**RECITALS**     WHEREAS, both the RP Group and the Merck Group are engaged, among other activities, in theresearch and development, manufacturing, marketing and sale of Animal Health Products and ofPoultry Genetics Products throughout the world;     WHEREAS, RP and Merck wish to combine their respective Animal Health Businesses and PoultryGenetics Businesses into a worldwide venture owned and controlled 50% by each of them and IM hascreated Merial as the parent company of the group of companies which will conduct these businesses;     WHEREAS, IM will contribute the entirety of RM’s share capital to Merial on or prior to theClosing Date;     WHEREAS, RP, Merck, and certain of their respective Subsidiaries, on the one hand, and RM oran RM Subsidiary or Merial, on the other hand, have entered into or will, prior to or concurrentlywith the Closing, enter into the Ancillary Agreements, including research and development,manufacturing and supply, license and various other agreements to enable the Merial Venture toconduct these combined activities;     WHEREAS, the terms and conditions of this Agreement and the Ancillary Agreements do not limitMerial’s (and Merial has) full independence and commercial autonomy, such terms and conditions notbeing intended to limit Merial’s independence and commercial autonomy in marketing, selling,negotiating and determining customers and resale prices for Animal Health Products and PoultryGenetics Products.     WHEREAS, prior to or at the Closing, pursuant to the terms of this Agreement and theapplicable Ancillary Agreements, the Parties will take further steps to implement the MerialVenture, including the domestication of Merial as a limited liability company in the State ofDelaware, and the transfer (by merger or otherwise) to Merial and/or its Subsidiaries of theentirety of the Merck Contributed Assets; and
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     WHEREAS, upon completion of the Transactions at the Closing, the Merial Venture will commencethe Merial Venture Business and IM and (subject to Section 5.1(a)(iii)) Merck SH will each hold a50% ownership interest in Merial;     NOW, THEREFORE, in consideration of the respective representations and covenants of theParties as set forth below, the Parties agree as follows:**ARTICLE I****OBJECTIVES AND STRATEGIES, BUSINESS SCOPE AND OVERVIEW OF TRANSACTION**SECTION 1.1. Objectives and Strategies     The Merial Venture is being formed with the following objectives and strategies:     (a) The principal objective of the Merial Venture is to combine, on the terms and conditionsof this Agreement and the Ancillary Agreements, the complementary strengths of the RP Group and theMerck Group to create a global leader in the Animal Health Business and Poultry Genetics Businessindustries, committed to satisfying the needs of its customers, employees and members worldwide.Within the Merial Venture, the Animal Health Business and the Poultry Genetics Business willmaintain their own identity and organization.     (b) While maintaining close links with both Groups, the Merial Venture will function as aself-contained independent entity with a single globally responsible management and will establishits own unique identity and culture, built on the best available talents and practices.     (c) In the Animal Health Business, the Merial Venture will, with the support of the researchand development capacities of the two Groups and/or other persons party to the Ancillary Agreements(on the terms and conditions of this Agreement and the
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Ancillary Agreements), have a unique blend of biological and pharmaceutical expertise that willenable it to respond more effectively to new threats to animal health as they arise. Incooperation with both Groups, which are expected to remain important sources of new compounds andtechnologies, the objective of the Merial Venture will be to discover and develop a broad range ofinnovative pharmaceutical and biological Animal Health Products.     (d) The Merial Venture will offer a broad differentiated line of Animal Health Products andrelated services in markets around the world. It will target those markets where products for theprevention and treatment of animal diseases provide the economic opportunity to sustain innovationand yield sufficient return on investment. The Merial Venture will distribute its products in amanner which best meets the strategic needs of each market.     (e) The Merial Venture will maintain its position as a global leader through continuedinvestment in new markets, technologies, people and facilities with the objective, among otherthings, of delivering the highest quality products in the most cost efficient manner.     (f) In the Poultry Genetics Business, the Merial Venture will be the leader in the developmentand production of poultry breeding stock providing full service to the chicken, turkey and eggmarket segments.     (g) The rights, powers, obligations and duties of the Parties with respect to the MerialVenture are only those set forth in this Agreement (other than this Section 1.1), the AncillaryAgreements, the Association Documents and the LLC Agreement, each as amended from time to time, andany Future Agreements.SECTION 1.2. Business Scope     (a) The business activities to be conducted by the Merial Venture (the “Merial VentureBusiness”) will include:
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 **•** the discovery and development, manufacturing, marketing and sale of AnimalHealth Products throughout the world (the “Animal Health Business”); and  **•** the discovery and development, manufacturing, marketing and saleof Poultry Genetics Products throughout the world (the “Poultry GeneticsBusiness”).     (b) “Animal Health Products” are defined to include all pharmaceutical, biological andmedicinal, including in-feed, products intended to enhance the health or performance of any and allspecies of animals (including livestock and companion animals but excluding humans), but to exclude(i) any products with a different intended utility, (ii) nutritional additives, (iii) chemicalintermediates, and (iv) the inhalational anaesthetics Isoflurane, Halothane, Sevoflurane andDesflurane.     (c) “Poultry Genetics Products” are defined to include all products developed using genetictechniques (including selective breeding) to improve poultry, whether for meat production, eggproduction or any other purpose. Such products are commonly, but not exclusively, sold in the formof hatching eggs or day-old poultry. For the purposes of this definition, “poultry” includeschickens, turkeys, ducks, geese, guinea fowl, pheasants, partridges and quail.     (d) Merial shall, and shall cause each Merial Venture Company, to use or sell all bulkmaterials or products supplied by the Merck Group or the RP Group only in the Merial VentureBusiness.SECTION 1.3. Overview of Transaction     The Parties intend to create a viable, independent entity, capable of successfully competingglobally in the Merial Venture Business industries. To that end, and upon the terms andconditions set forth herein and in the Ancillary Agreements:
