation to which any of the
Company and its Subsidiaries is a party or by which it is bound; violate or be
in conflict with any law, judgment, decree, order, regulation or ordinance by
which any of the Company and its Subsidiaries is bound or affected; or result in
the creation or imposition of any liens, charges, pledges or other encumbrances
("Liens") in favor of any third party upon any property or assets of the Company
and its Subsidiaries.
2.4 Authorization of the Shares. Subject to obtaining the Shareholders'
Approval, all corporate action necessary for the issuance, sale and delivery of
the Shares has been taken by the Company and, when issued and delivered upon
payment in full of the Purchase Price, the Shares will be validly issued, fully
paid and nonassessable, free and clear of any and all Liens. Subject to
obtaining the Shareholders' Approval, the Option Shares will be validly
authorized for issuance and, when and if issued upon payment in full of the
exercise price for the Option Shares in accordance with the terms of the
Options, the Option Shares will be validly issued, fully-paid and nonassessable,
free and clear of any and all Liens.
2.5 Capitalization. The authorized capital stock of the Company consists of
60,000,000 shares of Common Stock, of which no more than 18,923,000 shares are
issued and outstanding as of the date hereof, and 6,000,000 shares of preferred
stock, par value $.0001 per share, of which no shares are issued and outstanding
as of the date hereof. The Company holds no treasury shares. All outstanding
shares of Common Stock have been duly and validly issued and are fully-paid and
nonassessable. There are no outstanding securities exchangeable or convertible
into, or options, warrants, or rights to subscribe for, or to purchase, or
commitments to issue, any unissued shares of capital stock of any of the Company
and its Subsidiaries, except as set forth on Schedule 2.5 hereto.
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2.6 Reports Under the Exchange Act. Since October 1, 1994, except as set
forth on Schedule 2.6 hereto, the Company has filed with the Securities and
Exchange Commission (the "SEC") in timely fashion all reports required to be
filed by the Company pursuant to the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (as such reports may have been amended or supplemented, the
"SEC Reports"). The Common Stock is registered under Section 12(b) of the
Exchange Act. As of their respective filing dates with the SEC, the SEC Reports
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements made therein, in light of the circumstances in which they were made,
not misleading.
2.7 No Brokers or Finders. No person, firm or corporation has or will have,
as a result of any act or omission by any of the Company and its Subsidiaries,
any right, interest or valid claim against the Purchaser or any of the Company
and its Subsidiaries for any commission, fee or other compensation as a finder
or broker, or in any similar capacity, other than with respect to the opinion
referred to in Section 4.9 hereof (the costs of which will be borne by the
Company), in connection with the transactions contemplated by this Agreement.
2.8 Governmental Authorizations; Third-Party Consents. No approval,
consent, authorization or other action by, or notice to or filing with, any
governmental authority or any other person or entity, and no lapse of a waiting
period, is necessary or required in connection with the execution, delivery or
performance by the Company of this Agreement, the other agreements referred to
herein or the transactions contemplated hereby or thereby, except for (i) such
filings or approvals required pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the regulations promulgated thereunder
(the "HSR Act"), (ii) such filings or approvals as may be required to be
obtained in connection with the manufacture and sale of products pursuant to the
Distribution Agreement, (iii) the Shareholders' Approval of the Proposals by the
requisite votes, (iv) such filings or approvals required to list the Shares and
the Option Shares on the New York Stock Exchange and the Pacific Stock Exchange
and (v) the matters set forth on Schedule 2.8 hereto.
2.9 Financial Statements. The audited financial statements of the Company
included in the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1997 (the "Audited Statements") and the unaudited financial
statements of the Company included in the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended December 31, 1997 (the "Unaudited Statements")
complied as to form with the requirements of the Exchange Act and except as
disclosed therein or in the footnotes thereto and, except for the absence of
notes and subject to year-end adjustments in the case of the Unaudited
Statements, were prepared in accordance with United States generally accepted
accounting principles. The Audited Statements and the Unaudited Statements
fairly present, in all material respects, the consolidated financial condition
and the consolidated results of operations of the Company as of the dates and
for the periods indicated therein.
2.10 Absence of Material Adverse Effect. Except as disclosed in the SEC
Reports, since January 1, 1998, the business of the Company and its Subsidiaries
has been operated in the ordinary
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course and substantially consistent with past practice. Since January 1, 1998,
there has been no event or circumstance resulting in a material adverse effect
on the properties, business and assets, liabilities, condition (financial or
otherwise) or operations of the Company and its Subsidiaries, considered as a
whole (a "Material Adverse Effect"). There has been no event or circumstance,
since January 1, 1998, which would materially adversely affect the ability of
the Company to perform its obligations under this Agreement, or any of the other
agreements to be entered into in connection with this Agreement, or to
consummate the transactions contemplated hereby and thereby.
2.11 Subsidiaries; Other Equity Interests. Each Subsidiary of the Company
and each other person in which the Company or any of its Subsidiaries has an
equity interest is set forth on Schedule 2.11 hereto. Each Subsidiary is wholly
(100%) owned by the Company. The authorized, issued and outstanding shares of
the capital stock of each Subsidiary, and the record and beneficial ownership of
the outstanding shares thereof, is as set forth on Schedule 2.11. There are no
agreements or arrangements to which any Subsidiary is a party or by which it is
bound for the redemption, repurchase or issuance of, and there are no options,
warrants, puts, calls or other rights to subscribe for or purchase, shares of
such Subsidiary's capital stock.
2.12 No Third-Party Options. Except as contemplated hereby, as set forth on
Schedule 2.12 hereto, or as disclosed in the SEC Reports, there are no existing
agreements, contracts, commitments, options, warrants or rights with, of or to
any person which are binding on the Company or its Subsidiaries to acquire any
of the Company's and its Subsidiaries' assets, properties, or rights or any
interest therein (whether real, personal or mixed, tangible or intangible,
wherever located and whether in the possession of the Company and its
Subsidiaries or any other person), except for those entered into in the ordinary
course of business consistent with past practice for the sale of inventory
and/or which could not reasonably be expected to result in a Material Adverse
Effect.
2.13 Employee Matters.
(a) The Company has delivered to the Purchaser a list of its and its
Subsidiaries' current employees (the "Employees"). This list, attached hereto as
Schedule 2.13(a), sets forth the current compensation, commissions or hourly
rate of pay, date of birth, date and location of employment and job title for
each Employee. Schedule 2.13(a) lists all agreements between the Company and its
Subsidiaries and any Employee(s) with respect to the employment of any
Employee(s). Except as set forth on Schedule 2.13(a), there are no outstanding
loans with outstanding principal amounts in excess of $50,000 from the Company
or any of its Subsidiaries to any Employees. Except as set forth on Schedule
2.13(a), no Employee is on disability or other leave of absence and the Company
is not aware of the intent of any officer, executive employee or head of a
department of any of the Company and its Subsidiaries to terminate his/her
employment.
(b) Schedule 2.13(b) hereto lists each "employee benefit plan", as defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), whether or not covered by ERISA, that any of the Company and
its Subsidiaries sponsors or has
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sponsored to which the Company or any of its Subsidiaries is or has been in the
past three years required to make contributions, including without limitation
any pension, profit-sharing, retirement or deferred compensation plan, each
other benefit plan, policy, arrangement or practice, whether covering one or
more employees, which provides deferred compensation, bonus, stock purchase,
stock option, vacation, severance, disability, hospitalization, medical
insurance or life insurance payments or benefits and any other material employee
benefit plans, agreements, arrangements or understandings maintained for the
benefit of the Employees or former employees of any of the Company and its
Subsidiaries ("Former Employees") (collectively, together with any related
trusts, the "Employee Benefit Plans"). Except as set forth on Schedule 2.13(b),
no Employee Benefit Plan constitutes a multi-employer plan (as defined under
Section 400(a)(3) of ERISA). Except as set forth on Schedule 2.13(b), all
participants in the Employee Benefit Plans are Employees or Former Employees (or
their dependents or beneficiaries). The Company has previously delivered or made
available to the Purchaser true and complete copies of all documents or
instruments establishing or constituting each such Employee Benefit Plan and all
summary plan descriptions or other descriptive materials relating thereto
distributed by the Company and its Subsidiaries to Employees. Except as set
forth on Schedule 2.13(b), all Employee Benefit Plans are currently in
compliance with all applicable funding requirements under law. Schedule 2.13(b)
also sets forth a list of those Former Employees (or their dependents or
beneficiaries) who are receiving continuation coverage under the Company's or
any of its Subsidiaries' medical plans pursuant to the Consolidated Omnibus
Budget Reconciliation Act of 1985 ("COBRA") and the dates upon which those
individuals commenced receiving such continuation coverage. Except as set forth
on Schedule 2.13(b), none of the Company, its Subsidiaries or the Purchaser will
incur any liability under any Employee Benefit Plan or agreement with an
Employee solely as a result of the transactions contemplated by this Agreement.
(c) Except as set forth on Schedule 2.13 (c) hereto, (i) each Employee
Benefit Plan which is an "employee pension benefit plan", as defined in Section
3(2) of ERISA, meets the requirements of Section 401(a) of the Code and any
related trust is exempt from U.S. federal income tax under Section 501(a) of the
Code and (ii) the Company and its Subsidiaries are in compliance in all material
respects with the terms of such Employee Benefit Plans and with the requirements
of the Internal Revenue Code of 1986, as amended (the "Code"), and ERISA in
respect thereto. None of the Company or its Subsidiaries has any obligation
under any Employee Benefit Plan or otherwise to provide post-retirement health
benefits (exclusive of obligations under COBRA) with respect to any of the
Employees or Former Employees.
