1
Exhibit 99.2
AS EXECUTED - CONFORMED
================================================================================
LIMITED PARTNERSHIP AGREEMENT
Dated as of July 1, 1998
between
KB USA, L.P.
and
KBI SUB INC.
================================================================================
2
TABLE OF CONTENTS
PAGE
ARTICLE 1 CERTAIN DEFINITIONS....................................................................... 1
ARTICLE 2 THE PARTNERSHIP........................................................................... 17
2.1 Formation; Termination of Original Partnership Agreement.................................. 17
2.2 Partners.................................................................................. 17
2.3 Name...................................................................................... 17
2.4 Registered Office; Registered Agent....................................................... 18
2.5 Principal Office.......................................................................... 18
2.6 Purpose................................................................................... 18
2.7 Duration.................................................................................. 19
2.8 Property Ownership; Subsidiaries.......................................................... 19
2.9 Capital Contributions..................................................................... 20
2.10 Other Agreements.......................................................................... 21
2.11 Liability of the Limited Partner.......................................................... 21
ARTICLE 3 MANAGEMENT OF THE PARTNERSHIP............................................................. 22
3.1 Management by the General Partner......................................................... 22
3.2 Limitations on General Partner's Authority................................................ 27
3.3 Persons Dealing with the Partnership...................................................... 30
3.4 Enforcement of Certain Rights............................................................. 31
3.5 Certain Guarantees by KB.................................................................. 31
3.6 Allocation Shortfalls and Allocation Defaults............................................. 31
3.7 Compliance Certificate.................................................................... 34
3.8 Valuation of Certain Contributions and Distributions...................................... 35
3.9 Partnership Opportunities................................................................. 35
ARTICLE 4 ALLOCATIONS............................................................................... 35
4.1 Profits................................................................................... 35
4.2 Losses.................................................................................... 37
4.3 Special Allocations....................................................................... 37
4.4 Curative Allocations...................................................................... 41
4.5 Other Allocation Rules.................................................................... 42
4.6 Tax Allocations: Section 704(c) of the Code.............................................. 42
ARTICLE 5 DISTRIBUTIONS; PARTIAL RETIREMENT OF LIMITED PARTNER'S
INTEREST.................................................................................. 43
5.1 General................................................................................... 43
5.2 Distribution Policy....................................................................... 43
(i)
3
TABLE OF CONTENTS
(Continued)
PAGE
5.3 Insufficient or Excess Distributions...................................................... 45
5.4 Certain Limitations....................................................................... 46
5.5 Liquidating Distributions................................................................. 46
5.6 Partial Retirement of the Limited Partner's Interest...................................... 46
5.7 No Interest............................................................................... 46
5.8 Loans to KB and Its Affiliates............................................................ 47
5.9 Payment of Fees and Expenses.............................................................. 47
5.10 Distributions of Trademarks in Certain Circumstances...................................... 47
ARTICLE 6 ACCOUNTING AND TAXATION................................................................... 47
6.1 Fiscal Year............................................................................... 47
6.2 Accountants............................................................................... 47
6.3 Maintenance of Books, Records and Accounts................................................ 48
6.4 Access to Books and Records............................................................... 48
6.5 Financial Statements...................................................................... 49
6.6 Taxation.................................................................................. 52
ARTICLE 7 TRANSFER OF PARTNERSHIP INTERESTS......................................................... 53
7.1 Limitation on Right to Transfer Partner's Interest........................................ 53
7.2 Transfer to an Affiliate.................................................................. 55
7.3 Transfers in Breach of Agreement Void..................................................... 55
ARTICLE 8 DISSOLUTION OF THE PARTNERSHIP............................................................ 55
8.1 No Dissolution............................................................................ 55
8.2 Waiver of Right to Dissolve............................................................... 55
8.3 No Payment in Certain Circumstances....................................................... 56
8.4 Effect of Dissolution; Distribution of Assets............................................. 56
8.5 Termination of the Partnership............................................................ 57
8.6 Survival of Obligations; Damages.......................................................... 57
ARTICLE 9 INDEMNIFICATION........................................................................... 57
9.1 Indemnification for Breach................................................................ 57
9.2 Indemnification of General Partner........................................................ 57
9.3 Indemnification of Limited Partner........................................................ 58
ARTICLE 10 WAIVER OF PARTITION....................................................................... 58
ARTICLE 11 RELATED PROVISIONS........................................................................ 58
(ii)
4
TABLE OF CONTENTS
(Continued)
Schedule 3.1(c)(i) Powers and Actions Reserved to the Chief
Executive Officer, subject to the Direction of the
Limited Partner
Schedule 3.1(c)(ii) Powers and Actions Reserved to the Chief
Financial Officer, subject to the Direction of the
Limited Partner
Exhibit 3.7 Form of Compliance Certificate
Exhibit 6.5 Form of Section 6.5 Financial Statements
(iii)
5
LIMITED PARTNERSHIP AGREEMENT
LIMITED PARTNERSHIP AGREEMENT, dated as of July 1, 1998,
between KB USA, L.P., a limited partnership organized and existing under the
laws of Delaware ("KBLP"), and KBI SUB INC., a corporation organized and
existing under the laws of Delaware ("KBI Sub"). KBLP and KBI Sub are sometimes
referred to herein individually as a "Partner" and collectively as the
"Partners".
WITNESSETH:
WHEREAS, the Partners own in the aggregate one hundred percent
(100%) of the partnership interests in a limited partnership (the "Partnership")
which was formed under the Delaware Revised Uniform Limited Partnership Law (6
Del. C. Section 17-101 et seq.), as amended from time to time (the "Act"), by
the filing on October 21, 1997, of a certificate of limited partnership and the
execution of a limited partnership agreement dated as of October 21, 1997 (the
"Original Partnership Agreement") for the purpose of engaging in, among other
things, the research, development, registration, distribution, marketing and
sale of pharmaceutical products;
WHEREAS, the Partners desire to terminate the Original
Partnership Agreement and to adopt this Agreement as the limited partnership
agreement of the Partnership;
WHEREAS, Astra AB, a company limited by shares organized and
existing under the laws of Sweden ("KB"), Merck Co., Inc., a New Jersey
corporation ("TR"), Astra Merck Inc., a Delaware corporation ("KBI"), Astra USA,
Inc., a New York corporation ("KB USA"), KBLP, KBI Sub and certain other parties
have entered into the Master Restructuring Agreement (as defined hereinafter),
which provides, among other things, for the execution of this Agreement (which
is in the form of Exhibit P to the Master Restructuring Agreement) by the
Partners; and
WHEREAS, the Partnership shall be operated in accordance with
the terms of the Act, this Agreement, the Master Restructuring Agreement and the
Ancillary Agreements (as hereinafter defined);
NOW, THEREFORE, in consideration of the premises and the
agreements contained herein, the Partners hereby agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
Without limiting any other terms defined herein, as used in
this Agreement the following terms shall have the following respective meanings.
"Accountants" shall mean such firm of independent auditors of
the Partnership as may be selected and approved in accordance with Section 3.2
from time to time.
6
2
"Act" shall have the meaning set forth in the premises of this
Agreement.
"Adjusted Capital Account Deficit" shall mean, with respect to
the Limited Partner, the deficit balance, if any, in the Limited Partner's
Capital Account as of the end of the relevant Allocation Year, after giving
effect to the following adjustments:
(i) there shall be credited to such Capital Account
any amounts which such Limited Partner is obligated to restore pursuant
to any provision of this Agreement or is deemed to be obligated to
restore pursuant to the penultimate sentences of Sections 1.704-2(g)(1)
and 1.704-2(i)(5) of the Regulations; and
(ii) there shall be debited to such Capital Account
the items described in Sections 1.704-1(b)(2)(ii)(d)(4),
1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6) of the
Regulations.
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Regulations
and shall be interpreted consistently therewith.
"Affiliate" shall have the meaning set forth in the Master
Restructuring Agreement.
"Allocation Default" shall have the meaning set forth in
Section 3.6.
"Allocation Shortfall" shall have the meaning set forth in
Section 3.6.
"Allocation Year" shall mean (i) the period commencing on the
Closing Date and ending on December 31, 1998, (ii) any subsequent period
commencing on January 1 and ending on the following December 31, or (iii) any
portion of the period described in clause (ii) for which the Partnership is
required to allocate Profits, Losses and other items of Partnership income,
gain, loss or deduction pursuant to Article 4.
"Ancillary Agreements" shall have the meaning set forth in the
Master Restructuring Agreement.
"Animal Health Uses" shall have the meaning set forth in the
Selected Compounds Contribution Agreement.
"Applicable Rounded Federal Tax Rate" for a year shall mean
the Federal Tax Rate in effect for such year; provided, however, that if such
Federal Tax Rate (expressed as a percentage) includes an amount which is a
fraction of a percentage point (e.g., 33-1/4%), such rate shall be rounded to
the next highest whole percentage rate (e.g., 34%).
"Average PGM" shall mean the average selling margin of a
product for the two most recent Fiscal Years following the first anniversary of
the First Commercial Sale of such product, computed as: (i) the total Net Sales
of such product by the Partnership, less the sum of (A) the Partnership's cost
of goods sold and (B) the amount of any royalty with respect to such
7
3
sales payable by the Partnership and not otherwise included in the cost of goods
sold, divided by (ii) the total Net Sales of such product by the Partnership.
"Bankruptcy" shall have the meaning set forth in the Master
Restructuring Agreement.
"Capital Account" shall mean, with respect to any Partner, the
Capital Account maintained for such Partner in accordance with the following
provisions:
(i) To each Partner's Capital Account there shall be
credited such Partner's Capital Contributions, such Partner's
distributive share of Profits and any items in the nature of income or
gain which are specially allocated pursuant to Section 4.3 or Section
4.4, and the amount of any Partnership liabilities assumed by such
Partner or which are secured by any property distributed to such
Partner.
(ii) To each Partner's Capital Account there shall be
debited the amount of cash and the Gross Asset Value of any property
distributed to such Partner pursuant to any provision of this
Agreement, such Partner's distributive share of Losses and any items in
the nature of expenses or losses which are specially allocated pursuant
to Section 4.3 or Section 4.4, and the amount of any liabilities of
such Partner assumed by the Partnership or which are secured by any
property contributed by such Partner to the Partnership.
(iii) In the event all or a portion of an Interest is
transferred in accordance with the terms of this Agreement, the
transferee shall succeed to the Capital Account of the transferor to
the extent that such Capital Account relates to the transferred
Interest.
The foregoing provisions and the other provisions of this Agreement relating to
the maintenance of Capital Accounts are intended to comply with Section
1.704-1(b) of the Regulations, and shall be interpreted and applied in a manner
consistent with such Regulations. In the event the General Partner shall
determine that it is prudent to modify the manner in which the Capital Accounts,
or any debits or credits thereto (including, without limitation, debits or
credits relating to liabilities which are secured by contributed or distributed
property or which are assumed by the Partnership or any Partner), are computed
in order to comply with such Regulations, the General Partner may make such
modification, provided, however, that it is not likely to have a material
adverse effect on the amounts distributable to any Partner pursuant to Section
8.4 upon the dissolution and liquidation of the Partnership. The General Partner
also shall (i) make any adjustments that are necessary or appropriate to
maintain equality between the Capital Accounts of the Partners and the amount of
Partnership capital reflected on the Partnership's balance sheet, as computed
for book purposes, in accordance with Section 1.704-1(b)(2)(iv)(q) of the
Regulations, and (ii) make any appropriate modifications in the event
unanticipated events might otherwise cause this Agreement not to comply with
Section 1.704-1(b) of the Regulations, provided, however, that, to the extent
that any such adjustment is inconsistent with other provisions of this Agreement
and would have a material adverse effect on the Limited Partner, such adjustment
shall require the Consent of the Limited Partner.
8
4
"Capital Contribution" shall mean, with respect to any
Partner, the amount of money and the initial Gross Asset Value of any property
(other than money) contributed to the Partnership by such Partner (or its
predecessors in Interest) with respect to the Interest held by such Partner. The
principal amount of a promissory note which is not readily traded on an
established securities market and which is contributed to the Partnership by the
maker of the note (or a Partner related to the maker of the note within the
meaning of Section 1.704-1(b)(2)(ii)(c) of the Regulations) shall not be
included in the Capital Account of any Partner until the Partnership makes a
taxable disposition of the note or until (and to the extent) principal payments
are made on the note, all in accordance with Section 1.704-1(b)(2)(iv)(d)(2) of
the Regulations.
"Certificate of Limited Partnership" shall mean the
certificate of limited partnership and any and all amendments thereto and
restatements thereof filed on behalf of the Partnership with the office of the
Secretary of State of the State of Delaware.
"Closing Date" shall have the meaning set forth in the Master
Restructuring Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as
amended, as in effect on the date of this Agreement.
"Compound" shall have the meaning set forth in the Master
Restructuring Agreement.
"Consent of the Limited Partner" shall mean the written
consent or approval in writing of the Limited Partner.
"Contingent Amount Gross-Up" shall mean, for each Fiscal
Quarter ending prior to July 1, 2000, the product of (A) the Fourth Tier Amount
for such Fiscal Quarter multiplied by (B) LIBOR using a LIBOR Period of one (1)
year, compounded quarterly from the last day of such Fiscal Quarter through the
date of distribution of such amount to the Limited Partner pursuant to Section
5.2. For purposes of the foregoing, LIBOR using said one (1) year LIBOR Period
shall be determined on the Closing Date and each anniversary thereof.
"Covered Compound" shall have the meaning set forth in the
Master Restructuring Agreement.
"Debt" shall mean, with respect to any Person, the following
liabilities and obligations, whether incurred by such Person, directly or
indirectly, without duplication:
(i) its liabilities for borrowed money;
(ii) its liabilities for the deferred purchase price
of property acquired by it (excluding accounts payable arising in the
ordinary course of business but including, without limitation, all
liabilities created or arising under any conditional sale or other
title retention agreement with respect to any such property);
9
5
(iii) the amount of the obligation of such Person as
the lessee under any Capital Lease that would, in accordance with GAAP,
appear as a liability on a balance sheet of such Person ("Capital
Lease" meaning, at any time, a lease with respect to which such Person,
as lessee, is required concurrently to recognize the acquisition of an
asset and the incurrence of a liability in accordance with GAAP);
(iv) amounts secured by any Lien with respect to any
property owned by such Person (whether or not it has assumed or
otherwise become liable for such amounts);
(v) all of its liabilities in respect of letters of
credit or instruments serving a similar function issued or accepted for
its account by banks or other financial institutions (whether or not
representing obligations for borrowed money);
(vi) payment obligations with respect to interest
rate swaps, currency swaps and similar obligations obligating such
Person to make payments, whether periodically or upon the happening of
a contingency, or any other financial transaction in which such Person
and another Person agree to exchange streams of payments over time
according to a predetermined formula ("Swaps"); for the purposes of
this clause (vi), the amount of the obligation under any Swap shall be
the amount determined in respect thereof as of the end of the then most
recently ended fiscal quarter of such Person, based on the assumption
that such Swap had terminated at the end of such fiscal quarter, and in
making such determination, if any agreement relating to such Swap
provides for the netting of amounts payable by and to such Person
thereunder or if any such agreement provides for the simultaneous
payment of amounts by and to such Person, then in each such case, the
amount of such obligation shall be the net amount so determined;
(vii) any Guarantee of such Person with respect to
liabilities or obligations of any Person of the character described in
any of the clauses described in (i) through (vi) above ("Guarantee"
meaning, with respect to any Person, any obligation (except the
endorsement in the ordinary course of business of negotiable
instruments for deposit or collection) of such Person guaranteeing or
in effect guaranteeing any indebtedness, dividend or other Debt or
obligation of any other Person in any manner, whether directly or
indirectly, including (without limitation) obligations incurred through
an agreement, contingent or otherwise, by such Person);
(viii) all liabilities and obligations of any
Subsidiary of such Person of the character described in clauses (i)
through (vii) above; and
(ix) all liabilities and obligations of the character
described in clauses (i) through (viii) above with respect to which,
and to the extent that, such Person remains legally liable,
notwithstanding that such liability or obligation is deemed
extinguished under GAAP;
provided, however, that Debt of any Person shall not include liabilities for
taxes, assessments and governmental charges or levies, claims for labor,
material and supplies or unsecured current debt
10
6
incurred in the ordinary course of business and not as a result of borrowing or
in respect of obligations of others, and Debt for any Subsidiary of the
Partnership shall not include any liabilities or obligations of the character
described in clauses (i) through (vii) that are owing to the Partnership.
"Depreciation" shall mean, for each Allocation Year, an amount
equal to the depreciation, amortization, or other cost recovery deduction
allowable for federal income tax purposes with respect to an asset for such
Allocation Year, except that if the Gross Asset Value of an asset differs from
its adjusted basis for federal income tax purposes at the beginning of such
Allocation Year, Depreciation shall be an amount which bears the same ratio to
such beginning Gross Asset Value as the federal income tax depreciation,
amortization, or other cost recovery deduction for such Allocation Year bears to
such beginning adjusted tax basis; provided, however, that if the adjusted basis
for federal income tax purposes of an asset at the beginning of such Allocation
Year is zero, Depreciation shall be determined with reference to such beginning
Gross Asset Value using any reasonable method selected by the General Partner,
provided further, that all intangible property (including goodwill) contributed
to the Partnership whose tax basis is zero at the time of contribution (or at
the time of adjustment to Gross Asset Value as a result of the partial
retirement of the Limited Partner's Interest pursuant to Section 5.6) shall be
amortized on a straight line basis over 15 years.
"Distribution Agreement" shall have the meaning set forth in
the Master Restructuring Agreement.
"Dollars" shall have the meaning set forth in the Master
Restructuring Agreement.
"FDA" shall have the meaning set forth in the Master
Restructuring Agreement.
"Federal Tax Rate" shall mean the highest marginal U.S.
federal corporate income tax rate as in effect from time to time.
"Financial Assets" shall mean interest-bearing securities or
interest-bearing financial instruments (including without limitation U.S.
government securities and corporate bonds, debentures, notes, and commercial
paper) that are non-convertible and non-exchangeable and do not bear any other
rights to acquire any equity security or equity interest and (i) are senior
unsubordinated obligations issued by KB, or (ii) are Investment Grade
Obligations, or (iii) are senior unsubordinated obligations of the issuer that
are fully guaranteed on a senior unsubordinated basis as to the payment of
principal and interest by KB or by any entity whose outstanding unsecured debt
securities or commercial paper are Investment Grade Obligations and would
continue to be Investment Grade Obligations after the effectiveness of such
guarantee or (iv) meet other creditworthiness standards satisfactory to the
Limited Partner in its sole discretion.
"First Commercial Sale" shall have the meaning set forth in
the Master Restructuring Agreement.
11
7
"Fiscal Quarter" shall have the meaning set forth in the
Master Restructuring Agreement.
"Fiscal Year" shall have the meaning set forth in Section 6.1.
"Fourth Tier Amount" shall mean, with respect to any period,
the sum of: (i) the KB USA Products Contingent Amount, (ii) the Group D Products
Contingent Amount, (iii) (A) 43.75% of any recovery received by the Partnership
pursuant to Section 9.2(g) of the Amended and Restated KBI License (as defined
in the Master Restructuring Agreement) in respect of a Selected Compound that is
a Group C Compound or received pursuant to Section 9.7(b) of the Amended and
Restated KBI License (as defined in the Master Restructuring Agreement) in
respect of a Selected Use of a Group C Compound or (B) 45% of any such recovery
in respect of a Selected Compound that is a Group A Compound or a Group B
Compound or in respect of a Selected Use of a Group A Compound or a Group B
Compound, (iv) that portion of the consideration received in such period which
is to be credited to KBI Sub or included in the Fourth Tier Amount in respect of
(in all cases disregarding any amounts taken into account in calculating
contingent amounts) (A) any Total Cash Outlicensing pursuant to Section 3.6(f)
of the Master Restructuring Agreement, (B) any Special Case Outlicensings
pursuant to Section 3.6(g)(i) of the Master Restructuring Agreement, (C) the
Outlicense of omeprazole described in Section 3.6(g)(ii)of the Master
Restructuring Agreement or (D) any amounts agreed by the parties to be Fourth
Tier Amounts (x) pursuant to Section 3.6(g)(v) or Section 3.6(h) of the Master
Restructuring Agreement or otherwise or (y) in connection with any consent which
may be given by KBI Sub pursuant to Section 3.6 of the Master Restructuring
Agreement and (v) one percent (1%) of the sum of the following product for all
Fiscal Quarters: (A) LIBOR using a LIBOR Period of three (3) months plus 50
basis points times (B) the sum of the cost basis to the Partnership of all
equity interests held by the Partnership from time to time during such Fiscal
Quarter in KB Affiliates that are not Pass-Through Entities; provided, however,
that the "Fourth Tier Amount" for the Allocation Year which includes the
Retirement Date and all subsequent Allocation Years shall not include any
amounts in respect of any Total Cash Outlicensing occurring after the end of the
three Fiscal Years or thirty-six (36) full calendar months used to compute the
Limited Partner Share of Agreed Value; and provided, further, that with respect
to the period following the Retirement Date, "Fourth Tier Amount" shall not
include the KB USA Products Contingent Amount or the Group D Products Contingent
Amount other than the Group D Products Contingent Amount, if any, in respect of
Animal Health Uses and Non-Medical Uses of omeprazole and perprazole. The
Allocation Year which includes the Retirement Date shall be divided into a
period up to and including the Retirement Date and a second period following the
Retirement Date for purposes of determining the Fourth Tier Amount for such
Allocation Year. For purposes of the foregoing, LIBOR using said three (3) month
LIBOR Period shall be determined for each Fiscal Quarter.
