Registration No. 33-64925
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1
to
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
MYLAN LABORATORIES INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 2834 25-1211621
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
130 Seventh Street, 1030 Century Building
Pittsburgh, Pennsylvania 15222
412-232-0100
(Address, including zip code and telephone number,
including area code, of registrant's principal executive offices)
Mr. Milan Puskar
Mylan Laboratories Inc.
130 Seventh Street, 1030 Century Building
Pittsburgh, Pennsylvania 15222
412-232-0100
(Name, address, including zip code and telephone number, including area code, of agent for
service)
Copies to:
John R. Previs, Esquire Keith R. Abrams, Esquire
Buchanan Ingersoll Rivkin, Radler & Kremer
Professional Corporation 30 North LaSalle Street
One Oxford Centre Chicago, Illinois 60602-2507
301 Grant Street, 20th Floor
Pittsburgh, PA 15219-1410
Approximate date of commencement of the proposed sale of the securities to the public:
As soon as practicable after this Registration Statement becomes effective and all other
conditions to the merger of MLI Acquisition Corp., a Delaware corporation
and a wholly owned subsidiary of Mylan Laboratories Inc., with and into TC Manufacturing Co.,
Inc. pursuant to the Merger Agreement described in the enclosed Proxy Statement/Prospectus
have been satisfied or waived.
If the securities being registered on this Form are being offered in connection with the formation
of a holding company and there is compliance with General Instruction G, check the following
box. / /
_____________________________________
The Registrant hereby amends this Registration Statement on such date or dates as may be
necessary to delay its effective date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a) may determine.
PRELIMINARY COPY
MYLAN LABORATORIES INC.
AND
TC MANUFACTURING CO., INC.
a Delaware Corporation
_________________
TC MANUFACTURING CO., INC. PROXY STATEMENT
MYLAN LABORATORIES INC. PROSPECTUS
______________
This Proxy Statement/Prospectus is being furnished to holders of Common Stock, par
value $1.00 per share ("TC Common Stock") and the 8% Cumulative Preferred Stock, par value
$100 per share ("TC Preferred Stock" and, collectively with the TC Common Stock, the "TC
Stock") of TC Manufacturing Co., Inc., a Delaware corporation ("TC"), in connection with the
Special Meeting of TC Stockholders (the "Special Meeting") to be held on __________
____, 1996, at _____________, commencing at ___________ a.m., local time, and at any
adjournment or postponement thereof. This Proxy Statement/Prospectus is also being used in the
solicitation of proxies by the Board of Directors of TC from certain minority holders of TC
Common Stock and TC Preferred Stock who have not previously delivered irrevocable proxies to
certain persons to vote in favor of the proposed merger (the "Merger") of MLI Acquisition Corp.
("MLI"), a Delaware corporation and wholly owned subsidiary of Mylan Laboratories Inc., with
and into TC.
This Proxy Statement/Prospectus constitutes a prospectus of Mylan Laboratories Inc., a
Pennsylvania corporation ("Mylan" or the "Registrant") with respect to up to 2,450,000
shares of Common Stock, par value $.50 per share of Mylan ("Mylan Common Stock") to be
issued in the Merger in exchange for outstanding shares of TC Common Stock and TC Preferred
Stock. All information contained in this Proxy Statement/Prospectus relating to Mylan and to the
transactions described herein has been supplied by Mylan, and all financial and other information
relating to the business and stock ownership of TC has been supplied by TC.
THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROXY
STATEMENT/PROSPECTUS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR BY ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
_______________________
This Proxy Statement/Prospectus is first being mailed to TC stockholders and, with respect to the
solicitation of minority TC stockholders, the accompanying forms of proxies are first being
mailed on or about _________ ____, 1996.
The date of this Proxy Statement/Prospectus is _______________, 1996.
(Inside Front Cover)
No persons have been authorized to give any information or to make any representation other
than those contained in this Proxy Statement/Prospectus in connection with the solicitation of
proxies or the offering of securities made hereby and, if given or made, such information or
representation must not be relied upon as having been authorized by Mylan, TC or any other
person. This Proxy Statement/Prospectus does not constitute an offer to sell, or a solicitation of
an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any
person to whom it is not lawful to make any such offer or solicitation in such jurisdiction.
Neither the delivery of this Proxy Statement/Prospectus nor any distribution of securities made
hereunder shall, under any circumstances, create an implication that there has been no change in
the affairs of Mylan or TC since the date hereof or that the information herein is correct as of any
time subsequent to its date.
AVAILABLE INFORMATION
Mylan is subject to the informational requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and
other information with the Securities and Exchange Commission (the "Commission"). The
reports, proxy statements and other information filed by Mylan with the Commission can be
inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices at 7 World
Trade Center, Suite 1300, New York, New York 10048, and 500 West Madison Street, Room
1400, Chicago, Illinois 60661. Copies of such material also can be obtained from the Public
Reference Section of the Commission, Washington, D.C. 20549 at prescribed rates. Material
filed by Mylan can also be inspected at the offices of the New York Stock Exchange, Inc. (the
"NYSE"), 20 Broad Street, New York, New York, on which the Mylan Common Stock is listed.
Mylan has filed with the Commission a Registration Statement on Form S-4 (together with any
amendments thereto, the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act") with respect to the securities to be issued pursuant to the Merger
Agreement. This Proxy Statement/Prospectus does not contain all the information set forth in the
Registration Statement. Such additional information may be obtained from the Commission's
principal office in Washington, D.C.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY
REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH.
SUCH DOCUMENTS (OTHER THAN EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH
EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE) ARE AVAILABLE
TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER TO WHOM THIS PROXY
STATEMENT/PROSPECTUS IS DELIVERED, ON WRITTEN OR ORAL REQUEST,
WITHOUT CHARGE, IN THE CASE OF DOCUMENTS RELATING TO MYLAN,
DIRECTED TO MYLAN LABORATORIES INC., 130 SEVENTH STREET, 1030 CENTURY
BUILDING, PITTSBURGH, PENNSYLVANIA 15222 (TELEPHONE NUMBER (412)
232-0100), ATTENTION: PATRICIA SUNSERI, VICE PRESIDENT-INVESTOR AND
PUBLIC RELATIONS. IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUESTS SHOULD BE MADE BY [5 BUSINESS DAYS PRIOR TO
MEETING DATE] ________ 1996.
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AVAILABLE INFORMATION 2
SUMMARY 3
COMPARATIVE PER SHARE DATA 11
COMPARATIVE PER SHARE MARKET
AND DIVIDEND INFORMATION 12
Information with Respect to Mylan Common Stock 12
Information With Respect to TC Stock 13
THE MEETING 13
General 13
Matters to be Considered at the Meeting 13
Voting at the Meeting; Record Date 14
Proxies 14
THE MERGER 15
Background of the Merger 15
TC's Reasons for the Merger; Recommendation of
TC's Board of Directors 16
Mylan's Reasons for the Merger 17
Certain Federal Income Tax Consequences 17
Regulatory Compliance 19
Federal Securities Law Consequences 20
Stock Exchange Listing 20
Appraisal Rights 20
Accounting Treatment 22
THE MERGER AGREEMENT 22
The Merger 22
Adjustment of Common Stock Exchange Ratio;
Certain Holdbacks Applicable to Holders of
TC Common Stock; and Distributions 23
Representations and Warranties 26
Certain Covenants of TC 26
Certain Covenants of Mylan 27
No Solicitation of Transactions 27
Indemnification 28
Conditions to Each Party's Obligations 28
Abandonment and Termination 29
Expenses 29
Amendment and Waiver 30
BUSINESS OF TC 30
Background 30
Coating Business 30
Packaging Business 31
Pharmaceutical Business 31
Legal Proceedings 35
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TC'S MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION 35
Overview 35
Results Of Operations 36
Capital Resources And Liquidity 37
Other Items 38
SECURITY OWNERSHIP OF MANAGEMENT OF
TC AND CERTAIN OTHER PERSONS 38
CERTAIN RELATED TRANSACTIONS AND
RELATIONSHIPS OF TC AND MYLAN 40
Reorganization 40
Irrevocable Proxies 44
Letter of Transmittal 44
Non-Competition Agreements 45
Supplier Relations 45
TC Legal Counsel 45
COMPARISON OF SHAREHOLDER RIGHTS 45
Shareholder Rights Generally 46
Shareholder Voting Rights 46
Shareholder Appraisal Rights 47
Rights With Respect to Shares 48
Rights and Powers of Directors 48
Director and Officer Liability and Indemnification 49
DESCRIPTION OF MYLAN CAPITAL STOCK 49
Mylan Common Stock 49
Mylan Preferred Stock 50
Special Considerations 50
INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE 50
LEGAL MATTERS 51
EXPERTS 52
INDEX TO FINANCIAL STATEMENTS F-1
ANNEX A OPINION OF FAGEL & HABER A-1
ANNEX B SECTION 262 OF THE DGCL B-1
ANNEX C AGREEMENT AND PLAN OF MERGER C-1
ANNEX D TERMS FOR APPRAISAL
RIGHTS TRUST AGREEMENT D-1
PART II INFORMATION NOT
REQUIRED IN PROSPECTUS II-1
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SUMMARY
The following is a summary of certain information contained elsewhere in this Proxy
Statement/Prospectus. Reference is made to, and this summary is qualified in its entirety by, the
more detailed information contained, or incorporated by reference, in this Proxy
Statement/Prospectus and the Annexes hereto. Unless otherwise defined herein, capitalized
terms used in this summary have the respective meanings ascribed to them elsewhere in this
Proxy Statement/Prospectus. Stockholders are urged to read this Proxy Statement/Prospectus
and the Annexes hereto in their entirety. All information contained herein gives effect to the
Reorganization of TC, effective immediately prior to consummation of the Merger.
The Companies
Mylan
- --------------
Mylan is engaged in manufacturing a variety of pharmaceutical products in finished tablet,
capsule and powder dosage forms for resale by others under either Mylan's label or their own
label. The principal executive offices of Mylan are located at 130 Seventh Street, 1030 Century
Building, Pittsburgh, Pennsylvania 15222, and the telephone number is (412) 232-0100.
TC
- -------------
TC, through its principal direct and indirect wholly owned subsidiaries UDL Laboratories, Inc.,
an Illinois corporation ("UDL-Illinois") and UDL Laboratories, Inc., a Florida corporation
("UDL-Florida", together with UDL-Illinois sometimes referred to as "UDL" and together with
TC's other subsidiaries sometimes referred to as the "Subsidiaries") is engaged in the marketing,
packaging, manufacture and/or development of generic pharmaceutical products, primarily in
solid and liquid oral form, but also in injectable, topical and suppository form, each sold
primarily in unit dose configuration to the institutional healthcare market (the "Pharmaceutical
Business"). TC is also engaged through two unincorporated divisions, the Tapecoat Division and
the Pak-Sher Division, in the "Coating Business" and "Packaging Business", respectively.
Immediately prior to the Merger, TC will divest itself of all the assets and liabilities of the
Coating Business and the Packaging Business through a reorganization in the form of a split-off
(the "Reorganization"). See "Business of TC - Background and Subsidiaries" and "Certain
Relationships and Related Transactions." The principal executive offices of TC are located at
1527 Lyons Street, Evanston, Illinois 60201, and the telephone number is (847) 869-2320.
The Meeting
Time, Date and Place
- ---------------------
The Special Meeting will be held on ______________ _____, 1996, at the law offices of Rivkin,
Radler & Kremer, 30 North LaSalle Street, Chicago, Illinois 60602, commencing at 10:00 a.m.,
local time.
Record Date: Shares Entitled to Vote
- ------------------------------------
Holders of record of shares of TC Common Stock and TC Preferred Stock at the close of
business on December 26, 1995 are entitled to notice of and to vote at the Special Meeting. At
such date, there were 5,350,292 shares of TC Common Stock outstanding and 4,243 shares of TC
Preferred Stock outstanding, each of which are entitled to one vote on each matter to be acted
upon or which may properly come before the Special Meeting. With respect to approval of the
Merger Agreement, TC Preferred Stock is entitled to a separate class vote.
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Purpose of the Meeting
- ----------------------
The purpose of the Special Meeting is to consider and vote upon (i) a proposal to approve the
Merger Agreement and (ii) such other matters as may properly be brought before the Special
Meeting.
Vote Required
- ---------------
The approval by TC stockholders of the Merger Agreement will require (i) the affirmative vote
of the holders of a majority of the outstanding shares of TC Common Stock and (ii) the
affirmative vote of the holders of a majority of the outstanding shares of TC Preferred Stock,
voting separately as a class, entitled to vote thereon. As an inducement to Mylan to enter into the
Merger Agreement, the holders of a majority of the outstanding shares of TC Common Stock and
TC Preferred Stock executed irrevocable proxies in favor of Mylan representatives. See "Certain
Related Transactions and Relationships of TC and Mylan - Irrevocable Proxies."
The Merger
Effect of the Merger
- ----------------------
Upon consummation of the Merger, pursuant to the Merger Agreement, (i) MLI will be merged
with and into TC, and TC will be the surviving corporation and will become a wholly owned
subsidiary of Mylan; and (ii) each issued and outstanding share of TC Common Stock (other than
shares as to which appraisal rights have been perfected, all of which will be canceled) will be
converted into shares of Mylan Common Stock and (iii) each issued and outstanding share of TC
Preferred Stock (other than shares as to which appraisal rights have been perfected, all of which
will be canceled) will be converted into shares of Mylan Common Stock. The exchange ratio for
the Preferred Stock is equal to 5.02765 shares of Mylan Common Stock for each share of TC
Preferred Stock. The ultimate number of shares of Mylan Common Stock received by TC
Common Stockholders as a result of the Merger is based upon a distribution ratio of .42589063
shares of Mylan Common Stock for each share of TC Common Stock, but subject to a
post-closing adjustment based upon certain balance sheet items of TC (parent company only) on
the Effective Time. Therefore, holders of TC Common Stock will receive an initial distribution
and, may, depending upon the post-closing adjustment, receive an additional final distribution.
The initial distribution ratio is .40464109 shares of Mylan Common Stock for each share of TC
Common Stock. This initial distribution ratio may increase slightly if the holders of options to
purchase TC Common Stock fail to exercise their options and may decrease slightly to the extent
that holders of TC Common Stock exercise appraisal rights. See "The Merger Agreement -
Adjustment of Common Stock Exchange Ratio; Certain Holdbacks Applicable to Holders of TC
Common Stock; and Distributions." Fractional shares of Mylan Common Stock will not be
issuable in connection with the Merger. Holders of TC Preferred Stock and TC Common Stock
otherwise entitled to a fractional share will be paid the value of such fraction in cash determined
as described herein under "The Merger Agreement - The Merger."
TC's Reasons for the Merger
- ---------------------------
The Board of Directors of TC believes that the terms of the Merger are fair to, and in the best
interests of, TC and its stockholders. TC's Board of Directors believes that
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combining the pharmaceutical operations of TC and Mylan will improve the position of
UDL-Illinois and UDL-Florida in the dynamic healthcare marketplace by affording a secure
source for a broad line of generic pharmaceutical products and access to Mylan's substantial capital and
manufacturing resources and research and development capabilities. For a discussion of the
factors considered by TC's Board of Directors in reaching its decision, see "The Merger - TC's Reasons
for the Merger; Recommendation of TC's Board of Directors."
Recommendation of TC's Board of Directors
- -----------------------------------------
All directors of TC participated in the meeting at which the Merger Agreement was considered,
and they unanimously approved the Merger Agreement and recommended a vote in favor of its
approval by the stockholders of TC. For a discussion of the factors considered by TC's Board of
Directors in reaching its decision, see "The Merger - TC's Reasons for the Merger;
Recommendation of TC's Board of Directors."
Security Ownership of Certain Persons; Irrevocable Proxies
- -----------------------------------------------------------
Each of the directors of TC has advised that he intends to vote or direct the vote of all the
outstanding shares of TC Common Stock and TC Preferred Stock over which he has voting
control in favor of approval of the Merger Agreement. Beneficial owners of approximately 73%
of the outstanding shares of TC Preferred Stock and 77% of the outstanding shares of TC
Common Stock (including directors and executive officers who hold approximately 52% of the
outstanding shares of TC Common Stock) have appointed Roderick P. Jackson and David M.
Satter, representatives of Mylan, as irrevocable proxies to vote their shares regarding the Merger.
Such proxies intend to vote in favor of approval of the Merger Agreement. See "Certain Related
Transactions and Relationships of TC and Mylan - The Irrevocable Proxies."
Effective Time of Merger
- -------------------------
It is expected that the Merger will become effective as promptly as practicable after the requisite
stockholder approval has been obtained and all other conditions to the Merger have been satisfied
or waived. See "The Merger Agreement - The Merger."
Conditions to the Merger; Termination of the Merger Agreement
- ---------------------------------------------------------------
The obligations of Mylan and TC to consummate the Merger are subject to the satisfaction of
certain conditions, including (i) no event has occurred which has had a material adverse effect
on, and there has been no material adverse change in, the business, assets, financial condition or
results of operation (see "The Merger Agreement - The Merger"); (ii) receipt of approval for
listing on the NYSE, subject to official notice of issuance, of the Mylan Common Stock to be
issued in connection with the Merger; (iii) the absence of any injunction prohibiting
consummation of the Merger; (iv) the consummation of the Reorganization, including the
transfer of all of the assets of the Coating Business and the Packaging Business to TC
Manufacturing Co., Inc. an Illinois corporation ("Newco"), the assumption by Newco of all the
liabilities related to such assets, and the distribution of the stock of Newco to certain holders of
TC Common Stock and certain related transactions; (v) termination of the Agreement among TC
and certain holders of TC Common Stock, dated March 1, 1962, as amended; (vi) termination of
the Agreement Among
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Stockholders among UDL-Illinois and its stockholders, dated February
19, 1982; (vii) the acquisition of the minority interest in UDL-Illinois held by Michael K.
Reicher; (viii) the exercise or cancellation of all outstanding options for TC Common Stock; (ix)
the execution and delivery of that certain Indemnification Agreement by and between TC and
Newco; and (x) delivery of opinions of counsel for TC and Mylan. See "The Merger Agreement
- - Conditions to Each Party's Obligations" and "Certain Related Transactions and Relationships of
TC and Mylan."
The consummation of the Merger is subject to certain regulatory matters, including expiration of
the relevant waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"). The statutory waiting period expired on December 20, 1995.
Consummation of the Merger is conditioned upon the receipt of all other required governmental
authorizations, consents, orders and approvals. Mylan and TC intend to pursue vigorously all
required regulatory approvals. However, there can be no assurance regarding the timing of such
approvals or that such approvals will, in fact, be obtained. See "The Merger - Regulatory
Compliance."
The Merger Agreement is subject to termination upon the failure of the satisfaction of the
conditions precedent to the Merger, by mutual agreement of TC, MLI and Mylan, if the
consummation of the Merger would violate any injunction, restraining order or decree of any
court of competent jurisdiction or at the option of either Mylan or TC if the Merger is not
consummated on or before February 28, 1996. See "The Merger Agreement - Termination."
Appraisal Rights
- ----------------------
Holders of TC Common Stock and TC Preferred Stock who comply with the requirements of
Section 262 of the Delaware General Corporation Law ("DGCL") will be entitled to appraisal
rights in connection with the Merger. See "The Merger - Appraisal Rights." Any holder of TC
Stock who desires to exercise his/her appraisal rights should carefully review the requirements of
Section 262 of the DGCL attached hereto as Annex A and is urged to consult with his/her legal
advisor before exercising or attempting to exercise such rights.
Certain Federal Income Tax Consequences
- -----------------------------------------------------
An opinion of special tax counsel to TC has been obtained to the effect that more likely than
not, the Merger is a tax-free reorganization within the meaning of Section 368(a)(1)(B) of the
Internal Revenue Code of 1986, as amended (the "Code") so that no gain or loss would be
recognized by holders of TC Stock by virtue of the Merger, except in respect of cash received in
lieu of fractional shares or upon perfection of appraisal rights. A request for a favorable private
letter ruling as to the tax-freenature of the Merger and the Reorganization has been submitted to
the Internal Revenue Service. However, as of this date, no ruling of the Internal Revenue Service
has been obtained to this effect, and no assurance can be given that the Merger will constitute a
tax-free reorganization. In order to obtain their shares of Mylan Common Stock, stockholders of TC
will be required to release Mylan and TC from claims which may arise with respect to the tax
consequences of the Merger and/or the Reorganization under federal, state or
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local income tax laws. TC is informing its stockholders about certain matters concerning its
Reorganization, including federal income tax consequences, in a separate document which it is
delivering to its stockholders including the determination by special tax counsel that it is
unable to opine whether the Reorganization is tax-free to TC and its stockholders.
See "The Merger - Certain Federal Tax Consequences."
Reorganization
Reorganization
- -------------------------
Effective immediately prior to the Closing of the Merger, TC, through a reorganization in the
form of a split-off, will divest itself of its two unincorporated divisions, the Tapecoat Company,
engaging in the Coating Business, and the Pak-Sher Company, engaging in the Packaging
Business. TC will establish a new subsidiary, Newco, and will transfer all of the assets
related to the Coating Business and the Packaging Business to Newco. Newco will assume all of
the liabilities related to such assets and Newco will issue its capital stock to TC. TC will
then distribute Newco's stock to holders of TC Common Stock who are not employed by a
member of the Pharmaceutical Group immediately prior to the Merger. Holders of TC Common
Stock who are employed by a member of the Pharmaceutical Group will receive additional
shares of TC Common Stock and all of the shares of TC Common Stock held by such holders
will be converted into shares of Mylan Common Stock in the Merger. Each holder of TC
Common Stock, receiving shares of Newco's stock will receive one share of Newco voting
common stock and one share of Newco non-voting common stock for each share of TC Common
Stock held by such holder. Each holder of TC Common Stock receiving additional shares of TC
Common Stock will receive the number of additional shares of TC Common Stock as reflects a
value equivalent to the proportionate interest of such holder in the combined value of the Coating
Business and the Packaging Business (as determined by independent appraisal). See "Certain
Related Transactions and Relationships of TC and Mylan - Reorganization."
Certain Other Transactions
Indemnification
- ----------------
As part of the Reorganization, Newco has agreed to indemnify TC for certain liabilities with
respect to the conduct of the Coating Business and the Packaging Business, which will be
divested by TC in the Reorganization, including liabilities which may arise with respect to taxes
and violations of environmental laws. Likewise, TC has agreed to indemnify Newco with
respect to the same types of liabilities with respect to the conduct of the Pharmaceutical Business
principally conducted through UDL-Illinois and UDL-Florida and two wholly-owned special
purpose subsidiaries (collectively, the "Pharmaceutical Group"). See "Certain Related
Transactions and Relationships of TC and Mylan - Reorganization."
Certain Other Agreements
- -------------------------
As a part of the Reorganization and Merger, TC and certain TC stockholders are or are to be
parties to agreements, which provide for (i) the purchase by TC of the minority
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interest in UDL-Illinois from Michael K. Reicher, President of UDL, for $2,850,000; and (ii) a prohibition
on the sale of Mylan Common Stock received in the Merger by stockholders of TC for a period
of three (3) years from the effective time of the Merger. See "Certain Related Transactions and
Relationships of TC and Mylan."
Comparison of Shareholder Rights
- ----------------------------------
See "Comparison of Shareholder Rights" for a summary of the material differences between the
rights of holders of Mylan Common Stock and TC Common Stock and TC Preferred Stock.
Summary Historical and Pro Forma Financial Information
Mylan Summary Historical Financial Information
The summary financial information of Mylan set forth below has been derived from, and should
be read in conjunction with, the audited financial statements and other financial information
contained in Form 10-K for the fiscal year ended March 31, 1995 which is incorporated by
reference in this Proxy Statement/Prospectus, and the unaudited financial statements contained in
Mylan's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995 ("Mylan's Second Quarter 10-Q"), which is incorporated by reference in this
Proxy Statement/Prospectus.
Mylan Laboratories Inc. and Subsidiaries
(Amounts in thousands, except per share data)
Six Months
Ended Year Ended March 31,
Sept. 30,
---------------------- ----------------------------------------------------------
1995 1994 1995 1994 1993 1992 1991
Statement of Earnings Data:
Net Sales $206,907 $181,159 $396,120 $251,773 $211,964 $131,936 $104,524
Earnings from Continuing
Operations 62,643 55,788 120,869 73,067 70,621 40,114 32,952
Per Common Share:
Earnings from Continuing
Operations .53 .47 1.02 .62 .61 .35 .29
Dividends .07 .06 .19 .10 .08 .07 .07
Declared
Shares Used in
Computation 119,294 118,867 118,964 118,424 115,652 114,726 114,552
Sept. 30, Year Ended March 31,
---------------------- -------------------------------------------------------------
1995 1994 1995 1994 1993 1992 1991
Balance Sheet Data:
Working Capital $298,754 $232,021 $275,032 $191,647 $154,000 $102,105 $ 81,571
Total Assets 586,417 475,999 546,201 403,325 351,105 226,720 186,955
Long-Term Obligations 8,581 5,223 7,122 4,609 5,125 3,600 3,398
(includes long-term
debt and post-retirement
compensation)
Shareholders' Equity 538,154 429,419 482,728 379,969 295,972 203,452 167,531
Book Value Per Share 4.51 3.61 4.06 3.21 2.56 1.77 1.46
The above financial data gives retroactive effect to the three-for-two stock split effective
August 15, 1995.
The Company's current quarterly dividend program totals $.16 per share per year.
For the year ended March 31, 1995 the Company declared a special one-time dividend of $.067
per share.
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TC Summary Historical and Pro Forma Financial Information
The summary financial information of TC set forth below has been derived from,
and should be read in conjunction with, the audited financial statements and
other financial information appearing elsewhere in this Proxy
Statement/Prospectus.
TC Manufacturing Co., Inc. and Subsidiaries
(Amounts in thousands, except per share data)
Year Ended October 31,
- ---------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------
Statement of Earnings Data:
Net Sales $90,879 $78,780 $79,617 $69,920 $61,412
Net Income (Loss) 3,453 (120) 4,358 3,946 1,199
Per Common Share:
Net Income (Loss) 0.64 (0.03) 0.82 0.75 0.22
Dividends Declared on
Common Stock 0.03 0.02 0.06 0.03 0.04
Shares Used in Computation 5,362 5,325 5,299 5,258 5,324
October 31,
- -------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------
Balance Sheet Data:
Working Capital $20,422 $18,785 $22,385 $21,157 $19,194
Total Assets 52,372 49,109 51,042 45,005 39,679
Long-Term Obligations
(includes long-term debt and
preferred stock) 6,924 8,324 10,974 11,682 12,821
Common Shareholders' Equity 28,397 25,010 25,163 21,076 17,339
Book Value Per Common Share 5.32 4.71 4.78 4.04 3.35
The above financial data has been restated to reflect a stock dividend declared in February 1991
and a stock split effected in the form of a stock dividend in October 1994.
The summary pro forma financial information set forth below
(i) gives effect to the reorganization of TC, effective
immediately prior to the consummation of the Merger and
(ii) should be read in conjunction with the pro forma financial
information beginning on page F-2 hereof and the historical
financial statements of TC, including the notes thereto, provided
elsewhere in this Proxy/Prospectus. The pro forma financial
information included herein does not purport to represent what
the financial position or results of operations actually would
have been if the reorganization of TC in fact had occurred on
such dates or at the beginning of the period indicated or to
project the financial position or results of operations as of any
future date or any future period.
TC Pro Forma (1)
Six Months Year Ended
Ended March 31, 1995
September 30,
1995
Statement of Earnings Data:
Net Sales $31,284 $47,301
Net Earnings (Loss) $1,943 ($1,170)
Per Common Share:
Net Earnings (Loss) $0.35 ($0.22)
Dividends Declared on Common $0.02 $0.03
Stock
Shares Used In Computation 5,405 5,405
September 30, March 31, 1995
1995
Balance Sheet Data:
Working Capital $7,408 N/C
Total Assets $32,283 N/C
Long-Term Obligations
(Includes long-term debt and
preferred stock) $6,924 N/C
Common Shareholder's Equity $10,201 N/C
Book Value Per Common Share $1.97 N/C
(1) The TC pro forma information is provided to reflect the
impact of the Reorganization contemplated by TC prior to the
acquisition by Mylan. Refer to the pro forma financial
information of F-4, F-6 and F-8 for further details.
-9-
Summary Pro Forma Financial Information
The summary pro forma financial information set forth below (i) presents the combination
of Mylan and TC, and (ii) should be read in conjunction with the pro forma financial information
beginning on page F-1 hereof and the audited financial statements contained in Mylan's Form
10-K for the fiscal year ended March 31, 1995 and in TC's financial statements including the
notes thereto provided elsewhere in this Proxy Statement/Prospectus and the unaudited financial
statements contained in Mylan's Second Quarter 10-Q. The pro forma information with respect
to TC excludes any financial information relating to the Coating Business and the Packaging
Business. Such summary pro forma financial information does not purport to represent what the
financial position or results of operations actually would have been had the Merger in fact
occurred on such dates or at the dates indicated or to project the consolidated financial position
or results of operations for any future date or period.
Pro Forma Financial Information
(Amounts in thousands, except per share data)
Six Months Ended Year Ended
Sept. 30, 1995 March 31, 1995(1)
------------------- -----------------
Statement of Earnings Data:
Net Sales $235,523 $437,383
Earnings from Continuing
Operations 62,696 115,685
Per Common Share:
Earnings from Continuing
Operations .52 .95
Dividends Declared .07 .19
Shares Used in Computation 121,682 121,352
Sept. 30, 1995
--------------------
Balance Sheet Data:
Working Capital $299,742
Total Assets 652,125
Long-Term Obligations
(includes long-term debt and
post-retirement
compensation ) 8,581
Shareholders' Equity 585,654
Book Value Per Share 4.81
(1) The pro-forma information gives retroactive effect to the three-for-two
stock split effective August 15, 1995.
-10-
COMPARATIVE PER SHARE DATA
Set forth below are earnings from continuing operations, cash dividends declared and book value
per common share data of Mylan and TC on an historical basis, for Mylan and TC on a pro forma
combined basis under the purchase method of accounting and on a per share equivalent pro
forma basis per share of TC Common Stock. The information set forth below should be read in
conjunction with the respective audited and unaudited financial statements of Mylan
incorporated by reference in this Proxy Statement/Prospectus and of TC included in this Proxy
Statement/Prospectus.
- ------------------------------------------------------------------------------
Six Months Ended Year Ended
September 30, 1995 March 31, 1995(1)
- -------------------------------------------------------------------------------
Mylan Historical:
Earnings from Continuing
Operations $ .53 $ 1.02
Dividends Declared $ .07 $ .19
Book Value (7) $ 4.51 $ 4.06
Shares Used in Computation 119,294,000 118,964,000
Mylan Pro Forma (2):
Earnings from Continuing
Operations $ .52 $ .95
Dividends Declared $ .07 $ .19
Book Value(7) $ 4.81 N/C
Shares Used in Computation 121,682,000 121,352,000
- --------------------------------------------------------------------------------
Year Ended Year Ended
October 31, 1995 October 31, 1994
- --------------------------------------------------------------------------------
TC Historical:
Net Income (Loss) $ .64 $ (.03)
Dividends Declared on Common Stock $ .03 $ .02
Book Value Per Common Share (5) $ 5.32 $ 4.71
Shares Used in Computation 5,362,000 5,325,000
- ---------------------------------------------------------------------------------
Six Months Ended Year Ended
September 30, 1995 March 31, 1995
- ---------------------------------------------------------------------------------
TC Pro Forma (3):
Net Earnings (Loss) $ 0.35 (0.22)
Dividends Declared on Common Stock (4) $ 0.02 0.03
Book Value per Common Share $ 1.97 N/C
Shares used in computation 5,405,000 5,405,000
- -------------------------------------------------------------------------------
Six Months Ended Year Ended
September 30, 1995 March 31, 1995
- -------------------------------------------------------------------------------
TC Equivalent Pro Forma (5)(6):
Earnings from Continuing Operations $ .22 $ .40
Dividends Declared $ .03 $ .08
Book Value(7) $ 2.05 N/C
Shares Used in Computation (8) 285,712,000 284,937,000
- ----------------------------------------------------
(1) The Mylan historical and pro forma information gives retroactive effect to the three-for-two
stock split effective August 15, 1995.
(2) The pro forma information was calculated by combining the historical amounts from Mylan
and TC divided by the sum of Mylan's historical share information and 2,388,135 additional
shares of Mylan Common Stock (the number of shares that is estimated to be issued pursuant to
the Merger Agreement). Pro forma book value per share is presented for interim periods only.
(3) The TC pro forma information is provided to reflect the impact of the Reorganization
contemplated by TC prior to the acquisition by Mylan. Refer to the pro forma financial
information on F-4, F-6, and F-8 for further details.
(4) Reflects the actual dividends declared by TC for the periods presented as summarized in "
Information With Respect to TC Stock."
(5) Represents the pro forma information (as calculated in note 2) adjusted to reflect the value of
one share of TC Common Stock.
(6) TC equivalent pro forma data excludes the impact of the Coating Business and the Packaging
Businesss.
(7) Calculated using common shares outstanding at period end.
(8) TC equivalent pro forma shares represent the Mylan pro forma shares divided by the
conversion ratio of 0.42589063 shares.
-11-
COMPARATIVE PER SHARE MARKET AND DIVIDEND INFORMATION
Information with Respect to Mylan Common Stock
Mylan Common Stock is listed on the NYSE.
The table below sets forth, for the calendar quarters indicated, the reported high and low sales
prices of Mylan Common Stock as reported on the NYSE Composite Index based on published
financial sources, and the dividends declared on such stock, retroactively adjusted for a
three-for-two stock split effective August 15, 1995.
Mylan Common Stock
------------------------------------------
High Low Dividends
------- -------- -----------
Quarter Ended:
June 30, 1993 20 1/2 15 3/4 .02
September 30, 1993 20 1/4 13 1/8 .027
December 31, 1993 22 1/8 15 5/8 .027
March 31, 1994 16 3/4 10 5/8 .027
June 30, 1994 15 3/8 10 3/8 .027
September 30, 1994 18 1/4 13 5/8 .033
December 31, 1994 19 7/8 16 3/8 .10
March 31, 1995 22 1/2 16 1/2 .033
June 30, 1995 21 5/8 18 3/8 .033
September 30, 1995 24 19 5/8 .04
December 31, 1995
January 1, 1996 to
January ___, 1996
On October 9, 1995, the last full trading day prior to the execution and delivery of the Merger
Agreement and the public announcement thereof, the closing price of Mylan Common Stock was
$18 5/8 per share on the NYSE Composite Index.
On __________, 1996, [the most recent practicable date prior to the printing of this Proxy
Statement/Prospectus], the closing price of Mylan Common Stock was __________ per share on
the NYSE Composite Index.
Because the market price of Mylan Common Stock may fluctuate, the market value of the shares
of Mylan Common Stock that holders of TC Common Stock will receive in the Merger may
increase or decrease prior to the Merger. See "The Merger Agreement -- The Merger." TC
stockholders are urged to obtain a current market quotation for Mylan Common Stock.
-12-
Information With Respect to TC Stock
Neither TC Common Stock nor TC Preferred Stock is listed for trading on an exchange or
included for trading over-the-counter on a market. Therefore, no information is available on
market prices for such stock. The following table sets forth, for the fiscal year indicated, the
dividends declared on TC Common Stock and TC Preferred Stock.
TC Common Stock
Dividends*
----------------
Quarter Ended:
January 31, 1993 $.0175
April 30, 1993 .0075
July 31, 1993 .0075
October 31, 1993 .025
January 31, 1994 0
April 30, 1994 .0075
July 31, 1994 .0075
October 31, 1994 .0075
January 31, 1995 .0075
April 30, 1995 .0075
July 31, 1995 .015
October 31, 1995 0
_________________________
* Retroactively adjusted to reflect a stock split effected in the form of a stock dividend in
October 1994.
Cumulative dividends in the amount of $8.00 per share of TC Preferred Stock outstanding are
payable on July 15 and are paid on June 15 of each year.
Covenants in certain credit agreements may impose restrictions on TC's payment of dividends.
See "TC's Management's Discussion and Analysis of Results of Operations and Financial
Condition - Capital Resources and Liquidity."
THE MEETING
General
This Proxy Statement/Prospectus is being furnished to holders of TC Stock in connection with
the solicitation of proxies for use at the Special Meeting to be held on ______ ___, 1996 at the
law offices of Rivkin Radler & Kremer, 30 North LaSalle Street, Chicago, Illinois 60602,
commencing at 10:00 a.m., local time, and at any adjournment or postponement thereof. This
Proxy Statement/Prospectus is also being used in the solicitation of proxies by the TC Board of
Directors for use at the Special Meeting from the stockholders of TC who did not execute
irrevocable proxies in connection with the execution of the Merger Agreement.
This Proxy Statement/Prospectus is first being mailed to stockholders of TC and, with respect to
the solicitation of proxies from those stockholders of TC who did not execute irrevocable proxies
in connection with the execution of the Merger Agreement, the accompanying forms of proxies
are first being mailed on or about ________ ___, 1996.
Matters to be Considered at the Meeting
At the Special Meeting, holders of TC Stock will consider and vote upon (i) a proposal to
approve the Merger Agreement; and (ii) such other matters as may properly be brought before
the Special Meeting.
Board of Directors Recommendation. All the directors of TC participated in the meeting at
which the Merger Agreement was considered and have unanimously approved the Merger
Agreement and recommended a vote FOR approval of the Merger Agreement by the
stockholders of TC.
-13-
Voting at the Meeting; Record Date
The TC Board of Directors has fixed December 26, 1995 as the record date for the determination
of the TC stockholders entitled to notice of and to vote at the Special Meeting. Accordingly,
only holders of record of shares of TC Common Stock and TC Preferred Stock on the record date
will be entitled to notice of and to vote at the Special Meeting. As of December 26, 1995, there
were 5,350,292 shares of TC Common Stock outstanding, entitled to vote and held by fifty-eight
holders of record and 4,243 shares of TC Preferred Stock outstanding, voting separately as a
class, entitled to vote and held by eight holders of record. Each holder of record of shares of TC
Common Stock and TC Preferred Stock on the record date is entitled to cast one vote per share
on each proposal properly submitted for the vote of the TC stockholders, either in person or by
properly executed proxy, at the Special Meeting. The presence, in person or by properly
executed proxy, of the holders of a majority of the outstanding shares of TC Common Stock and
a majority of the outstanding shares of TC Preferred Stock, voting separately as a class, entitled
to vote is necessary to constitute a quorum at the Special Meeting.
The approval by TC stockholders of the Merger Agreement will require (i) the affirmative vote
of the holders of a majority of the outstanding shares of TC Common Stock entitled to vote
thereon; and (ii) the affirmative vote of the holders of a majority of the outstanding shares of TC
Preferred Stock, voting separately, entitled to vote thereon. A failure to vote or an abstention or
a broker non-vote will have the same legal effect as a vote by a TC stockholder against the
approval of the Merger Agreement.
Each of the directors has advised TC that he intends to vote or direct the vote of all shares of TC
Common Stock and TC Preferred Stock over which he has voting control FOR approval of the
Merger Agreement. Beneficial owners of approximately 74% of the outstanding shares of
Common Stock and 64% of the outstanding shares of Preferred Stock (including directors and
executive officers who beneficially own approximately 52% of the TC Common Stock) have
appointed Roderick P. Jackson and David M. Satter, representatives of Mylan, as irrevocable
proxies to vote their shares in favor of the Merger. See "Certain Related Transactions and
Relationships of TC and Mylan - The Irrevocable Proxies."
As of ________, 1996, Mylan and its subsidiaries owned no outstanding shares of TC Common
Stock or TC Preferred Stock.
Proxies
This Proxy Statement/Prospectus is being furnished to TC stockholders in connection with the
Special Meeting. In addition, it is being used in the solicitation of proxies (individually, a
"Solicited Proxy" and collectively, the "Solicited Proxies") from the stockholders of TC who did
not execute irrevocable proxies in connection with the execution of the Merger Agreement (see
"Certain Related Transactions and Relationships of TC and Mylan - The Irrevocable Proxies")
for use at the Special Meeting.
TC stockholders who executed irrevocable proxies in connection with the execution of the
Merger Agreement are not being solicited for a new proxy and should not execute a Solicited
Proxy. Any Solicited Proxy executed by such persons will be void and of no effect.
All shares of TC Common Stock and TC Preferred Stock that are entitled to vote and are
represented at the Special Meeting by properly executed Solicited Proxies received prior to or at
the Special Meeting, and not revoked will be voted at the Special Meeting in accordance with
the instructions indicated on such Solicited Proxies. If no instructions are indicated, such
Solicited Proxies will be voted FOR approval of the Merger Agreement.
If any other matters are properly presented at the Special Meeting for consideration, including
consideration of a motion to adjourn the Special Meeting to another time and/or place (including
for the purpose of soliciting additional Solicited Proxies), unless otherwise indicated on such
Solicited Proxies, the person named in the enclosed forms of Solicited Proxies and acting
thereunder will have discretion to vote on such matters in accordance with his best judgment.
Any Solicited Proxy given pursuant to this solicitation may be revoked by the person giving it at
any time before it is voted. Solicited Proxies may be revoked by (i) filing with the Secretary of
TC, at or before the taking of the vote at the Special Meeting, a written notice of revocation
bearing a later date than the Solicited Proxy; (ii) duly executing a later-dated proxy relating to the
same shares and delivering it to the Secretary of TC, before the taking of the vote at the Special
Meeting; or (iii) attending the Special Meeting and voting in person (although
-14-
attendance at the Special Meeting will not in and of itself constitute a revocation of the Solicited
Proxy). Any written notice of revocation or subsequent proxy should be sent so as to be delivered
to Herbert L. Stern, Jr., Secretary, TC Manufacturing Co., Inc., in care of Rivkin, Radler & Kremer,
30 North LaSalle Street, Chicago, Illinois 60602-2507 or hand delivered to the Secretary of TC, at
or before the taking of the vote at the Special Meeting.
All expenses of this solicitation, including the cost of preparing and mailing this Proxy
Statement/Prospectus, will be borne equally by Mylan and TC, except as provided in the Merger
Agreement. See "The Merger Agreement - Expenses." In addition to solicitation by use of the
mails, Solicited Proxies may be solicited by directors, officers and employees of TC in person or
by telephone, telegram or other means of communication. Such directors, officers and
employees will not be additionally compensated, but may be reimbursed for reasonable
out-of-pocket expenses in connection with such solicitation. Following the original mailing of
the Solicited Proxies and other soliciting materials, TC will request brokers, custodians,
nominees and other record holders to forward copies of the Solicited Proxy and other soliciting
materials to persons for whom they hold shares of TC Common Stock or TC Preferred Stock and
to request authority for the exercise of proxies. Mylan and TC will reimburse such custodians,
nominees and fiduciaries for reasonable expenses incurred in connection herewith.
TC STOCKHOLDERS SHOULD NOT SEND ANY STOCK
CERTIFICATES WITH THEIR PROXY CARDS.
THE MERGER
Background of the Merger
For its fiscal years ending March 31, 1995, March 31, 1994 and March 31, 1993, Mylan had
sales to UDL-Illinois of $6,038,000, $2,750,000 and $2,061,000, respectively.
During the period of May through December 1993, TC and Mylan conducted preliminary
discussions relating to a possible business combination between them. These discussions were
based upon an ongoing business relationship between TC and Mylan in which Mylan acts as a
supplier of a significant portion of the generic pharmaceutical products which UDL-Illinois
provides to its customers. Although such preliminary discussions did not result in any
transaction, the customer-supplier relationship between TC and Mylan was continued.
In December 1994, the Board of Directors of TC discussed the possibility of initiating a new
round of discussions with Mylan and authorized certain officers of TC to communicate with
Mylan in that regard. Initial discussions between TC and Mylan commenced in January 1995
and led to the execution of a confidentiality agreement in April 1995 following a meeting among
representatives of both corporations at Mylan's executive offices.
Since that date, TC and Mylan and their respective advisors have participated in structuring the
proposed Reorganization and Merger, conducting due diligence investigations and preparing the
transaction documents to evidence the Reorganization and the Merger.
Negotiation on the proposed structure of the transaction and the definitive Merger Agreement
and due diligence continued through the week of October 9, 1995.
On October 9, 1995, the Board of Directors of TC approved TC's execution and delivery of the
Merger Agreement. Members of management of TC and of Mylan, along with their respective
legal counsel, continued to negotiate the terms of the proposed merger through October 10, 1995.
On October 10, 1995, management of Mylan approved the Merger Agreement. Because the
Board of Directors of Mylan previously had authorized its management to negotiate a merger
agreement and, if negotiated, to enter into a merger agreement, the Merger Agreement was
executed by the parties and various stockholders of TC executed and delivered irrevocable
proxies in favor of Mylan. See "Certain Related Transactions and Relationships of TC and
Mylan - The Irrevocable Proxies."
-15-
TC's Reasons for the Merger; Recommendation of TC's Board of Directors
The Board of Directors of TC believes that the terms of the Merger are fair to and in the best
interests of TC and its stockholders. Accordingly, the Board of Directors of TC has unanimously
approved the Merger Agreement and recommended its approval by TC stockholders.
The Board of Directors of TC, after careful study and evaluation of financial and market factors,
believes that the consummation of the Merger will improve UDL's position in the dynamic
healthcare marketplace.
Since 1993, the Board of Directors of TC increasingly has been concerned over UDL's ability to
secure quality and reliable sources for the generic pharmaceutical products required in UDL's
business. As primarily a marketer of products manufactured by others, UDL is dependent on
outside manufacturers for the procurement of most of the products marketed by it.
In 1993 and early 1994, TC's Board of Directors saw the solution to UDL's source dependency
problems as primarily one of capital. The Board believed that if UDL could complete a public
offering of its securities and thus obtain the requisite capital, it could, over time, by expanding its
manufacturing facilities and in-house research and development capabilities, position itself to
manufacture a number of generic products which it otherwise would have had to purchase from
others. UDL also hoped to invest its enhanced capital resources in product development
opportunities through joint ventures with other pharmaceutical companies. It was thought that as
the number of products manufactured in-house by UDL or secured through joint venture
investments increased, UDL's source dependency on unaffiliated outside manufacturers would
diminish.
UDL, however, never successfully completed the contemplated public offering due to several
circumstances.
First, TC's Board of Directors questioned whether the amount of capital to be raised through the
public offering would be sufficient for UDL to develop new products as rapidly as previously
believed. Second, TC's Board of Directors questioned whether, in light of increasing
competition, UDL would be afforded the same opportunities as it had previously enjoyed to be
among the first to introduce, in unit dose configuration to the institutional marketplace, newly
developed generic equivalents of recently off-patent pharmaceuticals. Without these
opportunities, UDL would have difficulty attaining its forecasted earnings.
Third, while reflecting on these concerns but proceeding with its preparations for the public
offering, TC's Board of Directors in August 1993 received from Mylan an indication of interest
in a business combination with TC. The Board of Directors saw that such a combination could
enable UDL to accomplish its objective of gaining access to a secure source for a broad line of
generic pharmaceutical products and to substantial capital and manufacturing resources and
research and development capabilities. The Board, therefore, decided to defer completion of the
public offering pending further discussions with Mylan.
By mid-December 1993, these discussions ended when the parties failed to reach agreement. By
this time, the Board had concluded that the public markets might not be the best source for
capital required by TC's pharmaceutical operations. TC therefore retained an investment banking
firm as its financial advisor with a mandate to determine whether alternative sources of capital
could be found.
In the midst of this process, a downturn occurred in stock prices within the generic
pharmaceuticals sector of the public securities market and the public offering alternative became
no longer a viable option.
At about the same time, a wave of mergers and consolidations within the generic pharmaceutical
industry struck. Apprehension over the dwindling number of potential suppliers led TC's Board
of Directors to conclude that capital alone could not cure UDL's source dependency because
UDL no longer had time to develop a broad line of products to manufacture in-house. UDL
would have to immediately secure one or more long-term supply relationships offering ongoing
access to (i) a broad line of existing and potential products; (ii) extensive manufacturing
capabilities; and (iii) expanded research and development. The Board concluded that UDL could
only achieve this objective through affiliation with a major existing pharmaceutical company.
In now focusing strictly on the immediate need to alleviate UDL's source dependency, TC's
Board of Directors reviewed UDL's existing and potential supply relationships for prospective
merger partners. Over the course of the next eighteen months, a number potential merger
candidates, including Mylan, were
-16-
identified and indications of interest solicited. Extensive negotiations with several of the
potential merger candidates ensued, culminating in the agreement to combine the Pharmaceutical
Business with the pharmaceutical operations of Mylan.
Mylan is currently the largest supplier to the Pharmaceutical Business in terms of number of
products (28 of 177 total products carried by UDL) and dollar volume of purchases.
Furthermore, there are 22 additional products which UDL currently purchases from sources other
than Mylan but which can be procured from Mylan and with respect to which a merger with
Mylan would provide source security.
Furthermore, TC's Board of Directors believes that the merger with Mylan will alleviate the
constraints on UDL caused by TC's limited capital, manufacturing resources and know-how, and
research and development capabilities.
BASED ON THE FOREGOING, THE BOARD OF DIRECTORS OF TC BELIEVES THAT
THE TERMS OF THE MERGER AGREEMENT ARE IN THE BEST INTERESTS OF TC
AND ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT TC
STOCKHOLDERS VOTE IN FAVOR OF THE PROPOSAL TO APPROVE THE MERGER
AGREEMENT.
Mylan's Reasons for the Merger
Mylan believes that the Merger is a logical step in its long-range plan to became a fully
integrated pharmaceutical company by adding a more complete line of both solid and liquid unit
dose generic pharmaceutical products in custom packaging for the retail, institutional and
managed care markets in addition to Mylan's other generic products. Among the factors
considered by Mylan in deciding to approve and execute the Merger Agreement were the
compatibility of the business philosophies of the two companies, TC's distribution system and
integration into the unit dose market and the ability to consummate the Merger through,
primarily, the issuance of Mylan Common Stock.
Certain Federal Income Tax Consequences
Introduction
The following is a summary of the opinion of special
tax counsel to TC relating to certain federal income tax
considerations generally applicable to TC and the TC stockholders
resulting from the Reorganization and the Merger. The opinion is
based upon the current provisions of the Internal Revenue Code,
applicable Treasury Regulations, judicial authority and
administrative rulings and practice. A favorable ruling from the
Internal Revenue Service has been requested on many of the issues
discussed in this section. There can be no assurance that the
IRS will issue a ruling prior to the effective date of the
Reorganization or the Merger, or that the IRS will agree on any
of the conclusions summarized in this section. Legislative,
judicial, or administrative changes or interpretations since the
date of the opinion of special tax counsel may alter or modify
the statements and conclusions in that opinion and summarized in
this section. Any changes or interpretations may or may not be
retroactive and could affect the tax consequences to the TC
stockholders.
The following summary is for general information only,
and the tax treatment described may not be applicable to certain
TC stockholders, depending upon their particular situations.
Certain TC stockholders (including tax exempt organizations,
financial institutions, or broker-dealers, foreign corporations
and persons) or TC stockholders who are not citizens or residents
of the United States may be subject to special rules not
discussed below. Each TC stockholder should consult his/her own
tax advisor as to the particular consequences to him/her of the
Reorganization and Merger, including the applicability and effect
of any state, local, foreign or other tax laws, as well as recent
changes in applicable federal tax laws and any proposed
legislation.
The Merger
In the opinion of special tax counsel, it is more
likely than not that the result of the Merger for federal income
tax purposes will be as follows: (i) no gain or loss will be
recognized by the TC stockholders upon receipt of solely Mylan
Common Stock in exchange for their shares of TC Common Stock;
(ii) each TC stockholder's basis in the Mylan Common Stock
received will be the same as his basis in the TC Common Stock
exchanged; (iii) the holding period of the Mylan Common Stock
will include the holding period of the TC Common Stock
immediately before the exchange, provided that the TC Common
Stock surrendered was held as a capital
-17-
asset on the date of the exchange; and (iv) the payment of cash to
the holders of TC Common Stock in lieu of fractional shares of
Mylan Common Stock will be treated as capital gain proceeds.
