ASSET PURCHASE AGREEMENT

Exhibit 10.1

ASSET PURCHASE AGREEMENT

THIS ASSET PURCHASE AGREEMENT (this “ Agreement ”) is made and entered into as of the 27th day of February, 2009, by and among Hi-Tech Pharmacal Co., Inc., a Delaware corporation (“ Purchaser ”), E. Claiborne Robins Company, Inc. d/b/a ECR Pharmaceuticals, a Virginia corporation (“ Seller ”) and Davis S. Caskey (“ Caskey ”).

RECITALS

WHEREAS, Seller has developed and marketed certain pharmaceutical products that are more particularly described and defined herein as the “ Products ”; and

WHEREAS, Caskey has been a key employee of Seller for over 17 years and, during such time, the relationships, industry knowledge and expertise, intellectual property, goodwill and other intangibles belonging to Caskey and which Caskey has maintained over such time (collectively the “ Caskey Contributions ”) has played an important role in the development and the success of the Products and the business of Seller; and

WHEREAS, subject to the terms and conditions of this Agreement, Seller and Caskey desire to sell to Purchaser, and Purchaser desires to purchase from Seller and Caskey, the Products and the Caskey Contributions, together with certain other tangible and intangible assets related to, or necessary for the continued development and marketing of, the Products.

NOW, THEREFORE, in consideration of the premises and the mutual covenants and promises contained herein, and for other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the Parties hereby agree as follows:

ARTICLE I

DEFINITIONS

Section 1.1  Defined Terms .   As used in this Agreement, the following defined terms have the meanings described below:

(a) “ Accrued Expenses ” means royalty payments (Lodrane 24/24D), wholesale distribution fees (Amerisource, McKesson, Cardinal, HD Smith), term discounts, sales and use tax payables, and Seller’s accrued vacation time liability referred to in Section 7.11.

(b) “ Action or Proceeding ” means any action, suit, proceeding, arbitration, Order, inquiry, hearing, assessment with respect to fines or penalties, or litigation (whether civil, criminal, administrative, investigative or informal) commenced, brought, conducted or heard by or before, or otherwise involving, any Governmental or Regulatory Authority.

(c) “ Affiliate ” means, with respect to any Person, another Person that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such Person. “Control” and, with correlative meanings, the terms “controlled by” and “under common control with” means the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract, resolution, regulation or otherwise.

(d) “ Assumed Contracts ” means the Contracts set forth on Schedule 1.1(d) .

(e) “ Assumed Liabilities ” means (i) the Seller’s performance obligations under the Assumed Contracts and (ii) the Purchaser’s Lease Obligations.

(f) “ Books and Records ” means all files, documents, instruments, papers, books and records (including scientific and financial) of Seller to the extent relating to the Purchased Assets, including any pricing lists, quotations, proposals, customer lists (to the extent owned or contractually permissible to be delivered by Seller), information pertaining to sales of the Products, vendor lists, financial data, regulatory information or files, sales training materials, trademark registration certificates, trademark renewal certificates, and other documentation to the extent relating to the Products.

(g) “ Business ” shall mean the development, marketing and sale of the Products and all activities incidental thereto conducted by the Seller.

(h) “ Business Day ” means a day other than Saturday, Sunday or any day on which banks located in New York, New York are authorized or obligated to close.

(i) “ Caskey Contributions ” has the meaning set forth in Section 1.1(ff).

(j) “ Closing ” has the meaning set forth in Section 2.5.

(k) “ Closing Date ” means the date on which the Closing actually takes place.

(l) “ COBRA ” means the requirements of Part 6 of Subtitle B of Title I of ERISA and Code §4980B and of any similar state law.

(m) “ Code ” means the Internal Revenue Code of 1986, as amended.

(n) “ Consent ” means any approval, consent, ratification, waiver, Order or other authorization.

(o) “ Contemplated Transactions ” means all of the transactions contemplated by this Agreement.

(p) “ Contract ” means any and all legally binding commitments, including all contracts, leases, indentures, loan or financing agreements, purchase orders, licenses, or other agreements, whether written or oral, including all amendments thereto.

(q) “ Cost of Goods Sold ” means cost of goods sold as defined in accordance with GAAP in connection with the sale of the Active Products, including wholesale distribution fees and product royalties.

 

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(r) “ Damages ” has the meaning set forth in Section 7.8(a).

(s) “ DEA ” means the United States Drug Enforcement Agency, and any successor agency or entity thereto that may be established hereafter, and any comparable agencies or entities of a Foreign Jurisdiction.

(t) “ Employee Benefit Plan ” means any of the following (whether written, unwritten or terminated): (a) any “employee welfare benefit plan,” as defined in Section 3(1) of ERISA, including, but not limited to, any medical plan, life insurance plan, short-term or long-term disability plan, dental plan, and sick leave; (b) any “employee pension benefit plan,” as defined in Section 3(2) of ERISA, including, but not limited to, any excess benefit, top hat or deferred compensation plan or any nonqualified deferred compensation or retirement plan or arrangement or any qualified defined contribution or defined benefit plan; or (c) any other plan, policy, program, arrangement or agreement which provides employee benefits or benefits to any current or former employee, dependent, beneficiary, director, independent contractor or like person, including, but not limited to, any severance agreement or plan, personnel policy, vacation time, holiday pay, service award, moving expense reimbursement programs, tool allowance, safety equipment allowance, material fringe benefit plan or program, bonus or incentive plan, stock option, restricted stock, stock bonus or deferred bonus plan, salary reduction, change-of-control or employment agreement (or consulting agreement with a former employee).