"GAAP" shall mean U.S. generally accepted accounting
principles, applied on a consistent basis.
"General Partner" shall mean KBLP and any successor general
partner of the Partnership pursuant to the provisions of this Agreement.
12
8
"Gross Asset Value" shall mean, with respect to any asset, the
asset's adjusted basis for federal income tax purposes, except as follows:
(i) The initial Gross Asset Value of any asset
contributed by a Partner to the Partnership shall be the gross fair
market value of such asset; provided, however, that the initial Gross
Asset Values of the assets contributed to the Partnership pursuant to
Section 2.9(a) and (b) shall be as set forth in Section 2.9(a) or (b),
as applicable, and the initial Gross Asset Values of assets otherwise
contributed to the Partnership shall be determined in accordance with
Section 3.8.
(ii) The Gross Asset Values of all Partnership assets
shall be adjusted to equal their respective gross fair market values,
as determined by the Partners, only as of the following times: (A) the
distribution by the Partnership to the Limited Partner in retirement of
a portion of its Interest pursuant to Section 5.6 and (B) the
liquidation of the Partnership within the meaning of Section
1.704-1(b)(2)(ii)(g) of the Regulations.
(iii) The Gross Asset Value of any Partnership asset
distributed to any Partner shall be adjusted to equal the gross fair
market value of such asset on the date of distribution as determined in
accordance with Section 3.8.
(iv) The Gross Asset Values of Partnership assets
shall be increased (or decreased) to reflect any adjustments to the
adjusted basis of such assets pursuant to Section 734(b) or Section
743(b) of the Code, but only to the extent that such adjustments are
taken into account in determining Capital Accounts pursuant to Section
1.704-1(b)(2)(iv)(m) of the Regulations and subparagraph (vi) of the
definition of "Profits" and "Losses" in Article 1 or Section 4.3(g);
provided, however, that Gross Asset Values shall not be adjusted
pursuant to this subparagraph (iv) to the extent the General Partner
determines that an adjustment pursuant to subparagraph (ii) is
necessary or appropriate in connection with a transaction that would
otherwise result in an adjustment pursuant to this subparagraph (iv).
If the Gross Asset Value of an asset has been determined or adjusted pursuant to
subparagraphs (i), (ii), or (iv), such Gross Asset Value shall thereafter be
adjusted by the Depreciation taken into account with respect to such asset for
purposes of Article 4.
"Group D Product" shall have the meaning set forth in the
Master Restructuring Agreement.
"Group D Products Contingent Amount" shall have the meaning
set forth in the Master Restructuring Agreement.
"IAS" shall mean International Accounting Standards, applied
on a consistent basis.
"Indemnity Losses" shall have the meaning set forth in the
Master Restructuring Agreement.
13
9
"Initial Agreements" shall have the meaning set forth in the
Master Restructuring Agreement.
"Interest" shall mean a Partner's interest in the Partnership.
"Investment Grade Obligations" shall mean obligations rated
BBB or higher by Standard and Poor's or rated in an equivalent category by any
other rating agency nationally recognized in the United States or obligations
that are senior to or rank pari passu with long-term securities or financial
instruments of the same issuer that are so rated.
"KB USA Asset Contribution Agreement" shall have the meaning
set forth in the Master Restructuring Agreement.
"KB USA Bundled Group" shall mean any group of products or
Compounds contributed to the Partnership pursuant to the KB USA Asset
Contribution Agreement which the Partnership in the ordinary course of business
typically offers and sells together or collectively as a group of bundled
products or Compounds, which products or Compounds have directly related uses,
and the effect of which is to cause sales of certain products or Compounds
within such group to be sold at a higher profit margin than otherwise attainable
if sold separately. No product or Compound shall be included in a KB USA Bundled
Group if more than twenty percent (20%) of its total unit volume sales is from
sales independent of a KB USA Bundled Group (without giving effect to the
limitation in this sentence). For purposes of the foregoing, a KB USA Bundled
Group may include the same products and Compounds sold in various strengths and
types or packaged in different containers (such as glass vials, glass ampules or
pre-filled syringes), or may include different products and Compounds (possibly
in various strengths and/or packaged in different containers), which have
directly related uses.
"KB USA Bundled Product" shall mean any product or Compound
which is part of a KB USA Bundled Group.
"KB USA Product" shall have the meaning set forth in the
Master Restructuring Agreement.
"KB USA Products Contingent Amount" shall have the meaning set
forth in the Master Restructuring Agreement.
"KBI Asset Contribution Agreement" shall have the meaning set
forth in the Master Restructuring Agreement.
"KBI Shares Option" shall mean KB's option to acquire all the
outstanding shares of common stock of KBI upon the terms and subject to the
conditions set forth in the KBI Shares Option Agreement.
"KBI Shares Option Agreement" shall have the meaning set forth
in the Master Restructuring Agreement.
14
10
"KBI-E" shall mean Astra Merck Enterprises, Inc., a Delaware
corporation.
"KBI-E Asset Contribution Agreement" shall have the meaning
set forth in the Master Restructuring Agreement.
"KBI-E Asset Option Agreement" shall have the meaning set
forth in the Master Restructuring Agreement.
"KBI-E Asset Purchase" shall have the meaning set forth in the
Master Restructuring Agreement.
"LIBOR" shall have the meaning set forth in the Master
Restructuring Agreement.
"LIBOR Period" shall have the meaning set forth in the Master
Restructuring Agreement.
"Lien" shall have the meaning set forth in the Master
Restructuring Agreement.
"Limited Partner" shall mean KBI Sub and any successor limited
partner of the Partnership pursuant to the provisions of this Agreement.
"Limited Partner Share of Agreed Value" shall mean, as of the
Retirement Date, (A) the Multiple (as defined in the KBI-E Asset Option
Agreement) times the average annual KB USA Products Contingent Amount and the
average annual Group D Products Contingent Amount for the three (3) Fiscal Years
immediately preceding the applicable Exercise Year (as defined in the KBI-E
Asset Option Agreement) (or, in the event the Required Sale (as defined in the
KBI-E Asset Option Agreement) occurs pursuant to Section 4.2 of the KBI-E Asset
Option Agreement, for the three (3) periods of twelve (12) consecutive full
calendar months during the thirty-six (36) consecutive full calendar months
immediately preceding the Trigger Event (as defined in the Master Restructuring
Agreement)), excluding that portion of such average annual KB USA Products
Contingent Amount and Group D Products Contingent Amount that is attributable to
Weighted Net Sales of KB USA Products and Group D Products that have been
disposed of by the Partnership pursuant to a Total Cash Outlicensing that is
consummated during the three (3) Fiscal Years immediately preceding the Exercise
Year (or, in the event the Required Sale occurs pursuant to Section 4.2 of the
KBI-E Asset Option Agreement, during the thirty-six (36) months immediately
preceding the Trigger Event), plus (B) the Factor Amount (as defined in the
KBI-E Asset Option Agreement).
"Loss" and "Losses" shall have the meaning set forth in the
definition of "Profits" and "Losses".
"Manufacturing Agreement" shall have the meaning set forth in
the Master Restructuring Agreement.
"Master Restructuring Agreement" shall mean the Master
Restructuring Agreement, dated as of June 19, 1998, between KB, TR, KBI, KBLP,
KB USA, KBI Sub, KBI-
15
11
E, Merck Holdings, Inc., and the Partnership, as such agreement is amended,
modified, supplemented or restated from time to time.
"Net Investment Income" for any period means the excess of the
investment income of the Partnership, excluding any investment income
attributable to Qualifying Financial Assets, for such period over all expenses,
charges, fees, commissions, or the like for such period attributable to Debt of
the Partnership.
"Net Sales" shall have the meaning set forth in the Master
Restructuring Agreement.
"Non-Controlled Entity" shall mean any Person in which the
Partnership owns any equity interest but does not own, directly or indirectly,
more than fifty percent (50%) of the outstanding voting interests.
"Non-Medical Uses" shall have the meaning set forth in the
Selected Compounds Contribution Agreement.
"Nonrecourse Deductions" shall have the meaning set forth in
Section 1.704-2(b)(1) and 1.704-2(c) of the Regulations.
"Nonrecourse Liability" shall have the meaning set forth in
Section 1.704-2(b)(3) of the Regulations.
"Original Capital Contribution" shall mean, with respect to
KBLP, the business and assets contributed to the Partnership as KBLP's initial
Capital Contribution pursuant to Section 2.9(a), and with respect to KBI Sub,
the business and assets contributed to the Partnership as KBI Sub's initial
Capital Contribution pursuant to Section 2.9(b).
"Other Life Sciences Businesses" shall have the meaning set
forth in Section 2.6.
"Outlicensing" shall have the meaning set forth in the Master
Restructuring Agreement.
"Partial Retirement" shall have the meaning set forth in
Section 5.6.
"Partner" shall mean each person or entity that is a partner
of the Partnership as it may be constituted from time to time from and after the
date hereof, initially KBLP and KBI Sub.
"Partner Nonrecourse Debt" shall have the same meaning as the
term "partner nonrecourse debt" set forth in Section 1.704-2(b)(4) of the
Regulations.
"Partner Nonrecourse Debt Minimum Gain" shall mean an amount,
with respect to each Partner Nonrecourse Debt, equal to the Partnership Minimum
Gain that would result if such Partner Nonrecourse Debt were treated as a
Nonrecourse Liability, determined in accordance with Section 1.704-2(i)(3) of
the Regulations.
16
12
"Partner Nonrecourse Deductions" shall have the same meaning
as the term "partner nonrecourse deductions" set forth in Sections 1.704-2(i)(1)
and 1.704-2(i)(2) of the Regulations.
"Partnership" shall have the meaning set forth in the premises
of this Agreement.
"Partnership Minimum Gain" shall have the meaning set forth in
Sections 1.704-2(b)(2) and 1.704-2(d) of the Regulations.
"Pass-Through Entity" shall mean any entity which, for U.S.
federal income tax purposes, is treated as a partnership or as an entity that is
disregarded as being separate from its owner.
"Permitted Businesses" shall have the meaning set forth in
Section 2.6.
"Person" shall have the meaning set forth in the Master
Restructuring Agreement.
"Primary Business" shall have the meaning set forth in Section
2.6.
"Priority Return" shall mean an amount equal to:
(i) for every Fiscal Quarter beginning after June 30, 1998 and
ending on or before the Retirement Date, the amount set forth in Column A of the
following table, minus, for Fiscal Quarters beginning after December 31, 2009,
the amount set forth in Column C of the table set forth below, in each case as
set forth opposite the Applicable Rounded Federal Tax Rate;
(ii) for every Fiscal Quarter beginning on or after the
Retirement Date, the amount set forth in Column B of the following table, minus,
for Fiscal Quarters beginning after December 31, 2009, the amount set forth in
Column C of the table set forth below, in each case as set forth opposite the
Applicable Rounded Federal Tax Rate; and
(iii) for the Fiscal Quarter that includes the Retirement
Date, if such Retirement Date is neither the first nor the last day of such
Fiscal Quarter, the sum of (A) the product of multiplying the Priority Return
for the Fiscal Quarter next preceding such Fiscal Quarter by a fraction the
numerator of which is the number of days in such Fiscal Quarter preceding and
including the Retirement Date, and the denominator of which is the total number
of days in such Fiscal Quarter, plus (B) the product of multiplying the Priority
Return for the Fiscal Quarter next following such Fiscal Quarter by a fraction
the numerator of which is the number of days in such Fiscal Quarter following
the Retirement Date and the denominator of which is the total number of days in
such Fiscal Quarter. For purposes of this clause (iii), fractions shall be
converted to decimal numbers rounded to five (5) places.
17
13
TABLE FOR COMPUTATION OF PRIORITY RETURN
--------------------------------------------------------------------------------
PRIORITY RETURN FOR APPLICABLE ROUNDED FEDERAL TAX RATES
(QUARTERLY AMOUNT)
--------------------------------------------------------------------------------
COLUMN A: COLUMN B: COLUMN C:
--------- --------- ---------
REDUCTION FOR FISCAL
ON OR PRIOR TO THE AFTER THE QUARTERS COMMENCING
RETIREMENT DATE RETIREMENT DATE AFTER 2009
--------------- --------------- ----------
PRIORITY RETURN FOR
APPLICABLE ROUNDED
FEDERAL TAX RATES OF:
35% or more......... $75,094,397 $54,394,397 $2,670,259
34%................. $74,214,368 $53,514,368 $2,573,929
33%................. $73,360,609 $52,660,609 $2,480,475
32%................. $72,531,960 $51,831,960 $2,389,769
31%................. $71,727,330 $51,027,330 $2,301,693
30%................. $70,945,690 $50,245,690 $2,216,133
29%................. $70,186,067 $49,486,067 $2,132,983
28% or less......... $69,447,545 $48,747,545 $2,052,143
The Priority Return shall be cumulative, and all amounts
thereof due but not distributed shall be increased from the last day of the
Fiscal Quarter with respect to which such amount is due by an amount equal to
nine and three one hundredths percent (9.03%) per annum, compounded quarterly
until paid.
"Profits" and "Losses" shall mean, for each Allocation Year,
an amount equal to the Partnership's taxable income or loss for such Allocation
Year, determined in accordance with Section 703(a) of the Code (for this
purpose, all items of income, gain, loss, or deduction required to be stated
separately pursuant to Section 703(a)(1) of the Code shall be included in
taxable income or loss), with the following adjustments:
(i) Any income of the Partnership that is exempt from
federal income tax and not otherwise taken into account in computing
Profits or Losses pursuant to this definition of "Profits" and "Losses"
shall be added to such taxable income or loss.
(ii) Any expenditures of the Partnership described in
Section 705(a)(2)(B) of the Code or treated as Section 705(a)(2)(B)
expenditures pursuant to Section 1.704-1(b)(2)(iv)(i) of the
Regulations, and not otherwise taken into account in computing Profits
or Losses pursuant to this definition of "Profits" and "Losses", shall
be subtracted from such taxable income or loss.
(iii) In the event the Gross Asset Value of any
Partnership asset is adjusted pursuant to subparagraphs (ii) or (iii)
of the definition of "Gross ▇▇▇▇▇ ▇▇▇▇▇",
▇▇
▇▇
the amount of such adjustment shall be taken into account as gain or
loss from the disposition of such asset for purposes of computing
Profits or Losses.
(iv) Gain or loss resulting from any disposition of
property with respect to which gain or loss is recognized for federal
income tax purposes shall be computed by reference to the Gross Asset
Value of the property disposed of, notwithstanding that the adjusted
tax basis of such property differs from its Gross Asset Value.
(v) In lieu of the depreciation, amortization, and
other cost recovery deductions taken into account in computing such
taxable income or loss, there shall be taken into account Depreciation
for such Allocation Year, computed in accordance with the definition of
"Depreciation".
(vi) To the extent an adjustment to the adjusted tax
basis of any Partnership asset pursuant to Section 734(b) of the Code
is required pursuant to Section 1.704-1(b)(2)(iv)(m)(4) of the
Regulations to be taken into account in determining Capital Accounts as
a result of a distribution other than in liquidation of a Partner's
Interest, the amount of such adjustment shall be treated as an item of
gain (if the adjustment increases the basis of the asset) or loss (if
the adjustment decreases the basis of the asset) from the disposition
of the asset and shall be taken into account for purposes of computing
Profits or Losses.
(vii) Any items which are specially allocated
pursuant to Section 4.3 or Section 4.4 shall not be taken into account
in computing Profits or Losses.
The amounts of the items of Partnership income, gain, loss, expense or deduction
available to be specially allocated pursuant to Sections 4.3 and 4.4 shall be
determined by applying rules analogous to those set forth in subparagraphs (i)
through (vi) above.
"Put Option Event" shall have the meaning set forth in the
Master Restructuring Agreement.
"Qualifying Financial Asset" shall mean any Financial Asset
which is designated by the General Partner in writing to the Limited Partner as
being a Qualifying Financial Asset. A Qualifying Financial Asset may not be
redesignated a non-Qualifying Financial Asset unless at the time of such
redesignation such asset could be distributed to the General Partner in
accordance with Section 5.2(c).
"R&D Expenses" shall mean research and development expenses of
the Partnership including, without limitation, expenses related to the
following:
(i) discovering, developing, registering and testing
Compounds or products for commercial sale;
(ii) developing new or alternative dosage forms, new
claims, new indications or line extensions of existing Compounds and
products, whether such
19
15
expenses are incurred prior to or following approval by the FDA ("FDA
Approval") of such Compound or product; and
(iii) conducting clinical studies of Compounds or
products, whether or not such expenses are incurred prior to or
following FDA Approval of such Compounds or products.
Without limiting the generality of the foregoing, R&D Expenses shall include all
research and development expenses of the Partnership relating to its Primary
Business or any other Permitted Business. R&D Expenses also shall include
research and development expenses of any Wholly-Owned Subsidiary that is a
Pass-Through Entity but shall not include any distributive share of the
Partnership of research and development expenses of a Pass-Through Entity that
is not a Wholly-Owned Subsidiary. Depreciation shall not be included in R&D
Expenses.
"Regulations" shall mean the income tax regulations, including
temporary regulations, promulgated under the Code, as such regulations may be
amended, modified or supplemented through the Closing Date, except that
"Regulations under Section 704" shall mean the Regulations under Section 704 of
the Code or under the applicable subsection thereof, as such Regulations may be
amended, modified or supplemented from time to time.
"Regulatory Allocations" shall have the meaning set forth in
Section 4.4.
"Retirement Date" shall have the meaning set forth in Section
5.6.
"Select Officers" shall mean the chief executive officer,
chief financial officer, chief operating officer, general counsel, vice
president of marketing, vice president of human resources and vice president of
manufacturing, if any, of the Partnership.
"Selected Compounds Contribution Agreement" shall have the
meaning set forth in the Master Restructuring Agreement.
"SG&A Expenses" shall mean the selling, general and
administrative expenses of the Partnership, including, without limitation, the
following:
(i) expenses related to selling, promoting, marketing
and advertising products (including samples);
(ii) expenses related to general and corporate
administrative expenses, including, but not limited to finance, legal,
human resources, public and governmental affairs, executive and
computer resources;
(iii) expenses related to procurement, planning and
logistics;
(iv) royalties payable to Persons who are not
Affiliates; and
(v) management or similar charges or fees paid to the
General Partner or any of its Affiliates;
20
16
but specifically excluding, without limitation, Depreciation, interest expense,
losses from sales of financial assets, and including without limitation
securities, capital assets, settlements of judgments, and foreign exchange
losses. Without limiting the generality of the foregoing, SG&A Expenses shall
include all such selling, general and administrative expenses of the Partnership
relating to its Primary Business or any other Permitted Business. SG&A Expenses
also shall include selling, general and administrative expenses of any
Wholly-Owned Subsidiary that is a Pass-Through Entity but shall not include any
distributive share of the Partnership of selling, general and administrative
expenses of a Pass-Through Entity that is not a Wholly-Owned Subsidiary.
"Special Case Outlicensings" shall have the meaning set forth
in the Master Restructuring Agreement.
"Subsidiary" means, as to any Person, any corporation,
association or other business entity in which such Person, individually or
together with one or more of its Subsidiaries, owns sufficient equity or voting
interests to enable it or them (as a group) ordinarily, in the absence of
contingencies, to elect a majority of the directors (or Persons performing
similar functions) of such entity, and any partnership or joint venture if more
than a fifty percent (50%) interest in the profits or capital thereof is owned
by such Person and/or one or more of its Subsidiaries. Unless the context
otherwise clearly requires, any reference to a "Subsidiary" is a reference to a
Subsidiary of the Partnership.
"Tax Matters Partner" shall have the meaning set forth in
Section 6.6(c).
"Threshold Amount" shall mean $2 billion for the first two (2)
Allocation Years of the Partnership and shall be reduced by $284 million in each
Allocation Year thereafter, but shall not be reduced below $1 billion.
"Total Cash Outlicensing" shall have the meaning set forth in
the Master Restructuring Agreement.
"TR Non-Controlled Entity" shall mean any entity in which TR,
directly or indirectly, controls, through share ownership or contract, the
election of 30% or more of the board of directors or 30% or more of the voting
power.
"Trademark Rights Contribution Agreement" shall have the
meaning set forth in the Master Restructuring Agreement.
