Confirmation of OTC Warrant Transaction
EXHIBIT
99.2
| Date: |
November
16, 2006
|
| To: |
Chattem,
Inc. (“Counterparty”)
|
| From: |
Xxxxxxx
Xxxxx International (“MLI”)
|
MLI
Reference: [________]
Dear
Sir
/ Madam:
The
purpose of this letter agreement (this “Confirmation”)
is to
confirm the terms and conditions of the above-referenced transaction entered
into among Counterparty, MLI and
Xxxxxxx Lynch, Xxxxxx, Xxxxxx & Xxxxx Incorporated (the “Agent”
or
“MLPFS”)
on the
Trade Date specified below (the “Transaction”).
This
Confirmation constitutes a “Confirmation” as referred to in the Agreement
specified below.
The
definitions and provisions contained in the 2000 ISDA Definitions (the
“Swap
Definitions”)
and
the 2002 ISDA Equity Derivatives Definitions (the “Equity
Definitions”
and,
together with the Swap Definitions, the “Definitions”),
in
each case as published by the International Swaps and Derivatives Association,
Inc., are incorporated into this Confirmation. In the event of any inconsistency
between the Swap Definitions and the Equity Definitions, the Equity Definitions
will govern, and in the event of any inconsistency between the Definitions
and
this Confirmation, this Confirmation will govern. References herein to a
“Transaction” shall be deemed to be references to a “Share Option Transaction”
for the purposes of the Equity Definitions and to a “Swap Transaction” for the
purposes of the Swap Definitions.
For
purposes of this Transaction, “Warrant Style”, “Warrant Type”, “Number of
Warrants” and “Warrant Entitlement” (each as defined below) shall be used herein
as if such terms were referred to as “Option Style”, “Option Type”, “Number of
Options” and “Option Entitlement”, respectively, in the
Definitions.
This
Confirmation evidences a complete binding agreement between you and us as
to the
terms of the Transaction to which this Confirmation relates. This Confirmation
(notwithstanding anything to the contrary herein), shall be subject to, and
form
part of, an agreement in the 1992 form of the ISDA Master Agreement
(Multicurrency Cross Border) (the “Master
Agreement”
or
“Agreement”)
as if
we had executed an agreement in such form (but without any Schedule, with
the
elections specified in the “ISDA Master Agreement” Section of this Confirmation
and amended in the manner specified in Appendix B to the ISDA User’s Guide to
the 2002 Master Agreement to implement the “Close-out Amount”) on the Trade
Date. In the event of any inconsistency between the provisions of that Agreement
and this Confirmation, this Confirmation will prevail for the purpose of
this
Transaction. The parties hereby agree that the Transaction evidenced by this
Confirmation shall be the only Transaction subject to and governed by the
Agreement.
The
terms
of the particular Transaction to which this Confirmation relates are as
follows:
General
Terms:
|
Trade
Date:
|
November
16, 2006
|
|
Effective
Date:
|
November
22, 2006, subject to cancellation of the Transaction prior to 5:00
p.m.
(New York City time) on such date by the Counterparty or MLI. In
the event
of such cancellation, any payments
previously made hereunder, including the Premium, shall be returned
to the
person making such payment. In addition,
|
1
|
|
Counterparty
shall reimburse MLI for any costs or expenses (including market
losses)
relating to the unwinding of its hedging activities in connection
with the
Transaction (including any loss or cost incurred as a result
of its
terminating, liquidating, obtaining or reestablishing any hedge
or related
trading position); provided that in no event shall the amount
of such
reimbursement exceed $3,125,000. In the event that MLI has any
realized
profit resulting from its hedge positions established in connection
with
the Transaction (net of all costs and expenses relating or allocable
thereto, including any trading costs and funding charges), MLI
shall pay
such amount to Counterparty. The amount of any such payment shall
be
determined by MLI in its sole good faith discretion, and the
relevant
party shall pay such amount in immediately available funds no
later than
the Currency Business Day following notification by MLI of its
determination of such amount.
|
|
Warrant
Style:
|
European
|
|
Warrant
Type:
|
Call
|
|
Seller:
|
Counterparty
|
|
Buyer:
|
MLI
|
|
Shares:
|
Shares
of common stock, without par value, of Counterparty (Security Symbol:
“CHTT”).
|
|
Number
of Warrants:
|
2,121,607
|
|
Daily
Number of Warrants:
|
For
any day, the unexercised Number of Warrants on such day divided
by
the remaining number of Expiration Dates (including such day) and
rounded
down to the nearest whole number, with the balance of the Number
of
Warrants exercised on the final Expiration
Date.
|
|
Warrant
Entitlement:
|
One
(1) Share per Warrant
|
|
Strike
Price:
|
$74.82
|
|
Premium:
|
$18,581,250
|
|
Premium
Payment Date:
|
The
Effective Date; provided no cancellation of the Transaction has
occurred
prior to 5:00 p.m. (New York City time) on such date by the
Counterparty.
|
|
Exchange:
|
NASDAQ
Global Market
|
|
Related
Exchange(s):
|
All
Exchanges
|
|
Full
Exchange Business Day:
|
A
Scheduled Trading Day that has a scheduled closing time for its
regular
trading session at 4:00 p.m. (New York City time) or the then standard
closing time for regular trading on the Exchange and is not a Disrupted
Day.
|
Procedures
for Exercise:
|
Expiration
Time:
|
11:59
p.m.
(New York City time).
|
2
|
Expiration
Dates:
|
The
fifteen (15) consecutive Full Exchange Business Days beginning
on and
including February 13, 2014 each shall be an Expiration Date for
a number
of Warrants equal to the Daily Number of Warrants on such
date.
|
|
Exercise
Dates:
|
Each
Expiration Date
|
|
Automatic
Exercise:
|
Applicable;
provided that Section 3.4(a) of the Equity Definitions shall apply
to Net
Physical Settlement; and provided further that, unless all Warrants
have
been previously exercised hereunder, a number of Warrants for each
Expiration Date equal to the Daily Number of Warrants for such
Expiration
Date shall be deemed to be automatically
exercised.
|
| Counterparty’s
Telephone
Number
and Telex and/or
Facsimile
Number and
Contact
Details for purpose
of
Giving Notice:
|
Address: Chattem,
Inc.
