EXHIBIT 2.1
CONFIDENTIAL
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STOCK PURCHASE AGREEMENT
and
AGREEMENT AND PLAN OF MERGER
by and among
LEINER HEALTH PRODUCTS GROUP INC.
NORTH CASTLE PARTNERS I, L.L.C.
and
LHP ACQUISITION CORP.
Dated as of May 31, 1997
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TABLE OF CONTENTS
ARTICLE 1 ISSUANCE AND SALE OF SHARES.....................................2
Section 1.1. Issuance of Shares..............................................2
Section 1.2. Consideration...................................................2
Section 1.3. Issuance of Purchased Shares and Cash Payment...................3
Section 1.4. Aggregate Purchased Share Value and Aggregate Management
Rollover Value..................................................3
ARTICLE 2 THE MERGER;
THE CLOSING; EFFECTIVE TIME.....................................3
Section 2.1. The Merger......................................................3
Section 2.2. The Closing.....................................................3
Section 2.3. Effective Time..................................................4
ARTICLE 3 CERTIFICATE OF INCORPORATION AND BY-LAWS
OF THE SURVIVING CORPORATION....................................4
Section 3.1. Certificate of Incorporation....................................4
Section 3.2. By-Laws.........................................................4
ARTICLE 4 DIRECTORS AND OFFICERS
OF THE SURVIVING CORPORATION....................................4
Section 4.1. Directors.......................................................4
Section 4.2. Officers........................................................4
ARTICLE 5 CONVERSION OR CANCELLATION
OF SHARES IN THE MERGER.........................................5
Section 5.1. Conversion or Cancellation of Shares............................5
Section 5.2. Payment for Shares.............................................10
Section 5.3. Dissenters' Rights.............................................11
Section 5.4. Transfer of Shares After the Effective Time....................11
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ARTICLE 6 REPRESENTATIONS AND
WARRANTIES OF THE COMPANY......................................12
Section 6.1. Organization and Authority.....................................12
Section 6.2. The Company and the Subsidiaries...............................12
Section 6.3. Capitalization.................................................13
Section 6.4. The Purchased Shares...........................................13
Section 6.5. No Breach......................................................14
Section 6.6. Consents and Approvals.........................................14
Section 6.7. Absence of Certain Changes.....................................15
Section 6.8. Financial Statements...........................................15
Section 6.9. Liabilities....................................................15
Section 6.10. Compliance with Law............................................15
Section 6.11. Taxes..........................................................16
Section 6.12. Certain Employee Plans.........................................16
Section 6.13. Certain Agreements.............................................17
Section 6.14. Litigation.....................................................18
Section 6.15. Brokers and Finders............................................18
Section 6.16. [Intentionally omitted.].......................................18
Section 6.17. Environmental Compliance and Disclosure........................19
Section 6.18. Intellectual Property Rights...................................20
ARTICLE 7 REPRESENTATIONS AND WARRANTIES OF PURCHASER AND MERGER SUB.....21
Section 7.1. Organization and Authority.....................................21
Section 7.2. No Breach......................................................21
Section 7.3. Consents and Approvals.........................................22
Section 7.4. Acquiring Persons..............................................22
Section 7.5. No Prior Business..............................................22
Section 7.6. Commitments....................................................22
Section 7.7. Available Funds................................................22
Section 7.8. Agreements with Officers, Directors or Shareholders............23
Section 7.9. Brokers and Finders............................................23
ARTICLE 8 COVENANTS......................................................23
Section 8.1. Conduct of Business............................................23
Section 8.2. Forbearances by the Company....................................23
Section 8.3. Access.........................................................25
Section 8.4. Best Efforts; Other Actions....................................25
Section 8.5. Books and Records..............................................26
Section 8.6. Expenses.......................................................26
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Section 8.7. Information Statement..........................................26
Section 8.8. Announcements..................................................26
Section 8.9. Notification of Certain Matters................................27
Section 8.10. Officers' and Directors' Indemnification.......................27
Section 8.11. No Solicitation................................................28
Section 8.12. Transfer Taxes.................................................28
Section 8.13. Management Transaction Bonuses.................................28
Section 8.14. Repayment of Debt..............................................29
Section 8.15. Fairness Opinion...............................................29
ARTICLE 9 CONDITIONS.....................................................29
Section 9.1. Conditions to Each Party's Obligation to Effect the Merger.....29
Section 9.2. Conditions to Obligation of the Company to Effect the Merger...29
Section 9.3. Conditions to Obligation of Purchaser and Merger Sub
to Effect the Merger...........................................30
Section 9.4. Conditions to Obligation of the Company to Effect
the Stock Purchase.............................................31
Section 9.5. Conditions to Obligation of Purchaser to Effect
the Stock Purchase.............................................31
Section 9.6. Simultaneous Consummation of Stock Purchase and Merger.........31
ARTICLE 10 TERMINATION....................................................31
Section 10.1. Termination by Mutual Consent..................................31
Section 10.2. Termination by Either the Company or Purchaser.................32
Section 10.3. Termination by the Company.....................................32
Section 10.4. Termination by Purchaser.......................................33
Section 10.5. Effect of Termination and Abandonment..........................33
ARTICLE 11 GENERAL PROVISIONS.............................................33
Section 11.1. Nonsurvival of Representations, Warranties and Agreements......33
Section 11.2. Notices........................................................34
Section 11.3. Assignment; Binding Effect; Benefit............................34
Section 11.4. Entire Agreement...............................................35
Section 11.5. Amendment......................................................35
Section 11.6. Governing Law..................................................35
Section 11.7. Counterparts...................................................35
Section 11.8. Headings.......................................................36
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Section 11.9. Interpretation.................................................36
Section 11.10. Incorporation of Exhibits and Schedules........................36
Section 11.11. Severability...................................................36
Section 11.12. Enforcement of Agreement.......................................36
Section 11.13. Performance by Merger Sub......................................36
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EXHIBITS
Exhibit A Certificate of Incorporation of Surviving Corporation
Exhibit B Form of Warrant
Exhibit C [Intentionally Omitted]
Exhibit D [Intentionally Omitted]
Exhibit E Form of Opinion of Fried, Frank, Harris, Shriver & Jacobson
Exhibit F Form of Stockholders Agreement
Exhibit G Form of Opinion of Debevoise & Plimpton
SCHEDULES
Schedule 5.1 Management Stockholders and Optionholders
Schedule 6.2 Subsidiaries
Schedule 6.3 Agreements Relating to the Capital Stock
of the Company
Schedule 6.5 No Breach
Schedule 6.6 Consents and Approvals
Schedule 6.7 Absence of Certain Charges
Schedule 6.9 Liabilities
Schedule 6.10 Compliance with Law
Schedule 6.12(a) Section 401 Plans
Schedule 6.12(b) Employee Benefit Plans
Schedule 6.12(c) Employer Liability to Provide Benefits Upon
Retirement or Termination of Employment
Schedule 6.13(a) Employee Agreements
Schedule 6.13(b) Payment to Employee
Schedule 6.14 Litigation
Schedule 6.18 Intellectual Property
Schedule 7.8 Agreements with Officers, Directors
or Shareholders
Schedule 11.9 Knowledge of the Company
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DEFINED TERMS
TERM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . SECTION
AEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 5.1(a)
Aggregate Management Rollover Value . . . . . . . . . . . . . Section 1.1
Aggretate Option Value. . . . . . . . . . . . . . . . . . . . Section 5.1(a)
Aggregate Purchased Share Value . . . . . . . . . . . . . . . Section 1.1
Aggregate Share Equivalents . . . . . . . . . . . . . . . . . Section 5.1(a)
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
Applicable Cash Merger Consideration. . . . . . . . . . . . . Section 5.1(a)
Applicable Retained Share Amount. . . . . . . . . . . . . . . Section 5.1(a)
Applicable Retained Share Value . . . . . . . . . . . . . . . Section 5.1(a)
Balance Sheet Date. . . . . . . . . . . . . . . . . . . . . . Section 6.9
Certificate of Merger . . . . . . . . . . . . . . . . . . . . Section 2.3
Certificates. . . . . . . . . . . . . . . . . . . . . . . . . Section 5.2(b)
Class A Common Stock. . . . . . . . . . . . . . . . . . . . . Section 5.1(a)
Class B Common Stock. . . . . . . . . . . . . . . . . . . . . Section 5.1(a)
Class C Common Stock. . . . . . . . . . . . . . . . . . . . . Section 5.1(a)
Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.2
Closing Date. . . . . . . . . . . . . . . . . . . . . . . . . Section 2.2
Code. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 6.12(a)
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
Commitments . . . . . . . . . . . . . . . . . . . . . . . . . Section 10.3
Company Common Stock. . . . . . . . . . . . . . . . . . . . . Section 5.1(a)
Credit Agreement. . . . . . . . . . . . . . . . . . . . . . . Section 6.3
Covered Expenses. . . . . . . . . . . . . . . . . . . . . . . Section 5.1(a)
D&O Binder. . . . . . . . . . . . . . . . . . . . . . . . . . Section 8.2
Debt Commitments. . . . . . . . . . . . . . . . . . . . . . . Section 7.6
Delaware Courts . . . . . . . . . . . . . . . . . . . . . . . Section 11.6
Delayed Delivery Shares . . . . . . . . . . . . . . . . . . . Section 5.1(g)
DGCL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.1
Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . Section 5.3(a)
Dissenting Stockholders . . . . . . . . . . . . . . . . . . . Section 5.1(a)
Effective Time. . . . . . . . . . . . . . . . . . . . . . . . Section 2.3
Effective Time Coverage . . . . . . . . . . . . . . . . . . . Section 8.10(b)
Employee. . . . . . . . . . . . . . . . . . . . . . . . . . . Section 6.12(c)
Employee Agreement. . . . . . . . . . . . . . . . . . . . . . Section 6.13(a)
Enforceability Exceptions . . . . . . . . . . . . . . . . . . Section 6.1(a)
Environmental Costs . . . . . . . . . . . . . . . . . . . . . Section 6.17(a)
Environmental Laws. . . . . . . . . . . . . . . . . . . . . . Section 6.17(a)
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Environmental Matters . . . . . . . . . . . . . . . . . . . . Section 6.17(a)
Equity Commitments. . . . . . . . . . . . . . . . . . . . . . Section 10.3
Equity Memorandum . . . . . . . . . . . . . . . . . . . . . . Section 7.6
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 6.12(b)
ERISA Affiliate . . . . . . . . . . . . . . . . . . . . . . . Section 6.12(b)
Expense Letter. . . . . . . . . . . . . . . . . . . . . . . . Section 8.6
Financial Statements. . . . . . . . . . . . . . . . . . . . . Section 6.8
Fully Diluted Shares Outstanding. . . . . . . . . . . . . . . Section 5.1(a)
Hazardous Materials . . . . . . . . . . . . . . . . . . . . . Section 6.17(a)
Highly Confident Letter . . . . . . . . . . . . . . . . . . . Section 7.6
Information Statement . . . . . . . . . . . . . . . . . . . . Section 8.7
Intellectual Property . . . . . . . . . . . . . . . . . . . . Section 6.18
Lehman Brothers . . . . . . . . . . . . . . . . . . . . . . . Section 5.1(a)
Letter of Intent. . . . . . . . . . . . . . . . . . . . . . . Section 8.6
Loan Commitment . . . . . . . . . . . . . . . . . . . . . . . Section 7.6
Management Option . . . . . . . . . . . . . . . . . . . . . . Section 5.1(g)
Management Option Value . . . . . . . . . . . . . . . . . . . Section 5.1(g)
Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.1
Merger Sub. . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
New Equity Commitments. . . . . . . . . . . . . . . . . . . . Section 10.3
Non-Current Management Option Consideration . . . . . . . . . Section 5.1(g)
Non-Management Applicable Retained Share Value. . . . . . . . Section 5.1(a)
Non-Management Cash Percentage. . . . . . . . . . . . . . . . Section 5.1(a)
Non-Management Option Value . . . . . . . . . . . . . . . . . Section 5.1(a)
Non-Management Retained Share Percentage. . . . . . . . . . . Section 5.1(a)
Non-Management Value. . . . . . . . . . . . . . . . . . . . . Section 5.1(a)
Option Plan . . . . . . . . . . . . . . . . . . . . . . . . . Section 5.1(g)
Option Spread . . . . . . . . . . . . . . . . . . . . . . . . Section 5.1(a)
Paying Agent. . . . . . . . . . . . . . . . . . . . . . . . . Section 5.2(a)
Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 6.10
Per Share Merger Consideration. . . . . . . . . . . . . . . . Section 5.1(a)
Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . Section 5.1(b)
Preferred Stock Merger Consideration. . . . . . . . . . . . . Section 5.1(b)
Purchased Share Price . . . . . . . . . . . . . . . . . . . . Section 1.1
Purchased Shares. . . . . . . . . . . . . . . . . . . . . . . Section 1.1
Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
Retained Share Purchase Agreement . . . . . . . . . . . . . . Section 1.1
Rollover Equity Commitments . . . . . . . . . . . . . . . . . Section 10.3
Shareholders Agreement. . . . . . . . . . . . . . . . . . . . Section 6.4
Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 5.1(b)
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Stock Purchase. . . . . . . . . . . . . . . . . . . . . . . . Section 1.1
Subsidiary. . . . . . . . . . . . . . . . . . . . . . . . . . Section 6.2
Subsidiary Capital Stock. . . . . . . . . . . . . . . . . . . Section 6.3
Surviving Corporation . . . . . . . . . . . . . . . . . . . . Section 2.1
Surviving Corporation Common Stock. . . . . . . . . . . . . . Section 1.1
Surviving Corporation Non-Voting Common Stock . . . . . . . . Section 1.1
Surviving Corporation Voting Common Stock . . . . . . . . . . Section 1.1
Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 6.11
Transfer Taxes. . . . . . . . . . . . . . . . . . . . . . . . Section 8.12
Warrants. . . . . . . . . . . . . . . . . . . . . . . . . . . Section 5.1(a)
Warrant Fraction. . . . . . . . . . . . . . . . . . . . . . . Section 5.1(g)
viii
STOCK PURCHASE AGREEMENT
AND
AGREEMENT AND PLAN OF MERGER
STOCK PURCHASE AGREEMENT and AGREEMENT AND PLAN OF MERGER
(collectively, this "AGREEMENT"), dated as of May 31, 1997, by and among Leiner
Health Products Group Inc., a Delaware corporation (the "COMPANY"), North Castle
Partners I, L.L.C., a Delaware limited liability company ("PURCHASER"), and LHP
Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of
Purchaser ("MERGER SUB").
