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MASTER RESTRUCTURING AGREEMENT
Dated as of June 19, 1998
Between
ASTRA AB,
MERCK & CO., INC.,
ASTRA MERCK INC.,
ASTRA USA, INC.,
KB USA, L.P.,
ASTRA MERCK ENTERPRISES INC.,
KBI SUB INC.,
MERCK HOLDINGS, INC.
and
ASTRA PHARMACEUTICALS, L.P.
================================================================================
Confidential portions of this exhibit have been omitted
and filed separately with the Securities and Exchange
Commission with a request for confidential treatment pursuant
to Rule 24b-2. The location of an omitted portion is
indicated by an asterisk within brackets ("[*]").
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
PAGE
----
ARTICLE 1 CERTAIN DEFINITIONS......................................... 2
1.1 Definitions................................................. 2
ARTICLE 2 EXECUTION OF AGREEMENTS; PRE-CLOSING EVENTS;
CLOSING..................................................... 30
2.1 Execution and Delivery of Initial Agreements................ 30
2.2 Other Pre-Closing Events.................................... 31
2.3 Closing..................................................... 32
2.4 Actions to be Taken at the Closing.......................... 32
2.5 Certain Adjustments......................................... 34
2.6 KBI Shared Liabilities...................................... 38
2.7 Other Actions............................................... 39
2.8 Termination of Certain Agreements........................... 39
ARTICLE 3 CERTAIN OPERATIONAL PROVISIONS.............................. 40
3.1 Exclusive Distributorship Agreement......................... 40
3.2 Competition................................................. 40
3.3 Ownership of KBI, KBLP and Other Affiliates................. 42
3.4 Use of Names................................................ 48
3.5 Put Option.................................................. 49
3.6 Outlicensing of Group D Compounds, KB USA
Compounds and Group E Compounds............................. 50
3.6A Appointment of Subdistributors and Assignments
of Rights with Respect to Licensed Compounds................ 57
3.7 Computation of Certain Contingent Amounts................... 62
3.8 Inflation Adjustment........................................ 66
3.9 Payments.................................................... 67
3.10 Maintenance and Access to Books and Records................. 67
3.11 Business of KBLP............................................ 67
3.12 Business of KBI Parties..................................... 68
3.13 Notice of Events of Bankruptcy.............................. 68
3.14 Certain Actions in Respect of Contingent Amounts............ 68
3.15 Trigger Event............................................... 69
3.16 [Intentionally Omitted]..................................... 79
3.17 KB Obligations in Respect of Certain Loans.................. 79
3.18 Other KB Outlet............................................. 80
3.19 Information Concerning Compounds............................ 80
3.20 Determination of Critical Compounds......................... 80
3.21 Preparation of Tax Returns and Financial
Statements.................................................. 82
3.22 Co-promotions............................................... 82
3.23 Lexxel Agreements........................................... 83
</TABLE>
(i)
<PAGE> 3
TABLE OF CONTENTS
(Continued)
<TABLE>
PAGE
----
ARTICLE 4 CONFIDENTIALITY............................................. 83
4.1 Confidentiality............................................. 83
4.2 Exceptions.................................................. 84
4.3 Enalapril Confidentiality................................... 85
ARTICLE 5 REPRESENTATIONS AND WARRANTIES.............................. 85
5.1 Representations and Warranties of TR and TR
Holdings.................................................... 85
5.2 Representations and Warranties of KB Parties................ 87
5.3 Representations Concerning KBI.............................. 90
ARTICLE 6 INTERIM COVENANTS........................................... 90
6.1 Filings; Consents........................................... 90
6.2 Notification of Certain Matters............................. 90
ARTICLE 7 CONDITIONS TO CLOSING....................................... 91
7.1 Condition to Obligations of KB Parties...................... 91
7.2 Condition to Obligations of TR Parties...................... 91
7.3 Additional Condition to Certain Obligations of
TR Parties.................................................. 92
ARTICLE 8 GUARANTEES OF PERFORMANCE................................... 92
8.1 Guarantee by KB............................................. 92
8.2 Guarantee by TR............................................. 92
8.3 Definitions................................................. 93
8.4 Liability of Guarantor Unconditional........................ 93
8.5 Direct Action Against a Guarantor........................... 94
8.6 Continuing Guarantee........................................ 94
8.7 Subordination............................................... 94
8.8 Limits on Subrogation....................................... 95
8.9 Obligations Additional...................................... 95
8.10 Remedies Not Exclusive...................................... 95
8.11 Effect of Assignment........................................ 95
ARTICLE 9 ARBITRATION................................................. 96
9.1 Binding Arbitration; Rules.................................. 96
9.2 Venue; Language............................................. 96
9.3 Arbitrators................................................. 96
9.4 Interim Relief.............................................. 96
ARTICLE 10 INDEMNIFICATION............................................. 97
10.1 By the KB Parties........................................... 97
10.2 By TR....................................................... 97
10.3 Indemnification Procedures.................................. 97
</TABLE>
(ii)
<PAGE> 4
TABLE OF CONTENTS
(Continued)
<TABLE>
PAGE
----
10.4 Subrogation................................................. 99
10.5 Survival.................................................... 99
10.6 Limitation on Damages....................................... 99
ARTICLE 11 TERM AND TERMINATION........................................ 100
11.1 Term........................................................ 100
11.2 Cut-Off Date................................................ 100
11.3 Exercise of KBI-E Asset Option and KBI Shares
Option...................................................... 100
11.4 Survival.................................................... 100
11.5 Unilateral Termination...................................... 100
ARTICLE 12 MISCELLANEOUS............................................... 101
12.1 Entire Agreement; Waiver or Modification.................... 101
12.2 Third Party Beneficiaries................................... 101
12.3 Force Majeure............................................... 101
12.4 Miscellaneous............................................... 102
12.5 Binding Effect; Assignment.................................. 102
12.6 Further Assurances.......................................... 103
12.7 Affiliates.................................................. 103
12.8 Notices..................................................... 103
12.9 Governing Law............................................... 104
12.10 Severability................................................ 104
12.11 Remedies.................................................... 105
12.12 Expenses.................................................... 105
12.13 Execution................................................... 105
12.14 Publicity................................................... 105
12.15 Service of Process.......................................... 106
</TABLE>
Schedule 1.1 Certain KB USA Products
Schedule 1.2 Classification of Combinations
Schedule 2.5 Closing Statements
Schedule 3.2(b) TR Joint Ventures
Schedule 3.7 Base Sales Weightings and Relative Sales Weightings
Schedule 3.8 Example of Computation of Inflation Adjustments
Schedule 3.15A Trigger Event: Certain Financial Calculations
Schedule 3.15B Trigger Event: Qualified Persons
Appendix I Ancillary Agreements
Exhibit A Form of Amended and Restated KBI License
Exhibit B Form of Distribution Agreement
Exhibit C Form of Exclusive Distributorship Agreement
(iii)
<PAGE> 5
Exhibit D Form of KB USA Asset Contribution Agreement
Exhibit E Form of KBI Asset Contribution Agreement
Exhibit F Form of KBI License Assignment and Assumption Agreement
Exhibit G Form of KBI Plan of Recapitalization
Exhibit H Form of KBI Shares Option Agreement
Exhibit I Form of KBI Sub Assignment and Assumption Agreement (#1)
Exhibit J Form of KBI Sub Assignment and Assumption Agreement (#2)
Exhibit K Form of KBI Supply Agreement
Exhibit L Form of KBI-E Asset Contribution Agreement
Exhibit M Form of KBI-E Asset Option Agreement
Exhibit N Form of KBLP Assignment and Assumption Agreement
Exhibit O Form of Manufacturing Agreement
Exhibit P Form of Partnership Agreement
Exhibit Q Form of Pledge Agreement
Exhibit R Form of Selected Compounds Contribution Agreement
Exhibit S Form of Trademark Rights Contribution Agreement
Exhibits T-1-T-5 Form of Agreements re Permitted Transfers
Exhibit U Form of Clinical Supply Agreement
Exhibit V Form of KBI Sublicense Agreement
Exhibits W Form of Security Agreement
(iv)
<PAGE> 6
MASTER RESTRUCTURING AGREEMENT
MASTER RESTRUCTURING AGREEMENT, dated as of June 19, 1998, between
ASTRA AB, a company limited by shares organized and existing under the laws of
Sweden ("KB"), MERCK & CO., INC., a New Jersey corporation ("TR"), ASTRA MERCK
INC., a Delaware corporation ("KBI"), ASTRA USA, INC., a New York corporation
and an indirect wholly-owned subsidiary of KB ("KB USA"), KB USA, L.P., a
Delaware limited partnership of which KB is the general partner and KB USA is
the limited partner ("KBLP"), ASTRA MERCK ENTERPRISES INC., a Delaware
corporation and a direct wholly-owned subsidiary of KBI ("KBI-E"), KBI SUB INC.,
a Delaware corporation and a direct wholly-owned subsidiary of KBI ("KBI Sub"),
MERCK HOLDINGS, INC., a Delaware corporation and a direct wholly-owned
subsidiary of TR ("TR Holdings"), and ASTRA PHARMACEUTICALS, L.P. (f/k/a KB
Operating, L.P.), a Delaware limited partnership (the "Partnership").
WITNESSETH:
WHEREAS, KB and TR Holdings own all the outstanding shares of KBI;
WHEREAS, in the case of KB, such shares constitute (i) 50,000 shares
of Class A Common Stock, par value $.01 per share ("Class A Common Stock"); (ii)
one (1) share of Class C Common Stock, par value $.01 per share ("Class C Common
Stock"); (iii) 187,500 shares of Class A Non-Voting Preferred Stock, par value
$12,160 per share ("Class A Preferred Stock"); and (iv) 12,500 shares of Class C
Voting Preferred Stock, par value $9,600 per share ("Class C Preferred Stock");
WHEREAS, in the case of TR Holdings, such shares constitute (i)
50,000 shares of Class B Common Stock, par value $.01 per share ("Class B Common
Stock"); (ii) 187,500 shares of Class B Non-Voting Preferred Stock, par value
$12,160 per share ("Class B Preferred Stock"); and (iii) 12,500 shares of Class
D Voting Preferred Stock, par value $9,600 per share ("Class D Preferred
Stock");
WHEREAS, KBI is a joint venture of KB and TR formed pursuant to that
certain Agreement dated as of July 12, 1982, among TR, KB, KB USA and KBI, as
amended by the Transfer Consummation Agreement dated as of November 1, 1994,
among TR, KB, and KBI (such agreement, as so amended, being referred to herein
as the "1982 JV Agreement");
WHEREAS, pursuant to a Limited Partnership Agreement, dated as of
October 21, 1997 (the "Original Partnership Agreement"), the Partnership has
been formed and, contemporaneously with the execution and delivery of this
Agreement, the partnership interests therein are being acquired by KBLP, as
general partner, and KB USA, as limited partner;
WHEREAS, KB and TR desire to restructure their joint venture through
the termination of the Original Partnership Agreement, the acquisition by KBI
Sub of the limited partner's interest in the Partnership, including its status
as limited partner, and the entry into the
<PAGE> 7
2
Partnership Agreement (as defined below) by KBLP and KBI Sub (upon its
acquisition of the limited partnership interest in the Partnership), the
capitalization of the Partnership and the modification of certain other
contractual arrangements, as provided in the Initial Agreements (as defined
below), the Partnership Agreement and the Ancillary Agreements (as defined
below), and, in furtherance thereof, the parties hereto are entering into this
Agreement and the other Initial Agreements (as applicable) as of the date
hereof;
NOW, THEREFORE, in consideration of the premises and the
representations, warranties and agreements contained herein and in the other
Initial Agreements, the Partnership Agreement and the Ancillary Agreements, the
parties hereto hereby agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
1.1 Definitions.
(a) Without limiting any other terms defined herein, as used
in this Agreement the following terms shall have the following respective
meanings:
"ABCV Compound" shall mean the Parenteral Form of (i) any Licensed
Compound which is a Group C Compound, (ii) any Group D Compound or (iii) any
Group E Compound that, in any such case, also has other routes of administration
or has an antibiotic, anticancer or antiviral use.
"Accounting Procedures" shall have the meaning set forth in the
Amended and Restated KBI License.
"Acquisition of KB" shall have the meaning set forth in Section
3.15(b).
"Actual Formula Price" shall mean the actual Formula Price
determined in accordance with the KBI-E Asset Option Agreement.
