Master Restructuring Agreement - Astra AB, Merck & Co. Inc., Astra Merck Inc., Astra USA Inc., KB USA LP, Astra Merck Enterprises Inc., KBI Sub Inc., Merck Holdings Inc. and Astra Pharmaceuticals LP
CONFORMED COMPOSITE COPY
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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.
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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 ("[*]").
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TABLE OF CONTENTS
PAGE
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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
(i)
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TABLE OF CONTENTS
(Continued)
PAGE
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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
(ii)
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TABLE OF CONTENTS
(Continued)
PAGE
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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
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)
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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)
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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
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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.
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"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.
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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).
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"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
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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).
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"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).
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"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
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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.
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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).
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"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).
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"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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34
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.
<PAGE> 41
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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
<PAGE> 42
37
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 decision within sixty (60) days
after receiving from KB and TR all relevant information it may
request with respect to such dispute. The decision of such
accounting firm shall be final and shall be binding and conclusive
upon all of the parties hereto.
(iv) Adjustment. Each Closing Statement shall be adjusted as
applicable to reflect the resolution of any disagreement pursuant to
paragraph (iii) above and, as so adjusted, shall be binding and
conclusive upon all of the parties hereto. The relevant amount set
forth on any Closing Statement (other than the KBI Closing Date
Balance Sheet), as so adjusted, shall be used to make the
determinations set forth in Section 2.5(c) or 2.5(d) hereof, as
applicable. Without limiting the generality of the foregoing, in the
event that the Tax Statement is adjusted pursuant to this paragraph
(iv), the KBI Statement shall be adjusted as appropriate to reflect
such adjustment in the Tax Statement.
(v) Cooperation. KB and TR shall ensure that all records,
working papers and other information as may reasonably be required
by KB or TR for the purposes of this Section 2.5(e) shall be made
available promptly upon request, and KB, KBLP, KB USA, the
Partnership and TR shall generally render all reasonable assistance
to each other necessary for the preparation and finalization of the
Closing Statements.
(vi) Expenses. TR and KB shall each bear one-half the fees and
expenses of Price Waterhouse LLP in connection with the preparation
of the Closing Statements. In the event of any disputes referred to
in paragraph (iii) above, the Dollar amount of all such disputes
shall be aggregated and the fees and expenses of any accounting firm
engaged to resolve such disputes shall be paid by the party against
whom the greater Dollar amount is resolved.
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2.6 KBI Shared Liabilities.
(a) Certain Adjustments. If, following the Closing, the TR
Parties or any of their respective Affiliates incur an obligation to pay any of
the KBI Shared Liabilities (as defined in the KBI Asset Contribution Agreement,
(i) the KBI Share Purchase Price shall be reduced by an amount equal to 50% of
the amount of such KBI Shared Liabilities (including any and all reasonable
attorneys' fees (except as set forth in clause (i) of the proviso to the second
sentence of Section 2.6(b) hereof) and reasonable costs of investigation,
litigation, settlement, judgment, interest and penalties with respect thereto),
(ii) KBI shall make a good faith estimate of the KBI Shared Liabilities Tax
Benefit with respect to such reduction, and (iii) KB shall promptly refund and
pay to TR Holdings the amount of such reduction less such estimate of the KBI
Shared Liabilities Tax Benefit. If, following the Closing, KBI makes any
indemnification payment to KB or its Affiliates, including the Partnership, with
respect to the KBI Shared Liabilities pursuant to Section 8.4 of the KBI Asset
Contribution Agreement, (i) the KBI Share Purchase Price shall be reduced by an
amount equal to 50% of the amount of such indemnification payment less any KBI
Shared Liabilities Tax Benefit and (ii) KB shall promptly refund and pay to TR
Holdings the amount of such reduction using KBI's good faith estimate of KBI
Shared Liabilities Tax Benefit. TR will promptly pay to KB any increase, and
upon notice from TR of the amount thereof, KB will promptly pay to TR any
decrease resulting from: (i) the true-up of any such estimate to the actual KBI
Shared Liabilities Tax Benefit as reflected in the relevant income tax returns,
and (ii) any subsequent change in the amount of any KBI Shared Liabilities Tax
Benefit.
For purposes of this Section 2.6, the term "KBI Shared
Liabilities Tax Benefit" shall mean 50% of the amount by which (i) the federal
income tax liability reported in the consolidated federal income tax return for
the group of which KBI is a member and (ii) the state or local income tax
liability reported in KBI's state and local income tax returns, is reduced by a
deduction from taxable income claimed in such returns attributable to the
recognition of the KBI Shared Liability plus or minus any subsequent change in
such amount resulting from any amended tax return, administrative adjustment or
judicial determination.
(b) Procedures. Promptly after the occurrence of any KBI Third
Party Claim (as defined below) or any other event which KB or TR asserts could
result in a KBI Shared Liability, KB or TR, as the case may be, shall notify the
other in writing, provided that no failure to provide such notice shall affect
any party's rights or obligations under Section 2.6(a) hereof. In the event that
the KBI Shared Liability involves any civil, administrative or investigative
claim, action, suit or proceeding (actual or threatened) by a Third Party (a
"KBI Third Party Claim"), then, (i) if the KBI Third Party Claim relates to the
ongoing operations of the Partnership, KB shall be entitled to have sole control
over the defense thereof and (ii) otherwise, TR shall be entitled to have sole
control over the defense thereof (the party entitled to assume such defense is
referred to herein as the "Defending Party" and the other party is referred to
herein as the "Other Party"); provided, however, that if the Defending Party
assumes the defense of such KBI Third Party Claim, (i) the Other Party shall be
entitled to participate in the defense of such KBI Third Party Claim and to
employ counsel at its own expense to assist in the handling of such KBI Third
Party Claim (it being agreed that after written
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39
notice by the Defending Party to the Other Party of its election to assume full
control of the defense of such KBI Third Party Claim, the adjustment of the KBI
Share Purchase Price provided for in Section 2.6(a) shall not take into account
any legal expenses incurred by the Other Party in connection with the defense
thereof), and (ii) the Defending Party shall obtain the prior written approval
of the Other Party (not to be unreasonably withheld) before entering into any
settlement of, or ceasing to defend against, such KBI Third Party Claim. If the
Defending Party does not assume the defense of such KBI Third Party Claim within
fifteen (15) days after the notice referred to in the first sentence of this
Section 2.6(b) is given, the Other Party may assume the defense of such KBI
Third Party Claim, provided that it shall obtain the prior written approval of
the Defending Party (not to be unreasonably withheld) before entering into any
settlement of, or ceasing to defend against, such KBI Third Party Claim. Without
limiting the generality of the foregoing, the parties shall cooperate and
consult with each other in connection with the defense and/or settlement of any
KBI Third Party Claim.
2.7 Other Actions. The following additional actions shall be
taken at the Closing:
(a) KB shall deliver to TR a certificate, dated the Closing
Date and signed by an authorized corporate officer of KB, certifying (x)
attached copies of resolutions duly adopted by the Board of Directors of KB,
approving the execution, delivery and performance by KB of the Initial
Agreements and each Ancillary Agreement to which KB is a party and (y) the
incumbency and signatures of the officers of KB signing the foregoing.
(b) TR shall deliver to KB a certificate, dated the Closing
Date and signed by an authorized corporate officer of TR, certifying (x)
attached copies of resolutions duly adopted by the Board of Directors of TR,
approving the execution, delivery and performance by TR of the Initial
Agreements and each Ancillary Agreement to which TR is a party and (y) the
incumbency and signatures of the officers of TR signing the foregoing.
2.8 Termination of Certain Agreements. Effective upon the Closing or
as otherwise provided in this Section 2.8, and notwithstanding anything to the
contrary in the 1982 JV Agreement, the Inter-Affiliate License Agreement that
certain Supply Agreement, dated as of July 12, 1982 among KB, TR and KBI-E
regarding the supply of products during the clinical evaluation of such products
and in connection with the initial marketing efforts with respect to such
products and the Side Agreement, dated November, 1997, among KBI, KBI-E, KB and
TR in connection with the execution by KBI of the license agreement among KBI,
KBI-E and The Procter & Gamble Co. regarding the supply of over the counter
products containing omeprazole to be developed and marketed under said license
agreement (the "Side Agreement") (such Agreements, the "Terminated Agreements"),
all rights and obligations of the applicable parties under each of the
Terminated Agreements shall automatically terminate and be of no further force
and effect; provided, however, that (i) the effectiveness of any other agreement
which incorporates definitions contained in the Terminated Agreements shall not
be affected thereby and (ii) such termination shall not affect (x) any provision
of the Terminated Agreements which by its terms survives such termination and
(y) any obligations of any party to any of the Terminated Agreements which
accrued prior to such termination (and any rights of any other
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party to the Terminated Agreements arising out of, based upon or resulting from
such obligations) or serve to eliminate liability arising out of conduct, events
or circumstances prior to such termination; and, provided, further, that
termination of the Side Agreement shall be effective on the later to occur of
(i) the Closing and (ii) the completion of the transfer and assignment to the
Partnership by KBI pursuant to the KBI Asset Contribution Agreement and the KBI
Sub Assignment and Assumption Agreement (#2) and by KBI-E pursuant to the KBI-E
Asset Contribution Agreement and the KBI Sub Assignment and Assumption Agreement
(#2) of such parties respective rights and obligations under the P&G License (as
defined in the Manufacturing Agreement). As used herein, "completion" shall mean
receipt of written consent to such above said transfers and assignments from The
Procter & Gamble Co.
ARTICLE 3
CERTAIN OPERATIONAL PROVISIONS
3.1 Exclusive Distributorship Agreement.
(a) Appointment of Distributor. Upon the terms and subject to
the conditions set forth herein and in the Exclusive Distributorship Agreement,
KB is irrevocably appointing the Partnership (as assignee of KBLP), effective as
of the Effective Time, as KB's exclusive distributor of the KB USA Products in
the Territory.
(b) Supply of Compounds and Products. Upon the terms and
subject to the conditions set forth in the Exclusive Distributorship Agreement,
from and after the Effective Time, KB shall, and shall cause its Affiliates
(other than the Partnership) to, supply or have supplied to the Partnership (as
assignee of KBLP) all of the Partnership's requirements of KB USA Products to be
sold in the Territory at such price as may be agreed between the Partnership and
KB consistent with Section 3.2 of the Partnership Agreement.
3.2 Competition.
(a) The parties acknowledge that certain conflicts of interest
(including direct competition) may from time to time occur in connection with
the pursuit by TR of its independent business. Accordingly, except as provided
in paragraph (b) below, TR shall not be restricted from conducting its
independent businesses in any manner chosen by it and shall not, and shall not
be obligated to, present or offer to the Partnership any particular investment
or business opportunity regardless of whether the Partnership could take
advantage of such opportunity if it were presented to the Partnership, but may
avail itself of any such opportunity for its own behalf; provided, however, that
TR and its Affiliates may use the KB Confidential Information (as defined in
Section 4.1(a) hereof) which is required to be maintained in confidence by it
pursuant to Section 4.1 only in connection with the interests of TR and its
Affiliates under this Agreement and the Ancillary Agreements and shall not use
such information for any other purpose. Nothing herein shall be interpreted to
excuse TR from complying with Section 4.1 hereof.
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(b) Except as contemplated by this Agreement or any of the
Ancillary Agreements, neither TR nor any of its Affiliates nor any Future TR
Joint Venture shall, either directly or indirectly, manufacture for commercial
sale in the Territory or sell, market or promote in the Territory any Covered
Compound or any product containing any Covered Compound prior to:
(i) in the case of a Licensed Compound, the later of (x) five
(5) years after the date that TR or any of its Affiliates ceases to
perform the Bulk Chemical Manufacturing Stage or Formulation
Manufacturing Stage with respect to such Licensed Compound or
products containing such Licensed Compound pursuant to the
Manufacturing Agreement or (y) (A) in the case of Licensed Compounds
other than omeprazole and perprazole, three (3) years following the
consummation of the KBI-E Asset Purchase and (B) in the case of
omeprazole and perprazole, three (3) years following the
consummation of the purchase of the shares of KBI pursuant to the
KBI Shares Option Agreement; or
(ii) in the case of any Covered Compound other than a Licensed
Compound, three (3) years following the consummation of the KBI-E
Asset Purchase;
provided, however, that the foregoing restrictions shall not apply to: (i) the
pharmaceutical benefit management business or any other business of Merck-Medco
Managed Care, L.L.C. ("Medco"), whether conducted by Medco or any Affiliate of
TR that succeeds to substantially all of Medco's business, except that Medco or
such Affiliate of TR may not manufacture any Covered Compound for commercial
sale in the Territory or develop any Covered Compound for purposes of obtaining
Marketing Approval (as such term is defined in the Distribution Agreement) in
the Territory or sell, market or promote in the Territory any product containing
any Covered Compound as to which Medco or such Affiliate of TR has rights under
an ANDA, (ii) any joint venture set forth on Schedule 3.2(b) (whether in the
form of a partnership, corporation or other entity or contractual joint venture)
existing at the date of this Agreement in which TR or an Affiliate of TR is a
party, (iii) any pharmaceutical product containing any Covered Compound as to
which TR or any of its Affiliates has or shall have at any time on or after the
date of this Agreement Market Exclusivity with respect to a Therapeutic Category
other than the Therapeutic Categories for which any pharmaceutical product
containing such Covered Compound is approved by the FDA under the NDA held by
the Partnership or any of its Affiliates or subdistributors, only for such use
as to which TR has Market Exclusivity, (iv) any pharmaceutical product that (A)
contains a combination of a Covered Compound and any Compound as to which TR or
any of its Affiliates has or shall have at any time on or after the date of this
Agreement Market Exclusivity as to which combination TR or any of its Affiliates
shall have at any time on or after the date of this Agreement Market Exclusivity
and (B) is approved for use in a Therapeutic Category other than the Therapeutic
Categories for which such Covered Compound is approved by the FDA under the NDA
held by the Partnership or any of its Affiliates or subdistributors, only for
such use as to which TR has Market Exclusivity, or (v) after December 31, 2010,
any pharmaceutical product that contains a combination of a Covered Compound and
any Compound as to which TR or any of its Affiliates has or shall have at any
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time on or after the date of this Agreement Market Exclusivity as to which
combination TR or any of its Affiliates shall have at any time on or after the
date of this Agreement Market Exclusivity, only for such use as to which TR has
Market Exclusivity. In addition, the foregoing restrictions shall not apply to
any rights or obligations of TR or any of its Affiliates under the
Omeprazole-for-Horses License.
(c) Notwithstanding Section 3.2(b), neither TR nor any of its
Affiliates shall be prohibited from purchasing securities of, or otherwise
acquiring or merging with or into, any business that manufactures or sells any
Covered Compound or from continuing to manufacture or sell such Covered Compound
thereafter for a period of twelve (12) months after the date of such
acquisition; provided, however, that the acquired business shall, prior to the
expiration of such twelve-month period, cease the manufacture or sale of such
Covered Compound that otherwise would be in violation of Section 3.2(b), whether
by sale, divestiture or otherwise; and, provided, further, that rights with
respect to such Covered Compound shall not be sold or transferred to any entity
in which TR, directly or indirectly, controls, through share ownership or
contract, the election of 30% or more of the board of directors or 30% or more
of the voting power.
(d) Nothing in this Section 3.2 shall be construed as the
grant of any license by implication or otherwise with respect to any Covered
Compound, any product containing any Covered Compound, any technical information
or know-how, any trademarks or other intellectual property rights.
3.3 Ownership of KBI, KBLP and Other Affiliates.
(a) Restrictions on Transferring Shares of KBI. No shares of
capital stock of KBI are owned as of the date of this Agreement by an Affiliate
of KB or an Affiliate of TR that is not a party hereto. Neither any Parent nor
any Affiliate of such Parent shall sell or otherwise Transfer directly or
indirectly any shares of capital stock of KBI, at any time owned by it, except
(i) for the Transfer contemplated by Section 2.4(b) hereof, (ii) the Transfer
contemplated by the KBI Shares Option Agreement, in the event that KB exercises
its option thereunder, (iii) any Transfer of such shares to KBI, (iv) any other
Transfer by one Parent (or its Affiliate) to the other Parent (or its
Affiliate), (v) as expressly permitted by and in accordance with the provisions
of Section 3.3(b) hereof or (vi) with the prior written consent of the other
Parent.
(b) Permitted Transfers. Without the consent of the Other
Parent (as defined in paragraph (iv) below):
(i) either Parent or any Affiliate of such Parent that is a
party hereto may Transfer all (but not less than all) of its shares
of KBI to any corporation which succeeds to all or substantially all
of the Transferor Parent's (as defined in
<PAGE> 48
43
paragraph (iv) below) business and properties; provided, however,
that as a condition to and prior to the effectiveness of any such
Transfer, (A) the transferee shall agree in writing, substantially
in the form of Exhibit T-1 hereto(15), to be bound by the provisions
of, and assume all liabilities and obligations of the Transferor
Parent under, the Initial Agreements, the Ancillary Agreements and
any Future Agreement to which it is a party as fully and to the same
extent as though such transferee had originally executed the Initial
Agreements, such Ancillary Agreements and any Future Agreement as
the transferor and (B) the Transferor Parent shall deliver an
executed copy of such agreement to the Other Parent;
(ii) either Parent may Transfer all (but not less than all) of
its shares of KBI to any subsidiary of the Transferor Parent which
is a direct or indirect Wholly-Owned Subsidiary of the Transferor
Parent; provided, however, that as conditions to and prior to the
effectiveness of any such Transfer to any such Wholly-Owned
Subsidiary (A) the transferee shall agree in writing, substantially
in the form of Exhibit T-2 hereto,(16) to be bound by the provisions
of, and assume all liabilities and obligations of the Transferor
Parent as a stockholder of KBI under, this Agreement as fully and to
the same extent as though such transferee had originally executed
this Agreement, (B) the Transferor Parent shall agree in writing,
substantially in the form of Exhibit T-3 hereto,(17) (1) that the
Transferor Parent shall not be relieved of any of its liabilities or
obligations under the Initial Agreements, any Ancillary Agreement
and any Future Agreement to which it is a party, (2) that the
Transferor Parent shall cause the transferee to satisfy the
liabilities and obligations assumed by the transferee pursuant to
clause (A) above and (3) that, prior to the time that the transferee
ceases to be a direct or indirect Wholly-Owned Subsidiary of the
Transferor Parent, the Transferor Parent shall cause the transferee
to Transfer its shares of KBI in accordance with paragraph (iii)
below and (C) the Transferor Parent shall deliver an executed copy
of each of the agreements referred to in the foregoing clauses (A)
and (B) to the Other Parent; or
(iii) any Affiliate of a Parent that is a party hereto and any
subsidiary referred to in paragraph (ii) above (such Affiliate or
subsidiary, a "Qualifying
-----------------------
15. Pursuant to paragraph 5 of the letter agreement dated July 1, 1998,
Exhibit T-1, attached hereto, is in the form of Exhibit T-1 set forth in
Exhibit C attached to such letter agreement.
16. Pursuant to paragraph 5 of the letter agreement dated July 1, 1998,
Exhibit T-2, attached hereto, is in the form of Exhibit T-2 set forth in
Exhibit C attached to such letter agreement.
17. Pursuant to paragraph 5 of the letter agreement dated July 1, 1998,
Exhibit T-3, attached hereto, is in the form of Exhibit T-3 set forth in
Exhibit C attached to such letter agreement.
<PAGE> 49
44
Affiliate"), may Transfer all (but not less than all) of its shares
of KBI to (x) the Parent of such Qualifying Affiliate or (y) any
subsidiary of such Parent which is a direct or indirect Wholly-Owned
Subsidiary of such Parent; provided, however, that as conditions to
and prior to the effectiveness of any such Transfer to any such
Wholly-Owned Subsidiary, (A) such Wholly-Owned Subsidiary shall
agree in writing, substantially in the form of Exhibit T-4
hereto,(18) to be bound by the provisions of, and assume all
liabilities and obligations of the Transferor Parent and the
Qualifying Affiliate as a stockholder of KBI under, this Agreement
as fully and to the same extent as though such Wholly-Owned
Subsidiary had originally executed this Agreement and (B) the
Transferor Parent shall agree in writing, substantially in the form
of Exhibit T-5 hereto,(19) (1) that the Transferor Parent shall not
be relieved of any of its liabilities or obligations under the
Initial Agreements, any Ancillary Agreement or any Future Agreement
to which it is a party, (2) that the Transferor Parent shall cause
such Wholly-Owned Subsidiary to satisfy the liabilities and
obligations assumed by such Wholly-Owned Subsidiary pursuant to
clause (A) above and (3) that, prior to the time that such
Wholly-Owned Subsidiary ceases to be a direct or indirect
Wholly-Owned Subsidiary of the Transferor Parent, the Transferor
Parent shall cause such Wholly-Owned Subsidiary to Transfer its
shares of KBI to the Transferor Parent, and (C) the Transferor
Parent shall deliver an executed copy of each of the agreements
referred to in the foregoing clauses (A) and (B) to the Other
Parent;
(iv) As used herein, the term "Transferor Parent" shall mean
the Parent that is effecting or seeking to effect, or whose
Qualifying Affiliate is effecting or seeking to effect, a Transfer
in accordance with paragraph (i), (ii) or (iii) above, as the case
may be; and the term "Other Parent" shall mean the Parent that is
not the Transferor Parent;
(v) Neither KB nor any Affiliate of KB shall sell or otherwise
Transfer any shares of capital stock of KBI unless such sale or
Transfer is expressly subject to the Pledge Agreement.
(c) Recordation of Transfer. KBI shall record the Transfer of
its shares only if such Transfer is made in accordance with the terms of this
Agreement.
--------------------
18. Pursuant to paragraph 5 of the letter agreement dated July 1, 1998,
Exhibit T-4, attached hereto, is in the form of Exhibit T-4 set forth in
Exhibit C attached to such letter agreement.
19. Pursuant to paragraph 5 of the letter agreement dated July 1, 1998,
Exhibit T-5, attached hereto, is in the form of Exhibit T-5 set forth in
Exhibit C attached to such letter agreement.
<PAGE> 50
45
(d) Legend. A copy of this Agreement shall be filed with KBI.
From and after the Closing, each certificate representing shares of KBI shall be
stamped or otherwise impressed with a legend in substantially the following
form:
"The sale, assignment, transfer, pledge or other disposition
or encumbrance of the shares represented by this certificate may be
made only when recorded on the books of KBI and in accordance with
the terms of a certain Master Restructuring Agreement dated as of
June __, 1998, between TR, KB, KBI and the other parties thereto (a
copy of which is on file with KBI and may be inspected at its
offices). Such agreement generally prohibits the transfer of any
right, title or interest in or to the shares other than in certain
specified events and provides that any such prohibited transfer
shall not be effective to grant to the transferee any right, title
or interest in or to the shares. All shares of Common Stock, Class D
Preferred Stock and Class E Preferred Stock are also subject to a
certain KBI Shares Option Agreement dated as of __________, 1998,
between KB, TR and TR Holdings (a copy of which is on file with KBI
and may be inspected at its offices). KBI will furnish without
charge to each stockholder who so requests a statement of the
powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series
thereof of KBI and the qualifications, limitations or restrictions
of such preferences and/or rights."
At the Closing, share certificates issued prior thereto representing shares
outstanding at such date shall be surrendered to KBI in exchange for replacement
certificates bearing the legend set forth above.
(e) Ineffectiveness of Prohibited Transfer. Any attempted or
purported Transfer of any shares of KBI, or any interest therein, in violation
of any provisions of this Agreement or applicable law shall be void and shall
not be effective to pass any right, title or interest therein.
(f) KBLP; KB USA; Additional KBLP GPs; Additional KBLP LPs.
(i) Any Person that becomes the general partner of the
Partnership in accordance with Section 7.1(a) or 7.2 of the
Partnership Agreement shall be referred to herein as a "Successor
General Partner."
(ii) KB agrees that it shall not, and shall not permit
any of its Affiliates to, take any action which would result, or
fail to take any action if such failure would result, in any Person
other than a Permitted General Partner (as such term is defined
below) (x) being a general partner of KBLP (or being a general
partner or shareholder (or Person having comparable status in the
case of any entity which is not a partnership or corporation) of any
Successor General Partner)
<PAGE> 51
46
or (y) being a general partner or shareholder (or Person having
comparable status in the case of any entity which is not a
partnership or corporation) of any Person (other than KB USA in its
capacity as a Permitted Partner that is a limited partner of KBLP or
any other Permitted Partner in its capacity as a limited partner
that is an Additional KBLP LP) that directly or indirectly owns any
ownership interest in KBLP (or any Successor General Partner). KB
agrees to cause any Person that becomes a general partner,
shareholder or acquires comparable status pursuant to clause (x) or
(y) of the preceding sentence to at all times remain a Permitted
General Partner. Any Person that becomes a general partner of KBLP
(or a general partner or shareholder (or Person having comparable
status in the case of an entity which is not a partnership or
corporation) of any Successor General Partner) in accordance with
this paragraph (ii) and, except in the case of KB USA in its
capacity as a Permitted Partner that is a limited partner of KBLP,
any other Permitted Partner in its capacity as a limited partner
that is an Additional KBLP LP or any public shareholder of KB, a
Qualified Person or a Qualified Parent, every Person that directly
or indirectly owns any ownership interest in KBLP (or any Successor
General Partner), shall be referred to herein as an "Additional KBLP
GP."
(iii) KB and KB USA each agrees that it shall not, and
shall not permit any of its Affiliates to, take any action which
would result, or fail to take any action if such failure would
result, in any Person other than a Permitted Partner (as such term
is defined below) (x) being a limited partner of KBLP (or being a
limited partner (or Person having comparable status in the case of
any entity which is not a partnership or corporation) of any
Successor General Partner) or (y) being a limited partner or
shareholder (or Person having comparable status in the case of any
entity which is not a partnership or corporation) of any Person that
directly or indirectly owns any ownership interest in KBLP (or any
Successor General Partner). KB and KB USA agree (x) to cause any
Person that becomes a limited partner, a shareholder or acquires
comparable status pursuant to clause (x) or (y) of the preceding
sentence to at all times remain a Permitted Partner and (y) not to,
and not to permit KB USA or any Additional KBLP LP to, take any
action to remove or to replace KB or any Additional KBLP GP as a
general partner of KBLP (or any Successor General Partner) or any
Additional KBLP GP with any Person that is not a Permitted General
Partner. Any Person that becomes a limited partner of KBLP (or a
limited partner (or Person having comparable status in the case of
an entity which is not a partnership or corporation) of any
Successor General Partner) in accordance with this paragraph (iii),
and every Person that directly or indirectly owns any ownership
interest in any limited partner of KBLP (or any limited partner (or
Person having comparable status in the case of any entity which is
not a partnership or corporation) of any Successor General Partner),
shall be referred to herein as an "Additional KBLP LP."
(iv) Notwithstanding anything herein to the contrary, KB
and KB USA each agrees that (w) KB USA shall at all times remain a
Qualified
<PAGE> 52
47
Subsidiary, (x) it shall not take any action which would result, or
fail to take any action if such failure would result, in any Person
other than any Permitted General Partner having any control over the
management, operations, finances or other affairs of KBLP (or any
Successor General Partner) or any Additional KBLP GP and (y) it
shall not pledge or otherwise encumber, and shall not permit to
occur any pledge or other encumbrance upon, any of the ownership
interests in KB USA, KBLP (or any Successor General Partner), any
Additional KBLP GP (other than KB, any Qualified Person or any
Qualified Parent) or any Additional KBLP LP. Notwithstanding
anything herein to the contrary, KB and KB USA agree that, except
for any failure to be in good standing resulting from the Bankruptcy
of such entity, (x) KB USA shall at all times be in existence and in
good standing as a corporation under the laws of its state of
incorporation, (y) KBLP (and any Successor General Partner) shall at
all times be in existence and in good standing as a limited
partnership (or, in the case of any Successor General Partner, a
partnership, corporation or other business entity) under the laws of
its state of formation and (z) any Additional KBLP GP and any
Additional KBLP LP shall at all times be in existence and in good
standing as a partnership, corporation or other business entity
under the laws of its state of formation.