0000
Xxxx 00xx Xxxxxx
Xxxxxxxxxxx,
XX 00000
Attn: Xxxxxxxx
X. Xxxxxxxxx, Xx., General Counsel
Tel:
000-000-0000
Fax:
000-000-0000
|
Valuation:
|
Valuation
Dates:
|
Each
Exercise Date
|
Settlement
Terms:
|
Settlement
Price:
|
For
each Valuation Date, the Volume Weighted Average Price of the Shares
(“VWAP”) calculated from 9:45 a.m. to 3:45 p.m., as observed on the
Bloomberg “VAP” Page. Section 6.3(a) of the Equity Definitions is hereby
amended by replacing the words “during the one hour period that ends at
the relevant Valuation Time, Latest Exercise Time, Knock-in Valuation
Time
or Knock-out Valuation Time, as the case may be” with the following words:
“prior to 3:45 p.m. on the relevant Valuation
Date”.
|
|
Settlement
Method:
|
Net
Physical Settlement only.
|
|
Net
Physical Settlement:
|
Subject
to “Covenants relating to Net Physical Settlement” below, Counterparty
shall deliver to MLI on the Settlement Date a number of Shares
(the
“Delivered
Shares”)
equal to the Share Delivery Quantity, provided
that in the event that the number of Shares calculated comprises
any
fractional Share, only whole Shares shall be delivered and an amount
in
cash equal to the value of such fractional share shall be payable
by the
Counterparty to MLI in lieu of such fractional
Share.
|
|
Share
Delivery Quantity:
|
For
each Exercise Date, a number of Shares, as calculated by the Calculation
Agent, equal to the Net Physical Settlement Amount for such Exercise
Date
divided by the Settlement Price on the Valuation Date in respect
of such
Settlement Date plus an amount in cash in lieu of any fractional
shares
(based on the Settlement Price).
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3
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Net
Physical Settlement Amount:
|
For
any Exercise Date, an amount equal to the product of (i) the Number
of
Warrants being exercised on the relevant Exercise Date, (ii) the
Strike
Price Differential for such Exercise Date and (iii) the Warrant
Entitlement.
|
|
Strike
Price Differential:
|
For
any Valuation Date, (i) if the Settlement Price is greater than
the Strike
Price, an amount equal to the excess of such Settlement Price over
the
Strike Price for such Valuation Date or (ii) if such Settlement
Price is
less than or equal to the Strike Price,
zero.
|
|
Settlement
Date:
|
Settlement
with respect to each Exercise Date shall occur on the third (3rd)
Full Exchange Business Day following the final Valuation Date,
provided
that MLI shall have the right to request by prior written notice
to
Counterparty on no more than five occasions a Settlement Date with
respect
to any Exercise Date and the related Share Delivery Quantity that
is three
(3) Full Exchange Business Days following such Exercise Date. Such
request
shall not unreasonably be denied.
|
Covenants
relating to
|
Physical
Settlement:
|
If,
in connection with or six months following delivery of Shares hereunder,
MLI notifies the Counterparty that MLI has reasonably determined
after
advice from counsel that there is a considered risk that such Shares
are
subject to restrictions on transfer in the hands of MLI pursuant
to the
rules and regulations promulgated under the Securities Act of 1933,
as
amended (“Securities
Act”),
then Counterparty shall either (i) file a registration statement
covering
the resale of such Shares by MLI and use its commercially reasonable
efforts to cause the registration statement to be declared effective
or
(ii) agree to deliver additional Shares so that the value of such
Shares
as determined by the Calculation Agent to reflect an appropriate
liquidity
discount, equals the value of the number of Shares that would otherwise
be
deliverable if such Shares were freely tradable upon receipt by
MLI.
|
|
(A)
If Counterparty elects to deliver Shares as described in above
clause (i),
then Counterparty shall
|
|
(a)
afford MLI a reasonable opportunity to conduct a due diligence
investigation with respect to Counterparty that is customary in
scope for
underwritten offerings of equity securities that yields a result
reasonably satisfactory to MLI;
|
|
(b)
promptly make available to MLI an effective registration statement
for
resale of such delivered Shares (the “Registration
Statement”)
in form and content reasonably satisfactory to MLI and Counterparty
and
filed pursuant to Rule 415 under the Securities Act, and such prospectuses
as MLI may reasonably request to comply with the applicable prospectus
delivery requirements (the “Prospectus”)
for the resale by MLI of such number of Shares as MLI shall reasonably
specify in accordance with this paragraph, such Registration Statement
to
be effective and Prospectus to be current until the earliest of
the date
on which (1) all Delivered Shares have been sold by MLI, (2) MLI
has
advised Counterparty that it no longer requires that such Registration
Statement be effective, (3) all remaining Delivered Shares could
be sold
by MLI without registration pursuant to Rule 144 promulgated under
the
Securities Act (the “Registration
Period”)
or (4) Counterparty has provided a legal opinion in form and substance
satisfactory to MLI (with customary assumptions and exceptions)
that the
Shares issuable upon exercise of these Warrants will be freely
tradable
under the Securities Act upon delivery to MLI and not subject to
any
legend restricting transferability. It is understood that the Registration
Statement and Prospectus will cover a number of Shares equal to
the
aggregate
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4
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number
of Shares (if any) reasonably estimated by MLI to be potentially
deliverable by Counterparty in connection with Net Physical Settlement
hereunder (not to exceed the Maximum Deliverable Share Amount)
and shall
be subject to the same suspension of sales during “blackout dates” as
provided in the following paragraph;
and
|
|
(c)
Counterparty will enter into a registration rights agreement with
MLI in
form and substance reasonably acceptable to MLI, which agreement
will
contain among other things, MLI’s agreement to obtain clearance from
Counterparty prior to its first use of the prospectus contained
in the
registration statement and thereafter on a monthly basis, to ensure
that
Counterparty has not imposed a “blackout period,” customary
representations and warranties and indemnification, restrictions
on sales
during “blackout dates” as provided for in the registration rights
agreement (the “Registration
Rights Agreement”)
entered into by the Counterparty on or about November 22, 2006,
provide
for delivery of comfort letters and opinions of counsel and other
rights
relating to the registration of a number of Shares equal to the
number of
Delivered Shares and other Shares deliverable hereunder up to the
Maximum
Deliverable Share Amount.
|
|
(d)
Counterparty shall promptly pay to MLI a $0.04 per Share fee with
all
Shares delivered in connection with Net Physical Settlement pursuant
to a
Registration Statement.