(u) “ Encumbrance ” means any mortgage, pledge, security interest, deed of trust, lease, lien, Liability, adverse claim, levy, charge, easement, right of way, covenant, restriction, or other encumbrance, third-party right or retained right of any kind whatsoever, or any conditional sale or title retention agreement or other agreement to give any of the foregoing in the future.

(v) “ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended.

(w) “ ERISA Affiliate ” means each entity which is treated as a single employer with the Seller for purposes of Code §414.

(x) “ Excluded Assets ” has the meaning set forth in Section 2.1.

(y) “ FDA ” means the United States Food and Drug Administration or any comparable agency of a Foreign Jurisdiction.

(z) “ Final WC Statement ” means the final statement of Working Capital as determined in accordance with Section 3.2(d).

(aa) “ Foreign Jurisdiction ” means any Governmental or Regulatory Authority other than those in the United States.

(bb) “ GAAP ” means United States generally accepted accounting principles as in effect from time to time.

 

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(cc) “ Governmental or Regulatory Authority ” means any court, tribunal, arbitrator, authority, agency, commission, official or other instrumentality of any country, state, county, city or other political subdivision.

(dd) “ Gross Profit ” means the gross profit of the Active Products determined in accordance with the following formula: Net Sales minus Cost of Goods Sold.

(ee) “ Hazardous Materials ” means any substance that (a) is or contains asbestos, urea formaldehyde foam insulation, polychlorinated biphenyl (“ PCB’s ”), petroleum or petroleum-derived substances or wastes, radon gas or related materials, (b) requires investigation, removal or remediation under any Environmental Laws, or is defined as or included in the definition of “hazardous substances,” “hazardous wastes,” “hazardous materials,” “extremely hazardous wastes,” “restricted hazardous wastes,” “toxic substances,” “toxic pollutants,” “contaminants” or “pollutants,” or words of similar import, under any Environmental Laws, including petroleum products and materials, or (c) is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic, or otherwise hazardous and is regulated by any Governmental or Regulatory Authority or environmental Laws.

(ff) “ Intellectual Property ” means all intangible property rights worldwide, associated goodwill, and all other rights that relate to or are used in connection with the Business or the development, manufacture, sale, use, marketing and distribution of the Products, including the following:

(i) Any and all trademarks, service marks, trade dress, trade names, brand names, logos, symbols, designs, slogans and all other indicia of origin that are used by Seller, and any goodwill related thereto, excluding rights in the name “E. Claiborne Robins” and the corporate name “E. Claiborne Robins Company, Inc.” (collectively, the “ Seller’s Trademarks ”). Seller’s Trademarks include any associated registrations or pending applications to register same with the U.S Patent and Trademark Office or other trademark registry abroad;

(ii) Any and all issued or pending Product new drug applications (NDAs) and abbreviated new drug applications (ANDAs);

(iii) Any and all know-how or trade secrets known to Seller or Caskey relating to the Products and used by Seller or Caskey in connection with the Business, including the Caskey Contributions, any inventions, methods, processes, practices, procedures, formulae, and improvements thereto (whether patentable or unpatentable and whether or not reduced to practice); Product specifications; manufacturing, physical chemistry, and formulation know-how; research and development; analytical testing methods and validations; analytical; preclinical, clinical, stability and other data, methodologies, and results; technical and industry knowledge; expertise; and skills;

(iv) Any and all know-how or trade secrets known to Seller or Caskey relating to the Business and used by Seller or Caskey in connection with the Business, including market studies, customer lists, supplier lists, pricing and cost information, marketing and sales data and research, and Product plans;

 

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(v) Any and all special industry knowledge and expertise, relationships, intellectual property, goodwill and other intangibles belonging to Caskey (“Caskey Contributions”);

(vi) Any and all copyrights and related applications, registrations, or renewals relating to the Business or Products and used by Seller in connection with the Business, including copyrights in any of the following: marketing and promotional materials associated with the Products; documentation; proposals; research, tools; software; manuals; training materials; data; data compilations; and databases;

(vii) Any web sites, web pages, web site content, web site addresses, domain names owned by Seller, including the domain name ecrpharma.com and the associated website;

(viii) All other proprietary rights reasonably necessary to conduct the Business, including moral rights and any other intangible assets of any nature, whether in use, under development or design, or inactive and all goodwill associated therewith in any form throughout the world, including any registration or applications relating to the foregoing and any extensions, modifications, renewal, reissuance, continuation or continuation-in-part, reexamination, improvement and any licenses or sublicenses pursuant to which any of the foregoing rights are granted or pursuant to which any of the foregoing rights are transferred, in each case used by Seller or Caskey in connection with the Business; and

(ix) The right to sue for any infringements or misappropriation of the Intellectual Property, including the right to sue for past infringements.