(d) The Employees are not and have not in the past three years been covered
by any labor or collective bargaining agreement. No strike, work stoppage,
picketing, slowdown, lockout or material labor dispute involving the Company's
or its Subsidiaries' operations has occurred during the past three years or, to
the Company's knowledge, is threatened. To the Company's knowledge, no attempt
at the organization of a union involving the Company or its Subsidiaries has
occurred during the past three years or is threatened.
(e) None of the Company or its Subsidiaries has incurred any material
liability under, and has complied in all material respects with, the Worker
Adjustment Retraining and
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Notification Act and the regulations promulgated thereunder and any similar
state laws and does not reasonably expect to incur any such liability as a
result of actions taken or not taken prior to the date hereof.
(f) Except as set forth on Schedule 2.13(f) hereto or as disclosed in the
SEC Reports, the Company and its Subsidiaries have complied in all material
respects with all applicable laws, rules, regulations and executive orders
governing the terms and conditions of employment, discriminatory practices with
respect to employment, hiring and discharge, the employment of aliens, the
payment of minimum wages and overtime, workplace health and safety or otherwise
relating to the conduct of employers with respect to employees and potential
employees, and except as set forth on Schedule 2.13, there have been no claims
made or, to the Company's knowledge, threatened against the Company or its
Subsidiaries arising out of, relating to or alleging any material violation of
the foregoing.
2.14 Permits. The Company and its Subsidiaries have all licenses, permits,
orders, certificates, authorizations, consents and approvals of all governmental
and regulatory authorities and bodies, whether federal, state or local, domestic
or foreign, which are necessary for the operation of its business as currently
conducted ("Permits"), except for the failure to have such Permits that could
not, individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect. Except as could not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect, the Permits are
in full force and effect and no suspension or cancellation of any of them is
pending or, to the Company's knowledge, threatened.
2.15 Intellectual Property. Schedule 2.15 hereto sets forth all of the
patents, registered copyrights and registered trademarks of the Company and its
Subsidiaries, all of which are owned by the Company or its Subsidiaries free
and clear of any Liens. None of the Company or its Subsidiaries has infringed
upon or unlawfully used, in any material respect, any patent, trademark, service
mark, tradename, copyright, or trade secret ("Intellectual Property") owned by
another person. None of the Company or its Subsidiaries has received any written
notice of any claim of infringement or other material claim relating to any of
its Intellectual Property. No shareholder of the Company or its Subsidiaries or
member of any such shareholder's family or any entity controlled by them, or any
Employee or Former Employee owns or has any proprietary, financial or other
material interest, directly or indirectly, in any Intellectual Property which
the Company or its Subsidiaries owns, possesses or materially uses in its
operations. Schedule 2.15 sets forth all confidentiality or non-disclosure
agreements to which either the Company or its Subsidiaries or any of its
Employees or Former Employees is a party and which relate to the Company's or
its Subsidiaries' business and were executed in the past seven years.
2.16 No Pending Litigation or Proceedings. Except as set forth on Schedule
2.16 hereto or as disclosed in the SEC Reports, there are no material actions,
suits, proceedings (including arbitral proceedings) or investigations pending
or, to the Company's knowledge, threatened against the Company or its
Subsidiaries or directly relating to or otherwise directly affecting the
business, assets or properties of the Company and its Subsidiaries. Except as
set forth on Schedule 2.16 or as
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disclosed in the SEC Reports, there is no outstanding judgment, writ,
injunction, decree, award or order of any court or any governmental or
regulatory authority or body against or directly affecting the business, assets
or properties of the Company and its Subsidiaries.
2.17 Insurance Coverage. Each of the Company and its Subsidiaries has
during the past three years maintained liability, casualty, property loss and
other insurance policies with respect to the conduct of its business in such
amounts, of such kinds and with such insurance carriers as the Company and it
Subsidiaries, as applicable, has deemed appropriate and sufficient for companies
of a similar size engaged in similar types of businesses and operations.
Schedule 2.17 hereto sets forth a summary description of each such insurance
policy, listing for each policy the risks insured against, coverage limits, any
deductible amounts, any pending claims thereunder and the term of each such
policy. Each such policy is in full force and effect, and no written notice of
cancellation has been received with respect to any such policy, nor will the
consummation of the transactions contemplated by this Agreement cause the
cancellation of, or the right to cancel, any such policy pursuant to the terms
of such policy. The Company and its Subsidiaries have filed all notices or
reports required under such policies, except such filings the failure of which
to make could not reasonably be expected to result in a Material Adverse Effect.
2.18 Compliance with Laws. Except as set forth on Schedule 2.18 hereto or
as disclosed in the SEC Reports, each of the Company's and its Subsidiaries'
business and operations are being conducted in compliance with all applicable
laws, statutes, rules, regulations, ordinances, codes, orders, franchises and
Permits of all governmental entities, including without limitation, those
relating to occupational safety and health and equal employment practices,
except for such instances of noncompliance that could not, individually or in
the aggregate, reasonably be expected to result in a Material Adverse Effect. No
notice, citation, summons or order has been assessed and no investigation or
review is pending or, to the Company's knowledge, threatened by any governmental
or other entity with respect to any alleged material violation by any of the
Company and its Subsidiaries of any of the foregoing.
2.19 Environmental Matters. Except as set forth on Schedule 2.19 hereto or
as disclosed in the SEC Reports, and except for such matters that could not,
individually or in the aggregate, reasonably be expected to result in a Material
Adverse Effect, (a) there are no investigations, inquiries or other proceedings
pending or, to the Company's knowledge, threatened with regard to the current or
prior conduct of the business and operations of the Company and its
Subsidiaries, or relating to (x) any properties owned or previously owned by the
Company and its Subsidiaries, (y) any properties at which any of the Company and
its Subsidiaries has conducted operations or (z) any sites at which any of the
Company and its Subsidiaries has disposed of, or arranged for the disposal of,
waste materials, and arising out of or relating to any actual or alleged failure
to comply with any requirement of any law, statute, rule, regulation, code or
ordinance relating to air or water quality, waste management, hazardous or toxic
substances, or the protection of health or the environment ("Environmental
Laws"); (b) the Company and its Subsidiaries are in compliance with the
requirements of all Environmental Laws in connection with its business,
operations and otherwise; and (c) none of the properties or sites referred to in
clauses (x), (y) or (z) above is contaminated with
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any hazardous waste or substance as a result of any act or omission of the
Company and any of its Subsidiaries, or, to the Company's knowledge, any agent,
servant or bailee of the Company and any of its Subsidiaries, to a degree that
poses a risk to health or the environment or could impose a liability on the
Company. With regard to compliance with Environmental Laws, the representations
and warranties set forth in this Section 2.19 shall supersede the provisions of
Section 2.18 hereof.
2.20 Tax Returns and Taxes.
(a) The Company and its Subsidiaries have filed all Tax Returns (as
hereinafter defined) required to be filed by it. Except with respect to any
contested liability for Taxes (as hereinafter defined), as set forth on Schedule
2.20 hereto, all such Tax Returns were correct and complete in all material
respects. All Taxes owed by the Company and any of its Subsidiaries (whether or
not shown on any Tax Return) have been paid except for (i) Taxes accrued but not
yet payable, (ii) Taxes which are being contested in good faith, and (iii)
Taxes, the non-payment of which could not reasonably be expected to result in a
Material Adverse Effect. Except as set forth on Schedule 2.20, none of the
Company and its Subsidiaries has received any notice of assessment of additional
Taxes that is currently pending. Except as set forth on Schedule 2.20, none of
the Company and its Subsidiaries has waived any statute of limitations in
respect of Taxes or executed or filed with any Tax authority any agreement or
document extending the period of assessment of any Taxes, and the Company and
its Subsidiaries are not currently the beneficiary of any extension of time
within which to file any Tax Return. Except as set forth on Schedule 2.20, there
are no claims, examinations, audits, proceedings or proposed deficiencies for or
in respect of Taxes pending or, to the Company's knowledge, threatened against
the Company or its Subsidiaries. No claim has been made in writing to the
Company or its Subsidiaries in the past three years by an authority in a
jurisdiction where the Company and its Subsidiaries do not file Tax Returns that
it is or may be subject to taxation by that jurisdiction. There are no recorded
Tax Liens on any of the assets of the Company and its Subsidiaries, nor are
there any security interests on any of the assets of the Company and its
Subsidiaries that arose in connection with any failure (or alleged failure) of
the Company or any of its Subsidiaries to pay any Tax (other than Liens and
security interests for Taxes not yet due and payable or for Taxes that the
Company (or any of its Subsidiaries, as applicable) is contesting in good
faith).
(b) The Company (and each of its Subsidiaries, as applicable) has withheld
and paid all Taxes required by applicable law to have been withheld and paid in
connection with amounts paid or owing to any Employee or Former Employee,
independent contractor, creditor, stockholder or other third party, except where
the failure to do so could not reasonably be expected to result in a Material
Adverse Effect.
