1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1994
or
Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File Number 1-87
EASTMAN KODAK COMPANY
(Exact name of registrant as specified in its charter)
NEW JERSEY 16-0417150
(State of incorporation) (IRS Employer
Identification No.)
343 STATE STREET, ROCHESTER, NEW YORK 14650
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 716-724-4000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Number of Shares Outstanding at
Class June 30, 1994
Common Stock, $2.50 par value 339,187,488
2
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF EARNINGS
(in millions) Second Quarter First Half-Year
1994 1993 1994 1993
REVENUES
Sales $3,425 $3,353 $6,180 $6,021
Earnings from equity interests and other
revenues 44 54 68 129
------ ------ ------ -------
TOTAL REVENUES 3,469 3,407 6,248 6,150
------ ------ ------ -------
COSTS
Cost of goods sold 1,782 1,644 3,252 3,063
Marketing and administrative expenses 925 883 1,672 1,670
Research and development costs 230 220 434 417
Interest expense 28 53 85 104
Other charges 37 34 108 81
------ ------ ------ -------
TOTAL COSTS 3,002 2,834 5,551 5,335
------ ------ ------ -------
Earnings from continuing operations
before income taxes 467 573 697 815
Provision for income taxes from continuing
operations 172 223 257 317
------ ------ ------ -------
Earnings from continuing operations before
extraordinary item and cumulative effect of
changes in accounting principle 295 350 440 498
Earnings (loss) from discontinued operations
before cumulative effect of changes in
accounting principle (30) 33 (81) 34
------ ------ ------ -------
Earnings before extraordinary item and
cumulative effect of changes
in accounting principle 265 383 359 532
Extraordinary item (1) (12) (13) (12)
------ ------ ------ -------
Earnings before cumulative effect of changes
in accounting principle 264 371 346 520
------ ------ ------ -------
Cumulative effect of changes in accounting
principle from continuing operations - - - (1,649)
Cumulative effect of changes in accounting
principle from discontinued operations - - - (519)
------ ------ ------ -------
Total cumulative effect of changes in
accounting principle - - - (2,168)
------ ------ ------ -------
NET EARNINGS (LOSS) $ 264 $ 371 $ 346 $(1,648)
====== ====== ====== =======
- - ----------------------------------------------------------------------------------------------
See Notes to Financial Statements
3
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF EARNINGS (Continued)
Second Quarter First Half-Year
1994 1993 1994 1993
Primary earnings per share from continuing
operations before extraordinary item and
cumulative effect of changes in accounting
principle $ .88 $ 1.07 $ 1.33 $ 1.53
Primary earnings (loss) per share from
discontinued operations before cumulative
effect of changes in accounting principle (.09) .10 (.25) .10
------ ------ ------ ------
Primary earnings per share before
extraordinary item and cumulative effect of
changes in accounting principle .79 1.17 1.08 1.63
Extraordinary item - (.04) (.04) (.04)
------ ------ ------ ------
Primary earnings per share before cumulative
effect of changes in accounting principle .79 1.13 1.04 1.59
------ ------ ------ ------
Cumulative effect of changes in accounting
principle from continuing operations - - - (5.05)
Cumulative effect of changes in accounting
principle from discontinued operations - - - (1.59)
------ ------ ------ ------
Total cumulative effect of changes in
accounting principle - - - (6.64)
------ ------ ------ ------
Primary earnings (loss) per share $ .79 $ 1.13 $ 1.04 $(5.05)
====== ====== ====== ======
Fully diluted earnings per share from
continuing operations before extraordinary
item and cumulative effect of changes in
accounting principle $ .87 $ 1.02 $ 1.31 $ 1.47
Fully diluted earnings (loss) per share from
discontinued operations before cumulative
effect of changes in accounting principle (.09) .09 (.25) .09
------ ------ ------ ------
Fully diluted earnings per share before
extraordinary item and cumulative effect of
changes in accounting principle .78 1.11 1.06 1.56
Extraordinary item - (.03) (.04) (.03)
------ ------ ------ ------
Fully diluted earnings per share before
cumulative effect of changes in
accounting principle .78 1.08 1.02 1.53
------ ------ ------ ------
Cumulative effect of changes in accounting
principle from continuing operations - - - (5.05)
Cumulative effect of changes in accounting
principle from discontinued operations - - - (1.59)
------ ------ ------ ------
Total cumulative effect of changes in
accounting principle - - - (6.64)
------ ------ ------ ------
Fully diluted earnings (loss) per share $ .78 $ 1.08 $ 1.02 $(5.11)
====== ====== ====== ======
- - ----------------------------------------------------------------------------------------------
See Notes to Financial Statements
4
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
Second Quarter First Half-Year
1994 1993 1994 1993
(in millions)
RETAINED EARNINGS
Retained earnings at beginning of period $4,417 $5,539 $4,469 $7,721
Net earnings (loss) 264 371 346 (1,648)
Cash dividends declared (133) (164) (265) (327)
Other changes 4 - 2 -
- - ------ ------ ------ ------
RETAINED EARNINGS at end of period $4,552 $5,746 $4,552 $5,746
====== ====== ====== ======
- - ----------------------------------------------------------------------------------------------
SUPPLEMENTAL INFORMATION:
Operations of subsidiary companies outside
the U.S. included in Consolidated Statement
of Earnings:
Sales $1,990 $1,944 $3,671 $3,565
Earnings from operations 155 165 293 238
- - ----------------------------------------------------------------------------------------------
See Notes to Financial Statements
5
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
June 30, Dec. 31,
1994 1993
(in millions)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 491 $ 1,635
Marketable securities 134 331
Receivables (net of allowances of $96 and $92) 3,178 2,817
Inventories 1,752 1,532
Deferred income tax charges 432 339
Other 182 203
------- -------
Total current assets 6,169 6,857
------- -------
PROPERTIES
Land, buildings and equipment at cost 12,214 11,601
Less: Accumulated depreciation 6,906 6,574
------- -------
Net properties 5,308 5,027
------- -------
OTHER ASSETS
Unamortized goodwill (net of accumulated
amortization of $196 and $179) 285 272
Long-term receivables and other
noncurrent assets 916 912
Deferred income tax charges 398 393
Net assets of discontinued operations 5,358 5,349
------- -------
TOTAL ASSETS $18,434 $18,810
======= =======
- - --------------------------------------------------------------------------------------
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES
Payables $ 2,744 $ 2,877
Short-term borrowings 1,874 611
Taxes-income and other 352 384
Dividends payable 133 165
Deferred income tax credits 43 16
------- -------
Total current liabilities 5,146 4,053
OTHER LIABILITIES AND DEFERRED CREDITS
Long-term borrowings 4,467 6,727
Postemployment liabilities 3,631 3,491
Other long-term liabilities 1,189 1,183
Deferred income tax credits 49 -
------- -------
Total liabilities 14,482 15,454
------- -------
SHAREOWNERS' EQUITY
Common stock at par* 964 948
Additional capital paid in or
transferred from retained earnings 495 213
Retained earnings 4,552 4,469
Accumulated translation adjustment (103) (235)
------- -------
5,908 5,395
Less: Treasury stock shares at cost* 1,956 2,039
------- -------
Total shareowners' equity 3,952 3,356
------- -------
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $18,434 $18,810
======= =======
* Common stock: $2.50 par value, 950 million shares authorized, 386 million shares issued as
of June 30, 1994. Treasury stock at cost consists of approximately 47 million shares on
June 30, 1994 and approximately 49 million shares on December 31, 1993.
- - -----------------------------------------------------------------------------------------------
See Notes to Financial Statements
6
Eastman Kodak Company and Subsidiary Companies
CONSOLIDATED STATEMENT OF CASH FLOWS
First Half-Year
1994 1993
(in millions)
Cash flows from operating activities:
Earnings from continuing operations before extraordinary
item and cumulative effect of changes in
accounting principle $ 440 $ 498
Adjustments to reconcile above earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 381 425
Provision (benefit) for deferred taxes (12) 4
Loss on sale and retirement of properties 20 66
Increase in receivables (261) (279)
Increase in inventories (165) (144)
Decrease in liabilities excluding borrowings (114) (153)
Other items, net (96) (288)
------- -------
Total adjustments (247) (369)
------- -------
Net cash provided by operating activities 193 129
------- -------
Cash flows from investing activities:
Additions to properties (627) (438)
Proceeds from sale of investments - 43
Proceeds from sale of properties 25 3
Marketable securities - sales 199 -
------- -------
Net cash provided by (used in) investing activities (403) (392)
------- -------
Cash flows from financing activities:
Net increase in commercial paper borrowings
of 90 days or less 805 480
Proceeds from other borrowings - 524
Repayment of other borrowings (1,470) (326)
Dividends to shareowners (297) (327)
Exercise of employee stock options 21 60
Other items - 18
------- -------
Net cash provided by (used in) financing activities (941) 429
------- -------
Effect of exchange rate changes on cash 7 (4)
------- -------
Net increase (decrease) in cash and cash equivalents (1,144) 162
Cash and cash equivalents, beginning of year 1,635 361
------- -------
Cash and cash equivalents, end of period $ 491 $ 523
======= =======
- - ---------------------------------------------------------------------------------------
See Notes to Financial Statements
7
NOTES TO FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The financial statements have been prepared by the Company in accordance with
the accounting policies stated in the 1993 Annual Report, except as noted
below, and should be read in conjunction with the Notes to Financial
Statements appearing therein. In the opinion of the Company, all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation have been included in the financial statements. The statements
are based in part on approximations and have not been audited by independent
accountants. The annual statements will be audited by Price Waterhouse.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company has determined that it is not practicable to estimate the fair
value of its investments in a number of entities. The recorded amount of such
investments was
$45 million as of June 30, 1994. This amount is included in the other
investments shown below.
The fair values of long-term borrowings were estimated based on quoted market
prices or by obtaining quotes from brokers.
The Company is a party to various interest rate option and swap agreements and
foreign currency contracts which are included in other instruments below. The
fair values of other instruments were estimated by obtaining quotes from
brokers, where practicable, or by estimating the amounts the Company would
receive or pay to terminate the instruments at the reporting date.
The recorded amounts of certain financial instruments, such as cash and
marketable securities and short-term borrowings, approximate their fair values
and are excluded from the amounts below. The recorded amounts and estimated
fair values of the Company's long-term borrowings and other financial
instruments as of June 30, 1994 were as follows:
(in millions) Recorded Amount Fair Value
Other investments $ 50 $ 51
Long-term borrowings (4,467) (4,708)
Other instruments (688) (1,058)
EARNINGS PER COMMON SHARE
Fully diluted earnings per share is computed by dividing net earnings adjusted
for after-tax interest expense associated with convertible securities by the
average number of common shares outstanding, common stock equivalents related
to dilutive stock options, and common shares issuable upon conversion of such
convertible securities. Fully dilutive earnings per share relating to the
cumulative effect of changes in accounting principle were anti-dilutive. The
number of common shares used to compute earnings per share amounts was as
follows:
- - -----------------------------------------------------------------------------
Second Quarter First Half-Year
(in millions) 1994 1993 1994 1993
- - ------------------------------------------------------------------------------
Primary 332.8 327.8 331.8 327.2
Fully Diluted 337.6 356.5 336.5 355.9
- - ------------------------------------------------------------------------------
CASH FLOW INFORMATION
Certain debt issues have been converted to non-cash equity transactions and
are not reflected in the Consolidated Statement of Cash Flows.
8
DISCONTINUED OPERATIONS
On May 3, 1994, the Company announced its intent to divest the following
non-imaging health businesses: the pharmaceutical and consumer health
businesses of Sterling Winthrop Inc., L&F Products and the Clinical Diagnostics
Division. Beginning with the second quarter of 1994, these three businesses
comprise the Health segment, which is being reported as a discontinued
operation with results for prior periods restated. On June 23, 1994, the
Company announced Sanofi has agreed to acquire the pharmaceutical business of
Sterling Winthrop Inc. for $1.675 billion in cash and its interest in the
"Over the Counter" alliance with Sterling Winthrop Inc. Sanofi's interest in
the "Over the Counter" alliance will be transferred to Sterling Winthrop Inc.
The Company expects to complete the transaction upon receipt of regulatory
approvals. In addition, the Company is actively negotiating with potential
buyers for the other non-imaging health businesses and anticipates closing
dates for these transactions over the next few months.
As of June 30, 1994, the Company concluded that a measurement date had
occurred for the non-imaging health businesses. Accordingly, the financial
statement information related to these businesses has been presented on one
line in the Consolidated Statement of Financial Position, "net assets from
discontinued operations", and in the "discontinued operations" line of the
Consolidated Statement of Earnings. The amounts presented for prior periods
have been restated for appropriate comparability. The "net assets from
discontinued operations" represents the assets intended to be sold offset by
the liabilities anticipated to be assumed by the buyers of these businesses.
The amounts presented in the Consolidated Statement of Earnings for prior
periods have been restated to reflect the allocation of interest expense to
discontinued operations. The allocation of interest expense was performed by
reference to the interest expense on indebtedness that is anticipated to be
repaid from the net proceeds received from the sales.
The Company currently does not anticipate an overall loss on the sales
including income from operations during the phase-out period which is
estimated to end on or about December 31, 1994. Consequently, all gains
estimated at this time will be recognized by the Company as such transactions
close and income from operations will be recognized in the period earned.
Summarized results of the Health businesses, including the allocation of
interest expense, are as follows:
Second Quarter First Half-Year
(in millions) 1994 1993 1994 1993
Sales $ 963 $ 912 $1,800 $1,786
====== ====== ====== ======
Earnings (loss) before income taxes $ (14) $ (57) $ (84) $ (139)
Provision (benefit) for income taxes 16 (11) (3) (39)
------ ------ ------ ------
Earnings (loss) before cumulative effect
of changes in accounting principle $ (30) $ (46) $ (81) $ (100)
====== ====== ====== ======
Interest expense included in earnings before income taxes was $114 million and
$116 million for the three month periods ended June 30, 1994 and 1993,
respectively. Interest expense included in earnings before income taxes was
$229 million and $231 million for the six month periods ended June 30, 1994 and
1993, respectively.
Net assets of the Health businesses as reported in the Consolidated Statement
of Financial Position are comprised of the following:
June 30, Dec. 31,
(in millions) 1994 1993
Current assets $1,317 $1,165
Land, buildings and equipment, net 1,334 1,339
Other assets 4,187 4,281
------ ------
Total assets 6,838 6,785
------ ------
Current liabilities 880 857
Long-term borrowings 131 126
Other liabilities 469 453
------ ------
Total liabilities 1,480 1,436
------ ------
Net assets of discontinued
operations $5,358 $5,349
====== ======
On June 15, 1993, the Company announced a plan to spin-off its Eastman
Chemical Company operations, which was completed by December 31, 1993.
9
Summarized results of the Chemicals segment, including the allocation of
interest expense, are as follows:
Second First
Quarter Half-Year
(in millions) 1993 1993
Earnings before cumulative effect of
changes in accounting principle $ 79 $134
==== ====
RECLASSIFICATIONS
Certain other 1993 financial statement amounts have been reclassified to
conform to the 1994 presentation.
C. Michael Hamilton, General Comptroller
August 15, 1994
10
Management's Discussion and Analysis of Financial Condition and Results of
Operations
SUMMARY
(in millions, except Second Quarter First Half-Year
earnings per share) 1994 1993 Change 1994 1993 Change
Sales from continuing operations $3,425 $3,353 +2% $6,180 $6,021 +3%
Earnings (loss) from operations
before extraordinary item and
cumulative effect of changes
in accounting principle:
Continuing 295 350 440 498
Discontinued-Health (30) (46) (81) (100)
Discontinued-Chemicals - 79 - 134
Net earnings (loss) 264 371 346 (1,648)
Primary earnings (loss)
per share .79 1.13 1.04 (5.05)
Fully diluted earnings (loss)
per share .78 1.08 1.02 (5.11)
Sales from continuing operations of $3,425 million for the second quarter of
1994 and $6,180 million for the first half-year were slightly higher than sales
for the comparable periods of last year. Earnings from continuing operations
for the quarter and year to date benefited from higher volumes and
manufacturing productivity gains, but were adversely affected by cost
escalation and lower effective selling prices. In addition, when comparing
1994 second quarter and year-to-date results with last year, the overall
impact of currency effects was negative. This is partially attributable to
the positive effect in 1993 of strategic hedges. Net earnings from continuing
operations for the quarter and year to date were also adversely affected by
approximately $30 million ($.09 per share) for adjustments relating to
inventory valuations and revenue on certain service agreements. The loss from
the discontinued health operations was attributable to the allocation of
interest expense in the quarter and year to date. Net earnings for the first
half of both years included an extraordinary charge of $.04 per share related
to the early extinguishment of debt.
The net loss for the first half of 1993 was due to an after-tax charge of
$2.17 billion ($6.64 per share) associated with the adoption of Statement of
Financial Accounting Standards (SFAS) No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions, and SFAS No. 112, Employers'
Accounting for Postemployment Benefits effective as of January 1, 1993.
On May 3, 1994, the Company announced its intent to divest the following
non-imaging health businesses: the pharmaceutical and consumer health
businesses of Sterling Winthrop Inc., L&F Products and the Clinical Diagnostics
Division. Beginning with the second quarter of 1994, these businesses are
being reported as discontinued operations with results for prior periods
restated. On June 23, 1994, the Company announced Sanofi has agreed to
acquire the pharmaceutical business of Sterling Winthrop Inc. for $1.675
billion in cash and its interest in the "Over the Counter" alliance with
Sterling Winthrop Inc. The Company expects to complete the transaction upon
receipt of regulatory approvals. In addition, the Company is actively
negotiating with potential buyers for the other non-imaging health businesses
and anticipates closing dates for these transactions over the next few months.
On June 15, 1993, the Company announced a plan to spin-off its Eastman
Chemical Company operations, which was completed by December 31, 1993.
In conjunction with the Company's announced intention to refocus its attention
on its consumer and commercial imaging businesses, the Company has changed its
segments for financial reporting purposes, effective with the second quarter
of 1994. The Consumer Imaging business unit, which was previously reported in
the former Imaging segment, is now reported as a separate segment. The new
Commercial Imaging segment includes the other business units from the former
Imaging segment, the business units from the former Information segment,
digital and applied imaging operations and the Health Sciences business unit,
which was previously included in the Health segment. Data for prior periods
have been restated to conform with the 1994 presentation.
On August 12, 1994, the Company purchased from the Actava Group Inc. its 50%
interest in Qualex Inc. for $150 million, $50 million to Actava at the closing
and the remaining $100 million without interest in two installments over the
next twelve months. As a result of this transaction, Qualex Inc. became a
wholly owned subsidiary of the Company and its financial statements will be
consolidated with those of the Company beginning in the third quarter of 1994.
- - ------------------------------------------------------------------------------
11
SEGMENT SALES
In the Consumer Imaging segment, sales to customers inside the U.S. increased
moderately for the quarter and were up slightly year to date, when compared
with sales for the same periods of 1993, due primarily to volume. Outside the
U.S., sales recorded a slight increase in the quarter and year to date
compared with last year, as good increases in unit volumes were partially
offset by the unfavorable effects of lower effective selling prices and
foreign currency rate changes. Worldwide volume gains in the second quarter
and first half of 1994 were led by Ektacolor papers, Kodacolor 35mm films and
single-use cameras.
In the Commercial Imaging segment, sales to customers inside the U.S. were
essentially level for the quarter and year to date when compared with 1993, as
higher volumes were offset by lower effective selling prices. Sales to
customers outside the U.S. increased slightly in the quarter and year to date
as the benefits from increased unit volumes were partially offset by lower
effective selling prices in both periods.
In the Health businesses, whose results are now being reported as discontinued
operations, sales to customers inside the U.S. increased moderately for the
quarter and declined slightly year to date when compared with 1993. The
second quarter increase was driven by volume gains. Outside the U.S.,
moderate gains in the quarter and year to date, when compared with the similar
periods of 1993, resulted from increases in effective selling prices and unit
volumes, partially offset by the unfavorable effects of foreign currency rate
changes. Worldwide sales increases in the second quarter were led by
L&F Products.