"Permitted General Partner" shall mean any Permitted Partner;
provided, that, if such Permitted Partner is a Qualified Person, a Qualified
Parent or a Qualified Subsidiary (other than KB or a Wholly-Owned Subsidiary of
KB), the Qualified Person shall have agreed in writing to guarantee and assume
the performance of the obligations of KB under the Initial Agreements, the
Ancillary Agreements and any Future Agreement to which KB is a party (it being
understood that KB shall not be released from any of such obligations) and a
duly executed copy of such agreement shall have been delivered to TR.
"Permitted Partner" shall mean KB or any Wholly-Owned Subsidiary of
KB and, following a Trigger Event, a Qualified Person, a Qualified Subsidiary or
a Qualified Parent.
"Qualified Parent" means a Person which directly or indirectly owns
all of the equity (or other ownership interest) of KB and a Qualified Person.
"Qualified Subsidiary" means any Wholly-Owned Subsidiary of a
Qualified Parent, a Qualified Person and/or KB. For purposes of this definition
of "Qualified Subsidiary," references in the definition of Wholly-Owned
Subsidiary to a "Person" shall be deemed to refer to all or any of such
Qualified Parent, Qualified Person and/or KB either individually or in
combination with any of said entities or any of their Wholly-Owned Subsidiaries,
as the case may be.
(g) KBI Sub; KBI-E; TR Holdings. Notwithstanding anything
herein to the contrary, TR agrees that it shall not, and shall not permit any of
its Affiliates to, (i) pledge or otherwise encumber any shares of capital stock
of KBI Sub (or any shares of capital stock or other ownership interests in any
other Affiliate of TR that shall at any time be the Limited Partner in
accordance with the Partnership Agreement (a "Successor Limited Partner")) or
<PAGE> 53
48
KBI-E, (ii) take any action which would result, or fail to take any action if
such failure would result, in KBI Sub (or any Successor Limited Partner) or
KBI-E not being a direct or indirect Wholly-Owned Subsidiary of KBI, except upon
exercise of the Put Option, or (iii) pledge or otherwise encumber any shares of
capital stock of TR Holdings or take any action which would result, or fail to
take any action if such failure would result, in TR Holdings not being a direct
or indirect Wholly-Owned Subsidiary of TR (or any permitted successor of TR
pursuant to Section 3.3(b)(i)), unless prior to the taking of any such action
with respect to TR Holdings, the shares of KBI held by TR Holdings are
transferred in accordance with paragraph (iii) of Section 3.3(b) hereof. Except
for any failure to be in good standing resulting from the Bankruptcy of such
entity, (i) each of the KBI Parties (or, in the case of KBI Sub, any Successor
Limited Partner) shall at all times be in existence and in good standing as a
corporation (or, in the case of any Successor Limited Partner, a partnership,
corporation or other business entity) under the laws of its state of
incorporation (or, if applicable in the case of any Successor Limited Partner,
its state of formation) and (ii) TR Holdings (or its transferee pursuant to
clause (iii) of the preceding sentence) shall at all times be in existence and
in good standing as a corporation (or, in the case of any such transferee, a
partnership, corporation or other business entity) under the laws of its state
of incorporation (or, if applicable in the case of any such transferee, its
state of formation).
(h) Information. Each of TR and KB shall, upon reasonable
notice from the other, provide the other with such information and documents as
are reasonably required to determine (i) in the case of a request by TR, the
ownership of KBLP (or any Successor General Partner), KB USA, any Additional
KBLP LP or any Additional KBLP GP, or (ii) in the case of a request by KB, the
ownership of KBI Sub (or any Successor Limited Partner), KBI-E or TR Holdings.
3.4 Use of Names.
(a) Neither the Partnership nor any other Affiliate of KB
shall include in its name the word "TR" or any other word confusingly similar
thereto or otherwise use the word "TR" or any such other word in the conduct of
its business, except as and to the extent required by any law or the provisions
(as in effect as of the Closing Date) of any Transferred Contract (as defined in
the KBI Asset Contribution Agreement) included within the Original Capital
Contribution of KBI Sub. Notwithstanding the foregoing, the Partnership shall be
permitted to use existing stocks of finished goods, office supplies, signage,
packaging and marketing materials and other similar supplies which include or
contain the word "TR" or "KBI" for a period of one (1) year from the Closing
Date.
(b) No later than thirty (30) days after the Closing Date, KBI
shall, and shall cause KBI-E and KBI-P to, amend their respective certificates
of incorporation to delete the word "KB", and thereafter, neither KBI nor any
Affiliate of KBI shall include in their respective names the word "KB" or any
other word confusingly similar thereto. In no event shall TR or its Affiliates
use the word "KB" or any other such word in the conduct of its business after
the Closing Date.
<PAGE> 54
49
3.5 Put Option.
(a) KB shall give written notice to KBI of a Put
Option Event not more than five (5) business days following the occurrence of
such Put Option Event. From and after the occurrence of a Put Option Event, KBI
shall have the right and option (the "Put Option") to require KB to purchase all
the outstanding shares of KBI Sub (the "KBI Sub Shares") for a price equal to
the Put Option Price (as defined below), payable in cash. KBI may exercise such
option by giving written notice to KB (the "Exercise Notice") at any time during
the Put Option Exercise Period of its election to exercise such option and
designating a time and date, which shall be not less than five (5) business days
following such notice, and place for the sale of such shares to KB, subject to
Section 3.5(c) (the "Share Closing"). In the event of the exercise of such
option, KB shall purchase such shares at the Share Closing and shall cause the
purchase price therefor to be paid to KBI in the manner specified in Section
3.9, subject to the right of KB set forth in Section 3.5(c) to defer its
obligation to purchase such shares by making certain cash payments to KBI as set
forth in Section 3.5(c) ("Blocking Payments").
(b) As used herein, the "Put Option Price" shall mean
(i) prior to the partial retirement of the Limited Partner's Interest as
provided in Section 5.6 of the Partnership Agreement, the sum of (A) $5.78
billion, (B) the cumulative amount of the Contingent Amount Gross-Up not
distributed by the Partnership to the Limited Partner, (C) the amount of any
cash or other liquid assets held by KBI Sub at the time of the closing of the
Put Option, and (D) 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, the
greater of (x) 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 (y) $2.0 billion, and (ii) after such partial retirement, the
sum of (A) $3.4 billion, and (B) the amount of any cash or other liquid assets
held by KBI Sub at the time of the closing of the purchase of the KBI Sub Shares
pursuant to the exercise of the Put Option.
(c) In the event KBI exercises the Put Option as
provided in Section 3.5(a), KB shall be entitled to defer its obligation
pursuant to Section 3.5(a) to purchase the KBI Sub Shares for so long as KB pays
to KBI in cash Blocking Payments as set forth below. In the event KB elects to
make Blocking Payments to KBI to defer its obligation to purchase the KBI Sub
Shares, KB shall give written notice of such election to KBI prior to or
contemporaneously with the payment of the first Blocking Payment. The right of
KB to make Blocking Payments and to defer its obligation to purchase the KBI Sub
Shares as provided in this Section 3.5(c) shall expire on December 31, 2016. The
first Blocking Payment shall be due on the fifth business day after the
effective date (in accordance with Section 12.8) of the Exercise Notice. The
first Blocking Payment shall be in an amount equal to (w) one-fourth of the
applicable Blocking Amount times the sum of the number of Fiscal Quarters
elapsed in the current Fiscal Year plus one (1) plus (x) if such Blocking
Payment is due in a Fiscal Year in which the Capital Account balance of the
General Partner in the Partnership is not restored to at least $0 as described
in clause (ii) of the definition of "Put Option Event", the Blocking Amount,
plus (y) in the event the
<PAGE> 55
50
Put Option Event is a Bankruptcy, one-fourth of the Blocking Amount times the
number of Fiscal Quarters ending after the occurrence of any action or event
described in clause (ii) of the definition "Bankruptcy" and before the current
Fiscal Year less the amount payable pursuant to (x) above, plus (z) the amount
of any funds or other assets (valued at fair market value) previously
distributed to the Limited Partner or paid by or on behalf of the Partnership to
TR or any Affiliate of TR that are returned by TR or any Affiliate of TR to the
Partnership as a preference under the Bankruptcy Code or as a fraudulent
conveyance or transfer under any fraudulent conveyance or transfer statute or
under any similar law or requirement. Each subsequent Blocking Payment shall be
in the amount of (i) one-fourth of the Blocking Amount plus (ii) the amount of
any funds or other assets (valued at fair market value) previously distributed
to the Limited Partner or paid by or on behalf of the Partnership to TR or any
Affiliate of TR that are returned by TR or any Affiliate of TR to the
Partnership as a preference under the Bankruptcy Code or as a fraudulent
conveyance or transfer under any fraudulent conveyance or transfer statute or
under any similar law or requirement (and have not been included in a prior
Blocking Payment) and shall be due and payable prior to the first day of each
Fiscal Quarter. All such payments shall be made to KBI in the manner specified
in Section 3.9. In the event KB fails to make a Blocking Payment as and when
required by this Section, TR may designate by written notice to KB a date, time
and place for the Share Closing, and, in such event, KB shall purchase the KBI
Sub Shares, which shall be delivered free and clear of all Liens, on such date
at such time and place for the purchase price specified in Section 3.5(a),
subject to Section 3.5(d).
(d) In the event a notification is required under the
HSR Act in connection with the purchase and sale of the KBI Sub Shares pursuant
to the exercise of the Put Option, TR and KB shall cause all necessary filings
to be made pursuant to the HSR Act, and the Share Closing shall occur on the
third business day following the expiration or termination of all applicable
waiting periods under the HSR Act.
(e) If the KBI Sub Shares are sold pursuant to the
Put Option, then following receipt by TR of the Put Option Price, (i) TR shall
purchase from KB or its Affiliates, and KB or its Affiliates shall sell to TR,
all shares of Class A Preferred Stock and Class C Preferred Stock of KBI for a
price equal to the aggregate par value thereof and (ii) TR shall pay in full the
TR Promissory Note. In such event KB or its Affiliates shall sell such shares to
TR free and clear of all Liens at a time and place specified by TR in writing
(but in no event after the expiration of ten (10) business days after the Share
Closing) not less than five (5) business days prior to such time.
3.6 Outlicensing of Group D Compounds, KB USA Compounds and
Group E Compounds.
(a) General. The Partnership may not enter into any
Outlicensing with respect to any Partnership Compound (as defined in Section
3.6(b) below) or any product containing any such Compound and no Other KB Outlet
may enter into any Outlicensing with respect to any Group E Compound or Group E
Product, except as permitted by this Section 3.6 or Section 3.20(d) hereof. In
the event of any Outlicensing of a Critical Compound or a product
<PAGE> 56
51
containing a Critical Compound in breach of this Section, such Outlicensing
shall be treated as if such Outlicensing were an Excluded Transaction, the Net
Sales of such Compound or product by or on behalf of the other party or parties
to such Outlicensing or any Person holding rights derived from such Outlicensing
with respect thereto directly or indirectly through such other party or parties
shall be considered Net Sales of the Partnership or such Other KB Outlet with a
Relative Sales Weighting equal to the Base Sales Weighting of such Compound or
product for purposes of determining Weighted Net Sales of such Compound or
product, and each of KBI, KBI-E and their respective Affiliates shall be
entitled to all remedies available to them at law or in equity.
(b) Group D Compounds, KB USA Compounds and Group E
Compounds. The Partnership shall have the right to engage in Outlicensing of
Group D Compounds and KB USA Compounds (collectively "Partnership Compounds")
and products containing any Partnership Compounds, and any Other KB Outlet shall
have the right to engage in Outlicensing of Group E Compounds and Group E
Products, in each case on and subject to the terms and conditions set forth in
this Agreement; provided, however, that, except for Regulatory Outlicensing and
except as set forth in Section 3.20(d) hereof, neither the Partnership nor any
Other KB Outlet shall enter into any Outlicense of a Critical Compound or any
product containing a Critical Compound without the prior written consent of KBI
Sub (in the case of a Partnership Compound that is a Critical Compound) or KBI-E
(in the case of a Group E Compound that is a Critical Compound).
(c) Treatment of Sales. Except as otherwise set forth
in this Section 3.6 or Schedule 3.7, in the event that the Partnership enters
into any Outlicensing of any Partnership Compound or any product containing any
Partnership Compound, or any Other KB Outlet enters into any Outlicensing of any
Group E Compound or Group E Product, the Outlicensee's Net Sales of such
Compounds and products shall be included in Weighted Net Sales for the purpose
of computing contingent amounts pursuant to Section 3.7, for purposes of
computing the Assignment Payment pursuant to the KBI-E Asset Option Agreement
and for purposes of computing the Limited Partner Share of Agreed Value for
purposes of the retirement of a portion of the Limited Partner's Interest
pursuant to Section 5.6 of the Partnership Agreement. In the event of any
Excluded Transaction with respect to any Partnership Compound or Group E
Compound or product containing any such Compound, the Net Sales of such Compound
or product by or on behalf of the other party or parties to such Excluded
Transaction or any Person holding rights derived from such Excluded Transaction
with respect thereto directly or indirectly through such other party or parties
shall be considered Net Sales of the Partnership or such Other KB Outlet with a
Relative Sales Weighting equal to the Base Sales Weighting of such Compound or
product for purposes of determining Weighted Net Sales of such Compound or
product.
(d) Procedures for Outlicensing (Other than
Regulatory Outlicensing).
(i) In the event that the Partnership or any Other KB
Outlet desires to enter into any Outlicensing (other than a
Regulatory Outlicensing) of a Partnership Compound that is a
Critical Compound or a Group E Compound that
<PAGE> 57
52
is a Critical Compound or any product (including any OTC
Product) containing any such Compound (other than an
Outlicense relating solely to a Selected Use), the Partnership
or such Other KB Outlet, as the case may be, shall provide
written notification (an "Outlicensing Notice") (i) in the
case of a proposed Outlicensing by the Partnership, to KBI Sub
(with a copy to TR), or (ii) in the case of a proposed
Outlicensing by such Other KB Outlet, to KBI-E (with a copy to
TR) (KBI Sub or KBI-E, as applicable, being referred to as the
"Notice Party" for purposes of this Section 3.6(d)). The
Notice Party shall notify the Partnership or such Other KB
Outlet, as the case may be, within 60 days after receiving the
Outlicensing Notice that the Notice Party consents or does not
consent to the proposed Outlicensing; provided, however, that
the failure of the Notice Party to give such notice by the end
of such 60-day period shall in no event be construed as a
consent.
(ii) In the event that the Partnership or any Other
KB Party desires to enter into any Outlicensing of a
Partnership Compound that is a non-Critical Compound or a
Group E Compound that is a non-Critical Compound or any
product containing any such Compound, the Partnership or such
Other KB Outlet, as the case may be, shall provide to the
Notice Party promptly upon execution of the agreement
regarding such Compound (or product containing such Compound)
entered into between the Partnership or the Other KB Outlet
and the Outlicensee (or any other Person, if applicable), a
summary of such agreement, and shall provide a copy of such
agreement to a law firm designated by the Notice Party for
purposes of determining compliance with this Agreement. In the
event that the Partnership or such Other KB Outlet enters into
any Excluded Transaction, then the procedures set forth above
in this paragraph (d)(ii) shall apply to such Excluded
Transaction as if it were an Outlicensing.
(e) Procedures for Regulatory Outlicensing.
(i) In the event of any Regulatory Outlicensing of a
Partnership Compound or Group E Compound or any product
containing any such Compound, TR shall have a right of first
offer (an "RFO") to acquire the Outlicensed Compound that is
proposed to be included in such Regulatory Outlicensing;
provided, however, that TR shall not have an RFO in respect of
any Regulatory Outlicensing following the earlier of a Trigger
Event that occurs after the year 2007 and the exercise of any
Assignment Right or the occurrence of the Required Sale
pursuant to the KBI-E Asset Option Agreement. The Partnership
or such Other KB Outlet shall provide written notification to
TR (an "RFO Notice") stating that the Partnership or such
Other KB Outlet proposes to enter into a Regulatory
Outlicensing and setting forth the following information: (x)
the Outlicensed Compound and the nature and scope of the
rights with respect thereto proposed to be included in such
Outlicensing and (y) the terms on which the Partnership or
such Other KB Outlet shall offer to enter into an Outlicense
of such Outlicensed Compound with TR or any of its Affiliates,
which terms shall
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53
provide that all consideration payable to the Partnership or
such Other KB Outlet for such Outlicense shall be in the form
of cash (lump-sum payments or royalty) and shall otherwise
contain only such terms with which TR could reasonably comply
(the "Specified Terms").
(ii) TR shall have a period of sixty (60) days
following receipt of the RFO Notice to notify the Partnership
or such Other KB Outlet whether TR is exercising its RFO to
enter into (or have an Affiliate enter into) an Outlicense
with the Partnership or such Other KB Outlet on the Third
Party Terms. If, within such 60-day period, TR notifies the
Partnership or such Other KB Outlet that TR is exercising its
RFO, then the Partnership or such Other KB Outlet shall enter
into such Outlicense with TR (or its Affiliate) as promptly as
practicable thereafter for a net consideration consisting of
the lump sum and the stream of royalty payments, in each case
multiplied by 1 - (BSW/2), in each instance, using the BSW
applicable to the Outlicensed Compound or product; provided,
however, that for this purpose the BSW of Type 1 Combination
Products, Type 2 Combination Products, Type 1 Inhaler Products
and Type 2 Inhaler Products shall be [*]%, [*]%, [*]%
and [*]%, respectively. In such case, Net Sales of such
Compounds or products by TR or its Affiliate shall not be
included in Weighted Net Sales, and the Relative Sales
Weighting for Net Sales by TR or its Affiliate shall be zero,
as set forth in Part 3 of Schedule 3.7 hereto.
(iii) If, within the 60-day period described in
Section 3.6(e)(ii) hereof, TR notifies the Partnership or such
Other KB Outlet that TR is not exercising its RFO (or fails to
deliver any notice to the Partnership), then the Partnership
or such Other KB Outlet shall have the right to engage in the
Regulatory Outlicensing with any Third Party on terms (the
"Third Party Terms") that are no less favorable to the
Partnership or such Other KB Outlet than the Specified Terms.
Prior to entering into any Outlicensing, the Partnership or
such Other KB Outlet shall provide written notification to TR
(a "Third Party Outlicensing Notice") setting forth the
identity of the proposed Outlicensee and the Third Party Terms
and stating whether or not, in the Partnership's or such Other
KB Outlet's opinion, the Third Party Terms are less favorable
to the Partnership or such Other KB Outlet than the Specified
Terms. The Partnership or such Other KB Outlet shall provide
to TR with the Third Party Outlicensing Notice a summary of
the proposed Outlicensing Agreement, and shall provide a copy
of such agreement, if then available, to a law firm designated
by TR solely for purposes of determining compliance with this
Agreement. The Outlicensing Agreement may be provided to such
law firm in draft form, provided that the definitive version
of the Outlicensing Agreement shall be provided to such law
firm promptly after the Partnership or such Other KB Outlet
and the Outlicensee (or other Person, if applicable) reach
agreement on the terms thereof. In the event that the Third
Party Outlicensing Notice does not state that, in the
Partnership's or such Other KB Outlet's opinion, the Third
Party Terms are no less favorable to the Partnership or such
Other KB Outlet than the Specified Terms, TR shall again have
an RFO to
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54
enter into (or have an Affiliate enter into) an Outlicensing
with the Partnership or such Other KB Outlet on the Third
Party Terms and the procedures set forth in Section 3.6(e)(ii)
hereof and in this Section 3.6(e)(iii) shall apply to such RFO
(with the Third Party Outlicensing Notice being treated as the
RFO Notice for purposes of Section 3.6(e)(ii) hereof), except
that TR shall have a period of thirty (30) days following
receipt of the RFO Notice to notify the Partnership or such
Other KB Outlet whether TR is exercising its RFO to enter into
(or have an Affiliate enter into) an Outlicense with the
Partnership or such Other KB Outlet on the Third Party Terms.
In the event that the Third Party Outlicensing Notice states
that, in the Partnership's or such Other KB Outlet's opinion,
the Third Party Terms are no less favorable to the Partnership
or such Other KB Outlet than the Specified Terms, the
Partnership or such Other KB Outlet shall not enter into the
proposed Outlicensing until TR has had thirty (30) days to
review the Third Party Terms and to discuss with the
Partnership any disagreement TR may have with respect to the
Partnership's or such Other KB Outlet's opinion set forth in
the Third Party Outlicensing Notice, which disagreement shall
be set forth in a written notice from TR to the Partnership or
such Other KB Outlet, as the case may be, which shall be
provided prior to the expiration of thirty (30) days following
receipt of the Third Party Outlicensing Notice. If TR and the
Partnership or such Other KB Outlet are unable to resolve any
such dispute within thirty (30) days following receipt of TR's
notice referred to in the preceding sentence (or such longer
period as TR and the Partnership or such Other KB Outlet may
agree in writing to discuss the matter), the Partnership or
such Other KB Outlet may enter into the proposed Outlicensing,
but such dispute shall be submitted to arbitration in
accordance with Article 9 hereof no later than 30 days after
the end of such 30-day period. In the event that such
arbitration is resolved in favor of TR, TR's only remedy shall
be for damages, which the parties agree shall equal the full
amount of contingent payments that would have been paid to KBI
and its Affiliates with respect to such Compound or product if
such Outlicensing were treated for purposes of computing Net
Sales and Weighted Net Sales as an Excluded Transaction, net
of any payments already made to TR or its Affiliates in
respect of such Outlicensing. Except for damages relating to
the period prior to the decision of the arbitrators (which the
arbitrators may award in a lump sum), the arbitrators shall be
instructed by KB and TR upon their appointment that any
damages awarded to TR as a result of the arbitration shall be
payable at the same times as the applicable contingent
payments would have been made to KBI Sub or any of its
Affiliates under the provisions of this Agreement, the
Partnership Agreement or any Ancillary Agreement (as
applicable).
(f) Total Cash Outlicensing. In the event of any
Total Cash Outlicensing, (x) an amount equal to the economic benefits of such
Total Cash Outlicensing to the Partnership (or the Other KB Outlet) and to KB
and its other Affiliates multiplied by (BSW/2) in respect of any consideration
payable with respect to the Outlicensed Compound or product, in each instance,
using the BSW applicable to such Compound or product, shall be credited to the
Fourth Tier Amount in accordance with the definition of "Fourth Tier Amount"
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55
contained in Article 1 of the Partnership Agreement and (y) the Relative Sales
Weighting for Net Sales by the Outlicensee of the Total Cash Outlicensing shall
be zero, as set forth in Part 3 of Schedule 3.7 hereto; provided, however, that
for purposes of clause (x) above, the BSW of Type 1 Combination Products, Type 2
Combination Products, Type 1 Inhaler Products and Type 2 Inhaler Products shall
be [*]%, [*]%, [*]% and [*]%, respectively. In the event any Total Cash
Outlicensing provides for the Outlicense of rights both inside and outside the
Territory, the amount of cash relating to the Territory shall be based on the
relative projected economic benefit from the Territory and jurisdictions outside
the Territory covered by the Outlicensing. In the event that the parties cannot
agree on such amount of cash related to the Territory, the dispute shall be
submitted to arbitration in accordance with Article 9 hereof.
(g) Special Cases, Product Swaps, etc.
(i) In the case of the following types of
Outlicensings of Partnership Compounds or Group E Compounds or
any product containing any such Compound (such types of
Outlicensings are referred to herein as "Special Case
Outlicensings"):
(A) a sublicense transaction with a
sublicensee that has filed or has expressed its intention to
file an ANDA in which the sublicense is effective no earlier
than six (6) months preceding expiration of Market
Exclusivity,
(B) a Required Sublicense (as defined in the
Amended and Restated KBI License),
(C) an Outlicensing of such a Compound
relating to a Selected Use, and
(D) an Outlicensing of such a Compound to be
used in combination with a Compound which is not a Covered
Compound,
an amount equal to the total economic benefits of such
Outlicensing to the Partnership (or the Other KB Outlet) and
to KB and its other Affiliates (including without limitation
the value of any supply or similar rights) multiplied by [*]%
in respect of any consideration payable with respect to KB USA
Compounds or KB USA Products (other than Type 1 Combination
Products and Type 1 Inhaler Products), [*]% in respect of any
consideration payable with respect to Group D Compounds, Group
E Compounds, Group D Products or Group E Products, or [*]% in
respect of any consideration payable with respect to
Formoterol or any Formoterol Product (other than Type 2
Combination Products and Type 2 Inhaler Products) or [*]% in
respect of Type 1 Combination Products, [*]% in respect of
Type 2 Combination Products, [*]% in respect of Type 1
Inhaler Products or [*]% in respect of Type 2 Inhaler Products
shall be credited to the Fourth Tier Amount in accordance with
the definition of "Fourth Tier Amount" contained in Article 1
of the Partnership Agreement. If the parties are unable to
agree on the
<PAGE> 61
56
amount or value of such economic benefits, the dispute shall
be submitted to arbitration in accordance with Article 9
hereof.
(ii) An amount equal to 50% of the license income
received by the Partnership under the Omeprazole-for-Horses
License shall be credited to the Fourth Tier Amount.
(iii) In the event that a Partnership Compound or
Group E Compound is Outlicensed in a transaction involving a
"product swap" which does not involve the right to sell any
product outside the Territory, KBI shall have the right to
choose at the time of such Outlicensing whether the Weighted
Net Sales in respect of such Outlicensed Compound shall be
based on (x) the Net Sales of the Outlicensed Compound by the
Outlicensee (with such sales having a Relative Sales Weighting
equal to the Base Sales Weighting thereof) or (y) the Net
Sales of the in-licensed Compound(s) (with the in-licensed
Compound(s) having the same classification, e.g. KB USA
Compound, Group D Compound or Group E Compound, and having a
Relative Sales Weighting equal to the Base Sales Weighting of
the Outlicensed Compound).
(iv) In the event that a Partnership Compound or a
Group E Compound is Outlicensed in a transaction involving a
"product swap" that involves the right to sell any product
outside the Territory or otherwise involves the right to sell
any product both inside and outside the Territory, the Net
Sales of the Outlicensed Compound by the Outlicensee in the
Territory shall be included in Weighted Net Sales, with such
Net Sales having a Relative Sales Weighting equal to the Base
Sales Weighting of the Outlicensed Compound.
(v) The parties acknowledge and agree that in the
event that the Partnership proposes to enter into an
Outlicensing in which the weighting of Net Sales by the
Outlicensee as set forth in Column A in the Supplemental Sales
Weighting Table in Part 4 of Schedule 3.7 is clearly
incompatible with a fair sharing of economic benefits by the
parties, the parties shall discuss in good faith appropriate
adjustments to more properly reflect the sharing of benefits.