(c) Except as set forth on Schedule 2.20, there is no dispute or claim
concerning any Tax liability of the Company (or any of its Subsidiaries, as
applicable) either (i) claimed or raised by any governmental authority in
writing or (ii) as to which the Company or any of its executive officers (or
employees principally responsible for Tax matters) has knowledge based upon
personal contact with any agent of such authority. Schedule 2.20 lists those
federal, state, local, and foreign
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income Tax Returns filed with respect to the Company (or any of its
Subsidiaries, as applicable) that have been audited in the past three years, and
indicates those Tax Returns that currently are the subject of audit.
(d) The Company (or any of its Subsidiaries, as applicable) has not filed a
consent under Section 341(f) of the Code concerning collapsible corporations.
Except as set forth on Schedule 2.20(f) hereto, the Company (or any of its
Subsidiaries, as applicable) has not made any payments, nor is it obligated to
make any payments, nor is it a party to any agreement that under certain
circumstances could obligate it to make any payments that will not be deductible
under Section 280G of the Code. The Company has disclosed on its federal income
Tax Returns all positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of Section 6662 of the
Code. The Company (or any of its Subsidiaries, as applicable) is not a party to
any Tax allocation or sharing agreement. The Company has not been a member of an
Affiliated Group filing a consolidated federal income tax return (other than a
group the common parent of which is the Company).
(e) The Company (or any of its Subsidiaries, as applicable) does not have
(i) income reportable for a period ending after the Closing Date but
attributable to a transaction (e.g., an installment sale) occurring in or a
change in accounting method made for a period ending on or prior to the Closing
Date which resulted in a deferred reporting of income from such transaction or
from such change in accounting method (other than a deferred intercompany
transaction); or (ii) deferred gain or loss arising out of any deferred
intercompany transaction. No "ownership change" (within the meaning of Section
382(g) of the Code) has, to the Company's knowledge, occurred prior to the date
hereof which currently limits the Company's ability to utilize any net operating
loss carryovers under Section 382 of the Code.
For purposes of this Agreement, "Tax" or "Taxes" means any federal, state,
local, or foreign income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, windfall profits, environmental
(including taxes under Code Section 59A), customs duties, capital stock,
franchise, profits, withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated, or other
tax of any kind whatsoever, including any interest, penalty, deficiency or
addition thereto, whether disputed or not, and "Tax Return" means any return,
declaration, report, claim for refund, or information return or statement
relating to Taxes, including any schedule or attachment thereto, and including
any amendment thereof.
2.21 Outstanding Registration Rights. Except as set forth on Schedule 2.21
hereto or as disclosed in the SEC Reports, the Company has not in the past three
years granted (or incurred any obligations or commitments to grant) to any
holder or holders of any capital stock (or rights to acquire any capital stock)
of the Company (i) any rights to request or demand registration of, or the
filing of an offering circular with respect to, outstanding shares of capital
stock of the Company under any securities laws or rules, (ii) any rights to
include any outstanding shares of capital stock of the Company in any
registration or filing effected by the Company pursuant to any securities laws
or
11
rules, or (iii) any rights to require the Company to take action under any
securities laws or rules in order to permit or otherwise facilitate disposition
of any outstanding shares of the Company's capital stock.
2.22 Certain Beneficial Owners.
(a) Schedule 2.22(a) hereto sets forth an analysis prepared by the
Company's auditors stating the stock ownership of 5-percent shareholders (as
such term is defined in Section 382 of the Code) in the Company as of the dates
indicated therein. To the Company's knowledge, such Schedule correctly sets
forth in all material respects the stock ownership of such shareholders and the
changes in such stock ownership as of each fiscal year-end indicated therein.
(b) Schedule 2.22(b) lists all options, warrants, or other stock rights
issued by the Company and outstanding as of the date hereof to any person,
whether or not a 5-Percent Shareholder, that have not yet been exercised as of
the date hereof, together with the exercise dates, exercise prices, any
consideration paid therefor and expiration dates.
2.23 FDA Compliance. The products manufactured, sold, distributed or
supplied by each of the Company and its Subsidiaries, as applicable, are not
adulterated or misbranded within the meaning of the United States Federal Food,
Drug and Cosmetic Act, as amended ("USFFDCA"), and comply with any monograph or
other requirements of the United States Food and Drug Administration ("FDA")
applicable to the products or their manufacture, except for instances of
noncompliance that could not, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect. Such products have been and
continue to be manufactured in compliance with all applicable statutes,
ordinances and regulations, including but not limited to, the USFFDCA and the
regulations thereunder, including the current Good Manufacturing Practices which
have been adopted by the FDA, except for instances of noncompliance that could
not, individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect. Current Good Manufacturing Practice means current good
manufacturing practice regulations established in 21 C.F.R. Parts 210 and 211,
as amended and in effect from time to time, and other applicable FDA policies
relating thereto. Except as set forth on Schedule 2.23 hereto or as disclosed in
the SEC Reports, none of the Company and its Subsidiaries has in the past three
years received any notice or summons in respect of a material violation or
alleged material violation of any statute or regulation from the FDA or other
similar authorities.
2.24 Reliance. The representations, warranties, covenants and agreements of
the Company contained herein and in the certificates and schedules required to
be delivered in accordance with the terms of this Agreement shall, subject to
Section 11 hereof, survive any investigation made by the Purchaser and are made
by the Company with the expectation that the Purchaser is relying thereon in
entering this Agreement and the same shall not be deemed waived by any
investigation conducted by the Purchaser or its employees, advisors, consultants
or representatives, whether before or after the consummation of the transactions
contemplated hereby.
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SECTION 3. Representations and Warranties of the Purchaser. The Purchaser
hereby represents and warrants to the Company as follows:
3.1 Organization. The Purchaser is a corporation duly organized and validly
existing and in good standing under the laws of Delaware and is a wholly-owned
subsidiary of Merck. The Purchaser has all necessary corporate power and
authority to own or lease its properties and to conduct its business as now
being conducted.
3.2 Authorization. The execution, delivery and performance by the Purchaser
of this Agreement, the other agreements referred to herein and the transactions
contemplated hereby and thereby have been duly authorized by all requisite
corporate action by the Purchaser and, in the case of the Distribution Agreement
and the Services Agreement to which it is a party, by Merck and Genpharm, as the
case may be. This Agreement constitutes, and each of the other agreements
referred to herein, upon execution and delivery, will constitute, a valid and
binding obligation of the Purchaser and, in the case of the Distribution
Agreement and the Services Agreement to which it is a party, of Merck and
Genpharm, enforceable against the Purchaser, Merck or Genpharm, as the case may
be, in accordance with its terms, except as such enforceability may be limited
by (i) bankruptcy laws and other similar laws affecting creditors' rights
generally and (ii) general principles of equity, regardless of whether asserted
in a proceeding in equity or at law.
3.3 Non-contravention. Neither the execution, delivery and performance of
this Agreement and the other agreements referred to herein nor the consummation
of the transactions contemplated hereby or thereby will violate or be in
conflict with any provision of the articles of organization of the Purchaser or,
in the case of the Distribution Agreement and the Services Agreement to which it
is a party, of Merck or Genpharm, as the case may be; violate or be in conflict
with any material note, bond, lease, mortgage, indenture, license, contract,
commitment, franchise, permit, instrument or other material agreement or
obligation to which the Purchaser, Merck or Genpharm is a party or by which
either of them is bound; violate or be in conflict with any law, judgment,
decree, order, regulation or ordinance by which the Purchaser, Merck or Genpharm
is bound or affected; or result in the creation or imposition of any Liens in
favor of any third party upon any property or assets of the Purchaser, Merck or
Genpharm.
3.4 No Brokers or Finders. No person, firm or corporation has or will have,
as a result of any act or omission by the Purchaser, Merck or Genpharm, any
right, interest or valid claim against the Company for any commission, fee or
other compensation as a finder or broker, or in any similar capacity, in
connection with the transactions contemplated by this Agreement.
3.5 Governmental Authorizations; Third-Party Consents. No approval,
consent, authorization or other action by, or notice to or filing with, any
governmental authority or any other person or entity, and no lapse of a waiting
period, is necessary or required in connection with the execution, delivery or
performance by the Purchaser or, in the case of the Distribution Agreement and
the Services Agreement to which it is a party, by Merck or Genpharm, as the case
may be, of this
13
Agreement, the other agreements referred to herein or the transactions
contemplated hereby or thereby, except for such filings or approvals (a)
required pursuant to the HSR Act and (b) as may be required (by the FDA or other
governmental authorities) to be obtained in connection with the Distribution
Agreement.
3.6 Investment Representations. (a) The Purchaser and its Affiliates (as
defined in Rule 405 of the Securities Act of 1933, as amended (the "Securities
Act")) are acquiring the Shares and the Options and, upon exercise of the
Options, will be acquiring the Option Shares solely for their own accounts and
not with a view to, or for resale in connection with, any distribution thereof
within the meaning of the Securities Act. Each of the Purchaser, Merck and
Genpharm is an "accredited investor" (as defined in Rule 501(a) of Regulation D
promulgated under the Securities Act).
(b) The Purchaser, on behalf of itself and its Affiliates, understands that
(i) the Shares and the Option have not been registered, and the Option Shares,
when issued, will not be registered under the Securities Act or any applicable
state securities laws, by reason of their issuance by the Company in a
transaction exempt from the registration requirements of the Securities Act and
applicable state securities laws and (ii) the Shares, the Options and the Option
Shares must be held by the Purchaser (or Merck or Genpharm, as applicable)
indefinitely unless a subsequent disposition thereof is registered under the
Securities Act and applicable state securities laws or is exempt from such
registrations.