(gg) “ Inventory ” means (i) all saleable Product inventory including trade and samples of the Products (A) with an expiration date of twelve (12) months or more after the Closing Date for trade and with an expiration date of six (6) months or more after the Closing Date for samples, and (B) not exceeding quantities of each Product for trade constituting a twelve (12) month supply based upon Seller’s average monthly sales of such Products for the last three calendar years, whether in the possession of Seller, a contract manufacturer or some other third party on behalf of Seller as of the Closing Date, and (ii) Product raw materials and Product work in progress, whether in the possession of Seller, a contract manufacturer or some other third party on behalf of Seller. Any Product inventory that (i) is unexpired but falls outside the specified period or (ii) exceeds the specified level (“ Unqualified Inventory ”) will be transferred to Purchaser and Purchaser shall have the right to sell, distribute or destroy such Unqualified Inventory. However, if any of such Unqualified Inventory is sold by Purchaser and then returned, such returns shall not be included in calculating the amount of returns for which Seller is responsible under the terms of this Agreement.

 

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(hh) “ Knowledge ” means, with respect to a natural person, what such person actually knows and what such person should know if such person has reasonably performed the duties required of his or her position, and means, with respect to an entity, the Knowledge of such entity’s executive officers and directors, and, in addition, in the case of Seller, Don M. Knerr.

(ii) “ Law ” means any national, supranational, federal, state or local law, statute or ordinance, or any rule, regulation, or published guidelines promulgated by any Governmental or Regulatory Authority, including all regulations and guidances of the FDA (including its current good manufacturing practices, or CGMP) or the DEA.

(jj) “ Liability ” means any obligations, debts or liability (whether known or unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued, liquidated or unliquidated, matured or unmatured, determinable or undeterminable, and due or to become due), including any of the foregoing arising under any Contract, Law or Order or in or as a result of any Action or Proceeding, and any liability for Taxes (whether arising under Treasury Regulation §1.1502-6 or otherwise).

(kk) “ Net Sales ” means the gross revenue determined in accordance with GAAP for the Active Products sold after the Closing Date (including any licensing or similar revenue), less (i) any term discounts or credits and (ii) accrued returns, accrued rebates (including Medicare rebates) and accrued chargebacks which are not reimbursed by Seller as provided in Section 6.1 of this Agreement. Only with respect to a product that is sold, marketed or distributed by Purchaser following the Closing Date using the same active ingredients, dosage form and release rate as an Inactive Product, Net Sales shall be reduced by any expenses of Purchaser associated with reviving such Product, such as Product development or ongoing stability testing.

(ll) “ Non-Competition and Employment Agreements ” has the meaning set forth in Section 8.4.

(mm) “ Notes ” has the meaning set forth in Section 3.1(b).

(nn) “ Order ” means any writ, judgment, decree, injunction or similar order of any Governmental or Regulatory Authority (in each such case whether preliminary or final).

(oo) “ Party ” means each of Purchaser, Seller and Caskey and “Parties” mean Purchaser, Seller and Caskey collectively.

(pp) “ Permits ” has the meaning set forth in Section 4.21.

(qq) “ Person ” means any natural person, corporation, general partnership, limited partnership, limited liability company, joint venture, proprietorship, other business organization, trust, union, association, or other entity, or any Governmental or Regulatory Authority.

 

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(rr) “ Products ” shall mean all compounds previously, currently or subsequently marketed under the following brands:

(i) Dexpak 6 Day;

(ii) Dexpak 10 Day;

(iii) Dexpak 13 Day;

(iv) Lodrane 12D;

(v) Lodrane 24;

(vi) Lodrane 24D;

(vii) Lodrane D Suspension;

(viii) Bupap;

(ix) Anaplex;

(x) Pneumotussin;

(xi) Panalgesic; and

(xii) Nasatab.

“Inactive Products” means the Products Lodrane D Suspension, Anaplex, Pneumotussin, Panalgesic and Nasatab, which are currently not in Inventory and currently not marketed. “Active Products” means (i) the Products Dexpak 6 Day, Dexpak 10 Day, Dexpak 13 Day, Lodrane 12D, Lodrane 24, Lodrane 24D and Bupap, (ii) any product that is sold, marketed or distributed by Purchaser following the Closing Date using a trade or brand name listed in clause (i), (iii) any product that is sold, marketed or distributed by Purchaser following the Closing Date using the existing formulation of a Product listed in clause (i) or a formulation having the same active ingredients, dosage form and release rate as a Product listed in clause (i) and (iv) any product that is sold, marketed or distributed by Purchaser following the Closing Date using the same active ingredients, dosage form and release rate as an Inactive Product.

(ss) “ Purchase Price ” has the meaning set forth in Section 3.1.

(tt) “ Purchased Assets ” means all right, title and interest in and to the Caskey Contributions and all of the assets of Seller related to the Business, including (i) the Products, (ii) Inventory, (iii) Unqualified Inventory, (iv) Product packaging supplies, (v) Intellectual Property, (vi) machinery, equipment, office furniture, fixtures and leasehold improvements, (vii) accounts receivable and prepaid expenses, (viii) rights under the Assumed Contracts, (ix) Permits, to the extent transferable, (x) claims against third parties relating to the Business, whether known or unknown, contingent or non-contingent, (xi) motor vehicles and (xii) the Business as a going concern and the goodwill associated therewith, but not the Excluded Assets.

 

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(uu) “ Purchaser’s Lease Obligations ” means Purchaser’s obligations with respect to Seller’s existing real property lease as described in Section 2.3.