If the opinion of special tax counsel is not sustained
and the Merger fails to meet the requirements of a tax-free
reorganization, then each TC stockholder will be required to
recognize gross taxable proceeds equal to the fair market value
of the Mylan Common Stock received in the Merger (estimated to
equal approximately $8.40 for each TC share). If the TC stock
held by a TC stockholder is a capital asset, the TC stockholder
would subtract his or her tax basis in the TC stock in
determining taxable capital gain or loss. The tax basis of the
Mylan stock received by each TC stockholder would be the fair
market value of the Mylan stock received. The holding period of
the Mylan stock received would begin on the day following the
effective date of the Merger.
The Reorganization
Special tax counsel is unable to give an opinion as to
whether the Reorganization would result in tax-free treatment to
the TC stockholders and TC. This inability to provide a tax
opinion is based upon the application of the standards required
for issuance of tax opinions to the present state of regulatory
and judicial authority applicable to transactions similar to the
Reorganization which is structured in the form of a tax-free
split-off. The following provisions of this section summarize
the effect on TC and the TC stockholders if the Reorganization is
treated as a tax-free reorganization and if it is not.
Tax-Free Reorganization
If the Reorganization is entitled to tax-free
treatment, special tax counsel expects the Reorganization will
have the following effect on TC: (i) no gain or loss will be
recognized by either TC or Newco upon transfer of the assets by
TC to Newco solely in exchange for stock of Newco and the
assumption of liabilities by Newco; (ii) the basis of the assets
transferred to Newco will be the same as the basis of those
assets in the hands of TC; (iii) the holding period for those
assets will include the period the assets were held by TC; (iv)
no gain or loss will be recognized by TC upon distribution of all
its Newco stock to the holders of TC Common Stock who are not
employed in the Pharmaceutical Business.
Under the terms of the Reorganization, the TC
stockholders who are employed in the Pharmaceutical Business will
receive additional shares of TC Common Stock. The TC
stockholders who are not employed in the Pharmaceutical Business
will receive shares of Newco stock.
If the Reorganization is found to be entitled to tax-
free treatment, special tax counsel expects, the effect of the
Reorganization on the TC stockholders will be as follows: (i) no
gain or loss will be recognized upon receipt of the Newco or
additional TC stock; (ii) the aggregate basis of the Newco or
additional TC stock and TC stock after the distribution in the
hands of each of these holders of TC Common Stock will be the
same as the basis of the TC Common Stock immediately before the
distribution, allocated among all of the shares held after the
distribution in proportion to the fair market value of each of
those shares on the date of distribution; and (iii) the holding
period of the Newco (or additional TC) stock received will
include the holding period of the TC Common Stock with respect to
which the distribution is made, provided that the TC Common Stock
is held as a capital asset by those stockholders on the date of
distribution.
-18-
Taxable Reorganization
If the Reorganization is found NOT to be entitled to
tax-free treatment, special tax counsel expects the effect on TC
and the TC stockholders will be as follows: (i) TC will recognize
taxable income on the transfer of the assets to Newco in exchange
for Newco Common Stock and the assumption of liabilities by Newco
resulting in federal income tax liability to TC of approximately
$2,000,000; (ii) no gain or loss will be recognized by Newco upon
the receipt of the assets in exchange for Newco stock and the
assumption of liabilities by Newco; (iii) Newco's basis in the
assets transferred to it by TC will equal the sum of the tax basis
of the assets transferred in the hands of TC plus the amount of gain
recognized by TC in the transaction; (iv) Newco's holding period for
the assets transferred to it will begin the day following the acquisition of
the assets; (v) the TC stockholders will recognize taxable
dividend income on the distribution of the Newco stock or TC
stock that they receive in an amount equal to the fair market
value of the stock received as of the date of the Reorganization
(estimated to be approximately $4.00 per TC share held prior to
the split-off); (vi) the tax basis of the stock distributed to
the TC stockholders will be equal to its fair market value on the
date of the distributions to those stockholders; and (vii) the
holding period for the stock distributed to the TC stockholders
will begin on the day following the date of the Reorganization.
THE FOREGOING FEDERAL INCOME TAX DISCUSSION IS INCLUDED
FOR GENERAL INFORMATION ONLY. THE TAX CONSEQUENCES OF THE
REORGANIZATION AND THE MERGER MAY VARY DEPENDING UPON, AMONG
OTHER THINGS, THE PARTICULAR CIRCUMSTANCES OF THE TC STOCKHOLDER.
EACH TC STOCKHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX
ADVISOR TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO HIM OR
HER (INCLUDING THE APPLICABILITY AND EFFECT OF THE CONSTRUCTIVE
OWNERSHIP RULES AND FOREIGN, STATE, AND LOCAL TAX LAWS) ON THE
DISPOSITION OF SHARES PURSUANT TO THE REORGANIZATION AND THE
MERGER.
Release of Tax Claims
Each holder of TC Preferred Stock and TC Common Stock, as a condition of receiving shares of
Mylan Common Stock, must release Mylan and TC and their respective officers, directors and
affiliates, from any claims that such holder may have as a result of the Reorganization and the
Merger being subject to any federal, state or local taxes, except for corporate taxes assessed
against TC and imposed upon any such holder on account of transferee liability, if any, resulting
from the distribution by TC to such holder of the shares of capital stock of Newco in the
Reorganization. See also "Certain Related Transactions and Relationships of TC and Mylan."
See also "Certain Related Transactions and Relationships of TC and Mylan - Reorganization and
Letter of Transmittal."
Regulatory Compliance
Under the HSR Act and the rules promulgated thereunder by the Federal Trade Commission (the
"FTC"), the Merger may not be consummated until notifications have been given and certain
information has been furnished to the FTC and the Antitrust Division of the Department of
Justice (the "Antitrust Division") and specified waiting period requirements have been satisfied.
Mylan and TC each filed notification and report forms under the HSR Act with the FTC and the
Antitrust Division on November 20, 1995. The statutory waiting period under the HSR Act
expired on December 20, 1995. At any time before or after consummation of the Merger, the
Antitrust Division or the FTC could take such action under the antitrust laws as it deems
necessary or desirable in the public interest, including seeking to enjoin the consummation of the
Merger or seeking divestiture of substantial assets of Mylan or TC. At any time before or after
the Effective Time, and notwithstanding that the HSR Act waiting period has expired, any state
could take such action under the antitrust laws as it deems necessary or desirable in the public
interest. Such action could include seeking to enjoin the consummation of the Merger or seeking
divestiture of TC or businesses of Mylan or TC. Private parties may also seek to take legal
action under the antitrust laws under certain circumstances.
Based on information available to them, Mylan and TC believe that the Merger can be effected in
compliance with federal and state antitrust laws. However, there can be no assurance that a
challenge to the consummation of the Merger on antitrust grounds will not be made or that, if
such a challenge were made, Mylan and TC would prevail or would not be required to accept
certain conditions, possibly including certain divestitures in order to consummate the Merger.
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Consummation of the Merger is conditioned upon the receipt of all material governmental
authorizations, consents, orders and approvals, subject to waiver of such conditions, in
accordance with the terms of the Merger Agreement. Mylan and TC intend to pursue vigorously
all required regulatory approvals. However, there can be no assurance regarding the timing of
such approvals or that such approvals will, in fact, be obtained.
Federal Securities Law Consequences
Except as provided in the Continuity of Interest Agreement (See "Certain Relationships and
Related Transactions of TC - Reorganization"), all shares of Mylan Common Stock received by
holders of TC Common Stock or TC Preferred Stock in the Merger will be freely transferable,
except that shares of Mylan Common Stock received by persons who are deemed to be affiliates
of TC prior to the Merger may be resold by them only in transactions permitted by the resale
provisions of Rule 145 promulgated under the Securities Act (or Rule 144 in the case of such
persons who become affiliates of Mylan) or as otherwise permitted under the Securities Act.
Persons who may be deemed to be affiliates of TC or Mylan generally include individuals or
entities that control, are controlled by, or are under common control with, such party and may
include certain officers and directors of such party as well as principal shareholders of such
party. The rights of "affiliates" of TC to receive their shares of Mylan Common Stock in the
Merger are conditioned upon the execution by each of such affiliates of a written agreement to
the effect that such person will not offer or sell or otherwise dispose of any of the shares of
Mylan Common Stock issued to such person in or pursuant to the Merger in violation of the
Securities Act or the rules and regulations promulgated by the Commission thereunder and their
shares will bear a restrictive legend to such effect.
Stock Exchange Listing
Mylan has filed an application to effect listing of the Mylan Common Stock to be delivered in
accordance with the Merger Agreement on the NYSE upon notice of issuance.
Appraisal Rights
Holders of TC Common Stock and TC Preferred Stock are entitled to appraisal rights under
Section 262 of the DGCL, which are reprinted in their entirety as Annex A to this Proxy
Statement/Prospectus.
The following discussion is not a complete statement of the law relating to appraisal rights and is
qualified in its entirety by reference to Annex B. This discussion and Annex B should be
reviewed carefully by any holder of TC Stock who wishes to exercise statutory appraisal rights
or who wishes to preserve the right to do so, because failure to comply with the procedures set
forth herein or therein will result in the loss of appraisal rights.
Record holders of TC Stock are entitled to appraisal rights under Section 262 of the DGCL
("Section 262"). A person having a beneficial interest in shares of TC Common Stock or TC
Preferred Stock held of record in the name of another person, such as a broker or nominee, must
act promptly to cause the record holder to follow the steps summarized below properly and in a
timely manner to perfect the appraisal rights provided under Section 262.
Under Section 262, where a merger is to be submitted for approval at a meeting of stockholders,
as in the case of the Special Meeting, not less than 20 days prior to the meeting, a constituent
corporation must notify each of the holders of its stock for which appraisal rights are available
that such appraisal rights are available and include in each such notice a copy of Section 262.
THIS PROXY STATEMENT/PROSPECTUS SHALL CONSTITUTE SUCH NOTICE TO
THE RECORD HOLDERS OF TC COMMON STOCK OR TC PREFERRED STOCK. ANY
SUCH STOCKHOLDER WHO WISHES TO EXERCISE SUCH APPRAISAL RIGHTS
SHOULD REVIEW THE FOLLOWING DISCUSSION AND ANNEX A CAREFULLY,
BECAUSE FAILURE TO TIMELY AND PROPERLY COMPLY WITH THE PROCEDURES
SPECIFIED WILL RESULT IN THE LOSS OF APPRAISAL RIGHTS UNDER THE DGCL.
Under the DGCL, record holders of TC Common Stock or TC Preferred Stock who follow the
procedures set forth in Section 262 will be entitled to have their shares of TC Common Stock or
TC Preferred Stock appraised by the Delaware Court of Chancery and to receive payment of the
"fair value" of such shares as described below. Such holders are, in such circumstances, entitled
to appraisal rights because they hold stock of a constituent corporation to the Merger and such
TC Stock is not listed on a national securities exchange or designated as a national market
system security or NASDAQ, nor held of record by more than 2,000 holders.
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A holder of shares of TC Common Stock or TC Preferred Stock wishing to exercise his or her
appraisal rights must deliver to the Secretary of TC, before the vote on the Merger Agreement at
the Special Meeting, a written demand for appraisal of his or her shares of TC Common Stock or
TC Preferred Stock, respectively. Neither a proxy indicating a vote against nor a vote against the
Merger shall constitute such a demand. Such written demand must reasonably inform TC of the
identity of the holder and that such holder intends thereby to demand appraisal of the holder's
shares. All written demands for appraisal of TC Common Stock or TC Preferred Stock should be
sent or delivered to Herbert L. Stern, Jr., Secretary, TC Manufacturing Co., Inc. in care of
Rivkin, Radler & Kremer, 30 North LaSalle Street, Chicago, Illinois 60602-2507. A holder of
shares of TC Common Stock or TC Preferred Stock who desires to exercise his or her appraisal
rights must not vote his shares in favor of the Merger Agreement either in person or by proxy.
Neither an abstention from voting with respect to, nor failure to vote in person or by proxy
against, approval of the Merger Agreement constitutes a waiver of the rights of stockholders
exercising appraisal rights. However, a signed Solicited Proxy that is returned without any
instruction as to how the Solicited Proxy should be voted will be voted in favor of the approval
of the Merger Agreement and will be deemed a waiver of the rights of a stockholder exercising
appraisal rights. In addition, a holder of shares of TC Common Stock or TC Preferred Stock
wishing to exercise his or her appraisal rights must hold such shares of record on the date the
written demand for appraisal is made and must hold such shares continuously through the
Effective Time. Stockholders who hold their shares of TC Common Stock or TC Preferred
Stock in brokerage accounts or other nominee forms and who wish to exercise appraisal rights
must take all necessary steps in order that a demand for appraisal is made by the record holder of
such shares and are urged to consult with their brokers or such other appropriate person to
determine the appropriate procedures for the making of a demand for appraisal by the record
holder.
Within ten days after the Effective Time, the Surviving Corporation must send a notice as to the
effectiveness of the Merger to each person who has satisfied the appropriate provisions of
Section 262 and who is entitled to appraisal rights under Section 262. Within 120 days after the
Effective Time, any holder of record of shares of TC Common Stock or TC Preferred Stock who
has complied with the requirements for exercise of appraisal rights will be entitled, upon written
request, to receive from the Surviving Corporation a statement setting forth (i) the aggregate
number of shares of TC Common Stock or TC Preferred Stock not voted in favor of the Merger
Agreement and with respect to which demands for appraisal have been received and (ii) the
aggregate number of holders of such shares. Any such statement must be mailed within ten days
after a written request therefor has been received by the Surviving Corporation.
Within 120 days after the Effective Time, but not thereafter, the Surviving Corporation or any
holder of shares of TC Common Stock or TC Preferred Stock who has complied with the
foregoing procedures and who is entitled to appraisal rights under Section 262 may file a petition
in the Delaware Court of Chancery demanding a determination of the "fair value" of such shares.
The Surviving Corporation is not under any obligation to file a petition with respect to the
appraisal of the "fair value" of the shares of TC Common Stock or TC Preferred Stock and
neither Mylan nor TC presently intends that the Surviving Corporation file such a petition.
Accordingly, it is the obligation of the stockholders to initiate all necessary action to perfect their
appraisal rights within the time prescribed in Section 262. A holder of shares of TC Common
Stock or TC Preferred Stock will fail to perfect, or effectively lose, his or her right to appraisal if
no petition for appraisal of shares of TC Common Stock or TC Preferred Stock is filed within
120 days after the Effective Time.
If a petition for an appraisal is timely filed, after a hearing on such petition, the Delaware Court
of Chancery will determine the holders of shares of TC Common Stock or TC Preferred Stock
entitled to appraisal rights and will appraise the "fair value" of the shares of TC Common Stock
or TC Preferred Stock, exclusive of any element of value arising from the accomplishment or
expectation of the Merger. Holders considering seeking appraisal should be aware that the "fair
value" of their shares of TC Common Stock or TC Preferred Stock as determined under Section
262 could be more than, the same as, or less than the value of the Mylan Common Stock they
would receive if they did not seek appraisal. The Delaware Supreme Court has stated that "proof
of value by any techniques or methods which are generally considered acceptable in the financial
community and otherwise admissible in court" should be considered in the appraisal proceedings.
In addition, Delaware courts have decided that the statutory appraisal remedy, depending on
factual circumstances, may or may not be the exclusive remedy for a stockholder exercising
appraisal rights.
The Delaware Court of Chancery will determine the amount of interest, if any, to be paid upon
the amounts to be received by persons whose shares of TC Common Stock have been appraised.
The costs of the action may be determined by such court and taxed upon the parties as the court
deems equitable. The Delaware Court of Chancery may also order that all or a portion of the
expenses incurred by any holder of shares of TC Common Stock or TC Preferred Stock in
connection with an appraisal, including, without limitation, reasonable attorneys' fees and
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the fees and expenses of experts utilized in the appraisal proceeding, be charged pro rata against
the value of all of the shares of TC Common Stock or TC Preferred Stock entitled to appraisal.
If any holder of shares of TC Common Stock or TC Preferred Stock who demands appraisal of
his or her shares under Section 262 fails to perfect, or effectively withdraws or loses, his or her
right to appraisal, as provided in the DGCL, the shares of TC Common Stock or TC Preferred
Stock of such stockholder will not be deemed to qualify for payment of appraisal rights in
accordance with Section 8.9 of the Merger Agreement. A holder may withdraw his or her
demand for appraisal by delivering to the Surviving Corporation a written withdrawal of his or
her demand for appraisal and acceptance of the Merger, except that any such attempt to withdraw
made more than 60 days after the Effective Time will require the written approval of the
Surviving Corporation. Failure to follow the steps required by Section 262 of the DGCL for
perfecting appraisal rights may result in the loss of such rights.
Any holder of shares of TC Common Stock or TC Preferred Stock who has duly demanded an
appraisal in compliance with Section 262 will not, after the Effective Time, be entitled to vote
the shares of TC Common Stock or TC Preferred Stock subject to such demand for any purpose
or be entitled to the payment of dividends or other distributions on those shares (except dividends
or other distributions payable to holders of record of shares of TC Common Stock or TC
Preferred Stock as of a date prior to the Effective Time).
Accounting Treatment
The Merger will be accounted for by Mylan under the purchase method of accounting. Under
this method the assets (both tangible and intangible) and liabilities of TC at the Effective Time
will be recorded by Mylan for financial reporting purposes at their market values as of the
Effective Time, and any excess of the consideration paid over the net market values of the assets
acquired will be recorded and amortized as goodwill.
THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger Agreement, a copy of
which is attached as Annex C to this Proxy Statement/Prospectus and is incorporated herein by
reference.
The Merger
The Merger Agreement provides that, following the approval of the Merger Agreement by the
stockholders of TC and the satisfaction or waiver of the other conditions to the Merger, MLI will
be merged with and into TC, with TC continuing as the surviving corporation (the "Surviving
Corporation").
If the Merger Agreement is approved by the stockholders of TC and the other conditions to the
Merger are satisfied or waived, the Merger will become effective immediately upon the filing of
a duly executed Certificate of Merger by TC and MLI (the "Constituent Corporations") with, and
the issuance of a Certificate of Merger by, the Secretary of State of the State of Delaware.
Upon consummation of the Merger, pursuant to the Merger Agreement (i) the issued and
outstanding shares of TC Common Stock (other than shares as to which appraisal rights have
been perfected, all of which will be canceled), will be converted into shares of Mylan Common
Stock at a ratio equal to .42589063 ("Common Stock Exchange Ratio") shares of Mylan
Common Stock for each share of TC Common Stock, assuming the exercise prior to the
Effective Time of all of the 207,008 stock options for TC Common Stock outstanding as of
December 26, 1995and subject to adjustment depending upon certain balance sheet items of TC
(parent company only) at the close of business on the Effective Time (see "Adjustment to
Common Stock Exchange Ratio; Certain Holdbacks Applicable to Holders of TC Common
Stock and Distributions"); and (ii) the issued and outstanding shares of TC Preferred Stock (other
than shares as to which appraisal rights have been perfected, all of which will be canceled) will
be converted into shares of Mylan Common Stock at a ratio equal to 5.02765 ("Preferred
Exchange Ratio") shares of Mylan Common Stock for each share of TC Preferred Stock. Based
upon the capitalization of TC and Mylan as of September 30, 1995, the Common Stock
Exchange Ratio and the Preferred Stock Exchange Ratio, the stockholders of TC immediately
prior to the consummation of the Merger will own less than 2.0 percent of the outstanding shares
of Mylan Common Stock immediately following consummation of the Merger.
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Adjustment of Common Stock Exchange Ratio; Certain Holdbacks Applicable to Holders of TC
Common Stock; and Distributions
The number of shares of Mylan Common Stock to which the holders of TC Common Stock are
entitled will be finally determined based upon the Adjusted Exchange Ratio. The "Adjusted
Exchange Ratio" is the Common Stock Exchange Ratio adjusted for certain balance sheet items
of TC (parent company only) as of the close of business on the date the Merger is consummated.
The Adjusted Exchange Ratio may be greater or less than the Common Stock Exchange Ratio.
Because the Adjusted Exchange Ratio will not be known at the closing, the initial distribution of
shares of Mylan Common Stock to holders of TC Common Stock will be subject to a holdback
which would be used to satisfy any reduction in the number of shares of Mylan Common Stock
to which holders of TC Common Stock are entitled in the event that the Adjusted Exchange
Ratio is less than the Common Stock Exchange Ratio.
The initial distributions to holders of TC Common Stock will also be subject to a holdback with
respect to any shares of TC Common Stock or TC Preferred Stock for which stockholders of TC
exercise appraisal rights.
Upon the final determination of the Adjusted Exchange Ratio and any appraisal rights
proceedings: (i) if holders of TC Common Stock are entitled to receive more shares of Mylan
Common Stock than initially distributed, the Exchange Agent and/or the trustee of the trust for
stockholders exercising appraisal rights will distribute such additional shares to holders of TC
Common Stock as described below; and (ii) if holders of TC Common Stock are not entitled to
receive more shares of Mylan Common Stock than initially distributed, the shares of Mylan
Common Stock held back and in the possession of the Exchange Agent will be returned to
Mylan.
Adjustment to Common Stock Exchange Ratio and Holdback
After the Effective Time and upon surrender of the certificates representing shares of TC
Common Stock, each holder of TC Common Stock will receive in exchange, a whole number of
shares of Mylan Common Stock based upon 95% of the Common Stock Exchange Ratio
assuming no appraisal rights are exercised. See "The Merger Agreement - Appraisal Rights
Holdback and Distributions." The remaining shares of Mylan Common Stock will be held
pending the definitive determination of the Adjusted Exchange Ratio. Upon the issuance of such
determination, each holder of TC Common Stock will receive the balance of any shares of Mylan
Common Stock or cash in lieu of fractional shares to which he/she is entitled, if any, under the
Merger Agreement.
Following the Effective Time, the Stockholders Representative (See "Certain Related
Transactions and Relationships of TC and Mylan - Reorganization") and a representative of
Mylan (the "Mylan Representative") will jointly review the books and records of TC in order to
determine definitively, as of the Effective Time but after giving effect to the Reorganization, the
amount of assets and liabilities reflected on the books and records of TC on a stand-alone basis
(that is, without consolidating any of the assets or liabilities of any subsidiary of TC). The
number of shares of Mylan Common Stock to be delivered to former holders of TC Common
Stock in exchange for their shares of TC Common Stock will then be adjusted upward to reflect
the amount of any excess of assets over liabilities or downward to reflect the amount of any
excess of liabilities over assets as determined in accordance with the calculations described
below.
On or before the 15th day after the Effective Time, the Stockholders Representative and a
representative of Mylan shall jointly prepare and certify to the former holders of TC Common
Stock and Mylan the following items, in each case, as of the close of business on the date the
Merger is consummated, after giving effect to all of the transactions contemplated by the
Reorganization and the Merger Agreement (the "Joint Certification"):
(A) the amount of cash on hand or in bank accounts of TC (the "TC Cash");
(B) all other assets which would appear on a balance sheet of TC (parent company only)
prepared in accordance with generally accepted accounting principles applied on a consistent
basis (the "Other Assets");
(C) the amount of the indebtedness owed to TC by UDL-Illinois and TC's two special
purpose subsidiaries, whether on account or evidenced by one or more promissory notes (the
"Intercompany Indebtedness");
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(D) the amount necessary to pay in full the 10 1/2% Senior Promissory Notes of TC due July
31, 2001 held by Metropolitan Life Insurance Company, including, without limitation, principal,
accrued but unpaid interest and any yield maintenance or prepayment penalty (the "Senior Note
Indebtedness");
(E) the amount necessary to pay in full the line of credit granted to TC by LaSalle National
Bank, including, without limitation, principal, accrued but unpaid interest and any yield
maintenance or prepayment penalty (the "Line of Credit Indebtedness");
(F) the amount necessary to pay in full any outstanding obligations of the Company in favor
Michael K. Reicher in connection with its acquisition of the shares of common stock of
UDL-Illinois held by Mr. Reicher (the "Reicher Indebtedness");
(G) all other liabilities which appear on a balance sheet of TC (parent company only)
prepared in accordance with generally accepted accounting principles applied on a consistent
basis including, without limitation, any liabilities under the group health insurance plans of TC
which are not covered by insurance and any costs or expenses associated with the transactions
contemplated by the Reorganization or the Merger Agreement which have not been paid by TC
(the "Other Liabilities");
(H) the amount equal to (1) the sum of the TC Cash, the Other Assets and the Intercompany
Indebtedness minus (2) the sum of the Senior Note Indebtedness, the Line of Credit
Indebtedness, the Reicher Indebtedness and the Other Liabilities, which may be a positive or
negative amount (the "Net Adjustment Amount");
(I) the sum of the shares of Mylan Common Stock to be delivered to holders of TC Common
Stock pursuant to the Merger Agreement valued at $19.89 per share plus the Net Adjustment
Amount (if a positive amount) or minus the Net Adjustment Amount (if a negative amount) (the
"Adjusted Company Common Stock Consideration");
(J) the Adjusted Company Common Stock Consideration divided by $19.89, which quotient
is then divided by the number of outstanding shares of TC Common Stock at the Effective Time
(the "Adjusted Exchange Ratio"); and
(K) the number of shares of Mylan Common Stock calculated at the Adjusted Exchange Ratio
for each of the outstanding shares of TC Common Stock (the "Adjusted Shares of Mylan
Company Shares").
Following delivery of the Joint Certification (i) Mylan shall deliver to the Exchange Agent
within 2 business days after receipt of the Joint Certification shares of Mylan Common Stock
equal to the excess, if any, of (A) the number of Adjusted Shares of Mylan Common Stock over
(B) the number of whole shares of Mylan Common Stock previously delivered to the Exchange
Agent by Mylan together with dividends, if any, related to the shares of Common Stock so
delivered; or (ii) the Exchange Agent shall deliver to Mylan within 2 business days after receipt
of the Joint Certification shares of Mylan Common Stock equal to the excess, if any, of (A) the
number of whole shares of Mylan Common Stock previously delivered to the Exchange Agent
by Mylan over (B) the number of Adjusted Shares of Parent Common Stock and, in such event,
Mylan shall have no further obligation to deliver shares of Mylan Common Stock to holders of
TC Common Stock.
In the event of any controversy or dispute between the Stockholders Representative and the
Mylan Representative arising out of or relating to the preparation of the Joint Certification, either
the Stockholders Representative or the Mylan Representative may give notice to the other of its
desire to engage Arthur Andersen LLP or, if unavailable, another "big six" accounting firm
mutually acceptable to the Stockholders Representative and the Mylan Representative (the
"Independent Accountant") to resolve the controversy or dispute within 15 days after such
engagement. The Independent Accountant's determination shall be final and binding, and the
Stockholders Representative and the Mylan Representative shall deliver the Joint Certification
based upon the decision of the Independent Accountant. The fees and disbursements of the
Independent Accountant shall be borne by Mylan as reorganization expenses incident to the
Merger.
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Appraisal Rights Holdback
TC and Mylan have agreed to certain procedures to be followed in the case of stockholders of TC
who exercise their rights to have the fair market value of their shares appraised under Section
262 of the DGCL.
Because the amounts due holders of TC Common Stock who exercise appraisal rights under the
DGCL (the "Dissenting Stockholders") will not be ascertainable at the Effective Time, the
precise number of required shares of Mylan Common Stock to be delivered in the Merger cannot
be determined and delivered to existing holders of TC Common Stock who do not exercise their
appraisal rights (the "Participating Stockholders"). In view of the foregoing, if any TC
stockholders elect to exercise their appraisal rights from the adoption of the Merger Agreement
and such stockholders shall have perfected their appraisal rights in accordance with Section 262
of the DGCL and shall not have their shares of TC redeemed as of the Effective Time, TC and
Mylan will create an agreement of trust (the "Trust Agreement") which will govern the
procedures by which shares of Mylan Common Stock issued to the Participating Stockholders
shall be deposited with a trustee and held pending (i) settlement of the Dissenting Stockholders
rights with respect to their TC stockholdings; or (ii) a formal determination of the value due to
each of the Dissenting Stockholders pursuant to Section 262 of the DGCL (the "Dissenter's
Allocation"). The basic terms to be included in the Trust Agreement are set forth in a letter
agreement between TC and Mylan which is attached as Annex D to this Proxy
Statement/Prospectus.
Distributions
Promptly after the Effective Time, transmittal forms will be mailed to each holder of record of
TC Common Stock and TC Preferred Stock to be used in forwarding his/her certificates
evidencing such shares for surrender. After receipt of such transmittal form, each holder of
certificates formerly representing TC Common Stock or TC Preferred Stock should surrender
such certificate to the Exchange Agent. Such transmittal forms will be accompanied by
instructions specifying other details of the exchange.
In the case of holders of TC Common Stock, each such holder will receive an initial whole
number of shares of Mylan Common Stock equal to (i) the number of shares such holder holds
multiplied by the Common Stock Exchange Ratio less (ii) the number of shares of Mylan
Common Stock subject to the holdback provisions described above. Assuming all outstanding
options to purchase TC Common Stock are exercised and that no holder of TC Common Stock
exercises appraisal rights, the initial distribution ratio will be .40464109 shares of Mylan
Common Stock for each share of TC Common Stock. This initial distribution ratio may
increase slightly if the holders of options to purchase TC Common Stock fail to exercise their
options and may decrease slightly to the extent that holders of TC Common Stock exercise
appraisal rights. See "Appraisal Rights Holdback." Following final determination of the
Adjusted Exchange Ratio and any appraisal rights proceedings, the holders of TC Common
Stock may be entitled to receive an additional amount of shares of Mylan Common Stock.
In the case of holders of TC Preferred Stock, each such holder will receive in exchange therefor a
certificate evidencing the whole number of shares of Mylan Common Stock to which he or she is
entitled and a check representing any cash that may be payable in lieu of a fractional share of
Mylan Common Stock, as hereafter described.
If any holder of shares of TC Preferred Stock would be entitled to receive a number of shares of
Mylan Common Stock that includes a fraction, or if any holder of shares of TC Common Stock
upon final determination of the Adjusted Exchange Ratio and any appraisal rights proceedings is
entitled to receive additional shares of Mylan Common Stock that includes a fraction, then, in
lieu of a fractional share, such holder will be entitled to receive cash. Such cash will be derived
from the sale by the Exchange Agent (as defined below) (i) on behalf of stockholders of TC
Common Stock otherwise entitled to fractional shares of shares of Mylan Common Stock equal
to the total of such fractional interests multiplied by a fraction, the numerator of which is the
amount of the fractional share interest to which such holder of TC Common Stock is entitled and
the denominator of which is the aggregate amount of fractional share interests to which all
holders of TC Common Stock are entitled; and (ii) on behalf of stockholders of TC Preferred
Stock otherwise entitled to fractional shares of shares of Mylan Common Stock equal to the total
of such fractional interests multiplied by a fraction, the numerator of which is the amount of the
fractional share interest to which such holder of TC Preferred Stock is entitled and the
denominator of which is the aggregate amount of fractional share interests to which all holders of
TC Preferred Stock are entitled. American Stock Transfer Co. or a bank or trust company
selected by Mylan will act as exchange agent (the "Exchange Agent") and, at the appropriate
times, will sell shares of Mylan Common Stock representing the aggregate of the fractional
shares at the prevailing prices on the NYSE and make the proceeds available to stockholders
entitled
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thereto. TC STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES
UNTIL THEY RECEIVE A TRANSMITTAL FORM. See "Certain Related Transactions and
Relationships of TC and Mylan."
After the Effective Time, each certificate evidencing TC Common Stock or TC Preferred Stock,
until so surrendered and exchanged, will be deemed, for all purposes, to evidence only the right
to receive the number of shares of Mylan Common Stock which the holder of such unexchanged
certificate is entitled to receive in the Merger and the right to receive any cash payment in lieu of
a fractional share of Mylan Common Stock. The holder of any such unexchanged certificate
evidencing TC Common Stock or TC Preferred Stock will not receive any dividends or other
distributions payable by Mylan until the certificate is surrendered. Subject to applicable laws,
such dividends and distributions, together with any cash payment in lieu of a fractional share of
Mylan Common Stock, will be paid, without interest.
Representations and Warranties
The Merger Agreement contains various customary representations and warranties relating to,
among other things (i) each of Mylan's, TC's, MLI's and TC's subsidiaries' organization and
similar corporate matters; (ii) each of Mylan's, TC's, MLI's and TC's subsidiaries' capital
structure and the ownership of MLI by Mylan and TC's subsidiaries by TC; (iii) each of Mylan's,
TC's and TC's subsidiaries' financial statements; (iv) each of Mylan's, MLI's and TC's
authorization of the Merger Agreement and related matters; (v) each of Mylan's, MLI's or TC's
absence of conflicts under charters or bylaws, receipt of required consents or approvals, and
absence of violations of any instruments or law; (vi) documents filed by Mylan with the
Commission and the accuracy of information contained therein; (vii) absence of certain material
adverse events, changes or effects; (viii) in the case of TC, retirement and other employee plans
and matters relating to the Employee Retirement Income Security Act of 1974, as amended; (ix)
certain Food and Drug Administration matters; (x) litigation; (xi) compliance with law; (xii) in
the case of TC, the stockholder vote required; (xiii) in the case of TC, the status of certain
intercompany transactions between TC and TC's subsidiaries; (xiv) the absence of any broker;
(xv) in the case of Mylan, the due authorization and non-accessibility of the Mylan Common
Stock to be issued in the Merger; and (xvi) in the case of MLI, its interim operations.
Certain Covenants of TC
TC has agreed that, except as otherwise expressly provided in the Merger Agreement, during the
period from the date of the Merger Agreement until the Effective Time, it, and in certain
instances its subsidiaries, will (i) use their commercially reasonable efforts to defend any
lawsuits, obtain all necessary consents, and make all filings to effect the transactions
contemplated by the Merger Agreement; (ii) maintain their respective properties; (iii) provide
information to Mylan; (iv) except for the Reorganization, not engage in transactions out of the
ordinary course of business and use their best efforts to preserve their respective businesses and
employees; (v) not (A) make any changes in their authorized capital stock, (B) issue any stock
options, warrants or other rights, (C) declare any stock dividend or effect a recapitalization, (D)
issue any capital stock except pursuant to existing stock options, (E) purchase or redeem any
capital stock or (F) declare or pay any dividends other than cash dividends on the TC Stock
consistent with past practice; (vi) not solicit or negotiate other proposals; (vii) not create or incur
any indebtedness other than current liabilities in the ordinary course of business and increases in
lines of credit to fund operations or the Reorganization or intercompany indebtedness in the
ordinary course of business; (viii) not (A) pay any bonus or severance not required under an
existing agreement or benefit plan, (B) create any new employee benefit plan or modify any
existing plan or (C) enter into any new employee agreement or modify any existing employee
agreement; (ix) not enter into, terminate or modify any material agreement without Mylan's
consent; (x) continue to file all tax returns and make payments pursuant thereto; (xi) amend
disclosure schedules as necessary; (xii) notify Mylan of (A) a notice or event of default when a
material agreement, (B) notice by a third party alleging consent to the Merger is required, (C)
notice by a regulatory authority or exchange, (D) material change in the business, or (E)
commenced or threatened claim or action which would have required disclosure; (xiii) take all
steps to hold a Stockholder meeting to vote upon the Merger and to recommend such Merger to
the stockholders; (xiv) provide updated financial statements; (xv) not amend the Reorganization
documents without Mylan's consent; (xvi) deliver to Mylan the final form of an information
statement relating to the Reorganization two business days prior to its distribution; (xvii) not
enter into transactions, other than the Reorganization, with Newco; and (xviii) permit Mylan to
participate in the establishment of TC's cash management system, bank accounts, lock boxes and
other investments as part of the Reorganization. Both TC and Mylan also agree to cooperate in
filing the Registration Statement of which this Proxy Statement/Prospectus is a part, to use
commercially reasonable efforts to procure its effectiveness and to seek each other's consent to
issuance of a press release regarding the Merger.
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Certain Covenants of Mylan
Mylan has agreed that, during the period from the date of the Merger Agreement until the
Effective Time, it will: (i) use commercially reasonable efforts to defend any lawsuits, obtain all
necessary consents, make all filings and file the Registration Statement of which the Proxy
Statement/Prospectus is a part to effect the transactions contemplated by the Merger Agreement;
(ii) maintain its properties; (iii) provide information to TC; and (iv) use commercially reasonable
efforts to list the Mylan Common Stock on the NYSE; (v) file periodic reports with the SEC; (vi)
vote the Irrevocable Proxies in favor of the Merger; (vii) deliver the final form of the
Registration Statement of which this Proxy Statement/Prospectus is a part two business days
prior to its effectiveness; and (viii) conduct its business in the ordinary course. Both TC and
Mylan also agree to cooperate in filing the Registration Statement of which this Proxy
Statement/Prospectus is a part, to use commercially reasonable efforts to procure its effectiveness
and to seek each other's consent to issuance of a press release regarding the Merger.
MLI has agreed that, during the period from the date of the Merger Agreement until the Effective
Time, it will (i) not engage in any business except as related to the Merger Agreement; (ii)
provide information to TC; and (iii) use commercially reasonable efforts to obtain all necessary
consents, make all filings and give all notices to effect the transactions contemplated by the
Merger Agreement.
Mylan has agreed that until the third anniversary of the Effective Time: (i) Mylan will not
dispose of any capital stock of the Surviving Corporation by sale, exchange or transfer,
distribution to shareholders or otherwise (including, without limitation, transfers to any
subsidiary of Mylan); (ii) Mylan will not cause or permit the Surviving Corporation or any
member of the Pharmaceutical Group to:
(A) cease operations;
(B) make a material disposition of any of its existing assets by means of a sale, exchange or
transfer, distribution to shareholders or otherwise (including, without limitation, transfers from
the Surviving Corporation to UDL-Illinois, UDL-Florida or the special purpose subsidiaries or
transfers from UDL-Illinois, UDL-Florida or the special purpose subsidiaries to the Surviving
Corporation, Mylan or any subsidiary of Mylan); (C) dispose of any capital stock of any
member of the Pharmaceutical Group by sale, exchange or transfer, distribution to shareholders
or otherwise (including, without limitation, transfers from the Surviving Corporation to Mylan or
any subsidiary of Mylan);
(D) liquidate or merge with any other corporation (including Mylan or a subsidiary of
Mylan); or
(E) in the case of the Surviving Corporation only, cease to engage in the active conduct of a
trade or business within the meaning of Section 355(b)(2) of the Code.
In the event Mylan desires to take any of the actions described above or in the event the Parent
desires to cause or permit the Surviving Corporation or any member of the Pharmaceutical Group
to take any of the actions described above, Mylan is required to first deliver to Newco either an
opinion of counsel to Mylan, addressed to Mylan and those persons or entities who were holders
of TC Preferred Stock and TC Common Stock at the Effective Time, which opinion shall be
reasonably satisfactory to the Stockholders Representative, or a favorable ruling letter from the
appropriate taxing authority, reasonably satisfactory to the Stockholders Representative, that
such actions would not adversely affect the tax consequences of the transactions described in the
Plan or Reorganization to the Surviving Corporation or the holders of TC Preferred Stock or TC
Common Stock, or adversely affect the tax consequences of the Merger to the Surviving
Corporation or the holders of TC Preferred Stock or TC Common Stock.
Except as expressly restricted pursuant to the foregoing, Mylan, the Surviving Corporation and
the members of the Pharmaceutical Group will be free to conduct business and to enter into any
transactions which they deem appropriate.
No Solicitation of Transactions
The Merger Agreement provides, subject to certain exceptions relating to the duties of the Board
of Directors of TC, that neither TC nor any of the
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Subsidiaries will directly or indirectly, nor shall TC nor any of the Subsidiaries authorize or
permit any of their respective officers, directors, employees, representatives and agents to, solicit,
initiate or encourage, or take any other action to facilitate, any inquiries or the making of any
proposal which constitutes, or may reasonably be expected to lead to, any Takeover Proposal (as
defined below), or agree to or endorse any Takeover Proposal. The Merger Agreement provides
that TC shall promptly notify Mylan (orally or in writing) of any such proposals or inquiries. As
used in the Merger Agreement, "Takeover Proposal" means any tender or exchange offer,
proposal for a merger, consolidation or other business combination involving TC or any of the
Subsidiaries or any proposal or offer to acquire in any manner a substantial equity interest in, or a
substantial portion of the assets of, TC or any of the Subsidiaries other than the transactions
contemplated by the Merger Agreement.
In addition, the Merger Agreement provides that neither Mylan nor the Surviving Corporation
will have any liability to the holders of TC Preferred Stock or TC Common Stock with respect to
the tax consequences resulting from the transactions which are a part of the Reorganization and
the Merger, except for corporate taxes assessed against TC and imposed upon such holders on
account of transferee liability, if any, resulting from the distribution by TC to such holders of the
shares of capital stock of Newco in the Reorganization.
Indemnification
The Merger Agreement provides that, whether or not the Merger is consummated, Mylan and TC
each agree to indemnify and hold harmless the other party, and, each person, if any, who controls
such party within the meaning of Section 15 of the Securities Act, each officer and director of
such party, and each and all of them, against any and all losses, claims, damages or liabilities,
joint or several (and to reimburse each such indemnified person for any legal or other expenses
reasonably incurred by such indemnified person in connection with investigating or defending
any such loss, claim, damage or liability, or action in respect thereof) to which they, or any of
them, may become subject under the Securities Act or other statutory law or common law,
caused by, or arising out of, information provided in writing by the indemnifying party, its
subsidiaries, affiliates, officers or directors for inclusion in the Registration Statement or in any
amendment or supplement thereto (other than that information requested to be filed by the other
party) being false or misleading in any material respect, failing to state any facts necessary to
make the statements therein not false or misleading in any material respect, or omitting to state
any material fact required to be stated therein with respect to the indemnifying party, its
subsidiaries, affiliates, officers or directors in light of the circumstances under which they were
made. See also "Certain Related Transactions and Relationships of TC and Mylan -
Reorganization."
Conditions to Each Party's Obligations
The respective obligations of Mylan and TC to effect the Merger are subject to the following
conditions, among others (i) no "material adverse effect" (see below) on the business, assets or
financial condition of Mylan or TC (as reorganized), including the inaccuracy of representations
and warranties or breach of covenants under the Merger Agreement or default under any
agreement as a result of the Merger; (ii) no "material adverse change" (see below) in the business
assets, financial condition or results of operation of Mylan or TC (as reorganized) and their
respective subsidiaries taken as a whole; (iii) the receipt of certain officer's certificates; (iv) the
receipt of certain legal opinions; (v) the receipt of all required governmental authorizations,
consents, orders or approvals; (vi) a legal opinion of counsel for TC with respect to status of
affiliates; (vii) the shares of Mylan Common Stock issuable and reserved for issuance in
connection with the Merger shall have been authorized for listing on the NYSE, upon notice of
issuance; (viii) the Registration Statement of which this Proxy Statement/Prospectus is a part
shall have become effective and shall not be the subject of a stop order or proceeding seeking a
stop order and the Reorganization and all related matters must be consummated; (ix) TC must
have delivered a reconciliation of its intercompany accounts; (x) the TC Stockholders'
Agreement and UDL-Illinois Stockholders' Agreement must have been terminated; (xi) Newco
and TC shall have executed the Indemnification Agreement; (xii) Mylan shall have received
audited financial statements of TC for fiscal year ended October 31, 1995; (xiii) the employment
agreement of Michael K. Reicher shall have been terminated; (xiv) no shares of TC Special
Preferred Stock shall be outstanding; and (xv) no injunction or other legal restraint to the Merger
shall be in effect.
TC and Mylan have agreed that the phrases "material adverse effect" and "material adverse
change," as used in Section 5 of the Merger Agreement, are intended by the parties to reflect an
event or circumstance which is so adverse as to result in a severe and critical impairment of the
business, assets, financial condition or results of operations of : (i) the Pharmaceutical Group,
taken as a whole, or (ii) Mylan and its subsidiaries, taken as a whole. Example of events which
would cause a "material adverse effect" or constitute a "material adverse change" as intended by
TC and Mylan are as follows:
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(A) the Pharmaceutical Group or Mylan has been shut down by reason of United States Food
and Drug Administration or United States Drug Enforcement Agency regulatory violations or
such shut-down is reasonably foreseen as imminent; or
(B) the Pharmaceutical Group or any of their respective officers have been disbarred under 21
United States Code Section 335(a) or such disbarment (whether mandatory or permissive) is
reasonably foreseen as imminent; or
(C) fire or other casualty causes a total or major curtailment of operations at the
Pharmaceutical Group or Mylan and such casualty, including the business interruption thereby
caused, is not reasonably covered by insurance; or
(D) any governmental agency or third party has initiated, or threatened in writing, litigation or
proceedings, grounded on alleged violation of environmental laws or on an environmental
condition with respect to which the Pharmaceutical Group or Mylan is a defendant or respondent
and the correction action work or demand for damages or penalties chargeable against such party
is reasonably foreseen as involving an expenditure of more than $3,500,000.
Abandonment and Termination
The Merger may be abandoned and the Merger Agreement terminated on or before February 28,
1996 (i) by mutual agreement of Mylan, MLI and TC; (ii) by either Mylan or MLI, on the one
part, or TC, on the other, if consummation of the Merger would violate any injunction,
restraining order or decree of any court of competent jurisdiction; or (iii) by failure of a condition
to closing not occurring.
In the event of any abandonment of the Merger and termination of the Merger Agreement by
either Mylan or TC as provided above, the Merger Agreement will become void and of no effect
and there will be no liability or obligation on the part of Mylan, MLI or TC or their respective
officers or directors (other than under certain specified provisions of the Merger Agreement with
respect to confidentiality and indemnification) except as set forth below.
Mylan and TC have agreed that neither of them, nor MLI, shall have any right to terminate the
Merger Agreement or abandon the Merger on account of an unfavorable ruling, preliminary
indication of unfavorable ruling or lack of any preliminary indication, upon any formal or
informal ruling request to the Internal Revenue Service submitted with respect to the transactions
contemplated by the Plan of Reorganization.
Expenses
Except as set forth below, whether or not the Merger is consummated, all costs and expenses
incurred in connection with the Merger Agreement and the transactions contemplated thereby
shall be paid by the party incurring such expense, and, in connection therewith, each of Mylan
and TC shall pay, with its own funds, any and all property or transfer taxes imposed on such
party, except that expenses incurred in connection with printing and mailing this Proxy
Statement/Prospectus shall be shared equally by Mylan and TC, except that TC's share shall not
exceed $10,000.
In the event that Mylan shall terminate the Merger Agreement pursuant to a failure of a condition
of closing to occur, other than (i) filings or consents of Mylan; (ii) effectiveness of the
Registration Statement of which this Proxy Statement/Prospectus is a part; (iii) listing of the
Mylan Common Stock on the NYSE issuable and reserved for issuance in connection with the
Merger; or (iv) the existence of an injunction or other legal restraint to the Merger effective
regarding Mylan; then TC will be required to reimburse Mylan for certain expenses incurred by
it in connection with the Merger including filing fees, printing and mailing expenses of this
Proxy Statement/Prospectus and actual out-of-pocket legal and accounting fees and expenses.
In the event that TC shall terminate the Merger Agreement pursuant to a failure of a condition of
closing to occur, other than (i) filings or consents of TC; (ii) effectiveness of the Registration
Statement of which this Proxy Statement/Prospectus is a part; (iii) listing of the Mylan Common
Stock on the NYSE issuable and reserved for issuance in connection with the Merger; or (iv) the
existence of an injunction or other legal restraint to the Merger effective regarding TC; then
Mylan will be required to reimburse TC for certain expenses incurred by it in connection with the
Merger including filing fees, printing and mailing expenses of this Proxy Statement/Prospectus
and actual out-of-pocket legal and accounting fees and expenses.
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Amendment and Waiver
The parties, by action taken or authorized by their respective Boards of Directors, may amend the
Merger Agreement at any time and may waive compliance with any agreements or conditions for
their respective benefit contained in the Merger Agreement.
BUSINESS OF TC
Background
TC is a privately-owned company engaged in several diverse lines of business. TC was
incorporated in 1962 as The Tapecoat Company, Inc. and was the successor-in-interest to The
Tapecoat Company, an Illinois general partnership organized in 1941. TC's name was changed
to its present name in 1974. TC's executive offices are located at 1527 Lyons Street, Evanston,
Illinois 60201, telephone number (847) 869-2320.
TC is engaged through one or more operating divisions and subsidiaries in the following
business operations:
i) the manufacture, marketing and sale of specialty corrosion protection products (the
"Coating Business");
ii) the manufacture, marketing and sale of flexible packaging products and systems (the
"Packaging Business"); and
iii) the marketing, packaging, manufacture, development and sale of generic pharmaceutical
products (the "Pharmaceutical Business").
The Coating Business is conducted through (i) an unincorporated division which does business
under the name "The Tapecoat Company" from principal offices and manufacturing facilities in
Evanston, Illinois; and (ii) Tapecoat Canada, Inc., an Ontario, Canada corporation having
principal offices in Mississauga, Ontario, Canada, a wholly-owned subsidiary of The Tapecoat
Company of Canada, Limited, itself an Ontario, Canada corporation and wholly-owned
subsidiary of TC. The Coating Business is sometimes collectively referred to hereinafter as
"Tapecoat."
The Packaging Business is conducted through an unincorporated division which does business
under the name "Pak-Sher Co." from principal offices and manufacturing facilities in Kilgore,
Texas. The Packaging Business is sometimes referred to hereinafter as "Pak-Sher."
The Pharmaceutical Business is conducted through: (i) UDL-Illinois having principal offices and
manufacturing and distribution facilities in Rockford, Illinois; and (ii) UDL Florida having
principal offices and research and development, manufacturing and distribution facilities in
Pinellas County, Florida just outside of Tampa. UDL-Florida is a wholly-owned subsidiary of
UDL-Illinois.
UDL-Illinois is 94% owned by TC and was acquired in February 1982. The remaining 6% of
UDL-Illinois is owned by its President, Michael K. Reicher, who was a founder of UDL-Illinois
in November 1980. Originally known as Unit Dose Laboratories, Inc., UDL-Illinois changed its
name in November 1984 to UDL Laboratories, Inc. UDL-Florida, was formed in July 1985
under the laws of the State of Florida to hold and operate certain newly acquired Florida-based
assets.
The nature of the operations conducted by each of TC's businesses is as discussed below.
Coating Business
Tapecoat manufactures protective coatings, primarily tapes and liquids designed to provide
corrosion protection for underground metal pipe joints, fittings, couplings, tanks, cables, conduits
and tie rods, as well as for other metal surfaces, including entire lengths of underground metal
pipe. Tapecoat's protective coatings have historically been used principally by the oil and gas,
water, telephone and electrical industries in the construction of new pipelines and conduits.
Products are sold nationally and internationally by salaried sales personnel on a direct basis and
to a lesser extent by independent distributors. The tapes, which are produced to a
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variety of specifications in a wide range of widths, are of two general types: hot-applied
modified coal tar tapes and cold-applied non-coal tar tapes. The liquids ("liquid coatings")
consist principally of mastics, primers and epoxies.
Tapecoat Canada markets protective coatings, primarily tapes and liquid coatings, designed to
protect underground metal pipe joints, fittings and the like. Most sales by Tapecoat Canada are
made to the Canadian national market. The principal portion of the products sold by Tapecoat
Canada are manufactured at Tapecoat's plant in the United States or purchased through Tapecoat.