12
Sales by Segment
Second Quarter First Half-Year
(in millions) 1994 1993 Change 1994 1993 Change
Sales from Continuing Operations
Consumer Imaging
Inside the U.S. $ 670 $ 636 +5% $1,001 $ 959 +4%
Outside the U.S. 896 876 +2 1,564 1,510 +4
------ ------ ---- ------ ------- ----
Total Consumer Imaging 1,566 1,512 +4 2,565 2,469 +4
------ ------ ---- ------ ------- ----
Commercial Imaging
Inside the U.S. 956 960 0 1,865 1,839 +1
Outside the U.S. 903 882 +2 1,750 1,715 +2
------ ------ ---- ------ ------- ----
Total Commercial Imaging 1,859 1,842 +1 3,615 3,554 +2
------ ------ ---- ------ ------- ----
Deduct Intersegment Sales - (1) - (2)
------ ------ ---- ------ ------- ----
Total Sales from
Continuing Operations 3,425 3,353 +2 6,180 6,021 +3
------ ------ ---- ------ ------- ----
Sales from Discontinued Operations
Chemicals
Inside the U.S. - 689 - 1,352
Outside the U.S. - 341 - 651
------ ------ ---- ------ ------- ----
Total Chemicals - 1,030 - 2,003
------ ------ ---- ------ ------- ----
Health
Inside the U.S. 582 548 +6 1,071 1,095 -2
Outside the U.S. 381 364 +5 729 691 +5
------ ------ ---- ------ ------- ----
Total Health 963 912 +6 1,800 1,786 +1
------ ------ ---- ------ ------- ----
Deduct Intersegment Sales - (72) - (145)
------ ------ ------ -------
Total Sales from Discontinued
Operations 963 1,870 1,800 3,644
------ ------ ------ -------
Total Worldwide Sales including
Discontinued Operations $4,388 $5,223 $7,980 $ 9,665
====== ====== ====== =======
- - ----------------------------------------------------------------------------
COSTS AND EXPENSES
Second Quarter First Half-Year
(in millions) 1994 1993 Change 1994 1993 Change
Cost of goods sold $1,782 $1,644 +8% $3,252 $3,063 +6%
Percent of Sales 52.0% 49.0% 52.6% 50.9%
Marketing and administrative
expenses $ 925 $ 883 +5% $1,672 $1,670 0%
Percent of Sales 27.0% 26.3% 27.1% 27.7%
Research and development costs $ 230 $ 220 +5% $ 434 $ 417 +4%
Percent of Sales 6.7% 6.6% 7.0% 6.9%
13
COST AND EXPENSES (continued)
Cost of goods sold for the second quarter of 1994 included goodwill
amortization of $9 million compared with $7 million in the second quarter of
1993. For the first half of 1994, goodwill amortization was $17 million
compared with $13 million for the first half of 1993. Marketing and
administrative expenses increased in the quarter and were level for the year
to date when compared with 1993. Research and development costs recorded a
moderate increase in the quarter and were up slightly year-to-date when
compared with last year.
SEGMENT EARNINGS
Consumer Imaging operating earnings for the quarter were lower when compared
with the 1993 second quarter, as the benefits of increased unit volumes and
manufacturing productivity gains were more than offset by cost escalation,
higher marketing and administrative expenses, lower effective selling prices
and unfavorable foreign currency rate changes. Year-to-date Consumer Imaging
operating earnings increased moderately, as the benefits of increased unit
volumes and manufacturing productivity gains were only partially offset by
cost escalation, lower effective selling prices and unfavorable foreign
currency rate changes. In addition, the 1993 second quarter and year to date
benefited from the positive effect of strategic currency hedges.
Commercial Imaging segment operating earnings for the second quarter and year
to date were substantially lower than earnings for the comparable periods a
year ago. In the quarter, the benefits of increased unit volumes were more
than offset by cost escalation and lower effective selling prices. Year to
date, increased unit volumes, manufacturing productivity gains and lower
marketing and administrative expenses were more than offset by cost
escalation, lower effective selling prices and unfavorable foreign currency
rate changes. In addition, earnings for the quarter and year to date were
adversely affected by approximately $48 million before-tax for adjustments
relating to inventory valuations and revenue on certain service agreements.
The operating earnings of the Health businesses, which are now being reported
as discontinued operations, increased sharply for the quarter and posted
excellent gains year to date when compared with the comparable periods of
1993. In the quarter, the benefits of increased unit volumes, lower marketing
and administrative expenses and higher effective selling prices more than
offset cost escalation. Year to date, the favorable impacts of lower
marketing and administrative expenses and higher effective selling prices were
only partially offset by cost escalation.
- - ------------------------------------------------------------------------------
Earnings from
Operations by Segment
Second Quarter First Half-Year
(in millions)
1994 1993 Change 1994 1993 Change
Earnings from Operations from
Continuing Operations
Consumer Imaging $ 384 $ 404 -5% $ 487 $ 466 +5%
Percent of Sales 24.5% 26.7% 19.0% 18.9%
Commercial Imaging $ 105 $ 208 -50% $ 329 $ 401 -18%
Percent of Sales 5.6% 11.3% 9.1% 11.3%
------ ------ ---- ------ ------ ----
Total Earnings from Operations
from Continuing Operations $ 489 $ 612 -20% $ 816 $ 867 -6%
------ ------ ---- ------ ------ ----
Earnings from Operations from
Discontinued Operations
Chemicals - $ 138 - $ 250
Percent of Sales - 13.4% - 12.5%
Health $ 101 $ 73 +38% $ 144 $ 112 +29%
Percent of Sales 10.5% 8.0% 8.0% 6.3%
------ ------ ------ ------
Total Earnings from Operations
from Discontinued Operations $ 101 $ 211 $ 144 $ 362
------ ------ ------ ------
Total Earnings from Operations
including Discontinued Operations $ 590 $ 823 $ 960 $1,229
====== ====== ====== ======
- - --------------------------------------------------------------------------------------------
14
OTHER REVENUES AND COSTS
Earnings from equity interests and other revenues were lower in the quarter
and year to date when compared with the comparable periods of 1993. The
reason for the decrease was the inclusion of approximately $15 million in the
1993 second quarter and $71 million in the 1993 year to date for gains from the
sale of assets and other items. The net effect from foreign exchange
transactions was a loss of $6 million in the quarter and a loss of $44 million
for the first half of 1994 compared with no gain or loss in the 1993 second
quarter and a loss of $22 million in the 1993 year to date, respectively. The
year-to-date effective tax rate, including discontinued operations, was 41.5%
for 1994 and 41.1% for 1993. For continuing operations, the year-to-date
effective tax rate was 36.9%, compared with 38.9% for the first half of 1993.
- - ------------------------------------------------------------------------------
Net Earnings (Loss)
Second Quarter First Half-Year
1994 1993 Change 1994 1993 Change
(in millions)
Amount $264 $371 -29% $346 $(1,648) -
Percent of Sales 7.7% 11.1% 5.6%
- - -----------------------------------------------------------------------------------
CASH DIVIDENDS
During the second quarter of 1994, a cash dividend of $133 million (40 cents
per share) was declared on the Company's common stock. Total dividends
declared for the year-to-date period amounted to $265 million (80 cents per
share). Total dividends declared during the first six months of 1993 were
$327 million ($1.00 per share).
FINANCIAL POSITION
Cash and marketable securities were $625 million at the end of the second
quarter, compared with $1,966 million at year-end 1993. In connection with the
spin-off of the worldwide chemical business at the end of 1993, the Company
borrowed $1.8 billion in December, 1993. The borrowings were subsequently
assumed by the worldwide chemical business on December 31,1993. The proceeds
from the borrowings, which were retained by Kodak, were used during the first
half of 1994 to redeem debt, and terminate a Master Lease agreement and a Sale
of Receivables program. As a result, working capital at the end of the
quarter decreased to $1,023 million compared with $2,789 million at year-end
1993. Total borrowings decreased $997 million from year-end 1993. The
increase in Capital Stock and Additional Paid-In-Capital since year-end 1993
is primarily attributable to the partial conversion of the 6 3/8% convertible
subordinated debentures and zero coupon convertible subordinated debentures
into Company stock. The Company expects to have positive operating cash flow
for the year and plans to use the proceeds from the divestitures of the
non-imaging health businesses to reduce debt and related financial
instruments, which could result in material extraordinary and other charges
from the early extinguishment of debt.
CAPITAL ADDITIONS
Capital additions for the second quarter of 1994 were $478 million compared
with $199 million for the second quarter of 1993. For the first half of 1994,
capital additions were $627 million versus $438 million a year ago. The
Company was a party to a Master Lease agreement whereby the Company could
lease equipment with the right to buy the equipment anytime at fair market
value. The Company terminated this agreement during the second quarter of
1994 by purchasing approximately $300 million of equipment it has been
leasing. The provision for depreciation for the first two quarters of 1994
was $364 million, compared with $412 million for the comparable period of
1993.
- - ------------------------------------------------------------------------------
15
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is in discussion with the Environmental Protection Agency ("EPA")
and the Environment and Natural Resources Division of the U.S. Department of
Justice concerning the EPA/NEIC (National Enforcement Investigations Center)
investigation of the Company's Kodak Park site in Rochester, New York. As a
result of the investigation, the Company expects to incur a civil fine of at
least $100,000 for violations of federal environmental laws and regulations.
The Company is participating in the EPA's Toxic Substances Control Act
("TSCA")
Section 8 (e) Compliance Audit Program. As a participant, the Company has
agreed to audit its files for materials which under current EPA guidelines
would be subject to notification under Section 8 (e) of TSCA and to pay
stipulated penalties for each report submitted under this program. The
Company anticipates that its liability under the Program will be $1,000,000.
In addition to the foregoing environmental actions, the Company has been
designated as a potentially responsible party ("PRP") under the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended (the
"Superfund" law), or under similar state laws, for environmental assessment
and cleanup costs as the result of the Company's alleged arrangements for
disposal of hazardous substances at fewer than twenty Superfund sites. With
respect to each of these sites, the Company's actual or potential allocated
share of responsibility is small. Furthermore, numerous other PRPs have
similarly been designated at these sites and, although the law imposes joint
and several liability on PRPs, as a practical matter costs are shared with
other PRPs. Settlements and costs paid by the Company in Superfund matters to
date have not been material. Future costs are also not expected to be
material to the Company's financial condition or results of operations.
The Company and its subsidiary companies are involved in lawsuits, claims,
investigations, and proceedings, including product liability, commercial,
environmental, and health and safety matters, which are being handled and
defended in the ordinary course of business. There are no such matters
pending that the Company and its General Counsel expect to be material in
relation to the Company's business, financial condition, or results of
operations.
Item 4. Submission of Matters to a Vote of Security Holders
The 1994 Annual Meeting of Shareowners of Eastman Kodak Company was
held on
May 11.
A total of 282,316,427 of the Company's shares were present or
represented by proxy at the meeting. This represented more than 85%
of the Company's shares outstanding.
The individuals named below were elected to three-year terms as
Class I Directors:
Name Votes Received Votes Withheld
Martha Layne Collins 280,186,192 2,130,235
Charles T. Duncan 280,185,484 2,130,943
George M. C. Fisher 280,371,822 1,944,605
Paul E. Gray 280,314,181 2,002,246
John J. Phelan, Jr. 280,181,199 2,035,228
The election of Price Waterhouse as independent accountants was
ratified, with 280,267,755 shares voting for, 1,036,391 shares
voting against, and 1,012,281 shares abstaining.
The shareowner proposal that would require disclosure of certain
executive officer severance compensation was defeated, with
48,510,882 shares voting for and 190,012,205 shares voting against.
In addition, there were 9,611,678 abstentions and 34,181,662 broker
non-votes.
The shareowner proposal that would require an executive
compensation report was defeated, with 16,568,460 shares voting for
and 226,894,859 shares voting against. In addition, there were
4,671,496 abstentions and 34,181,612 broker non-votes.
16
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits and financial statement schedules required as part of
this report are listed in the index appearing on page 15.
(b) Reports on Form 8-K
No reports on Form 8-K were filed or required to be filed for
the quarter ended June 30, 1994.
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EASTMAN KODAK COMPANY
(Registrant)
Date August 15, 1994
C. Michael Hamilton, General Comptroller,
Principal Accounting Officer and
Duly Authorized Officer
18
Eastman Kodak Company and Subsidiary Companies
Index to Exhibits and Financial Statement Schedules
Page No.
1. Asset Purchase Agreement among Eastman Kodak Company,
Sterling Winthrop Inc., and Sanofi dated as of
June 22, 1994, Exhibit (10) 19-176
2. First Half-Year 1994 Computation of Earnings
Per Common Share, Exhibit (11) 177-179
19
Exhibit (10)
ASSET PURCHASE AGREEMENT
among
EASTMAN KODAK COMPANY
and
STERLING WINTHROP INC.
and
SANOFI
Dated as of June 22, 1994
20
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS AND TERMS
Section 1.1 Specific Definitions . . . . . . . . . . . . . . . . 29
Section 1.2 Other Terms . . . . . . . . . . . . . . . . . . . . . 44
Section 1.3 Other Definitional Provisions . . . . . . . . . . . . 44
ARTICLE II
PURCHASE AND SALE OF THE BUSINESS
Section 2.1 Purchase and Sale of Assets . . . . . . . . . . . . . 45
Section 2.2 Excluded Assets . . . . . . . . . . . . . . . . . . . 46
Section 2.3 Assumption of Liabilities . . . . . . . . . . . . . . 48
Section 2.4 Excluded Liabilities . . . . . . . . . . . . . . . . 51
Section 2.5 Purchase Price . . . . . . . . . . . . . . . . . . . 53
Section 2.6 Business Post-Closing Adjustments . . . . . . . . . . 56
Section 2.7 Disposition of Cash and
Short-term Investments. . . . . . . . . . . . . . . 60
Section 2.8 Transfer of the OTC Portion . . . . . . . . . . . . . 60
Section 2.9 Closing . . . . . . . . . . . . . . . . . . . . . . . 60
Section 2.10 Deliveries by Purchaser . . . . . . . . . . . . . . . 63
Section 2.11 Deliveries by Seller and Kodak . . . . . . . . . . . 64
Section 2.12 Agreement of Means of Transfer. . . . . . . . . . . . 66
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER AND KODAK
Section 3.1 Organization and Qualification . . . . . . . . . . . 69
21
Section 3.2 Subsidiaries; Joint Ventures, etc. . . . . . . . . . 70
Section 3.3 Corporate Authorization . . . . . . . . . . . . . . . 71
Section 3.4 Consents and Approvals . . . . . . . . . . . . . . . 72
Section 3.5 Non-Contravention . . . . . . . . . . . . . . . . . . 73
Section 3.6 Binding Effect . . . . . . . . . . . . . . . . . . . 74
Section 3.7 Financial Statements . . . . . . . . . . . . . . . . 74
Section 3.8 Litigation and Claims . . . . . . . . . . . . . . . . 75
Section 3.9 Taxes . . . . . . . . . . . . . . . . . . . . . . . 76
Section 3.10 Employee Benefits . . . . . . . . . . . . . . . . . . 79
Section 3.11 Compliance with Laws . . . . . . . . . . . . . . . . 82
Section 3.12 Environmental Matters . . . . . . . . . . . . . . . . 83
Section 3.13 Intellectual Property . . . . . . . . . . . . . . . . 85
Section 3.14 Collective Bargaining Agreements . . . . . . . . . . 86
Section 3.15 Contracts . . . . . . . . . . . . . . . . . . . . . . 86
Section 3.16 Title to Property . . . . . . . . . . . . . . . . . . 87
Section 3.17 Finders' Fees . . . . . . . . . . . . . . . . . . . . 89
Section 3.18 Absence of Change . . . . . . . . . . . . . . . . . . 89
Section 3.19 Reaffirmation of Representations . . . . . . . . . . 90
Section 3.20 Insurance . . . . . . . . . . . . . . . . . . . . . . 90
Section 3.21 Food and Drug Administration . . . . . . . . . . . . 90
Section 3.22 No Other Representations or
Warranties. . . . . . . . . . . . . . . . . . . . . 92
22
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Section 4.1 Organization and Qualification . . . . . . . . . . . 93
Section 4.2 Subsidiaries, Joint Ventures, etc. . . . . . . . . . 94
Section 4.3 Corporate Authorization . . . . . . . . . . . . . . . 94
Section 4.4 Consents and Approvals . . . . . . . . . . . . . . . 95
Section 4.5 Non-Contravention . . . . . . . . . . . . . . . . . . 96
Section 4.6 Binding Effect . . . . . . . . . . . . . . . . . . . 97
Section 4.7 OTC Assets . . . . . . . . . . . . . . . . . . . . . 97
Section 4.8 Title to Property . . . . . . . . . . . . . . . . . . 98
Section 4.9 Finders' Fees . . . . . . . . . . . . . . . . . . . . 99
Section 4.10 Financial Capability . . . . . . . . . . . . . . . . 99
Section 4.11 Reaffirmation of Representations . . . . . . . . . . 99
Section 4.12 No Other Representations
or Warranties . . . . . . . . . . . . . . . . . . . 100
ARTICLE V
COVENANTS
Section 5.1 Access . . . . . . . . . . . . . . . . . . . . . . . 100
Section 5.2 Conduct of Business . . . . . . . . . . . . . . . . . 102
Section 5.3 Reasonable Efforts; Good Faith . . . . . . . . . . . 104
Section 5.4 Tax Matters . . . . . . . . . . . . . . . . . . . . . 105
Section 5.5 Post-Closing Obligations of the
Business to Certain Employees . . . . . . . . . . . 115
Section 5.6 UPT Facility Lease . . . . . . . . . . . . . . . . . 131
Section 5.7 Compliance with WARN, etc. . . . . . . . . . . . . . 132
23
Section 5.8 Further Assurances . . . . . . . . . . . . . . . . . 132
Section 5.9 Use of Corporate Names . . . . . . . . . . . . . . . 132
Section 5.10 License Agreements . . . . . . . . . . . . . . . . . 133
Section 5.11 Transition Services . . . . . . . . . . . . . . . . . 136
Section 5.12 Supply Agreement . . . . . . . . . . . . . . . . . . 137
Section 5.13 Sublease Agreement . . . . . . . . . . . . . . . . . 139
Section 5.14 Maintenance of Shared Service
Arrangements. . . . . . . . . . . . . . . . . . . . 140
Section 5.15 Dental Agreements . . . . . . . . . . . . . . . . . 145
Section 5.16 Insurance . . . . . . . . . . . . . . . . . . . . . . 146
Section 5.17 Closing Asset and Liability Statement . . . . . . . . 148
Section 5.18 Schering Agreement . . . . . . . . . . . . . . . . . 148
Section 5.19 Confidentiality . . . . . . . . . . . . . . . . . . . 148
Section 5.20 Schedules . . . . . . . . . . . . . . . . . . . . . . 152
ARTICLE VI
CONDITIONS TO CLOSING
Section 6.1 Conditions to the Obligations of Kodak,
Purchaser and Seller. . . . . . . . . . . . . . . . 153
Section 6.2 Conditions to the Obligations of
Purchaser . . . . . . . . . . . . . . . . . . . . . 154
Section 6.3 Conditions to the Obligations of
Kodak and Seller. . . . . . . . . . . . . . . . . . 155
ARTICLE VII
SURVIVAL; INDEMNIFICATION
Section 7.1 Survival . . . . . . . . . . . . . . . . . . . . . . . 157
24
Section 7.2 Indemnification by Purchaser . . . . . . . . . . . . 158
Section 7.3 Indemnification by Seller and Kodak . . . . . . . . . 159
Section 7.4 Indemnification Procedures . . . . . . . . . . . . . 163
Section 7.5 Characterization of Indemnification
Payments. . . . . . . . . . . . . . . . . . . . . . 165
ARTICLE VIII
TERMINATION
Section 8.1 Termination . . . . . . . . . . . . . . . . . . . . . 166
Section 8.2 Effect of Termination . . . . . . . . . . . . . . . . 167
ARTICLE IX
MISCELLANEOUS
Section 9.1 Notices . . . . . . . . . . . . . . . . . . . . . . . 168
Section 9.2 Amendment; Waiver . . . . . . . . . . . . . . . . . . 169
Section 9.3 Assignment . . . . . . . . . . . . . . . . . . . . . 170
Section 9.4 Entire Agreement . . . . . . . . . . . . . . . . . . 172
Section 9.5 Fulfillment of Obligations . . . . . . . . . . . . . 172
Section 9.6 Parties in Interest . . . . . . . . . . . . . . . . . 172
Section 9.7 Public Disclosure . . . . . . . . . . . . . . . . . . 172
Section 9.8 Return of Information . . . . . . . . . . . . . . . . 173
Section 9.9 Expenses . . . . . . . . . . . . . . . . . . . . . . 173
Section 9.10 Schedules . . . . . . . . . . . . . . . . . . . . . . 174
Section 9.11 GOVERNING LAW; SUBMISSION TO
JURISDICTION . . . . . . . . . . . . . . . . . . . 174
Section 9.12 Counterparts . . . . . . . . . . . . . . . . . . . . 174
25
Section 9.13 Headings . . . . . . . . . . . . . . . . . . . . . 175
Section 9.14 Severability . . . . . . . . . . . . . . . . . . . 175
26
SCHEDULES AND ANNEXES
ANNEXES
Annex 6.2(c) - Opinion of Seller's Counsel
Annex 6.3(c) - Opinion of Purchaser's Counsel
SCHEDULES
Schedule 1.1(a)(i) - [reserved]
Schedule 1.1(a)(ii) - [reserved]
Schedule 1.1(b) - Dual Product
Schedule 1.1(c)(i) - Dental Applications
Schedule 1.1(c)(ii) - [reserved]
Schedule 1.1(d) - Leased Real Property
Schedule 1.1(e) -
[reserved] Schedule 1.1(f) -
OTC Shares Schedule 1.1(g) -
[reserved] Schedule 1.1(h) - Owned
Real Property Schedule 1.1(i)
- - - [reserved] Schedule 1.1(j)
- - - Trade Names Schedule 1.1(k) - Working Capital
Statement Schedule 2.2(c) - Excluded Ethical
Intellectual
Property
Schedule 2.2(f) - Fixtures and Equipment
Schedule 2.2(g) - Contracts
Schedule 2.3 - List of Newcos Schedule
2.5(b)(iii) - Net Debt Adjustment Payment Schedule
2.5(c)(i) - [reserved]
Schedule 2.12(a)(i) - Manner of Transfer
Schedule 3.1(a) - Organization and Qualification
Schedule 3.2(a)(i) - Subsidiaries; Joint Ventures,
etc.