If no agreement can be reached and the Partnership enters into
such Outlicensing, the applicable Relative Sales Weighting of
the Outlicensed Compound determined in accordance with Part 3
of Schedule 3.7 shall apply.
(h) Agreements Concerning the Split of Economic
Benefits. In the event the parties are required, as provided in this Agreement,
to agree to the manner in which the economic benefits of an Outlicensing are to
be divided (including without limitation any non-Regulatory Outlicensing of a
Critical Compound), that portion of the economic benefit to be allocated to the
Limited Partner shall be credited to the Fourth Tier Amount.
<PAGE> 62
57
3.6A Appointment of Subdistributors and Assignments of Rights
with Respect to Licensed Compounds.
(a) Prohibition on Subdistributorships and
Assignments Other than in Accordance with this Agreement. The Partnership may
not appoint any subdistributor if such subdistributorship would constitute an
Outlicensing of any Licensed Compound that is a Critical Compound or product
containing any Licensed Compound that is a Critical Compound. In the event of
any Outlicensing of a Critical Compound or a product containing a Critical
Compound in breach of this Section, such Outlicensing shall be treated as if
such Outlicensing were an Excluded Transaction, the Net Sales of such Compound
or product by or on behalf of the other party or parties to such Outlicensing or
any Person holding rights derived from such Outlicensing with respect thereto
directly or indirectly through such other party or parties shall be considered
Net Sales of the Partnership with a Relative Sales Weighting equal to the Base
Sales Weighting of such Compound or product for purposes of determining Weighted
Net Sales of such Compound or product, and each of KBI, KBI-E and their
respective Affiliates shall be entitled to all remedies available to them at law
or in equity. Subject to the foregoing, except for Regulatory Assignments, the
Partnership may not assign any of its rights, and, except for any Regulatory
Assignment or appointment of any subdistributor, the Partnership may not
delegate any of its duties or obligations, under the Distribution Agreement
without the prior written consent of KBI-E; provided, however, that the
appointment of a subcontractor to perform developmental activities shall not be
considered the delegation of any such duties or obligations and provided further
that the Partnership shall be liable for any acts or omissions of any such
subcontractor. In the event the Partnership shall notify KBI-E that the
Partnership desires to make such an assignment or delegation, KBI-E shall notify
the Partnership within 60 days after receiving such notification that KBI-E
consents or does not consent to any such proposed assignment or delegation;
provided, however, that the failure by KBI-E to give such notice by the end of
such 60-day period shall in no event be construed as a consent. Any Regulatory
Assignment shall be in accordance with Sections 3.6A(d) and (e).
(b) Treatment of Sales. Except as otherwise set forth
in this Section 3.6A or Schedule 3.7, in the event that the Partnership enters
into any subdistributorship arrangement concerning any Licensed Compound or any
product containing such Licensed Compound, the subdistributor's Net Sales of
such Compounds and products shall be included in Weighted Net Sales as if such
sales had been made by the Partnership for the purpose of computing contingent
amounts pursuant to Section 3.7 and for purposes of computing the Assignment
Payment pursuant to the KBI-E Asset Option Agreement. In the event of any
Excluded Transaction with respect to any Licensed Compound or product containing
such Licensed Compound, the Net Sales of such Compound or product by or on
behalf of the other party or parties to such Excluded Transaction or any Person
holding rights derived from such Excluded Transaction with respect thereto
directly or indirectly through such other party or parties shall be considered
Net Sales of the Partnership with a Relative Sales Weighting equal to the Base
Sales Weighting of such Compound or product for purposes of determining Weighted
Net Sales of such Compound or product.
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58
(c) Subdistributorships. The Partnership may, at any
time, appoint one or more subdistributorships with respect to any Licensed
Compound that is a non-Critical Compound or product containing any Licensed
Compound that is a non-Critical Compound for any or all uses and indications,
provided that:
(i) pursuant to the terms of the subdistributorship
agreement, the rights of the subdistributor are subject to the
terms of, and the rights of the Partnership and KBI-E under,
the Distribution Agreement and the KBI Supply Agreement;
(ii) the subdistributor is required to comply with
the terms of the Distribution Agreement as if it were the
Partnership, KBI-E has the right to enforce the
subdistributorship agreement as a third party beneficiary and
has the same rights to receive information and the same rights
of audit and inspection with respect to the subdistributor as
are applicable to the Partnership as distributor; and
(iii) the Partnership shall promptly deliver to a law
firm designated by KBI-E a fully executed copy of the
subdistributor agreement and any and all amendments thereto
solely for purposes of determining compliance with this
Agreement.
The appointment of any such subdistributor shall not relieve the Partnership of
any obligation under the Distribution Agreement or any obligation under the KBI
Supply Agreement to purchase its (and its subdistributor's) requirements of
Licensed Compounds (and products containing Licensed Compounds) from KBI.
(d) Regulatory Assignments of Critical Compounds. In
the event the Partnership proposes to enter into any Regulatory Assignment of
any Licensed Compound that is a Critical Compound or any product containing any
Critical Compound, the parties shall comply with the following procedures;
provided, however, that the Partnership shall not be required to comply with the
following procedures with respect to candesartan cilexetil:
(i) TR shall have a right of first offer (an
"Assignment RFO") to acquire the rights of the Partnership
under the Distribution Agreement and KBI Supply Agreement in
respect of the Licensed Compound that is proposed to be
included in such Regulatory Assignment; provided, however,
that TR shall not have an Assignment RFO in respect of any
Regulatory Outlicensing of any Compound following the earlier
of a Trigger Event that occurs after the year 2007, and the
exercise of any Assignment Right or the occurrence of the
Required Sale pursuant to the KBI-E Asset Option Agreement,
other than rights with respect to Assignment RFOs in respect
of omeprazole and perprazole, which rights shall survive any
such Trigger Event. The Partnership shall provide written
notification to TR (an "Assignment RFO Notice") stating that
the Partnership proposes to enter into a Regulatory Assignment
and setting forth the following information: (x) the Licensed
Compound and the nature and scope of the rights
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59
with respect thereto proposed to be included in such
Regulatory Assignment and (y) the terms on which the
Partnership shall offer to enter into a Regulatory Assignment
of such Licensed Compound with TR or any of its Affiliates,
which terms shall provide that all consideration payable to
the Partnership for such Assignment shall be in the form of
cash (lump sum payment or royalty) and shall otherwise contain
only such terms with which TR could reasonably comply (the
"Assignment Specified Terms"); provided, however, that the
Assignment Specified Terms shall incorporate the terms of the
Distribution Agreement and the KBI Supply Agreement, as the
terms of the KBI Supply Agreement are modified by Section
3.6A(d)(iv) hereof.
(ii) TR shall have a period of sixty (60) days
following receipt of the Assignment RFO Notice to notify the
Partnership whether TR is exercising its Assignment RFO to
enter into (or have an Affiliate enter into) an Assignment
with the Partnership on the Assignment Specified Terms. If,
within such 60-day period, TR notifies the Partnership that TR
is exercising its Assignment RFO, then the Partnership shall
enter into such Assignment with TR (or its Affiliate) as
promptly as practicable thereafter for a net consideration
equal to 100% of the value of the consideration provided in
the Assignment Specified Terms. In such case, Net Sales of
such Compounds or products by TR or its Affiliate shall be
included in Weighted Net Sales as if such sales had been made
by the Partnership, and such sales shall have a Relative Sales
Weighting as set forth in Part 3 of Schedule 3.7 hereto.
(iii) If, within the 60-day period described in
Section 3.6A(d)(ii) hereof, TR notifies the Partnership that
TR is not exercising its Assignment RFO (or fails to deliver
any notice to the Partnership), then the Partnership shall
have the right to engage in the Regulatory Assignment with any
Third Party on terms (the "Assignment Third Party Terms") that
are no less favorable to the Partnership than the Assignment
Specified Terms; provided, however, that such Regulatory
Assignment complies in all respects with the terms of Section
3.6A(d)(iv) hereof, Section K of the Distribution Agreement
and Section 12.04 of the KBI Supply Agreement. The Partnership
shall provide written notification to TR (a "Third Party
Assignment Notice") setting forth the identity of the proposed
assignee and the Assignment Third Party Terms and stating
whether or not, in the Partnership's opinion, the Assignment
Third Party Terms are less favorable to the Partnership than
the Assignment Specified Terms. The Partnership shall provide
to TR with the Third Party Assignment Notice a summary of the
proposed agreement providing for such Regulatory Assignment
(the "Assignment Agreement"), and shall provide a copy of such
agreement, if then available, to a law firm designated by TR
for purposes of determining compliance with this Agreement.
The Assignment Agreement may be provided to such law firm in
draft form, provided that the definitive version of such
Assignment Agreement shall be provided to such law firm
promptly after the Partnership and the Assignee (or other
Person, if applicable) reach agreement on the terms thereof.
In the event that the Third Party
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Assignment Notice does not state that, in the Partnership's
opinion, the Assignment Third Party Terms are no less
favorable to the Partnership than the Assignment Specified
Terms, TR shall again have an Assignment RFO to enter into (or
have an Affiliate enter into) an Assignment with the
Partnership on the Assignment Third Party Terms and the
procedures set forth in Section 3.6A(d)(ii) hereof and in this
Section 3.6A(d)(iii) shall apply to such Assignment RFO (with
the Third Party Assignment Notice being treated as the
Assignment RFO Notice for purposes of Section 3.6A(d)(ii)
hereof), except that TR shall have a period of thirty (30)
days following receipt of the Assignment RFO Notice to notify
the Partnership whether TR is exercising its Assignment RFO to
enter into (or have an Affiliate enter into) an Assignment
with the Partnership on the Assignment Third Party Terms. In
the event that the Third Party Assignment Notice states that,
in the Partnership's opinion, the Assignment Third Party Terms
are no less favorable to the Partnership than the Assignment
Specified Terms, the Partnership shall not enter into the
proposed Assignment until TR has had thirty (30) days to
review the Assignment Third Party Terms and to discuss with
the Partnership any disagreement TR may have with respect to
the Partnership's opinion set forth in the Third Party
Assignment Notice, which disagreement shall be set forth in a
written notice from TR to the Partnership which shall be
provided prior to the expiration of thirty (30) days following
receipt of the Third Party Assignment Notice. If TR and the
Partnership are unable to resolve any such dispute within
thirty (30) days following receipt of TR's notice referred to
in the preceding sentence (or such longer period as TR and the
Partnership may agree to discuss the matter), the Partnership
may enter into the proposed Assignment, but such dispute shall
be submitted to arbitration in accordance with Article 9
hereof no later than 30 days after the end of such 30-day
period. In the event that such arbitration is resolved in
favor of TR, TR's only remedy shall be for damages, which the
parties agree shall equal the full amount of contingent
payments that would have been paid to KBI-E and its Affiliates
with respect to such Licensed Compound if such Assignment were
treated for purposes of computing Net Sales and Weighted Net
Sales as an Excluded Transaction, net of any payments already
made to TR or its Affiliates in respect of such Assignment.
Except for damages relating to the period prior to the
decision of the arbitrators (which the arbitrators may award
in a lump sum) the arbitrators shall be instructed by KB and
TR upon their appointment that any damages awarded to TR as a
result of the arbitration shall be payable at the same times
as the applicable contingent payments would have been made to
KBI-E or any of its Affiliates under the provisions of this
Agreement, the Partnership Agreement or any Ancillary
Agreement (as applicable).
(iv) Form of Regulatory Assignment.
(A) In the event of any Regulatory
Assignment, such Regulatory Assignment shall be in the form of
an assignment (an "Assignment") of all of the Partnership's
rights under the Distribution Agreement and the KBI
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61
Supply Agreement with respect to the Licensed Compound,
subject to such limitations as to time, territory or field of
use as may be deemed appropriate by the Partnership.
(B) The assignee under the Assignment (the
"Assignee") shall assume (pursuant to an instrument of
assumption in form and substance reasonably satisfactory to
KBI-E, a copy of which shall be delivered to KBI-E) all of the
duties and obligations of the Partnership with respect to the
Licensed Compound under the Distribution Agreement and the KBI
Supply Agreement, respectively, in respect of the rights with
respect to the Licensed Compound (and products containing such
Licensed Compound) transferred to the Assignee, except, that
with respect to any Tiered Rate Product, the contingent amount
component of the supply price under the KBI Supply Agreement
shall be computed by multiplying the Weighted Net Sales of
such product by the Assignee (determined in accordance with
the definition of Weighted Net Sales) by the following
percentages, as applicable during the time periods specified:
1. from the Closing Date through March 31,
2001, [*]%;
2. from April 1, 2001, through December 31,
2007, [*]%;
3. for Fiscal Years 2008 through 2011,
[*]%; and
4. for Fiscal Years after 2011, [*]%.
(C) Those portions of the Assignment Payment
pursuant to the KBI-E Asset Option Agreement that are
attributable to contingent amounts derived from Weighted Net
Sales of the Assignee shall be calculated by reference to the
contingent payments received by KBI from the Partnership, the
Assignee, or TR (or its Affiliate), as applicable.
(D) The Partnership shall receive all
consideration paid by the Assignee for the Assignment of the
Partnership's rights under the Distribution Agreement and the
KBI Supply Agreement.
(E) The Partnership shall deliver to KBI-E a
fully executed copy of the Assignment Agreement and any and
all amendments thereto.
(e) Regulatory Assignments of Non-Critical Compounds.
In the event the Partnership proposes to enter into a Regulatory Assignment of
any non-Critical Compound or any product containing any non-Critical Compound,
the Partnership shall provide KBI-E with (i) not less than thirty (30) days
prior to the consummation of such Regulatory Assignment, a notice identifying
the Compound or the product that is the subject of such Regulatory Assignment,
and (ii) promptly upon execution of the agreement regarding such Compound or
product entered into between the Partnership and the Assignee (or other Person,
if applicable), a copy of such agreement. In the event that the Partnership
desires to enter into any Excluded Transaction, then
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the procedures set forth above in this paragraph (e) shall apply to such
Excluded Transaction as if it were an Outlicensing.
(f) This Section 3.6A shall not apply to (i) any
Outlicensing of any Selected Uses or of any products containing any Selected
Compounds or (ii) any Outlicensing of any Compound solely with respect to a
Selected Use.
3.7 Computation of Certain Contingent Amounts. The Partnership
Agreement and certain Ancillary Agreements make reference to certain contingent
amounts computed with respect to certain categories of products. This Section
sets forth the method of computing such contingent amounts for purposes of such
other agreements.
Explanatory Note: The contingent amounts referred to in this
section generally are computed by reference to the Relative Sales Weightings of
particular categories of products and sales determined in accordance with the
tables set forth in Schedule 3.7 hereto. Such Relative Sales Weightings are used
to determine the Weighted Net Sales of specified categories of products which
then are used to compute the contingent amounts referred to in this Section.
(a) Tiered Rate Products Amount. "Tiered Rate
Products Amount" shall mean with respect to the following periods, the amounts
computed as set forth below:
(A) For each Fiscal Year (or portion
thereof) during the period from the Closing Date through March
31, 2001, the Tiered Rate Products Amount shall be 30%
multiplied by the Combined Weighted Net Sales of Tiered Rate
Products in such Fiscal Year (or portion thereof).
(B) For the nine (9) months from April 1,
2001, through December 31, 2001, the Tiered Rate Products
Amount shall be the sum of the following amounts:
20% multiplied by the first $1.125
billion (adjusted for inflation
as provided in Section 3.8) of
Combined Weighted Net Sales of
Tiered Rate Products in such
nine-month period,
22.5% multiplied by the Combined
Weighted Net Sales of Tiered Rate
Products over $1.125 billion to
and including $2.25 billion
(adjusted for inflation as
provided in Section 3.8) in such
nine-month period, and
25% multiplied by the Combined
Weighted Net Sales of Tiered Rate
Products over $2.25 billion
(adjusted for inflation as
provided in Section 3.8) in such
nine-month period.
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63
(C) For each of the Fiscal Years 2002
through 2007, the Tiered Rate Products Amount shall be the sum
of the following amounts:
20% multiplied by the first $1.5
billion (adjusted for inflation
as provided in Section 3.8) of
Combined Weighted Net Sales of
Tiered Rate Products in such
Fiscal Year,
22.5% multiplied by the Combined
Weighted Net Sales of Tiered Rate
Products over $1.5 billion to and
including $3.0 billion (adjusted
for inflation as provided in
Section 3.8) in such Fiscal Year,
and
25% multiplied by the Combined
Weighted Net Sales of Tiered Rate
Products over $3.0 billion
(adjusted for inflation as
provided in Section 3.8) in such
Fiscal Year.
(D) For each of the Fiscal Years 2008
through 2011, the Tiered Rate Products Amount shall be the sum
of the following amounts:
17.5% multiplied by the first $1.5
billion (adjusted for inflation
as provided in Section 3.8) of
Combined Weighted Net Sales of
Tiered Rate Products in such
Fiscal Year,
20% multiplied by the Combined
Weighted Net Sales of Tiered Rate
Products over $1.5 billion to and
including $3.0 billion (adjusted
for inflation as provided in
Section 3.8) in such Fiscal Year,
and
25% multiplied by the Combined
Weighted Net Sales of Tiered Rate
Products over $3.0 billion
(adjusted for inflation as
provided in Section 3.8) in such
Fiscal Year.
(E) For each of the Fiscal Years after 2011,
the Tiered Rate Products Amount shall be the sum of the
following amounts:
15% multiplied by the first $1.5
billion (adjusted for inflation
as provided in Section 3.8) of
Combined Weighted Net Sales of
Tiered Rate Products in such
Fiscal Year,
20% multiplied by the Combined
Weighted Net Sales of Tiered Rate
Products over $1.5 billion to and
including $3.0 billion (adjusted
for inflation as provided in
Section 3.8) in such Fiscal Year,
and
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64
25% multiplied by the Combined
Weighted Net Sales of Tiered Rate
Products over $3.0 billion
(adjusted for inflation as
provided in Section 3.8) in such
Fiscal Year.
(b) Computation of Contingent Amounts. Contingent
amounts shall be computed with respect to different product categories, as
follows, subject to adjustment as provided in Section 3.7(c) for certain
royalties and other payments:
(i) Omeprazole Products. The "Omeprazole Products
Contingent Amount" shall mean with respect to any fiscal
period the amount computed by (A) multiplying the Weighted Net
Sales of Omeprazole Products for such period by 32% and (B)
adding an amount equal to one-half of the aggregate amount of
the Weighted Net Sales of all Split Combination Products that
contain omeprazole multiplied by 32%.
(ii) Perprazole Products. The "Perprazole Products
Contingent Amount" shall mean with respect to any fiscal
period the amount computed by (A) multiplying the Weighted
Net Sales of Perprazole Products for such period by the
greater of 20% or the percentage determined pursuant to the
following formula: 27% - (50% x (94% - Perprazole Gross
Profit Margin)) (the greater of such two percentages is
referred to herein as the "Perprazole Percentage") and (B)
adding an amount equal to one-half of the aggregate amount of
the Weighted Net Sales of all Split Combination Products that
contain perprazole multiplied by the Perprazole Percentage.
"Perprazole Gross Profit Margin" shall mean (x) Net Sales of
Perprazole Products that may be sold lawfully in the
Territory only with a prescription or an order of a licensed
practitioner minus the Perprazole Cost of such products
divided by (y) Net Sales of such Perprazole Products in the
Territory. The Perprazole Gross Profit Margin shall be
recalculated for each Fiscal Year; provided, however, that
after three full Fiscal Years of TR production the Perprazole
Gross Profit Margin then in effect shall remain in
effect and shall not thereafter be recalculated.
(iii) KB USA Products. The "KB USA Products
Contingent Amount" shall mean with respect to any fiscal
period the amount computed by multiplying the Weighted Net
Sales of KB USA Products for such period by the Effective Rate
in Respect of Tiered Rate Products for such period.
(iv) KBI Products (other than Omeprazole Products and
Perprazole Products). The "KBI Products Contingent Amount"
shall mean with respect to any fiscal period the amount
computed by (A) multiplying the Weighted Net Sales of KBI
Products (other than Omeprazole Products and Perprazole
Products) for such period by the Effective Rate in Respect of
Tiered Rate Products for such period and (B) adding an amount
equal to one-half of the aggregate amount of the Weighted Net
Sales of all Split Combination Products that do not contain
<PAGE> 70
65
omeprazole or perprazole multiplied by the Effective Rate in
Respect of Tiered Rate Products.
(v) Group D Products. The "Group D Products
Contingent Amount" shall mean with respect to any fiscal
period the amount computed by (A) multiplying the Weighted Net
Sales of Group D Products (including without limitation
amounts deemed to be Net Sales of Group D Products pursuant to
Section 3.22) for such period by the Effective Rate in Respect
of Tiered Rate Products for such period and (B) subtracting an
amount equal to one-half of the sum of (x) the aggregate
amount of the Weighted Net Sales of all Split Combination
Products that contain omeprazole multiplied by 32%, (y) the
aggregate amount of the Weighted Net Sales of all Split
Combination Products that contain perprazole multiplied by the
Perprazole Percentage and (z) the aggregate amount of the
Weighted Net Sales of all Split Combination Products that do
not contain omeprazole or perprazole multiplied by the
Effective Rate in Respect of Tiered Rate Products.
(vi) Group E Products. The "Group E Products
Contingent Amount" shall mean with respect to any fiscal
period the amount computed by multiplying the Weighted Net
Sales of Group E Products for such period by the Effective
Rate in Respect of Tiered Rate Products for such period.
(c) Adjustment in Respect of Other Royalties and
Payments. In the event KBI-E or KBI is required to pay any royalty or other
payment to KB or any other Person in respect of sales of any Licensed Compound,
the applicable contingent amounts computed pursuant to Section 3.7(b) shall be
increased by the amount of such royalty; provided that the contingent amount
with respect to the product consisting of the combination of enalapril and
felodipine shall be increased by the amount of the royalty payable by TR or any
of its Affiliates to Bayer AG, which is equal to [*]% of Net Sales. During the
period in which the royalty on Group C Compounds (the "Group C Royalty") is
applicable, the Perprazole Products Contingent Amount shall be increased by the
amount payable under the Amended and Restated KBI License in respect of the
Group C Royalty on sales of Perprazole Products and the KBI Products Contingent
Amount shall be increased by the amount payable under the Amended and Restated
KBI License in respect of the Group C Royalty on sales of KBI Products.
(d) Annual Minimum Contingent Amounts in the Event of
a Trigger Event. In the event a Trigger Event occurs, and the aggregate amount
of the contingent amounts in respect of any Fiscal Year in the period 2002
through 2007 computed pursuant to paragraphs (iii) - (vi) of Section 3.7(b) is
less than the amount specified for such Fiscal Year in the table set forth below
(a "Contingent Payment Shortfall"), KB (or any Person designated by KB) shall
pay, within ninety (90) days after the end of each such Fiscal Year, to KBI as
damages for the failure to devote sufficient resources to achieve the minimum
annual contingent amount specified in such table (the failure to achieve such
minimum annual contingent amounts being conclusive evidence (solely for the
purposes of this Section 3.7(d)) of the failure to devote sufficient resources),
the difference between such minimum annual contingent amount and the aggregate
<PAGE> 71
66
amount of contingent amounts referred to above; provided, however, that in the
event that (i) the FDA requires that any single product be removed from the
market for safety reasons, and (ii) such product accounted for more than 80% of
the aggregate Net Sales of all Covered Compounds for the Fiscal Year most
recently completed prior to such FDA action, then no payment in respect of the
Contingent Payment Shortfall shall be required. KB may delegate to any other
Person the obligation to make such payment, provided that no such delegation
shall relieve KB of the obligation to make such payment.
MINIMUM ANNUAL
FISCAL YEAR CONTINGENT AMOUNT
1998 - 2001 No minimum
2002 $[ * * *
2003 $ * * *
2004 $ * * *
2005 $ * * *
2006 $ * * *
2007 $ * * * ]
After 2007 No minimum
3.8 Inflation Adjustment. Certain amounts contained in
Sections 3.7 and 3.15 hereof as specified therein, in the definition of
"Critical Compound" and in the Ancillary Agreements as specified therein, are to
be adjusted for inflation pursuant to this Section 3.8. To the extent that any
amount is to be adjusted for inflation pursuant to this Section 3.8 (the
"Original Amount"), the Original Amount shall be adjusted (such adjusted amount
being referred to as the "Adjusted Original Amount") as of December 31 of each
year (the "Adjustment Date"), commencing December 31, 1999, as follows:
(i) Periods through December 31, 2016. For periods
through December 31, 2016, no adjustment shall be made to the
Original Amount or the Adjusted Original Amount unless the
annual percentage change ("Annual % Change") in the Price
Index for the most recently completed Inflation Year, as such
Price Index is last published in the year ending on the
Adjustment Date, exceeds 4% (.04), with such change in excess
of 4% (.04) being excess annual inflation ("Excess Annual
Inflation"). The Pre-2016 Inflation Index ("Pre-2016 Inflation
Index") as of the Adjustment Date is calculated by multiplying
the sum of one (1) and Excess Annual Inflation for the year
ending on the Adjustment Date by the Pre-2016 Inflation Index
as of December 31 of the prior year. The Adjusted Original
Amount for the year ending on the Adjustment Date shall be
determined by multiplying the Original Amount by the Pre-2016
Inflation Index for such year. (See Schedule 3.8 hereto for an
example of the computation of the inflation adjustment.)
(ii) Periods Following December 31, 2016. If the
KBI-E Asset Option has not been exercised, for periods
following December 31, 2016, an adjustment
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67
shall be made to the Original Amount as follows: Adjusted
Original Amount as of December 31, 2007 multiplied by the
Post-2016 Inflation Index. The Post-2016 Inflation Index shall
be calculated by dividing the Price Index for the most
recently completed Inflation Year, as such Price Index is last
published in the year ending on the Adjustment Date, by the
Price Index as of September 30, 2007. (See Schedule 3.8 hereto
for an example of the computation of the inflation
adjustment.)
In the event the Price Index is revised, adjusted or corrected for any year, the
Pre-2016 Inflation Index and Post-2016 Inflation Index computed above shall be
recomputed on the basis of such revised, adjusted or corrected Price Index.
3.9 Payments. All payments required to be made pursuant to
this Agreement, the other Initial Agreements, the Partnership Agreement and the
Ancillary Agreements shall be made in accordance with this Section, unless
otherwise agreed in writing or provided in the applicable agreement. All
payments to TR or any Affiliate of TR shall be made by wire transfer to a bank
account designated by TR at least four (4) business days prior to the date of
payment. All payments to KB or any Affiliate of KB shall be made by wire
transfer to a bank account designated by KB at least two (2) business days prior
to the date of payment. If any payment is due on a day that is not a business
day, such payment instead shall be made on the next succeeding business day. All
payments shall be made in Dollars in immediately available funds.
3.10 Maintenance and Access to Books and Records. The
Partnership and KB shall keep, and shall cause their Affiliates and Outlicensees
to keep, true, accurate and complete records of the amount (and manner of
computation or derivation) of the Weighted Net Sales of Omeprazole Products,
Perprazole Products, KB USA Products, KBI Products (other than Omeprazole
Products and Perprazole Products), Group D Products, Formoterol Products and
Group E Products (recording separately for each product and each category of
transaction for which the Relative Sales Weighting is less than 100% Net Sales
and other information for Ethical Pharmaceutical Products and OTC Product
formulations of such products) in sufficient detail to permit determination of
the contingent amounts to be computed with respect thereto pursuant to this
Agreement, the Partnership Agreement or any Ancillary Agreement and the audit
thereof by the Limited Partner pursuant to Section 6.4 of the Partnership
Agreement. At TR's request and expense, KB and its Affiliates shall afford such
access to their respective books and records in order to verify any amounts
payable pursuant to Section 3.6 or 3.6A hereof, or calculated pursuant to
Section 3.7 hereof, as the Partnership is obligated to afford to the Limited
Partner in respect of Partnership Compounds pursuant to Section 6.4 of the
Partnership Agreement, subject to the same restrictions contained therein.