"Actual Formula Price Statement" shall have the meaning set forth in
Section 3.15(f).
"Additional KBLP GP" shall have the meaning set forth in Section
3.3(f).
"Additional KBLP LP" shall have the meaning set forth in Section
3.3(f).
"Adjusted Original Amount" shall have the meaning set forth in
Section 3.8.
"Adjustment Date" shall have the meaning set forth in Section 3.8.
"Advance Amount" shall mean $2.8 billion.
<PAGE> 8
3
"Affiliate" shall mean, with respect to any Person, any other Person
controlling, controlled by or under common control with, such Person. For
purposes of this definition, the term "control" of a Person shall mean direct or
indirect ownership of more than 50% of the outstanding voting stock of a
corporate Person or voting interest in a non-corporate Person. Notwithstanding
the foregoing, (i) no KBI Party or TR Party (or any of their Affiliates) shall
at any time be deemed to be an Affiliate of the Partnership or any KB Party (or
any of their Affiliates) solely by virtue of its direct or indirect ownership
interest in the Partnership, (ii) each KBI Party shall be deemed to be an
Affiliate of TR from and after (but not before) the consummation of the share
purchase referred to in Section 2.4(b) hereof, and (iii) the Partnership shall
be deemed to be an Affiliate of KB, the General Partner and each of their
Affiliates.
"Agreed Cash Amount" shall mean the amount calculated in accordance
with Section 2.5(b).
"Amended and Restated KBI Certificate of Incorporation" shall mean
the Amended and Restated Certificate of Incorporation of KBI in the form of
Exhibit A to the KBI Plan of Recapitalization.
"Amended and Restated KBI By-laws" shall mean the by-laws of KBI in
the form of Exhibit B to the KBI Plan of Recapitalization.
"Amended and Restated KBI License"(1) shall mean the KBI License, as
amended and restated as of the Closing Date in the form of Exhibit A hereto, as
such agreement is amended, modified, supplemented or restated from time to time.
"Ancillary Agreements" shall mean, collectively, the Agreements
listed in Appendix I hereto. When used in the singular, such term shall mean any
of the foregoing Agreements.
"ANDA" shall mean an abbreviated NDA.
"Animal Health Use" shall have the meaning set forth in the Selected
Compounds Contribution Agreement.
"Announcement Date" shall mean with respect to a transaction or
proposed transaction with a Qualified Person the date on which such transaction
(or any part thereof) is first publicly announced by any party to such
transaction; provided, however, that the restructuring of such transaction with
such Qualified Person or an Affiliate thereof prior to the consummation thereof
shall not affect or result in a change in the Announcement Date.
---------------
1. This definition was modified by paragraph 3 of the letter agreement dated
July 1, 1998, so that this definition refers to the form of the agreement
executed and delivered at the Closing (as such agreement is amended,
modified, supplemented or restated from time to time).
<PAGE> 9
4
"Appraised Value" shall mean the net present value as of March 31,
2008 of the projected pre-tax amount of the sum of the KBI Products Contingent
Amount and the Group E Products Contingent Amount as computed pursuant to
Section 3.7 hereof (including amounts with respect to future KBI Products and
future Group E Products containing Assignment Compounds (as defined in the KBI-E
Asset Option Agreement)) without giving effect to the adjustment provided for in
Section 3.7(c) hereof, as determined by the Appraiser pursuant to the terms of
Section 3.15(f) hereof.
"Appraiser" shall mean the appraiser selected in accordance with
Section 3.15(f).
"Assignment Payment" shall have the meaning set forth in the KBI-E
Asset Option Agreement.
"Assignment Right" shall have the meaning set forth in the KBI-E
Asset Option Agreement.
"Association" shall mean the American Arbitration Association.
"Authorized Persons" shall have the meaning set forth in Section
4.1(c).
"Bankruptcy" shall mean, with respect to any Person, any of the
following events:
(i) the Person (a) voluntarily consents to an order for relief
under the Bankruptcy Code, (b) seeks, consents to, or does not
contest the appointment of a receiver, custodian, or trustee for
itself or for all or any material part of its property, (c) files a
petition seeking relief under the bankruptcy, arrangement,
reorganization, or other debtor relief laws of any country, state or
other competent jurisdiction, (d) makes a general assignment for the
benefit of its creditors, or (e) admits in writing that it is
generally not paying its debts as they become due; or
(ii) (a) any party files a petition against such Person
seeking an order for relief under the Bankruptcy Code, or seeking
relief under the bankruptcy, arrangement, reorganization, or other
debtor relief laws of any country, state or other competent
jurisdiction, or (b) a court of competent jurisdiction enters an
order, judgment, or decree appointing a receiver, custodian, or
trustee for such Person, or for all or any material part of its
property, and such petition, order, judgment, or decree shall have
continued undischarged or unstayed for a period of sixty (60)
consecutive days after its entry;
and, with respect to KBLP (or any Successor General Partner) and any Additional
KBLP GP, shall also include the following additional events:
(iii) the interest of any general partner thereof is seized or
subject to a charging order by a creditor of such partner and such
partner fails to contest the
<PAGE> 10
5
same within sixty (60) days after the date of notice to such partner
of such seizure or charging order; or
(iv) the Bankruptcy (as determined under clauses (i) and (ii)
above) of any general partner of KBLP (or, in the case of a
Successor General Partner or Additional KBLP GP, any general partner
or 25% or greater shareholder (or Person having comparable status in
the case of any entity which is not a partnership or corporation) of
such Successor General Partner or Additional KBLP GP, as the case
may be);
and, with respect to the Partnership, shall also include the following
additional events:
(v) the Interest of the General Partner is seized or subject
to a charging order by a creditor of the General Partner and the
General Partner fails to contest the same within sixty (60) days
after the date of notice to the General Partner of such seizure or
charging order; or
(vi) the Bankruptcy (as determined under clauses (i), (ii),
(iii), and (iv) above) of the General Partner or any Additional KBLP
GP.
"Bankruptcy Code" shall mean Title 11 of the U.S. Code, entitled
"Bankruptcy", as now or hereafter in effect, or any successor statute.
"Base Date" shall have the meaning set forth in Section 2.5(e)(i).
"Base Date Working Capital" shall have the meaning set forth in
Section 2.5(e)(i).
"Base Sales Weighting" or "BSW" with respect to each category of
Compounds or products listed in the table set forth in Part 2 of Schedule 3.7
hereto shall mean, for any Fiscal Year, the percentage set forth or described in
such table across from such category.
"Blocking Amount" shall be (i) prior to the KBI-E Asset Purchase,
(A) $300,377,586, plus (B) if any of the events described in clause (i) of the
definition of Put Option Event occurs, whether such event occurs before or after
the occurrence of any other event that constitutes a Put Option Event, (x) for
Blocking Payments made in any Fiscal Year from 1998 through 2002, $100 million
($100,000,000), (y) for Blocking Payments made in any Fiscal Year from 2003
through 2007, $150 million ($150,000,000) and (z) for Blocking Payments made in
any Fiscal Year after 2007, 13% times the greater of (1) 15.5 times the average
annual amount of the Fourth Tier Amount for the three Fiscal Years preceding the
exercise of the Put Option (or if fewer than three full Fiscal Years have
elapsed from the Closing Date to the exercise of the Put Option, the average
annual amount of the Fourth Tier Amount for such Fiscal Years) or (2) $2.0
billion and (ii) after the KBI-E Asset Purchase, $217,577,586.
"Blocking Payments" shall have the meaning set forth in Section
3.5(a).
<PAGE> 11
6
"Bulk Chemical Manufacturing Stage" shall have the meaning set forth
in the Manufacturing Agreement.
"business day" shall mean any day other than a Saturday, a Sunday,
or any day on which commercial banks in New York City are required or authorized
to be closed.
"Butterfly Loan Agreements" shall mean the following agreements: (i)
the Loan Agreement dated as of February 15, 1995, by and between KBI and KBI-E,
(ii) the Loan Agreement dated as of February 15, 1995, by and among KB, TR and
KBI-E; and (iii) the Loan Agreement dated as of February 15, 1995 by and among
KBI, KB US Holdings Corporation and TR and Company Incorporated.
"Calculated Amount" shall have the meaning set forth in the
definition of "True-Up Amount."
"Capital Account" shall have the meaning set forth in the
Partnership Agreement.
"Cash and Short-term Investments" of a Person shall mean all of the
cash, cash equivalents and securities owned by such Person that are readily
convertible into or transferable for cash (in each case on a consolidated
basis), including without limitation the items set forth on Part A of Schedule
3.15A hereto.
"Class A Common Stock" shall have the meaning set forth in the
Recitals.
"Class B Common Stock" shall have the meaning set forth in the
Recitals.
"Class C Common Stock" shall have the meaning set forth in the
Recitals.
"Class A Preferred Stock" shall have the meaning set forth in the
Recitals.
"Class B Preferred Stock" shall have the meaning set forth in the
Recitals.
"Class C Preferred Stock" shall have the meaning set forth in the
Recitals.
"Class D Preferred Stock" shall have the meaning set forth in the
Recitals.
"Class E Preferred Stock" shall mean the Class E Non-Voting
Convertible Participating Preferred Stock, par value $12,160 per share, of KBI.
"Closing" and "Closing Date" shall have the respective meanings set
forth in Section 2.3.
"Closing Date Inventory Amount" shall mean the book value of the
Inventory as of the Closing Date (determined in accordance with GAAP).
"Closing Date Working Capital" shall have the meaning set forth in
Section 2.5(e)(i).
<PAGE> 12
7
"Closing Statements" shall have the meaning set forth in Section
2.5(e)(i).
"Code" shall have the meaning set forth in the Partnership
Agreement.
"Combined Weighted Net Sales of Tiered Rate Products" shall mean
the sum of the Weighted Net Sales for all Tiered Rate Products.
"Common Stock" shall mean the Common Stock, par value $.01 per
share, of KBI.
"Comparable Companies" shall mean, as of the Measurement Date, the
fifteen (15) largest publicly traded companies (based on the market value of
their publicly traded shares) that report earnings in accordance with GAAP and
have Pharmaceutical Sales (on a consolidated basis) that are at least 50% of
their total sales.
"Compound" shall mean any pharmaceutical compound, and the salts and
esters thereof, which is suitable for use in human medicine.
"Compound Intellectual Property" shall mean all patents (including
reissues, divisions, continuations and extensions thereof), patent rights,
registrations and applications for the foregoing, licenses and other contractual
rights with respect to the foregoing.
"Compound Technical Information" shall mean all scientific and
technical information, data, and know-how relating to any manufacturing process.
"Contingent Amount Gross-Up" shall have the meaning set forth in
the Partnership Agreement.
"Co-promotion Arrangement" shall mean any arrangement, other than
with respect to a Covered Compound, between the Partnership, KB or any of their
respective Affiliates, on the one hand (such Person, the "Co-promoter"), and any
Third Party, on the other hand (such Person, the "Product Rights Owner"),
pursuant to which the Co-promoter (x) has been granted any right by, or incurred
any obligation to, the Product Rights Owner to participate in the promotion,
marketing or selling effort with respect to any Patented Compound or any product
containing any Patented Compound in the Territory and (y) has a financial
interest in the sales of or income from such Patented Compound or product.
"Covered Compound" shall mean any Group A Compound, Group B
Compound, Group C Compound that is a Licensed Compound, Group D Compound, Group
E Compound, or KB USA Compound.
"Critical Compound" shall mean (i) each of the following Compounds:
omeprazole, perprazole, budesonide (for the treatment of chronic lower
respiratory diseases (J40-J42; J44-47), asthma (J45), rhinitis, allergic (from
J30) and rhinitis, other (from J31)) and candesartan cilexetil, including
without limitation formulations for OTC Products and any combination of any of
the foregoing with any other Compound, but excluding formulations for
<PAGE> 13
8
Selected Uses, and (ii) any Covered Compound (including formulations for OTC
Products and any combination of the foregoing with any other Compound, but
excluding formulations for Selected Uses) for which at the time of the proposed
Outlicensing (A) the annual Net Sales of Ethical Pharmaceutical Products for use
in humans containing such Covered Compound for the most recently completed
fiscal year of the Partnership and, if applicable, any of its Affiliates in the
Territory exceed the Critical Compound Threshold, or (B) the annual Net Sales of
Ethical Pharmaceutical Products for use in humans containing such Covered
Compound are reasonably expected to exceed the Critical Compound Threshold
within five (5) years from the date of the First Commercial Sale thereof by the
Partnership or, if applicable, any of its Affiliates in the Territory.