Packaging Business
Pak-Sher manufactures flexible packaging products from high-density polyethylene. Sales are
primarily made by Pak-Sher to customers having custom, application specific requirements such
as fast food chains, convenience stores and other purveyors of non-pre-packaged foods (for
example, deli and bakery departments of supermarket chains). It buys high-density polyethylene
in pellet form, extrudes the pellets into film, in most cases prints the film, and then converts the
film into bags and other specialty packaging products such as cut sheets.
Pharmaceutical Business
UDL is engaged in the business of marketing, packaging, manufacturing, and developing
prescription and non-prescription generic pharmaceuticals, principally in unit-dose configuration.
UDL is a leading supplier of unit dose configured generic pharmaceuticals to the institutional
healthcare market. Generic pharmaceuticals are the therapeutic equivalents of brand-name,
single source pharmaceuticals for which patent or regulatory exclusivity in respect of their
manufacture and sale has expired. Like their brand-name equivalents, generic pharmaceuticals
are subject to strict regulatory standards under the supervision and direction of the U.S. Food and
Drug Administration (the "FDA") and the U.S. Drug Enforcement Administration (the "DEA").
Unit dose products are sold in pre-packaged dosage amounts ready for dispensing to patients for
use and thereby offer institutional end-users (e.g. hospitals and nursing homes) benefits over
similar products packaged in bulk quantities. Specifically, unit dose packaging facilitates
inventory control, limits waste and theft, and reduces the risk that a patient receives improper
medication.
Following the advent of unit dose packaging in the early 1970's, UDL was among the first
pharmaceutical concerns to focus on marketing unit dose products specifically to the institutional
healthcare market. As the advantages of unit dose packaging gained recognition in the
institutional healthcare market, use of unit dose pharmaceuticals grew rapidly.
Product Line
UDL currently offers 177 different pharmaceutical products. Many are offered in several dosage
strengths and packaging configurations, aggregating more than 450 product-line items.
UDL's product line is comprised of generic pharmaceuticals, principally solid orals but also to
some extent liquid orals. Solid orals may be tablets, capsules or caplets. Liquid orals may be
suspensions, solutions, syrups or concentrates. UDL also carries a limited number of injectables,
topicals (ointments and creams) and suppositories.
UDL also seeks to augment its product line with specialty products having unique or niche
applications. Among the more significant specialty products carried by UDL are: (i) its
"Emergi-Script" product line, consisting of a formulary of frequently prescribed generic
pharmaceuticals specially packaged in 24-hour starter doses for convenient dispensing in hospital
emergency rooms; (ii) methadone hydrochloride, a controlled substance marketed strictly to
licensed treatment and detoxification clinics; and (iii) pre-filled oral syringes used in the
administration of oral liquids. Specialty products tend to be less sensitive to price competition
than more widely available generic pharmaceutical products, and therefore typically carry higher
prices and better than average gross margins.
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Marketing
UDL markets its products primarily to the institutional healthcare market, principally to hospitals
and nursing home providers. No single institutional end-user accounted for as much as ten
percent (10%) of UDL's consolidated net sales in either fiscal 1995, 1994 or 1993.
Nearly all hospitals and a significant number of nursing home providers and other institutional
end-users are members of one or more group purchasing organizations ("GPOs") and typically
purchase pharmaceuticals from the vendors approved by the GPO of which they are a member.
Group Purchasing Organizations
GPOs serve as purchasing representatives of their institutional members by, among other things,
reviewing, evaluating and recommending vendor sources for the purchase of the various products
used by their members. The GPOs award contracts to vendors that establish the prices at which
the vendors' products may be purchased.
UDL works closely with the GPOs to ensure that they are aware of recent product developments
and that their members purchase UDL products in compliance with awards between the GPO and
UDL.
Drug Wholesale Distributors
Approximately 90% of UDL's sales are made to drug wholesale distributors, who in turn resell
such product to institutional end-users. The drug wholesale distributors typically are located near
the facilities of major institutional end-users and carry a broad line of pharmaceutical products.
UDL's products are currently stocked by substantially all United States drug wholesale
distributors doing institutional business. In recent years, the number of regional drug wholesale
distributors have lessened as a result of industry consolidation.
Institutional End-Users
Institutional end-users purchase UDL product from the drug wholesale distributors for
dispensing to patients. UDL recognizes that institutional pharmacists make the final purchasing
decisions for the institutions they service.
Accordingly, UDL's sales force regularly meets with such pharmacists for the purpose of (I)
advising them as to UDL products covered under GPO contract awards; (ii) encouraging their
compliance with such GPO awards where the institution is a member of such GPO; (iii) sharing
information concerning new and existing products and product, market and purchasing
developments, trends and patterns; and (iv) cultivating loyalty to the UDL product line.
Pricing Practices
UDL maintains a published wholesale price for each product in its product line and invoices its
drug wholesaler distributors for product sold to such wholesalers at the published wholesale
price. Normally, the wholesaler will charge an end-user purchasing UDL product the published
wholesale price plus a service fee.
Institutional end-users that are members of a GPO are entitled to purchase UDL products at the
price established in the contract award between the GPO and UDL. Typically, the contract price
is less than the published wholesale price paid by non-member institutions. Separate
arrangements between UDL and the drug wholesale distributors obligate the latter to honor the
lower contract price and provide for UDL to reimburse the wholesaler for the differential
between the published wholesale price and the lower contract price. Such reimbursement is
commonly referred to as a "chargeback."
Government Rebate Programs
Under the Omnibus Budget Reconciliation Act of 1990 (OBRA '90), each pharmaceutical
manufacturer, including UDL, is required to rebate to state Medicaid agencies a portion of sales
revenues earned by such manufacturer from the administration of its products to Medicaid
patients. The rebate applicable to generic
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manufacturers equals 11% of the average wholesale price of pharmaceuticals sold for use by
persons covered by Medicaid.
Several states have imposed and others are considering imposing a further rebate requirement on
pharmaceutical manufacturers whose products are sold for use by persons covered under
Medicaid or certain state sponsored medical assistance programs.
Product Sourcing
UDL purchases most of its pharmaceutical products in bulk from outside manufacturers. UDL
manufactures a limited number of unit dose liquid oral products with respect to which it
purchases the active ingredients from specialty chemical concerns or other third-party sources.
Certain products, such as antibiotics, injectables, topicals and suppositories, have packaging or
manufacturing requirements which exceed UDL's capabilities. UDL, therefore, purchases such
products already packaged.
There are many generic pharmaceuticals for which there may be only a single manufacturer or a
limited number of manufacturers. This is especially true in respect of generic versions of
products which only recently have lost their patent or regulatory exclusivity. UDL, therefore,
may compete directly with a product manufacturer or other marketer or distributor in offering a
given product in unit dose configuration to the institutional healthcare market. Such competition
may affect a manufacturer's willingness to supply such product to UDL. UDL generally has been
able to secure sources for the broad range of products required by its institutional end-users.
UDL maintains multi-year supply agreements with a number of its major pharmaceutical product
sources. Such agreements generally cover all products purchased by UDL from such source and
are designed to ensure that UDL can maintain availability of its products throughout the term of
its multi-year sale contracts with the various group purchasing organizations.
UDL's supply relationships also provide an opportunity for UDL to obtain generic versions of
brand-name pharmaceutical products which for the first time become available in generic form.
Emphasis is placed on gaining early access to newly available products so that UDL may secure
GPO contract awards with respect to such products and timely introduce such products to UDL's
drug wholesale distributors and institutional end-users. Gaining early access also enables UDL
to benefit from the higher selling prices and profit margins typically enjoyed on newly available
generic pharmaceuticals.
Competition
The generic pharmaceutical industry is highly competitive, with numerous manufacturers having
capital and other resources substantially greater than UDL. UDL believes that the strength of its
relationships with all three links in the institutional purchasing process (i.e., the group purchasing
organizations, the drug wholesale distributors and the institutional end-users) affords it a
competitive advantage in the institutional marketplace by allowing it to maintain a dominant
market share for the products which it carries and to rapidly introduce and build market share for
new products.
UDL competes with brand and generic pharmaceutical companies active in the institutional
market by offering a broad line of quality products, consistent product availability and
exceptional customer service rather than on the basis of price alone. In general, unit dose
products sell at prices in excess of similar products packaged in bulk. This premium reflects,
among other things, the value of additional materials and labor costs involved in packaging
products in unit dose configuration. UDL believes that institutional end-users and third-party
payers have been willing to absorb this premium because they appreciate (i) the administrative
benefits afforded by unit dose packaging systems and (ii) the costs avoided in not having to sort
and dispense bulk pharmaceuticals. Although UDL's pricing structure generally reflects the need
to offer prices competitive with those offered by other generic drug manufacturers in respect of
their bulk or unit-dose products, UDL has not made a practice of initiating market reductions in
product pricing or of necessarily meeting the lowest product price established in the marketplace.
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Research and Development
In recent years, UDL has expanded its research and development activities. Because UDL
purchases the majority of its products from outside manufacturers, its research and development
activities are limited.
UDL's research and development activities are focused primarily on the development of
unit-dose versions of existing generic liquid oral pharmaceuticals. UDL currently has obtained
FDA approval to manufacture and market three oral concentrates. The development, testing and
regulatory approval process with respect to liquid oral products is substantially less than with
respect to solid oral products.
Drug Approval Process
FDA approval is required before the generic version of any previously approved drug can
be manufactured and marketed. The Waxman-Hatch Act establishes an abbreviated application
procedure for obtaining approvals in the case of the generic version of a drug whose patent or
regulatory exclusivity has expired. This application procedure, known as an Abbreviated New
Drug Application ("ANDA"), which may be initiated (but will not be allowed to become
effective) prior to expiration of the pertinent patent or regulatory exclusivity, waives the
requirement of submitting reports of preclinical and clinical studies of safety and efficacy and
instead requires only that the applicant establish that the new generic drug is the
bioequivalent of the previously approved proprietary drug. Certain of UDL's products are subject
to the ANDA application procedures. However, in the case of the products which UDL
purchases from other manufacturers in final dosage form, principally its solid orals and
injectables, the ANDA authorizing the marketing of such products is the property of the
manufacturer of such products.
Facilities, Equipment and Staffing
In establishing an independent research and development laboratory, UDL initially dedicated
discrete physical space and equipment within its Florida manufacturing facility. During fiscal
1993, that space was enlarged to accommodate the growing number of personnel and amount of
equipment devoted to research and development activities.
During fiscal 1995, UDL leased a separate research and development facility having
approximately 10,300 square feet and fully equipped such facility.
UDL believes that its research and development facilities and staff are sufficient for its present
activities.
Government Regulation
UDL is subject to extensive regulation by the federal government, principally the FDA and the
DEA, and to a lesser extent by state and local governments. Specifically, the federal Food, Drug
and Cosmetic Act, the Controlled Substance Act, and other federal and state statutes and
regulations govern or influence the development, testing, manufacture, safety, labeling, storage,
approval, advertising, promotion, marketing, sale and distribution of pharmaceutical products.
They also govern recordkeeping and research procedures. As regard the FDA, the totality of
statutory and regulatory requirements, along with the FDA's explanatory guidelines, is generally
referred to as current Good Manufacturing Practice ("cGMP").
All pharmaceutical manufacturers must conform to the cGMP regulations established by the
FDA. UDL devotes significant time and resources to FDA compliance, and its continued
compliance is of critical importance. UDL believes that it is material compliance with FDA
regulations.
With respect to the manufacturing, warehousing and marketing of drug products containing
controlled substances, UDL must also comply with DEA regulations. Those regulations place
substantial controls and impose complex recordkeeping requirements on the acquisition, storage,
use, transfer marketing and sale, both of the controlled substance ingredient and the finished
product containing such ingredient. Pharmaceutical manufacturing establishments subject to the
Controlled Substances Act and DEA regulations are also subject to routine but unannounced
inspections by the DEA for compliance with such Act and the DEA regulations promulgated
thereunder. Noncompliance can subject the manufacturer to serious civil or criminal sanctions.
As with FDA requirements, UDL believes that it is in material compliance with DEA
regulations. In 1990, however,
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the DEA alleged that UDL failed to adhere to certain recordkeeping requirements or otherwise
violated applicable DEA regulations. UDL paid $110,000 in fines and entered into a consent
decree with the DEA whereby UDL, neither admitting or denying any wrongdoing, was ordered
to comply with DEA regulations.
UDL is also subject to federal, state and local laws and regulations regarding work place safety,
environmental protection and hazardous substance controls among others. UDL believes that it
is in substantial compliance with all such laws and regulations.
Facilities
UDL operates six facilities, three at UDL-Rockford and three at UDL-Florida.
UDL's principal executive offices and production facility is located in Rockford, Illinois and is
owned by UDL. This 39,725 square foot facility contains UDL's packaging operations for its
solid oral products and serves as a warehouse for receiving and storing bulk pharmaceuticals
used in UDL's Rockford operations.
UDL also leases a separate 30,480 square foot finished goods distribution warehouse located in
Rockford less than one mile from its main production facility and an adjacent 7,920 square foot
component warehouse for the storage of production and packaging materials.
UDL's Rockford facilities also contain segregated warehouse space devoted to the special storage
requirements of controlled substances and antibiotic products. UDL's production facility also
contains segregated space for secured storage of product labels and information inserts.
UDL's manufacturing facility is located in Largo, Florida and owned by UDL. This 32,000
square foot facility contains UDL's manufacturing and packaging operations for liquid oral
pharmaceuticals, methadone powder and liquid concentrate and UDL's chemistry and
microbiology laboratories.
UDL leases a separate 31,200 square foot finished goods distribution and components
warehouse located in unincorporated Pinellas County, Florida, near to its main manufacturing
facility. UDL also leases a separate 10,300 square foot research and development laboratory
located in unincorporated Pinellas County, Florida, adjacent to its distribution and components
warehouse.
UDL believes that its facilities are sufficient for its present activities.
Product Liability and Insurance
Product liability claims constitute a risk to all pharmaceutical manufacturers. No product
liability claims have been made against UDL to date. UDL believes that it carries adequate
product liability insurance to cover its current needs.
Legal Proceedings
TC presently is not party to any material legal proceedings, and knows of no claims overtly
threatened against it, which would be expected to have a material adverse affect against TC or its
properties.
TC'S MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Overview
TC Manufacturing Co. Inc. conducts operations through its subsidiaries and/or divisions
involved in the Pharmaceutical, Packaging and Coating Businesses.
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Results Of Operations
Years Ended October 31, 1995, 1994 and 1993:
TC recognized net income of $3,453,000 or $0.64 per share for the year ended October
31, 1995 compared to a net loss of $120,000 or $0.03 per share for fiscal 1994 and net income of
$4,358,000 or $0.82 per share for fiscal 1993. The fiscal 1993 earnings per share amount has
been adjusted to reflect the 2 for 1 stock split effected in the form of a dividend approved by the
Board of Directors in October 1994. The principal factor which resulted in the changes to net
income between 1993, 1994 and 1995 was the gross profit of the Pharmaceutical Business
discussed below.
Net Sales and Gross Profit
Net sales and gross profit for the three years ended October 31, 1995, 1994 and 1993 by Business
are as follows (in thousands):
- ---------------------------------------------------------------------------
1995 1994 1993
- ---------------------------------------------------------------------------
Net Gross Net Gross Net Gross
Sales Profit Sales Profit Sales Profit
-------- --------- -------- ------ -------- --------
Pharmaceutical $60,709 $14,483 $50,223 $8,129 $52,810 $14,122
Packaging 20,637 5,367 17,226 4,396 17,351 4,774
Coating 9,533 2,527 11,331 3,633 9,456 2,968
--------- --------- -------- ------- ------- ----------
Total $90,879 $22,377 $78,780 $16,158 $79,617 $21,864
======= ======= ======= ======= ======= =======
Net sales of the Pharmaceutical Business increased 20.9% from fiscal 1994 to fiscal 1995 after a
decrease of 4.9% from fiscal 1993 to fiscal 1994. Both the decline from fiscal 1993 to fiscal
1994 and the increase in fiscal 1995 over fiscal 1994 was primarily the result of the Company's
decision in late fiscal 1994 to eliminate certain sales incentive programs for its wholesaler
customers. The elimination of these programs enabled the Company to more evenly schedule
manufacturing and reduce inventory in customer warehouses thereby lowering price protection
credits ("chargebacks") issued to customers on their inventory of TC products when market
prices decline.
In fiscal 1994, the Pharmaceutical Business experienced pricing competition that was more
significant than that experienced historically. This resulted not only in lower prices for products
sold in fiscal 1994 but also in higher chargebacks. Consequently, gross profit for fiscal 1994
declined to 16.2% from 26.7% in fiscal 1993. Due to favorable changes in the mix of products
sold as well as higher overall sales volume, gross profit for fiscal 1995 rebounded to 23.9%.
Net sales for the Packaging Business increased 19.8% in fiscal 1995 over fiscal 1994 after
showing almost no growth in fiscal 1994 over fiscal 1993. At the beginning of fiscal 1994, the
Packaging Business was notified by a significant customer that it was discontinuing the use of a
customized and patented carryout bag. The fiscal 1994 results indicate that the business was able
to substantially replace all of the lost sales with new sales. The growth in fiscal 1995 occurred as
a result of greater market penetration.
Net sales for the Coating Business declined 15.9% in fiscal 1995 over fiscal 1994 after increasing
19.8% in fiscal 1994 over fiscal 1993. Gross profit as a percent of net sales declined to 26.5% in
fiscal 1995 from 32.1% in fiscal 1994 and 31.4% in fiscal 1993. The drop in net sales and gross
profit resulted from a loss of market share due to an aging product line and delays experienced in
introducing replacement products necessary to meet increasing competition.
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Operating Expenses by Business (in thousands):
General and Research and
Selling Administrative Development Total
---------- -------------- ------------- --------
1995
Pharmaceutical $4,628 $3,037 $ 993 $8,658
Packaging 1,464 875 0 2,339
Coating 1,897 919 149 2,965
Corporate 0 1,946 0 1,946
------ ------ ------ -------
Total $7,989 $6,777 $1,142 $15,908
====== ====== ====== =======
1994
Pharmaceutical $3,549 $4,491 $ 998 $9,083
Packaging 1,234 759 0 1,993
Coating 1,987 760 103 2,850
Corporate 0 1,643 0 1,643
------ ------ ------ -------
Total $6,770 $7,653 $1,101 $15,524
====== ====== ====== =======
1993
Pharmaceutical $3,498 $2,619 $ 606 $6,723
Packaging 1,120 817 0 1,937
Coating 2,075 743 158 2,976
Corporate 0 1,798 0 1,798
------ ------ ------- -------
Total $6,693 $5,977 $ 764 $13,434
====== ====== ======= =======
The Pharmaceutical Business 1994 operating income was adversely impacted by collection
losses. In 1994, two long-time wholesaler customers, one of whom was large, declared
bankruptcy resulting in write-offs of approximately $1,400,000. This bad debt expense is
included in general and administrative expenses.
The Pharmaceutical Business continued in fiscal 1995 the planned expansion of its research and
development program begun in fiscal 1994 in order to become less dependent upon outside
sources of supply. Expenditures for research and development were $993,000 in fiscal 1995 and
$998,000 in fiscal 1994 compared to $606,000 in fiscal 1993. In fiscal 1995 the Company leased
a separate facility to house its research and development efforts.
Operating expenses for the Packaging Business increased 17% in fiscal 1995 over the prior two
fiscal years due to additional commission costs paid to outside independent sales representatives
on higher fiscal 1995 sales as well as additional inside sales and administrative personnel costs.
Operating expenses for the Coating Business remained relatively stable over the three year period
although general and administrative expenses did increase in fiscal 1995. This increase was
primarily the result of additional one-time costs of implementing a "reduction in force" which
occurred in August, 1995. Selling expenses decreased over the three year period
resulting from consolidation of multiple sales territories, reducing outside sales personnel and
lower overall commission expense from lower sales.
Income Taxes
The effective tax rates for fiscal 1995, 1994 and 1993 were 34%, 27% and 37%, respectively.
The significantly lower effective tax rate for fiscal 1994 resulted from the relatively greater
impact of certain non-deductible expense items (i.e., intangible asset amortization, officers life
insurance premiums and meals and entertainment expenses) on a relatively small pretax loss.
Capital Resources And Liquidity
At October 31, 1995, TC's long-term debt was only 22% of stockholders' equity and its current
ratio was 2.37 to 1. With cash and cash equivalents of $6,875,000 and current assets of
$35,371,000, TC has adequate liquidity to meet its foreseeable short-term needs. For the year
ended October 31, 1995, TC generated cash flow of $5,455,000 from operations and invested
$2,591,000 in property, plant and equipment while also paying down $1,600,000 of long-term
debt.
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TC has in recent years been able to meet its short-term capital needs through cash generated from
operations and the proceeds of its 1991 10.5% long-term borrowing from the Metropolitan Life
Insurance Company. TC also has a revolving credit line aggregating $10,000,000, of which
$9,231,000 remained available at October 31, 1995.
TC's revolving credit line incorporates the provisions of the loan agreement which supports TC's
remaining indebtedness to the Metropolitan Life Insurance Company. The Metropolitan
agreement limits TC's ability to incur short-term bank debt and to make certain kinds of
payments, principally dividend payments and repurchases of its common stock. The formulae
upon which such restrictions are grounded are such that at the present time, TC is free to use its
entire short-term credit line and as of October 31, 1995 had accumulated earnings of $5,829,000
which were unrestricted for cash dividends or the repurchase of common stock.
Other Items
In December 1994, the President signed into law the Uruguay Round Agreements Act ("URAA")
which took effect on June 8, 1995 and implemented the General Agreement of Tariffs and Trade
("GATT"). One change in US law required by GATT is the amendment of patent law to reflect a
patent term of 20 years from the date of filing the application instead of the current term of 17
years from the date of issuance. The FDA has taken the position that it cannot approve an
Abbreviated New Drug Application ("ANDA") until the expiration of the extended patent period.
This could delay the launch of future products by generic drug manufacturers and in turn TC's
Pharmaceutical Business. While this has no effect on products presently marketed by the
business, it is impossible for TC to predict the extent to which the operations of the
Pharmaceutical Business will be affected by this regulation.
In October 1995, TC entered into a merger agreement with Mylan Laboratories Inc. under which
TC will become a wholly-owned subsidiary of Mylan. This transaction is more fully described
in the audited financial statements of TC contained elsewhere in this Proxy
Statement/Prospectus.
SECURITY OWNERSHIP OF MANAGEMENT OF TC
AND CERTAIN OTHER PERSONS
The following table sets forth the amount and percentage of TC Common Stock and TC
Preferred Stock owned beneficially on October 31, 1995 by (i) any person or group that is known
to TC to be the beneficial owner of more than 5% of the outstanding TC Common Stock or
Preferred Stock, (ii) each of the directors of TC and (iii) all directors and officers of TC as a
group. No stockholder of TC will acquire in the Merger beneficial ownership of more than 1.0%
of the issued and outstanding shares of Mylan Common Stock.
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Name and Address of Beneficial Owner Percent of TC Percent of TC
- ----------------------------------- Shares of TC Common Stock Shares of TC Preferred Stock
Common Stock Beneficially Owned Preferred Stock Beneficially Owned
Owned(1) Prior to Merger Owned(1) Prior to Merger
------------- ------------------ --------------- -------------------
Herbert L. Stern, Jr. (2)(3) 2,490,136 46.6%
30 N. LaSalle St.
Suite 4300
Chicago, IL 60602
Priscilla S. Sloss (2) 600,000 11.2% 1,250 29.5%
1601 Oakwood Ave., #103
Highland Park, IL 60035
Susan S. Ettelson (4) 360,000 6.7%
2440 N. Lakeview
Chicago, IL 60614
Joan E. Feitler (5) 342,852 6.4%
777 N. Prospect Ave.
Milwaukee, WI 53202
Harold E. Foreman, Jr. 284,580 5.3% 285.5 6.7%
890 Skokie Blvd.
Northbrook, IL 60062
Shiro F. Shiraga (6) 242,170 4.5%
Robert Feitler (3)(7) 5,052 *
Frank L. Klapperich, Jr.(3) 25,000 *
Dr. John F. Moore(3) 2,600 *
Herbert L. Stern, III(3)(8) 1,480 *
S. Peter Ullman(3) 1,000 *
Mayo Foundation 137,160 2.6% 285.5 6.7%
200 First St. SW
Rochester, MN 55905
Nancy Smart 572 13.5%
309 East 49th St., No. 7B
New York, NY 10017
Grace Mary Stern (9) 1,250 29.5%
291 Marshman
Highland Park, IL 60035
All directors and officers
as a group (26 in number) 3,027,266 55.1%
---------
- -----------------------------------------------------------------------
1 All of record except in the case of Herbert L. Stern, Jr., Priscilla S. Sloss, Shiro F. Shiraga,
Susan
S. Ettelson, Harold E. Foreman, Jr. and certain officers of the Company, whose shares are owned
beneficially.
2 Priscilla Sloss's shares are held in two trusts, one known as the Priscilla S. Sloss Declaration of
Trust (a revocable trust of which Mrs. Sloss is the grantor) and the other as the James Sloss 1984
Revocable Trust (now irrevocable due to the death of Mr. Sloss.) Mrs. Sloss is a beneficiary of
both trusts, and in each case, one of three trustees. Priscilla Sloss is the sister of Herbert L. Stern,
Jr. The holdings of the Stern family, including among others Herbert L. Stern, Jr. and the Sloss
Trusts, total 3,090,616 shares of the TC Common Stock. Herbert L. Stern, Jr. and Priscilla Sloss
each disclaims that he or she is the beneficial owner of any securities other than those indicated
opposite his or her name.
3 Includes 1,000 shares which the beneficial owner has the option to purchase.
4. Does not include 2,400 shares owned by Susan S. Ettelson's husband, to which Mrs. Feitler
disclaims beneficial ownership.
5. Does not include 4,052 shares owned by Robert Feitler, Joan E. Feitler's husband, to which
Mrs. Feitler disclaims beneficial ownership.
6. Does not include 342,852 shares owned by Joan E. Feitler, wife of Robert Feitler, to which
Mr. Feitler disclaims beneficial ownership.
8 Herbert L. Stern, III is the son of Herbert L. Stern, Jr. Herbert L. Stern, Jr. and Herbert L.
Stern, III each disclaims beneficial ownership of any securities other than those indicated
opposite his name.
9 Grace Mary Stern is the wife of Herbert L. Stern, Jr. Herbert L. Stern, Jr. and Gracy Mary Stern
each disclaims that he or she is the beneficial owner of any securities other than those indicated
opposite his or her name.
* Percentage of share ownership represents less than 1% of total outstanding shares.
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CERTAIN RELATED TRANSACTIONS AND RELATIONSHIPS OF TC AND MYLAN
Reorganization
Effective immediately prior to the closing of the Merger, TC, through a reorganization in the
form of a split-off, will transfer all its assets (including the stock of certain subsidiaries) relating
to the Coating Business and to the Packaging Business to Newco. All of the liabilities related to
the Coating Business and the Packaging Business will be assumed by Newco.
As part of the Reorganization, there will be a non-pro rata distribution to the holders of TC
Common Stock. Holders of TC Common Stock who are not employed in the Pharmaceutical
Business will receive a distribution of all of the shares of Newco. Holders of TC Common Stock
who are in the Pharmaceutical Business will receive additional shares of TC Common Stock in a
sufficient number to account for the values of the Coating Business and the Packaging Business
in which such employee holders will no longer have an ownership interest.
In order to effect the Reorganization and Merger, TC and Mylan are parties to an Agreement for
Business Combination which identifies and describes the transactions which are to be
consummated as part of the Reorganization and as conditions precedent to the Merger. A
summary of each of such transactions follows.
1. Plan of Reorganization. The Plan of Reorganization adopted by the Board of Directors of
TC provides for a series of transactions described as follows:
(a) HSW Investment Co., an Illinois corporation and wholly-owned subsidiary of TC
("HSW"), will liquidate pursuant to a Plan of Complete Liquidation. The Plan of Complete
Liquidation will provide for HSW to distribute to TC the stock of two wholly-owned special
purpose subsidiaries. TC will then contribute the stock of these special purpose subsidiaries to
UDL-Illinois and UDL-Illinois will also assume and agree to pay the entire balance of any
intercompany indebtedness due to TC from these subsidiaries.
(b) TC will transfer all of the assets of the Coating Business and the Packaging
Business to Newco and, in exchange, Newco will assume all of the liabilities of TC relating to
the Coating Business and the Packaging Business and will issue shares of its capital stock to TC.
(c) The shares of Newco will then be distributed by TC to the holders of TC Common
Stock who are not employed by a member of the Pharmaceutical Group. At the same time,
holders of TC Common Stock who are employed by a member of the Pharmaceutical Group will
receive additional shares of TC Common Stock. Each holder of TC Common Stock who is not
employed by a member of the Pharmaceutical Group will receive one share of Newco voting
common stock and one share of Newco non-voting common stock for each share of TC Common
Stock held by such holder. Each holder of TC Common Stock receiving additional shares of TC
Common Stock will receive .4851633 shares of TC Common Stock for each share of TC
Common Stock held (assuming exercise of all outstanding options for TC Common Stock).
Such fractional shares account for the proportionate interest of such holder in the combined value
of the Coating Business and the Packaging Business (as determined by TC) in which such holder
will no longer have an ownership interest.
2. Other Ownership Interests in TC and UDL-Illinois.
(a) Options to purchase TC Common Stock are held by employees and directors of
TC. The holders of such options will be given the opportunity to exercise the options prior to the
effective date of the Reorganization, whether or not such options are then vested and exercisable.
Holders of options who exercise their rights to purchase TC Common Stock will then be in a
position to receive shares of Newco Common Stock or additional shares of TC Common Stock
as part of the Reorganization.
(b) Michael K. Reicher is the holder of three shares of UDL-Illinois Common Stock
which constitute a six-percent interest in UDL-Illinois. TC has entered into a Stock Purchase
Agreement with Mr. Reicher pursuant to which TC has agreed to purchase Mr. Reicher's shares
in UDL-Illinois for a price of $2,850,000 payable in cash pursuant to the terms of a promissory
note to be delivered by TC to Mr. Reicher. The obligations of TC to purchase Mr. Reicher's
stock is conditioned upon the occurrence of the Reorganization and the
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Merger. The obligation of TC in favor of Mr. Reicher is due and payable on the later of January
3, 1996 or the day immediately following the consummation of the Merger.
3. Agreement and Plan of Merger.
See "The Merger Agreement."
4. Treatment of Indebtedness and Liabilities of TC.
As a precondition to the Merger, TC is to remain obligated with respect to: (a) its
indebtedness (both principal and interest) to the Metropolitan Life Insurance Company
("Metropolitan"), including any penalty which might be payable upon a subsequent mandatory or
other prepayment of such indebtedness, the amount of which will be calculated as if TC had
made such prepayment at the Effective Time; (b) its indebtedness (both principal and interest)
under TC's outstanding line of credit with the LaSalle National Bank ("LaSalle"); and (c) such
other indebtedness and liabilities as may exist on the books and records of TC as of the Effective
Time after giving effect to TC's acquisition of Mr. Reicher's interest in UDL-Illinois, the
assumption of liabilities by Newco in conjunction with the Reorganization and the payment by
TC of all expenses payable by it in conjunction with the transactions contemplated by the
Reorganization and the Merger. The amount of the indebtedness to remain outstanding may or
may not exceed the amount due and owing to TC on account of UDL-Illinois' intercompany
indebtedness to TC. The amount of such excess or deficiency will affect the aggregate number
of shares of Mylan Common Stock finally delivered to holders of TC Common Stock.
See "The Merger Agreement - Certain Holdbacks Applicable to Holders of TC Common Stock;
Adjustment of Common Stock Exchange Ratio; and Distributions."
5. Indemnification. As part of the Reorganization, Newco will agree to assume and be
responsible for the liabilities relating to TC's ownership and operation of the Coating Business
and the Packaging Business prior to the Reorganization and TC agrees to remain responsible for
the liabilities relating to TC's ownership and operation of the Pharmaceutical Business prior to
the Reorganization. In order to further protect TC and Newco from the claims or causes of
action which relate to or are derived from such actual or potential liabilities, Newco will execute
for the benefit of TC and Mylan, and TC will execute for the benefit of Newco and Newco's
stockholders, the Indemnification Agreement to be executed pursuant to the Plan of
Reorganization.
The Indemnification Agreement provides for the procedures to be followed by Newco and TC
with respect to the filing of all tax returns with respect to the Coating Business, the Packaging
Business and the Pharmaceutical Business and the payment of the taxes shown to be due by such
tax returns. The Indemnification Agreement also provides for the procedures to be followed by
Newco and TC in the event either party desires to make a claim for indemnification.
Newco and TC have mutually agreed in the Indemnification Agreement that, until the third
anniversary of the Effective Time, neither of them will nor will they permit their respective
subsidiaries to:
(i) cease operations;
(ii) make a material disposition of existing assets by means of a sale, exchange, or transfer,
distribution to shareholders or otherwise;
(iii) dispose of any capital stock of any of existing subsidiaries by sale, exchange or transfer,
distribution to shareholders or otherwise;
(iv) liquidate or merge with any other corporation; or
(v) in the case of TC only, cease to engage in the active conduct of a trade or business within
the meaning of Section 355(b)(2) of the Code.
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In the event Newco or TC desires to take any of the actions described above or to permit any of
its respective subsidiaries to do so within such three year time period, Newco or TC, as the case
may be, is required to deliver to the other either an opinion of counsel or a favorable ruling letter
from the appropriate taxing authority to the effect that such actions will not adversely affect the
tax consequences of the transactions described in the Plan of Reorganization or the Merger.
Newco has agreed that, except as described in the following sentence, during the five year term
of the Indemnification Agreement, it will not sell, transfer or otherwise dispose of the stock of
any of its subsidiaries or all or substantially all of the assets of the Coating Business or the
Packaging Business. After the third anniversary of the Effective Time, Newco has agreed that it
will not (i) sell or otherwise dispose of the stock of any of its subsidiaries without the consent of
TC unless such subsidiary enters into a joinder and undertaking agreement by which it agrees to
join in the Indemnification Agreement and to perform the obligations of Newco under the
Indemnification Agreement (a "Newco Joinder and Undertaking Agreement"); (ii) sell all or
substantially all of the assets of the Coating Business or Packaging Business except in
transactions which are bona fide and arm's-length in nature; or (iii) transfer the assets of the
Coating Business or the Packaging Business or both to one or more corporations which are
wholly-owned subsidiaries of Newco (each a "Newco Subsidiary") unless (A) each such Newco
Subsidiary enters into a Newco Joinder and Undertaking Agreement; and (B) Newco retains the
stock of each such Newco Subsidiary until Newco sells or distributes the stock of such Newco
Subsidiary in accordance with the provisions of the Indemnification Agreement.
Newco has further agreed that, except as described in the following sentence, during the term of
the Indemnification Agreement, it will not permit the transfer on its stock register of any shares
of its capital stock held by any stockholder owning at least 1% of the issued and outstanding
capital stock of Newco except for transfers by will or intestate succession. After the third
anniversary of the Effective Time, if the stockholders of Newco enter into an agreement to sell at
least 51% of the issued and outstanding capital stock of Newco in transactions which are bona
fide and arm's-length in nature, upon notice to TC and upon the consummation of the
transactions set forth in such agreement, certain covenants of Newco in favor of TC as set forth
in the Indemnification Agreement will terminate.
Newco has agreed generally not to make any distributions to its stockholders if, after giving
effect to such distribution, the stockholders' equity shown on the balance sheet of Newco at the
date of the distribution would be less than the stockholders' equity shown on the balance sheet of
Newco on the date the Reorganization is consummated. Newco has also agreed not to make any
loans or advances to its stockholders unless such loan or advance, if treated as a distribution,
would be permitted.
However, under the terms of the Indemnification Agreement, Newco is permitted to make certain
specifically described distributions to its stockholders which enable Newco to, by way of
example, purchase a limited number of shares of its capital stock from: (i) employee
stockholders who are terminated or retire; (ii) successors in interest to deceased stockholders or;
(iii) stockholders tendering a bona fide right of first refusal to Newco under a shareholders
agreement.
Newco is also permitted to distribute to its stockholders the stock of a Newco Subsidiary on the
condition that such Newco Subsidiary enters into a Newco Joinder and Undertaking Agreement
which will cause such Newco Subsidiary to be subject to the restrictions on distributions to its
stockholders described above. After executing such Newco Joinder and Undertaking Agreement,
such Newco Subsidiary will be permitted to sell all or substantially all of its assets in transactions
which are bona fide and arm's-length in nature. Finally, in the event Newco or, if the stock of a
Newco Subsidiary has been distributed to the stockholders of Newco, the stockholders of Newco
enter into an agreement to sell at least 51% of the issued and outstanding capital stock of such
Newco Subsidiary in transactions which are bona fide and arm's-length in nature, upon notice to
TC and upon the consummation of the transactions set forth in such agreement, certain covenants
of such Newco Subsidiary in favor of TC as set forth in the Indemnification Agreement will
terminate.
TC has agreed that, at any time after the third anniversary of the Effective Time, it will not
transfer the stock of any subsidiary in existence at the Effective Time unless such subsidiary or,
at the election of TC, Mylan enters into a joinder and undertaking agreement by which it agrees
to join in the Indemnification Agreement and to perform the obligations of TC under the
Indemnification Agreement.
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6. Tax Impact of the Transactions.
See "The Merger-Certain Federal Income Tax Consequences."
7. Trading Restrictions.
(a) Rule 145 promulgated under the Securities Act of 1933 imposes certain
restrictions on the right of "affiliates" of TC to transfer their interests in any shares of Mylan
Common Stock received by them in the Merger. In order to ensure compliance with Rule 145,
each director, officer and holder of five (5%) percent or more of the issued and outstanding
shares of TC Common Stock as of the Effective Time will execute and deliver to Mylan and to
the Stockholders Representative (for the benefit of all of the former stockholders of TC) a letter
agreeing to abide by the restrictions on transfer imposed by Rule 145.
(b) Additionally, in order to ensure the ongoing continuity of stockholder ownership
of TC requisite to support the tax-free nature of the Reorganization and Merger, each holder of
one (1%) percent or more of the issued and outstanding shares of TC Common Stock as of the
Effective Time will be required to enter into a Letter Concerning Continuity of Shareholder
Interest pursuant to which such holder will agree to further limit his or her right to transfer the
shares of Newco Common Stock received in the Reorganization and his or her right to transfer
the Mylan Common Stock received in the Merger for a period of three (3) years following the
effective date of the Reorganization and Merger, respectively.
8. Stockholders Representative. In connection with certain actions relating to the
Reorganization and Merger but which are to occur after the effective dates thereof, each
stockholder of TC will be asked to designate Herbert L. Stern, Jr. and Robert Feitler to act singly
or together as a representative of and attorney-in-fact for such stockholder (each, the
"Stockholders Representative"). In designating the Stockholders Representative, each
stockholder will be required to execute and deliver a Limited Power of Attorney.
Pursuant to the Limited Power of Attorney each stockholder of TC Common Stock will authorize
the Stockholders Representative to take certain actions on behalf of each such stockholder in
connection with the Agreement for Business Combination, the Plan of Reorganization and the
Merger Agreement and the transactions contemplated thereby. The actions which the
Stockholders Representative is authorized to take on behalf of each such stockholder are:
A. To prepare and certify the joint certification of the assets and liabilities of TC on the
Effective Time as provided in the Merger Agreement;
B. To select a person or persons to represent such stockholder before the Internal Revenue
Service or any other taxing authorities which may examine or audit the transactions
contemplated by the Agreement for Business Combination, the Plan of Reorganization and the
Merger Agreement;
C. To select a person or persons to represent such stockholder before the Internal Revenue
Service in connection with a request for a private letter ruling as to the tax-free nature of the
Reorganization and the Merger; and
D. To exercise from time to time all other powers with respect to the shares of TC Common
Stock owned by such stockholder as described in, or required pursuant to the terms of the
Agreement for Business Combination, the Plan of Reorganization or the Merger Agreement
which may be necessary, advisable or appropriate so as to effect the Reorganization and the
Merger and the other transactions contemplated by the Agreement for Business Combination, the
Plan of Reorganization and the Merger Agreement.
Each stockholder of TC executing a Limited Power of Attorney will be legally bound by all
authorized actions taken by the Stockholders Representative. The Limited Power of Attorney is
irrevocable and will expire in the event the Merger is not consummated within six months after
the execution of the Limited Power of Attorney.
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Irrevocable Proxies
Certain holders of TC Preferred Stock and TC Common Stock have executed and delivered to
Mylan irrevocable proxies which authorize designated representatives of Mylan to vote such
holders' shares of TC stock on the following matters:
(A) in favor of calling a special meeting of the holders of TC Preferred Stock and the holders
of the TC Common Stock for the purpose of considering and approving the Merger Agreement
and the transactions contemplated thereby;
(B) in favor of approving the Merger Agreement and the transactions contemplated thereby,
all on the terms and conditions provided for therein; and
(C) against approval of any merger, consolidation or sale of assets of TC which requires a
vote of the stockholders of TC pursuant to Section 251 or Section 271 of the Delaware General
Corporation Law at any annual, regular or special meeting of such stockholders.
The irrevocable proxies will terminate on the first to occur of the consummation of the Merger,
the date upon which the Merger is terminated and abandoned or February 28, 1996.
Holders of shares of TC Preferred Stock representing approximately 73% of the outstanding TC
Preferred Stock have executed irrevocable proxies with respect to their shares.
Holders of shares of TC Common Stock representing approximately 77% of the outstanding TC
Common Stock including directors and executive officers who hold approximately 52% of the
outstanding shares of TC Common Stock have executed irrevocable proxies with respect to their
shares.
Letter of Transmittal
In order to effect the exchange of shares of TC Preferred Stock and TC Common Stock for shares
of Mylan Common Stock following the Merger, each stockholder of TC will be required to
execute a Letter of Transmittal and to deliver the Letter of Transmittal and the certificates
formerly representing TC Preferred Stock and TC Common Stock to the Exchange Agent under
the Merger Agreement.
The Letter of Transmittal sets forth instructions for the endorsement of the certificates formerly
representing shares of TC Preferred Stock and TC Common Stock and the delivery of such
shares to the Exchange Agent for the purpose of conversion into shares of Mylan Common Stock
and, in the case of holders of TC Common Stock who are not employed by a member of the
Pharmaceutical Group, delivery of shares of Common Stock of Newco. See also "Certain
Relationships and Related Transactions of TC."
In addition, the Letter of Transmittal requires that each stockholder of TC represent and agree for
the benefit of Mylan that (i) although the Reorganization and the Merger have been structured by
TC to be tax free, there is no assurance that the transactions will be tax free and there is a
possibility that each stockholder may have personal income tax liability as a result of the
Reorganization or Merger and each stockholder is required to release Mylan and TC from any
claims that may result from the Reorganization and Merger being subject to federal, state or local
taxes; except for claims for corporate taxes assessed against TC and imposed upon any
stockholder on account of transferee liability, if any, resulting from the distribution by TC to
such stockholder of the shares of Newco in the Reorganization; (ii) the stockholder is acquiring
the shares of Mylan Common Stock and, in certain cases, the Newco Common Stock for
investment and not with a view to further distribution that would require registration under the
Securities Act of 1933; and (iii) as to each stockholder holding 1% or more of the outstanding
TC Common Stock, he/she will execute a Letter Concerning Continuity of Shareholder Interest
which will require the stockholder to hold the Mylan Common Stock and, if applicable, the
Newco Common Stock for a period of three years from the Effective Time and that the share
certificates will bear a legend, and the stock transfer books of each corporation will be noted, to
such effect.
See "The Merger - Certain Federal Income Tax Consequences."
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Non-Competition Agreements
At the Effective Time, Mylan and TC will enter into a Non-Competition Agreement with Newco
pursuant to which Mylan and TC severally will agree that, for a period of five years following
such date, neither Mylan nor TC nor any of their subsidiaries will participate directly or
indirectly in the Coating Business or the Packaging Business in the continental United States nor
will Mylan, TC or any of their subsidiaries solicit any current or future suppliers or customers of
the Coating Business or Packaging Business for the purpose of attempting to cause them to
change the manner in which they are doing business with the Coating Business or the Packaging
Business in a way which would have a material adverse effect on the Coating Business or
Packaging Business. In addition, TC and Mylan will agree that, during the same period, neither
of them nor any of their subsidiaries will knowingly employ or seek to employ any of the
executive, managerial or technical employees of the Coating Business or the Packaging Business.
Finally, TC and Mylan will agree to protect the confidentiality of any proprietary information in
their possession which relates to the Coating Business or the Packaging Business.
At the same time, Newco, Herbert L. Stern, Jr., Chairman of the Executive Committee of TC
("Stern"), and Shiro F. Shiraga ("Shiraga"), Chairman of the Board, Chief Executive Officer and
President of TC, will enter into a Non-Competition Agreement with TC pursuant to which each
of Newco, Stern and Shiraga severally will agree that, for a period of five years following the
Effective Time, such person (including, in the case of Newco, its subsidiaries) will not
participate directly or indirectly in the business conducted by the members of the Pharmaceutical
Group in the continental United States nor will such person solicit any current or future suppliers
or customers of the Pharmaceutical Group for the purpose of attempting to cause them to change
the manner in which they are doing business with any of the members of the Pharmaceutical
Group in a way which would have a material adverse effect on any of such members. In
addition, each of Newco, Stern and Shiraga severally will agree that, during the same period,
such person (including, in the case of Newco, its subsidiaries) will not knowingly employ or seek
to employ any of the executive, managerial or technical employees of any member of the
Pharmaceutical Group. Finally, each of Newco, Stern and Shiraga severally will agree to protect
the confidentiality of any proprietary information in such person's possession which relates to the
members of the Pharmaceutical Group.
In each case, the parties to the Non-Competition Agreements have the right to purchase and hold
securities in publicly held corporations which are engaged in competitive businesses as long as
such holdings do not exceed five percent of the outstanding class of securities of such publicly
held corporation.
Supplier Relations
Mylan supplies pharmaceutical products to TC. See "The Merger -- Background of the Merger."
TC Legal Counsel
The law firm of Rivkin, Radler & Kremer, acts as legal counsel to TC. Herbert L. Stern, Jr., a
significant stockholder and Chairman of the Executive Committee of TC is of counsel to such
firm and Keith R. Abrams, Assistant Secretary of TC, is a partner of such firm. Legal fees to be
paid to Rivkin, Radler & Kremer with respect to services provided in connection with the
Reorganization and Merger are expected to total approximately $450,000.
COMPARISON OF SHAREHOLDER RIGHTS
If the Merger is consummated, holders of TC Stock may become holders of Mylan Common
Stock, which would result in their rights as shareholders being governed by the laws of the
Commonwealth of Pennsylvania and the Amended and Restated Articles of Incorporation, as
amended, of Mylan ("Mylan's Articles") and the By-Laws, as amended, of Mylan ("Mylan's
By-Laws"). The rights of holders of TC Stock currently are governed by the laws of the State of
Delaware and the Certificate of Incorporation, as amended, of TC ("TC's Articles") and the
Bylaws, as amended, of TC ("TC's Bylaws").
It is not practical to describe all of the differences between the laws of the Commonwealth
of Pennsylvania and the laws of the State of Delaware, between
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Mylan's Articles and TC's Articles and between Mylan's By-Laws and TC's Bylaws. The
following is a summary of certain differences between the rights of a holder of TC Common
Stock and the rights of a holder of Mylan Common Stock.
Shareholder Rights Generally
Notice of Meetings. Under the Pennsylvania Business Corporation Law of 1988, as amended
(the "PBCL"), holders of Mylan Common Stock are entitled to at least 10 days' prior written
notice for a meeting called to consider a fundamental change (as defined in the PBCL) and five
days' prior written notice for any other meeting. Under the DGCL and TC's Bylaws, holders of
TC Stock are entitled to at least 10 days' prior written notice for a special meeting called to
consider general matters. Under the DGCL, at least 20 days' notice is required to consider a
merger.
Proxies. Under the DGCL and TC's Bylaws, a proxy is invalid after three years from its date,
unless the proxy provides for a longer period. Under the PBCL, there are no limitations on the
duration of proxies except that an unrevoked proxy is not valid after three years unless a longer
time is expressly provided therein.
Right to Call Special Meetings. Under the PBCL, holders of Mylan Common Stock have no
right to call special meetings of shareholders except that an interested shareholder (i.e., the
beneficial owner of at least 20% of the corporation's outstanding voting securities) has the right
to call a special meeting of shareholders to approve certain business combinations. Under the
DGCL, a special meeting of stockholders may be called only by the board of directors or by such
person or persons as may be authorized by TC's Articles or TC's Bylaws. Under the TC's
Bylaws, the Chairman of the Board or the President may call or holders of a majority of capital
stock of TC can request a special meeting of stockholders, but business transacted must be
limited to that stated in the notice of such meeting.
Election of Directors. Shareholders of Mylan do not exercise cumulative voting in the election
of its directors. Stockholders of TC exercise cumulative voting in the election of its directors.
Removal of Directors. Under the PBCL, the entire Board of Directors of Mylan, or any
individual director, may be removed from office without assigning any cause by the vote of a
majority of the votes cast at any duly noticed and called meeting. Under the DGCL the entire
board or any director may be removed with or without cause, by the majority of the shares then
entitled to vote at an election of directors. However, since TC's Certificate of Incorporation
provides cumulative voting, if less than the entire board is to be removed, no director may be
removed without cause if the vote cast against his removal would be sufficient to elect him.
Shareholder Voting Rights
General Vote Required. Under the PBCL, corporate action taken by shareholders, including
shareholder action to amend the articles of incorporation or to approve mergers, consolidations or
dissolution, generally is authorized upon receiving the affirmative vote of a majority of the votes
cast by all shareholders entitled to vote thereon (and, if any class of shares is entitled to vote
thereon as a class, the affirmative vote of a majority of the votes cast in such class). Under the
DGCL and TC's Bylaws, the affirmative vote of the holders of a majority of the stock having
voting power present in person or represented by proxy at a meeting at which a quorum is
present is required for stockholder action unless the DGCL requires otherwise. Under DGCL,
the affirmative vote of the majority of the outstanding shares entitled to vote thereon generally is
required to effect mergers or consolidations.
Special Vote Required for Certain Business Combinations. Mylan's Articles require the
affirmative vote of at least 75% of the outstanding shares of Mylan Common Stock entitled to
vote in order to effect certain business combinations. See "Description of Capital Stock - Special
Considerations."
In addition, Mylan is subject to provisions of the PBCL regarding business combinations. The
PBCL prohibits certain business combinations (as defined in the PBCL) involving a
Pennsylvania corporation that has shares registered under the Exchange Act and an "interested
shareholder" unless one of five conditions is satisfied or an exemption is found. An "interested
shareholder" is generally defined to include a person who beneficially owns at least 20% of the
votes that all shareholders would be entitled to cast in an election of directors of the corporation.
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In general, a corporation can effect a business combination involving an interested shareholder
under the PBCL if one of the following five conditions is satisfied (i) prior to the date on which
the person becomes an interested shareholder, the board of directors approves the business
combination or the purchase of shares that causes the person to become an interested
shareholder; (ii) the business combination is approved by an affirmative vote of the holders of all
outstanding shares; (iii) the business combination is approved by a majority of the disinterested
shareholders at a meeting called at least five years after the date the person becomes an interested
shareholder; (iv) the interested shareholder holds 80% or more of the votes that all shareholders
would be entitled to cast in an election of directors of the corporation and the business
combination is approved by a majority of the disinterested shareholders at a meeting held at least
three months after the interested shareholder acquired such 80% interest, provided that the fair
price and procedural requirements set forth in the PBCL are satisfied; or (v) the business
combination is approved by the shareholders at a meeting called at least five years after the date
the person becomes an interested shareholder, provided that the fair price and procedural
requirements set forth in the PBCL are satisfied.
The DGCL prohibits certain business combinations (as defined in the DGCL) between a
Delaware corporation that has shares listed on a national stock exchange, authorized for
quotation on The NASDAQ Stock Market or held of record by more than 2,000 stockholders and
an interested stockholder that occur within three years of the time that such stockholder became
an interested stockholder, unless one of three conditions is satisfied or an exemption is found.
