KBI Shares Option Agreement - Astra AB, Merck & Co. Inc. and Merck Holdings Inc.
AS EXECUTED - CONFORMED
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KBI SHARES OPTION AGREEMENT
DATED AS OF JULY 1, 1998
BY AND AMONG
ASTRA AB, MERCK & CO., INC. AND MERCK HOLDINGS, INC.
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TABLE OF CONTENTS
PAGE
ARTICLE I
GRANT OF OPTION........................................................................................... 1
1.1 Option........................................................................................... 1
ARTICLE II
EXERCISE OF OPTION........................................................................................ 2
2.1 Option Exercise Price............................................................................ 2
2.2 Exercise of Option............................................................................... 4
2.3 Transition Manufacturing......................................................................... 8
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF TR AND TR HOLDINGS...................................................... 11
3.1 Ownership of Shares.............................................................................. 11
ARTICLE IV
COVENANTS AND AGREEMENTS OF TR AND TR HOLDINGS REGARDING THE KBI BUSINESS ............................... 11
4.1 Preservation of Corporate Existence; Operation of KBI and its Subsidiaries ...................... 11
4.2 Payment of State and Local Taxes................................................................. 12
4.3 Financial Statements; Books and Records.......................................................... 12
4.4 Limitation on Transfer of License Rights......................................................... 12
4.5 Compliance with Laws............................................................................. 13
4.6 Cash............................................................................................. 13
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TABLE OF CONTENTS
PAGE
ARTICLE V
ADDITIONAL COVENANTS AND AGREEMENTS OF THE PARTIES........................................................ 13
5.1 Reasonable Efforts; Further Assurances........................................................... 13
5.2 HSR Act.......................................................................................... 13
5.3 Payment of Federal Income Taxes.................................................................. 14
5.4 Consents......................................................................................... 14
5.5 Non-Contravention................................................................................ 14
ARTICLE VI
INDEMNIFICATION........................................................................................... 14
ARTICLE VII
ARBITRATION............................................................................................... 15
ARTICLE VIII
TERMINATION............................................................................................... 15
ARTICLE IX
MISCELLANEOUS............................................................................................. 15
9.1 Expenses......................................................................................... 15
9.2 Assignment....................................................................................... 15
9.3 No Third Party Beneficiaries..................................................................... 16
9.4 Notices.......................................................................................... 16
9.5 Governing Law.................................................................................... 16
9.6 Entire Agreement; Amendments and Waivers......................................................... 17
9.7 Counterparts..................................................................................... 17
9.8 Invalidity....................................................................................... 17
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TABLE OF CONTENTS
PAGE
9.9 Headings......................................................................................... 17
9.10 Remedies......................................................................................... 17
9.11 Gender and Number................................................................................ 17
9.12 No Consent to Section 338 Tax Election........................................................... 17
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KBI SHARES OPTION AGREEMENT
This KBI SHARES OPTION AGREEMENT (this "Agreement") is made and entered
into as of July 1, 1998 by and among Astra AB, a company limited by shares
organized and existing under the laws of Sweden ("KB"), Merck & Co., Inc., a
corporation organized and existing under the laws of the State of New Jersey
("TR"), and Merck Holdings, Inc., a corporation organized and existing under the
laws of the State of Delaware and a wholly-owned subsidiary of TR ("TR
Holdings"). Capitalized terms used but not defined in this Agreement shall have
the meanings ascribed to such terms in the Master Restructuring Agreement dated
as of June 19, 1998 between KB, TR, Astra Merck Inc., a Delaware corporation
("KBI"), Astra USA, Inc., a New York corporation ("KB USA"), KB USA, L.P., a
Delaware limited partnership, Astra Merck Enterprises Inc., a Delaware
corporation ("KBI-E"), KBI Sub Inc., a Delaware corporation ("KBI Sub"), TR
Holdings and Astra Pharmaceuticals, L.P., a Delaware limited partnership (the
"Partnership") (the "Master Restructuring Agreement").
W I T N E S S E T H:
WHEREAS, TR Holdings is the holder of all of the issued and outstanding
shares of common stock of KBI, and all of the issued and outstanding shares of
Class D Voting Preferred Stock (the "Class D Preferred Stock") and Class E
Non-Voting Convertible Participating Preferred Stock (the "Class E Preferred
Stock") of KBI; and
WHEREAS, KB is the holder of all of the issued and outstanding shares
of Class A Non-Voting Preferred Stock (the "Class A Preferred Stock") and Class
C Voting Preferred Stock (the "Class C Preferred Stock") of KBI; and
WHEREAS, TR Holdings wishes to grant to KB and KB wishes to acquire
from TR Holdings an option to acquire complete ownership of KBI under certain
circumstances as hereinafter described; and
WHEREAS, TR desires that the foregoing option grant be effected.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual representations, warranties, covenants and agreements hereinafter set
forth, the parties hereto, intending to be legally bound, hereby agree as
follows:
ARTICLE I
GRANT OF OPTION
1.1 Option
(a) On the terms and subject to the conditions of this Agreement and
in reliance upon the representations, warranties, covenants and agreements
contained herein, TR Holdings
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hereby grants to KB and KB hereby acquires from TR Holdings an option (the
"Option") to acquire from TR Holdings all of the outstanding shares of capital
stock of KBI of whatever classes or series not owned by KB or its Affiliates or
successors or assigns (the "KBI Shares") through the exercise of the Option on
an Option Closing Date (as such term is defined in Section 2.2(d) hereof) at the
Option Exercise Price (as such term is defined in Section 2.1 hereof).