(vv) “ Release ” means any releasing, disposing, discharging, injecting, spilling, leaking, leaching, pumping, dumping, emitting, escaping, emptying, seeping, dispersal, leeching, migration, transporting, placing and the like, including, the moving of any materials through, into or upon, any land, soil, surface water, ground water or air, or otherwise entering into the environment.

(ww) “ Tax ” means all of the following taxes: (i) any net income, alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, excise, severance, stamp, occupation, premium, property, environmental or windfall profit tax, custom, duty or other tax, governmental fee or other like assessment imposed by an governmental, regulatory or administrative entity or agency responsible for the imposition of any such tax; (ii) any Liability for the payment of any amounts of the type described in (i) above as a result of being a member of any affiliated, consolidated, combined, unitary or other group for any taxable period; and (iii) any Liability for the payment of any amounts of the type described in (i) or (ii) above as a result of any express or implied obligation to indemnify any other Person.

(xx) “ Transaction Documents ” means this Agreement, the Non-Competition and Employment Agreements, the Bill of Sale, the Trademark Assignment, the bill of sale for the Caskey Contributions, the Assignment and Assumption Agreement and all other certificates, agreements, instruments or other documents executed in connection herewith.

(yy) “ Working Capital ” means (i) the aggregate amount of the purchased accounts receivable, prepaid expenses and Inventory, minus (ii) Accrued Expenses and the aggregate value of any pre-closing accounts payable Purchaser is required to pay notwithstanding Section 2.4(b), in each case calculated as of the close of business on the Closing Date in accordance with GAAP.

Section 1.2  Construction of Certain Terms and Phrases .   Unless the context of this Agreement otherwise requires, when used in this Agreement: (a) words of any gender include each other gender; (b) the terms “hereof,” “herein,” “hereto,” “hereby” and derivative or similar words refer to this entire Agreement; (c) the terms “including,” “include” or “includes” shall be deemed to be followed by “without limitation”; (d) references to currency means U.S. Dollars; (e) words (including defined terms) using the singular or plural number also include the plural or singular number, respectively and (f) the word “or” shall be construed to mean “and/or” unless the context clearly prohibits that construction. Whenever this Agreement refers to a number of days, such number shall refer to calendar days unless Business Days are specified. This Agreement shall be deemed to be drafted jointly by all the Parties and shall not be specifically construed against any Party hereto based on any claim that such Party or its counsel drafted this Agreement.

 

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ARTICLE II

PURCHASE AND SALE OF PURCHASED ASSETS

Section 2.1  Purchase and Sale of Purchased Assets .

(a) Subject to the terms and conditions of this Agreement, as of the Closing Date, Seller and Caskey shall grant, sell, convey, assign, transfer and deliver to Purchaser, and Purchaser shall purchase from Seller and Caskey, all of its and his respective right, title and interest in and to all of the Purchased Assets, wherever situated, free and clear of all Encumbrances.

(b) The Purchased Assets do not include the following (collectively, the “ Excluded Assets ”): (A) the corporate seal, charter documents, minute books, stock books, tax returns or other records having to do with the organization of Seller; (B) rights to receive proceeds from insurance policies (i) not included in the Assumed Contracts or (ii) with respect to claims arising prior to the Closing Date; (C) rights to receive tax refunds; (D) all rights in the name “E. Claiborne Robins” and the corporate name “E. Claiborne Robins Company, Inc.”; (E) any Contracts not included in the Assumed Contracts; (F) Seller’s cash or cash equivalents reflected on the Financial Statements from the Most Recent Fiscal Year End with only such changes therein as shall have occurred in the regular and ordinary course of the Business as conducted by it consistent with its past practice since the Most Recent Fiscal Year End, including those listed on Schedule 2.1(b) ; (G) the security deposit under Seller’s existing real property lease; (H) all assets, Contracts and other rights related to Cephalon, Inc. and Amrix owned or leased by the Seller; or (H) the rights which accrue or will accrue to Seller or Caskey under this Agreement. Seller shall deliver to Purchaser copies of Books and Records included in the Excluded Assets at Purchaser’s request and at Purchaser’s expense.

Section 2.2  Retention of Records .   Notwithstanding anything contained in this Agreement to the contrary, Seller may retain a copy of all Books and Records, Marketing Materials and other documents or materials conveyed hereunder for archival purposes, and for the purpose of fulfilling its obligations under applicable Law but for no other uses or purposes.

Section 2.3  Seller’s Lease . Purchaser shall assume and be responsible for all of Seller’s obligations under the existing real property lease for Seller’s warehouse facility located at 3967, 3969, 3971 Rear Deep Rock Road, Richmond, Virginia 23233.

Section 2.4  Liabilities Assumed and Excluded Contracts .  

(a)   Purchaser shall assume and be responsible for (i) all of the Liabilities of Seller with respect to the Assumed Liabilities arising after the Closing Date and (ii) Seller’s Accrued Expenses as of the Closing Date.

(b) Except as provided in (a) above, Purchaser is assuming no Liabilities of Seller, and Seller expressly agrees to retain all Liabilities with respect to the Purchased Assets and Assumed Liabilities arising prior to the Closing Date, in addition to all of Seller’s accounts payable as of the Closing Date and the Liabilities retained by Seller pursuant to Article VI of this Agreement.