RECITALS
WHEREAS, the Boards of Directors of the Company and Merger Sub each
have determined that it is in the best interest of their respective stockholders
and the managing member of Purchaser has decided that it is in the best interest
of Purchaser's members to effect the transactions contemplated hereby upon the
terms and subject to the conditions set forth herein;
WHEREAS, in furtherance thereof, the boards of directors of the
Company and Merger Sub and the managing member of Purchaser have each approved
the merger of Merger Sub with and into the Company in accordance with applicable
law, upon the terms and subject to the conditions set forth herein;
WHEREAS, Purchaser desires to purchase and the Company desires to
issue and sell to Purchaser shares of Surviving Corporation Voting Common Stock
(as defined in SECTION 1.1) on the terms and conditions set forth in this
Agreement;
WHEREAS, the Company, Purchaser and Merger Sub desire to make certain
representations, warranties, covenants and agreements in connection with this
Agreement.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, and
intending to be legally bound hereby, the parties hereto hereby agree as
follows:
ARTICLE 1
ISSUANCE AND SALE OF SHARES
Section 1.1. ISSUANCE OF SHARES. On the terms and subject to the
conditions of this Agreement, at the Closing, the Company shall issue, transfer,
deliver and sell to Purchaser and Purchaser shall purchase and accept from the
Company (the "STOCK PURCHASE") that number of shares (the "PURCHASED SHARES")
of voting common stock, par value $0.01 per share, of the surviving corporation
("SURVIVING CORPORATION VOTING COMMON STOCK") equal to the quotient of the
Aggregate Purchased Share Value divided by $100 (the "PURCHASED SHARE PRICE")
for the consideration specified below in SECTION 1.2.
"AGGREGATE MANAGEMENT ROLLOVER VALUE" means the product of (i)(a) the
aggregate number of shares of class A (non-voting) common stock, par value $0.01
per share ("SURVIVING CORPORATION NON-VOTING COMMON STOCK"; Surviving
Corporation Voting Common Stock and Surviving Corporation Non-Voting Common
Stock being collectively referred to herein as "SURVIVING CORPORATION COMMON
STOCK") issuable to the stockholders set forth on SCHEDULE 5.1 pursuant to
SECTION 5.1(a), plus (b) the aggregate number of Delayed Delivery Shares and
shares of Surviving Corporation Common Stock which the optionholders set forth
on SCHEDULE 5.1 are entitled to receive at the Closing pursuant to SECTION
5.1(g), plus (c) the aggregate number of shares of Surviving Corporation Common
Stock to be issuable following consummation of the Merger pursuant to the
Retained Share Purchase Agreement, dated as of January 30, 1997 (as amended or
supplemented from time to time, the "RETAINED SHARE PURCHASE AGREEMENT") by and
between Leiner Health Products Inc., the Company, 3074951 Canada Ltd., 3074943
Canada Ltd., Lorne Seier, Mark Seier and VH Holdings Inc. in respect of the
preferred shares of Vita Health Company (1985) Ltd. issued and outstanding
immediately after the consummation of the Merger and the other transactions
contemplated herein, after giving effect to any repurchase of such shares in
connection with the Closing, multiplied by (ii) the Purchased Share Price.
"AGGREGATE PURCHASED SHARE VALUE" means the excess of (i) $99,000,000
over (ii) the Aggregate Management Rollover Value.
Section 1.2. CONSIDERATION. On the terms and subject to the conditions
of this Agreement, in consideration for the sale of the Purchased Shares, at the
Closing Purchaser will pay to the Company the Purchased Share Price for each
Purchased Share for an aggregate purchase price equal to the Aggregate Purchased
Share Value.
2
Section 1.3. ISSUANCE OF PURCHASED SHARES AND CASH PAYMENT. At the
Closing (i) the Company shall deliver to Purchaser certificates representing the
Purchased Shares, duly authorized and issued in blank, free and clear of all
liens and restrictions of any kind (except for those imposed by the Shareholders
Agreement and applicable securities laws) and (ii) Purchaser shall deliver or
cause to be delivered to the Company the Purchased Share Price by wire transfer
of immediately available funds, to an account or accounts designated at least
two days prior to the Closing by the Company in a written notice to the
Purchaser.
Section 1.4. AGGREGATE PURCHASED SHARE VALUE AND AGGREGATE MANAGEMENT
ROLLOVER VALUE. It is agreed and understood that the aggregate proceeds to the
Company from the issuance and sale of the Purchased Shares, together with the
Aggregate Management Rollover Value, will equal $99,000,000.
ARTICLE 2
THE MERGER;
THE CLOSING; EFFECTIVE TIME
Section 2.1. THE MERGER. Subject to the terms and conditions of this
Agreement, at the Effective Time (as defined in SECTION 2.3), Merger Sub shall
be merged with and into the Company in accordance with this Agreement and the
separate corporate existence of Merger Sub shall thereupon cease (the "MERGER").
The Company shall be the surviving corporation in the Merger (sometimes
hereinafter referred to as the "SURVIVING CORPORATION") and shall continue to be
governed by the laws of the State of Delaware, and the separate corporate
existence of the Company with all its rights, privileges, immunities, powers and
franchises shall continue unaffected by the Merger. The Merger shall have the
effects specified in the Delaware General Corporation Law (the "DGCL").
Section 2.2. THE CLOSING. Subject to the terms and conditions of this
Agreement, the closing of the Merger and the Stock Purchase (the "CLOSING")
shall take place at the offices of Fried, Frank, Harris, Shriver & Jacobson, at
9:00 a.m., local time, on the first business day immediately following the day
on which the last to be fulfilled or waived of the conditions set forth in
ARTICLE 9 shall be fulfilled or waived in accordance herewith (or, if
contemplated to be satisfied simultaneously with the Closing, are capable of
being satisfied), or at such other time, date or place as is agreed to in
writing by the parties hereto. The date on which the Closing occurs is
hereinafter referred to as the "CLOSING DATE."
3
Section 2.3. EFFECTIVE TIME. On the Closing Date, immediately following
the Closing, the parties hereto shall cause a certificate of merger meeting the
requirements of Section 251 of the DGCL (the "CERTIFICATE OF MERGER") to be
properly executed and filed in accordance with such section. The Merger shall
become effective upon the filing of the Certificate of Merger with the Secretary
of State of the State of Delaware in accordance with the DGCL or at such later
time as the parties hereto shall have agreed upon and designated in such filing
as the effective time of the Merger (the "EFFECTIVE TIME").
ARTICLE 3
CERTIFICATE OF INCORPORATION AND BY-LAWS
OF THE SURVIVING CORPORATION
Section 3.1. CERTIFICATE OF INCORPORATION. Subject to SECTION 8.10(a),
the certificate of incorporation of the Company as in effect immediately prior
to the Effective Time shall, in accordance with the terms thereof and the DGCL,
be amended and restated as set forth on EXHIBIT A and, as so amended, shall be
the certificate of incorporation of the Surviving Corporation until duly amended
in accordance with the terms thereof and the DGCL.
Section 3.2. BY-LAWS. Subject to SECTION 8.10(a), the by-laws of the
Company in effect at the Effective Time shall be the by-laws of the Surviving
Corporation, until duly amended in accordance with the terms thereof and the
DGCL.
ARTICLE 4
DIRECTORS AND OFFICERS
OF THE SURVIVING CORPORATION
Section 4.1. DIRECTORS. The directors of Merger Sub immediately prior to
the Effective Time shall, from and after the Effective Time, be the directors of
the Surviving Corporation until their successors have been duly elected or
appointed and qualified or until their earlier death, resignation or removal in
accordance with the Surviving Corporation's certificate of incorporation and
by-laws.
Section 4.2. OFFICERS. The officers of the Company immediately prior to
the Effective Time shall, from and after the Effective Time, be the officers of
the Surviving Corporation until their successors have been duly elected or
appointed and
4
qualified or until their earlier death, resignation or removal in accordance
with the Surviving Corporation's certificate of incorporation and by-laws.
ARTICLE 5
CONVERSION OR CANCELLATION
OF SHARES IN THE MERGER
Section 5.1. CONVERSION OR CANCELLATION OF SHARES. The manner of
converting or canceling shares of the Company and Merger Sub in the Merger shall
be as follows:
(a) At the Effective Time, each share of (i) Class A Common Stock of
the Company ("CLASS A COMMON STOCK"), (ii) Class B Common Stock of the Company
("CLASS B COMMON STOCK") and (iii) Class C Common Stock of the Company ("CLASS C
COMMON STOCK"; Class A Common Stock, Class B Common Stock and Class C Common
Stock being referred to collectively herein as "COMPANY COMMON STOCK"), each
with a par value $0.01 per share, issued and outstanding immediately prior to
the Effective Time (other than shares which are held by stockholders
("DISSENTING STOCKHOLDERS") exercising appraisal rights with respect to such
shares pursuant to Section 262 of the DGCL) shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into the
right to receive, without interest, (i) the Applicable Cash Merger Consideration
(if any), (ii) the Applicable Retained Share Amount (if any) and (iii) warrants
in the form set forth on Exhibit B hereto (the "WARRANTS") to purchase a number
of shares of Surviving Corporation Non-Voting Common Stock equal to the Warrant
Fraction.