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     (a) Formation of Merial     Merial has been formed as an English private company limited by shares for the purpose ofconducting the Merial Venture Business. On the date hereof Merial is wholly owned by IM andRhône-Poulenc Finance S.A., a wholly owned Subsidiary of RP (“RP Finance”), with IM owning onemillion shares of Merial and RP Finance holding one share of Merial as nominee for IM. Merck SHhas been created as a Delaware corporation, and is wholly owned by Merck and Company Incorporated(“MACI”).     (i) On or prior to the Closing Date, the Parties shall cause thefollowing corporate actions to be taken:     (A) IM shall (w) form a single member Delaware limited liability company (“IMLLC”) which satisfies the statutory requirements under French law to be ashareholder of a *société par actions simplifiée*(“SAS”), including the requirementthat IM LLC have a share capital of at least the equivalent of FF 1,500,000; (x)sell one of IM’s shares of RM to IM LLC and contribute the remainder of IM’s sharesof RM to Merial; (y) cause RM to be converted into a SAS with Merial and IM LLC asits shareholders; and (z) sell (without any net profit to IM from all of thetransactions contemplated by this clause (A)) the entirety of its ownership interestin IM LLC to Merial for an amount in cash equal to the fair market value of suchownership interest (equal to the cash held by IM LLC and the cash value of one shareof RM);     (B) Merck shall (u) cause Merck SH and MACI to form a Delaware limitedliability company (“Merck Transitory LLC”) owned 99% by Merck SH and 1% by MACI; (v)cause Merck Holdings, Inc. to contribute the entirety of its share capital inHubbard Farms, Inc. to MACI; (w) cause MACI to contribute the entirety of the sharecapital of Hubbard Farms, Inc. to Merck SH; (x) cause Hubbard Farms, Inc. to beconverted into Hubbard Farms LLC, a Delaware limited liability company;
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(y) cause Merck SH to contribute its interest in Hubbard Farms LLC to Merck Transitory LLC; and (z)cause Hubbard Farms LLC to be merged with Merck Transitory LLC, with Merck Transitory LLC being thesurviving company; and     (C) Merck shall, in accordance with Section 5.1(a)(i), transfer (or cause to betransferred) the remainder of the Merck Contributed U.S. Assets (other than the limited liabilitycompany interests in Hubbard Farms LLC) to MACI (except to the extent MACI already holds any suchassets), and shall cause MACI to transfer all of the Merck Contributed U.S. Assets (other than thelimited liability company interests in Hubbard Farms LLC) to Merck SH, which will in turn transferthem to Merck Transitory LLC.     (ii) On the Closing Date, the following steps shall be taken:     (A) Meetings of the members and directors of Merial at such time shall take place (v) toamend the memorandum of association and articles of association of Merial so as to adopt amemorandum of association and articles of association in the form (with certain provisions thereofto be completed prior to Closing as indicated therein, it being understood that to the extent thereare any inconsistencies between the attached form and the provisions of this Agreement, theattached form shall be modified to be consistent herewith) provided as Exhibit I hereto (the“Memorandum of Association” and the “Articles of Association”, respectively), (w) to approve thedomestication of Merial as a limited liability company in the State of Delaware, (x) to approve andexecute the limited liability company agreement of Merial in the form provided as Exhibit IIhereto, (y) to approve the merger of Merck Transitory LLC with and into Merial, and (z) to approvethe transfer by RP Finance of its one share to IM, the increase in the authorized share capital ofMerial, the redesignation of the shares owned by IM as B Ordinary Shares and the issuance of onemillion and one A Ordinary Shares to Merck SH in
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consideration for its agreement to transfer the Merck Contributed Assets to Merial, eachsuch class of Merial shares to be governed by the provisions of the Association Documents,with the effect that, after all such actions are taken, each Principal shall own, directlyor indirectly, exactly the same number of Ordinary Shares of Merial and have exactly thesame general ownership interest in Merial except for the differences between A OrdinaryShares and B Ordinary Shares as set forth in the Association Documents;     (B) Merial shall be domesticated as a limited liability company in the State ofDelaware; and     (C) Merck Transitory LLC shall merge with and into Merial in accordance with DelawareLaw, with Merial being the survivor company (such that Merial shall own all of the assets,and be subject to all of the Liabilities, of Merck Transitory LLC, Merck Transitory LLCthereupon ceasing to exist).(b) Ancillary Agreements     (i) The following Ancillary Agreements are being entered into concurrently herewith,and are conditional upon, and shall come into effect as of, the Closing:     (A) The Supply Agreement between Merck and Merial, provided as Exhibit III hereto (the“Merck Supply Agreement”).     (B) The Research and Future Products License Agreement between Merck, Merial andRM, provided as Exhibit IV hereto (the “Merck Research Agreement”).
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     (C) The Existing Products License Agreement between Merck and Merial, provided asExhibit V hereto (the “Merck License Agreement”).     (D) The Supply Agreement between Merial and Rhône-Poulenc Agrochimie S.A., provided asExhibit VI hereto (the “RP Ag Supply Agreement”).     (E) The Research and Future Products License Agreement between Merial and Rhône-Poulenc Agrochimie S.A., provided as Exhibit VII hereto (the “RP Ag Research Agreement”).     (F) The Fipronil and Existing Products License Agreement between Merial and Rhône-Poulenc Agrochimie S.A., provided as Exhibit VIII hereto (the “RP Ag Licence Agreement”).     (G) The Research and License Agreement between Merial and Rhône-Poulenc Rorer Inc., provided as Exhibit IX hereto (the “RPR Research Agreement”).     (H) The Research and LicenseAgreement between Merial and Pasteur Mérieux Sérumset Vaccins S.A., provided as Exhibit X hereto the “PMSV Research Agreement”).     (ii) The following Ancillary Agreements shall be negotiated and executed prior toor at the Closing:     (A) The RP Transfer Agreement among Merial, RP and IM, to implement thetransactions involving the contribution of RM and its Subsidiaries and assumption of the RMContributed Liabilities on the terms and conditions specified in this Agreement (the “RPTransfer Agreement”).