(b) If requested by KB prior to the exercise of the Option, TR
Holdings agrees to cooperate in good faith with KB to structure the transaction
contemplated by the Option in another manner mutually agreeable to the parties;
KB acknowledges, however, that TR Holdings has no obligation to enter into any
such other transaction. KB agrees that in connection with any such mutually
agreed upon restructuring, KB would give TR Holdings a "hold harmless" indemnity
acceptable to TR Holdings. As of the date of this Agreement, KB believes that
either of the following transactions is considered to achieve the objective of
preserving KB's cost basis of the KBI-E assets (for U.S. Federal income tax
purposes) to the fullest extent possible: (i) KB contributes cash to KBI in an
amount equal to the Option Exercise Price, and TR Holdings will then cause KBI
to redeem all of the KBI Shares, and (ii) KB contributes cash in an amount equal
to the Option Exercise Price to a wholly-owned US corporation ("USCO"), and TR
will then cause KBI to merge with USCO in a transaction pursuant to which KB
shall acquire complete ownership of the stock of KBI. The exercise of the Option
by KB by means of KB's purchase of the KBI Shares or any of the foregoing means
shall hereinafter be referred to as the "KBI Acquisition."
ARTICLE II
EXERCISE OF OPTION
2.1 Option Exercise Price. (a) For purposes of this Agreement, the "Option
Exercise Price" shall be the price payable by KB to TR Holdings upon the
exercise of the Option as determined in accordance with the formula set forth in
Section 2.1(b) below (subject to adjustment pursuant to the provisions of
Sections 2.2(g) and 2.2(h) hereof). For purposes of calculating the Option
Exercise Price, the following terms shall have the following meanings:
(i) "Fourth Tier and Group E NPV" shall mean the sum of (A)
the net present value of the projected pre-tax amounts that would
otherwise be allocated after the Option Closing Date to the Limited
Partner for the Fourth Tier Amount pursuant to the Partnership
Agreement, which amount shall be determined assuming that the
Partnership will in each Fiscal Year have sufficient Profits (as
defined in the Partnership Agreement) to make allocations to the
Limited Partner pursuant to Section 4.1(h) of the Partnership
Agreement, and (B) the net present value of the projected pre-tax
amounts of the payments to which KBI-E would otherwise be entitled
after the Option Closing Date pursuant to Section 7.3 of the Amended
and Restated KBI License, in each case as such net present value is
determined pursuant to Section 2.2 hereof.
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(ii) "Omeprazole NPV and Perprazole NPV" shall mean the net
present value of the projected consolidated net pre-tax cash flows of
KBI and its subsidiaries determined by taking into account only
payments that would otherwise be received by KBI after the Option
Closing Date for sales of Omeprazole Products and Perprazole Products
to the Partnership (whether such sales occur before or after the Option
Closing Date) under the KBI Supply Agreement, less (A) payments that
would otherwise be made by KBI after the Option Closing Date to TR, KB
or an Alternate Producer (as defined in the Manufacturing Agreement)
for the purchase of Omeprazole Products and Perprazole Products
(whether such purchases occur before or after the Option Closing Date)
and (B) royalties that would otherwise be paid to KB after the Option
Closing Date with respect to Perprazole Net Sales (whether such sales
occur before or after the Option Closing Date) under the Amended and
Restated KBI License, as such net present value is determined pursuant
to Section 2.2 hereof.
(iii) "Omeprazole Net Sales" shall mean Net Sales of
Omeprazole Products as defined in the Master Restructuring Agreement.
(iv) "Perprazole Net Sales" shall mean Net Sales of Perprazole
Products as defined in the Master Restructuring Agreement.
(b) The Option Exercise Price shall be calculated as follows:
OEP = [ONPV + PNPV + FTGENPV] + [13 x LPI] + LP2
where:
OEP means the Option Exercise Price
ONPV + PNPV means Omeprazole NPV and Perprazole NPV
FTGENPV means Fourth Tier and Group E NPV
LPI means the average annual amount of Profits
allocated to the Limited Partner of the
Partnership pursuant to Section 4.1(h) of
the Partnership Agreement, if any, for the
last three (3) Fiscal Years ending prior to
the year of the Option Closing Date.
LP2 means the amount determined as of the Option
Closing Date equal to the sum of (i)(A) the
amount of cash and cash equivalents of KBI
and its consolidated subsidiaries, (B) the
amount that would be required to be
distributed to the Limited Partner by the
Partnership if (1) the taxable year of the
Partnership had closed as of the Option
Closing Date, (2) the Priority Return (as
defined in the Partnership Agreement) for
the Fiscal Quarter including the Option
Closing Date was determined by pro-rating on
a daily basis, and (3) all distributions
required to be made for the partial year and
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all prior Fiscal Years (and not previously
distributed) were distributed, assuming that
the Partnership has sufficient Profits to
satisfy all allocation tiers through Section
4.1(e) of the Partnership Agreement in such
partial year, less (ii)(A) the amount of all
accrued dividends (whether or not declared
and determined by pro-rating on a daily
basis) on the outstanding shares of
preferred stock of KBI not held by TR
Holdings or its successors and assigns, and
(B) taxes (other than Federal Income Taxes)
of KBI and its consolidated subsidiaries
accrued in accordance with GAAP.