(c) The Purchaser, on behalf of itself and its Affiliates, acknowledges
that no representations or warranties have been made or furnished to, or relied
on by, the Purchaser or any of its representatives in connection with its
purchase of the Shares except as expressly provided herein. The Purchaser has
such knowledge and experience in financial and business matters that it is
capable of evaluating the risks and merits of this investment.
(d) The Purchaser, on behalf of itself and its Affiliates, acknowledges
that, following its acquisition of the Shares, the Purchaser will be an
Affiliate of the Company and will be subject to all requirements and
restrictions applicable to Affiliates under the Securities Act and the Exchange
Act (including the rules and regulations promulgated thereunder).
SECTION 4. Conditions to the Company's Obligation.
The obligation of the Company to consummate the transactions contemplated
hereby shall be subject to the satisfaction or waiver (other than in respect of
Sections 4.4, 4.6 and 4.8 hereof) by the Company, at or prior to the Closing, of
all the following conditions:
4.1 Representations and Warranties. The representations and warranties of
the Purchaser set forth in this Agreement shall be true and correct in all
material respects on and as of the date hereof and on and as of the Closing Date
(with the same effect as though such representations and warranties had been
made on and as of such Closing Date), and officers of the Purchaser shall have
certified to such effect to the Company in writing.
14
4.2 Performance of Obligations. The Purchaser shall have performed,
satisfied and complied with all covenants, agreements and conditions required by
this Agreement to be performed, satisfied or complied with by it on or before
the Closing Date, and officers of the Purchaser shall have certified to such
effect to the Company in writing.
4.3 Opinion of Counsel. The Company shall have received from Coudert
Brothers, counsel for the Purchaser, an opinion addressed to the Company, dated
the Closing Date, in form and substance reasonably satisfactory to the Company,
it being understood that Coudert Brothers may rely upon the opinion of
Klaus-Peter Brandis, Head of the Legal Department of Merck, for all matters of
German law, if applicable.
4.4 No Litigation or Legislation. No federal, state, local or foreign
statute, rule or regulation shall have been enacted after the date hereof, and
no litigation, proceeding, governmental inquiry or investigation shall be
pending, which prohibits or seeks to prohibit or materially restricts the
consummation of the transactions contemplated by this Agreement or the other
agreements provided for herein.
4.5 Clal Sale of Shares. Merck (or its designee) shall have purchased those
certain shares of Common Stock beneficially owned by Clal in accordance with the
terms of the Clal Stock Purchase Agreement, and all agreements between Clal and
the Company relating to or arising out of Clal's acquisitions of Common Stock
shall be terminated by the parties thereto and be of no further force and
effect.
4.6 HSR Act. All applicable waiting periods under the HSR Act shall have
expired or been terminated with respect to the transactions contemplated by this
Agreement.
4.7 Distribution Agreement in Effect. The Distribution Agreement shall be
in full force and effect and there shall exist no facts or circumstances which,
with the giving of notice or the passage of time or both, would constitute a
material default thereunder by Genpharm.
4.8 Shareholders' Approval. The Shareholders' Approval of each of the
Proposals shall have been obtained and all of the Nominees (as defined in
Section 7.3 hereof) shall have been elected.
4.9 Fairness Opinion. The fairness opinion of Gruntal, the Company's
financial advisor, rendered with regard to this Agreement and the other
agreements to be entered into in connection herewith and the transactions
contemplated hereby and thereby shall have been reconfirmed by Gruntal as of the
date of mailing to the Company's shareholders of the definitive proxy statement
(the "Proxy Statement") in respect of the Company's meeting of its shareholders
to be held in connection with the Proposals (the "Meeting").
4.10 Purchase Price and Other Closing Deliveries. The Purchaser shall have
paid the Purchase Price and delivered, or cause to be delivered, the agreements,
instruments and certificates specified in Section 1.3(b) hereof.
15
4.11 Consents and Waivers. The Company shall have obtained all material
consents and waivers necessary or appropriate for its consummation of the
transactions contemplated by this Agreement, as specified in Section 2.8 hereof
and Schedule 2.8 hereto, and the other agreements referred to herein after using
its reasonable best efforts to obtain them.
4.12 Services Agreements. Merck and Genpharm shall have duly executed and
delivered to the Company the Services Agreements.
4.13 Purchaser Board Approval. The Board of Directors of Merck shall have
approved this Agreement and the transactions contemplated hereby prior to April
3, 1998.
SECTION 5. Conditions to the Purchaser's Obligation.
The obligation of the Purchaser to consummate the transactions contemplated
hereby shall be subject to the satisfaction or waiver (other than in respect of
Sections 5.4, 5.5 and 5.9 hereof) by the Purchaser, at or prior to the Closing,
of all the following conditions:
5.1 Representations and Warranties. The representations and warranties of
the Company set forth in this Agreement shall be true and correct in all
material respects on and as of the date hereof and on and as of the Closing Date
(with the same effect as though such representations and warranties had been
made on and as of such Closing Date), and officers of the Company shall have
certified to such effect to the Purchaser in writing.
5.2 Performance of Obligations. The Company shall have performed, satisfied
and complied with all covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by it on or before the
Closing Date, and officers of the Company shall have certified to such effect to
the Purchaser in writing.
5.3 Opinion of Counsel. The Purchaser shall have received from Hertzog,
Calamari & Gleason, counsel for the Company, an opinion addressed to the
Purchaser, dated the Closing Date, in form and substance reasonably satisfactory
to the Purchaser.
5.4 No Litigation or Legislation. No federal, state, local or foreign
statute, rule or regulation shall have been enacted after the date hereof, and
no litigation, proceeding, governmental inquiry or investigation shall be
pending, which prohibits or seeks to prohibit or materially restricts the
consummation of the transactions contemplated by this Agreement or the other
agreements provided for herein, or materially restricts or impairs the ability
of the Purchaser to own an equity interest in the Company.
5.5 HSR Act. All applicable waiting periods under the HSR Act shall have
expired or been terminated with respect to the transactions contemplated by this
Agreement.
16
5.6 Board Resignations. The Purchaser shall have received the resignations
of the current members of the Board of Directors of the Company, subject to
their re-election in accordance with Section 7.3 hereof.
5.7 No Material Adverse Effect. Since the date hereof, there shall not have
occurred a condition or event constituting a Material Adverse Effect (other than
in respect of the matter set forth on Schedule 2.10 hereto).
5.8 ISRA. The Company shall have delivered to the Purchaser evidence of the
Company's having obtained an ISRA Clearance (as defined in Section 7.4 hereof).
5.9 Shareholders' Approval. The Shareholders' Approval of each of the
Proposals shall have been obtained and all of the Nominees shall have been
elected.
5.10 Closing Deliveries. The Company shall have delivered the Shares, the
Options and the agreements, instruments and certificates specified in Section
1.3(a) hereof.
5.11 Distribution Agreement. There shall exist no facts or circumstances
which, with the giving of notice or the passage of time or both, would
constitute a material default by the Company under the Distribution Agreement.
5.12 Services Agreements; Options. The Company shall have duly executed and
delivered to Merck and Genpharm the Services Agreements and the Options.
5.13 Board Approval. The Board of Directors of Merck shall have approved
this Agreement and the transactions contemplated hereby prior to April 3, 1998.
5.14 Option Standstill Agreements. At least fifteen (15) days prior to
Closing, the Company shall have duly executed and delivered to the Purchaser
agreements in writing, in form reasonably satisfactory to the Purchaser, from
(i) the four persons listed on Schedule 5.14(a) hereto that, notwithstanding the
terms of any stock option plan or any option heretofore granted, not to exercise
or seek to exercise such options until three (3) years and ten (10) U.S.
business days from the Closing Date and (ii) substantially all other persons who
then hold unexercised options, warrants or other stock rights to purchase Common
Stock, other than those persons set forth on Schedule 5.14(b) hereto, not,
notwithstanding the terms of any stock option plan or any option theretofore
granted, to exercise or seek to exercise such options, warrants or other stock
rights, except to the extent indicated on Schedule 5.14(b).
5.15 Section 7.10 Agreement. The Company shall have delivered the agreement
of the Chairman of the Company referred to in Section 7.10 hereof.
17
5.16 Clal Share Purchase. The Purchaser shall have purchased, after using
its reasonable best efforts to do so, those certain shares of Common Stock
beneficially owned by Clal in accordance with the terms of the Clal Stock
Purchase Agreement.
5.17 Consent. The Company shall have obtained the approvals set forth on
Schedule 2.3, Item 1, hereto.
SECTION 6. Covenants of the Parties.
The Company and the Purchaser hereby covenant as follows:
6.1 Hart-Scott-Rodino Notification. As soon as practicable after the
execution of this Agreement, the Company and the Purchaser shall each file, or
cause to be filed, with the Federal Trade Commission and the Antitrust Division
of the United States Department of Justice, pursuant to the HSR Act, the
notifications and documentary materials required in connection with the
transactions contemplated by this Agreement. Thereafter, the Company and the
Purchaser will file any additional information requested as soon as practicable
after any receipt of a request for additional information and shall use
reasonable best efforts to obtain early termination of the applicable waiting
period under the HSR Act. The Company and the Purchaser shall coordinate and
cooperate with each other in exchanging such information and providing such
reasonable assistance as may be requested in connection with such filings. All
filing fees in connection with the HSR Act shall be paid by the Purchaser.