|
|
(B)
If Counterparty elects to deliver Shares as described in above
clause
(ii), then
|
|
(a)
Counterparty shall afford MLI and any potential institutional purchaser
of
any Shares identified by MLI a reasonable opportunity to conduct
a due
diligence investigation with respect to Counterparty that is customary
in
scope for private placements of equity securities subject to execution
of
any customary confidentiality
agreements;
|
|
(b)
Counterparty shall enter into an agreement (a “Private
Placement Agreement”)
with MLI on commercially reasonable terms in connection with the
private
placement of such Shares by Counterparty to MLI or an affiliate
and the
private resale of such shares by MLI or such affiliate, substantially
similar to private placement purchase agreements customary for
private
placements of equity securities, in form and substance commercially
reasonably satisfactory to MLI and Counterparty, which Private
Placement
Agreement shall include provisions relating to the indemnification
of, and
contribution in connection with the liability of, MLI and its affiliates,
shall provide for the payment by Counterparty of all expenses in
connection with such resale, including all reasonable and documented
fees
and expenses of counsel for MLI, shall contain representations,
warranties
and agreements of Counterparty reasonably necessary or advisable
to
establish and maintain the availability of an exemption from the
registration requirements of the Securities Act for such resales,
and
shall use reasonable best efforts to provide for the delivery of
accountants’ “comfort letters” to MLI or such affiliate with respect to
the financial statements and certain financial information contained
in or
incorporated by reference into the offering memorandum prepared
for the
resale of such Shares;
|
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(c)
MLI shall sell the Delivered Shares in a commercially reasonable
manner
(taking into account the objectives of realizing the highest price
per
Share available and completing the disposition of the requisite
number of
Shares
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5
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within
a reasonable period of time) until the amount received by MLI
for the sale
of the Shares (the “Proceeds Amount”)
is equal to the Net Physical Settlement Amount. Any remaining
Delivered
Shares shall be returned to Counterparty. If the Proceeds Amount
is less
than the Net Physical Settlement Amount, Counterparty shall promptly
deliver upon notice from MLI additional Shares to MLI until the
dollar
amount from the sale of such Shares by MLI equals the difference
between
the Net Physical Settlement Amount and the Proceeds Amount. In
no event
shall Counterparty be required to deliver to MLI a number of
Shares
greater than the Maximum Deliverable Share
Amount.
|
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(C)
Notwithstanding the foregoing: (I) if
|
Limitations
on Net Physical
|
Settlement
by Counterparty:
|
Notwithstanding
anything herein or in the Agreement to the contrary, the aggregate
number
of Shares that may be delivered at settlement by Counterparty shall
not
exceed a number of Shares (“Maximum
Deliverable Share Amount”)
equal at any time to the lesser of (i) 2,121,607 Shares, as adjusted
by
MLI to account for any subdivision, stock-split, reclassification
or
similar dilutive event with respect to the Shares or (ii) such
number of
Shares at which the issuance of additional Shares would cause
Counterparty, in the sole good faith, reasonable judgment of Counterparty,
to be in violation of Rule 4350(i) of the Marketplace Rules of
The NASDAQ
Stock Market, Inc. in effect on the date hereof as a result of
transactions entered into on or about the date hereof; provided
that, in the event that the aggregate number of Shares otherwise
deliverable hereunder is limited by the operation of clause (ii)
of this
paragraph, Counterparty agrees to use its commercially reasonable
efforts
to obtain shareholder approvals and take such other reasonable
measures as
are needed to permit the delivery hereunder of any Shares subject
to such
delivery limitation.
|
|
Counterparty
represents and warrants that the number of Available Shares as
of the
Trade Date is greater than the Maximum Deliverable Share Amount.
Counterparty covenants and agrees that Counterparty shall not take
any
action of
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6
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corporate
governance or otherwise to reduce the number of Available Shares
below the
Maximum Deliverable Share.
|
|
For
this purpose, “Available
Shares”
means the number of Shares Counterparty currently has authorized
(but not
issued and outstanding) less the maximum number of Shares that
may be
required to be issued by Counterparty in connection with stock
options,
convertibles, and other commitments of Counterparty that may require
the
issuance or delivery of Shares in connection
therewith.
|
Dividends:
|
Extraordinary
Dividends:
|
Any
and all
dividends declared by the Issuer for which the ex-dividend date
occurs
during the period from, and including, the Trade Date to, and including,
the date on which Counterparty has fully performed its obligations
to
deliver Shares hereunder.
|
Adjustments:
|
Method
of Adjustment:
|
Calculation
Agent Adjustment
|
Extraordinary
Events:
|
Consequences
of Merger Events:
|
(a)
Share-for-Share: Modified
Calculation Agent Adjustment
|
|
(b)
Share-for-Other: Cancellation and Payment (Calculation Agent
Determination)
|
|
(c)
Share-for-Combined: Cancellation and Payment (Calculation Agent
Determination)
|
|
Tender
Offer:
|
Applicable
|
|
Consequences
of Tender Offers:
|
(a)
Share-for-Share: Modified Calculation Agent
Adjustment
|
|
(b)
Share-for-Other: Cancellation and Payment (Calculation Agent
Determination)
|
|
(c)
Share-for-Combined: Component Adjustment (Calculation Agent
Determination)
|
With
respect to any Extraordinary Events hereunder, upon the occurrence of
Cancellation and Payment in whole or in part, the parties agree that the
amount
to be paid, in accordance with the Equity Definitions, shall constitute a
Transaction Early Termination Amount, subject to satisfaction by the payment
or
delivery of Shares as set forth in the Early Termination section below.
Nationalization,
Insolvency
|
or
Delisting:
|
Cancellation
and Payment (Calculation Agent Determination) (subject to satisfaction
by
payment or delivery of Shares as set forth in “Early Termination” below).