2.2 Exercise of Option. (a) Provided that (i) the KBI-E Asset Purchase
shall have occurred, (ii) no Allocation Shortfall or Allocation Default (each as
defined in the Partnership Agreement) shall have occurred and remain uncured and
(iii) no Put Option Event shall have occurred, KB shall have the right at any
time during any Option Notice Period (as hereinafter defined) to give a written
and dated notice (a "Notice of Exercise") to TR Holdings of its election to
exercise the Option.
(b) For purposes of this Section 2.2, each of the following shall
constitute an "Option Notice Period": (i) if the event described in (iii) of
this subsection (b) shall not have occurred, the period from January 1 through
June 30, 2017; (ii) in the event that (x)(A) there shall have been no Allocation
Shortfall or Allocation Default or (B) such Allocation Shortfall or Allocation
Default shall have been cured, (y) KBI shall be Past Due (as defined in the
Amended and Restated Certificate of Incorporation of KBI) on the payment of any
dividend to the holder(s) of the Class A Preferred Stock or Class C Preferred
Stock and (z) such shares shall be accruing dividends at the 7.00% annual rate
set forth in the Amended and Restated Certificate of Incorporation of KBI, and,
in the case of the foregoing clause (x)(A), with at least fifteen (15) days
having expired after written notice from such holder(s) to KBI of non-receipt of
such dividend with such dividend continuing to be Past Due, any time after such
fifteen (15) day period shall have expired (in the case of the foregoing clause
(x)(A)) or such 7.00% dividend rate shall have become effective (in the case of
the foregoing clause (x)(b)), (iii) in the event that a notice of exercise in
respect of the Assignment Right shall have been delivered pursuant to the KBI-E
Asset Option Agreement in the year 2016, the six-month period commencing on the
second anniversary of the Assignment Date (as defined in the KBI-E Asset Option
Agreement of even date herewith by and among TR, KBI, KB and KBI-E (the "KBI-E
Asset Option Agreement"), (iv) in the event that (A) a Trigger Event has
occurred and the Assignment Right shall have been exercised or (B) the Required
Sale shall have occurred, the six-month period commencing on the second
anniversary of the Assignment Date; and (v) in the event that the aggregate
amount of Omeprazole Net Sales and Perprazole Net Sales for any period of twelve
(12) consecutive months commencing after the Assignment Date (as defined in the
KBI-E Asset Option Agreement) (a "Measuring Period") is less than or equal to
$200 million, the six-month period commencing on the first day of the second
month following the expiration of such Measuring Period.
(c) Upon KB's delivery of the Notice of Exercise pursuant to Section
2.2(a) above, the parties and each of their respective Affiliates agree to
cooperate in good faith in
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preparing and making any filing ("HSR Filing") that may be required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (or any
successor statute) ("HSR Act"), within thirty (30) days after the date of
delivery of such Notice of Exercise. Promptly after KB's delivery of the Notice
of Exercise, but in no event later than thirty (30) days after such delivery,
each of KB and TR Holdings shall engage an appraiser independent of it and its
Affiliates that is skilled in preparing appraisals of the future value of
pharmaceutical products (the "Appraisers" and each, an "Appraiser") to determine
the Omeprazole NPV, and Perprazole NPV and the Fourth Tier and Group E NPV (the
"KB Appraised Value"and the "TR Holdings Appraised Value," respectively), each
as of the Option Closing Date. Each of KB and TR Holdings shall bear all costs
and expenses of the Appraiser it engages. After KB and TR Holdings have selected
the Appraisers, KB shall cause the General Partner of the Partnership to afford
the Appraisers such access to the books and records of the Partnership,
including, without limitation, sales forecasts, patent status and expiration
data, and status reports concerning competitive products (collectively,
"Partnership Data") and furnish to the Appraisers copies of such financial
statements of the Partnership as they may request, and TR Holdings may, in its
discretion, furnish the Appraisers with sales forecasts and other information
("TR Data"), in order for the Appraisers to determine the KB Appraised Value and
the TR Holdings Appraised Value. Based on such information, each of the
Appraisers shall deliver a report to KB and TR Holdings showing its
calculations. The average of the KB Appraised Value and the TR Holdings
Appraised Value shall be the "Appraised Value." Upon the determination of the
Appraised Value, KB and TR Holdings shall prepare a statement (the "Option
Exercise Statement") showing their good faith calculation of the Option Exercise
Price in accordance with the provisions of Section 2.1 hereof and, to the extent
applicable, based on the Appraised Value, it being understood for purposes of
such Option Exercise Statement that KB shall calculate item LPI of the Option
Exercise Price and shall estimate item (i)(B) of the LP2 component of the Option
Exercise Price and TR Holdings shall calculate items (i)(A) and (ii)(A) of the
LP2 component of the Option Exercise Price and shall estimate item (ii)(B) of
the LP2 component of the Option Exercise Price (the sum of each of the estimated
items of LP2 referred to above being referred to herein as the "LP2 Estimated
Amount"). Subject to the provisions of Sections 2.2(g) and (i) hereof, the
Option Exercise Statement shall be binding and conclusive upon, and deemed
accepted by, each of TR Holdings and KB unless TR Holdings or KB shall have
notified the other in writing of any objections to any of the items calculated
by the other party within sixty (60) days after the date of the Option Exercise
Statement. A notice under this Section 2.2(c) shall specify in reasonable detail
each item on the Option Exercise Statement which is being disputed and a summary
of the reasons for such dispute, it being understood that only the calculation
of the components LPI and items (i)(A) and (ii)(A) of the component LP2 of the
Option Exercise Price reflected on the Option Exercise Statement may be so
disputed. Any such dispute shall be resolved pursuant to the provisions of
Section 2.2(h) hereof, but the pendency of such dispute shall not delay the
Option Closing Date.