3.11 Business of KBLP. Without the prior written consent of
TR, KBLP (or any Successor General Partner other than KB, a Qualified Person or
a Qualified Parent) shall not conduct any business of any nature whatsoever
other than (w) the ownership of its Interest, (x) in such capacity, the
management of the business of the Partnership, (y) such other activities as are
specifically permitted by the Initial Agreements, the Partnership Agreement and
the Ancillary Agreements (as applicable) and (z) any Permitted Business. Without
limiting the foregoing,
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68
(i) any Additional KBLP GP and any Additional KBLP LP may contribute or
otherwise Transfer to KBLP (or any Successor General Partner) the assets
(together with liabilities related to such assets which are "qualified
liabilities of a partner" as defined in Section 1.707-5(a)(6) of the Regulations
(as defined in the Partnership Agreement)) of any business which is a Permitted
Business and (ii) KBLP (or any Successor General Partner) may contribute such
assets (and such liabilities) to the capital of the Partnership in accordance
with Section 2.9(c) of the Partnership Agreement. Without the prior written
consent of TR, each Additional KBLP GP (other than KB, a Qualified Person or a
Qualified Parent) shall not conduct any business of any nature whatsoever other
than any Permitted Business.
3.12 Business of KBI Parties. Without the prior written
consent of KB, none of the KBI Parties shall conduct after the Closing any
business of any nature whatsoever other than (i) the ownership by KBI of the
outstanding stock of KBI Sub (or any Successor Limited Partner), KBI-E and
KBI-P, (ii) the ownership by KBI Sub (or any Successor Limited Partner) of its
Interest, (iii) the ownership by KBI-E of its rights, and the performance by
KBI-E of its obligations, pursuant to the KBI License Assignment and Assumption
Agreement; provided, however, that in the event that the Partnership's
appointment as distributor with respect to a Compound shall be terminated or
become non-exclusive pursuant to Section D of the Distribution Agreement, KBI-E
shall sublicense or assign all of its rights and obligations with respect to
such Compound to TR or any Affiliate of TR (other than a KBI Party); provided,
further, however that such sublicense or assignment shall terminate upon the
exercise of KB's right to purchase the rights to such Compound under Article V
of the KBI-E Asset Option Agreement and, if KB shall determine not to exercise
such right to purchase, KBI-E shall transfer the rights to such Compound to TR
or any Affiliate of TR (other than a KBI Party) or any non-Affiliate of TR, (iv)
the investment by each KBI Party of any amounts received by it pursuant to the
Ancillary Agreements, provided such investments take the form of TR Financial
Assets or loans (as described in clause (v)), (v) the distribution by each KBI
Party of such cash or TR Financial Assets (as loans, dividends or otherwise) to
TR or any of its Affiliates, and (vi) such other activities as are specifically
permitted by the Initial Agreements, the Partnership Agreement and the Ancillary
Agreements (as applicable).
3.13 Notice of Events of Bankruptcy. In the event of the
Bankruptcy of KBLP (or any Successor General Partner) or any of the Persons
described in Section 3.3(f) hereof, KB shall give prompt written notice thereof
to KBI and TR.
3.14 Certain Actions in Respect of Contingent Amounts. Neither
KB, nor the Partnership or any other Affiliate of KB, shall enter into any
transaction, or take or fail to take any action, which transaction, action or
failure to take action is intended to reduce the Weighted Net Sales of any
product category or the contingent amounts that otherwise would be computed
pursuant to Section 3.7 (or any other amount based on the amount of contingent
payments) for any period; provided, however, that this Section 3.14 shall not be
deemed to restrict the ability of the Partnership or any Other KB Outlet to
enter into any Outlicense otherwise permitted by this Agreement, the Partnership
Agreement and/or the Distribution Agreement, as applicable.
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3.15 Trigger Event.
(a) Market Capitalization.
(i) Market Capitalization of Qualified Persons.
"Market Capitalization", in the case of a Qualified Person,
shall be determined as set forth below:
(w) In the case of a Qualified Person all of
the Equity Securities of which are publicly traded ("Public
Equity Securities"), the Market Capitalization of such
Qualified Person shall be an amount equal to the total market
value (measured in Dollars) of all Classes (as defined below)
of Equity Securities of which such Qualified Person is the
issuer and which are publicly traded on at least one (1)
securities exchange or other securities market. For purposes
of this definition each class or series (a "Class") of Equity
Securities that is separately traded on a securities exchange
or market shall be valued separately from each other Class,
and such value shall be determined by multiplying the average
closing sale price of such Equity Security on the securities
exchange or market which constitutes its principal trading
market for the five (5) trading days ending on the Measurement
Date (or if no sale takes place on a trading day, the average
of the closing bid and asked prices on such day) by the number
of such Equity Securities actually outstanding on the
Measurement Date. Such value shall be translated into Dollars
based on the Noon Buying Rate on the Measurement Date for the
currency in which such Equity Security is traded in the
principal trading market therefor. An exchange or market shall
constitute the principal trading market for an Equity Security
if the average daily trading volume for such Equity Securities
on such exchange or market during the twelve (12) months
ending on the last day of the month immediately preceding the
month that includes the Measurement Date is larger than the
average daily trading volume for such Equity Securities on any
other exchange or market during such period.
(x) In the case of a Qualified Person whose
Equity Securities consist of one or more Classes of Public
Equity Securities and one or more Classes of Equity Securities
that are not publicly traded ("Non-Public Equity Securities"),
if (a) the number of outstanding shares of Public Equity
Securities represent at least 80% of the number of outstanding
shares of such Qualified Person's Equity Securities, and (b)
all of the Non-Public Equity Securities have identical
liquidation rights as one or more Classes of Public Equity
Securities (the "80% Test"), then the Market Capitalization of
such Qualified Person shall be equal to the sum of (i) the
amount determined using the method set forth in paragraph (w)
above with respect to such Qualified Person's Public Equity
Securities (the "Publicly Traded Amount"), and (ii) the sum of
the values of each Class of the Non-Public Equity Securities.
The value of each Class of Non-Public Equity Securities shall
be determined by multiplying that portion of the Publicly
Traded Amount attributable to Public Equity Securities having
the same
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liquidation rights as such Class of Non-Public Equity
Securities by a fraction, the numerator of which is the number
of shares of such Class of Non-Public Equity Securities and
the denominator of which is the number of the shares of such
Public Equity Securities.
(y) In the case of a Qualified Person (i)
all of whose Equity Securities are Non-Public Equity
Securities or (ii) whose Equity Securities consist of Public
Equity Securities and Non-Public Equity Securities, and the
80% Test is not met, if either such Qualified Person or the
pharmaceutical business of such Qualified Person is acquired
by KB in a transaction or integrally related transactions in
which the consideration paid by KB consists solely of KB
shares, marketable securities, cash or a combination thereof
paid at the time of such acquisition (a "KB Cash/Share
Purchase Transaction"), the Market Capitalization of such
Qualified Person shall be equal to the total market value of
the KB shares (valued as of the Measurement Date) and/or
marketable securities (valued as of the Measurement Date or,
if such marketable securities were not outstanding on the
Measurement Date, on the closing date of such acquisition)
paid or delivered as consideration plus the amount of cash
paid by KB.
(z) In the case of a transaction or
integrally related transactions, other than a KB Cash/Share
Purchase Transaction, with a Qualified Person (i) all of whose
Equity Securities are Non-Public Equity Securities or (ii)
whose Equity Securities consist of Public Equity Securities
and Non-Public Equity Securities, and the 80% Test is not met,
the Market Capitalization of such Qualified Person shall be
equal to the average of the values (the "Synthetic Market
Capitalization") determined by:
(A) multiplying the Net Income of
such Qualified Person for the most recent fiscal year
of such Qualified Person completed on or prior to the
Measurement Date and for which financial statements
have been released by such Qualified Person by the
median Price/Earnings Ratio (determined in accordance
with paragraph (iv) below) of the Comparable
Companies, and
(B) multiplying the sales of such
Qualified Person (determined in accordance with GAAP)
for the most recent fiscal year of such Qualified
Person completed on or prior to the Measurement Date
and for which financial statements have been released
by such Qualified Person by the median ratio of the
Firm Value (determined in accordance with paragraph
(v) below) to sales for the Comparable Companies and
then subtracting the Total Debt and adding the Cash
and Short-term Investments of such Qualified Person.
Such ratio shall be determined for each Comparable
Company based on the most recent fiscal year of such
Comparable Company completed on or prior to the
Measurement Date.
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(zz) For purposes of Sections 3.15(c)(vi)
and (viii) hereof, Synthetic Twin Head Market Capitalization
shall be equal to the average of the values determined by:
(A) multiplying (1) the earnings
before interest, taxes, depreciation and
amortization, including income from affiliates less
income attributable to minority interest ("EBITDA")
(as determined in accordance with GAAP), relating to
the pharmaceutical assets of KB or the Qualified
Person, as the case may be, that are proposed to be
contributed or made subject to the profit sharing or
profit equalization arrangements of the Synthetic
Twin Head Business Combination for the most recent
fiscal year of KB or such Qualified Person completed
on or prior to the Measurement Date and for which
financial statements have been released by KB or such
Qualified Person by (2) the median ratio of Firm
Value (determined in accordance with paragraph (v)
below) to EBITDA for the Comparable Companies. Such
ratio shall be determined for each Comparable Company
based on the most recent fiscal year of such
Comparable Company completed on or prior to the
Measurement Date, and
(B) multiplying (1) the sales (as
determined in accordance with GAAP) relating to the
pharmaceutical assets of KB or the Qualified Person,
as the case may be, that are proposed to be
contributed or made subject to the profit sharing or
profit equalization arrangements of the Synthetic
Twin Head Business Combination for the most recent
fiscal year of KB or such Qualified Person completed
on or prior to the Measurement Date and for which
financial statements have been released by KB or such
Qualified Person by (2) the median ratio of Firm
Value (determined in accordance with paragraph (v)
below) to sales for the Comparable Companies. Such
ratio shall be determined for each Comparable Company
based on the most recent fiscal year of such
Comparable Company completed on or prior to the
Measurement Date.
Any Market Capitalization computed pursuant to paragraphs (w) - (z) above shall
be adjusted for disposals after the Measurement Date of any Significant
Non-pharmaceutical Assets (as defined below) prior to or as part of the
applicable transaction or integrally related transactions; provided, however,
that only (i) spin-offs, demergers, court approved schemes, plans of arrangement
or corporate divisions providing for the disposition of businesses to
shareholders, in any such case by means of a stock distribution (or other
transactions having a substantially similar effect), or (ii) asset disposals
accompanied by an extraordinary cash dividend to or stock repurchase or
redemption from shareholders (or other transaction having a substantially
similar effect), will result in such an adjustment. In such case, Market
Capitalization shall be reduced by the value of the cash or stock or other
securities so distributed or transferred to shareholders. A "Significant
Non-pharmaceutical Asset" shall mean a non-pharmaceutical business that
accounted for more than 15% of the Qualified Person's total operating profit or
25% of the Qualified Person's total
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sales (in each case determined in accordance with GAAP) for the most recent
fiscal year of such Qualified Person completed on or prior to the Measurement
Date and for which audited financial statements have been included in such
Qualified Person's annual report to stockholders. A Significant
Non-pharmaceutical Asset shall be determined by the then currently engaged
independent public accountants of TR in accordance with the policies and
procedures used by such Qualified Person to calculate such profit and sales as
reported in such Qualified Person's audited financial statements. Such
determination shall be reviewed by the independent public accountants of the
Qualified Person, and at the election of KB, may then be disputed by KB and
submitted for resolution of any dispute using procedures substantially
equivalent to the procedures set forth in Sections 2.5(e)(ii) and (iii) hereof.
(ii) Market Capitalization of KB. "Market
Capitalization", in the case of KB, shall be determined on the
same basis as set forth in paragraphs (i)(w), (i)(x) and
(i)(z) of this Section 3.15(a) (as applicable) with respect to
a Qualified Person, except that for purposes of paragraph
(i)(x) the applicable percentage shall be 50% (rather than
80%).
(iii) Market Capitalization of Comparable Companies.
"Market Capitalization", in the case of a Comparable Company,
shall be determined on the same basis as set forth in
paragraphs (i)(w) and (i)(x) of this Section 3.15(a) (as
applicable) with respect to a Qualified Person.
(iv) Price/Earnings Ratio of Comparable Companies.
"Price/Earnings Ratio" of a Comparable Company shall be based
on the Closing Stock Price and the last reported actual,
fiscal Earnings Per Share of such Comparable Company, as
reported by such Comparable Company, where:
(w) "Closing Stock Price" shall mean the
closing stock price of the ordinary or common shares
of such Comparable Company on the Measurement Date on
the securities exchange or market which constitutes
such Comparable Company's principal trading market.
(x) "Earnings Per Share" shall mean the Net
Income of such Comparable Company for the relevant
fiscal year divided by the weighted average number of
ordinary or common shares of such Comparable Company
outstanding for the relevant fiscal year (assuming
dilution) calculated in accordance with Statement of
Financial Accounting Standards 128.
(v) Firm Value of Comparable Companies. "Firm Value"
of a Comparable Company shall mean the Market Capitalization
of such Comparable Company plus the Total Debt of such
Comparable Company minus the Cash and Short-term Investments
of such Comparable Company, in each case determined as of the
Measurement Date.
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(b) Definitions.
"Acquisition of KB" shall mean any Trigger Event that is not a
Merger of Equals.
"Business Combination" is a transaction pursuant to which all
or Substantially all of the pharmaceutical businesses or assets of KB and a
Qualified Person shall be combined in a structure having the economic effect of
combining the pharmaceutical business operations or equity ownership of the two
entities, whether such combination is effected by purchase, exchange or other
transfer of Equity Securities or assets, joint venture or joint ventures,
recapitalization, reorganization, consolidation, amalgamation, scheme or plan of
arrangement, profit or dividend equalization or sharing agreement, or any
combination of the foregoing or other transaction or integrally related
transactions having a substantially similar effect, provided that the total
consideration, if any, paid to shareholders, consists of KB Share Consideration,
QP Share Consideration or Newco Share Consideration.
"KB Share Consideration" shall mean, in connection with any
Trigger Event, total consideration at least 80% of which in value, determined as
of the close of business on the closing date of such transaction based on the
closing trading price of KB's Equity Securities on the principal trading market
therefor, consists of Equity Securities which may, solely for these purposes,
include equity securities of KB newly issued in connection with the Trigger
Event.
"Merger of Equals" shall mean a Trigger Event described in
paragraph 3.15(c)(v)-(vi) below, whether or not such transaction is also a
Trigger Event as defined in clauses (i)-(iv) of Section 3.15(c).
"Newco Share Consideration" shall mean, in connection with any
Trigger Event, total consideration at least 80% of which in value, determined as
of the close of business on the closing date of such transaction based on the
value of the KB shares exchanged therefor, is delivered to KB and QP
shareholders in the form of Equity Securities of Newco.
"QP Share Consideration" shall mean, in connection with any
Trigger Event, total consideration at least 80% of which in value, as determined
as of the close of business on the closing date of such transaction based on the
closing trading price of the Qualified Person's Equity Securities on the
principal trading market therefor, consists of Equity Securities which may,
solely for these purposes, include equity securities of such Qualified Person
newly issued in connection with the Trigger Event.
"Simple Business Combination" is any Business Combination
provided that it is not a Synthetic Twin Head Business Combination.
"Twin Head Business Combination" is a Business Combination (i)
in which not less than 80% of the Equity Securities of both KB and a Qualified
Person continue to be publicly traded after the transaction has occurred, and
(ii) any payments, payable at the time of the transaction or at any point in the
future (the right to which is established at the time of the transaction), made
in connection with the Business Combination (whether by dividend, distribution,
redemption, stock repurchase or otherwise), paid to (x) the shareholders of KB
will
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not, in the aggregate, exceed 20% of the Market Capitalization of KB and
(y) the shareholders of the Qualified Person, will not, in the aggregate, exceed
20% of the Market Capitalization of the Qualified Person, as the case may be
(except that the Measurement Date with respect to Market Capitalization for
these purposes will be ten business days prior to the announcement of the
transaction).
"Substantially all" of the pharmaceutical business of KB or a
Qualified Person shall mean more than 80% of the pharmaceutical business, or
assets producing more than 80% of the earnings of the pharmaceutical business,
of KB or such Qualified Person, as the case may be, measured by the fair market
value thereof.
"Synthetic Twin Head Business Combination" is a Twin Head
Business Combination; provided, however, that less than 80% of the total
business or assets producing less than 80% of the earnings (in each case
measured by the fair market value thereof) of either KB or the Qualified Person,
respectively, are contributed or subjected to the profit sharing or profit
equalization arrangement of the Synthetic Twin Head Business Combination.
(c) Transactions Constituting a Trigger Event.
"Trigger Event" shall mean any transaction pursuant to which:
(i) a Qualified Person shall acquire more than 50% of
the Voting Securities of KB so long as the Market
Capitalization of KB is no more than 60% of the sum of the
Market Capitalizations of KB and the Qualified Person;
(ii) KB shall acquire more than 50% of the Voting
Securities of a Qualified Person for KB Share Consideration;
provided that the Market Capitalization of KB is less than 40%
of the sum of the Market Capitalizations of KB and such
Qualified Person;
(iii) all or Substantially all of the pharmaceutical
assets of KB (including without limitation KB's interest in
the General Partner of the Partnership) shall be acquired by
or otherwise transferred to any Qualified Person; provided
that the Market Capitalization of KB is no more than 60% of
the sum of the Market Capitalizations of KB and the Qualified
Person;
(iv) KB shall acquire all or Substantially all of the
pharmaceutical assets of a Qualified Person for KB Share
Consideration; provided that the Market Capitalization of KB
is less than 40% of the sum of the Market Capitalizations of
KB and such Qualified Person;
(v) a Simple Business Combination is consummated, in
which the Market Capitalization of KB is not less than 40% or
more than 60% of the sum of the Market Capitalizations of KB
and such Qualified Person;
(vi) a Synthetic Twin Head Business Combination is
consummated in which (x) the Market Capitalization of KB is
not less than 40% or more than 60%
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of the sum of the Market Capitalizations of KB and such
Qualified Person, and (y) the synthetic market capitalization
(determined using the procedures set forth in paragraph (zz)
above ("Synthetic Twin Head Market Capitalization")) of KB is
greater than 40% of the sum of the Synthetic Twin Head Market
Capitalizations of KB and the Qualified Person; provided,
however, that the Synthetic Twin Head Market Capitalization
will be applied only to the pharmaceutical assets of KB and
the Qualified Person that are contributed to or subject to the
profit sharing or profit equalization arrangement of the
Synthetic Twin Head Business Combination; provided, further,
that if either party to the transaction contributes or
subjects to the profit sharing or profit equalization
arrangement of the Synthetic Twin Head Business Combination
more than 80% of its total business or assets producing more
than 80% of the earnings (in each case measured by the fair
market value thereof) then the Market Capitalization to be
utilized in the calculation will be its Market Capitalization
and no Synthetic Twin Head Market Capitalization will be
determined for such party;
(vii) a Simple Business Combination or a Synthetic
Twin Head Business Combination is consummated in which the
Market Capitalization of KB is less than 40% of the sum of the
Market Capitalizations of KB and such Qualified Person;
(viii) a Synthetic Twin Head Business Combination is
consummated in which (x) the Market Capitalization of KB is
not less than 40% or more than 60% of the sum of the Market
Capitalizations of KB and such Qualified Person, and (y) the
Synthetic Twin Head Market Capitalization of KB is less than
40% of the sum of the Synthetic Twin Head Market
Capitalizations of KB and the Qualified Person, provided,
however, that the Synthetic Market Capitalization will be
applied only to the pharmaceutical assets of KB and the
Qualified Person that are included in the Business
Combination; provided, further, that if either party to the
transaction contributes or subjects to the profit sharing or
profit equalization arrangement of the Synthetic Twin Head
Business Combination more than 80% of its total business or
assets producing more than 80% of the earnings (in each case
measured by the fair market value thereof), then the Market
Capitalization to be utilized in the calculation will be its
Market Capitalization, and no Synthetic Twin Head Market
Capitalization will be determined for such party;
(ix) a Twin Head Business Combination or a Synthetic
Twin Head Business Combination is consummated in which the
Market Capitalization of KB is not more than 60% of the sum of
the Market Capitalizations of KB and such Qualified Person;
provided, however, that the condition set forth in clause (ii)
of the definition of Twin Head Business Combination is not
satisfied; or
(x) a Qualified Person acquires more than 50% of the
Voting Securities or all or Substantially all of the
pharmaceutical assets of KB (including without limitation KB's
interest in the General Partner of the Partnership) entirely
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for cash, whether or not the Market Capitalization of KB is
greater than 60% of the sum of the Market Capitalizations of
KB and the Qualified Person;
provided, however, no transaction or integrally related transactions shall
constitute a Trigger Event if:
(x) such Qualified Person is a Related Person of KB prior
to such Trigger Event; or
(y) KB or any Related Person of KB has, or within two (2)
years after the date of such transaction or
integrally related transactions acquires, any right
to acquire, reacquire or obtain control over (or does
acquire, re-acquire or obtain control over) all or
Substantially all of the Voting Securities, assets or
business, the transfer, acquisition or combination of
which caused a Trigger Event to occur.
(d) Transactions Not Constituting a Trigger Event
Notwithstanding anything to the contrary herein, the following
transactions shall not be considered Trigger Events and shall be deemed an
acquisition by KB of the Qualified Person or other Person that is a party to the
Transaction, and such Qualified Person or other Person shall be deemed an
Affiliate of KB, for all purposes under the Amended and Restated KBI License and
this Agreement:
(i) Any transactions of the types described in Section 3.15(c)
between KB and a Person(s) that is not a Qualified Person;
(ii) Except as set forth in paragraph 3.15(c)(x), any
transaction between KB and a Qualified Person in which the Market
Capitalization of KB is more than 60% of the sum of the Market
Capitalizations of KB and such Qualified Person (including any
integrally related transactions with two or more Persons which are not
Qualified Persons);
(iii) Any transaction in which KB acquires either (x) more
than 50% of the Voting Securities, or (y) all or Substantially all of
the pharmaceutical assets, of a Qualified Person in which the
consideration paid fails to consist of KB Share Consideration;
provided, however, that clause (y) shall not apply to Twin Head
Business Combinations or Synthetic Twin Head Business Combinations;
(iv) Except as set forth in subparagraphs 3.15(c)(i), (iii),
(ix) or (x), any Business Combination (other than a Twin Head Business
Combination or a Synthetic Twin Head Business Combination), in which
the consideration paid fails to consist of KB Share Consideration, QP
Share Consideration or Newco Share Consideration; or
(v) Any transaction in which less than Substantially all of
the pharmaceutical assets or businesses of KB and a Qualified Person
are contributed to or subjected to the transaction.
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(e) Lump Sum Payment in the Event of a Trigger Event.
Within fifteen (15) days after the closing of a transaction which is a Trigger
Event, KB or KBLP shall pay to KBI-E in Dollars the amount of the Lump Sum
Payment (as defined below) for the release of certain claims under the Amended
and Restated KBI License. The "Lump Sum Payment" shall be computed as set forth
below based on the Trigger Event R&D Expenses of KB and the Qualified Person
which engaged in the Trigger Event:
(i) The Lump Sum Payment shall be equal to 90% of the
sum of (A) 75% of the Trigger Event R&D Expenses of such
Qualified Person and (B) 25% of the Trigger Event R&D Expenses
of KB, in each case for the last successive periods that total
twelve (12) months of such Qualified Person and KB,
respectively, for which financial results have been reported
on or prior to the Announcement Date; provided, however, that
the Lump Sum Payment computed pursuant to this paragraph (i)
shall not exceed $1.5 billion in the case of an Acquisition of
KB or $1.0 billion in the case of a Merger of Equals nor be
less than $1.0 billion in the case of an Acquisition of KB nor
be less than $675 million in the case of a Merger of Equals;
and, provided, further, that the minimum and maximum amounts
set forth in the preceding proviso shall be adjusted for
inflation in accordance with Section 3.8 hereof.
(ii) The Lump Sum Payment computed pursuant to
paragraph (i) above in respect of a Trigger Event closing in
any calendar year shall be adjusted by multiplying the amount
so computed by the percentage set forth in the following table
for such calendar year:
Percentage Applicable
to a Trigger Event
Calendar Year in such Calendar Year
------------- ---------------------
1998 100%
1999 100%
2000 100%
2001 100%
2002 90%
2003 70%
2004 50%
2005 40%
2006 35%
2007 35%
After 2007 35%
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(f) Certain Other Payments if Trigger Event Closes
Prior to January 1, 2008.
(i) Advance Amount. Within fifteen (15) days after
the closing of a transaction which is a Trigger Event,
provided such Trigger Event closes prior to January 1, 2008,
KB shall pay to KBI-E in Dollars in immediately available
funds in consideration for such assignment of rights under the
Amended and Restated KBI License, the Advance Amount, with
such amount being discounted at an annual rate of thirteen
percent (13%) from January 1, 2008 to the date of payment of
the Advance Amount.
(ii) Calculation of Appraised Value. Promptly after
the availability of the audited financial statements referred
to in Section 6.5 of the Partnership Agreement for the
Partnership's Fiscal Year ending December 31, 2007 (the
"Audited Financial Statements"), KB shall prepare and deliver
to KBI-E a statement (the "Actual Formula Price Statement")
showing its calculation of the Actual Formula Price in
accordance with the Audited Financial Statements. The Actual
Formula Price Statement may be disputed by KBI-E and submitted
for resolution of any dispute using procedures equivalent to
the procedures set forth in Section 3.1(d) of the KBI-E Asset
Option Agreement. In addition, no later than January 31, 2008,
KBI-E and KB shall engage the Appraiser selected in accordance
with Section 3.15(f)(v) hereof to determine the Appraised
Value on the basis of discounted pre-tax cash flows. Promptly
after the engagement of the Appraiser, KB shall cause the
General Partner to provide to the Appraiser such information
(including, without limitation, sales history, then current
sales forecasts, patent status and expiration data and status
reports concerning competitive products, and copies of
financial statements of the Partnership, including, without
limitation, the Audited Financial Statements promptly after
they are available) as the Appraiser may request in order to
determine the Appraised Value. Based on such information and
such information as TR may make available to the Appraiser,
the Appraiser shall determine the Appraised Value and deliver
a report to KB and KBI-E no later than thirty (30) days after
receipt of all the information referred to in the preceding
sentence, showing its calculation of such Appraised Value (the
"Appraisal Report"). Such determination by the Appraiser shall
be binding and conclusive upon all of the parties hereto.
(iii) True Up. Within fifteen (15) days after
delivery of the Appraisal Report, KB (if the Calculated Amount
exceeds the Appraised Value) or KBI-E (if the Calculated
Amount is less than the Appraised Value), as the case may be,
shall pay the True-Up Amount to the other in Dollars in
immediately available funds plus interest at the rate of
LIBOR, determined using a LIBOR Period of three (3) months,
plus fifty (50) basis points from January 1, 2008 to the date
of payment of the True-Up Amount.