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     (B) The Merck Transfer Agreement among Merial, Merck, MACI, Merck TransitoryLLC and Merck SH, to implement the transactions involving the contribution of theMerck Contributed Assets and assumption of the Merck Contributed Liabilities on theterms and conditions specified in this Agreement (the “Merck Transfer Agreement”).     (C) The Avermectin and Existing Products Sublicense Agreement between Merialand RM.     (D) The Merck Trademark (Dual Use) License Agreement between Merck andMerial, a form of which is provided as Exhibit XI hereto.     (E) The Fipronil Sublicense Agreement between Merial and RM.     (F) The Merck Transition Services Agreement between Merck and Merial,consistent with the provisions set forth in Section 11.8(b) of this Agreement.     (G) The RP Transition Services Agreement between RP and Merial,consistent with the provisions set forth in Section 11.8(b) of this Agreement.     (H) The Merck Employee Leasing Agreement, substantially in the formprovided as Exhibit XII hereto.     (c) Contribution of Merck Contributed Non-U.S. Assets. Merck shall, inaccordance with Sections 5.1 (a)(ii) and 5.2(a) and the Merck Transfer Agreement, contribute enoughcash to Merial , and/or accept (or cause its Subsidiaries to accept) a promissory note or notesissued by Merial or that Merial Venture Company that is purchasing such assets (which promissorynotes constitute part or all of the Debt that Merck is to contribute to the Merial Venture), toenable Merial or an appropriate Merial
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Subsidiary to purchase each of the Merck Contributed Non-U.S. Assets in accordance with Section5.1(a)(ii). The Principals may also agree, based on relevant criteria including tax-efficiency,on another method to transfer certain Merck Non-U.S. Contributed Assets to the Merial Venture,which method may involve the creation of a new direct or indirect wholly-owned Subsidiary of Merialwhich shall purchase such assets or the transfer or merger of one or more Subsidiaries of Merck toor with Merial or one of its Subsidiaries. In the absence of such agreement in writing, butsubject to Section 5.4, the foregoing provisions of this Section 1.3(c) shall apply.     (d) Each Party’s obligation to take any of the actions contemplated by this Section 1.3to occur on or prior to the Closing Date is conditioned upon contemporaneous completion of all suchactions no later than the Closing Date.
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**ARTICLE II****DEFINITIONS**     As used in this Agreement, capitalized terms have the meanings set forth below:     “Action” means any claim, action, suit, arbitration, inquiry, proceeding orinvestigation by or before any Public Authority.     “Affiliate” means, with respect to any Person, (i) a Person which is a Subsidiary of suchPerson, (ii) a Person of which such Person is a Subsidiary, or (iii) any other Person which is aSubsidiary of a third Person of which such Person is also a Subsidiary.     “Ancillary Agreements” means, collectively, the agreements referred to (and as each is definedin) Section 1.3(b).     “Animal Health Business” has the meaning set forth in Section 1.2(a).     “Animal Health Products” has the meaning set forth in Section 1.2(b).     “Association Documents” means, collectively, the Memorandum of Association and the Articles ofAssociation, each as defined in Section 1.3(a)(ii)(A), as the same may be amended, modified,supplemented or restated from time to time.     “Avermectin Products” means all those Merial Venture Products containing one of the Avermectinclass of compounds, including, but not limited to, products containing abamectin, ivermectin,eprinomectin or emamectin.     “Benefit Plan” means each plan, program, policy, payroll practice, contract, agreement orother arrangement (including plans maintained both inside and outside of the U.S. and excludingGovernmental Plans) providing for compensation, severance (including termination indemnities, longservice leave obligations and similar obligations), termination pay, performance awards, stock orstock-related awards, fringe benefits or
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other employee benefits of any kind, whether formal or informal, funded or unfunded, written ororal and whether or not legally binding, including, without limitation, each “employee benefitplan,” within the meaning of Section 3(3) of ERISA and each “multi-employer plan” within themeaning of Sections 3(37) or 4001(a)(3) of ERISA.     “Biological Products” means all RM Existing or Pipeline Products (other than diagnosticproducts, including the products included in the Diagnostic Disposal) that are vaccines, whetherpreventive or therapeutic, as well as any immunological products (except the GnRH vaccine),together with electronic identification products and vaccinating equipment, including injectors andsprayers.     “Board of Directors” has the meaning set forth in Section 4.3(a).     “Business Day” means any day which is not a bank holiday in any of London, New York or Paris.     “Business Plan” has the meaning set forth in Section 4.4(c).     “Central Biologics” has the meaning set forth in Section 5.1(b)(iii).     “CEO” has the meaning set forth in Section 4.4(e).     “CFM Agreement” shall refer to the *Consolidation Fiscale Mondiale*or worldwide taxconsolidation agreement, dated February 7, 1994, between RP and the French Taxing Authority, as thesame may be supplemented, amended, modified or restated from time to time, or any successoragreement thereto.     “Change of Control” means, with respect to either RP or Merck, the acquisition by any Personor Group, directly or indirectly, beneficially or of record, of shares or options or other rightsto purchase shares representing in the aggregate more than fifty percent (50%) of the aggregateordinary voting power represented by the issued and outstanding capital stock of RP or Merck, asthe case may be. Notwithstanding the
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foregoing, the following transactions shall be deemed not to constitute a Change of Control: anymerger or other business combination with another entity (x) solely to reincorporate RP or Merck,as the case may be, in a different form or under the laws of a different jurisdiction, (y) inconnection with an internal reorganization which results in RP or Merck, as the case may be, beinga direct or indirect wholly-owned Subsidiary of such entity or (z) any other transaction or seriesof transactions which results in RP or Merck, as the case may be, being a direct or indirectwholly-owned Subsidiary of any such entity, only if in the case of clauses (x), (y) or (z): theshareholders of RP or Merck, as applicable, immediately prior to the consummation of suchtransaction(s) own, in the aggregate, immediately after such transaction(s), shares representingmore than fifty percent (50%) of the aggregate ordinary voting power represented by the issued andoutstanding capital stock of such entity (or any parent company thereof). A “Successor Entity”means any entity which satisfies the conditions set out in any of clauses (x), (y) or (z) of thepreceding sentence and which has executed a deed in the form of Exhibit XIII under which it agreesto be bound by the obligations of that party in respect of which it is a Successor Entity.Following any transaction(s) referred to in such clauses (x), (y) or (z), all references to RP orMerck shall be deemed to refer to the applicable Successor Entity, including the references inclauses (x), (y) or (z). For purposes of this definition only, “Group” means two or more Personswho agree to act together for the purpose of acquiring, holding, voting or disposing of equitysecurities of an issuer.     “Closing” means the completion of the merger of Merck Transitory LLC with and into Merial.     “Closing Date” has the meaning set forth in Section 12.3.     “Closing Meeting” means the meetings of Merial’s members or board of directors, asappropriate, held on the Closing Date.     “Code” means the Internal Revenue Code of 1986, as amended and any regulationspromulgated or proposed thereunder.