(d) KB shall pay the Option Exercise Price reflected on the Option
Exercise Statement prepared in accordance with Section 2.2(c) on the date (the
"Option Closing Date") that shall be the later of (i) the last day of the month
immediately following the end of the month in which the date of the Option
Exercise Statement occurs (or if such date is not a business day,
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then the next business day thereafter) and (ii) five (5) business days after the
date on which any applicable waiting period under the HSR Act shall have expired
or been terminated.
(e) On the Option Closing Date, as consideration for the KBI
Acquisition, KB shall pay to TR Holdings the Option Exercise Price specified in
the Option Exercise Statement, all of which shall be payable to TR Holdings by
wire transfer in Dollars of immediately available funds to an account of TR
Holdings in the United States which shall be designated by TR Holdings in
writing at least one (1) week prior to the Option Closing Date.
(f) On the Option Closing Date, TR Holdings and KB shall execute and
deliver such agreements, endorsements, certificates of title, stock powers,
assignments and other good and sufficient instruments of conveyance and take
such other actions as shall be necessary to effect the KBI Acquisition. TR
Holdings further agrees that, from and after the Option Closing Date, it will
execute and deliver to KB such additional instruments and documents and take
such further action as KB may reasonably require in order to complete the KBI
Acquisition.
(g) As soon as reasonably possible after the Option Closing Date (but
not later than thirty (30) days thereafter) KB and TR Holdings shall engage a
mutually acceptable independent accounting firm to determine the actual amount
of the components of the Option Exercise Price comprising the LP2 Estimated
Amount (the "LP2 Final Amount"). In the event that KB and TR Holdings cannot
agree on such accounting firm, such firm shall be selected at random from the
"Big Five" accounting firms. In the event that such accounting firm determines
that the LP2 Final Amount is greater than or less than the LP2 Estimated Amount,
KB shall pay to TR Holdings the amount of such increase or TR Holdings shall pay
to KB the amount of such decrease, as the case may be, within ten (10) business
days after such determination, together with interest at the rate of LIBOR
determined using a LIBOR Period of three (3) months for the period from the
Option Closing Date through the date of such payment.
(h) In the event that TR Holdings gives KB timely written notice in
accordance with Section 2.2(c) above of a dispute concerning the LPI component
of the Option Exercise Price reflected on the Option Exercise Statement or KB
gives TR Holdings timely written notice in accordance with Section 2.2(c) above
of a dispute concerning item (i)(A) and/or (ii)(A) of the LP2 component of the
Option Exercise Price reflected on the Option Exercise 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 the accounting firm selected
pursuant to Section 2.2(c) above for the resolution of such dispute. The
decision of such accounting firm shall be final and shall be binding and
conclusive upon all of the parties hereto. In the event that such accounting
firm determines that the Option Exercise Price reflected on the Option Exercise
Statement should be increased or decreased due to an adjustment to the
calculation of any of the foregoing components, then KB shall pay to TR Holdings
the amount of such increase or TR Holdings shall pay to KB the amount of such
decrease, as the case may be, within ten (10) business days after such
determination, together with interest at the rate of LIBOR determined using a
LIBOR Period of three (3) months for the period from the Option Closing Date
through the date of such payment. In the event of any disputes resolved under
this Section 2.2(h), the Dollar amount of
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all such disputes shall be aggregated and the fees and expenses of the
accounting firm engaged to resolve such disputes shall be paid by the party
against whom the greater Dollar amount is resolved.
(i) In the event that the lower of the TR Holdings Appraised Value and
the KB Appraised Value is less than 75% of the value of the higher of the two,
then promptly after the expiration of twelve (12) full calendar quarterly
periods after the first day of the calendar quarter in which the Option Closing
Date occurs, KB and TR Holdings shall choose an appraisal firm of national
reputation which is skilled in preparing appraisals of the future value of
pharmaceutical products (the "Reviewing Appraiser") to review the original
Appraised Values utilized in determining the Option Exercise Price as set forth
in the Option Exercise Statement. After KB and TR Holdings have selected the
Reviewing Appraiser, KB shall cause the General Partner of the Partnership to
afford the Reviewing Appraiser such access to the books and records of the
Partnership (including, without limitation, Partnership Data), and furnish to
the Reviewing Appraiser copies of such financial statements of the Partnership
as it may request, and TR Holdings may, in its discretion, furnish the Reviewing
Appraiser with TR Data, in order for the Reviewing Appraiser to review the
original Appraised Value. The Reviewing Appraiser shall review the Partnership
Data, the TR Data and the actual Omeprazole Net Sales, Perprazole Net Sales,
Fourth Tier Amount and Net Sales of Group E Products for the twelve (12) full
calendar quarterly periods from and after the first day of the calendar quarter
in which the Option Closing Date occurs and shall revise the Appraised Values as
necessary to more accurately reflect the Omeprazole and Perprazole NPV and
FTGENPV as of the original Option Closing Date (the "Revised Appraised Value")
and deliver a report to KB and TR Holdings showing its calculation of the
Revised Appraised Value. If the Revised Appraised Value is less than the
Appraised Value, then TR Holdings shall pay to KB the amount of the difference.