Schedule 3.2(a)(ii) - Certain Subsidiaries
Schedule 3.2(b) - Capital Stock of Subsidiaries
Schedule 3.4 - Consent and
Approvals Schedule 3.5 -
Non-Contravention Schedule 3.7(a)(i) -
Financial Statements Schedule 3.7(a)(ii) - Exceptions to GAAP
- - - Statement of Assets
and Liabilities
Schedule 3.7(a)(iii) - Exceptions to GAAP - Income Statement
Schedule 3.8(a) - Litigation and Claims
Schedule 3.8(b) - Orders and Judgments
Schedule 3.9 - Taxes
Schedule 3.10(a) - Benefit Plans
Schedule 3.10(b) - Benefit Plan Litigation
Schedule 3.10(e) - Retiree Benefits
Schedule 3.10(f) - Amended Plans
Schedule 3.10(h) - Unfunded Liabilities
Schedule 3.11 - Compliance with Laws
27
Schedule 3.12 - Environmental Matters
Schedule 3.13(a) - Intellectual Property Related
to the Business
Schedule 3.13(b)(i) - Restrictions of Use Concerning
Ethical Intellectual Property
Schedule 3.13(b)(ii) - Trademarks
Schedule 3.14 - Collective Bargaining Agreements
Schedule 3.15(i) - Contracts
Schedule 3.15(ii) - Validity of Contracts
Schedule 3.15(iii) - Contracts in Default
Schedule 3.16(a) - Necessary Property
Schedule 3.16(b) - Encumbrances
Schedule 3.19 - Representations of Seller
Schedule 3.20 - Insurance
Schedule 4.1 - Organization and Qualification
Schedule 4.2(a)(i) -
[reserved] Schedule 4.2(a)(ii) -
[reserved] Schedule 4.2(b) -
[reserved] Schedule 4.4 - Consent and
Authorization Schedule 4.5 -
Non-Contravention Schedule 4.7(a) -
OTC Assets Schedule 4.7(b)(i) - Restrictions on Use of
OTC Assets Schedule 4.7(b)(ii) -
Trademarks Schedule 4.8(b) -
Encumbrances Schedule 4.11 - Reaffirmation of
Representations Schedule 5.5(b)(ii) - [reserved]
Schedule 5.5(g) - Shared Liabilities for Benefits to Former
Employees
Schedule 5.6 - UPT Facility Lease
Schedule 5.10(a) - Nanoparticulate License Agreement
Schedule 5.10(b) - Products Under Development -
Chemical
Schedule 5.10(c) - Products Under Development -
Medical Safety
Schedule 5.12 - Supply Agreement Pricing
Schedule 5.14(b)(ii) - Certain Provisions
28
ASSET PURCHASE AGREEMENT, dated as of June 22, 1994, among
EASTMAN KODAK COMPANY, a New Jersey corporation ("Kodak"), STERLING
WINTHROP INC., a Delaware corporation ("Seller"), and SANOFI, a societe
anonyme organized under the laws of the Republic of France ("Purchaser").
W I T N E S E T H:
WHEREAS, Seller, an indirectly wholly-owned subsidiary of
Kodak, is engaged worldwide in the ethical drug business through the Human
Ethical Pharmaceutical Products business and Sterling Organics, including
the manufacturing, marketing, sales, distribution, support operations and
research and development activities related thereto (the "Business");
WHEREAS, the parties hereto desire that Seller sell, transfer
and assign to Purchaser and Purchaser purchase and assume from Seller,
certain of the assets and liabilities of the Business, all as more
specifically provided herein;
WHEREAS, the parties hereto desire that Purchaser transfer to
Seller and Seller purchase from Purchaser, Purchaser's interest in the OTC
Venture, and certain related shares and assets, all as more specifically
provided herein; and
29
WHEREAS, Kodak and Purchaser desire to enter into one or more
license agreements with respect to the Kodak Licensed Intellectual
Property;
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings contained herein, and subject to and on the terms and
conditions herein set forth, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND TERMS
Section 1.1 Specific Definitions. As used in this Agreement,
the following terms shall have the meanings set forth or as referenced
below:
"Accounts Payable to Kodak" shall mean all accounts payable of the Business
that are (x) due to Kodak or an Affiliate of Kodak that does not
constitute part of the Transferred Business and (y) do not arise in
the ordinary course of business and on an arms'-length basis.
"Accounts Receivable from Kodak" shall mean all accounts receivable of the
Business that are (x) due from Kodak or an Affiliate of Kodak that
does not constitute part of the Transferred Business and (y) do not
arise in the ordinary course of business and on an arms'-length
basis.
"Adjusted Closing Working Capital Statement" shall have the meaning set
forth in Section 2.6(b).
"Affected Party" shall have the meaning set forth in Section 5.4(e).
"Affiliates" shall mean, with respect to any Person, any Persons directly
or indirectly controlling, controlled by, or under common control
with, such other Person.
30
"Agreement" shall mean this Agreement, as the same may be amended or
supplemented from time to time in accordance with the terms hereof.
"Ancillary Agreements" shall mean the Trademark Agreement, OTC Trademark
Agreement, Nanoparticulate License Agreement, Chemical License
Agreement, Medical Safety License Agreement, Sanofi License
Agreement, Shared Intellectual Property License Agreements, Trade
Name License Agreement, Ethical Transitional Services Agreement, OTC
Supply Agreement, Ethical Supply Agreement and Real Property Lease
Agreements, Dudley Supply Agreement, Sublease Agreement, Shared
Service Agreement, Marcaine License Agreement and OTC Product
Agreement.
"Asset and Liability Statement", shall mean the unaudited pro forma
statement of assets and liabilities of the Transferred Business at
December 31, 1993, attached as Schedule 3.7(a)(i) hereto.
"Assumed Liabilities" shall have the meaning set forth in Section 2.3.
"Assumed Pension Plans" shall have the meaning set forth in
Section 5.5(c)(ii).
"Audited Taxes" shall have the meaning set forth in Section 5.4(e).
"Benefit Plans" shall have the meaning set forth in Section 3.10(a).
"BMS Agreements" shall mean the agreements, each dated as of July 29, 1993,
among Seller, Sanofi and Bristol-Myers Squibb Company, including the
two letter agreements between Seller and Purchaser, dated as of the
same date, relating to Participation as SW Party in the BMS
Agreements.
"Books and Records" shall mean all books, ledgers, files, reports, plans
and operating records of, or maintained by, the Transferred Business
except to the extent included in or related to any Excluded Assets.
"Business" shall have the meaning set forth in the recitals of this
Agreement.
"Business Day" shall mean any day other than a Saturday, a Sunday or a day
on which banks in New York City are
31
authorized or obligated by law or executive order to close.
"Cash Portion" shall have the meaning set forth in Section 2.5(a).
"Chemical License Agreement" shall have the meaning set forth in Section
5.10(b).
"Claim Notice" shall have the meaning set forth in Section 7.4.
"Closing" shall mean the closing of the transactions contemplated by this
Agreement.
"Closing Date" shall have the meaning set forth in Section 2.9(a).
"Closing Working Capital Statement" shall have the meaning set forth in
Section 2.6(a).
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Confidentiality Agreement" shall mean the Agreement, dated May 2, 1994
between Purchaser and Goldman, Sachs & Co.
"Consideration" shall have the meaning set forth in Section 5.4(f).
"Continuation Coverage" shall have the meaning set forth in Section 5.5(d).
"Contracts" shall mean all agreements, contracts, leases, purchase orders,
arrangements, commitments and licenses that are Related to the
Business or to which the Transferred Assets are subject except to the
extent included in the Excluded Assets.
"CPA Firm" shall have the meaning set forth in Section 2.6(b).
"Current Assets" shall mean all current assets of the Transferred Business,
(i) including cash, investment securities and other short- and
medium-term investments, Inventory, accounts receivable and prepaid
expenses but excluding (ii) (x) cash, investment securities and other
short- and medium-term investments of the Specified Companies and the
U.S. operations of the Business and (y) Accounts Receivable from
Kodak.
32
"Current Liabilities" shall mean all current liabilities of the Transferred
Business, (i) including accounts payable and accrued expenses and all
other current obligations of the Transferred Business but excluding
(ii) (x) indebtedness for money borrowed of the Specified Companies
and the U.S. operations of the Business and (y) Accounts Payable to
Kodak.
"Dental Agreements" shall mean the Trademark License Agreement between
Sterling Winthrop Inc. and Kodak and the Master Purchase Agreement
between Sanofi Winthrop, L.P. and Kodak, each effective as of June
17, 1994.
"Development Agreement" shall mean the Development Collaboration Agreement
between Sterling Drug Inc. and Sanofi, dated April 26, 1991.
"Dual Product" shall mean the products set forth in Schedule 1.1(b) hereto.
"Dudley Supply Agreement" shall have the meaning set forth in Section
5.12(c).
"Due Date" shall have the meaning set forth in Section 5.4(c).
"Employees" shall mean, with respect to the Business, all current or former
employees of Seller or any of Seller's subsidiaries who were or are
dedicated to the Business (other than persons employed primarily in
the research, development or marketing of nanoparticulate technology,
except as otherwise agreed between the parties).
"Encumbrances" shall mean liens, charges, encumbrances, security interests,
options, or any other restrictions or third party rights.
"Environmental Law" shall mean any applicable federal, state, local or
foreign law, statute, ordinance, rule, regulation, code, order,
judgment, decree or injunction relating to (x) the protection of the
environment (including, without limitation, air, water vapor, surface
water, groundwater, drinking water supply, surface or subsurface
land), (y) occupational safety and health to the extent it relates to
exposure to Hazardous Substances or (z) the exposure to, or the use,
storage, recycling, treatment, generation, transportation,
processing, handling, labelling, protection, release or disposal of,
radioactive materials or Hazardous Substances.
33
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" shall have the meaning set forth in Section 3.10(c).
"Ethical Intellectual Property" shall mean all of the Intellectual Property
Related to the Business which is not Shared Intellectual Property.
"Ethical Supply Agreement" shall have the meaning set forth in Section
5.12(a).
"Ethical Transitional Services Agreement" shall have the meaning set forth
in Section 5.11(a).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Excluded Assets" shall have the meaning set forth in Section 2.2.
"Excluded Liabilities" shall have the meaning set forth in Section 2.4.
"FDA" shall have the meaning set forth in Section 3.21(a).
"FDC Act" shall have the meaning set forth in Section 3.21(a).
"Financial Statements" shall have the meaning set forth in Section 3.7(a).
"First Chooser" shall have the meaning set forth in Section 2.12(b)(2).
"Fixtures and Equipment" shall mean all furniture, fixtures, furnishings,
machinery, vehicles, equipment and other tangible personal property
Related to the Business except to the extent included in the Excluded
Assets.
"Former Employees" shall have the meaning set forth in Section 5.5(g).
"GAAP" shall mean United States generally accepted accounting principles.
"Gamma" shall mean Gamma CHEMIKLIEN, a Swiss Company.
"Governmental Authorizations" shall mean all licenses, permits,
certificates and other authorizations and
34
approvals required to carry on the Transferred Business or the
business of the OTC Portion, as the case may be, as currently
conducted under the applicable laws, ordinances or regulations of any
Federal, state, local or foreign governmental authority.
"Hazardous Substances" shall mean any hazardous substances within the
meaning of 101(14) of CERCLA, 42 U.S.C. sec. 9601(14), or any
pollutant or constituent that is regulated under any Environmental
Law.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Human Ethical Pharmaceutical Products" shall mean those articles and
devices (including chemical or biological entities and devices
consisting of pharmaceutical drug delivery systems or technology)
which
(i) are, in whole or in part, introduced in or applied to
the human body;
(ii) are intended (a) to (or, in the case of a device, for
use to) diagnose, cure, mitigate, treat, prevent or detect disease or
(b) to affect the structure or function of the human body; and
(iii) can be dispensed to or purchased by consumers in a
particular country (a) only by way of or pursuant to the prescription
or direction of a lawfully licensed or authorized practitioner or (b)
without such prescription or direction, where such dispensation or
purchase is reimbursable by any supranational, national, regional,
state or local government, court, governmental agency, authority,
board, bureau, instrumentality or regulatory body in such country,
except as may be otherwise mutually agreed by the parties to the
Pharm A Agreement and Pharm B Agreement.
Notwithstanding the foregoing, the term "Human Ethical
Pharmaceutical Products"
(A) shall not include (I) articles intended for the in
vitro diagnosis or detection of disease in the human body, (II) any
dental applications or indications of articles or devices otherwise
included in this definition, including those set forth on Schedule
1.1(c)(i) hereto, and (III) the product lines and businesses referred
to in Section 12.1(e) of the Pharm A Agreement and Section 10.01(e)
of the Pharm B Agreement; and
35
(B) shall only include those devices which (I) are used or
suitable for use in the delivery of articles which are themselves
Human Ethical Pharmaceutical Products, or (II) are otherwise included
in the Pharm Ventures by mutual agreement of the parties thereto.
"IND" shall have the meaning set forth in Section 3.21(d).
"Indemnified Parties" shall have the meaning set forth in Section 7.3(a).
"Indemnifying Party" shall have the meaning set forth in Section 7.4.
"Intellectual Property" shall mean trademarks, service marks, brand names,
certification marks, trade dress, assumed names, trade names and
other indications of origin, the goodwill associated with the
foregoing and registrations in any jurisdiction of, and applications
in any jurisdiction to register, the foregoing, including any
extension, modification or renewal of any such registration or
application; inventions, discoveries and ideas, whether patentable or
not in any jurisdiction; patents, applications for patents
(including, without limitation, divisions, continuations,
continuations in-part and renewal applications), and any renewals,
extensions or reissues thereof, in any jurisdiction; non-public
information, trade secrets and confidential information and rights in
any jurisdiction to limit the use or disclosure thereof by any
Person; writings and other works, whether copyrightable or not in any
jurisdiction; registrations or applications for registration of
copyrights in any jurisdiction, and any renewals or extensions
thereof; any similar intellectual property or proprietary rights; and
any claims or causes of action arising out of or related to any
infringement or misappropriation of any of the foregoing.
"Inventory" shall mean all inventory held for resale and all raw materials,
work in process, finished products, wrapping, supply and packaging
items Related to the Business, except to the extent included in the
Excluded Assets.
"Investment Canada Act" shall mean the Investment Canada Act, R.S.C. ch. 20
(1985), as amended.
"Kodak" shall have the meaning set forth in the recitals.
36
"Kodak Licensed Intellectual Property" shall mean the Intellectual Property
to be licensed to Purchaser by Kodak upon execution of the
Nanoparticulate License Agreement, the Chemical License Agreement and
the Medical Safety License Agreement.
"Last Closing" shall mean the later of (i) the Closing Date of the
transactions contemplated by this Agreement and (ii) the closing date
of the sale by Kodak of Seller or the sale by Seller of its consumer
health business, as the case may be.
"Laws" shall include any federal, state, foreign or local law, statute,
ordinance, rule, regulation, order, judgment or decree.
"Leased Real Property" shall mean all real property leased by Seller or its
Majority Owned Subsidiaries from parties other than Kodak, including
any buildings, structures and improvements thereon or appurtenances
and Property Related Rights thereto, Related to the Business. The
material Leased Real Property is set forth on Schedule 1.1(d) hereto.
"Listed Countries" shall have the meaning set forth in Section 2.12(b)(1).
"Losses" shall have the meaning set forth in Section 7.2(a).
"Majority Subsidiary" shall mean (i) all corporations and other entities
Related to the Business with respect to which more than 50% of the
voting shares or other voting equity interests are owned directly or
indirectly by Seller and (ii) Sanofi Winthrop Asia Pte Ltd.
"Marcaine License Agreement" shall have the meaning set forth in
Section 5.10(g).
"Material Adverse Change" shall mean a change that has had a Material
Adverse Effect.
"Material Adverse Effect" shall mean (x) in the case of the Business, an
effect that is materially adverse to the value of the Transferred
Assets and Kodak Licensed Intellectual Property taken as a whole or
materially adverse to the business, financial condition or results of
operations of the Business taken as a whole and (y) in the case of
the OTC Portion, an effect that is materially adverse to the value of
the OTC Venture or materially adverse to the business, financial
condition
37
or results of operations of the OTC Venture, but shall exclude in
each case (x) and (y) any change or development involving a
prospective change arising out of any proposed or adopted national
healthcare legislation, or any other proposal or enactment by any
governmental or regulatory authority affecting the pharmaceutical
industry generally.
"Medical Safety License Agreement" shall have the meaning set forth in
Section 5.10(c).
"Minority Subsidiary" shall mean all corporations and other entities
Related to the Business with respect to which less than 50% of the
voting shares or other voting equity interests are owned directly or
indirectly by Seller.
"Nanoparticulate License Agreement" shall have the meaning set forth in
Section 5.10(a).
"Net Working Capital" shall mean (x) Current Assets minus (y) Current
Liabilities. It is understood that, for purposes of determining Net
Working Capital, (i) Transferred Assets and Assumed Liabilities shall
be taken into account and (ii) Excluded Assets and Excluded
Liabilities shall not be taken into account.
"Newco" shall mean each entity listed in Schedule 2.3 hereto.
"Nonmedical Leave" shall mean maternity or paternity leave, leave under the
Family and Medical Leave Act of 1993, educational leave, military
leave with veteran's reemployment rights under federal law, or
personal leave (unless any of such is determined to be a medical
leave).
"Non-U.S. Venture Companies" shall have the meaning set forth in
Section 2.5(b)(iii).
"Notice Period" shall have the meaning set forth in Section 7.4.
"OTC Agreement" shall mean the OTC Business Joint Venture Agreement between
Seller and Sanofi, dated as of April 26, 1991, as amended to and
including the amendment dated December 16, 1993.
"OTC Assets" shall mean all of the intangible assets owned by Purchaser
that are primarily related to, arising
38
primarily out of or used primarily in connection with the OTC Venture
in Italy.
"OTC Business" shall mean the OTC Venture and the other consumer health
operations of Seller.
"OTC Owner" shall have the meaning assigned thereto in Section 5.14(b).
"OTC Portion" shall have the meaning set forth in Section 2.5(a).
"OTC Portion Permitted Encumbrances" shall have the meaning set forth in
Section 4.8(b).
"OTC Product Agreement" shall have the meaning set forth in Section
5.14(b).
"OTC Shares" shall mean all of the equity interests held by Purchaser in
the entities listed on Schedule 1.1(f).
"OTC Supply Agreement" shall have the meaning set forth in Section 5.12(b).
"OTC Trademark Agreement" shall have the meaning set forth in
Section 5.9(b).
"OTC Venture" shall mean the joint ventures established pursuant to the OTC
Agreement.
"Over-the-Counter Human Pharmaceutical Products" shall mean those articles
and devices (including chemical or biological entities and devices
consisting of pharmaceutical drug delivery systems or technology)
which (i) are, in whole or in part, introduced in or applied to the
human body; (ii) are intended (a) to (or in the case of a device, for
use to) diagnose, cure, mitigate, treat, prevent or detect disease or
(b) to affect the structure or function of the human body; (iii) can
be dispensed to or purchased by consumers in a particular country
without the prescription or direction of a lawfully licensed or
authorized practitioner; and (iv) are not reimbursable by any
supranational, national, regional, state or local government, court,
governmental agency, authority, board, bureau, instrumentality or
regulatory body in such country, except as may be otherwise mutually
agreed by the parties to the OTC Agreement. Notwithstanding the
foregoing, the term "Over-the-Counter Human Pharmaceutical Products"
(A) shall not include articles intended for the in vitro diagnosis or
39
detection of disease in the human body and (B) shall only include
those devices which (I) are used or suitable for use in the delivery
of articles constituting products covered by the OTC Agreement, or
(II) are otherwise included in the OTC Venture by mutual agreement of
the parties to the OTC Agreement.