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(iv) Assignment Right. The payments and other actions
provided for in this paragraph (f) shall be made or taken, as
the case may be, whether or not KBI-E or KB exercises its
Assignment Right pursuant to Section 4.1 of the KBI-E Asset
Option Agreement.
(v) Selection of the Appraiser. KB and KBI-E shall
choose an appraisal firm of national reputation which is
skilled in preparing appraisals of the future value of
pharmaceutical products to perform the appraisal contemplated
in paragraph (ii) above (the "Appraiser"). If the Partners are
unable to agree on the Appraiser, then the Appraiser shall be
selected by the American Arbitration Association. The parties
shall instruct the Appraiser so retained to deliver a written
opinion within sixty (60) days following the selection of such
firm. The fees and expenses of the Appraiser shall, unless
otherwise agreed by the parties, be borne equally by KB and
KBI-E.
(g) Assumption. In the event of a Trigger Event, the
Qualified Person which engaged in such Trigger Event shall, at TR's option,
assume in writing all of KB's obligations under the Initial Agreements, the
Ancillary Agreements and each Future Agreement to which KB is a party (it being
agreed that KB shall not be released from any such obligations) and a copy of
such agreement shall be provided to TR.
(h) Assignment of Options. Upon the occurrence of a
Trigger Event, the option rights granted pursuant to Section 2.2 of the Amended
and Restated KBI License shall be assigned to KB except option rights with
respect to any Group C Compound as to which at the time of such Trigger Event
there is (i) a United States patent owned by KB (or such of its Affiliates which
were its Affiliates prior to the Trigger Event) or as to which KB (or any such
Affiliate) has licensing rights in the Territory 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 United States patent filed by KB (or
any such Affiliate) or as to which KB (or any such Affiliate) has licensing
rights in the Territory claiming such Compound, any of its methods of use or any
composition containing it. A Trigger Event shall not affect any license granted
under the Amended and Restated KBI License prior to the occurrence of such
Trigger Event or any right of KBI-E under the Amended and Restated KBI License
with respect to omeprazole or perprazole.
3.16 [Intentionally Omitted].
3.17 KB Obligations in Respect of Certain Loans. In the event
an Allocation Default (as defined in the Partnership Agreement) occurs and, at
the time of such Allocation Default, the Partnership has taken any of actions
referred to in Section 3.2(b)(19) of the Partnership Agreement, KB shall, not
later than three (3) business days after the written demand of the Limited
Partner, either (i) purchase or repurchase from the Partnership for cash the
note or other instrument evidencing each such loan or Debt (as defined in the
Partnership Agreement) referred to in such Section at its principal amount, in
the case of a loan, or the Partnership's cost, in the case of other Debt of KB
or its Affiliates, plus accrued interest, or (ii) make a secured,
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non-recourse loan of cash to the Partnership in the amount determined pursuant
to the foregoing clause (i), with such note or other instrument evidencing such
loan (as the case may be) being the sole security therefor.
3.18 Other KB Outlet.
(a) In the event that any Other KB Outlet is a Person
other than KB, KB shall not, and shall not permit any of its Affiliates to, take
any action which would result, or fail to take any action if such failure would
result, in such Other KB Outlet not being an Affiliate of KB, unless all of such
Other KB Outlet's rights with respect to Group E Compounds and Group E Products
are first transferred to any Other KB Outlet or the Partnership.
(b) KB shall not, and KB shall cause any Other KB
Outlet not to, directly or indirectly (i) grant to any non-Affiliate of KB any
right to sell in the Territory any Group E Compound or Group E Product, whether
exclusive or nonexclusive and whether by sale, license, sublicense, co-marketing
agreement, subdistribution arrangement, complete or partial assignment of
contract rights, other dispositions, covenants not to sue or immunity from suit,
or otherwise, or (ii) license, sublicense, assign, or otherwise Transfer to any
non-Affiliate of KB any trademark used in connection with any Group E Compound
or Group E Product, in any such case other than in connection with any
Outlicensing permitted by, and effected in compliance with, Sections 3.6 and
3.20 hereof. In the event that any Other KB Outlet is a Person other than KB, KB
shall cause such Other KB Outlet to comply with and perform its obligations
pursuant to Sections 3.6 and 3.20 hereof (including without limitation all
provisions requiring the giving of notice by such Other KB Party) and Sections
2.2(c) and 7.3 of the Amended and Restated KBI License as though such Other KB
Party were a party hereto and thereto.
(c) With respect to each Group E Compound, if any,
the Other KB Outlet shall be deemed to have duties equivalent to the fiduciary
duties of the Partnership to the Limited Partner with respect to the Group D
Compounds, and KB shall (if KB is the Other KB Outlet), and KB shall cause the
Other KB Outlet (if the Other KB Outlet is a Person other than KB) to, comply
with and perform any and all such duties.
3.19 Information Concerning Compounds. If at any time KB or
any of its Affiliates proposes, directly or indirectly, to Transfer for use in
the Territory any Compound having Market Exclusivity at the time of such
Transfer (or any product containing any such Compound) that KB believes is not a
Compound to which KBI-E is entitled to an option under the Amended and Restated
KBI License, KB shall notify KBI-E of such proposal. Such notice shall identify
the Compound (by generic name) and shall be given to KBI-E thirty (30) days
prior to the date that KB or its Affiliate, as the case may be, proposes to
consummate such Transfer.
3.20 Determination of Critical Compounds.
(a) With respect to any Covered Compound which is not
identified as a Critical Compound in clause (i) of the definition of Critical
Compound, (i) if the Partnership desires that a determination be made as to
whether any such Covered Compound (other than a Group E Compound) is a Critical
Compound, the Partnership shall provide to KBI Sub (in the
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case of any Group D Compound or KB USA Compound) or KBI-E (in the case of any
Group A Compound, Group B Compound or Group C Compound), and (ii) if any Other
KB Outlet desires that a determination be made as to whether any such Group E
Compound is a Critical Compound, the Other KB Outlet shall provide to KBI-E (the
Partnership or Other KB Outlet, as applicable, being the "Notice Provider" for
purposes of this Section 3.20 and KBI Sub or KBI-E, as applicable, being the
"Notice Recipient" for purposes of this Section 3.20) (x) a notice stating that
the Notice Provider believes that such Covered Compound is or is not a Critical
Compound (the "Initial Notice") and (y) all information, including any
projections (and all assumptions underlying such projections), in the possession
of the Notice Provider and its Affiliates relevant to projecting Net Sales of
such Covered Compound and products containing such Covered Compound in the
Territory.
(b) Within sixty (60) days after receiving all of the
information referred to in clause (y) of paragraph (a) above, the Notice
Recipient shall notify the Notice Provider whether the Notice Recipient believes
that such Covered Compound is or is not a Critical Compound.
(i) If the Notice Recipient agrees with the
characterization of such Covered Compound set forth in the
Initial Notice, such characterization shall be valid and
binding on the parties for a period of twelve (12) months from
the date on which the Notice Provider received the Notice
Recipient's response to the Initial Notice.
(ii) If the Notice Recipient believes that such
Covered Compound is a Critical Compound and the Initial Notice
stated the Notice Provider's belief that such Covered Compound
is not a Critical Compound, such dispute shall be submitted to
arbitration in accordance with Article 9, and the decision of
the arbitrators shall be valid and binding on the parties for
a period of twelve (12) months from the date of such decision.
The applicable twelve-month period determined pursuant to this
subparagraph (ii) or subparagraph (i) above is referred to
herein as the "Annual Period."
(c) If, with respect to any Covered Compound, (x)
there has been a determination that such Covered Compound is a non-Critical
Compound in accordance with the procedures set forth in paragraphs (a) and (b)
above (the "Initial Determination") and (y) the Partnership or, in the case of a
Group E Compound or Group E Product, any Other KB Outlet desires to engage in
any Outlicensing of such Covered Compound (or any product containing such
Covered Compound) pursuant to, and in accordance with, Section 3.6 or 3.6A
hereof during the period commencing on the first day of the seventh month of the
Annual Period and ending on the last day of the twelfth month of the Annual
Period, then the Notice Provider shall provide to the Notice Recipient not more
than thirty (30) days and not less than fifteen (15) days prior to the effective
date of such Outlicensing a certificate signed by its Chief Financial Officer
(an "Outlicensing Certificate") stating that as of the date of the Outlicensing
Certificate, the information on which the Initial Determination was based has
not changed in any material respect and there is not any new information which
would materially affect the projected Net
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Sales of such Covered Compound and products containing such Covered Compound in
the Territory. Notwithstanding any Initial Determination that a Covered Compound
is a non-Critical Compound, if the Notice Provider enters into such Outlicensing
during the six (6) month period referred to in the preceding sentence without
delivering the Outlicensing Certificate to the Notice Recipient, then the
Initial Determination shall be of no force or effect.
(d) Notwithstanding anything to the contrary in this
Agreement, the Partnership Agreement or any Ancillary Agreement, the Notice
Provider may Outlicense the Selected Uses of any Critical Compound without the
consent of the Notice Recipient (but otherwise in accordance with the procedures
for non-Critical Compounds set forth in Section 3.6 hereof).
(e) Notwithstanding anything to the contrary in this
Agreement, the Partnership Agreement or the Distribution Agreement, in the event
that KB or any of its Affiliates engages in any Outlicensing of any Covered
Compound (or product containing any Covered Compound) without complying with the
procedures set forth in this Section 3.20, neither TR nor any of its Affiliates
may commence an arbitration or other proceeding asserting, at any time after the
third anniversary of such Outlicensing that, at the time of such Outlicensing,
such Compound constituted a Critical Compound.
3.21 Preparation of Tax Returns and Financial Statements. The
Partnership and each of the Partners therein shall prepare and file their income
tax returns consistently with the form of the transactions as set forth in this
Agreement, each of the other Initial Agreements, the Partnership Agreement and
the Ancillary Agreements; and each of the TR Parties, the Partnership and each
of the Partners therein shall prepare their financial statements consistently
with the form of the transactions as set forth in this Agreement, each of the
other Initial Agreements, the Partnership Agreement and the Ancillary
Agreements.
3.22 Co-promotions.
(a) In the event that the total value of all
consideration of any type or nature received anywhere in the world by the
Partnership, KB and its Affiliates in respect of all Qualified Co-promotion
Arrangements in the Territory in any Fiscal Year exceeds [*]% of the total
revenues of the Partnership, KB and its other Affiliates from the sale of
pharmaceutical products in the Territory for such Fiscal Year (said [*]% of
total revenues, the "[*]% Amount"), an amount equal to the product of the
Qualified Co-promotion Percentage times the net sales in the Territory by all
Persons for all products covered by Qualified Co-promotion Arrangements in such
Fiscal Year (such net sales amount to be computed for such Persons on a basis
consistent with the definition of Net Sales), less the [*]% Amount, shall be
treated as Net Sales by the Partnership of a Group D Product in such Fiscal
Year for all purposes of this Agreement, the other Initial Agreements, the
Partnership Agreement and the Ancillary Agreements.
(b) An amount equal to the product of the
Non-Qualified Co-promotion Percentage times the net sales in the Territory by
all Persons for all products covered by Co-promotion Arrangements other than
Qualified Co-promotion Arrangements in each Fiscal Year (such net sales amount
to be computed for such Persons on a basis consistent with the
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definition of Net Sales) shall be treated as Net Sales by the Partnership of a
Group D Product in such Fiscal Year for all purposes of this Agreement, the
other Initial Agreements, the Partnership Agreement and the Ancillary
Agreements.
(c) The provisions of (a) and (b) of this Section
3.22 shall not apply to any Co-promotion Arrangement that has been consented to
in writing by KBI Sub.
(d) In the event that KB seeks KBI Sub's consent
prior to entering into a Co-Promotion Arrangement, (i) TR agrees to treat any
information disclosed by KB in connection with seeking KBI Sub's consent to the
proposed Co-Promotion Arrangement as KB Confidential Information subject to
Section 4.1 and (ii) neither TR nor its Affiliates shall bid for or enter into a
co-promotion arrangement or similar transaction for a period of three years from
the date on which such consent is sought with the Product Rights Owner with
respect to any Patented Compound that is the subject of the proposed
Co-Promotion Arrangement as to which KBI Sub has not consented. In the event
that KB shall notify KBI Sub that KB or an Affiliate desires to enter into such
proposed Co-promotion Arrangement, KBI Sub shall notify KB within 60 days of
receipt of such notification that KBI Sub consents or does not consent to such
proposed Co-promotion Arrangement; provided, however, that the failure by KBI
Sub to give such notice by the end of said 60-day period shall in no event be
construed as a consent.
3.23 Lexxel Agreements. KBI agrees, without the prior written
consent of the Partnership, not to amend, supplement, modify or terminate the
Supply Agreement dated as of November 1, 1994 by and between TR and KBI
(relating to Lexxel) (the "Lexxel Supply Agreement") or the License Agreement
dated as of November 1, 1994 among TR and KBI (relating to Lexxel) in a manner
that has an adverse effect on the Partnership. In addition, in the event that TR
and KBI do not extend the term of the Lexxel Supply Agreement pursuant to
Section 10.1 thereof, the Partnership shall have the right to exercise all of
the rights of KBI referred to in the last sentence of such Section 10.1.
ARTICLE 4
CONFIDENTIALITY
4.1 Confidentiality. (a) Subject to the provisions of Section
12.14 hereof, each of the TR Parties shall maintain in strict confidence (i) all
proprietary technical, scientific, business and other data, processes,
documents, samples, reports, analyses, studies or other information of a
confidential nature relating to the subject matter of this Agreement, any other
Initial Agreement, the Partnership Agreement or any Ancillary Agreement that has
been or will be disclosed by any KB Party or any of its Affiliates and (ii) all
written proprietary information of a confidential nature regarding (A) compounds
and products under development, including information contained in INDs and
NDAs, (B) marketing plans and strategies, (C) pricing of products and compounds
or (D) manufacturing processes for compounds and products (other than
manufacturing improvements developed by TR or its Affiliates), in each case only
to the extent such information has been developed either jointly by any of the
parties hereto or by any TR Party or KBI Party alone in connection with the
operation of the business of KBI (including
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such business as conducted by TR prior to the effectiveness of the Transfer
Consummation Agreement by and among TR, KB and KBI dated as of November 1,
1994), it being understood that for purposes of Section 4.2 hereof, all such
information described in this Section 4.1 (a)(ii) shall be deemed to have been
disclosed by KB (all of the foregoing information described in clause (i) or
(ii) of this Section 4.1(a) being referred to herein as the "KB Confidential
Information").
(b) Subject to the provisions of Section 12.14
hereof, each of the KB Parties shall maintain in strict confidence all
proprietary business and other data, documents, reports, analyses, studies or
other information of a confidential nature relating to the subject matter of
this Agreement, any other Initial Agreement, the Partnership Agreement or any
Ancillary Agreement, other than any information described in Section 4.1(a)
above, that has been or will be disclosed by any TR Party or any of its
Affiliates (all of the foregoing being referred to herein as the "TR
Confidential Information" and, together with the KB Confidential Information, as
the "Confidential Information").
(c) Each TR Party hereto shall deal with such KB
Confidential Information and each KB Party shall deal with such TR Confidential
Information, so as to protect it from disclosure with a degree of care not less
than that used by it in dealing with its own information intended to remain
exclusively within its knowledge and shall take reasonable steps to minimize the
risk of disclosure of such KB Confidential Information or TR Confidential
Information, as the case may be, by ensuring that only its officers, directors
and employees and the officers, directors and employees of its agents,
consultants, representatives, Affiliates and sublicensees (and no other Persons)
who have a "need to know" such KB Confidential Information or TR Confidential
Information, as the case may be, for purposes permitted or contemplated hereby
("Authorized Persons") shall have access thereto, and such Authorized Persons
shall treat such KB Confidential Information or TR Confidential Information, as
the case may be, in strict confidence as provided herein.
(d) The foregoing obligations under Sections 4.1(a),
(b) and (c) above shall extend to copies, if any, of such Confidential
Information and shall survive the expiration or termination of this Agreement.
(e) The Notice Party (as defined in Section
3.6(d)(i)), TR or KBI-E, as the case may be, shall cause each law firm
designated by it pursuant to Sections 3.6(d)(ii), 3.6(e)(iii), 3.6A(c)(iii) or
3.6A(d)(iii) not to disclose to TR or any of its Affiliates the draft or final
agreements received by said law firm pursuant to said Sections and not to
disclose the information contained therein other than such information that is
reasonably necessary for purposes of determining compliance with the provisions
of this Agreement.
4.2 Exceptions. Notwithstanding the foregoing, "Confidential
Information" shall not include information which:
(a) with respect to information described in Sections
4.1(a)(i) and 4.1(b) only, is legally in the possession of the receiving party
or Authorized Person prior to
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receipt thereof from any other party hereto (or any of its Affiliates), which
fact of prior possession shall be provable only by documents prepared prior to
such receipt;
(b) enters the public domain through no fault of the
party subject to the confidentiality obligation or Authorized Person subject to
such obligation;
(c) is disclosed to the party subject to the
confidentiality obligation or Authorized Person subject to such obligation
without restriction by a Person or governmental authority who or which has the
right to make such disclosure; or
(d) with respect to information described in Sections
4.1(a)(i) and 4.1(b) only, the party subject to the confidentiality obligation
can demonstrate is independently developed by such party (or any of its
Affiliates) without reliance on Confidential Information received from any other
party.
4.3 Enalapril Confidentiality. For purposes of the
confidentiality provisions of the Research Agreement dated as of November 1,
1994 among TR and KBI (regarding Lexxel), the Partnership shall not be deemed to
be an Affiliate (as that term is defined in such Research Agreement) of KB or
any of its other Affiliates.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties of TR and TR Holdings. TR
represents and warrants, as of the date of this Agreement and (except as
specifically provided otherwise herein) as of the Closing Date, to each of KB,
KBLP, KB USA and the Partnership (and TR Holdings so represents and warrants to
the extent the following representations and warranties relate to TR Holdings)
that:
(a) Incorporation; Ownership; Business.
(i) TR was incorporated and is validly existing as a
corporation in good standing under the laws of the State of
New Jersey, with the corporate power to own or lease and
operate its properties and to carry on its business as now
being conducted. Each of the other TR Parties was incorporated
and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, with
the corporate power to own or lease and operate its properties
and to carry on its business as now being conducted.
(ii) TR Holdings is a Wholly-Owned Subsidiary of TR,
and all of the outstanding shares of capital stock of TR
Holdings are owned free and clear of all Liens.
(iii) As of the date of this Agreement and as of the
Closing Date (before giving effect to the transactions
described in Section 2.4(c)), all of the outstanding
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shares of Class B Common Stock, Class B Preferred Stock and
Class D Preferred Stock are owned of record and beneficially
solely by TR Holdings, free and clear of all Liens.
(iv) KBI Sub (x) has no liabilities or obligations,
other than its obligations pursuant the Initial Agreements,
the Partnership Agreement and the Ancillary Agreements to
which it is a party, and (y) since its formation has carried
on no business, except in accordance with the Initial
Agreements, the Partnership Agreement and the Ancillary
Agreements to which it is a party. A true and complete copy of
the Certificate of Incorporation and By-Laws of KBI Sub has
been delivered to KB, including any and all amendments
thereto.
(b) Corporate Power, Etc. Each TR Party has the
corporate power to execute, deliver and perform the Initial Agreements to which
it is a party and, as of the Closing, each TR Party will have the corporate
power to execute, deliver and perform the Partnership Agreement (in the case of
KBI Sub) and each Ancillary Agreement to be entered into by it. The execution,
delivery and performance by each TR Party of the Initial Agreements to which it
is a party have been, and as of the Closing the execution, delivery and
performance of the Partnership Agreement (in the case of KBI Sub) and each
Ancillary Agreement to be entered into by any TR Party will have been, duly
authorized by all necessary corporate action. The Initial Agreements have been,
and as of the Closing the Partnership Agreement (in the case of KBI Sub) and
each Ancillary Agreement to be entered into by any TR Party will have been, duly
executed and delivered by each TR Party that is a party thereto. The Initial
Agreements constitute, and as of the Closing the Partnership Agreement and each
Ancillary Agreement to be entered into by any TR Party will constitute, the
valid and binding agreements of each TR Party that is a party thereto
enforceable against such TR Party in accordance with their terms, except that
(i) such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and (ii) no representation or warranty is made as to
the availability of any equitable remedy in connection with the enforcement of
any term hereof or thereof.
(c) No Conflict. The execution, delivery and
performance by each TR Party of the Initial Agreements to which it is a party do
not, and as of the Closing the execution, delivery and performance by each TR
Party of the Partnership Agreement (in the case of KBI Sub) and each Ancillary
Agreement to be entered into by any TR Party will not, (i) conflict with or
contravene the Certificate of Incorporation or By-Laws (or comparable
organizational documents) of any TR Party, (ii) conflict with, result in a
breach of or entitle any party to terminate or call a default with respect to,
any material agreement or instrument to which any TR Party (or any of its
Affiliates) is a party or by which any TR Party (or any of its Affiliates) or
any of its (or their) properties or assets are bound or (iii) result in any
violation by any TR Party (or any of its Affiliates) of any judgment,
injunction, order, writ, decree, law, rule, regulation, code or ordinance,
except antitrust laws and regulations as to which no representation or warranty
is made, applicable to any TR Party (or any of its Affiliates).
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(d) Consents, Etc. No consent, license, permit,
approval, order or authorization of, or registration, declaration, qualification
or filing with (except for those which have been made or are described in
Section 2.4(c)), any foreign, federal, state or local governmental authority or
any Person is required to be obtained or made by any TR Party (or any of its
Affiliates) on or prior to the date of this Agreement in connection with the
execution, delivery or performance by each TR Party of the Initial Agreements to
which it is a party. No consent, license, permit, approval, order or
authorization of, or registration, declaration, qualification or filing with,
any foreign, federal, state or local governmental authority or any Person will
be required to be obtained or made by any TR Party (or any of its Affiliates) on
or prior to the Closing Date in connection with the execution, delivery or
performance by each TR Party of the Initial Agreements, the Partnership
Agreement (in the case of KBI Sub) or any Ancillary Agreement to be entered into
by such TR Party.
(e) Absence of Litigation. There is no action, suit,
litigation, claim, governmental or other proceeding or investigation pending or,
to the best knowledge of TR and TR Holdings, threatened against any TR Party (or
any of its Affiliates) which might materially affect the consummation of the
transactions contemplated by the Initial Agreements, the Partnership Agreement
or any Ancillary Agreement to be entered into by any TR Party or the full
performance of the obligations of any TR Party hereunder or thereunder.
5.2 Representations and Warranties of KB Parties. KB
represents and warrants, as of the date of this Agreement and (except as
specifically provided otherwise herein) as of the Closing Date, to each of TR,
the KBI Parties and the Partnership (and each of KBLP and KB USA so represents
and warrants to the extent the following representations and warranties relate
to it) that:
(a) Incorporation; Ownership; Business.
(i) KB was duly formed and registered and is validly
existing as a company limited by shares in good standing under
the laws of Sweden, with the corporate power to own or lease
and operate its properties and to carry on its business as now
being conducted. Each of the other KB Parties (other than the
Partnership and KBLP) has been incorporated and is validly
existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation, with the corporate
power to own or lease and operate its properties and to carry
on its business as now being conducted. Each of the
Partnership and KBLP was duly organized and is validly
existing as a limited partnership in good standing under the
laws of the State of Delaware, with the partnership power to
own or lease and operate its properties and to carry on its
business as now being conducted or as contemplated to be
conducted following the Closing under this Agreement, the
Partnership Agreement and the Ancillary Agreements.
(ii) (A) KB and KB USA are the sole partners of KBLP
and own their respective partnership interests free and clear
of all Liens; and no Person other than KB has any control over
the management, operations, finances or other
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affairs of KBLP; and no Person other than KB and KB USA owns
any economic interest (present, future or contingent) in KBLP.
KB USA is a Wholly-Owned Subsidiary of KB, and all of the
outstanding shares of capital stock of KB USA are owned free
and clear of all Liens.
(B) KBLP and KB USA are the sole partners of
the Partnership and own their respective partnership interests
free and clear of all Liens; and no Person other than KBLP has
any control over the management, operations, finances or other
affairs of the Partnership; and no Person other than KBLP and
KB USA owns any economic interest (present, future or
contingent) in the Partnership.
(iii) As of the date of this Agreement and as of the
Closing Date (before giving effect to the transactions
described in Section 2.4(b)), all of the outstanding shares of
Class A Common Stock, Class C Common Stock, Class A Preferred
Stock and Class C Preferred Stock are owned of record and
beneficially solely by KB, free and clear of all Liens.
(iv) The Partnership (x) has no liabilities or
obligations, other than its obligations pursuant the Initial
Agreements, the Partnership Agreement and the Ancillary
Agreements to which it is a party, (y) since its formation has
carried on no business, except in accordance with the Initial
Agreements to which it is a party, the Partnership Agreement
and the Ancillary Agreements to which it is a party and (z)
has taken all actions required of it by applicable law,
regulations, its certificate of limited partnership and its
Partnership Agreement, as amended. A true and complete copy of
the Partnership Agreement, dated as of October 21, 1997,
between KBLP and KB USA (as assignees of the original partners
thereof), has been delivered to TR, including any and all
amendments thereto.
(v) KBLP (x) has no liabilities or obligations, other
than its obligations pursuant to the Initial Agreements, the
Partnership Agreement and the Ancillary Agreements to which it
is a party, (y) since its formation has carried on no
business, except in accordance with the Initial Agreements to
which it is a party, the Partnership Agreement and the
Ancillary Agreements to which it is a party, and (z) has taken
all actions required of it by applicable law, regulations, its
certificate of limited partnership and its Partnership
Agreement. A true and complete copy of the KBLP Partnership
Agreement has been delivered to TR, including any and all
amendments thereto.
(vi) As of the Effective Time, upon consummation of
the transactions contemplated by the KB USA Asset Contribution
Agreement, no grounds will exist which would permit or require
such transactions to be set aside, in whole or in part, under
any fraudulent conveyance, insolvency or other law affecting
the enforcement of creditors rights generally.
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(vii) As of the date of this Agreement and the
Closing Date, the definition of KB USA Compound includes all
current and planned Therapeutic Categories for the KB USA
Products.
(b) Corporate Power, Etc. Each KB Party has the
corporate power to execute, deliver and perform the Initial Agreements to which
it is a party and, as of the Closing, each KB Party will have the corporate
power to execute, deliver and perform the Partnership Agreement (in the case of
KBLP) and each Ancillary Agreement to be entered into by it. The execution,
delivery and performance by each KB Party of the Initial Agreements to which it
is a party have been, and as of the Closing the execution, delivery and
performance of the Partnership Agreement (in the case of KBLP) and each
Ancillary Agreement to be entered into by any KB Party will have been, duly
authorized by all necessary corporate action. The Initial Agreements have been,
and as of the Closing the Partnership Agreement (in the case of KBLP) and each
Ancillary Agreement to be entered into by any KB Party will have been, duly
executed and delivered by each KB Party that is a party thereto. The Initial
Agreements constitute, and as of the Closing the Partnership Agreement and each
Ancillary Agreement to be entered into by any KB Party will constitute, the
valid and binding agreements of each KB Party that is a party thereto,
enforceable against such KB Party in accordance with their terms, except that
(i) such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and (ii) no representation or warranty is made as to
the availability of any equitable remedy in connection with the enforcement of
any term hereof or thereof.