"AGGREGATE OPTION VALUE" means the dollar value equal to the sum, for
all Management Options, of the products obtained by multiplying for each
Management Option (i) the number of shares of Company Common Stock subject to
such option by (ii) the applicable Option Spread.
"AGGREGATE SHARE EQUIVALENTS" means sum of (i) the number of shares of
Company Common Stock outstanding immediately prior to the Effective Time plus
(ii) the quotient of (a) the Aggregate Option Value divided by (b) the Per Share
Merger Consideration.
"APPLICABLE CASH MERGER CONSIDERATION" means a dollar amount equal to
the excess of the Per Share Merger Consideration over the Applicable Retained
Share Value.
5
"APPLICABLE RETAINED SHARE AMOUNT" means, with respect to (i) each
share of Company Common Stock held by a stockholder of the Company not listed on
SCHEDULE 5.1, a number of shares of Surviving Corporation Voting Common Stock
and (ii) each share of Common Stock held by a stockholder of the Company listed
on SCHEDULE 5.1, a number of shares of Surviving Corporation Common Stock (such
shares to be voting or non-voting as indicated on Schedule 5.1), in each case,
equal to the quotient of the Applicable Retained Share Value divided by the
Purchased Share Price.
"APPLICABLE RETAINED SHARE VALUE" means (i) with respect to each share
of Company Common Stock held by stockholders of the Company not listed on
SCHEDULE 5.1, an amount equal to the Non-Management Applicable Retained Share
Value per share and (ii) with respect to each share of Company Common Stock held
by stockholders of the Company listed on SCHEDULE 5.1, the dollar value per
share set forth next to such stockholder's name on SCHEDULE 5.1. The parties
acknowledge and agree that, subject to Section 5.1(g), Purchaser may deliver a
replacement SCHEDULE 5.1 at any time that is 5 days or more prior to the Closing
Date, which shall supersede SCHEDULE 5.1 attached hereto on the date of this
Agreement.
"COVERED EXPENSES" means the aggregate dollar amount of the fees and
expenses, to the extent paid by the Company, of (i) Lehman Brothers Inc.
("LEHMAN BROTHERS") for a fairness opinion delivered to the Company's board of
directors in connection with the Merger, (ii) Bain & Company, Inc. for its
analysis prepared regarding the business of the Company in connection with the
transactions contemplated hereby (but not to exceed $450,000) and excluding all
other analyses and projects performed by Bain & Company, Inc. for the Company,
(iii) Fried, Frank, Harris, Shriver & Jacobson for services provided in
connection with the Stock Purchase, the Merger and certain other transactions
(but excluding services provided in the ordinary course of business of the
Company) and (iv) AEA Investors Inc. ("AEA") for investment banking services in
connection with the Stock Purchase, the Merger and related transactions.
"FULLY DILUTED SHARES OUTSTANDING" means the number of shares of
Company Common Stock outstanding immediately prior to the Effective Time plus
the number of shares of the Company Common Stock issuable upon the exercise of
all outstanding Management Options (as hereinafter defined) immediately prior to
the Effective Time.
6
"NON-MANAGEMENT APPLICABLE RETAINED SHARE VALUE" means a dollar amount
equal to $11 million multiplied by the Per Share Merger Consideration divided by
the Non-Management Value.
"NON-MANAGEMENT CASH PERCENTAGE" means the difference (expressed as a
percentage) of (a) one (1) minus (b) the Non-Management Retained Share
Percentage.
"NON-MANAGEMENT OPTION VALUE" means the dollar value equal to the
sum, for all Management Options held by individuals not listed on SCHEDULE 5.1,
of the products obtained by multiplying for each such Management Option (i) the
number of shares of Company Common Stock subject to such option by (ii) the
applicable Option Spread.
"NON-MANAGEMENT RETAINED SHARE PERCENTAGE" means the quotient
(expressed as a percentage) of (a) the Non-Management Applicable Retained Share
Value divided by (b) the Per Share Merger Consideration.
"NON-MANAGEMENT VALUE" means the sum of (i) the Per Share Merger
Consideration multiplied by the number of shares of Company Common Stock held by
persons not listed on Schedule 5.1 plus (ii) the Non-Management Option Value.
"OPTION SPREAD" means, with respect to each share of Company Common
Stock issuable upon exercise of a Management Option, the excess of the Per Share
Merger Consideration over the per share exercise price of such Management
Option.
"PER SHARE MERGER CONSIDERATION" means the quotient of
(i)(a) $222,200,710 minus (b) Covered Expenses divided by (ii) Fully Diluted
Shares Outstanding.
(b) At the Effective Time, each share of the Payment-In-Kind,
Exchangeable, Redeemable Series A Preferred Stock of the Company, each with a
par value of $0.01 per share (the "PREFERRED STOCK"; Company Common Stock and
Preferred Stock being referred to collectively herein as the "SHARES") issued
and outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into the right to receive, without interest, $900 in cash plus a cash amount
equal to accrued and unpaid dividends thereon (whether or not declared) to the
Effective Time (the "PREFERRED STOCK MERGER CONSIDERATION"), which as of
March 31, 1997 was $13,505,505 in the aggregate.
7
(c) (i) All issued and outstanding shares of Preferred Stock, by
virtue of the Merger and without any action on the part of the holders thereof,
shall no longer be outstanding and shall be canceled and retired and shall cease
to exist, and each holder of a certificate representing any such Shares shall
thereafter cease to have any rights with respect to such Shares, except the
right to receive the Preferred Stock Merger Consideration for such Shares upon
the surrender of such certificate in accordance with SECTIONS 5.2(a) AND (b) or
the right, if any, to receive payment from the Surviving Corporation of the
"fair value" of such Shares as determined in accordance with Section 262 of the
DGCL.
(ii) The parties acknowledge and agree that (A) the shares of
Surviving Corporation Common Stock received pursuant to the Merger represent
stockholders' retained equity interest in the Company and (B) the Merger is
being consummated to effect the repurchase by the Company of a portion of the
Company Common Stock and to enable stockholders to receive the purchase price
for repurchased Company Common Stock and new Certificates reflecting
shareholders' retained equity interests in the Company. Therefore, upon the
Merger and without any action on the part of the holders thereof, each
certificate of Company Common Stock shall, subject to any applicable dissenters'
rights, entitle the holder thereof solely to the applicable number of Warrants
and the Per Share Merger Consideration, of which the Applicable Retained Share
Amount shall represent such holder's retained equity interest in the Company.
(d) Notwithstanding the foregoing, no fractions of a share of
Surviving Corporation Common Stock shall be issued in the Merger, but in lieu
thereof each holder of Shares otherwise entitled to a fraction of a share of
Surviving Corporation Common Stock shall, upon surrender of his or her
certificate or certificates, be entitled to receive an amount of cash (without
interest) determined by multiplying the Purchased Share Price by the fractional
share interest to which such holder would otherwise be entitled. The parties
acknowledge that payment of the cash consideration in lieu of issuing fractional
shares was not separately bargained for consideration but merely represents a
mechanical rounding off for purposes of simplifying the corporate and accounting
problems which would otherwise be caused by the issuance of fractional shares.
(e) At the Effective Time each share of (i) Company Common Stock and
(ii) Preferred Stock, in each case, issued and held in the Company's treasury
immediately prior to the Effective Time, shall, by virtue of the Merger and
without any action on the part of the holder thereof, cease to be outstanding,
shall be canceled and retired without payment of any consideration therefor and
shall cease to exist.
8
(f) At the Effective Time, each share of common stock, par value
$0.01 per share, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the part
of Merger Sub or the holders thereof, cease to be outstanding, shall be canceled
and retired without payment of any consideration therefor and shall cease to
exist.
(g) At the Effective Time, each then outstanding stock option (a
"MANAGEMENT OPTION") granted by the Company pursuant to the Leiner Health
Products Group Inc. Nonqualified Stock Option Plan (the "OPTION PLAN"), whether
or not then exercisable, shall be canceled by the Company, and each holder of a
canceled Management Option shall receive, in cancellation and settlement of the
Management Option, consideration in the form of (i) as determined by the
Company, cash, rights to receive shares of Surviving Corporation Common Stock
upon the occurrence of certain circumstances ("DELAYED DELIVERY SHARES") or
Surviving Corporation Common Stock in an aggregate amount equal to the
Management Option Value and (ii) a Warrant to purchase the number of shares of
Surviving Corporation Common Stock equal to the product of (x) the Warrant
Fraction multiplied by (y) the quotient of (A) the Management Option Value
divided by (B) the Per Share Merger Consideration, PROVIDED that (a) with
respect to the consideration described in the foregoing clause (i), each
Management Option holder who is not listed on SCHEDULE 5.1 shall receive the
Non-Current Management Option Consideration and (b) each Management Option
holder listed on SCHEDULE 5.1 shall receive pursuant to Sections 5.1(a) and
5.1(g)(i), in the aggregate, cash on the one hand and a combination of Surviving
Corporation Common Stock and Delayed Delivery Shares on the other hand such that
the cash component of such aggregate consideration shall not exceed the
Non-Management Cash Percentage.
"MANAGEMENT OPTION VALUE" means, for each Management Option, the
product of (i) the number of shares of Company Common Stock subject to such
option multiplied by (ii) the applicable Option Spread.
"NON-CURRENT MANAGEMENT OPTION CONSIDERATION" means consideration
equal to the Management Option Value and composed of (a) a cash amount equal to
the Management Option Value multiplied by the Non-Management Cash Percentage and
(b) that number of shares of Surviving Corporation Voting Common Stock equal to
the quotient of (i) the Management Option Value multiplied by the Non-Management
Retained Share Percentage divided by (ii) the Purchased Share Price.
"WARRANT FRACTION" means the quotient of (a) 305,556 divided by (b)
Aggregate Share Equivalents.
9
Section 5.2. PAYMENT FOR SHARES. (a) At or prior to the Effective Time,
Purchaser shall deposit in trust with such paying agent as may be appointed by
the Company with Purchaser's prior approval (the "PAYING AGENT") (i) amounts
sufficient in the aggregate to provide all funds necessary for the Paying Agent
to make payments in immediately available funds pursuant to SECTIONS 5.1(a), (b)
AND (d) hereof to holders of Shares issued and outstanding immediately prior to
the Effective Time. Prior to the Effective Time, the Company shall cause the
Paying Agent to deliver to each person (other than any of the Purchaser, Merger
Sub or their respective affiliates) who was or will be, immediately prior to the
Effective Time, a holder of record of issued and outstanding Shares a form
(mutually agreed to by the Company and Purchaser) of letter of transmittal and
instructions for use in effecting the surrender of the certificates which,
immediately prior to the Effective Time, represented any of such Shares in
exchange for payment therefor. It is agreed that letters of transmittal will be
made available to such holders prior to the Effective Time in final form, so
they may be delivered to the Paying Agent for payment at the Effective Time.