"Owned Real Property" shall mean all real property owned by Seller and its
Majority Owned Subsidiaries Related to the Business set forth on
Schedule 1.1(h) hereto, including any buildings, structures and
improvements thereon or appurtenances and Property Related Rights
thereto.
"Parent Entity" shall have the meaning set forth in Section 5.4(b)(ii).
"Payor" shall have the meaning set forth in Section 5.4(c).
"Pension Excess" shall have the meaning assigned thereto in Section 5.5(c).
"Pension Plan" shall have the meaning set forth in Section 3.10(b).
"Pension Shortfall Amount" shall have the meaning assigned thereto in
Section 5.5(c).
"Permitted Encumbrances" shall have the meaning set forth in Section
3.16(b).
"Person" shall mean an individual, a corporation, a partnership, an
association, a trust or other entity or organization.
"Pharm A Agreement" shall mean the Prescription A Joint Venture Agreement
between Sterling Drug Inc. and Sanofi, dated as of April 26, 1991.
"Pharm B Agreement" shall mean the Prescription B Joint Venture Agreement
between Sterling Drug Inc. and Sanofi, dated as of April 26, 1991.
"Pharm Ventures" shall mean the joint ventures established pursuant to the
Pharm A Agreement and the Pharm B Agreement.
"Plans" shall have the meaning set forth in Section 3.10(b).
"Preparer" shall have the meaning set forth in Section 5.4(c).
40
"Property Related Rights" shall mean the bundle of rights and interests,
including without limitations all easements, privileges, permits,
rights of way, licenses, warranties, guaranties, if any, held by or
in possession of Seller relating to the use, occupancy, operation,
construction or development of leased or owned real property or
tangible personal property, to the extent legally transferable.
Whenever any provision of this Agreement or any of the Ancillary
Agreements specifically describes, defines, refers to or otherwise
addresses any right that could also be deemed to be a Property
Related Right, such provision shall supersede for all purposes any
other provision of this Agreement that describes, defines, refers to
or otherwise addresses Property Related Rights.
"Purchase Price" shall have the meaning set forth in Section 2.5(a).
"Purchaser" shall have the meaning set forth in the recitals.
"Purchaser Indemnified Parties" shall have the meaning set forth in Section
7.3(a).
"Purchaser's Objection" shall have the meaning set forth in Section 2.6(b).
"Recipient" shall have the meaning set forth in Section 5.4(e).
"Related to the Business" or "Relating to the Business" shall mean
primarily related to, arising primarily out of or used primarily in
connection with, the Business prior to the Closing; provided that (i)
manufacturing and related activities (together with any related
assets and liabilities) that supply products primarily to Seller's
businesses other than the Transferred Business, but that are
currently conducted as part of the Transferred Business at a facility
constituting an Owned Real Property or a Leased Real Property, shall
be considered Related to the Business and (ii) manufacturing and
related activities (together with any related assets and liabilities)
that supply products primarily to the Transferred Business, but that
are currently conducted as part of Seller's businesses other than the
Transferred Business at a facility that does not constitute an Owned
Real Property or a Leased Real Property, shall not be considered
Related to the Business. The terms "Related to the Transferred
41
Assets" and "Relating to the Transferred Assets" shall have meanings
correlative to the foregoing.
"Rensselaer Site I" shall mean the Sterling Organics main manufacturing
plant located in Rensselaer, New York which has been used
continuously since 1889 for the manufacture of pharmaceutical and
chemical products. The plant is generally bordered by the Columbia
Turnpike, Rensselaer Avenue, Belmore Avenue, Riverside Avenue, a
common boundary with Wyandotte Corporation and a Conrail right-of-
way.
"Rensselaer Site II" shall mean those areas along the current site of
Route 9J in East Greenbush, New York where it is alleged that wastes
from the Rensselaer plant were disposed of in the past. This site is
currently owned by the New York State Department of Transportation
and is currently undergoing an investigation by Sterling pursuant to
a November 1993 Consent Order with the New York State Department of
Environmental Conservation.
"Rensselaer Site III" shall mean the former landfill site along Pepscanee
Creek in East Greenbush, New York on lands currently or formerly
owned by Graziano and Niagra Mohawk at which Sterling is currently
analyzing remedial measures for the landfill and a resulting off-site
plume.
"Requested Amount" shall have the meaning set forth in Section 5.4(c).
"Required Approvals" shall have the meaning set forth in Section 3.4.
"Reserved Activities" shall mean the Sterling Reserved Activities as
defined in the Shareholders' Agreement among Sterling-Winthrop Group
Limited and Sanofi UK Limited and Sanofi Winthrop Limited dated 31st
December 1991.
"Retirement Plan Employees" shall have the meaning set forth in Section
5.5(c).
"Rx Buyer" shall have the meaning assigned thereto in Section 5.4(i).
"Sanofi" shall mean Purchaser.
"Sanofi License Agreement" shall have the meaning set forth in
Section 5.10(d).
42
"SAR Plan" shall have the meaning set forth in Section 2.5(c).
"Savings Plan Employees" shall have the meaning set forth in Section
5.5(c).
"Schering" shall mean Schering Aktiengesellschaft.
"Schering Agreement" shall mean the Amended and Restated License Agreement
dated as of December 23, 1992 between Schering and Seller.
"Seller" shall have the meaning set forth in the recitals.
"Seller Indemnified Parties" shall have the meaning set forth in Section
7.2(a).
"Seller Retirement Plans" shall have the meaning set forth in Section
5.5(c).
"Seller Savings Plans" shall have the meaning set forth in Section 5.5(c).
"Settlement Payment" shall have the meaning set forth in Section 5.4(c).
"Shared Intellectual Property" shall mean all Intellectual Property used by
(i) one or both of the Pharm Ventures and (ii) the OTC Business in
the conduct of their respective businesses.
"Shared Intellectual Property License Agreements" shall have the meaning
set forth in Section 5.10(e).
"Shared Service Agreement" shall have the meaning set forth in Section
5.14(a).
"Specified Companies" shall mean Sterling Winthrop Products, Inc. (Panama),
Sterling Pharmaceutical, Inc. (PR), Gamma, STERWIN AG and STERPHARM
AG.
"Sublease Agreement" shall have the meaning set forth in Section 5.13.
"Subsidiaries" shall mean all corporations and other entities in which
Seller owns directly or indirectly any shares or other equity
interests, the shares of which or other equity interests in which are
determined pursuant to Section 2.12 to be transferred to Purchaser
pursuant to this Agreement.
43
"Tax Package" shall have the meaning set forth in Section 5.4(d).
"Tax Returns" shall mean all reports and returns required to be filed with
respect to Taxes.
"Taxes" shall mean all federal, state, local or foreign income, gross
receipts, windfall profits, value added, severance, property,
production, sales, use, license, excise, franchise, employment,
withholding or similar taxes, together with any interest, additions
or penalties with respect thereto and any interest in respect of such
additions or penalties.
"Trade Name License Agreement" shall have the meaning set forth in Section
5.10(f).
"Trade Names" shall mean the trade names set forth in Schedule 1.1(j).
"Trademark Agreement" shall have the meaning set forth in Section 5.9(a).
"Transfer Taxes" shall have the meaning set forth in Section 5.4(h).
"Transferee Pension Plans" shall have the meaning set forth in Section
5.5(c).
"Transferee Savings Plans" shall have the meaning set forth in Section
5.5(c).
"Transferred Assets" shall have the meaning set forth in Section 2.1.
"Transferred Business" shall mean the portion of the Business represented
by the Transferred Assets and the Assumed Liabilities.
"Transferred Employees" shall have the meaning set forth in Section 5.5(b).
"U.S. Antitrust Laws" shall mean and include the Sherman Act, as amended,
the Clayton Act, as amended, the HSR Act, the Federal Trade
Commission Act, as amended, and all other federal and state statutes,
rules, regulations, orders, decrees, administrative and judicial
doctrines, and other laws that are designed or intended to prohibit,
restrict or regulate actions having the purpose or effect of
monopolization or restraint of trade.
44
"UPT Facility" shall have the meaning set forth in Section 5.6(a).
"UPT Lease Agreement" shall have the meaning set forth in Section 5.6(a).
"WARN" shall mean the Worker Adjustment and Retraining Notification Act.
"Welfare Plans" shall have the meaning set forth in Section 5.5(d).
"Wholly Owned Subsidiary" shall mean each corporation or other entity
Related to the Business, all of the voting shares or other voting
equity interests (other than directors' qualifying shares) in which
are owned directly or indirectly by Seller.
"Working Capital Statement", means the statement reflecting the calculation
of Net Working Capital of the Transferred Business at December 31,
1993 attached as Schedule 1.1(k) hereto.
Section 1.2 Other Terms. Other terms may be defined elsewhere
in the text of this Agreement and, unless otherwise indicated, shall have
such meaning throughout this Agreement.
Section 1.3 Other Definitional Provisions.
(a) The words "hereof", "herein", and "hereunder" and words
of similar import, when used in this Agreement, shall refer to this
Agreement as a whole and not to any particular provision of this Agreement.
(b) The terms defined in the singular shall have a comparable
meaning when used in the plural, and vice versa.
(c) The terms "dollars" and "$" shall mean United States
dollars.
45
ARTICLE II
PURCHASE AND SALE OF THE BUSINESS
Section 2.1 Purchase and Sale of Assets.
On the terms and subject to the conditions set forth herein, at
the Closing, Seller agrees to sell, convey, transfer, assign and deliver to
Purchaser, and Purchaser agrees to purchase from Seller, all of Seller's
right, title and interest in and to the assets of Seller Related to the
Business, whether tangible or intangible, real or personal, except for the
Excluded Assets (the "Transferred Assets"), including without limitation
(other than as specifically limited by (a) through (l) of this Section
2.1), all of Seller's right, title and interest in the following:
(a) The joint ventures established by the Pharm A Agreement
and the Pharm B Agreement or the assets held by such joint ventures
and all other rights under the Pharm A Agreement, the Pharm B Agree-
ment and the Development Agreement;
(b) The Human Ethical Pharmaceutical Products;
(c) Seller's rights under the BMS Agreements;
(d) The Owned Real Property and Leased Real Property and no
other real property;
(e) The Fixtures and Equipment;
(f) All Current Assets as of the Closing Date;
46
(g) The Ethical Intellectual Property (subject to Kodak's
rights under the Dental Agreements), Trade Names and, subject to
Section 5.10(e), the Shared Intellectual Property;
(h) Contracts;
(i) All of the stock of or other equity interests in the
Subsidiaries;
(j) All Books and Records of, or maintained by, the Business;
provided, however, that Seller may retain one copy of any such Books
and Records so long as Seller provides at least one copy of such
Books and Records to Purchaser;
(k) All refunds of Taxes to the extent such Taxes are Assumed
Liabilities; and
(l) All insurance policies owned by Seller or any Majority
Owned Subsidiary that relate primarily to Assumed Liabilities or are
Related to the Business, provided, in each case, that such policies
are assignable and remain in effect following the Closing.
Section 2.2 Excluded Assets. Notwithstanding anything herein
to the contrary, from and after the Closing, Seller shall retain all of its
right, title and interest in and to, and there shall be excluded from the
sale, conveyance, assignment or transfer to Purchaser hereunder, and the
Transferred Assets shall not include, the following (collectively, the
"Excluded Assets"):
47
(a) The joint ventures established by the OTC Agreement;
(b) Seller's consumer products business, including the
business conducted by the Sterling Health and L&F Products divisions
of Seller (including the manufacturing, marketing, sales,
distribution, support operations and research and development
activities related thereto and all inventories and other assets of
such businesses, in each case except to the extent Related to the
Business);
(c) All Ethical Intellectual Property set forth in Schedule
2.2(c) and, subject to Section 5.10(e), Shared Intellectual Property
and all trademarks and trademark registrations relating to any Dual
Product in each jurisdiction in which such Dual Product is sold as an
Over-the-Counter Human Pharmaceutical Product;
(d) Subject to Section 5.16, Seller's rights under all
insurance policies, including insurance policies in respect of
directors and officers who are Transferred Employees, and to all
claims against insurance carriers (other than rights under any
insurance policy referred to in Section 2.1(l));
(e) The UPT Facility;
(f) The fixtures and equipment set forth in Schedule 2.2(f);
(g) The contracts set forth in Schedule 2.2(g);
48
(h) (i) Cash, investment securities and other short- and
medium-term investments of the Specified Companies and the U.S. and
Puerto Rican operations of the Business and (ii) Accounts Receivable
from Kodak;
(i) All refunds of Taxes that are not Assumed Liabilities;
(j) The capital lease relating to the SWIC manufacturing
facility (and related equipment) in Sharon Hill, Pennsylvania;
(k) All Tax Returns of Seller or Kodak;
(l) All real property or interests in real property other than
the Owned Real Property and the Leased Real Property;
(m) Any Books and Records that Seller is required by law to
retain so long as Seller delivers at least one copy thereof to
Purchaser; and
(n) All rights to the names "Eastman" and "Kodak".
Section 2.3 Assumption of Liabilities. On the terms and
subject to the conditions set forth herein, at the Closing, Purchaser
agrees to assume and discharge or perform when due, all debts, liabilities,
or obligations whatsoever, other than Excluded Liabilities, that are
Related to the Business or that otherwise are Related to the Transferred
Assets, whether arising before or after the Closing and whether known or
unknown, fixed or contingent (the "Assumed
49
Liabilities"), including, without limitation (other than as
specifically
limited by Section 2.4 hereof), the following:
(a) The Contracts, including (i) the Pharm A Agreement and
the Pharm B Agreement; (ii) the Development Agreement; (iii) the BMS
Agreements; (iv) all licenses from third parties (including Kodak and
any Affiliate of Kodak that does not constitute part of the
Transferred Business) assigned or otherwise transferred to Purchaser;
and (v) subject to Section 5.15, the Dental Agreements;
(b) All Current Liabilities as of the Closing Date;
(c) All liabilities with respect to all actions, suits,
proceedings, disputes, claims or investigations that are Related to
the Business or otherwise Relating to the Transferred Assets, at law,
in equity or otherwise, including but not limited to (i) product
liability claims and (ii) liability for any damage arising out of or
relating to, and for any obligation to remediate, environmental
conditions associated with the Owned Real Property and Leased Real
Property, whether on-site or off-site (except to the extent such
liability or obligation arises out of or relates to the disposal at
Rensselaer Site II or Rensselaer Site III of Hazardous Waste
generated at Rensselaer Site I or any other Owned Real Property or
Leased Real Property);
50
(d) All liabilities for non-U.S. Taxes (whether imposed by
any national, state, departmental, provincial, local or other
jurisdiction) imposed on or with respect to each Newco to the extent
such Taxes are Related to the Transferred Assets or the Transferred
Business for the taxable periods, or portions thereof, ending on or
before the Closing Date; provided, however, that Assumed Liabilities
shall not include liabilities for any Taxes that are imposed on
Kodak, Seller, the Affiliates of either Kodak or Seller, any third
party that acquires Seller or any portion of the assets of Seller, or
Purchaser or any Affiliate of Purchaser and (X) are attributable to
any taxable periods ending before, on or after the Closing Date that
arise with respect to, or are attributable to, the Reserved
Activities, or (Y) for the taxable periods, or portions thereof,
ending on or before the Closing Date that arise as a result of
transfers (by distribution or otherwise) of cash or sales or
transfers (by distribution or otherwise) of other property, occurring
prior to the Closing (with respect to the country in which such cash
or other property is located prior to such sale or transfer), and in
the case of sales or transfers of property other than cash, also
occurring outside of the ordinary course of business, in all cases
including, without limitation, sales and
51
transfers of cash or other property contemplated by
Section 2.7 or 2.12 of this Agreement. Neither this
Section 2.3(d) nor Section 2.4(b) nor Section 2.4(g)
shall govern the allocation between the parties of any
Transfer Taxes allocated pursuant to Section 5.4(h); and
(e) (i) All employee benefit, compensation and severance
liabilities and other similar liabilities associated with any
Transferred Employees to the extent provided in Sections 5.5 and 5.7,
(ii) one half of the severance liabilities due to any non-U.S.
Transferred Employee whose employment is deemed to be terminated by
operation of law as a result of the transactions contemplated herein
and (iii) all liabilities under all union contracts with respect to
all such Transferred Employees.
Section 2.4 Excluded Liabilities. Notwithstanding any other
provision of this Agreement, the liabilities and obligations of Seller or
any subsidiary, which are not to be assumed by Purchaser hereunder (the
"Excluded Liabilities") are the following:
(a) All liabilities arising out of or relating to the Excluded
Assets (including any liability or obligation arising out of or
relating to the disposal at Rensselaer Site II or Rensselaer Site III
of
52
Hazardous Waste generated at Rensselaer Site I or any
other Owned Real Property or Leased Real Property);
(b) All liabilities for Taxes imposed with respect to the
Transferred Business for the taxable periods, or portions thereof,
ending on or before the Closing Date (whether imposed by a Taxing
authority or by virtue of any Tax sharing agreement) not expressly
assumed pursuant to Section 2.3(d) hereof;
(c) All (i) indebtedness for money borrowed, if any, of the
Specified Companies and the U.S. operations of the Business and (ii)
Accounts Payable to Kodak;
(d) The capital lease relating to the SWIC manufacturing
facility in Sharon Hill, Pennsylvania;
(e) All other liabilities and obligations for which Seller has
expressly assumed responsibility pursuant to this Agreement;
(f) All debts, liabilities, or obligations whatsoever, that
are not Related to the Business or that are not otherwise Related to
the Transferred Assets;
(g) All costs or expenses other than Taxes that arise as a
result of transfers (by distribution or otherwise) of cash or sales
or transfers (by distribution or otherwise) of other property
occurring prior to the Closing (with respect to the country in which
such cash or other property is located prior to
6 53
such sale or transfer), and in the case of sales or
transfers of property other than cash, also occurring
outside the ordinary course of business, in all cases
including, without limitation, sales and transfers of
cash or property contemplated by Section 2.7 or 2.12 of
this Agreement. Neither this Section 2.4(g) nor
Section 2.3(d) nor Section 2.4(b) shall govern the
allocation between the parties of any Transfer Taxes
allocated pursuant to Section 5.4(h); and
(h) All employee benefit, compensation, welfare and severance
liabilities and other liabilities associated with any Employees,
Transferred Employees or Former Employees, except to the extent
otherwise expressly provided in Section 5.5 and 5.7 hereof and
Section 2.3(e) hereof.
Section 2.5 Purchase Price.
(a) On the terms and subject to the conditions set forth
herein, Purchaser agrees (i) to pay Seller $1,675,000,000 (the "Cash
Portion") and (ii) in accordance with the provisions of Section 2.8 hereof
and without further consideration being paid by Seller, to sell, convey,
transfer, assign and deliver to Seller, all of Purchaser's right, title and
interest in and to the OTC Venture, the OTC Shares and the OTC Assets (and
all assets of Purchaser related thereto that the parties determine,
pursuant to Section 2.12(a) hereof, to transfer otherwise than through
54
the transfer of the OTC Venture, the OTC Shares or the OTC Assets) (the
"OTC Portion") (the Cash Portion and the OTC Portion together being the
"Purchase Price"). The Cash Portion shall be subject to adjustment as
provided in paragraphs (b) and (c) of this Section 2.5 and Section 2.6
hereof.
(b) (i) In addition to the foregoing, immediately prior to the
Closing, the parties will settle the balances of any payments due between
them in connection with each of the Pharm A Agreement, the Pharm B
Agreement, the Development Agreement and the OTC Agreement in the manner
agreed by the parties. Upon the Closing, each of the Pharm A Agreement,
the Pharm B Agreement, the Development Agreement and the OTC Agreement
shall be automatically terminated.
(ii) In addition to the foregoing, at the Closing the
parties will settle the balance of any payments due, or to become due in
respect of periods prior to the Closing, to Seller or a related entity
under the BMS Agreements by Purchaser or a related entity. Notwithstanding
anything contained herein to the contrary, any amounts paid to Seller in
accordance with this Section 2.5(b)(ii) shall not be considered to be
Transferred Assets.
(iii) In addition to the foregoing, immediately prior to the
Closing, Seller shall pay to Purchaser an adjustment payment in an amount
equal to the excess of
55
Seller's share of the aggregate indebtedness for borrowed money of the
companies and other entities established as part of the Pharm Ventures and
OTC Ventures outside the United States (the "Non-U.S. Venture Companies")
over Seller's share of the aggregate of the cash, investment securities and
other short- and medium-term investments of the Non-U.S. Venture Companies,
all as determined in accordance with Schedule 2.5(b)(iii) hereto.