In addition to the provisions of Section 12.6(a)(iii) of the Equity
Definitions, it will also constitute a Delisting if the Exchange
is
located in the
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7
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United
States and the Shares are not immediately re-listed, re-traded
or
re-quoted on any of the New York Stock Exchange, the American
Stock
Exchange or the NASDAQ National Market System (or their respective
successors, including without limitation the NASDAQ Global Market
and
NASDAQ Global Select Market); if the Shares are immediately re-listed,
re-traded or re-quoted on any such exchange or quotation system,
such
exchange or quotation system shall thereafter be deemed to be
the
Exchange.
|
|
Determining
Party:
|
MLI
|
Additional
Disruption Events:
|
Change
in Law:
|
Applicable;
provided that Section 12.9(a)(ii) of the Equity Definitions is
hereby
amended by replacing the phrase “will incur a materially increased cost in
performing” with the following text: “has become commercially
impracticable for it to perform”.
|
| Failure to Deliver: | Not Applicable |
| Insolvency Filing: | Applicable |
| Hedging Disruption Event: | Applicable |
| Increased Cost of Hedging: |
Not
Applicable
|
| Loss of Stock Borrow: | Applicable |
| Maximum Stock Loan Rate: | 1.00% |
| Increased Cost of Stock Borrow: | Applicable |
| Initial Stock Loan Rate: | 0.25% |
| Hedging Party: | MLI |
| Determining Party: | MLI |
|
Non-Reliance:
|
Applicable
|
Agreements
and
Acknowledgments
Regarding
|
Hedging
Activities:
|
Applicable
|
|
Additional
Acknowledgments:
|
Applicable
|
Other
Provisions:
|
Additional
Agreements:
|
If
Counterparty would be obligated (but for the provisions of this
paragraph)
to pay cash to MLI pursuant to the terms of this Agreement for
any reason,
then such payment obligation shall be satisfied by the delivery
to MLI of
a number of
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8
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Shares
(whether registered or unregistered) having a cash value equal
to the
amount of such payment obligation (such number of Shares to be
delivered
to be determined by the Calculation Agent to determine the number
of
Shares that could be sold by MLI over a reasonable period of
time to
realize the cash equivalent of such payment obligation taking
into account
any applicable discount (determined in a commercially reasonable
manner)
to reflect any restrictions on transfer as well as the market
value of the
Shares). Settlement relating to any delivery of Shares pursuant
to this
paragraph shall occur within a reasonable period of time. The
number of
Shares delivered pursuant to this paragraph shall not exceed
the Maximum
Deliverable Share Amount and shall be subject to the provisions
under
“Early Termination” hereof regarding Proceeds
Amount.
|
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Early
Termination:
|
Notwithstanding
any provision to the contrary, upon the designation of an Early
Termination Date hereunder, Counterparty’s
payment obligation in respect of this Transaction as determined
in
accordance with Second Method and Close-out Amount (the “Transaction
Early Termination Amount”)
shall be satisfied by the delivery of a number of Shares equal
to the
Transaction Early Termination Amount divided by
the Termination Price (“Early
Termination Stock Settlement”).
“Termination
Price”
means the market value per Share on the Early Termination Date,
as
determined by the Calculation Agent taking into account any applicable
discount to reflect any restrictions on transfer as well as the
market
value of the Shares.
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|
A
number of Shares calculated as being due in respect of any Early
Termination Stock Settlement will be deliverable on the third Clearance
System Business Day following the date that notice specifying the
number
of Shares deliverable is effective; provided that, if Counterparty
is
delivering Shares as a result of a Merger Event, the Settlement
Date for
such delivery will be immediately prior to the effective time of
the
Merger Event and the Shares will be deemed delivered at such time
such
that MLI will be a holder of the Shares prior to such effective
time..
Section 6(d)(i) of the Agreement is hereby amended by adding the
following
words after the word “paid” in the fifth line thereof: “or any delivery is
to be made, as applicable.”
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On
or prior to the Early Termination Date, or the date that notice
that an
Extraordinary Event has resulted in the cancellation or termination
of the
Transaction in whole or in part is effective, as applicable, if
so
requested by MLI upon advice of counsel, Counterparty shall enter
into a
registration rights agreement with MLI in form and substance reasonably
acceptable to MLI which agreement will contain among other things,
MLI’s
agreement to obtain clearance from Counterparty prior to its first
use of
the prospectus contained in the registration statement and thereafter
on a
monthly basis, to ensure that Counterparty has not imposed a “blackout
period,” customary representations and warranties and indemnification,
restrictions on sales during “blackout dates” as provided for in the
Registration Rights Agreement and shall satisfy the conditions
contained
therein and Counterparty shall file and diligently pursue to effectiveness
a Registration Statement pursuant to Rule 415 under the Securities
Act. If
and when such Registration Statement shall have been declared effective
by
the Securities and Exchange Commission, Counterparty shall have
made
available to MLI such Prospectuses as MLI may reasonably request
to comply
with the applicable prospectus delivery requirements for the resale
by MLI
of such number of Shares as MLI shall specify (or, if greater,
the number
of Shares that Counterparty shall specify). Such Registration Statement
shall be effective and Prospectus shall be current until the earliest
of
the date on which (i) all
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Shares
delivered by Counterparty in connection with an Early Termination
Date,
(ii) MLI has advised Counterparty that it no longer requires
that such
Registration Statement be effective or (iii) all remaining Shares
could be
sold by MLI without registration pursuant to Rule 144 promulgated
under
the Securities Act (the “Termination
Registration Period”).
It is understood that the Registration Statement and Prospectus
will cover
a number of Shares equal to the number of Shares plus the aggregate
number
of Shares (if any) reasonably estimated by MLI to be potentially
deliverable by Counterparty in connection with Early Termination
Stock
Settlement hereunder, but in no event exceeding the Maximum Deliverable
Share Amount. On each day during the Termination Registration
Period
Counterparty shall represent that each of its filings under the
Securities
Act, the Exchange Act or other applicable securities laws that
are
required to be filed have been filed and that, as of the respective
dates
thereof and as of the date of this representation, they do not
contain any
untrue statement of a material fact or omission of a material
fact
required to be stated therein or necessary to make the statements
made, in
the light of the circumstances under which they were made, not
misleading.
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|
If
Counterparty does not deliver Shares subject to an effective Registration
Statement as set forth above (or if some or all of the Shares delivered
cannot be used to close out stock loans in the shares of Counterparty
entered into to establish or maintain short positions by MLI in
connection
with this Transaction without a prospectus being required by applicable
law to be delivered to such lender), the provisions of sub-paragraphs
(B)
and (C) set forth above under “Covenants Relating to Net Physical
Settlement” shall apply, mutatis mutandis, as if the Net Physical
Settlement Amount were the Transaction Early Termination Amount.
In no
event shall Counterparty be required to deliver to MLI a number
of Shares
greater than the Maximum Deliverable Share
Amount.