If the Revised Appraised Value is greater than the Appraised Value, then KB
shall pay to TR Holdings the amount of the difference. The party responsible for
paying the difference shall pay such amount to the other party within ten (10)
business days of the determination of the difference (the "Difference Payment
Date"), together with interest thereon at the rate of LIBOR, determined using a
LIBOR Period of two (2) years for the period from the Option Closing Date
through the Difference Payment Date. KB and TR Holdings shall share equally the
costs and expenses of the Reviewing Appraiser.
2.3 Transition Manufacturing. (a) For purposes of this Section 2.3, the
following terms shall have the following meanings:
(i) "Alternate Producer" has the meaning ascribed to such term
in the Manufacturing Agreement.
(ii) "Bulk Chemical Form" has the meaning ascribed to such
term in the Manufacturing Agreement.
(iii) "Exit Two License" means any grant by KB or any
Affiliate of KB to any Person of any right to sell in the Territory the
Compound omeprazole or perprazole or any Omeprazole Product or
Perprazole Product, whether exclusive or non-exclusive
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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.
(iv) "Exit Two Licensee" means a Person receiving a grant
under an Exit Two License.
(v) "Finished Dosage Form" has the meaning ascribed to such
term in the Manufacturing Agreement.
(vi) "Formulation Manufacturing Stage" has the meaning
ascribed to such term in the Manufacturing Agreement.
(vii) "Intermediate Form" has the meaning ascribed to such
term in the Manufacturing Agreement.
(viii) "Manufacturing Stage" has the meaning ascribed to such
term in the Manufacturing Agreement.
(ix) "Packaging Manufacturing Stage" has the meaning ascribed
to such term in the Manufacturing Agreement.
(x) "Primary Manufacturing Stage" has the meaning ascribed to
such term in the Manufacturing Agreement.
(xi) "Producer" has the meaning ascribed to such term in the
Manufacturing Agreement.
(xii) "Transfer Price" has the meaning ascribed to such term
in the Manufacturing Agreement.
(xiii) "Transition Period" means, with respect to any
Transition Product, if KB delivers a Notice of Exercise pursuant to the
terms of Section 2.2 hereof prior to January 1, 2017, the period
starting with the Option Closing Date and ending on the earlier of (a)
two (2) years after the Option Closing Date and (b) December 31, 2017.
(xiv) "Transition Product" means any Omeprazole Product or
Perprazole Product for which TR or an Alternate Producer has been
allocated responsibility as the Producer for any Manufacturing Stage
(or an Intermediate Form of any such product).
(xv) "Transition Requirements" means all of the requirements
of KB, any Affiliate of KB and any Exit Two Licensee for Transition
Product for sale or promotion within the Territory.
(b) Upon the occurrence of the Option Closing Date for each
Transition Product during its Transition Period, if any:
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(i) If TR is the Producer of the Packaging Manufacturing
Stage, TR shall toll package Transition Product for all Transition
Requirements for KB or a Person designated by KB at the Transfer Price.
If an Alternate Producer is the Producer of the Packaging Manufacturing
Stage, the Alternate Producer shall toll package Transition Product for
all Transition Requirements under contract with KBI for KB or such
Person at the Transfer Price determined in accordance with the terms of
Article V of the Manufacturing Agreement, which will be payable by KB
to KBI.
(ii) If TR or an Alternate Producer is the Producer of a
Primary Manufacturing Stage, KB or a Person designated by KB shall
purchase from TR or, in the case of an Alternate Producer, KBI at the
Transfer Price Transition Product for all Transition Requirements as
follows: (x) if TR or an Alternate Producer is the Producer of the
Formulation Manufacturing Stage, in the Finished Dosage Form at the
cumulative Transfer Price and (y) if KB is the Producer of the
Formulation Manufacturing Stage and TR or an Alternate Producer is the
Producer of the Bulk Chemical Manufacturing Stage, in the Bulk Chemical
Form at the Transfer Price.
(iii) KB, KB USA and TR shall retain their full rights and
obligations as Producers under the Manufacturing Agreement.
(iv) Neither KB nor any Affiliate of KB shall grant an Exit
Two License that includes the right to make or have made a Transition
Product during its Transition Period.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF TR AND TR HOLDINGS
Each of TR and TR Holdings, jointly and severally, hereby represents
and warrants to KB as of the date hereof that:
3.1 Ownership of Shares. TR and its Wholly-Owned Subsidiaries own of
record and beneficially all of the issued and outstanding shares of capital
stock of TR Holdings, free and clear of any claim, hypothecation, deed of trust,
mortgage, lien, pledge, option, charge, security interest or encumbrance of any
kind or character (collectively, "Encumbrances"). TR Holdings owns of record and
beneficially all of the KBI Shares, free and clear of all Encumbrances (other
than the Option). KBI owns of record and beneficially all of the issued and
outstanding shares of capital stock of KBI-E, KBI Sub and Astra Merck
Pharmaceuticals, Inc., a Delaware corporation ("KBI-P"), in each case free and
clear of all Encumbrances other than encumbrances existing as of the date of
this Agreement or arising as a result of any Initial Agreement or any Ancillary
Agreement.