Upon surrender to the Paying Agent of such certificates, together with such
letter of transmittal, duly executed and completed in accordance with the
instructions thereto, the Purchaser shall cause to be paid by the Paying Agent
to the persons entitled thereto by wire transfer of immediately available funds
or check (as the Paying Agent shall be instructed by the person surrendering
such certificates) the amount of the Applicable Cash Merger Consideration or the
Preferred Stock Merger Consideration, as the case may be, payable in respect of
the Shares represented by such certificates net of any applicable withholding
tax. Such payment will be made at the Effective Time with respect to
certificates surrendered, and letters of transmittal duly executed and
completed, at the Effective Time, and as soon as practicable thereafter with
respect to certificates surrendered and letters of transmittal duly executed and
completed on a later date. No interest will be paid or will accrue on the
amount payable upon the surrender of any such certificate. If payment is to be
made to a person other than the registered holder of the certificate
surrendered, it shall be a condition of such payment that the certificate so
surrendered shall be properly endorsed or otherwise in proper form for transfer
and that the person requesting such payment shall pay any transfer or other
taxes required by reason of the payment to a person other than the registered
holder of the certificate surrendered or establish to the satisfaction of the
Surviving Corporation or the Paying Agent that such tax has been paid or is not
applicable. One hundred and eighty days following the Effective Time, the
Surviving Corporation shall be entitled to cause the Paying Agent to deliver to
it any funds (including any interest received with respect thereto) or
Certificates made available to the Paying Agent which have not been disbursed to
holders of certificates formerly representing Shares outstanding at the
Effective Time and thereafter such holders shall be entitled to look to the
Surviving Corporation only as general creditors thereof with respect to the cash
payable upon due
10
surrender of their certificates. Notwithstanding the foregoing, neither the
Paying Agent nor any party hereto shall be liable to any holder of certificates
formerly representing Shares for any amount paid to a public official pursuant
to any applicable abandoned property, escheat or similar law. The Surviving
Corporation shall pay all charges and expenses, including those of the Paying
Agent, in connection with the exchange of Shares for cash.
(b) The Company will, prior to the Effective Time, provide to AEA,
which will (without charge) act on the Company's behalf, certificates
("Certificates") representing the Surviving Corporation Common Stock and
Warrants to be issued to holders of Company Common Stock and Management Options
pursuant to Sections 5.1(a) and (g). The Company and AEA will enter in an
agreement setting forth AEA's scope of responsibility and similar customary
matters.
Section 5.3. DISSENTERS' RIGHTS. (a) Notwithstanding any provision of
this Agreement to the contrary, if required by the DGCL but only to the extent
required thereby, Shares which are issued and outstanding immediately prior to
the Effective Time and which are held by holders of such Shares who have
properly exercised appraisal rights with respect thereto (the "DISSENTING
SHARES") in accordance with Section 262 of the DGCL will not be exchangeable for
the right to receive the Per Share Merger Consideration or Preferred Stock
Merger Consideration, as the case may be, and holders of such Dissenting Shares
will be entitled to receive payment of the appraised value of such Dissenting
Shares in accordance with the provisions of such Section 262 unless and until
such holders fail to perfect or effectively withdraw or lose their rights to
appraisal and payment under the DGCL.
(b) The Company shall give Purchaser notice of the delivery of any
demand from a Dissenting Stockholder pursuant to Section 262(d) of the DGCL. If
any Dissenting Stockholder shall fail to perfect or shall have effectively lost
the right to dissent, the shares held by such Dissenting Stockholder shall
thereupon be treated as though such shares have been converted into the right to
receive an amount equal to the Per Share Merger Consideration in the form
described in to SECTION 5.1 or Preferred Stock Merger Consideration, as the
case may be.
Section 5.4. TRANSFER OF SHARES AFTER THE EFFECTIVE TIME. No transfers
of Shares shall be made on the stock transfer books of the Surviving Corporation
at or after the Effective Time.
11
ARTICLE 6
REPRESENTATIONS AND
WARRANTIES OF THE COMPANY
The Company and its Subsidiaries (as defined in SECTION 6.2) hereby
represent and warrant to Purchaser as follows:
Section 6.1. ORGANIZATION AND AUTHORITY. (a) The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The Company has all requisite corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. All necessary action, corporate or otherwise,
required to have been taken by or on behalf of the Company by applicable law,
its charter documents or otherwise to authorize (i) the approval, execution and
delivery on behalf of the Company of this Agreement and (ii) the performance by
the Company of its obligations under this Agreement and the consummation of the
transactions contemplated hereby has been taken. This Agreement constitutes a
valid and binding agreement of the Company, enforceable against the Company in
accordance with its terms, except (x) as the same may be limited by applicable
bankruptcy, insolvency, moratorium or similar laws of general application
relating to or affecting creditors' rights, including without limitation, the
effect of statutory or other laws regarding fraudulent conveyances and
preferential transfers, and (y) for the limitations imposed by general
principles of equity. The foregoing exceptions are hereinafter referred to as
the "ENFORCEABILITY EXCEPTIONS".
(b) Without limitation to paragraph (a) of this SECTION 6.1, the
affirmative vote of the holders of the Class B Common Stock has been duly
obtained, and such vote is the only vote of the stockholders of the Company
necessary to adopt and approve this Agreement and to consummate the transactions
contemplated hereby.
Section 6.2. THE COMPANY AND THE SUBSIDIARIES. The Company has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as now being conducted. Each Subsidiary is a
corporation duly organized and validly existing and in good standing under the
laws of its jurisdiction of incorporation and has the requisite corporate power
and authority to own, lease and operate its properties and to carry on its
business as now being conducted and, except as set forth on SCHEDULE 6.2, is
wholly owned by the Company. The Company and each of the Subsidiaries is duly
qualified as a foreign corporation to do business, and is
12
in good standing in each jurisdiction where the character of its properties
owned or leased or the nature of its activities makes such qualification
necessary, except for failures to be so qualified or in good standing which
would not, in the aggregate, have a material adverse effect on the Company and
the Subsidiaries taken as a whole. The Company has delivered to Purchaser true
and complete copies of its certificate of incorporation and by-laws, as amended
to the date hereof, which are in full force and effect. SCHEDULE 6.2 sets forth
a correct and complete list of the Subsidiaries of the Company, its jurisdiction
of incorporation, its authorized capital stock or share capital, and the
percentage ownership by each record holder thereof. For the purposes of this
Agreement, "SUBSIDIARY" shall mean any corporation or other legal entity of
which the Company (either above or through or together with any other
subsidiary) owns, directly or indirectly, 50% or more of the stock or equity
interests the holders of which are generally entitled to vote for the election
of the board of directors or other governing body of such corporation or other
legal entity.
Section 6.3. CAPITALIZATION. The authorized capital stock of the Company
consists of (i) 749,592 shares of Class A Common Stock, (ii) 10,000 shares of
Class B Common Stock, (iii) 153,104 shares of Class C Common Stock, and
(iv) 30,000 shares of Preferred Stock. As of the date hereof (i) 551,392 shares
of Class A Common Stock are issued and outstanding, (ii) 10,000 shares of Class
B Common Stock are issued and outstanding, (iii) 153,104 shares of Class C
Common Stock are issued and outstanding and (iv) 14,383 shares of Preferred
Stock are issued and outstanding. As of the date hereof, 100,000 shares of
Class A Common Stock are issuable upon the exercise of outstanding Management
Options issued pursuant to the Option Plan. Except (i) for such Management
Options and (ii) as set forth in SCHEDULE 6.3 hereto, there are no existing
options, warrants, calls, subscriptions, or other rights or other agreements or
commitments obligating the Company or any of the Subsidiaries to issue,
transfer, redeem, acquire or sell any shares of capital stock of the Company or
any of the Subsidiaries. Other than the pledges of capital stock of
Subsidiaries ("SUBSIDIARY CAPITAL STOCK") in connection with the bank credit
facility of Leiner Health Products Inc. (the "CREDIT AGREEMENT"), there are no
liens, pledges, security interests, claims or other encumbrances on any shares
of the Subsidiary Capital Stock owned by the Company. Except as set forth in
SCHEDULE 6.3 hereto, there are no voting trusts or other agreements or
understandings to which the Company or any Subsidiary is a party with respect to
the voting of capital stock of the Company.
Section 6.4. THE PURCHASED SHARES. Upon delivery to Purchaser at the
Closing of certificates representing the Purchased Shares, and upon receipt by
the Company of the payment in full therefor, (i) good and valid title to the
Purchased Shares will pass to Purchaser, free and clear of all liens and
restrictions of any kind
13
(except for those imposed by the stockholders agreement, to be entered into on
the Closing Date, by the Company, Purchaser, AEA and the other stockholders of
the Company (the "Shareholders Agreement") and applicable securities laws) and
(ii) the Purchased Shares will be validly issued, fully paid and nonassessable.
Other than as provided for in this Agreement or the Shareholders Agreement, the
Purchased Shares are not, and upon their issuance will not be, subject to any
voting trust agreement or other contract, agreement, commitment or understanding
restricting or otherwise relating to the voting, dividend rights or other
disposition of the Purchased Shares other than the Shareholders Agreement.
Section 6.5. NO BREACH. The execution and delivery of this Agreement by
the Company do not, and the consummation of the transactions contemplated hereby
will not, (i) violate or conflict with the certificate of incorporation or
by-laws of the Company or any of its Subsidiaries or (ii) except as set forth on
SCHEDULE 6.5 hereto, violate, conflict with, result in a breach of any provision
of, constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, result in the termination or in a right
of termination of, accelerate the performance required by or benefit obtainable
under, result in the triggering of any payment or other obligations pursuant to,
result in the creation of any encumbrance upon any of the properties of the
Company or its Subsidiaries under, or result in there being declared void,
voidable, subject to withdrawal, or without further binding effect, any of the
terms, conditions or provisions of any order, judgment, decree, note, bond,
mortgage, indenture, deed of trust or any license, franchise, permit, lease,
contract, agreement or other instrument, commitment or obligation to which the
Company or any of its Subsidiaries is a party, by which the Company or any of
its Subsidiaries or any of their respective properties is bound, or under which
the Company or any of its Subsidiaries, except for any of the foregoing matters
which individually or in the aggregate would not have a material adverse effect
on the Company and its Subsidiaries, taken as a whole, or prevent or delay the
consummation of the transactions contemplated hereby, or (iii) violate any laws
applicable to the Company, any of its Subsidiaries or any of their respective
assets.
Section 6.6. CONSENTS AND APPROVALS. Except as set forth on SCHEDULE 6.6
hereto, neither the execution and delivery of this Agreement by the Company nor
the consummation of the transactions contemplated hereby will require on the
part of the Company any consent, approval, authorization or permit of, or filing
with or notification to, any governmental or regulatory authority, except (i)
filings provided for in ARTICLE 2 and (ii) where the failures to obtain such
consents, approvals, authorizations or permits, or to make such filings or
notifications, would not (A) have a
14
material adverse effect on the Company and the Subsidiaries taken as a whole or
(B) prevent the Company from performing its obligations under this Agreement.
Section 6.7. ABSENCE OF CERTAIN CHANGES. Except as set forth on SCHEDULE
6.7, since March 31, 1997 neither the Company nor any of the Subsidiaries has
suffered any adverse change in its business, assets, results of operations or
financial condition which would be material to the Company and the Subsidiaries
taken as a whole, other than any changes resulting from general economic or
industry-wide conditions.
Section 6.8. FINANCIAL STATEMENTS. The Company has delivered to
Purchaser copies of the audited consolidated balance sheets of the Company as of
March 31, 1996 and 1997, and the audited consolidated statements of income, cash
flows and stockholders' equity for years ended March 31, 1996 and 1997 (the
"FINANCIAL STATEMENTS"). The Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods involved and present fairly the consolidated
financial position of the Company and the Subsidiaries as at the dates thereof
and the consolidated statements of income, statements of cash flows and
statements of stockholders' equity of the Company for the periods indicated.
Section 6.9. LIABILITIES. Except as and to the extent reflected,
reserved against or otherwise disclosed in the Financial Statements (including
the notes thereto), and except as set forth on SCHEDULE 6.9, neither the Company
nor any of the Subsidiaries had as of the date of the latest balance sheet
contained in the Financial Statements (the "BALANCE SHEET DATE") any liabilities
or obligations of any kind, whether accrued, absolute, asserted or unasserted,
contingent or otherwise, whether or not such liabilities would have been
required to be disclosed on a balance sheet prepared in accordance with
generally accepted accounting principles consistently applied, which could
reasonably be expected to have a material adverse effect on the Company and the
Subsidiaries taken as a whole, and as of the date of this Agreement neither the
Company nor the Subsidiaries have incurred any such liabilities since the
Balance Sheet Date.