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Compliance
With Securities Laws:
|
Counterparty
represents and agrees that it has complied, and will comply, in
connection
with this Transaction and all related or contemporaneous sales
and
purchases of Shares, with the applicable provisions of the Securities
Act,
the Exchange Act and the rules and regulations promulgated thereunder,
including, without limitation, Rule 10b-5 and 13e and Regulation
M under
the Exchange Act.
|
|
Each
party acknowledges that the offer and sale of the Transaction to
it is
intended to be exempt from registration under the Securities Act
by virtue
of Section 4(2) thereof. Accordingly, each party represents and
warrants
to the other party that (i) it has the financial ability to bear
the
economic risk of entering into the Transaction and is able to bear
a total
loss of its investment, (ii) it is an “accredited investor” as that term
is defined in Regulation D as promulgated under the Securities
Act and
(iii) the disposition of the Transaction is restricted under this
Confirmation, the Securities Act and state securities
laws.
|
|
Counterparty
further represents and warrants
that:
|
|
(a)
Counterparty is not entering into this Transaction to create actual
or
apparent trading activity in the Shares (or any security convertible
into
or exchangeable for Shares) or to raise or depress or otherwise
manipulate
the price of the Shares (or any security convertible into or exchangeable
for Shares);
|
|
(b)
Counterparty represents and acknowledges that as of the date hereof
and
without limiting the generality of Section 13.1 of the Equity Definitions,
MLI is not making any representations or warranties with respect
to the
treatment of the
|
10
|
Transaction
under FASB Statements 149 or 150, EITF Issue No. 00-19 (or any
successor
issue statements) or under FASB’s Liabilities & Equity
Project;
|
|
(c)
Counterparty is not, and after giving effect to the Transaction
contemplated hereby, will not be, an “investment company” as such term is
defined in the Investment Company Act of 1940, as
amended.
|
|
(d)
As of the Trade Date and each date on which a payment or delivery
is made
by Counterparty hereunder, (i) the assets of Counterparty at their
fair
valuation exceed the liabilities of Counterparty, including contingent
liabilities; (ii) the capital of Counterparty is adequate to conduct
its
business; and (iii) Counterparty has the ability to pay its debts
and
other obligations as such obligations mature and does not intend
to, or
believe that it will, incur debt or other obligations beyond its
ability
to pay as such obligations mature.
|
|
Account
Details:
|
Account
for payments to Counterparty:
|
Bank
of
America, N.A.
Chattem,
Inc.
ABA#
000000000
AIC#
002006442400
Account
for payments to MLI:
Chase
Manhattan Bank, New York
ABA#:
000-000-000
FAO:
ML
Equity Derivatives
A/C:
066213118
Account
for delivery of Shares to MLI:
To
be
advised
|
Agreement
Regarding Shares:
|
Counterparty
agrees that, in respect of any Shares delivered to MLI,
such Shares shall be, upon such delivery, duly and validly authorized,
issued and outstanding, fully paid and non-assessable and subject
to no
adverse claims of any other party. The issuance of such Shares
does not
and will not require the consent, approval, authorization, registration
or
qualification of any government authority, except such as shall
have been
obtained on or before the delivery date of any Shares or in connection
with any Registration Statement filed with respect to any
Shares.
|
|
Bankruptcy
Rights:
|
In
the event of Counterparty’s bankruptcy, MLI’s rights in connection with
this Transaction shall not exceed those rights held by common
shareholders. For the avoidance of doubt, the parties acknowledge
and
agree that MLI’s rights with respect to any other claim arising from this
Transaction prior to Counterparty’s bankruptcy shall remain in full force
and effect and shall not be otherwise abridged or modified in connection
herewith.
|
|
Set-Off:
|
Each
party waives any and all rights it may have to set-off, whether
arising
under any agreement, applicable law, or
otherwise.
|
|
Transfer:
|
Neither
party may transfer its rights or delegate its obligations under
this
Transaction without the prior written consent of the other party,
except
that MLI may assign its rights and delegate its obligations hereunder,
in
whole or in part,
|
11
|
|
to
any of its affiliates (the “Assignee”)
without the prior written consent of Counterparty, effective
upon delivery
to Counterparty of an executed acceptance and assumption by the
Assignee
of the transferred obligations of MLI under this Transaction.
Notwithstanding any other provision in this Confirmation to the
contrary
requiring or allowing MLI to purchase, sell, receive or deliver
any Shares
or other securities to or from Counterparty, MLI may designate
any of its
affiliates to purchase, sell, receive or deliver such Shares
or other
securities and otherwise to perform MLI’s obligations in respect of this
Transaction and any such designee may assume such obligations.
MLI shall
be discharged of its obligations to Counterparty to the extent
of any such
performance.
|
|
Regulation:
|
MLI
is regulated by The Securities and Futures Authority
Limited.
|
|
Indemnity:
|
Seller
agrees to indemnify MLI, its Affiliates and their respective directors,
officers, agents and controlling parties (each such person being
an
“Indemnified
Party”)
from and against any and all losses, claims, damages and liabilities,
joint and several, to which such Indemnified Party may become subject
because of a breach by Seller of any representation or covenant
hereunder,
in the Agreement or any other agreement relating to the Agreement
or
Transaction and will reimburse Indemnified Party for all reasonable
expenses (including reasonable legal fees and expenses) as they
are
incurred in connection with the investigation of, preparation for,
or
defense of, any pending or threatened claim or any action or proceeding
arising therefrom, whether or not such Indemnified Party is a party
thereto. Seller will not be liable under the foregoing Indemnity
provision
to the extent that any loss, claim, damage, liability or expense
is found
in a final judgment by a court to have resulted from MLI’s gross
negligence or willful misconduct.
|
Additional
Agreements, Representations and Covenants of Counterparty,
Etc.:
|
(a)
|
Counterparty
hereby represents and warrants to MLI, on each day from the Trade
Date to
and including the earlier of (i) November 30, 2006, and (ii) the
date by
which MLI is able to initially complete a hedge of its position
created by
this Transaction, that:
|
|
(1)
|
it
will not, and will not permit any person or entity subject to its
control
to, bid for or purchase Shares during such period except pursuant
to
transactions or arrangements which have been approved by MLI or
an
affiliate of MLI; and
|
|
(2)
|
it
has publicly disclosed all material information necessary for it
to be
able to purchase or sell Shares in compliance with applicable federal
securities laws and that it has publicly disclosed all material
information with respect to its condition (financial or
otherwise).