 

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Section 2.5  Closing . The purchase and sale provided for in this Agreement (the “ Closing ”) will take place at 10:00 a.m. on February 27, 2009, at the offices of counsel for Seller, Cantor Arkema, P.C., 1111 E. Main Street, 16 ^th Floor, Richmond, Virginia 23219, or at such other location as the Parties may agree upon. Subject to the provisions of Article 10, failure to consummate the Contemplated Transactions on the date and time and at the place determined pursuant to this Section 2.5 will not result in the termination of this Agreement and will not relieve any Party of any obligation under this Agreement. In such a situation, the Closing will occur as soon as practicable, subject to Article 10.

Section 2.6  Closing Obligations .   In addition to any other documents to be delivered under other provisions of this Agreement, at the Closing:

(a) Seller or Caskey, as applicable, shall deliver to Purchaser:

(i) a bill of sale executed by Seller for all of the Purchased Assets that are personal property in substantially the same form as Exhibit 2.6(a)(i) (the “ Bill of Sale ”);

(ii) a bill of sale or other assignment instrument executed by Caskey for the Caskey Contributions;

(iii) a trademark assignment for each of the Seller’s Trademarks in substantially the same form as Exhibit 2.6(a)(iii) (the “ Trademark Assignment ”);

(iv) one or more assignment and assumption agreements executed by Seller for each of the Assumed Contracts, including a separate such document with respect to the Seller’s lease described in Section 2.3 (the “ Assignment and Assumption Agreements ”);

(v) each of the Consents identified on Schedule 4.3 as a required Consent;

(vi) titles to the motor vehicles included in the Purchased Assets, duly endorsed by Seller in favor of Purchaser;

(vii) such other bills of sale, assignments, certificates of title, documents and other instruments of transfer and conveyance as may reasonably be requested by Purchaser, each in form and substance satisfactory to Purchaser and its legal counsel and executed by Seller or Caskey, as applicable, including the assignment of any Intellectual Property rights that may have arisen in any independent contractors of the Seller or Caskey by virtue of work performed by such contractors;

(viii) a certificate executed on behalf of Seller and Caskey as to the accuracy of their representations and warranties as of the date of this Agreement and as of the Closing in accordance with Section 8.1 and as to their compliance with and performance of their covenants and obligations to be performed or complied with at or before the Closing in accordance with Section 8.2; and

 

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(ix) the Non-Competition and Employment Agreements described in Section 8.4.

(b) Purchaser shall deliver to Seller or Caskey, as the case may be:

(i) that portion of the Purchase Price described in Section 3.1(a);

(ii) the Notes;

(iii) the Assignment and Assumption Agreement for the Assumed Liabilities and Accrued Expenses executed by Purchaser; and

(iv) a certificate executed by Purchaser as to the accuracy of its representations and warranties as of the date of this Agreement and as of the Closing in accordance with Section 9.1 and as to its compliance with and performance of its covenants and obligations to be performed or complied with at or before the Closing in accordance with Section 9.2.

Section 2.7  Purchase Price   Allocation . The Parties agree that the Purchase Price for the Purchased Assets shall be allocated among the Purchased Assets in the manner set forth on Schedule 2.7 . Each Party shall report the transaction in accordance with such allocation and shall not take a position inconsistent with such allocation except with the written consent of the other Party hereto. Purchaser and Seller shall complete IRS Form 8594 reflecting such allocation, and Purchaser and Seller will take no position with any Governmental or Regulatory Authority inconsistent therewith.

ARTICLE III

CONSIDERATION

Section 3.1  Purchase Price . The purchase price for the Purchased Assets (‘the “ Purchase Price ”) shall be Five Million One Hundred Thirty Eight Thousand Eighty Two and No/100 Dollars ($5,138,082.00), which amount shall be due and payable as follows:

(a) One Million and No/100 Dollars ($1,000,000.00) in cash or immediately available funds at Closing; and

(b) Four Million One Hundred Thirty Eight Thousand Eighty Two and No/100 Dollars ($4,138,082.00) pursuant to Purchaser’s promissory notes in the forms attached hereto as Exhibit 3.1(b)-1  for Two Million Forty Six Thousand Twenty Eight and No/100 Dollars ($2,046,028.00)(the “ First Note ”) and as Exhibit 3.1(b)-2 for Two Million Ninety Two Thousand Fifty Four and No/100 Dollars ($2,092,054.00)(the “ Second Note ” and together with the First Note, the “ Notes ”).

The parties acknowledge and agree that the Purchase Price may be adjusted pursuant to Section 3.2 below.

 

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Section 3.2  Working Capital Adjustment .

(a) On or before the Closing Date, the Seller shall deliver to the Purchaser a statement of Working Capital (including the related notes and schedules thereto) as of the close of business on the Closing Date, which shall set forth the estimated Working Capital and shall set forth in detail the amounts underlying such calculation. The statement of estimated Working Capital shall be consistent in such respects with the model calculation set forth on Schedule 3.2(a) . In the event that the Seller and the Purchaser disagree over the statement of estimated Working Capital or the amount of the estimated Working Capital, the estimated Working Capital prepared by Seller shall be deemed to be the estimated Working Capital for purposes of Closing. If the Working Capital as shown in the Final WC Statement is less than Two Million Two Hundred Fifty Thousand and 00/100 Dollars ($2,250,000.00) (the “ WC Benchmark ”), the parties acknowledge that the principal amount of the Notes may be adjusted in accordance with the balance of this Section 3.2 (the “ Working Capital Adjustment ”).