(c) No Conflict. The execution, delivery and
performance by each KB Party of the Initial Agreements to which it is a party do
not, and as of the Closing the execution, delivery and performance by each KB
Party of the Partnership Agreement (in the case of KBLP) and each Ancillary
Agreement to be entered into by any KB Party will not, (i) conflict with or
contravene the Articles of Association of KB or the Certificate of Incorporation
or By-Laws (or comparable organizational documents) of any other KB Party, (ii)
conflict with, result in a breach of or entitle any party to terminate or call a
default with respect to, any material agreement or instrument to which any KB
Party (or any of its Affiliates) is a party or by which any KB Party (or any of
its Affiliates) or any of its (or their) properties or assets are bound or (iii)
result in any violation by any KB Party (or any of its Affiliates) of any
judgment, injunction, order, writ, decree, law, rule, regulation, code or
ordinance, except antitrust laws and regulations as to which no representation
or warranty is made, applicable to any KB Party (or any of its Affiliates).
(d) Consents, Etc. No consent, license, permit,
approval, order or authorization of, or registration, declaration, qualification
or filing with (except for those which have been made), any foreign, federal,
state or local governmental authority or any Person is required to be obtained
or made by any KB Party (or any of its Affiliates) on or prior to the date of
this Agreement in connection with the execution, delivery or performance by each
KB Party of the Initial Agreements to which it is a party. No consent, license,
permit, approval, order or authorization of, or registration, declaration,
qualification or filing with, any foreign, federal, state or local governmental
authority or any Person will be required to be obtained or made by
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any KB Party (or any of its Affiliates) on or prior to the Closing Date in
connection with the execution, delivery or performance by each KB Party of the
Initial Agreements, the Partnership Agreement (in the case of KBLP) or any
Ancillary Agreement to be entered into by such KB Party.
(e) Absence of Litigation. There is no action, suit,
litigation, claim, governmental or other proceeding or investigation pending or,
to the best knowledge of the KB, KB USA and KBLP, threatened against any KB
Party (or any of its Affiliates) which might materially affect the consummation
of the transactions contemplated by the Initial Agreements, the Partnership
Agreement or any Ancillary Agreement to be entered into by any KB Party (as
applicable) or the full performance of the obligations of any KB Party hereunder
or thereunder.
(f) Title to KBI Common Shares. KB has, and shall
deliver to TR at the Closing upon payment of the purchase price therefor as
provided in Section 2.4(b) hereof, good title to all of the KBI Common Shares
free and clear of all Liens, and with no restriction on the voting rights
pertaining thereto.
5.3 Representations Concerning KBI. Notwithstanding anything
to the contrary in this Agreement, including Section 5.1, neither TR nor KB
makes any representation or warranty herein concerning KBI or KBI-E.
ARTICLE 6
INTERIM COVENANTS
6.1 Filings; Consents. As promptly as practicable after the
date hereof, the parties hereto shall (i) cooperate with each other to identify
all notices, declarations, filings (other than filings which have been made
prior to the date hereof) and registrations required to be filed with, and all
consents, authorizations, approvals and waivers required to be obtained from,
any Third Party or domestic or foreign governmental body or regulatory agency in
connection with any of the transactions contemplated by the Initial Agreements,
the Partnership Agreement and the Ancillary Agreements and (ii) cooperate with
each another and take such actions as may be necessary to cause such notices,
declarations, filings and registrations to be filed and such consents,
authorizations, approvals and waivers to be obtained prior to the Closing or as
promptly as practicable thereafter.
6.2 Notification of Certain Matters. Between the date hereof
and the Closing:
(a) KB. KB shall give prompt notice in writing to TR
of (i) any information that indicates that any representation or warranty of any
KB Party contained in any Initial Agreement was not true and correct as of the
date hereof or will not be true and correct as of the Closing, (ii) the
occurrence of any event which will result, or has a reasonable prospect of
resulting, in the failure to satisfy the condition specified in Section 7.1
hereof, (iii) any notice or other communication from any Third Party alleging
that the consent of such Third Party is or may be required in connection with
any of the transactions contemplated by the Initial
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Agreements, the Partnership Agreement and the Ancillary Agreements, and (iv) any
emergency or other change in the normal course of business or in the operation
of the business of KB USA and of any material governmental complaints,
investigations or hearings (or communications indicating that the same may be
contemplated) or material adjudicatory proceedings involving the business of KB
USA or any KB USA Product.
(b) TR. TR shall give prompt notice in writing to KB
of (i) any information that indicates that any representation or warranty of any
TR Party contained in any Initial Agreement was not true and correct as of the
date hereof or will not be true and correct as of the Closing, (ii) the
occurrence of any event which will result, or has a reasonable prospect of
resulting, in the failure to satisfy the condition specified in Section 7.2
hereof, or (iii) any notice or other communication from any Third Party alleging
that the consent of such Third Party is or may be required in connection with
any of the transactions contemplated by the Initial Agreements, the Partnership
Agreement and the Ancillary Agreements.
ARTICLE 7
CONDITIONS TO CLOSING
7.1 Condition to Obligations of KB Parties. The obligations of
the KB Parties to consummate the transactions contemplated by this Agreement,
the Partnership Agreement and the Ancillary Agreements are subject to the
satisfaction, as of the Closing, of the sole condition that no action, suit or
proceeding by a Third Party shall be pending before any court or any foreign,
federal, state or local governmental or regulatory authority (or shall be
threatened by any such governmental or regulatory authority), and no
investigation of any governmental or regulatory authority shall have been
commenced (and be pending), in each case seeking to restrain, enjoin, invalidate
or delay (or questioning the validity or legality of) any of the transactions
contemplated by the Initial Agreements, the Partnership Agreement and the
Ancillary Agreements, or seeking material damages in connection therewith, which
KB, in good faith and with the advice of counsel, believes make it undesirable
to proceed with the consummation of the transactions contemplated hereby or
thereby.
7.2 Condition to Obligations of TR Parties. Except as provided
in Section 7.3 hereof, the obligations of the TR Parties to consummate the
transactions contemplated by this Agreement, the Partnership Agreement and the
Ancillary Agreements are subject to the satisfaction, as of the Closing, of the
sole condition that no action, suit or proceeding by a Third Party shall be
pending before any court or any foreign, federal, state or local governmental or
regulatory authority (or shall be threatened by any such governmental or
regulatory authority), and no investigation of any governmental or regulatory
authority shall have been commenced (and be pending), in each case seeking to
restrain, enjoin, invalidate or delay (or questioning the validity or legality
of) any of the transactions contemplated by the Initial Agreements, the
Partnership Agreement and the Ancillary Agreements, or seeking material damages
in connection therewith, which TR, in good faith and with the advice of counsel,
believes make it undesirable to proceed with the consummation of the
transactions contemplated hereby or thereby.
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7.3 Additional Condition to Certain Obligations of TR Parties. The
obligations of the TR Parties to consummate the transactions contemplated by
Section 2.4(d) - 2.4(h) of this Agreement shall be subject to the occurrence
prior to December 31, 1998 of the transactions described in Section 2.4(c) of
this Agreement.
ARTICLE 8
GUARANTEES OF PERFORMANCE
8.1 Guarantee by KB. KB hereby unconditionally and irrevocably
guarantees to TR, TR Holdings and the KBI Parties when due the punctual and
complete payment, performance and observance of, and compliance with, the
agreements, covenants, liabilities, and obligations of any Affiliate of KB
contained in (i) any Initial Agreement, (ii) any Ancillary Agreement to which
such Affiliate is a party, (iii) the Partnership Agreement (other than the
obligation of the General Partner pursuant to Section 8.4(a) of the Partnership
Agreement to eliminate any negative balance in its Capital Account upon the
dissolution of the Partnership and the obligations of the Partnership pursuant
to Articles 4 and 5 and Section 8.4(b) of the Partnership Agreement; but
including the obligation of the General Partner set forth in Section 2.9(c)
thereof to contribute cash in respect of items that will result in allocations
pursuant to Section 4.3(q) thereof), and (iv) any Future KB Agreement; provided,
however, that such guarantee shall not apply to the payment obligations of the
Partnership under Section 4.01 of the KBI Supply Agreement; and provided,
further, that nothing in this Section shall be construed to create any
obligation of the General Partner at any time to restore its Capital Account
(other than pursuant to Section 8.4(a) or Section 2.9(c) of the Partnership
Agreement) or any obligation of the General Partner or the Partnership to
achieve any specified amount of Profit (as defined in the Partnership
Agreement), and nothing in this Section shall be construed as a guarantee by KB
of any such obligation (other than the obligation of the General Partner to make
contributions pursuant to Section 2.9(c) of the Partnership Agreement) or any
obligation of the General Partner or the Partnership to achieve any specified
amount of Profit (as defined in the Partnership Agreement). Any obligation of,
or performance, compliance, observance or payment by, any such Affiliate now or
hereafter owing, due, created, incurred, required, contracted or payable,
whether matured or unmatured, whether absolute or contingent, under or out of
any of the foregoing Agreements shall be referred to hereinafter as a "KB
Guaranteed Obligation." Notwithstanding the foregoing, such guarantee shall be
limited by any limitation on the amount or nature of damages or indemnities set
forth in any Initial Agreement or any Ancillary Agreement applicable to the
breach of the obligations guaranteed hereby, including without limitation any
limitation as to consequential damages.
8.2 Guarantee by TR. TR hereby unconditionally and irrevocably
guarantees to KB, KBLP and KB USA when due the punctual and complete payment,
performance and observance of, and compliance with, the agreements, covenants,
liabilities and obligations of any Affiliate of TR contained in (i) any Initial
Agreement, (ii) any Ancillary Agreement to which such Affiliate is a party
(including without limitation all agreements, covenants, liabilities and
obligations of KBI-E under the Distribution Agreement), (iii) the Partnership
Agreement and (iv) any Future TR Agreement. Any obligation of, or performance,
compliance, observance or
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payment by, any such Affiliate now or hereafter owing, due, created, incurred,
required, contracted or payable, whether matured or unmatured, whether absolute
or contingent, under or out of any of the foregoing Agreements shall be referred
to hereinafter as a "TR Guaranteed Obligation." Notwithstanding the foregoing,
such guarantee shall be limited by any limitation on the amount or nature of
damages or indemnities set forth in any Initial Agreement or any Ancillary
Agreement applicable to the breach of the obligations guaranteed hereby,
including without limitation any limitation as to consequential damages.
8.3 Definitions. The term "Beneficiary" shall mean (as the context
requires) (i) KB, KBLP, KB USA and any other Affiliate of KB that is a party to
any Future TR Agreement with respect to the TR Guaranteed Obligations and (ii)
TR, TR Holdings, the KBI Parties and any Affiliate of TR that is a party to any
Future KB Agreement with respect to the KB Guaranteed Obligations. The term
"Guaranteed Obligations" shall mean the KB Guaranteed Obligations or the TR
Guaranteed Obligations (as the context requires). The term "Guarantor" shall
mean (i) KB as guarantor of the KB Guaranteed Obligations and (ii) TR as
guarantor of the TR Guaranteed Obligations. The term "Primary Obligor", with
respect to TR, shall mean TR Holdings, the KBI Parties and any other Affiliate
of TR that is the party to the applicable Initial Agreement, Ancillary
Agreement, Future TR Agreement or the Partnership Agreement, and with respect to
KB, shall mean KBLP, KB USA and the Partnership and any other Affiliate of KB
that is the party to the applicable Initial Agreement, Ancillary Agreement,
Future KB Agreement or the Partnership Agreement.
8.4 Liability of Guarantor Unconditional. The liability of a Guarantor
shall be absolute and unconditional and shall not be limited, diminished, or
affected by the happening from time to time of any event, including but not
limited to any of the following, whether or not any such event occurs with
notice to or with the consent of the Guarantor or once or more than once:
(a) the waiver, surrender, compromise, settlement, discharge,
release or termination of any or all of the applicable Guaranteed Obligations;
(b) the failure to give any notice to the applicable Primary
Obligor;
(c) the extension of the time for payment or performance of
any of the applicable Guaranteed Obligations;
(d) the change (whether or not material) of the terms of any
Initial Agreement, the Partnership Agreement, any Ancillary Agreement or any
Future Agreement or any assignment by any party thereto of any rights or any
delegation of duties thereunder;
(e) the taking of or failure to take any action referred to in
any Initial Agreement, the Partnership Agreement, any Ancillary Agreement or any
Future Agreement;
(f) the illegality, invalidity, unenforceability (including,
but not limited to, by reason of any statute of limitations or automatic stay)
or irregularity of any of the
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applicable Guaranteed Obligations or any Initial Agreement, the Partnership
Agreement, any Ancillary Agreement or any Future Agreement;
(g) any failure, omission, delay or lack of diligence on the
part of the Guarantor in the enforcement, assertion or exercise of any right,
power or remedy conferred on the Guarantor under any Initial Agreement, the
Partnership Agreement, any Ancillary Agreement or any Future Agreement, or the
inability of the Guarantor to enforce any provision of any Initial Agreement,
the Partnership Agreement, any Ancillary Agreement or any Future Agreement for
any reason, or any other act or omission on the part of the Guarantor, including
(but not limited to) failure by the Guarantor to perfect or protect any lien or
security interest granted to the Guarantor, to commence and prosecute any action
to collect the Guaranteed Obligations or to enforce or collect any judgment
obtained by the Guarantor;
(h) the dissolution or liquidation of the applicable Primary
Obligor, the sale or other disposition of all or substantially all of the assets
of the Primary Obligor, the Bankruptcy of the Primary Obligor; and
(i) any other event, action or circumstance that would, in the
absence of this Section 8.4 result in the release or discharge of the Guarantor
from the performance or observance of any obligation or agreement contained in
this Guarantee.
8.5 Direct Action Against a Guarantor. In the event that any Affiliate
of a Guarantor shall default in the payment of or fail to perform or observe any
of the Guaranteed Obligations when and as the same shall become due, any
Beneficiary may, subject to the provisions of Article 9 hereof, proceed directly
against the Guarantor under this Article 8. The obligations and liabilities of
the Guarantor under this Article 8 shall not be conditioned or contingent upon
the pursuit by any Beneficiary at any time of any right or remedy against any
Affiliate of the Guarantor or against any other person which may be or become
liable in respect of all or any part of the Guaranteed Obligations. Each
Guarantor waives any and all notice of the creation, renewal, amendment,
extension or accrual of any of the Guaranteed Obligations.
8.6 Continuing Guarantee. The liabilities and obligations of a
Guarantor pursuant to this Article 8 constitute a continuing guarantee, shall
not be discharged until performance and payment in full of all of the Guaranteed
Obligations of the Guarantor, payment of all amounts payable by the Guarantor
under this Article 8 and cancellation of the Guarantee by the Beneficiary and
shall remain in full force and effect notwithstanding any increase or decrease
(including a decrease to zero) from time to time in the amount of the Guaranteed
Obligations. If demand for, or acceleration of the time for, payment by the
Primary Obligor to the Beneficiary of the Guaranteed Obligations is stayed upon
the Bankruptcy of the Primary Obligor, all Guaranteed Obligations of which
payment or performance is stayed that would otherwise be subject to demand for
payment or acceleration shall nonetheless be payable by the Guarantor
immediately on demand by the Beneficiary.
8.7 Subordination. All indebtedness, obligations, Guaranteed
Obligations and other amounts due, of whatever nature, of a Primary Obligor to a
Guarantor (the "Subordinated Obligations"), whether now existing or hereafter
incurred, whether created directly or acquired
<PAGE> 100
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by a Guarantor by assignment or otherwise, whether matured or unmatured, whether
absolute or contingent, whether characterized as principal, premium, interest,
additional interest, fees, expenses or otherwise and whether the Primary Obligor
is bound alone or with any others or as principal or as surety, are hereby
assigned to the Beneficiary and shall be subject and subordinate to the
Guaranteed Obligations of the Primary Obligor to the Beneficiary. This
subordination is independent of the applicable Guarantee and shall remain in
full force and effect notwithstanding any termination of or decrease in the
Guaranteed Obligations of the Guarantor with respect to the Beneficiary. This
subordination shall not be limited, diminished or affected by the happening from
time to time of any event, action or circumstance that would, in the absence of
this sentence, result in the release or discharge of the Guarantor from its
agreement of subordination. Assets of the Primary Obligor held by the Guarantor
shall not at any time be set off against the Subordinated Obligations. The
Guarantor hereby undertakes to execute such additional documents and to do such
additional acts as may be reasonably requested by the Beneficiary in order to
carry out, complete or perfect this subordination.
8.8 Limits on Subrogation. No payment by a Guarantor pursuant to any
provision of this Article 8 or other satisfaction of the applicable Guaranteed
Obligations shall entitle the Guarantor, by subrogation or otherwise, to any
right or remedy against the applicable Primary Obligor until after the
indefeasible payment in full of the Guaranteed Obligations of the Guarantor.
8.9 Obligations Additional. The liabilities and obligations of each
Guarantor under this Article 8 are in addition to and not in substitution for
any present or future obligation of such Guarantor or any other obligor to the
applicable Beneficiary incurred otherwise than under this Article 8, whether the
Guarantor or such other obligor is bound with or apart from the Primary Obligor.
8.10 Remedies Not Exclusive. No remedy conferred by this Article 8 is
intended to be exclusive of any other available remedy or remedies, but, subject
to the provisions of Article 9 hereof, each and every such remedy shall be
cumulative and shall be in addition to every other remedy provided for in under
each Initial Agreement, the Partnership Agreement, each Ancillary Agreement, and
any Future Agreement whether now or hereafter existing at law or in equity or by
statute.
8.11 Effect of Assignment. In the event that any Affiliate of a
Guarantor shall assign any Initial Agreement, the Partnership Agreement (or its
Interest as a Partner thereunder), any Ancillary Agreement, any Future Agreement
or any of its obligations hereunder or thereunder, in accordance with the terms
of this Agreement and of such other agreement, the liabilities and obligations
of the applicable Guarantor set forth in this Article 8 shall remain in full
force and effect, and shall extend to the performance of, and compliance with,
all agreements, covenants and obligations, and the payment in full of all
indebtedness, of the assignee or assignees hereunder or thereunder. Without
limiting the generality of the foregoing, in the event that KBLP sells or
otherwise transfers all or any part of its Interest in the Partnership to a
Third Party, or a Third Party acquires KB USA or KBLP, in either case in
accordance with this Agreement and the Partnership Agreement, the obligations of
KB under this Article 8 shall
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remain in full force and effect and such sale or other transfer shall not
relieve KB of any of its obligations under this Article 8 with respect to any KB
Guaranteed Obligation. Each Guarantor's guarantee is not intended for the
benefit of any other parties (other than each Beneficiary) and is not assignable
to, or enforceable by, any Person without the prior written consent of the
Guarantor which consent may be granted or withheld in its sole discretion;
provided, however, that in the event that a Partner shall assign any or all of
its Interest in the Partnership to an Affiliate, in accordance with the
Partnership Agreement, such Affiliate shall also be deemed a "Beneficiary" for
all purposes of this Agreement and the other Initial Agreements, the Partnership
Agreement, the Ancillary Agreements and all Future Agreements.
ARTICLE 9
ARBITRATION
9.1 Binding Arbitration; Rules. Except as otherwise specifically
provided herein, or in any other Initial Agreement, the Partnership Agreement or
any Ancillary Agreement, subject to Section 9.4 hereof, any dispute, controversy
or claim between TR and/or any of its Affiliates, on the one hand, and KB and/or
any of its Affiliates, on the other hand, arising out of or relating to any
Initial Agreement, the Partnership Agreement, any Ancillary Agreement or any
Future Agreement, or the interpretation or breach hereof or thereof, shall be
settled by arbitration before three arbitrators in accordance with the Rules and
under the administration of the Association and the provisions of this Article
9, and judgment upon the award rendered by the arbitrators may be entered in any
court having jurisdiction thereof. The decision of the arbitrators shall be
final and binding on the parties.
9.2 Venue; Language. All such arbitration proceedings shall be
conducted in the English language in New York, New York.
9.3 Arbitrators. The arbitrators shall be selected as follows: The
party initiating the arbitration proceeding shall, in its notice initiating such
proceeding, name one arbitrator who is willing to serve; within thirty (30) days
after the date of such notice, the Responding Party (as defined below) shall
name one arbitrator who is willing to serve and notify the initiating party
thereof; and within twenty (20) days after such notice by the Responding Party,
such two arbitrators shall together select a third arbitrator who is willing to
serve and who is a person with substantial commercial experience in the
pharmaceutical industry. If the party not initiating the arbitration proceeding
fails to name an arbitrator within the thirty-day period following the notice
initiating the proceeding or if the two arbitrators selected by the parties are
unable to agree on a third arbitrator with the requisite qualifications who is
willing to serve, then such arbitrator or arbitrators, qualified as required
hereunder, shall be selected by the American Arbitration Association in
accordance with the Rules. As used herein, Responding Party shall mean (i) TR,
if the arbitration is initiated by any KB Party or the Partnership, and (ii) KB,
if the arbitration is initiated by TR or any KBI Party.
9.4 Interim Relief. This Article 9 shall not limit the right of any
party to seek in any court of competent jurisdiction such interim relief, and
only such interim relief, as may be
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97
needed to maintain the status quo or otherwise protect the subject matter of the
arbitration until the arbitrators shall have had an opportunity to act.
ARTICLE 10
INDEMNIFICATION
10.1 By the KB Parties. The KB Parties shall jointly and severally
defend, indemnify and hold harmless the TR Parties, the Partnership, each of
their respective Affiliates (other than the KB Parties) and each of their
respective officers, directors, employees and agents (collectively, the "Section
10.1 Indemnitees") from and against any and all Indemnity Losses (i) arising out
of, based upon or resulting from any breach by KB or any Affiliate of KB of any
of their respective representations, warranties, covenants or other obligations
contained in or made pursuant to the Initial Agreements, the Amended and
Restated KBI License or the Partnership Agreement, or (ii) resulting from the
inaccuracy of any representation or warranty contained in Article 3 of the KB
USA Asset Contribution Agreement which would arise if the phrase "to the best
knowledge of KB" were disregarded each time it appears (except insofar, and only
insofar, as such knowledge qualifications set forth in the third sentence of
Section 3.5(a), in the first sentence of Section 3.7(a), in Section 3.7(b),
Section 3.8(e) and the second sentence of Section 3.8(f) apply to threatened
matters described therein); provided, however, KB's obligations under this
Section 10.1 shall not include Indemnity Losses arising out of, based upon or
resulting from any breach of the obligations of the Partnership pursuant to
Articles 4 and 5 and Sections 8.4(a) and 8.4(b) of the Partnership Agreement.
The indemnification of the Section 10.1 Indemnitees shall be on a net after-tax
basis (determined pursuant to Section 10.3(d) hereof).
10.2 By TR. TR shall defend, indemnify and hold harmless the KB
Parties, the Partnership, each of their respective Affiliates and each of their
respective officers, directors, employees and agents (collectively, the "Section
10.2 Indemnitees") from and against any and all Indemnity Losses arising out of,
based upon or resulting from any breach by TR or any Affiliate of TR of any of
their respective representations, warranties, covenants or other obligations
contained in or made pursuant to the Initial Agreements, the Amended and
Restated KBI License, the Assignment and Assumption of Amended and Restated
License and Option Agreement between KBI and KBI-E, the KBI Sublicense between
KBI and KBI-E or the Partnership Agreement. The indemnification of the Section
10.2 Indemnitees shall be on a net after-tax basis (determined pursuant to
Section 10.3(d) hereof).
10.3 Indemnification Procedures.
(a) In the event of the occurrence of any event which any Person
asserts is an indemnifiable event pursuant to any Initial Agreement, the
Partnership Agreement or any Ancillary Agreement (the "Indemnified Party"), such
Person shall notify the Person that is obligated to provide such indemnification
(the "Indemnifying Party") thereof promptly in writing, provided that no failure
to so notify the Indemnifying Party shall relieve it of its obligations
hereunder except to the extent that it can demonstrate damages attributable to
such
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98
failure. If the claim for indemnification involves any civil, administrative or
investigative claim, action, suit or proceeding (actual or threatened) by a
Third Party, the Indemnifying Party shall be entitled to have sole control over
the defense of such claim, provided that, within fifteen (15) business days of
receipt of such written notice, the Indemnifying Party acknowledges
responsibility therefor and notifies the Indemnified Party in writing of its
election to so assume full control; provided, however, that:
(i) the Indemnified Party shall be entitled to participate in
the defense of such claim and to employ counsel at its own expense to
assist in the handling of such claim;
(ii) the Indemnifying Party shall obtain the prior written
approval of the Indemnified Party (not to be unreasonably withheld)
before entering into any settlement of such claim or ceasing to defend
against such claim if, pursuant to or as a result of such settlement or
cessation, injunctive or other relief would be imposed against the
Indemnified Party; and
(iii) the Indemnifying Party shall not consent to the entry of
any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by each claimant or plaintiff to
each Indemnified Party of a release from all liability in respect of
such claim.
After written notice by the Indemnifying Party to the Indemnified Party of its
election to assume full control of the defense of any such action, the
Indemnifying Party shall not be liable to such Indemnified Party for any legal
expenses incurred by such Indemnified Party in connection with the defense
thereof.
(b) Notwithstanding the foregoing, if the parties to such
Third Party claim, action or proceeding includes the Indemnifying Party and the
Indemnified Party has been advised by counsel that one or more legal defenses
may be available to it which may not be available to the Indemnifying Party, the
Indemnifying Party shall not be entitled to assume the defense of such claim,
action, suit or proceeding, notwithstanding its obligation to bear the fees and
expenses of such counsel.
(c) If the Indemnifying Party does not assume sole control
over the defense of such claim as provided in this Section 10.3, the
Indemnifying Party may participate in such defense at its own expense and the
Indemnified Party shall have the right to defend the claim in such manner as it
may deem appropriate at the reasonable cost and expense of the Indemnifying
Party, and the Indemnifying Party shall promptly reimburse the Indemnified Party
therefor in accordance with the applicable Initial Agreement, the Partnership
Agreement or the applicable Ancillary Agreement, as the case may be. In no event
shall an Indemnifying Party be required to indemnify an Indemnified Party for
any amount paid or payable by such Indemnified Party in the settlement of any
such action, claim or proceeding agreed to without the written consent of the
Indemnifying Party (not to be unreasonably withheld).
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99
(d) The "net after-tax basis" of any indemnity payment to any
Indemnified Party shall be calculated as follows: the amount of any indemnity
payment shall be increased by the amount of all Taxes required to be paid by
such Indemnified Party in respect of the receipt or accrual of the total payment
(both indemnity payment and Taxes) and after consideration of any current tax
savings of such Indemnified Party resulting by way of any deduction attributable
to such indemnified amount. "Net after-tax basis" shall be calculated using the
highest marginal U.S. federal corporate income tax rate in effect at the time of
the payment and the effective state and local tax rate applied to the income of
the Indemnified Party for its most recently completed taxable year. In the event
that the Partnership is entitled to indemnification for any Indemnity Losses
pursuant to Section 10.1 or Section 10.2 hereof, "net after-tax basis" shall be
determined as if the Partnership were taxed as a corporation at such marginal
corporate income tax rate and the effective state and local tax rate applied to
the income of KBI Sub for its most recently completed taxable year.
10.4 Subrogation. In the event that any party shall be obligated to
indemnify another party or its Affiliate pursuant to any Initial Agreement, the
Partnership Agreement or any Ancillary Agreement, the Indemnifying Party shall,
upon payment of such indemnity in full, be subrogated to all rights of the
Indemnified Party with respect to the claims to which such indemnification
relates.