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ARTICLE IV
COVENANTS AND AGREEMENTS OF TR AND
TR HOLDINGS REGARDING THE KBI BUSINESS
TR and TR Holdings hereby covenant and agree with KB to cause KBI and,
where applicable, each Subsidiary (as defined in the Partnership Agreement) of
KBI, to comply with the following obligations, from and after the date hereof
and until the Option Closing Date, if any:
4.1 Preservation of Corporate Existence; Operation of KBI and its
Subsidiaries. KBI shall, and shall cause each of its Subsidiaries to, preserve
its present corporate organization and existence, maintain its full corporate
power and authority to conduct its business and remain in good standing under
the laws of its state of incorporation. Each of KBI, KBI Sub, KBI-E, KBI-P and
any other Subsidiary of KBI shall not incur any material liabilities of any
nature whatsoever other than obligations under any Initial Agreement, Ancillary
Agreement or the Partnership Agreement or as expressly contemplated thereby or
liabilities as to which any KB Party has agreed to indemnify any TR Party
pursuant to the terms of any Initial Agreement or Ancillary Agreement.
Notwithstanding the foregoing terms of this Section 4.1, a liquidation or
dissolution of KBI-P shall be deemed not to violate the provisions of this
Section.
4.2 Payment of State and Local Taxes. KBI shall, and shall cause each of
its Subsidiaries to, file on a timely basis all state and local tax returns
required to be filed by it and pay all such taxes due and payable with respect
to the periods covered by such tax returns (whether or not reflected thereon).
4.3 Financial Statements; Books and Records. (a) KBI shall, and shall cause
each of its Subsidiaries to, deliver to KB (i) as soon as practicable after the
end of each fiscal year of KBI, and in any event within 90 days thereafter, an
unaudited consolidated balance sheet of KBI as of the end of such year and an
unaudited consolidated income statement of KBI for such year (collectively, the
"Financial Statements") and (ii) within five (5) business days after the end of
each fiscal quarter of KBI, a certificate in the form set forth as Exhibit
4.3(a) hereto executed by the chief financial officer of KBI, certifying
compliance with the provisions of this Article IV and Section 3.12 of the Master
Restructuring Agreement. Notwithstanding the foregoing, in the event that there
shall have been no Allocation Shortfall or Allocation Default or such Allocation
Shortfall or Allocation Default shall have been cured and KBI shall be Past Due
on the payment of any dividend to the holder(s) of the Class A Preferred Stock
or Class C Preferred Stock, the Financial Statements required to be delivered
pursuant to clause (i) of this Section 4.3(a) shall be audited.
(b) The Financial Statements shall (i) be in accordance with the books
and records of KBI and its consolidated Subsidiaries, (ii) fairly present the
financial position of KBI as of the dates and for the periods indicated therein
in accordance with GAAP, except for (i) the recognition of the revaluation of
the net assets of KBI (the "Asset Revaluation") effected in connection with the
declaration and payment of a stock dividend to KB and TR Holdings in
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November, 1997 and (ii) the non-recognition of the purchase accounting
consequences of TR Holdings' purchase of the KBI Common Shares at the Closing.
(c) KBI shall, and shall cause each of its Subsidiaries to, maintain
true, correct and complete books, records and accounts in accordance with GAAP
(except for the treatment of the Asset Revaluation and TR Holdings' purchase of
the KBI Common Shares).
4.4 Limitation on Transfer of License Rights. Except as approved in writing
by KB or as expressly permitted or required by this Agreement, any Initial
Agreement or any other Ancillary Agreement, neither KBI nor any of its
Subsidiaries shall sell, transfer, pledge or otherwise encumber, assign or
otherwise dispose of any rights relating to any Licensed Compound.
4.5 Compliance with Laws. Each of KBI and each of it Subsidiaries shall
conduct its respective business in compliance in all material respects with all
applicable laws, rules and regulations and in compliance with all applicable
orders, rules, writs, judgments, injunctions, decrees and ordinances.
4.6 Cash. TR shall use reasonable efforts to keep the cash in KBI to a
reasonable minimum, taking into account the GAAP net worth of KBI and the fair
market value of its assets and liabilities and TR's objective that KBI and its
subsidiaries remain part of TR's consolidated group for U.S. federal income tax
purposes.