(c) In addition to the foregoing, Purchaser shall pay to
Seller within 30 days after the Closing Date:
(i) the sum of $1.6 million with respect to the
outstanding phantom stock appreciation rights under the Sterling
Winthrop Inc. Affiliates Phantom Stock Appreciation Rights Plan (the
"SAR Plan") of the Transferred Employees (as defined in
Section 5.5(b)) on the Closing Date; provided that Seller shall cause
such phantom stock appreciation rights to be fully vested on the
Closing Date and to remain outstanding for the balance of their
respective exercise periods as set forth in the applicable notice of
grant, except to the extent agreed otherwise by a Transferred
Employee; and
(ii) the account balances of the Transferred Employees
under the Sterling Winthrop Inc. Deferred Compensation Plan on the
Closing Date.
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Section 2.6 Business Post-Closing Adjustments.
(a) Within 60 days following the Closing, Seller shall
prepare, or cause to be prepared, and deliver to Purchaser a Closing Date
Working Capital Statement (the "Closing Working Capital Statement"), which
shall set forth the Net Working Capital of the Transferred Business as of
the Closing Date and shall be prepared in accordance with the same
methodology and on the same basis as the Working Capital Statement.
(b) Purchaser and Purchaser's accountants shall, within 60
days after the delivery by Seller of the Closing Working Capital Statement,
complete their review of Net Working Capital reflected on the Closing
Working Capital Statement. In the event that Purchaser determines that the
Net Working Capital, as reflected on the Closing Working Capital Statement,
has not been determined on the basis set forth in Section 2.6(a) hereof,
Purchaser shall inform Seller in writing (the "Purchaser's Objection"),
setting forth a specific description of the basis of Purchaser's Objection
and the adjustments to the Net Working Capital which Purchaser believes
should be made, on or before the last day of such 60-day period. Seller
shall then have 30 days to review and respond to Purchaser's Objection. If
Seller and Purchaser are unable to resolve all of their disagreements with
respect to the determination of the foregoing items within 10 days
following the completion of
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Seller's review of Purchaser's Objection, they shall refer their remaining
differences to Arthur Andersen & Co. or another internationally recognized
firm of independent public accountants as to which Seller and Purchaser
mutually agree (the "CPA Firm"), who shall, acting as experts and not as
arbitrators, determine on the basis of the standard set forth in
Section 2.6(a) hereof, and only with respect to the remaining differences
so submitted, whether and to what extent, if any, the Net Working Capital,
as reflected on the Closing Working Capital Statement, requires adjustment.
The CPA Firm shall deliver its written determination to Purchaser and
Seller no later than the twentieth day after the remaining differences
underlying the Purchaser's Objection are referred to the CPA Firm, or such
longer period of time as the CPA Firm determines is necessary. The CPA
Firm's determination shall be conclusive and binding upon Purchaser and
Seller. The fees and disbursements of the CPA Firm shall be shared equally
by Purchaser and Seller. Purchaser and Seller shall make readily available
to the CPA Firm all relevant books and records and any work papers
(including those of the parties' respective accountants) relating to the
Working Capital Statement and the Closing Working Capital Statement and all
other items reasonably requested by the CPA Firm. The "Adjusted Closing
Working Capital Statement" shall be (i) the Closing Working Capital
Statement in the event that (x) no Purchaser's
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Objection is delivered to Seller during the 30-day period specified above,
or (y) Seller and Purchaser so agree, (ii) the Closing Working Capital
Statement, adjusted in accordance with the Purchaser's Objection in the
event that Seller does not respond to Purchaser's Objection within the 30-
day period following receipt by Seller of Purchaser's Objection, or
(iii) the Closing Working Capital Statement, as adjusted by either (x) the
agreement of Seller and Purchaser or (y) the CPA Firm. In the event that
the adjustment of the Closing Working Capital Statement pursuant to this
Section 2.6(b) discloses that it is appropriate to include an item in the
calculation of Net Working Capital that had been omitted from the Working
Capital Statement or to omit an item in the calculation of Net Working
Capital that had been included in the Working Capital Statement, Seller
shall prepare a revised Working Capital Statement so that the differences
between the amount of Net Working Capital reflected on the Working Capital
Statement and on the Closing Working Capital Statement reflect only the
impact of the passage of time on the balances of the accounts included in
the determination of Net Working Capital.
(c) Purchaser shall provide Seller and its accountants full
access to the Books and Records, any other information, including work
papers of its accountants, and to any employees to the extent necessary for
Seller to
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prepare the Closing Working Capital Statement and the Adjusted Closing
Working Capital Statement.
(d) Within 10 Business Days following issuance of the Adjusted
Closing Working Capital Statement, the adjustment payment payable pursuant
to this Section 2.6(d) hereof shall be paid by wire transfer of immediately
available funds to a bank account designated by Purchaser or Seller, as the
case may be. Purchaser or Seller, as the case may be, shall make an
adjustment payment in respect of Net Working Capital in an amount equal to
the difference between: (x) Net Working Capital as reflected on the
Working Capital Statement and (y) Net Working Capital as reflected on the
Adjusted Closing Working Capital Statement. The adjustment payment in
respect of Net Working Capital will be made by Seller to Purchaser to the
extent that Net Working Capital on the Adjusted Closing Working Capital
Statement is less than Net Working Capital on the Working Capital Statement
and by Purchaser to Seller to the extent that Net Working Capital on the
Adjusted Closing Working Capital Statement is greater than Net Working
Capital on the Working Capital Statement.
(e) On the date of any transfer of assets from a Seller
Retirement Plan to a Transferee Pension Plan, Seller shall pay to Purchaser
the Pension Shortfall Amount, if applicable, or the Purchaser shall pay to
the Seller the Pension Excess, if applicable.
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Section 2.7 Disposition of Cash and Short-term Investments.
Prior to the Closing, Seller shall cause all cash balances, investment
securities and other short- and medium-term investments held by Gamma to be
distributed or otherwise paid, in a manner chosen by Seller, to Seller or
one of Seller's Affiliates that does not constitute a part of the
Transferred Business. All costs and expenses of the distributions or
payments contemplated by this Section 2.7 (including liabilities for any
Taxes arising as a result of such distributions or payments) shall be borne
by Seller.
Section 2.8 Transfer of the OTC Portion.
On the terms and subject to the conditions set forth herein, at
the Closing, Purchaser agrees to sell, convey, transfer, assign and deliver
to Seller, and Seller agrees to purchase from Purchaser, all of Purchaser's
right, title and interest in and to the OTC Venture, the OTC Shares and the
OTC Assets.
Section 2.9 Closing.
(a) The Closing shall take place at the offices of Sullivan &
Cromwell, 125 Broad Street, New York, New York 10004 at 10:00 A.M. New York
City time, on September 30, 1994, provided that all of the conditions set
forth in Sections 6.1, 6.2(e) and 6.3(e) hereof have been satisfied or
waived with respect to at least (x) all Transferred Assets located in the
United States and Puerto Rico and (y) the OTC Portion of the Purchase
Price, or at such other
61
time and place as the parties hereto may mutually agree. The date on which
the Closing occurs is called the "Closing Date".
(b) Notwithstanding anything to the contrary contained in
this Agreement, to the extent that the sale, assignment, transfer,
conveyance or delivery or attempted sale, assignment, transfer, conveyance
or delivery to (x) Purchaser of any Transferred Asset or (y) Seller of any
part of the OTC Portion is prohibited by any applicable law or would
require any governmental or third party authorizations, approvals, consents
or waivers and such authorizations, approvals, consents or waivers shall
not have been obtained prior to the Closing or, in the case of the
Transferred Assets, at the date of the Closing the conditions set forth in
Section 6.1 have not been satisfied with respect to Transferred Assets
located outside of the United States, this Agreement shall not constitute a
sale, assignment, transfer, conveyance or delivery, or any attempted sale,
assignment, transfer, conveyance or delivery, thereof. Following the
Closing, the parties shall use reasonable efforts, and cooperate with each
other, to obtain promptly such authorizations, approvals, consents or
waivers; provided, however, that neither Seller nor Purchaser shall be
required to pay any consideration therefor, other than filing, recordation
or similar fees payable to any governmental authority, which fees shall be
shared
62
2.9(b))equally by Purchaser and Seller. Pending such
authorization,
approval, consent or waiver, (i) the parties shall cooperate with each
other in any reasonable and lawful arrangements designed to provide to (x)
Purchaser the benefits and liabilities of use of such Transferred Asset and
(y) Seller the benefits and liabilities of use of such part of the OTC
Portion, in each case from the Closing Date through the date of the
relevant closing, and (ii) to the extent legally permissible, Seller shall
transfer to Purchaser the effective management of the Transferred Business
and, to the extent such transfer is legally impermissible, operate the
Transferred Business in accordance with Purchaser's instructions and at
Purchaser's cost. Once such authorization, approval, consent or waiver for
the sale, assignment, transfer, conveyance or delivery of a Transferred
Asset or part of the OTC Portion, as the case may be, not sold, assigned,
transferred, conveyed or delivered at the Closing is obtained, Seller or
Purchaser, as the case may be, shall promptly assign, transfer, convey and
deliver such Transferred Asset or part of the OTC Portion, as the case may
be, to Purchaser or Seller, as the case may be, at no additional cost. To
the extent that any such Transferred Asset or part of the OTC Portion, as
the case may be, cannot be transferred or the full benefits and liabilities
of use of any such Transferred Asset or part of the OTC Portion, as the
case may be, cannot be provided to
63
Purchaser or Seller, as the case may be, following the Closing pursuant to
this Section 2.9(b), then Purchaser and Seller shall enter into such
arrangements (including subleasing or subcontracting if permitted) to
provide to the parties the economic (taking into account Tax costs and
benefits) and operational equivalent of obtaining such authorization,
approval, consent or waiver and the performance by Purchaser and Seller of
their respective obligations thereunder.
(c) Seller shall endeavor to transfer as many of the
Transferred Assets to Purchaser as is practical on the Closing Date. It is
understood, however, that Seller will be undertaking restructuring
transactions with respect to certain of the Transferred Assets that may not
be complete prior to the Closing Date. Subject to Section 2.9(b) above,
Seller will complete such transfers of Transferred Assets to Purchaser by
December 31, 1994 (it being understood that any ruling from Tax or other
governmental authorities regarding the Tax effect of the transactions
referred to in the previous sentence shall not be deemed to constitute
required governmental or third party authorizations, approvals, consents or
waivers referred to in Section 2.9(b)).
Section 2.10 Deliveries by Purchaser. At the Closing,
Purchaser shall deliver to Seller, and with respect to Sections 2.10(f) and
2.10(g) as applicable, to Kodak, the following:
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(a) the Cash Portion, in immediately available funds by wire
transfer to an account designated by Seller not less than two business days
prior to the Closing;
(b) assignments, in form and substance acceptable to Seller,
assigning to Seller all of Seller's right, title and interest in the OTC
Venture, OTC Assets and all OTC Shares;
(c) such instruments of assumption and other instruments or
documents, in form and substance reasonably acceptable to Seller, as may be
necessary to effect Purchaser's assumption of the Assumed Liabilities;
(d) such other instruments and documents, in form and
substance reasonably acceptable to Seller, as may be necessary to effect
the Closing;
(e) a duly executed copy of each of the Ancillary Agreements;
(f) the certificates and other documents to be delivered
pursuant to Section 6.3 hereof; and
(g) any payment required pursuant to Section 2.5(b) hereof.
Section 2.11 Deliveries by Seller and Kodak. At the Closing,
Seller, and with respect to Sections 2.11(b) and 2.11(f) and as applicable,
Kodak, shall deliver to Purchaser the following:
(a) bills of sale and any other appropriate instruments of
sale and conveyance, in form and substance
65
reasonably acceptable to Purchaser, transferring all tangible
personal
property included in the Transferred Assets to Purchaser;
(b) assignments, in form and substance acceptable to
Purchaser, assigning to Purchaser all Ethical Intellectual Property and,
subject to Section 2.12 hereof, Seller's interests in all corporations,
partnerships and other entities which interests are included in the
Transferred Assets;
(c) deeds, in limited warranty or other similar form, and any
other customary instruments of sale or conveyance, in each case in form and
substance reasonably acceptable to Purchaser, transferring all Owned Real
Property to Purchaser subject to any and all Permitted Encumbrances;
(d) assignments or, where necessary, subleases, in form and
substance reasonably acceptable to Purchaser, assigning or subleasing to
Purchaser all Leased Real Property;
(e) such other instruments or documents, in form and substance
reasonably acceptable to Purchaser, as may be necessary to effect the
Closing;
(f) a duly executed copy of each of the Ancillary Agreements;
(g) copies of surveys and title insurance policies in the
possession of Seller or Seller's
66
representatives, if any, with respect to Owned Real Property and
Leased
Real Property and, if applicable, copies of certificates in the possession
of Seller or Seller's representatives with respect to Owned Real Property
and Leased Real Property;
(h) the certificates and other documents to be delivered
pursuant to Section 6.2 hereof; and
(i) any payments required pursuant to Section 2.5(b) hereof.
Section 2.12 Agreement of Means of Transfer.
(a) Notwithstanding anything contained in Section 2.1, 2.3, 2.8, 2.10 or
2.11 hereof, (i) Seller and Purchaser hereby agree to restructure and to
transfer the Transferred Assets (and related Assumed Liabilities and
Transferred Employees) and the assets (and related liabilities)
constituting part of the OTC Portion, in each case as described in Schedule
2.12(a)(i), in the manner therein described, and (ii) Seller and Purchaser
will negotiate in good faith to agree, on a country-by-country basis as to
the restructuring and means of transfer of the Transferred Assets, Assumed
Liabilities and Transferred Employees (e.g., the sale of the equity
interests in corporate or unincorporated entities or the sale of the assets
held by and assumption of liabilities of such entities) to the extent not
described in Schedule 2.12(a)(i). If not otherwise described in
Schedule 2.12(a)(i) and subject to Section 2.12(c), with
67
respect to the OTC Portion, the OTC Shares will be transferred in stock
transactions and the OTC Assets will be transferred in an asset
transaction.
(b) If an agreement has not been reached pursuant to Section
2.12(a) on or before August 31, 1994 regarding the means of transfer of the
Transferred Assets (and related Assumed Liabilities and Transferred
Employees) in any country, the means of transfer in each such country shall
be determined in accordance with the following procedure which shall be
completed on or before September 1, 1994:
(1) A list shall be compiled of all such countries (the
"Listed Countries");
(2) Purchaser and Seller shall flip a coin to determine which
of them (the "First Chooser") shall choose the first country pursuant to
clause (3);
(3) The parties shall alternate, beginning with the First
Chooser, in selecting from the Listed Countries, countries that have not
already been chosen. The party that selects any country shall choose, as
the means of transfer, either (i) a transfer of equity interests or (ii) a
transfer of assets in that country.
The means of transfer chosen pursuant to this Section 2.12(b)
shall be binding unless the parties agree otherwise.
(c) The parties acknowledge that, notwithstanding whether a
transfer of assets occurs by transferring an
68
interest in an entity or the assets held by such entity, or any other means
chosen pursuant to Section 2.12(a) hereof, the transfer will be structured
in a manner that gives effect to the definitions of Transferred Assets,
Excluded Assets, Assumed Liabilities, Excluded Liabilities, OTC Assets and
OTC Shares. The foregoing shall include, without limitation, the right of
Seller to remove any Excluded Asset from an entity constituting a
Transferred Asset prior to transferring such entity.
(d) In the event that the parties determine, pursuant to this
Section 2.12, that any assets constituting part of the OTC Portion shall be
transferred otherwise than through the transfer of the OTC Venture, the OTC
Shares or the OTC Assets, Purchaser shall, as of the Closing Date, make
representations and warranties to Seller and Kodak, solely with respect to
such assets to be transferred by Purchaser or an Affiliate of Purchaser,
comparable in scope to the representations made by Seller in Sections 3.3,
3.4, 3.5, and, if applicable, Sections 3.16 and 4.7 relating to the
transfer of the Transferred Assets and the OTC Assets, as the case may be.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER AND KODAK
Seller, and with respect only to Sections 3.1, 3.3, 3.4, 3.5,
3.6, and 3.10 insofar as it relates to Plans maintained by Kodak, Kodak,
represent and warrant to Purchaser as of the date hereof and as of the
Closing Date (except that representations and warranties that are made as
of a specific date need be true only as of such date) as follows:
Section 3.1 Organization and Qualification. (a) Seller is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has all requisite
corporate power and authority to own and operate the Transferred Assets and
to carry on the Business as currently conducted. Except as set forth on
Schedule 3.1(a) hereto, Seller is duly qualified to do business and is in
good standing as a foreign corporation in each jurisdiction where the
ownership or operation of the Transferred Assets or the conduct of the
Business requires such qualification, except where the failure to be so
qualified or in good standing, as the case may be, would not materially
adversely affect Purchaser's ability to conduct the Transferred Business
substantially as heretofore conducted.
70
(b) Kodak is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its
incorporation.
Section 3.2 Subsidiaries; Joint Ventures, etc. (a) Schedule
3.2(a)(i) hereto sets forth a list of each corporation and other entity the
shares of which or interests in, or assets owned by, constitute Transferred
Assets (other than Minority Subsidiaries), together with its jurisdiction
of organization and its authorized and outstanding capital stock or other
equity interests as of the date hereof. Except as set forth on Schedule
3.2(a)(ii) hereto, each such entity is a corporation or other entity duly
organized, validly existing, and in good standing under the laws of its
jurisdiction of organization and has all requisite corporate or similar
power and authority to own and operate its properties and assets and to
carry on its business as presently conducted and is duly qualified to do
business and is in good standing as a foreign corporation or other entity
in each jurisdiction where the ownership or operation of its properties and
assets or the conduct of its business requires such qualification, except
where the failure to be so duly organized, validly existing, qualified or
in good standing would not materially adversely affect Purchaser's ability
to conduct the Transferred Business substantially as heretofore conducted.
Seller has heretofore delivered, or will deliver prior to Closing, to
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Purchaser true and complete copies of the governing documents of each
Subsidiary.
(b) Except as set forth on Schedule 3.2(b) hereto, Seller
owns, directly or indirectly, all of the outstanding capital stock or other
equity interest of each Wholly Owned Subsidiary free and clear of all
Encumbrances. There are no preemptive or other outstanding rights,
options, warrants, conversion rights or agreements or commitments to issue
or sell any shares of capital stock or other equity interest of any such
Subsidiary or any securities or obligations convertible into or
exchangeable for, or giving any Person a right to subscribe for or acquire,
any shares of capital stock or other equity interest of any such
Subsidiary, and no securities or obligations evidencing such rights are
outstanding.
Section 3.3 Corporate Authorization. Seller and Kodak have
full corporate power and authority to execute and deliver this Agreement
and each of the Ancillary Agreements, and to perform their obligations
hereunder and thereunder. The execution, delivery and performance by
Seller and Kodak of this Agreement and each of the Ancillary Agreements
have been duly and validly authorized and no additional corporate
authorization or consent is required in connection with the execution,
delivery and performance by Seller and Kodak of this Agreement and each of
the Ancillary Agreements.
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Section 3.4 Consents and Approvals. Except as specifically
set forth in Schedule 3.4 or as required by U.S. Antitrust Laws, Argentina,
Australia, Brazil, Canada, Mexico, EC Competition Law (or France, Germany,
Italy, Spain, the United Kingdom, to the extent not subject to EC
jurisdiction), Comprehensive Drug Abuse Prevention and Control Act of 1970,
Drug Enforcement Agency, Bureau of Alcohol and Tobacco, Hazardous Waste
facility permits, air permits, water permits and any other permits required
by any other Environmental Law, Federal Food, Drug and Cosmetics Act, U.S.
state wholesale drug licensing laws, the Exchange Act, the Nuclear
Regulatory Act, the Investment Canada Act and any other similar laws or
regulations, no consent, approval, waiver or authorization is required to
be obtained by Seller, Kodak or any Majority Subsidiary from, and no notice
or filing is required to be given by Seller, Kodak or any Majority
Subsidiary to or made by Seller, Kodak or any Majority Subsidiary with, any
Federal, state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by Seller of this
Agreement and each of the Ancillary Agreements, other than in all cases
where the failure to obtain such consent, approval, waiver or
authorization, or to give or make such notice of filing would not
materially adversely affect Purchaser's ability to conduct the Transferred
Business substantially as heretofore conducted or materially impair
73
or delay the ability of Seller to effect the Closing (together with the
consents, approvals, waivers, authorizations, notices and filings referred
to in Section 4.4 and Schedules 3.4 and 4.4 hereof, the "Required
Approvals").