An "interested shareholder" is generally defined to include a person who beneficially owns at
least 15% of the voting stock of the corporation. In general, a corporation can effect a business
combination involving an interested stockholder under the DGCL within three years of the time
that such stockholder became an interested stockholder if one of the following three conditions is
satisfied: (i) prior to such time, the board of directors approves the business combination or the
transaction that causes the person to become an interested stockholder; (ii) upon consummation
of the transaction which resulted in the stockholder becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock at the time the transaction
commenced; or (iii) at or subsequent to such time the business combination is approved by the
board of directors and authorized by the affirmative vote of two-thirds of the disinterested
shareholders. Since TC's voting stock is not listed on any national stock exchange, authorized for
trading on The NASDAQ Stock Market or held by more than 2,000 stockholders of record, these
provision of the DGCL do not presently apply to TC.
Merger or Consolidation Without Shareholder Approval. Under the PBCL, no vote of the
shareholders of a corporation is required if (i) the plan does not alter the corporation's status as a
Pennsylvania corporation or in any respect the articles and each share is to continue as or be
converted into an identical share of the surviving corporation; or (ii) another corporation directly
or indirectly owns 90% or more of shares of each class of the corporation.
Under the DGCL, no vote of the stockholders of a corporation is required if (i) the plan does not
amend in any respect the certificate of incorporation; (ii) each share is to continue as or be
converted into an identical share of the surviving corporation; or (iii) either no stock of the
surviving corporation is to be issued under the plan or the treasury or unissued authorized shares
of the surviving corporation to be issued plus those shares issuable upon conversion of other
shares to be issued in the plan do not exceed 20% of the outstanding shares of such corporation
plan to the merger.
Shareholder Appraisal Rights
Under the DGCL, a stockholder of a corporation who does not vote in favor of certain
merger transactions and who demands appraisal of his shares in connection therewith may, under
varying circumstances, be entitled to appraisal rights pursuant to which such stockholder may
receive cash in the amount of the fair value of his shares (as determined by a Delaware court) in
lieu of the consideration he would otherwise receive in the transaction. Unless the corporation's
certificate of incorporation provides otherwise, such appraisal rights are not available in certain
circumstances, including without limitation (a) the sale, lease or exchange of all or substantially
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all of the assets of a corporation, (b) the merger or consolidation by a corporation the shares of
which are either listed on a national securities exchange or the NASDAQ National Market or are
held of record by more than 2,000 holders if such stockholders receive only shares of the
surviving corporation or shares of any other corporation which are either listed on a national
securities exchange or the NASDAQ National Market or held of record by more than 2,000
holders, plus cash in lieu of fractional shares or (c) to stockholders of a corporation surviving a
merger if
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no vote of the stockholders of the surviving corporation is required to approve the merger
because the merger agreement does not amend the existing certificate of incorporation,
each share of the surviving corporation outstanding prior to the merger is an identical outstanding
or treasury share after the merger, and the number of shares to be issued in the merger does not
exceed 20% of the shares of the surviving corporation outstanding immediately prior to the
merger and if certain other conditions are met.
Under the PBCL, a shareholder of a business corporation has the right, under varying
circumstances, to dissent from certain corporate transactions (including mergers, share
exchanges, the sale of all or substantially all of the corporate assets and corporate divisions) and
to obtain payment in cash of the fair value of his shares in lieu of the consideration he
would otherwise receive in the transaction. Such dissenters rights are not available where the
shares held by the shareholder are either listed on a national securities exchange or are held
of record by more than 2,000 shareholders. Notwithstanding this limitation, the PBCL provides
that the bylaws or a resolution of the board of directors may direct that all or part of the
shareholders shall have dissenters rights in connection with any corporate transaction that would
not otherwise entitle such shareholder to dissenters rights. Mylan's By-Laws do not include
such a provision nor has the Board of Directors of Mylan adopted such a resolution.
The concept of "fair value" in payment for shares upon exercise of appraisal rights is
different under the DGCL ad the PBCL. Under the DGCL, "fair value" must be determined
exclusive of any element of value arising from the accomplishment or expectation of the relevant
transaction. The PBCL provides that the fair value of shares must be determined immediately
before the effectuation of the corporate action to which the dissenter objects taking into account
all relevant factors, but excluding any appreciation or depreciation in anticipation of the
corporate action.
The procedures for perfecting appraisal rights under the DGCL are set forth in "The
Merger-Appraisal Rights."
Rights With Respect to Shares
Dividends; Purchases and Redemptions of Shares. Under the PBCL, Mylan may pay dividends
and make stock purchases and redemptions unless, after giving effect to the distribution: (i) the
corporation would be unable to pay its debts as they become due in the usual course of its
business, or (ii) the total assets of the corporation would be less than the sum of its total
liabilities plus the amount that would be needed, if the corporation were to be dissolved at the
time of distribution, to satisfy the preferential rights upon dissolution of stockholders whose
preferential rights are superior to those receiving the distribution. The Board of Directors may
base its determination of total assets and total liabilities on any factors it considers relevant,
including the book values of the corporation's assets and liabilities as reflected on its books and
records, unrealized appreciation and depreciation of the corporation's assets or the current value
of the corporation's assets and liabilities, either valued separately or valued in segments or as an
entirety as a going concern.
The DGCL provides that a corporation shall not redeem its stock for cash or property if such
redemption would cause an impairment of capital of the corporation. The DGCL further
provides that a corporation may pay dividends (i) out of its capital surplus or (ii) in the event
there is no capital surplus, out of its net profits for the fiscal year in which the dividend is
declared and/or the preceding year.
Rights and Powers of Directors
Consideration of Factors; General Powers. The PBCL expressly permits directors, in
discharging the duties of their positions and in considering the best interests of the corporation,
to consider the effects of any action upon employees, upon suppliers and customers of the
corporation and upon communities in which offices or other establishments of the corporation
are located, and all other pertinent factors. The PBCL states that consideration of those factors
shall not constitute a violation of the standard of conduct for directors described in the PBCL.
Further, the PBCL expressly authorizes the corporation's board of directors to accept, reject,
respond or take no action in respect of an actual or proposed acquisition, takeover or other
fundamental change.
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The DGCL provides that directors are fully protected in relying in good faith upon
representations of experts or the corporation's officers or employees.
Director and Officer Liability and Indemnification
In accordance with the PBCL, Mylan's By-Laws provide that a director of Mylan shall not be
personally liable for monetary damages for any action taken, or any failure to take any action,
unless the director has breached or failed to perform the duties required under Pennsylvania law
and the breach or failure to perform constitutes self-dealing, willful misconduct or recklessness.
As permitted by the PBCL, Mylan's By-Laws provide that directors of Mylan are indemnified
under certain circumstances for expenses, judgment, fines or settlements incurred in connection
with suits and other legal proceedings. The PBCL allows indemnification in cases where the
person "acted in good faith and in a manner he reasonably believed to be in, or not opposed to,
the best interests of the corporation and, with respect to any criminal proceeding, had no
reasonable cause to believe his conduct was unlawful."
Under the DCGL, a corporation may include in its Certificate of Incorporation provisions
which eliminate or limit, within prescribed limitations, the personal liability of a
director of the corporation for monetary damages for breach of fiduciary duty as a director.
Neither the Certificate of Incorporation of TC nor TC's Bylaws contain any provisions
limiting the personal liability of directors for monetary damages.
The DGCL and TC's Bylaws generally provide that a corporation may, and in certain
circumstances, must, indemnify its directors, officers, employees or agents ("indemnities") for
expenses (including attorneys' fees), judgments, fines or settlements actually and reasonably
incurred by them in connection with suits and other legal actions or proceedings if they acted in
good faith and in a manner they reasonably believed to be in or not opposed to the best interests
of the corporation and, with respect to any criminal action or proceeding, had no reasonable
cause to believe their conduct was unlawful. In the case of stockholder derivative suits, the
corporation may indemnify its directors, officers, employees or agents if they acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification may be made in respect of any claim, issue or matter
as to which such person shall have been adjudged liable to the corporation unless and only to the
extent that the Court of Chancery or the court in which the action was brought determined upon
application that, in view of all the circumstances of the case, the person is fairly and reasonably
entitled to indemnity for such expenses as the court deems proper. The DGCL also permits a
corporation to adopt procedures for advancing expenses to indemnities without the need for a
case-by-case determination of eligibility, so long as in the case of officers and directors they
undertake to repay the amounts advanced if it is ultimately determined that the officer or director
was not entitled to be indemnified.
DESCRIPTION OF MYLAN CAPITAL STOCK
The authorized capital stock of Mylan consists of 305,000,000 shares of Mylan Common
Stock, of which, as of the date of this Proxy Statement/Prospectus, ___________ shares are
outstanding, and 5,000,000 shares of preferred stock, par value $.50 per share ("Mylan Preferred
Stock"), issuable in series, none of which are outstanding as of the date of this Proxy
Statement/Prospectus.
Mylan Common Stock
Holders of Mylan Common Stock have one vote per share on all matters submitted to a vote of
shareholders. Shareholders do not have cumulative voting rights. The holders of Mylan
Common Stock have the right to receive dividends when, as and if declared by the Board of
Directors of Mylan out of funds legally available therefor, subject to the rights of the holders of
any outstanding Mylan Preferred Stock to receive preferential dividends. Upon the liquidation of
Mylan, holders of Mylan Common Stock would share ratably in any assets available for
distribution to shareholders after payment of all obligations of Mylan and the aggregate
liquidation preference (including accrued and unpaid dividends) of any outstanding Mylan
Preferred Stock.
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The Mylan Common Stock is not redeemable and has no preemptive, subscription or conversion
rights. Shares of Mylan Common Stock currently outstanding are, and the Mylan Common
Stock to be issued in the Merger will be, validly issued, fully paid and nonassessable.
American Stock Transfer Co., New York, New York, is the transfer agent and registrar for the
Mylan Common Stock.
Mylan Preferred Stock
The authorized Mylan Preferred Stock is available for issuance from time to time at the
discretion of the Board of Directors of Mylan without shareholder approval. The Board of
Directors has authority to prescribe for each series of Mylan Preferred Stock it establishes the
number of shares in that series, the dividend rate, and the voting rights, conversion privileges,
redemption, sinking fund and liquidation rights, if any, and any other rights, preferences,
qualifications and limitations of the particular series. The issuance of Mylan Preferred Stock
could decrease the amount of earnings and assets available for distribution to the holders of
Mylan Common Stock or adversely affect the rights and powers, including voting rights, of the
holders of Mylan Common Stock. Mylan has no present plans to issue any Mylan Preferred
Stock.
Special Considerations
Mylan is subject to provisions of the PBCL regarding business combinations. See "Comparison
of Shareholder Rights - Special Vote Required for Certain Business Combinations."
In addition, Mylan's Articles provide that each of the following corporate actions requires
approval in compliance with all applicable provisions of the PBCL and Mylan's Articles and,
with certain exceptions, the affirmative vote of at least 75% of the outstanding shares of Mylan
Common Stock entitled to vote, at a meeting called for such purpose: (i) any merger or
consolidation to which Mylan and an Interested Person (as defined in Mylan's Articles) are
parties; (ii) any sale, lease, exchange or other disposition, in a single transaction or series of
related transactions, of all or substantially all or a Substantial Part (as defined in Mylan's
Articles) of the properties or assets of Mylan to an Interested Person; (iii) the adoption of any
plan or proposal for the liquidation or dissolution of Mylan under or pursuant to which the rights
or benefits inuring to an Interested Person are different in kind or character from the rights or
benefits inuring to the other holders of Mylan Common Stock; (iv) any transaction of the
foregoing character involving an Affiliate or Associate (as defined in Mylan's Articles) of an
Interested Person or involving an Associate of any such Affiliate. The 75% voting requirement
will not apply if the Board of Directors shall have approved the transaction by a majority vote of
all directors prior to the time the Interested Person connected with the transaction became an
Interested Person or if the Board of Directors shall have approved the transaction prior to
consummation thereof by a majority vote of all directors, disregarding the vote of each director
who was an Interested Person, or an Affiliate, Associate or agent of such Interested Person, or an
Associate or agent of any such Affiliate. The affirmative vote of the holders of at least 75% of
the outstanding shares of Mylan Common Stock entitled to vote is required to amend or repeal
the foregoing provisions.
The By-Laws of Mylan provide that a director shall not be personally liable for monetary
damages as such for any action, or any failure to take any action, unless he has breached or failed
to perform his statutory duties and the breach or failure to perform constitutes self-dealing,
willful misconduct or recklessness; provided, however, that such limitation of liability shall not
apply to the responsibility or liability of a director pursuant to any criminal statute or to liability
for payment of taxes pursuant to local, state or federal law. If the Pennsylvania law is amended
in the future to authorize corporate action further limiting the personal liability of directors, the
liability of a director will be limited to the fullest extent permitted by such amendment.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by Mylan (File No. 1-9114) pursuant to the
Exchange Act are incorporated by reference in this Proxy Statement/Prospectus:
1. Mylan's Annual Report on Form 10-K for the year ended March 31, 1995 ("Mylan's
10-K");
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2. Mylan's Proxy Statement for the Annual Meeting of Shareholders held on June 29, 1995
("Mylan's Proxy");
3. Mylan's Quarterly Report on Form 10-Q for the three months ended June 30, 1995
("Mylan's First Quarter 10-Q");
4. Mylan's Quarterly Report on Form 10-Q for the three months ended September 30, 1995
("Mylan's Second Quarter 10-Q"); and
5. Mylan's Current Report on Form 8-K filed with the Commission on September 22, 1995.
All documents and reports subsequently filed by Mylan pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Proxy Statement/Prospectus and prior to the date
of the Special Meeting shall be deemed to be incorporated by reference in this Proxy
Statement/Prospectus and to be part hereof from the date of filing of such documents or reports.
Any statement contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this Proxy
Statement/Prospectus to the extent that a statement contained herein or in any subsequently filed
document which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Proxy Statement/Prospectus.
LEGAL MATTERS
The validity of the shares of Mylan Common Stock to be issued in connection with the
Merger and other legal matters in connection with the Merger are being passed upon for Mylan
by Buchanan Ingersoll Professional Corporation, Pittsburgh, Pennsylvania. Certain legal matters
in connection with the Merger are being passed upon for TC by Rivkin, Radler & Kremer,
Chicago, Illinois. See "Certain Related Transactions and Relationships of TC and Mylan." In
addition, Fagel & Haber, Chicago, Illinois has acted as special tax counsel to TC and has
furnished the opinion summarized in "The Merger-Certain Federal Income Tax Consequences."
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EXPERTS
The consolidated financial statements of Mylan Laboratories Inc. and subsidiaries at March 31,
1995 and 1994 and for each of three years in the period ended March 31, 1995, incorporated in
this Proxy Statement/Prospectus by reference to the Mylan 10-K have been audited by Deloitte &
Touche, LLP, independent auditors, as stated in their report which is incorporated by referenced
herein, and have been so included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
The consolidated financial statements of TC Manufacturing Co., Inc. and subsidiaries as of
October 31, 1995 and 1994, and for each of the years in the three-year period ended October 31,
1995, have been included herein and in the registration statement in reliance upon the report of
KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and auditing.
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INDEX TO FINANCIAL STATEMENTS
Page
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Pro Forma Financial Information F-2
TC Independent Auditors' Report F-10
TC Consolidated Balance Sheets at October 31, 1994
and October 31, 1995 F-11
TC Consolidated Statements of Operations for the Years Ended
October 31, 1995, 1994 and 1993 F-13
TC Consolidated Statements of Stockholders' Equity for the Years
Ended October 31, 1995, 1994 and 1993 F-14
TC Consolidated Statements of Cash Flows for the Years Ended
October 31, 1995, 1994 and 1993 F-16
TC Notes to Consolidated Financial Statements F-18
F-1
PRO FORMA FINANCIAL INFORMATION
The following tables present the combination of Mylan Laboratories Inc. and subsidiaries and TC
Manufacturing Co., Inc. ("TC") and certain subsidiaries of TC. The combination will be
accounted for by Mylan under the purchase method of accounting. The results of operations of
TC have been converted to a fiscal March 31 year-end and are unaudited.
The pro forma financial information included herein gives effect to the Reorganization of TC,
effective immediately prior to the consummation of the Merger and excludes the Coating
Business and the Packaging Business.
The pro forma financial information included herein does not purport to represent what the
consolidated financial position or results of operations actually would have been if the
Reorganization of TC and the Merger in fact had occurred on such dates or at the beginning of
the period indicated or to project the consolidated financial position or results of operations as of
any future date or any future period.
The pro forma financial information included herein should be read in conjunction with the
historical consolidated financial statements of Mylan and TC, including the notes thereto, and
other financial information incorporated by reference into this Proxy Statement/Prospectus.
F-2
Mylan Laboratories Inc. and Subsidiaries
Pro Forma Condensed Income Statement
For the Six Months Ended September 30, 1995
(Amounts in thousands, except per share data)
(Unaudited)
Pro Forma Pro Forma
Mylan TC Adjustments Combined
---------------------------------------
Net Sales $206,907 $31,284 $(2,668) (5) $235,523
Costs and expenses:
Cost of sales 95,487 22,277 178 (7) 116,067
(1,875) (5)
Research and development 17,612 597 18,209
Selling, general and administrative 27,663 5,168 1,319 (7) 34,150
Interest 0 350 (350) (8) 0
------- ------ ---------- -------
Total Costs and Expenses 140,762 28,392 (728) 168,426
Income (Loss) from Operations 66,145 2,892 (1,940) 67,097
Equity in Earnings of Somerset 11,709 0 11,709
Other Income (Expense) 8,723 192 (194) (8) 8,721
Earnings (Loss) Before Income Taxes 86,577 3,084 (2,134) 87,527
Income Taxes 23,934 1,141 (244) (9) 24,831
Net Earnings (Loss) $ 62,643 $ 1,943 $(1,890) $ 62,696
Earnings per Share $ .53 $ .52
Weighted Average Common Shares 119,294 2,388 121,682
======== ====== ========
See notes to pro forma condensed financial information
F-3
Mylan Laboratories Inc. and Subsidiaries
TC Pro Forma Condensed Income Statement
For the Six Months Ended September 30, 1995
(Amounts in thousands)
(Unaudited)
Coating &
TC Packaging Pro Forma
Consolidated Businesses Adjustments TC
---------------------------------------------
Net Sales $47,042 $15,758 $31,284
Costs and expenses:
Cost of sales 33,486 11,209 22,277
Research and development 673 76 597
Selling, general and administrative 9,779 3,346 $(1,265)(11) 5,168
Interest 350 0 0 350
------ ------ ------------ --------
Total Costs and Expenses 44,288 14,631 (1,265) 28,392
Income from Operations 2,754 1,127 1,265 2,892
Other Income (Expense) (339) (531) 0 192
Earnings Before Income Taxes 2,415 596 1,265 3,084
Income Taxes 860 162 443 (11) 1,141
Net Earnings $ 1,555 $ 434 $ 822 $ 1,943
See notes to pro forma condensed financial information
F-4
Mylan Laboratories Inc. and Subsidiaries
Pro Forma Condensed Income Statement
For the Year Ended March 31, 1995
(Amounts in thousands, except per share data)
(Unaudited)
Pro Forma Pro Forma
Mylan TC Adjustments Combined
------------------------------------------
Net Sales $396,120 $47,301 $(6,038) (5) $437,383
Costs and expenses:
Cost of sales 169,590 38,897 356 (7) 204,570
(4,273) (5)
Research and development 30,533 1,030 31,563
Selling, general and administrative 58,035 8,914 2,637 (7) 69,586
Interest 0 778 (778) (8) 0
Total Costs and Expenses 258,158 49,619 (2,058) 305,719
Income (Loss) from Operations 137,962 (2,318) (3,980) 131,664
Equity in Earnings of Somerset 25,406 0 25,406
Other Income (Expense) 7,958 542 (388) (8) 8,112
Earnings (Loss) Before Income Taxes 171,326 (1,776) (4,368) 165,182
Income Taxes 50,457 (606) (354) (9) 49,497
Net Earnings (Loss) $120,869 $ (1,170)$(4,014) $115,685
======== ======== ======= ========
Earnings per Share $ 1.02 $ 0.95
======== ========
Weighted Average Common Shares 118,964 2,388 121,352
======== ====== ========
See notes to pro forma condensed financial information
F-5
Mylan Laboratories Inc. and Subsidiaries
TC Pro Forma Condensed Income Statement
For the Year Ended March 31, 1995
(Amounts in thousands)
(Unaudited)
Coating &
TC Packaging Pro Forma
Consolidated Businesses Adjustments TC
------------ ---------- ----------- -------
Net Sales $75,235 $27,934 $47,301
Costs and expenses:
Cost of sales 57,443 18,546 38,897
Research and development 1,145 115 1,030
Selling, general and administrative 15,912 5,948 $(1,050) (11) 8,914
Interest 1,089 311 0 778
------- -------- ------------ -------
Total Costs and Expenses 75,589 24,920 (1,050) 49,619
Income (Loss) from Operations (354) 3,014 1,050 (2,318)
Other Income (Expense) 167 (375) 0 542
-------- -------- ------------ --------
Earnings (Loss) Before Income Taxes (187) 2,639 1,050 (1,776)
Income Taxes (36) 937 367 (11) (606)
-------- -------- ------------ --------
Net Earnings (Loss) $ (151) $ 1,702 $ 683 $(1,170)
======== ======== ============ ========
See notes to pro forma condensed financial information
F-6
Mylan Laboratories Inc. and Subsidiaries
Pro Forma Condensed Balance Sheet
September 30, 1995
(Amounts in thousands)
(Unaudited)
Pro Forma Pro Forma
Mylan TC Adjustments Combined
--------------------------------------------
Current Assets:
Cash and cash equivalents $151,823 $ 3,503 $ (2,850) (4) $144,656
(8,900) (3)
1,080 (1)
Marketable securities 28,263 0 28,263
Accounts receivable 69,064 6,104 75,168
Inventories 75,177 11,232 86,409
Deferred income tax benefit 7,733 0 7,733
Other current assets 6,376 1,180 7,556
--------- ------- ------------- -------
Total Current Assets 338,436 22,019 (10,670) 349,785
Property, Plant & Equipment - net of
accumulated depreciation 105,913 7,554 3,200 (6) 116,667
Deferred Income Tax Benefit,
non-current 1,032 0 1,032
Marketable Securities,
non-current 22,253 0 22,253
Investment in and Advances
to Somerset 23,557 0 23,557
Intangible Assets - net
of accumulated amortization 26,238 2,391 40,895 (6) 69,524
Other Assets 68,988 319 69,307
------- ----- ----------- ---------
Total Assets $586,417 $32,283 $33,425 $652,125
Current Liabilities:
Trade accounts payable $ 11,093 $ 3,240 $14,333
Income taxes payable 6,315 511 6,826
Other current liabilities 17,498 6,610 24,108
Cash dividend payable 4,776 0 4,776
Notes payable 0 2,850 $(2,850) (4) 0
Current portion of 1,000 (3)
long-term obligations 0 1,400 (2,400) (3) 0
---------- -------- ----------- ----------
Total Current Liabilities 39,682 14,611 (4,250) 50,043
Long-Term Obligations 8,581 6,500 (6,500) (3) 8,581
Deferred Income Taxes 0 547 7,300 (6) 7,847
Shareholders' Equity:
Preferred stock 0 424 (424) (1) 0
Common stock 60,027 5,405 (4,211) (1) 61,221
Additional paid-in capital 38,231 (24) 46,330 (1) 84,537
Retained earnings 440,105 5,700 (5,700) (1) 440,105
Unrealized gain on investment 2,145 0 2,145
Less - Treasury stock (2,354) (880) 880 (1) (2,354)
--------- --------- ------------ -----------
Net Worth 538,154 10,625 36,875 585,654
--------- --------- ------------ -----------
Total Liabilities
and Shareholders' Equity $586,417 $32,283 $33,425 $652,125
========= ========= ============ ===========
See notes to pro forma condensed financial information
F-7
Mylan Laboratories Inc. and Subsidiaries
TC Pro Forma Condensed Balance Sheet
September 30, 1995
(Amounts in thousands)
(Unaudited)
Coating &
TC Packaging Pro Forma
Consolidated Businesses Adjustments TC
------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 6,266 $ 763 $(2,000) (10) $3,503
Accounts receivable 10,147 4,043 6,104
Inventories 15,293 4,061 11,232
Other current assets 1,414 234 1,180
-------- -------- ------------- --------
Total Current Assets 33,120 9,101 (2,000) 22,019
Property, Plant &
Equipment - net of
accumulated depreciation 16,013 8,459 7,554
Intangible Assets 2,391 (2) 2,391
Other Assets 932 613 319
Total Assets $50,065 $18,173 $ 391 $32,283
======= ========= =============== ========
Current Liabilities:
Trade accounts payable $ 4,158 $ 918 $ 3,240
Income taxes payable 613 102 511
Other current liabilities 7,768 1,158 6,610
Note payable $2,850 (2) 2,850
Current portion of
long-term obligations 1,400 0 0 1,400
-------- --------- ------------ ---------
Total Current Liabilities 13,939 2,178 2,850 14,611
Long-Term Obligations 6,500 0 6,500
Deferred Income Taxes 1,648 1,101 547
Minority Interest 459 0 (459) (2) 0
Shareholders' Equity:
Preferred stock 424 0 424
Common stock 5,410 5 5,405
Additional paid-in capital (24) 0 (24)
Retained earnings 22,589 14,889 (2,000) (10) 5,700
Less - Treasury stock (880) 0 (880)
--------- -------- -------------- ---------
Net Worth 27,519 14,894 (2,000) 10,625
--------- -------- -------------- ---------
Total Liabilities
and Shareholders' Equity $50,065 $18,173 $ 391 $32,283
========= ======== ============== =========
See notes to pro forma condensed financial information
F-8
Mylan Laboratories Inc. and Subsidiaries
Notes to Pro Forma Condensed Financial Statements
(Unaudited)
1. To reflect the issuance of 2,388,135 shares of Mylan common stock, at an estimated price
per common share of $19.89 (as provided in the Merger Agreement) in satisfaction of the $47.5
million purchase price, to reflect the exercise of 216,308 TC stock options outstanding as of
September 30, 1995 and the conversion of TC preferred stock into Mylan common stock. The
total number of shares issued may be adjusted as described in "The Merger Agreement -
Adjustment of Common Stock Exchange Ratio."
2. To record the acquisition of the 6% minority interest in TC in exchange for a note payable.
3. Reflects the repayment of all outstanding debt obligations of TC.
4. Reflects payment of the note payable to acquire the 6% minority interest.
5. To eliminate intercompany sales of Mylan to TC and related cost of sales.
6. Reflects the purchase accounting adjustments (pursuant to APB No. 16) necessary to
record Mylan's acquisition of TC's net assets for $47.5 million. Intangible assets relate
principally to the value of customer contracts as estimated by Mylan based on the nature of TC's
operations. The allocation of the purchase price is subject to change based on final valuation and
appraisals and was estimated as follows:
Pro forma net worth of TC at 9-30-95 $10,625
Cash received upon exercise of TC stock options 1,080
Fixed asset step-up 3,200
Intangible asset recorded 15,100
Prepayment liability (1,000)
Deferred tax liability (7,300)
Goodwill 25,795
Purchase price $47,500
7. Reflects the estimated amortization of intangibles (including goodwill) and the
depreciation of property, plant and equipment that are recorded pursuant to the purchase method
of accounting. Intangibles are amortized on a straight line basis over a period of ten to twenty
years. The allocation of the purchase price is subject to change based on final valuation and
appraisals.
8. Reflects the reduction in interest income and interest expense due to the repayment of all
outstanding debt obligations as discussed in notes 3 and 4.
9. Reflects income tax consequences of adjustments 5, 7 and 8.
10. To record the allocation of cash per the Merger Agreement.
11. To record the reduction for certain corporate charges unrelated to the acquired company
and the related tax impact.
F-9
Independent Auditors Report
The Board of Directors
TC Manufacturing Co., Inc.:
We have audited the accompanying consolidated balance sheets of TC Manufacturing Co., Inc.
and subsidiaries as of October 31, 1995 and 1994, and the related consolidated statements of
operations, stockholders equity, and cash flows for each of the years in the three-year
period ended October 31, 1995. These consolidated financial statements are the
responsibility of the company s management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of TC Manufacturing Co., Inc. and subsidiaries as of
October 31, 1995 and 1994, and the results of their operations and their cash flows for each of
the years in the three-year period ended October 31, 1995 in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
December 18, 1995
F-10
TC MANUFACTURING CO., INC. AND SUBSIDIARIES
Consolidated Balance Sheets
October 31, 1995, and 1994
(Amounts in thousands)
- -------------------------------------------------------------------------------
Assets 1995 1994
- -------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 6,875 5,674
Accounts receivable:
Trade, net of allowances of $4,043 in 1995
and $5,560 in 1994 11,300 7,180
Other 923 694
Inventories 15,327 16,528
Prepaid expenses 381 446
Refundable income taxes -- 1,114
Deferred income taxes 565 936
- ----------------------------------------------------------------------------
Total current assets 35,371 32,572
- ----------------------------------------------------------------------------
Property, plant, and equipment 32,051 29,475
Less accumulated depreciation and amortization 15,890 14,044
- ----------------------------------------------------------------------------
16,161 15,431
- ----------------------------------------------------------------------------
Intangibles and other assets:
Goodwill (pre-1970) 539 539
Cash value of officers life insurance 244 385
Other assets 57 182
- ----------------------------------------------------------------------------
840 1,106
- ----------------------------------------------------------------------------
$ 52,372 49,109
- ----------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-11
TC MANUFACTURING CO., INC. AND SUBSIDIARIES
Consolidated Balance Sheets
October 31, 1995, and 1994
(Amounts in thousands, except share data)
- -------------------------------------------------------------------------------
Liabilities and Stockholders' Equity 1995 1994
- -------------------------------------------------------------------------------
Current liabilities:
Current maturities of long-term debt $ 1,400 1,600
Accounts payable 5,307 6,646
Accrued liabilities:
Product returns 1,870 2,038
Salaries, wages, and bonuses 2,047 1,083
Profit sharing contribution 935 372
Property taxes 335 306
Interest 207 258
Income taxes 467 --
Medicaid rebates 412 435
Other 1,969 1,049
- -----------------------------------------------------------------------------
Total current liabilities 14,949 13,787
- -----------------------------------------------------------------------------
Long-term debt 6,500 7,900
- -----------------------------------------------------------------------------
Deferred income taxes 1,595 1,649
- -----------------------------------------------------------------------------
Minority interest in subsidiary 507 339
- -----------------------------------------------------------------------------
Stockholders equity:
8% cumulative preferred stock, par value
$100 per share. Authorized 14,000 shares;
issued and outstanding 4,243 shares in 1995
and 1994 424 424
Special preferred stock, without par value.
Authorized 10,000 shares of which none have
been issued -- --
Common stock, par value $1 per share.
Authorized 7,000,000 shares;
issued 5,410,444 in 1995 and 1994 5,410 5,410
Additional paid-in capital -- --
Equity adjustment from foreign currency translation (25) (29)
Retained earnings 23,892 20,661
- -----------------------------------------------------------------------------
29,701 26,466
Treasury stock, at cost (69,452 shares
in 1995 and 96,696 shares in 1994) (880) (1,032)
- -----------------------------------------------------------------------------
28,821 25,434
- -----------------------------------------------------------------------------
$ 52,372 49,109
- -----------------------------------------------------------------------------
F-12
TC MANUFACTURING CO., INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended October 31, 1995, 1994, and 1993
(Amounts in thousands, except per share data)
1995 1994 1993
Net sales $ 90,879 78,780 79,617
Cost of sales 68,502 62,622 57,753
- ------------------------------------------------------------------------------
Gross profit 22,377 16,158 21,864
Operating expenses:
Selling expense 7,989 6,770 6,693
General and adminstrative expense 6,777 7,653 5,977
Research and development expense 1,142 1,101 764
- -------------------------------------------------------------------------------
Total operating expenses 15,908 15,524 13,434
Operating income 6,469 634 8,430
Other income (expense):
Interest income 216 2 96
Interest expense (959) (1,002) (1,228)
Miscellaneous - net (256) 71 (78)
- -------------------------------------------------------------------------------
Income (loss) before income taxes
and minority interest 5,470 (295) 7,220
Income tax benefit (expense) (1,849) 79 (2,664)
- ------------------------------------------------------------------------------
Income (loss) before
minority interest 3,621 (216) 4,556
Minority interest (168) 96 (198)
- ------------------------------------------------------------------------------
Net income (loss) $ 3,453 (120) 4,358
- ------------------------------------------------------------------------------
Earnings (loss) per common share $ 0.64 (0.03) 0.82
- ------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-13
TC MANUFACTURING CO., INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended October 31, 1995, 1994, and 1993
(Amounts in thousands, except share data)
- -------------------------------------------------------------------------------
Preferred Stock Common Stock
-------------------- ---------------------
Number Number
of of
shares Amount shares Amount
- -------------------------------------------------------------------------------
Balance at October 31, 1992 4,243 $ 424 2,753,570 $ 2,754
Net income -- -- -- --
Exercise of stock options -- -- -- --
Cash dividends: -- -- -- --
Preferred ($8.00 per share) -- -- -- --
Common ($.115 per share) -- -- -- --
Current year foreign currency translation
adjustment -- -- -- --
-------------------------------------------------------------------------------
Balance at October 31, 1993 4,243 424 2,753,570 2,754
Net loss -- -- -- --
Purchase of treasury stock -- -- -- --
Exercise of stock option -- -- -- --
Cash dividends:
Preferred ($8.00 per share) -- -- -- --
Common ($.045 per share) -- -- -- --
Stock dividend -- -- 2,656,874 2,656
Current year foreign currency
translation adjustment -- -- -- --
- -------------------------------------------------------------------------------
Balance at October 31, 1994 4,243 424 5,410,444 5,410
Net Income -- -- -- --
Purchase of treasury stock -- -- -- --
Exercise of stock options -- -- -- --
Cash dividends:
Preferred ($8.00 per share) -- -- -- --
Common ($.03 per share) -- -- -- --
Current year foreign currency
translation adjustment -- -- -- --
- ------------------------------------------------------------------------------
Balance at October 31, 1995 4,243 $ 424 5,410,444 $ 5,410
- ------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-14
TC MANUFACTURING CO., INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders Equity
Years ended October 31, 1995, 1994, and 1993
(Amounts in thousands, except share data)
- -----------------------------------------------------------------------------
Treasury Stock
Foreign --------------------------------------
Additional Currency Number
paid-in Translation Retained of
capital adjustment earnings Shares Amount Total
- ------------------------------------------------------------------------------
-- $ 20 $19,827 142,775 $ (1,525) $ 21,500
-- -- 4,358 -- -- 4,358
-- -- (152) (23,699) 254 102
-- -- (34) -- -- (34)
-- -- (302) -- -- (302)
-- (37) -- -- -- (37)
- ------------------------------------------------------------------------------
-- (17) 23,697 119,076 (1,271) 25,587
-- -- (120) -- -- (120)
-- -- -- 2,220 (25) (25)
-- -- (106) (24,600) 264 158
-- -- (34) -- -- (34)
-- -- (120) -- -- (120)
-- -- (2,656) -- -- --
-- (12) -- -- -- (12)
- ------------------------------------------------------------------------------
-- (29) 20,661 96,696 (1,032) 25,434
-- -- 3,453 -- -- 3,453
-- -- -- 15,600 (78) (78)
-- -- (28) (42,844) 230 202
-- -- (34) -- -- (34)
-- -- (160) -- -- (160)
-- 4 -- -- -- 4
- ------------------------------------------------------------------------------
-- ($25) $23,892 69,452 $ (880) $28,821
- ------------------------------------------------------------------------------
TC MANUFACTURING CO., INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended October 31, 1995, 1994, and 1993
(Amounts in thousands)
- -------------------------------------------------------------------------------
1995 1994 1993
- -------------------------------------------------------------------------------
Cash flows from operating activities:
Net Income (loss) $ 3,453 (120) 4,358
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 1,846 1,638 1,449
Deferred income taxes 317 (138) (324)
Increase (decrease) in accounts
receivable allowances (1,517) (130) 1,768
Amortization of excess of cost
over assets of businesses
acquired, trademarks, and patent 14 27 23
Minority interest in subsidiary 168 (96) 198
Loss (gain) on disposition of equipment 12 (10) 58
Change in assets and liabilities:
Marketable securities -- -- 2,143
Accounts receivable (2,832) 10,688 (4,465)
Inventories 1,201 (2,706) (2,817)
Prepaid expenses 65 (23) 6
Refundable income taxes 1,114 (1,114) 74
Other assets and cash value
of life insurance 252 (369) (32)
Accounts payable (1,339) 968 681
Accrued liabilities 2,701 (1,892) 1,503
- ------------------------------------------------------------------------------
Net cash provided by operating activities 5,455 6,723 4,623
- ------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant, and equipment(2,591) (2,801) (3,545)
Proceeds from sale of equipment 3 16 21
- -------------------------------------------------------------------------------
Net cash used in investing activities $ (2,588) (2,785) (3,524)
- -------------------------------------------------------------------------------
F-16
TC MANUFACTURING CO., INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
(Amounts in thousands)
- -------------------------------------------------------------------------------
1995 1994 1993
- -------------------------------------------------------------------------------
Cash flows from financing activities:
Repayment of long-term debt $ (1,600) (1,558) (707)
Proceeds from exercise of stock options 202 158 102
Dividends paid and payable (194) (154) (336)
Purchase of treasury stock (78) (25) --
- -------------------------------------------------------------------------------
Net cash used in financing activities (1,670) (1,579) (941)
- -------------------------------------------------------------------------------
Effect of exchange rate changes on cash
and cash equivalents 4 (12) (37)
- -------------------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents 1,201 2,347 121
Cash and cash equivalents at beginning of year 5,674 3,327 3,206
Cash and cash equivalents at end of year $ 6,875 5,674 3,327
- -------------------------------------------------------------------------------
Supplemental disclosures of cash
flow information -- cash paid during
the year for:
Interest $ 956 1,095 1,278
Income taxes, net of refunds (129) 2,256 2,616
- -------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-17
TC MANUFACTURING CO., INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1995, 1994, and 1993
- -----------------------------------------------------------------------------
(1) Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of TC
Manufacturing Co., Inc. and subsidiaries (the Company or TC), including UDL Laboratories,
Inc., a 94% owned subsidiary, Pak-Sher Company, Tapecoat Company, and Tapecoat Canada
Ltd.
All intercompany balances and transactions have been eliminated in consolidation.
UDL Laboratories manufactures, packages, and markets generic pharmaceuticals in unit dose
configuration. Pak-Sher manufactures and markets specialized packaging to the food
industry, primarily supermarkets and chain restaurants. Tapecoat manufactures protective
coatings, to provide corrosion protection primarily for underground metal pipes.
Allowances for Chargebacks, Cash Discounts,
and Doubtful Accounts
One of the Company's subsidiaries markets a portion of its product at negotiated or
competitively bid contract prices. It is the policy of this subsidiary to sell its product
to distributors at the wholesale price. If the product is subsequently resold at a lower
contract price, a chargeback for the difference between wholesale and contract price
is credited to the distributor.
Allowances for chargebacks, cash discounts, and doubtful accounts at October 31, 1995 and
1994 consisted of the following approximate amounts (in thousands):
- ------------------------------------------------------------------------------
1995 1994
- ------------------------------------------------------------------------------
Chargebacks $ 3,545 4,000
Cash Discounts 356 239
Doubtful Accounts 142 1,321
- ------------------------------------------------------------------------------
$ 4,043 5,560
- -------------------------------------------------------------------------------
The provision for doubtful accounts was $105,000, $1,530,000 and $51,000 in 1995, 1994
and 1993, respectively.
Product Returns
Management has estimated product returns based upon available information and sales have
been reduced to reflect such estimates.
(Continued)
F-18
TC MANUFACTURING CO., INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Inventories
Inventories are principally valued at the lower of cost or market, determined by the last-in,
first-out method (LIFO). At October 31, 1995 and 1994, inventories approximating $1,620,000
and $1,757,000, respectively, were valued using the first-in, first-out method (FIFO).
Property, Plant, and Equipment
Property, plant, and equipment are carried at cost. Major additions and improvements are
added to the property, plant, and equipment accounts, while replacement, maintenance, and
repairs which do not improve or extend the life of the respective assets are charged to income
as incurred. When assets are retired or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is reflected in
income for the period. Depreciation and amortization are computed using the straight-line
method over the estimated useful lives of the respective assets or the life of the lease for
leasehold improvements.
Intangible Assets
Goodwill (pre-1970) is stated at cost and is not amortized because in the opinion of
management there has been no diminution in value.
Trademarks and patent are stated at cost and are amortized straight-line over a ten-year period.
The excess of cost over net assets of businesses acquired is amortized over 10- to 20-year
periods using the straight-line method.
Accrued Medicaid Rebates
Medicaid rebates represent payments mandated under law to be made by one of the
Company's
subsidiaries. The law requires rebates to be paid to individual states with respect to all
pharmaceutical sales, other than through hospitals, where the ultimate cost of the product is
reimbursable by Medicaid.
Income Taxes
The Company files consolidated income tax returns with its domestic subsidiaries. Effective
November 1, 1993, the Company adopted FASB Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" (Statement 109). As permitted by Statement 109, the
Company elected not to restate the financial statements of any prior years. Under Statement 109, deferred
income taxes are recognized for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which temporary differences are estimated to be
recovered or settled. The cumulative effect of the change in method of accounting for income
taxes as of November 1, 1993 is not material.
(Continued)
F-19
TC MANUFACTURING CO., INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Tax credits are treated as a reduction of income tax expense in the year in which they are
utilized.
Prior to fiscal 1994, income taxes were accounted for under the deferred method, in
accordance with APB Opinion No. 11. Under the deferred method, provisions were made for
deferred income taxes resulting from timing differences in the recognition of revenue and
expensefor tax and financial statement purposes. The Company elected not to restate the
financial statements of prior years for this change in accounting. The cumulative effect of the
change on net income was not material.
Profit Sharing Plan
Profit sharing contributions are authorized annually by the Board of Directors in amounts
determined at its discretion.
Treasury Stock
Purchases of treasury stock are recorded at cost. Upon the sale of treasury stock, the
difference between the cost and selling price of such stock is either credited to additional
paid-in capital or charged against additional paid-in capital or retained earnings if additional
paid-in capital has been depleted.
Foreign Currency Translation
The accounts of the Canadian subsidiary have been translated from their functional currency
to the U.S. dollar. Such translation adjustments are not included in income, but are accumulated
directly in a separate component of stockholders equity.
Statement of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include cash on hand and
funds held in money market accounts or invested in highly liquid debt instruments generally with
maturities of three months or less.
Earnings per Common Share
Earnings per common share have been computed by dividing net income after preferred stock
dividends by the weighted average number of common shares and common equivalent shares
outstanding during the year. Stock options are considered common stock equivalents. Shares
assumed to be purchased at the average formula price (as defined) during the year with the proceeds from the
exercise of such options have been subtracted from the average shares outstanding.
(Continued)
F-20
TC MANUFACTURING CO., INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Accounting Standard to be Adopted
Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of will be adopted by the
companyeffective November 1, 1996. Statement 121 establishes criteria for recognizing,
measuring and disclosing impairments of long-lived assets. The company does not expect the adoption of
Statement 121 to have a material impact on its consolidated financial position or
results of operations at the time of adoption.
Reclassifications
Certain items relating to prior years have been reclassified to conform to the presentation in
the current year.
(2) Related-party Transactions
The Chairman of the Executive Committee, who owns approximately 48% of the outstanding
common stock of the Company, was also affiliated with two law firms which served as legal
counsel for the Company. These law firms charged the Company legal fees, including consulting
fees for the services of the Chairman of the Executive Committee, of approximately $650,000, $515,000
and $444,000 in 1995, 1994, and 1993, respectively. As of October 31, 1995 and 1994,
$257,175 and $62,112 of these fees remain outstanding as current liabilities, respectively.
(3) Inventories
Inventories at October 31, 1995 and 1994 consisted of the following (in thousands):
- -------------------------------------------------------------------------------
1995 1994
- -------------------------------------------------------------------------------
Raw materials $ 4,759 5,790
Work in process 1,648 1,689
Finished Goods 8,897 8,972
- -------------------------------------------------------------------------------
Total at FIFO value 15,304 16,451
LIFO adjustment 23 77
- -------------------------------------------------------------------------------
$ 15,327 16,528
- -------------------------------------------------------------------------------
(Continued)
F-21
TC MANUFACTURING CO., INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Property, Plant, and Equipment
Property, plant, and equipment at October 31, 1995 and 1994 consisted of the following (in
thousands):
- -----------------------------------------------------------------------------
1995 1994
- -----------------------------------------------------------------------------
Land $ 432 432
Buildings 6,883 6,334
Machinery and equipment 22,601 22,766
Leasehold improvements 352 227
Construction in progress 1,783 1,716
- -------------------------------------------------------------------------------
$ 32,051 29,475
- -------------------------------------------------------------------------------
Depreciation and amortization expense charged to income was $1,846,000 in 1995,
$1,638,000 in 1994, and $1,449,000 in 1993.
(5) Debt
Long-term debt at October 31, 1995 and 1994 consisted of the following (in thousands):
- ------------------------------------------------------------------------------
1995 1994
- ------------------------------------------------------------------------------
10.5% senior promissory notes $ 7,900 9,500
Less current maturities of:
10% senior promissory notes 1,400 1,600
- -------------------------------------------------------------------------------
Long-term debt $ 6,500 7,900
- -------------------------------------------------------------------------------
The 10.5% senior promissory notes require payments ranging from $1,000,000 to $1,600,000
beginning July 31, 1995 and continuing through July 31, 2000 inclusive. The remaining unpaid
principal balance is due July 31, 2001.
(Continued)
F-22
TC MANUFACTURING CO., INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The promissory note was issued pursuant to a loan agreement which requires, among other
things, that the Company maintain a certain amount of consolidated working capital, not
incur senior funded indebtedness and current indebtedness in excess of certain limits, and
not declare or pay cash dividends in excess of 50% of net income subsequent to October 31,
1989. At October 31, 1995, the Company was in compliance with the loan agreement covenants,
retained earnings of approximately $5,829,000 was unrestricted for cash dividends or the
repurchase of common stock by the Company, and the Company s borrowing limit as set forth in the loan
agreement is approximately $19,390,000.
The Company has an unsecured line of credit totaling $10,000,000, of which $9,231,463 is
available as of October 31, 1995. Available borrowing capacity was reduced by a letter of credit
in the amount of $768,537 outstanding at October 31, 1995. Borrowings under the line of credit
bear interest at either the bank s prime lending rates or, at the Company s option, LIBOR plus
1%. The Company is required to pay a 1/8% commitment fee on the unused credit line. There
was no borrowing outstanding under the line of credit at October 31, 1995 and 1994.
Maturities of long-term debt are as follows (in thousands):
- -----------------------------------------------------------------------------
Fiscal Year Amount
- -----------------------------------------------------------------------------
1996 $ 1,400
1997 1,400
1998 1,100
1999 1,000
2000 1,000
Thereafter 2,000
- -----------------------------------------------------------------------------
7,900
- -----------------------------------------------------------------------------
(Continued)
F-23
TC MANUFACTURING CO., INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Stock Options
Under the qualified stock option plan, shares of common stock are reserved for issuance upon
exercise of options granted or available for future grants to officers and key employees. Under
the plan, options may be granted at prices not less than fair market value at date of grant as
determined by a defined formula price and as set forth in the plans and stockholders agreements.
Such options are exercisable for a five-year period. At October 31, 1995, 1994,
and 1993, exercisable options amounted to 117,250, 96,123, and 126,419, respectively. The
number of shares available for future grants under the stock option plan was 282,750 at October
31, 1995. Transactions and other information relating to the plan for the three-year period ended
October 31, 1995, adjusted to reflect the stock dividend discussed in note 10, are summarized as follows:
- --------------------------------------------------------------------------------
Number
of shares Option price
- -------------------------------------------------------------------------------
Options outstanding as of October 31, 1992 260,376 $2.17 to 5.38
- -------------------------------------------------------------------------------
Exercised during 1993 (47,398) $2.17
Issued during 1993 -- --
Canceled during 1993 (8,400) $ 2.17 to 5.38
- -------------------------------------------------------------------------------
Options outstanding as of October 31,1993 204,578 $ 2.99 to 5.38
- -------------------------------------------------------------------------------
Exercised during 1994 (49,200) $ 2.99 to 5.38
Expired during 1994 (8,020) $ 2.99 to 5.38
Issued during 1994 80,300 $5.02
- -------------------------------------------------------------------------------
Options outstanding as of October 31, 1994 227,658 $ 4.60 to 5.38
- -------------------------------------------------------------------------------
Exercised during 1995 (42,844) $ 4.60 to 5.38
Expired during 1995 (14,656) $ 4.60 to 5.38
Issued during 1995 40,150 $ 5.02
- -------------------------------------------------------------------------------
Options outstanding as of October 31, 1995 210,308 $ 4.60 to 5.38
- -------------------------------------------------------------------------------
In fiscal year 1995, the stockholders approved the 1994 Non-Employee Directors Stock
Option Plan (the Plan). The Plan makes available for grant to members of the Board of
Directors options to purchase an aggregate of 100,000 shares of the Company s common stock.
Under the Plan, annually each non-employee Director automatically receives an option to
purchase 1,000 shares of common stock at a price not less than fair market value at date of grant
as defined by a defined formula price. At October 31, 1995, there were options outstanding of
6,000 shares at an option price of $5.02 per share.
(Continued)
F-24
TC MANUFACTURING CO., INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) Income Taxes
- -----------------------------------------------------------------------------
Federal income tax expense (benefit) for the years ended October 31, 1995, 1994, and 1993
included (in thousands):
- -----------------------------------------------------------------------------
1995 1994 1993
- -----------------------------------------------------------------------------
Current
Federal $ 1,330 8 2,637
State 155 2 350
Foreign 47 28 1
Deferred 317 (117) (324)
- ------------------------------------------------------------------------------
$ 1,849 (79) 2,664
- ------------------------------------------------------------------------------
The deferred tax provisions for 1995, 1994, and 1993 result primarily from temporary
differences between financial statement and tax income arising from different accounting for
receivable allowances, inventory, and depreciation.
(Continued)
F-25
TC MANUFACTURING CO., INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The tax effects of temporary differences that give rise to significant portions of the deferred
tax assets and deferred tax liabilities as of October 31, 1995 and 1994 are presented below (in
thousands):
- ------------------------------------------------------------------------------
1995 1994
- ------------------------------------------------------------------------------
Allowance for doubtful accounts $ 44 450
Inventory valuation 400 440
Other 121 46
- -------------------------------------------------------------------------------
Total current deferred tax assets $ 565 936
- -------------------------------------------------------------------------------
Foreign tax credit carryforwards -- 351
State tax loss carryforwards $ 110 273
Valuation Allowance -- (624)
- -------------------------------------------------------------------------------
Non-current deferred tax assets, net $110 --
- ------------------------------------------------------------------------------
Non-current deferred tax liabilitites -
Property, plant, and equipment 1,705 1,649
- -------------------------------------------------------------------------------
Net Non-current deferred tax liabilities $ 1,595 1,649
- -------------------------------------------------------------------------------
Net deferred tax liabilities $ 1,030 713
- -------------------------------------------------------------------------------
The valuation allowance for deferred tax assets at October 31, 1995 and 1994 was
approximately $0 and $624,000, respectively. The valuation allowance was eliminated
in fiscal 1995 due to the expiration of foreign tax credit carryforwards, the realization
of certain state tax loss carryforwards and managment s assessment that the remaining
state tax loss carryforwards are more likely than not to be realized. Based upon the level
of historical taxable income and projections for future taxable income over the periods in
which the deferred tax assets are deductible, management believes it is more likely than not
the Company will realize the benefits of these deductible differences.