6.2 Publicity. The Company and the Purchaser shall consult with each other,
to the extent reasonably practicable, as to the form and substance of any press
releases and other third-party communications or disclosures relating to the
negotiation, execution, delivery and consummation of this Agreement, the other
agreements referred to herein, and the transactions contemplated hereby or
thereby. No party shall be prohibited from issuing or filing any press release
or other third-party communication or disclosure which, upon advice of its legal
counsel, shall be deemed necessary or appropriate under applicable law or the
applicable rules of any stock exchange; provided, however, that such party shall
have first consulted with the other party as to the form and content of such
disclosure. This covenant shall survive the Closing or any termination of this
Agreement.
6.3 Confidentiality. All information to which access is given or furnished
by one party to the other in connection with the negotiation, execution,
delivery and consummation of this Agreement, the other agreements referred to
herein, and the transactions contemplated hereby or thereby shall be kept
confidential by each party and shall be used only in connection with this
Agreement, such other agreements and the transactions contemplated hereby and
thereby; provided, however, that the foregoing shall not apply to any
information that (a) shall be publicly available as of the date hereof, (b)
shall become publicly available other than as a result of prohibited disclosure
by such party, (c) shall be disclosed to such party by any person or entity that
is not known to such party to be subject to any confidentiality restrictions
imposed by the other party or (d) shall be
18
required to be disclosed by law, the applicable rules of any stock exchange or
by order of any court of competent jurisdiction. Without limiting the foregoing,
the Purchaser shall not disclose, and shall use its reasonable best efforts to
cause its Affiliates not to disclose, any such confidential information to any
person or entity that is not an Affiliate or a director or officer of such
Affiliate or any advisor thereto. This covenant shall survive the Closing or any
termination of this Agreement.
6.4 Further Assurances. Upon reasonable request of a party and without
further consideration, the other party, whether prior to or after the Closing,
shall execute, acknowledge and deliver all such other instruments and documents,
and shall take all such other actions for the purpose of effecting and
evidencing the consummation of the transactions contemplated by this Agreement
and the other agreements referred to herein. Without limiting the generality of
the foregoing, the Company shall, and shall cause its Subsidiaries to, from the
date hereof until the earlier of the Closing Date or the termination of this
Agreement pursuant to Section 13.11 hereof, provide all information and
documents reasonably requested by the Purchaser relating to a determination of
the Company's status as a United States real property holding corporation, as
defined under the Code.
SECTION 7. Covenants of the Company.
The Company (and the Purchaser, to the extent expressly provided in this
Section 7) hereby covenants as follows:
7.1 Exchange Act Filings. From and after the date hereof to the Closing
Date or the earlier termination of this Agreement pursuant to Section 13.11
hereof, the Company shall use its best efforts to file in a timely manner all
reports required to be filed by it with the SEC under the Exchange Act and
shall, promptly upon filing, deliver copies of such reports to the Purchaser.
7.2 Proxy Statement; Meeting; Listing Applications. (a) The Company shall
prepare, review with the Purchaser and its counsel, and file with the SEC the
Proxy Statement as soon as reasonably practicable after the date hereof. Each
party shall furnish all information concerning itself and related persons which
is required or customary for inclusion in the Proxy Statement. The Company
shall, as soon as reasonably practicable after the date hereof, (i) take all
steps necessary to duly call, give notice of, convene and hold a meeting of its
shareholders for the purpose of securing the Shareholders' Approval to the
Proposals (such meeting is presently contemplated by the parties to be held in
June 1998); (ii) distribute to its shareholders the Proxy Statement in
accordance with applicable Federal and state laws and with its Certificate of
Incorporation and By-Laws; and (iii) recommend (in the Proxy Statement and, if
deemed appropriate by the Company, otherwise) to its shareholders approval of
the Proposals. Notwithstanding anything to the contrary contained herein, if the
Agreement shall be terminated (or is subject to termination) pursuant to Section
13.11 hereof, the Company may postpone, adjourn or cancel the Meeting, withdraw
or change its recommendation to its shareholders and/or withdraw or delay
distribution of the Proxy Statement.
(b) The Company shall use its commercial best efforts to have the Shares
and the Option Shares listed on The New York Stock Exchange and The Pacific
Stock Exchange.
19
7.3 Board Representation. (a) Subject to the conditions set forth herein,
the Company shall nominate, and the Company and the Purchaser shall use their
best efforts to cause the election at the Meeting of, certain persons to be
designated by each of the Purchaser and the Company (collectively, the
"Nominees"), as provided herein, to serve as directors on the Board of Directors
of the Company such that:
(i) a majority of the members of such Board shall be comprised of the
Purchaser's designated representatives; and
(ii) three of the members of such Board shall be comprised of the
Company's designated representatives consisting of Kenneth I. Sawyer
("Sawyer") and two additional representatives designated by the current
Board of Directors of the Company (collectively, the "Company Designees").
Notwithstanding anything to the contrary contained herein, each representative
designated by the Purchaser in accordance with Section 7.3(f) hereof shall be
nominated for election to serve on the Board of Directors unless such
representative shall not be satisfactory to the Company's current Board of
Directors for good faith reasons and each Company Designee shall be nominated to
serve on the Board of Directors unless such Designee (other than Sawyer) shall
not be satisfactory to the Purchaser for good faith reasons. All current members
of the Company's Board of Directors not nominated as set forth above shall
resign effective upon the Closing. Any current members of such Board nominated
as set forth above shall resign effective upon the Closing, subject to their
renomination and re-election as set forth herein. All Nominees shall take office
if, and only if, the Closing shall occur.
(b) Any director designated hereunder shall serve subject to the terms of
the Company's Certificate of Incorporation and By-laws, each as in effect on the
Closing Date, and the provisions of applicable law.
(c) The Company Designees and the Purchaser shall jointly designate two of
the Company's directors to comprise the audit committee of the Company. Each of
such directors must qualify as independent, outside directors in accordance with
the rules and regulations of The New York Stock Exchange.
(d) The directors designated by the Purchaser shall serve as Class I and
Class III directors of the Company (as allocated by the Purchaser) whose terms
shall expire in the years 2000 and 1999, respectively. The Company Designees
shall serve as Class II directors of the Company whose terms shall expire in the
year 2001. There shall be no Class II directors other than the Company Designees
(and their respective successors selected in accordance with Section 8.1 hereof)
through May 31, 2001.
(e) The Company shall include in the Proxy Statement distributed in respect
of the Meeting the Proposals and shall recommend its approval of each Proposal
(including approval of all
20
Nominees) by the shareholders of the Company. Sawyer and the Purchaser (and its
Affiliates) agree to vote any shares of Common Stock which they own or otherwise
have the power to vote in favor of each of the Proposals (including approval of
all Nominees).
(f) The Company shall give the Purchaser written notice not less than 10
days prior to the filing with the SEC of the preliminary Proxy Statement in
respect of the Meeting to allow the Purchaser to designate its nominees for
director for inclusion in such Proxy Statement. The Company shall have no
obligation to include such nominees in the Proxy Statement unless the Company
receives written notice from the Purchaser setting forth its designated nominees
(along with all biographical and other information necessary for inclusion in
the Proxy Statement) not later than five days after the Company's notice to the
Purchaser.
7.4 Environmental Matters. For each parcel of real property which is owned,
operated, leased or used by the Company and any of its Subsidiaries in the State
of New Jersey, the Company shall, and shall cause each of its Subsidiaries to,
as applicable, comply with the obligations imposed by the New Jersey Industrial
Site Recovery Act and any regulations promulgated thereunder, at or prior to the
Closing, by either (a) securing any of the following: (i) a letter of
nonapplicability from the New Jersey Department of Environmental Protection
("NJDEP"); (ii) approval by NJDEP of a negative declaration submitted by the
Company; (iii) a no further action letter from NJDEP; (iv) a letter of
authorization for the transfer of ownership from NJDEP without any material
conditions thereto; or (v) approval from NJDEP of a remediation agreement
reasonably acceptable to the Purchaser; or (b) filing a De Minimis Quantity
Exemption Affidavit with NJDEP (any of the items listed in clauses (a) and (b)
above being an "ISRA Clearance").
7.5 Conduct of Business Prior to Closing. From and after the date hereof to
the Closing Date or the earlier termination of this Agreement pursuant to
Section 13.11 hereof, except as set forth on Schedule 7.5 hereto, neither the
Company nor its Subsidiaries shall (a) conduct their respective businesses other
than in the ordinary course, except as contemplated by this Agreement; (b) amend
its charter or by-laws; (c) sell, lease or otherwise dispose of any material
assets or properties owned or used in the operation of their respective
businesses, except for the sale of inventory and disposition of obsolete
equipment in the ordinary course of business; (d) dissolve, or agree to
dissolve, or merge or consolidate with, or agree to merge or consolidate with,
or purchase or agree to purchase all or substantially all of the assets of, or
otherwise acquire, any other business entity; (e) authorize for issuance, issue
or sell any additional shares of its capital stock or any securities or
obligations convertible into shares of its capital stock or issue or grant any
option, warrant or other right to purchase any shares of its capital stock,
except for (i) the granting of options, warrants or rights under the Company's
existing stock or other plans (as such are set forth on Schedule 2.13 hereto)
and (ii) the issuance or sale of capital stock pursuant to the exercise of any
options, warrants, or rights granted prior to the date hereof to any of the
Company's employees, directors, independent contractors or other agents and
listed on Schedule 2.12 hereto; (f) redeem, buy back, or cancel any shares,
securities, options, warrants or other stock rights in the Company; or (g) other
than in the ordinary course of business, enter into any material contract or
agreement, or incur any material capital expenditure, which has not been
approved by the Purchaser.