Section 6.10. COMPLIANCE WITH LAW. The businesses of the Company and the
Subsidiaries are not being conducted in violation of any law, ordinance or
regulation of any governmental agency or entity, and neither the Company nor any
of the Subsidiaries is in default, and no event has occurred which would
constitute a default, under any contract, lease or agreement to which the
Company or any of the Subsidiaries is a party or by which it is bound, except
for violations and defaults
15
which, either singly or in the aggregate, do not and will not have a material
adverse effect on the Company and the Subsidiaries taken as a whole. None of
the Company or any of its Subsidiaries has received any written notice, or has
knowledge of any claim, alleging any such violation. The Company and its
Subsidiaries hold all licenses, permits, variances, consents, authorizations,
waivers, grants, franchises, concessions, exemptions, orders, registrations and
approvals of governmental entities or other persons (collectively, "PERMITS")
necessary for the ownership, leasing, operation, occupancy and use of their
respective real property and the conduct of their respective businesses as
currently conducted, except for such Permits, the failure of which to hold,
individually or in the aggregate, do not and will not have a material adverse
effect on the Company and the Subsidiaries taken as a whole.
Section 6.11. TAXES. The Company and each of the Subsidiaries have filed
all federal, state, local and foreign income and other tax returns required to
be filed by them, have paid all material taxes of any nature whatsoever, with
any related penalties, interest and liabilities (any of the foregoing being
referred to herein as a "TAX") that are shown on such tax returns as due and
payable on or before the date hereof. All such tax returns are true, correct
and complete, except for such failures to be true and correct which,
individually or in the aggregate, do not and will not have a material adverse
effect on the Company and the Subsidiaries taken as a whole. There are no
material liens for Taxes upon the assets of the Company or the Subsidiaries,
except for statutory liens for Taxes not yet due. There are no claims or
assessments pending against the Company or the Subsidiaries for any alleged
deficiency in Taxes (including by way of "30 day letter" or notice of deficiency
or similar notice under state, local or foreign law) which can reasonably be
expected to have a material adverse impact on the business or assets of the
Company and the Subsidiaries, taken as a whole. The Company and the
Subsidiaries have withheld and paid over to the relevant tax authority all taxes
required to be withheld in connection with payments to employees, independent
contractors, shareholders, lenders and others, except for such failures to
withhold or pay over which, individually or in the aggregate, do not and will
not have a material adverse effect on the Company and the Subsidiaries taken as
a whole.
Section 6.12. CERTAIN EMPLOYEE PLANS. (a) Except as set forth in SCHEDULE
6.12(a), each retirement plan of the Company and each Subsidiary intended to
qualify under Section 401 of the Internal Revenue Code of 1986, as amended (the
"CODE"), is, and since its inception has been, so qualified and a determination
letter has been issued by the Internal Revenue Service to the effect that each
such plan is so qualified, each trust forming a part of any such plan is exempt
from tax pursuant to Section 501(a) of the Code and no circumstances exist which
would adversely affect this qualification or exemption, except in each case as
would not, either individually or in the aggregate,
16
have a material adverse effect on the Company and the Subsidiaries taken as a
whole. To the knowledge of the Company, no plan that is intended to be qualified
under Section 401(a) of the Code is the subject of an investigation or review by
the Internal Revenue Service, whether initiated by the Internal Revenue Service
or voluntarily by the Company, other than in connection with the Company's
request for a determination letter.
(b) To the knowledge of the Company, (i) neither the Company nor any
trade or business that, together with the Company, would be deemed a single
employer within the meaning of Section 4001 of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), (an "ERISA AFFILIATE"), has violated
any applicable provision of law, including, without limitation, ERISA, and
(ii) neither the Company nor any ERISA Affiliate has, as of the date hereof,
incurred, nor do any circumstances exist that are likely to result in, a
liability under Title IV of ERISA with respect to any "employee benefit plan"
maintained by the Company or any ERISA Affiliate that has not been timely paid,
which violation or liability, either individually or in the aggregate, would
have a material adverse effect on the Company and the Subsidiaries taken as a
whole. All material "employee benefit plans" maintained by the Company and its
ERISA Affiliates and each material plan or material program that provides
perquisites, fringe benefits, incentive or other valuable compensation or equity
participation to any employee are set forth on SCHEDULE 6.12(b) hereto. Except
as does not and will not have a material adverse effect on the Company and its
Subsidiaries taken as a whole, (a) each employee benefit plan has been
administered in accordance with its terms (and the terms of any collective
bargaining agreement that relates to such plan) and (b) all contributions
required to be made in accordance with the terms of any such employee benefit
plan or collective bargaining agreement have been timely made.
(c) Except as set forth on SCHEDULE 6.12(c) hereto, neither the
Company nor any Subsidiary maintains or contributes to any plan which provides,
or has any liability to provide, life insurance, medical or other employee
welfare benefits to any current, former or retired employee, consultant or
director of the Company or any Subsidiary (an "EMPLOYEE") upon their retirement
or termination of employment, except as may be required by law, and neither the
Company nor any Subsidiary has ever represented, promised or contracted (whether
in oral or written form) to any Employee (either individually or to Employees as
a group) that such Employee(s) would be provided with life insurance, medical or
other employee welfare benefits upon their retirement or termination of
employment.
Section 6.13. CERTAIN AGREEMENTS. (a) Except as set forth on SCHEDULE
6.13(a), neither the Company nor any Subsidiary is a party to, or bound by, any
17
employment, severance or consulting agreement, arrangement or understanding with
any officer, director, employee or former employee of the Company or any
Subsidiary (an "EMPLOYEE AGREEMENT").
(b) Except as set forth on SCHEDULE 6.13(b), the execution of, and
performance of the transactions contemplated in, this Agreement will not (either
alone or upon the occurrence of any additional or subsequent events) constitute
an event that will or may result in any payment (whether of severance pay or
otherwise) or forgiveness of indebtedness or acceleration, vesting, distribution
or increase in benefits or obligation to fund benefits or compensation with
respect to any Employee, under any Employee Agreement or any bonus, profit
sharing, compensation, severance, termination, stock, stock option, stock
appreciation right, pension or retirement plan, policy, trust, fund or other
arrangement.
(c) No payment or benefit which will or may be made by the Company or
any Subsidiary in connection with the transactions contemplated hereby pursuant
to any agreement in effect on the date hereof will be characterized as an
"excess parachute payment," within the meaning of Section 280G(b)(1) of the
Code.
Section 6.14. LITIGATION. Except as set forth on SCHEDULE 6.14, (i) there
is no claim, action, or proceeding pending or, to the best knowledge of the
executive officers of the Company, threatened against or relating to the Company
or any of the Subsidiaries before any court or governmental or regulatory
authority or body acting in an adjudicative capacity which, individually or in
the aggregate, if adversely determined, would have a material adverse effect on
the Company and the Subsidiaries taken as a whole and (ii) neither the Company
nor any Subsidiary is subject to any outstanding order, writ, injunction or
decree which, individually or in the aggregate, would have a material adverse
effect on the Company and the Subsidiaries as a whole.
Section 6.15. BROKERS AND FINDERS. Except for the fees and expenses to be
paid to AEA and Lehman Brothers (which fees and expenses constitute Covered
Expenses) and except for fees and expenses payable to financing sources and
investment banks pursuant to arrangements coordinated or arranged by Purchaser
(including, without limitation, arrangements with Salomon Brothers Inc, Merrill
Lynch & Co., North Castle Partners, L.L.C. and The Bank of Nova Scotia and its
affiliates), no broker, dealer or financial advisor is entitled to receive from
the Company or any of its Subsidiaries any broker's, finder's or investment
banking fee in connection with this Agreement or the transactions contemplated
hereby.
Section 6.16. [Intentionally omitted.]
18
Section 6.17. ENVIRONMENTAL COMPLIANCE AND DISCLOSURE. (a) For the
purposes of this Agreement:
"ENVIRONMENTAL MATTERS" means any matter, relating to pollution,
protection of the environment and human health or safety, health or safety of
employees, sanitation, and any matter relating to emissions, discharges,
releases or threatened releases of Hazardous Materials or use, treatment,
storage, disposal, transport or handling of Hazardous Materials.
"ENVIRONMENTAL COSTS" means, without limitation, any remediation,
removal, or other response costs (which, without limitation, shall include costs
necessary to cause compliance with any and all Environmental Laws),
investigation costs (including, without limitation, fees of consultants,
counsel, and other experts in connection with any environmental investigation,
testing, audits or studies), losses, liabilities or obligations (including,
without limitation, liabilities or obligations under any lease or other
contract), payments, damages (including, without limitation, any actual or
punitive damages under any statutory law, common law cause of action or
contractual obligation, including, without limitation, damages (a) of third
parties for personal injury or property damage, or (b) to natural resources),
civil or criminal fines or penalties, judgments, and amounts paid in settlement
resulting from any Environmental Matter.
"ENVIRONMENTAL LAWS" means, without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act, 42 U.S.C. Sections
9601 ET SEQ., the Emergency Planning and Community Right-to-Know Act of 1986,
42 U.S.C. Sections 11001 ET SEQ., the Resource Conservation and Recovery Act,
42 U.S.C. Sections 6901 ET SEQ., the Toxic Substances Control Act, 15 U.S.C.
Sections 2601 ET SEQ., the Federal Insecticide, Fungicide, and Rodenticide Act,
7 U.S.C. Sections 136 ET SEQ., the Clean Air Act, 42 U.S.C. Sections 7401 ET
SEQ., the Clean Water Act (Federal Water Pollution Control Act), 33 U.S.C.
Sections 1251 ET SEQ., the Safe Drinking Water Act, 42 U.S.C. Sections 300f ET
SEQ., the Occupational Safety and Health Act, 29 U.S.C. Sections 651 ET SEQ.,
the Hazardous Materials Transportation Act, 49 U.S.C. Sections 1801 ET SEQ., as
any of the above statutes have been amended from time to time, all rules and
regulations promulgated pursuant to any of the above statutes, and any other
foreign, federal, state or local law, statute, ordinance, rule or regulation
governing Environmental Matters, as the same have been amended from time to
time, including any common law cause of action providing any right or remedy
with respect to Environmental Matters, and all applicable judicial and
administrative decisions, orders, and decrees relating to Environmental Matters.
19
"HAZARDOUS MATERIALS" means any pollutants, contaminants, toxic,
hazardous or extremely hazardous substances, materials or wastes that are
regulated by, or may form the basis for liability under, any Environmental Laws.
(b) Except for any matters which individually or in the aggregate
would not have a material adverse effect on the Company and the Subsidiaries
taken as a whole,
(i) there are no Hazardous Materials in amounts required to
be remediated under applicable Environmental Laws at, on, under or within any
real property owned, leased or occupied by the Company or any of its
Subsidiaries;
(ii) there are no claims, notices, civil, criminal or
administrative actions, suits, hearings, investigations, inquiries or
proceedings pending that are based on or related to any Environmental Matters or
the failure to have any permits required to be obtained by the Company and each
of its Subsidiaries under applicable Environmental Laws for the use, storage,
treatment, transportation, release, emission and disposal of Hazardous Materials
used or produced by or otherwise relating to its business;
(iii) neither the Company nor any of its Subsidiaries has used
any waste disposal site, or otherwise disposed of, transported, or arranged for
the transportation of, any Hazardous Materials to any place or location in
violation of any Environmental Laws;
(iv) there are no underground storage tanks or surface
impoundments at, on, under or within any of real property owned, leased or
occupied by the Company or any of its Subsidiaries, or any portion thereof;
(v) none of the Company or its Subsidiaries has received any
notice asserting that it may be potentially responsible party at any waste
disposal site or other location used for the disposal of any Hazardous
Materials; and
(vi) none of the Company or its Subsidiaries has been
requested or required by any governmental entity to perform any investigatory or
remedial activity or other action in connection with any actual or alleged
release of Hazardous Materials or any other Environmental Matter.