"Transfer", when used as a verb, shall mean, with respect to
any property or asset (or any interest therein) sell, assign, pledge, encumber,
hypothecate, dispose of or otherwise transfer, and when used as a noun, shall
mean sale, assignment, pledge, encumbrance, hypothecation, disposition or other
transfer.
"Weighted Average PGM" with respect to any KB USA Bundled
Group shall mean the sum of the total of the Average PGMs for all KB USA Bundled
Products for the most
21
17
recently completed two Fiscal Years divided by the total Net Sales for all such
KB USA Bundled Products for the most recently completed two Fiscal Years.
"Weighted Net Sales" shall have the meaning set forth in the
Master Restructuring Agreement.
"Wholly-Owned Subsidiary" shall have the meaning set forth in
the Master Restructuring Agreement.
Capitalized terms used and not defined herein shall have the
respective meanings set forth in the Master Restructuring Agreement.
ARTICLE 2
THE PARTNERSHIP
2.1 Formation; Termination of Original Partnership Agreement.
The Partners, having acquired in the aggregate one hundred percent (100%) of the
ownership interests in the Partnership from the owners thereof and having been
substituted for such owners as the general partner and limited partner of the
Partnership, respectively, hereby terminate the Original Partnership Agreement
and all rights and obligations thereunder and adopt this Agreement in
substitution therefor as the limited partnership agreement of the Partnership.
2.2 Partners.
(a) Initially, KBLP shall be the general partner of the
Partnership, and KBI Sub shall be the limited partner of the Partnership.
(b) Except as specifically altered by the express terms of
this Agreement, the Master Restructuring Agreement and the Ancillary Agreements,
the rights and obligations of the parties as Partners of the Partnership shall
be as set forth in the Act.
2.3 Name. The name of the Partnership shall be "Astra
Pharmaceuticals, L.P." The Partnership's business may be conducted under the
name of the Partnership, which may be changed by the General Partner, or any
other name or names deemed advisable by the General Partner; provided, however,
that (i) such name shall not include the word "Merck" or any word confusingly
similar thereto, (ii) such name shall include the words "Limited Partnership" or
the initials "L.P." or "LP" and (iii) in the case of a change of the name of the
Partnership, the General Partner shall cause an appropriate amendment to the
Certificate of Limited Partnership to be filed as required by the Act and a
certified copy thereof to be provided to the Limited Partner. The General
Partner shall promptly notify the Limited Partner in writing of each change in
the name of the Partnership and shall notify the Limited Partner in writing not
less than annually of each name, fictitious business name, "d/b/a" or other name
(exclusive of product trademarks) used by the Partnership or entities under its
control in the conduct of any business, regardless of the form or ownership of
such business.
22
18
2.4 Registered Office; Registered Agent. The Partnership shall
maintain a registered office and registered agent for service of process in the
State of Delaware to the extent required by the Act, which office and agent may
be designated by the General Partner. Initially, the registered office in the
State of Delaware shall be c/o The Corporation Trust Company, Corporation Trust
Center, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇. Initially, the name and
address of the Partnership's registered agent in the State of Delaware shall be
The Corporation Trust Company, whose address is Corporation Trust Center, ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇.
2.5 Principal Office. The principal office of the Partnership
shall be located at ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇, or such other
location within the United States as may be specified from time to time by the
General Partner with prompt written notice to the Limited Partner. The books and
records of the Partnership shall be kept and maintained at the Partnership's
principal office.
2.6 Purpose. (a) The purpose of the Partnership and its
Subsidiaries, if any, shall be to conduct (i) the business consisting of the
research, development, registration, manufacture, marketing, distribution and
sale of (A) pharmaceutical products described by the Standard Industrial
Classification (SIC) for Industry Group No. 283-Drugs in the U.S. Office of
Management and Budget Standard Industrial Classification Manual (1987),
including without limitation, products used to administer pharmaceutical
products, (B) biotechnology products for human health uses, (C) other medical
therapies used to treat human medical conditions, and (D) chemical components of
pharmaceuticals, (ii) any business that is included as a Primary Business with
the Consent of the Limited Partner (the businesses described in clauses (i) and
(ii) being referred to herein, collectively, as the "Primary Business"), and
(iii) Other Life Sciences Businesses. As used in this Agreement, "Other Life
Sciences Businesses" shall mean the businesses consisting of the research,
development, registration, manufacture, marketing, distribution and sale of (i)
medical and hospital equipment and supplies, (ii) diagnostic equipment and
products, (iii) healthcare management products and services, (iv) animal health
products, (v) agricultural sciences, (vi) any business reasonably related to the
Primary Business or to the businesses described in clauses (i) through (v) of
this sentence and (vii) any business that is included as an Other Life Sciences
Business with the Consent of the Limited Partner. The Primary Business and the
Other Life Sciences Businesses are referred to in this Agreement collectively as
the "Permitted Businesses."
(b) The Partnership shall not engage, at any time, directly or
indirectly in any business other than one or more Permitted Businesses. Prior to
the Retirement Date, neither the Partnership nor any Subsidiary of the
Partnership shall, directly or indirectly, without the Consent of the Limited
Partner, in any Fiscal Year (i) purchase or otherwise acquire any business,
business entity, assets or any interest in any of the foregoing (other than
routine purchases in the ordinary course of business), (ii) make any
distribution to the General Partner of any business, business entity, assets or
any interest in any of the foregoing, (iii) make any sale or divestiture of any
business, business entity, assets or any interest in any of the foregoing or
(iv) make any contribution to the Partnership of any business, business entity,
assets or any interest in any of the foregoing, unless:
23
19
(A) the revenues of the Partnership for the four most recently
completed Fiscal Quarters (determined on a consolidated basis
in accordance with GAAP) derived from the Primary Business
would be, on a pro forma basis after giving effect to such
purchase, acquisition, distribution, sale, divestiture or
contribution, at least 65% of the Partnership's total revenues
for such four Fiscal Quarters (determined on a consolidated
basis in accordance with GAAP), or
(B) if the revenues of the Partnership for the four most recently
completed Fiscal Quarters (determined on a consolidated basis
in accordance with GAAP) derived from the Primary Business
were less than 65% of the Partnership's total revenues for
such four Fiscal Quarters (determined on a consolidated basis
in accordance with GAAP), such purchase, acquisition,
distribution, sale, divestiture or contribution would not
result, on a pro forma basis, in a decrease in the proportion
of the total revenues of the Partnership (determined on a
consolidated basis in accordance with GAAP) that are derived
from the Primary Business for such four Fiscal Quarters.
2.7 Duration. The term of the Partnership shall commence
on the date hereof and shall continue for a term expiring on December 31, 2072,
which term shall be renewed automatically for additional consecutive terms of
seventy-five (75) years each unless either Partner gives written notice to the
other Partner of its desire not to renew such term at least one year prior to
the expiration of any such term.
2.8 Property Ownership; Subsidiaries.
(a) All assets and other property, whether real, personal, or
mixed, tangible or intangible, of the Partnership shall be held and recorded in
the name of the Partnership, except to the extent required by any applicable
law. All such assets and other property shall be deemed to be owned by the
Partnership as an entity, and no Partner, individually or collectively, shall
have any ownership interest in such property or any portion thereof. Unless the
Partnership receives the Consent of the Limited Partner or except as required by
law, the Partnership shall hold or own the business and assets conveyed to the
Partnership pursuant to the KB USA Asset Contribution Agreement, the KBI Asset
Contribution Agreement, the Trademark Rights Contribution Agreement, the
Selected Compounds Contribution Agreement or the KBI-E Asset Contribution
Agreement directly or through a Subsidiary that (i) is a Pass-Through Entity,
(ii) is a Wholly-Owned Subsidiary of the Partnership and (iii) executes and
delivers to the Limited Partner an agreement (the performance of which is
guaranteed by KB) in form and substance satisfactory to the Limited Partner
undertaking to comply with the provisions of Section 3.2(b) as if it were the
Partnership and to comply with all other terms of this Agreement and the Master
Restructuring Agreement in respect of such assets and the business conducted by
it as if it were the Partnership. The business of the Partnership shall be
conducted exclusively by the Partnership and one or more such Subsidiaries, and
the Partnership may not Transfer any interest in any such Subsidiary without the
Consent of the Limited Partner; provided, however, that this sentence shall not
prevent the Partnership from purchasing or otherwise acquiring from any Person
that is not an Affiliate of KB, in a transaction not otherwise prohibited by
this Agreement,
24
20
and as an incidental part thereof, any business that includes a pre-existing
subsidiary not otherwise permitted by this sentence. The General Partner
represents, warrants and agrees that any assets of the Partnership for which
legal title is held in the name of the General Partner or any such Subsidiary
shall be held in trust by the General Partner or such Subsidiary for the sole
use and benefit of the Partnership in accordance with the terms and provisions
of this Agreement, and no Partnership assets may be used or possessed by the
General Partner or such Subsidiary other than for a Partnership purpose. All
assets of the Partnership or such Subsidiary shall be recorded as the property
of the Partnership or such Subsidiary on its books and records, irrespective of
the name in which legal title to such assets is held.
(b) The Partnership shall not, and shall not permit its
Subsidiaries to, establish, enter into, maintain or permit to exist any
agreement or arrangement, formal or informal, including but not limited to any
voting trust, shareholder agreement, or charter or by-law provisions, which
would hinder, delay or impede in any material respect the ability of the Limited
Partner to exercise control over the management, operations, finances or other
affairs of any Subsidiary in the exercise by the Limited Partner of its rights
pursuant to Section 3.1(c) or which could result in any Subsidiary that holds
any of the assets described in the third sentence of Section 2.8(a) ceasing to
be a Wholly-Owned Subsidiary of the Partnership; provided, however, that this
Section 2.8(b) shall not be construed as conferring on the Limited Partner any
greater rights or powers with respect to the management, operations, finances or
other affairs of any such Subsidiary than the rights and powers described in
Section 3.2(c).
(c) A Partner's Interest shall be personal property for all
purposes.
2.9 Capital Contributions.
(a) Initial Capital Contribution by KBLP. KBLP shall
contribute as an initial Capital Contribution to the Partnership (i) cash of
$400 million ($400,000,000) and (ii) the business and assets described in the KB
USA Asset Contribution Agreement (subject to certain liabilities to be assumed
or borne by the Partnership as provided in such agreement), such contribution to
be effective as of the time provided for in the Master Restructuring Agreement,
and to be credited as set forth in the definition of "Capital Account." The
Partners agree that (i) KBLP's initial Capital Contribution has a value of $1
billion and (ii) the portion of such initial Capital Contribution represented by
the KB USA Asset Contribution Agreement has a value of $600 million
($600,000,000).
(b) Initial Capital Contribution by KBI Sub. KBI Sub shall
contribute as an initial Capital Contribution to the Partnership the business
and assets of KBI described in the KBI Asset Contribution Agreement, the
Selected Compounds Contribution Agreement, the KBI-E Asset Contribution
Agreement, and the Trademark Rights Contribution Agreement (subject to certain
liabilities to be assumed or borne by the Partnership as provided in such
agreements), such contribution to be effective as of the time provided in the
Master Restructuring Agreement, and to be credited as set forth in the
definition of "Capital Account" herein. The Partners agree that (i) KBI Sub's
initial Capital Contribution has a total value of $3.4 billion and,
25
21
(ii) the portion of such initial Capital Contribution represented by the
Selected Compounds Contribution Agreement has a value of $1 million.
(c) Subsequent Capital Contributions by KBLP. Subject to
Section 2.9(d), KBLP may make additional voluntary contributions to its Capital
Account at any time, including without limitation contributions for the purpose
of providing income-producing financial assets for the purpose of avoiding or
curing any Allocation Shortfall; provided, however, that the assets contributed
shall consist solely of (i) cash, (ii) Financial Assets, (iii) any other
securities or financial instruments (subject to Sections 2.6 and 2.9(d)), (iv)
other assets intended to be used in the conduct of the Permitted Business of the
Partnership, or (v) any combination of the foregoing. The Partnership may not
assume or take subject to any liabilities in connection with any such
contribution other than liabilities related to the contributed assets which are
"qualified liabilities of a partner" as defined in Section 1.707-5(a)(6) of the
Regulations. The General Partner shall contribute to its Capital Account in
cash, not later than ten (10) days after the end of each Fiscal Quarter an
amount equal to the aggregate amount of all items paid by the Partnership in
such Fiscal Quarter that will result or has resulted in an allocation to the
General Partner pursuant to Section 4.3(q).
(d) Prohibition Against and Ineffectiveness of Certain
Contributions. Notwithstanding any other provision of this Agreement, under no
circumstances shall the General Partner or any Affiliate of the General Partner
at any time contribute or transfer any securities of TR, KB or any of their
respective Affiliates (other than equity securities of a Subsidiary that after
the contribution or transfer is a Wholly-Owned Subsidiary that is a Pass-Through
Entity) to the Partnership as a Capital Contribution or otherwise, and any such
attempted contribution or transfer shall be void.
2.10 Other Agreements.
(a) Pursuant to terms of the Master Restructuring Agreement,
the Partnership shall execute and deliver to the other parties thereto such of
the Initial Agreements and Ancillary Agreements as contemplate the Partnership
as a party.
(b) Any amendment or waiver by the Partnership of any right
under the Master Restructuring Agreement or any other Initial Agreement or
Ancillary Agreement shall require the Consent of the Limited Partner as provided
in Section 3.2 hereof.
2.11 Liability of the Limited Partner. The Limited Partner
shall not have any liability for the debts, liabilities, contracts or other
obligations of the Partnership. The failure of the Partnership to observe any
formalities or requirements relating to the exercise of its powers or the
management of its business or affairs under this Agreement or the Act shall not
be grounds for imposing personal liability on the Limited Partner for
liabilities of the Partnership. The General Partner shall, with the prior
Consent of the Limited Partner, file or cause to be filed all such documents as
are consistent with this Agreement in each jurisdiction where the Partnership
conducts business or maintains an office and as may be necessary to protect and
preserve the limited liability of the Limited Partner. The General Partner shall
provide copies of each such document to the Limited Partner promptly after the
filing thereof. It is the intent of the parties
26
22
hereto that no distribution to the Limited Partner shall be deemed a return of
any money or other property in violation of the Act. The payment of any such
money or distribution of any such property to the Limited Partner shall be
deemed to be a compromise within the meaning of Section 17-502(b) of the Act,
and the Limited Partner shall not be required to return any such money or
property to any Person, the Partnership or any creditor of the Partnership.
ARTICLE 3
MANAGEMENT OF THE PARTNERSHIP
3.1 Management by the General Partner.
(a) Except as otherwise provided in this Agreement or the
Master Restructuring Agreement, including without limitation Section 3.1(b) and
Section 3.1(c) of this Agreement, the management, operation and policy of the
Partnership shall be vested in the General Partner, which shall have the power
by itself and shall be authorized and empowered on behalf and in the name of the
Partnership to carry out any and all of the objects and purposes of the
Partnership and to perform all acts and enter into and perform all contracts and
other undertakings that it may in its sole discretion deem necessary or
advisable or incidental thereto, all in accordance with and subject to the other
terms of this Agreement and the Master Restructuring Agreement and subject to
the fiduciary duties, whether created by statute or common law, of the General
Partner to the Limited Partner. Except as otherwise provided in this Agreement
or the Master Restructuring Agreement, including without limitation Section
3.1(b) and Section 3.1(c) of this Agreement, the General Partner shall have, and
shall have full authority in its discretion to exercise on behalf of and in the
name of the Partnership, all rights and powers of a general partner of a limited
partnership under the Act necessary or convenient to carry out the purposes of
the Partnership.
(b) The Partnership shall have a chief executive officer and a
chief financial officer, each of whom, shall be a natural person and, except as
provided in Section 3.1(c), shall be appointed by the General Partner. Subject
to Section 3.1(c), the chief executive officer and chief financial officer shall
have the duties and powers customarily exercised by persons in similar
businesses holding such titles, with such limitations and modifications as the
General Partner shall deem necessary or appropriate, and shall have such other
powers and such other authority to act for and on behalf of the Partnership as
the General Partner may designate in writing. Subject to Section 3.1(c), the
General Partner is hereby authorized in its sole discretion to delegate to such
other officers of the Partnership as may be designated in writing by the General
Partner the power and authority to act for and on behalf of the Partnership with
respect to such matters as the General Partner may designate in writing. Any one
person may hold more than one office of the Partnership, except that the same
person may not serve as both the chief executive officer and the chief financial
officer. All acts and omissions of each officer of the Partnership (and any
other Person, employee or agent to whom the power or authority of the General
Partner may be further delegated) shall be deemed the acts and omissions of the
General Partner and each such officer, Person, employee and agent shall be
subject to the fiduciary duties and other obligations of the General Partner to
the Limited Partner. Neither any such delegation
27
23
of power and authority to the chief executive officer, the chief financial
officer or any other officer of the Partnership as set forth or provided for
above nor any further delegation by such delegates or by the General Partner of
power or authority to one or more other Persons, officers, employees or agents
of the Partnership shall relieve the General Partner of its responsibility for
any actions taken by any such Person, officer, employee, or agent on behalf of
the General Partner or on behalf of the Partnership. The General Partner shall
promptly notify the Limited Partner of the appointment and of any termination,
removal or resignation of the chief executive officer, chief financial officer
and each other Select Officer and of their respective business addresses and any
changes therein.
(c) Notwithstanding anything to the contrary in this
Agreement, in the event of an Allocation Default and until such time as such
Allocation Default is cured as provided in Section 3.6(e):
(i) the chief executive officer (including any chief
executive officer appointed by the Limited Partner pursuant to clause
(iii) below) is hereby authorized and empowered to exercise any or all
of the powers set forth in Schedule 3.1(c)(i) and shall have the full
power and authority to take or cause to be taken any or all of the
actions set forth in such Schedule, subject to the right of the Limited
Partner to direct the chief executive officer to take or cause to be
taken (or to refrain from taking) any or all of such actions as
provided in paragraph (iii) below;
(ii) the chief financial officer (including any chief
financial officer appointed by the Limited Partner pursuant to clause
(iii) below) is hereby authorized and empowered to exercise any or all
of the powers set forth in Schedule 3.1(c)(ii) and shall have the full
power and authority to take or cause to be taken any or all of the
actions set forth in such Schedule, subject to the right of the Limited
Partner to direct the chief financial officer to take or cause to be
taken (or to refrain from taking) any or all of such actions as
provided in paragraph (iii) below; and
(iii) the Limited Partner shall have, and hereby is
authorized and empowered to, and may at its option, exercise by itself
and in its sole discretion, any or all of, the following rights, powers
and authorities on behalf of and in the name of the Partnership:
(A) to direct the chief executive officer of
the Partnership to take or cause to be taken any or all of the
actions described in Schedule 3.1(c)(i) hereto;
(B) if the chief executive officer fails to
promptly take or cause to be taken any action directed by the
Limited Partner pursuant to paragraph (A) above (which failure
shall be determined by the Limited Partner in its sole
discretion) after notice from the Limited Partner to the chief
executive officer and the General Partner (which notice may be
given with respect to all directions then and thereafter given
by the Limited Partner and need not be given subsequently as
to any particular direction and shall indicate that the
failure promptly to take or
28
24
cause to be taken such actions may result in the removal,
discharge and replacement of the chief executive officer) to
remove from office, discharge from the employment of the
Partnership and replace the chief executive officer with its
own appointee by the giving of a further notice to that effect
to the chief executive officer and the General Partner, in
which event such removal or discharge shall automatically be
effective five (5) days after the giving of such further
notice, but the chief executive officer shall have no further
powers or authority with respect to the Partnership effective
automatically upon the giving of such further notice;
provided, however, with respect to the first notice provided
for in this subparagraph (B), such notice may be given from
time to time but shall only be valid for a period of three
months unless sooner modified or rescinded by a further notice
from the Limited Partner to the chief executive officer and
the General Partner;
(C) to direct the chief financial officer of
the Partnership to take or cause to be taken any or all of the
actions described in Schedule 3.1(c)(ii) hereto;
(D) to remove from office, discharge from
the employment of the Partnership and replace the chief
financial officer with its own appointee at any time; and
(E) to direct the chief operating officer,
the general counsel, the vice president of human resources,
the vice president of marketing and the vice president of
manufacturing, if any, to take or cause to be taken any or all
of the actions within their areas of responsibility that are
described in Schedule 3.1(c)(i) or Schedule 3.1(c)(ii), and,
if such officer fails to promptly take or cause to be taken
any action directed by the Limited Partner (or directed by the
chief executive officer or chief financial officer permitted
by Schedule 3.1(c)(i) or Schedule 3.1(c)(ii)), to remove from
office, discharge from the employment of the Partnership and
replace such officer with its own appointee at any time and
such removal or discharge shall automatically be effective
immediately upon the giving of notice to such officer and the
General Partner.
The Limited Partner shall give written notice to the General
Partner of the exercise of its election to exercise its rights under paragraphs
(A)-(E) above.