10.5 Survival. Except as otherwise specified herein or therein, all
representations, warranties, covenants, indemnities and agreements contained in
or made pursuant to any Initial Agreement, the Partnership Agreement or any
Ancillary Agreement (including any exhibit, schedule, appendix, certificate,
document or statement delivered pursuant hereto) shall survive (and not be
affected in any respect by) the Closing or any investigation conducted by any
party or any information which any party may have from time to time, subject
only to applicable statutes of limitations.
10.6 Limitation on Damages. Notwithstanding anything in any Initial
Agreement, the Partnership Agreement or any Ancillary Agreement to the contrary,
in no event shall any Indemnifying Party be liable for special, indirect,
incidental or consequential damages ("Special Losses") pursuant to this Article
10 or the indemnification provisions of any other Initial Agreement, the
Partnership Agreement or any Ancillary Agreement; provided, however, that the
foregoing limitation shall not apply (i) in the case of willful misconduct or
gross negligence by the Indemnifying Party or any of its Affiliates, (ii) to any
Special Losses which are incurred by any Indemnified Party to any Third Party or
(iii) to any breach of Section 3.12 hereof with respect to the business of KBI-E
if (and only if) such breach results in the Bankruptcy of KBI-E and the
rejection or material modification of the Distribution Agreement by the trustee
in bankruptcy or debtor-in-possession; and provided, further, that the parties
agree that Special Losses shall not include (w) any amounts payable by the
Partnership to KBI Sub pursuant to Article 5 of the Partnership Agreement, (x)
any amounts payable by KB to KBI-E pursuant to Section 2.2(c) of the Amended and
Restated KBI License, (y) any amounts payable by KB or any of its Affiliates to
KBI or any of its Affiliates pursuant to Section 4.01 of the KBI Supply
Agreement, Sections 3.1(c), 4.1, 4.2 or 5.1(f) of the KBI-E Asset Option
Agreement or Section 2.2 of the KBI Shares Option Agreement, and (z) in the
event of any breach by KB or any of its
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Affiliates of any of their respective covenants or other agreements contained in
or made pursuant to any Initial Agreement, the Partnership Agreement or any
Ancillary Agreement which breach has the effect, directly or indirectly, of
reducing the amount of contingent payments (or any other amount based on the
amount of contingent payments) to which KBI or any of its Affiliates would
otherwise be entitled pursuant to any Initial Agreement, the Partnership
Agreement or any Ancillary Agreement, the amount of such reduction.
ARTICLE 11
TERM AND TERMINATION
11.1 Term. The term of this Agreement shall commence on the date hereof
and shall continue until terminated pursuant to the provisions of Sections 11.2
or 11.3 hereof.
11.2 Cut-Off Date. This Agreement may be terminated by KB or TR if
(without fault of the terminating party or any of its Affiliates) the Closing
shall not have taken place on or prior to December 31, 1998.
11.3 Exercise of KBI-E Asset Option and KBI Shares Option.
(a) This Agreement shall terminate (i) in respect of Section
3.6 hereof (except with respect to the Compounds omeprazole and perprazole and
Group E Compounds and Group E Products) upon the occurrence of the Retirement
Date (as defined in the Partnership Agreement), (ii) in respect of Section 3.6
hereof with respect to Group E Compounds and Group E Products upon the
occurrence of the KBI-E Asset Purchase and (iii) in respect of Section 3.6A
hereof (except with respect to Compounds omeprazole and perprazole) upon the
occurrence of the KBI-E Asset Purchase.
(b) This Agreement shall terminate automatically in the event
of the exercise of the option to purchase the outstanding shares of KBI as
provided for in the KBI Shares Option Agreement and the payment to TR of all
amounts due thereunder.
11.4 Survival. The termination of this Agreement as specified herein
shall not serve to eliminate any liability arising out of conduct, events or
circumstances prior to the actual date of termination and any party hereto may,
following such termination, pursue such remedies as may be available with
respect to such liabilities. Without limiting the generality of the foregoing,
the following provisions of this Agreement shall survive the termination hereof:
Article 1; Section 2.6; Section 3.2; Section 3.21; Article 4; Article 5; Article
8; Article 9; Article 10; this Section 11.4; and Article 12.
11.5 Unilateral Termination. Notwithstanding anything to the contrary
contained herein or therein, no party to this Agreement, any other Initial
Agreement, the Partnership Agreement or any Ancillary Agreement shall have the
right to unilaterally terminate such agreement because of any breach or
breaches, material, fundamental or otherwise, of this Agreement, any other
Initial Agreement, the Partnership Agreement or any Ancillary Agreement, by any
other party hereto or thereto.
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ARTICLE 12
MISCELLANEOUS
12.1 Entire Agreement; Waiver or Modification. The Initial Agreements,
the Partnership Agreement and the Ancillary Agreements (and the Exhibits,
Schedules and Appendices hereto and thereto and the other documents delivered
pursuant hereto and thereto) constitute the entire agreement among the parties
with respect to the subject matter hereof, notwithstanding any provision of any
of such documents to the contrary. The Initial Agreements, the Partnership
Agreement and the Ancillary Agreements may be amended, modified, or supplemented
only by a written instrument duly executed by each party hereto or thereto (as
the case may be), which instrument shall specifically indicate that it is the
desire of the parties to amend, modify or supplement such Agreement, and
similarly may be waived only by a written instrument duly executed by the
waiving party. No omission or delay on the part of any party in requiring the
due and punctual fulfillment by another party of any of its obligations
hereunder or thereunder shall constitute a waiver by the omitting or delaying
party of any of its rights to require such due and punctual fulfillment of any
obligation hereunder or thereunder, whether similar or otherwise, or a waiver of
any remedy it may have hereunder, thereunder or otherwise.
12.2 Third Party Beneficiaries. Except as otherwise provided expressly
herein or therein, (i) nothing in any Initial Agreement, the Partnership
Agreement or any Ancillary Agreement is intended to confer on any Person other
than the parties hereto or thereto (as the case may be) or their respective
successors or permitted assigns, any rights or obligations under or by reason of
any Initial Agreement, the Partnership Agreement or any Ancillary Agreement (as
the case may be) and (ii) there are no third party beneficiaries to any such
agreements, except for the rights of Indemnified Parties pursuant to Article 10
hereof and the rights of Beneficiaries of the guarantees of KB and TR set forth
in Article 8. Notwithstanding the foregoing, TR shall be a third party
beneficiary of each representation, warranty, covenant, agreement and obligation
of KB and its Affiliates contained in any Initial Agreement, the Partnership
Agreement, any Ancillary Agreement or Future KB Agreement and shall be entitled
to enforce each such representation, warranty, covenant, agreement and
obligation.
12.3 Force Majeure. No party (or any of its Affiliates) shall be
responsible or liable to any other party (or any of its Affiliates) for any
failure to perform any of its covenants or obligations under any Initial
Agreement or the Partnership Agreement if such failure results from events or
circumstances reasonably beyond the control of such party (collectively, "Events
of Force Majeure"). Events of Force Majeure shall include, without limitation,
any order, decree, law or regulation of any nature whatsoever of any court or
governmental authority; war (whether or not declared); embargo; strike, lockout
or other labor difficulty; riot; epidemic; disease; unavoidable accident; civil
commotion; fire; explosion; earthquake, storm, flood or other act of God;
failure of public utilities or common carriers; unavailability of, or material
reduction in the supply of, raw materials or intermediates, labor, fuel,
electricity, water or transport; provided, however, that the foregoing shall not
include any event or circumstance which prevents any party from obtaining the
funds sufficient to make any payment required to be made by it pursuant to
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102
any Initial Agreement or the Partnership Agreement, but shall include any such
event or circumstance which prevents any party from transferring such funds to
any other party to effect such payment. The party failing to perform as a result
of an Event of Force Majeure shall promptly notify in writing the other parties
of such Event of Force Majeure and shall take all action that is reasonably
possible to remove or avoid the consequences of such Event of Force Majeure;
provided, however, that nothing contained herein shall require the settlement of
any strike, lockout or other labor difficulty, or of any investigation or
proceeding by any governmental authority or of any litigation, by any party on
terms unsatisfactory to it.
12.4 Miscellaneous. The Article and Section headings in the Initial
Agreements, the Partnership Agreement and the Ancillary Agreements are solely
for the convenience and reference of the parties hereto and thereto and are not
intended to be descriptive of the entire contents of, or to affect, any of the
terms or provisions hereof or thereof. Any provision of any Initial Agreement,
the Partnership Agreement or any Ancillary Agreement which provides that a party
may not take a specified action without first obtaining the consent of another
party shall be deemed to permit the party from whom consent is sought to give or
withhold its consent in its sole discretion, unless such provision expressly
sets forth a different standard. The word "including" when used in the Initial
Agreements, the Partnership Agreement and the Ancillary Agreements shall mean
"including without limitation" unless otherwise specified.
12.5 Binding Effect; Assignment. The Initial Agreements, the
Partnership Agreement and the Ancillary Agreements shall inure to the benefit of
and be binding upon each of the parties hereto or thereto (as the case may be)
upon such party's execution and delivery hereof or thereof (as the case may be),
and upon its successors and permitted assigns. Except as otherwise provided
herein or therein, no party shall assign any Initial Agreement, the Partnership
Agreement or any Ancillary Agreement or any of its rights or obligations
hereunder or thereunder without the prior written consent of the other parties
hereto or thereto (as the case may be). Notwithstanding the foregoing, KB or TR
(the "Assignor") may assign any or all of its respective rights or obligations
under this Agreement (other than its obligations under Article 8 and Article 10)
to any Person who is a Permitted General Partner (in the case of KB) or a
Wholly-Owned Subsidiary of TR (in the case of TR); provided, however, that (i)
as conditions to and prior to the effectiveness of such assignment, the assignee
or assignees shall expressly assume in writing the due and punctual performance
of all obligations which are so assigned and the Assignor shall deliver a copy
of such assignment (including any assumption agreement referred to above) to the
other Parent, and (ii) the Assignor shall remain liable as a co-obligor, with
the assignee or assignees thereof, with respect to all obligations which are so
assigned; and provided, further, that such assignment with respect to any
assignee shall automatically become void in the event that such assignee ceases
to be a Person who is a Permitted General Partner or Wholly-Owned Subsidiary, as
the case may be (and a provision to such effect shall be included in each
assumption agreement entered into and delivered pursuant to the foregoing clause
(i)). Any attempted or purported assignment of this Agreement, the Partnership
Agreement or any Ancillary Agreement, or any interest herein or therein (as the
case may be), in violation of any provisions of this Agreement or applicable law
shall be void and shall not be effective to pass any right, title or interest
herein or therein (as the case may be).
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12.6 Further Assurances. Each party shall execute such deeds,
assignments, endorsements and other instruments and evidences of transfer, give
such further assurances and perform such acts as are or may become necessary or
appropriate to effectuate and carry out the provisions of the Initial
Agreements, the Partnership Agreement and the Ancillary Agreements.
12.7 Affiliates. Each party will cause its respective Affiliates to
comply fully with the provisions of the Initial Agreements, the Partnership
Agreement and the Ancillary Agreements being entered into by such party, to the
extent such provisions relate, or are intended to relate, to such Affiliates, as
though such Affiliates were expressly named as joint obligors hereunder or
thereunder.
12.8 Notices. Any notice, request or other communication under or with
respect to any Initial Agreement, the Partnership Agreement or any Ancillary
Agreement shall be in writing and shall be deemed to have been duly given to any
party upon receipt of: hand delivery, delivery by courier service, certified or
registered mail (return receipt requested and postage prepaid), or telecopy
transmission with confirmation of receipt, in each case to such party at its
address or telecopy number set forth below:
If to TR, TR Holdings, Inc., KBI, KBI SUB or KBI-E, to:
TR
One Merck Drive
P.O. Box 100
Whitehouse Station, NJ 08889-0100
Attention: Corporate Secretary
Telecopier: 908-735-1246
With a copy to:
TR
One Merck Drive
P.O. Box 100
Whitehouse Station, NJ 08889-0100
Attention: General Counsel
Telecopier: 908-735-1244
If to the Partnership, to:
Astra Pharmaceuticals, L.P.
725 Chesterbrook Boulevard
Wayne, Pennsylvania 19087-5677
Attention: General Counsel
Telecopier: 610-889-1280
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with copies to:
Astra AB
S-151
85 Sodertalje, Sweden
Attention: General Counsel
Telecopier: 011-46-8-553-288-12
If to KB, KB USA or KBLP, to:
KB
S-151
85 Sodertalje, SWEDEN
Attention: General Counsel
Telecopier: 011-46-8-553-288-12
With a copy to:
Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, NY 10004
Attention: Frode Jensen
Telecopier: 212-858-1500
Any of the addresses set forth above may be changed from time to time
by written notice from the party requesting the change. Notice not given in
writing shall be effective only if acknowledged in writing by a duly authorized
representative of the party to whom it was given.
12.9 Governing Law. The Initial Agreements and the Ancillary Agreements
shall be governed by and construed in accordance with the laws of the State of
New York, and the Partnership Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, in each case without giving
effect to such state's conflict of law rules other than Section 5-1401 of the
New York General Obligations Law.
12.10 Severability. If any one or more of the provisions of any Initial
Agreement, the Partnership Agreement or any Ancillary Agreement shall be held to
be invalid, illegal or unenforceable, the validity, legality or enforceability
of the remaining provisions hereof or thereof shall not in any way be affected
or impaired thereby. To the extent permitted by applicable law, each party
waives any provision of law which renders any provision hereof or
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105
thereof invalid, illegal or unenforceable in any respect. In the event any
provision of any Initial Agreement, the Partnership Agreement or any Ancillary
Agreement shall be held to be invalid, illegal or unenforceable the parties
hereto or thereto (as the case may be) shall use reasonable efforts to
substitute a valid, legal and enforceable provision which, insofar as practical,
implements the purposes hereof. If any Initial Agreement, the Partnership
Agreement or any Ancillary Agreement shall be held to be unenforceable against
any KB Party or the Partnership, the enforceability of such agreement against
any other KB Party that is a party thereto or a guarantor of any liabilities or
obligations under or arising out of such agreement shall not in any way be
affected or impaired thereby. If any Initial Agreement, the Partnership
Agreement or any Ancillary Agreement shall be held to be unenforceable against
any TR Party, the enforceability of such agreement against any other TR Party
that is a party thereto or a guarantor of any liabilities or obligations arising
out of such agreement shall not in any way be affected or impaired thereby.
12.11 Remedies.
(a) Subject to the provisions of Article 9 hereof, all
remedies provided for in this Agreement shall be cumulative and in addition to
and not in lieu of any other remedies available to any party at law, in equity
or otherwise.
(b) KB and TR each acknowledge and agree that the remedy of
damages for the failure by either of them or any of their respective Affiliates
to perform their respective obligations under Section 2.1 through 2.4 of this
Agreement would be inadequate and, provided that the board of directors of KBI
approves the KBI Plan of Recapitalization and the actions and transactions
contemplated thereby, that each of KB and TR shall have, in addition to all
other legal remedies available to it, the right to seek to enforce the terms of
such Sections 2.1 through 2.4 by a decree of specific performance and to obtain
injunctive relief to the extent necessary in connection therewith.
12.12 Expenses. Except as otherwise expressly provided herein or
therein, each party shall bear the costs and expenses incurred by it in
negotiating, entering into and performing any of its obligations under any
Initial Agreement, the Partnership Agreement or any Ancillary Agreement.
12.13 Execution. The Initial Agreements, the Partnership Agreement and
the Ancillary Agreements may be executed in several counterparts, each of which
shall be deemed to be an original.
12.14 Publicity.
(a) Prior to the Closing, in the absence of specific written agreement
between the parties, no party (or any Affiliate thereof) shall issue any press
release or make any other public announcement or furnish any statement to any
Person concerning the transactions contemplated by any Initial Agreement, the
Partnership Agreement or any Ancillary Agreement (other than the joint press
release of KB and TR being issued in connection with the execution of this
Agreement (the "Joint Press Release")), except that KB and TR (after
consultation with
<PAGE> 111
106
counsel) may make such announcements and disclosures, if any, as may be required
by applicable law, in which case the party making the announcement or disclosure
will use its reasonable efforts to give advance notice to, and discuss such
announcement or disclosure with, TR (if KB is the disclosing party) or KB (if TR
is the disclosing party).
(b) With respect to the Joint Press Release, each Parent (the
"Indemnifying Parent") shall indemnify and hold harmless the other Parent (the
"Indemnified Parent"), the Partnership, each of their respective Affiliates and
each of their respective officers, directors, employees and agents from and
against all Indemnity Losses arising out of, based upon, or resulting from any
lawsuit brought by any shareholder of the Indemnifying Parent or any of its
Affiliates against the Indemnified Parent or any of its Affiliates with respect
to statements made or omitted to be made in the Joint Press Release. Any claim
for indemnification pursuant to this Section 12.14(b) shall be on a net-after
tax basis in accordance with, and shall be subject to the procedures set forth
in, Section 10.3 hereof.
12.15 Service of Process. Subject to the provisions of Article 9
hereof, each party hereto irrevocably appoints CT Corporation System as its
authorized agent upon which process may be served in any action, suit or
proceeding arising out of or relating to the activities of the Partnership or
the enforcement of any provision of any Initial Agreement, the Partnership
Agreement or any Ancillary Agreement or Future Agreement and which may be
instituted in any court or tribunal of or in the State of New York or Delaware
by another party hereto, and irrevocably consents to the jurisdiction of any
such court or tribunal for the purpose of any such action, suit or proceeding.
Service of process by any party upon any other party for such purpose shall be
effective in every respect twenty (20) days after service of process upon such
authorized agent is made, and a copy of such service is mailed to the other
party (and in the case of the KB Parties, Winthrop, Stimson, Putnam & Roberts,
One Battery Park Plaza, New York, New York 10004) registered mail, return
receipt requested, postage prepaid. Final judgment against any of the parties in
any such action, suit or proceeding shall be conclusive and may be enforced in
any other jurisdiction (to the extent permitted by such jurisdiction) by suit on
the judgment, a certified or exemplified copy of which shall be conclusive
evidence (to the extent permitted by such jurisdiction) of the fact and of the
amount of the indebtedness arising from such judgment.
<PAGE> 112
107
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
ASTRA AB MERCK & CO., INC.
(publ)
By /s/ Hakan Mogren By /s/ Judy C. Lewent
------------------------------------------------ ------------------------------
Name: Hakan Mogren Name: Judy C. Lewent
Title: President and Chief Executive Officer Title: Senior Vice President and
Chief Financial Officer
ASTRA USA, INC. MERCK HOLDINGS, INC.
By /s/ Carl-Gustaf Johansson By /s/ Peter E. Nugent
------------------------------------------------ ------------------------------
Name: Carl-Gustaf Johansson Name: Peter E. Nugent
Title: Attorney-in-fact Title: President
ASTRA MERCK INC. KBI SUB INC.
By /s/ Judy C. Lewent By /s/ Peter E. Nugent
------------------------------------------------ ------------------------------
Name: Judy C. Lewent Name: Peter E. Nugent
Title: Authorized Signatory Title: President
By /s/ Carl-Gustaf Johansson
------------------------------------------------
Name: Carl-Gustaf Johansson
Title: Authorized Signatory
KB USA, L.P. ASTRA MERCK ENTERPRISES INC.
By ASTRA AB, General Partner By /s/ Judy C. Lewent
------------------------------
Name: Judy C. Lewent
Title: Authorized Signatory
By /s/ Hakan Mogren By /s/ Carl-Gustaf Johansson
------------------------------------------------ ------------------------------
Name: Hakan Mogren Name: Carl-Gustaf Johansson
Title: President and Chief Executive Title: Authorized Signatory
Officer
<PAGE> 113
108
ASTRA PHARMACEUTICALS, L.P.
By KB USA, L.P., General Partner
By /s/ Hakan Mogren
------------------------------------------------
Name: Hakan Mogren
Title: President and Chief Executive
Officer of its General Partner
<PAGE> 114
SCHEDULE 1.1 TO MASTER RESTRUCTURING AGREEMENT
CERTAIN KB USA PRODUCTS
Compound Trademark
metoprolol succinate Toprol-XL
budesonide Pulmicort
budesonide Rhinocort
felodipine and metoprolol succinate Logimax
<PAGE> 115
SCHEDULE 1.2 TO MASTER RESTRUCTURING AGREEMENT
Classification of Combinations
---------------------------------------------------------------------------------------------------------------------
Nature of the Combination Classification
---------------------------------------------------------------------------------------------------------------------
Group A, B or C Compound (other than omeprazole or perprazole) with Group C Product / KBI Product
another Group A, B or C Compound (other than omeprazole or
perprazole)
---------------------------------------------------------------------------------------------------------------------
Group A, B or C Compound (other than omeprazole or perprazole) with a KB USA Group D Product(1)
Compound
---------------------------------------------------------------------------------------------------------------------
Group A, B or C Compound (other than omeprazole or perprazole) with a Group D Group D Product
Compound
---------------------------------------------------------------------------------------------------------------------
Group A, B or C Compound (other than omeprazole or perprazole) with a Group E Group E Product
Compound
---------------------------------------------------------------------------------------------------------------------
KB USA Compound with a Group D Compound Group D Product
---------------------------------------------------------------------------------------------------------------------
KB USA Compound with a Group E Compound Group E Product
---------------------------------------------------------------------------------------------------------------------
Group D Compound with a Group E Compound Group E Product
---------------------------------------------------------------------------------------------------------------------
Omeprazole with a Group A, B or C Compound Omeprazole Product
---------------------------------------------------------------------------------------------------------------------
Omeprazole with a KB USA Compound Group D Product(2)
---------------------------------------------------------------------------------------------------------------------
Omeprazole with a Group D Compound Group D Product(2)
---------------------------------------------------------------------------------------------------------------------
Omeprazole with a Group E Compound Group E Product(2)
---------------------------------------------------------------------------------------------------------------------
Perprazole with a Group A, B or C Compound Perprazole Product
---------------------------------------------------------------------------------------------------------------------
Perprazole with a KB USA Compound Group D Product(3)
---------------------------------------------------------------------------------------------------------------------
Perprazole with a Group D Compound Group D Product(3)
---------------------------------------------------------------------------------------------------------------------
Perprazole with a Group E Compound Group E Product(3)
---------------------------------------------------------------------------------------------------------------------
Logimax KB USA Product
---------------------------------------------------------------------------------------------------------------------
Enalapril with felodipine KBI Product
---------------------------------------------------------------------------------------------------------------------
1. Will be considered a Group D Product for purposes of computing the
Group D Products Contingent Amount and related distributions provided
for in the Partnership Agreement and a Group C Compound for purposes of
computing royalties payable under Article VII of the Amended and
Restated KBI License.
2. "Omeprazole Product" for purposes of determining the amount of the
applicable contingent amount pursuant to Section 3.7 and a "Licensed
Compound" for purposes of Section 3.6A.
3. "Perprazole Product" for purposes of determining the amount of the
applicable contingent amount pursuant to Section 3.7 and a "Licensed
Compound" for purposes of Section 3.6A.
<PAGE> 116
SCHEDULE 2.5 TO MASTER RESTRUCTURING AGREEMENT
Closing Statements
PART A: WORKING CAPITAL
(+) Accounts Receivable, net of allowance for bad debts(2)
(+) Other Receivables (excluding any amounts due from TR/KB)
(+) Prepaid Expenses and Other Current Assets (excluding any amounts
related to income taxes)
(-) Accounts Payable and Accrued Expenses (excluding any amounts due to
TR/KB)(1), (2)
(-) Accrued Rebates and Returns(2)
--- ------------------------------
(=) EQUALS NET WORKING CAPITAL
=== ==========================
(1) Amounts should not give effect to reserves related to contingent
liabilities that are being retained by KBI pursuant to Section 2.6(a)
(2) Including amounts related to transactions between KBI and Merck-Medco
Managed Care, LLC.
PART B: CASH AMOUNT STATEMENT
KBI Consolidated Cash & Short-term Investments $
--------------------
Less: KBI Common Stock Dividend
--------------------
KBI CASH AMOUNT $
====================
PART C: WORKING CAPITAL STATEMENT
-------------------------------------------------------------------------------------------------------------
BASE ESTIMATED ACTUAL
($'s 000's) DATE CLOSING DATE CLOSING DATE
-------------------------------------------------------------------------------------------------------------
(+) Accounts Receivable
-------------------------------------------------------------------------------------------------------------
(+) Other Receivables
-------------------------------------------------------------------------------------------------------------
(+) Prepaid Expenses and Other Current Assets
-------------------------------------------------------------------------------------------------------------
(-) Accounts Payable and Accrued Expenses
-------------------------------------------------------------------------------------------------------------
(-) Accrued Rebates and Returns
-------------------------------------------------------------------------------------------------------------
(=) TOTAL WORKING CAPITAL
-------------------------------------------------------------------------------------------------------------
--------------------------------------------------- --------------------------------------
WORKING CAPITAL ADJUSTMENT
--------------------------------------------------- --------------------------------------
<PAGE> 117
2
PART D: INVENTORY STATEMENT
Actual Closing Date Inventory $
--------------------
Less: Estimated Closing Date Inventory
--------------------
INVENTORY ADJUSTMENT $
====================
PART E: TAX STATEMENT
(+) Prepaid Income Taxes $
(-) Income Taxes Payable
--------------------
(=) NET INCOME TAXES PAYABLE $
(-) Reserves for Tax Deficiencies Relating to
Prior Years
--------------------
(=) TAX AMOUNT (2) $
====================
(2) Excludes the effect to any transactions contemplated by this Agreement,
any of the other Initial Agreements, the Partnership Agreement, or any
of the Ancillary Agreements.
PART F: RESIDUAL KBI CASH STATEMENT
-----------------------------------------------------------------------------------------------
ESTIMATED ACTUAL
($'s 000's) CLOSING DATE CLOSING DATE
-----------------------------------------------------------------------------------------------
(+) KBI Cash Amount
-----------------------------------------------------------------------------------------------
(+) Working Capital Adjustment
-----------------------------------------------------------------------------------------------
(-) Base Cash Amount $25,000 $25,000
-----------------------------------------------------------------------------------------------
(=) NET KBI CASH AMOUNT
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
(-) KBI ADJUSTMENT LIABILITIES
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
(=) RESIDUAL KBI CASH AMOUNT
-----------------------------------------------------------------------------------------------
<PAGE> 118
SCHEDULE 3.7 TO MASTER RESTRUCTURING AGREEMENT
BASE SALES WEIGHTINGS AND RELATIVE SALES WEIGHTINGS
PART 1
"Column A Rate" shall mean with respect to a product containing a
particular Compound for any Fiscal Year the percentage computed by (i)
multiplying for each sales tier described in the Supplemental Sales Weighting
Table the applicable amount of Net Sales in such Fiscal Year of products
containing such Compound by the percentage set forth in Column A of the
Supplemental Sales Weighting Table across from such sales tier, (ii) computing
the sum of the amounts so computed for each of the respective sales tiers and
(iii) dividing such sum by the total Net Sales of products containing such
Compound during such Fiscal Year.
"Column B Rate" shall mean with respect to a product containing a
particular Compound for any Fiscal Year the percentage computed by (i)
multiplying for each sales tier described in the Supplemental Sales Weighting
Table the applicable amount of Net Sales in such Fiscal Year of products
containing such Compound by the percentage set forth in Column B of the
Supplemental Sales Weighting Table across from such sales tier, (ii) computing
the sum of the amounts so computed for each of the respective sales tiers and
(iii) dividing such sum by the total Net Sales of products containing such
Compound during such Fiscal Year.