ARTICLE V
ADDITIONAL COVENANTS AND AGREEMENTS OF THE PARTIES
5.1 Reasonable Efforts; Further Assurances. Subject to the terms and
conditions of this Agreement, each of KB, TR and TR Holdings shall use
reasonable efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things reasonably necessary to consummate the transactions
contemplated hereby, including, without limitation, to effect the KBI
Acquisition. Each of KB, TR and TR Holdings agrees to execute and deliver
promptly such other documents, certificates, agreements or instruments
(including any amendments or supplements thereto) and to take, or cause to be
taken, such other actions as may be reasonably necessary in order to consummate
or implement expeditiously the transactions contemplated hereby. TR hereby
covenants and agrees that it shall take all actions necessary to ensure that TR
Holdings complies with its obligations hereunder. TR Holdings covenants and
agrees that it shall take all actions necessary to ensure that KBI complies with
its obligations hereunder. Each party hereto covenants and agrees that all
instruments of conveyance and other agreements, documents and instruments to be
executed and delivered by such party in connection herewith shall constitute the
legal, valid and binding obligations of such party, enforceable against it in
accordance with its terms.
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5.2 HSR Act. In connection with any filing that may be required under the
HSR Act as contemplated by Section 2.2(c) hereof, the parties hereto agree to
cooperate in good faith to respond promptly to all inquiries made by
governmental authorities.
5.3 Payment of Federal Income Taxes. TR hereby covenants and agrees with KB
to file on a timely basis all Federal income tax returns of the TR consolidated
group that includes KBI and each of its Subsidiaries required to be filed by TR
for each year from and after the year of this Agreement through the year of the
Option Closing Date, if any, and to pay all such taxes due and payable with
respect to the periods covered by such tax returns (whether or not reflected
thereon).
5.4 Consents. TR and TR Holdings hereby covenant and agree that they shall
not (and shall cause KBI not to) take any action that would result in the
consent of any third party being required in connection with TR's or TR
Holdings' performance of its obligations under this Agreement and all other
documents and instruments to be executed and delivered by it in connection with
the KBI Acquisition (collectively, including this Agreement, the "Option
Documents").
5.5 Non-Contravention. TR and TR Holdings hereby covenant and agree that
they shall not (and shall cause KBI not to) take any action that would result in
the consummation of the transactions contemplated by the Option Documents
violating, conflicting with or resulting in a breach of any provision of:
(i) any mortgage, deed of trust, lease, note,
shareholders' agreement, bond, indenture, other instrument or agreement,
license, sublicense, permit, trust, custodianship, or other restriction with any
third party to which TR, TR Holdings or KBI is a party; or
(ii) the certificate of incorporation or by-laws
(each amended) of TR, TR Holdings or KBI.
ARTICLE VI
INDEMNIFICATION
TR and TR Holdings agree to defend, indemnify and hold harmless KB and its
Affiliates and each of their respective officers, directors, employees and
agents from and against any and all Indemnity Losses arising out of, based upon
or resulting from any liabilities or obligations of KBI of any nature whatsoever
other than (i) liabilities or obligations under any Initial Agreement or
Ancillary Agreement arising from and after the Option Closing Date, (ii)
liabilities for which any KB Party has agreed to indemnify any TR Party pursuant
to the terms of any Initial Agreement or Ancillary Agreement and (iii)
liabilities or obligations incurred by KBI in connection with KB's operation of
KBI from and after the Option Closing Date. Any claim for indemnification
hereunder shall be on a net after-tax basis in accordance with, and shall be
subject to the procedures set forth in, Section 10.3 of the Master Restructuring
Agreement.
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ARTICLE VII
ARBITRATION
Subject to the provisions of Sections 2.2(g) and 2.2(h) hereof and Section
9.4 of the Master Restructuring Agreement, any dispute, controversy or claim
between KB, on the one hand, and TR and TR Holdings on the other hand, arising
out of or related to this Agreement, or the interpretation or breach hereof,
shall be settled by binding arbitration pursuant to the principles and
procedures set forth in Article 9 of the Master Restructuring Agreement.
ARTICLE VIII
TERMINATION
This Agreement may be terminated at any time by the written mutual consent
of each of the parties hereto. In the event that this Agreement is terminated as
aforesaid, this Agreement shall be of no further force or effect and no party
shall have any liability to any other party hereto; provided, however, that the
termination of this Agreement will not relieve any party of any liability for
breach of any covenant or agreement hereunder occurring prior to such
termination and the terms of Article 4 of the Master Restructuring Agreement
(relating to confidentiality) shall remain in full force and effect in
accordance with its terms.
ARTICLE IX
MISCELLANEOUS
9.1 Expenses. Each of the parties to this Agreement shall bear all the
expenses incurred by it in connection with the negotiation and preparation of
this Agreement and the consummation of the transactions contemplated by this
Agreement regardless of whether this Agreement shall be terminated.
9.2 Assignment. Neither this Agreement nor any of the rights or obligations
hereunder may be assigned by any party without the prior written consent of the
other parties; provided, however, that KB may, without the consent of the other
parties hereto, assign its rights and obligations under this Agreement to any of
its Affiliates; and provided, further, that TR Holdings may assign its rights
and obligations under this Agreement to any permitted transferee of the KBI
Shares under Section 3.3 of the Master Restructuring Agreement. Subject to the
foregoing, this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective legal representatives, successors, heirs and
assigns.
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9.3 No Third Party Beneficiaries. Nothing in this Agreement, expressed or
implied, is intended or shall be construed to confer upon or give to any person,
firm, corporation or legal entity, other than the parties hereto and their
respective Affiliates, or their respective successors and permitted assigns, any
rights, remedies or other benefits or any obligations or liabilities under or by
reason of this Agreement.