Neither the failure of the Limited Partner to exercise any of
the rights, powers and authorities provided for herein nor the relinquishment by
the Limited Partner of any such right, power or authority shall constitute a
waiver or otherwise prejudice the right of the Limited Partner to exercise any
such right, power or authority hereunder at any other time during the
continuance of such Allocation Default or upon the occurrence of any subsequent
Allocation Default. The Limited Partner shall not become or be deemed a general
partner of the Partnership by virtue of exercising its rights under this
Section.
29
25
In the exercise of its rights pursuant to this Section 3.1(c),
the Limited Partner shall have no right to direct the taking of any action not
authorized by this Section 3.1(c) and shall have no right to direct the taking
of any action enumerated in Section 3.2(b), other than clause (15) of Section
3.2(b) to the extent permitted by Schedule 3.1(c)(ii)(3), and no appointee of
the Limited Partner shall have the authority to take any such action, without
the prior written consent of the General Partner. In applying the foregoing
restrictions for purposes of this paragraph, all references contained in Section
3.2(b) to KB shall be deemed to be references to TR, and all requirements to
obtain the Consent of the Limited Partner shall be deemed the requirement to
obtain the prior written consent or approval in writing of the General Partner.
In the event the Limited Partner elects to exercise any of the
rights, powers and authorities provided in this Section 3.1(c), (i) the rights,
powers and authorities so exercised by the Limited Partner shall belong
exclusively to the Limited Partner, (ii) the rights, powers and authorities
specified in paragraphs (A) and (C) above shall be vested solely in the chief
executive officer and chief financial officer, respectively, subject to the
right of the Limited Partner to direct the taking of any action referred to in
such paragraphs, and (iii) the General Partner shall not have any power or
authority with respect thereto prior to the cure of the Allocation Default.
The General Partner shall not take or omit, or direct or
permit any director, officer, employee or agent of the Partnership or any of its
Subsidiaries to take or omit to take any action that would hinder, impede,
delay, interfere with or frustrate any action taken or, if known by the General
Partner or any such director, officer, employee or agent, proposed to be taken
by or at the direction of the Limited Partner pursuant to the provisions of this
Section 3.1(c). The General Partner further agrees, upon request from the
Limited Partner, to execute all documents and to take all actions reasonably
required to effectuate any action the Limited Partner is authorized and elects
to take pursuant to the provisions of this Section 3.1(c).
In the event the Limited Partner elects to exercise any of its
rights or powers pursuant to this Section 3.1(c), (i) the chief executive
officer of the Partnership shall have, in addition to the power and authority
specified in Schedule 3.1(c)(i), the power and authority to conduct the business
of the Partnership in the ordinary course, subject to the rights and powers of
the Limited Partner specified in this Section, (ii) each Select Officer shall
have such rights, powers and authorities as were theretofore possessed by said
officer, including without limitation rights to compensation and participation
in benefit plans of the Partnership. As provided in Section 3.1(b), the General
Partner shall retain, subject to the rights and powers of the Limited Partner
set forth in this Section 3.1(c) and the limitations on the powers of the
General Partner set forth in this Agreement, the power to direct the actions of
the chief executive officer and other officers and employees of the Partnership
with respect to actions to be taken by the Partnership other than actions
described in Schedule 3.1(c)(i) or Schedule 3.1(c)(ii).
The Limited Partner shall be entitled in its sole discretion
and at its sole expense to supplement the compensation and employee benefits of
any person appointed by it to be a Select Officer pursuant to this Section
3.1(c) and to provide to any such person such indemnities as it may deem
appropriate, and the provision or receipt of any such compensation or benefits
or
30
26
indemnities shall not be a breach of any duty or obligation of any such
person or of the Limited Partner to the Partnership or the General Partner.
Any person appointed a Select Officer by the Limited Partner
(i) prior to the cure, as defined in Section 3.6(e), of such Allocation Default,
may be removed from office or discharged from the employment of the Partnership
only by the Limited Partner, (ii) after the cure, as defined in Section 3.6(e),
of such Allocation Default, may be removed from office and discharged from the
employment of the Partnership at any time by the General Partner with no
severance obligation of the Partnership or the General Partner, (iii) may not,
nor may any other employee of the Partnership hired at the direction of the
Limited Partner or by a chief executive officer appointed by the Limited
Partner, until the cure, as defined in Section 3.6(e), of such Allocation
Default, be an employee of, or consultant for, or otherwise perform any other
services for the Limited Partner or any of its Affiliates during his or her
tenure as such officer or employee of the Partnership except as contemplated by
this Section 3.1 and (iv) shall be subject to the provisions of Article 4 of the
Master Restructuring Agreement.
Any action that the Limited Partner directs a Select Officer
to take pursuant to the provisions of this Section 3.1(c) shall, in the business
judgment of the Limited Partner, contribute, directly or indirectly, to the
purpose of curing the Allocation Default, improving the short-term or long-term
profitability of the Partnership or reducing the risk of future Allocation
Shortfalls or Allocation Defaults. No action taken or omitted by the Limited
Partner in accordance with this Section 3.1(c) (including, without limitation
the termination of any officer or employee which gives rise to severance or
other termination obligations) shall be deemed a breach of any fiduciary or
other duty to the Partnership or the General Partner or any other Person,
including any transferee of any right or interest in the Partnership, or to be a
breach of this Agreement, if, in the business judgment of the Limited Partner
such action or omission contributes directly or indirectly to such purpose. No
person appointed a Select Officer by the Limited Partner shall be deemed to have
breached any fiduciary or other duty to the General Partner, nor shall any such
person have any liability to the General Partner or to any other Person, as a
result of implementing any direction of the Limited Partner pursuant to this
Section 3.1(c).
Any dispute, controversy or claim concerning any action taken
or omitted by the Limited Partner pursuant to this Section 3.1(c) or concerning
the interpretation of this Section 3.1(c) shall be settled by binding
arbitration pursuant to the principles and procedures set forth in Article 9 of
the Master Restructuring Agreement; provided, however, that notwithstanding any
other provision of this Agreement or the Master Restructuring Agreement (i) the
right, power and authority of the Limited Partner to take any action provided
for in this Section 3.1(c) or for a Select Officer to exercise, subject to the
direction of the Limited Partner, any of the powers and authorities conferred on
them by this Section 3.1(c) shall not be conditioned upon the resolution of any
such dispute, controversy or claim or the completion of any such arbitration
proceeding or the decision of the arbitrator and (ii) neither the General
Partner nor any Affiliate of the General Partner nor a Select Officer shall have
any right to seek or obtain temporary, preliminary or permanent injunctive
relief or other interim or equitable relief prior to the completion of such
arbitration proceeding and the decision of the arbitrator
31
27
with respect to any of the rights of the Limited Partner to remove, discharge or
replace Select Officers provided for in Section 3.1(c)(iii).
(d) The Limited Partner shall have no authority on behalf of
the Partnership to take or authorize the taking of any act prohibited by law or
in contravention of the terms of this Agreement, Master Restructuring Agreement
or any Ancillary Agreement.
3.2 Limitations on General Partner's Authority.
(a) The General Partner shall have no authority on behalf of
the Partnership to take or authorize the taking of any act prohibited by law or
in contravention of the terms of this Agreement, the Master Restructuring
Agreement or any Ancillary Agreement.
(b) Without the Consent of the Limited Partner, the General
Partner shall not have authority to take any of the following actions on behalf
of the Partnership, and the Partnership shall not:
(1) except as expressly provided herein, admit new
general or limited partners;
(2) amend this Partnership Agreement;
(3) appoint Accountants other than an internationally
recognized independent accounting firm to which the Limited Partner has
no reasonable objection;
(4) amend the Certificate of Limited Partnership,
other than amendments for the sole purpose of changing the name or the
registered office or address of the Partnership consistent with Section
2.3;
(5) enter into any contract or agreement with KB or
any of its Affiliates that may not be terminated by the Partnership at
any time without penalty pursuant to the terms of Section 3.1(c) and
Schedule 3.1(c)(i);
(6) (i) agree to or enter into any merger or
consolidation of the Partnership with another entity in which the
Partnership is not the surviving entity or which results in any breach
of this Agreement, the Master Restructuring Agreement or any Ancillary
Agreement, (ii) agree to or make any Transfer, in any transaction or
series of transactions, of all or substantially all of the assets of
the Partnership or (iii) agree to or make any Transfer, in any
transaction or series of transactions, of any asset or assets, the
absence of which, singly or in the aggregate, would materially diminish
or impair the Partnership's Primary Business or the Partnership's
ability to conduct its Primary Business;
(7) effect any transfer of the Partnership to, or any
domestication or continuance of the Partnership in, any jurisdiction
other than Delaware; or effect any
32
28
conversion of the Partnership into any other form of entity; or take
any other action that would cause the Partnership to cease to be a
limited partnership under the Act;
(8) take any action causing or reasonably leading to
liquidation or dissolution of the Partnership or its termination within
the meaning of Section 8.4 or Section 8.5 of this Agreement;
(9) conduct any business other than the Permitted
Businesses;
(10) enter into any agreement or transaction (other
than any Initial Agreement or Ancillary Agreement) with or for the
benefit of KB, the General Partner or any of their Affiliates on terms
that are less favorable to the Partnership than arm's-length terms;
(11) enter into any amendment to, or waive any
material right under, the Exclusive Distributorship Agreement (as
defined in the Master Restructuring Agreement) or the Clinical Supply
Agreement (an Ancillary Agreement);
(12) guarantee, or suffer any Lien to exist securing
any liability or obligation of KB, the General Partner or any of their
Affiliates other than guarantees of collection with respect to Debt
(including interest thereon) of KB or any of its Affiliates not
exceeding $100 million in the aggregate;
(13) settle any claim, lawsuit, litigation or other
proceeding that would result in the imposition of injunctive or other
equitable relief against the Limited Partner or that would prohibit,
restrict or limit any allocation provided for in Section 4.1 or 4.3(l)
or prohibit, restrict or limit any distribution provided for in Section
5.2(a) or 5.6, it being understood that any such settlement entered
into with a Person other than KB or any of its Affiliates shall not be
considered to prohibit, restrict or limit any such allocation or
distribution solely because it results in a reduction of Profits or a
reduction of cash;
(14) make or change any tax election of the
Partnership that may reasonably be expected to have any adverse tax
consequences to the Limited Partner;
(15) take any action which would result in the
Partnership, individually or together with its Subsidiaries, if any,
having, at any time, (i) Debt (together with the amount of any accrued
interest thereon) in excess of $1 billion in the aggregate, which is
not guaranteed by KB in accordance with Section 3.5 hereof (provided,
however, such guarantee shall not be required as long as KB is
personally liable for the full amount of all liabilities of the
Partnership) or (ii) any non-recourse Debt;
(16) enter into, prior to the Retirement Date, any
"golden parachute" or other severance agreement or any other agreement
or arrangement that obligates the Partnership, directly or indirectly,
to pay in respect of any employee of the Partnership severance or
similar benefits in excess of three (3) times the employee's annual
cash compensation as the result of the exercise by the Limited Partner
of its rights pursuant to
33
29
Section 3.1(c)(iii), but the Limited Partner agrees not to unreasonably
withhold consent with respect thereto;
(17) make any distribution other than those
specifically permitted by this Agreement;
(18) make any distribution in property other than
cash, except as permitted by Section 5.2(c), or in any currency other
than Dollars; provided, however, that (i) the Limited Partner shall not
unreasonably withhold its consent to any in-kind distribution to the
General Partner, and (ii) rights with respect to trademarks shall be
distributed in kind as required by Section 5.10;
(19) lend funds to, or own Debt of, KB or any of its
Affiliates other than as set forth in Section 5.8;
(20) (x) prior to the Retirement Date, with respect
to any Covered Compound or any product containing any Covered Compound
the Outlicensing of which is prohibited or restricted by Section 3.6 of
the Master Restructuring Agreement, directly or indirectly grant any
license or sublicense or otherwise Transfer any rights with respect to
(i) any such Covered Compound or any products containing any such
Covered Compound, except as permitted by Section 3.6 of the Master
Restructuring Agreement or (ii) except as permitted by Section 5.10,
any trademark used in connection with any Covered Compound or any
product referred to in clause (i) above, other than in connection with
any Outlicensing permitted by Section 3.6 of the Master Restructuring
Agreement, (y) prior to the KBI-E Asset Purchase, with respect to any
Covered Compound or any product containing any Covered Compound the
Outlicensing of which is prohibited or restricted by Section 3.6A of
the Master Restructuring Agreement, directly or indirectly grant any
license or sublicense or otherwise Transfer any rights with respect to
(i) any such Covered Compound or any products containing any such
Covered Compound, except as permitted by Section 3.6A of the Master
Restructuring Agreement or (ii) except as permitted by Section 5.10,
any trademark used in connection with any such Covered Compound or any
product containing any such Covered Compound, other than in connection
with any Outlicensing permitted by Section 3.6A of the Master
Restructuring Agreement and (z) on and after the Retirement Date,
directly or indirectly, grant any Outlicense or otherwise Transfer any
rights with respect to any Compound that is or, but for the KBI-E Asset
Purchase, would have been a Covered Compound (or any product containing
any such Compound) if such action, individually or in the aggregate,
would materially adversely affect the Partnership's ability to actively
conduct the Primary Business as theretofore conducted;
(21) subject to Section 2.8, establish any subsidiary
or foreign branch of the Partnership, establish, own or acquire any
equity interest in, or capitalize, any entity other than (i) a
Wholly-Owned Subsidiary that is a Pass-Through Entity or (ii) a
Non-Controlled Entity, or enter into or permit any transaction that
would result in the Partnership ceasing to control, or ceasing to own
all the outstanding equity or voting
34
30
securities or interests in any Wholly-Owned Subsidiary; provided,
however, that this paragraph shall not prevent the Partnership from
purchasing or otherwise acquiring from any Person that is not an
Affiliate of KB, in a transaction not otherwise prohibited by this
Agreement, and as an incidental part thereof, any business that
includes a pre-existing subsidiary or foreign branch;
(22) agree with the Internal Revenue Service or any
state, local or foreign tax authority to extend any period of
limitations with regard to any tax matter;
(23) assign any value to any asset (other than cash)
contributed to the Partnership for purposes of crediting value to the
Capital Account of any Partner or for purposes of making any adjustment
to the Capital Account of any Partner in respect of any in-kind
distribution, except as provided in Section 3.8; and
(24) sell or dispose, by any transaction that is of a
type that would result in the recovery of basis for federal tax
purposes, of any asset contributed to the Partnership pursuant to the
KBI Asset Contribution Agreement, the Selected Compounds Contribution
Agreement, the KBI-E Asset Contribution Agreement or the Trademark
Rights Contribution Agreement so long as the books of the Partnership
record any differential between the basis of such asset for federal
income tax purposes and its Gross Asset Value (as determined without
regard to any adjustment described in clause (ii) of the definition of
Gross Asset Value).
(c) Without the Consent of the Limited Partner, the General
Partner shall not have authority to take and the Partnership shall not take any
action, or fail to take any action, if such action or failure to act would
require the Consent of the Limited Partner pursuant to the definition of
"Capital Account" in Article 1 or pursuant to Sections 2.6(b), 2.8(a), 2.10(b),
2.11, 6.3, 7.1(a) or 8.2 or pursuant to any other provision hereof that requires
the Consent of the Limited Partner.
(d) Any action taken in contravention of Section 3.2(b) or
3.2(c) shall be voidable at the option of the Limited Partner.
3.3 Persons Dealing with the Partnership. No person (other
than an Affiliate of a Partner) dealing with the Partnership or the General
Partner shall be required to determine, and any such person may conclusively
assume and rely upon, the authority of the General Partner to execute any
instrument or make any undertaking on behalf of the Partnership. No person
(other than an Affiliate of a Partner) dealing with the Partnership or the
General Partner shall be required to determine any facts or circumstances
bearing upon the existence of such authority. Without limitation of the
foregoing, any person (other than an Affiliate of a Partner) dealing with the
Partnership or the General Partner is entitled to rely upon a certificate signed
by the General Partner as to:
(i) the identity of any Partner;
35
31
(ii) the existence or non-existence of any fact or
facts that constitute a condition precedent to acts by the General
Partner or are in any other manner germane to the affairs of the
Partnership;
(iii) the identity of persons who are authorized to
execute and deliver any instrument or document of or on behalf of the
Partnership; or
(iv) any act or failure to act by the Partnership or
any other matter whatsoever involving the Partnership or any Partner.
3.4 Enforcement of Certain Rights. In the event that KB or any
of its Affiliates may have any liability or obligation to the Partnership
pursuant to or in connection with any Initial Agreement or Ancillary Agreement
between the Partnership and KB or such Affiliate, the Limited Partner, after
consulting with the Partnership and unless the Partnership actively enforces
such liability or obligation, may (subject to the requirements of Article 9 of
the Master Restructuring Agreement) take such action as may be necessary to
enforce such liability or obligation, including initiating an arbitration
pursuant to Article 9 of the Master Restructuring Agreement or bringing an
action on behalf and in the right of the Partnership against such Partner or
Affiliate to enforce an arbitration award or to obtain interim relief pursuant
to Section 9.4 of the Master Restructuring Agreement. The Limited Partner shall
have sole and exclusive control over such arbitration or litigation, and the
expenses of such arbitration or litigation shall be borne by the Limited
Partner, except that if the Limited Partner is successful in enforcing such
liability or obligation and such success results in a material benefit to the
Partnership, the Limited Partner shall be entitled to reimbursement by the
Partnership for the reasonable costs and expenses incurred by the Limited
Partner in enforcing such liability or obligation.
3.5 Certain Guarantees by KB. All guarantees required to be
given by KB pursuant to clause (15) of Section 3.2(b) or Section 5.8(a) of this
Agreement shall be unconditional and irrevocable guarantees of payment and
performance in form and substance satisfactory to the Limited Partner.
3.6 Allocation Shortfalls and Allocation Defaults.
(a) Definitions. The following terms used in this Section
shall have the following respective meanings:
"Allocation Default" shall mean the occurrence of any of the
following: (i) the failure of the Partnership to distribute to the Limited
Partner the full amounts specified in Section 5.2(a) within fifteen (15) days
after written notice from the Limited Partner (effective in accordance with
Section 12.8 of the Master Restructuring Agreement) of non-receipt of such
distribution with respect to any Fiscal Quarter as and when due pursuant to this
Agreement; or (ii) the occurrence of an Allocation Shortfall with respect to any
Fiscal Year if (A) the General Partner shall fail to provide to the Limited
Partner (with a copy to TR) by the end of the second Fiscal Quarter in the
succeeding Fiscal Year a written projection (the reasonableness of which is
certified by the chief financial officer of KB) showing sufficient Profits in
such succeeding Fiscal Year to avoid an Allocation Shortfall with respect to
such succeeding Fiscal Year, or (B) the
36
32
Partnership shall have suffered an Allocation Shortfall with respect to either
of the two (2) Fiscal Years immediately preceding the Fiscal Year in which such
Allocation Shortfall occurs; or (iii) any event that is deemed to be an
Allocation Default pursuant to Section 3.6(b). The existence of an Allocation
Default is subject to Section 3.6(b) below.
An "Allocation Shortfall" shall exist with respect to any
Fiscal Year if: (i) the Profits of the Partnership for such Fiscal Year are not
sufficient to (A) make the full amount of the allocations specified in Sections
4.1(b) through 4.1(e) with respect to such Fiscal Year, and (B) cure any
Allocation Shortfall with respect to any prior Fiscal Year; or (ii) the
Partnership fails to deliver to the Limited Partner the financial statements for
such Fiscal Year and Accountant's opinion with respect thereto provided for in
Section 6.5(a)(i) and 6.5(a)(ii) within four (4) months after the end of such
Fiscal Year or, if an Allocation Shortfall shall have occurred with respect to
either of the two (2) Fiscal Years immediately preceding such Fiscal Year or the
Partnership shall have failed to make timely delivery to the Limited Partner in
accordance with Section 3.7 the Compliance Certificate (as defined in Section
3.7) for each Fiscal Quarter in such Fiscal Year, the Partnership fails to
deliver to the Limited Partner unaudited financial statements, prepared in
accordance with GAAP, for such Fiscal Year of the type described in Section
6.5(a)(i) and Section 6.5(a)(ii) within twenty-one (21) days after the end of
such Fiscal Year and the audited financial statements for such Fiscal Year
provided for in Section 6.5(a)(i) and 6.5(a)(ii) within two (2) months after the
end of such Fiscal Year; or (iii) any event that is deemed to be an Allocation
Shortfall pursuant to Section 3.6(b) occurs. The existence of an Allocation
Shortfall is subject to Section 3.6(b) below.