Section 3.5 Non-Contravention. Except as set forth on
Schedule 3.5, the execution, delivery and performance by Seller and Kodak
of this Agreement and each of the Ancillary Agreements, and the
consummation of the transactions contemplated hereby and thereby, does not
and will not (i) conflict with or violate any provision of the Articles of
Incorporation, Bylaws or other organizational documents of Seller or Kodak,
(ii) subject to obtaining the consents referred to in Section 3.4, conflict
with, or result in the breach of, or constitute a default under, or result
in the termination, cancellation or acceleration (whether after the filing
of notice or the lapse of time or both) of any right or obligation of
Seller or Kodak under, or to a loss of any benefit to which Seller or Kodak
is entitled under, any Contract or result in the creation of any
Encumbrance upon any of the Transferred Assets, or (iii) assuming the
consents and approvals listed in Sections 3.4 and 4.4 are obtained, violate
or result in a breach of or constitute a default under any law, rule,
regulation, judgment, injunction, order, decree or other restriction of any
court or governmental authority to which Seller or Kodak is
74
subject, including any Governmental Authorization, other than in the cases
of clauses (ii) and (iii), any conflict, breach, termination, default,
cancellation, acceleration, loss, violation or Encumbrance which,
individually or in the aggregate, would not materially impair Purchaser's
ability to conduct the Transferred Business substantially as heretofore
conducted or materially adversely affect or delay Seller's or Kodak's
ability to perform its obligations hereunder.
Section 3.6 Binding Effect. This Agreement constitutes, and
each of the Ancillary Agreements when executed and delivered by the parties
thereto will constitute, a valid and legally binding obligation of each of
Seller and Kodak enforceable in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights and to
general equity principles.
Section 3.7 Financial Statements. (a) The unaudited pro forma
Asset and Liability Statement of the Transferred Business and the unaudited
income statement of the Transferred Business for the year ended December
31, 1993 attached as Schedule 3.7(a)(i) hereto (together, the "Financial
Statements") fairly present the financial condition of the Transferred
Business as of the date thereof, or the period then ended, as the case may
be, and
75
were prepared in accordance with GAAP as interpreted and applied
historically by Seller using such methodologies, including such exceptions
to GAAP, as are described in Schedule 3.7(a)(ii), in the case of the Asset
and Liability Statement, and as are described in Schedule 3.7(a)(iii), in
the case of the income statement. The Working Capital Statement is derived
from the Asset and Liability Statement. The asset and liability statement,
to be dated as of the Closing Date, will fairly present the financial
condition of the Transferred Business as of the date thereof and will be
prepared on the same basis as the Asset and Liability Statement, except as
will be described in the notes thereto.
(b) All of the liabilities reflected on the Asset and
Liability Statement are Related to the Business and arose out of or were
incurred in the conduct of the Transferred Business.
Section 3.8 Litigation and Claims. (a) Except as set forth
in Schedule 3.8(a), there is no civil, criminal or administrative action,
suit, demand, claim, hearing, proceeding or investigation pending or, to
the knowledge of Seller, threatened, involving the Transferred Business
(other than those related to Minority Subsidiaries) or any of the
Transferred Assets (except where owned by Minority Subsidiaries) other than
those which, individually or in the aggregate, would not materially
adversely affect Purchaser's ability to conduct the Transferred Business
substantially as
76
heretofore conducted or materially impair or delay Seller's ability
to
effect the Closing.
(b) Except as set forth in Schedule 3.8(b), none of the
Transferred Assets (except where owned by Minority Subsidiaries) is subject
to any order, writ, judgment, award, injunction, or decree of any court or
governmental or regulatory authority of competent jurisdiction or any
arbitrator or arbitrators other than those which, individually or in the
aggregate, would not materially adversely affect Purchaser's ability to
conduct the Transferred Business substantially as heretofore conducted or
materially impair or delay the ability of Seller to effect the Closing.
Section 3.9 Taxes. Except as set forth in the Financial
Statements or Schedule 3.9:
(a) All Tax Returns that are required to be filed on or before
the date of this Agreement (taking into account any applicable extensions)
with respect to the Business by or with respect to those corporate or
unincorporated entities the interests in which, or assets held directly or
indirectly by Seller, constitute Transferred Assets, have been duly filed,
except for Tax Returns the failure to file which, when taken together with
all other such failures, do not result in a material understatement of the
aggregate Tax liability of such entities; (b) all information provided in
such Tax Returns is true, complete and accurate in all
77
material respects; (c) all Taxes attributable to each entity described in
clause (a) that are or were due and payable (without regard to whether such
Taxes have been assessed) have been timely paid, except for such Taxes the
failure to pay which, when taken together with all other such failures,
will not be material; (d) no adjustments relating to the Tax Returns
referred to in clause (a) have been proposed by the Internal Revenue
Service or the appropriate state, local or foreign taxing authority, except
for such adjustments which, when taken together with all other such
adjustments that have been proposed, are not reasonably expected to be
material; (e) there are no pending or, to the knowledge of Seller,
threatened actions or proceedings for the assessment or collection of Taxes
against any entity described in clause (a), except for such actions or
proceedings which, when taken together with all other such actions and
proceedings that are pending or have been threatened, are not reasonably
expected to be material; (f) there are no outstanding waivers or agreements
extending to the applicable statute of limitations for any period with
respect to any Taxes of any entity described in clause (a), except for any
such waiver or agreement, when taken together with all other such waivers
and agreements that are outstanding, are not reasonably expected to be
material; (g) no audit examinations with respect to any entity described in
clause (a) are presently in progress, except
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for such audit examinations which, when taken together with all other such
audit examinations that are in progress, are not reasonably expected to
result in a liability that is material; (h) Seller and each of the
Subsidiaries have withheld from their employees (and timely paid to the
appropriate governmental entity or set aside in an account for such
purposes) proper and accurate amounts for all periods through the date of
this Agreement in compliance with all Tax withholding provisions of
applicable Federal, state, local and foreign laws (including, without
limitation, income, social security and employment Tax withholding for all
types of compensation) except such amounts, which when added to all other
such amounts not so withheld, paid or set aside, would not be material; (i)
there is no contract, agreement or intercompany account system in existence
under which Seller or any of the Subsidiaries have, or may at any time in
the future have, an obligation to contribute to the payment of any portion
of a Tax (or pay any amount calculated with reference to any portion of a
Tax) determined on a consolidated, combined or unitary basis with respect
to an affiliated group (as defined in Section 1504 of the Code) or other
group of corporations of which the Subsidiaries are or were a part which
when taken together with all other such contracts, agreements, or account
systems result in an obligation that is material; and (j) adequate
provisions in accordance with
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GAAP appropriately and consistently applied (except as set forth on
Schedule 3.7(a)(ii)) have been made in the Asset and Liability Statement
for the payment of all non-U.S. Tax liabilities of the entities described
in clause (a) with respect to the Business for the periods covered thereby
that were not yet due and payable as of the dates thereof, regardless of
whether the liability for such Taxes is disputed other than Taxes which
taken together are not material.
Section 3.10 Employee Benefits. (a) All benefit plans,
contracts or arrangements covering U.S. Employees, including, but not
limited to, "employee benefit plans" within the meaning of Section 3(3) of
ERISA, and plans of deferred compensation (the "Benefit Plans"), are listed
in Schedule 3.10(a). True and complete copies of all Benefit Plans,
including, but not limited to, any trust instruments and insurance
contracts forming a part of any Benefit Plans, and all amendments thereto
have been provided or made available to Purchaser.
(b) All employee benefit plans covering U.S. Employees (the
"Plans"), to the extent subject to ERISA or the Code, are in substantial
compliance with ERISA and the Code. Each Plan which is an "employee
pension benefit plan" within the meaning of Section 3(2) of ERISA ("Pension
Plan") and which is intended to be qualified under Section 401(a) of the
Code, has received a favorable determination letter
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from the Internal Revenue Service, and Seller is not aware of any
circumstances likely to result in revocation of any such favorable
determination letter. Except as set forth in Schedule 3.10(b), there is no
material pending or threatened litigation relating to the Plans and, to the
knowledge of Seller, no such litigation is likely. Neither Seller, Kodak,
nor any of the Majority Owned Subsidiaries has engaged in a transaction,
and no event has occurred with respect to any Plan that, assuming the
taxable period of such transaction expired as of the date hereof, could
subject Seller or any Majority Owned Subsidiary to a tax or penalty imposed
by Section 4975 or 4976 of the Code or Section 406 or 502(i) of ERISA in an
amount which would be material.
(c) No liability under Subtitle C or D of Title IV of ERISA
has been or is expected to be incurred by Seller or any of the Majority
Owned Subsidiaries with respect to any ongoing, frozen or terminated
"single-employer plan", within the meaning of Section 4001(a)(15) of ERISA,
currently or formerly maintained by any of them, or the single-employer
plan of any entity which is considered one employer with Seller under
Section 4001 of ERISA or Section 414 of the Code (an "ERISA Affiliate").
Seller and the Majority Owned Subsidiaries have not incurred any withdrawal
liability with respect to a multiemployer plan under Subtitle E of Title IV
of ERISA. No notice of a
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"reportable event", within the meaning of Section 4043 of ERISA for
which
the 30-day reporting requirement has not been waived, has been required to
be filed for any Pension Plan or by any ERISA Affiliate within the 12-month
period ending on the date hereof.
(d) Neither any Pension Plan nor any single-employer plan of
an ERISA Affiliate has an "accumulated funding deficiency" (whether or not
waived) within the meaning of Section 412 of the Code or Section 302 of
ERISA and no ERISA Affiliate has an outstanding funding waiver. Neither
Seller nor any of the Majority Owned Subsidiaries has provided, or is
required to provide, security to any Pension Plan or to any single-employer
plan of an ERISA Affiliate pursuant to Section 401(a)(29) of the Code.
(e) Neither Seller nor any of the Majority Owned Subsidiaries
has any obligations for retiree health and life benefits under any Benefit
Plan, except as set forth on Schedule 3.10(e).
(f) Other than as set forth on Schedule 3.10(f), neither
Seller, its Majority Owned Subsidiaries nor Kodak has any announced plan or
legally binding commitment to establish any additional Benefit Plan or to
amend, modify or terminate any existing Benefit Plan.
(g) Neither Seller nor the Majority Owned Subsidiaries have
any obligation to contribute to any multiemployer plan.
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(h) All employee benefit plans, contracts or arrangements
covering non-U.S. Employees comply in all material respects with applicable
law. Except as set forth in Schedule 3.10(h), Seller and its Majority
Owned Subsidiaries have no material unfunded liabilities with respect to
non-U.S. Employees.
(i) The transactions contemplated by this Agreement will not
result in the payment or series of payments to a Transferred Employee or to
any other person of a parachute payment within the meaning of Section 280G
of the Code.
(j) The consummation of the transactions contemplated by this
Agreement will not (i) entitle any Transferred Employee to severance pay
(other than any deemed termination indemnities due to non-U.S. Transferred
Employees), or (ii) accelerate the time of payment or vesting, or increase
the amount of compensation due to any such Transferred Employee or Former
Employee, except as expressly provided in this Agreement or as listed on
Schedule 3.10(a) and designated as a Section 3.10(j) plan.
Section 3.11 Compliance with Laws. Except as set forth in
Schedule 3.11 hereto, the Transferred Business (except to the extent
conducted by Minority Subsidiaries) is being conducted in compliance with
all applicable laws, rules and regulations, except where the failure so to
comply, individually or in the aggregate, would not
83
materially adversely affect Purchaser's ability to conduct the Transferred
Business substantially as heretofore conducted, the Transferred Business
(except to the extent conducted by Minority Subsidiaries) has all
Governmental Authorizations necessary for the conduct of the Transferred
Business as currently conducted, other than those the absence of which
would not materially adversely affect Purchaser's ability to conduct the
Transferred Business substantially as heretofore conducted and there are no
proceedings pending, or to the knowledge of Seller, threatened which may
result in the revocation, cancellation or suspension of any such
Governmental Authorization except those that would not materially adversely
affect Purchaser's ability to conduct the Transferred Business
substantially as heretofore conducted; it being understood that nothing in
this representation is intended to address any compliance issue that is the
subject of any other representation or warranty set forth herein.
Section 3.12 Environmental Matters. Except as set forth in
Schedule 3.12 hereto other than as relates to an Excluded Liability:
(a) to the knowledge of Seller, the Transferred Business
(except to the extent conducted by Minority Subsidiaries) is in compliance
with all applicable Environmental Laws and there are no liabilities under
any Environmental Law with respect to the Transferred Business
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(except to the extent conducted by the Minority Subsidiaries), other than
non-compliance or liabilities which would not materially adversely affect
Purchaser's ability to conduct the Transferred Business substantially as
heretofore conducted;
(b) Seller and its Majority Owned Subsidiaries have not
received any notice of any material violation or alleged material violation
of, or any material liability under, any Environmental Law in connection
with the Transferred Business during the past three years;
(c) there are no material writs, injunctions, decrees, orders
or judgments outstanding, or any actions, suits, proceedings or
investigations pending or, to the knowledge of Seller, threatened, relating
to compliance with or liability under any Environmental Law affecting the
Transferred Business (except to the extent conducted by the Minority
Subsidiaries) or the Transferred Assets (except where owned by the Minority
Subsidiaries); and
(d) to the knowledge of Seller, there are no environmental
liens affecting the Transferred Business (except to the extent conducted by
the Minority Subsidiaries) or the Transferred Assets (except where owned by
the Minority Subsidiaries), except for such liens as would not materially
adversely affect Purchaser's ability to conduct the Transferred Business
substantially as heretofore conducted.
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Section 3.13 Intellectual Property. (a) Schedule 3.13(a)
sets forth a list and description (including where applicable the country
of registration) of (i) all patents, patent applications, registered
trademarks, trademark applications, copyrights and copyright applications
related to the Transferred Business that are owned by Seller or its
subsidiaries and (ii) all agreements under which Seller or its subsidiaries
are licensed or otherwise permitted to use patents, trademarks and
copyrights which are material to the Transferred Business.
(b) Except as set forth in Schedule 3.13(b)(i), to the
knowledge of Seller (i) with respect to Ethical Intellectual Property other
than trademarks, no product (or component thereof or process) used, sold or
manufactured by the Business infringes on or otherwise violates the
Intellectual Property of any other Person, (ii) with respect to trademarks
constituting Ethical Intellectual Property that are listed on
Schedule 3.13(b)(ii), there are no restrictions that would materially
affect the use of those trademarks in connection with the Transferred
Business and the trademarks do not infringe upon or otherwise violate the
trademarks of any other Person, and (iii) no Person is challenging,
infringing or otherwise violating the Ethical Intellectual Property or
Shared Intellectual Property (excluding trademarks not included on
Schedule 3.13(b)(ii)), except in each case for challenges, infringements or
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violations, that individually or in the aggregate, would not
materially
adversely affect Purchaser's ability to conduct the Transferred Business
substantially as heretofore conducted. The trademarks that constitute
Transferred Assets that are material to the Transferred Business are listed
on Schedule 3.13(b)(ii).
Section 3.14 Collective Bargaining Agreements. Except as set
forth in Schedule 3.14 hereto, neither Seller nor any Subsidiary (other
than a Minority Subsidiary) is a party to or bound by any material labor
agreement or collective bargaining agreement respecting the Transferred
Employees (other than any Employee of a Minority Subsidiary), nor is there
pending, or to the knowledge of Seller threatened, any strike, walkout or
other work stoppage or any union organizing effort by or respecting the
Transferred Employees.
Section 3.15 Contracts. Schedule 3.15(i) sets forth a list,
as of the date hereof, of each written Contract that is material to the
Business other than purchase orders in the ordinary and usual course of
business. Except as set forth in Schedule 3.15(ii), to the knowledge of
Seller, each material Contract is a valid and binding agreement of Seller
or a subsidiary of Seller and is in full force and effect. Except as
otherwise provided in Schedule 3.15(iii), Seller has no knowledge of any
material default under any Contract listed on Schedule 3.15(i) which
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default has not been cured or waived and which default would materially
adversely affect Purchaser's ability to conduct the Transferred Business
substantially as heretofore conducted.
Section 3.16 Title to Property. (a) Except as set forth in
Schedule 3.16(a) the Transferred Assets and the Kodak Licensed Intellectual
Property constitute all the assets, properties and rights necessary to
conduct the Transferred Business in all material respects as currently
conducted.
(b) Seller has good and (in the case of Owned Real Property)
marketable title to, or a valid and binding leasehold interest in, the
property included in the Transferred Assets (other than the Ethical
Intellectual Property subject to Section 3.13), free and clear of all
Encumbrances, except (i) as set forth in Schedule 3.16(b), (ii) any
encumbrances disclosed in the Financial Statements, (iii) liens for Taxes,
assessments and other governmental charges not yet due and payable or due
but not delinquent or being contested in good faith by appropriate
proceedings, (iv) mechanics', workmen's, repairmen's, warehousemen's,
carriers' or other like liens arising or incurred in the ordinary course of
business, original purchase price conditional sales contracts and equipment
leases with third parties entered into in the ordinary course of business,
(v) with respect to real property, (A) easements, quasi-
88
easements, licenses, covenants, rights-of-way, and other
similar
restrictions, including without limitation any other agreements, conditions
or restrictions which would be shown by a current title report or other
similar report or listing, (B) any conditions that may be shown by a
current survey or physical inspection and (C) zoning, building and other
similar restrictions and (vi) Encumbrances which, individually or in the
aggregate, would not materially adversely affect Purchaser's ability to
conduct the Transferred Business substantially as heretofore conducted (all
items included in (i) through (vi), together with any matter set forth in
Schedule 3.16(b), are referred to collectively herein as the "Permitted
Encumbrances").
(c) All of the leases relating to the material Leased Real
Property (except to the extent leased by Minority Subsidiaries) are valid,
subsisting and in full force and effect in accordance with their terms.
All payments (including, without limitation, rent) with respect to material
Leased Real Property (except to the extent leased by Minority Subsidiaries)
due and payable and not being contested by Seller have been paid by Seller.
(d) Seller makes no representation in this Agreement as to
the physical condition of the real or tangible personal property included
in the Transferred Assets.
89
Section 3.17 Finders' Fees. Except for Goldman, Sachs & Co.
and McKinsey and Co., whose fees will be paid by Seller, as of the date of
this Agreement there is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on behalf
of Kodak, Seller or any Majority Owned Subsidiary who might be entitled to
any fee or commission from Seller in connection with the transactions
contemplated by this Agreement. Seller and Kodak may retain one or more
brokers or other intermediaries in connection with the sale of the UPT
Facility as contemplated by Section 5.6(b). Any fees or commissions of
such brokers or other intermediaries may be paid as part of the transaction
costs out of the gross proceeds of such sale.
Section 3.18 Absence of Change. Except (x) to the extent
arising out of or relating to the transactions contemplated by this
Agreement and the proposed sale of Seller and Seller's other businesses,
including restructuring transactions in connection with the offer and sale
of the Transferred Business or (y) contracts entered into since December
31, 1993 that are listed in Schedule 2.2(g), since December 31, 1993, (i)
the Transferred Business has been operated in the ordinary course in a
manner consistent with past practice and (ii) there has not been any change
in the operations, properties, assets, condition, financial or otherwise,
or prospects of the
90
Transferred Business other than, in each case (i) and (ii), changes
which
would not individually or in the aggregate materially adversely affect
Purchaser's ability to conduct the Transferred Business substantially as
heretofore conducted.
Section 3.19 Reaffirmation of Representations. Except as set
forth in Schedule 3.19, Seller hereby reaffirms that the representations
and warranties made by Seller in Article VII of the Pharm A Agreement were
true and correct as of the dates any assets were contributed by Seller to
the joint venture established pursuant to the Pharm A Agreement, provided
that with respect to any such representation and warranty qualified by the
knowledge (or any similar term) of Seller, Seller hereby confirms that, to
the best of Seller's present knowledge, such representations and warranties
were true and correct as of the dates any assets were contributed by Seller
to the joint venture established pursuant to the Pharm A Agreement.
Section 3.20 Insurance. Schedule 3.20 is a true and complete
list of all insurance policies that relate primarily to Assumed Liabilities
or are Related to the Business.