|
| (b) |
No
collateral shall be required by either party for any reason in connection
with this Transaction.
|
| (c) |
MLI
shall not be entitled to exercise any Warrant or take delivery of
any
Shares deliverable hereunder, and Automatic Exercise shall not apply
with
respect to any Warrant, to the extent (but only to the extent) that
the
receipt of any Shares upon the exercise of such Warrant or otherwise
hereunder would result in MLI, or its ultimate parent entity becoming,
directly or indirectly, the beneficial owner (as such term is defined
for
purposes of Section 13(d) of the Exchange Act) at any time of more
than
8.0 percent of the class of the Counterparty’s
outstanding equity securities that is comprised of the Shares (an
“Excess
Share Owner”).
|
MLI
shall
provide prior notice to Counterparty
if the
exercise of any Warrant or delivery of Shares hereunder would cause MLI to
become, directly or indirectly, an Excess Share Owner;
provided
that the
failure of MLI to provide such notice shall not alter the effectiveness of
the
provisions set forth in the preceding sentence and any purported exercise
or
delivery in violation of such provisions shall be void and
12
have
no
effect. If any delivery owed to MLI hereunder is not made, in whole or in
part,
as a result of this provision, Counterparty’s obligation to make such delivery
shall not be extinguished and Counterparty shall make such delivery as promptly
as practicable after MLI gives notice that such delivery would not result
in MLI
being an Excess Share Owner.
If
MLI is
not entitled to exercise any Warrant because such exercise would cause MLI
to
become, directly or indirectly, an Excess Share Owner and MLI thereafter
disposes of Shares owned by it or any action is taken that would then permit
MLI
to exercise such Warrant without such exercise causing it to become, directly
or
indirectly, an Excess Share Owner, then MLI shall provide notice of the taking
of such action to Counterparty
and such
Warrant shall then become exercisable by MLI to the extent such Warrant is
otherwise or had otherwise become exercisable hereunder. In such event, the
Expiration Date with respect to such Warrant shall be the date on which
Counterparty
receives
such notice from MLI, and the related Settlement Date shall be as soon as
reasonably practicable after receipt of such notice but no more than three
(3)
Exchange Business Days thereafter (but in no event shall the Settlement Date
occur prior to the date on which it would have otherwise occurred but for
the
provisions of this subsection); provided
that the
related Net Physical Settlement Amount shall be the same as the Net Physical
Settlement Amount but for the provisions of this subsection. In addition,
within
30 calendar days of a Settlement Date, Counterparty shall use its reasonable
efforts to refrain from activities that could reasonably be expected to result
in MLI’s ownership of Shares exceeding 10% of all issued and outstanding
Shares.
Matters
Relating to Agent:
|
1.
|
MLPFS
will be responsible for the operational aspects of the Transactions
effected through it, such as record keeping, reporting, and confirming
Transactions to Counterparty and
MLI;
|
|
2.
|
Unless
MLI is a “major U.S. institutional investor,” as defined in Rule 15a-6 of
the Exchange Act, neither Counterparty not MLI will contact the
other
without the direct involvement of
MLPFS;
|
|
3.
|
MLPFS’s
sole role under this Agreement and with respect to any Transaction
is as
an agent of Counterparty and MLI on a disclosed basis and MLPFS
shall have
no responsibility or liability to Counterparty or MLI hereunder
except for
gross negligence or willful misconduct in the performance of its
duties as
agent. MLPFS is authorized to act as agent for MLI, but only to
the extent
expressly required to satisfy the requirements of Rule 15a-6 under
the
Exchange Act in respect of the Options described hereunder. MLPFS
shall
have no authority to act as agent for Counterparty generally or
with
respect to transactions or other matters governed by this Agreement,
except to the extent expressly required to satisfy the requirements
of
Rule 15a-6 or in accordance with express instructions from
Counterparty.
|
ISDA
Master Agreement:
With
respect to the Agreement, MLI and Counterparty each agree as
follows:
“Specified
Entity”
means
in relation to Seller and in relation to Counterparty for purposes of this
Transaction: Not applicable.
“Specified
Transaction”
means
any transaction (whether now existing or hereinafter entered into, including
any
agreement with respect thereto) relating to Shares between Counterparty and
Seller that qualifies as ‘equity’ under applicable accounting
rules.
The
“Credit
Event Upon Merger”
provisions of Section
5(b)(iv)
of the
Agreement will not apply to MLI and Counterparty.
The
“Automatic
Early Termination”
provision of Section
6(a)
of the
Agreement will not apply to MLI or to Counterparty.
13
Payments
on Early Termination.
For the
purpose of Section
6(e)
of the
Agreement: (i) Loss shall apply; and (ii) the Second Method shall
apply.
“Termination
Currency”
means
USD.
Tax
Representations.
| (I) |
Payer
Representations. For
the purpose of Section 3(e) of the Agreement, each party represents
to the
other party that it is not required by any applicable law, as modified
by
the practice of any relevant governmental revenue authority, of any
Relevant Jurisdiction to make any deduction or withholding for or
on
account of any Tax from any payment (other than interest under Section
2(e), 6(d)(ii), or 6(e) of the Agreement) to be made by it to the
other
party under the Agreement. In making this representation, each party
may
rely on (i) the accuracy of any representations made by the other
party
pursuant to Section 3(f) of the Agreement, (ii) the satisfaction
of the
agreement contained in Section 4(a)(i) or 4(a)(iii) of the Agreement,
and
the accuracy and effectiveness of any document provided by the other
party
pursuant to Section 4(a)(i) or 4(a)(iii) of the Agreement, and (iii)
the
satisfaction of the agreement of the other party contained in Section
4(d)
of the Agreement; provided
that it will not be a breach of this representation where reliance
is
placed on clause (ii) above and the other party does not deliver
a form or
document under Section 4(a)(iii) of the Agreement by reason of material
prejudice to its legal or commercial position.
|
| (II) |
Payee
Representations. For
the purpose of Section 3(f) of the Agreement, each party makes the
following representations to the other
party:
|
| (i) |
MLI
represents that it is a corporation organized under the laws of England
and Wales.
|
| (ii) |
Counterparty
represents that it is a corporation incorporated
in Tennessee.
|
Delivery
Requirements.