(b) Certain Disputes Concerning the Amount of Required
Allocations and Distributions. In the event there is a good faith dispute
between the Limited Partner and the General Partner concerning the amount of
allocations required to be made to the Capital Account of, or to be distributed
to, the Limited Partner (including without limitation any dispute concerning the
computation of the Fourth Tier Amount or the amount required to be allocated to
the Limited Partner pursuant to Section 4.1(e) or Section 4.1(h)) or the
accuracy and correctness of the financial statements and Accountant's opinion(s)
described in Section 6.5(a)(i) and 6.5(a)(ii)), the Partners agree to submit
such dispute to arbitration pursuant to the provision of Article 9 of the Master
Restructuring Agreement and to furnish the arbitrators within three (3) months
after the appointment of the arbitrators with all documents, records and other
information as is reasonably necessary for the arbitrators to review in order to
reach a determination. Prior to such determination, an Allocation Shortfall or
Allocation Default shall not be deemed to exist solely by reason of the failure
to make allocations or distributions with respect to the disputed amount
provided that timely allocations and distributions are made in the undisputed
amount. In the event it is determined by agreement of the parties, arbitration
or otherwise that the required amount of allocations or distributions to the
Limited Partner is in excess of the allocations or distributions actually made
to the Limited Partner, an Allocation Shortfall and an Allocation Default shall
exist with respect to the Fiscal Year to which such dispute relates (and shall
be deemed to have existed commencing as of the end of such Fiscal Year) unless
the Partnership makes the allocations and distributions in the required amount
within fifteen (15) days after the date of such determination. In the event the
General Partner has failed to furnish the arbitrators with the required
information within three (3) months after the appointment of the arbitrators and
37
33
the determination of the arbitrators is not made within six (6) months after the
appointment of the arbitrators, an Allocation Shortfall or Allocation Default,
as applicable, shall be deemed to exist for the period in question (the amount
of the Allocation Shortfall or Allocation Default being deemed to be equal to
the difference between the amount of the allocations or distributions actually
made and the amount of allocations or distributions claimed by the Limited
Partner to be required). The agreement engaging the arbitrators shall require
the arbitrators to render their decision within three (3) months after the
receipt by the arbitrators of all required information. The parties shall
cooperate and use all reasonable efforts to cause any arbitration proceeding
referred to above to be completed and the decision of the arbitrators to be
delivered within the three-month period referred to in the immediately preceding
sentence.
(c) Actions in the Event of an Allocation Shortfall. In the
event of the occurrence of an Allocation Shortfall or in the event the
Partnership fails to deliver in accordance with Section 3.7 for any Fiscal
Quarter a Compliance Certificate certifying that the estimated Profits for the
Fiscal Year will be sufficient to avoid an Allocation Shortfall for the Fiscal
Year, KB shall provide to TR within sixty (60) days after the date such
Compliance Certificate is required to be delivered or within thirty (30) days
after the due date for the delivery of the financial statements described in
Sections 6.5(a)(i) and 6.5(a)(ii) with respect to the Fiscal Year in which the
Allocation Shortfall occurs, as applicable, a written plan setting forth in
reasonable detail the measures to be undertaken by KB and/or the Partnership to
cure such Allocation Shortfall and avoid any Allocation Shortfall in future
periods, together with a proposed budget and forecast reflecting the
implementation of such plan. Such plan may include among other things,
operational and financial changes with respect to the Partnership, consistent
with this Agreement and the Master Restructuring Agreement, and/or the
contribution or designation of Qualifying Financial Assets to the Partnership to
generate Profits sufficient to cure the Allocation Shortfall and avoid future
Allocation Shortfalls.
(d) Cure of Allocation Shortfalls. An Allocation Shortfall
resulting from the insufficiency of the Profits of the Partnership shall be
considered to be cured only if and when (i) sufficient additional Profit is
allocated to the Limited Partner to eliminate the Allocation Shortfall, (ii)
such additional Profit is distributed to the Limited Partner, (iii) the
Partnership has sufficient Profits in the most recently completed Fiscal Year
following the Fiscal Year in which an Allocation Shortfall occurred so that
there would have been no Allocation Shortfall in such most recently completed
Fiscal Year if no effect had been given to the special allocation of 100% of R&D
Expenses set forth in Section 4.3(i), if any, and (iv) good faith budgets and
forecasts prepared by KB and delivered to the Limited Partner (the
reasonableness of which are certified by the chief financial officer of KB) show
(without giving effect to the special 100% allocation of R&D Expenses set forth
in Section 4.3(i)) the absence of further Allocation Shortfalls for a period of
not less than two (2) Fiscal Years. An Allocation Shortfall resulting from the
failure to make timely delivery of the financial statements referred to in
clause (ii) of the definition of "Allocation Shortfall" shall be considered to
be cured only upon the delivery of such financial statements.
(e) Cure of Allocation Defaults. An Allocation Default that
results solely from the failure to make distributions to the Limited Partner
shall be considered to be cured only
38
34
upon the expiration of four (4) Fiscal Quarters following the end of the Fiscal
Quarter in which such distributions are made in full; provided that no other
Allocation Shortfall or Allocation Default shall have occurred. An Allocation
Default that results from the occurrence of Allocation Shortfalls shall be
considered to be cured only upon the expiration of four (4) Fiscal Quarters
following the end of the Fiscal Year in which all such Allocation Shortfalls are
cured; provided that no other Allocation Shortfall or Allocation Default shall
have occurred; except that an Allocation Default that results solely from two or
more Allocation Shortfalls of the type described in clause (i) of the definition
of Allocation Shortfall shall be deemed to be cured upon the expiration of two
(2) Fiscal Quarters following the end of the Fiscal Year in which all such
Allocation Shortfalls are cured if, for each such Fiscal Quarter, the Limited
Partner has timely received a Compliance Certificate certifying that the
Partnership has Profits for the portion of the Fiscal Year through the end of
such Fiscal Quarter (Profits being calculated for such purpose as if the taxable
year of the Partnership had been such Fiscal Quarter or Fiscal Quarters) which,
together with the amount of their estimates (certified to be reasonable) of
Profits for the remainder of the Fiscal Year, are sufficient to avoid an
Allocation Shortfall for the Fiscal Year, and such Compliance Certificates are
executed by both the chief financial officer of the Partnership and the chief
financial officer of KB and otherwise comply with Section 3.7.
3.7 Compliance Certificate. The Partnership shall deliver to
the Limited Partner within five (5) business days after the end of each Fiscal
Quarter a certificate in the form set forth as Exhibit 3.7 hereto executed by
the chief financial officer of the Partnership (a "Compliance Certificate")
certifying (i) whether or not the Partnership has Profits for the portion of the
Fiscal Year through the end of such Fiscal Quarter (Profits being calculated for
such purpose as if the taxable year of the Partnership had been such Fiscal
Quarter or Fiscal Quarters) which, together with the amount of their estimates
(certified to be reasonable) of Profits for the remainder of the Fiscal Year,
are sufficient to avoid an Allocation Shortfall for the Fiscal Year, (ii) if the
amount of such actual and estimated Profits are not sufficient to avoid an
Allocation Shortfall for the Fiscal Year, the estimated amount of such
Allocation Shortfall and (iii) whether or not a Put Option Event has occurred
(and if a Put Option Event has occurred, setting forth a description in
reasonable detail of such Put Option Event); provided, however, that if the
Compliance Certificate does not certify that such actual Profits and estimated
Profits are sufficient to avoid an Allocation Shortfall for the Fiscal Year (or
if any Compliance Certificate delivered in respect of any of the previous four
(4) Fiscal Quarters shall have failed to so certify) or certifies that a Put
Option Event has occurred (or if any Compliance Certificate delivered in respect
of any of the previous four (4) Fiscal Quarters shall have so certified) or if
an Allocation Shortfall shall have occurred with respect to either of the two
(2) most recently completed Fiscal Years, then such Compliance Certificate shall
be executed by both the chief financial officer of the Partnership and the chief
financial officer of KB. For purposes of the definition of the term "Allocation
Shortfall" contained in Section 3.6(a), the Partnership shall be deemed to have
"failed to make timely delivery to the Limited Partner" of any Compliance
Certificate only if it has both (i) failed to deliver such Compliance
Certificate to the Limited Partner within five (5) business days after the end
of the applicable Fiscal Quarter and (ii) has failed to deliver such Compliance
Certificate to the Limited Partner within five (5) business days after written
notice of non-receipt of such Compliance Certificate from the Limited Partner
(effective in accordance with Section 12.8 of the Master Restructuring
Agreement).
39
35
3.8 Valuation of Certain Contributions and Distributions. In
the event that any contribution to or distribution in respect of the Capital
Account of a Partner is to be made in property rather than in cash in Dollars
(other than contributions pursuant to Section 2.9(a) or (b)), the gross fair
market value of such property shall be determined as set forth below at the time
of or prior to such contribution or distribution. In the event such property
shall consist of publicly traded securities for which market quotations are
readily available, the value of such securities shall be the average closing
price for such securities for the three (3) most recent trading days in the
principal market for such securities immediately prior to the contribution or
distribution. With respect to all other property (other than cash), the General
Partner and the Limited Partner, acting in good faith, shall attempt to agree on
the gross fair market value of the property. If the Partners are not able to
reach agreement as to the gross fair market value of such property on or prior
to the date on which such contribution or distribution is proposed to be made,
the parties shall choose an appraiser who shall then determine the gross fair
market value of the property and whose valuation shall be final and binding on
the parties. If the Partners are unable to agree on an appraiser, each Partner
shall select an appraiser of national standing and the two (2) appraisers so
chosen shall, in good faith, choose a third appraiser of national standing. If
the two (2) appraisers cannot agree on a third appraiser within ten (10)
business days, then the third appraiser shall be selected by the American
Arbitration Association. The three (3) appraisers so appointed shall jointly
determine the gross fair market value, provided that if such appraisers are
unable to agree upon the gross fair market value, each appraiser shall
individually propose a gross fair market value, and the gross fair market value
shall be deemed to be the average of the two (2) proposed values which are
closest together. If either the General Partner or the Limited Partner fails to
select an appraiser within ten (10) business days after receipt of a notice
specifying such failure from the other party, such other party may select an
appraiser in its sole discretion to determine the gross fair market value, which
determination shall be final and binding on the parties. The parties shall
instruct each appraiser so retained to deliver a written opinion within sixty
(60) days following the selection of such firm. The fees and expenses of such
appraisers shall, unless otherwise agreed by the parties, be borne by the
Partner making the capital contribution or receiving the distribution, as the
case may be. Liabilities shall be valued using federal tax accounting
principles.
3.9 Partnership Opportunities. Neither the General Partner (or
any of its Affiliates) nor the Limited Partner (or any of its Affiliates) shall,
as a result of its position or status as a Partner in the Partnership, have any
obligation to offer to the Partnership any interest in any business conducted or
to be acquired by such Partner (or any such Affiliate) or to permit the
Partnership or the other Partner to participate in any such business. This
Section 3.9 shall not affect or limit any obligation of either Partner (or any
of its Affiliates) under any other agreement.
ARTICLE 4
ALLOCATIONS
4.1 Profits. After giving effect to the special allocations
set forth in Sections 4.3 and 4.4, Profits for any Allocation Year shall be
allocated in the following order and priority:
40
36
(a) first, one hundred percent (100%) to the General Partner
in an amount equal to the remainder, if any, of (i) the cumulative Losses
allocated pursuant to Section 4.2(c) for all prior Allocation Years, minus (ii)
the sum of (A) the cumulative Profits allocated pursuant to this Section 4.1(a)
for all prior Allocation Years, plus (B) the gain allocated pursuant to Section
4.3(l)(vi);
(b) second, ninety-five percent (95%) to the Limited Partner
and five percent (5%) to the General Partner until the Limited Partner has been
allocated an amount equal to the remainder, if any, of (i) the cumulative
Priority Return from the commencement of the Partnership through the last day of
such Allocation Year, minus (ii) the sum of (A) the cumulative Profits allocated
to the Limited Partner pursuant to this Section 4.1(b) for all prior Allocation
Years, plus (B) the gain allocated to the Limited Partner pursuant to Section
4.3(l)(iii);
(c) third, ninety-nine percent (99%) to the Limited Partner
and one percent (1%) to the General Partner until the Limited Partner has been
allocated an amount equal to the remainder, if any, of (i) the cumulative items
of expense allocated to the Limited Partner pursuant to Sections 4.3(i), 4.3(j),
and 4.3(k) (other than Depreciation attributable to the gross positive
adjustments pursuant to the Partial Retirement to the Gross Asset Values of
assets contributed by the Limited Partner pursuant to Section 2.9(b)) for the
current and all prior Allocation Years, minus (ii) the sum of (A) the cumulative
Profits allocated to the Limited Partner pursuant to this Section 4.1(c) for all
prior Allocation Years, plus (B) the gain allocated to the Limited Partner
pursuant to Section 4.3(l)(ii);
(d) fourth, ninety-five percent (95%) to the Limited Partner
and five percent (5%) to the General Partner until an amount has been allocated
equal to the product of (i) 100/95, times (ii) the remainder, if any, of (A) the
sum of (1) the cumulative Fourth Tier Amount from the commencement of the
Partnership through the last day of such Allocation Year and (2) the cumulative
Contingent Amount Gross-Up for each Fiscal Quarter ending prior to July 1, 2000,
minus (B) the sum of (x) the cumulative Profits allocated to the Limited Partner
pursuant to this Section 4.1(d) for all prior Allocation Years plus (y) the gain
allocated pursuant to Section 4.3(l)(i)(y);
(e) fifth, one hundred percent (100%) to the Limited Partner
in an amount equal to the remainder, if any, of (i) the sum of the following
product for all Fiscal Quarters: 2.258% multiplied by the excess (greater than
zero) of $1 billion over the weighted average for the Fiscal Quarter of the
daily dollar amount of the General Partner's Capital Account balance, such
balance to be determined without regard to allocations under this Article 4 for
the current Allocation Year, minus (ii) the cumulative Profits allocated under
this Section 4.1(e) for all prior Allocation Years;
(f) sixth, one percent (1%) to the Limited Partner and
ninety-nine percent (99%) to the General Partner in an amount equal to the
remainder, if any, of (i) the cumulative Losses allocated pursuant to Section
4.2(b) for all prior Allocation Years, minus (ii) the sum of
41
37
(A) the cumulative Profits allocated pursuant to this Section 4.1(f) for all
prior Allocation Years, plus (B) the gain allocated pursuant to Section
4.3(l)(v);
(g) seventh, one hundred percent (100%) to the General Partner
until the General Partner has been allocated an amount equal to the remainder,
if any, of (i) the cumulative items of expense allocated to the General Partner
pursuant to Sections 4.3(i), 4.3(j) and 4.3(k) for the current and all prior
Allocation Years, minus (ii) the sum of (A) the cumulative Profits allocated to
the General Partner pursuant to Section 4.1(c) for the current and all prior
Allocation Years, plus (B) the cumulative Profits allocated pursuant to this
Section 4.1(g) for all prior Allocation Years, plus (C) the gain allocated
pursuant to Section 4.3(l)(vii); and
(h) the balance, if any, one percent (1%) to the Limited
Partner and ninety-nine percent (99%) to the General Partner.
4.2 Losses. After giving effect to the special allocations set
forth in Sections 4.3 and 4.4, Losses for any Allocation Year shall be allocated
in the following order and priority:
(a) first, one percent (1%) to the Limited Partner and
ninety-nine percent (99%) to the General Partner in an amount equal to the
remainder, if any, of (i) the cumulative Profits allocated pursuant to Section
4.1(h) for all prior Allocation Years, minus (ii) the sum of (A) the losses
allocated pursuant to Section 4.3(m)(ii), plus (B) the cumulative Losses
allocated pursuant to this Section 4.2(a) for all prior Allocation Years;
(b) second, one percent (1%) to the Limited Partner and
ninety-nine percent (99%) to the General Partner until the Capital Account of
the Limited Partner is reduced to zero; and
(c) the balance, if any, one hundred percent (100%) to the
General Partner.
4.3 Special Allocations. The following special allocations
shall be made:
(a) Minimum Gain Chargeback. Except as otherwise provided in
Section 1.704-2(f) of the Regulations, notwithstanding any other provision of
this Article 4, if there is a net decrease in Partnership Minimum Gain during
any Allocation Year, each Partner shall be specially allocated items of
Partnership income and gain for such Allocation Year (and, if necessary,
subsequent Allocation Years) in an amount equal to such Partner's share of the
net decrease in Partnership Minimum Gain, determined in accordance with Section
1.704-2(g) of the Regulations. Allocations pursuant to the previous sentence
shall be made in proportion to the respective amounts required to be allocated
to each Partner pursuant thereto. The items to be so allocated shall be
determined in accordance with Sections 1.704-2(f)(6) and 1.704-2(j)(2) of the
Regulations. This Section 4.3(a) is intended to comply with the minimum gain
chargeback requirement in Section 1.704-2(f) of the Regulations and shall be
interpreted consistently therewith.
(b) Partner Minimum Gain Chargeback. Except as otherwise
provided in Section 1.704-2(i)(4) of the Regulations, notwithstanding any other
provision of this Article 4, if
42
38
there is a net decrease in Partner Nonrecourse Debt Minimum Gain attributable to
a Partner Nonrecourse Debt during any Allocation Year, each Partner who has a
share of the Partner Nonrecourse Debt Minimum Gain attributable to such Partner
Nonrecourse Debt, determined in accordance with Section 1.704-2(i)(5) of the
Regulations, shall be specially allocated items of Partnership income and gain
for such Allocation Year (and, if necessary, subsequent Allocation Years) in an
amount equal to such Partner's share of the net decrease in Partner Nonrecourse
Debt Minimum Gain attributable to such Partner Nonrecourse Debt, determined in
accordance with Section 1.704-2(i)(4) of the Regulations. Allocations pursuant
to the previous sentence shall be made in proportion to the respective amounts
required to be allocated to each Partner pursuant thereto. The items to be so
allocated shall be determined in accordance with Sections 1.704-2(i)(4) and
1.704-2(j)(2) of the Regulations. This Section 4.3(b) is intended to comply with
the minimum gain chargeback requirement in Section 1.704-2(i)(4) of the
Regulations and shall be interpreted consistently therewith.
(c) Qualified Income Offset. In the event the Limited Partner
unexpectedly receives any adjustments, allocations, or distributions described
in Section 1.704-1(b)(2)(ii)(d)(4), Section 1.704-1(b)(2)(ii)(d)(5), or Section
1.704-1(b)(2)(ii)(d)(6) of the Regulations, items of Partnership income and gain
shall be specially allocated to the Limited Partner in an amount and manner
sufficient to eliminate, to the extent required by the Regulations, the Adjusted
Capital Account Deficit of the Limited Partner as quickly as possible, provided
that an allocation pursuant to this Section 4.3(c) shall be made only if and to
the extent that the Limited Partner would have an Adjusted Capital Account
Deficit after all other allocations provided for in this Article 4 have been
tentatively made as if this Section 4.3(c) were not in the Agreement.
(d) Gross Income Allocation. In the event the Limited Partner
has a deficit Capital Account at the end of any Allocation Year which is in
excess of the sum of (i) the amount the Limited Partner is obligated to restore
pursuant to any provision of this Agreement, and (ii) the amount the Limited
Partner is deemed to be obligated to restore pursuant to the penultimate
sentences of Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations, the
Limited Partner shall be specially allocated items of Partnership income and
gain in the amount of such excess as quickly as possible, provided that an
allocation pursuant to this Section 4.3(d) shall be made only if and to the
extent that the Limited Partner would have a deficit Capital Account in excess
of such sum after all other allocations provided for in this Article 4 have been
made as if Section 4.3(c) and this Section 4.3(d) were not in the Agreement.
(e) Partner Nonrecourse Deductions. Any Partner Nonrecourse
Deductions for any Allocation Year shall be specially allocated to the Partner
who bears the economic risk of loss with respect to the Partner Nonrecourse Debt
to which such Partner Nonrecourse Deductions are attributable in accordance with
Section 1.704-2(i)(1) of the Regulations.
(f) Nonrecourse Deductions. Nonrecourse Deductions for any
Allocation Year shall be specially allocated among the Partners one percent (1%)
to the Limited Partner and ninety-nine percent (99%) to the General Partner.
43
39
(g) Section 754 Adjustments. To the extent an adjustment to
the adjusted tax basis of any Partnership asset pursuant to Section 734(b) or
Section 743(b) of the Code is required pursuant to Section
1.704-1(b)(2)(iv)(m)(2) of the Regulations or Section 1.704-1(b)(2)(iv)(m)(4) of
the Regulations to be taken into account in determining Capital Accounts as the
result of a distribution to a Partner in complete liquidation of its Interest,
the amount of such adjustment to Capital Accounts shall be treated as an item of
gain (if the adjustment increases the basis of the asset) or loss (if the
adjustment decreases such basis) and such gain or loss shall be specially
allocated to the Partners in accordance with their interests in the Partnership
in the event Section 1.704-1(b)(2)(iv)(m)(2) of the Regulations applies, or to
the Partner to whom such distribution was made in the event Section
1.704-1(b)(2)(iv)(m)(4) of the Regulations applies.