9.4 Notices. Unless otherwise provided herein, any notice, request,
instruction, other document or other communication under or with respect to this
Agreement or the Option Documents shall be in writing and shall be deemed to
have been duly given if delivered personally, sent by telefax with confirmation
of receipt, or sent by internationally-recognized courier service to any party
hereto at its address as specified below.
If to KB: S-151
85 Sodertalje
SWEDEN
Attention: General Counsel
Telefax No.: 011-46-8-553-288-12
If to TR, TR
Holdings or KBI: One Merck Drive
P.O. Box 100
Whitehouse Station, NJ 08889-0100
Attention: Corporate Secretary
Telefax No.: 908-735-1246
With a copy to: Merck & Co., Inc.
One Merck Drive
P.O. Box 100
Whitehouse Station, NJ 08889-0100
Attention: General Counsel
Telefax No.: 908-735-1244
Any party hereto by written notice to the other parties hereto in accordance
with the above may change the address to which such notices, requests,
instructions, other documents or other communications to it shall be directed.
9.5 Governing Law. This Agreement shall be construed and governed in
accordance with the laws of the State of New York without regard to any choice
of law rules other than Section 5-1401 of the New York General Obligations Law.
9.6 Entire Agreement; Amendments and Waivers. This Agreement, together with
all exhibits and schedules hereto and the other documents referred to herein,
constitutes the entire agreement between the parties pertaining to the subject
matter hereof and supersedes all prior agreements, understandings, negotiations
and discussions, whether oral or written, of the parties.
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No supplement, amendment, modification or waiver of this Agreement shall be
binding unless executed in writing by the party to be bound thereby. No waiver
of any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provision hereof (whether or not similar), nor shall such
waiver constitute a continuing waiver unless otherwise expressly provided.
9.7 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.8 Invalidity. In the event that any one or more of the provisions
contained in this Agreement or in any other instrument referred to herein,
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision of this Agreement or any other such instrument.
9.9 Headings. The headings of the Articles and Sections herein are inserted
for convenience of reference only and are not intended to be a part of or to
affect the meaning or interpretation of this Agreement.
9.10 Remedies. Notwithstanding anything to the contrary contained in this
Agreement, each of the parties to this Agreement is entitled to all remedies in
the event of breach provided at law or in equity, specifically including, but
not limited to, specific performance.
9.11 Gender and Number. All pronouns used herein shall be deemed to refer
to the masculine, feminine or neuter, singular or plural, as the identity or
number of the person, persons, entity or entities may require.
9.12 No Consent to Section 338 Tax Election. Nothing in this Agreement or
any Ancillary Agreement shall be construed to constitute the consent (or an
agreement to give the consent) of TR or any member of the TR affiliated group to
an election under Section 338(h)(10) of the Internal Revenue Code of 1986, or
any successor provision, with respect to the effecting of the KBI Acquisition.
* * *
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<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or
have caused this Agreement to be duly executed on their respective behalf by
their respective officers thereunto duly authorized, as of the day and year
first above written.
ASTRA AB
(publ)
By: /s/ Goran Lerenius
-----------------------------
Name: Goran Lerenius
Title: Authorized Signatory
MERCK & CO., INC.
By: Judy C. Lewent
-----------------------------
Name: Judy C. Lewent
Title: Senior Vice President and Chief
Financial Officer
MERCK HOLDINGS, INC.
By: /s/ Peter E. Nugent
-----------------------------
Name: Peter E. Nugent
Title: President
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<PAGE> 21
Exhibit 4.3(a)
Form of Certificate of Chief Financial Officer of KBI
The undersigned, the duly elected and acting Chief Financial Officer of
KBI, a Delaware corporation ("KBI"), hereby certifies to KB, a company limited
by shares organized and existing under the laws of Sweden ("KB"), pursuant to
Section 4.3(a) of the KBI Shares Option Agreement (the "KBI Shares Option
Agreement"), dated as of July __, 1998 by and among KB, TR, a New Jersey
corporation ("TR"), and TR Holdings, a Delaware corporation ("TR Holdings"), as
follows (with capitalized terms used herein and not otherwise defined herein
having the meanings ascribed to such terms in that certain Master Restructuring
Agreement dated as of June 19, 1998 between KB, TR, KBI, [KB] USA, Inc., a New
York corporation, KB USA, L.P., a Delaware limited partnership, [KB TR]
Enterprises Inc., a Delaware corporation, [KBI SUB], a Delaware corporation, TR
Holdings and [KB] Pharmaceuticals, L.P., a Delaware limited partnership (the
"Master Restructuring Agreement")):
1. At all times during the fiscal quarter ended [Insert Date], KBI and each
of its Subsidiaries were in compliance with all provisions, covenants,
agreements, obligations and restrictions set forth in Article IV of the KBI
Shares Option Agreement with which KBI and each of its Subsidiaries were
required to be in compliance.
2. At all times during the fiscal quarter ended [Insert Date], all of the
KBI Parties were in compliance with all provisions, covenants, agreements,
obligations and restrictions set forth in Section 3.12 of the Master
Restructuring Agreement with which the KBI Parties were required to be in
compliance.
IN WITNESS WHEREOF, the undersigned has duly executed this Certificate
as of the ____ day of _______, ____.
[KBI]
By:_________________________________
Name:
Title: Chief Financial Officer