Section 6.18. INTELLECTUAL PROPERTY RIGHTS. Except as set forth in
SCHEDULE 6.18, each of the Company and its Subsidiaries owns or has the right to
use pursuant to
20
license, sublicense, agreement or permission all of the Intellectual Property
used by it in the conduct of its businesses as presently conducted, except where
the absence of any thereof, individually or in the aggregate, would not have a
material adverse effect on the Company and the Subsidiaries, taken as a whole,
and neither the Company nor any of its Subsidiaries has interfered with,
infringed upon or misappropriated any Intellectual Property rights of third
parties which interference, infringement or misappropriation individually or in
the aggregate would have a material adverse effect on the Company and the
Subsidiaries, taken as a whole. "INTELLECTUAL PROPERTY" means all patents,
patent applications, trademarks, know-how, trade secrets, service marks, logos,
trade names and corporate names, copyrights, computer software, management
information systems and other intellectual property and proprietary rights.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND MERGER SUB
Purchaser and Merger Sub jointly and severally represent and warrant
to the Company as follows:
Section 7.1. ORGANIZATION AND AUTHORITY. Purchaser is a limited
liability company duly organized, validly existing and in good standing under
the laws of the State of Delaware. Merger Sub is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Each of Purchaser and Merger Sub has all requisite power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. All necessary action, corporate or otherwise, required to
have been taken by or on behalf of each of Purchaser and Merger Sub by
applicable law, its charter documents or otherwise to authorize (i) the
approval, execution and delivery on behalf of it of this Agreement and (ii) the
performance by it of its obligations under this Agreement and the consummation
of the transactions contemplated hereby has been taken. This Agreement
constitutes a valid and binding agreement of each of Purchaser and Merger Sub,
enforceable against it in accordance with its terms, subject to the
Enforceability Exceptions.
Section 7.2. NO BREACH. The execution and delivery of this Agreement by
each of Purchaser and Merger Sub do not, and the consummation of the
transactions contemplated hereby will not, (i) violate or conflict with (x) the
certificate of formation of Purchaser or the limited liability agreement of the
Purchaser, dated May 9, 1997 or (y) the certificate of incorporation or the
by-laws of Merger Sub or (ii) constitute a breach or default (or an event which
with notice or lapse of time or both would become a breach or default) or give
rise to any lien, third party right of termination,
21
cancellation, material modification or acceleration under any material
agreement, understanding or undertaking to which it is a party or by which it is
bound or any law, rule or regulation to which it is subject.
Section 7.3. CONSENTS AND APPROVALS. Neither the execution and delivery
of this Agreement by each of Purchaser and Merger Sub nor the consummation of
the transactions contemplated hereby will require any consent, approval,
authorization or permit of, or filing with or notification to, any governmental
or regulatory authority, except (i) filings provided for in ARTICLE 2 and (ii)
where the failures to obtain such consents, approvals, authorizations or
permits, or to make such filings or notifications, would not prevent Purchaser
or Merger Sub from performing its obligations under this Agreement.
Section 7.4. ACQUIRING PERSONS. No "acquiring persons" in the
transactions contemplated hereby have assets or sales of $10 million or more
within the meaning of the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended and the implementing regulations thereunder.
Section 7.5. NO PRIOR BUSINESS. Neither Purchaser nor Merger Sub has
engaged in any business or activity of any kind, or entered into any agreement
or arrangement with any person or any entity or incurred, directly or
indirectly, any material liabilities or obligations, other than in connection
with the transactions contemplated hereby.
Section 7.6. COMMITMENTS. Purchaser has delivered to the Company true
and complete executed copies of (i) the commitment letter between the Company,
Vita Health Company (1985) Ltd. and The Bank of Nova Scotia, dated May 30, 1997
(the "LOAN COMMITMENT") and (ii) the letter of Merrill Lynch & Co. (the "HIGHLY
CONFIDENT LETTER") to the effect that Merrill Lynch & Co. is highly confident
that it will be able to sell or place the senior subordinated notes described in
the North Castle Partners I, L.L.C. private placement memorandum (the "EQUITY
MEMORANDUM"), collectively, the Loan Commitment and Highly Confident Letter
shall hereinafter be referred to as the "DEBT COMMITMENTS." Neither the Loan
Commitment nor the Highly Confident Letter has been withdrawn or modified in any
material adverse respect and no fact or facts exist which, individually or in
the aggregate, the Purchaser reasonably believes could result in the funding
contemplated by either of the Debt Commitments not being available.
Section 7.7. AVAILABLE FUNDS. Purchaser has, or expects to have,
available to it on the Closing Date (taking into account the Commitments), all
funds necessary to
22
pay, without duplication, the aggregate (i) Purchased Share Price (ii) Per Share
Merger Consideration and (iii) Preferred Stock Merger Consideration payable
hereunder and to satisfy Purchaser's, Merger Sub's and the Company's other
obligations hereunder and under the Option Plan.
Section 7.8. AGREEMENTS WITH OFFICERS, DIRECTORS OR SHAREHOLDERS. Except
as disclosed on SCHEDULE 7.8 hereto, there are no contracts, agreements,
arrangements or understandings of any nature between Purchaser or its members
and any officer or director of the Company.
Section 7.9. BROKERS AND FINDERS. Neither Purchaser nor any of its
officers, members, employees or affiliates has employed any broker or finder or
incurred any liability for any brokerage fees, commissions or finder's fees in
connection with the transactions contemplated herein, except that an affiliate
of Purchaser will charge the Company an investment banking fee of up to $3.5
million in connection with the Merger and the related transactions.
ARTICLE 8
COVENANTS
Section 8.1. CONDUCT OF BUSINESS. After the date hereof and prior to the
Closing, the Company shall, and shall cause each of its Subsidiaries to, (i)
conduct its operations only in the usual, regular and ordinary manner
substantially consistent with past practices (except as contemplated by this
Agreement) and (ii) use reasonable efforts to preserve intact the present
business organization of the Company and keep available the services of its
officers, employees, representatives, agents and consultants and preserve
relationships with those persons having business relationships with the Company
and its Subsidiaries.
Section 8.2. FORBEARANCES BY THE COMPANY. Except as contemplated by this
Agreement or pursuant to the terms of an agreement disclosed in a schedule
hereto, the Company will not, and will cause each of its Subsidiaries not to (a)
sell, lease, transfer or dispose of any of the material assets of the Company or
any of its Subsidiaries, except in each case in the ordinary course of business;
(b) mortgage, pledge or otherwise encumber any of the assets of the Company or
any of its Subsidiaries, except in each case in the ordinary course of business;
(c) amend, modify, transfer, assign or cancel any material contract or lease,
except in the ordinary course of business; (d) except for purchase orders or
sales orders arising in the ordinary and usual course of business, and except
for capital expenditures consistent with the applicable annual
23
budget previously disclosed to Purchaser, enter into any contract which will
require an expenditure of more than $250,000 annually by the Company or any of
its Subsidiaries; (e) pay any dividend or make any distribution in respect of
the Shares, or issue any shares of capital stock of the Company; (f) amend its
certificate of incorporation or by-laws or comparable governing instruments;
(g) issue, sell, pledge or otherwise dispose of any shares of its capital stock
or other ownership interest or any securities convertible into or exchangeable
for any such shares or ownership interest, or any rights, warrants or options to
acquire or with respect to any such shares of capital stock, ownership interest,
or convertible or exchangeable securities; or accelerate any right to convert or
exchange or acquire any securities of the Company or any of its Subsidiaries for
any such shares or ownership interest; (h) effect any stock split, reverse stock
split, stock dividend, subdivision, reclassification or similar transaction, or
otherwise change its capitalization as it exists on the date hereof; (i) grant,
confer, award or amend any option, warrant, convertible securities or other
right to acquire any shares of its capital stock or take any action to cause to
be exercisable any otherwise unexercisable option under any stock option plan or
restricted stock plan; (j) directly or indirectly redeem, purchase or otherwise
acquire any shares of its capital stock or the capital stock of any of its
Subsidiaries; (k) make any material advance, loan, extension of credit or
capital contribution to, or purchase or acquire (by merger or otherwise) any
stock, bonds, notes, debentures or other securities of, or any assets
constituting a business unit of, or make any other investment in, any person,
firm or entity other than the Company or any Subsidiary; (l) incur, assume or
create any indebtedness for borrowed money, except indebtedness incurred in the
ordinary course of business consistent with past practice pursuant to the
Company's existing credit facilities; (m) assume, guarantee or otherwise become
liable or responsible (whether directly, contingently or otherwise) for the
obligations of any person other than the Company or any Subsidiary; (n) make any
material tax election or settle or compromise any material tax liability except
with the consent of Purchaser; (o) make any material changes in the type or
amount of their insurance coverages, other than acquiring the D&O Binder (as
hereinafter defined) and completing the documentation of the policy contemplated
thereby; or (p) enter into any agreement to do any of the things described in
clauses (a) through (o) above. Notwithstanding the foregoing, nothing in this
SECTION 8.2 shall prevent the Company from (i) selling, leasing, transferring or
disposing of any of its real and/or personal property located in Chicago,
Illinois, (ii) issuing shares of capital stock pursuant to the exercise of
Management Options in accordance with their terms, (iii) amending the Retained
Share Purchase Agreement (or entering into a separate agreement) to provide for
the issuance of Surviving Corporation Common Stock in exchange for preferred
shares of Vita Health Company (1985) Ltd. (iv) repurchasing at or prior to the
Closing, any or all of the preferred shares covered by the Retained Share
Purchase Agreement (and the Company shall not be prohibited from incurring
24
indebtedness in connection therewith), (v) entering into an operating lease to
occupy the Company's new facility in York County, South Carolina, or
(vi) modifying the Option Plan to permit the payment of the consideration
described in SECTION 5.1(g). "D&O" BINDER" means the insurance binder obtained
by the Company which provides directors' and officers' liability coverage for
directors and officers of the Company effective May 30, 1997.
Section 8.3. ACCESS. From the date of this Agreement until the Closing
Date, the Company will at reasonable times and upon reasonable notice (i) give
Purchaser reasonable access to the personnel, premises, properties, contracts
and books and records of the Company; and (ii) furnish Purchaser with such
financial and operating data and such other information relating to the Company
as Purchaser may from time to time reasonably request. Any disclosure
whatsoever during any investigation by or on behalf of Purchaser shall not
constitute an enlargement of or additional representations or warranties of the
Company beyond those specifically set forth in ARTICLE 6.
Section 8.4. BEST EFFORTS; OTHER ACTIONS. Subject to the terms and
conditions herein provided, each of the parties hereto agrees to (i) use its
best efforts to take, or cause to be taken, all actions, and to do, or cause to
be done as promptly as practicable, all things necessary, proper or advisable
under applicable laws to consummate and make effective the transactions
contemplated by this Agreement, including obtaining any governmental or other
consents, transfers, orders, qualifications, waivers, authorizations, exemptions
and approvals, providing all notices and making all registrations, filings and
applications necessary or desirable for the consummation of the transactions
contemplated herein; (ii) use its best efforts to defend any lawsuits or other
legal proceedings (whether judicial or administrative) challenging this
Agreement or the consummation of the transactions contemplated herein, including
seeking to have any stay or temporary restraining order entered by any court or
other governmental authority vacated or reversed; and (iii) use its best efforts
to fulfill or obtain the fulfillment of all other conditions to Closing,
including, without limitation, the execution and delivery of all agreements or
other documents contemplated hereunder to be so executed and delivered.
Purchaser agrees to use its best efforts to negotiate and complete promptly all
necessary documentation and arrangements for obtaining the financing
contemplated by this Agreement and take all other actions reasonably required to
obtain such financing and the Company agrees to cooperate in all reasonable
respects with Purchaser in connection with obtaining such financing.
25
Section 8.5. BOOKS AND RECORDS. At the Closing, the Company shall cause
to be delivered to Purchaser all the organizational documents, minute books,
stock ledgers, documents and related items of the Company and each of its
Subsidiaries.