(Continued)
F-26
TC MANUFACTURING CO., INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The provision (benefit) for income taxes differed from the amount obtained by applying the
federal statutory income tax rate to income (loss) before income taxes, as follows (in thousands):
- -----------------------------------------------------------------------------
1995 1994 1993
- -----------------------------------------------------------------------------
Expected federal statutory tax (benefit) $ 1,802 (100) 2,455
Differences resulting from:
Intangible amortization 6 8 5
Officers life insurance (32) 9 6
Meals and entertainment 44 17 14
Merger costs 153 -- --
Decrease in valuation allowance for state
tax loss carryforwards (110) -- --
State income tax, net of federal benefit 39 (8) 138
Other (53) (5) 46
- -----------------------------------------------------------------------------
Income tax expense (benefit) $ 1,849 (79) 2,664
- -----------------------------------------------------------------------------
(8) Profit Sharing Plan
The Company has a qualified profit sharing plan covering all eligible employees. Profit
sharing expense was approximately $915,000, $312,000, and $956,000 in 1995, 1994, and 1993,
respectively.
(9) Leases
The aggregate rental obligations of the Company under noncancelable operating leases in
effect at October 31, 1995 are as follows (in thousands):
- ------------------------------------------------------------------------------
Machinery
Fiscal Real And
Year Estate Equipment
- ------------------------------------------------------------------------------
1996 $ 280 54
1997 206 45
1998 208 32
1999 209 13
2000 211 --
2001 and thereafter 880 --
- -------------------------------------------------------------------------------
(Continued)
F-27
TC MANUFACTURING CO., INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- ------------------------------------------------------------------------------
Rental expense fpr all leases for the years ended October 31, 1995,
1994, and 1993 was as follows (in thousands)
- ------------------------------------------------------------------------------
1995 1994 1993
- ------------------------------------------------------------------------------
Under cancelable leases $ 102 95 136
Under noncancelable leases $ 411 367 453
- -----------------------------------------------------------------------------
$ 513 462 589
- ------------------------------------------------------------------------------
(10) Stock Dividend
On October 25, 1994, the Board of Directors declared a stock
split effected in the form of a stock dividend of one share for
each of the Company's outstanding shares of common stock, payable
October 28, 1994 to stockholders of record on October 28, 1994.
Earnings per share have been adjusted for this stock dividend
retroactive to 1993 in the accompanying consolidated financial
statements and notes.
(11) Major Customers
Consolidated sales to the Company's two major customers during
the year ended October 31, 1995 aggregated approximately 31% of
the Company's consolidated net sales. The percentages of fiscal
1995 consolidated net sales for each of these customers was
approximately 15% and 16%, respectively. These two major customers
are wholesalers which sell to many health care providers.
These two major customers are wholesalers which sell to many
health care providers.
(12) Business Segment Information
The Company operates principally in three industries,
pharmaceuticals, packaging, and coatings. Pharmaceuticals
operations involve the marketing, packaging, manufacture,
development and sale of generic pharmaceutical products.
Packaging operations involve the manufacture, marketing and sale
of flexible packaging products and systems. Coatings operations
involve the manufacture, marketing and sale of specialty
corrosion protection products. There are no significant
intersegment sales and no significant operations outside of the
United States.
Corporate assets include cash and temporary investments,
refundable income taxes, corporate equipment and cash surrender
value of officers life insurance.
(Continued)
F-28
TC MANUFACTURING CO., INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Information concerning the Company's business segments in fiscal
1995, 1994 and 1993 is as follows (in thousands):
1995 1994 1993
Net Sales:
Pharmaceuticals $ 60,709 50,223 52,810
Packaging 20,637 17,226 17,351
Coatings 9,533 11,331 9,456
Consolidated Net Sales $ 90,879 78,780 79,617
Operating income (loss):
Pharmaceuticals $ 5,825 (909) 7,399
Packaging 3,028 2,403 2,837
Coatings (438) 783 (8)
Consolidated segment operating income 8,415 2,277 10,228
Corporate expenses (1,946) (1,643) (1,798)
Interest expense, net (743) (1,000) (1,132)
Miscellaneous income (expense), net (256) 71 (78)
Income (loss) before income taxes
and minority interest $ 5,470 (295) 7,220
Identifiable assets:
Pharmaceuticals $ 27,262 26,128 29,827
Packaging 9,335 9,036 8,789
Coatings 9,225 8,074 7,608
Corporate 6,550 5,871 3,178
Total Assets $ 52,372 49,109 49,402
Property, plant, and equipment additions:
Pharmaceuticals $ 1,348 1,707 1,853
Packaging 482 559 504
Coatings 725 535 1,188
Corporate
Total additions $ 2,591 2,801 3,545
Depreciation and amortization:
Pharmaceuticals $ 870 764 619
Packaging 615 611 563
Coatings 361 239 240
Corporate 24 27
Total depreciation and amortization $ 1,846 1,638 1,449
(Continued)
F-29
TC MANUFACTURING CO., INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(13) Subsequent Event
In October 1995, TC entered into a merger agreement with Mylan
Laboratories Inc. (Mylan), subject to approval by the
shareholders of both companies and by certain governmental
agencies. As a result of the merger, TC will become a wholly-
owned subsidiary of Mylan, and (a) each outstanding share of TC
common stock converted into .42589 shares of Mylan common stock,
subject to upward or downward adjustment based on the difference
between TC's actual and estimated closing unconsolidated balance
sheet and (b) each outstanding share of TC 8% cumulative
preferred stock converted into 5.02765 shares of Mylan common
stock. The TC common stock conversion ratio may also be subject
to upward or downward adjustment based on the shareholdings of TC
shareholders exercising dissenter's rights and to slight upward
adjustment if all outstanding options are not exercised.
As a precondition to the merger TC must first divest itself of
its non-pharmaceutical operations. These non-pharmaceutical
operations will be split-off into a new corporation as part of a
plan of reorganization. All of the new corporation stock will be
distributed to TC shareholders not employed in its pharmaceutical
operations; TC shareholders employed in its pharmaceutical
operations will, in lieu of stock in the new corporation, receive
additional shares of TC common stock.
Additionally, in anticipation of the split-off and merger, TC
will: (a) accelerate the vesting period for, and permit the
immediate exercise of, all outstanding options to purchase shares
of TC common stock; and (b) acquire the outstanding 6% minority
interest in UDL Laboratories (Illinois) from the President of UDL
at a purchase price of $2,850,000. Unexercised options will
expire the date of the meeting of shareholders called to approve
the merger.
Both the split-off and merger are intended to qualify as tax-free
reorganizations. However, there is not assurance that the
Internal Revenue Service will agree that they so qualify. In the
event the spin-off and/or merger are determined to be taxable, TC
and its shareholders will both be subject to significant tax and
tax-related liabilities. TC's possible tax liability approximates
$2,000,000.
The merger is expected to be completed by February 28, 1996.
F-30
Fagel & Haber
ATTORNEYS AND COUNSELORS AT LAW Allen J. Fagel Sheryl Cohen Allension
ESTABLISHED 1962 Joel A. Haber William P. Andrews
140 South Dearborn Street, 14th Floor Floyd Babbitt Christina Brotto
Chicago, IL 60603 * (312) 346-7500 Alvin D. Meyers Daniel G. Coman
Fax (312) 580-2201 * Cable NOFLAWLAW * Telex 754542 Dennis E. Quaid Patrick J. Cullerton
Glen T. Keysor John S. Delnero
Steven J. Teplinsky Victor A. Des Laurier
Writer's Direct Dial No. (312) 580-2205 Walter D. Cupkovic James M. Drake
Sherwin M. Lesk Thomas B. Golz
January 25, 1996 John J. Cullerton Scott C. Haugh
Richard H. Chapman Stuart P. Krauskopf
Jason W. Levin Lawrence T. Krulewich
Robert B. Chapman Carole A. Morey
James R. Latta Ilyse D. Murman
Howard M. Berrington Laura A. O'Neill
Judith Joyce Shanahan Sara L. Thomas
Donald J. Vogel William R. Thomas
Norton N. Gold Douglas B. Wolk
James B. Gottlieb Melinda Morris Zanoni
Gina M. Gentili ---------------
Of Counsel
Leonard R. Kofkin
Board of Directors Maynard B. Russell
TC Manufacturing Co., Inc. Martin M. Ruken
c/o Rifkin, Radler & Kremer
30 North LaSalle Street, Suite 4300
Chicago, Illinois 60602
Re: Tax Opinion to TC Manufacturing Co., Inc. Proxy Statement/
Mylan Laboratories Inc. Prospectus
Gentlemen:
We have heretofore been engaged by you as special tax counsel in
connection with the Agreement and Plan of Merger entered into on
October 10, 1995 by TC Manufacturing Co., Inc.("TC")and Mylan
Laboratories Inc. ("Mylan"), and an Agreement and a Plan of
Reorganization adopted by the Board of Directors of TC
Manufacturing Co., Inc. on October 9, 1995. It is the intention
of the parties to the Agreement and Plan of Merger that an
acquisition subsidiary of Mylan will merge into TC and the
stockholders of TC will exchange their TC shares for voting
common stock of Mylan (the "Merger"). Mylan insisted and TC
agreed that TC's only business activity at the time of
consummation of the Merger will be the pharmaceutical business
operations conducted through TC's pharmaceutical subsidiaries.
Accordingly, TC will, pursuant to the Plan of Reorganization
divest itself of its non-pharmaceutical businesses by a transfer
of such businesses to a newly organized subsidiary ("Newco")
together with the assumption of business-related liabilities by
the transferee, followed by the distribution of the stock of such
subsidiary to the stockholders of TC (the "Split-Off"). You have
now requested our opinion concerning the federal income tax
consequences of the Merger and the Split-Off to TC and the
stockholders of TC.
Opinions of Tax Counsel
Our opinion as to the tax consequences of the proposed
transactions to TC and the stockholders of TC under the relevant
provisions of the Internal Revenue Code of 1986, as amended (the
"IRC") are separately stated with respect to the Split-Off and
the Merger as set forth below.
A-1
A. SPLIT-OFF:
As noted in the section Legal Analysis - Tax Consequences,
the Split-Off will only be tax-free to TC and each of its
stockholders if the distribution of Newco stock to the TC
stockholders meets the requirements of IRC Section 355, Income
Tax Regulations (the "regulations") issued in connection
therewith and case law interpreting said statute and regulations
(collectively, the "relevant authorities").
As we find no precedential authority which is precisely on
point with the factual pattern surrounding the Split-Off, we have
applied each requirement of the relevant authorities to the facts
at issue to determine whether or not there is compliance
therewith. As a result of our analysis and examination, we have
determined that factors relevant to the TC distribution of Newco
stock will generally meet all of the objective standards of IRC
Section 355. However, we are unable to opine that the proposed
transaction will meet the subjective requirements of the device
and the business purpose tests, both of which must be satisfied
in order to come within the statute.
In order for IRC Section 355 to apply to the distribution of
a controlled corporation's stock, the distribution cannot be
principally a device for the distribution of earnings and profits
of the distributing corporation. This device test is designed to
prevent shareholders from extracting earnings and profits from
the distributing corporation in a capital gain transaction (which
would permit a lower tax rate and the recovery of tax basis)
without causing a meaningful reduction in the shareholder's
interest in the distributing corporation. The regulations
provide that the determination of whether a corporate separation
constitutes a device for the distribution of earnings and profits
will be made based upon all the facts and circumstances incident
to the transaction.
In the case of a split-off, the regulations and case law
require that there be a business purpose for the separation of
the distributing corporation and the controlled corporation.
This business purpose is embodied in the regulations promulgated
under IRC Section 355. These regulations require a business
purpose which transcends the general business purpose requirement
incident to reorganizations in that an acceptable IRC Section 355
business purpose may not be accomplished by any other reasonable
tax-free alternative. The regulations make a corporate business
purpose of paramount importance and must also have a real and
substantial non-federal tax purpose to a relevant party.
Because of the subjective nature of the business purpose and
device tests which are wholly determined in the light of
surrounding facts and circumstances, we are unable to opine that
the business purposes and factual background as set out in the
proposed transaction will be sufficient to satisfy the statutory,
regulatory and/or court requirements necessary to enable the
transaction to meet these tests. Accordingly, we are unable to
render an opinion as to the tax consequences of the Split-Off to
TC or to the stockholders of TC.
B. MERGER:
Based upon our application of statutory, regulatory and case
law precedents to the relevant facts of the proposed transaction
(as set forth below in Legal Analysis - Tax Consequences), and
subject to the Limitations of Opinion set forth below, we are of
the opinion that it is more likely than not that the proposed
Merger will qualify as a tax-free transaction to TC and the
stockholders of TC.
Statement of Facts
A. HISTORICAL BACKGROUND:
1. Business Acquisitions:
TC Manufacturing Co., Inc., a Delaware corporation
(sometimes referred to as the "Company" or "TC"), is a privately
owned company engaged in several diverse lines of business. As
of October 31, 1995, the Company had outstanding 5,340,992 shares
of common stock and 4,243 shares of preferred stock held by 61
stockholders. In addition, there were outstanding options to
purchase an additional 216,308 shares of Company common stock
which, if fully exercised, would increase the number of Company
stockholders to 94. The Company was organized in 1962 as
successor to The Tapecoat Company, a limited partnership which
succeeded a prior partnership that had commenced business in
1941. The name of the Company was changed to TC Manufacturing
Co., Inc. in 1974.
The Company has three Profit Centers:
1. The Protective Coating Profit Center represented by:
The Company's Tapecoat Division (sometimes referred to
as "Tapecoat") and the Company's lower tier subsidiary,
Tapecoat Canada, Inc. (sometimes referred to as "Tapecoat
Canada");
2. The Flexible Packaging Profit Center represented by:
The Company's Pak-Sher Division (sometimes referred to
as "Pak-Sher");
and
3. The Pharmaceutical Profit Center represented by:
The Company's subsidiary, UDL Laboratories, Inc. ("UDL-
Illinois"), UDL-Illinois' wholly-owned Florida subsidiary
having the same corporate name ("UDL-Florida"),
and two lower tier special pharmaceutical subsidiaries of
the Company described below (together with UDL-Illinois and
UDL-Florida collectively referred to as "UDL").
Tapecoat, an unincorporated division which does business as
The Tapecoat Company. Tapecoat Canada is a wholly-owned
subsidiary of The Tapecoat Company of Canada, Ltd., which in turn
is wholly-owned by the Company. Tapecoat Canada acquired the
business conducted by its parent, The Tapecoat Company of Canada,
Ltd., which the Company founded in 1958. The name of Tapecoat of
Canada, Inc. was changed in 1992 to Tapecoat Canada, Inc.
The Company acquired Pak-Sher in June, 1976 pursuant to a
Plan of Arrangement under Chapter XI of the Bankruptcy Act filed
by Pak-Sher's former management. Pak-Sher is now operated as an
unincorporated division and does business under the name Pak-Sher
Co.
UDL-Illinois is 94% owned by the Company and was acquired in
February, 1982. The remaining 6% of B-3 is owned by its
President and one of its key employees, Michael K. Reicher (the
"Minority Shareholder"). A wholly-owned subsidiary of UDL-
Illinois, UDL- Florida, was formed in July, 1985 to hold and
operate certain newly acquired Florida-based assets.
In addition to the three Profit Centers described above, the
Company holds all of the issued and outstanding capital stock of
HSW Investment Co., Inc., formerly known as Engineered Coated
Products, Inc. ("ECP"). ECP had been engaged in the manufacture
of single and double face tapes, primarily for use in industrial
applications, and in custom coating and laminating until its
assets were sold by the Company in April, 1989.
HSW Investment Co., Inc. is not currently an operating
company, but has recently organized two wholly-owned special
purpose pharmaceutical subsidiaries. These corporations (the
"Special Pharmaceutical Subsidiaries") are engaged in the
business of developing generic pharmaceuticals, including the
procurement of regulatory approvals required for the manufacture
of such generic pharmaceuticals. The Special Pharmaceutical
Subsidiaries were established as adjuncts to the Pharmaceutical
Profit Center operations, and, for business reasons, were
organized as subsidiaries of HSW. Their development activities
are highly confidential.
2. Business of the Company:
The nature of the business conducted by each of the Profit
Centers is as discussed below.
a. Distributing and Manufacturing Protective Coatings;
Protective Coating Profit Center:
Tapecoat manufactures protective coatings, primarily
tapes and liquids designed to provide corrosion protection
for under-ground metal pipe joints, fittings, couplings,
tanks, cables, conduits and tie rods, as well as for other
metal surfaces, including entire lengths of underground
metal pipe. Tapecoat Canada markets such products in
Canada.
b. Manufacturing Flexible Packaging; Flexible Packaging
Profit Center:
Pak-Sher manufactures flexible packaging products for
sale to customers having special and distinct requirements
such as fast food chains, convenience stores and other
purveyors of non-packaged foods (for example, deli and
bakery departments of supermarket chains).
c. Distributing and Manufacturing Generic Drugs; Pharmaceutical
Profit Center:
UDL is engaged in the business of (i) marketing,
(ii)packaging and marketing, (iii) manufacturing, packaging
and marketing and (iv) developing, manufacturing, packaging
and marketing, prescription and non-prescription generic
pharmaceuticals, principally in unit-dose configuration but
to some extent in bulk form.
B. BUSINESS CONCERNS AND RISKS:
Generic pharmaceutical companies whose business is primarily
marketing -- as is the case with UDL -- are dependent on outside
manufacturers (i.e. "source dependent") for the procurement of
the products which they market. Only a handful of UDL's products
are manufactured by UDL because UDL lacks sufficient financial,
manufacturing and research and development resources to do so.
UDL's success, therefore, is and has been predicated upon
its ability to identify manufacturers willing and able to sell
UDL the broad range of products which UDL requires. Not all
manufacturers who are willing and able to sell product to UDL are
acceptable sources of supply, since UDL must first assure itself
as to the manufacturer's quality of product, its ability to meet
delivery requirements and its compliance with regulation
standards.
In order to satisfy customer demand and maintain an
acceptable level of profitability, UDL also must position itself
to be among the first to gain access to generic equivalents of
newly off-patent pharmaceutical products so that it can promptly
introduce such generic equivalents in unit dose configuration
into the institutional marketplace. Since UDL cannot develop
these new generic equivalents itself, it is wholly source
dependent upon the various generic manufacturers for the timely
procurement of such products.
In 1992 and 1993, Company management saw the solution to
source dependency problems as primarily one of raising capital.
However, apprehension over the dwindling number of potential
suppliers led management to conclude that the employment of
capital to develop new products could not alone cure UDL's source
dependency because UDL no longer had time to develop a broad line
of products to manufacture in-house. Survival became the
predominant concern and to survive, UDL would have to immediately
secure one or more long-term supply relationships offering
ongoing access to (i) a broad line of existing and potential
products, (ii) extensive manufacturing capabilities, and (iii)
expanded research and development. Management concluded that UDL
could only achieve this objective through affiliation with a
major existing pharmaceutical company.
C. RESOLUTION OF PRODUCT SOURCE DEPENDENCY AND CAPITAL REQUIRE-
MENTS:
In focusing on the immediate need to alleviate UDL's source
dependency, Company management reviewed UDL's existing and
potential supply relationships for prospective merger partners.
Following a period of extensive search and negotiations, the
Company entered into an agreement to combine the Company's
Pharmaceutical Profit Center with the pharmaceutical operations
of Mylan Laboratories Inc.
Mylan Laboratories Inc. is engaged, through one or more of
its operating subsidiaries, in the development, manufacture,
packaging, marketing and sale of generic pharmaceuticals,
primarily in bulk form. Mylan is one of the largest members of
the generic pharmaceutical industry and currently the largest
supplier to the Company's Pharmaceutical Profit Center both in
terms of number of products and dollar volume of purchases.
The combining of the pharmaceutical operations of the
Company and Mylan will offer the Company the following benefits
and synergies: (i) a secure source for the significant number of
products which UDL currently purchases from Mylan; (ii) a
potentially secure source for products which Mylan manufactures,
but which B-3 currently purchases from other manufacturers; and
(iii) access to Mylan's substantial capital and manufacturing
resources and research and development capabilities.
From Mylan's perspective, the combination will (i) create an
opportunity for Mylan to augment its current market coverage;
(ii) create the potential for Mylan to become the leader in the
institutional marketplace; (iii) permit Mylan to offer a more
complete line of solid and liquid oral pharmaceuticals in custom
packaging to the retail, institutional and managed care markets;
and (v) further Mylan's evolution into a fully integrated
manufacturer.
Overall, the combination will provide both the Company and
Mylan with a significantly improved presence in the dynamic
health care marketplace.
Mylan has stated that it will not acquire the Company if it
must also acquire the Protective Coating and Flexible Packaging
Profit Centers because the methods of operation, inherent risks
and enterprise values of these two profit centers are disparate
from and unrelated to the pharmaceutical operations of the
Company and the Mylan. Furthermore, Mylan is unwilling to accept
any potential liabilities inherent in the operations of the
Protective Coating and Flexible Packaging Profit Centers.
Subject to the Company's divestiture of the unwanted profit
centers, Mylan and the Company therefore propose to orchestrate a
tax-free merger (the "Merger") between the Company and an
acquisition subsidiary established by Mylan, with the Company as
the surviving entity. In the Merger, the outstanding shares of
common and preferred stock of the Company will be exchanged by
Company stockholders for and converted into newly issued shares
of Mylan voting common stock.
In structuring the proposed Merger, the parties gave careful
consideration to each of the following important business aspects
and purposes incident to the transaction:
1. Divestiture of the Non-Pharmaceutical Businesses:
As a precondition to the Merger, Mylan requires
that the Company divest itself of its Protective Coating and
Flexible Packaging Profit Centers so that at the time of the
Merger, the assets of the Company will relate solely to, and
represent 100% ownership of, its Pharmaceutical Profit
Center. Mylan further desires that the employees of the
Pharmaceutical Profit Center own solely Mylan common stock
in lieu of their present ownership interest in the
Protective Coating and Flexible Packaging Profit Centers,
and the Company similarly desires that such employees
relinquish their ownership interest in the Protective
Coating and Flexible Packaging Profit Centers in exchange
for a greater ownership interest in the Pharmaceutical
Profit Center.
To accomplish the foregoing, the Company proposes to
divest itself of the Protective Coating and Flexible
Packaging Profit Centers in several steps. First, the
Company will cause the Special Pharmaceutical Subsidiaries
to become subsidiaries of UDL-Illinois. Second, the Company
will transfer the assets of these Profit Centers to a newly
established subsidiary ("Newco") to be known as "TC
Manufacturing Co., Inc.", an Illinois corporation. Newco
will assume the liabilities relating to such businesses and
issue its common stock to the Company. Immediately
thereafter, the Company will make a non-pro rata
distribution of all the outstanding shares of Newco to its
stockholders as described in the Proposed Transaction
section below.
2. Acquisition of Total Pharmaceutical Business:
UDL-Illinois has issued and outstanding 50 shares of
common stock, no par value. Three shares (6% of the total
issued and outstanding shares) of UDL-Illinois are held of
record by the Minority Shareholder.
As a precondition to the Merger, Mylan requires that
the Company own 100% of the issued and outstanding shares of
UDL-Illinois common stock. Accordingly, the Company will
acquire the Minority Shareholder's 6% interest in UDL-
Illinois pursuant to the terms of a Stock Purchase Agreement
for $2,850,000, an amount representing the fair market value
of such shares.
Since prior to the Merger, it will lack sufficient
funds with which to complete the purchase, the Company will
pay the purchase price by delivering to the Minority
Shareholder its promissory note, payable on the first day
following the consummation of the Merger.
3. Accelerated Company Indebtedness:
At the time of the contemplated closing of the Merger,
the Company will have loan indebtedness outstanding in the
principal amount of $7,900,000 to the Metropolitan Life
Insurance Company (the "Met"), which loan is evidenced by
the Company's 10.5% Senior Promissory Notes due July 31,
2001 (the "Senior Notes") and a line of credit with LaSalle
National Bank ("LaSalle"), which line is used from time to
time to finance the Company's short-term working capital
requirements (the "Line of Credit").
A disposition (by merger or otherwise) by the Company
of its shares of UDL-Illinois or the disposition by UDL-
Illinois of its assets and business would constitute an
automatic default under both the Senior Notes and the Line
of Credit, thereby permitting the Met and LaSalle to
accelerate their respective indebtedness and require the
immediate prepayment of the obligations in full.
Additionally, a yield maintenance penalty would be imposed
on the prepayment of the Senior Notes, which penalty is
based upon the difference between the prevailing interest
rates and the 10.5% fixed interest rate applicable to the
obligation. Based upon current interest rates and
maturities, the amount of this penalty would approximate
$1,000,000.
If repayment of the Senior Notes and the Line of Credit
were accelerated due to the disposition of the UDL-Illinois
stock, or disposition by UDL-Illinois of its assets and
business, management has determined that the Company would
not have the requisite cash resources to satisfy such
obligations; nor would such resources be available from
alternative financing sources. TC management has no reason
to believe that the lenders would forego acceleration and
payment of the Senior Notes and the Line of Credit since the
proceeds of the Senior Notes have been principally utilized
to fund the UDL-Illinois and B-3 Florida operations and the
earnings from such operations are the primary source of cash
flow required to service the obligations.
In light of the foregoing, the parties have structured
the Merger in such a way that the Senior Notes and the Line
of Credit remain in place, thereby possibly relieving the
Company of the necessity of providing cash to prepay these
accelerated obligations. In addition, by structuring the
transaction as an exchange of the stock of Mylan for the
outstanding stock of Company rather than for the outstanding
stock of UDL-Illinois, the Company could place itself in a
position to possibly avoid payment of the substantial yield
maintenance penalty on early repayment of the Senior Notes.
While the change of control in ownership of the Company
resulting from the Merger is prohibited under, and could
therefore cause the acceleration and mandatory prepayment
of, the Senior Notes and Line of Credit, the right of the
lenders to require such prepayment is not automatic, but is
elective.
Pursuant to the provisions of the loan documents, the
Company must notify the lender of the facts and
circumstances incident to the change of control and offer to
prepay the loan obligation. The lender must thereafter
decide whether or not to accept such offer. In connection
with any required prepayment of the Senior Notes, the
Company would incur, and be required to pay, the yield
maintenance penalty described above.
Because of the substantial financial resources of Mylan
and the enhanced credit-worthiness of the loans following
merger of the Company with Mylan's acquisition subsidiary,
the Met and LaSalle may elect not to accept the Company's
offer of prepayment thereby resulting in the saving of the
yield maintenance penalty by the Company and the potential
current preservation of cash resources to the Company after
consummation of the acquisition transaction. Should the Met
and LaSalle nevertheless elect to require repayment of the
Senior Notes and the Line of Credit, the Company as then
already a subsidiary of Mylan , would be in a position to
borrow the necessary funds from Mylan or a third party
lender. Such favorable situation with respect to the
availability of funds can only exist if the merger takes the
form of the proposed transaction involving the exchange of
Mylan stock for the stock of the Company.
Based upon the foregoing, and as a precondition to the
Merger, the Company has required that Mylan permit the Company to
maintain outstanding upon the date of Merger: (i) its
indebtedness on the Senior Notes; (ii) its indebtedness under the
Company's outstanding Line of Credit; and (iii) such other
indebtedness and liabilities as may exist on the books and
records of the Company as of the effective date of the Merger
after giving effect to the Company's acquisition of the Minority
Shareholder's interest in UDL-Illinois, the assumption of
liabilities by Newco in conjunction with the Company's
divestiture of the Protective Coating and Flexible Packaging
Profit Centers, and the payment by the Company of all expenses
payable by it in connection with the transactions contemplated by
the divestiture and Merger.
4. Avoidance of Application of Investment Company Act:
The number of Company stockholders at October 31, 1995
totaled 61. It is anticipated that substantially all of the
existing option holders will exercise same prior to the
effective date of the Merger, thereby increasing the Company
stockholders to 94 or only 6 stockholders less than the
maximum number permitted to exempt the Company from the
application of the Investment Company Act of 1940 (the
"Act") and the attendant onerous and costly compliance
requirements for registration, filings and other statutory
and regulatory responsibilities.
Should:
(i) the number of the Company's stockholders of record
exceed 100 as a result of stockholder gifts, deaths,
the exercise of incentive stock options granted to
additional employees, or otherwise, and
(ii) the Company acquire Mylan common stock in exchange
for stock in UDL-Illinois (as opposed to merging with
Mylan's acquisition subsidiary), thereby causing its
holdings of public securities to approximate 65-70% of
its total assets,
counsel to the Company cannot assure management that an
exemption would be available to the Company, or that the
Securities and Exchange Commission would rule that there is
an absence of investment company activities, so as to avoid
the application of the provisions of the Act.
In deference to the high degree of potential exposure
to application of the Act, the Company and Mylan have agreed
to structure the transaction so that the Company, rather
than its subsidiaries conducting the pharmaceutical
business, will be the direct target of the acquisition.
5. Incentives for Key Employees:
Key managers and employees of the Company's
Pharmaceutical Profit Center own, and hold options to
acquire, shares of the Company common stock. All such
shares owned were acquired pursuant to the Company's 1991
and 1994 Incentive Stock Option Plans (the "Option Plans")
or under previous Company employee stock purchase programs.
The outstanding options were granted under the Option Plans.
Assuming that all such options will be fully exercised, it
is estimated that these employees will own, in the
aggregate, 172,356 shares of Company common stock
representing approximately 3.1% of the total outstanding
common stock of the Company. In view thereof, and in order
to create incentives and to motivate the Pharmaceutical
Profit Center employees, Mylan has requested that their
newly affiliated employees obtain stock of Mylan in the
transaction and forego any ownership interest in the
Company's Protective Coating and Flexible Packaging Profit
Centers to be operated through Newco. Additionally, because
the Pharmaceutical Profit Center employees will be
completely disaffiliated with the Newco operation after the
merger, Company management finds any continuing stock
ownership in Newco by the Pharmaceutical Profit Center
employees to be inconsistent with the spirit and purpose of
the Option Plans.
By virtue of the non-pro rata distribution of shares,
employees of the Protective Coating and Flexible Packaging
Profit Centers will each attain a greater ownership interest
in, and therefore a stronger performance incentive with
respect to, Newco, which will be their new employer.
Similarly, employees of the Pharmaceutical Profit Center
will each attain a greater ownership interest in, and
therefore a stronger performance incentive with respect to,
a controlling Mylan of their employer.
* * * * *
In order to reap the projected benefits and synergies of the
combined pharmaceutical operations and -
(i) resolve the Company's product dependency
issues and working capital requirements;
(ii) accomplish the Company's divestiture of its
Protective Coating and Flexible Packaging Profit
Centers representing unwanted assets to Mylan;
(iii) consolidate the Company's ownership in 100%
of the assets of the Pharmaceutical Profit Center;
(iv) avoid the onerous financial situation which
would result from the untimely acceleration of the
Company's outstanding institutional lender
indebtedness;
(v) eliminate the Company's exposure to the
requirements and application of the Investment Company
Act of 1940; and
(vi) restructure ownership of Company and Newco
common stock in keeping with post-Merger employment
affiliations of Company employees,
the Company and Mylan will take those actions as described below
in the section captioned Proposed Transaction.
Proposed Transaction
In order to achieve the aforementioned corporate business
purposes, the Board of Directors of TC will, by adoption of the
requisite corporate formalities, take the following steps as part
of a plan of restructure, reorganization, distribution and
merger:
1. In accordance with the terms of the Option Plans,
the Board of Directors of TC will accelerate vesting and
exercise of the outstanding unexercised options granted
pursuant to such Plans. Thereafter, the Plans and all
unexercised options will terminate.
2. TC will acquire the minority interest (three shares
representing 6% of the outstanding capital stock) of UDL-
Illinois pursuant to the Stock Purchase Agreement (described
above).
3. TC will cause HSW to adopt a plan of liquidation to
provide for the distribution to TC of HSW's investment in
and ownership of the capital stock of the Special
Pharmaceutical Subsidiaries and the intercompany
indebtedness due to HSW from the Special Pharmaceutical
Subsidiaries. Following said distribution, TC will
contribute all of the shares of capital stock of the
Special Pharmaceutical Subsidiaries to UDL-Illinois, and
UDL-Illinois will assume and agree to pay the entire
balance of any intercompany indebtedness then due to TC
from each of the Special Pharmaceutical Subsidiaries. As of
October 31, 1995, the outstanding amount of such
intercompany indebtedness was approximately $300,000.
4. TC will transfer to Newco all of the assets
relating to the Protective Coating and Flexible Packaging
Profit Centers in consideration for: (a) the issuance by
Newco to TC of one share of Newco Class A Voting Common
Stock, $.25 par value per share, and one share of Newco
Class B Non-Voting Common Stock, $.25 par value per share,
for each outstanding share of TC common stock held by Newco
stockholders who are not employees of the Pharmaceutical
Profit Center; and (b) the assumption by Newco of all
liabilities relating to the Protective Coating and Flexible
Packaging Profit Centers.
Upon completion of the transfer of these Profit Centers
to Newco, TC's remaining assets are projected to include
all of the outstanding capital stock of UDL-Illinois and
the intercompany indebtedness due to TC from UDL-Illinois.
5. Following the transfer to Newco, TC will make the
following distributions: (a) holders of shares of TC common
stock who are actively employed on a full or part time basis
in the Pharmaceutical Profit Center will receive additional
shares of TC common stock; and (b) holders of shares of TC
common stock who are not actively employed on a full or part
time basis in the Pharmaceutical Profit Center will receive
one share of the Newco Class A Voting Common Stock, $.25 par
value per share, and one share of Newco Class B Non-Voting
Common Stock, $.25 par value per share, for each share of TC
common stock held of record. TC stockholders who are
employees of the Pharmaceutical Profit Center will not
receive shares of Newco common stock in the distribution.
The number of additional shares of TC common stock to be
issued to TC stockholders who are employees of the
Pharmaceutical Profit Center will be determined in
accordance with a formula which accounts for: (a) the
values of the Protective Coating and Flexible Packaging
Profit Centers (as determined by independent appraisal)
which will not be distributed to such stockholders; and (b)
the value of the additional shares of TC common stock to be
issued to such stockholders in lieu of the Newco shares.
Notwithstanding the non-pro rata nature of the
distribution, the aggregate value of the shares held by each
stock- holder of TC immediately prior to the distribution
will equal the aggregate value of the shares of TC and
Newco held by such stockholder immediately after the
distribution.
6. TC will merge (as surviving company) with a newly
organized wholly-owned subsidiary of Mylan ("Acquisition")
pursuant to which all of the TC preferred and common stock
will be exchanged solely for the agreed number of Mylan
voting common shares (plus cash in lieu of fractional
shares) and the common stock of Acquisition owned by Mylan
will thereafter become the total outstanding stock of TC.
Legal Analysis - Tax Consequences
A. TAX-FREE SPLIT-OFF:
The analysis provided in this section is included to apprise
the reader of the tax consequences to TC and to the TC
stockholders should the Split-Off qualify for tax-free treatment.
As indicated above in the section Opinions of Tax Counsel, due to
the subjective nature of the device test and business purpose
test, and our inability to determine whether or not facts and
circumstances of the proposed transaction will comply with same,
we are unable to opine as to whether or not the Split-Off
transaction qualifies for tax-free treatment.
1. Transfer of Assets and Business:
TC's transfer of assets of the Protective Coating and
Flexible Packaging Profit Centers to Newco in exchange for:
(i) all of Newco outstanding stock; and (ii) the assumption
by Newco of the liabilities relating to the transferred
businesses, followed by the distribution of the Newco stock
will meet the requirements of a reorganization as described
in IRC Section 368(a)(1)(D) provided that such distribution
is within the provisions of IRC Section 355. Should the
distribution so qualify under IRC Section 355, no gain or
loss need be recognized by TC in connection with the
transfer of assets in exchange for Newco stock pursuant to
IRC Section 361(a) as TC is a party to the reorganization
within the meaning of IRC Section 368(b). The assumption
of TC liabilities by Newco, or the receipt by Newco of
assets subject to liabilities of TC, will not be treated as
the receipt of money or property by TC under IRC Section
357(a) where the transfer of assets is without recognition
of gain under IRC Section 361(a). In summary, a finding
that the transfer of the Protective Coating and Flexible
Packaging businesses in the proposed transaction qualifies
as a reorganization under IRC Section 368(a)(1)(D) will
result in tax-free treatment to TC, but such result will
only obtain if the distribution of the Newco stock will be
made within the requirements of IRC Section 355.
2. Receipt of Assets and Business:
The receipt of assets by Newco from TC in exchange for
Newco stock is without the recognition of gain or loss to
Newco by virtue of IRC Section 1032(a). The basis of assets
received by Newco will, in accordance with IRC Section
362(b), be the same as the basis of such assets in the
hands of TC should such assets be acquired by Newco in
connection with a reorganization under IRC Section
368(a)(1)(D). In such event, IRC Section 1223(2) and Reg.
Sec. 1.1223-1(b) require that the holding period of the TC
assets acquired by Newco include the holding period during
which TC held such assets.
3. Distribution of Newco Stock:
The non-pro rata distribution of the stock of Newco to
stockholders of TC has been structured with the objective of
qualifying same within the requirements of IRC Section 355.
Management of TC has intended that such result obtain based on
the following factors:
a. TC will distribute to certain of its stockholders,
with respect to its common stock, solely common stock
of Newco, a controlled corporation.
b. (i) The transfer of assets and business to Newco
and the distribution of the Newco stock to stockholders
of TC has not been used principally as a device for the
distribution of earnings and profits of TC or Newco,
but was done to permit the unifying reorganization
between TC and Acquisition, and for the other business
purposes as set forth under the caption Business
Concerns and Risks with- in the Statement of Facts set
forth above. Both TC and Newco will continue to
operate their respective profit centers in a manner
consistent with the operations of said profit centers
prior to the proposed transaction.
(ii) The proposed stock distribution by TC of its
stock to its other stockholders (not receiving a
distribution of Newco stock), as described above, will
not result in taxable income to the distributee
stockholders (IRC Section 305(a)). The sole purpose of
such stock distribution to stockholders employed in the
Pharmaceutical Profit Center as the method for
achieving value equalization in the Split-Off is to
afford TC the opportunity and mechanical convenience
(by eliminating fractional interests) of making a one-
for-one = distribution of its Newco stockholdings to,
and avoiding the collection of stock certificates from,
TC's stockholders not employed in its Pharmaceutical
Profit Center, and exchanging same for a lesser number
of TC shares (see Private Letter Ruling ("PLR")
8825058). For federal income tax purposes, it is
presumed that the TC stockholders receiving Newco stock
will be deemed to have surrendered a portion of their
TC stock in exchange for stock of Newco.
(iii) In addition, and as is more completely
stated in section c. below, TC management believes the
Proposed Transaction has its foundation and formulation
motivated by valid business purposes (real and
substantial non-tax reasons germane to the business of
TC).
c. (i) Pursuant to Income Tax Regulation ("Reg.
Sec.") 1.355-2(b), a distribution by a parent
corporation to its shareholders of its stock- holdings
in a controlled corporation will qualify under IRC
Section 355 only if carried out for real and
substantial non-tax reasons germane to the business of
the corporation. The distribution by TC of the stock
of Newco will enable TC to adhere to the requirements
of Mylan which insists upon acquiring only the
Pharmaceutical Profit Center of TC (see Commissioner v.
Morris Trust, 367 F.2d 794, CA-4, 1966, and Revenue
Ruling ("Rev. Rul.") 68-603, 1968-2 C.B. 148).
(ii) The structure of the contemplated merger of a
new wholly-owned subsidiary of Mylan (Acquisition) into
TC following the distribution of unwanted TC assets was
negotiated between Mylan and TC to accomplish the
respective business needs of the parties (see Statement
of Facts - Resolution of Product Source Dependency and
Capital Requirements). It is the position of TC
management that the accommodation of TC's need to
satisfy matured and accelerated indebtedness and
avoidance of application of the Investment Company Act
of 1940 represent valid corporate business purposes
(see PLR's 9314009 and 9510005). Such management
position also applies in the case of the non-pro rata
distribution of stock of Newco to satisfy the business
purpose of limiting further employee stock ownership to
the company in which the employee has an employment
interest (see Rev. Rul. 71-383, 1971-2 C.B. 180).
d. Immediately after the distribution, TC will be
indirectly engaged in an active trade or business
through the Pharmaceutical Profit Center by virtue of
the activities of UDL-Illinois, its wholly owned
subsidiary, all of which meets the requirements of an
active trade or business under IRC Section 355(b).
This trade or business will have been carried on
throughout the five-year period ending on the date of
distribution. The trade or business of the
Pharmaceutical Profit Center was acquired or created by
TC more than five years preceding the proposed
transaction.
e. Immediately after the distribution, Newco will
continue to be directly engaged in two active trades or
businesses, including the Protective Coating and the
Flexible Packaging Profit Centers, which meets the
requirements of IRC Section 355(b). These Profit
Centers have been carried on throughout the five-year
period ending on the date of distribution and were
acquired by TC more than five years preceding the
proposed transaction.
f. As part of the transaction, TC will distribute all
of its stock of Newco to its stockholders.
A finding that factors a. through f. are sufficient to
establish that the proposed distribution transaction meets the
requirements of IRC Section 355 results in no gain or loss to be
recognized to TC (under IRC Section 361(c)(1)) or its
stockholders (under IRC Sections 355(a)(1) and (2)) upon TC's
distribution of Newco's stock to stockholders of TC.
IRC Sections 358(a),(b)(1) and 1223 apply to the receipt of
the Newco stock without the recognition of taxable gain by
application of IRC Section 355 to this transaction. Pursuant to
Reg. Sec. 1.358-2(a)(2), the basis to each stockholder of TC of
its shares of TC, immediately prior to the distribution of the
common stock of Newco, will be allocated between TC and Newco
common shares, when such distribution is made, in proportion to
the relative fair market value of the shares of stock immediately
after such distribution. IRC Section 1223(1) and Reg. Sec.
1.1223-1(a) provide that where a stock of a controlled
corporation is received by a taxpayer pursuant to a distribution
to which IRC Section 355 applies, the distribution is treated as
an exchange and the period for which the taxpayer has held the
stock of the controlled corporation shall include the period for
which he held the stock of the distributing corporation with
respect to which such distribution was made. Accordingly, the
holding period of the common stock of Newco received by
stockholders of TC in the exchange will, when such stock is
received in a tax-free transaction, include the aggregate holding
period by such stockholders of the stock of TC.
In the case of those TC stockholders receiving additional
shares of TC stock in lieu of stock of Newco in a IRC Section 355
distribution, IRC Sections 307(a) and 1223(5) apply as a result
of the application of IRC Section 305(a). Therefore, the basis
of the TC shares with respect to which the distribution was made
shall be allocated by such TC stockholders between the old TC
shares and the new TC shares in proportion to the fair market
value of each on the date of distribution in accordance with IRC
Section 307 and Reg. Sec. 1.307-1(a). The holding period for the
additional shares of TC shall include the period in which the
distributee stockholders held the TC shares with respect to which
the distribution was made as if the distribution was a stock
dividend (IRC Section 1223(5)).
By application of IRC Section 312(h) and Reg. Sec. 1.312-
10(a), proper allocation with respect to the earnings and profits
must be made between TC and Newco as a result of a finding of a
tax-free reorganization.
B. TAXABLE SPLIT-OFF:
The analysis provided in this section is included to apprise
the reader of the tax consequences to TC and to the TC
stockholders should the Split-Off not qualify for tax-free
treatment. As indicated above in the section Opinions of Tax
Counsel, we are unable to opine as to whether or not the Split-
Off transaction qualifies for tax-free treatment due to the
subjective nature of the requisite device test and business
purpose test, and our inability to determine whether or not facts
and circumstances of the proposed transaction will comply with
same.
1. Transfer of Assets and Business:
As a general rule, the transfer of assets in exchange
for stock is deemed to be a sale or exchange by the
transferor. = Absent the application of the exclusionary
rules incident to a tax-free reorganization, the
transaction will result in taxable gain to TC either as:
(a) a disposition of assets by TC in exchange for Newco
stock and the assumption by Newco of liabilities incident
to the assets and business transferred (IRC Section 1001);
or (b) a taxable dividend distribution of appreciated
property (IRC Section 311(b)). The gain to be recognized by
TC is equal to the excess of the fair market value of the
consideration received or property distributed over TC's
tax basis in the assets transferred. TC's management has
estimated that the tax cost of such gain will approximate
$2,000,000.
2. Receipt of Assets and Business:
The receipt of the Protective Coating and Flexible
Packaging assets and business by Newco will be without the
recognition of taxable gain or loss (IRC Section 1032(a)).
Newco's tax basis of the assets received in a taxable
transaction is equal to tax basis of the assets transferred
in the hands of TC plus the amount of gained recognized by
TC in the Split-Off transaction (IRC Section 362(a)(2)).
The holding period for the assets received by Newco will
begin on the first day next following the consummation of
the transfer to Newco of the equitable title to the assets
(Rev. Rul. 70-598, 1970-2 C.B.168.
3. Distribution of Newco Stock:
The receipt of the Newco stock by TC stockholders may
be treated as a distribution of earnings and profits, and
taxable as ordinary income to the extent of the fair market
value of same pursuant to IRC Section 301. The TC
stockholders receiving additional TC stock in the Split-Off
transaction will also be required to recognize ordinary
dividend income in the amount of the fair market value of
such stock as of the date of distribution. This is based
upon a finding that such distribution results in the
receipt of property (or a dividend distribution under IRC
Section 301) by some TC stockholders and the increase in a
proportionate interest of other TC stockholders in the
assets or earnings and profits of TC (IRC Section
305(b)(2)). It is estimated that each TC stockholder would
recognize taxable income of approximately $4.00 per TC
share held immediately before the Split-Off. Although
there exists some limited case law permitting capital gain
treatment to shareholders receiving taxable consideration
in a partially tax-free or taxable reorganization (not
involving a divisive reorganization), it does not appear
that the IRS has acquiesced to such treatment in an IRC
Section 355 transaction and there is no assurance that such
result will obtain should the proposed Split-Off result in
a taxable transaction (see Arthur McDonald and Jessie
McDonald v. Commissioner, 52 T.C. 82 (1969), but see Rev.
Rul. 75-360, 1975-2 C.B. 110).
In the case of a taxable distribution incident to the
Split-Off, the distributee shareholders will take on a tax
basis in the stock received which is equal to the fair
market value of same as of the date of distribution (IRC
Section 1012). The holding period for said shares will
commence on the first day next following the receipt of
same (Rev. Rul. 70-598, 1970-2 C.B. 168).
Tax consequences to TC arising out of the taxable
distribution in connection with the proposed Split-Off are
discussed under the section Taxable Split-Off - Transfer of
Assets and Business. In addition, there will be no
allocation of earnings and profits between TC and Newco in
connection with the taxable Split-Off.
C. TAX-FREE MERGER:
Although structured as a merger of a transitory subsidiary
(formed for the purpose of effecting the reorganization) into TC,
it is anticipated that the proposed Merger will be treated, for
federal income tax purposes, as a reorganization under IRC
Section 368(a)(1)(B) where Mylan has acquired all of the
outstanding TC stock solely in exchange for Mylan's voting common
stock. This result obtains by virtue of the fact that less than
substantially all of TC's historic assets (as required under Rev.
Proc. 77-37, 1972-2 C.B. 568) will pass to the surviving
corporation as acquired in the proposed Merger. Failure to
transfer of substantially all the TC historic assets will cause
the transaction to fail to qualify as a reverse triangular merger
pursuant to IRC Section 368(a)(2)(E) (Rev. Rul. 67-448, 1967-2
C.B. 144), but instead to be treated as a "forced B"
reorganization.
Pursuant to the Plan of Merger, all of the outstanding TC
stock will be exchanged solely for (or converted to) voting
common stock of Mylan. Immediately following the Merger, Mylan
will continue the remaining historic business of TC and its
wholly owned subsidiaries. As a result of the foregoing, the
transaction will meet the requirements and qualify as a
reorganization pursuant to IRC Section 368(a)(1)(B) and no gain
or loss will be recognized by the stockholders of TC (under IRC
Section 354(a)(1)).
The receipt of Mylan voting stock (including fractional
share interests) by the TC stockholders without recognition of
gain or loss pursuant to IRC Section 354(a)(1) results in the
application of IRC Sections 358(a)(1) and 1223(1). Mylan voting
stock (including fractional share interests) received by the TC
stock- holders will, pursuant to IRC Section 358(a)(1) and Reg.
Sec. 1.358-1(a), have the same basis in the hands of the TC
stockholders as the basis of the TC stock exchanged. Such
substitute basis will, in accordance with IRC Section 1223(1) and
Reg. Sec. 1.1223-1(a), include the holding period of the TC stock
exchanged, provided such stock exchanged was a capital asset in
the hands of the exchanging TC stockholder.
Cash to be received by TC stockholders from the Exchange
Agent in connection with the proposed Merger represents a payment
in lieu of fractional shares as a mathematical rounding-off for
the purpose of simplifying the transaction and does not represent
separately bargained for consideration. In view thereof, the
receipt of such cash payments should not be treated as boot so as
to disqualify the proposed Merger as a reorganization within the
meaning of IRC Section 368(a)(1)(B). Furthermore, the cash
payments for fractional interests should be treated as
redemptions and generally subject to capital gain treatment under
IRC Section 302(a) and not essentially equivalent to a dividend
(see Rev. Rul. 66-365, 1966-2 C.B. 116).
D. TAXABLE MERGER:
Although we have rendered a favorable opinion as to the tax
consequences of the Merger with respect to TC and the TC
stockholders, the discussion contained in this section is
included to advise the reader of the tax consequences of the
taxable Merger.
As indicated in the Legal Analysis - Tax-Free Merger section
of this letter, the proposed transaction will be treated as a tax-
free merger under IRC Section 368(a)(1)(B)("B Reorganization")
due to the substantial value of the historic assets of TC
transferred to Newco immediately prior to the Merger. Each
element which is requisite to meeting the tax-free provisions of
a B Reorganization was analyzed and discussed in said section.
In reviewing the case law and IRS pronouncements relating to
an attempted B Reorganization which was either challenged or
found to be taxable by the Internal Revenue Service ("IRS") or
the courts, we noted in many instances that the "solely for
voting stock" requirement was deemed to have been violated where
there was a finding that the acquiring company provided the
shareholders of the target company with economic benefit (of any
value) in addition to voting common stock of the acquiring
company. Notwithstanding the myriad of IRS rulings permitting:
(i) the redemption of target stock by target; (ii) payments to
target dissenters by target; (iii) payment by the acquiring
company of expenses of registering the acquiring stock to be
transferred to the shareholders of target in the reorganization;
and (iv) the payment by the acquiring company of the expenses of
the target company and its shareholders which were directly
related to the reorganization (See Rev. Ruls. 75-360, 1975-2 C.B.
110, 68-285, 1968-1 C.B. 147; 73-54, 1973-1 C.B. 187; 74-477,
1974-2 C.B. 116), there continues to exist the possibility of an
incidental payment made or benefit conferred upon a TC
stockholder which would invalidate an otherwise tax-free B
reorganization.
As a consequence of a taxable merger, the stockholders of TC
would be required to recognize taxable proceeds under IRC Section
1001 as a sale or exchange of their TC shares which in most
instances would have been held as a capital asset. The precise
measure of taxable capital gain and the determination of the
classification of same as long-term or short-term, is dependent
upon the basis and holding period of each TC stockholder for his
or her TC stock. Such basis will be significantly increased in
the event the merger was preceded by a taxable split-off.