"Critical Compound Threshold" shall mean $200 million
($200,000,000), adjusted for inflation pursuant to Section 3.8 hereof.
"Disposition Threshold" shall mean $1.0 billion, increased annually
as of January 1 of each year, commencing January 1, 1999, by the cumulative
percentage growth in worldwide pharmaceutical sales during the immediately
preceding year as reported by the Drug Report. For purposes of determining
whether the Disposition Threshold has been exceeded, any amount reported in a
currency other than Dollars shall be translated into Dollars based on the Noon
Buying Rate for such currency on the Measurement Date.
"Distribution Agreement"(2) shall mean the Distribution Agreement
between KBI-E and the Partnership in the form of Exhibit B hereto, as such
agreement is amended, modified, supplemented or restated from time to time.
"Dollars" or "$" shall mean U.S. dollars.
"Drug Report" shall mean World Review published by IMS Global
Services or any successor publisher thereto; provided, however, that, if IMS
Global Services or any such successor ceases operations, or otherwise ceases
reporting the financial information necessary to make the calculations required
by this Agreement, "Drug Report" shall mean such other database or reporting
system reporting worldwide pharmaceutical sales most closely approximating World
Review, as shall be agreed upon by KB and TR, except that if KB and TR are
unable to so agree, such dispute shall be submitted to arbitration pursuant to
Article 9.
"Effective Rate in Respect of Tiered Rate Products" shall mean, with
respect to any period, the percentage rate computed by dividing the Tiered Rate
Products Amount for such period by the Combined Weighted Net Sales of Tiered
Rate Products for such period.
--------------
2. This definition was modified by paragraph 3 of the letter agreement dated
July 1, 1998, so that this definition refers to the form of the agreement
executed and delivered at the Closing (as such agreement is amended,
modified, supplemented or restated from time to time).
<PAGE> 14
9
"Effective Time" shall mean, in the case of the KBI Asset
Contribution Agreement, the KBI-E Asset Contribution Agreement, the Trademark
Rights Contribution Agreement and the KB USA Asset Contribution Agreement, (i)
the time designated in writing by KBI Sub or KBLP (or their respective
assignees), as the case may be, as the effective time of the transfer of assets
and the assumption of liabilities thereunder, in accordance with the terms of
the applicable agreement (which effective time shall be no later than the
opening of business on the Closing Date), or (ii) if no such designation is
made, the opening of business on the Closing Date.
"Entocort" shall mean budesonide for the treatment of inflammatory
bowel disease in humans (K50-K51).
"Equity Securities" of a Person shall mean all securities
characterized as equity securities on the most recent balance sheet of such
Person released to shareholders on or prior to the Measurement Date, other than
equity securities that are preferred and limited as to dividends.
"Estimated Inventory Amount" shall have the meaning set forth in
Section 2.5(b).
"Estimated Working Capital Adjustment" shall have the meaning set
forth in Section 2.5(b).
"Ethical OTC Product" shall mean any OTC Product sold outside the
Territory that cannot lawfully be advertised directly to consumers.
"Ethical Pharmaceutical Product" shall mean with respect to any
Person any pharmaceutical product for human use which may be sold lawfully in
any of the Territory or Canada or any country of the European Union or in the
country in which such Person is incorporated or organized only with a
prescription or an order of a licensed practitioner, regardless of whether it
may be sold elsewhere without a prescription or an order of a licensed
practitioner.
"Events of Force Majeure" shall have the meaning set forth in
Section 12.3.
"Excluded Transaction" shall have the meaning set forth in the
proviso to the definition of "Outlicensing."
"Exclusive Distributorship Agreement" shall mean the Exclusive
Distributorship Agreement of even date herewith between KB and KB USA in the
form of Exhibit C hereto, as such agreement is amended, modified, supplemented
or restated from time to time.
"FDA" shall mean the U.S. Food and Drug Administration (or any
successor agency).
"Firm Value" shall mean the amount calculated in accordance with
Section 3.15(a)(v).
<PAGE> 15
10
"First Commercial Sale" shall mean, with respect to any Person (the
"Selling Person"), the first sale of a product in the Territory, following
approval by the FDA of an NDA for such product, by (i) the Selling Person or any
of its Affiliates, distributors, subdistributors, licensees or sublicensees, on
the one hand, to (ii) any Person who is not an Affiliate, distributor,
subdistributor, licensee or sublicensee of the Selling Person or of any other
Person referred to in the preceding clause (i), on the other hand.
"Fiscal Quarter" shall mean each of the three-month periods ending
March 31, June 30, September 30 and December 31.
"Fiscal Year" shall mean the twelve-month period ending December
31.
"Formoterol" shall mean the Compound formoterol.
"Formoterol Product" shall mean (i) any product containing
Formoterol whether or not in combination with another therapeutically active
ingredient or ingredients which is delivered in any dry powder inhaler, (ii) any
product containing Formoterol as a monotherapy which is delivered in an inhaler
other than a dry powder inhaler, and (iii) any product containing Formoterol in
capsules or in tablets or in combination with another therapeutically active
ingredient or ingredients (other than a Covered Compound) that competes with any
existing Formoterol Product, but excluding combinations with any Licensed
Compound, Group D Compound or Group E Compound.
"Formulation Manufacturing Stage" shall have the meaning set
forth in the Manufacturing Agreement.
"Fourth Tier Amount" shall have the meaning set forth in the
Partnership Agreement.
"Future Agreement" shall mean a Future KB Agreement or a Future TR
Agreement.
"Future KB Agreement" shall mean any agreement relating to any
Initial Agreement, the Partnership Agreement or any Ancillary Agreement, or any
of the transactions contemplated thereby, that may be entered into after the
Closing between (i) KB or any of its Affiliates (other than the Partnership), on
the one hand, and (ii) the Partnership, TR or any Affiliate of TR, on the other
hand.
"Future TR Agreement" shall mean any agreement relating to any
Initial Agreement, the Partnership Agreement or any Ancillary Agreement, or any
of the transactions contemplated thereby, that may be entered into after the
Closing between (i) TR or any of its Affiliates, on the one hand, and (ii) the
Partnership, KB or any Affiliate of KB (other than the Partnership), on the
other hand.
"Future TR Joint Venture" shall mean any Person (other than any
joint venture set forth on Schedule 3.2(b) hereto) in which TR directly or
indirectly holds after the date of this
<PAGE> 16
11
Agreement (i) 50% of the voting stock (in the case of a corporate Person) or
other voting interests (in the case of a non-corporate Person) or (ii) if TR is
prohibited by applicable law from acquiring such 50% interest, any Person in
which TR directly or indirectly acquires 40% or more but not more than 50% of
the voting stock (in the case of a corporate Person) or other voting interests
(in the case of a non-corporate Person).
"GAAP" shall mean U.S. generally accepted accounting principles,
applied on a consistent basis.
"General Partner" shall mean each Person that is a general partner
of the Partnership as it may be constituted from time to time following the
Closing, initially KBLP.
"Generic Competition" shall mean, with respect to any Compound (the
"Affected Compound"), that (i) the First Commercial Sale of a product containing
the Affected Compound has been made pursuant to an ANDA or an NDA held by a
non-Affiliate of the Partnership, and (ii) such product is used or approved for
use in the same Therapeutic Category for which the Affected Compound is approved
for use by the FDA under an NDA held by the Partnership or any of its
Affiliates.
"GP IIb/IIIa Compound" shall have the meaning set forth in the
Selected Compounds Contribution Agreement.
"Group A Compound" shall have the meaning set forth in the Amended
and Restated KBI License.
"Group B Compound" shall have the meaning set forth in the Amended
and Restated KBI License.
"Group C Compound" shall have the meaning set forth in the Amended
and Restated KBI License.
"Group D Compound" shall mean (A) any Patented Compound (i) which
has been licensed to or acquired by the Partnership for the Territory (including
without limitation any such Compound, rights to which are licensed to or
acquired by KB or any of its Affiliates prior to the Effective Time), and (ii)
as to which the Partnership has not been granted the right to sublicense to KBI
or KBI-E in the Territory the right to make, have made, use and sell such
Compound; provided, however, that the Group D Compounds shall not include (w)
any Compound that will have only an intravenous route of administration and will
not have an antibiotic, anticancer or antiviral use, (x) any Compound that is
primarily for dental or anesthetic use, (y) any Group C Compound as to which
KBI-E has rejected a license for such Compound pursuant to Section 2.3 of the
Amended and Restated KBI License or as to which KBI has rejected a license for
such Compound pursuant to Section 2.4 of the KBI License or (z) any rights,
which at the time that KB or an Affiliate of KB (including the Partnership)
first acquired the rights described in clause (A)(i) above, had previously been
licensed or otherwise Transferred to a Third Party on an exclusive basis (or to
Third Parties collectively having such exclusivity), if and only if such license
or other Transfer was not entered into in anticipation of the acquisition by the
Partnership
<PAGE> 17
12
of the rights described in clause (A)(i) above; and (B) the Selected Compounds
and the Selected Uses; provided, however, that in the case of any Selected Use,
the applicable Compound shall be treated as a Group D Compound solely with
respect to such Selected Use, unless such Compound is otherwise a "Group D
Compound" as defined above. Group D Compounds include, without limitation, (i)
the Compounds nicin, bucindolol and balsalazide and (ii) any Compound referred
to in clause (A) of the preceding sentence whether such rights were acquired by
KB or any Affiliate of KB prior to, or are acquired on or after, the date hereof
provided that rights to such Compounds were acquired by KB or an Affiliate of KB
prior to a Trigger Event.
"Group E Compound" shall mean any Patented Compound (i) which has
been licensed to or acquired by KB or any of its Affiliates (other than the
Partnership) for the Territory (including without limitation any such Compound,
rights to which are licensed to or acquired by KB or any of its Affiliates prior
to the Effective Time), and (ii) as to which KB or any such Affiliate has not
been granted the right to sublicense to KBI or KBI-E in the Territory the right
to make, have made, use and sell such Compound; provided, however, that the
Group E Compounds shall not include (w) any Compound that will have only an
intravenous route of administration and will not have an antibiotic, anticancer
or antiviral use, (x) any Compound that is primarily for dental or anesthetic
use, (y) any Group C Compound as to which KBI-E has rejected a license for such
Compound pursuant to Section 2.3 of the Amended and Restated KBI License or as
to which KBI has rejected a license for such Compound pursuant to Section 2.4 of
the KBI License or (z) any rights, which at the time that KB or any such
Affiliate (excluding the Partnership) first acquired the rights described in
clause (i) above, had previously been licensed or otherwise Transferred to a
Third Party on an exclusive basis (or to Third Parties collectively having such
exclusivity), if and only if such license or other Transfer was not entered into
in anticipation of the acquisition by KB or any such Affiliate of the rights
described in clause (i) above. Group E Compounds shall include any such
Compounds whether such rights were acquired by KB or any such Affiliate of KB
prior to, or are acquired on or after, the date hereof provided that rights to
such Compounds were acquired by KB or any such Affiliate of KB prior to a
Trigger Event.
"Group A Product" shall mean, except as set forth on Schedule 1.2
with respect to combination products, (i) any Group A Compound or (ii) any
product containing any Group A Compound.
"Group B Product" shall mean, except as set forth on Schedule 1.2
with respect to combination products, (i) any Group B Compound or (ii) any
product containing any Group B Compound.
"Group C Product" shall mean, except as set forth on Schedule 1.2
with respect to combination products, (i) any Group C Compound that is a
Licensed Compound, (ii) any product containing any Group C Compound that is a
Licensed Compound, including without limitation, products containing candesartan
cilexetil, (iii) Entocort, (iv) Ropivacaine IBD, or (v) any combination product
classified as a Group C Product pursuant to Schedule 1.2.
<PAGE> 18
13
"Group D Product" shall mean, except as set forth on Schedule 1.2
with respect to combination products, (i) any Group D Compound, (ii) any product
containing any Group D Compound, (iii) any Group C Product which is not required
to be supplied to the Partnership pursuant to the KBI Supply Agreement or (iv)
any combination product classified as a Group D Product pursuant to Schedule
1.2.
"Group D Products Contingent Amount" shall have the meaning set
forth in Section 3.7(b)(v).
"Group E Product" shall mean, except as set forth on Schedule 1.2
with respect to combination products, (i) any Group E Compound, (ii) any product
containing any Group E Compound, or (iii) any combination product classified as
a Group E Product pursuant to Schedule 1.2.