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     “Combination” means any Animal Health Product that contains more than one activeingredient.     “Companies Act” means the United Kingdom Companies Act of 1985.     “Control,” whether used as a noun or verb, refers to the possession, directly or indirectly,of the power to direct, or cause the direction of, the management or policies of a Person, whetherthrough the ownership of voting securities, by contract or otherwise.     “Damages” means any liability (whether arising out of fault, strict liability or otherwise),obligation, loss, fine, damage, judgment, arbitration award, settlement amount, penalty, claim, orEnvironmental Liability, and all reasonable costs and expenses related thereto (includingreasonable costs of investigation, fees and expenses payable to outside counsel, independentaccountants and similar professional advisors or consultants, but not including any corporateallocation for management time or for the use of similar in-house services or facilities), in eachcase whether or not incurred in connection with a Third Party Claim.     “Debt” has the meaning set forth in Section 5.1(c).     “Delaware Act” means the Delaware Limited Liability CompanyAct, 6 Del. C. § 18-101,et seq., as amended from time to time, including, without limitation, any amendments toSection 18-109 thereof.     “Delayed Purchase Assets” has the meaning set forth in Section 5.1(a)(ii)(A)(4).     “Diagnostic Disposal” means the contemplated sale by RM of its diagnostic productbusiness.     “Director” has the meaning set forth in Section 4.3(b).
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     “Dissolution” or “Dissolve” or “Dissolved”, as applied to the Merial Venture, meanseither (i) the sale of the Merial Venture Interest of one Principal to the other Principalpursuant to Sections 16.3, 16.4, 16.5, 17.2(c)(ii) or otherwise or (ii) the sale ofall or substantially all of the Merial Venture to a Third Party pursuant to Sections 16.3, 16.4,17.2(c)(i) or otherwise.     “Dissolution Date” has the meaning set forth in Section 16.6(a).     “Distributable Profits” has the meaning set forth in Section 181 of the Companies Act.     “Economic Effective Date” has the meaning set forth in Section 6.3(a).     “Encumbrance” means any lien, privilege, mortgage, pledge, third-party claim or right,charge, restriction of use, defect of title, easement, security interest or encumbrance of anykind, including, without limitation, obligations resulting from any sublease, tenancy, rightof occupation, easement, preemptive right or privilege in favor of any person or entity.     “Environmental Laws” means, at any date, all provisions of law (including applicableprinciples of common and civil law), statutes, ordinances, rules, regulations, publishedstandards and directives that have the force and effect of Laws, permits, licenses, judgments,writs, injunctions, decrees and orders enacted, promulgated or issued by any PublicAuthority, and all indemnity agreements and other contractual obligations, as in effect atsuch date, relating to (i) the protection of the environment, including the air, surface andsubsurface soils, surface waters, groundwaters and natural resources, and (ii) occupationalhealth and safety and exposure of persons to Hazardous Materials. Environmental Laws shallinclude the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. §§9601 etseq., and any other Laws imposing or creating liability with respect to HazardousMaterials.
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     “Environmental Liability” means any liabilities, obligations, costs, losses, payments ordamages, including compensatory and punitive damages, incurred (i) to contain, remove, clean up,assess, abate or otherwise remedy any actual or alleged release or threatened release of HazardousMaterials, any actual or alleged contamination (by Hazardous Materials) of air, surface orsubsurface soil, groundwater or surface water, or any personal injury or damage to naturalresources or property resulting from any such release or contamination, pursuant to therequirements of any Environmental Law or in response to any claim by any Public Authority or otherThird Party under any Environmental Law; (ii) to modify facilities or processes or take any otherremedial action in response to any claim by any Public Authority of non-compliance with anyEnvironmental Law; (iii) as a result of the imposition of any civil or criminal fine or penalty byany Public Authority for the violation or alleged violation of any Environmental Law; or (iv) as aresult of any action, suit, proceeding or claim by any Third Party under any Environmental Law.The term “Environmental Liability” shall include: (i) reasonable fees of counsel and consultants(but not any corporate allocation for management time or for the use of similar in-house servicesor facilities) and (ii) the costs and expenses of any investigation undertaken to ascertain theexistence or extent of any potential or actual Environmental Liability.     “ERISA” means the Employee Retirement Income Security Act of 1974, as amended and anyregulations promulgated or proposed thereunder.     “Event of Insolvency,” with respect to any person, shall occur when either:     (i) such person shall (A) voluntarily commence any proceeding or file anypetition seeking relief under Title 11 of the United States Code, French Law No. 84-148 ofMarch 1, 1984, French Law No. 85-98 of January 25, 1985 or any other bankruptcy, insolvencyor similar law of the United States, any state thereof, or France, (B) apply for or consentto the appointment of a receiver, trustee, custodian, sequestrator, conciliator,administrator or similar official for it or a substantial part of its property, (C) file ananswer admitting the material allegations of a petition filed against or in respect of it inany such proceeding,
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(D) make a general assignment for the benefit of creditors, (E) become unable generally, or admitin writing its inability, to pay its debts as they become due, or (F) take corporate action for thepurpose of effecting any of the foregoing; or     (ii) an involuntary proceeding shall be commenced or any involuntary petition shall befiled in a court of competent jurisdiction seeking (A) relief in respect of such person, or of asubstantial part of such person’s property, under Title 11 of the United States Code, French LawNo. 84-148 of March 1, 1984, French Law No. 85-98 of January 25, 1985 or any other bankruptcy,insolvency or similar law of the United States, any state thereof, or France, (B) the appointmentof a receiver, trustee, custodian, sequestrator, conciliator, administrator or similar official forsuch person or for a substantial part of such person’s property or (C) the winding-up orliquidation of such person; and such proceeding or petition shall continue undismissed for sixty(60) days or an order or decree approving or ordering any of the foregoing shall continue unstayedand in effect for thirty (30) days;     (iii) an order is made by a court of competent jurisdiction, or a resolution is passed,for the winding up, dissolution or administration of such person or the appointment of aliquidator, manager, receiver, administrator, trustee or other similar officer in respect of, or anencumbrancer taking possession of or selling, any substantial assets of such person, or such personmakes any arrangement or composition with, or any assignment for the benefit of, its creditors, ormakes an application to a court of competent jurisdiction for protection from its creditorsgenerally, and such order, resolution, appointment, arrangement, assignment or application is notwithdrawn or cancelled within sixty (60) days of its being made.     (iv) anything analogous to any of the events specified in (i), (ii) and (iii) above occursin respect of such person under the laws of any applicable jurisdiction.