Section 8.6. EXPENSES. Except as otherwise provided in this Agreement,
all fees, commissions and other expenses incurred by any of the parties hereto
in connection with the negotiation of this Agreement and in preparing to
consummate the transactions contemplated herein, including, without limitation,
any management transaction bonuses, accounting, legal and investment banking
fees, shall be borne by the party incurring such fee or expense; PROVIDED,
HOWEVER, that nothing in this Agreement shall supersede or be deemed to conflict
with (i) Section 5(a) of the letter agreement between AEA and North Castle
Partners I, L.L.C., dated May 2, 1997 (the "LETTER OF INTENT") or (ii) the
letter agreement between Charles F. Baird, Jr. and AEA, dated May 3, 1997 (the
"EXPENSE LETTER").
Section 8.7. INFORMATION STATEMENT. The Company will cause a notice (the
"INFORMATION STATEMENT") to be sent, prior to the Effective Time, to the
stockholders of the Company pursuant to Section 262(d)(2) of the DGCL. The
Information Statement, at the mailing date thereof, will not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; PROVIDED, HOWEVER,
that the foregoing shall not apply to the extent that any such untrue statement
of a material fact or omission to state a material fact was made by the Company
in reliance upon and in conformity with written information concerning
Purchaser, Merger Sub or any of their respective affiliates furnished to the
Company by Purchaser specifically for use in the Information Statement. The
Information Statement, including any amendment or supplement thereto, shall be
prepared by the Company in consultation with Purchaser and its counsel, and
Purchaser promptly shall be provided with a true and correct copy of such
Information Statement and any such amendment or supplement.
Section 8.8. ANNOUNCEMENTS. Except as required by law, from the date of
this Agreement through the Closing Date and, in the event of any termination of
this Agreement pursuant to ARTICLE 10, thereafter, no statement or announcement
of any nature with respect to the existence of this Agreement or the
transactions contemplated herein and no press release shall be issued or made to
any other person by any of the parties hereto, without the express written
consents of both the Company and Purchaser, which consents shall not be
unreasonably withheld.
26
Section 8.9. NOTIFICATION OF CERTAIN MATTERS. (a) Prior to the Closing
Purchaser shall keep the Company informed of (i) the status of the financings
contemplated in connection with the Stock Purchase, the Merger and the other
transactions contemplated hereby, including without limitation, the Commitments
and (ii) any facts with respect to such Commitments known to it which,
individually or in the aggregate, could reasonably be expected to result in any
of the Commitments being withdrawn or modified in any material adverse respect
or in the funding contemplated by any Commitment not being available.
Purchaser agrees to provide the Company with copies, promptly upon
Purchaser's receipt thereof, of Equity Commitments entered into by Purchaser and
of drafts of definitive financing arrangements contemplated by the Loan
Commitment and the Highly Confident Letter.
Section 8.10. OFFICERS' AND DIRECTORS' INDEMNIFICATION. (a) Purchaser
shall cause the Surviving Corporation to keep in effect in each of its
certificate of incorporation and by-laws and the certificates of incorporation
and by-laws (or other comparable documents) of each of its Subsidiaries,
provisions providing for exculpation and indemnification of the respective
officers and directors of the Company and its Subsidiaries to the fullest extent
permitted under applicable law.
(b) Purchaser shall cause to be maintained in effect, for not less
than six years from the Effective Time, for the benefit of the current or former
directors, officers, agents and employees of the Company, directors' and
officers' liability insurance policies that provide coverage for events
occurring at or prior to the Effective Time and contain terms and conditions
which are no less advantageous to the directors, officers, agents and employees
who are covered thereby, as those policies or binders maintained by the Company
at the Effective Time ("EFFECTIVE TIME COVERAGE"); PROVIDED, HOWEVER, that the
Purchaser shall not be required to cause Effective Time Coverage to be
maintained if the annual premium therefor would be in excess of 200% of the
annual premium rate of the D&O Binder; PROVIDED, FURTHER, that if Effective Time
Coverage cannot be obtained without paying an annual premium in excess of such
limit, Purchaser shall cause to be maintained as much coverage as can be
obtained by paying an annual premium equal to such limit; PROVIDED, FURTHER,
that the covered directors and officers shall have the right, but not the
obligation, to cause the Company to maintain Effective Time Coverage for the
benefit of such persons if such persons bear the cost of such insurance premium
in excess of the 200% limit.
(c) In the event Purchaser or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or
27
surviving corporation or entity of such consolidation or merger or (ii)
transfers or conveys all or substantially all of its properties and assets to
any person, then, and in each such case, to the extent necessary to effectuate
the purposes of this SECTION 8.10, proper provision shall be made so that the
successors and assigns of Purchaser assume the obligations set forth in this
SECTION 8.10 and none of the actions described in clauses (i) or (ii) shall be
taken until such provision is made.
Section 8.11. NO SOLICITATION. Until the earlier of the Effective Time
and the termination of this Agreement, neither the Company nor any of its
Subsidiaries, nor any of their respective officers, directors, employees,
representatives, agents or affiliates, shall, directly or indirectly, encourage,
solicit, initiate or participate in any way in any discussions or negotiations
with, or provide any information to, or afford any access to the properties,
books or records of the Company or any of its Subsidiaries to, or otherwise
assist, facilitate or encourage, any corporation, partnership, person or other
entity or group (other than Purchaser or any affiliate or associate of
Purchaser), or enter into any agreement or understanding, concerning any merger,
consolidation, business combination, liquidation, reorganization, sale of all or
substantially all of its assets, a sale of shares of capital stock or similar
transactions involving the Company or any Subsidiary or any division of any
thereof, and shall immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any of the foregoing and take the necessary steps to inform such
parties of the obligations undertaken in this SECTION 8.11. The Company will
promptly notify Purchaser if the Company receives any request for such
information or any negotiations or discussions are sought to be initiated with
the Company and will promptly communicate to Purchaser the terms of any proposal
or inquiry which it may receive in respect of any such transaction, to the
extent that, in any such case, the request, proposal or inquiry relates to a
bona fide and credible proposal to effect such a transaction.
Section 8.12. TRANSFER TAXES. The Company shall be responsible for, and
shall indemnify the Purchaser from and against, any stamp tax, documentary tax,
transfer tax, real property gains tax or similar tax ("TRANSFER TAXES") arising
out of the Stock Purchase. The Company shall be responsible for, and shall
indemnify each holder of Shares from and against, any U.S. Transfer Taxes
arising out of the Merger.
Section 8.13. MANAGEMENT TRANSACTION BONUSES. The Company agrees that,
subject to receipt of stockholder approval, it will pay the management
transaction bonuses described on SCHEDULE 6.13(b) at the Effective Time.
28
Section 8.14. REPAYMENT OF DEBT. Purchaser shall, in connection with the
Closing, cause to be repaid all amounts outstanding under the Credit Agreement,
including accrued and unpaid interest.
Section 8.15. FAIRNESS OPINION. The Company will use its reasonable best
efforts to obtain the fairness opinion of Lehman Brothers described in Section
10.3(e) as promptly as practicable. The Company hereby represents it is unaware
of any reason that Lehman Brothers would be unable to deliver the fairness
opinion described in Section 10.3(e).
ARTICLE 9
CONDITIONS
Section 9.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER.
The respective obligation of the Company, Purchaser and Merger Sub to effect the
Merger shall be subject to the fulfillment at or prior to the Closing Date of
the following conditions:
(a) None of the parties hereto shall be subject to any order or
injunction of a court of competent jurisdiction which prohibits the consummation
of the transactions contemplated by this agreement.
(b) Purchaser shall have purchased and the Company shall have issued
and sold the Purchased Shares pursuant to Article 1 of this Agreement.
(c) The Company and Purchaser shall have received the funds necessary
to consummate the Merger, the Stock Purchase and the related transactions
pursuant to the Commitments.
(d) The shareholder approval requirements of Section 280G(b)(5) of
the Code shall have been met with respect to the transaction bonuses described
on SCHEDULE 8.13, and the President or Vice President of the Company shall have
issued a certificate to such effect.
Section 9.2. CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE
MERGER. The obligation of the Company to effect the Merger shall be subject to
the fulfillment at or prior to the Closing Date of the conditions that
(i) Purchaser and Merger Sub shall have performed their agreements contained in
this Agreement required to be performed at or prior to the Closing Date,
(ii) the representations and warranties of Purchaser and
29
Merger Sub contained in this Agreement and in any document delivered in
connection herewith shall be true and correct in all material respects as of the
Closing Date and the Company shall have received a certificate of the President
or a Vice President of Purchaser and Merger Sub, dated the Closing Date,
certifying to such effect, (iii) the Company shall have received from Lehman
Brothers a fairness opinion, dated the Closing Date, reasonably acceptable to
the Company to the effect that, as of the Closing Date, the consideration to be
received by stockholders of the Company is fair from a financial point of view,
(iv) the Company shall have received from Houlihan Lokey Howard & Zukin a
solvency opinion, reasonably satisfactory to the Company, (v) the Company shall
have received an opinion, addressed to it and dated the Closing Date, of
Debevoise & Plimpton, counsel to Purchaser, to the effect set forth in Exhibit G
hereto, (vi) Purchaser shall have purchased the Purchased Shares in accordance
with the terms of this Agreement, and (vii) Purchaser shall have executed the
Stockholders Agreement, in the form of Exhibit F hereto.
Section 9.3. CONDITIONS TO OBLIGATION OF PURCHASER AND MERGER SUB TO EFFECT
THE MERGER. The obligations of Purchaser and Merger Sub to effect the Merger
shall be subject to the fulfillment at or prior to the Closing Date of the
conditions that (i) the Company shall have performed its agreements contained in
this Agreement required to be performed at or prior to the Closing Date;
(ii) the representations and warranties of the Company contained in this
Agreement and in any document delivered in connection herewith shall be true and
correct in all material respects as of the Closing Date and Purchaser shall have
received a certificate of the President or a Vice President of the Company,
dated the Closing Date, certifying to such effect; (iii) the Option Plan shall
have been modified as requested by Purchaser, to permit the payment of the
consideration described in SECTION 5.1(g), subject to receipt of any necessary
consents; (iv) Purchaser shall have received opinions, addressed to it and dated
the Closing Date, from each of (x) Fried, Frank, Harris, Shriver & Jacobson,
counsel to the Company, to the effect set forth in Exhibit E hereto, and (y)
special Delaware counsel to the Company as to certain matters referred to in
paragraphs 3 and 5 of Exhibit E, in form and substance reasonably satisfactory
to Purchaser; (v) the Shareholders Agreement, in the form of Exhibit F hereto
shall have been executed by holders of 90% or more of the outstanding Company
Common Stock (including holders on whose behalf AEA acts pursuant to a Covered
Shareholder's Agreement (as defined in the Shareholders Agreement)), after
giving effect to the Merger; (vi) the management agreement, dated May 4, 1992,
between AEA and P. Leiner Nutritional Products Corp. shall have been terminated;
and (vii) the Company shall not have received notice (that shall not have been
revoked or withdrawn) from the holders of more than 10% of the outstanding
Shares, determined on a fully diluted basis, that such holders have exercised or
intend to exercise their appraisal rights under Section 262 of the DGCL.
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Section 9.4. CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE
STOCK PURCHASE. The obligation of the Company to effect the Stock Purchase
shall be subject to the fulfillment at or prior to the Closing Date of the
conditions that (i) Purchaser and Merger Sub shall have performed their
agreements contained in this Agreement required to be performed at or prior to
the Closing Date, (ii) the representations and warranties of Purchaser and
Merger Sub contained in this Agreement and in any document delivered in
connection herewith shall be true and correct in all material respects as of the
Closing Date and the Company shall have received a certificate of the President
or a Vice President of Purchaser and Merger Sub, dated the Closing Date,
certifying to such effect, (iii) the Company shall have received the aggregate
Purchased Share Price in respect of the Purchased Shares and (iv) the Merger
shall have been consummated on the terms and subject to the conditions of this
Agreement.