However, the aggregate gross selling price for all TC
stockholders will equal the fair market value of the Mylan common
stock received on the effective date of the Merger which TC
management estimates to approximate $47.5 million (or $8.40 per
TC share exchanged on the Merger). Each TC stockholder will be
required to include his or her pro rata share thereof in taxable
income. The basis for the Mylan stock received by a TC
stockholder will be the fair market value of same and the day
next following the effective date of the Merger will mark the
commencement of the stock's holding period.
* * * * *
Limitations of Opinion
In connection with our review of the Merger and the Split-
Off and in preparation for providing this opinion, we have
discussed the business, financial, and operating information
relating to TC with TC management, and reviewed the relevant
documentation in connection with the Merger and Split-Off. We
have assumed that all factual information herein contained or
included in the private letter ruling request previously
submitted to the Internal Revenue Service which were provided to
us by TC, as well as all known relevant documents, materials and
statements delivered or made available to us during our
interviews with TC personnel, are true, correct, or otherwise
reasonably estimated or interpreted. Our opinion is based upon
the information disclosed to us and we have not undertaken any
independent verification of such information. Any change,
modification, or additional information may have an adverse
effect on our opinion.
The foregoing opinions are limited to the income tax
consequences under the IRC, the regulations and rulings
promulgated by the Internal Revenue Service and relevant court
decisions, and we express no opinion with respect to the laws of
any other state or jurisdiction. Our opinion is based upon the
federal income tax law as of the date of this opinion.
Legislative, judicial, or administrative changes or
interpretations may be forthcoming that could alter or modify the
statements and conclusions set forth herein.
Any such changes or interpretations may or may not be
retroactive and could affect the tax consequences set forth
herein. For example, the U.S. Congress is currently considering
what may constitute substantial changes in the IRC.
This opinion speaks only as to the date hereof and is
rendered solely for your benefit. This opinion does not discuss
and may not be relied on by any individual stockholder. The tax
treatment of a stockholder such as a tax exempt organization, a
foreign corporation or a non-resident alien may vary depending
upon his particular situation. This opinion may not be used or
relied upon by any other person and may not be disclosed, quoted,
filed with a governmental agency or otherwise referred to without
our prior written consent. We hereby give you permission to
forward a copy of this opinion to the Securities and Exchange
Commission in connection with the Mylan Laboratories Inc.
registration statement/TC Manufacturing Co., Inc. proxy
statement. This opinion may not be summarized in the Mylan
Laboratories Inc. registration statement/TC Manufacturing Co.,
Inc. proxy statement without our separate permission and review
of the proposed summary.
Very truly yours,
FAGEL & HABER
By: /s/ Norton N. Gold
Norton N. Gold
ANNEX B
Section 262 of the DGCL
262 APPRAISAL RIGHTS. - (a) Any stockholder of a corporation of this State who holds
shares of stock on the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the effective date of the
merger or consolidation, who has otherwise complied with subsection (d) of this section and who
has neither voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to section 228 of this title shall be entitled to an appraisal by the Court of Chancery of
the fair value of his shares of stock under the circumstances described in subsections (b) and (c) of this
section. As used in this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation.
(b) Appraisal rights shall be available for the shares of any class or series of stock of a
constituent corporation in a merger or consolidation to be effected pursuant to section 251, 252,
254, 257, 258, 263, or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall be available for the
shares of any class or series of stock at the record date fixed to determine the stockholders
entitled to receive notice of and to vote at the meeting of stockholders to act upon the agreement
of merger or consolidation, were either (i) listed on a national securities exchange or designated
as a national market system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or (ii) held of record by more than 2,000; and further
provided that no appraisal rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its approval the vote of the
surviving corporation as provided in subsection (f) of section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights under this section shall
be available for the shares of any class or series of stock of a constituent corporation if the
holders thereof are required by the terms of an agreement of merger or consolidation pursuant to
section 251, 252, 254, 257, 258, 263, and 264 of this title to accept for such stock anything
except:
a. Shares of stock of the corporation surviving or resulting from such merger or
consolidation;
b. Shares of stock of any other corporation at the effective date of the merger or
consolidation will be either listed on a national securities exchange or designated as a national
market system security on an interdealer quotation system by the National Association of
Securities Dealers, Inc. or held of record more than 2,000;
c. Cash in lieu of fractional shares described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, and cash in lieu of fractional shares described in
the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation party to a merger
effected under section 253 of this title is not owned by the parent corporation immediately prior
to the
merger, appraisal rights shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that appraisal rights under
this section shall be available for the shares of any class or series of its stock as a result of an
amendment to its certificate of incorporation, any merger or consolidation in which the
corporation is a constituent corporation or the sale of all or substantially all of the assets of the
corporation. If the certificate of incorporation contains such a provision, the procedures of this
section, including those set forth in subsections (d) and (e) of this section, shall apply as nearly as
is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are provided under this
section is to be submitted for approval at a meeting of stockholders, the corporation, not less than
20 days prior to meeting, shall notify each of its stockholders who was such on the record date
for such meeting with respect to shares for which appraisal rights are available pursuant to
subsections (b) and (c) hereof that appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this section. Each
stockholder electing to demand the appraisal of his shares shall deliver to the corporation, before
the taking of the vote on the merger or consolidation, a written demand for appraisal of his
shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of
the stockholder and that the stockholder intends thereby to
B-1
demand the appraisal of his shares. A proxy or vote against the merger or consolidation shall
not constitute such a demand. A stockholder electing to take such action must do so
by a separate written demand as herein provided. Within 10 days after the effective date of
such merger or consolidation, the surviving or resulting corporation shall notify each stockholder
of each constituent corporation who has complied with this subsection and has not voted in favor
of or consented to the merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to section 228 or 253 of this title, the
surviving or resulting corporation, either before the effective date of the merger or consolidation
or within 10 days thereafter, shall notify each of the stockholders entitled to appraisal rights of
the effective date of the merger or consolidation and that appraisal rights are available for any or
all of the shares of the constituent corporation, and shall include in such notice a copy of this
section. The notice shall be sent by certified or registered mail, return receipt requested,
addressed to the stockholder at his address as it appears on the records of the corporation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of mailing of the
notice, demand in writing from the surviving or resulting corporation the appraisal of his shares.
Such demand will be sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or consolidation, the surviving or
resulting corporation or any stockholder who has complied with subsections (a) and (d) hereof
and who is otherwise entitled to appraisal rights, may file a petition in the Court of Chancery
demanding a determination of the value of the stock of all such stockholders. Notwithstanding
the foregoing, at any time within 60 days after the effective date of the merger or consolidation,
any stockholder shall have the right to withdraw his demand for appraisal and to accept the terms
offered upon the merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of subsections (a) and
(d) hereof, upon written request, shall be entitled to receive from the corporation surviving the
merger or resulting from the consolidation a statement setting forth the aggregate number of
shares not voted in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares. Such written
statement shall be mailed to the stockholder within 10 days after his written request for such a
statement is received by the surviving or resulting corporation or within 10 days after expiration
of the period for delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a copy thereof shall be
made upon the surviving or resulting corporation, which shall within 20 days after such service
file in the office of the Register in Chancery in which the petition was filed a duly verified list
containing the names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been reached by the
surviving or resulting corporation. If the petition shall be filed by the surviving or resulting
corporation, the petition shall be accompanied by such a duly verified list. The Register in
Chancery, if so ordered by the Court, shall give notice of the time and place fixed for the hearing
of such petition by registered or certified mail to the surviving or resulting corporation and to the
stockholders shown on the list at the addresses therein stated. Such notice shall also be given by
1 or more publications at least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as the Court
deems advisable. The forms of the notices by mail and by publication shall be approved by the
Court, and the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the stockholders who have
complied with this section and who have become entitled to appraisal rights. The Court may
require the stockholders who have demanded an appraisal for their shares and who hold stock
represented by certificates to submit their certificates of stock to the Register in Chancery for
notation thereon of the pendency of the appraisal proceedings; and if any stockholder fails to
comply with such direction, the Court may dismiss the proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court shall appraise the
shares, determining their fair value exclusive of any element of value arising from the
accomplishment or expectation of the merger or consolidation, together with a fair rate of
interest, if any, to be paid upon the amount determined to be the fair value. In determining such
fair value, the Court shall take into account all relevant factors. In determining the fair rate of
interest, the Court may consider all relevant factors, including the rate of interest which the
surviving or resulting corporation would have had to pay to borrow money during the pendency
of the proceeding. Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal
B-2
proceeding, the Court may, in its discretion, permit discovery or other pretrial proceedings and
may proceed to trial upon the appraisal prior to the final determination of the stockholder entitled
to an appraisal. Any stockholder whose name appears on this list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his certificates of
stock to the Register in Chancery, if such is required, may participate fully in all proceedings
until it is finally determined that he is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares, together with interest, if
any, by the surviving or resulting corporation to the stockholders entitled thereto. Interest may
be simple or compound, as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of the certificates
representing such stock. The Court's decree may be enforced as other decrees in the Court of
Chancery may be enforced, whether such surviving or resulting corporation be a corporation of
this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed upon the parties as
the Court deems equitable in the circumstances. Upon application of a stockholder, the Court
may order all or a portion of the expenses incurred by any stockholder in connection with the
appraisal proceeding, including, without limitation, reasonable attorneys' fees and the fees and
expenses of experts, to be charged pro rata against the value of all the shares entitled to an
appraisal.
(k) From and after the effective date of the merger or consolidation, no stockholder who has
demanded his appraisal rights as provided in subsection (d) of this section shall be entitled to
vote such stock for any purpose or to receive payment of dividends or other distributions on the
stock (except dividends or other distributions payable to stockholders of record at a date which is
prior to the effective date of the merger or consolidation); provided, however, that if no petition
for an appraisal shall be filed within the time provided in subsection (e) of this section, or if such
stockholder shall deliver to the surviving or resulting corporation a written withdrawal of his
demand for an appraisal and an acceptance of the merger or consolidation, either within 60 days
after the effective date of the merger or consolidation as provided in subsection (e) of this section
or thereafter with the written approval of the corporation, then the right of such stockholder to an
appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court of
Chancery shall be dismissed as to any stockholder without the approval of the Court, and such
approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares of such objecting
stockholders would have been converted had they assented to the merger or consolidation shall
have the status of authorized and unissued shares of the surviving or resulting corporation. (Last
amended by Ch. 262, L. '94, eff. 7-1-94)
B-3
EXHIBIT C
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
TC MANUFACTURING CO., INC.
AND
MLI ACQUISITION CORP.
AND
MYLAN LABORATORIES INC.
October 10, 1995
1. NAME OF SURVIVING CORPORATION, CERTIFICATE OF INCORPORATION,
BYLAWS. . . . . . . . . . . . . . . . . . . . . . . . . . .4
1.1 Name of Surviving Corporation. . . . . . . . . . . . .4
1.2 Certificate of Incorporation . . . . . . . . . . . . .4
1.3 Bylaws; Directors and Officers . . . . . . . . . . . .4
1.4 The Company's Stockholder Meetings . . . . . . . . . .5
1.5 Filing of Certificate of Merger; Effective Date;
Effective Time 5
1.6 Certain Effects of Merger. . . . . . . . . . . . . . .6
2. STATUS AND CONVERSION OF SECURITIES . . . . . . . . . . . .7
2.1 Company Capital Stock. . . . . . . . . . . . . . . . .7
2.2 The Subsidiary Common Stock. . . . . . . . . . . . . 22
3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. . . . . . . . 23
3.1 Representations, Warranties and Agreements
of the Company 23
3.2 Representations, Warranties and Agreements
of the Parent 43
3.3 Representations and Warranties as to Subsidiary . . 50
4. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . 53
4.1 Covenants of the Company . . . . . . . . . . . . . . 53
4.2 Covenants of the Parent. . . . . . . . . . . . . . . 64
4.3 Covenants of the Subsidiary. . . . . . . . . . . . . 68
4.4 Covenants of the Company and the Parent. . . . . . . 69
5. CONDITIONS TO CLOSING; ABANDONMENT AND TERMINATION. . . . 71
5.1 Conditions to the Company's Closing and
Its Right to Abandon 71
5.2 Conditions to the Parent's and the Subsidiary's
Closing and Right of
the Parent and the Subsidiary to Abandon. . . . . 74
6. ADDITIONAL TERMS OF ABANDONMENT . . . . . . . . . . . . . 80
6.1 Terms of Abandonment . . . . . . . . . . . . . . . . 80
6.2 Termination of Agreement . . . . . . . . . . . . . . 81
6.3 Effect of Abandonment or Termination . . . . . . . . 81
7. EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . 82
7.1 Costs and Expenses . . . . . . . . . . . . . . . . . 82
7.2 Termination Pursuant to Section 5.2 Generally. . . . 82
7.3 Termination Pursuant to Section 5.1 Generally. . . . 83
8. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . 83
8.1 Certification of the Company's
Stockholder Votes, etc. 83
8.2 Certification of the Parent's
Stockholder Votes, etc. 84
8.3 Termination of Covenants, Representations
and Warranties 84
8.5 Execution in Counterparts. . . . . . . . . . . . . . 87
8.6 Waivers and Amendments . . . . . . . . . . . . . . . 87
8.7 Confidentiality. . . . . . . . . . . . . . . . . . . 87
8.8 Schedules. . . . . . . . . . . . . . . . . . . . . . 87
8.9 Payments to Dissenting Stockholders. . . . . . . . . 87
8.10 Indemnification by the Company . . . . . . . . . . . 88
8.11 Indemnification by the Parent. . . . . . . . . . . . 89
8.13 Notices. . . . . . . . . . . . . . . . . . . . . . . 92
8.14 Entire Agreement; No Third-Party Beneficiaries;
Rights of Ownership 93
8.15 Governing Law. . . . . . . . . . . . . . . . . . . . 93
8.16 No Remedy in Certain Circumstances . . . . . . . . . 93
8.17 Closing. . . . . . . . . . . . . . . . . . . . . . . 93
APPENDIX A GLOSSARY OF DEFINED TERMS/SECTION REFERENCES
LIST OF EXHIBITS
EXHIBIT DESCRIPTION SECTION REFERENCE
EXHIBIT A AGREEMENT FOR BUSINESS COMBINATION WITH EXHIBITS RECITAL
1
Exhibit Description Exhibit Number
Form of Plan of Reorganization 1
Form of Reicher Stock Purchase Agreement 2
Form of Agreement and Plan of Merger 3
Pro-forma Effective Date Balance Sheet for Phico on
a Stand-alone Basis 4(d)
Form of Indemnification Agreement 5
Form of Phico Stockholder Indemnification and
Contribution Agreement 6
Form of Rule 145 Affiliate Agreement 7.1
Letter Concerning Continuity of Stockholder Interest 7.2
Form of Announcement 9
Form of Stockholder Power of Attorney 10(a)
Table of Contents
EXHIBIT DESCRIPTION SECTION REFERENCE
EXHIBIT B PLAN OF REORGANIZATION WITH EXHIBITS RECITAL 2
Exhibit Description Section Reference
A Calculation of Yield
Maintenance Penalty Imposed
by Senior Notes Preamble C(ii)
1.1-A Common Article 1
Stockholders/Number of
Shares Held
1.1-B Option Holders - Grant Date, Article 1
Expiration Date, Exercise Price
and Number of Shares
2.1 Directors and Officers of the Article II, Section 2.1
Corporation
2.2-A Articles of Incorporation of Article II, Section 2.2
Newco
2.2-B Bylaws of Newco Article II, Section 2.2
2.2-C Directors and Officers of Article II, Section 2.2
Newco
3.1 Form of Plan of Complete Article III, Section 3.1
Liquidation of HSW
Investment Co.
3.2 Form of Distribution Article III, Section 3.2
Agreement between the
Corporation and Newco
3.4-A Pro Forma Consolidating Article III, Section 3.4
Balance Sheet for the
Corporation
3.4-A Pro Forma Consolidating ArticleVI, Section 3.4
Balance Sheet for Newco
5.1-A Shareholder/Option Holder - ArticleV, Section 5.1(b)
Pharmaceutical Business
Employee List
5.1-B Pro Forma Demonstration Article V, Section 5.1 (b)
Application of Distribution
Formula
TABLE OF CONTENTS
Page
EXHIBIT C FORM OF AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION OF RODERICK CORPORATION 1.2
EXHIBIT D FORM OF CERTIFICATE OF MERGER 1.5
EXHIBIT E FORM OF LETTER OF TRANSMITTAL 2.1(e)(i)
EXHIBIT F FORM OF RULE 145 AFFILIATE AGREEMENT 2.1(e)(iv)
EXHIBIT G FORM OF OPINION OF BUCHANAN INGERSOLL
PROFESSIONAL CORPORATION 5.1(d)
EXHIBIT H FORM OF OPINION OF RIVKIN, RADLER & KREMER 5.2(d)
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is dated October 10, 1995 by and among TC
MANUFACTURING CO., INC., a Delaware corporation (hereinafter called the "Company"),
and MLI ACQUISITION CORP., a Delaware corporation (hereinafter called the "Subsidiary")
(the Company and the Subsidiary being hereinafter sometimes called the "Constituent
Corporations"), and MYLAN LABORATORIES INC., a Pennsylvania corporation (hereinafter
called the "Parent"), which is joining as a third party and is not a Constituent Corporation.
RECITALS:
1. Concurrently with the execution of this Agreement, the Company and the Parent
have entered into an Agreement for Business Combination dated the date hereof and attached
hereto as Exhibit A (the "Agreement for Business Combination") pursuant to which the parties
have agreed to participate in a series of transactions which will culminate with the transactions
described in this Agreement;
2. Prior to the execution of this Agreement and as a condition to the willingness of the
Parent and the Subsidiary to enter into this Agreement, the Board of Directors of the Company
has adopted the Plan of Reorganization attached hereto as Exhibit B (the "Plan of
Reorganization") pursuant to which the Company intends to take the following actions as part of
a reorganization of its corporate structure:
(a) the Company will accelerate the vesting and time of exercise of all of the
outstanding options to acquire shares of Company Common Stock and will cancel all of such
options which are not then exercised;
(b) the Company will cause HSW Investment Co., an Illinois corporation and
wholly owned subsidiary of the Company to adopt a plan of liquidation and pursuant thereto to
distribute to the Company all of the issued and outstanding capital stock of AndaPharma Corp.,
and Pharmadyne Corp., both Virginia corporations and wholly owned subsidiaries of HSW, after
which the Company will contribute such capital stock to UDL Laboratories, Inc., an Illinois
corporation and wholly owned subsidiary of the Company ("UDL-IL") and UDL-IL will assume
and agree to pay the entire balance of any intercompany indebtedness then due to the Company
from each of such Virginia corporations;
(c) the Company will transfer to [TC] Manufacturing Co., Inc., a newly
organized Illinois corporation ("Newco"), all of the assets and liabilities of its Pak-Sher Division
and Tapecoat Division in exchange for the capital stock of Newco and will distribute such
capital stock to certain stockholders of the Company;
(d) the Company will acquire the stock of UDL-IL, held by Michael K. Reicher,
thereby making the Company the holder of all of the issued and outstanding capital stock of
UDL-IL; and
(e) the Company and Newco will execute and deliver such of the agreements
attached to the Plan of Reorganization as Exhibits which require such execution and delivery
including, without limitation, the Distribution Agreement and the Indemnification Agreement.
3. The Boards of Directors of the Company and the Subsidiary have resolved that,
immediately following consummation of the transactions contemplated by the Plan of
Reorganization, the Company and the Subsidiary be merged under and pursuant to the Delaware
General Corporation Law into a single corporation existing under the laws of the State of
Delaware to wit, the Company, one of the Constituent Corporations, which shall be the
surviving corporation (such corporation in its capacity as such surviving corporation being
sometimes referred to herein as the "Surviving Corporation");
4. The authorized capital stock of the Company consists of 7,000,000 shares of
Common Stock with a par value of $1.00 per share (hereinafter called "Company Common
Stock"), of which 5,340,992 shares are issued and outstanding and 69,452 shares are held in the
treasury of the Company as of the date hereof; 14,000 shares of 8% Cumulative Preferred Stock
with a par value of $100.00 per share (hereinafter called "Company Preferred Stock"), of which
4,243 shares are issued and outstanding and none are held in the treasury of the Company as of
the date hereof; and 10,000 shares of Special Preferred Stock no par value, of which none are
outstanding and none are held in the treasury of the Company as of the date hereof;
5. The authorized capital stock of the Subsidiary consists of 1,000 shares of Common
Stock, par value $.50 per share, 1,000 of which shares are issued and outstanding and owned by
the Parent;
6. The Parent, as sole stockholder of the Subsidiary, and the respective Boards of
Directors of each of the Constituent Corporations and the Parent have approved the Merger (as
hereinafter defined) of the Constituent Corporations upon the terms and conditions hereinafter
set forth and have approved this Agreement;
7. The Merger of the Constituent Corporations is permitted pursuant to the Delaware
General Corporation Law;
8. For federal income tax purposes it is intended that the Merger shall qualify as a
reorganization within the meaning of Section 368(a)(1)(B) of the Internal Revenue Code of
1986, as amended and the regulations promulgated thereunder (the "Code"); and
9. Immediately prior to the execution of this Agreement and as a condition and
inducement to the Parent's and the Subsidiary's willingness to enter into this Agreement, the
Parent has been granted irrevocable proxies with respect to all shares of Company Preferred
Stock and Company Common Stock held by certain holders thereof (the "Irrevocable Proxies");
NOW, THEREFORE, in consideration of and subject to the premises and the mutual
agreements, provisions and covenants herein contained, the parties hereto hereby agree that the
Company and the Subsidiary shall, at the Effective Time (as hereinafter defined), be merged in
accordance with the Delaware General Corporation Law (hereinafter called the "Merger") into a
single corporation existing under the laws of the State of Delaware, to wit, the Company, one of
the Constituent Corporations, which shall be the Surviving Corporation, and the parties hereto
adopt and agree to the following agreements, terms and conditions relating to the Merger and the
mode of carrying the same into effect.
1. NAME OF SURVIVING CORPORATION, CERTIFICATE OF INCORPORATION,
BYLAWS.
1.1 Name of Surviving Corporation. The name of the Surviving Corporation from and
after the Effective Date shall be Roderick Corporation.
1.2 Certificate of Incorporation. The Certificate of Incorporation of the Company as in
effect on the date hereof shall from and after the Effective Time be and continue to
be the Certificate of Incorporation of the Surviving Corporation until changed or
amended as provided by law, except that at the Effective Time and upon filing of
the Certificate of Merger, the Certificate of Incorporation of the Company shall be
amended and restated as attached hereto as Exhibit C.
1.3 Bylaws; Directors and Officers. The Bylaws of the Company, as in effect
immediately prior to the Effective Time, shall from and after the Effective Time be
and continue to be the Bylaws of the Surviving Corporation until amended as
provided therein. The directors and officers of the Subsidiary shall, from and after
the Effective Time, be the directors and officers, respectively, of the Surviving
Corporation until their successors shall have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in accordance with the
Surviving Corporation's Restated Certificate of Incorporation and Bylaws.
1.4 The Company's Stockholder Meetings. The Company shall call a meeting of its
stockholders to be held in accordance with the Delaware General Corporation Law
no more than thirty (30) days after the Registration Statement (as defined in Section
4.4) has been declared effective by the Securities and Exchange Commission (the
"SEC"), upon due notice thereof to its stockholders, to consider and vote upon,
among other matters, the adoption and approval of this Agreement and the Merger.
The Company will, through its Board of Directors, use commercially reasonable
efforts, consistent with its legal obligations, to solicit the requisite vote of the
holders of the Company Preferred Stock, as a class, and the holders of the
Company Common Stock, as a class, to approve this Agreement and the Merger
pursuant to a combined prospectus and proxy statement (the "Prospectus/Proxy
Statement").
1.5 Filing of Certificate of Merger; Effective Date; Effective Time. If this Agreement has
been adopted, and the Merger approved, by the requisite vote of the holders of
Company Preferred Stock, as a class and the holders of Company Common Stock,
as a class; and if this Agreement is not thereafter, and has not theretofore been,
terminated or abandoned as permitted by the provisions hereof, then a Certificate of
Merger substantially in the form of Exhibit D attached hereto shall be filed and
recorded in accordance with Section 103 and Section 251 of the Delaware General
Corporation Law. Said Certificate of Merger shall be submitted for filing in
accordance with the Delaware General Corporation Law as soon as practicable after
the Closing (as defined in Section 8.19). The Merger shall become effective
immediately upon such filing with the Secretary of State of the State of Delaware,
which time is herein referred to as the "Effective Time," and which date is herein
referred to as the "Effective Date."
1.6 Certain Effects of Merger. At the Effective Time, the separate existence of the
Subsidiary shall cease, and the Subsidiary shall be merged with and into the
Company which, as the Surviving Corporation, shall possess all the rights,
privileges, powers and franchises as well of a public as of a private nature, and
being subject to all the restrictions, disabilities and duties of each of the Constituent
Corporations; and all and singular, the rights, privileges, powers and franchises of
each of the Constituent Corporations, and all property, real, personal and mixed,
and all debts due to either of the Constituent Corporations on whatever account, as
well for stock subscriptions as all other things in action or belonging to each of such
Constituent Corporations shall be vested in the Surviving Corporation; and all
property, rights, privileges, powers and franchises, and all and every other interest
shall be thereafter as effectually the property of the Surviving Corporation as they
were of the Constituent Corporations, and the title to any real estate vested by deed
or otherwise, under the laws of Delaware or any other jurisdiction, in any of the
Constituent Corporations, shall not revert or be in any way impaired; but all rights of
creditors and all liens upon any property of any of the Constituent Corporations shall
be preserved unimpaired, and all debts, liabilities and duties of the Constituent
Corporations shall thenceforth attach to the Surviving Corporation, and may be
enforced against it to the same extent as if said debts, liabilities and duties had
been incurred or contracted by it. At any time, or from time to time, after the
Effective Date, the last acting officers of the Subsidiary, or the corresponding
officers of the Surviving Corporation, may, in the name of the Subsidiary, execute
and deliver all such proper deeds, assignments, and other instruments and take or
cause to be taken all such further or other action as the Surviving Corporation may
deem necessary or desirable in order to vest, perfect, or confirm in the Surviving
Corporation title to and possession of all of the Subsidiary's property, rights,
privileges, powers, franchises, immunities, and interests and otherwise to carry out
the purposes of this Agreement.
2. STATUS AND CONVERSION OF SECURITIES.
The manner and basis of converting the shares of the capital stock of the Constituent
Corporations and the nature and amount of securities of the Parent which the holders of
shares of Company Preferred Stock and Company Common Stock are to receive in
exchange for such shares are as follows:
2.1 Company Capital Stock.
a. Conversion of Company Preferred Stock into Parent Common Stock. At the
Effective Time, each outstanding share of Company Preferred Stock, other than
Company Preferred Stock (if any) owned by the Company, and other than
Company Preferred Stock as to which dissenters' rights have been exercised
as referred to in Section 8.9 (Payments to Dissenting Shareholders) hereof,
shall by virtue of the Merger and without action on the part of the holder
thereof automatically be canceled and converted into shares of Common
Stock, par value $.50 per share, of the Parent ("Parent Common Stock") at
a ratio equal to 5.02765 shares of Parent Common Stock for each share of
Company Preferred Stock (the "Preferred Stock Exchange Ratio"), subject to
the provisions of Sections 2.1(d) (Fractional Shares) and 2.1(e) (Surrender
and Exchange of Company Stock Certificates). Any shares of Company
Preferred Stock (if any) owned by the Company, or as to which dissenters'
rights have been exercised as referred to in Section 8.9 hereof, shall be
canceled. The Preferred Stock Exchange Ratio has been determined by
dividing: (i) $100 (the liquidation preference of each share of Company
Preferred Stock), by (ii) the Average Market Price of Parent Common Stock.
The "Average Market Price of Parent Common Stock" shall mean $19.89.
b. Conversion of Company Common Stock Into Parent Common Stock. At the
Effective Time, each outstanding share of Company Common Stock, other than
Company Common Stock owned by the Company, and other than Company
Common Stock as to which dissenters' rights have been exercised as
referred to in Section 8.9 (Payments to Dissenting Shareholders) hereof,
shall, by virtue of the Merger and without any action on the part of the
holder thereof, automatically be canceled and be converted into the number
of shares of Parent Common Stock (the "Common Stock Exchange Ratio")
determined as follows:
(i) the difference between: (A) $47,500,000 and (B) the aggregate
liquidation preference of all shares of Company Preferred Stock
issued and outstanding on the Effective Date shall be divided by the
Average Market Price of Parent Common Stock; and
(ii) the quotient resulting from the calculation in clause (i) above shall be
divided by the number of outstanding shares of the Company
Common Stock calculated to be outstanding on the Effective Date
after giving effect to the timely exercise of outstanding stock
options, and all other transactions involving the issuance of shares of
Company Common Stock contemplated by the Agreement for
Business Combination, the Plan of Reorganization and this
Agreement (the "Outstanding Shares of Company Common Stock").
The foregoing conversion shall be subject to the provisions of
Sections 2.1(d) (Fractional Shares) and 2.1(e) (Surrender and Exchange of
Company Stock Certificates) and subject to adjustment as provided for in
Section 2.1(f). Any shares of Company Common Stock owned by the
Company, or as to which dissenters' rights have been exercised as referred
to in Section 8.9 hereof shall be canceled. The shares of Parent Common
Stock into which shares of Company Common Stock are to be converted
pursuant to the terms of this Agreement valued at the Average Market Price
of Parent Common Stock shall be referred to herein as the "Company
Common Stock Consideration."
c. Stock Options. On the Effective Date, any options covering Company
Common Stock granted under any of the Company's stock option plans
which are outstanding but have not been exercised shall be canceled.
d. Fractional Shares.
i. No certificate or scrip representing fractional shares of Parent
Common Stock shall be issued upon the surrender for exchange of
certificates of Company Preferred Stock or Company Common
Stock, and such fractional share interests will not entitle the owner
thereof to vote or to enjoy any other rights of a stockholder of the
Parent.
ii. As promptly as practicable following the Effective Date, the
Exchange Agent (as hereinafter defined) shall determine the excess
of (x) the aggregate number of shares of Parent Common Stock
delivered to the Exchange Agent by the Parent pursuant to Section
2.1(e) to which the holders of Company Preferred Stock are entitled
pursuant to Section 2.1(a) with respect to the Company Preferred
Stock over (y) the sum of the number of whole shares of Parent
Common Stock to be distributed to each holder of Company
Preferred Stock pursuant to Section 2.1(e) (such excess being
hereinafter called the "Preferred Stock Excess Shares"). As promptly
as practicable after the Effective Date, the Exchange Agent, as
agent for the holders of the Company Preferred Stock, shall sell the
Preferred Stock Excess Shares at then prevailing prices on the New
York Stock Exchange, Inc. ("NYSE"), all in the manner provided in
paragraph (iii) of this Section 2.1(d). As promptly as practicable
following the determination of the adjustment provided for in
Section 2.1(f) (Adjustment to Number of Shares of Parent Company
Stock to be Delivered), the Parent shall determine the excess of
(x) the aggregate number of shares of Parent Common Stock
delivered to the Exchange Agent by the Parent pursuant to
Section 2.1(e) to which the holders of Company Common Stock are
entitled pursuant to Section 2.1(b) with respect to the Company
Common Stock over (y) the sum of the number of whole shares of
Parent Common Stock to be distributed to each holder of Company
Common Stock pursuant to Section 2.1(e) (such excess being
hereinafter called the "Common Stock Excess Shares"). As promptly
as practicable after the determination of the number of Common
Stock Excess Shares, the Exchange Agent, as agent for the holders
of Company Common Stock, shall sell the Common Stock Excess
Shares at then prevailing prices on the NYSE, all in the manner
provided in paragraph (iii) of this Section 2.1(d).
iii. The sale of the Preferred Stock Excess Shares and the Common
Stock Excess Shares by the Exchange Agent shall be executed on
the NYSE through one or more member firms of the NYSE and shall
be executed in round lots to the extent practicable. Until the net
proceeds of such sale or sales have been distributed to the holders
of Company Preferred Stock and Company Common Stock, the
Exchange Agent will hold such proceeds in trust, one trust for the
holders of Company Preferred Stock (the "Preferred Stock Trust")
and one trust for the holders of Company Common Stock (the
"Common Stock Trust"). Except as otherwise expressly provided in
Section 2.1(e)(iv), the Parent shall pay all commissions, transfer
taxes and other out-of-pocket reorganization transaction costs,
including the expenses and compensation of the Exchange Agent,
incurred in connection with such sale of the Preferred Stock Excess
Shares and the Common Stock Excess Shares. The Exchange Agent
shall determine the portion of the Preferred Stock Trust to which
each holder of Company Preferred Stock shall be entitled, if any, by
multiplying the amount of the aggregate net proceeds comprising the
Preferred Stock Trust by a fraction, the numerator of which is the
amount of the fractional share interest, if any, to which such holder
of Company Preferred Stock is entitled and the denominator of
which is the aggregate amount of fractional share interests to which
all holders of Company Preferred Stock are entitled. The Exchange
Agent shall determine the portion of the Common Stock Trust to
which each holder of Company Common Stock shall be entitled, if
any, by multiplying the amount of the aggregate net proceeds
comprising the Common Stock Trust by a fraction, the numerator of
which is the amount of the fractional share interest, if any, to which
such holder of Company Common Stock is entitled and the
denominator of which is the aggregate amount of fractional share
interests to which all holders of Company Common Stock are
entitled.
iv. As soon as practicable after the determination of the amount of
cash, if any, to be paid to holders of Company Preferred Stock and
Company Common Stock in lieu of any fractional share interests, the
Exchange Agent shall make available such amounts to such holders
of Company Preferred Stock and Company Common Stock. The
cash proceeds to be paid to holders of Company Preferred Stock and
Company Common Stock realized from the sale of the Preferred
Stock Excess Shares and the Common Stock Excess Shares
represents merely a mechanical rounding of fractional shares
received in the Merger and is not separately bargained for
consideration.
v. Any portion of the Exchange Fund (as hereinafter defined), the
Preferred Stock Trust and Common Stock Trust which remains
undistributed to the stockholders of the Company one hundred
eighty (180) days after the Effective Date shall be delivered to
Parent, upon demand, and any stockholders of the Company who
have not theretofore complied with this Section 2 shall thereafter
look only to the Parent for delivery of their Parent Common Stock
and payment of any cash in lieu of fractional shares of Parent
Common Stock and any dividends or distributions with respect to
Parent Common Stock.
vi. Neither the Parent nor the Company shall be liable to any holder of
shares of Company Preferred Stock, Company Common Stock or
Parent Common Stock, as the case may be, for such shares (or
dividends or distributions with respect thereto) or cash from the
Common Shares Trust delivered by the Exchange Agent to a public
official pursuant to any applicable abandoned property, escheat or
similar law.
e. Surrender and Exchange of Company Stock Certificates.
i. After the Effective Date, each holder of an outstanding certificate or
certificates theretofore representing Company Preferred Stock and
Company Common Stock, except those to be canceled in
accordance with the provisions of Section 2.1(a) (Conversion of
Company Preferred Stock into Parent Common Stock) and
Section 2.1(b) (Conversion of Company Common Stock into Parent
Common Stock), shall surrender such certificate or certificates to
American Depository Trust or such other bank, trust company or
other entity designated by Parent (the "Exchange Agent"), duly
endorsed in blank or otherwise in proper form for transfer, together
with a letter of transmittal in the form of Exhibit E hereto, and shall
be entitled to receive in exchange therefor a certificate or certificates
representing the number of whole shares of Parent Common Stock
and cash representing the number of fractional shares of Parent
Common Stock to which such holder shall be entitled by reason of
holding Company Preferred Stock or Company Common Stock. Until
so surrendered and exchanged, each certificate theretofore
representing outstanding shares of Company Preferred Stock or
Company Common Stock shall be deemed to represent the number
of whole shares of Parent Common Stock and cash representing the
number of fractional shares of Parent Common Stock into which
such shares shall have been converted; provided, however, that until
so surrendered and exchanged, the Parent shall not be required to
pay over or transfer to any holder of such certificates any dividends
to which the holder is entitled, and provided further that upon the
surrender and exchange of such certificate or certificates, there shall
be paid over or transferred to such holder of Company Preferred
Stock or Company Common Stock the amount, without interest, of
all dividends and other distributions, if any, with respect to the
number of shares of Parent Common Stock to which such holder is
entitled, unless they have theretofore been paid. On the Effective
Date, the Parent shall deliver to the Exchange Agent, (i) certificates
for sufficient shares of Parent Common Stock to permit the
exchange, at the Preferred Stock Exchange Ratio, of each
outstanding share of Company Preferred Stock as provided herein to
be made and (ii) certificates for the number of shares of Parent
Common Stock required in order to permit the exchange, at the
Common Stock Exchange Ratio, of each outstanding share of
Company Common Stock as provided herein to be made (such
shares of Parent Common Stock, together with any dividends or
distributions with respect thereto, being referred to as the "Exchange
Fund").
ii. The Exchange Agent shall deliver to each holder of Company
Preferred Stock (A) certificates for the number of whole shares of
Parent Common Stock to which such holder shall be entitled, (B)
cash in lieu of fractional shares to which such holder shall be entitled
and (C) dividends, if any, related to the shares of Parent Common
Stock so delivered, upon surrender of the certificates representing
such holder's shares of Company Preferred Stock in accordance with
the provisions of Section 2.1(e)(i).
iii. The Exchange Agent shall deliver to each holder of Company
Common Stock (A) certificates for the number of whole shares of
Parent Common Stock which most closely approximates ninety-five
percent (95%) of the total number of shares of Parent Common
Stock delivered to the Exchange Agent by the Parent for exchange
with the Company Common Stock to which such holder shall be
entitled and (B) dividends, if any, related to the shares of Parent
Common Stock so delivered, upon surrender of the certificates
representing such holder's shares of Company Common Stock in
accordance with the provisions of Section 2.1(e)(i). Until such time
as the Joint Certification (as defined in Section 2.1(f)) has been
issued, the Exchange Agent shall hold the remaining number of
shares of Parent Common Stock so delivered to the Exchange Agent
by the Parent pending the calculation of the adjustment to the
number of shares of Parent Common Stock to be delivered to the
holders of Company Common Stock pursuant to Section 2.1(f)
(Adjustment to Number of Shares of Parent Company Stock to be
Delivered). Any shares of Parent Common Stock being held in the
Exchange Fund which are not deliverable to the holders of Company
Common Stock on account of the adjustment described in Section
2.1(f) shall be returned to the Parent by the Exchange Agent as
promptly as practicable after the delivery to the Exchange Agent of a
copy of the Joint Certification (as defined in Section 2.1(f)). Upon
the completion of the calculation of the adjustment described in
Section 2.1(f), and the delivery by the Parent of the additional shares
of Parent Common Stock, if any, to the Exchange Agent as provided
in Section 2.1(f), the Exchange Agent shall deliver to each holder of
Company Common Stock (A) certificates for the balance of whole
shares of Parent Common Stock to which such holder shall be
entitled, (B) cash in lieu of fractional shares to which such holder of
Company Common Stock shall be entitled and (C) dividends, if any,
related to the shares of Parent Common Stock so delivered. Any
certificates for Parent Common Stock remaining in the Exchange
Fund and not delivered upon exchange in accordance with this
Section 2.1(e) at the expiration of one hundred eighty (180) days
from the Effective Date shall be returned immediately by the
Exchange Agent to the Parent.
iv. As a condition of the exchange of Company Preferred Stock and
Company Common Stock for shares of Parent Common Stock by any
holder thereof who, in the opinion of counsel for the Company
described in Section 5.2(f) (Rule 145), may be deemed to be an
"affiliate" of the Company within the meaning of Rule 145 under the
Securities Act of 1933, as amended (the "1933 Act") (individually
an "Affiliate" and collectively, "Affiliates") on the Effective Date, the
Exchange Agent shall have received from such holder a written
agreement in the form of Exhibit F hereto between the Company and
such holder executed by and containing the agreement of such
holder that the shares of Parent Common Stock issuable by the
Parent pursuant to this Agreement in exchange for shares of
Company Common Stock held by or for the benefit of such holder
(A) will not be sold or otherwise disposed of except in accordance
with Rule 145 (provided that with respect to sales under such Rule,
such holder shall have furnished the Parent such information as the
Parent may deem necessary to assure that such sales are to be made
in full compliance with such Rule) under the 1933 Act, as the same
may, from time to time, be in effect, unless such holder shall have
furnished to the Parent an opinion of counsel, which opinion and
counsel are satisfactory to the Parent, that such sale or other
disposition may be effected without violation of the registration
requirements of the 1933 Act; and (B) shall be represented by
certificates which bear the following legend:
"Sale or other disposition of the shares represented
by this certificate and the transfer thereof are
restricted by the terms of a Rule 145 Affiliate
Agreement between the registered holder hereof and
Mylan Laboratories Inc. made pursuant to an
Agreement and Plan of Merger, dated October 10,
1995, among TC Manufacturing Co., Inc., MLI
Acquisition Corp. and Mylan Laboratories Inc."
v. No transfer taxes shall be payable by any stockholder other than
transfer taxes which are the sole liability of such stockholder in
respect of the issuance of certificates for Parent Common Stock,
except that, if any certificate for Parent Common Stock is to be
issued in a name other than that in which the certificate for shares
of Company Preferred Stock or Company Common Stock
surrendered shall have been registered, it shall be a condition of such
issuance that the person requesting such issuance shall pay to the
Parent any transfer taxes payable by reason thereof or of any prior
transfer of such surrendered certificate or establish to the
satisfaction of the Parent that such taxes have been paid or are not
payable.
vi. The Parent shall pay all expenses and compensation of the Exchange
Agent in connection with the performance of the duties described in
this Section 2 as reorganization expenses incident to the Merger.
f. Adjustment to Number of Shares of Parent Company Stock to be Delivered.
i. On or before the 15th day after the Effective Date, a representative
of the holders of the Company Common Stock designated pursuant
to Section 10(a) of the Agreement for Business Combination (the
"Stockholders Representative") and a representative of the Parent
(the "Parent Representative") shall jointly prepare and certify to the
former holders of the Company Common Stock and the Parent the
following items, in each case, as of the close of business on the
Effective Date, after giving effect to all of the transactions
contemplated by the Agreement for Business Combination, the Plan
of Reorganization and this Agreement (the "Joint Certification"):
(A) the amount of cash on hand or in bank accounts of the
Company (the "Company Cash");
(B) all other assets which would appear on a balance sheet of
the Company (parent company only) prepared in accordance
with generally accepted accounting principles applied on a
consistent basis (the "Other Assets");
(C) the amount of the indebtedness owed to the Company by its
wholly owned direct and indirect subsidiaries, UDL-IL,
AndaPharma Corp. and Pharmadyne Corp., whether on
account or evidenced by one or more promissory notes
(the "Intercompany Indebtedness");
(D) the amount necessary to pay in full the 10 1/2% Senior
Promissory Notes of the Company due July 31, 2001 held by
Metropolitan Life Insurance Company, including, without
limitation, principal, accrued but unpaid interest and any yield
maintenance or prepayment penalty (the "Senior Note
Indebtedness");
(E) the amount necessary to pay in full the line of credit granted
to the Company by LaSalle National Bank, including, without
limitation, principal, accrued but unpaid interest and any yield
maintenance or prepayment penalty (the "Line of Credit
Indebtedness");
(F) the amount necessary to pay in full any outstanding
obligations of the Company in favor Michael K. Reicher in
connection with its acquisition of the shares of common
stock of UDL-IL held by Mr. Reicher (the "Reicher
Indebtedness");
(G) all other liabilities which would appear on a balance sheet of
the Company (parent company only) prepared in accordance
with generally accepted accounting principles applied on a
consistent basis including, without limitation, any liabilities
under the group health insurance plans of the Company
which are not covered by insurance and any costs or
expenses associated with the transactions contemplated by
the Agreement for Business Combination, the Plan of
Reorganization or this Agreement which have not been paid
by the Company (the "Other Liabilities");
(H) the amount equal to (1) the sum of the Company Cash, the
Other Assets and the Intercompany Indebtedness minus
(2) the sum of the Senior Note Indebtedness, the Line of
Credit Indebtedness, the Reicher Indebtedness and the Other
Liabilities, which may be a positive or negative amount
(the "Net Adjustment Amount");
(I) the sum of the Company Common Stock Consideration plus
the Net Adjustment Amount (if a positive amount) or minus
the Net Adjustment Amount (if a negative amount) (the
"Adjusted Company Common Stock Consideration");
(J) the Adjusted Company Common Stock Consideration divided
by the Average Market Price of Parent Common Stock, which
quotient is then divided by the Outstanding Shares of
Company Common Stock (the "Adjusted Exchange Ratio");
and
(K) the number of shares of Parent Common Stock calculated at
the Adjusted Exchange Ratio for each of the Outstanding
Shares of Company Common Stock (the "Adjusted Shares of
Parent Company Shares").
ii. Upon delivery of the Joint Certification: (A) the Parent shall deliver
to the Exchange Agent within two (2) business days after receipt of
the Joint Certification shares of Parent Common Stock equal to the
excess, if any, of (1) the number of Adjusted Shares of Parent
Common Stock over (2) the number of whole shares of Parent
Common Stock delivered to the Exchange Agent by the Parent
pursuant to Section 2.1(e) (Surrender and Exchange of Company
Stock Certificates), together with dividends, if any, related to the
shares of Common Stock so delivered; or (B) the Exchange Agent
shall deliver to the Parent within two (2) business days after receipt
of the Joint Certification shares of Parent Common Stock equal to
the excess, if any, of (3) the number of whole shares of Parent
Common Stock delivered to the Exchange Agent by the Parent
pursuant to Section 2.1(e) over (4) the number of Adjusted Shares
of Parent Common Stock and, in such event, the Parent shall have
no further obligation to deliver shares of Parent Common Stock to
holders of Company Common Stock except as provided in the last
sentence of Section 2.1(e)(iii).
iii. In the event of any controversy or dispute between the Stockholders
Representative and the Parent Representative arising out of or
relating to the preparation of the Joint Certification, either the
Stockholders Representative or the Parent Representative may give
notice to the other of its desire to engage Arthur Andersen LLP or, if
unavailable, another "big six" accounting firm mutually acceptable to
the Stockholders Representative and the Parent Representative (the
"Independent Accountant") to resolve the controversy or dispute
within 15 days after such engagement. The Independent
Accountant's determination shall be final and binding, and the
Stockholders Representative and the Parent Representative shall
deliver the Joint Certification based upon the decision of the
Independent Accountant. The fees and disbursements of the
Independent Accountant shall be borne by the Parent as
reorganization expenses incident to the Merger.
iv. If, prior to the Effective Time, the Parent should split Parent
Common Stock or pay a stock dividend in Parent Common Stock or
otherwise change Parent Common Stock into any other securities, or
make any other dividend or distribution in respect of Parent Common
Stock (other than normal cash dividends as the same may be
adjusted from time to time), then the Common Stock Exchange Ratio
will be appropriately adjusted to reflect such split, stock dividend,
other dividend or distribution or change.
2.2 The Subsidiary Common Stock. Each share of the Subsidiary Common Stock
outstanding on the Effective Date shall, by virtue of the Merger and without any
action on the part of the holder thereof, be converted into and be one share of the
Common Stock of the Surviving Corporation.
3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
3.1 Representations, Warranties and Agreements of the Company. The Company
represents and warrants to the Parent and the Subsidiary as follows:
a. Organization, Good Standing, Capitalization.
i. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware with all
requisite corporate power and authority to own, operate and lease its
properties, to carry on its business as now being conducted, to enter
into this Agreement and, subject to the approval of the Company's
stockholders in accordance with the Delaware General Corporation
Law, to perform its obligations hereunder. The Company is duly
qualified or licensed to do business and in good standing in the
States of Illinois and Texas and in each other jurisdiction in which
the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification or licensing
necessary, except where the failure to be so qualified or licensed and
in good standing would not have a material adverse effect on the
Company. The authorized and issued capital stock of the Company
as of the date hereof is as set forth in the recitals of this Agreement;
all capital stock of the Company listed therein as authorized has
been duly authorized, and all capital stock of the Company listed
therein as issued and outstanding has been validly issued and is fully
paid and nonassessable. Except for the agreements referred to in
Sections 5.2(m) (TC Stockholders' Agreement) and 5.2(n) (UDL
Stockholders' Agreement), there are no outstanding rights, options,
warrants, conversion rights or agreements for the purchase or
acquisition from, or the sale or issuance by, the Company of any
shares of its capital stock of any class other than Options (as
defined in the Plan of Reorganization) to purchase 216,308 shares of
the Company's Common Stock under the Company's stock option
plans. The only direct or indirect subsidiary corporations of the
Company are the following: UDL Laboratories, Inc., an Illinois
corporation ("UDL-IL"), which, in turn, owns all of the issued and
outstanding capital stock of UDL Laboratories, Inc., a Florida
corporation ("UDL-FL"); The Tapecoat Company of Canada, Limited,
a Canada (Ontario) corporation ("Tapecoat Limited"), which, in turn,
owns all of the issued and outstanding capital stock of Tapecoat
Canada, Inc., a Canada (Ontario) corporation ("Tapecoat, Inc.");
HSW Investment Co., an Illinois corporation ("HSW"), which, in turn,
owns all of the issued and outstanding capital stock of AndaPharma
Corp., a Virginia corporation ("AP"), and Pharmadyne Corp., a
Virginia corporation ("PD"); and The Tapecoat Company, Inc., a
Delaware corporation ("Tapecoat-DE") (individually, a "Company
Subsidiary" and collectively, the "Company Subsidiaries").
ii. UDL-IL is a corporation duly organized, validly existing and in good
standing under the laws of the State of Illinois with all corporate
power and authority to own, operate and lease its properties and to
carry on its business as now being conducted. UDL-IL is duly
qualified or licensed to do business and in good standing in each
jurisdiction in which the property owned, leased or operated by it or
the nature of the business conducted by it makes such qualification
or licensing necessary, except where the failure to be so duly
qualified or licensed and in good standing would not have a material
adverse effect on UDL-IL. The authorized capital stock of UDL-IL
consists of 20,000,000 shares of common stock, no par value.
Forty-seven (47) of the issued and outstanding shares of common
stock of UDL-IL are held by the Company and the remaining three (3)
issued and outstanding shares of UDL-IL are held by Michael K.
Reicher, and all such shares have been validly issued and are fully
paid and nonassessable. Except for the agreement referred to in
Section 5.2(n) (UDL Stockholders' Agreement), there are no
outstanding rights, options, warrants, conversion rights or
agreements for the purchase or acquisition from, or the sale or
issuance by, UDL-IL of any of its common stock.
iii. UDL-FL is a corporation duly organized, validly existing and in good
standing under the laws of the State of Florida with all corporate
power and authority to own, operate and lease its properties and to
carry on its business as now being conducted. UDL-FL is duly
qualified or licensed to do business and in good standing in each
jurisdiction in which the property owned, leased or operated by it or
the nature of the business conducted by it makes such qualification
or licensing necessary, except where the failure to be so duly
qualified or licensed and in good standing would not have a material
adverse effect on UDL-FL. The authorized capital stock of UDL-FL
consists of 100 shares of common stock, no par value. All of the
issued and outstanding shares of common stock of UDL-FL are held
by UDL-IL, and all such shares have been validly issued and are fully
paid and nonassessable. There are no outstanding rights, options,
warrants, conversion rights or agreements for the purchase or
acquisition from, or the sale or issuance by, UDL-FL of any of its
common stock.
iv. Tapecoat Limited is a corporation duly organized, validly existing and
in good standing under the laws of Canada (Ontario) with all
corporate power and authority to own, operate and lease its
properties and to carry on its business as now being conducted.