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     “Executive Chairman” has the meaning set forth in Section 4.4(a).     “Executive Officers” has the meaning set forth in Section 4.4(d).     “Existing Other JVs” means (a) with respect to RP, those Persons set forth on Schedule 2-2 and(b) with respect to Merck, those Persons set forth on Schedule 2-3, in either case only so long assuch Persons are Other JVs.     “Existing Product” means each Animal Health Product or Poultry Genetics Product that ismarketed in any country on the date of this Agreement, by RM or its Subsidiaries (including thoseset forth in Schedule 2-4) or by the Merck Group (including those set forth in Schedule 2-5).     “Fipronil Products” means all those Merial Venture Products containing Fipronil as an activeingredient.     “Fiscal Year” has the meaning set forth in Section 11.4.     “Future Agreement” means any written agreement (other than an Ancillary Agreement) between anyRP Company or Merck Company, on the one hand, and any one or more of the Merial Venture Companies,on the other hand, which may be entered into at any time after the Closing.     “Future Product” means any Animal Health Product or Poultry Genetics Product, other than anExisting Product or a Pipeline Product, as to which any Merial Venture Company has or may at anytime acquire (through internal research and development efforts and/or from other persons) anyProduct Rights, Patents or Know-How relating to the manufacture, use or sale thereof.     “GAAP” means, with respect to any country, such country’s generally accepted accountingpractices or the International Accounting Standards (“IAS”), in either case as in effect from timeto time, consistently applied.
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     “Goubin Book Value” has the meaning set forth in Section 5.1(b)(i).     “Grandfathered Merck Employees” has the meaning set forth in Section 7.1(b).     “Governmental Order” means any order, writ, judgment, injunction, decree, stipulation,determination or award entered by or with any Public Authority.     “Governmental Plan” means any plan that is sponsored or maintained by a Public Authority towhich either the RP Group or the Merck Group contributes, or is required to contribute, on behalfof any RM Employee or Merck Employee.     “Goubin” means Compagnie Jean Goubin S.A.     “Group” means the Merck Group or the RP Group, as appropriate.     “Hazardous Material” means any substance regulated by any Environmental Law or which may nowor in the future form the basis for any Environmental Liability.     “Health Cost” has the meaning set forth in Section 7.1(c).     “HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.     “ICC” means the International Chamber of Commerce.     “ICE” means the International Centre for Expertise of the ICC.     “IM” has the meaning set forth in the introduction to this Agreement.     “IM LLC” has the meaning set forth in Section 1.3(a).
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     “Income Taxes” means income, corporation or franchise taxes or other Taxes measured inwhole or in part by income or by reference to income, together with any interest or penaltiesimposed with respect thereto, levied by any Taxing Authority.     “Indemnified Party” has the meaning set forth in Section 14.7(a).     “Indemnifying Party” has the meaning set forth in Section 14.7(a).     “Intellectual Property” of a Person means, collectively, the Product Rights, Patents andKnow-How of such Person.     “Interim Financing” means the revolving credit facilities provided or arranged by each of RPand Merck to Merial in accordance with Section 5.2(d).     “Inventory” or “Inventories” of any Person means all inventory, merchandise, partiallyfinished and finished products, and raw materials, maintained, held or stored by or for such Personand any prepaid deposits for any of the same; provided that     “Inventories” of any of Merck or its Subsidiaries shall mean only such inventories asconstitute Merck Contributed Assets.     “Investment Bank” means a reputable international investment bank with experienceappraising and selling businesses comparable to the Merial Venture.     “IRS” means the Internal Revenue Service.     “ISA” means Institut de Sélection Animale S.A.     “Know-How” means, in respect of any product, all technical knowledge, ability, skill orexpertise in the manufacture or commercialization of such product other than knowledge or expertisecovered by a Patent.
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     “Label” means, in respect of any Merial Venture Product, the packaging, product brochure orproduct monograph filed with the appropriate Public Authority (or Public Authorities) havingauthority to approve the marketing of such Merial Venture Product and the package insert directedto veterinarians or consumers that has been approved by such Public Authority (or PublicAuthorities) for such Merial Venture Product, including, in each case, the indications, claims,uses and dosages appearing therein.     “Laws” means any supranational, national, state, local or foreign statute, law, directive,ordinance, regulation, rule, code, order, requirement or rule of common law.     “Liabilities” means any and all debts, liabilities and obligations, whether accrued or fixed,absolute or contingent, matured or unmatured or determined or determinable, including those arisingunder any Law (including any Environmental Law), Action or Governmental Order and those arisingunder any contract, agreement, arrangement, commitment or undertaking.     “LIBOR” means, in relation to any unpaid sum, the rate per annum equal to the arithmetic mean(rounded upwards, if not already such a multiple, to the nearest whole multiple of one-thirtysecond of one per cent.) of the offered quotations in the so-called London Interbank loan market asdisplayed on Pages 3740 or 3750 (as appropriate) on the Telerate Service for the currency in whichsuch unpaid sum is to be denominated and for the relevant specified period at or about 11:00 a.m.(London time) on the second Business Day before the beginning of such specified period.     “LLC Agreement” means the limited liability company agreement of Merial in the form providedas Exhibit II hereto, as the same may be amended, modified, supplemented or restated from time totime.     “MACI” has the meaning set forth in Section 1.3(a).