(b) As promptly as practicable, but no later than 45 calendar days after the Closing Date, the Purchaser shall prepare and deliver to the Seller a statement of Working Capital (including the related notes and schedules thereto) as of the close of business on the Closing Date, which shall set forth the Purchaser’s determination of the Working Capital and shall set forth in detail the amounts underlying such calculation (the “ Initial WC Statement ”). The calculation of the Working Capital set forth on the Initial WC Statement will be prepared in accordance with GAAP and, for purposes of clarity, shall be consistent with the model calculation set forth on Schedule 3.2(b) which is included for illustrative purposes only. During the 15 calendar days immediately following the Seller’s receipt of the Initial WC Statement, the Seller and its representatives will be permitted during business hours in a manner which will not unreasonably interfere with the operation of the Business to review at the Purchaser’s offices the Purchaser’s working papers (including work papers of accountants and other advisors) relating to the Initial WC Statement, as well as all of the books and records relating to the operations and finances of the Business with respect to the period up to and including the Closing Date, and the Purchaser shall make reasonably available at its offices the individuals responsible for the preparation of the Initial WC Statement in order to respond to the reasonable inquiries of the Seller related thereto.

(c) The Seller shall notify the Purchaser in writing (the “ Notice of Disagreement ”) within 20 calendar days after receiving the Initial WC Statement if the Seller disagrees with the Purchaser’s calculation of the Working Capital, which Notice of Disagreement shall set forth in reasonable detail the basis for such dispute and the U.S. Dollar amounts involved and the Seller’s good faith estimate of the Working Capital. Any item not specifically disputed by the Seller shall be deemed accepted by the Seller and shall become part of the Final WC Statement. If the Seller does not deliver a Notice of Disagreement to the Purchaser within such 20 calendar day period, then the Initial WC Statement shall be deemed to have been accepted by the Seller, shall become final and binding upon the parties and shall be the Final WC Statement.

 

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(d) During the 30 calendar day period immediately following the delivery of a Notice of Disagreement, the Seller and Purchaser shall seek in good faith to resolve any differences that they may have with respect to any matter specified in the Notice of Disagreement. If at the end of such 30 calendar day period the Seller and Purchaser have been unable to agree upon a Final WC Statement, then the Seller and Purchaser shall submit to a mutually agreeable independent accounting firm ( the “ Independent Accounting Firm ”) for review and resolution any and all matters that remain in dispute with respect to the Notice of Disagreement. The Seller and Purchaser shall cause the Independent Accounting Firm to use commercially reasonable efforts to make a final determination (which determination shall be binding on the parties hereto) of the Working Capital within 30 calendar days from such submission, and such final determination shall be the Final WC Statement. The cost of the Independent Accounting Firm’s review and determination shall be split between and paid by the Seller and Purchaser on a proportionate basis, based upon the relative amount by which the determination of the Working Capital of each of them differed from that determined by the Independent Accounting Firm. During the 30 calendar day review by the Independent Accounting Firm, the Seller and Purchaser will each make available to the Independent Accounting Firm such individuals and such information, books and records as may be reasonably required by the Independent Accounting Firm to make its final determination.

(e) If the Working Capital (as set forth in the Final WC Statement) is less than the WC Benchmark, then the principal amount of the Notes shall be reduced by an amount equal to such shortfall.

(f) In furtherance of the calculation of the Working Capital, on the Business Day immediately preceding the Closing Date, the parties and such parties’ representatives and agents may conduct a physical inventory of all tangible property forming a part of the Purchased Assets in a manner consistent with Seller’s past practice.

Section 3.3  Additional Earnout Consideration . In addition to the Purchase Price, Purchaser shall pay to Seller the following amounts:

(a)  Net Sales Earnout . Provided Purchaser and its Affiliates have Net Sales of Active Products in excess of $10,000,000.00 during each applicable twelve (12) month period, Purchaser shall pay Seller an amount equal to seven percent (7%) of such Net Sales with respect to the Active Products on a quarterly basis for three (3) successive twelve (12) month periods following the Closing Date for a total of thirty-six (36) months, beginning with the quarter beginning on March 1, 2009 and ending on February 28, 2012 (the “Earnout Period”). No such quarterly payments shall be due and payable until Purchaser and its Affiliates have Net Sales of Active Products for the applicable 12 month period exceed $10,000,000, at which time the payments with respect to any preceding quarter(s) shall be included in the payment made with respect to the quarter in which such threshold was exceeded. In the event there is an interruption in supply from the manufacturer of any of the Active Products resulting in a back-order of more than 45 days during the first two hundred forty (240) days after the Closing Date for one or more of the specific Active Products, all sales of the specific Active Product(s) subject to such back-order shall be excluded in calculating any payment to Seller under this Section 3.3(a) for the first twelve (12) month period (although such sales shall be included in determining whether the $10,000,000 net sales threshold has been met). For the purposes of this Section, “back-order” shall mean a purchase order from a customer which has not been fulfilled within 45 days after the delivery date stated in such purchase order. In the event any regulatory action prohibits the sale or shipment of the Active Products Lodrane 24, Lodrane 24D or Lodrane 12D subject to any grace or other period during which Purchaser and its Affiliates can continue to sell or ship such Active Products, the payment obligations herein shall continue in full force during such grace or other period and the sales of such Active Products shall be included in Net Sales in calculating any payments due hereunder. The total amount payable by Purchaser to Seller and Caskey for any twelve (12) month period shall not exceed One Million Six Hundred Eighty-Three Thousand Three Hundred Thirty-Three and 33/100 Dollars ($1,683,333.33).