"Group E Products Contingent Amount" shall have the meaning set
forth in Section 3.7(b)(vi).
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"Indemnified Party" and "Indemnifying Party" shall have the
respective meanings set forth in Section 10.3.
"Indemnity Losses" shall mean all losses, liabilities, damages and
claims, and all reasonable costs and expenses related thereto (including any and
all reasonable attorneys' fees and reasonable costs of investigation,
litigation, settlement, judgment, interest and penalties).
"Inflation Year" shall mean the twelve-month period commencing on
October 1 of a year and ending on September 30 of the following year.
"Initial Agreements" shall mean, collectively, this Agreement, the
Exclusive Distributorship Agreement, the KB USA Asset Contribution Agreement,
the KBI Asset Contribution Agreement, the Selected Compounds Contribution
Agreement and the KBI-E Asset Contribution Agreement. When used in the singular,
such term shall mean any of the foregoing agreements.
"Inter-Affiliate License Agreement" shall mean the Limited
Sublicense Agreement dated as of February 15, 1995, by and between KBI-E and
KBI.
"Interest" shall mean a Partner's interest in the Partnership.
"Inventory" shall have the meaning set forth in the KBI Asset
Contribution Agreement.
"Inventory Adjustment" shall mean the amount equal to the difference
between the Closing Date Inventory Amount and the Estimated Inventory Amount.
<PAGE> 19
14
"Inventory Statement" shall have the meaning set forth in Section
2.5(e)(i).
"KB Loan" shall have the meaning set forth in Section 2.4(e).
"KB Parties" shall mean, collectively, KB, KBLP and KB USA and each
other Affiliate of KB that is specified as a party to any Ancillary Agreement.
When used in the singular, such term shall mean any of the foregoing entities.
References in this Agreement to KBLP shall be deemed also to refer to any
Successor General Partner as applicable.
"KB Share Consideration" shall have the meaning set forth in
Section 3.15(b).
"KB USA Asset Contribution Agreement" shall mean the Asset
Contribution Agreement of even date herewith between KB USA, KBLP, KB and TR in
the form of Exhibit D hereto, as such agreement is amended, modified,
supplemented or restated from time to time.
"KB USA Compound" shall mean each of albuterol for the treatment of
chronic lower respiratory diseases (J40-J42; J44-J47) and asthma (J45);
budesonide for the treatment of chronic lower respiratory diseases (J40-J42;
J44-J47), asthma (J45), rhinitis, allergic (from J30) and rhinitis, other (from
J31); metoprolol succinate for the treatment of hypertensive diseases (I10-I15),
angina pectoris (I20) and heart failure (I50); Formoterol; and the combination
of felodipine and metoprolol succinate for the treatment of hypertensive
diseases (I10-I15).
"KB USA Product" shall mean, except as set forth on Schedule 1.2
with respect to combination products, any product containing any KB USA
Compound, including without limitation the products identified (by Compound and
trademark) on Schedule 1.1 hereto.
"KB USA Products Contingent Amount" shall have the meaning set forth
in Section 3.7(b)(iii).
"KBI Adjustment" shall mean the amount equal to the difference
between (i) the KBI Cash Amount and (ii) the KBI Adjustment Liabilities.
"KBI Adjustment Liabilities" shall mean the sum of (i) the Tax
Amount, and (ii) any dividends on the Preferred Stock that are accrued but
unpaid, all as of the Closing Date.
"KBI Asset Contribution Agreement" shall mean the Asset Contribution
Agreement of even date herewith between KBI, KBI Sub, KB and TR in the form of
Exhibit E hereto, as such agreement is amended, modified, supplemented or
restated from time to time.
"KBI Cash Amount" shall mean the aggregate amount of KBI's
consolidated cash and short term investments immediately prior to the opening of
business on the Closing Date, but following the payment of the KBI Common Stock
Dividend.
"KBI Cash Amount Statement" shall have the meaning set forth in
Section 2.5(e)(i) hereof.
<PAGE> 20
15
"KBI Closing Date Balance Sheet" shall mean the balance sheet
prepared in accordance with Section 2.5(e)(i) hereof.
"KBI Common Shares" shall mean the 50,000 outstanding shares of
Class A Common Stock and one (1) outstanding share of Class C Common Stock.
"KBI Common Stock Dividend" shall have the meaning set forth in
Section 2.2(b).
"KBI License" shall mean the License and Option Agreement made as of
July 12, 1982, as amended, between KB and KBI, as in effect as of the date of
this Agreement.
"KBI License Assignment and Assumption Agreement"(3) shall mean the
Assignment and Assumption of Amended and Restated License and Option Agreement
between KBI and KBI-E in the form of Exhibit F hereto, as such agreement is
amended, modified, supplemented or restated from time to time.
"KBI Parties" shall mean, collectively, KBI, KBI Sub and KBI-E. When
used in the singular, such term shall mean any of the foregoing entities.
References in this Agreement to KBI Sub shall be deemed also to refer to any
Successor Limited Partner as applicable.
"KBI Plan of Recapitalization" shall mean the Plan of
Recapitalization with respect to the capital stock of KBI in the form of Exhibit
G hereto.
"KBI Products" shall mean, except as set forth in Schedule 1.2 with
respect to combination products (i) all products containing any Licensed
Compound or (ii) any combination product classified as a KBI Product pursuant to
Schedule 1.2, but excluding (x) Logimax and (y) products containing any of the
Selected Compounds and (z) any of the Selected Uses of Licensed Compounds.
"KBI Products Contingent Amount" shall have the meaning set forth in
Section 3.7(b)(iv).
"KBI Share Purchase Price" shall have the meaning set forth in
Section 2.4(b).
"KBI Shared Liabilities Tax Benefit" shall have the meaning set
forth in Section 2.6.
------------------
3. This definition was modified by paragraph 3 of the letter agreement dated
July 1, 1998, so that this definition refers to the form of the agreement
executed and delivered at the Closing (as such agreement is amended,
modified, supplemented or restated from time to time).
<PAGE> 21
16
"KBI Shares Option Agreement"(4) shall mean the Shares Option
Agreement between KB, TR and TR Holdings in the form of Exhibit H hereto, as
such agreement is amended, modified, supplemented or restated from time to time.
"KBI Statement" shall have the meaning set forth in Section
2.5(e)(i).
"KBI Sub Assignment and Assumption Agreement (#1)"(5) shall mean the
Assignment and Assumption Agreement (#1) between KBI Sub and the Partnership in
the form of Exhibit I hereto, as such agreement is amended, modified,
supplemented or restated from time to time.
"KBI Sub Assignment and Assumption Agreement (#2)"(6) shall mean the
Assignment and Assumption Agreement (#2) between KBI Sub and the Partnership in
the form of Exhibit J hereto, as such agreement is amended, modified,
supplemented or restated from time to time.
"KBI Sub Shares" shall have the meaning set forth in Section
3.5(a).
"KBI Sublicense" shall mean the KBI Sublicense Agreement between
KBI-E and KBI dated as of the Closing Date, as such agreement is amended,
modified, supplemented or restated from time to time.
"KBI Supply Agreement"(7) shall mean the Supply Agreement between
KBI and the Partnership in the form of Exhibit K hereto, as such agreement is
amended, modified, supplemented or restated from time to time.
"KBI-E Asset Contribution Agreement" shall mean the Contribution
Agreement of even date herewith between KBI-E, KBI Sub, KB and TR in the form of
Exhibit L hereof, as such agreement is amended, modified, supplemented or
restated from time to time.
-------------------
4. This definition was modified by paragraph 3 of the letter agreement dated
July 1, 1998, so that this definition refers to the form of the agreement
executed and delivered at the Closing (as such agreement is amended,
modified, supplemented or restated from time to time).
5. This definition was modified by paragraph 3 of the letter agreement dated
July 1, 1998, so that this definition refers to the form of the agreement
executed and delivered at the Closing (as such agreement is amended,
modified, supplemented or restated from time to time).
6. This definition was modified by paragraph 3 of the letter agreement dated
July 1, 1998, so that this definition refers to the form of the agreement
executed and delivered at the Closing (as such agreement is amended,
modified, supplemented or restated from time to time).
7. This definition was modified by paragraph 3 of the letter agreement dated
July 1, 1998, so that this definition refers to the form of the agreement
executed and delivered at the Closing (as such agreement is amended,
modified, supplemented or restated from time to time).
<PAGE> 22
17
"KBI-E Asset Option" shall mean the option to purchase certain
assets of KBI-E provided for in the KBI-E Asset Option Agreement.
"KBI-E Asset Option Agreement"(8) shall mean the Asset Option
Agreement between KB, TR, KBI and KBI-E in the form of Exhibit M hereto, as such
agreement is amended, modified, supplemented or restated from time to time.
"KBI-E Asset Purchase" shall mean the purchase of assets of KBI-E
pursuant to the KBI-E Asset Option Agreement on the Assignment Date (as defined
in the KBI-E Asset Option Agreement).
"KBI-P" shall mean KBI Pharmaceuticals, Inc.
"KBLP Assignment and Assumption Agreement"(9) shall mean the
Assignment and Assumption Agreement between KBLP and the Partnership in the form
of Exhibit N hereto, as such agreement is amended, modified, supplemented or
restated from time to time.
"KBLP Partnership Agreement" shall mean the Limited Partnership
Agreement between KB and KB USA (as assignees of the original partners thereof),
dated as of June 19, 1998, as such agreement is amended, modified, supplemented
or restated from time to time.
"LIBOR" shall mean the rate per annum equal to (i) the arithmetic
average (rounded upwards or downwards, if necessary, to the nearest 1/16th of
one percent with the midpoint being rounded upwards) of the offered rates for
U.S. dollar deposits for the applicable LIBOR Period beginning on the first day
of the applicable Fiscal Quarter or other applicable period (or the London
banking day that is closest to the first day of such Fiscal Quarter or other
applicable period) which appear on the LIBO page of the Reuters Monetary Money
Rates Service (or such other page as may replace that page on that service for
the purpose of displaying rates comparable to those displayed on the LIBO page)
at approximately 11:00 A.M. (London Time) on the day that is two (2) London
banking days prior to the first day of the applicable Fiscal Quarter or other
applicable period or (ii) or if no such offered rates appear on the LIBO Page
(or such other page as may replace that page on that service for the purpose of
displaying rates comparable to those displayed on the LIBO page), the offered
rate for U.S. dollar deposits for the applicable LIBOR Period which appears on
the display page currently designated as page 3750 of the Dow Jones Telerate
Service (or such other page as may replace that page on that
---------------------
8. This definition was modified by paragraph 3 of the letter agreement dated
July 1, 1998, so that this definition refers to the form of the agreement
executed and delivered at the Closing (as such agreement is amended,
modified, supplemented or restated from time to time).
9. This definition was modified by paragraph 3 of the letter agreement dated
July 1, 1998, so that this definition refers to the form of the agreement
executed and delivered at the Closing (as such agreement is amended,
modified, supplemented or restated from time to time).
<PAGE> 23
18
service for the purpose of displaying rates comparable to those displayed on
page 3750) as of 11:00 A.M. (London time) on the day that is two (2) London
banking days prior to the first day of such Fiscal Quarter. Any reference to
"three-month LIBOR" or "one-year LIBOR" or "two-year LIBOR" shall mean LIBOR
determined using a LIBOR Period of three months, one year and two years,
respectively.
"LIBOR Period" shall mean a period of three (3) months, one (1) year
or two (2) years, as applicable.
"Licensed Compound" shall mean any Compound that is a Licensed
Compound, as defined in the Amended and Restated KBI License, and any such
Compound shall continue to be a Licensed Compound notwithstanding the expiration
of the patents licensed to KBI under the Amended and Restated KBI License,
except to the extent that rights with respect to such Compound have reverted to
KB pursuant to Section 16.2 of the Amended and Restated KBI License.
"Lien" shall mean any lien, mortgage, security interest, pledge,
charge, claim, restriction, reservation, security interest, encumbrance, charge,
option, restraint on transfer, any title defect of any nature whatsoever or any
interest or title of any vendor, lessor, lender, or other secured party under
any conditional sale or other title retention agreement or capital lease, upon
or with respect to any real property or asset.
"Limited Partner" shall mean each Person that is a limited partner
of the Partnership as it may be constituted from time to time following the
Closing, initially KBI Sub.
"Loan Amount" shall have the meaning set forth in Section 2.4(e).
