Exhibit 2(b)
THE SECURITIES REPRESENTED BY THIS CONVERTIBLE SUBORDINATED NOTE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE LAWS OF ANY
STATE AND MAY NOT BE TRANSFERRED IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
APPLICABLE STATE LAWS OR (B) AN OPINION OF COUNSEL FOR THE PAYEE REASONABLY
ACCEPTABLE TO THE MAKE THAT SUCH REGISTRATION IS NOT REQUIRED.
CONVERTIBLE SUBORDINATED NOTE
$5,999,998.72 January 29, 2002
FOR VALUE RECEIVED, the undersigned KENDLE INTERNATIONAL INC., an Ohio
corporation (the "Maker") hereby promises to pay to the order of CLINICAL AND
PHARMACOLOGIC RESEARCH, INC., a West Virginia corporation (together with its
permitted transferees and assigns, "CPR" or the "Payee"), the principal sum of
Five Million Nine Hundred Ninety-Nine Thousand Nine Hundred Ninety-Eight and
72/100 Dollars ($5,999,998.72), plus interest at the rate specified below. The
unpaid principal balance outstanding from time to time shall bear interest prior
to the Maturity Date (as defined below) at an annual rate of interest equal to
the yield of a United States Treasury Note with a maturity of three (3) years.
The initial interest rate, which shall be in effect from the date hereof through
January 29, 2005, shall be 3.80% PER ANNUM. In the absence of a conversion of
this Convertible Subordinated Note ("Note") under subsections (a) or (c) below,
interest shall be paid in cash semi-annually in arrears on each June 30 and
December 31 during the term of this Note, with the first interest payment to be
made on June 30, 2002.
The Maker hereby agrees to pay the entire amount due hereunder,
including the entire principal and all accrued but unpaid interest, on or before
January 29, 2005 ("Maturity Date"). If this Note has not been converted into
shares of common stock, no par value per share, of the Maker on or before
January 29, 2005, the Maker shall have the option to extend the Maturity Date of
this Note for another three (3) years, to January 29, 2008 by providing to Payee
additional documentation as reasonably requested by Payee. The Maturity Date, as
so extended, is hereinafter referred to as the "Final Maturity Date." The
interest rate on this Note will, if the Maturity Date is extended, be reset on
January 29, 2005 at an annual rate of interest equal to the yield of a United
States Treasury Note with a maturity of three (3) years from January 29, 2005.
The Maker shall exercise its option to extend the Maturity Date of this Note not
less than ten (10) business days prior to the Maturity Date.
Interest hereon shall be calculated on the basis of a 360-day year
based on the actual number of days elapsed until all accrued and unpaid interest
is paid in full. All payments of principal and interest shall be payable in
lawful currency of the United States.
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If any required payment of principal and interest is not timely made
and an Event of Default (as defined below) occurs, the interest rate shall
thereafter be increased by three (3%) percent PER ANNUM ("Default Rate"). All
interest due and payable hereunder which is not paid when due for any reason
shall be cumulated and accrue interest at the Default Rate.
This Note is made and issued in connection with the Asset Purchase
Agreement dated as of January 29, 2002 among the Maker, the Payee and certain
shareholders of CPR (the "APA"). This Note is non-negotiable and may be assigned
or otherwise transferred, voluntarily or by operation of law with the prior
written consent of the Maker, which consent the Maker may withhold in its
reasonable discretion; PROVIDED, however, that the Payee may assign or transfer
this Note without the written consent of the Maker in connection with a
distribution of corporate assets to the shareholders of CPR pursuant to Section
2(b)(vi) of the APA; and provided, further, that after CPR assigns or transfers
this Note and/or interests herein in connection with the distribution of
corporate assets to the shareholders of CPR pursuant to Section 2(b)(vi) of the
APA, upon thirty (30) days prior written notice to Maker, any Payee may assign
this Note without the prior consent of Maker to members of his immediate family
or a trust for his or their benefit for estate planning purposes or to his heirs
and descendants by will, operation of law or otherwise so long as the assignment
of this Note is made in compliance with state and federal securities regulations
then in effect.
The principal amount of this Note at any time outstanding is subject to
offset by the Maker in the amount of the damages incurred by the Maker and
determined, either by a court of competent jurisdiction or by agreement between
the undersigned and the Payee, to result from (a) the Payee's breach of warranty
or representation or failure to satisfy indemnity obligations under or pursuant
to the APA or (b) the amount of any actual damages established against the Payee
by a non-appealable court order from a court of competent jurisdiction as a
result of Payee's breach that certain Non-Competition and Non-Disclosure
Agreement between Payee and Maker. Provided that the Maker has given the Payee
written notice in reasonable detail of the breach of warranty or representation,
indemnification claim or claim relative to breach of the Non-Competition and
Non-Disclosure Agreement, the Maker may make payments under this Note into an
escrow account held by an independent third party pending the judicial
resolution of any breach of warranty or representation or indemnification claim
under or pursuant to the APA or claim relative to breach of the Non-Competition
and Non-Disclosure Agreement initiated in good faith by the Maker against the
Payee.