 

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(b)  Gross Profit Earnout . To the extent Purchaser and its Affiliates have a Gross Profit with respect to the Active Products in any of the three (3), successive twelve (12) month periods in the Earnout Period exceeds Nine Million and No/100 Dollars ($9,000,000.00), Purchaser shall make an additional payment to Seller, as follows: (i) if Purchaser and its Affiliates have a Gross Profit with respect to the Active Products in any such twelve (12) month period of greater than Nine Million and No/100 Dollars ($9,000,000.00), but less than Eleven Million and No/100 Dollars ($11,000,000.00), Purchaser shall pay Seller and Caskey the sum of Five Hundred Forty One Thousand Six Hundred Sixty Seven and No/100 Dollars ($541,667.00); or (ii) if Purchaser and its Affiliates have a Gross Profit with respect to the Active Products in any such twelve (12) month period of Eleven Million and No/100 Dollars ($11,000,000.00) or more, Purchaser shall pay to Seller and Caskey the sum of Eight Hundred Thirty Three Thousand Three Hundred Thirty Three and No/100 Dollars ($833,333.00).

(c)  Aggregate Earnout Limitation . In no event shall Purchaser be required to pay Seller and Caskey an amount in excess of Four Million and No/100 Dollars ($4,000,000.00) pursuant to Sections 3.3 (a) and 3.3 (b) collectively.

(d)  Reports and Payments . In connection with the contingent payments described in Section 3.3, Purchaser agrees to provide Seller with (i) quarterly reports indicating Purchaser’s and its Affiliates’ Net Sales with respect to the Active Products for such quarter together with the payment required under Section 3.3(a) with respect thereto, within forty-five (45) days of the end of the applicable quarter; and (ii) annual reports, certified by Purchaser’s Chief Financial Officer, indicating Purchaser’s and its Affiliates’ Gross Profit and Net Sales with respect to the Active Products for each twelve (12) month period, and supporting documents therefor, along with the payment required under Section 3.3(b) with respect thereto, within sixty (60) days of the end of the applicable twelve (12) month period. In addition to the foregoing, Purchaser shall provide Seller and Caskey with audited annual reports showing Purchaser’s and its Affiliates’ Net Sales and Gross Profit for each fiscal year during which any payments hereunder are due, which audited annual reports shall be delivered within ninety (90) days of the end of each such fiscal year.

(e)  Inspection Right . Upon prior written notice and at mutually agreeable times, Seller and Caskey shall have the right to inspect Purchaser’s financial records and information, solely for the purpose of auditing the reports referred to in Section 3.4 with respect to the calculation of the contingent payments referred to in Section 3.3 hereof, once during each of the four (4) twelve (12) month periods following the Closing Date.

 

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(f)  Disagreement . If the Seller and Purchaser disagree on the amount of Gross Profit or Net Sales with respect to the Active Products for any period, and the variance between Purchaser’s and the other Seller’s determination of such number is in excess of Ten Thousand and No/100 Dollars ($10,000.00), then Seller and Purchaser shall engage the Independent Accounting Firm, or such other independent accountant firm as may be selected by the Parties,   to determine the Gross Profit or Net Sales with respect to the Active Products, as the case may be, for each period in dispute, and such amount shall be binding on the Seller and Purchaser. Purchaser and Seller shall each bear fifty percent (50%) of the costs of engaging such third party. In the event it is determined that Purchaser owes any additional amounts to Seller or Seller owes any refund to Purchaser to in connection with any dispute, such amount shall be paid by such Party within fifteen (15) days of the date on which such dispute is resolved. Furthermore, and notwithstanding anything herein to the contrary, in the event it is determined or agreed that any underpayment by Purchaser to Seller with respect to the contingent payments provided for in Section 3.3 is 10% or more of the amount actually owed to Seller, Purchaser shall (i) be solely responsible for the costs of engaging a third-party as described above, and (ii) pay to Seller interest on the amount of any shortfall at a rate of 10% per annum.

(g)  Sale of Business . If after the Closing Date but before the expiration of the Earnout Period, Purchaser and its Affiliates shall sell all or substantially all of the Business to a third-party, (i) Purchaser and its Affiliates shall cause such third-party purchaser to assume Purchaser’s remaining obligations under Section 3.3 in accordance with their terms and (ii) Purchaser shall remain liable for such obligations. In the alternative, in connection with such a sale Purchaser may pay to Seller an amount equal to $4,000,000, minus the aggregate amount already paid by the Purchaser to the Seller under Section 3.3(a) or Section 3.3(b).

(h)  Sale of a Product . If after the Closing Date but before the expiration of the Earnout Period, Purchaser and its Affiliates shall sell all of the assets related to one or more Products, but not the entire Business, to a third-party purchaser, the parties agree that the sales of such Product or Products by such third-party purchaser shall continue to be included in the Net Sales of the Purchaser and its Affiliates for the purposes of calculating the Net Sales Earnout under Section 3.3(a) and the Gross Profit Earnout under Section 3.3(b), except as otherwise agreed in writing by the Seller.