Section 9.5. CONDITIONS TO OBLIGATION OF PURCHASER TO EFFECT THE STOCK
PURCHASE. The obligation of Purchaser to effect the Stock Purchase shall be
subject to the fulfillment at or prior to the Closing Date of the conditions
that (i) the Company shall have performed its agreements contained in this
Agreement required to be performed at or prior to the Closing Date, and (ii) the
representations and warranties of the Company contained in this Agreement and in
any document delivered in connection herewith shall be true and correct in all
material respects as of the Closing Date and Purchaser shall have received a
certificate of the President or a Vice President of the Company, dated the
Closing Date, certifying to such effect, (iii) Purchaser shall have received the
Purchased Shares, and (iv) the Merger shall have been consummated on the terms
and subject to the conditions of this Agreement.
Section 9.6. SIMULTANEOUS CONSUMMATION OF STOCK PURCHASE AND MERGER. The
parties acknowledge and agree that the consummation of each of the Merger and
the Stock Purchase are conditional on the other and that the Merger and Stock
Purchase shall be consummated simultaneously at the Closing.
ARTICLE 10
TERMINATION
Section 10.1. TERMINATION BY MUTUAL CONSENT. This Agreement may be
terminated and the Stock Purchase and Merger may be abandoned at any time prior
to the Effective Time, by the mutual written consent of Purchaser and the
Company.
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Section 10.2. TERMINATION BY EITHER THE COMPANY OR PURCHASER. This
Agreement may be terminated and the Stock Purchase and Merger may be abandoned
by either the Company or Purchaser if (a) the Closing shall not have occurred on
or before September 1, 1997 or (b) a United States federal or state court of
competent jurisdiction or United States federal or state governmental,
regulatory or administrative agency or commission shall have issued an order,
decree or ruling or taken any other action permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by this Agreement and such
order, decree, ruling or other action shall have become final and
non-appealable; and provided, in the case of a termination pursuant to clause
(a) above, that the terminating party shall not have breached its obligations
under this Agreement in any manner that shall have proximately contributed to
the occurrence of the failure referred to in said clause.
Section 10.3. TERMINATION BY THE COMPANY. This Agreement may be
terminated and the Stock Purchase and Merger may be abandoned at any time prior
to the Closing, by the Company, if (a) there has been a material breach of any
representation or warranty of Purchaser or Merger Sub contained in this
Agreement, (b) there has been a material breach of any of the covenants or
agreements contained in this Agreement on the part of Purchaser or Merger Sub,
which breach is not curable or, if curable, is not cured within 10 days after
written notice of such breach is given by the Company to Purchaser,
(c) Purchaser has not delivered, on or prior to June 10, 1997, (i) all equity
commitment agreements ("NEW EQUITY COMMITMENTS") pursuant to which Purchaser
shall sell limited liability company interests as contemplated by the Equity
Memorandum and (ii) a certificate from the managing member of the managing
member of Purchaser and the Chief Executive Officer and the President of the
Company, certifying that, based on their discussions with management of the
Company, they and other members of management confirm their intention to retain
equity in the Company (such intended retained equity, "ROLLOVER EQUITY
COMMITMENTS"; New Equity Commitments and Rollover Equity Commitments being
referred to collectively herein as "EQUITY COMMITMENTS"; Debt Commitments and
Equity Commitments being referred to collectively herein as "COMMITMENTS"), and
to convert their existing equity interests in the Company (in the form of
Company Common Stock and Management Options) into Surviving Corporation Common
Stock or Delayed Delivery Shares, as the case may be, or their preferred share
interest in a subsidiary of the Company into the right to receive, upon certain
circumstances, Surviving Corporation Common Stock, which Commitments must
specify and provide for (x) Rollover Equity Commitments equal to or greater than
$14 million and (y) proceeds to be realized by Purchaser pursuant to the
delivered New Equity Commitments, that, when added to the Aggregate Management
Rollover Value to be realized pursuant to the Rollover Equity Commitments, equal
$99,000,000, (d) at any
32
time after June 10, 1997, any of the Commitments have been withdrawn or modified
in any material adverse respect, which the Company reasonably believes will
prevent the Closing from occurring, other than as a result of a failure by the
Company to fulfill its obligations under the final sentence of Section 8.4 or
(e) on or before June 5, 1997, Lehman Brothers has not delivered a fairness
opinion reasonably satisfactory to the Board of Directors of the Company to the
effect that, as of the date of such opinion, the consideration to be received by
the stockholders of the Company is fair from a financial point of view;
PROVIDED, HOWEVER, that any notice of termination pursuant to this clause (e)
must be delivered on or prior to June 9, 1997.
Section 10.4. TERMINATION BY PURCHASER. This Agreement may be terminated
and the Stock Purchase and Merger may be abandoned at any time prior to the
Closing by Purchaser, if (a) there has been a material breach of any
representation or warranty of the Company contained in this Agreement or (b)
there has been a material breach of any of the covenants or agreements contained
in this Agreement on the part of the Company, which breach is not curable or, if
curable, is not cured within 10 days after written notice of such breach is
given by Purchaser to the Company.
Section 10.5. EFFECT OF TERMINATION AND ABANDONMENT. In the event of
termination of this Agreement and the abandonment of the Stock Purchase and
Merger pursuant to this ARTICLE 10, all obligations of the parties hereto shall
terminate, except the obligations of the parties pursuant to this SECTION 10.5
and except for the provisions of SECTIONS 8.6, 8.8, 11.2, 11.3, 11.4, 11.5,
11.6, 11.8, 11.9, 11.10, 11.11 and 11.12. Moreover, in the event of termination
of this Agreement pursuant to SECTION 10.3 or 10.4, nothing herein shall
prejudice the ability of the non-breaching party to seek damages from any other
party for any willful breach of this Agreement, including without limitation,
attorneys' fees, or to pursue any remedy at law or in equity.
ARTICLE 11
GENERAL PROVISIONS
Section 11.1. NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
The representations and warranties contained in this Agreement or in any
instrument delivered pursuant to this Agreement shall not survive beyond the
Closing, and none of the parties nor their respective officers, directors or
shareholders shall have any liability with respect thereto. Covenants or
agreements which by their terms contemplate performance by or at the Closing
Date shall not survive the Closing Date. This SECTION
33
11.1 shall not limit, however, any covenant or agreement which by its terms
contemplates performance after the Closing Date.
Section 11.2. NOTICES. Any notice required to be given hereunder shall be
sufficient if in writing, and sent by facsimile transmission and by courier
service (with proof of service), hand delivery or certified or registered mail
(return receipt requested and first-class postage prepaid), addressed as
follows:
If to the Company: If to Purchaser or Merger Sub:
Mr. Robert M. Kaminski Mr. Charles F. Baird, Jr.
Leiner Health Products Group Inc. North Castle Partners I, L.L.C.
901 East 233rd Street 11 Meadowcroft Lane
Carson, California 90745-6204 Greenwich, Connecticut 08630
Facsimile: (310) 952-7766 Facsimile: (203) 869-4311
With a copy to: With a copy to:
Frederick H. Fogel, Esq. Franci J. Blassberg, Esq.
Fried, Frank, Harris, Debevoise & Plimpton
Shriver & Jacobson 875 Third Avenue
One New York Plaza New York, New York 10022
New York, New York 10004-1980 Facsimile: (212) 909-6836
Facsimile: (212) 859-4000
With a copy to:
Christine J. Smith, Esq.
AEA Investors Inc.
65 East 55th Street
New York, New York 10022
Facsimile: (212) 702-0518
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
Section 11.3. ASSIGNMENT; BINDING EFFECT; BENEFIT. Neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto (whether by operation of law or otherwise) without the
prior written
34
consent of the other parties. Subject to the preceding sentence, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and assigns. Notwithstanding anything contained in
this Agreement to the contrary, except for the provisions of ARTICLE 5 and
SECTION 8.10 (which are for the express benefit of the parties referred to
therein), nothing in this Agreement, express or implied, is intended to confer
on any person other than the parties hereto or their respective heirs,
successors, executors, administrators and assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
Section 11.4. ENTIRE AGREEMENT. This Agreement, the exhibits and
schedules hereto, Section 1 and Section 5(a) of the Letter of Intent, the
Expense Letter and any documents delivered by the parties in connection herewith
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings (oral and
written) among the parties with respect thereto.
Section 11.5. AMENDMENT. This Agreement may be amended by the parties
hereto at any time, but no amendment shall be made which by law requires the
further approval of stockholders without obtaining such further approval. This
Agreement may not be amended or modified except by an instrument in writing
signed by or on behalf of each of the parties hereto.
Section 11.6. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without regard to
its rules of conflict of laws. Each of the Company and Purchaser hereby
irrevocably and unconditionally consents to submit to the exclusive jurisdiction
of the courts of the State of Delaware and of the United States of America
located in the State of Delaware (the "DELAWARE COURTS") for any litigation
arising out of or relating to this Agreement and the transactions contemplated
hereby (and agrees not to commence any litigation relating thereto except in
such courts), waives any objection to the laying of venue of any such litigation
in the Delaware Courts and agrees not to plead or claim that such litigation
brought in any Delaware Court has been brought in an inconvenient forum.
Notwithstanding the foregoing, each of the parties hereto agrees that each of
the other parties shall have the right to bring any action or proceeding for
enforcement of a judgment entered by the Delaware Courts in any other court or
jurisdiction.
Section 11.7. COUNTERPARTS. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument. Each counterpart may consist of a number of copies of
this Agreement,
35
each of which may be signed by less than all of the parties hereto, but together
all such copies are signed by all of the parties hereto.
Section 11.8. HEADINGS. Headings of the Articles and Sections of this
Agreement are for the convenience of the parties only, and shall be given no
substantive or interpretive effect whatsoever.
Section 11.9. INTERPRETATION. In this Agreement, unless the context
otherwise requires, words describing the singular number shall include the
plural and vice versa, and words denoting any gender shall include all genders
and words denoting natural persons shall include corporations and partnerships
and vice versa. Whenever used in this Agreement, "to the knowledge of the
Company" (or words of similar import, whether expressed in the positive or
negative) shall mean only the actual knowledge of those persons who are listed
on SCHEDULE 11.9.
Section 11.10. INCORPORATION OF EXHIBITS AND SCHEDULES. All exhibits and
schedules hereto are hereby incorporated herein and made a part hereof for all
purposes as if fully set forth herein.
Section 11.11. SEVERABILITY. Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or otherwise affecting the validity or enforceability of any of the
terms or provisions of this Agreement in any other jurisdiction. If any
provision of this Agreement is so broad as to be unenforceable, the provision
shall be interpreted to be only so broad as is enforceable.
Section 11.12. ENFORCEMENT OF AGREEMENT. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any Delaware Court, this
being in addition to any other remedy to which they may be entitled at law or in
equity.
Section 11.13. PERFORMANCE BY MERGER SUB. Purchaser hereby agrees to cause
Merger Sub to comply with its obligations hereunder and to cause Merger Sub to
consummate the Merger as contemplated herein.
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IN WITNESS WHEREOF, the parties have executed this Agreement and
caused the same to be duly delivered on their behalf as of the day and year
first written above.
LEINER HEALTH PRODUCTS GROUP INC.
By: /s/ Robert M. Kaminski
-------------------------------------
Name: Robert M. Kaminski
Title: Chief Executive Officer
NORTH CASTLE PARTNERS I, L.L.C.
By: Baird Investment Group, L.L.C.
Its Managing Member
By: /s/ Charles F. Baird
-------------------------------------
Name: Charles F. Baird
Title: Managing Member
LHP ACQUISITION CORP.
By: /s/ Charles F. Baird
-------------------------------------
Name: Charles F. Baird
Title: President
37