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     “Material Adverse Change or Effect” means, with respect to any Person, a change or effect thatmaterially adversely affects, or (except with respect to Sections 12.6(b)(vi) or 12.6(c)(vi), asthe case may be) is reasonably likely to materially adversely affect,     (i) if such determination is to be made on or prior to the Closing, (A) in thecase of an RP Company, the assets, liabilities, operations, results of operations orfinancial condition of RM and its Subsidiaries, taken as a whole; and (B) in the case of aMerck Company, the Merck Contributed Assets or the operations, results of operations orfinancial condition of the Merck Contributed Business; or     (ii) if such determination is to be made after the Closing, (A) in the case of aMerial Venture Company, the assets, liabilities, operations, results of operations orfinancial condition of the Merial Venture; and (B) in the case of an RP Company or a MerckCompany, the ability of such company to perform any of its material obligations under thisAgreement or any Ancillary or Future Agreement if such obligations are material to theassets, liabilities, operations, results of operations or financial condition of the MerialVenture;provided that, as used in Articles VIII, IX and X of this Agreement, the terms “MaterialAdverse Change”, “Material Adverse Effect”, “material” or any similar terms shall mean having anadverse impact or effect or potential adverse impact or effect on the value of RM and itsSubsidiaries or the value of the Merck Contributed Assets, as the case may be, or on the aggregatenet income of the Merial Venture, of at least [*].     “Member” means a shareholder of Merial being either the RP Member or the Merck Member,which together shall be the “Members”.     “Members’ Meeting” has the meaning set forth in Section 4.1.     “Merck” means Merck & Co. or any Successor Entity thereto.
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     “Merck & Co.” has the meaning set forth in the introduction to this Agreement.     “Merck Accrued Tax Liabilities” has the meaning set forth in Section 5.1(a)(ii)(B).     “Merck Adjustment Products” has the meaning set forth in Section 6.4(c).     “Merck Animal Health Executive” means the Merck executive with direct responsibility forMerial reporting to the Chief Executive Officer of Merck and any duly appointed successor in suchrole, notified in writing by Merck to RP and Merial.     “Merck Benefit Plan” means each Benefit Plan (other than Merck Employee Agreements) which isnow or previously has been sponsored, maintained, contributed to, or required to be contributed to,or with respect to which any withdrawal liability (within the meaning of Section 4201 of ERISA) hasbeen incurred, by Merck, any of its Subsidiaries or any Merck ERISA Affiliate for the benefit ofany Merck Employee, and pursuant to which Merck, any of its Subsidiaries or any Merck ERISAAffiliate has or may have any liability, contingent or otherwise.     “Merck Breach” has the meaning set forth inSection 14.2(b).     “Merck Company” means any of Merck or its Subsidiaries.     “Merck Contributed Assets” has the meaning set forth in Section 10.10.     “Merck Contributed Business” means all the Merck JV Business activities and operationsimmediately prior to the Closing, other than those activities or operations (i) that Merck willcontinue to conduct pursuant to the Ancillary Agreements to which Merck or any of its Subsidiariesis a party, (ii) conducted using the assets, properties and rights set forth in Schedule 2-7, and(iii) relating to “The Merck Veterinary Manual” and the Annual Authorizations Service RepertoryLicense Agreement between Copyright Clearance Center, Inc. and Merck & Co. Inc. dated December 31,1995.
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     “Merck Contributed Business Financials” has the meaning set forth in Section 10.5. The MerckContributed Business Financials are attached as Exhibit XVI.     “Merck Contributed Debt” has the meaning set forth in Section 5.2(a).     “Merck Contributed Liabilities” means all of the obligations or Liabilities of Merck or any ofits Subsidiaries (whether or not reflected on the Merck Contributed Business Financials or thebooks and records of Merck or any of its Subsidiaries) arising from, relating to, resulting from orincurred in connection with, the Merck Contributed Business or any of the Merck Contributed Assetsor the ownership or operation of, or conduct of any activities on or from, any of the foregoing,including (i) under the agreements, contracts, leases, licenses and other arrangements includedwithin the Merck Contributed Assets, (ii) accounts and other payables, (iii) EnvironmentalLiabilities, (iv) Taxes, (v) threatened, pending or settled litigation, (vi) under Merck BenefitPlans, and (vii) all obligations or Liabilities of the types referred to in the Merck ContributedBusiness Financials or that are the subject of any of the representations in Article X.     “Merck Contributed Non-U.S. Assets” means all the Merck Contributed Assets that are not MerckContributed U.S. Assets.     “MerckContributed U.S. Assets” has the meaning set forth in Section 5.1(a)(i).     “Merck Employee” means each current, former, or retired employee of a Merck TransferredSubsidiary together with those employees listed in Schedule 10.19H-2.     “Merck Employee Agreement” means each management, employment, severance, consulting,non-compete, confidentiality, or similar agreement or contract between Merck or any of itsSubsidiaries and any Merck Employee pursuant to which Merck or any of its Subsidiaries has or mayhave any liability, contingent or otherwise.     “Merck ERISA Affiliate” means each business or entity which is a member of a “controlled groupof corporations,” under “common control” or an “affiliated service
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group” with Merck within the meaning of Sections 414(b), (c) or (m) of the Code, or required to beaggregated with Merck under Section 414(o) of the Code, or is under “common control” with Merck,within the meaning of Section 4001(a)(14) of ERISA.     “Merck Group” means Merck, together with all its Subsidiaries.     “Merck JV Business” means, from time to time at any time prior to the Closing, all the MerialVenture Business activities of the Merck Group, including of the Merck Transferred Subsidiaries,throughout the world.     “Merck Leased Employees” has the meaning set forth in Section 7.1(a).     “Merck Manufacturing Supply Price Formula” means the Merck Manufacturing Supply Price Formulaannexed as Exhibit 10 to the Merck Supply Agreement.     “Merck Member” means the Member that is a Subsidiary of Merck which shall, as of the Closing,be Merck SH.     “Merck Negotiated Supply Price” has the meaning set forth in Section 6.7(a).     “Merck Pre-Closing Taxes” has the meaning set forth in Section 14.12(a).     “MerckProduct Registrations” has the meaning set forth inSection 10.13.     “Merck Proprietary Rights” has the meaning set forth in Section 10.12(b).     “Merck Restructuring Event” means any transaction or series of related transactions pursuantto which all or substantially all of the assets of Merck are sold or otherwise transferred to aThird Party.     “Merck Retirement Plans” has the meaning set forth in Section 7.1(b).