Section 3.4  Allocation of Purchase Price (Seller and Caskey) . Any and all amounts to be paid under Section 3.1(a) and Section 3.3 and any adjustments with respect thereto shall be allocated between Seller and Caskey as set forth on Schedule 3.4 attached hereto. In addition, the amount payable under the Notes pursuant to Section 3.1(b) shall be allocated between Caskey and Seller in accordance with such Schedule 3.4 .

Section 3.5  Payment of Purchase Price . That portion of the Purchase Price described in Section 3.1(a) shall be paid by Purchaser to the Representative (as defined in Section 7.8(g)) on the Closing Date in immediately available funds and by wire transfer, pursuant to wiring instructions provided by the Representative to Purchaser not less than three (3) Business Days prior to the Closing Date. That portion of the Purchase Price described in Section 3.3 shall be paid by Purchaser to the Representative in immediately available funds and by wire transfer, pursuant to the wiring instructions provided to Purchaser. Such payments shall, together with the payments under the Notes described in Section 3.1(b), satisfy Purchaser’s obligation to Caskey, and Caskey shall look solely to the Representative for his share of such payments as set forth on Schedule 3.4 .

 

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Section 3.6  Payment of Sales, Use and Other Taxes . Seller shall be responsible for all sales, use, stamp duty, transfer, value added and other related or similar Taxes, if any, arising out of the sale by Seller and Caskey of the Purchased Assets to Purchaser pursuant to this Agreement or payable in connection with the Contemplated Transactions.

Section 3.7  Prorations . The Parties acknowledge that there will be expenses paid or payable either before or after the Closing Date which relate to a period of time which spans the Closing Date, thus partly attributable to Seller and partly attributable to Purchaser. The part attributable to Seller will be calculated as the number of calendar days in the period in question prior to and including the Closing Date, divided by the total number of calendar days in the period in question. The part attributable to Purchaser will be calculated as the number of calendar days after the Closing Date divided by the total number of calendar days in question. Any such expenses paid or payable prior to the Closing Date may be included in Prepaid Expenses. Purchaser shall process all such expenses paid after closing and shall deliver to Seller on a monthly basis an invoice for the Seller’s share, together with documentation evidencing such items, and Seller shall remit payment for such amounts within thirty (30) days from the date of such invoices. The expenses referenced above may include, but are not limited to: rent, common area maintenance charges, utilities, employee benefits (medical, dental, life insurance, health savings account, employer 401k match), employee expense reimbursement, insurance, payroll and payroll taxes, wholesale audit reports, computer maintenance, contracted services fees, Taxes and licenses, and dues and subscriptions. Notwithstanding anything set forth herein to the contrary, Seller shall be solely responsible for any expenses that relate just to the month in which the Closing Date occurs.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF SELLER AND CASKEY

Seller and Caskey represent and warrant to Purchaser, as follows:

Section 4.1  Organization . Seller is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation and has all requisite power and authority to own and transfer the Purchased Assets.

Section 4.2  Authority of Seller . Seller and Caskey have all necessary power and authority to enter into this Agreement and to carry out the Contemplated Transactions. Seller and its stockholders have taken all action required by Law, Seller’s certificate of incorporation, bylaws or otherwise to be taken by them to authorize the execution and delivery of this Agreement by Seller and the consummation of the Contemplated Transactions. This Agreement has been duly and validly executed and delivered by Seller and Caskey and, when duly authorized, executed and delivered by Purchaser, will constitute a legal, valid and binding obligation of Seller and Caskey enforceable against them in accordance with its terms except as limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium and other laws of general application affecting enforcement of creditors’ rights generally.

 

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Section 4.3  Consents and Approvals . No Consents of, or registrations, declarations or filings with, any Governmental or Regulatory Authority, or by any customer, supplier or other third party, are required by or with respect to Seller or Caskey in connection with the execution and delivery of this Agreement by them or the performance of their obligations hereunder, except for such Consents required from the parties set forth on Schedule 4.3 attached hereto.

Section 4.4  Non-Contravention . The execution and delivery by Seller and Caskey of this Agreement does not, and the performance by them of their obligations under this Agreement and the consummation of the Contemplated Transactions will not:

(a) conflict with or result in a violation or breach of any of the terms, conditions or provisions of the articles of incorporation, bylaws, or other organizational documents of Seller, other than such conflicts, violations or breaches as would not have a material adverse effect on Seller or the Purchased Assets;

(b) to Seller’s and Caskey’s knowledge, conflict with or result in a violation or breach of any term or provision of any Law applicable to Seller, Caskey or the Purchased Assets, other than such conflicts, violations or breaches as would not have a material adverse effect on Seller, Caskey or the Purchased Assets; or

(c) conflict with or result in a breach or default (or an event which, with notice or lapse of time or both, would constitute a breach or default) under, or result in the termination or cancellation of, or create in any party the right to accelerate, terminate, modify or cancel, or require any notice under any Contract to which Seller is a party or by which it is bound or to which any of its assets are subject, or result in the creation or imposition of any Encumbrance upon any of the Purchased Assets.

 

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Section 4.5  Intellectual Property Rights .

(a) Seller or Caskey own or has the right to use pursuant to license, sublicense, agreement, or permission all of the Intellectual Property, free and clear of all Encumbrances, and are legally entitled to transfer the Intellectual Property, or the right to use the Intellectual Property, to Purchaser.&nbs