"Logimax" shall mean the product consisting of the combination of
felodipine and metoprolol succinate for the treatment of hypertensive diseases
(I10-I15).
"Manufacturing Agreement"(10) shall mean the Second Amended and
Restated Manufacturing Agreement between TR, KB and KBI in the form of Exhibit O
hereto, as such agreement is amended, modified, supplemented or restated from
time to time.
"Market Capitalization" shall have the meaning set forth in
Section 3.15(a).
"Market Exclusivity" shall mean with respect to any Compound or any
product containing any Compound, any period (i) during which there exists a
patent or patent application (or division or continuation thereof) described in
clause (i) or (ii) of the definition of Patented
------------------------
10. This definition was modified by paragraph 3 of the letter agreement dated
July 1, 1998, so that this definition refers to the form of the agreement
executed and delivered at the Closing (as such agreement is amended,
modified, supplemented or restated from time to time).
<PAGE> 24
19
Compound claiming such Compound or (ii) during which there exists a patent or
patent application (or division or continuation thereof) claiming (A) the use
thereof, if such compound is administered in a formulation that is unique to the
patented use, i.e., the formulation is not useful for indications not covered by
the use patent or (B) the formulation in which the Compound or product is sold
or (iii) during which the holder of the NDA for such Compound or product
containing such Compound applicable to the Territory has exclusive marketing
rights or exclusive rights to sell generally or with respect to any application
or applications under any statute (including without limitation the federal
Food, Drug and Cosmetic Act and all amendments thereto) or any rules or
regulations promulgated thereunder.
"Measurement Date" shall mean the day that is 180 days prior to the
Announcement Date for a transaction or integrally related transactions that may
constitute a Trigger Event; provided, however, for purposes of determining the
Market Capitalization of a Person, if such 180th day is not a trading day on the
principal trading market for any security to be valued as of the Measurement
Date, the Measurement Date with respect to such security shall be the next
trading day on such principal trading market.
"Merger of Equals" shall have the meaning set forth in Section
3.15(b).
"NDA" shall have the meaning set forth in the Amended and
Restated KBI License.
"Net Income" of a Person shall mean such Person's net income
(determined on a consolidated basis in accordance with GAAP), excluding (i)
separately identified non-recurring items (including without limitation items
identified in notes to financial statements) and (ii) the total of income (loss)
from operations of a discontinued subsidiary, division or department or other
identifiable business unit on the disposal or discontinuance thereof.
"Net KBI Cash Amount" shall mean the amount equal to (i) the KBI
Cash Amount minus (ii) the Agreed Cash Amount; provided, however, the Agreed
Cash Amount shall be further adjusted pursuant to Section 2.5(c)(i) or Section
2.5(c)(ii) as the case may be.
"Net Sales" shall mean for any period the total amount required to
be recorded for such period by the Partnership and its Affiliates on its and
their books and records plus the total amount required to be recorded for such
period by each Outlicensee on its books and records, in each case in accordance
with the Accounting Procedures, with respect to sales of Compounds, and products
containing Compounds, in the Territory for any use (whether in human medicine or
otherwise) to its and their non-Affiliates after deducting (if not already
deducted in the amount recorded) trade discounts, rebates, returns and
allowances, retroactive price reductions or adjustments, and 5% of the amount
recorded to cover cash discounts ("fast pay"), sales or excise taxes,
transportation, and insurance charges, except that Net Sales shall not include
sales to a Person to the extent sales by such Person are included in Net Sales
and have a Relative Sales Weighting greater than zero. Sales by a Person of
products, the rights to which were acquired by such Person pursuant to an
Excluded Transaction or Excluded Transactions with the Partnership or an Other
KB Outlet or pursuant to Outlicenses to be treated as if they were Excluded
Transactions pursuant to Section 3.6(a) or Section 3.6A(a), shall be considered
Net Sales of the
<PAGE> 25
20
Partnership or the Other KB Outlet, as the case may be, for purposes of
computing Net Sales and Weighted Net Sales of the applicable Compound or
product.
"1982 JV Agreement" shall have the meaning set forth in the
Recitals.
"Non-Medical Use" shall have the meaning set forth in the Selected
Compounds Contribution Agreement.
"Non-Qualified Co-promotion Percentage" shall mean, with respect to
a Fiscal Year, the quotient of the total number of details carried out during
such Fiscal Year by the Partnership, KB and its Affiliates in the Territory with
respect to all products covered by Co-promotion Arrangements other than
Qualified Co-promotion Arrangements divided by the total number of details
carried out in the Territory during such Fiscal Year with respect to such
products by all Persons.
"Noon Buying Rate" with respect to a non-U.S. currency shall mean
the noon buying rate in New York City for cable transfers in such currency as
certified for customs purposes by the Federal Reserve Bank of New York.
"Omeprazole-for-Horses License" shall mean the License and Research
Collaboration Agreement, effective as of November 20, 1996, by and among KBI,
KBI-E, KB and TR.
"Omeprazole Products" shall mean, except as set forth on Schedule
1.2 with respect to combination products, all products containing the Compound
omeprazole as a monotherapy or in combination with any other therapeutically
active ingredient or ingredients, but exclusive of any Selected Use of the
Compound omeprazole.
"Omeprazole Products Contingent Amount" shall have the meaning set
forth in Section 3.7(b)(i).
"Option Exercise Price" shall have the meaning set forth in the KBI
Shares Option Agreement.
"Original Amount" shall have the meaning set forth in Section 3.8.
"Original Capital Contribution" shall have the meaning set forth
in the Partnership Agreement.
"Original Manufacturing Agreement" shall mean the Manufacturing
Agreement among TR, KB and KBI made as of July 12, 1982, as amended by the
Amendment to the Manufacturing Agreement dated as of November 1, 1994, and as
Amended and Restated as of January 31, 1997.
"Original Partnership Agreement" shall have the meaning set forth
in the Recitals.
<PAGE> 26
21
"OTC Product" shall mean a pharmaceutical product containing a
therapeutically active ingredient for human use, sales of which product (i) are
lawful in the Territory (or other applicable territory) without a prescription
or an order of a licensed practitioner and (ii) require the approval of the FDA
(or, if such product is sold outside the Territory, the equivalent regulatory
agency).
"Other A-II Compound" shall have the meaning set forth in the
Selected Compounds Contribution Agreement.
"Other KB Outlet" shall mean KB or such other Affiliate of KB that
is a licensee with respect to, or has similar rights to use or sell, any Group E
Compound.
"Outlicense" or "Outlicensing" shall mean any grant by the
Partnership or any Other KB Outlet to any Person of any right to sell in the
Territory any Covered Compound and/or any product containing any Covered
Compound, whether exclusive or nonexclusive and whether by sale, license,
sublicense, co-marketing agreement, subdistribution arrangement, complete or
partial assignment of contract rights, other dispositions, covenant not to sue
or immunity from suit, or otherwise; provided, however, that the following
matters (each, an "Excluded Transaction") shall not be considered an Outlicense
or Outlicensing: (i) the co-promotion agreement, dated as of December 8, 1997,
between KBI and The Procter & Gamble Distributing Co., (ii) any such grant
pursuant to which, or in connection with which, KB, the Partnership or any other
Affiliate or agent of KB provides or agrees to provide or cause the provision of
marketing efforts to any Person or has any role in the setting of pricing or
marketing strategy, and (iii) any such grant to KB or any Affiliate of KB. In
the event that any grant included within the foregoing definition covers more
than one (1) Covered Compound and/or product, then the grant with respect to
each Covered Compound and/or each product shall be deemed to be a separate
Outlicensing.
"Outlicensed Compound" shall mean, with respect to any Outlicensing,
the Covered Compound, or product containing any Covered Compound, which is the
subject of such Outlicensing. If less than all rights with respect to a Compound
are Outlicensed, "Outlicensed Compound" shall refer to that portion of the
rights with respect to such Compound as have been Outlicensed.
"Outlicensee" shall mean, with respect to any Outlicensing, the
Person or Persons with whom the Partnership or Other KB Outlet enters into such
Outlicensing and any Person holding rights derived directly or indirectly from
such Outlicensing.
"Parenteral Form" shall have the meaning set forth in the Amended
and Restated KBI License.
"Parents" shall mean KB (and its permitted successors pursuant to
Section 3.3(b)(i) hereof) and TR (and its permitted successors pursuant to
Section 3.3(b)(i) hereof). When used in the singular, such term shall mean
either of the foregoing entities.
<PAGE> 27
22
"Partner" shall mean each Person that is either a general partner or
a limited partner of the Partnership.
"Partnership" shall have the meaning set forth in the Preamble.
"Partnership Agreement"(11) shall mean the Partnership Agreement
between KBLP, as General Partner, and KBI Sub, as Limited Partner, in the form
of Exhibit P hereto, as such agreement is amended, modified, supplemented or
restated from time to time.
"Partnership Compounds" shall have the meaning set forth in
Section 3.6(b).
"Patented Compound" shall mean any Compound as to which there exists
at the time KB or any of its Affiliates acquires any rights to or with respect
to such Compound (i) an unexpired U.S. patent claiming such Compound, any of its
methods of use, or any composition containing it or (ii) an application (or any
division or continuation thereof) for a U.S. patent claiming such Compound, any
of its methods of use, or any composition containing it.
"Permitted Business" shall have the meaning set forth in the
Partnership Agreement.
"Perprazole Cost" shall mean the Manufacturer's Cost (as defined in
the KBI Supply Agreement) for Perprazole Products billed by KBI to the
Partnership (excluding contingent amounts and royalties to KB) plus any
royalties payable to Third Parties with respect to the sale of Perprazole
Products or the Compound perprazole in the Territory.
"Perprazole Percentage" shall have the meaning set forth in
Section 3.7(b)(ii).
"Perprazole Products" shall mean, except as set forth on Schedule
1.2 with respect to combination products, all products containing the Compound
perprazole as a monotherapy or in combination with any other therapeutically
active ingredient or ingredients, but exclusive of any Selected Uses of the
Compound perprazole.
"Perprazole Products Contingent Amount" shall have the meaning set
forth in Section 3.7(b)(ii).
"Person" shall mean any individual, partnership, corporation,
business trust, joint stock company, trust, or other entity of a similar nature.
"Pharmaceutical Sales" of a Person shall mean (i) sales of Ethical
Pharmaceutical Products (determined on a consolidated basis in accordance with
GAAP), including generic
---------------------
11. This definition was modified by paragraph 3 of the letter agreement dated
July 1, 1998, so that this definition refers to the form of the agreement
executed and delivered at the Closing (as such agreement is amended,
modified, supplemented or restated from time to time).
<PAGE> 28
23
pharmaceutical products, and Ethical OTC Products (if such Person reports to its
shareholders sales of Ethical OTC Products separately from sales of other OTC
Products), plus (ii) an amount equal to the lesser of (A) 10% of the sales
included in the foregoing clause (i) or (B) actual sales of OTC Products not
included in the foregoing clause (i) (determined on a consolidated basis in
accordance with GAAP), in each case for the most recent fiscal year of such
Person completed on or prior to the Announcement Date and for which audited
financial statements have been released by such Person.
"Pledge Agreement"(12) shall mean the Pledge Agreement between KB
and KBI in the form of Exhibit Q hereto, as such agreement is amended, modified,
supplemented or restated from time to time.
"Preferred Stock" shall mean, collectively, the Class A Preferred
Stock, Class B Preferred Stock, Class C Preferred Stock and Class D Preferred
Stock.
"Price/Earnings Ratio" shall mean the ratio calculated in accordance
with Section 3.15(a)(iv).
"Price Index" shall mean the Producer Price Index - Drugs and
Pharmaceuticals - Ethical Preparations (Prescriptions) or any successor thereto,
as compiled and published by the U.S. Department of Labor, Bureau of Labor
Statistics or any successor agency that assumes responsibility for the
preparation of such index.
"Put Option" shall have the meaning set forth in Section 3.5.
"Put Option Event" shall mean the occurrence of any of the
following: (i) the Bankruptcy of the Partnership, KBLP (or any Successor General
Partner) or any Additional KBLP GP, (ii) in the event the Capital Account
balance of KBLP in the Partnership is less than $0 as of the last day of any
Fiscal Year, the failure of KBLP to contribute to the Partnership within ninety
(90) days after the end of such Fiscal Year an amount of cash sufficient to
increase such Capital Account to at least $0, (iii) the failure of the
Accountants (as defined in the Partnership Agreement) to deliver, within five
(5) months after the end of any Fiscal Year, the audited financial statements
and accountants' opinion with respect thereto provided for in Sections 6.5(a)(i)
and 6.5(a)(ii) of the Partnership Agreement, (iv) the withdrawal (or purported
withdrawal) of the General Partner from the Partnership or the dissolution (or
any event or circumstance that, but for the agreements set forth in Section 8.2
of the Partnership Agreement, would constitute dissolution) of the Partnership
by the General Partner in contravention of the Partnership Agreement or (v) any
breach of the obligations of KB, KBLP, KB USA or any Successor General Partner
set forth in Section 3.3(f) hereof.