CONVERSION OF THE NOTE
(a) At any time from the date hereof through the Maturity Date or, if
the Maturity Date is extended, through the Final Maturity Date, the Payee shall
have the right to convert the entire unpaid principal balance (but not less than
the entire unpaid principal balance) of this Note, into Three Hundred Fourteen
Thousand Two Hundred Forty Three (314,243) shares of common stock, no par value
per share, of the Maker (the "Convertible Shares"). Upon any such conversion of
this Note, all accrued but unpaid interest will be paid in cash to the Payee.
Upon
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issuance to the Payee, the Convertible Shares will be duly authorized, validly
issued, fully paid and non-assessable shares of common stock, no par value per
share, of the Maker and will be free and clear of any and all liens and
encumbrances (other than restrictions on transfer under federal and state
securities laws and regulations).
(b) To exercise the above-described conversion right, the Payee shall
surrender this Note to the Maker, accompanied by written notice of Payee's
intention to exercise the conversion right ("Notice of Conversion"). To be
effective, the Notice of Conversion must be delivered to the Maker no later than
ten (10) business days prior to the Maturity Date or, if the Maturity Date is
extended, ten (10) business days prior to the Final Maturity Date. Within ten
(10) business days of Maker's receipt of the Notice of Conversion and the
surrendered Note, the Maker shall deliver or cause to be delivered to the Payee
written confirmation that the Convertible Shares have been issued in the name of
the Payee and shall pay to the Payee all accrued but unpaid interest hereunder.
(c) The Maker has the right to force the conversion of this Note into
the Convertible Shares if this Note remains outstanding on the Final Maturity
Date, with the forced conversion to be effective as of the Final Maturity Date.
The Maker's forced conversion right shall only come into effect if, at any time
while this Note is outstanding, the NASDAQ National Market closing bid price (or
closing price, if the Maker's common stock is then listed on the New York Stock
Exchange) for the Maker's common stock, no par value per share, is equal to or
exceeds Nineteen and 935/10000 Dollars ($19.0935) for a period of thirty (30)
consecutive trading days. The Maker shall give the Payee ten (10) business days
prior written notice of its intention to exercise this forced conversion right.
(d) The Payee shall cooperate with the Maker in taking any and all
additional actions required pursuant to the Payee's Articles of Incorporation
and Regulations, and in accordance with the Ohio General Corporation Law, to
make the Payee a shareholder of the Maker in the event this Note is converted.
(e) By accepting this Note, the Payee acknowledges that this Note has
been issued by the Maker in connection with the Maker's acquisition of
substantially all of the assets of CPR. This Note or interests in this Note may
be transferred or assigned to certain shareholders of CPR only in accordance
with the provisions herein relating to a distribution to the shareholders of
CPR's corporate assets pursuant to Section 2(b)(vi) of the APA. When a Note is
presented to the Maker with a request to exchange for an equal principal amount
of Notes, the Maker shall make the exchange as requested if the terms and
conditions herein regarding transfer and assignment of the Note are satisfied.
By accepting this Note, the Payee hereby grants to the holders of a majority in
interest of the Note (or of the Notes issued in exchange for the Note) (the
"Majority") the right (the "Right") to compel conversion at any time of the Note
in accordance with the terms hereof and establish the conversion date. This
Right shall be exercisable by written notice (a "Drag Along Notice") given to
each holder of an interest in this Note (or of the Notes issued in exchange for
the Note) ten (10) days prior to the date on which the conversion is desired by
the Majority which shall state that the Majority proposes to compel conversion
of the Note (or of the
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Notes issued in exchange for the Note) in accordance with its (or their) terms.
The Payee hereby agrees that, upon receipt of a Drag Along Notice, the Payee
shall be obligated to convert this Note and that, on the date stated in the Drag
Along Notice, all rights of the Payee under this Note, including rights to be
paid further interest, shall cease other than the right to convert this note
into Convertible Shares.
The Maker shall at all times reserve shares of its common stock, no par
value, equal to the Convertible Shares, and the Maker and take any and all
additional actions as are necessary to maintain the required authority to issue
the Convertible Shares to the Payee in the event this Note is converted.