(h) Allocations Relating to Taxable Issuance of Partnership
Interests. Any income, gain, loss, or deduction realized as a direct or indirect
result of the issuance of an Interest by the Partnership to a Partner (the
"Issuance Items") shall be allocated among the Partners so that, to the extent
possible, the net amount of such Issuance Items, together with all other
allocations under this Agreement to each Partner, shall be equal to the net
amount that would have been allocated to each such Partner if the Issuance Items
had not been realized.
(i) Research and Development Expenses. R&D Expenses for each
Allocation Year shall be specially allocated twenty-five percent (25%) to the
Limited Partner and seventy-five percent (75%) to the General Partner; provided,
however, that in the event of an Allocation Default and if the General Partner
so elects, which election shall be irrevocable until such Allocation Default is
cured, R&D Expenses for each Allocation Year shall be specially allocated 100%
to the General Partner.
(j) Selling, General and Administrative Expenses. SG&A
Expenses for each Allocation Year shall be specially allocated twenty-five
percent (25%) to the Limited Partner and seventy-five percent (75%) to the
General Partner.
(k) Depreciation. Items of Depreciation attributable to
goodwill and other intangible property contributed to the Partnership pursuant
to Section 2.9 shall be specially allocated five percent (5%) to the Limited
Partner and ninety-five percent (95%) to the General Partner.
(l) ▇▇▇▇-to-Market Gain. In the event that the Partnership is
deemed to realize gain as a result of the adjustment to the Gross Asset Value of
any Partnership asset in connection with the retirement of a portion of the
Limited Partner's Interest pursuant to Section 5.6, such gain shall be specially
allocated in the following order and priority:
(i) first, ninety-nine percent (99%) to the Limited
Partner and one percent (1%) to the General Partner until the Limited
Partner has been allocated an amount equal to (x) first, the Limited
Partner Share of Agreed Value, then (y) the remainder, if any, of the
sum of the cumulative Fourth Tier Amount and the cumulative Contingent
Amount Gross-Up for all prior Allocation Years, minus the cumulative
Profits allocated to the Limited Partner pursuant to Section 4.1(d) for
all prior Allocation years;
44
40
(ii) second, ninety-nine percent (99%) to the Limited
Partner and one percent (1%) to the General Partner until the Limited
Partner has been allocated an amount equal to the remainder, if any, of
(i) the cumulative items of expense allocated to the Limited Partner
pursuant to Sections 4.3(i), 4.3(j) and 4.3(k) for the current and all
prior Allocation Years, minus (ii) the cumulative Profits allocated to
the Limited Partner pursuant to Section 4.1(c) for all prior Allocation
Years;
(iii) third, ninety-five percent (95%) to the Limited
Partner and five percent (5%) to the General Partner until the Limited
Partner has been allocated an amount equal to the remainder, if any, of
(i) the cumulative Priority Return from the commencement of the
Partnership through the last day of the Allocation Year, minus (ii) the
cumulative Profits allocated to the Limited Partner pursuant to Section
4.1(b) for all prior Allocation Years;
(iv) fourth, one hundred percent (100%) to the
Limited Partner until the Limited Partner has been allocated an amount
equal to five percent (5%) of the sum of all gross positive adjustments
that are made in connection with the Partial Retirement to the Gross
Asset Values of the assets contributed by the Limited Partner pursuant
to Section 2.9(b);
(v) fifth, one percent (1%) to the Limited Partner
and ninety-nine percent (99%) to the General Partner in an amount equal
to the remainder, if any, of (i) the cumulative Losses allocated
pursuant to Section 4.2(b) for all prior Allocation Years, minus (ii)
the cumulative Profits allocated pursuant to Section 4.1(f) for all
prior Allocation Years;
(vi) sixth, one hundred percent (100%) to the General
Partner in an amount equal to the remainder, if any, of (i) the
cumulative Losses allocated pursuant to Section 4.2(c) for all prior
Allocation Years, minus (ii) the cumulative Profits allocated pursuant
to Section 4.1(a) for all prior Allocation Years;
(vii) seventh, one hundred percent (100%) to the
General Partner until the General Partner has been allocated an amount
equal to the remainder, if any, of (i) the cumulative items of expense
allocated to the General Partner pursuant to Sections 4.3(i), 4.3(j),
and 4.3(k) for the current and all prior Allocation Years, minus (ii)
the sum of (A) the cumulative Profits allocated to the General Partner
pursuant to Section 4.1(c) for all prior Allocation Years, plus (B) the
cumulative Profits allocated pursuant to Section 4.1(g) for all prior
Allocation Years; and
(viii) eighth, the balance, if any, one percent (1%)
to the Limited Partner and ninety-nine percent (99%) to the General
Partner.
(m) ▇▇▇▇-to-Market Loss. In the event that the Partnership is
deemed to realize loss as a result of the adjustment to the Gross Asset Value of
any Partnership asset in connection with the retirement of a portion of the
Limited Partner's Interest pursuant to Section 5.6, such loss shall be specially
allocated in the following order and priority:
45
41
(i) first, one percent (1%) to the Limited Partner
and ninety-nine percent (99%) to the General Partner in an amount equal
to the cumulative gain allocated pursuant to Section 4.3(l)(viii) for
the current and all prior Allocation Years;
(ii) second, one percent (1%) to the Limited Partner
and ninety-nine percent (99%) to the General Partner in an amount equal
to the remainder, if any, of (i) the cumulative Profits allocated
pursuant to Section 4.1(h) for all prior Allocation Years, minus (ii)
the cumulative Losses allocated pursuant to Section 4.2(a) for all
prior Allocation Years;
(iii) third, one percent (1%) to the Limited Partner
and ninety-nine percent (99%) percent to the General Partner until the
Capital Account of the Limited Partner is reduced to zero; and
(iv) fourth, the balance, if any, one hundred percent
(100%) to the General Partner.
(n) Excess Investment Income. In any Allocation Year in which
the average daily Capital Account of the General Partner exceeds the Threshold
Amount, Net Investment Income in excess of $69,000,000 that is accrued by the
Partnership shall be specially allocated one percent (1%) to the Limited Partner
and ninety-nine percent (99%) to the General Partner.
(o) Losses from Certain Non-Wholly-Owned Subsidiaries. All
distributive shares of the Partnership from any Person that is not a
Wholly-Owned Subsidiary and which is a Pass-Through Entity and which, if
aggregated would be less than zero (i.e. would yield an overall loss), shall be
allocated one hundred percent (100%) to the General Partner.
(p) Gain or Loss on Certain Distributions. In the event the
Partnership makes a distribution pursuant to Section 5.10, any deemed gain or
loss resulting from the adjustment to the Gross Asset Value of any distributed
trademark shall be allocated one hundred percent (100%) to the Limited Partner.
(q) KB USA Liabilities. All items of deduction and loss
arising from the liabilities of KB USA assumed by the Partnership pursuant to
the KB USA Asset Contribution Agreement or otherwise with respect to the matters
that are described on Schedule 2.5(f) to the KB USA Asset Contribution
Agreement, shall be specifically allocated one hundred percent (100%) to the
General Partner.
4.4 Curative Allocations. The allocations set forth in
Sections 4.3(a), 4.3(b), 4.3(c), 4.3(d), 4.3(e), 4.3(f), and 4.3(g) (the
"Regulatory Allocations") are intended to comply with certain requirements of
the Regulations. It is the intent of the Partners that, to the extent possible,
all Regulatory Allocations shall be offset either with other Regulatory
Allocations or with special allocations of other items of Partnership income,
gain, loss, or deduction pursuant to this Section 4.4. Therefore,
notwithstanding any other provision of this Article 4 (other than the Regulatory
Allocations), the General Partner shall make such offsetting special allocations
of Partnership income, gain, loss, or deduction in whatever manner it determines
appropriate so
46
42
that, after such offsetting allocations are made, each Partner's Capital Account
balance is, to the extent possible, equal to the Capital Account balance such
Partner would have had if the Regulatory Allocations were not part of the
Agreement and all Partnership items were allocated pursuant to Sections 4.1,
4.2, 4.3(i), 4.3(j), 4.3(k), 4.3(l), 4.3(m) and 4.3(n). In exercising its
discretion under this Section 4.4, the General Partner shall take into account
future Regulatory Allocations under Sections 4.3(a) and 4.3(b) that, although
not yet made, are likely to offset other Regulatory Allocations previously made
under Sections 4.3(e) and 4.3(f).
4.5 Other Allocation Rules.
(a) Profits, Losses and any other items of income, gain, loss
or deduction shall be allocated to the Partners pursuant to this Article 4 as of
the last day of each Fiscal Year, provided that Profits, Losses and such other
items shall also be allocated at such times as the Gross Asset Values of
Partnership property are adjusted pursuant to subparagraph (ii) of the
definition of Gross Asset Value in Article 1.
(b) For purposes of determining the Profits, Losses, or any
other items allocable to any period, Profits, Losses, and any such other items
shall be determined on a daily, monthly, or other basis, as determined by the
General Partner using any permissible method under Section 706 of the Code and
the Regulations thereunder.
(c) The Partners are aware of the income tax consequences of
the allocations made by this Article 4 and hereby agree to be bound by the
provisions of this Article 4 in reporting their shares of Partnership income and
loss for income tax purposes, except to the extent otherwise required by law.
(d) Solely for purposes of determining a Partner's
proportionate share of the "excess nonrecourse liabilities" of the Partnership
within the meaning of Section 1.752-3(a)(3) of the Regulations, the Partners'
interests in Partnership profits are one percent (1%) to the Limited Partner and
ninety-nine percent (99%) to the General Partner.
(e) To the extent permitted by Section 1.704-2(h)(3) of the
Regulations, the General Partner shall endeavor to treat distributions as having
been made from the proceeds of a Nonrecourse Liability or a Partner Nonrecourse
Debt only to the extent that such distributions would cause or increase an
Adjusted Capital Account Deficit for the Limited Partner.
4.6 Tax Allocations: Section 704(c) of the Code. In accordance
with Section 704(c) of the Code and the Regulations thereunder, income, gain,
loss, and deduction with respect to any property contributed to the capital of
the Partnership shall, solely for tax purposes, be allocated among the Partners
so as to take account of any variation between the adjusted basis of such
property to the Partnership for federal income tax purposes and its initial
Gross Asset Value (computed in accordance with subparagraph (i) of the
definition of "Gross Asset Value" in Article 1).
In the event the Gross Asset Value of any Partnership asset is
adjusted pursuant to subparagraph (ii) of the definition of "Gross Asset Value"
in Article 1, subsequent allocations of
47
43
income, gain, loss, and deduction with respect to such asset shall take account
of any variation between the adjusted basis of such asset for federal income tax
purposes and its Gross Asset Value in the same manner as under Section 704(c) of
the Code and the Regulations thereunder.
Any elections or other decisions relating to such allocations
shall be made by the General Partner in any manner that reasonably reflects the
purpose and intention of this Agreement, provided that the Partnership shall
elect to apply the traditional method pursuant to the Regulations under Section
704(c) with respect to property contributed to the Partnership by the Limited
Partner pursuant to Section 2.9(b) (and any adjustments to the Gross Asset Value
thereof) and the remedial allocation method under Section 1.704-3(d) of the
Regulations with respect to all other property. In applying the remedial
allocation method to adjustments to the Gross Asset Value of property acquired
by the Partnership after the Effective Time (as defined in the Master
Restructuring Agreement), the General Partner shall be treated as the
contributing partner under Section 1.704-3(d) of the Regulations. Allocations
pursuant to this Section 4.6 are solely for purposes of federal, state, and
local taxes and shall not affect, or in any way be taken into account in
computing, any Partner's Capital Account or share of Profits, Losses, other
items, or distributions pursuant to any other provision of this Agreement.
Except as otherwise provided in this Agreement, all items of
Partnership income, gain, loss, deduction, and any other allocations not
otherwise provided for shall be divided among the Partners in the same
proportions as they share Profits or Losses, as the case may be, for the
Allocation Year.
ARTICLE 5
DISTRIBUTIONS; PARTIAL RETIREMENT OF LIMITED PARTNER'S INTEREST
5.1 General. Neither Partner shall have the right to withdraw
or demand distribution of any amount from its Capital Account, except as
expressly provided herein or with the prior approval of the other Partner. All
distributions shall be paid in cash unless otherwise expressly permitted by
Section 5.2(c) or Section 5.10.
5.2 Distribution Policy. Distributions provided in this
Section shall be made in the following order and priority, subject to the terms,
restrictions and conditions provided in this Agreement:
(a) The Partnership shall distribute to the Limited Partner:
(i) On the last day of every Fiscal Quarter ending
after July 1, 1998, the Priority Return;
(ii) During the first Fiscal Quarter beginning after
June 30, 2000, an amount equal to the sum of the Fourth Tier Amount and
the Contingent Amount Gross-Up for all prior Fiscal Quarters;
48
44
(iii) Within thirty (30) days after the last day of
each Fiscal Quarter beginning after June 30, 2000, the Fourth Tier
Amount for such Fiscal Quarter; and
(iv) Within three (3) months after the end of every
Fiscal Year beginning after December 31, 1999, the amount by which the
cumulative allocations of Profits to the Capital Account of the Limited
Partner for such Fiscal Year pursuant to Sections 4.1(d), (e), and (h),
and allocations pursuant to Sections 4.3(l)(i)(y), and Section 4.3(n)
exceed the sum of (A) distributions made during such Fiscal Year
pursuant to paragraph (iii) of this Section, plus (B) allocations of
losses to such Capital Account for such Fiscal Year pursuant to Section
4.3(m)(ii).
(b) Subject to the limitations of this Section and Sections
5.1 and 5.4, and at the discretion of the General Partner, the Partnership may
distribute to the General Partner:
(i) During the first Fiscal Quarter beginning after
June 30, 2000, an amount equal to the excess, if any, of (A) the sum of
the value of the Original Capital Contribution of the General Partner
plus the Profits and minus the Losses and items of expense allocated to
the Capital Account of the General Partner under Article 4 through
December 31, 1999, over (B) $2 billion;
(ii) On the last day of every Fiscal Quarter ending
after July 1, 2000, the General Partner Quarterly Income Distribution,
as defined below, for such Fiscal Quarter; and
(iii) Within three (3) months after the end of every
Fiscal Year ending after January 1, 2000 and before January 1, 2009,
$284,000,000; provided, however, that no such distribution shall be
made at a time when the General Partner's Capital Account balance is
less than, or to the extent that such a distribution would reduce the
General Partner's Capital Account balance to less than, $1 billion; and
provided further that no distribution for any Fiscal Year pursuant to
this clause (iii) shall be made until after the final determination of
Profits and Losses for such Fiscal Year; and, provided further, that
any distribution pursuant to this clause (iii) shall be reduced by the
excess, if any, of (A) the sum of the Losses, losses and items of
expense allocated to the Capital Account of the General Partner
pursuant to Article 4 for such Fiscal Year over (B) the Profits
allocated to the Capital Account of the General Partner for such Fiscal
Year.
For purposes of this subsection, the "General Partner
Quarterly Income Distribution" shall mean an amount equal to one-fourth of the
General Partner's estimate, for the Fiscal Year in which the Fiscal Quarter
occurs, of the excess of (A) the Profits allocations that will be made to the
Capital Account of the General Partner pursuant to Section 4.1 (exclusive of
allocations pursuant to Section 4.1(a) and 4.1(f)) plus Section 4.3(n) over (B)
expense allocations that will be made to such Capital Account pursuant to
Sections 4.3(i), 4.3(j) and 4.3(k). The General Partner shall make such estimate
each Fiscal Quarter and shall take into account operating results of the
Partnership through the end of the Fiscal Quarter and reasonably anticipated
operating results for the remainder of the Fiscal Year.
49
45
No distribution shall be made pursuant to clause (i) of this
Section 5.2(b) for any Fiscal Quarter to the extent that such distribution would
exceed an amount equal to (A) the product of the General Partner Quarterly
Income Distribution times the number of completed Fiscal Quarters in the Fiscal
Year including such Fiscal Quarter, minus (B) amounts previously distributed as
General Partner Quarterly Income Distributions for such Fiscal Year.
(c) The Partnership may distribute to the General Partner an
amount equal to the book value, calculated in accordance with Section 704(b) of
the Code, of any property contributed to the Capital Account of the General
Partner pursuant to Section 2.9(c) if: (i) the Capital Account of the General
Partner immediately after such distribution is at least $1 billion, (ii) during
each of the two (2) Fiscal Years immediately preceding such distribution the
Profits of the Partnership (exclusive of the Profits derived from such property
or any property acquired in whole or in part in exchange for or with proceeds
from such property) were sufficient so that no Allocation Shortfall would have
occurred and (iii) the Partnership delivers to the Limited Partner a written
projection (the reasonableness of which is certified by the chief financial
officer of KB) showing sufficient Profits for the Fiscal Year in which such
distribution occurs and for the next succeeding Fiscal Year to avoid an
Allocation Shortfall with respect to each of such Fiscal Years; provided,
however, that such certification shall not be required in the case of
distributions which, together with all prior distributions in such Fiscal Year
pursuant to this Section 5.2(c), if any, do not exceed $50 million
($50,000,000). Such distribution may be paid in property other than cash if (and
only if) such property does not include (i) any assets contributed to the
Partnership pursuant to the KB USA Asset Contribution Agreement, the KBI Asset
Contribution Agreement, the Selected Compounds Contribution Agreement, the KBI-E
Asset Contribution Agreement or the Trademark Rights Contribution Agreement,
(ii) any rights relating to any Covered Compound or product containing any
Covered Compound (including without limitation any rights under or with respect
to any Outlicensing thereof), or (iii) any asset or assets, the absence of
which, singly or in the aggregate, would materially diminish or impair the
Partnership's ability to conduct its Primary Business.
5.3 Insufficient or Excess Distributions.
(a) Subject to the exceptions provided in subsection (b), if,
for any Fiscal Year, the Partnership distributes to either Partner an amount
that exceeds the excess of (i) the allocations of Profits for such Fiscal Year
to the Capital Account of such Partner (excluding, with respect to the Limited
Partner, allocations pursuant to Sections 4.1(b) and 4.3(l)(iii)) over (ii) the
allocations of expenses pursuant to Sections 4.3(i), 4.3(j), and 4.3(k) (other
than, with respect to the Limited Partner, Depreciation attributable to
adjustments to Gross Asset Value pursuant to the partial retirement of the
Limited Partner pursuant to Section 5.6) for such Fiscal Year to the Capital
Account of such Partner (such excess being referred to as the "Excess
Distribution"), the following actions shall occur:
(1) The General Partner shall notify the Limited
Partner of the amount of the Excess Distribution within thirty (30)
days after completion of the final accounting of Profits and Losses for
such Fiscal Year, but in all events before any distribution has been
made of Profits with respect to the last Fiscal Quarter of such Fiscal
Year.
50
46
(2) The Partner receiving the Excess Distribution
shall make a contribution to its Capital Account in the amount of the
excess within fifteen (15) days of such notification by the General
Partner.
(3) Notwithstanding any other provision of this
Agreement, upon the failure by either Partner to make a contribution
required by paragraph (a)(2), above, the General Partner shall (A)
suspend further distributions to such Partner pursuant to this Section
and (B) treat such amounts as would have been distributed to such
Partner as deemed contributions to the Capital Account of such Partner
until the Capital Account of such Partner has been restored to the
Capital Account balance that would have existed if such Partner had
made the contribution required by paragraph (a)(2).
(b) In determining whether an Excess Distribution exists, the
following distributions shall not be considered: (i) distributions to the
Limited Partner pursuant to Sections 5.2(a)(i), 5.2(a)(ii) or 5.6; or (ii)
distributions to the General Partner pursuant to Section 5.2(b)(i).
(c) In the event revised statements are issued, or required to
be issued, pursuant to Section 6.5(a)(ii), the General Partner shall notify the
Limited Partner of the amount of any resulting insufficient or excess
distribution, and, within fifteen (15) days after receipt of such notice, the
Partner having received the excess distribution shall contribute to the
Partnership the amount of any such excess distribution and the Partnership shall
distribute to the Partner having received the insufficient distribution the
amount of the insufficiency.
5.4 Certain Limitations. No distribution of Partnership funds
shall be made to the extent that such distribution would render the Partnership
unable to meet its obligations, including future distributions pursuant to
Section 5.2(a), as they become due. No distribution of Partnership funds shall
be made to the General Partner (i) to the extent such distribution would cause
the Partnership to be in violation of or default under any agreement to which it
is a party or (ii) in the event any Allocation Shortfall has occurred and
remains uncured.
5.5 Liquidating Distributions. Distributions to the Partners
upon the winding up of the Partnership shall be made in accordance with Section
8.4(b) hereof.
5.6 Partial Retirement of the Limited Partner's Interest. In
the event of the KBI-E Asset Purchase, the Partnership shall retire a portion of
the Limited Partner's Interest (such retirement being referred to herein as the
"Partial Retirement"). On the day of the KBI-E Asset Purchase, the General
Partner shall distribute and deliver to the Limited Partner an amount equal to
the Limited Partner Share of Agreed Value (the date of such delivery being
referred to herein as the "Retirement Date"); provided, however, that in the
event that a Trigger Event occurs prior to January 1, 2008, the Partial
Retirement and the "Retirement Date" shall occur on the date the True-Up Amount
(as defined in the Master Restructuring Agreement) is paid.