For the
purpose of Sections
4(a)(i)
and
(ii)
of the
Agreement, each party agrees to deliver the following documents:
| (a) |
Tax
forms, documents or certificates to be delivered
are:
|
Each
party agrees to complete (accurately and in a manner reasonably satisfactory
to
the other party), execute, and deliver to the other party, United States
Internal Revenue Service Form W-9 or W-8 BEN, or any successor of such form(s):
(i) before the first payment date under this agreement; (ii) promptly upon
reasonable demand by the other party; and (iii) promptly upon learning that
any such form(s) previously provided by the other party has become obsolete
or
incorrect.
| (b) |
Other
documents to be delivered:
|
|
Party
Required to Deliver Document
|
Document
Required to be Delivered
|
When
Required
|
Covered
by Section 3(d) Representation
|
|
Counterparty
|
Evidence
of the authority and true signatures of each official or representative
signing this Confirmation
|
Upon
or before execution and delivery of this Confirmation
|
Yes
|
|
Counterparty
|
Certified
copy of the resolution of the Board of Directors or equivalent document
authorizing the execution and delivery of this Confirmation and such
other
certificate or certificates as MLI shall reasonably request
|
Upon
or before execution and delivery of this Confirmation
|
Yes
|
14
|
MLI
|
Guarantee
of its Credit Support Provider, substantially in the form of Exhibit
A
attached hereto, together with evidence of the authority and true
signatures of the signatories, if applicable
|
Upon
or before execution and delivery of this Confirmation
|
Yes
|
Addresses
for Notices:
For the
purpose of Section
12(a)
of the
Agreement:
Address
for notices or communications to MLI for all
purposes:
| Address: |
Xxxxxxx
Xxxxx International
|
|
| Xxxxxxx Xxxxx Financial Centre | ||
| 0 Xxxx Xxxxxx Xxxxxx | ||
| London EC1A 1HQ | ||
| Attention: |
Manager,
Fixed Income Settlements
|
|
| Facsimile No.: |
00
000 000 0000
|
|
| Telephone No.: |
00
000 000 0000
|
Address
for notices or communications to Counterparty for all
purposes:
| Address: | Chattem, Inc. | |
| 0000 Xxxx 00xx Xxxxxx | ||
| Chattanooga, TN 37409 | ||
| Attention: | Xxxxxxxx X. Xxxxxxxxx, Xx., General Counsel | |
| Facsimile No.: | 000-000-0000 | |
| Telephone No.: | 000-000-0000 |
Process
Agent.
For the
purpose of Section 13(c) of the Agreement, MLI appoints as its Process
Agent:
Multibranch
Party.
For the
purpose of Section
10(c)
of the
Agreement: Neither MLI nor Counterparty is a Multibranch Party.
Calculation
Agent. The
Calculation Agent is MLI.
Credit
Support Document.
MLI:
Guarantee of ML & Co. in the form attached hereto as Exhibit A.
Counterparty:
Not Applicable
Credit
Support Provider.
With
respect to MLI: ML & Co.
15
With
respect to Counterparty: Not Applicable.
Governing
Law. This
Confirmation will be governed by, and construed in accordance with, the laws
of
the State of New York.
Waiver
of Jury Trial.
Each
party waives, to the fullest extent permitted by applicable law, any right
it
may have to a trial by jury in respect of any suit, action or proceeding
relating to this Transaction. Each party (i) certifies that no representative,
agent or attorney of the other party has represented, expressly or otherwise,
that such other party would not, in the event of such a suit, action or
proceeding, seek to enforce the foregoing waiver and (ii) acknowledges that
it
and the other party have been induced to enter into this Transaction, as
applicable, by, among other things, the mutual waivers and certifications
provided herein.
Netting
of Payments.
The
provisions of Section
2(c)
of the
Agreement shall not be applicable to this Transaction.
Basic
Representations. Section
3(a)
of the
Agreement is hereby amended by the deletion of “and” at the end of Section
3(a)(iv);
the
substitution of a semicolon for the period at the end of Section
3(a)(v)
and the
addition of Sections
3(a)(vi),
as
follows:
Eligible
Contract Participant; Line of Business. Each
party agrees and represents that it is an “eligible contract participant” as
defined in Section 1a(12) of the U.S. Commodity Exchange Act, as amended
(“CEA”),
this
Agreement and the Transaction thereunder are subject to individual negotiation
by the parties and have not been executed or traded on a “trading facility” as
defined in Section 1a(33) of the CEA, and it has entered into this Confirmation
and this Transaction in connection with its business or a line of business
(including financial intermediation), or the financing of its
business.
Acknowledgements:
| (a) |
The
parties acknowledge and agree that there are no other representations,
agreements or other undertakings
of the parties in relation to this Transaction, except as set forth
in
this Confirmation.
|
| (b) |
The
parties hereto intend for:
|
|
(i)
|
this
Transaction to be a “securities contract” as defined in Section 741(7) of
Title 11 of the United States Code (the “Bankruptcy
Code”),
qualifying for the protections under Section 555 of the Bankruptcy
Code;
|
|
(ii)
|
a
party’s right to liquidate this Transaction and to exercise any other
remedies upon the occurrence of any Event of Default under the
Agreement
with respect to the other party to constitute a “contractual right” as
defined in the Bankruptcy Code;
|
|
(iii)
|
all
payments for, under or in connection with this Transaction, all
payments
for the Shares and the transfer of such Shares to constitute “settlement
payments” as defined in the Bankruptcy
Code.
|
|
(c)
|
The
parties acknowledge and agree that in the event of an Early Termination
Date as a result of an Event of Default, the amount payable under
the
Agreement will be an amount calculated as described therein and
that any
delivery specified in this Transaction will no longer be
required.
|
Amendment
of Section
6(d)(ii). Section
6(d)(ii) of
the
Agreement is
modified by deleting the words “on the day” in the second line thereof and
substituting therefor “on the day that is three Local Business Days after the
day”. Section
6(d)(ii)
is
further modified by deleting the words “two Local Business Days” in the fourth
line thereof and substituting therefor “three Local Business Days.”
16
Amendment
of Definition of Reference Market-Makers.
The
definition of “Reference Market-Makers” in Section
14
is
hereby amended by adding in clause (a) after the word “credit” and before the
word “and” the words “or to enter into transactions similar in nature to the
Transactions.”
Consent
to Recording.