Upon the Payee's surrender (whether upon voluntary conversion or forced
conversion by election of the Maker) of this Note for conversion, all rights of
the Payee to or under this Note shall cease except for the right to receive the
appropriate number of Convertible Shares and the Payee shall be treated for all
purposes as having become the record holder of such Convertible Shares at such
time.
If, prior to the conversion of this Note into the Convertible Shares,
(i) any recapitalization, reclassification, split-up, stock split, reverse stock
split, consolidation or exchange of the Maker's outstanding capital stock occurs
or (ii) any merger or consolidation involving the Maker occurs, or (iii) a sale
of all or substantially all of the assets of the Maker occurs then, in such
event, the number of Convertible Shares shall be adjusted by the Maker to
provide the Payee with the same economic benefit, substantive rights and
proportionate interest in the Maker as the Payee had prior to the occurrence of
any such event so that the Payee (or the Maker, in the event of a forced
conversion) will be entitled to convert this Note into Convertible Shares, other
securities or other assets that the Payee would have owned or been entitled to
receive upon such event had such Note been converted immediately prior to such
action.
The Maker hereby waives demand, presentment, protest, notice or protest
and/or dishonor and all other notices or requirements that might otherwise be
required by law. The Maker promises to pay on demand all costs of collection,
including reasonable attorneys' fees and court costs, actually paid or incurred
by the Payee in enforcing this Note upon an Event of Default (as that term is
defined below) hereunder.
The occurrence of any of the following shall constitute an "Event of
Default" under this Note:
(i) The failure of the Maker to make any payment when due
under this Note not cured within ten (10) days after written notice from Payee.
(ii) The institution of legal proceedings by or against the
Maker under any state insolvency laws, federal bankruptcy law or similar debtor
relief laws then in effect.
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(iii) The default in the payment when due of any principal of
any Senior Indebtedness (defined below) when and as the same shall become due
and payable, whether at the due date thereof or at a date fixed for the
prepayment thereof or by acceleration thereof or otherwise.
Upon an Event of Default, Payee may, at Payee's option and without
notice, declare all principal and interest due under this Note to be due and
payable immediately. Payee may waive any Event of Default before or after it
occurs and may restore this Note in full effect without impairing the right to
declare it due for a subsequent default.
The payment of the principal and interest by this Note is expressly
subordinated and subject in right of payment to the prior payment in full of the
Maker's Senior Indebtedness. As used in this Note, "Senior Indebtedness" means
the Maker's indebtedness to any national bank or other financial institution for
working capital or term loans, including the Maker's current indebtedness to
lenders under the Credit Agreement dated as of December 13, 2000 among Maker,
the several lenders thereto and Bank One, NA, as agent (as amended or modified
from time to time). Payee covenants and agrees to execute and deliver such
documents as the Marker may reasonably request in order to acknowledge, evidence
or effect the subordination of this Note to the Senior Indebtedness.
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This Note shall be governed by and construed in accordance with the
laws of the State of Ohio, exclusive of choice of law principles.
To the fullest extent permitted by law, the Maker hereby irrevocably
and unconditionally:
(a) agrees that any action, suit or proceeding by any person arising
from or relating to this Note or any statement, course of conduct, act, omission
or event in connection with this Note (collectively, "Related Litigation") may
be brought in any state or federal court of competent jurisdiction sitting in
Hamilton County, Ohio or Monongalia County, West Virginia and submits to the
non-exclusive jurisdiction of such courts:
(b) acknowledges that such courts will be the most convenient forum for
any Related Litigation, waives any objection to the laying of venue of any
Related Litigation brought in any such court, waives any claim that any Related
Litigation brought in any such court has been brought in an inconvenient forum,
and waives any right to object, with respect to any Related Litigation, that
such court does not have jurisdiction over it;
(c) consents and agrees to service of any summons, complaint or other
legal process in any Related Litigation by registered or certified U.S. mail,
postage prepaid, to it at 1200 Carew Tower, 441 Vine Street, Cincinnati, Ohio
45202, Attention: Paul F. Ritter, Esq., Vice President, Secretary and General
Counsel, and consents and agrees that such service shall constitute in every
respect valid and effective service (but nothing herein shall affect the
validity or effectiveness of process served in any other manner permitted by
law); and
(d) waives the right to trial by jury in any Related Litigation.
(Remainder of page intentionally blank; signature page follows.)
KENDLE INTERNATIONAL INC.,
an Ohio corporation
By: /s/ Paul F. Ritter
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Name: Paul F. Ritter
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Its: Vice President, Secretary and
General Counsel
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