Tapecoat Limited is duly qualified or licensed to do business and in
good standing in each jurisdiction in which the property owned,
leased or operated by it or the nature of the business conducted by
it makes such qualification or licensing necessary, except where the
failure to be so duly qualified or licensed and in good standing would
not have a material adverse effect on Tapecoat Limited. The
authorized capital stock of Tapecoat Limited consists of 40,000
shares of common stock, par value $1.00 per share. All of the
issued and outstanding shares of common stock of Tapecoat
Limited, except for directors' qualifying shares, are held by the
Company, and all such shares have been validly issued and are fully
paid and nonassessable. There are no outstanding rights, options,
warrants, conversion rights or agreements for the purchase or
acquisition from, or the sale or issuance by, Tapecoat Limited of any
of its common stock.
v. Tapecoat, Inc. is a corporation duly organized, validly existing and in
good standing under the laws of Canada (Ontario) with all corporate
power and authority to own, operate and lease its properties and to
carry on its business as now being conducted. Tapecoat, Inc. is
duly qualified or licensed to do business and in good standing in each
jurisdiction in which the property owned, leased or operated by it or
the nature of the business conducted by it makes such qualification
or licensing necessary, except where the failure to be so duly
qualified or licensed and in good standing would not have a material
adverse effect on Tapecoat, Inc. The authorized capital stock of
Tapecoat, Inc. consists of 500,000 shares of common stock, no par
value and 500 shares of non-voting preference shares, par value
$1.00 per share. All of the issued and outstanding shares of
common stock of Tapecoat, Inc. are held by Tapecoat Limited, and
all such shares have been validly issued and are fully paid and
nonassessable. None of the non-voting preference shares of
Tapecoat, Inc. have been issued. There are no outstanding rights,
options, warrants, conversion rights or agreements for the purchase
or acquisition from, or the sale or issuance by, Tapecoat, Inc. of any
of its common stock.
vi. Tapecoat-DE is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware with all
corporate power and authority to own, operate and lease its
properties and to carry on its business as now being conducted.
Tapecoat-DE is duly qualified or licensed to do business and in good
standing in each jurisdiction in which the property owned, leased or
operated by it or the nature of the business conducted by it makes
such qualification or licensing necessary, except where the failure to
be so duly qualified or licensed and in good standing would not have
a material adverse effect on Tapecoat-DE. The authorized capital
stock of Tapecoat-DE consists of 1,000 shares of common stock, no
par value. All of the issued and outstanding shares of common
stock of Tapecoat-DE are held by the Company, and all such shares
have been validly issued and are fully paid and nonassessable. There
are no outstanding rights, options, warrants, conversion rights or
agreements for the purchase or acquisition from, or the sale or
issuance by, Tapecoat-DE of any of its common stock.
vii. HSW (formerly Engineered Coated Products, Inc.) is a corporation
duly organized, validly existing and in good standing under the laws
of the State of Illinois with all corporate power and authority to own,
operate and lease its properties and to carry on its business as now
being conducted. HSW is duly qualified or licensed to do business
and in good standing in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business
conducted by it makes such qualification or licensing necessary,
except where the failure to be so duly qualified or licensed and in
good standing would not have a material adverse effect on HSW.
The authorized capital stock of HSW consists of two classes of
stock: 9000 shares of Class A stock, par value $100 per share and
3000 shares of Class B stock, par value $50.00 per share. All of the
issued and outstanding shares of Class A stock of HSW are held by
the Company, and all such shares have been validly issued and are
fully paid and nonassessable. None of the Class B stock of HSW has
been issued. There are no outstanding rights, options, warrants,
conversion rights or agreements for the purchase or acquisition from,
or the sale or issuance by, HSW of any of its common stock.
viii. AP is a corporation duly organized, validly existing and in good
standing under the laws of the Commonwealth of Virginia with all
corporate power and authority to own, operate and lease its
properties and to carry on its business as now being conducted. AP
is not, and is not required to be, qualified or licensed to do business
in any jurisdiction other than the Commonwealth of Virginia. The
authorized capital stock of AP consists of 5,000 shares of common
stock, no par value. All of the issued and outstanding shares of
common stock of AP are held by HSW, and all such shares have
been validly issued and are fully paid and nonassessable. There are
no outstanding rights, options, warrants, conversion rights or
agreements for the purchase or acquisition from, or the sale or
issuance by, AP of any of its common stock.
ix. PD is a corporation duly organized, validly existing and in good
standing under the laws of the Commonwealth of Virginia with all
corporate power and authority to own, operate and lease its
properties and to carry on its business as now being conducted. PD
is not, and is not required to be, qualified to do business in any
jurisdiction other than the Commonwealth of Virginia. The
authorized capital stock of PD consists of 5,000 shares of common
stock, no par value. All of the issued and outstanding shares of
common stock of PD are held by HSW, and all such shares have
been validly issued and are fully paid and nonassessable. There are
no outstanding rights, options, warrants, conversion rights or
agreements for the purchase or acquisition from, or the sale or
issuance by, PD of any of its common stock.
b. Financial Statements.
i. The consolidated and consolidating balance sheets of the Company
and its subsidiaries as of October 31, 1994, 1993, 1992, 1991, and
1990 and the related consolidated and consolidating statements of
operations, stockholders' equity and cash flows for the fiscal years
then ended, including the footnotes thereto, have been prepared in
accordance with generally accepted accounting principles applied on
a consistent basis during the periods involved, except as may be
noted in the accompanying footnotes, and fairly present the financial
position of the Company and the Company Subsidiaries as of the
dates thereof and the results of their operations for the periods then
ended. Such consolidated financial statements of the Company have
been audited by KPMG Peat Marwick, independent certified public
accountants, and such firm has issued thereon an auditor's report
without qualification. To the best knowledge of the Company, the
Company's internal unaudited consolidated balance sheet as of
August 31, 1995 and the related statement of operations,
stockholders' equity and cash flows for the ten months then ended
(the "Interim Company Financial Statements") have been prepared in
accordance with the past practice of the Company in preparing
interim financial statements and in accordance with generally
accepted accounting principles applied on a consistent basis during
such period and fairly present the financial position, subject to
normal year-end accruals and adjustments, none of which, either
individually or in the aggregate, will be material, of the Company and
the Company Subsidiaries and the consolidated results of their
operations for the period ended as of, and on, such date.
ii. The consolidated and consolidating balance sheets of UDL-IL and
UDL-FL as of October 31, 1994, 1993, 1992, 1991, and 1990 and
the related consolidated and consolidating statements of operations,
stockholders' equity and cash flows for the fiscal years then ended,
including the footnotes thereto, have been prepared in accordance
with generally accepted accounting principles applied on a consistent
basis during the periods involved, except as may be noted in the
accompanying footnotes, and fairly present the financial position of
the UDL-IL and UDL-FL as of the dates thereof and the results of
their operations for the periods then ended. Such consolidated
financial statements of UDL-IL and UDL-FL have been audited by
KPMG Peat Marwick, independent certified public accountants, and
such firm has issued thereon an auditor's report without
qualification. To the best knowledge of the Company, the internal
unaudited consolidated balance sheets of UDL-IL and UDL-FL as of
August 31, 1995 and the related statement of operations,
stockholders' equity and cash flows for the ten months then ended
(the "Interim UDL Financial Statements"), have been prepared in
accordance with the past practice of the Company in preparing
interim financial statements and in accordance with generally
accepted accounting principles applied on a consistent basis during
such period and fairly present the financial position, subject to
normal year-end accruals and adjustments, none of which, either
individually or in the aggregate, will be material, to UDL-IL and UDL-FL, taken
as a whole, and the consolidated results of their operation for the period ended as
of, and on, such date.
c. Absence of Certain Changes or Events.
i. Since October 31, 1994, and except as specifically contemplated by
or disclosed pursuant to this Agreement or except as set forth in
certain disclosure schedules with respect, UDL-IL, UDL-FL, AP and
PD (individually, a "member of the Pharmaceutical Group" and
collectively, the "Pharmaceutical Group") dated the date hereof and
delivered to the Parent by the Company prior to the execution of this
Agreement (the "Disclosure Schedules") or the documents
referenced to therein, there has not been: (i) any material adverse
change in the business, assets, financial condition or results of
operation of the Pharmaceutical Group taken as a whole; (ii) any
declaration, payment or setting aside for payment of any dividend or
any redemption, purchase or other acquisition of any shares of
capital stock or securities of the Pharmaceutical Group, except in the
ordinary course of business consistent with past practice; (iii) any
return of any capital or other distribution of assets by any member of
the Pharmaceutical Group to the Company except as reflected in the
intercompany accounts between the Company and any member of
the Pharmaceutical Group; (iv) any material investment of a capital
nature by the Pharmaceutical Group either by the purchase of any
property or assets or by any acquisition (by merger, consolidation or
acquisition of stock or assets) of any corporation, partnership or
other business organization or division thereof other than capital
expenditures for items to be used in the ordinary course of business
of the Pharmaceutical Business up to a maximum expenditure of
$1,000,000; (v) any sale, disposition or other transfer, either
individually or in the aggregate, of assets or properties material to
the business of the Pharmaceutical Group other than sales of
inventory in the ordinary course of business; (vi) any employment or
consulting agreement entered into by any member of the
Pharmaceutical Group with any officer or consultant or any
amendment or modification to, or termination of, any current
employment or consulting agreement to which any member of the
Pharmaceutical Group is a party; (vii) any agreement by any member
of the Pharmaceutical Group to take, whether in writing or
otherwise, any action which, if taken prior to the date hereof, would
have made any representation or warranty in this Article 3 untrue or
incorrect in any material respect; (viii) any change in accounting
methods or practices or any change in depreciation or amortization
policies or rates by any member of the Pharmaceutical Group; and
(ix) any material failure by any member of the Pharmaceutical Group
to conduct its business only in the ordinary course consistent with
past practice.
ii. Since October 31, 1994, and except as specifically contemplated or
disclosed pursuant to this Agreement, there has not been: (i) any
material adverse change in the business, assets, financial condition
or results of operation of the Company, taken as a whole; (ii) any
declaration, payment or setting aside for payment of any dividend or
any redemption, purchase or other acquisition of any shares of
capital stock or securities of the Company, except in the ordinary
course of business consistent with past practice; (iii) any return of
any capital or other distribution of assets to stockholders of the
Company except for dividends paid on Company Preferred Stock and
Company Common Stock in the ordinary course of business
consistent with past practice; (iv) any employment or consulting
agreement entered into by the Company with any officer or
consultant or any amendment or modification to, or termination of,
any current employment or consulting agreement to which the
Company is a party; (v) any agreement by the Company to take,
whether in writing or otherwise, any action which, if taken prior to
the date hereof, would have made any representation or warranty in
this Article 3 untrue or incorrect in any material respect; (vi) any
change in accounting methods or practices or any change in
depreciation or amortization policies or rates by the Company; and
(vii) any material failure by the Company to conduct its business only
in the ordinary course consistent with past practice.
d. Authorization: Binding Agreement. Pursuant to its Certificate of Incorporation,
the Company has requisite corporate power and authority to execute and
deliver this Agreement and the Agreement for Business Combination and all
of the documents, agreements and instruments to which it is a party
contemplated hereby and thereby and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this
Agreement and the Agreement for Business Combination and the
consummation of the transactions contemplated hereby and thereby,
including but not limited to the Merger, have been duly and validly
authorized by the Company's Board of Directors and no other corporate
proceedings on the part of the Company or any Company Subsidiary are
necessary to authorize the execution and delivery of this Agreement or to
consummate the transactions so contemplated (other than the adoption of
this Agreement and approval of the Merger by the stockholders of the
Company in accordance with the Delaware General Corporation Law and the
Certificate of Incorporation and Bylaws of the Company). This Agreement
has been duly and validly executed and delivered by the Company, and,
subject to the approval and adoption of this Agreement by the stockholders
of the Company, constitutes the legal, valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms,
except to the extent that enforceability thereof may be limited by applicable
bankruptcy, insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and by principles of equity
regarding the availability of remedies.
e. Compliance with Other Instruments, etc. The execution and delivery by the
Company of this Agreement and the Agreement for Business Combination,
the performance by the Company of its obligations hereunder and
thereunder and the consummation of the transactions contemplated hereby
and thereby, will not (i) conflict with or result in a breach of any of the
provisions of its Certificate of Incorporation or Bylaws, (ii) require any
consent, approval or notice under or result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation or acceleration or increase
in the level of performance required) under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, agreement or
other instrument or obligation to which the Company or any Company
Subsidiary is a party or by which it or any of its respective properties or
assets may be bound, other than (x) the Senior Note Indebtedness and (y)
the Line of Credit Indebtedness, (iii) result in the creation or imposition of
any lien or encumbrance of any kind upon any of the assets of the Company
or any Company Subsidiary or (iv) subject to the obtaining of the
governmental and other consents referred to in Section 3.1(f) (Governmental
and other Consents, etc.), contravene any law, rule or regulation of any
state or of the United States or any political subdivision thereof or therein,
or any order, writ, judgment, injunction, decree, determination or award
currently in effect to which the Company or any Company Subsidiary or any
of its respective assets or properties are subject.
f. Governmental and other Consents, etc. Subject to requisite stockholder approval,
no consent, approval or authorization of, or designation, declaration or filing
with, any court, tribunal, administrative agency or commission or other
governmental or regulatory agency or authority or other public persons or
entities in the United States (each, a "Governmental Entity") on the part of
the Company or any Company Subsidiary is required in connection with the
execution or delivery by the Company of this Agreement or the Agreement
for Business Combination or the consummation by the Company of the
transactions contemplated hereby or thereby other than (i) filings in the
State of Delaware in accordance with the Delaware General Corporation
Law, (ii) filings under state securities or "Blue Sky" laws, (iii) filings with the
state authorities having jurisdiction over businesses which distribute drugs
and controlled substances (the "State Drug Regulatory Authorities"),
Canadian Foreign Investment Review Board or other filings related to the
transactions contemplated by the Agreement for Business Combination or
the Plan of Reorganization, (iv) federal, state or local regulatory approvals
and (v) filings under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder
(the "HSR Act").
g. No Misleading Statements. The Disclosure Schedules are true, correct and
complete in all material respects as qualified as set forth therein. The
Disclosure Schedules, the annual reports of the Company for the last five
years and any exhibits to any of the foregoing, all of which have been
delivered to the Parent by the Company, do not, as of their respective dates,
contain any untrue statement of a material fact or any omission to state a
fact necessary to make any statement of fact contained therein, in light of
the circumstances under which they are made, not misleading. None of the
information relating to the Pharmaceutical Group supplied by the Company in
writing specifically for inclusion in the Registration Statement described in
Section 4.4 (Covenants of the Company and the Parent as to Registration
Statement) will be false or misleading with respect to any material fact or
will omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they are made, not misleading.
h. Compliance with Applicable Law. Each member of the Pharmaceutical Group
holds all permits, licenses, variances, exemptions, orders and approvals of
each Governmental Entity necessary for the lawful conduct of their
respective businesses (collectively, the "Pharmaceutical Group Permits"),
except for failures to hold such permits, licenses, variances, exemptions,
orders and approvals which would not, individually or in the aggregate, have
a material adverse effect on the Pharmaceutical Group, taken as a whole.
Each member of the Pharmaceutical Group is in compliance with the terms
of the Pharmaceutical Group Permits issued to it, except where the failure so
to comply would not have a material adverse effect on the Pharmaceutical
Group, taken as a whole. Except as disclosed in the Disclosure Schedules,
the businesses of the Pharmaceutical Group are not being conducted in
violation of any law, ordinance or regulation of any Governmental Entity,
except for possible violations which individually or in the aggregate do not,
and is not reasonably expected to have a material adverse effect on the
Pharmaceutical Group, taken as a whole. As of the date of this Agreement,
no investigation or review by any Governmental Entity with respect to the
Pharmaceutical Group is pending or, to the best knowledge of the Company,
threatened, nor has any Governmental Entity indicated an intention to
conduct the same, other than, in each case, those the outcome of which is
not reasonably expected to have a material adverse effect on the
Pharmaceutical Group, taken as a whole. Neither AP nor PD has been or is
an "owner" or "operator" of any "facility" or "vessel" as defined in the
Comprehensive Environmental Response, Compensation and Liability Act of
1980.
i. Vote Required. The affirmative vote of the holders of a majority of the issued
and outstanding shares of Company Preferred Stock, voting as a class, and
the issued and outstanding shares of Company Common Stock, voting as a
class, are the only votes of the holders of any class or series of the
Company's capital stock necessary to approve this Agreement and the
transactions contemplated hereby.
j. No Broker. Except as set forth in the Disclosure Schedules, no broker, finder
or investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of the Company.
k. Litigation. Except as set forth in the Disclosure Schedules, there is not now
pending, and to the best knowledge of the Company, there is not threatened
in writing, nor is there any basis for, any litigation, action, suit or proceeding
to which the Pharmaceutical Group is or will be a party in or before or by
any court or governmental or regulatory agency or body, except for any
litigation, action, suit or proceeding (whether instituted, pending or, to the
best knowledge of the Company, threatened) involving claims which in the
aggregate are not, and which the Company reasonably expects, will not,
have a material adverse effect on the Pharmaceutical Group taken as a
whole. In addition, there is no judgment, decree, injunction, rule or order of
any court, governmental department, commission, board, bureau, agency,
instrumentality or arbitrator outstanding against the Pharmaceutical Group
having or which the Company reasonably expects, may have, a material
adverse effect upon the Pharmaceutical Group taken as a whole.
l. FDA Matters. Notwithstanding anything to the contrary in Sections 3.1(h)
(Compliance with Applicable Law) and 3.1(k) (Litigation) hereof and except
as set forth in the Disclosure Schedules, neither the Company nor any
members of the Pharmaceutical Group, (i) is a party to any pending
investigation or proceeding by or before the Food and Drug Administration
(the "FDA") or any other duly authorized State Drug Regulatory Authorities
or any other duly authorized governmental authority which regulates the sale
of drugs and controlled substances in any jurisdiction; (ii) has knowledge of
any facts which would form the basis for an investigation or proceeding or
regulatory action of any sort (other than routine or periodic investigations or
reviews) against either the Company or any member of the Pharmaceutical
Group by the FDA or any other duly authorized State Drug Regulatory
Authorities or any other duly authorized governmental authority which
regulates the sale of drugs and controlled substances in any jurisdiction
which could affect adversely, or in any way limit or restrict the ability of the
Company or any member of the Pharmaceutical Group to market existing
products; (iii) has committed or permitted to exist any violation of the rules
and regulations of the FDA or any other duly authorized State Drug
Regulatory Authorities or any other duly authorized governmental authority
which regulates the sale of drugs and controlled substances in any
jurisdiction which has not been cured by the Company or member of the
Pharmaceutical Group or waived by the FDA or any such regulatory
authority; (iv) has received notice from any third party (whether or not in
writing) of any claim, dispute or controversy relating to the supply of
regulated materials used in the products of the Company or any member of
the Pharmaceutical Group, or the quality, formulation, potency, toxicity or
efficacy of such materials; and (v) anticipates, or knows of any pending,
threatened or potential action by any duly authorized State Drug Regulatory
Authorities or any other duly authorized governmental authority which
regulates the sale of drugs and controlled substances in any jurisdiction
which could affect adversely, or in any way limit or restrict the ability of the
Company or any member of the Pharmaceutical Group to market existing
products. To the knowledge of the Company, the Company and each
member of the Pharmaceutical Group have fulfilled all regulatory
requirements necessary or requisite to the continued marketing of their
existing pharmaceutical and ancillary products.
m. ERISA Matters. As of the date hereof and during the five year period
preceding the date hereof, neither the Company nor any of the Company
Subsidiaries (including, for this purpose any entity that is or, during the five
year period preceding the date hereof, has been a member of the controlled
group of corporations (within the meaning of Section 414(b), (c), (m) or (o)
of the Code) of which the Company and the Company Subsidiaries are a
part):
i. maintains or has maintained any pension plan (within the meaning of
Section 3(2) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")) intended to be qualified under Section
401(a) of the Code other than the TC Manufacturing Co., Inc.
Consolidated Employees' Profit-Sharing Plan and Trust;
ii. maintains or has maintained any nonqualified pension plan (within
the meaning of Section 3(2) of ERISA);
iii. has any obligation to make any deferred compensation payments
other than severance or salary continuation payments to former
employees;
iv. contributes or has contributed to nor has or had any obligation
(contingent or otherwise) to contribute to any multiemployer pension
or welfare plan within the meaning of Section 3(37) of ERISA other
than obligations to contribute to the Service Employees International
Union National Industry Pension Plan;
v. contributes or has contributed to nor has or had any obligation to
contribute to any welfare plan (within the meaning of Section 3(1) of
ERISA) other than those identified in the Disclosure Schedules;
vi. provides or has provided nor has or had any obligation to provide
coverage under any welfare plan (within the meaning of Section 3(1)
of ERISA) to any former employees or dependents of former
employees other than certain benefits payable under the
Consolidated Omnibus Budget Reconciliation Act ("COBRA"); or
vii. has or had reason to believe that any employee, dependent or
government agency has commenced, or has made inquiries which
could reasonably be expected to result in the commencement of, any
adverse action with respect to any employee benefit plan matter.
Each plan referred to in clauses (i) and (v) of this Section 3.1(m), and to the
best knowledge of the Company, each plan referred to in clause (iv) of
Section 3.1(m), is in compliance in all material respects with applicable
provisions of ERISA, the Code and other applicable laws, except where
noncompliance would not have a material adverse effect on the Company or
any Company Subsidiary.
As of the date hereof, the Company and the Company Subsidiaries have in
place insurance coverage which limits their liability for claims incurred under
any group health program maintained by the Company and the Company
Subsidiaries to $50,000 with respect to any single illness or accident
incurred by any covered individual and to $1,647,000 (as of September 1,
1995) with respect to all claims incurred by all covered individuals under any
such program, in both cases for a twelve-month plan year which ends on
August 31 in each year.
n. Intercompany Transactions. All transactions between the Company, HSW or
any member of the Pharmaceutical Group are reflected in the intercompany
accounts between the Company and UDL-IL and HSW, respectively, and
there have been no loans, dividends or other distributions of cash or
property from any member of the Pharmaceutical Group to the Company
which have not been reflected in such intercompany accounts.
3.2 Representations, Warranties and Agreements of the Parent. The Parent represents
and warrants to the Company as follows:
a. Organization, Good Standing, Capitalization. The Parent is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania with all requisite corporate power and
authority to own, operate and lease its properties, to carry on its business as
now being conducted, and to enter into this Agreement and perform its
obligations hereunder. The Parent is duly qualified or licensed to do
business in each jurisdiction in which the business conducted by it makes
such qualification or licensing necessary, except where the failure to be so
qualified or licensed and in good standing would not have a material adverse
effect on the Parent. The Parent had, as of March 31, 1995, authorized
capital stock consisting of 300,000,000 shares of Common Stock, par value
of $.50 per share, of which 79,972,248 shares were issued and outstanding
and 476,523 shares were held in Parent's treasury; and 5,000,000 shares
of Preferred Stock, par value $.50 per share, of which none were issued and
outstanding or held in treasury; all of such capital stock of the Parent has
been duly authorized, and all issued and outstanding shares of capital stock
of the Parent have been validly issued and are fully paid and nonassessable.
As of March 31, 1995, there were no outstanding rights, options, warrants,
conversion rights or agreements for the purchase or acquisition from, or the
sale or issuance by, the Parent of any shares of its capital stock of any class
other than 1,770,674 shares of Parent Common Stock that may be issued
pursuant to employee benefit arrangements. Since March 31, 1995, the
Parent has not issued, granted, awarded or agreed or committed to issue,
grant or award any rights, options, warrants, conversion rights or purchase
rights with respect to the sale and issuance by the Parent of any shares of
its capital stock of any class or issued any shares of Parent Common Stock
except for Parent Common Stock issued upon the stock split with respect to
the Parent Common Stock effective on August 15, 1995, and except for
shares of Parent Common Stock issued pursuant to the stock option plans of
the Parent.
b. The Subsidiary. The Subsidiary had, as of August 31, 1995, authorized
capital stock consisting of 1,000 shares of Common Stock, par value of
$.50 per share, of which 1,000 shares were issued and outstanding and
owned by the Parent. The Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. All
of the issued and outstanding shares of the Subsidiary have been validly
issued and are fully paid and nonassessable. There are no outstanding
rights, options, warrants, conversion rights or agreements for the purchase
or acquisition from, or the sale or issuance by, the Subsidiary of any shares
of its capital stock, other than this Agreement. Since its organization, the
Subsidiary has conducted no business activities, except such as are related
to this Agreement and the performance of its obligations hereunder.
c. Financial Statements. The consolidated balance sheets of the Parent as of
March 31, 1995, 1994, 1993, 1992 and 1991 and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
then ended, including the footnotes thereto have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis during the periods involved and fairly present the financial
position of the Parent and its consolidated subsidiaries as of the dates
thereof and the results of their operations for the periods then ended. Such
consolidated balance sheets of the Parent and related consolidated
statements have been audited by Deloitte & Touche LLP, independent
certified public accountants, and such firm has issued thereon an auditor's
report without qualification.
d. No Material Change. Since March 31, 1995, there has not been any material
adverse change in the business, assets, financial condition, or results of
operation of the Parent and its subsidiaries taken as a whole.
e. Authorization: Binding Agreement. Pursuant to its Articles of Incorporation, the
Parent has requisite corporate power and authority to execute and deliver
this Agreement and the Agreement for Business Combination and all of the
other documents, agreements and instruments to which it is a party
contemplated hereby and thereby and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this
Agreement and the Agreement for Business Combination and the
consummation of the transactions contemplated hereby, including but not
limited to the Merger, have been duly and validly authorized by the Parent's
Board of Directors on behalf of the Parent both for itself and in its capacity
as the sole stockholder of the Subsidiary and no other corporate proceedings
on the part of the Parent are necessary to authorize the execution and
delivery of this Agreement or to consummate the transactions so
contemplated. This Agreement has been duly and validly executed and
delivered by the Parent and constitutes the legal, valid and binding
agreement of the Parent, enforceable against the Parent in accordance with
its terms, except to the extent that enforceability thereof may be limited by
applicable bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors' rights generally and by principles of
equity regarding the availability of remedies.
f. Compliance with Other Instruments, etc. The execution and delivery by the
Parent of this Agreement and the Agreement for Business Combination, the
performance by the Parent of its obligations hereunder and thereunder and
the consummation of the transactions contemplated hereby and thereby will
not (i) conflict with or result in a breach of any of the provisions of its
Articles of Incorporation or Bylaws, (ii) require any consent, approval or
notice under or result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration or augment the performance
required) under any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, license, agreement or other instrument or obligation to
which the Parent or any of its subsidiaries is a party or by which it or any of
its respective properties or assets may be bound, (iii) result in the creation or
imposition of any lien or encumbrance of any kind upon any of the assets of
the Parent or any of its subsidiaries or (iv) subject to the obtaining of the
governmental and other consents referred to in Section 3.2(g)
(Governmental and other Consents, etc.), contravene any law, rule or
regulation of any state or of the United States or any political subdivision
thereof or therein, or any order, writ, judgment, injunction, decree,
determination or award currently in effect to which the Parent or any of its
subsidiaries or any of its respective assets or properties are subject.
g. Governmental and other Consents, etc. No consent, approval or authorization of
or designation, declaration or filing with any Governmental Entity on the part
of the Parent is required in connection with the execution or delivery by the
Parent of this Agreement or the Agreement for Business Combination or the
consummation of the transactions by the Parent contemplated hereby and
thereby other than (i) filings under state securities or "Blue Sky" laws,
(ii) filings with the SEC and any applicable national securities exchange,
(iii) approval for listing the Parent Common Stock to be issued in the Merger
on the NYSE, (iv) federal, state or local regulatory approvals and (v) filings
under the HSR Act.
h. Parent Common Stock. The shares of Parent Common Stock to be issued in
accordance with this Agreement will be, upon issuance, duly authorized,
validly issued, fully paid and nonassessable. Such issuance of shares of
Parent Common Stock will be free of any restrictions on transfer imposed by
Parent, other than those contemplated by this Agreement, by the Agreement
for Business Combination or by the Plan of Reorganization. There are no
pre-emptive rights or other anti-dilution rights which would become effective
upon or prohibit such issuance of shares of Parent Common Stock.
i. No Misleading Statements. The Form 10-K of the Parent for each of its last five
fiscal years, the Proxy Statements of the Parent for its annual stockholders
meetings for each of its last five fiscal years and any quarterly or other
reports of the Parent filed with the SEC during its last five fiscal years, and
any exhibits to any of the foregoing, do not, as of their respective dates,
contain any untrue statement of a material fact or any omission to state a
fact necessary to make any statement of fact contained therein, in light of
the circumstances under which it is made, not misleading in any material
respect. All such filings and reports have been filed in a timely manner.
j. No Broker. No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Parent or the Subsidiary.
k. Litigation. There is not now pending, and to the best knowledge of the
Parent, there is not threatened in writing, nor is there any basis for, any
litigation, action, suit, investigation or proceeding to which the Parent or its
subsidiaries is or will be a party in or before or by any court or governmental
or regulatory agency or body, except for any litigation, action, suit or
proceeding (whether instituted, pending or, to the best knowledge of the
Parent, threatened in writing) involving claims which in the aggregate are
not, and insofar as the Parent reasonably expects, will not, have a material
adverse effect on the Parent and its subsidiaries taken as a whole. In
addition, there is no judgment, decree, injunction, rule or order of any court,
governmental department, commission, board, bureau, agency,
instrumentality or arbitrator outstanding against the Parent or its subsidiaries
having or which, insofar as the Parent reasonably expects, may have a
material adverse effect upon the Parent and its subsidiaries, taken as a
whole.
l. Securities Laws Compliance. During the five year period ended on the date
hereof, the Parent has complied in all material respects with the applicable
provisions of the Securities Act of 1933 and the Securities Exchange Act of
1934 and the rules and regulations of the SEC promulgated thereunder.
m. FDA Matters. Neither the Parent nor any of its subsidiaries (i) is a party to
any pending investigation or proceeding by or before the FDA or any other
duly authorized State Drug Regulatory Authorities or any other duly
authorized governmental authority which regulates the sale of drugs and
controlled substances in any jurisdiction; (ii) has knowledge of any facts
which would form the basis for an investigation or proceeding or regulatory
action of any sort (other than routine or periodic investigations or reviews)
against the Parent or any of its subsidiaries by the FDA or any other duly
authorized State Drug Regulatory Authorities or any other governmental
authority which regulates the sale of drugs and controlled substances in any
jurisdiction which could affect adversely, or in any way limit or restrict the
ability of the Parent or any of its subsidiaries to market existing products;
(iii) has committed or permitted to exist any violation of the rules and
regulations of the FDA or any other duly authorized State Drug Regulatory
Authorities or any other governmental authority which regulates the sale of
drugs and controlled substances in any jurisdiction which has not been cured
by the Parent or any of its subsidiaries or waived by the FDA or any such
regulatory authority; (iv) has received notice from any third party (whether
or not in writing) of any claim, dispute or controversy relating to the supply
of regulated materials used in the products of the Parent or any of its
subsidiaries, or the quality, formulation, potency, toxicity or efficacy of such
materials; and (v) anticipates, or knows of any pending, threatened or
potential action by any duly authorized State Drug Regulatory Authorities or
any other governmental authority which regulates the sale of drugs and
controlled substances in any jurisdiction which could affect adversely, or in
any way limit or restrict the ability of the Parent or any of its subsidiaries to
market existing products. To the knowledge of the Parent, it and each of its
subsidiaries have fulfilled all regulatory requirements necessary or requisite
to the continued marketing of their existing products.
3.3 Representations and Warranties as to Subsidiary. The Parent and Subsidiary
represent and warrant to the Company as follows:
a. Organization, Good Standing, Capitalization. The Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware with all requisite corporate power and authority to carry on the
business to be conducted by it prior to the Effective Date and to enter into
this Agreement and perform its obligations hereunder. The Subsidiary is not,
and is not required to be, qualified to do business in any jurisdiction other
than the State of Delaware. The Subsidiary has duly authorized capital
stock consisting of 1,000 shares of Common Stock, par value $1 per share,
all of which are issued and outstanding and owned by the Parent. All of
such issued and outstanding shares have been validly issued and are fully
paid and nonassessable. There are no outstanding rights, options, warrants,
conversion rights or agreements for the purchase or acquisition from, or the
sale or issuance by, the Subsidiary of any shares of its capital stock, other
than in connection with this Agreement.
b. Business of the Subsidiary. Since its organization, the Subsidiary has not
engaged in any business activities, entered into any transactions or incurred
any liabilities whatsoever except such as are related to the transactions
contemplated by this Agreement. The Subsidiary has no subsidiaries.
c. Authorization: Binding Agreement. Pursuant to its Certificate of Incorporation,
the Subsidiary has requisite corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, including but not
limited to the Merger, have been duly and validly authorized by the Parent as
sole stockholder of the Subsidiary and by the Subsidiary's Board of Directors
and no other corporate proceedings on the part of the Subsidiary are
necessary to authorize the execution and delivery of this Agreement or to
consummate the transactions so contemplated. This Agreement has been
duly and validly authorized, executed and delivered by the Subsidiary and
constitutes the legal, valid and binding agreement of the Subsidiary,
enforceable against it in accordance with its terms, except to the extent that
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of creditors'
rights generally and by principles of equity regarding the availability of
remedies.
d. Compliance with Other Instruments, etc. Neither the execution nor delivery of
this Agreement nor the consummation of the transactions contemplated
hereby will conflict with, result in any violation of, or constitute a default
under, the Articles of Incorporation or Bylaws of the Subsidiary or any
judgment, decree, order or any material law or regulation by which the
Subsidiary is bound or affected.
e. Governmental and Other Consents, etc. No consent, approval or authorization of
or designation, declaration or filing with any Governmental Entity on the part
of the Subsidiary is required in connection with the execution or delivery of
this Agreement by the Subsidiary or the Subsidiary's consummation of the
transactions contemplated hereby other than (i) filings in the State of
Delaware in accordance with the Delaware General Corporation Law and (ii)
filings under the HSR Act.
4. COVENANTS.
4.1 Covenants of the Company. The Company agrees that prior to the Effective Date:
a. Action in Furtherance of Merger. Subject to the terms and conditions herein
provided, the Company agrees to use commercially reasonable efforts to
take, or cause to be taken, such action, and to do, or cause to be done,
such things as are necessary, proper or advisable to consummate and make
effective as promptly as practicable the Merger and the transactions
contemplated by this Agreement, including (i) the defending of any lawsuits
or other legal proceedings, whether judicial or administrative, challenging
this Agreement or the consummation of the transactions contemplated
hereby, (ii) obtaining all governmental consents required for the
consummation of the Merger and the transactions contemplated thereby,
and (iii) making and causing their respective stockholders, as applicable, to
timely make all necessary filings under the HSR Act. Upon the terms and
subject to the conditions hereof, the Company agrees to use commercially
reasonable efforts to take, or cause to be taken, such actions and to do, or
cause to be done, such things as are necessary to satisfy the other
conditions of the closing set forth herein. The Company will consult with
counsel for the Parent as to, and will permit such counsel to participate in,
at the Parent's expense, any lawsuits or proceedings referred to in clause (i)
above brought against the Company, but not against the Parent, provided
that counsel for Company shall retain control of any such lawsuits or
proceedings. In case at any time after the Effective Date any further action
is necessary or desirable to carry out the purposes of this Agreement, the
officers and directors of the Surviving Corporation shall take all such
necessary action.
b. Maintenance of Properties. The Company will, and will cause each Company
Subsidiary to, maintain all of its and their respective properties in customary
repair, order and condition, reasonable wear and use and damage by fire or
other casualty excepted, and will maintain, and will cause each Company
Subsidiary to maintain, insurance upon all of its and their properties and with
respect to the conduct of its and their businesses in amounts and kinds
comparable to that in effect on the date of this Agreement.
c. Access and Information.
i. Between the date of this Agreement and the Effective Date, upon
reasonable notice, the Company and each Company Subsidiary will
give the Parent and its authorized representatives (including its
financial advisors, accountants and legal counsel) access, at all
reasonable times and in a manner which shall not cause
unreasonable disturbance, to all plants, offices, warehouses and
other facilities and to all contracts, agreements, commitments, books
and records (including tax returns) of the Company and each
Company Subsidiary (except to the extent any such agreements or
contracts by their terms restrict access to third parties and the
consent of the other party(ies) thereto cannot be obtained after
commercially reasonable efforts to do so), will permit the Parent to
make such inspections as it may require and will cause its officers
and those of the Company Subsidiaries promptly to furnish the
Parent with such financial and operating data and other information
with respect to the business and properties of the Company and
each Company Subsidiary, as may from time to time be reasonably
requested.
ii. The Company will hold and will cause its affiliates, employees,
representatives, consultants and advisors to hold in strict
confidence, unless compelled to disclose by judicial or administrative
process, or, in the opinion of its counsel, by other requirements of
law, all documents and information concerning the Parent and its
affiliates furnished to the Company in connection with the
transactions contemplated by this Agreement pursuant to
Section 4.2(c) (Access and Information) (except to the extent that
such information can be shown to have been (A) previously known
by the Company or any affiliate of it, (B) in the public domain
through no fault of the Company, or any of its affiliates, (C) later
lawfully acquired from other sources unless the Company knew such
information was obtained in violation of an agreement of
confidentiality or (D) publicly disclosed by the Parent) and will not
release or disclose such information to any other person, except its
auditors, attorneys, financial advisors, and other consultants and
advisors and lending institutions (including banks) in connection with
this Agreement (it being understood that such persons shall be
informed by the Company of the confidential nature of such
information and shall be directed by the Company to treat such
information confidentially). If the transactions contemplated by this
Agreement are not consummated, such confidence shall be
maintained except to the extent such information comes into the
public domain under judicial or administrative process or other
requirements of law or through no fault of the Company or any of its
affiliates and, if requested by the Parent, the Company will destroy
or return to the appropriate party all copies of written information
furnished by the Parent or its affiliates, agents, representatives or
advisors and all copies thereof and excerpts therefrom. If the
Company shall be required to make disclosure of any such
information by operation of law, the Company shall give the Parent
prior notice of the making of such disclosure and shall use all
reasonable efforts to afford such party an opportunity to contest the
making of such disclosures.
d. Conduct of Business. Except as expressly contemplated by the Agreement for
Business Combination, the Plan of Reorganization or this Agreement, during
the period from the date of this Agreement to the Effective Date, the
Company shall, and the Company shall cause each Company Subsidiary to,
conduct its business in the ordinary course and consistent with past
practice, and the Company shall, and the Company shall cause each
Company Subsidiary to, (1) use commercially reasonable efforts to preserve
intact its business organization, (2) keep available the services of its officers
and employees and (3) maintain satisfactory relationships with all persons
with which it does business. Without limiting the generality of the
foregoing, and except as otherwise expressly provided in this Agreement,
prior to the Effective Date, neither the Company nor any Company
Subsidiary will, without the prior written consent of Parent:
i. amend or propose to amend its Articles of Incorporation or Bylaws
(or comparable governing instruments);
ii. other than in the ordinary course of business consistent with past
practice: (A) create, incur or assume any short-term debt, long-term debt
or obligations in respect of capital leases; (B) assume,
guarantee, endorse or otherwise become liable or responsible
(whether directly, indirectly, contingently or otherwise) for the
obligations of any other person except the Company or any
Company Subsidiary; (C) make any capital expenditures or make
any loans, advances or capital contributions to, or investments in,
any other person not currently committed or budgeted (other than
transactions between the Company and UDL-IL and between the
Company and HSW which are reflected in the intercompany
accounts between the Company and UD-IL and HSW, respectively,
or other transactions between the Company and any Company
Subsidiary or customary travel or business advances to employees
made in the ordinary course of business consistent with past
practice); or (D) incur any material liability or obligation (absolute,
accrued, contingent or otherwise);
iii. sell, transfer, mortgage, or otherwise dispose of, or encumber, or
agree to sell, transfer, mortgage or otherwise dispose of or
encumber, any assets or properties, real, personal or mixed, other
than the sale, transfer or disposition of inventory in the ordinary
course of business; or
iv. agree, commit or arrange to do any of the foregoing.
e. Capital Stock. Between the date hereof and the Effective Date, except as
specifically contemplated by the Agreement for Business Combination, the
Plan of Reorganization or this Agreement, neither the Company nor any
member of the Pharmaceutical Group will (i) make any changes in its
authorized capital stock, (ii) issue any stock options, warrants, or other
rights calling for the issue, transfer, sale or delivery of its capital stock or
other securities, (iii) declare or pay any stock dividend or effect any
recapitalization, split-up, combination, exchange of shares or other
reclassification in respect of its outstanding shares of capital stock,
(iv) issue, transfer, sell or deliver any shares of its capital stock (or securities
convertible into or exchangeable, with or without additional consideration,
for such capital stock) except for Company Common Stock issuable upon
the exercise of stock options previously granted pursuant to existing stock
option plans, or, (v) declare, pay or set apart for payment in respect of its
capital stock any dividends or other distribution or payments (whether in
cash, stock or property or any combination thereof), except for cash
dividends on the Company Common Stock and Company Preferred Stock
consistent with past practices of the Company. Except in a manner
consistent with past practice, no award or grant under the Company stock
option plans or any other benefit plan or program shall be made without the
consent of the Parent. Except as specifically contemplated by the
Agreement for Business Combination, the Plan of Reorganization or this
Agreement, the Company shall not make any material amendment to any of
(i) the Company stock option plans or options outstanding thereunder, (ii)
any other option or warrant agreement, or (iii) the terms of any other
security convertible into or exchangeable for Common Stock without the
consent of the Parent.
f. No Solicitations. The Company shall not, nor shall it permit any Company
Subsidiary to, nor shall it authorize or permit any of its officers, directors or
employees or any investment banker, financial advisor, attorney, accountant
or other representative retained by it or any Company Subsidiary to continue
negotiations with respect to any Takeover Proposal (as hereinafter defined)
previously received by the Company; to solicit, initiate or encourage
(including by way of furnishing information), or take any other action to
facilitate, any inquiries or the making of any proposal which constitutes, or
may reasonably be expected to lead to, any Takeover Proposal; or agree to
or endorse any Takeover Proposal. The Company shall promptly advise the
Parent orally and in writing of any such inquiries or proposals. As used in
this Agreement, "Takeover Proposal" shall mean any tender or exchange
offer, proposal for a merger, consolidation or other business combination
involving the Company or any Company Subsidiary or any proposal or offer
to acquire in any manner a substantial equity interest in, or a substantial
portion of the assets of, the Company or any Company Subsidiary other
than the transactions contemplated by this Agreement. Notwithstanding the
foregoing, the Company shall not be obligated to take any of the actions set
forth in this Section 4.1(f), or refrain from taking any of the actions set forth
in this Section 4.1(f), if the Board of Directors of the Company, acting with
the advice of the Company's counsel, determines that such actions or
inactions would be contrary to their legal obligations as Directors of the
Company.
g. Limitation on Indebtedness.
i. Neither the Company nor any Company Subsidiary will create or
incur any indebtedness except for current liabilities incurred in the
ordinary course of business and increases in the Line of Credit
Indebtedness to fund the operations of the business of Company
and the Company Subsidiaries and to fund the transactions
contemplated by the Agreement for Business Combination, the Plan
of Reorganization and this Agreement.
ii. All changes in the amount of the inter-company indebtedness of
UDL-IL and HSW in favor of the Company shall be made in the
ordinary course of business consistent with past practice. At
Closing, the Company shall provide the Parent with a detailed
reconciliation of all changes to such intercompany indebtedness
since August 31, 1995 and through the Effective Date, on a pro
forma basis after giving effect to the consummation of the
transactions contemplated by the Agreement for Business
Combination and the Plan of Reorganization. There will be no
loans, dividends, distributions or other transactions between the
Company and UDL-IL or HSW which are not reflected in the
intercompany accounts between the Company and UDL-IL and
HSW, respectively.
h. Compensation Matters. The Company shall not permit any member of the
Pharmaceutical Group to (i) pay to any officer or employee any bonus,
severance or other compensation not currently required under an existing
agreement or employee benefit plan or arrangement except for increases in
compensation of employees who are not directors or holders of an office at
the rank of Senior Vice President or higher of any such member of the
Pharmaceutical Group consistent with past practices, (ii) create any new
employee benefit plan or arrangement, (iii) modify any existing employee
benefit plan, arrangement or agreement in any respect which would
materially increase the compensation payable thereunder to employees or
materially increase the level of contribution payable by the employer
thereunder, or (iv) enter into any new employment agreement or modify any
existing employment agreement of any employee who is an officer or
director of any such member of the Pharmaceutical Group.
i. Contracts. No member of the Pharmaceutical Group shall enter into,
terminate or modify in any material respect any material contract, agreement
or commitment without the prior written consent of the Parent, which
consent will not be unreasonably withheld.
j. Tax Matters. The Company and each Company Subsidiary will continue to file
when due all federal, state, local, foreign and other tax returns, reports and
declarations required to be filed by them, and will pay or make full and
adequate provision for the payment of all taxes and governmental charges
due or payable by them.
k. Amendments to the Disclosure Schedules. The Company shall make such
amendments to the Disclosure Schedules on the Effective Date as are
necessary to reflect therein the occurrence of events or transactions
occurring after the date hereof and shall deliver a copy of each such
amendment to the Parent on the same date as the date of the amendment.
The Company will deliver such additional amendments from time to time as
are necessary to reflect any material event occurring between the date
hereof and the Effective Date.
l. Notification of Certain Matters. The Company shall give prompt notice to the
Parent of: (i) any notice of, or other communication relating to, a default or
event which, with notice or lapse of time or both, would become a default
under any agreement, indenture or instrument material to the business,
assets, property, condition (financial or otherwise) or the results of
operations of the Company or any Company Subsidiary, to which the
Company or any Company Subsidiary, is a party or is subject; (ii) any notice
or other communication from any third party alleging that the consent of
such third party is or may be required in connection with the transactions
contemplated by this Agreement including the Merger; (iii) any notice or
other communication from any regulatory authority or national securities
exchange in connection with the transactions contemplated by this
Agreement; (iv) any material adverse change in the business, assets,
prospects, condition (financial or otherwise) or results of operations of the
Company or any Company Subsidiary, or the occurrence of an event which
would be reasonably expected to result in any such change; and (v) any
claims, actions, proceedings or investigations commenced or threatened in
writing involving or affecting the Company or any Company Subsidiary, or
any of their respective property or assets, or any employee, consultant,
director or officer, in his or her capacity as such, of the Company or any
Company Subsidiary, which, if pending on the date hereof, would have been
required to have been disclosed pursuant to this Agreement or which relates
to the consummation of the Merger.
m. Stockholder Approval. The Company will take all steps necessary to duly call,
give notice of, convene and hold no later than thirty (30) days after the
Registration Statement has been declared effective by the SEC a meeting of
its stockholders in accordance with the Delaware General Corporation Law
to consider and vote upon, among other matters, the adoption and approval
of this Agreement and the Merger and the transactions contemplated
hereby. The Company, through its Board of Directors (i) will, consistent
with its legal obligations, adopt a recommendation to the stockholders of the
Company that they adopt and approve this Agreement and (ii) will use
commercially reasonable efforts, consistent with its legal obligations, to
obtain any necessary approval by its stockholders of the transactions
contemplated hereby.
n. Financial Statements. The Company, promptly after the preparation thereof,
shall send to the Parent any financial statements prepared by or on behalf of
it for periods subsequent to those referenced in Section 3.1(b) as to which
the representations and warranties of said section shall apply.
o. No Amendment. The Company shall not amend or permit the amendment of
the Plan of Reorganization or any of the Exhibits thereto without the prior
written consent of the Parent, which consent will not be unreasonably
withheld.
p. Proxy Statement. The Company shall deliver to the Parent the final form of
proxy statement which the Company intends to distribute to its stockholders
in connection with the adoption and approval of this Agreement and the
Merger at least two (2) business days prior to such distribution.
q. No Transactions. The Company shall not enter into any transactions nor
transfer any assets or property to Newco between the date hereof and the
Effective Date except as necessary to prepare for the implementation on the
Effective Date of the Plan of Reorganization in accordance with its terms.
r. Participation by Parent. The Company shall permit representatives of the
Parent to participate in the allocation and apportionment of consolidated
items of the Company to the Pharmaceutical Group provided for in Section
3.3 of the Plan of Reorganization and in the establishment of separate cash
management systems, separate bank accounts, lockboxes, cash balances
and other investments with respect to the Pharmaceutical Group provided
for in Section 1.4(c) of the Distribution Agreement attached as Exhibit 3.2
to the Plan of Reorganization
4.2 Covenants of the Parent. The Parent agrees that prior to the Effective Date:
a. Action in Furtherance of Merger. Subject to the terms and conditions herein
provided, the Parent agrees to use commercially reasonable efforts to take,
or cause to be taken, such action, and to do, or cause to be done, such
things as are necessary, proper or advisable to consummate and make
effective as promptly as practicable the Merger and the transactions
contemplated by this Agreement, including (i) the defending of any lawsuits
or other legal proceedings, whether judicial or administrative, challenging
this Agreement or the consummation of the transactions contemplated
hereby, (ii) obtaining all governmental consents required for the
consummation of the Merger and the transactions contemplated thereby,
(iii) making all necessary filings under the HSR Act, (iv) filing the Registration
Statement (as defined in Section 4.4) and causing the same to become
effective; and (v) voting the Irrevocable Proxies in favor of approving this
Agreement and the transactions contemplated hereby, all on the terms and
conditions provided for herein. Upon the terms and subject to the
conditions hereof, the Parent agrees to use commercially reasonable efforts
to take, or cause to be taken, such actions and to do, or cause to be done,
such things as are necessary to satisfy the other conditions of the closing
set forth herein. The Parent will consult with counsel for the Company as
to, and will permit such counsel to participate in, at the Company's expense,
any lawsuits or proceedings referred to in clause (i) above (which shall not
include any such lawsuits or proceedings to the extent that they relate to
the Registration Statement) brought against the Parent, but not against the
Company, provided that counsel for the Parent shall retain control of any
such lawsuits or proceedings. In case at any time after the Effective Date
any further action is necessary or desirable to carry out the purposes of this
Agreement, the officers and directors of the Surviving Corporation shall take
such necessary action.
b. Maintenance of Properties. The Parent will, and will cause each of its
subsidiaries to, maintain all of its and their respective properties in
customary repair, order and condition, reasonable wear and use and damage
by fire or other casualty excepted, and will maintain, and will cause each of
its subsidiaries to maintain, insurance upon all of its and their properties and
with respect to the conduct of its and their businesses in amounts and kinds
comparable to that in effect on the date of this Agreement.
c. Access and Information.
i. Between the date of this Agreement and the Effective Date, upon
reasonable notice, the Parent will give the Company and its
authorized representatives (including its financial advisors,
accountants and legal counsel) access, at all reasonable times and
in a manner which shall not cause unreasonable disturbance, to
officers and senior executives of the Parent as well as to financial
and operating data and other information with respect to the
business and properties of the Parent as has been disclosed
publicly by the Parent.
ii. The Parent will hold and will cause its affiliates, employees,
representatives, consultants and advisors to hold in strict
confidence, unless compelled to disclose by judicial or
administrative process, or, in the opinion of its counsel, by other
requirements of law, all documents and information concerning the
Company and each Company Subsidiary and their respective
affiliates furnished to the Parent in connection with the
transactions contemplated by this Agreement pursuant to Section
4.1(c) (Access and Information) (except to the extent that such
information can be shown to have been (A) previously known by
the Parent or any affiliate of it, (B) in the public domain through no
fault of the Parent, or any of its affiliates, (C) later lawfully
acquired from other sources unless the Parent knew such
information was obtained in violation of an agreement of
confidentiality or (D) publicly disclosed by the Company,) and will
not release or disclose such information to any other person,
except its auditors, attorneys, financial advisors, and other
consultants and advisors and lending institutions (including banks)
in connection with this Agreement (it being understood that such
persons shall be informed by the Parent of the confidential nature
of such information and shall be directed by the Parent to treat
such information confidentially). If the transactions contemplated
by this Agreement are not consummated, such confidence shall be
maintained except to the extent such information comes into the
public domain under judicial or administrative process or other
requirements of law or through no fault of the Parent or any of its
affiliates and, if requested by the Company, the Parent will destroy
or return to the appropriate party all copies of written information
furnished by the Company or any Company Subsidiary, or their
respective affiliates, agents, representatives or advisors and all
copies thereof and excerpts therefrom. If the Parent shall be
required to make disclosure of any such information by operation of
law, the Parent shall give the Company prior notice of the making
of such disclosure and shall use all reasonable efforts to afford
such party an opportunity to contest the making of such
disclosures.
d. Listing Application. The Parent will use its commercially reasonable efforts to
effect listing of the Parent Common Stock to be delivered in accordance
with this Agreement on the NYSE upon notice of issuance.
e. Public Filings. The Parent shall promptly file all periodic reports required to
be filed with the SEC and provide the Company with a copy of such reports
promptly after such filing.
f. Voting of Irrevocable Proxies. The Parent shall vote the Irrevocable Proxies in
favor of the adoption of this Agreement, in the form as executed on the
date hereof, and the approval of the Merger on the terms and conditions set
forth in this Agreement, at the meeting of the stockholders of the Company
to be called as provided for in Section 1.4.
g. Registration Statement. The Parent shall deliver to the Company the final form
of Registration Statement (as defined in Section 4.4) which the Parent
intends to have declared effective by the SEC at least two (2) business days
prior to such declaration.
h. Conduct of Business. Except as expressly contemplated by this Agreement,
during the period from the date of this Agreement to the Effective Date, the
Parent shall, and the Parent shall cause each of its subsidiaries to, conduct
its business in the ordinary course and consistent with past practice.