5.7 No Interest. Except as specifically provided herein, no
interest shall be payable to the Partners in respect of their respective capital
contributions or Capital Accounts.
51
47
5.8 Loans to KB and Its Affiliates.
(a) The Partnership may lend to KB and its Affiliates
accumulated cash of the Partnership that is in excess of reasonable working
capital needs of the Partnership. Any such loan shall (i) have a term of not
greater than five (5) years, (ii) be at a market rate of interest and otherwise
on commercially reasonable terms and (iii) be payable immediately upon demand,
without penalty, at any time by the Partnership. Any such loan made to an
Affiliate of KB shall be fully guaranteed by KB in accordance with Section 3.5
hereof.
(b) If either Partner shall advance any funds to the
Partnership in excess of its capital contribution, the amount of such advance
shall neither increase its Capital Account nor entitle it to any increase in its
share of the distributions of the Partnership. The amount of any such advance
shall be a debt obligation of the Partnership to such Partner and shall be
repaid to it by the Partnership with such interest and upon such other terms and
conditions as shall be mutually determined by such Partner and the Partnership.
No person who makes any nonrecourse loan to the Partnership shall have or
acquire, as a result of making such loan, any direct or indirect interest in the
profits, capital, or property of the Partnership, other than as a creditor.
5.9 Payment of Fees and Expenses. Neither the General Partner
nor any of its Affiliates shall be reimbursed for any overhead or general or
administrative expenses or receive any fees, commissions or other compensation
or any increase in distributions or any allocations with respect to its Capital
Account for discharging its stewardship responsibilities to its shareholders or
to the shareholders of KB or contractual or fiduciary responsibilities as
General Partner hereunder. This Section shall not prohibit any agreement between
the Partnership and KB or any Affiliate of KB pursuant to which KB or such
Affiliate provides bona fide management services to the Partnership, provided
that any agreement for the provision of such services and the payment of any
fees, commissions or other compensation to the General Partner or any of its
Affiliates shall be in writing and may be entered into only in accordance with
Section 3.2 hereof.
5.10 Distributions of Trademarks in Certain Circumstances. In
the event of the termination of the Partnership's rights as distributor with
respect to a Compound pursuant to the Distribution Agreement, the Partnership
shall distribute to the Limited Partner all the Partnership's right, title and
interest in and to any and all trademarks used or held for use by the
Partnership in connection with such Compound or any product containing such
Compound.
ARTICLE 6
ACCOUNTING AND TAXATION
6.1 Fiscal Year. The fiscal year of the Partnership (the
"Fiscal Year") shall begin on January 1 and end on December 31.
6.2 Accountants. The financial statements and internal control
systems used on behalf of the Partnership shall be audited annually by the
Accountants. Promptly following
52
48
any resignation or removal of the Accountants, new Accountants shall be
appointed by the General Partner in accordance with Section 3.2.
6.3 Maintenance of Books, Records and Accounts. At all times
during the continuance of the Partnership, the Partnership shall make and keep
at its principal offices, full, true and complete books, records and accounts
which, in reasonable detail, shall fully, accurately and fairly reflect each
transaction of the Partnership, shall permit the computation of the allocations
and distributions contemplated by this agreement and provide sufficient
information and detail to permit the preparation of the financial statements,
reports and other information required by this Article 6. Such books, records
and accounts shall be kept on an accrual basis in accordance with IAS (and in a
manner that will permit the preparation of accounts in accordance with GAAP, the
calculation of Net Sales in accordance with GAAP and the preparation of the
financial statements, information and reports provided for in Section 6.5) and
such other accounting policies as may be specified herein or adopted with the
Consent of the Limited Partner. In addition, the Partnership shall devise and
maintain a system of internal accounting controls sufficient to provide
reasonable assurances that:
(i) transactions of the Partnership and its
subsidiaries are executed in accordance with the general or specific
authorization of the management of the Partnership and in a manner
consistent with the provisions of this Agreement;
(ii) transactions of the Partnership are recorded in
such form and manner as will (A) permit preparation of federal, state,
local and foreign income, sales and value added tax returns,
information returns and other applicable returns in accordance with
this Agreement and as required by law, (B) permit preparation of the
Partnership's financial statements in conformity with IAS and GAAP, and
(C) maintain accountability for the Partnership's assets; and
(iii) access to assets is permitted only in
accordance with the general or specific authorization of the management
of the Partnership.
6.4 Access to Books and Records. At the request and expense of
the Limited Partner, the Limited Partner shall have the right for its then
currently engaged independent accountants to have access, at all reasonable
times upon reasonable prior notice during normal business hours, to audit and
examine, and make copies or extracts of or from the books, records and accounts
of the Partnership and its Subsidiaries, if any, in order to verify the accuracy
of the allocations and distributions made pursuant to Articles 4 and 5 and the
financial statements, reports and information required to be provided pursuant
to Section 6.5(a) and the compliance of the Partnership and the General Partner
with the terms of this Agreement. Such rights of access, audit and inspection
shall terminate three (3) years after the close of each Fiscal Year to which
such financial statements, reports and information, as the case may be, relate.
The Limited Partner shall enter into a written engagement with such accountants,
a copy of which shall be provided to the General Partner, providing that (i) the
scope of the engagement with respect to such audit and examination is limited to
the rights provided in this Section 6.4 and, if the audit is performed in
connection with another audit permitted by any other agreement between an
53
49
Affiliate of the Limited Partner and the Partnership, the rights of such
Affiliate under such other agreement, (ii) such accountants agree to use
reasonable efforts, consistent with their professional responsibility, the
availability of materials and information and the level of assistance received,
to conclude the audit and examination within a reasonable period of time, and
(iii) such accountants agree to keep any such information to which they have
access pursuant to the foregoing confidential and not to disclose to the Limited
Partner (or any of its Affiliates) any information other than information
relating to the accuracy of such allocations, distributions, financial
statements, reports and information, as the case may be, and the compliance of
the Partnership and the General Partner with the terms of this Agreement and in
no event shall quantities or prices or rebates to individual customers be
disclosed to the Limited Partner (or any of its Affiliates) or any other Person.
Notwithstanding the foregoing, provided no Allocation Shortfall has occurred and
remains uncured, the Limited Partner shall not, during each period from December
15 of any Fiscal Year through January 31 of the following Fiscal Year, exercise
its rights of access, audit and inspection under this Section and, during the
period from February 1 through the last day of February of any Fiscal Year,
exercise such rights with respect to the activities of the Partnership during
the last Fiscal Quarter of the prior Fiscal Year.
6.5 Financial Statements.
(a) Reporting Requirements. The Partnership shall provide the
following documents to the Limited Partner at the times set forth below:
(i) Within two (2) months after the end of each
Fiscal Year, the following financial statements (including appropriate
footnotes thereto), examined and certified by the Accountants and
accompanied by the Accountant's opinion, prepared in accordance with
Generally Accepted Auditing Standards ("GAAS") with no qualification as
to scope, stating that such financial statements were prepared in
accordance with GAAP:
(A) the balance sheet of the Partnership as
of the beginning and close of such Fiscal Year;
(B) the statement of income of the
Partnership for such Fiscal Year; and
(C) the statement of Partnership cash flow
for such Fiscal Year.
(ii) Within two (2) months after the end of each
Fiscal Year, (or, in the event of any error in any financial statements
previously delivered pursuant to this Section 6.5(a)(ii), within two
(2) months after the later of the discovery or determination, whether
by agreement of the parties, arbitration or otherwise, of such error),
the following financial statements (including appropriate footnotes
thereto) examined and certified by the Accountants and accompanied by
the Accountant's opinion, prepared in accordance with GAAS with no
qualification as to scope, stating that such financial statements were
prepared using an "other comprehensive basis of accounting" consisting
of the relevant provisions of this Agreement (principally Articles 4
and 5 and the definitions of "Profits"
54
50
and "Losses") and the Section 704(b) Regulations, containing, at a
minimum, substantially the level of detail as set forth in the
respective forms attached hereto as Exhibit 6.5:
(A) a statement of the Profits and Losses of
the Partnership and all items of Partnership income, gain,
loss or deduction available to be specially allocated pursuant
to Sections 4.3 and 4.4 for such Fiscal Quarter and for the
Fiscal Year through the end of such Fiscal Quarter; and for
the comparable periods of the prior Fiscal Year;
(B) the distributive share of each Partner
of Profits and Losses and each such item;
(C) the Capital Account balance of each
Partner as of the beginning of the period;
(D) a summary of the contributions,
distributions and allocations of distributive shares debited
and credited to each Partner's Capital Account; and
(E) the Capital Account balance of each
Partner as of the end of the period. Such statements shall be
audited and accompanied by the unqualified report of the
Accountants with respect thereto.
(iii) Within two (2) months after the end of each
Fiscal Year (or, in the circumstances specified in clause (ii) of the
definition of "Allocation Shortfall", within one (1) month after the
end of the Fiscal Year), a statement indicating each Partner's share of
each item of Partnership income, gain, loss, deduction, expense or
credit for such Fiscal Year for income tax purposes.
(iv) Within one (1) month after the filing of any
federal, state or local income tax return by the Partnership, a copy of
such income tax return.
(v) Within one (1) month after the end of each Fiscal
Quarter (including the fourth Fiscal Quarter), the following financial
statements, prepared in accordance with GAAP, and documents:
(A) the balance sheet of the Partnership as
of the beginning and close of such Fiscal Quarter and as of
the close of the comparable Fiscal Quarter of the preceding
year;
(B) the statement of income of the
Partnership for such Fiscal Quarter and for the Fiscal Year
through the end of such Fiscal Quarter and for the comparable
periods of the prior Fiscal Year;
55
51
(C) a statement setting forth the Net Sales
of each product of the Partnership for such Fiscal Quarter and
for the Fiscal Year through the end of such Fiscal Quarter.
(vi) Within one (1) month after the end of each
Fiscal Quarter (including the fourth Fiscal Quarter), the following
financial statements prepared using an "other comprehensive basis of
accounting" consisting of the relevant provisions of this Agreement
(principally Articles 4 and 5 and the definitions of "Profits" and
"Losses") and the Section 704(b) Regulations, containing, at a minimum,
substantially the level of detail as set forth in the respective forms
attached hereto as Exhibit 6.5:
(A) a statement of the Profits and Losses of
the Partnership and all items of Partnership income, gain,
loss or deduction available to be specially allocated pursuant
to Sections 4.3 and 4.4 for such Fiscal Quarter and for the
Fiscal Year through the end of such Fiscal Quarter and for the
comparable periods of the prior Fiscal Year;
(B) the distributive share of each Partner
of Profits and Losses and each such item;
(C) the Capital Account balance of each
Partner as of the beginning of the period;
(D) a summary of the contributions,
distributions and allocations of distributive shares debited
and credited to each Partner's Capital Account for such Fiscal
Quarter and for the Fiscal Year through the end of such Fiscal
Quarter and a detailed description of the computation of all
allocations and distributions; and
(E) the Capital Account balance of each
Partner as of the end of the period.
(vii) Within six (6) business days after the end of
each month, a statement identifying all items with respect to such
month that will be used to determine the Fourth Tier Amount and the
estimated (or actual, if available) amount of each such item.
(viii) Within ten (10) days after the end of each
Fiscal Quarter, a statement identifying and explaining all items that
will result in an allocation to the General Partner pursuant to Section
4.3(q).
In addition to the foregoing, in the event of any change in any disclosure or
external financial reporting requirement applicable to TR (including without
limitation (i) any change in applicable law or regulation, (ii) any change in
GAAP and (iii) any new interpretation or any change in the interpretation of
GAAP or of any applicable law or regulation or other disclosure or external
financial reporting requirement, the Partnership shall provide such other or
additional financial or
56
52
other information to the Limited Partner at such times as is required for TR to
comply with such disclosure or external financial reporting requirements. In
addition to the foregoing, in the event of any change in the internal reporting
requirements of TR that are the result of any of the matters in clauses (i),
(ii) or (iii) of the preceding sentence, the Partnership shall provide such
other or additional financial or other information to the Limited Partner at
such times as is required for TR to comply with such internal reporting
requirements. In addition to the foregoing, in the event of any other change in
the internal reporting requirements of TR that are applicable generally to TR's
own operations, the Partnership shall provide such financial or other
information to the Limited Partner at such times as is reasonably requested,
provided that (i) such information is available or accessible at reasonable cost
and the Limited Partner agrees to reimburse the Partnership for such reasonable
cost and (ii) such information can be provided to the Limited Partner without
reprogramming of the Partnership's information systems (except that the
programming of information system or database queries or other similar queries
and reports shall not be considered reprogramming for purposes of this
sentence); and provided, further, that the Partnership shall not be required to
provide pursuant to this sentence information of a commercially sensitive nature
that it is not otherwise required to provide to the Limited Partner under this
Agreement or to any Affiliate of the Limited Partner under any other agreement
between any such Affiliate and the Partnership.
(b) Forecasts. The Partnership shall prepare, or cause to be
prepared, and deliver to the Limited Partner forecasts of aggregate Net Sales
and Weighted Net Sales of KB USA Products and aggregate Net Sales and Weighted
Net Sales of Group D Products on March 1, June 1, September 1 and December 1 of
each year; provided, however, that the foregoing requirements will be satisfied
by the delivery of such forecasts that have been prepared no more than ninety
(90) days prior to, and have been updated as of, each of March 1, June 1,
September 1 and December 1, respectively, of the year in which they are
delivered to the Limited Partner. Each such forecast shall include (i) a
forecast for the Fiscal Quarter in which such forecast is required to be
delivered, each of the Fiscal Quarters in the remainder of such Fiscal Year and
(except in the case of the March forecast) each of the four (4) Fiscal Quarters
in the next succeeding Fiscal Year and (ii) forecasts of the aggregate Net Sales
and the Combined Weighted Net Sales (as defined in the Master Restructuring
Agreement) by category of each of the following categories: KB USA Products and
Group D Products, for each of such Fiscal Quarters. The Partnership also shall
provide to the Partners not later than June 15 of each year a five-year
forecast, showing for each Fiscal Year, the estimated amount of the Fourth Tier
Amount for such Fiscal Year.
6.6 Taxation.
(a) Partnership Treatment; Preparation of Tax Returns. The
Partners intend that the Partnership shall be treated as a "partnership" for
U.S. federal, state, local and foreign income and franchise tax purposes. The
Partnership shall take all action necessary and appropriate to elect and
preserve partnership treatment.
(b) Review of Tax Returns. The U.S. federal, state, local and
foreign income tax returns shall be filed only after the Partners have had at
least fifteen business days to review
57
53
such returns. The Partners shall communicate their comments on such returns
directly to the Tax Matters Partner. Either Partner shall have the right to
cause any or all of such tax returns to be reviewed by the Partnership's
independent public accountants prior to the filing thereof. The Partner
requesting such review shall pay or reimburse the Partnership for the fees of
such accountants with respect to such review.
(c) Tax Matters Partner. Each Partner does hereby appoint and
designate the General Partner as "Tax Matters Partner" of the Partnership as
such term is defined in Section 6231(a)(7) of the Code but shall otherwise be
considered to have retained such rights (and obligations, if any) as are
provided for under the Code with respect to any examination, proposed adjustment
or proceeding relating to Partnership items. The General Partner shall notify
the Limited Partner, (i) within ten (10) business days after it receives notices
from the Internal Revenue Service (or any foreign tax authority), of all
administrative proceedings with respect to an examination of, or proposed
adjustments to, Partnership items and (ii) within ten (10) business days after
it receives notices from any state or local tax authority, of any material
matter with respect to the Partnership. The General Partner shall take such
action as may be reasonably necessary to constitute the Limited Partner a
"notice partner" as that term is defined in Section 6231 of the Code and shall
keep the Limited Partner fully informed as to any tax audits of the Partnership,
including promptly providing the Limited Partner with copies of any
correspondence from any taxing authority and permitting the Limited Partner to
participate in any conferences or meetings with any taxing authority and in any
subsequent administrative or judicial proceedings. The Limited Partner may
notify the Tax Matters Partner of such Partner's intention to represent itself,
or to cause independent tax counsel or accountants to represent it, in
connection with any such examination, proceeding or proposed adjustment. The
General Partner agrees to supply the Limited Partner and its tax counsel or
accountants, as the case may be, with copies of all written communications
received by the General Partner with respect to any examination, proceeding or
proposed adjustment, together with such other information as may be reasonably
requested in connection herewith. The General Partner further agrees, in the
event the Limited Partner notifies the Tax Matters Partner of its intention to
represent itself, or to cause independent tax counsel or accountants to
represent it in connection with any such examination, proceeding or adjustment,
to cooperate with the Limited Partner and its tax counsel or accountants, as the
case may be, in connection with such separate representation, to the extent
reasonably practicable. In addition to the foregoing, the General Partner shall
notify the Limited Partner prior to submitting a request for administrative
adjustment on behalf of the Partnership.
ARTICLE 7
TRANSFER OF PARTNERSHIP INTERESTS
7.1 Limitation on Right to Transfer Partner's Interest.
(a) Prior to the exercise of the KBI Shares Option and the
consummation of the transactions contemplated thereby and except as provided in
Section 7.2, the General Partner may not Transfer in any manner all or any part
of, or any right with respect to, its Interest without the prior Consent of the
Limited Partner, which Consent may be withheld for any reason
58
54
in the sole discretion of the Limited Partner. In the event such Consent is
obtained, the transferee of such Interest shall not be entitled to exercise or
receive any of the rights, powers or benefits of a general partner other than
the right to receive distributions to which the General Partner would be
entitled, unless the transferee is admitted as a substituted general partner. A
permitted transferee of all but not less than all of the Interest of the General
Partner shall be admitted to the Partnership as the general partner of the
Partnership only if (i) the General Partner designates, in a written instrument
delivered to the Limited Partner, its transferee to become a substituted general
partner, (ii) the specific Consent of the Limited Partner to such admission is
obtained and (iii) such transferee executes an instrument reasonably
satisfactory to the Limited Partner accepting and adopting the terms and
provisions of this Agreement, including a counterpart signature page to this
Agreement. No such Transfer in compliance with this Agreement shall cause a
dissolution of the Partnership for purposes of the Act. If such conditions are
satisfied, such admission shall be effective upon the filing of an amendment to
the Certificate of Limited Partnership with the Secretary of State of the State
of Delaware which indicates that such transferee has been admitted to the
Partnership as the general partner of the Partnership, and shall occur, and for
all purposes shall be deemed to have occurred, immediately prior to the time the
transferor ceases to be the general partner of the Partnership. Such successor
General Partner is hereby authorized to and shall continue the Partnership
without dissolution. Upon the filing of an amendment to the Certificate of
Limited Partnership with the Secretary of State of the State of Delaware which
indicates that the General Partner is no longer a general partner of the
Partnership, the General Partner shall at that time cease to be a general
partner of the Partnership.
(b) Prior to the exercise of the KBI Shares Option and the
consummation of the transactions contemplated thereby and except as provided in
Section 7.2, the Limited Partner may not Transfer in any manner all or any part
of, or any right with respect to, its Interest without the prior consent of the
General Partner, which consent may be withheld for any reason in the sole
discretion of the General Partner. In the event such consent is obtained, the
transferee of such Interest shall not be entitled to exercise or receive any of
the rights, powers or benefits of a limited partner other than the right to
receive distributions to which the Limited Partner would be entitled, unless the
transferee is admitted as a substituted limited partner. A permitted transferee
of all but not less than all of the Interest of the Limited Partner shall be
admitted to the Partnership as a limited partner of the Partnership only if (i)
the Limited Partner designates, in a written instrument delivered to the General
Partner, its transferee to become a substituted limited partner, (ii) the
specific consent of the General Partner to such admission is obtained and (iii)
such transferee executes an instrument reasonably satisfactory to the General
Partner accepting and adopting the terms and provisions of this Agreement,
including a counterpart signature page to this Agreement. No such Transfer in
compliance with this Agreement shall cause a dissolution of the Partnership for
purposes of the Act. If such conditions are satisfied, the transferee shall be
admitted to the Partnership as the limited partner of the Partnership upon the
effectiveness of such Transfer. Any valid Transfer of the Limited Partner's
Interest, or part thereof, pursuant to the foregoing provisions shall be
effective as of the close of business on the last day of the calendar month in
which the General Partner gives its written consent to such Transfer (or the
last day of the calendar month in which such Transfer occurs, if later).
59
55
(c) The Partnership shall, from the effective date of any
valid Transfer of a Partner's Interest (or part thereof), thereafter pay all
further distributions on account of the Partnership Interest (or part thereof)
so Transferred, to the transferee of such Interest, or part thereof. As between
any Partner and its transferee, Profits and Losses for the Fiscal Year of the
Partnership in which such Transfer occurs shall be apportioned for federal
income tax purposes in accordance with any manner permitted under Section 706(d)
of the Code as such Partner and its transferee may agree.