-------------------
12. This definition was modified by paragraph 3 of the letter agreement dated
July 1, 1998, so that this definition refers to the form of the agreement
executed and delivered at the Closing (as such agreement is amended,
modified, supplemented or restated from time to time).
<PAGE> 29
24
"Put Option Exercise Period" shall mean the period ending six (6)
months after:
(i) in the case of any of the events described in clause (i)
of the definition of Put Option Event, confirmation of a final plan
of reorganization by the court having jurisdiction over such
Bankruptcy;
(ii) in the case of the event described in clause (ii) of the
definition of Put Option Event, the receipt by TR of a certificate
from the Accountants stating that, as of the date of such
certificate, the Capital Account balance of KBLP in the Partnership
is at least $0;
(iii) in the case of the event described in clause (iii) of
the definition of Put Option Event, the receipt by KBI Sub of the
audited financial statements and Accountants' opinion referred to
therein;
(iv) in the case of any of the events described in clause (iv)
of the definition of Put Option Event, (x) if the Partnership is
liquidated and wound up, the date on which such liquidation and
winding up is completed, or (y) if the Partnership is not liquidated
and wound up, the date on which the damages of KBI Sub or any of its
Affiliates for the breach of Section 8.1 by the General Partner are
paid in full; and
(v) in the case of any of the events described in clause (v)
of the definition of Put Option Event, the later of the date on
which (x) such breach is cured or (y) TR receives a certificate to
such effect from the Chief Financial Officer of KB.
"Put Option Price" shall have the meaning set forth in Section
3.5(b).
"QP Financial Test" shall mean an amount equal to $3.25 billion, as
increased annually as of January 1 of each year, commencing January 1, 1999, by
the cumulative percentage growth in worldwide pharmaceutical sales over the
immediately preceding year as reported by the Drug Report. For purposes of
determining whether the QP Financial Test has been satisfied, any amount
reported in a currency other than Dollars shall be translated into Dollars based
on the Noon Buying Rate for such currency on the Measurement Date.
"QP Share Consideration" shall have the meaning set forth in
Section 3.15(b).
"Qualified Co-promotion Arrangement" shall mean any Co-promotion
Arrangement which satisfies each of the following conditions: (A) the Product
Rights Owner (as defined in the definition of Co-promotion Arrangement) provides
at least one-quarter of the details with respect to such Patented Compound or
product in the Territory; (B) neither the Co-promoter (as defined in the
definition of Co-promotion Arrangement) nor any of its Affiliates has any
responsibility for regulatory submissions with respect to such Patented Compound
or product in the Territory; (C) neither the Co-promoter nor any of its
Affiliates at any time takes title to, or has risk of loss with respect to, such
Patented Compound or product in the Territory;
<PAGE> 30
25
(D) neither the Co-promoter nor any of its Affiliates owns, is a licensee or
sublicensee of, or otherwise possesses or has the right to use in the European
Union (other than Sweden, Denmark, Finland, Norway and Iceland), any Compound
Intellectual Property or Compound Technical Information with respect to such
Patented Compound or product; (E) the Co-promoter has paid or furnished no
consideration of any type or nature to the Product Rights Owner for the right to
participate in the arrangement; (F) the term of the arrangement, including
options to extend, shall not exceed three years; (G) neither the Co-promoter nor
any of its Affiliates has any role in the setting of pricing or any decisive
role in marketing strategy with respect to such Compound or product in the
Territory, and (H) such arrangement is effective no earlier than the earlier of
July 1, 2000 and the date on which omeprazole loses Market Exclusivity in the
Territory.
"Qualified Co-promotion Percentage" shall mean, with respect to a
Fiscal Year, the quotient of the total number of details carried out during such
Fiscal Year by the Partnership, KB and its Affiliates in the Territory with
respect to the products covered by Qualified Co-promotion Arrangements divided
by the total number of details carried out in the Territory during such Fiscal
Year with respect to such products by all Persons.
"Qualified Person" shall mean:
(i) any Person listed on Schedule 3.15B hereto, unless during
any two (2) fiscal years of such Person ending prior to the time of
the transaction, the status of which as a Trigger Event is to be
determined (or during the twenty-four month period immediately
preceding such transaction), such Person shall, directly or
indirectly, have sold, exchanged or otherwise disposed of assets
which, in the aggregate, accounted for an amount of Pharmaceutical
Sales equal to or greater than the Disposition Threshold, and
(ii) any Person, including any Person disqualified under
clause (i) above, that has Pharmaceutical Sales equal to or greater
than the QP Financial Test;
and shall include a subsidiary or nominee company ("Newco") of the Qualified
Person or KB (or of the Qualified Person and KB jointly) formed solely in order
to effect a transaction which is a Trigger Event under Section 3.15(c) hereof;
provided, however, that for purposes of applying the tests set forth in Section
3.15, the Qualified Person shall be the ultimate corporate parent of such
Person.
"Regulatory Assignment" shall mean any assignment by the Partnership
of the Partnership's rights under the Distribution Agreement and the KBI Supply
Agreement with respect to a Licensed Compound that is entered into in accordance
with Section 3.6A(d) in order to eliminate objections by the U.S. Federal Trade
Commission or Department of Justice (or any successor agency) to a proposed
transaction by KB or any of its Affiliates.
"Regulatory Outlicense" or "Regulatory Outlicensing" shall mean any
Outlicensing of a Critical Compound that is entered into by the Partnership, KB
or any other Affiliate of KB in order to eliminate objections to a proposed
transaction by KB or any of its
<PAGE> 31
26
Affiliates by the U.S. Federal Trade Commission or Department of Justice (or any
successor agency) and shall include any Regulatory Assignment of a Critical
Compound.
"Related Person" shall mean, with respect to any Person, any other
Person controlling, controlled by or under common control with, such Person. For
purposes of this definition, the term "control" of a Person shall mean (i)
direct or indirect ownership of 50% or more of the outstanding Voting Securities
of a corporate Person or voting interest in a non-corporate Person or (ii) the
possession, direct or indirect, of the power to elect or appoint directors or to
direct or cause the direction of the management and policies of a Person.
"Relative Sales Weighting" or "RSW" shall mean, for any Fiscal Year:
either (i) with respect to each category of Net Sales of a Compound or product
listed in the table set forth in Part 3 of Schedule 3.7 hereto the percentage
listed in or computed in accordance with such table in respect of such category
of Net Sales, (ii) if such table specifies the RSW as "To be agreed", the
percentage agreed to by KB and TR in writing, or (iii) in all other cases, the
Base Sales Weighting for the applicable Compound or product; provided, however,
that in the event KB and TR agree in writing to any different RSW for a
Compound, product or transaction, the RSW for such Compound, product or
transaction shall be the percentage agreed to by KB and TR.
"Residual KBI Cash Amount" shall mean the amount equal to the Net
KBI Cash Amount minus the KBI Adjustment Liabilities.
"Ropivacaine IBD" shall mean ropivacaine for the treatment in humans
of inflammatory bowel disease (K50-K51).
"Rules" shall mean the Commercial Arbitration Rules of the
American Arbitration Association.
"Section 10.1 Indemnitees" shall have the meaning set forth in
Section 10.1.
"Section 10.2 Indemnitees" shall have the meaning set forth in
Section 10.2.
"Selected Compounds" shall mean, collectively, the GP IIb/IIIa
Compounds and the Other A-II Compounds.
"Selected Compounds Contribution Agreement" shall mean the
Contribution Agreement of even date herewith between KBI, KBI Sub, KB and TR in
the form of Exhibit R hereto, as such agreement is amended, modified,
supplemented or restated from time to time.
"Selected Uses" shall mean, collectively, the Animal Health Uses of
Covered Compounds (including without limitation use of the Compound omeprazole
as contemplated by the Omeprazole-for-Horses License) and the Non-Medical Uses
of Covered Compounds.
"Special Case Outlicensings" shall have the meaning set forth in
Section 3.6(g).
<PAGE> 32
27
"Split Combination Product" shall mean any product that includes a
Licensed Compound supplied to KBI pursuant to the Manufacturing Agreement in
combination with a Group D Compound or KB USA Compound.
"Successor General Partner" shall have the meaning set forth in
Section 3.3(f).
"Successor Limited Partner" shall have the meaning set forth in
Section 3.3(g).
"Supplemental Sales Weighting Table" shall mean the table set forth
in Part 4 of Schedule 3.7 hereto.
"Tax Amount" shall mean, as of the Closing Date, the difference
between the amount of KBI's income taxes payable (determined in accordance with
GAAP) and the amount of KBI's prepaid income taxes (determined in accordance
with GAAP), excluding any reserves for tax deficiencies relating to prior years;
provided, however, that such calculation shall not give effect to any
transactions contemplated by this Agreement, any of the Initial Agreements, the
Partnership Agreement or any of the Ancillary Agreements.
"Territory" shall mean the United States of America, its
territories and possessions.
"Therapeutic Category" shall have the meaning set forth in the
Amended and Restated KBI License.
"Third Party" shall mean any Person other than (i) TR or any
Affiliate of TR or (ii) KB, the Partnership or any other Affiliate of KB.
"Tiered Rate Products" shall mean KB USA Products, KBI Products
(other than Omeprazole Products and Perprazole Products), Group D Products
and Group E Products.
"Tiered Rate Products Amount" shall have the meaning set forth in
Section 3.7(a).
"Total Cash Outlicense" or "Total Cash Outlicensing" shall mean any
Outlicense or Outlicensing of any Compound or product (other than a Licensed
Compound or any product containing any Licensed Compound) which meets all of the
following conditions: (i) the Partnership and its Affiliates or, with respect to
Group E Products, the applicable Other KB Outlet and its Affiliates, dispose of
all of their rights with respect to the Territory, including without limitation
all patent, trademark and license rights and all rights or obligations to
supply, and the Outlicensee (or a parent entity) assumes all of the
Partnership's, such Other KB Outlet's and such Affiliates' obligations, with
respect to the sale of the Outlicensed Compound, (ii) the consideration for such
Outlicensing consists solely of cash, (iii) such consideration is paid in full
by the Outlicensee to the Partnership or such Other KB Outlet no later than the
effective date of such Outlicensing and (iv) neither KB, the Partnership nor any
of KB's other Affiliates has any ownership interest in the Outlicensee or any of
its Affiliates. Without limiting the generality of the foregoing, an
Outlicensing shall not be a Total Cash Outlicensing if pursuant to, or in
connection with, such Outlicensing, (x) the Partnership or such Other KB Outlet
receives from
<PAGE> 33
28
the Outlicensee or any other Person any nonmonetary consideration or (y) KB or
any Affiliate of KB other than the Partnership (in the case of Partnership
Compounds) or such Other KB Outlet (in the case of Group E Compounds) receives
from the Outlicensee or any other Person any monetary or nonmonetary
consideration, in any such case regardless of whether such consideration relates
to the Outlicensed Compound in the Territory.
"Total Debt" of a Person shall mean the sum of all items of such
Person's balance sheet (determined in accordance with GAAP) (i) that represent
debt obligations due more than one (1) year from the date of such balance sheet,
including without limitation the items set forth on Part B of Schedule 3.15A
hereto, and (ii) that represent debt obligations due not more than one (1) year
from the date of such balance sheet, including without limitation the items set
forth on Part C of Schedule 3.15A hereto.
"TR Financial Assets" shall mean interest-bearing securities or
interest-bearing financial instruments (including without limitation U.S.
government securities and corporate bonds, debentures, notes, and commercial
paper) that are non-convertible and non-exchangeable and do not bear any other
rights to acquire any equity security or equity interest and (i) are senior
unsubordinated obligations issued by TR, (ii) are Investment Grade Obligations
(as defined in the Partnership Agreement), (iii) are senior unsubordinated
obligations of the issuer that are fully guaranteed on a senior unsubordinated
basis as to the payment of principal and interest by TR or by any entity whose
outstanding unsecured debt securities or commercial paper are Investment Grade
Obligations and would continue to be Investment Grade Obligations after the
effectiveness of such guarantee or (iv) meet other creditworthiness standards
satisfactory to KB in its sole discretion.