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     “Merck SH” has the meaning set forth in the introduction to this Agreement.     “Merck Stock Option Plan” has the meaning set forth in Section 7.1(d).     “Merck Transferred Benefit Plan” means the Merck & Co., Inc. Employee Savings andSecurity Plan and each Merck Benefit Plan sponsored, maintained, or contributed to by aMerck Transferred Subsidiary.     “Merck Transitory LLC” has the meaning set forth in Section 1.3(a).     “Merck Transferred Foreign Pension Plan” means each Merck Transferred Benefit Plan that is an“employee pension benefit plan” within the meaning of Section 3(2) of ERISA but that is not subjectto Title I or IV of ERISA pursuant to Sections 4(b)(4) and 4021(b)(7) of ERISA.     “Merck Transferred Pension Plan” means each Merck Transferred Benefit Plan which is an“employee pension benefit plan” within the meaning of Section 3(2) of ERISA and is subject to TitleIV of ERISA.     “Merck Transferred Subsidiaries” means each Subsidiary of Merck listed in Schedule 2-8hereto.     “Merial” has the meaning set forth in the introduction to this Agreement.     “Merial Merck Employees” has the meaning set forth in Section 7.1(a).     “Merial Venture” means the group comprised of all the Merial Venture Companies.     “Merial Venture Business” has the meaning set forth in Section 1.2(a).
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     “Merial Venture Companies” means collectively Merial and (following its transfer to Merial)each Transferred Subsidiary and any other Subsidiary of Merial from time to time, and “MerialVenture Company” means any one of them.     “Merial Venture Interest” of a Principal means all direct and indirect equity and otherownership interests of such Principal and any of its Subsidiaries in the Merial Venture.     “Merial Venture Product” means, from time to time, any one of the Existing Products orFuture Products.     “Net Reported Sales” means, in respect of any Avermectin, Fipronil or Biological Products, asthe case may be, the sales amount calculated in the same manner as Net Sales, but without deductingfrom the gross invoice price of such products the items listed in (iv) and (v) of the definition ofNet Sales and calculated for purposes of Sections 6.4 or 6.5, in the case of sales made in thecurrencies set forth therein, based on the exchange rates set forth in Section 6.4(e).     “Net Sales” means the gross invoice price (which will not include any taxes) of Avermectin,Fipronil or Biological Products, as the case may be, sold by Merial, its Subsidiaries orsublicensees to the first independent third party after deducting, if not already deducted in theamount invoiced:     (i) the normal or customary trade and/or quantity discounts, excluding cashdiscounts, that are actually allowed or granted;     (ii) returns, rebates and allowances that are actually granted;     (iii) retroactive price reductions applicable to sales of such products that areactually allowed or granted;
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     (iv) sales commissions that are actually paid to third party distributors andselling agents; and     (v) [*] of the amount invoiced to cover cash discounts, bad debt,freight or other transportation costs, insurance charges, additional special packaging,duties, tariffs and other governmental charges.With respect to sales of Avermectin or Fipronil Products sold in Combinations, Net Sales shall becalculated in accordance with the provisions of the definition of Net Sales set forth in Exhibit XXI[Avermectin Products Sales Adjustment] or the RP Ag Research Agreement, respectively.     “Other JVs” means Persons that are, in substance, joint ventures in which (a) the Merck Groupor the RP Group, as the case may be, owns 50% or less of both (x) the outstanding equity, and (y)the outstanding equity that has the right to elect or appoint the members of the board of directorsor similar governing body of such Person (the Parties hereby conclusively deem the conditions ofthis clause (a) to be satisfied in respect of Banyu Pharmaceutical Co. Ltd., its Subsidiaries andits and their respective successors), and (b) the principal business of such Person is a businessor businesses other than the Animal Health Business or the Poultry Genetics Business.     “Other Taxes” means all Taxes which are not Income Taxes, including registration and stampduties (even if related to real property); provided, however, that such term shallnot include any real property taxes.     “Parties” means all the parties to this Agreement and “Party” means any one of them.     “Patents” means, in respect of any product, any unexpired patents or patent applications inany jurisdiction necessary to make, have made, use or sell such product.
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     “Person” or “person” means a natural person or any corporation, partnership, company,limited liability company, association, trust or other entity of any kind whatsoever.     “Pipeline Products” means, with respect to RM and its Subsidiaries, the products listed underthe caption “Pipeline” on page 1 of the RM base case attached as Exhibit XIV hereto and, withrespect to the Merck Group, the products listed under the caption “Pipeline” of the Merck base caseattached as Exhibit XV hereto.     “PMSV” means Pasteur Mérieux Sérums et Vaccins S.A.     “Poultry Genetics Business” has the meaning set forth in Section 1.2(a).     “Poultry Genetics Products” has the meaning set forth in Section 1.2(c).     “Pre-Closing Benefit Liabilities” means liabilities incurred, suffered or accrued as of, orotherwise arising out of events or periods occurring prior to, the Closing Date with respect to aMerck Transferred Benefit Plan or an RM Transferred Benefit Plan and calculated as follows: (i) thecalculation of liabilities for “employee pension benefit plans” within the meaning of § 3(2) ofERISA and which are defined benefit plans shall be determined as of the Closing Date using theJanuary 1, 1997 census data of each such plan (unless there have been significant demographicchanges between January 1, 1997 and the Closing Date, in which case the Closing Date census data ofa particular plan shall be used with respect to such plan) and shall be determined (on anaccumulated benefit obligation basis) based upon actuarial assumptions used by RM (for RMTransferred Pension Plans) or Merck (for Merck Transferred Pension Plans) for purposes ofdetermining pension expense pursuant to FAS 87 for each such plan for 1997; (ii) the calculation ofliabilities for retiree medical plans shall be determined as of the Closing Date using the January1, 1997 census data of each such plan (unless there have been significant demographic changesbetween January 1, 1997 and the Closing Date, in which case the Closing Date census data of aparticular plan shall be used with respect to such plan) and shall be determined (on an accumulatedpost-retirement benefit obligation basis)