"Column C Rate" shall mean with respect to a product containing a
particular Compound for any Fiscal Year the percentage computed by (i)
multiplying for each sales tier described in the Supplemental Sales Weighting
Table the applicable amount of Net Sales in such Fiscal Year of products
containing such Compound by the percentage set forth in Column C of the
Supplemental Sales Weighting Table across from such sales tier, (ii) computing
the sum of the amounts so computed for each of the respective sales tiers and
(iii) dividing such sum by the total Net Sales of products containing such
Compound during such Fiscal Year.
"Column D Rate" shall mean with respect to a product containing a
particular Compound for any Fiscal Year the percentage computed by (i)
multiplying for each sales tier described in the Supplemental Sales Weighting
Table the applicable amount of Net Sales in such Fiscal Year of products
containing such Compound by the percentage set forth in Column D of the
Supplemental Sales Weighting Table across from such sales tier, (ii) computing
the sum of the amounts so computed for each of the respective sales tiers and
(iii) dividing such sum by the total Net Sales of products containing such
Compound during such Fiscal Year.
"Type 1 Combination Product" shall mean a combination product
consisting of a KB USA Compound (other than Formoterol) and any Compound other
than a Covered Compound, which combination product, based on its approved
indications, competes in the same Therapeutic Category with a KB USA Product.
"Type 2 Combination Product" shall mean a combination product
consisting of Formoterol and any Compound other than a Covered Compound, which
combination product,
<PAGE> 119
2
based on its approved indications, competes in the same Therapeutic Category
with a Formoterol Product.
"Type 3 Combination Product" shall mean a combination product
containing (i) a KB USA Compound (other than Formoterol) and (ii) a Group A
Compound, Group B Compound, Group C Compound, Group D Compound or Group E
Compound.
"Type 4 Combination Product" shall mean a combination product
containing a KB USA Compound (other than Formoterol) and Formoterol.
"Type 1 Inhaler Product" shall mean a product (other than Rhinocort)
containing any KB USA Compound (other than Formoterol) as the sole active
ingredient which is delivered in an inhaler other than a dry powder inhaler.
"Type 2 Inhaler Product" shall mean a product containing Formoterol as
the sole active ingredient which is delivered in an inhaler other than a dry
powder inhaler.
<PAGE> 120
PART 2
BASE SALES WEIGHTINGS FOR NET SALES OF COVERED COMPOUNDS AND PRODUCTS
----------------------------------------------------------------------------------------------------------------------------
TYPE OF COMPOUND OR PRODUCT BASE SALES WEIGHTING ("BSW")
----------------------------------------------------------------------------------------------------------------------------
Omeprazole Products (including without limitation combinations 100%
with other Covered Compounds)
----------------------------------------------------------------------------------------------------------------------------
Perprazole Products (including without limitation combinations 100%
with other Covered Compounds)
----------------------------------------------------------------------------------------------------------------------------
Other Group A and Group B Products (including without limitation 100%
combinations with other Covered Compounds but excluding
Perprazole Products)
----------------------------------------------------------------------------------------------------------------------------
Group C Products (including without limitation combinations with 100% (50% for ABCV Compounds)
other Covered Compounds but excluding Perprazole Products)
----------------------------------------------------------------------------------------------------------------------------
Formoterol Products (other than Type 1, 2, 3 and 4 Combination 75%
Products and Type 1 and 2 Inhaler Products)
----------------------------------------------------------------------------------------------------------------------------
Group D Products (including without limitation combinations with 100% (50% for ABCV Compounds)
other Covered Compounds)
----------------------------------------------------------------------------------------------------------------------------
KB USA Products (other than Type 1, 2, 3 and 4 Combination 50%
Products, Type 1 and 2 Inhaler Products and Formoterol Products)
----------------------------------------------------------------------------------------------------------------------------
Group E Products (including without limitation combinations with 100% (50% for ABCV Compounds)
other Covered Compounds)
----------------------------------------------------------------------------------------------------------------------------
Type 1 Combination Product Greater of 30% or the percentage ("P") computed in
accordance with the formula set forth in Note 1 below.
----------------------------------------------------------------------------------------------------------------------------
Type 2 Combination Product Greater of 45% or the percentage ("P") computed in
accordance with the formula set forth in Note 2 below.
----------------------------------------------------------------------------------------------------------------------------
<PAGE> 121
2
----------------------------------------------------------------------------------------------------------------------------
Type 3 Combination Product 100%
----------------------------------------------------------------------------------------------------------------------------
Type 4 Combination Product 62.5%
----------------------------------------------------------------------------------------------------------------------------
Type 1 Inhaler Product Greater of 20% or the percentage ("P") computed in
accordance with the formula set forth in Note 3 below.
----------------------------------------------------------------------------------------------------------------------------
Type 2 Inhaler Product Greater of 30% or the percentage ("P") computed in
accordance with the formula set forth in Note 4 below.
----------------------------------------------------------------------------------------------------------------------------
Note 1: P = ((.4 x Net Sales of the Type 1 Combination Product) - (.1 x
Net Sales of the KB USA Product)) / Net Sales of the Type 1
Combination Product
Note 2: P = ((.6 x Net Sales of the Type 2 Combination Product) - (.15 x
Net Sales of the Formoterol Product)) / Net Sales of the Type
2 Combination Product
Note 3: P = ((.33 x Net Sales of the Type 1 Inhaler Product) - (.17 x Net
Sales of the KB USA Product delivered in all dry powder
inhalers)) / Net Sales of the Type 1 Inhaler Product
Note 4: P = ((.5 x Net Sales of the Type 2 Inhaler Product) - (.25 x Net
Sales of the Formoterol Product delivered in all dry powder
inhalers)) / Net Sales of the Type 2 Inhaler Product
<PAGE> 122
PART 3
RELATIVE SALES WEIGHTINGS FOR NET SALES OF COVERED COMPOUNDS AND PRODUCTS
(including Outlicenses; provided, however, that this table shall not be
construed as providing any authority or right to engage in
Outlicensings not set forth in Sections 3.6 or 3.6A
or in the Partnership Agreement or the
Distribution Agreement)
------------------------------------- ---------------------- -----------------------------------------------------------------
PRODUCTS CONTAINING
OMEPRAZOLE AND
TYPE OF NET SALES PERPRAZOLE PRODUCTS OTHER THAN PRODUCTS CONTAINING OMEPRAZOLE AND PERPRAZOLE
------------------------------------- ---------------------- -----------------------------------------------------------------
PRODUCTS CONTAINING
CRITICAL COMPOUNDS
------------------------------------- ---------------------- -----------------------------------------------------------------
PRODUCTS OTHER THAN
KBI PRODUCTS KBI PRODUCTS
------------------------------------- ---------------------- ---------------------- -----------------------------------------
NET SALES OTHER THAN NET SALES BY
OUTLICENSEES
------------------------------------- ---------------------- ---------------------- -----------------------------------------
Non-OTC Net Sales 100% of applicable BSW 100% of applicable BSW 100% of applicable BSW
------------------------------------- ---------------------- ---------------------- -----------------------------------------
OTC Net Sales 40% of applicable BSW 40% of applicable BSW 40% of applicable BSW
------------------------------------- ---------------------- ---------------------- -----------------------------------------
NET SALES BY OUTLICENSEES
------------------------------------- ---------------------- ---------------------- -----------------------------------------
Regulatory Outlicenses (non-OTC
Net Sales)
------------------------------------- ---------------------- ---------------------- -----------------------------------------
Outlicenses to TR under TR's RFO
pursuant to Sections 3.6 and 3.6A
------------------------------------- ---------------------- ---------------------- -----------------------------------------
Net Sales after loss of Market Column D Rate Column D Rate [*]%
Exclusivity with Generic multiplied by the multiplied by the
Competition applicable BSW applicable BSW
------------------------------------- ---------------------- ---------------------- -----------------------------------------
Net Sales before loss of Market Column B Rate Column B Rate [*]%
Exclusivity or without Generic multiplied by the multiplied by the
Competition applicable BSW applicable BSW
------------------------------------- ---------------------- ---------------------- -----------------------------------------
Total Cash Outlicenses N/A N/A [*]%
------------------------------------- ---------------------- ---------------------- -----------------------------------------
------------------------------------- -----------------------------------------------------------------
PRODUCTS OTHER THAN PRODUCTS CONTAINING OMEPRAZOLE AND PERPRAZOLE
------------------------------------- -----------------------------------------------------------------
PRODUCTS NOT CONTAINING
CRITICAL COMPOUNDS
------------------------------------- -----------------------------------------------------------------
PRODUCTS OTHER THAN
KBI PRODUCTS KBI PRODUCTS
------------------------------------- ---------------------- -----------------------------------------
NET SALES OTHER THAN NET SALES BY
OUTLICENSEES
------------------------------------- ---------------------- -----------------------------------------
Non-OTC Net Sales 100% of applicable BSW 100% of applicable BSW
------------------------------------- ---------------------- -----------------------------------------
OTC Net Sales 40% of applicable BSW 40% of applicable BSW
------------------------------------- ---------------------- -----------------------------------------
NET SALES BY OUTLICENSEES
------------------------------------- ---------------------- -----------------------------------------
Regulatory Outlicenses (non-OTC
Net Sales)
------------------------------------- ---------------------- -----------------------------------------
Outlicenses to TR under TR's RFO
pursuant to Sections 3.6 and 3.6A
------------------------------------- ---------------------- -----------------------------------------
Net Sales after loss of Market N/A N/A
Exclusivity with Generic
Competition
------------------------------------- ---------------------- ----------------------------------------
Net Sales before loss of Market N/A N/A
Exclusivity or without Generic
Competition
------------------------------------- ---------------------- ----------------------------------------
Total Cash Outlicenses N/A [*]%
------------------------------------- ---------------------- ----------------------------------------
<PAGE> 123
2
-----------------------------------------------------------------------------------------------------
PRODUCTS CONTAINING PRODUCTS OTHER
OMEPRAZOLE AND THAN PRODUCTS CONTAINING
TYPE OF NET SALES PERPRAZOLE OMEPRAZOLE AND PERPRAZOLE
-----------------------------------------------------------------------------------------------------
PRODUCTS CONTAINING
CRITICAL COMPOUNDS
KBI PRODUCTS
-----------------------------------------------------------------------------------------------------
All other Regulatory Outlicenses
-----------------------------------------------------------------------------------------------------
Net Sales after loss of Market Column D Rate Column D Rate
Exclusivity with Generic multiplied by the multiplied by the
Competition applicable BSW applicable BSW
-----------------------------------------------------------------------------------------------------
Net Sales before loss of Market Column B Rate Column B Rate
Exclusivity or without Generic multiplied by the multiplied by the
Competition applicable BSW applicable BSW
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
Non-Regulatory Outlicenses (non-OTC Net
Sales)
-----------------------------------------------------------------------------------------------------
Total Cash Outlicenses N/A N/A
-----------------------------------------------------------------------------------------------------
Special Case Outlicensings (except for N/A N/A
Selected Uses)
-----------------------------------------------------------------------------------------------------
Selected Uses To be agreed To be agreed
-----------------------------------------------------------------------------------------------------
Omeprazole-for-Horses [*]% N/A
-----------------------------------------------------------------------------------------------------
Other Non-Regulatory Outlicenses
-----------------------------------------------------------------------------------------------------
Net Sales after loss of Market To be agreed To be agreed
Exclusivity with Generic
Competition
-----------------------------------------------------------------------------------------------------
Net Sales before loss of Market To be agreed To be agreed
Exclusivity or without Generic
Competition
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
OTC NET SALES BY OUTLICENSEES
-----------------------------------------------------------------------------------------------------
Omeprazole [*]% multiplied by the N/A
applicable BSW
-----------------------------------------------------------------------------------------------------
Perprazole [*]% multiplied by N/A
the applicable BSW
-----------------------------------------------------------------------------------------------------
Other N/A [*]% multiplied by
the applicable BSW
-----------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
PRODUCTS OTHER THAN PRODUCTS CONTAINING OMEPRAZOLE AND PERPRAZOLE
-------------------------------------------------------------------------------------------------------------------------
PRODUCTS CONTAINING PRODUCTS NOT CONTAINING
CRITICAL COMPOUNDS CRITICAL COMPOUNDS
-------------------------------------------------------------------------------------------------------------------------
PRODUCTS OTHER THAN PRODUCTS OTHER THAN
KBI PRODUCTS KBI PRODUCTS KBI PRODUCTS
-------------------------------------------------------------------------------------------------------------------------
All other Regulatory Outlicenses
-------------------------------------------------------------------------------------------------------------------------
Net Sales after loss of Market Column D Rate Column C Rate Column C Rate
Exclusivity with Generic multiplied by the multiplied by the multiplied by the
Competition applicable BSW applicable BSW applicable BSW
-------------------------------------------------------------------------------------------------------------------------
Net Sales before loss of Market Column B Rate Column A Rate Column A Rate
Exclusivity or without Generic multiplied by the multiplied by the multiplied by the
Competition applicable BSW applicable BSW applicable BSW
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
Non-Regulatory Outlicenses (non-OTC Net
Sales)
-------------------------------------------------------------------------------------------------------------------------
Total Cash Outlicenses [*]% N/A [*]%
-------------------------------------------------------------------------------------------------------------------------
Special Case Outlicensings (except for To be agreed N/A To be agreed
Selected Uses)
-------------------------------------------------------------------------------------------------------------------------
Selected Uses To be agreed To be agreed To be agreed
-------------------------------------------------------------------------------------------------------------------------
Omeprazole-for-Horses N/A N/A N/A
-------------------------------------------------------------------------------------------------------------------------
Other Non-Regulatory Outlicenses
-------------------------------------------------------------------------------------------------------------------------
Net Sales after loss of Market To be agreed Column C Rate Column C Rate
Exclusivity with Generic multiplied by the multiplied by the
Competition applicable BSW applicable BSW
-------------------------------------------------------------------------------------------------------------------------
Net Sales before loss of Market To be agreed Column A Rate Column A Rate
Exclusivity or without Generic multiplied by the multiplied by the
Competition applicable BSW applicable BSW
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
OTC NET SALES BY OUTLICENSEES
-------------------------------------------------------------------------------------------------------------------------
Omeprazole N/A N/A N/A
-------------------------------------------------------------------------------------------------------------------------
Perprazole N/A N/A N/A
-------------------------------------------------------------------------------------------------------------------------
Other [*]% multiplied by [*]% multiplied by [*]% multiplied by
the applicable BSW the applicable BSW the applicable BSW
-------------------------------------------------------------------------------------------------------------------------
<PAGE> 124
PART 4
SUPPLEMENTAL SALES WEIGHTING TABLE
-----------------------------------------------------------------------------------------------------------------------------------
NET SALES OF THE COMPOUND IN A FISCAL YEAR COLUMN A COLUMN B COLUMN C COLUMN D
(Outlicenses of (Regulatory (Outlicenses of (Regulatory
Non-Critical Outlicenses of Non-Critical Outlicenses of
Compounds with Critical Compounds without Critical Compounds
Market Exclusivity) Compounds with Market Exclusivity without Market
Market Exclusivity) and with Generic Exclusivity and
Competition) with Generic
Competition)
-----------------------------------------------------------------------------------------------------------------------------------
First $50 million of Net Sales [*]% [*]% [*]% [*]%
-----------------------------------------------------------------------------------------------------------------------------------
Net Sales from $50 million - $100 million [*]% [*]% [*]% [*]%
-----------------------------------------------------------------------------------------------------------------------------------
Net Sales from $100 million - $150 million [*]% [*]% [*]% [*]%
-----------------------------------------------------------------------------------------------------------------------------------
Net Sales from $150 million - $200 million [*]% [*]% [*]% [*]%
-----------------------------------------------------------------------------------------------------------------------------------
Net Sales over $200 million [*]% [*]% [*]% [*]%
-------------------------------------------------------------------------------
EXAMPLE OF THE COMPUTATION OF COLUMN A RATES, COLUMN B RATES,
COLUMN C RATES AND COLUMN D RATES
Assume that sales of products containing a Compound for which the
Supplemental Sales Weighting Table is to be used to compute a Relative Sales
Weighting are $45 million in each of the four Fiscal Quarters of a Fiscal Year.
In the first Fiscal Quarter, the Column A Rate would be [*]% (reflecting $45
million of sales with a weighting of [*]% for weighted sales of $[ *
]). The Column A Rate in the second Fiscal Quarter would be [*]% (reflecting $5
million of sales at [*]% and $40 million of sales at [*]% for weighted sales of
$[ * ]). The Column A Rate in the third Fiscal Quarter would be [*]%
(reflecting $10 million of sales at [*]% and $35 million of sales with a
weighting of [*]% for weighted sales of $[ * ]). The Column A Rate in
the fourth Fiscal Quarter would be [*]% (reflecting $15 million of sales with a
weighting of [*]% and $30 million of sales with a weighting of [*]% for weighted
sales of $[ * ]). The Column A Rate for the Fiscal Year would be [*]%
(reflecting weighted sales of $[ * ] and total sales of $180 million for
the Fiscal Year).
Column B Rates, Column C Rates and Column D Rates are computed in the
same fashion using the percentages set forth in the applicable columns.
<PAGE> 125
SCHEDULE 3.8 TO MASTER RESTRUCTURING AGREEMENT
Example of the Computation of Inflation
Adjustments pursuant to Section 3.8 using
a Hypothetical Price Index
------------------------------------------
Inflation Benchmark 4%
------------------------------------------
Original Amount $ 1,000
------------------------------------------
------------------------------------------- ------------------------------
Before 12/31/2016 After 12/31/2016
---------------------------------------------------------------------------------------- ------------------------------
Excess Pre-2016 Adjusted Post-2016 Adjusted
Price Annual % Annual Inflation Original Inflation Original
Year Index* Change Inflation Index Amount Index Amount
---------------------------------------------------------------------------------------- ------------------------------
1997 1.0000 1.0000
--------------------------------------------------------------------------------------------------------------------------
1998 1.0500 5.0% 1.0% 1.0100 $ 1,010
--------------------------------------------------------------------------------------------------------------------------
1999 1.1025 5.0% 1.0% 1.0201 $ 1,020
--------------------------------------------------------------------------------------------------------------------------
2000 1.1576 5.0% 1.0% 1.0303 $ 1,030
--------------------------------------------------------------------------------------------------------------------------
2001 1.1692 1.0% 0.0% 1.0303 $ 1,030
--------------------------------------------------------------------------------------------------------------------------
2002 1.1809 1.0% 0.0% 1.0303 $ 1,030
--------------------------------------------------------------------------------------------------------------------------
2003 1.1927 1.0% 0.0% 1.0303 $ 1,030
--------------------------------------------------------------------------------------------------------------------------
2004 1.2404 4.0% 0.0% 1.0303 $ 1,030
--------------------------------------------------------------------------------------------------------------------------
2005 1.2900 4.0% 0.0% 1.0303 $ 1,030
--------------------------------------------------------------------------------------------------------------------------
2006 1.3416 4.0% 0.0% 1.0303 $ 1,030
--------------------------------------------------------------------------------------------------------------------------
2007 1.4355 7.0% 3.0% 1.0612 $ 1,061
--------------------------------------------------------------------------------------------------------------------------
2008 1.5360 7.0% 3.0% 1.0930 $ 1,093 1.0700
--------------------------------------------------------------------------------------------------------------------------
2009 1.6436 7.0% 3.0% 1.1258 $ 1,126 1.1449
--------------------------------------------------------------------------------------------------------------------------
2010 1.7586 7.0% 3.0% 1.1596 $ 1,160 1.2250
--------------------------------------------------------------------------------------------------------------------------
2011 1.8817 7.0% 3.0% 1.1944 $ 1,194 1.3108
--------------------------------------------------------------------------------------------------------------------------
2012 2.0134 7.0% 3.0% 1.2302 $ 1,230 1.4026
--------------------------------------------------------------------------------------------------------------------------
2013 2.1141 5.0% 1.0% 1.2425 $ 1,243 1.4727
--------------------------------------------------------------------------------------------------------------------------
2014 2.2198 5.0% 1.0% 1.2550 $ 1,255 1.5463
--------------------------------------------------------------------------------------------------------------------------
2015 2.3308 5.0% 1.0% 1.2675 $ 1,268 1.6236
--------------------------------------------------------------------------------------------------------------------------
2016 2.4473 5.0% 1.0% 1.2802 $ 1,280 1.7048
--------------------------------------------------------------------------------------------------------------------------
2017 2.5697 5.0% 1.7901 $ 1,900
--------------------------------------------------------------------------------------------------------------------------
2018 2.6982 5.0% 1.8796 $ 1,995
--------------------------------------------------------------------------------------------------------------------------
2019 2.8331 5.0% 1.9735 $ 2,094
--------------------------------------------------------------------------------------------------------------------------
2020 2.9747 5.0% 2.0722 $ 2,199
--------------------------------------------------------------------------------------------------------------------------
* Hypothetical price index used for illustrative purposes only. To be
based on an Inflation Year of 12 months ending September 30 of each
year.
<PAGE> 126
SCHEDULE 3.15A TO MASTER RESTRUCTURING AGREEMENT
Trigger Event: Certain Financial Calculations
Part A: Cash and Short-Term Investments
1. Accrued interest combined with short-term investments
2. Bank drafts
3. Bankers acceptances
4. Brokerage firms' good faith and clearing-house deposits
5 Cash
6. Cash in escrow
7. Cash segregated under federal and other regulations
8. Certificates of deposit included in cash by the company
9. Certificates of deposit included in short-term investments by
the company
10. Certificates of deposit reported as a separate item in current
assets
11. Checks (cashiers or certified)
12. Commercial paper
13. Demand certificates of deposit
14. Demand deposits
15. Government and other marketable securities (including stocks
and bonds listed as short-term)
16. Letters of credit
17. Margin deposits on commodity futures contracts
18. Marketable securities
19. Money-market fund
20. Money orders
<PAGE> 127
2
21. Other short-term investments
22. Real estate investment trusts shares of beneficial interest
23. Repurchase agreements shown as a current asset
24. Restricted cash shown as a current asset
25. Time deposits and time certificates of deposit (savings
accounts shown in current assets)
26. Treasury bills listed as short-term
Part B: Long-Term Debt
1. Advances to finance construction
2. Bonds, mortgages, and similar debt
3. ESOP loan guarantees
4. Gold and bullion loans
5. Indebtedness to affiliates
6. Industrial revenue bonds
7. Installment Obligations - nonrecourse
8. Loans
9. Loans on insurance policies
10. Long-term lease obligations (capitalized lease obligations)
11. Notes payable, due within one year to be refunded by long-term
debt when carried as noncurrent liability
12. Obligations requiring interest payment that are not specified
by type
13. Purchase obligations and payments to officers (when listed as
long-term liabilities)
<PAGE> 128
3
Part C: Short-Term Debt
1. Bank acceptances and overdrafts
2. Commercial paper
3. Current portion of any item defined as long-term debt
4. Debt in default and/or demand notes when reported either as a
separate line item or as a component of the current portion of
long-term debt and there is no long-term portion of debt in
default or demand notes
5. Installments on a loan
6. Interest payable (when combined with notes payable)
7. Loans payable to officers of the company
8. Loans payable to parents, and consolidated and unconsolidated
subsidiaries
9. Loans payable to stockholders
10. Notes payable to banks and others
11. Sinking fund payments
<PAGE> 129
SCHEDULE 3.15B TO MASTER RESTRUCTURING AGREEMENT
Trigger Event: Qualified Persons
Glaxo Wellcome PLC
Merck & Co., Inc.
Novartis AG
Bristol-Myers Squibb Company
Hoechst Aktiengesellschaft
Pfizer Inc.
American Home Products Corporation
SmithKline Beecham PLC
Johnson & Johnson
Roche Holding Ltd.
Eli Lilly and Company
Rhone-Poulenc S.A.
Pharmacia & Upjohn, Inc.
Schering-Plough Corporation
Bayer AG Group
Takeda Chemical Industries, Ltd.
Sankyo Company Limited
Zeneca Group PLC
Schering AG
Boehringer Ingelheim GmbH
Yamanouchi Pharmaceutical Co. Ltd.
Elf Aquitaine
Abbott Laboratories
Warner-Lambert Company
<PAGE> 130
APPENDIX I TO MASTER RESTRUCTURING AGREEMENT
Ancillary Agreements
--------------------------------------------------------------------------------------------------------------------
NAME OF AGREEMENT PARTIES EXHIBIT
--------------------------------------------------------------------------------------------------------------------
A. Capitalization of the Partnership
--------------------------------------------------------------------------------------------------------------------
1. KBLP Assignment and Assumption Agreement KBLP, Partnership N
--------------------------------------------------------------------------------------------------------------------
2. KBI Sub Assignment and Assumption Agreement KBI Sub, Partnership I
(#1)
--------------------------------------------------------------------------------------------------------------------
3. Trademark Rights Contribution Agreement KBI, KBI Sub, TR, KB S
--------------------------------------------------------------------------------------------------------------------
4. KBI Sub Assignment and Assumption Agreement KBI Sub, Partnership J
(#2)
--------------------------------------------------------------------------------------------------------------------
5. Assignment and Amendment to Limited Robert J. Rawn, Lori I.
Partnership Agreement Zyskowski, Partnership, KBLP,
KB USA
--------------------------------------------------------------------------------------------------------------------
6. Assignment Agreement KBLP, KB USA, KBI Sub
--------------------------------------------------------------------------------------------------------------------
B. Option Agreements
--------------------------------------------------------------------------------------------------------------------
1. KBI Shares Option Agreement KB, TR, TR Holdings H
--------------------------------------------------------------------------------------------------------------------
2. KBI-E Asset Option Agreement KB, KBI-E, TR, KBI M
--------------------------------------------------------------------------------------------------------------------
C. Loan to TR
--------------------------------------------------------------------------------------------------------------------
1. Term Note TR, [KB]
--------------------------------------------------------------------------------------------------------------------
D. Operational Agreements
--------------------------------------------------------------------------------------------------------------------
1. Amended and Restated License and Option KB, KBI A
Agreement
--------------------------------------------------------------------------------------------------------------------
2. Assignment and Assumption of Amended and KBI, KBI-E F
Restated License and Option Agreement
--------------------------------------------------------------------------------------------------------------------
<PAGE> 131
2
--------------------------------------------------------------------------------------------------------------------
NAME OF AGREEMENT PARTIES EXHIBIT
--------------------------------------------------------------------------------------------------------------------
3. KBI Sublicense Agreement KBI-E, KBI V
--------------------------------------------------------------------------------------------------------------------
4. Distribution Agreement KBI-E, Partnership B
--------------------------------------------------------------------------------------------------------------------
5. Second Amended and Restated Manufacturing KB, KBI, TR, KB USA O
Agreement
--------------------------------------------------------------------------------------------------------------------
6. KBI Supply Agreement KBI, Partnership K
--------------------------------------------------------------------------------------------------------------------
7. Clinical Supply Agreement KB, Partnership U
--------------------------------------------------------------------------------------------------------------------
E. Other
--------------------------------------------------------------------------------------------------------------------
1. Letter Agreement regarding omeprazole and
perprazole
--------------------------------------------------------------------------------------------------------------------
3. Pledge Agreement KB, KBI Q
--------------------------------------------------------------------------------------------------------------------
4. Security Agreement KBI, KBI-E, KB W
--------------------------------------------------------------------------------------------------------------------