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7.6 Options, Warrants or Other Stock Rights. From and after the date hereof
to the Closing Date or the earlier termination of this Agreement pursuant to
Section 13.11 hereof, the Company shall issue options and warrants, or other
stock rights under the Company's existing stock option or stock purchase plans
only if the exercise date is no earlier than three years from the Closing Date
and the options, warrants or other stock rights are issued in connection with
the performance of services for the Company and qualify as "compensatory
options" within the meaning of Treas. Reg. Sec. 1.382-4(d)(8)(iii).
7.7 Other Agreements. At the Closing, upon satisfaction or permitted waiver
of the conditions set forth in Section 4 hereof, the Company shall execute and
deliver the agreements, instruments and certificates specified in Section 1.3(a)
hereof.
7.8 Right of First Refusal. (a) Subject to the conditions and other
provisions set forth in this Section 7.8 and in Section 8.4 hereof, the Company,
for a period of six years following the Closing, shall give the Purchaser
written notice (the "Transaction Notice") of the Company's intention to sell
equity securities of the Company in any offering not subject to registration
under the Securities Act (or, if subject to registration under the Securities
Act, in any offering for cash only) specifying the terms and conditions of such
offering, including the type and amount of consideration to be received by the
Company. Subject to the conditions and other provisions set forth in this
Section 7.8 and in Section 8.4 hereof, the Purchaser shall have the right,
exercisable by giving written notice to the Company within 30 days after receipt
of the Transaction Notice, to purchase all, but not less than all, of the equity
securities described in the Transaction Notice on substantially the same terms
and conditions as specified in such Transaction Notice. In the event that the
Purchaser shall not provide notice of its election to consummate such
transaction within such 30-day period, the Company may sell the equity
securities to any third party or parties (a "Third-Party Transaction") on
substantially the same terms and conditions as specified in the Transaction
Notice at any time within 90 days after the expiration of such 30-day period. If
the Company shall not consummate a Third-Party Transaction within such 90-day
period, the consummation of such Transaction or any other Third-Party
Transaction shall again be subject to the Purchaser's rights under this Section
7.8(a).
(b) The closing of any transaction to be consummated with the Purchaser
pursuant to this Section 7.8 shall take place at the offices of the Company or
its counsel on a date designated by the Company and reasonably acceptable to the
Purchaser not later than 60 days after the Purchaser's receipt of the
Transaction Notice.
7.9 Appointment of COO. As soon as practicable following the Closing, the
Board of Directors of the Company shall duly elect a designee of the Purchaser
as the President and Chief Operating Officer (COO) of the Company and each of
its Subsidiaries.
7.10 Agreement of the Chairman of the Company. At the Closing, the Company
shall deliver a fully executed agreement to the Purchaser reasonably
satisfactory to the Purchaser whereby the Chairman of the Company, Kenneth I.
Sawyer, shall expressly (i) agree to the appointment referred to in Section 7.9
above; (ii) agree that he shall serve as the Chairman and Chief Executive
22
Officer of the Company and each of its Subsidiaries; and (iii) acknowledge that
Section 7.9 hereof and this Section 7.10 hereof do not constitute a breach or a
violation by the Employer (as such term is used in the below mentioned
Employment Agreement) of the terms of his employment pursuant to the Employment
Agreement between the Company and Sawyer, dated as of October 4, 1992, as
amended.
7.11 Rights Agreement. Each of the Company and First City Transfer Company
(as successor rights agent) shall, prior to the Closing, execute and deliver an
amendment to the Rights Agreement, dated August 6, 1991, as amended (the "Rights
Agreement"), exempting from operation under the Rights Agreement the
acquisitions of shares of Common Stock pursuant to this Agreement and the
Options. Such amendment shall be in full force and effect and constitute a valid
and binding agreement of the Company enforceable against the Company in
accordance with its terms.
7.12 U.S. Real Property Holding Corporation. From and after the date hereof
to the Closing Date or the earlier termination of this Agreement pursuant to
Section 13.11 hereof, the Company shall (a) use reasonable efforts to avoid
making any changes in the composition of its assets which would cause the
Company to be classified as a United States real property holding corporation
within the meaning of Section 897(c)(2) of the Code and (b) obtain the consent
of the Purchaser prior to the acquisition of any United States Real Property
Interest (as defined in Section 897 of the Code).
SECTION 8. Covenants of the Purchaser.
The Purchaser (and the Company following the Closing, to the extent
expressly provided in this Section 8) hereby covenants as follows:
8.1 Company Designees. For a period of three years following the Closing,
the Purchaser shall not cause, and shall use its best efforts not to permit, (i)
the removal, except for cause (as such term is defined and used under New Jersey
corporate law), of any of the Company Designees serving as directors of the
Company prior to the scheduled expiration of their terms or (ii) the shortening
of any of such Designees' terms as directors. In the event that any Company
Designee shall resign or cannot otherwise continue to serve as a director, the
remaining Company Designee(s) shall designate a replacement therefor and, upon
such designation, unless such designee shall not be reasonably satisfactory to
the Purchaser, the Company and the Purchaser shall use their reasonable best
efforts to cause the appointment and/or election of such designated replacement
to the Company's Board of Directors. Such replacement directors shall be deemed
to be Company Designees for the purpose of this Agreement.
8.2 No Modification. For a period of three years following the Closing, the
Purchaser shall not cause, and shall use its reasonable best efforts not to
permit, the Company to agree to any amendment, modification or waiver of or take
any action in respect of this Agreement, the Distribution Agreement or the other
agreements referred to herein, including, without limitation, in respect of any
agreement or settlement relating to a dispute or claim for indemnification
hereunder
23
or thereunder, without the prior written consent of at least a majority of the
Company Designees (including any replacements therefor as provided in Section
8.1 hereof).
8.3 Other Agreements. At the Closing, upon satisfaction or permitted waiver
of the conditions set forth in Section 5 hereof, the Purchaser shall pay the
Purchase Price and execute and deliver the agreements, instruments and
certificates specified in Section 1.3(b) hereof.
8.4 Related Party Transactions. For a period of three years following the
Closing, except as expressly permitted by this Agreement or any other agreements
referred to herein, the Purchaser shall not cause or permit the Company or its
Subsidiaries existing on the date of the Agreement, directly or indirectly, to
engage in or enter into any, or to amend or terminate any then validly existing,
transaction, arrangement or agreement with, or to make any distribution or
dividend of property or monies to, the Purchaser or any Affiliate or associate
(as defined in Rule 405 of the Securities Act ("Associate") of the Purchaser,
without the prior written consent of a majority of the Company Designees
(including any replacements therefor as provided in Section 8.1 hereof).
8.5 Business Combinations. For a period of three years following the
Closing, neither the Purchaser nor any of its Affiliates or Associates shall,
without the prior written consent of a majority of the Company Designees
(including any replacements therefor as provided in Section 8.1 hereof) and the
prior receipt from an independent nationally recognized investment bank of a
written fairness opinion to the effect that the proposed transaction is fair
(from a financial point of view) to all shareholders of the Company, (i) propose
that the Company, or cause or permit the Company to, merge, consolidate or enter
into any other business combination with or into another entity (including,
without limitation, any "short-form" merger), (ii) propose that the Company, or
cause or permit the Company to, sell, lease, pledge or otherwise dispose of all
or any material portion of the assets of the Company, (iii) propose or make, or
cause or permit the Company to propose or make, any exchange offer or tender
offer for, or repurchase of, any securities of the Company or (iv) propose that
the Company, or cause or permit the Company to, recapitalize, liquidate,
dissolve or, to the extent it would cause the Company not to be publicly-held,
reorganize.
8.6 Executive Committee. For a period of three years following the Closing,
the Purchaser shall cause the Company to, and the Company shall, constitute and
maintain an executive committee of the Company's Board of Directors to manage
the fundamental matters concerning the Company in the intervals between Board
meetings, and each shall use its reasonable best efforts to cause Sawyer (or his
designee who shall be a member of the Company's Board of Directors) to be, and
remain for such period, a duly appointed, full member of such committee.
SECTION 9. Transfer of Securities. The Purchaser, for itself and each of
its Affiliates, agrees as follows:
9.1 Transfer Restrictions. The Purchaser and its Affiliates shall not
transfer any of the Shares or the Option Shares unless such transfer shall be in
full compliance with all applicable provisions of the Securities Act and all
applicable provisions of state securities laws.
24
9.2 Legends. Each certificate for the Shares and the Option Shares shall be
endorsed with the following legend:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR UNDER ANY STATE SECURITIES LAWS, AND MAY NOT
BE SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT UNDER APPLICABLE FEDERAL AND
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY
TO THE COMPANY THAT THE TRANSFER IS EXEMPT FROM REGISTRATION UNDER
APPLICABLE FEDERAL AND STATE SECURITIES LAWS."