Section 3.21 Food and Drug Administration. With respect to
Human Ethical Pharmaceutical Products included in the Transferred Business
and either currently sold or under development in the United States and
with respect to each
91
facility in the United States at which Human Ethical Pharmaceutical
Products included in the Transferred Assets are manufactured, packaged or
distributed, as the case may be:
(a) Seller or its subsidiaries hold all permits, licenses,
certificates or other authorizations of the United States Food and Drug
Administration (the "FDA") and all similar state and local governmental
agencies necessary to sell its existing Human Ethical Pharmaceutical
Products other than those permits, licenses, certificates or authorizations
the absence of which would not materially adversely affect Purchaser's
ability to conduct the Transferred Business substantially as heretofore
conducted. To the knowledge of Seller, it is presently not in violation
of, and has not received from the FDA or any similar state or local
governmental agency any notice or charge, which has not been complied with
or withdrawn, asserting any violation of, the Federal Food, Drug, and
Cosmetic Act, as amended (the "FDC Act") or any similar state or local law
(including the rules or regulations promulgated thereunder), which
violation would have a material adverse effect on Purchaser's ability to
conduct the Transferred Business substantially as heretofore conducted.
(b) To the knowledge of Seller, Seller and each Subsidiary is
in compliance with all FDA and similar state and local governmental agency
requirements concerning the
92
maintenance, compilation and filing of reports, including, without
limitation, adverse drug experience reports, except where such non-
compliance would not materially adversely affect Purchaser's ability to
conduct the Transferred Business substantially as heretofore conducted.
(c) To the knowledge of Seller, each facility included in the
Transferred Business which is used in connection with the manufacturing,
packaging, distribution or sale of Seller's existing Human Ethical
Pharmaceutical Products is in compliance with the FDC Act and the
regulations promulgated thereunder, including, without limitation, the
FDA's good manufacturing practice regulations, except where such non-
compliance would not materially adversely affect Purchaser's ability to
conduct the Transferred Business substantially as heretofore conducted.
(d) Each ongoing clinical investigation conducted by Seller
that is required by law to be conducted under an Investigational New Drug
application (an "IND") or similar application has an IND or similar
application that is currently in effect. To the knowledge of Seller, such
IND is not subject to a clinical hold (except WIN 8883), and such
investigation is in compliance with the terms and conditions of the IND and
applicable FDA regulations.
Section 3.22 No Other Representations or Warranties. Except
for the representations and warranties
93
contained in this Article III, neither Seller nor any other Person makes
any other express or implied representation or warranty on behalf of
Seller.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller and Kodak as of the
date hereof and as of the Closing Date (except that representations and
warranties that are made as of a specific date need be true only as of such
date), as follows:
Section 4.1 Organization and Qualification. Purchaser is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has all requisite
corporate power and authority to own and operate the OTC Portion and to
carry on such business as currently conducted. Except as set forth on
Schedule 4.1 hereto, Purchaser is duly qualified to do business and is in
good standing as a foreign corporation in each jurisdiction where the
ownership or operation of the OTC Portion or the conduct of such business
requires such qualification, except where the failure to be so qualified or
in good standing, as the case may be, would not materially adversely affect
Seller's ability to conduct the business of the OTC Portion substantially
as heretofore conducted.
94
Section 4.2 Subsidiaries; Joint Ventures, etc. Each of
Sterling Midy S.A. and Sterling Midy Industrie S.A., each a societe anonyme
under laws of the Republic of France, is a corporation duly organized,
validly existing, and in good standing under the laws of its jurisdiction
of organization and has all requisite corporate power and authority to own
and operate its properties and assets and to carry on its business as
presently conducted and is duly qualified to do business and is in good
standing as a foreign corporation in each jurisdiction where the ownership
or operation of its properties and assets or the conduct of its business
requires such qualification, except where the failure to be so duly
organized, validly existing, qualified or in good standing would not
materially adversely affect Seller's ability to conduct the business of the
OTC Portion substantially as heretofore conducted. Purchaser has
heretofore delivered to Seller true and complete copies of each such
entity's governing documents as in effect as of the date hereof.
Section 4.3 Corporate Authorization. Purchaser has full
corporate power and authority to execute and deliver this Agreement and
each of the Ancillary Agreements, and to perform their obligations
hereunder and thereunder. The execution, delivery and performance by
Purchaser of this Agreement and each of the Ancillary Agreements have been
duly and validly authorized and no additional corporate
95
authorization or consent is required in connection with the
execution,
delivery and performance by Purchaser of this Agreement and each of the
Ancillary Agreements.
Section 4.4 Consents and Approvals. Except as specifically
set forth in Schedule 4.4 or as required by U.S. Antitrust laws, Argentina,
Australia, Brazil, Canada, Mexico, EC Competition Law (or France, Germany,
Italy, Spain, the United Kingdom, to the extent not subject to EC
jurisdiction), Comprehensive Drug Abuse Prevention and Control Act of 1970,
Drug Enforcement Agency, Bureau of Alcohol and Tobacco, Hazardous Waste
facility permits, air permits, water permits and any other permits required
by any other Environmental Law, Federal Food, Drug and Cosmetics Act, U.S.
state wholesale drug licensing laws, the Exchange Act, the Nuclear
Regulatory Act and any other similar laws and regulations, no consent,
approval, waiver or authorization is required to be obtained by Purchaser
from, and no notice or filing is required to be given by Purchaser to or
made by Purchaser with, any Federal, state, local or other governmental
authority or other Person in connection with the execution, delivery and
performance by Purchaser of this Agreement and each of the Ancillary
Agreements, other than in all cases those the failure of which to obtain,
give or make would not materially adversely affect Seller's ability to
conduct the business of the OTC Portion
96
substantially as heretofore conducted or materially impair or delay
the
ability of Purchaser to effect the Closing.
Section 4.5 Non-Contravention. Except as set forth on
Schedule 4.5, the execution, delivery and performance by Purchaser of this
Agreement and each of the Ancillary Agreements, and the consummation of the
transactions contemplated hereby and thereby, does not and will not
(i) conflict with or violate any provision of the Articles of
Incorporation, Bylaws or other organizational documents of Purchaser, (ii)
subject to obtaining the consents referred to in Section 4.4, conflict
with, or result in the breach of, or constitute a default under, or result
in the termination, cancellation or acceleration (whether after the filing
of notice or the lapse of time or both) of any right or obligation of
Purchaser under, or to a loss of any benefit to which Purchaser is entitled
under, any OTC Portion Contract or result in the creation of any
Encumbrance upon the OTC Portion, or (iii) assuming the consents and
approvals listed in Sections 3.4 and 4.4 are obtained, violate or result in
a breach of or constitute a default under any law, rule, regulation,
judgment, injunction, order, decree or other restriction of any court or
governmental authority to which Purchaser is subject, including any
Governmental Authorization, other than in the cases of clauses (ii) and
(iii), any conflict, breach, termination, default, cancellation,
acceleration, loss,
97
violation or Encumbrance which, individually or in the aggregate, would not
materially adversely affect Seller's ability to conduct the business of the
OTC Portion substantially as heretofore conducted or materially impair or
delay Purchaser's ability to perform its obligations hereunder.
Section 4.6 Binding Effect. This Agreement constitutes, and
each of the Ancillary Agreements when executed and delivered by the parties
thereto will constitute, a valid and legally binding obligation of
Purchaser enforceable in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general
equity principles.
Section 4.7 OTC Assets. (a) Schedule 4.7(a) sets forth a
list and description (including the country of registration) of all
material OTC Assets.
(b) Except as set forth in Schedule 4.7(b)(i), to the
knowledge of Purchaser (i) with respect to OTC Assets other than
trademarks, no product (or component thereof or process) used, sold or
manufactured by the OTC Portion infringes on or otherwise violates the
Intellectual Property of any other Person, (ii) with respect to trademarks
constituting OTC Assets, there are no restrictions upon the trademarks
listed in Schedule 4.7(b)(ii) that would
98
materially affect the use of those trademarks in connection with
the
business of the OTC Portion, and (iii) no Person is challenging, infringing
or otherwise violating the OTC Assets, except in each case for challenges,
infringements or violations, that individually or in the aggregate, would
not materially adversely affect Seller's ability to conduct the business of
the OTC Portion substantially as heretofore conducted.
Section 4.8 Title to Property. (a) The OTC Assets and the
OTC Shares constitute all the assets, properties and rights of Purchaser
used in the conduct of the business of the OTC Portion in all material
respects as currently conducted.
(b) Purchaser has good title to the OTC Shares, free and
clear of all Encumbrances, except (i) as set forth in Schedule 4.8(b), (ii)
liens for Taxes, assessments and other governmental charges not yet due and
payable or due but not delinquent or being contested in good faith by
appropriate proceedings, (iii) mechanics', workmen's, repairmen's,
warehousemen's, carriers' or other like liens arising or incurred in the
ordinary course of business, original purchase price conditional sales
contracts and equipment leases with third parties entered into in the
ordinary course of business, and (iv) Encumbrances which, individually or
in the aggregate, would not materially adversely affect Seller's ability to
conduct the business of
99
the OTC Portion substantially as heretofore conducted (all items included
in (i) through (iv), together with any matter set forth in Schedule 4.8,
are referred to collectively herein as the "OTC Portion Permitted
Encumbrances").
Section 4.9 Finders' Fees. Except for Lehman Brothers Inc.
and The Blackstone Group, whose fees will be paid by Purchaser, there is no
investment banker, broker, finder or other intermediary which has been
retained by or is authorized to act on behalf of Purchaser who might be
entitled to any fee or commission from Purchaser in connection with the
transactions contemplated by this Agreement.
Section 4.10 Financial Capability. On the Closing Date,
Purchaser will have sufficient funds to effect the Closing and all other
transactions contemplated by this Agreement.
Section 4.11 Reaffirmation of Representations. Except as set
forth in Schedule 4.11, Purchaser hereby reaffirms that the representations
and warranties made by Purchaser in Article IX of the OTC Agreement were
true and correct as of the dates any assets were contributed by Purchaser
to the OTC Venture, provided that with respect to any such representation
and warranty qualified by the knowledge (or any similar term) of Purchaser,
Purchaser hereby confirms that, to the best of Purchaser's present
knowledge, such representations and warranties were true and
100
correct as of the dates any assets were contributed by Purchaser to the OTC
Venture.
Section 4.12 No Other Representations or Warranties. Except
for the representations and warranties contained in this Article IV,
neither Purchaser nor any other Person makes any other express or implied
representation or warranty on behalf of Purchaser.
ARTICLE V
COVENANTS
Section 5.1 Access. (a) Prior to the Closing, Seller shall
permit Purchaser, any potential acquiror of any part of Purchaser's
interest in the Transferred Assets designated by Purchaser (provided that
such potential acquiror shall have executed and delivered to each of Kodak,
Seller and Purchaser a confidentiality agreement in form and substance
mutually satisfactory to Kodak, Seller and Purchaser), and their respective
representatives to have access, during regular business hours and upon
reasonable advance notice, to the Transferred Assets, and Purchaser shall
permit Seller, any potential acquiror of any part of the OTC Venture and
their respective representatives to have access, during regular business
hours and upon reasonable advance notice, to the OTC Portion, subject to
reasonable rules and regulations of Seller or Purchaser, as the case may
be, and shall furnish, or cause to be furnished, to
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Purchaser or Seller, as the case may be, any financial and operating data
and other information that is available with respect to (x) the Transferred
Business as Purchaser shall from time to time reasonably request or (y) the
OTC Portion as Seller shall from time to time reasonably request.
(b) Until the applicable statute of limitations (including
periods of waiver) has run for any Tax Returns filed or required to be
filed covering the periods up to and including the Closing Date, Purchaser,
with respect to the Transferred Assets and the Transferred Business, and
Seller, with respect to the OTC Portion, each agrees to retain all Books
and Records in existence on the Closing Date and after the Closing Date
will provide Seller and Kodak or Purchaser, as the case may be, with
information (including financial information), and grant Seller and Kodak
or Purchaser, as the case may be, access to such Books and Records for
inspection and copying by Seller, Kodak or Purchaser, as the case may be,
and, in each case, their agents at Seller's or Kodak's expense with respect
to the Transferred Assets and the Transferred Business and Purchaser's
expense with respect to the OTC Portion, upon reasonable request and upon
reasonable notice. After the expiration of such time period, no such Books
and Records shall be destroyed by Purchaser or Seller without first
advising the tax director of each of Kodak and Seller or Purchaser, as the
case may be, in writing detailing the contents of any such Books and
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Records and giving Kodak and Seller or Purchaser, as the case may be, at
least 120 days to obtain possession thereof.
Section 5.2 Conduct of Business. (a) During the period from
the date hereof to the Closing, except as otherwise contemplated by this
Agreement or as Purchaser shall otherwise agree in writing in advance with
respect to the Business, Seller covenants and agrees that Seller and each
of the Subsidiaries (other than Minority Subsidiaries) shall conduct the
Business in the ordinary and usual course, and use its reasonable efforts
to preserve intact its business and relationships with third parties.
During the period from the date hereof to the Closing, except as otherwise
provided for in this Agreement or as Purchaser shall otherwise consent
(which consent shall not be unreasonably withheld) Seller covenants and
agrees that it will continue to perform its obligations under the Pharm A
Agreement, the Pharm B Agreement, the Development Agreement and the BMS
Agreements in accordance with past practice and that with respect to the
Business, other than in the ordinary and usual course, it shall and shall
cause the subsidiaries (other than Minority Subsidiaries) to:
(i) not approve any new individual capital expenditure that
is in excess of $1,000,000;
(ii) not dispose of or incur, create or assume any Encumbrance
on any individual capital asset of the Business if the greater of the book
value or the fair market value of
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such capital asset exceeds $1,000,000 other than Permitted Encumbrances;
(iii) not incur any indebtedness for money borrowed or enter
into any contract or other commitment (including any hedging arrangement or
other derivative transaction), in each case that constitutes an Assumed
Liability in excess of $1,000,000;
(iv) not enter into any transaction that would materially
adversely affect Purchaser's ability to conduct the Transferred Business
substantially as heretofore conducted;
(v) not increase materially the salary, wage, rate of
compensation, commission, bonus or other direct or indirect remuneration
payable to, or other compensation of, any Transferred Employees, or enter
into any contract or other binding commitment in respect of any such
increase, nor amend, adopt or terminate any Benefit Plan covering
Transferred Employees or Former Employees in any way that materially
increases the amount of the Assumed Liability in respect of such plan or
enter into any negotiation in respect of or enter into any collective
bargaining agreement covering Transferred Employees that would constitute
an Assumed Liability;
(vi) not amend in any respect that would materially adversely
affect the use and enjoyment thereof by Purchaser, or terminate, any of the
leases relating to 90
104
Park Avenue, New York, New York or any other leases relating to a material
Leased Real Property or default in the performance of any material covenant
or obligation thereunder which default is not cured within any applicable
grace period; and
(vii) continue its pricing and sales practices substantially in
accordance with Seller's past practices.
(b) Notwithstanding the foregoing, the Business shall be
permitted at all times prior to the Closing Date to make distributions of
cash to Seller as provided in Section 2.7.
(c) During the period from the date hereof to the Closing,
except as otherwise contemplated by this Agreement or as Seller shall
otherwise agree in writing in advance, Purchaser covenants and agrees that
Purchaser shall conduct the business of the OTC Portion in the ordinary and
usual course, and use its reasonable efforts to preserve intact its
business and relationships with third parties. During the period from the
date hereof to the Closing, except as otherwise provided for in this
Agreement or as Seller shall otherwise consent (which consent shall not be
unreasonably withheld) Purchaser covenants and agrees that it shall
continue to perform its obligations under the OTC Agreement in accordance
with past practice.
Section 5.3 Reasonable Efforts; Good Faith. Seller and
Purchaser will cooperate and use their respective
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reasonable efforts to fulfill the conditions precedent to the other
party's
obligations hereunder, including but not limited to, securing as promptly
as practicable all consents, approvals, waivers and authorizations required
in connection with the transactions contemplated hereby. In each instance
in which a consent, approval, waiver or authorization cannot be obtained
prior to the Closing Date, Seller shall use its reasonable efforts to enter
into such alternative arrangements and agreements with Purchaser as may be
appropriate in order to permit Purchaser to receive and enjoy substantially
similar rights and benefits and to enable Purchaser to conduct the
Transferred Business until such consent or waiver is obtained. If, after
the exercise of reasonable efforts, any such consent or waiver is not
obtained, Seller agrees to cooperate with Purchaser in establishing any
reasonable arrangements designed to provide, to the extent reasonably
practicable, Purchaser with any and all rights of Seller under the relevant
Contracts. Purchaser and Seller will promptly file documentary materials
required by the U.S. Antitrust laws, E.C. Competition law, Environmental
Law and each of the other items listed in Section 3.4 and Section 4.4 and
promptly file any additional information requested as soon as practicable
after receipt of request thereof.
Section 5.4 Tax Matters. (a) Proration of Taxes. Except as
otherwise agreed to by the parties,
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whenever it is necessary to determine the liability for Taxes for a portion
of a taxable year or period that begins before and ends after the Closing
Date, the determination of the Taxes for the portion of the year or period
ending on, and the portion of the year or period beginning after, the
Closing Date shall be determined by assuming that the taxable year or
period ended at the close of business on the Closing Date, except that
annual property taxes and exemptions, allowances or deductions that are
calculated on an annual basis shall be prorated on a time basis.
(b) Computation of Tax Liabilities. (i) Whenever it is
necessary to determine the liability of Seller for Taxes, such
determination shall be made as if Seller had computed and paid such Taxes
separate from Kodak.
(ii) Whenever it is necessary to determine the liability of
Purchaser for Taxes, the determination shall be made as if Purchaser had
computed and paid such Taxes separate from any entity owning an interest in
Purchaser (a "Parent Entity").
(iii) Whenever it is necessary to allocate the amount of Taxes
imposed on or with respect to any entity or any asset between the
Transferred Business and any business retained by Seller or the OTC Portion
and any business retained by Purchaser, such allocation shall be made by
allocating all items of expense, loss, deduction, and credit between such
businesses based upon the relative gross income
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of each such entity attributable to each such business for the taxable year
or period to which each such item relates.
(c) Tax Returns. (i) Unless otherwise agreed to by the
parties, and except as otherwise appropriate by reason of any portion of
the Transferred Assets not being transferred on the Closing Date, for the
taxable year or period beginning before and ending on or after the Closing
Date, (A) Kodak or Seller shall file or cause to be filed when due all U.S.
Federal and U.S. state and local Tax Returns with respect to Taxes which
constitute Excluded Liabilities and (B) Purchaser shall file or cause to be
filed when due all Tax Returns (whether imposed by any national, state,
departmental, provincial, local or other jurisdiction) with respect to
Taxes which constitute Assumed Liabilities. To the extent permitted by law
or administrative practice, the taxable year of each corporate or
unincorporated entity which constitutes a Transferred Asset shall be
treated as closing at the close of the Closing Date.
(ii) If either party shall be liable hereunder for any portion
of the Tax shown due on any Tax Returns required to be filed by the other
party, the party preparing such Tax Return (the "Preparer") shall deliver a
copy of the relevant portions of such Tax Return to the party so liable
(the "Payor") for its review and approval, which may not be unreasonably
withheld, not less than thirty (30) days prior
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to the date on which such Tax Returns are due to be filed (taking into
account any applicable extensions) (the "Due Date"). If the Payor objects
to any items reflected on such returns, the parties shall attempt to
resolve the disagreement. If the parties are unable to resolve the
disagreement, the dispute shall be referred to the CPA Firm whose
determination shall be binding upon the parties. The fees and expenses of
such CPA Firm shall be borne equally by Seller and Purchaser. If the
dispute has not been resolved or the CPA Firm has not made its
determination prior to the Due Date, the Payor shall pay to the Preparer
the amount requested by the Preparer (the "Requested Amount"). When the
amount due to the Preparer from the Payor in respect of such Tax Return is
finally determined, a settlement payment (the "Settlement Payment") shall
be made in an amount equal to the Requested Amount minus the amount finally
determined to be due, from the Preparer to the Payor if the Settlement
Payment is a positive number, and from the Payor to the Preparer if the
Settlement Payment is a negative number.
(iii) Purchaser shall cause the entities constituting
Transferred Assets organized under the laws of Brazil, Argentina, U.K.,
Japan and Mexico, Sanofi Winthrop PHARMA and any other corporate entity the
shares of which are transferred to Purchaser or an Affiliate of Purchaser
pursuant to Section 2.12 hereto not to take any action described in the
following sentence during the period
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beginning on the Closing Date and ending on December 31, 1994. The actions
referred to in the prior sentence shall include only the following:
selling (including a deemed sale pursuant to Section 338 of the Code or a
similar law of any other country), exchanging, distributing, reorganizing
or otherwise disposing of the stock of any subsidiary corporation,
disposing of any other property the sale of which produces personal holding
company income within the meaning of Section 954(a)(1) of the Code and the
regulations thereunder, and making any distribution to shareholders in
excess of current earnings and profits as computed for U.S. Federal income
tax purposes derived during the period beginning on the day following the
Closing Date and ending on the first December 31 thereafter.