4.3 Covenants of the Subsidiary. The Subsidiary agrees that prior to the Effective Date:
a. No Business. The Subsidiary will not engage in any business activities or
enter into any transaction whatsoever except such as are related to this
Agreement and the performance of its obligations hereunder.
b. Access. Until the Effective Date or until the abandonment of the Merger as
permitted by this Agreement, the Subsidiary will give to the Company and
its representatives full access during normal business hours and upon
reasonable notice, to all of the properties, books, contracts, documents and
records of it and will furnish to the Company such financial and other
information concerning the Subsidiary as the Company and its
representatives may from time to time reasonably request.
c. Action in Furtherance of Merger. The Subsidiary shall use commercially
reasonable efforts to obtain such consents and authorizations of third
parties, to make such filings, and to give such notices to third parties, which
may be necessary or reasonably required on the part of the Subsidiary in
order to effect, or in connection with, the transactions contemplated by this
Agreement.
4.4 Covenants of the Company and the Parent.
a. Registration Statement. The Company shall cooperate with the Parent in the
preparation by the Parent of, and the Parent shall file with the SEC on
Form S-4 and shall use commercially reasonable efforts to cause to become
effective, a registration statement under the 1933 Act, covering the shares
of Parent Common Stock to be delivered pursuant to this Agreement (the
"Registration Statement"). The Parent shall use commercially reasonable
efforts to qualify such securities, if required, under applicable state securities
laws and to cause the shares of Parent Common Stock which are to be
delivered pursuant to this Agreement to be listed on the NYSE. The
Prospectus/Proxy Statement shall include the prospectus which forms a part
of the Registration Statement. The obligations of the Company pursuant to
this Section 4.4 shall be limited to providing the information required by
items 17 and 18 of Form S-4, and the expense of providing such information
shall be borne by the Company. The Company and the Parent hereby agree
that, with respect to the information to be furnished by each of them in
writing specifically for inclusion in the Registration Statement, none of such
information will be false or misleading with respect to any material fact or
will omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they are made, not misleading.
b. Public Announcements. So long as this Agreement is in effect, neither the
Parent nor the Company shall, nor any of their affiliates shall, issue or cause
the publication of any press release or any other announcement with respect
to the Merger or the transactions contemplated by this Agreement without
the consent of the other party as to the nature, contents and dissemination
thereof, in which case the party proposing such publication will deliver a
copy of such release or announcement to the Company along with its
request for consent.
5. CONDITIONS TO CLOSING; ABANDONMENT AND TERMINATION.
5.1 Conditions to the Company's Closing and Its Right to Abandon. The Company shall
(x) not be required to close the Merger if any of the following shall not be true or
shall not have occurred or shall not have been waived in writing by the Company at
the Closing and (y) have the right to abandon the Merger and terminate this
Agreement if any of the following shall not be true or shall not have occurred, or
shall not have been waived in writing by the Company, as the case may be, by
5:01 p.m., Eastern Standard Time, on February 28, 1996.
a. Material Adverse Effect. No event or circumstance shall have occurred
which has, or is reasonably expected to have, a material adverse effect on
the business, assets, financial condition or results of operation of the Parent
and its subsidiaries, taken as a whole, including, without limitation, any
material adverse effect caused by any of the following:
i. The failure of the representations and warranties of the Parent and
the Subsidiary herein contained to be true and correct in all respects
on and as of the Effective Date with the same force and effect as
though made on and as of the Effective Date except as affected by
transactions specifically contemplated by this Agreement;
ii. The failure of either the Parent or the Subsidiary to have performed
all its obligations and agreements and complied with all covenants
contained in this Agreement to be performed and complied with by it
on or prior to the Effective Date; and
iii. The execution, delivery and performance by the Parent of this
Agreement and the consummation of the Merger having, directly or
indirectly, resulted in a breach of, constituted an event of default
under or resulted in the acceleration of, with or without the giving of
notice, lapse of time, or both, an obligation under any agreement of
the Parent.
b. No Material Adverse Change. Between June 30, 1995 and the Effective Date,
there shall have been no material adverse change in the business, assets,
financial condition or results of operation of the Parent and its subsidiaries
taken as a whole.
c. Officer's Certificate. The Company shall have received a certificate of the
Chairman of the Board, the President or any Vice-President of each of the
Parent and the Subsidiary, dated the Effective Date, certifying as to the
absence of any of the matters mentioned in Sections 5.1(a) (Material
Adverse Effect) and (b) (Material Adverse Change).
d. Opinion of Counsel. Buchanan Ingersoll Professional Corporation, special
counsel to the Parent and the Subsidiary, shall deliver to the Company its
opinion, dated the Effective Date and delivered immediately prior to the
Effective Time substantially in the form and substance of Exhibit G attached
hereto.
e. Consents. Except to the extent such consents are not required at the
Effective Date: (A) the Parent shall have received the consents or
exemptions or made the filings, as the case may be, which are referred to in
Section 3.2(g) (Government and Other Consents, etc.) hereof; and (B) all
notification and report forms required to be filed on behalf of the parties to
this Agreement with the Federal Trade Commission and the Department of
Justice under the HSR Act and rules thereunder shall have been filed, and
the waiting period required to expire under the HSR Act and rules
thereunder, including any extension thereof, shall have expired or early
termination of the waiting period shall have been granted.
f. Effectiveness. The Registration Statement shall have become effective under
the 1933 Act and shall not be the subject of any stop order or proceeding
seeking a stop order.
g. Listing. The Parent Common Stock to be issued in the Merger shall have
been approved for listing on the NYSE upon notice of issuance.
h. Consummation of Transactions under Agreement for Business Combination and Plan
of Reorganization. The transactions contemplated by the Agreement for
Business Combination and the Plan of Reorganization shall have been
consummated in accordance with the terms of the Agreement for Business
Combination and the Plan of Reorganization and all agreements attached to
the Agreement for Business Combination and Plan of Reorganization as
Exhibits which require execution and delivery shall have been executed and
delivered on the Effective Date prior to the Effective Time, other than as a
result of a failure by the Company to use commercially reasonable efforts to
consummate such transactions or to execute and deliver, or cause to be
executed and delivered, such agreements.
i. No Legal Restraints. No temporary restraining order, preliminary or permanent
injunction or other order issued by a court of competent jurisdiction or other
legal restraint or prohibition preventing the consummation of the Merger
shall be in effect.
5.2 Conditions to the Parent's and the Subsidiary's Closing and Right of the Parent and
the Subsidiary to Abandon. The Parent and the Subsidiary shall (x) not be required
to close the Merger if any of the following shall not be true or shall not have
occurred or shall not have been waived in writing by the Parent at the Closing and
(y) have the right to abandon the Merger and terminate this Agreement if any of the
following shall not be true or shall not have occurred, or shall not have been waived
in writing by the Parent, as the case may be, by 5:01 p.m., eastern standard time,
on February 28, 1996:
a. Material Adverse Effect. No event or circumstance shall have occurred which has,
or is reasonably expected to have, a material adverse effect on the business, assets,
financial condition or results of operation of the Pharmaceutical Group, taken as a
whole, including, without limitation, any material adverse effect caused by any of
the following:
i. The failure of the representations and warranties of the Company herein
contained to be true and correct in all respects on and as of the Effective
Date with the same force and effect as though made on and as of the
Effective Date, except as affected by transactions specifically contemplated
by the Agreement for Business Combination or Plan of Reorganization;
ii. The failure of the Disclosure Schedules, as amended immediately prior to,
but on the same day as, the Merger on the Effective Date for events or
transactions occurring after the date of this Agreement, to be true and
correct in all respects on and as of the Effective Date with the same force
and effect as though made on and as of the Effective Date;
iii. The disclosure by any amendment to the Disclosure Schedules of the
existence of any adverse change in the business, assets, financial condition
or the results of operation of the Pharmaceutical Group, taken as a whole;
iv. The failure of the Company to have performed all its obligations and
agreements and complied with all covenants contained in this Agreement to
be performed and complied with by it on or prior to the Effective Date; and
v. The execution, delivery and performance by the Company of this Agreement
and the consummation of the Merger having, directly or indirectly, resulted
in a breach of, constituted an event of default under or resulted in the
acceleration of, with or without the giving of notice, lapse of time, or both,
an obligation under any agreement of the Company.
b. No Material Adverse Change. Between August 31, 1995 and the Effective
Date, there shall have been no material adverse change in the business,
assets, financial condition or results of operation of the Pharmaceutical
Group taken as a whole except for those changes arising from the
transactions contemplated by the Agreement for Business Combination and
the Plan of Reorganization.
c. Officer's Certificate. The Parent and the Subsidiary shall have received a
certificate of the Chairman of the Board, the President or any Vice-President
of the Company, dated the Effective Date, certifying as to:
i. the absence of any of the matters mentioned in Sections
5.2(a)(Material Adverse Effect) and (b) (Material Adverse Change);
ii. the number of shares of the Special Preferred Stock of the Company
issued and outstanding and the number of shares of Company
Preferred Stock issued and outstanding;
iii. the number of Outstanding Shares of Company Common Stock;
iv. the information relating to the Pharmaceutical Group supplied by the
Company in writing specifically for inclusion in the Registration
Statement; and
v. the adoption of resolutions by the Board of Directors of the
Company adopting the Plan of Reorganization in the form of
Exhibit B attached hereto.
d. Opinion of Counsel. Rivkin, Radler & Kremer, counsel to the Company, shall
deliver to the Parent its opinion dated the Effective Date and delivered
immediately prior to the Effective Time, substantially in the form and
substance of Exhibit H attached hereto.
e. Consents. Except to the extent such consents are not required at the
Effective Date: (A) the Parent shall have received the consents or
exemptions, or made the filings, as the case may be, which are referred to
in Section 3.2(g) (Government and Other Consents, etc.) hereof other than
as a result of a failure by the Parent to use commercially reasonable efforts
to obtain such consents or exemptions or make such filings; (B) all
notification and report forms required to be filed on behalf of the parties to
this Agreement with the Federal Trade Commission and the Department of
Justice under the HSR Act and rules thereunder shall have been filed, and
the waiting period required to expire under the HSR Act and rules
thereunder, including any extension thereof, shall have expired or early
termination of the waiting period shall have been granted; (C) the Company
shall have received the consents or exemptions, or made the filings, as the
case may be, which are referred to in Section 3.2(f) (Government and Other
Consents, etc.) and shall have received such consents, if any, as may be
required with respect to the Pharmaceutical Group as provided in the Plan of
Reorganization.
f. Rule 145. The Company shall have delivered to the Parent an opinion of
Rivkin, Radler & Kremer, in form and substance satisfactory to the Parent,
specifying the persons who in the judgment of such counsel, based on a
reasonable investigation, may be deemed to be Affiliates.
g. Effectiveness. The Registration Statement shall have become effective under
the 1933 Act and shall not be the subject of any stop order or proceeding
seeking a stop order other than as a result of a failure by the Parent to use
commercially reasonable efforts to cause the Registration Statement to
become effective.
h. Reconciliation of the Intercompany Account. The Company shall have delivered
the reconciliation of the Inter-Company Account described in
Section 4.1(g)(ii).
i. TC Stockholders' Agreement. That certain Agreement, dated March 1, 1962, as
amended, by and among the Company and all of the holders of the
Company Common Stock who are parties thereto or who are bound by the
provisions thereof shall have been terminated and shall be of no further
force and effect.
j. UDL-IL Stockholders' Agreement. That certain Agreement Among Stockholders
by and among Michael K. Reicher, Hermann Schloegl, the Company and
UDL-IL, dated February 19, 1982 shall have been terminated and shall be of
no further force and effect.
k. Consummation of Transactions Under Agreement for Business Combination and Plan
of Reorganization. The transactions contemplated by the Agreement for
Business Combination and the Plan of Reorganization required to be
consummated on or before the Effective Date shall have been consummated
in accordance with the terms of the Agreement for Business Combination
and the Plan of Reorganization and all agreements attached to the
Agreement for Business Combination and the Plan of Reorganization as
Exhibits which require execution and delivery shall have been executed and
delivered on the Effective Date prior to the Effective Time, other than as a
result of a failure by the Parent to use commercially reasonable efforts to
consummate such transactions or to execute and deliver, or cause to be
executed and delivered, such agreements. The Plan of Reorganization and
the exhibits attached to each shall not have been amended without the prior
written consent of the Parent except when such consent has been
unreasonably withheld.
l. UDL-IL Minority Stock Interest. The Company shall have acquired the stock of
UDL-IL held by Michael K. Reicher and the Company shall be the owner of
all of the issued and outstanding capital stock of UDL-IL.
m. Exercise of Options. All of the outstanding options to acquire shares of
Company Common Stock shall have been fully exercised or cancelled and
the appropriate number of shares of Company Common Stock shall have
been issued with respect to such exercise.
n. Listing. The Parent Common Stock to be issued in the Merger shall have
been approved for listing on the NYSE upon notice of issuance, other than
as a result of a failure by the Parent to use commercially reasonable efforts
to obtain approval for such listing.
o. Indemnification Agreement. Newco and the Company shall have executed and
delivered the Indemnification Agreement in the form attached as Exhibit 5 to
the Agreement for Business Combination.
p. Financial Statements. The Parent shall have received consolidated and consolidating
balance sheets of the Company and its subsidiaries and of UDL-IL and UDL-FL for
the fiscal year ended October 31, 1995 and the related consolidated and consolidating
statements of operations, stockholders' equity and cash flows for the year then ended,
including footnotes thereto. Such consolidate financial statements of the Company
shall have been audited by KPMG, independent certified public accountants, and such
firm shall have issued thereon an auditor's report without qualification.
q. No Legal Restraints. No temporary restraining order, preliminary or permanent
injunction or other order issued by a court of competent jurisdiction or other
legal restraint or prohibition preventing the consummation of the Merger
shall be in effect.
r. Reicher Employment Agreement. That certain Employment Agreement, dated
February 19, 1982, by and between Michael K. Reicher and UDL-IL shall
have been terminated and be of no further force and effect.
s. Outstanding Shares of Special Preferred Stock. No shares of the Special Preferred
Stock of the Company shall be issued or outstanding.
6. ADDITIONAL TERMS OF ABANDONMENT.
6.1 Terms of Abandonment. In addition to the provisions of Article 5 hereof, the
Merger may be abandoned and this Agreement may be terminated on or before 5:01
p.m., eastern standard time, on February 28, 1996:
a. Mutual Agreement. By mutual agreement of the Boards of Directors of the
Parent, the Subsidiary and the Company pursuant to resolutions adopted by
such Boards, notwithstanding any prior adoption of this Agreement or
approval of the Merger by the respective stockholders of the Subsidiary or
the Company.
b. Violation of Order. By either the Parent or the Subsidiary on the one hand, or
the Company, on the other, if consummation of the Merger would violate
any preliminary injunction or restraining order or final, nonappealable order,
decree, injunction, restraining order or judgment of any United States court
or other tribunal of competent jurisdiction.
6.2 Termination of Agreement. The Merger shall be abandoned and this Agreement
shall be automatically terminated at 5:01 p.m., eastern standard time, on
February 28, 1996, or such later date as the Board of Directors of the Parent, the
Subsidiary and the Company may mutually agree pursuant to resolutions adopted by
such Boards.
6.3 Effect of Abandonment or Termination. If the Merger is abandoned and this
Agreement is terminated as provided in Section 6.1 (Terms of Abandonment),
Section 6.2 (Termination of Agreement) or in Article 5 of this Agreement, this
Agreement (except Section 4.1(c)(ii) (Access and Information), Section 4.2(c)(ii)
(Access and Information), Article 7 (Expenses) Section 8.11 (Indemnification by the
Company) and Section 8.12 (Indemnification by the Parent) shall forthwith become
wholly void and of no effect, and none of the parties shall have any liability on
account of any provision hereof which does not expressly survive the termination of
this Agreement on the part of any party hereto or their respective officers or
directors (other than for the payment of expenses pursuant to Section 7.2 or 7.3
hereof). The parties shall continue to be liable for the performance of those
provisions which survive the termination of this Agreement.
7. EXPENSES.
7.1 Costs and Expenses. Except as set forth in Sections 7.2 and 7.3, whether or not
the Merger is consummated, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expense, and, in connection therewith, each of the Parent and the
Company shall pay, with its own funds, any and all property or transfer taxes
imposed on such party, except that expenses incurred in connection with the
typesetting, printing or photocopying and mailing the Prospectus/Proxy Statement to
the holders of Company Preferred Stock and Company Common Stock shall be
shared equally by the Parent and the Company; provided, however, the share of
such expenses to be paid by the Company shall not exceed Ten Thousand Dollars
($10,000).
7.2 Termination Pursuant to Section 5.2 Generally. In the event that the Parent shall
terminate this Agreement pursuant to any provision of Section 5.2 (other than
pursuant to Section 5.2(e) with respect to consents or filings of the Parent, Section
5.2(g) with respect to the effectiveness of the Registration Statement,
Section 5.2(n) with respect to the approval of the listing of the Parent Common
Stock on the NYSE or Section 5.2(q) with respect to legal restraints), then the
Company shall, within three business days following notification (provided such
notification is delivered after February 28, 1996 and on or prior to March 31, 1996)
by the Parent to the Company of the amount of such costs and expenses, reimburse
the Parent for all filing fees incurred by the Parent, all typesetting, printing,
photocopying and mailing expenses of the Prospectus/Proxy Statement and
Registration Statement incurred by the Parent, and for all actual out-of-pocket legal
and accounting fees and expenses incurred by the Parent in connection with the
transactions contemplated by this Agreement.
7.3 Termination Pursuant to Section 5.1 Generally. In the event that the Company shall
terminate this Agreement pursuant to Section 5.1 (other than pursuant to Section
5.1(e) with respect to consents or filings of the Company, Section 5.1(f) with
respect to the effectiveness of the Registration Statement, Section 5.1(g) with
respect to the approval of the listing of the Parent Common Stock on the NYSE or
Section 5.1(i) with respect to legal restraints), then the Parent shall, within three
business days following notification (provided such notification is delivered after
February 28, 1996 and on or prior to March 31, 1996) by the Company to the
Parent of the amount of any such fees or expenses, reimburse the Company for all
filing fees incurred by the Company, all typesetting, printing, photocopying and
mailing expenses of the Prospectus/Proxy Statement incurred by the Company, and
for all actual out-of-pocket legal and accounting fees and expenses incurred by the
Company in connection with the transactions contemplated by this Agreement.
8. MISCELLANEOUS.
8.1 Certification of the Company's Stockholder Votes, etc. Prior to the Effective Date,
the Company shall deliver to the Parent and the Subsidiary a certificate of its
Secretary or Assistant Secretary setting forth (a) the number of shares of its capital
stock outstanding and entitled to vote on the adoption of this Agreement and the
approval of the Merger, (b) the total number of votes eligible to be cast by each
class of such capital stock entitled to vote, and (c) the number of votes cast by
each class of capital stock in favor of or against this Agreement and the approval of
the Merger.
8.2 Certification of the Parent's Stockholder Votes, etc. Prior to the Effective Date, the
Parent shall deliver to the Company and the Subsidiary a certificate of its Secretary
or Assistant Secretary setting forth that the Parent, in its capacity as sole
stockholder of the Subsidiary, has adopted this Agreement and approved the Merger
in accordance with the Delaware General Corporation Law.
8.3 Termination of Covenants, Representations and Warranties. The respective
covenants, representations and warranties of the parties hereto contained in
Articles 3 and 4 hereof and in the Disclosure Schedules, shall expire and be
terminated and extinguished upon the effectiveness of the Merger, and none of the
parties hereto shall thereafter be under any liability whatsoever with respect to such
covenants, representations, and warranties. This Section 8.3 shall have no effect
upon any other obligations hereunder of any of the parties hereto whether to be
performed before or after the effectiveness of the Merger.
8.4 Certain Tax Matters.
a. The Parent hereby represents, warrants to, and covenants with the
Company that until the third anniversary of the Effective Date, the Parent
will not dispose of any capital stock of the Surviving Corporation by sale,
exchange or transfer, distribution to shareholders or otherwise (including,
without limitation, transfers to any subsidiary of the Parent);
b. The Parent hereby represents, warrants to, and covenants with the
Company that until the third anniversary of the Effective Date, the Parent
shall not cause or permit the Surviving Corporation or any member of the
Pharmaceutical Group to:
i. Cease operations;
ii. Make a material disposition of any of its existing assets by means of
a sale, exchange or transfer, distribution to shareholders or
otherwise (including, without limitation, transfers from the Surviving
Corporation to UDL-IL, UDL-FL, AP or PD or transfers from UDL-IL,
UDL-FL, AP or PD to the Surviving Corporation, the Parent or any
subsidiary of the Parent);
iii. Dispose of any capital stock of any member of the Pharmaceutical
Group by sale, exchange or transfer, distribution to shareholders or
otherwise (including, without limitation, transfers from the Surviving
Corporation to the Parent or any subsidiary of the Parent);
iv. Liquidate or merge with any other corporation (including the Parent
or a subsidiary of the Parent); or
v. In the case of the Surviving Corporation only, cease to engage in the
active conduct of a trade or business within the meaning of
Section 355(b((2).
Except as expressly restricted pursuant to the foregoing provisions of this
Section 8.4, the Parent, the Surviving Corporation and the members of the
Pharmaceutical Group shall be free to conduct business and to enter into any
transactions which they deem appropriate.
c. In the event the Parent desires to take any of the actions described in
Section 8.4(a) or in the event the Parent desires to cause or permit the
Surviving Corporation or any member of the Pharmaceutical Group to take
any of the actions described in Section 8.4(b), the Parent shall first deliver
to Newco an opinion of counsel to the Parent, addressed to the Parent and
those persons or entities who were holders of Company Preferred Stock and
Company Common Stock immediately prior to the Effective Time, which
opinion shall be reasonably satisfactory to the Stockholders Representative,
or a favorable ruling letter from the appropriate taxing authority, reasonably
satisfactory to the Stockholders Representative, that such actions would not
adversely affect the tax consequences of the transactions described in the
Plan of Reorganization to the Surviving Corporation or the holders of
Company Preferred Stock or Company Common Stock, or adversely affect
the tax consequences of the Merger to the Surviving Corporation or the
holders of Company Preferred Stock or Company Common Stock. The
Parent has no present intention to take or permit any such action.
d. The Company hereby acknowledges and agrees that neither the Parent nor
the Surviving Corporation shall have any liability to the holders of Company
Preferred Stock or Company Common Stock with respect to the tax
consequences resulting from the transactions described in the Agreement for
Business Combination, the Plan of Reorganization or this Agreement, except
for corporate taxes imposed upon such holders on account of transferee
liability, if any, resulting from the Corporation's distribution to such holders
of the shares of capital stock of Newco under the Plan of Reorganization.
e. The Parent and the Company hereby agree that neither of them, nor MLI,
shall have any right to terminate this Agreement or abandon the Merger on
account of an unfavorable ruling, or preliminary indication of unfavorable
ruling, upon any formal or informal ruling request to the Internal Revenue
Service made by the Company after the date hereof with respect to the
transactions contemplated by the Plan of Reorganization.
8.5 Execution in Counterparts. For the convenience of the parties, this Agreement and
any amendments, supplements, waivers and modifications may be executed in one
or more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
8.6 Waivers and Amendments. Prior to the Effective Date, this Agreement may be
amended, modified and supplemented in writing signed by all the parties hereto and
any failure of any of the parties hereto to comply with any of its obligations,
agreements or conditions as set forth herein may be expressly waived in writing by
the other parties hereto.
8.7 Confidentiality. The Company and the Parent agree that the Confidentiality
Agreement between them dated May 3, 1995 is terminated effective on the date of
this Agreement and shall be of no further force or effect.
8.8 Schedules. The Disclosure Schedules referred to in this Agreement shall not be
attached hereto but shall be in the form executed and delivered to the Parent by the
Company with respect to each member of the Pharmaceutical Group.
8.9 Payments to Dissenting Stockholders. The Surviving Corporation will pay to any
dissenting stockholders of the Company the amount, if any, to which they may be
entitled under the provisions of the Delaware General Corporation Law, such
payment to be made from the sale of shares of Parent Common Stock pursuant to
the terms of an escrow arrangement to be established for such purpose pursuant to
a letter agreement dated the date hereof between the Parent, the Company and the
Stockholders Representative.
8.10 Indemnification by the Company. Whether or not the Merger is consummated
pursuant to the terms of this Agreement, as it may be amended, modified or
supplemented, the Company shall indemnify, defend and hold harmless to the fullest
extent permitted under applicable law the Parent, each person, if any, who controls
the Parent within the meaning of Section 15 of the 1933 Act, each officer, director,
employee, representative or agent of the Parent who now holds, or at any time prior
to the Effective Date has held, such positions, and each and all of them, against any
and all losses, claims, damages, or liabilities, joint or several (and to reimburse each
such indemnified person for any legal or other costs or expenses reasonably incurred
by such indemnified persons in connection with investigating or defending any such
loss, claim, damage or liability, or action in respect thereof, provided the Company
has received an undertaking from each such indemnified person to promptly return
to, or reimburse, the Company for any costs or expenses paid by the Company in
the event that ultimately it shall have been determined by a court of competent
jurisdiction not subject to appeal that the indemnified person is not entitled to be
indemnified under applicable law) to which they, or any of them (or any of their
heirs, successors or assigns) may become subject under the 1933 Act, the
Securities Exchange Act of 1934 or other federal or state statutory law or common
law, caused by, or arising out of, any of the information (but not the information
relating to the Parent, its subsidiaries, affiliates, officers or directors) relating to and
provided in writing by the Company, the Company Subsidiaries, affiliates, officers or
directors included in the Registration Statement and the Prospectus/Proxy
Statement or in any amendment or supplement thereto (which information will be
identified in a memorandum initialled by the parties hereto prior to the filing or
mailing, as the case may be, of the Registration Statement or the Prospectus/Proxy
Material or any such amendment or supplement) being false or misleading in any
material respect, failing to state any facts necessary to make the statements therein
not false or misleading in any material respect, or omitting to state any material fact
required to be stated therein with respect to the Company, its subsidiaries,
affiliates, officers or directors in light of the circumstances under which they were
made.
8.11 Indemnification by the Parent. Whether or not the Merger is consummated pursuant
to the terms of this Agreement, as it may be amended, modified or supplemented,
the Parent shall indemnify, defend and hold harmless to the fullest extent permitted
under applicable law the Company, each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act, each officer, director, employee,
representative or agent of the Company who now holds, or at any time prior to the
Effective Date has held, such positions, and each and all of them, against any and
all losses, claims, damages or liabilities, joint or several (and to reimburse each such
indemnified person for any legal or other costs or expenses reasonably incurred by
such indemnified person in connection with investigating or defending any such
loss, claim, damage or liability, or action in respect thereof, provided the Parent has
received an undertaking from each such indemnified person to promptly return to, or
reimburse, the Parent for any costs or expenses paid by the Parent in the event that
ultimately it shall have been determined by a court of competent jurisdiction not
subject to appeal that the indemnified person is not entitled to be indemnified under
applicable law) to which they, or any of them (or any of their heirs, successors or
assigns) may become subject under the 1933 Act, the Securities Exchange Act of
1934 or other federal or state statutory law or common law, caused by, or arising
out of, any of the information relating to and provided in writing by the Parent, its
subsidiaries, affiliates, officers or directors (but not the information required by
items 17 and 18 of Form S-4) included in the Registration Statement and the
Prospectus/Proxy Statement or in any amendment or supplement thereto (which
information will be identified in a memorandum initialled by the parties thereto prior
to the filing or mailing, as the case may be, of the Registration Statement or the
Prospectus/Proxy Statement or any such amendment or supplement) being false or
misleading in any material respect, failing to state any facts necessary to make the
statements therein not false or misleading in any material respect, or omitting to
state any material fact required to be stated therein with respect to the Parent, its
subsidiaries, affiliates, officers or directors in light of the circumstances under which
they were made.
8.12 Procedure. A party claiming indemnification (the "Indemnified Party") will give
prompt notice to the party liable for indemnification (the "Indemnifying Party") of
any matters hereunder which may give rise to a claim for indemnification as
promptly as practicable after it has actual knowledge of the facts which may give
rise to such claim, and the Indemnified Party will specify in such notice, in
reasonable detail, the relevant facts known to the Indemnified Party relating to such
potential indemnification right. The failure, however, of the Indemnified Party to
give notice within a reasonable time as required under this Section 8.12 will not
affect or otherwise waive the Indemnified Party's rights to be indemnified under, or
to enforce an indemnification of such claim or any other claim pursuant to, the
terms of this Agreement to its full extent, except that the Indemnified Party will not
be permitted to recover from the Indemnifying Party the amount of any additional
loss, liability or damage incurred by the Indemnified Party which would not
reasonably have been incurred had notice been given in accordance with the
provisions of this Section 8.12. Failure by the Indemnified Party to give such notice
will not diminish any rights to indemnity it may have other than under this
Agreement.
If the facts which give rise to any such potential indemnification claim involve any actual or
threatened claim or demand by any third party against the Indemnified Party, the Indemnifying
Party will be entitled (without prejudice to the right of the Indemnified Party at its expense
jointly to defend) to defend such claim (and jointly to prosecute any possible related claim by
the Indemnified Party against any third party) at the Indemnifying Party's expense through
counsel of the Indemnifying Party's own choosing, provided that the Indemnifying Party gives
notice of its intention to do so to the Indemnified Party within fifteen days after receipt of the
notice of claim. In all instances in which the Indemnifying Party chooses to defend claims
against the Indemnified Party as provided hereunder, it is agreed that counsel for the
Indemnifying Party will act as lead counsel even if the Indemnified Party chooses to participate
in said defense. It is further agreed that whenever the Indemnifying Party chooses to defend a
claim and the Indemnified Party chooses not to participate actively in such defense, the
Indemnified Party will nonetheless fully and actively cooperate with and assist the Indemnifying
Party in defending the matter by, among other things, assisting in the procurement of
documentary evidence and witnesses and enforcing rights against third parties.
No matter giving rise to a claim for indemnification under this Agreement will be settled by
the Indemnifying Party without the prior written consent of the Indemnified Party, except when
the settlement thereof involves only the payment of money for which the Indemnified Party is
totally indemnified by the Indemnifying Party by virtue of payment made directly to a third
party by the Indemnifying Party. Promptly following a party's receipt of a firm settlement offer
with respect to any such matter, such party will notify the other party of such offer, setting forth
in such notification the terms of such offer and indicating the notifying party's view as to
whether or not the offer should be accepted. Any acceptance or rejection of a settlement offer
on the part of the other party will be submitted to the notifying party within ten (10) days after
the other party's receipt from the notifying party of the terms of such offer. Failure of the other
party to so advise the notifying party within said ten (10) days will constitute an acceptance of
such settlement offer by the other party.
8.13 Notices. All notices, requests, demands and other communications required or
permitted hereunder shall be in writing and shall be deemed to have been duly given
upon receipt when delivered by hand against receipt, telecopied (upon confirmation
of receipt thereof) or mailed, certified or registered mail, return receipt requested,
postage prepaid:
To the Company:
TC Manufacturing Co., Inc.
1527 Lyons Street
Evanston, Illinois 60201
Attention: President
Telecopy: (708) 866-8596
with a copy to:
Keith R. Abrams, Esquire
Rivkin, Radler & Kremer
30 North LaSalle Street
Chicago, Illinois 60602-2507
Telecopy Number: (312) 782-3112
To the Parent or the Subsidiary:
Mylan Laboratories Inc.
781 Chestnut Ridge Road
Morgantown, West Virginia 26505
Attention: Roderick P. Jackson,
Senior Vice President
Telecopy: (304) 599-7284
With a copy to:
John R. Previs, Esq.
Buchanan Ingersoll Professional Corporation
Telecopy Number: (412) 562-1041
20th Floor, One Oxford Centre
301 Grant Street
Pittsburgh, Pennsylvania 15219-1410
or to such other address as specified in a notice given in like manner.
8.14 Entire Agreement; No Third-Party Beneficiaries; Rights of Ownership. This
Agreement (including the Agreement for Business Combination, the Plan of
Reorganization, the Distribution Agreement, the Indemnification Agreement and the
documents and the instruments referred to herein and therein) (a) constitute the
entire agreement and supersede all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof and
thereof, and (b) is not intended to confer upon any person other than the parties
hereto or thereto any rights or remedies hereunder or thereunder.
8.15 Governing Law. This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware without regard to any applicable conflicts of
law.
8.16 No Remedy in Certain Circumstances. Each party agrees that, should any court or
other competent authority hold any provision of this Agreement or part hereof to be
null, void or unenforceable, or order any party to take any action inconsistent
herewith or not to take any action required herein, the other party shall not be
entitled to specific performance of such provision or part hereof or to damages for a
breach hereof resulting from such holding or order.
8.17 Closing. After all conditions hereunder have been satisfied (other than those which
have been expressly waived), the closing on the Merger (the "Closing") shall occur
at the offices of Buchanan Ingersoll Professional Corporation, Pittsburgh,
Pennsylvania at which the documents to be delivered on the Effective Date as
described in Article 5 shall be delivered by the respective parties. The Closing shall
be scheduled to occur on the fifth business day following the date called for the
meeting of the Company's stockholders described in Section 1.4 hereof (the
"Scheduled Closing Date"). The Closing shall occur on the Scheduled Closing Date
unless, on such date, any party has a right not to close the Merger and refuses to
close in which event the Closing shall be adjourned from business day to business
day thereafter until the Closing occurs or until 5:01 p.m., eastern standard time, on
February 28, 1996.
[Intentionally left blank.]
IN WITNESS WHEREOF, this Agreement has been executed by each of the Constituent
Corporations and the Parent, all on the date first above written.
ATTEST: TC MANUFACTURING CO., INC.
By: /s/ Keith R. Abrams By: /s/ Herbert L. Stern, Jr.
Name: Keith R. Abrams Name: Herbert L. Stern, Jr.
Title: Assistant Secretary Title: Chairman of the Executive Committee of
the Board of Directors
ATTEST: MLI ACQUISITION CORP.
By: /s/ Frank A. DeGeorge By: /s/ Roderick P. Jackson
Name: Frank A. DeGeorge Name: Roderick P. Jackson
Title: Secretary Title: Vice President
ATTEST: MYLAN LABORATORIES INC.
By: /s/ C.B. Todd By: /s/ Roderick P. Jackson
Name: C.B. Todd Name: Roderick P. Jackson
Title: Senior Vice President Title: Senior Vice President
ANNEX D
Terms for Appraisal Rights Trust Agreement
October 10, 1995
TC Manufacturing Co., Inc.
1527 Lyons Street
Evanston, IL 60201-3590
Mr. Herbert L. Stern, Jr. and Robert Feitler
Rivkin, Radler & Kremer
30 North LaSalle Street
Suite 4300
Chicago, Il 60602-2507
Re: Trust for Dissenting Stockholders
Gentlemen:
This letter is intended to outline the procedures to be followed in the event that any of
the existing stockholders of TC Manufacturing Co., Inc. ("TC") elect to dissent from the plan
for the conversion of their TC stockholdings (the "Conversion Plan") to shares of Mylan
Laboratories Inc. Stock (the "Parent Common Stock") as set forth in the Plan of Reorganization
adopted by TC on October 10, 1995 (the "Plan of Reorganization") and in the Agreement and
Plan of Merger by and among TC, MLI Acquisition Corp. And Mylan Laboratories Inc.
("Parent") entered into October 10, 1995 (the "Merger Agreement"). Capitalized terms used in
this letter without definition shall have the same meanings given them in the Merger
Agreement.
Because the amounts due dissenting TC stockholders will not be ascertainable upon the
Effective Date of the contemplated merger, the precise number of required shares of Parent
Common Stock cannot be determined and delivered to existing stockholders of TC who do not
dissent from the adoption of the Merger Agreement pursuant to the Conversion Plan (the
"Participating Stockholders"). In view of the foregoing, if any TC stockholders elect to dissent
from the Conversion Plan and such stockholders shall have perfected their rights as dissenting
stockholders in accordance with 262 of the Delaware General Corporation Law (the "DGCL")
and shall not have had their shares of TC and Parent shall create an agreement of trust (the
"Trust Agreement") which shall govern the procedures by which shares of Parent Common
Stock issued to the Participating Stockholders shall be deposited with the Trustee (as hereinafter
defined) and held pending (a) settlement of the Dissenters' rights with respect to their TC
stockholdings or (b) a formal determination of the value due to each of the Dissenters pursuant
to 262 of the DGCL (the "Dissenter's Allocation"). The basic terms to be included in such Trust
Agreement shall be as follows:
1. Herbert L. Stern, Jr. and Robert Feitler shall be designated as the representative
of the participating Stockholders (the "Stockholders Representative") pursuant to
the authorization set forth in the Limited Power of Attorney as to be revised to
conform with the provisions of this Letter Agreement and to be delivered to the
Stockholders Representative by the Participating Stockholders holding more than
one percent(1%) of the issued and outstanding common stock of TC as
determined immediately before the Effective Time;
2. Parent shall deliver a number of shares of Parent Common Stock, issued to the
Participating Stockholders, to a trustee mutually agreed upon by TC and Parent
(The "Trustee") equal to 150% of that number of shares of Parent Common Stock
to which the Dissenters would have otherwise been entitled pursuant to the
Conversion Plan set forth in the Merger Agreement had the Dissenters not
exercised their dissenters rights (the "Trust Shares"). Thereafter, the Parent shall
be obligated to deliver to the Exchange Agent under the Merger Agreement only that
number of shares of Parent Common Stock as is equal to the difference
between (a) the total number of shares of Parent Common Stock deliverable to
the Exchange Agent under the Merger Agreement without regard to any trust for
the benefit of the Dissenters; and (b) the number of Trust Shares;
3. The trustee shall hold the Trust Shares pending notice from the Stockholders
Representative of an agreed settlement of a Dissenter's Allocation or formal
determination of a Dissenter's Allocation pursuant to 262 of the Delaware
DGCL;
4. Upon receipt of notice of the agreed settlement of formal determination of a
Dissenter's Allocation, the Trustee shall sell that number of Trust Shares as may
be required to realize sufficient cash proceeds to pay in full the Dissenter's
Allocation;
5. While holding Trust Shares, the Trustee shall vote such shares as directed by the
Stockholders Representative;
6. Parent shall pay of deliver all dividends and/or distributions with respect to the
Trust Shares to the Trustee to be held and distributed for the benefit of the
Participating Stockholders;
7. Stockholders Representative shall be responsible for representing TC and the
Participating Stockholders in any and all negotiations, settlements and appraisal
proceedings related to the determination of the Dissenter's Allocation, and all
costs incurred in connection with such representation, negotiation, settlement and
appraisal proceedings including, but not limited to, any costs incurred by
Dissenters which the court rendering the determination of the Dissenter's
Allocation may award to the Dissenters shall be charged to and payable from the
proceeds realized on the sale of Trust Shares;
8. In the event the aggregate proceeds realized on the sale of Trust Shares plus
dividends and/or distributions received in connection with such shares from and
after the Effective Date (the "Trust Fund")proves insufficient to fully satisfy the
Dissenter's Allocation, the trust expenses and the expenses incurred by the
Stockholders Representative, the Stockholders Representative shall cause any
amounts required in excess of the Trust Fund to be paid to the Dissenters, the
Trustee or the persons, firms or entities providing services to the Stockholders
Representative, as the case may be. Stockholders Representative shall allocate
all such excess payments among the Participating Stockholders and collect such
excess payments from the Participating Stockholders all as set forth in the
Indemnification and Contribution Agreement as revised to conform with the
provisions of this Letter Agreement to be delivered to the Stockholders
Representative by the Participating Stockholders;
9. If the aggregate value to the Trust Fund proves to be greater than the amounts
necessary to fully satisfy the Dissenter's Allocation, the trust expenses and the
expenses incurred by the Stockholders Representative, the Trustee shall--
a. Compute the number of Trust Shares deemed to be remaining in the trust
after assuming that all sales of Trust Shares by the Trustee were made at
a selling price of $19.89 per share;
b. deliver the lesser of the number of shares computed under subparagraph
(a) of this paragraph 9 of the remaining Trust Shares held by the Trustee,
To the Stockholders Representative for distribution pro rata among the
Participating Stockholders;
c. deliver all cash dividends collected by the Trustee to the Stockholders
Representative for distribution pro rata among the Participating
Stockholders; and
d. Deliver to the Parent any remaining Trust Shares held by the Trustee.
10. The Trust Agreement shall contain the requisite provisions as required to comport
with the safe harbor guidelines for taxpayers seeking favorable reorganization
rulings with respect to escrow arrangements as set forth in Revenue Procedure
84-42 as promulgated by the Internal Revenue Service.
11. Any amounts as may be reflected as a liability to TC in connection with the
payment and satisfaction of the Dissenter's Allocation and expenses incurred
incident or related thereto shall not be included as Other Liabilities for purposed
of determining the Net Adjustment Amount and the Adjusted Exchange Ratio but
shall be payable from the proceeds of sale of the Trust Shares and the
contributions, if any, made by the Participating Stockholders in accordance with
paragraph 8 of this letter agreement.
Please indicate your acceptance of these terms by signing this letter where indicated
below.
Very Truly yours,
/s/ Roderick P. Jackson
Roderick P. Jackson
Senior Vice President
AGREED TO AND ACCEPTED BY;
TC MANUFACTURING CO., INC.
By:
Name: Herbert L. Stern, Jr.
Title: Chairman of the Executive Committee
Of the Board of Directors
Herbert L. Stern, Jr
Please indicate your acceptance of these terms by signing this letter where indicated
below
Very truly yours
MYLAN LABORATORIES INC.
By:
Roderick P. Jackson, Senior Vice President
AGREED TO AND ACCEPTED BY:
TC MANUFACTURING CO., INC.
By: /s/ Herbert L. Stern, Jr.
Herbert L. Stern, Jr., Chairman of
the Executive Committee of the
Board of Directors
/s/ Herbert L. Stern, Jr.
Herbert L. Stern, Jr.
As Stockholders Representatives
/s/ Robert Feitler
Robert Feitler
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
In accordance with the PBCL, Mylan's By-Laws provide that a director of Mylan shall not be
personally liable for monetary damages for any action taken, or any failure to take any action,
unless the director has breached or failed to perform the duties required under Pennsylvania law
and the breach or failure to perform constitutes self-dealing, willful misconduct or recklessness.
As permitted by PBCL, Mylan's By-Laws provide that directors and officers of Mylan are
indemnified under certain circumstances for expenses, judgments, fines or settlements incurred
in connection with suits and other legal proceedings. The PBCL allows indemnification in cases
where the person "acted in good faith and in a manner he reasonably believed to be in, or not
opposed to the best interests of the corporation and, with respect to any criminal proceeding, had
no reasonable cause to believe his conduct was unlawful."
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits. The following is a list of Exhibits filed as part of this Registration Statement.
Exhibit No. Reference
- ---------------- ----------------------
2(a) Agreement and Plan of Merger dated October 10, Previously Filed
1995, by and among Mylan, MLI Acquisition
Corp. and TC (attached as Annex C to the Proxy
Statement/Prospectus included in this
Registration Statement)
2(b) Agreement for Business Combination Previously Filed
2(c) Plan of Reorganization Previously Filed
2(d) Indemnification Agreement Previously Filed
3(a) Amended and Restated Articles of Incorporated herin by
Incorporation, as amended, of Mylan reference to Exhibit 3(a)
to Mylan's Form 10-Q, for
the quarter ended June 30, 1992
3(b) By-Laws, as amended, of Mylan Incorporated herein by
reference to Exhibit 3(b)
to Mylan's Form 10-Q for
the quarter ended
June 30, 1992
5 Opinion of Buchanan Ingersoll regarding Previously Filed
the legality of the securities being
registered
8 Opinion of Fagel & Haber regarding the tax Filed herein
consequences of the Reorganization and the
Merger (attached as Annex A to the Proxy
Statement/Prospectus included in the
Registration Statement)
10(a) Irrevocable Proxies Previously Filed
23(a) Consent of Deloitte & Touche LLP Filed herewith
23(b) Consent of KPMG Peat Marwick LLP Filed herewith
23(d) Consent of Buchanan Ingersoll Professional Previously Filed
Corporation (included in their Opinion
filed in Exhibit 5)
23(d) Consent of Fagel & Haber Filed herewith
C-1
24 Power of Attorney (appearing on signature page) Previously Filed
99.1 TC Letter to Stockholders Previously Filed
99.2 TC Notice of Special Meeting of Stockholders Previously Filed
99.3 TC Form of Proxy for Common Stock Previously Filed
99.4 TC Form of Proxy for Preferred Stock Previously Filed
Item 22. Undertakings
(a) The undersigned Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the Registrant's annual report pursuant to Section
13(a) or 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such Securities at that time shall be
deemed to be the initial bona fide offering thereof.
(b) The undersigned Registrant hereby undertakes as follows: that prior to any public
reoffering of the securities registered hereunder through use of a prospectus which is a part of
this Registration Statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by the other Items of
the applicable form.
(c) The Registrant undertakes that every prospectus (i) that is filed pursuant to paragraph (b)
immediately preceding, or (ii) that purports to meet the requirements of Section 10(a) (3) of the
Securities Act and is used in connection with an offering of securities subject to Rule 415, will
be filed as part of an amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such Securities at that time shall be
deemed to be the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities Act may be permitted
to directors, officers and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the opinion of the Commission
such indemnification is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
(e) The undersigned Registrant hereby undertakes to respond to requests for information that
is incorporated by reference into the Proxy Statement/Prospectus pursuant to Items 4, 10(b), 11
or 13 of this Form,
II-2
within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the Registration
Statement through the date of responding to the request.
(f) The undersigned Registrant hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being acquired involved
therein, that was not the subject of and included in the Registration Statement when it became
effective.
(g) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective
amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the effective date of the
registration statement (or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to such
information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the offering.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly caused this
Pre-Effective Amendment No. 1 to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Pittsburgh, on January __, 1996.
MYLAN LABORATORIES INC.
(REGISTRANT)
By:/s/ Roderick P. Jackson
Name: Roderick P. Jackson
Title: Senior Vice President
Pursuant to the requirements of the Securities Act, this Registration Statement has been signed
by the following persons in the capacities indicated on January __, 1996.
Signatures Title
----------- -------
*
- ------------------------------------
Milan Puskar (As Chief Executive and Chairman, Chief Executive Officer,
Financial Officer) President, Director
*
- ------------------------------------
C.B. Todd Senior Vice President and Director
*
- ------------------------------------
Dana G. Barnett Executive Vice President and
Director
*
- -----------------------------------
Robert W. Smiley Secretary and Director
*
- -----------------------------------
Laurence S. DeLynn Director
*
- -----------------------------------
Richard A. Graciano Director
*
- -----------------------------------
John C. Gaisford, M.D. Director
*
- -----------------------------------
Frank A. DeGeorge (as Chief Accounting Director of Corporate Finance
Officer)
By:______________________________
Roderick P. Jackson, Attorney in Fact
II-4
Exhibt 23(a)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Pre-
Effective Amendment No. 1 to Registration Statement No. 33-64925
of Mylan Laboratories Inc. on Form S-4 of our report dated April
28, 1995, appearing and incorporated by reference in the Annual
Report on Form 10-K of Mylan Laboratories Inc. for the year ended
March 31, 1995 and to the reference to us under the heading
"Experts" in the Prospectus, which is part of this Registration
Statement.
/s/Deloitte & Touche LLP
Pittsburgh, Pennsylvania
January 24, 1996
Exhibit 23(b)
Consent of KPMG Peat Marwick LLP
The Board of Directors
TC Manufacturing Company, Inc.:
We consent to the inclusion of our report dated December 18,
1995, with respect to the consolidated balance sheets of TC
Manufacturing Co., Inc. and subsidiaries as of October 31, 1995
and 1994, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the years in the
three-year period ended October 31, 1995, which report appears in
the registration statement (No. 33-64925) on Form S-4 filed by
Mylan Laboratories Inc. and to the reference to our firm under
the heading "Experts" in the proxy statement/prospectus.
/s/ KPMG Peat Marwick LLP
Chicago, Illinois
January 24, 1996
Exhibit 23(d)
Fagel & Haber
ATTORNEYS AND COUNSELORS AT LAW Allen J. Fagel Sheryl Cohen Allension
ESTABLISHED 1962 Joel A. Haber William P. Andrews
140 South Dearborn Street, 14th Floor Floyd Babbitt Christina Brotto
Chicago, IL 60603 * (312) 346-7500 Alvin D. Meyers Daniel G. Coman
Fax (312) 580-2201 * Cable NOFLAWLAW * Telex 754542 Dennis E. Quaid Patrick J.Cullerton
Glen T. Keysor John S. Delnero
Steven J. Teplinsky Victor A. Des Laurier
Writer's Direct Dial No. (312) 580-2205 Walter D. Cupkovic James M. Drake
Sherwin M. Lesk Thomas B. Golz
January 24, 1996 John J. Cullerton Scott C. Haugh
Richard H. Chapman Stuart P. Krauskopf
Jason W. Levin Lawrence T. Krulewich
Robert B. Chapman Carole A. Morey
James R. Latta Ilyse D. Murman
Howard M. Berrington Laura A. O'Neill
Judith Joyce Shanahan Sara L. Thomas
Donald J. Vogel William R. Thomas
Norton N. Gold Douglas B. Wolk
James B. Gottlieb Melinda Morris Zanoni
Gina M. Gentili ---------------
Of Counsel
Securities and Exchange Commission Leonard R. Kofkin
450 5th Street N.W./Judiciary Plaza Maynard B. Russell
Washington, DC 20549 Martin M. Ruken
RE: Registration/Proxy Statement Mylan Laboratories Inc.
(File No. 33-64925)
Ladies and Gentlemen:
Mylan Laboratories Inc., and TC Manufacturing Co., Inc., have our
consent to include the name of Fagel & Haber in the prospectus contained in the Registration
Statemen t in such places as it appears, including in the section entitled "Certain Federal
Income Tax Consequences".
We further consent to the filing of our opinion regarding certain
federal income tax consequences with the United States Securities and Exchange Commission as
Exhibit 8 to the Registration Statement of Mylan Laboratories Inc. on Form S-4.
Sincerely,
Fagel & Haber
By: /s/ Robert B. Chapman
Robert B. Chapman