"TR Parties" shall mean, collectively, TR, TR Holdings and each
other Affiliate of TR that is specified as a party to any Ancillary Agreement
and shall include, without limitation, from and after the Effective Time, KBI,
KBI-E and KBI Sub. When used in the singular, such term shall mean any of the
foregoing entities.
"TR Promissory Note" shall have the meaning set forth in Section
2.4(e).
"Trademark Rights Contribution Agreement"(13) shall mean the
Contribution Agreement between TR, KB, KBI and KBI Sub in the form of Exhibit S
hereto, as such agreement is amended, modified, supplemented or restated from
time to time.
"Transfer" shall mean, with respect to any shares or other property
or asset (or any interest therein), when used as a verb, sell, assign, pledge,
encumber, hypothecate, dispose of or
-------------------------
13. This definition was modified by paragraph 3 of the letter agreement dated
July 1, 1998, so that this definition refers to the form of the agreement
executed and delivered at the Closing (as such agreement is amended,
modified, supplemented or restated from time to time).
<PAGE> 34
29
otherwise transfer, and when used as a noun, shall mean sale, assignment,
pledge, encumbrance, hypothecation, disposition or other transfer.
"Trigger Event" shall have the meaning set forth in Section
3.15(c).
"Trigger Event R&D Expenses" of a Person shall mean the total
research and development expenses (determined on a consolidated basis) of such
Person for the applicable fiscal year with respect to Ethical Pharmaceutical
Products (including generic products) and, if so reported, Ethical OTC Products
("Pharma R&D Expenses") as determined by the then currently engaged independent
public accountants of TR in accordance with the policies and procedures used by
such Person to calculate total research and development expenses for such fiscal
year as reported by such Person in the audited financial statements included in
its annual report to stockholders (such determination shall be reviewed by the
independent public accountants of either the Qualified Person or KB, at the
election of KB, and may then be disputed by KB and submitted for resolution of
any dispute in accordance with procedures equivalent to those set forth in
Section 2.5(e)(ii) and (iii)); provided, however, that if such Person has no
research and development expenses other than Pharma R&D Expenses or if Pharma
R&D Expenses are reported by such Person separately from other research and
development expenses in the audited financial statements included in such
Person's annual report to stockholders for such fiscal year, "Trigger Event R&D
Expenses" shall mean such Person's Pharma R&D Expenses (determined on a
consolidated basis) for the applicable fiscal year; it being understood that
KB's Trigger Event R&D Expenses for 1997 shall include 50% of KBI's research and
development expenses for 1997 and KB's Trigger Event R&D Expenses for 1998 shall
include 50% of KBI's research and development expenses for the period of time
from January 1, 1998 to the Closing Date.
"True-Up Amount" shall mean the amount, if any, by which (i) the
Actual Formula Price for 2008 plus (A) $162 million, minus (B) the sum of the
Limited Partner Share of Agreed Value (as defined in the Partnership Agreement)
and the Advance Amount (the amount determined pursuant to this clause (i) is
referred to herein as the "Calculated Amount"), exceeds or is less than (ii) the
Appraised Value ; provided, however, that if any of the events described in
clause (i) of the definition of Put Option Event in this Agreement occurs prior
to the purchase by KB of the shares of KBI Sub pursuant to the Put Option,
whether such event occurs before or after the occurrence of any other event that
constitutes a Put Option Event, and KB has purchased the shares of KBI Sub
pursuant to the Put Option, then the term "True-Up Amount" shall mean the
amount, if any, by which (i) the greater of (A) the Minimum Amount (as defined
in the KBI-E Asset Option Agreement) plus the Assignment Lump Sum Amount (as
defined in the KBI-E Asset Option Agreement) minus the Fourth Tier Component (as
defined in the KBI-E Asset Option Agreement) plus the Factor Amount (as defined
in the KBI-E Asset Option Agreement) and (B) the product of (x) the Average
Annual KBI Products Contingent Amount (as defined in the KBI-E Asset Option
Agreement) multiplied by (y) the applicable Multiple (as defined in the KBI-E
Asset Option Agreement) plus the Assignment Lump Sum Amount plus the Factor
Amount, minus (C) the Advance Amount, exceeds or is less than (ii) the Appraised
Value; provided, further, that if none of the events described in clause (i) of
the definition of Put Option Event in this Agreement has occurred prior to the
purchase by KB of the shares of KBI Sub pursuant to the Put Option, whether
before or after the occurrence of any other event that
<PAGE> 35
30
constitutes a Put Option Event, and KB has purchased the shares of KBI Sub
pursuant to the Put Option, then the term "True-Up Amount" shall mean the
amount, if any, by which (i) the Actual Formula Price for 2008 plus (A) $162
million, minus (B) the Advance Amount, exceeds or is less than the Appraised
Value.
"Voting Security" of a Person shall mean any security currently
entitling the owner or holder thereof to vote (other than on a temporary or
contingent basis) with respect to matters required to be approved by
shareholders generally, including election of directors of such Person. A
specified percentage of the Voting Securities of a Person shall mean the
percentage of the aggregate vote which the holder or holders thereof are
entitled to cast.
"Weighted Net Sales" of any category of Compounds or products shall
mean the Net Sales thereof multiplied by the applicable Relative Sales Weighting
for such category of Compounds or products; provided, however, that if different
Relative Sales Weightings are applicable to different subcategories within such
categories (e.g. Net Sales of prescription products, OTC Products, combinations,
Net Sales of Outlicensees, etc.), as reflected in Part 3 of Schedule 3.7 hereto,
the Weighted Net Sales for such category of Compounds or products shall be the
sum of the Weighted Net Sales for all such subcategories.
"Wholly-Owned Subsidiary" shall mean, as to any Person, any
corporation, association or other business entity (i) in which such Person,
individually or together with one or more of its Wholly-Owned Subsidiaries, owns
all of the equity (or other ownership), voting and economic interests and (ii)
as to which such Person, directly or indirectly, has full control over the
management, operations, finances and other affairs and has not entered into any
contract or arrangement the consummation of which would result in the loss of
such full control.
"Working Capital" shall mean, as of the Closing Date or as of the
Base Date (as applicable), the net amount of the items of working capital set
forth on Part A of Schedule 2.5 hereto (determined in accordance with GAAP).
"Working Capital Adjustment" shall mean the difference between
the Closing Date Working Capital and the Base Date Working Capital.
"Working Capital Statement" shall have the meaning set forth in
Section 2.5(e)(i).
(b) The alphanumeric references in parentheses contained in
the definitions of certain Compounds refer to the Therapeutic Categories set
forth on Exhibit D to the Amended and Restated KBI License.
ARTICLE 2
EXECUTION OF AGREEMENTS;
PRE-CLOSING EVENTS; CLOSING
2.1 Execution and Delivery of Initial Agreements. Concurrently with
the execution and delivery of this Agreement by the parties hereto:
<PAGE> 36
31
(i) KBI, KBI Sub, KB and TR are executing and delivering the
KBI Asset Contribution Agreement;
(ii) KBI, KBI Sub, KB and TR are executing and delivering the
Selected Compounds Contribution Agreement;
(iii) KBI-E, KBI Sub, KB and TR are executing and delivering
the KBI-E Asset Contribution Agreement;
(iv) KB and KB USA are executing and delivering the Exclusive
Distributorship Agreement; and
(v) KB USA, KBLP, KB and TR are executing and delivering the
KB USA Asset Contribution Agreement.
2.2 Other Pre-Closing Events.
(a) Certain Actions.(14) Prior to the Closing Date, (i) all
loans between KBI and KBI-E and all loans between (x) KBI or KBI-E and (y) KB or
TR or any of their Affiliates shall be repaid and all notes evidencing such
loans and all loan agreements (including without limitation the Butterfly Loan
Agreements and the notes relating thereto) relating to such loans shall be
canceled, (ii) all other intercompany accounts between KBI, on the one hand, and
KB or any of its Affiliates, on the other hand, shall be netted against each
other and KBI (if such amount is a net payable by KBI) or KB (if such amount is
a net receivable to KBI) shall pay such amount to the other and (iii) all other
intercompany accounts between KBI, on the one hand, and TR or any of its
Affiliates, on the other hand, shall be netted against each other and KBI (if
such amount is a net payable by KBI) or TR (if such amount is a net receivable
to KBI) shall pay such amount to the other; provided, however, with respect to
clause (iii) above, any intercompany accounts between Merck-Medco Managed Care,
L.L.C., on the one hand, and KBI, on the other hand, shall be specifically
excluded from such settlement and settled in the normal course by the
Partnership.
(b) KBI Common Stock Dividend. KBI shall declare a cash
dividend (the "KBI Common Stock Dividend") on its outstanding shares of Class A
Common Stock and Class B Common Stock, in the aggregate amount calculated as set
forth below, with the record date for the determination of the holders of such
shares entitled to receive such dividend to be
----------------------
14. Pursuant to paragraph 2 of the letter agreement dated July 1, 1998
(concerning the settlement of intercompany accounts) and notwithstanding
anything to the contrary in this Agreement (including this Section
2.2(a)) or the KBI Asset Contribution Agreement, Parent Balances (as
defined in Exhibit B to such letter agreement) (i) shall be settled in
accordance with the procedures set forth in such Exhibit B and (ii) shall
be deemed to be Excluded Assets or Excluded Liabilities, as the case may
be, pursuant to the KBI Asset Contribution Agreement.
<PAGE> 37
32
prior to the Closing Date. Such dividend shall be paid immediately prior to the
Closing. The amount of such dividend shall be equal to the lesser of (i) the sum
of a good faith estimate of the maximum amount which if distributed immediately
prior to the Closing would constitute a "dividend" within the meaning of Section
316 of the Code and $157 million, and (ii) a good faith estimate of KBI's
consolidated cash and short-term investments as of the opening of business on
the Closing Date; provided, however, with respect to the foregoing clause (ii),
KBI's consolidated cash and short-term investments shall exclude (x) any amounts
received or paid by any KBI Party pursuant to Sections 2.4 and 2.5, and (y)
amounts received by KBI upon the sale of Inventory to the Partnership pursuant
to the KBI Supply Agreement (including any post-closing adjustment thereof).
2.3 Closing. Upon the terms and subject to the conditions set forth
in this Agreement and the other Initial Agreements, a closing (the "Closing")
shall be held at the offices of Winthrop, Stimson, Putnam & Roberts, One Battery
Park Plaza, New York, New York at 10:00 A.M., Eastern Time, on July 1, 1998 or
such other date (subject to Section 11.2) as shall be agreed to by the parties.
The date on which the Closing occurs is referred to hereinafter as the "Closing
Date."
2.4 Actions to be Taken at the Closing. Upon the terms and subject
to the conditions set forth in this Agreement and the other Initial Agreements,
at the Closing, the following actions shall be taken on the Closing Date, and
shall be effective, in the order set forth below; provided, however, that the
actions set forth in Sections 2.4(d)-2.4(h) shall be deemed to occur
concurrently; and, provided, further, that if any of the actions set forth in
Sections 2.4(a)-2.4(h) shall not occur, then all such actions that have occurred
shall be automatically rescinded.
(a) Partnership Agreement. KBI Sub shall purchase, for a cash
payment of $1, the entire limited partnership interest in the Partnership.
Immediately thereafter, KBLP and KBI Sub shall execute and deliver the
Partnership Agreement, pursuant to which the Original Partnership Agreement
shall be terminated. Immediately thereafter, KBI Sub and the Partnership shall
execute and deliver the KBI Sub Assignment and Assumption Agreement (#1),
pursuant to which KBI Sub shall make a portion of its Original Capital
Contribution, consisting of KBI Sub's rights and obligations under the Selected
Compounds Contribution Agreement. Such contribution shall be effective as of
12:01 A.M., Eastern Time, on the Closing Date.
(b) Purchase of KBI Common Shares. TR Holdings shall purchase
from KB, and KB shall sell to TR Holdings, all of the KBI Common Shares for an
aggregate purchase price of $700 million in cash (the "KBI Share Purchase
Price"), subject to adjustment after the Closing as provided in Sections 2.5(d)
and 2.6 hereof. KB shall deliver to TR Holdings upon such purchase stock
certificates representing all the KBI Common Shares, duly endorsed in blank or
accompanied by appropriate stock powers, and with all applicable stock transfer
stamps attached. The parties agree that KBI's books shall be closed as of the
opening of business on the Closing Date and that none of KBI's business
transactions taking place on the Closing Date shall be recorded on such books as
of such date.