SECTION 10. Exchanges; Lost, Stolen or Mutilated Certificates. Upon
surrender by the Purchaser (or Merck or Genpharm, as applicable) to the Company
of any certificates representing the Shares or the Option Shares, the Company,
at its expense, shall issue in exchange therefor, and deliver to the Purchaser
(or Merck or Genpharm, as applicable), a new certificate or certificates
representing such Shares or Option Shares, in such denominations as may be
requested in writing by the Purchaser (or Merck or Genpharm, as applicable).
Every surrendered certificate representing the Shares or the Option Shares shall
be duly endorsed or be accompanied by a written instrument of the Purchaser's
(or Merck's or Genpharm's, as applicable) attorney duly authorized in writing.
Upon receipt of evidence satisfactory to the Company of the loss, theft,
destruction or mutilation of any certificate representing any Shares or Option
Shares, and in case of any such loss, theft or destruction, upon delivery of an
indemnity agreement satisfactory to the Company, or in case of any such
mutilation, upon surrender and cancellation of such certificate, the Company
shall issue and deliver to the Purchaser (or Merck or Genpharm, as applicable) a
new certificate for such Shares or Option Shares of like tenor and in the same
amount and name in lieu of such lost, stolen or mutilated certificate.
SECTION 11. Survival of Representations, Warranties and Agreements. The
representations and warranties (including the Schedules hereto) of the parties
contained herein and the agreements and covenants contained in Section 7 hereof
(excluding Sections 7.3, 7.8 and 7.9 hereof) shall survive the date hereof for a
period of 12 months following the Closing Date (the "Survival Period");
provided, that (i) a party shall not be liable to the other party hereto for any
claim for indemnification under Section 12 hereof in respect of a breach of a
representation or warranty unless written notice thereof describing such claim
with reasonable specificity shall be delivered to the Indemnitor (as defined in
Section 12.1 hereof) prior to the expiration of the Survival Period and (ii) the
representations and warranties relating to Taxes contained in Section 2.20
hereof shall survive until the expiration of the appropriate statute of
limitation.
SECTION 12. Indemnification.
12.1 Indemnitors; Indemnified Persons. For purposes of this Section 12,
each party which, pursuant to this Section 12, agrees to indemnify any other
person or entity shall be referred to as the
25
"Indemnitor" with respect to such person or entity, and each such person or
entity who is indemnified shall be referred to as the "Indemnified Person" with
respect to such Indemnitor.
12.2 Company Indemnity. The Company hereby agrees to indemnify and hold
harmless each of the Purchaser and it Affiliates, and its directors, officers,
employees, agents and controlling persons (within the meaning of Section 15 of
the Securities Act or Section 20(a) of the Exchange Act), from and against any
and all claims, liabilities, losses, damages and expenses (including, without
limitation, reasonable attorneys' fees and disbursements) asserted against or
incurred by any such Indemnified Person which are caused by or are related to or
arise out of (a) subject to Section 11 hereof, the Company's material breach of
any of its representations, warranties, covenants or agreements contained in
this Agreement, (b) any untrue statement or alleged untrue statement of a
material fact contained in the Proxy Statement or the omission or alleged
omission to state a material fact required to be stated therein or necessary to
make the statements therein not misleading (a "Violation") or (c) (i) any
material violation by the Company or any Subsidiary thereof of any Environmental
Laws, or the disposal, discharge or release of solid wastes, pollutants or
hazardous substances, whether in compliance with Environmental Laws or not,
other than in respect of those matters set forth on Schedule 12.2 hereto (ii)
the ownership, operation or use of any landfill, wastewater treatment plant, air
pollution control equipment, storage lagoon or other waste management or
pollution control facility, whether in compliance with Environmental Laws or
not, other than in respect of those matters set forth on Schedule 12.2 hereto,
or (iii) exposure of any person to any chemical substances, noises or vibrations
generated by the Company, any of its Subsidiaries, or any of their respective
predecessors, whether in compliance with Environmental Laws or not, other than
in respect of those matters set forth on Schedule 12.2 hereto; provided,
however, that no indemnification shall be provided hereunder for any decrease in
the market price of the shares of Common Stock purchased or owned by the
Purchaser or any of its Affiliates; and provided, further, that no
indemnification shall be provided hereunder with respect to the preceding clause
12.2(b) to the extent an untrue or alleged untrue statement or omission or
alleged omission was made by the Company in reliance upon and in conformity with
information furnished by or on behalf of the Purchaser for use in the Proxy
Statement. The Company shall reimburse any such Indemnified Person for all costs
and expenses (including, without limitation, reasonable attorneys' fees and
disbursements and costs of investigation) incurred in connection with preparing
for, bringing or defending any action, claim, investigation, suit or other
proceeding, whether or not in connection with pending or threatened litigation,
which shall be caused by or related to or arise out of the foregoing, whether or
not such Indemnified Person shall be named as a party thereto.
12.3 Purchaser Indemnity. The Purchaser hereby agrees to indemnify and hold
harmless each of the Company, and its directors, officers, employees and agents,
from and against any and all claims, liabilities, losses, damages and expenses
(including, without limitation, reasonable attorneys' fees and disbursements and
costs of investigation) asserted against or incurred by any such Indemnified
Person which are caused by or are related to or arise out of (a) subject to
Section 11 hereof, the Purchaser's material breach of any representation,
warranty, covenant or agreement of the Purchaser contained in this Agreement or
(b) a Violation to the extent that such Violation shall occur in respect of
information furnished to the Company by or on behalf of the Purchaser for use in
the
26
Proxy Statement. The Purchaser shall reimburse any such Indemnified Person for
all costs and expenses (including, without limitation, reasonable attorneys'
fees and disbursements and costs of investigation) incurred in connection with
preparing for, bringing or defending any action, claim, investigation, suit or
other proceeding, whether or not in connection with pending or threatened
litigation, which shall be caused by or related to or arise out of the
foregoing, whether or not such Indemnified Person shall be named as a party
thereto.
12.4 Defense. Promptly after receipt by an Indemnified Person of notice of
any claim or demand or the commencement of any suit, action or proceeding by any
third party with respect to which indemnification may be sought hereunder, such
Indemnified Person shall notify in writing the Indemnitor of such claim or
demand or the commencement of such suit, action or proceeding, but failure so to
notify the Indemnitor shall not relieve the Indemnitor from any liability which
the Indemnitor may have hereunder or otherwise, unless the Indemnitor shall be
actually prejudiced by such failure. If the Indemnitor shall so elect, the
Indemnitor shall assume the defense of such claim, demand, action, suit or
proceeding, including the employment of counsel reasonably satisfactory to such
Indemnified Person, and shall pay the fees and disbursements of such counsel. In
the event, however, that such Indemnified Person shall reasonably determine that
having common counsel would present such counsel with a conflict of interest or
alternative defenses shall be available to an Indemnified Person or if the
Indemnitor shall fail to assume the defense of the claim, demand, action, suit
or proceeding in a timely manner, then such Indemnified Person may employ
separate counsel to represent or defend such Person against any such claim,
demand, action, suit or proceeding and the Indemnitor shall pay the reasonable
fees and disbursements of such counsel; provided, however, that the Indemnitor
shall not be required to pay the fees and disbursements of more than one
separate counsel for all Indemnified Persons in any jurisdiction in any single
action, suit or proceeding. For any claim, demand, action, suit or proceeding
the defense of which the Indemnitor shall assume, the Indemnified Person shall
have the right to participate therein and to retain its own counsel at such
Indemnified Person's own expense (except as otherwise specifically provided in
this Section 12.4), so long as such participation does not interfere with the
Indemnitor's control of such claim, demand, action, suit or proceeding. The
Indemnitor shall not, without the prior written consent of the Indemnified
Person, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder unless such settlement, compromise or
consent shall include an unconditional release of such Indemnified Person from
all liability arising out of such claim, demand, action, suit or proceeding and
would not prohibit, restrict or impair the Indemnified Person from engaging in
any business.
12.5 Purchaser Claims. If there shall be any claim for indemnification by
the Purchaser under this Section 12 or under the Distribution Agreement, all
determinations by the Company relating thereto, including, without limitation,
the choice and engagement of counsel, the defense and/or prosecution of any
action and the terms and conditions of any settlement or compromise thereof,
shall be made solely by the Company Designees (by majority vote thereof).
12.6 Exclusive Remedy. The parties hereto agree that the sole and exclusive
remedy and recourse with respect to any and all claims, suits, actions, demands,
liabilities, losses, expenses and
27
damages relating to or arising out of the subject matter of this Agreement
(excluding the Distribution Agreement and the Services Agreements) shall be
pursuant, and subject, to the indemnification provisions set forth in this
Section 12, subject to the provisions of Section 13.11 hereof and except for the
remedy of injunctive relief set forth in Section 13.12 hereof.
SECTION 13. Miscellaneous.
13.1 Expenses. The parties shall bear their own respective expenses
(including, but not limited to, all fees and expenses of counsel, financial
advisers and independent accountants) incurred in connection with the
preparation, negotiation and execution of this Agreement and the other
agreements referred to herein and the consummation of the transactions
contemplated hereby and thereby. To the extent that a Company Designee shall be
required to make any determination or take any action hereunder (including,
without limitation, with respect to indemnification under Section 12 hereof or
reviewing the compliance of the Purchaser with its covenants and agreements
contained herein) in his/her capacity as a Company Designee, the Purchaser shall
cause the Company to, and the Company shall, promptly reimburse and/or pay any
reasonable out-of-pocket expenses incurred by the Company Designee in acting in
such capacity. The Company Designees are intended third-party beneficiaries of
this provision.