7.2 Transfer to an Affiliate. Either Partner may, with the
prior written consent of the other Partner (which shall not be unreasonably
withheld) Transfer all (and not less than all) of its Interest to any of its
Affiliates; provided, however, that, in the case of KBI Sub, such Affiliate is a
Wholly-Owned Subsidiary (as defined in the Master Restructuring Agreement) of TR
and, in the case of KBLP, such Affiliate is a Wholly-Owned Subsidiary of KB. It
shall be a condition to any such Transfer that the Affiliate to which such
Transfer is made shall have assumed by written agreement delivered, and in form
and substance satisfactory, to the other Partner all of the obligations of the
transferor under this Agreement. Such Transfer shall become effective and the
transferee shall be admitted as a substitute general partner or limited partner,
as the case may be, in accordance with the provisions of Section 7.1(a) or (b),
as applicable, except that the provisions of Section 7.1 requiring the consent
of either Partner thereunder shall not apply to Transfers made pursuant to this
Section 7.2. No such Transfer shall release the transferor from such obligations
except to the extent they are performed by such Affiliate. No such Transfer
shall release either KB or TR from its obligations pursuant to Article 8 of the
Master Restructuring Agreement.
7.3 Transfers in Breach of Agreement Void. Any Transfer (or
any purported Transfer) of all or any part of, or any rights with respect to, a
Partner's Interest in contravention of this Agreement shall be void and shall
not be recognized by the Partnership or the General Partner for any purpose,
including but not limited to making distributions pursuant to any Section of
Article 5 with respect to such Partnership Interest or part thereof.
ARTICLE 8
DISSOLUTION OF THE PARTNERSHIP
8.1 No Dissolution. The Partnership shall not be dissolved by
the admission of a substitute general partner or substitute limited partner in
accordance with the terms of this Agreement. The Bankruptcy, dissolution or
other cessation of existence as a legal entity of a Partner shall not dissolve
the Partnership.
8.2 Waiver of Right to Dissolve. The Partnership may be
dissolved only (i) upon the expiration of the term of the Partnership as set
forth in Section 2.7 or (ii) with the written approval of the General Partner
and the Consent of the Limited Partner. Each Partner expressly waives and
relinquishes its right voluntarily to withdraw from or dissolve the Partnership
and agrees that any such withdrawal (or purported withdrawal) or dissolution (or
event or circumstance that, but for the agreements set forth in this Section
8.2, would constitute dissolution) by unilateral action of a Partner (except for
Transfers permitted by Article 7 hereof)
60
56
shall be deemed to be a breach of such Partner's obligations under this
Agreement for all purposes (including, without limitation, Article 10 of the
Master Restructuring Agreement). Without limiting the preceding two (2)
sentences, upon the happening of any event of withdrawal of the General Partner
referred to in Section 17-402 of the Act, (i) the Partnership shall not be
dissolved and its affairs shall not be wound up and (ii) the business of the
Partnership shall continue, with the Limited Partner appointing one or more new
General Partners as appropriate.
8.3 No Payment in Certain Circumstances. Except as may
otherwise be expressly provided in this Agreement, no Partner shall be entitled
to receive any payment described in Section 17-604 of the Act.
8.4 Effect of Dissolution; Distribution of Assets.
(a) Effect of Dissolution. In the event the Partnership is
"liquidated" within the meaning of Section 1.704-1(b)(2)(ii)(g) of the
Regulations, (i) if the General Partner's Capital Account has a deficit balance
(after giving effect to all contributions, distributions, and allocations for
all taxable years, including the taxable year during which such liquidation
occurs), such General Partner shall contribute to the capital of the Partnership
the amount necessary to restore such deficit balance to zero in compliance with
Section 1.704-1(b)(2)(ii)(b)(3) of the Regulations; and (ii) if the Limited
Partner has a deficit balance in its Capital Account (after giving effect to all
contributions, distributions, and allocations for all taxable years, including
the taxable year during which such liquidation occurs), the Limited Partner
shall have no obligation to make any contribution to the capital of the
Partnership with respect to such deficit, and such deficit shall not be
considered a debt owed to the Partnership or to any other Person for any purpose
whatsoever.
(b) Distribution of Assets. Upon the dissolution and
liquidation of the Partnership or the adoption by the Partners of a plan of
dissolution, the following steps shall be taken consistent with the Regulations
under Section 704:
(i) The proceeds of the liquidation of the
Partnership's business and assets shall be applied and/or distributed
in the following order and priority:
(A) to creditors of the Partnership in
satisfaction of the debts, liabilities and obligations of the
Partnership (whether by payment or the making or provision
therefor, including a reserve for any contingent or unforeseen
liabilities or obligations), other than debts, liabilities and
obligations to any Partner or debts, liabilities and
obligations to be assumed by a Partner in connection with the
winding up of the Partnership; and
(B) to the satisfaction of any debts,
liabilities and obligations of the Partnership to the Partners
(whether by payment or the making or provision therefor,
including a reserve for any contingent or unforeseen
liabilities or obligations).
61
57
(ii) The balance of the proceeds described in clause
(i) above, if any, (after the restoration of any Capital Account
deficit provided for in Section (a) above) shall be distributed, after
Capital Accounts have been adjusted as provided in Article 4 hereof,
only to Partners having positive balances in their respective Capital
Accounts in proportion to the positive balances in their respective
Capital Accounts.
8.5 Termination of the Partnership. The Partnership shall
terminate when all of the assets of the Partnership, after payment of, or due
provision for, all debts, liabilities and obligations of the Partnership, shall
have been distributed to the Partners in the manner provided for in this Article
8 and the Certificate of Limited Partnership shall have been canceled in the
manner required by the Act.
8.6 Survival of Obligations; Damages. Dissolution of the
Partnership for any cause shall not release either Partner or any Affiliate
thereof from any liability which at the time of dissolution had already accrued
to the other Partner or any Affiliate thereof or which thereafter may accrue in
respect of any act or omission prior to completion of the winding up process.
The rights and obligations of the Partners set forth in Article 10 of the Master
Restructuring Agreement shall survive any termination or dissolution of the
Partnership.
ARTICLE 9
INDEMNIFICATION
9.1 Indemnification for Breach. The Partners acknowledge that
the rights and obligations of the Partners, the Partnership and their respective
Affiliates with respect to indemnification in connection with any breach of this
Agreement shall be as set forth in Article 9 and Article 10 of the Master
Restructuring Agreement.
9.2 Indemnification of General Partner. To the fullest extent
permitted by law, the Partnership shall indemnify and hold harmless the General
Partner and its Affiliates and each of their respective officers, directors,
employees and agents against any and all liabilities or obligations to Third
Parties and all reasonable costs and expenses related thereto (including any and
all reasonable attorneys' fees and reasonable costs of investigation,
litigation, settlement, judgment, interest and penalties) incurred by the
General Partner or any other such Person as a result of the General Partner's
capacity as the general partner of the Partnership and arising out of, based
upon or in connection with the affairs of the Partnership or the performance by
any such Person of any of the General Partner's responsibilities or the exercise
of any of its rights hereunder; provided that any such Person shall be entitled
to indemnification hereunder only to the extent that the Indemnity Losses are
not a result of, and do not arise out of, conduct of such Person or any of its
Affiliates that constituted fraud, bad faith, willful misconduct, gross
negligence, breach of fiduciary duty, or a material breach of this Agreement or
any Initial Agreement or Ancillary Agreement or any other agreement between the
Partnership and KB or any of its Affiliates. Any claim for indemnification
hereunder shall be on a net after-tax basis in accordance with, and shall be
subject to the procedures set forth in, Section 10.3 of the Master Restructuring
Agreement.
62
58
9.3 Indemnification of Limited Partner. To the fullest extent
permitted by law, the Partnership shall indemnify and hold harmless the Limited
Partner and its Affiliates and each of their respective officers, directors,
employees and agents against any and all liabilities or obligations to Third
Parties and all reasonable costs and expenses related thereto (including any and
all reasonable attorneys' fees and reasonable costs of investigation,
litigation, settlement, judgment, interest and penalties) incurred by the
Limited Partner or any other such Person as a result of the Limited Partner's
capacity as a partner of the Partnership and arising out of, based upon or in
connection with the affairs of the Partnership or the performance by any such
Person of any of the Limited Partner's responsibilities or the exercise of any
of its rights hereunder; provided that any such Person shall be entitled to
indemnification hereunder only to the extent that the Indemnity Losses are not a
result of conduct of such Person or any of its Affiliates that constituted
fraud, bad faith, willful misconduct, gross negligence, breach of fiduciary
duty, or a material breach of this Agreement or any Initial Agreement or
Ancillary Agreement or any other agreement between the Partnership and TR or any
of its Affiliates. Any claim for indemnification hereunder shall be on a net
after-tax basis in accordance with, and shall be subject to the procedures set
forth in, Section 10.3 of the Master Restructuring Agreement.
ARTICLE 10
WAIVER OF PARTITION
Except as otherwise provided in this Agreement, the Master
Restructuring Agreement or any Ancillary Agreement, no Partner shall, either
directly or indirectly, take any action to require partition, file a ▇▇▇▇ for
appraisement of the Partnership or of any of its assets or properties.
Notwithstanding any provision of applicable law to the contrary, each Partner,
on its own behalf and on behalf of its shareholders, partners, members,
successors and assigns, if any, hereby irrevocably renounces, waives and
forfeits any and all rights, whether arising under contract or statute or by
operation of law, it may have to seek, bring or maintain any action in any court
of law or equity for partition of the Partnership or any asset of the
Partnership, or any interest which is considered to be Partnership property,
provided that title to such property is held in a manner consistent with this
Agreement. Any examination of the books and records of the Partnership to which
the Limited Partner may be entitled in connection with any action for
Partnership accounting shall be made through the independent accountants of the
Limited Partner, and all such information shall be subject to the
confidentiality requirements of Section 6.4.
ARTICLE 11
RELATED PROVISIONS
This Agreement is subject to Article 12 of the Master
Restructuring Agreement. Reference is made to the Master Restructuring Agreement
for certain additional provisions that are applicable to this Agreement.
63
59
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed as of the date first above written.
KB USA, L.P., General Partner
By: ASTRA AB, General Partner
(publ)
By: /s/ Goran Lerenius
----------------------------------
Name: Goran Lerenius
Title: Authorized Signatory
KBI SUB INC., Limited Partner
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President
64
SCHEDULE 3.1(c)(i)
POWERS AND ACTIONS RESERVED TO THE CHIEF EXECUTIVE OFFICER,
SUBJECT TO THE DIRECTION OF THE LIMITED PARTNER
1. to hire, discharge from the employment of the
Partnership and specify the duties, powers and responsibilities, and
direct the actions, of all officers, employees and agents of the
Partnership (other than, if the General Partner elects to take a one
hundred percent (100%) allocation of R&D Expenses pursuant to Section
4.3(i), persons employed in a research and development capacity whose
employment costs are included entirely within R&D Expenses), except
that the chief operating officer, the general counsel, the vice
president of human resources, the vice president of marketing and the
vice president of manufacturing, if any, may be removed by the Limited
Partner (or by the chief executive officer) only as permitted by
Section 3.1(c)(iii).
2. to sell, transfer or otherwise dispose of any or
all assets of the Partnership other than assets identified in Section
3.2(b)(20); provided that (A) if the General Partner so requests, prior
to disposing of any asset, the Limited Partner shall cause an appraisal
of such asset to be performed at the expense of the Partnership by an
appraiser of national reputation selected by the Limited Partner in its
sole discretion, (B) the chief executive officer shall cause the
Partnership to offer to sell such asset to the General Partner (or any
Affiliate designated by the General Partner) at the value thereof as
determined by such appraiser, and (C) if the General Partner or such
Affiliate of the General Partner fails to purchase such asset at such
price, the chief executive officer shall be free, subject to the
direction of the Limited Partner to cause the Partnership to sell such
asset to any other Person at any price not less than the most recent
appraised value of the asset and on any terms as may be approved by the
Limited Partner in its sole discretion, except that the Partnership,
without the written consent of the General Partner, may not sell any
such asset to TR, any Affiliate of TR or to any TR Non-Controlled
Entity.
3. to terminate without penalty any contracts or
agreements between the Partnership and KB (or any of its Affiliates),
other than any Initial Agreement or any Ancillary Agreement; provided,
however, that in the case of the Exclusive Distributorship Agreement
(as defined in the Master Restructuring Agreement) if the Limited
Partner can obtain supplies of any product supplied under any such
agreement from another source at a more favorable price or on more
favorable terms to the Partnership, the chief executive officer may
terminate without penalty such agreement as to any such product;
4. to discontinue, with the consent of KBI-E, the
sale of any product having an Average PGM of less than 25% with respect
to pharmaceutical products (other than products marketed solely to
hospitals) described in Section 2.6 and 20% for other products
(including those marketed solely to hospitals), except for (A) products
licensed from any Person other than KB or an Affiliate of KB if such
discontinuance would result in a breach of any agreement between the
Partnership and such Person, (B) products included in the same
Therapeutic Category (as defined in the Master Restructuring
65
2
Agreement) as products sold in the Territory by TR or an Affiliate of
TR and (C) the sale of a KB USA Bundled Product as part of the sale of
all of the products in a KB USA Bundled Group, so long as the KB USA
Bundled Group of which such KB USA Bundled Product is sold as a part
has a Weighted Average PGM of greater than or equal to 20%; provided
that upon such discontinuance, the Partnership may transfer to KB all
of the Partnership's right to sell such discontinued product;
5. to (i) pursue, settle and compromise any claims
against any Person, other than TR and its Affiliates, including without
limitation claims of the Partnership against KB and its Affiliates,
(ii) defend, settle and compromise claims brought against the
Partnership by any Person, other than TR and its Affiliates, including
without limitation claims by KB and its Affiliates, except that a claim
against the Partnership may not be settled pursuant to this paragraph
if KB defends, indemnifies and holds the Partnership harmless against
such claim;
6. to exercise the aforementioned rights in respect
of any Subsidiary of the Partnership and to exercise such of the
Partnership's rights and powers with respect to any such Subsidiary as
may be necessary in furtherance of such rights or the rights and powers
set forth in Schedule 3.1(c)(ii);
7. to vote and exercise any other rights with respect
to any shares of stock or other equity interests held by the
Partnership, including without limitation vote the stock and designate
the board of directors or equivalent governing body of any Subsidiary,
or other entity owned by, the Partnership in order to effect the
exercise of the foregoing rights or the rights set forth in Schedule
3.1(c)(ii) with respect to such Subsidiary or entity;
8. to cause dividends or distributions to be paid by
any such subsidiary or entity;
and any other actions, which in the determination of the chief executive officer
or the Limited Partner, are substantially related to and in furtherance of any
of the foregoing enumerated actions.
66
SCHEDULE 3.1(c)(ii)
POWERS AND ACTIONS RESERVED TO THE CHIEF FINANCIAL OFFICER,
SUBJECT TO THE DIRECTION OF THE LIMITED PARTNER
1. to develop, establish, specify, approve, modify
and cause to be implemented the Partnership's budgets, including
without limitation, marketing and capital expenditure budgets but
excluding, if the General Partner elects to take a one hundred percent
(100%) allocation of R&D Expenses pursuant to Section 4.3(i), the
budget for R&D Expenses;
2. to (A) call any loan made by the Partnership to KB
or any of its Affiliates, (B) cause KB to purchase any note or other
evidence of indebtedness of KB or any of its Affiliates to the
Partnership for a price equal to the Partnership's cost thereof, or (C)
cause KB to lend funds to the Partnership on a secured non-recourse
basis at an interest rate equal to the effective interest rate of the
obligation constituting the security therefor in an amount, equal to
the principal value thereof plus any accrued interest; provided,
however, that the General Partner may determine in its sole discretion
which of the three (3) foregoing alternatives shall be taken;
3. (i) to incur additional Debt for the purpose of
funding (A) pre-existing capital projects, (B) working capital
requirements, (C) distributions required to be made under this
Agreement, and (D) other routine capital needs in the ordinary course
of the Partnership's business and (ii) to refinance any Debt of the
Partnership;
4. to exercise the aforementioned rights in respect
of any Subsidiary of the Partnership;
and any other actions, which in the determination of the chief financial officer
or the Limited Partner, are substantially related to and in furtherance of any
of the foregoing enumerated actions.
67
EXHIBIT 3.7
FORM OF COMPLIANCE CERTIFICATE
Each of the undersigned, being the chief financial officer of KB and
the chief financial officer of [_____] (the "Partnership"), respectively, hereby
certifies the following:
1. I am familiar with the financial affairs of the Partnership.
2. There has been no withdrawal by the General Partner or any
dissolution (or event or circumstance that, but for the agreements set forth in
Section 8.2 of the Partnership Agreement between KBLP and KBI Sub dated as of
[__________], 1998 (the "Partnership Agreement"), would constitute dissolution)
of the Partnership within the meaning of the Delaware Revised Uniform Limited
Partnership Law (6 Del. C. Section 17-101 et seq.) as amended.
3. No Put Option Event (as defined in the Master Restructuring
Agreement) has occurred.
4. The Profits of the Partnership, taking into account the results of
the Partnership for the portion of the Fiscal Year through the end of the Fiscal
Quarter ending [__] (Profits being calculated for such purpose as if the taxable
year of the Partnership had been such Fiscal Quarter or Fiscal Quarters),
together with our reasonable, good faith estimates of the Profits of the
Partnership for the remainder of the Fiscal Year of which such Fiscal Quarter is
a part, [ARE] [ARE NOT] [USE ONE OF THE FOREGOING] sufficient so that there will
not be any Allocation Shortfall for such Fiscal Year. [INCLUDE THE FOLLOWING
SENTENCE IF AN ALLOCATION SHORTFALL MAY OCCUR: THE ESTIMATED AMOUNT OF THE
ALLOCATION SHORTFALL FOR SUCH FISCAL YEAR IS $ _________ .]
5. All capitalized terms used herein and not otherwise defined shall
have the meanings ascribed to such terms in the Partnership Agreement.
Date: ____________
[KB]* [PARTNERSHIP]
By _______________________________________________ By ________________________________________________
[NAME] [NAME]
Chief Financial Officer Chief Financial Officer
* Signature of the Chief Financial Officer of KB is required as provided in
Sections 3.6(e) and 3.7.
68
EXHIBIT 6.5
PARTNERSHIP INCOME AND LOSS
(1) Partnership taxable income __________
(2) Total adjustments:(1) __________
(i) Exempt Income __________
(ii) 705(a)(2)(B) expenditures (__________)
(iii) Asset value adjustments ______(net)
gain_______
(loss)_____
(iv) Disposition of property ______(net)
gain________
(loss)______
(v) Depreciation/amortization __________
(vi) 734(b) adjustments __________
(3) Partnership book income or (loss) [(1) PLUS (2)] ==========
(4) Specially allocated items (total GP & LP) __________
SPECIAL ALLOCATIONS PER SECTIONS 4.3 AND 4.4
INCOME OR GAIN (DEDUCTION, EXPENSE OR LOSS)
Subsection(2) General Partner Limited Partner
------------- --------------- ---------------
_________________________ ________________________ _________________________
_________________________ ________________________ _________________________
_________________________ ________________________ _________________________
_________________________ ________________________ _________________________
Totals
======================== =========================
__________________
1. In accordance with clauses (i) through (vi) of the definition of "Profits
and Losses".
2. Separately state specially allocated items for each subsection 4.3(a)
through 4.3(q) and Section 4.4.
69
2
PARTNERSHIP INCOME AND LOSS
(5) Profits and Losses [(3) LESS (4)] -----------
PROFITS ALLOCATIONS PER SECTION 4.1
Subsection(1) General Partner Limited Partner
--------------------------- ------------------------ ------------------------
4.1(a) ------------------------ ------------------------
4.1(b) ------------------------ ------------------------
4.1(c) ------------------------ ------------------------
4.1(d) ------------------------ ------------------------
4.1(e) ------------------------ ------------------------
4.1(f) ------------------------ ------------------------
4.1(g) ------------------------ ------------------------
4.1(h) ------------------------ ------------------------
Totals ======================== ========================
LOSSES ALLOCATIONS PER SECTION 4.1
Subsection(1) General Partner Limited Partner
--------------------------- ------------------------ ------------------------
4.2(a) ------------------------ ------------------------
4.2(b) ------------------------ ------------------------
4.2(c) ------------------------ ------------------------
Totals ======================== ========================
(6) Allocation of Partnership book income or loss in total (specially
allocated items and allocated Profits or Losses)
General Partner ------------------------ Limited Partner -------------------
70
3
CAPITAL ACCOUNT BALANCE
General Partner Limited Partner
-------------------- ------------------------
Opening Balance -------------------- ------------------------
Contributions -------------------- ------------------------
Distributions -------------------- ------------------------
Distributive Share of Partnership
Book Income or Loss -------------------- ------------------------
Ending Balance ==================== ========================