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(c) Election of Directors and Recapitalization of KBI. TR
Holdings and KB shall remove and elect (or cause the removal and election of)
directors of KBI in accordance with the Certificate of Incorporation and By-Laws
of KBI; TR and KB shall cause the holders of the Preferred Stock to give all
necessary consents and approvals to the KBI Plan of Recapitalization and to the
actions and transactions contemplated thereby; and immediately following such
approval, TR shall cause the filing with the Secretary of State of the State of
Delaware of the Amended and Restated KBI Certificate of Incorporation. Upon the
effectiveness of the Amended and Restated KBI Certificate of Incorporation, (i)
each share of Class B Preferred Stock shall automatically be exchanged for one
(1) share of Class E Preferred Stock in accordance with the KBI Plan of
Recapitalization and (ii) each share of Class A Common Stock, each share of
Class B Common Stock and each share of Class C Common Stock shall automatically
be exchanged for one (1) share of Common Stock in accordance with the KBI Plan
of Recapitalization. KBI shall deliver to TR Holdings certificates representing
all the shares of Class E Preferred Stock and Common Stock issued pursuant to
the KBI Plan of Recapitalization bearing the legend set forth in Section 3.3(d)
hereof, and TR Holdings shall deliver to KBI for cancellation certificates
representing all the shares of Class B Preferred Stock, Class A Common Stock,
Class B Common Stock and Class C Common Stock. TR Holdings and KB shall cause
KBI to remove and elect directors of KBI-E and KBI-P, respectively, in
accordance with the Certificate of Incorporation and By-Laws of each such
company. If the KBI Amended and Restated By-laws were not adopted in connection
with the foregoing, TR and KB shall promptly thereafter adopt them or cause them
to be adopted.
(d) Option Agreements. Immediately following the
recapitalization described in Section 2.4(c) hereof, (i) KB and KBI-E shall
execute and deliver the KBI-E Asset Option Agreement, pursuant to which KB shall
pay to KBI-E at the Closing the amount of $443 million in cash as provided in
the KBI-E Asset Option Agreement, and (ii) KB, TR and TR Holdings shall execute
and deliver the KBI Shares Option Agreement.
(e) Loan to TR. KB shall lend to TR the amount of
$1,380,000,000 in cash (such loan being referred to herein as the "KB Loan" and
the amount of such loan being referred to herein as the "Loan Amount"), and
concurrently therewith TR shall execute and deliver to KB a term note in the
original principal amount of the Loan Amount (the "TR Promissory Note") setting
forth the terms of such loan.
(f) Amended and Restated KBI License; Distribution Agreement.
KB and KBI shall enter into the Amended and Restated KBI License, pursuant to
which the KBI License shall be amended and restated effective as of the Closing
Date; KBI and KBI Sub shall enter into the Trademark Rights Contribution
Agreement, with respect to KBI's rights and obligations under the Amended and
Restated KBI License related to Trademarks (as such term is defined in the
Amended and Restated KBI License); and KBI and KBI-E shall enter into the KBI
License Assignment and Assumption Agreement, with respect to KBI's other rights
and obligations under the Amended and Restated KBI License. KBI-E and the
Partnership shall enter into the Distribution Agreement, pursuant to which the
Partnership shall be appointed the sole and exclusive distributor of certain
products in the Territory effective as of the Closing Date and, in consideration
of the rights granted to the Partnership thereunder, the Partnership shall pay
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to KBI-E at the Closing a franchise fee of $230 million in cash as provided in
the Distribution Agreement.
(g) Additional Actions with Respect to the Partnership. At the
Closing, KBLP shall contribute to the Partnership, as part of KBLP's Original
Capital Contribution, cash in the amount of $400 million. KBLP and the
Partnership shall execute and deliver the KBLP Assignment and Assumption
Agreement, pursuant to which KBLP shall complete its Original Capital
Contribution at the Closing. KBI Sub and the Partnership shall execute and
deliver the KBI Sub Assignment and Assumption Agreement (#2), pursuant to which
KBI Sub shall complete its Original Capital Contribution (including the
contribution of cash described in Section 2.5(a) hereof) at the Closing. Each
such contribution (other than the aforesaid cash contributions) shall be
effective as of the Effective Time.
(h) Pledge Agreement. KB and KBI shall enter into a Pledge
Agreement, pursuant to which KB shall pledge its shares of Class A Preferred
Stock and Class C Preferred Stock and the TR Promissory Note as security for
KB's obligations, in the event that the Put Option is exercised, to purchase the
KBI Sub Shares and pay the Put Option Price, pursuant to Section 3.5 hereof.
(i) Other Ancillary Agreements. Each of the parties hereto
shall execute and deliver, and TR shall cause each other TR Party to execute and
deliver, and KB shall cause each other KB Party to execute and deliver, all
Ancillary Agreements not executed pursuant to any of the preceding paragraphs of
this Section 2.4 to which it or such other TR Party or KB Party is specified as
a party.
2.5 Certain Adjustments.
(a) KBI Sub Cash Contribution. At the Closing, KBI Sub shall
contribute to the Partnership as part of its Original Capital Contribution cash
in an amount equal to the sum of (i) the Agreed Cash Amount (determined in
accordance with paragraph (b) below) and (ii) the Estimated Inventory Amount
(determined in accordance with paragraph (b) below).
(b) Certain Estimates. No less than two (2) business days
prior to the Closing Date, KB and TR shall estimate the Working Capital
Adjustment (the "Estimated Working Capital Adjustment") and the Closing Date
Inventory Amount (the "Estimated Inventory Amount"). If KB and TR are unable to
agree upon the Estimated Working Capital Adjustment, then the Estimated Working
Capital Adjustment shall be the average of the amounts proposed by KB and TR. If
KB and TR are unable to agree upon the Estimated Inventory Amount, then the
Estimated Inventory Amount shall be the book value of the inventory reflected on
KBI's unaudited balance sheet as of May 31, 1998.
(i) In the event that the Estimated Working Capital Adjustment
is a positive amount (i.e., Closing Date Working Capital is
estimated to exceed Base Date Working Capital), then the Agreed Cash
Amount shall equal $25 million minus the absolute value of the
Estimated Working Capital Adjustment.
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(ii) In the event that the Estimated Working Capital
Adjustment is a negative amount (i.e., Closing Date Working Capital
is estimated to be less than Base Date Working Capital), then the
Agreed Cash Amount shall equal $25 million plus the absolute value
of the Estimated Working Capital Adjustment.
(c) Working Capital Adjustment; Inventory Adjustment.
Following the Closing, the Working Capital Adjustment and the Inventory
Adjustment shall be determined in accordance with paragraph (e) below. Within
five (5) business days following such determination, KBI Sub or the Partnership,
as the case may be, shall make any payments required by clauses (i) - (iv)
below; provided, however, that any payments required to be made by a party
pursuant to this Section 2.5(c) shall be netted against any payments to which
such party is entitled under this Section 2.5(c).
(i) In the event that the Working Capital Adjustment is
greater than the Estimated Working Capital Adjustment, then the
Partnership shall pay to KBI Sub the difference between such
amounts.
(ii) In the event that the Working Capital Adjustment is less
than the Estimated Working Capital Adjustment, then KBI Sub shall
pay to the Partnership the difference between such amounts.
(iii) In the event that the Estimated Inventory Amount is
greater than the Closing Date Inventory Amount, then the Partnership
shall pay to KBI Sub the difference between such amounts.
(iv) In the event that the Estimated Inventory Amount is less
than the Closing Date Inventory Amount, then KBI Sub shall pay to
the Partnership the difference between such amounts.
(d) Residual KBI Cash Adjustment. Following the Closing, the
Residual KBI Cash Amount shall be determined in accordance with paragraph (e)
below. Within five (5) business days following such determination, TR Holdings
or KB, as the case may be, shall make any payment required by clause (i) or (ii)
below.
(i) In the event that the Residual KBI Cash Amount is less
than zero, then (x) the KBI Share Purchase Price shall be reduced by
an amount equal to 50% of such amount and (y) KB shall pay to TR
Holdings the absolute value of such amount.
(ii) In the event that the Residual KBI Cash Amount is greater
than zero, then (x) the KBI Share Purchase Price shall be increased
by an amount equal to 50% of such amount and (y) TR Holdings shall
pay to KB the absolute value of such amount.
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(e) The Working Capital Adjustment, the Inventory Adjustment,
the Tax Amount and the KBI Adjustment shall be determined, and the KBI Closing
Date Balance Sheet shall be prepared, as follows:
(i) Preparation of Closing Statements. As soon as reasonably
possible after the Closing Date (but not later than thirty (30) days
thereafter), TR shall cause KBI to engage Price Waterhouse LLP to
prepare and deliver to KB, (u) a statement (the "KBI Cash Amount
Statement") setting forth the KBI Cash Amount, in the form of Part B
of Schedule 2.5 hereto, (v) a balance sheet of KBI as of the opening
of business on the Closing Date, (w) a statement (the "Working
Capital Statement") setting forth (A) the amount of the Working
Capital (the "Closing Date Working Capital") contributed by KBI Sub
to the Partnership pursuant to the KBI Asset Contribution Agreement
and the KBI Sub Assignment and Assumption Agreement (#2), (B) the
amount of KBI's Working Capital (the "Base Date Working Capital") as
of the end of the Fiscal Quarter immediately preceding the Closing
Date (the "Base Date") and (C) the amount of the Working Capital
Adjustment, in the form of Part C of Schedule 2.5 hereto, (x) a
statement (the "Inventory Statement") setting forth the (A) the
Closing Date Inventory Amount and (B) the amount of the Inventory
Adjustment, in the form of Part D of Schedule 2.5 hereto, (y) a
statement (the "Tax Statement") setting forth the Tax Amount, in the
form of Part E of Schedule 2.5 hereto, and (z) a statement (the "KBI
Statement" and, collectively with the KBI Cash Amount Statement, the
KBI Closing Date Balance Sheet, the Working Capital Statement, the
Inventory Statement and the Tax Statement, the "Closing Statements")
setting forth the Residual KBI Cash Amount in the form of Part F of
Schedule 2.5 hereto. Each of the Closing Statements shall be
prepared in accordance with GAAP except as otherwise provided in the
applicable Part of Schedule 2.5 hereto and on a basis consistent
with the policies, practices and procedures of KBI as applied prior
to the date hereof. Without limiting the generality of the
foregoing, (i) financial practices, policies and procedures relating
to the closing of KBI's books as of the Closing Date (and, in the
case of the Working Capital Adjustment, the Base Date) shall be
those used for a year-end close of KBI's books applied on a
consistent basis, (ii) during the Fiscal Quarter in which the Base
Date occurs, the business of KBI shall be managed and operated in
the ordinary course of business consistent with past practice, and
(iii) the KBI Closing Date Balance Sheet (x) shall give effect to
the transactions contemplated by the KBI Asset Contribution
Agreement, the Selected Compounds Contribution Agreement, the
Trademark Rights Contribution Agreement and the KBI-E Asset
Contribution Agreement, and (y) shall not give effect to the sale of
the Inventory by KBI to the Partnership pursuant to the KBI Supply
Agreement.
(ii) Notice of Dispute. Each Closing Statement shall be
binding and conclusive upon, and deemed accepted by, KB and TR
unless either party shall have notified the other party in writing,
within thirty (30) days after receipt of such Closing Statement,
that it (the "Objecting Party") disagrees with any amount
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set forth thereon (including any disagreement with respect to
relevant line items of such Closing Statement). Any such written
notice shall specify in reasonable detail each item that the
Objecting Party disputes, and a summary of the Objecting Party's
reasons for such dispute.
(iii) Resolution of Disputes. In the event the Objecting Party
gives the other party timely written notice in accordance with
paragraph (ii) above of a disagreement concerning any Closing
Statement, the parties shall attempt to resolve such disagreement.
However, if any such disagreement is not resolved by the parties
within thirty (30) days after receipt of such notice, such
disagreement shall be submitted to such accounting firm as shall be
agreed on by KB and TR, for the resolution of such dispute. In the
event that KB and TR cannot agree on such accounting firm, such firm
shall be selected at random from the remaining so-called "Big Five"
accounting firms. In connection with its engagement, such accounting
firm shall be required to render its d