13.2 Assignment; Binding Effect. All terms and provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder may be assigned or delegated
by any party hereto without the prior written consent of the other party;
provided, that the Purchaser shall have the right to designate an Affiliate of
the Purchaser to purchase and take delivery of the Shares at the Closing
pursuant to Section 1.1 hereof. The obligations and agreements of the Purchaser
hereunder shall succeed to and bind any purchaser or transferee, whether or not
such purchaser or transferee shall be an Affiliate of the Purchaser, of the
Shares and/or the Option Shares, but shall also remain binding on the Purchaser
if the transferee is an Affiliate thereof. Notwithstanding the foregoing, the
Options shall be at all times nontransferable and nonassignable by the Purchaser
or Genpharm.
13.3 Entire Agreement. This Agreement (including the Exhibits and Schedules
hereto) and the other agreements referred to herein or delivered pursuant hereto
contain the entire agreement between the parties with respect to the subject
matter hereof and thereof and supersede all prior arrangements or
understandings, written or oral, with respect thereto, including, without
limitation, the Confidentiality Agreement, dated December 16, 1997, by and
between the parties. The parties hereto agree that the only representations and
warranties made in connection with the transactions contemplated hereby and
thereby are those expressly made in writing in this Agreement. The Purchaser
expressly disclaims reliance upon any representations or warranties other than
those expressly made in writing by the Company in this Agreement. The Purchaser
acknowledges and agrees that it is sophisticated in matters concerning the
subject matter of this Agreement and the business of the Company, that the
Purchaser and the Company have an ordinary business relationship
28
of seller-purchaser and that no special relationship of trust exists between the
Purchaser and the Company which could give rise to a special duty of care.
13.4 Notices. All notices hereunder shall be in writing and shall be given:
(a) if to the Company, at One Ram Ridge Road, Spring Valley, New York 10977
(attention: Kenneth I. Sawyer, President), fax number: (914) 425-5097, or such
other address or fax number as the Company shall have designated in writing to
the Purchaser in accordance with this Section 13.4, with a copy to Hertzog,
Calamari & Gleason, 100 Park Avenue, New York, New York 10017 (attention:
Stephen Ollendorff, Esq. and Stephen R. Connoni, Esq.), fax number: (212)
213-1199, or (b) if to the Purchaser, at c/o Merck KGaA, Frankfurter Strasse
250, 64271 Darmstadt Germany (attention: Dr. Rudi Neirinckx), fax number 011 49
6151 72 3435, or such other address or fax number as the Purchaser shall have
designated in writing to the Company in accordance with this Section 13.4, with
a copy to Coudert Brothers, 1114 Avenue of the Americas, New York, New York
10036-7703 (attention: Edwin S. Matthews, Jr., Esq.), fax number: (212)
626-4120. Any notice shall be deemed to have been given if personally delivered
or sent by express commercial courier or delivery service or by telegram,
telefax, telex or facsimile transmission. Any notice given in any other manner
shall be deemed given when actually received.
13.5 Amendments; Waiver. Prior to the Closing, this Agreement may not be
amended or, subject to Section 13.11 hereof, terminated, and no provision hereof
may be waived, except pursuant to a written instrument executed by the Company
and the Purchaser. For a period of three years following the Closing, neither
this Agreement nor the Distribution Agreement may be amended, and no provision
hereof or thereof may be waived, without the prior written consent of at least a
majority of the Company Designees (on behalf of the Company) and except pursuant
to a written instrument executed by both parties.
13.6 Counterparts. This Agreement may be executed in counterparts, and each
such counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement.
13.7 Headings. The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed to be a part
of this Agreement. As used herein, the phrase "to the Company's knowledge" shall
mean the actual knowledge of any of the executive officers of the Company only.
13.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and to be performed wholly therein.
13.9 Severability. If any term or provision hereof shall be invalid or
unenforceable, (i) the remaining terms and provisions hereof shall be
unimpaired, (ii) any such invalidity or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such term or provision in any other
jurisdiction and (iii) the invalid or unenforceable term or provision shall be
deemed replaced by a term
29
or provision as determined by a court to be valid and enforceable and to
express, to the fullest extent legally permissible, the intention of the parties
with respect to the invalid or unenforceable term or provision.
13.10 Consent to Jurisdiction. In connection with any dispute which may
arise under this Agreement or under any other agreement referred to herein
(except for the Distribution Agreement), each of the parties hereby irrevocably
submits to, consents to, and waives any objection to the exclusive jurisdiction
of the courts of the State of New York located in the County of New York and of
the United States District Court for the Southern District of New York, and
waives any objection to the laying of venue in such courts. Each such party
admits that any such dispute may be resolved at least as conveniently in such a
court as in any other court, and shall not seek dismissal or a change of venue
on the ground that resolution of such a dispute in any such court shall not be
convenient or in the interests of justice. The Purchaser hereby appoints Coudert
Brothers as its agent upon whom service of process may be made with the same
force and effect as if such service shall have been made personally upon the
Purchaser. The Company hereby appoints Hertzog, Calamari & Gleason as its agent
upon whom service of process may be made with the same force and effect as if
such service shall have been made personally upon the Company.
13.11 Termination.
(a) This Agreement may be terminated and the transactions contemplated
hereby may be abandoned at any time prior to the Closing: (i) by the mutual
written consent of the Purchaser and the Company, (ii) by either party to this
Agreement, if the Shareholders' Approval shall not have been obtained with
respect to each of the Proposals at the Meeting, including any adjournments
thereof, (iii) by either party to this Agreement, if there shall have been a
material breach of a representation or warranty contained in this Agreement by
the other party, or a material breach by the other party of any covenant or
agreement set forth herein and such breach shall not have been cured within ten
(10) days following the occurrence thereof, and such shall not have been waived
by the other party hereto, (iv) by either party to this Agreement, if the
Closing shall not have occurred by July 15, 1998 or (v) by the Company, if the
Board of Directors of the Company determines in good faith, after consultation
with outside counsel, that failure to terminate this Agreement would create a
substantial risk of liability for breach of its fiduciary duties to the
Company's shareholders under applicable law.
Upon any such termination, all further obligations of the parties shall
become null and void and no party shall have any liability to the other party,
except that the obligations of the parties hereto pursuant to Sections 6.2, 6.3
and 13, including Section 13.11(b), hereof shall survive such termination
indefinitely.
(b) Notwithstanding anything to the contrary contained herein, if this
Agreement (i) is terminated by either party pursuant to Section 13.11(a) (iii)
hereof, then the breaching party shall promptly pay to the non-breaching party
in cash an amount equal to $750,000, or (ii) is
30
terminated by the Company pursuant to Section 13.11(a) (v) hereof, then the
Company shall promptly pay to the Purchaser in cash an amount equal to
$1,000,000. The parties acknowledge and agree that the provisions of this
Section 13.11(b) provide for liquidated damages (and not a penalty) and shall be
the sole and exclusive remedy and recourse of the parties hereto in respect of a
termination of this Agreement pursuant to Sections 13.11(a)(iii) or (v) hereof.
13.12 Injunctive Relief.
(a) The Purchaser hereby acknowledges and agrees that a breach by it of its
covenants or agreements hereunder will cause irreparable harm to the Company.
Accordingly, the Purchaser acknowledges and agrees that a remedy at law for a
breach of its obligations hereunder (including, but not limited to, its
obligations under Sections 6.3, 7.3 and 8 hereof) will be inadequate and agrees,
in the event of a breach or threatened breach by the Purchaser of the provisions
of this Agreement (including, but not limited to, its obligations pursuant to
Sections 6.3, 7.3 and 8 hereof), that the Company and, in the case of Sections
7.3, 8.1, 8.5 and 8.6 hereof, the shareholders of the Company (other than the
Purchaser) and the Company Designees, shall be entitled, in addition to all
other available remedies, to an injunction restraining any actual or threatened
breach and/or the remedy of specific performance.
(b) The Company hereby acknowledges and agrees that a breach by it of its
covenants or agreements hereunder will cause irreparable harm to the Purchaser.
Accordingly, the Company acknowledges and agrees that a remedy at law for a
breach of its obligations hereunder (including, but not limited to, its
obligations under Sections 6.3 and 7 hereof) will be inadequate and agrees, in
the event of a breach or threatened breach by the Company of the provisions of
this Agreement (including, but not limited to, its obligations pursuant to
Sections 6.3, 7.3 and 7.8 hereof), that the Purchaser shall be entitled, in
addition to all other available remedies, to an injunction restraining any
actual or threatened breach and/or the remedy of specific performance.
31
IN WITNESS WHEREOF, each of the undersigned has caused this Agreement to be
executed as of the date first written above.
PHARMACEUTICAL RESOURCES, INC.
By: /s/ Kenneth I. Sawyer
___________________________
Name: Kenneth I. Sawyer
Title: President
LIPHA AMERICAS, INC.
By: /s/ Rudi Neirinckx
___________________________
Name: Rudi Neirinckx
Title: Head, New Business
Merck KGaA
32
Exhibit A
Distribution Agreement
[Intentionally Omitted]
Exhibit B
Services Agreements
[Intentionally Omitted]
Exhibit C
Options
[Intentionally Omitted]
Exhibit D
Registration Rights Agreement
[Intentionally Omitted]