Each
party consents to the recording of the telephone conversations of trading and
marketing personnel of the parties and their Affiliates in connection with
this
Confirmation. To the extent that one party records telephone conversations
(the
“Recording Party”) and the other party does not (the “Non-Recording Party”), the
Recording Party shall in the event of any dispute, make a complete and unedited
copy of such party’s tape of the entire day’s conversations with the
Non-Recording Party’s personnel available to the Non-Recording Party. The
Recording Party’s tapes may be used by either party in any forum in which a
dispute is sought to be resolved and the Recording Party will retain tapes
for a
consistent period of time in accordance with the Recording Party’s policy unless
one party notifies the other that a particular transaction is under review
and
warrants further retention.
Disclosure.
Each
party hereby
acknowledges and agrees that MLI has authorized Counterparty to disclose this
Transaction and any related hedging transaction between the parties if and
to
the extent that Counterparty reasonably determines (after consultation with
MLI)
that such disclosure is required by law or by the rules of the NASDAQ Global
Market or any securities exchange.
Severability.
If any
term, provision, covenant or condition of this Confirmation, or the application
thereof to any party or circumstance, shall be held to be invalid or
unenforceable in whole or in part for any reason, the remaining terms,
provisions, covenants, and conditions hereof shall continue in full force and
effect as if this Confirmation had been executed with the invalid or
unenforceable provision eliminated, so long as this Confirmation as so modified
continues to express, without material change, the original intentions of the
parties as to the subject matter of this Confirmation and the deletion of such
portion of this Confirmation will not substantially impair the respective
benefits or expectations of parties to this Agreement; provided,
however,
that
this severability provision shall not be applicable if any provision of
Section
2,
5,
6
or
13
of the
Agreement (or any definition or provision in Section
14
to the
extent that it relates to, or is used in or in connection with any such Section)
shall be so held to be invalid or unenforceable.
Affected
Parties.
For
purposes of Section
6(e)
of the
Agreement, each party shall be deemed to be an Affected Party in connection
with
Illegality and any Tax Event.
[Signatures
follow on separate page]
17
Please
confirm that the foregoing correctly sets forth the terms of our agreement
by
executing the copy of this Confirmation enclosed for that purpose and returning
it to us.
|
Very
truly yours,
|
||
| XXXXXXX XXXXX INTERNATIONAL | ||
| |
|
|
| By: | /s/ Xxxx Xxxxxxxx | |
|
Name: |
||
| Title: | ||
Confirmed
as of the date first above written:
CHATTEM,
INC.
By:
/s/
Xxxxxx X. Xxxxxxxx
Name:
Xxxxxx X. Xxxxxxxx
Title:
President and Chief Operating Officer
Acknowledged
and agreed as to matters to the Agent:
XXXXXXX
LYNCH, XXXXXX, XXXXXX & XXXXX INCORPORATED,
Solely
in
its capacity as Agent hereunder
By:
/s/
Xxxxx Xxxxxxx
Name:
Title:
18
EXHIBIT
A
GUARANTEE
OF XXXXXXX XXXXX & CO., INC.
FOR
VALUE
RECEIVED, receipt of which is hereby acknowledged, XXXXXXX XXXXX & CO.,
INC., a corporation duly organized and existing under the laws of the State
of
Delaware (“ML & Co.”), hereby unconditionally guarantees to Chattem, Inc.
(the “Company”), the due and punctual payment of any and all amounts payable by
Xxxxxxx Xxxxx International, a company organized under the laws of England
and
Wales (“ML”), under the terms of the Confirmation of OTC Warrant Transaction
between the Company and ML (ML as Buyer), dated as of November 16,
2006 (the
“Confirmation”), including, in case of default, interest on any amount due, when
and as the same shall become due and payable, whether on the scheduled payment
dates, at maturity, upon declaration of termination or otherwise, according
to
the terms thereof. In case of the failure of ML punctually to make any such
payment, ML & Co. hereby agrees to make such payment, or cause such payment
to be made, promptly upon demand made by the Company to ML & Co.; provided,
however that delay by the Company in giving such demand shall in no event affect
ML & Co.’s obligations under this Guarantee. This Guarantee shall remain in
full force and effect or shall be reinstated (as the case may be) if at any
time
any payment guaranteed hereunder, in whole or in part, is rescinded or must
otherwise be returned by the Company upon the insolvency, bankruptcy or
reorganization of ML or otherwise, all as though such payment had not been
made.
ML
&
Co. hereby agrees that its obligations hereunder shall be unconditional,
irrespective of the validity, regularity or enforceability of the Confirmation;
the absence of any action to enforce the same; any waiver or consent by the
Company concerning any provisions thereof; the rendering of any judgment against
ML or any action to enforce the same; or any other circumstances that might
otherwise constitute a legal or equitable discharge of a guarantor or a defense
of a guarantor. ML covenants that this guarantee will not be discharged except
by complete payment of the amounts payable under the Confirmation. This
Guarantee shall continue to be effective if XX xxxxxx or consolidates with
or
into another entity, loses its separate legal identity or ceases to
exist.
ML
&
Co. hereby waives diligence; presentment; protest; notice of protest,
acceleration, and dishonor; filing of claims with a court in the event of
insolvency or bankruptcy of ML; all demands whatsoever, except as noted in
the
first paragraph hereof; and any right to require a proceeding first against
ML.
ML
&
Co. hereby certifies and warrants that this Guarantee constitutes the valid
obligation of ML & Co. and complies with all applicable laws.
This
Guarantee shall be governed by, and construed in accordance with, the laws
of
the State of New York.
This
Guarantee may be terminated at any time by notice by ML & Co. to the Company
given in accordance with the notice provisions of the Confirmation, effective
upon receipt of such notice by the Company or such later date as may be
specified in such notice; provided, however, that this Guarantee shall continue
in full force and effect with respect to any obligation of ML under the
Confirmation.
This
Guarantee becomes effective concurrent with the effectiveness of the
Confirmation, according to its terms.
19
IN
WITNESS WHEREOF, ML & Co. has caused this Guarantee to be executed in its
corporate name by its duly authorized representative.
|
XXXXXXX
XXXXX & CO., INC.
|
||
| |
|
|
| By: | /s/ Xxxxxxxx Xxxxxxxxxxxx | |
|
Name:
Xxxxxxxx Xxxxxxxxxxxx
|
||
|
Title:
Designated Signatory
Date:
November 21, 2006
|
||
20