(iv) All Tax Returns referred to in Section 5.4(c)(i) shall be
prepared and income, gain, expenses, losses, deductions and credits in
respect of such returns shall be calculated in a manner consistent with
prior years unless Kodak or Seller obtains the consent of Purchaser or
Purchaser obtains the consent of Kodak to do otherwise, which consent shall
not be unreasonably withheld in either case.
(d) Information to be Provided by Purchaser. With respect to
Tax Returns to be filed by Kodak or Seller pursuant to Section 5.4(c)(i)(A)
hereof, Purchaser shall promptly, following the end of the taxable year
beginning
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before and ending on or after the Closing Date, prepare and provide to
Seller a package of tax information materials (the "Tax Package"), which
shall be completed in accordance with past practice, including past
practice as to providing the information, schedules and work papers and as
to the method of computation of separate taxable income or other relevant
measures of income of the Seller.
(e) Contest Provisions. Each of Purchaser, Kodak and Seller
(the "Recipient") shall promptly notify each other party or parties whose
liability for Taxes (including any such liability assumed pursuant to this
Agreement and any obligation to indemnify any person in respect of such
Taxes pursuant to Article VII of this Agreement may be materially affected
thereby (each, an "Affected Party") in writing upon receipt by the
Recipient, of notice of any pending or threatened audits or assessments
with respect to Taxes (the "Audited Taxes"). For purposes of this Section
5.4(e), the term "Affected Party" shall include a party whose Tax liability
in respect of any period subsequent to the period or periods in which such
Audited Taxes arose may be materially affected in any manner (including the
reduction of asset basis or cost adjustments, the reduction of credit
carryovers, the imposition of tax deficiencies and the increase of taxable
income) by such audit or assessment. The party liable for the Audited
Taxes pursuant to Article II of this Agreement shall control the complete
defense of
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the interests of itself and each Affected Party in any tax audit or
administrative or court proceeding relating to Taxes. Each Affected Party
shall be entitled to participate at its expense in such defense and to
employ counsel of its choice at its expense. No Affected Party may agree
to settle any claim for such Audited Taxes without the prior written con-
sent of each other Affected Party, which may not be unreasonably withheld.
(f) Allocation of Consideration. The parties to this
Agreement agree to determine the amount of and allocate the total
consideration transferred by Purchaser to Seller pursuant to this Agreement
(the "Consideration") in accordance with the fair market value of the
assets and liabilities transferred. Kodak, Seller and Purchaser shall each
prepare one or more schedules determining and allocating the Consideration
and shall negotiate in good faith to reconcile such schedules. If the
Purchaser and Kodak cannot agree on a mutually acceptable determination,
allocation or determination and allocation of the Consideration, Purchaser
and Seller shall each determine, allocate or determine and allocate, as the
case may be, such Consideration in the manner it considers appropriate.
Seller and Purchaser each agree to prepare and file an IRS Form 8594 in a
timely fashion in accordance with the rules under Section 1060 of the Code.
To the extent that the Consideration is adjusted after the Closing Date,
the
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parties agree to revise and amend the schedule and IRS Form 8594 in the
same manner and according to the same procedure. Any determination,
allocation or determination and allocation of the Consideration agreed upon
by the Parties pursuant to the second sentence of this subsection shall be
binding on Kodak, Seller and Purchaser for all tax reporting purposes.
(g) Employee Withholding and Reporting Matters. With respect
to the Transferred Employees, Purchaser shall, in accordance with and to
the extent permitted pursuant to Revenue Procedure 84-77, 1984-2 C.B. 753,
assume all responsibility for preparing and filing Form W-2, Wage and Tax
Statement, Form W-3, Transmittal of Income and Tax Statements, Form 941,
Employer's Quarterly Federal Tax Return, Form W-4, Employee's Withholding
Allowance Certificate, and Form W-5, Earned Income Credit Advance Payment
Certificate. Seller and Purchaser agree to comply with the procedures
described in Section 5 of Revenue Procedure 84-77.
(h) Transfer Taxes. All excise, sales, use, transfer,
(including real property transfer or gains), stamp, documentary, filing,
recordation and other similar taxes which may be imposed or assessed as the
result of (i) the transfer of the Transferred Assets to the Purchaser or an
Affiliate of Purchaser pursuant to this Agreement or (ii) the transfer of
the OTC Portion to Seller pursuant to this
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Agreement (the "Transfer Taxes"), together with any interest, additions or
penalties with respect thereto and any interest in respect of such
additions or penalties shall be borne equally by Seller and Purchaser. Any
Tax Returns that must be filed in connection with Transfer Taxes shall be
prepared by the party primarily or customarily responsible under the
applicable local law for filing such Tax Returns which will use its
reasonable best efforts to provide such Tax Returns to the other parties at
least 10 days prior to the date such Tax Returns are due to be filed. Such
Tax Returns shall be prepared consistent with the allocation of the
Consideration pursuant to Section 5.4(f) hereof.
(i) Foreign Tax Receipts. Purchaser shall deliver to the tax
director of Kodak certified copies of all receipts for any foreign Tax with
respect to which Kodak or Seller could claim a foreign tax credit, and any
other documentation required in connection with Seller or Kodak claiming or
supporting a claim for such foreign tax credits promptly following either a
request by Kodak for such receipts or documentation or payment of any such
foreign Taxes by Purchaser, any Affiliate of Purchaser or any other party
to whom Purchaser or an Affiliate of Purchaser transfers any portion of the
Transferred Assets. To the extent Purchaser transfers any equity interests
constituting a 50% or greater interest in any entity constituting a
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Transferred Asset to a party or parties unrelated to Purchaser (each,
an
"Rx Buyer"), Purchaser shall be relieved of the obligation described in the
preceding sentence to the extent that Purchaser obtains the written
agreement of the Rx Buyer to fulfill Purchaser's obligations pursuant to
the preceding sentence with respect to any taxes paid by Purchaser prior to
such transfer or by an Rx Buyer after such transfer.
(j) Assistance and Cooperation. The parties agree that,
after the Closing Date:
(A) The parties shall assist (and cause their respective
Affiliates to assist) the other parties in preparing any Tax Returns
with respect to the Business which such other parties are responsible
for preparing and filing;
(B) The parties shall cooperate fully in preparing for any
audits of, or disputes with taxing authorities regarding, any Tax
Returns and payments in respect thereof;
(C) The parties shall make available to each other and to any
taxing authority as reasonably requested all relevant Books and
Records relating to Taxes;
(D) The parties shall provide timely notice to the other in
writing of any pending or proposed audits
115
or assessments with respect to Taxes for which the
other may have a liability under this Agreement;
(E) Each party shall furnish the other with copies of all
relevant correspondence received from any taxing authority in
connection with any audit or information request with respect to any
Taxes referred to in subsection (D) above; and
(F) The party requesting assistance or cooperation shall bear
the other party's out-of-pocket expenses in complying with such
request to the extent that those expenses are attributable to fees
and other costs of unaffiliated third-party service providers.
(k) The Purchaser will not make an election pursuant to
Section 338 of the Code or a similar law of any other country with respect
to any corporation transferred pursuant to Section 2.12 hereof which is not
a U.S. corporation, unless such election is needed by Purchaser in order to
avoid taking a carryover basis, for U.S. Federal income tax purposes, in
assets directly acquired from Seller or an Affiliate of Seller.
Section 5.5 Post-Closing Obligations of the Business to
Certain Employees. (a) Purchaser shall offer employment in comparable
positions to all Transferred Employees on the Closing Date or upon the
return of any such Transferred Employee to active employment, and will
maintain for a period of two years after the Closing Date, without
116
interruption, employee compensation and benefit plans, programs
and
policies and fringe benefits (including post-employment welfare benefits)
that, in the aggregate, will provide benefits to Transferred Employees
that, in the good faith judgment of Purchaser, are no less favorable than
those provided pursuant to such employee benefit plans, programs and
policies, and fringe benefits, of the Business as in effect on the Closing
Date and listed on Schedule 3.10(a) and designated therein as a Section
5.5(a) plan; provided, however, that the requirements of this sentence
shall not apply to: (i) Transferred Employees who are covered by a
collective bargaining agreement, (ii) benefits the value of which is based
on the value of the securities of Kodak or Seller or which gave Transferred
Employees the right to purchase securities of Kodak or Seller, (iii)
benefits which vest, or the payment of which is accelerated or increased in
amount, upon a change in control of Kodak, Seller or Purchaser, or (iv)
benefits or changes therein mandated by applicable law. Notwithstanding
the foregoing, for a period of two years after the Closing Date, Purchaser
will provide to each Transferred Employee (other than a Transferred
Employee covered by a collective bargaining agreement) severance pay and
benefits which are no less favorable than under Seller's severance plans,
programs and policies as in effect on the date of this Agreement and listed
on Schedule 3.10(a) and designated as a Section
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5.5(a) severance plan, other than with respect to Seller's "Employee
Protection Plan" or any other benefit plan, program or arrangement that
provides benefits upon a change in control of Kodak. To the extent
permitted by applicable law, Transferred Employees shall be given credit
for all service with Seller or any subsidiary (or service credited by
Seller or any subsidiary) under all employee benefit plans, programs and
policies, and fringe benefits of the Business or Purchaser in which they
become participants for purposes of eligibility, vesting and benefit
accrual to the same extent as if rendered to Purchaser; provided, however,
that nothing herein shall require Purchaser to provide duplicate benefits
for the same period of service. In addition, and notwithstanding the
foregoing, Purchaser will assume the responsibility to pay, and shall
provide to, Transferred Employees the benefits due and owing under the
SWPRD relocation program and other Sterling Winthrop Inc. relocation
programs and listed on Schedule 3.10(a).
(b) "Transferred Employees" means all of the following
Employees:
(i) Except as specifically agreed to between Seller and
Purchaser, all active Employees of (A) Sanofi Winthrop Territory B, (B)
Sterling Winthrop's research division, (C) Sterling Organics and (D)
Sterling Winthrop Pharmaceuticals Group headquarters, and in each case,
their subsidiaries;
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(ii) Sterling Winthrop K.K.'s active pharmaceutical Employees
in Japan; and
(iii) those members of Seller's corporate staff as agreed by
Purchaser and Seller prior to Closing.
For purposes of (A)-(D) in subsection (i) above and of
subsection (ii) above, Employees shall be considered active even though on
the Closing Date, they are (x) on temporary leave for purposes of jury or
annual two-week national service/military duty; (y) on Nonmedical Leave of
absence; provided, however, that no such Employee shall be guaranteed
reinstatement to active service if his return to employment is contrary to
the terms of his leave, unless otherwise required by applicable law; or (z)
on disability or medical leave and for whom it has been 180 calendar days
or less since their last day of active employment; provided, however, that
no such Employee shall be guaranteed reinstatement to active service if he
is incapable of working in accordance with the policies, practices and
procedures of Purchaser.
(c) (i) Effective as of the Closing Date, Purchaser shall
establish one or more defined contribution plans (the "Transferee Savings
Plans") for the benefit of Transferred Employees and Former Employees who
were participants in the Eastman Kodak Employees' Savings and Investment
Plan, the Sterling Winthrop Inc. Salaried Employees' Savings Plan and the
Sterling Winthrop Inc.
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Hourly Employees' Savings Plan (the "Seller Savings Plans"). Such
Transferred Employees are referred to hereinafter as the "Savings Plan
Employees".
Kodak and Seller shall cause to be transferred from the Seller
Savings Plans to the Transferee Savings Plans the liability for the account
balances of the Savings Plan Employees, together with assets (the form of
which shall be agreed to by the parties) the fair market value of which is
equal to such liability, and Purchaser shall cause the Transferee Savings
Plans to accept such transfers. The transfer of assets shall take place
within 90 days after the Closing Date; provided, however, that in no event
shall such transfer take place until the later of (i) the furnishing to
Seller by Purchaser of a favorable determination letter from the Internal
Revenue Service with respect to the qualification of the Transferee Savings
Plans under Section 401(a) of the Code, and (ii) the receipt by Seller of
favorable determination letters from the Internal Revenue Service with
respect to the continued qualification of the Seller Savings Plans under
Section 401(a) of the Code, as amended to comply with changes to the
qualification requirements of Section 401(a) of the Code made by the Tax
Reform Act of 1986 and other recent legislation and regulations.
(ii) On or before the Closing Date, Seller shall amend,
effective as of the Closing Date, the Sterling
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Winthrop Inc. Pension Plan for Hourly Employees and the Sterling Winthrop
Inc. International Chemical Workers Union Pension Plan for Hourly Employees
(the "Assumed Pension Plans") to make Purchaser (or a subsidiary thereof)
the "plan sponsor" (as such term is defined in Section 3(16) of ERISA)
thereof. Seller will make appropriate amendments to the Assumed Pension
Plans and the trust agreements thereunder to implement such change of plan
sponsor. Seller shall take all other actions necessary to enable Purchaser
(or a subsidiary thereof) to assume, and Purchaser hereby agrees to assume
(or cause a subsidiary to assume), all benefit liabilities and obligations
with respect to the Assumed Pension Plans. Seller shall, not later than 90
days after the Closing Date, cause the trustee of the trust under each
Assumed Pension Plan to transfer to a trustee designated by Purchaser all
of the assets of such Plan. To the extent the assets are held in a master
trust, the transfer shall be made in the form of cash or cash equivalents,
or such marketable securities as the parties may agree. From the date
hereof to the date of such transfer (or if the assets are not held in a
master trust, the Closing Date), Seller shall not, and shall not permit the
trustee of any Assumed Pension Plan to, make any significant changes in the
investment policy in connection with the management of the assets of such
Plans.
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(iii) Effective as of the Closing Date, Purchaser shall
establish one or more defined benefit plans (the "Transferee Pension
Plans") for the benefit of Retirement Plan Employees (as defined below) who
participated in the Kodak Retirement Income Plan and the Sterling Products
International Inc. Pension Plan for Salaried Employees who are Employed at
Facilities Located in Puerto Rico (the "Seller Retirement Plans"). For
purposes of this Agreement, "Retirement Plan Employees" means the
Transferred Employees, the Former Employees (other than Former Employees of
the Seller's L&F Division and Former Employees who are continuing to accrue
a benefit under the Seller Retirement Plans) and the applicable
beneficiaries thereof. The Transferee Pension Plans shall (A) recognize
for all purposes thereunder the service of the Retirement Plan Employees
which was recognized under the Seller Retirement Plans and (B) provide,
upon the transfer of assets referred to below, that the benefit liabilities
of the Retirement Plans Employees under the Transferee Pension Plans shall
in no event be less than their benefit liabilities under the Seller
Retirement Plans as of the Closing Date.
With respect to each Seller Retirement Plan, Seller shall cause
to be transferred from the trust under such Seller Retirement Plan to the
trust under the Transferee Pension Plan assets, the value of which shall be
equal to the lesser of (x) the sum of (1) the "accumulated
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benefit obligation" (as defined in Statement of Financial Accounting
Standards No. 87) of the Retirement Plan Employees under such Seller
Retirement Plan as of the Closing Date, calculated using the actuarial
assumptions that were used in preparing the audited financial statements of
Kodak and the Seller for the year ended December 31, 1993, except that the
interest rate assumption shall be equal to the sum of (A) the yield to
maturity of 30-year U.S. Treasury bonds on the Closing Date and
(B) 75 basis points (such sum is herein referred to as the "Interest Rate")
and (2) interest on the amount determined pursuant to the preceding clause
(i) calculated at the Interest Rate, compounded daily, for the period from
and including the Closing Date to, but excluding, the actual date of
transfer or (y) the maximum amount permitted to be transferred in
accordance with Section 414(l) of the Code. With respect to each Seller
Retirement Plan, the excess, if any, of the amount described in clause (x)
of the preceding sentence over the amount described in clause (y) therein,
is referred to herein as the "Pension Shortfall Amount".
Notwithstanding anything to the contrary in the preceding
paragraph, if the minimum amount required to be transferred in accordance
with Section 414(l) of the Code exceeds the amount described in clause (x)
of the first sentence of the preceding paragraph (such excess being
referred to as the "Pension Excess"), then Seller shall
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cause such minimum amount to be transferred from the trust under the
applicable Seller Retirement Plan to the trust under the Transferee Pension
Plan. Purchaser shall cause the Transferee Pension Plans to accept such
transfers.
The amount to be transferred shall be equitably adjusted to
take into account benefit payments made from the Seller Retirement Plans to
the Retirement Plan Employees after the Closing Date but prior to the date
of transfer. The amounts under the preceding two paragraphs shall be
determined jointly by the respective actuaries for the Seller Retirement
Plan and the Transferee Pension Plan.
The transfer of assets referred to above shall take place
within 180 days after the Closing Date; provided, however, that in no event
shall such transfer take place until the last to occur of the following:
(i) Purchaser has furnished to Seller a favorable determination letter from
the Internal Revenue Service with respect to the qualification of the
applicable Transferee Pension Plan under Section 401(a) of the Code,
(ii) the receipt by Seller of a favorable determination letter from the
Internal Revenue Service with respect to the continued qualification of the
applicable Seller Retirement Plan under Section 401(a) of the Code, as
amended to (A) comply with changes to the qualification requirements of
Section 401(a) of the Code made by the Tax Reform Act of 1986 and other
recent legislation and regulations and (B) provide for the transfer of
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assets and benefit liabilities referred to in this Section, and (iii) the
receipt of any other necessary governmental approval. Such transfer shall
be made in the form of such readily marketable securities as the parties
shall agree.
Notwithstanding anything contained in this Section to the
contrary, (A) in the event that the Internal Revenue Service or any other
governmental agency takes the position in a determination letter, ruling,
advisory opinion or other written or oral communication that the transfer
of assets referred to in this Section cannot be made unless (i) additional
contributions are made to a Seller Retirement Plan or a Transferee Pension
Plan or (ii) a Seller Retirement Plan retains primary or secondary
liability with respect to the benefit liabilities under such Seller
Retirement Plan attributable to Transferred Retirement Plan Employees or
(B) in the event that a lawsuit is instituted by any of the foregoing or by
one or more participants in, or fiduciaries (other than Seller, Kodak or
Purchaser) of, a Seller Retirement Plan or a Transferee Pension Plan which
seeks to enjoin such transfer, to require additional contributions to a
Seller Retirement Plan or Transferee Pension Plan, or to have a Seller
Retirement Plan remain liable in whole or in part with respect to any of
the benefit liabilities under such Seller Retirement Plan attributable to
Transferred Retirement Plan Employees, then the transfer of assets referred
to in this Section from such
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Seller Retirement Plan will not be made until the earliest of (I) the date
the issues raised by the Internal Revenue Service or any other governmental
agency or such lawsuit are resolved favorably, and Seller, Kodak and the
Seller Retirement Plan shall make every effort in good faith to carry out
the asset transfer, including, but not limited to, the vigorous defense of
any lawsuit described in clause (B), and the exhaustion of all rights of
available judicial review and appeal, or (II) the date Seller and Purchaser
or Kodak and Purchaser, as applicable, enter into a written agreement to
resolve on a basis mutually satisfactory to them the issues raised by the
Internal Revenue Service or any other governmental agency or such lawsuit.
In the event of any delay beyond two years from the Closing Date of the
transfer of assets and liabilities from a Seller Retirement Plan by reason
of the preceding sentence, Kodak shall hold Purchaser harmless from any
economic loss resulting from such delay. Furthermore, if such transfer has
not occurred by the fourth anniversary of the Closing Date by reason of the
second preceding sentence, then there shall be no transfer of such assets
and liabilities and Purchaser shall have no obligations under this Section
5.5(c)(iii), including the obligation to recognize service of the
Retirement Plan Employees under the Transferee Pension Plan.
(iv) Pending the completion of the transfers described in this
paragraph (c), Seller and Purchaser shall
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make arrangements for any required payments (A) to the Savings Plan
Employees and the Retirement Plan Employees from the Seller Savings Plans
and the Seller Retirement Plans and (B) to participants and beneficiaries
in the Assumed Pension Plans. Seller and Purchaser shall provide each
other with access to information reasonably necessary in order to carry out
the provisions of this paragraph and shall otherwise cooperate in the
administration of said Plans for the benefit of the Transferred Employees
and Former Employees.
(d) Effective as of the Closing Date, all Transferred
Employees shall cease to be covered by Seller's employee welfare benefit
plans, including plans, programs, policies and arrangements which provide
medical and dental coverage, life and accident insurance, disability
coverage, and vacation and severance pay (collectively, "Welfare Plans"),
except to the extent provided otherwise by the applicable Welfare Plan.
Seller shall retain responsibility for, and sole liability in respect of,
providing group health coverage required by Section 4980B of the Code or
Section 601 of ERISA ("Continuation Coverage") under the terms of the
health plan maintained by Seller to (i) Employees of Seller who were
employed in connection with the Business, who terminated employment prior
to the Closing Date and who elected such Continuation Coverage or (ii)
Employees of Seller who are employed in connection with the