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based upon those actuarial assumptions used by RM (with respect to RM Transferred Benefit Planswhich provide retiree medical benefits) or Merck (with respect to Merck Transferred Benefit Planswhich provide retiree medical benefits) for calculating the expense for purposes of FAS 106 for1997; (iii) the calculation of liabilities for RM Transferred Benefit Plans and Merck TransferredBenefit Plans providing post-employment (but pre-retirement) benefits such as salary and healthcare continuation, supplemental unemployment benefits, severance benefits and disability-relatedbenefits (including workers’ compensation) shall be determined as of the Closing Date using theJanuary 1, 1997 census data of each such plan (unless there have been significant demographicchanges between January 1, 1997 and the Closing Date, in which case the Closing Date census data ofa particular plan shall be used with respect to such plan) and shall be determined based upon thoseactuarial assumptions used by RM (with respect to RM Transferred Benefit Plans which provide suchbenefits) or Merck (with respect to Merck Transferred Benefit Plans which provide such benefits)for calculating the expense for purposes of FAS 112 for 1997; provided, however,that the calculation of liabilities for long-term disability plans shall include liability for anyemployee who has commenced or is eligible to commence benefits under a short-term disability planmaintained by his or her employer as of the Closing Date and becomes eligible to receive, after theClosing Date, benefits under a long-term disability plan of the Merial Venture as a result of suchpre-Closing disability, provided that such disability is continuous in accordance with the terms ofthe applicable plan; (iv) the calculation of other liabilities for RM Transferred Benefit Plans andMerck Transferred Benefit Plans which are medical or dental plans shall be based on claims fortreatment or services received or other expenses incurred prior to the Closing and reported priorto December 31, 1997; (v) liabilities for RM Transferred Benefit Plans and Merck TransferredBenefit Plans which are bonus plans shall be equal to a prorata portion (based onthe percentage of the bonus period up to and including the Closing Date) of the bonus that is paidwith respect to the full bonus period; and (vi) the liability for any RM Transferred Benefit Planor Merck Transferred Benefit Plan not covered by clauses (i) through (v) above including any andall such plans maintained outside of the U.S., shall be determined using generally acceptedactuarial or accounting principles, and using such actuarial or other assumptions as may benecessary, and as agreed to by RP and Merck. Pre-Closing Benefit Liabilities shall be calculated by
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the plan actuary for the plan at issue (or if there is no plan actuary, by the actuary oraccountant appointed by the plan sponsor); provided, however, that if Merck or RPdispute the determination of such liabilities made by such actuary (or accountant, as applicable),Merck and RP shall jointly choose an actuary or accountant, as applicable, to perform suchcalculation and the determination of the jointly chosen actuary or accountant, as applicable, shallbe binding on RP and Merck. Pre-Closing Benefit Liabilities shall exclude RM Pre-Closing Taxes andMerck Pre-Closing Taxes.     “Pre-Closing Tax Period” in relation to a Person means all taxable periods of that Personending on or before the Closing Date.     “Principal” means each of RP and Merck, which are together the “Principals.”     “Product Liability” means any Damages that arise as a result of, or in connection with, theuse by a Third Party of a Merial Venture Product.     “Product Registration” means, with respect to a product, the product registration (final andpending) or any other authorizations of Public Authorities necessary to market such product in anycountry.     “Product Rights” means, with respect to a product and its marketing, distribution and sale ina country, (i) the Product Registrations, and (ii) all product trademarks, service marks, tradedress and copyrights necessary to market, distribute and sell such product in that country.     “Public Authority” means any supranational, national, regional, state or localgovernment, court, tribunal, governmental agency, authority, board, bureau, instrumentalityor regulatory body.     “Qualified Future Other JVs*”*means Other JVs for so long as no member or representative of theMerck Group or the RP Group, as applicable, initiates or takes other affirmative action to causesuch Other JV to commence an Animal Health Business or
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Poultry Genetics Business other than (a) de minimis activities that are incidental to the principalbusiness or businesses of such Other JV or (b) which result from the exploitation of a product(including for the Animal Health or Poultry Genetics Business) invented or developed in theprincipal business or businesses (i.e. non Animal Health or Poultry Genetics Business) of suchOther JV.     “Receivables” of any person means any and all accounts receivable of such person and all notesand other amounts receivable by such person from third parties, including, without limitation,customers and employees, whether or not in the ordinary course of business, together with anyunpaid financing charges accrued thereon; provided that “Receivables” of any of Merck or itsSubsidiaries shall mean only such receivables as constitute Merck Contributed Assets.     “Representative” of a Member has the meaning set forth in Section 4.2(d).     “Research Agreements” means, collectively, the Merck Research Agreement, the RPR ResearchAgreement, the RP Ag Research Agreement and the PMSV Research Agreement.     “Retained Inventory” shall have the meaning set forth in Section 5.1(a)(ii)(C).     “Retained Receivables” shall have the meaning set forth in Section 5.1(a)(ii)(C).     “Retirement Cost” shall have the meaning set forth in Section 7.1(b).     “Retroactive Closing Mechanism” shall have the meaning set forth in Section 6.3(a).     “Retroactive Closing Financial Statements” shall have the meaning set forth in Exhibit XIXhereto.
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     “Returns” means all returns, reports, declarations, estimates, information returns, statementsand forms of any nature regarding Taxes, including remittance advice, required to be filed with anyTaxing Authority.     “Rhône-Poulenc” has the meaning set forth in the introduction to this Agreement.     “RM” has the meaning set forth in the introduction to this Agreement.     “RM Accrued Tax Liabilities” has the meaning set forth in Section 5.2(b).     “RM Benefit Plan” means each Benefit Plan (other than RM Employee Agreements) which is now orpreviously has been sponsored, maintained, contributed to, or required to be contributed to, orwith respect to which any withdrawal liability (within the meaning of Section 4201 of ERISA) hasbeen incurred, by RP, any of its Subsidiaries or any RM ERISA Affiliate for the benefit of any RMEmployee, and pursuant to which RP, any of its Subsidiaries or any RM ERISA Affiliate has or mayhave any liability, contingent or otherwise.     “RM Contributed Liabilities” means all of the obligations or Liabilities of RM or any of itsSubsidiaries (whether or not reflected on the RM Financials or the books and records of RM or anyof its Subsidiaries).     “RM Employee” means each current, former, or retired employee of an RM TransferredSubsidiary together with those employees listed on Schedule 8.18A-2.     “RM Employee Agreement” means each management, employment, severance, consulting, non-compete,confidentiality, or similar agreement or contract between RP or any of its Subsidiaries and any RMEmployee pursuant to which RP or any of its Subsidiaries has or may have any liability contingentor otherwise.     “RM ERISA Affiliate” means each business or entity which is a member of a “controlledgroup of corporations,” under “common control” or an “affiliated service
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group” with RP within the meaning of Sections 414(b), (c) or (m) of the Code, or required tobe aggregated with RP under Section 414(o) of the Code, or is under “common control” with RP,within the meaning of Section 4001(a)(14) of ERISA.     “RM Financials” has the meaning set forth in Section 8.5. The RM Financials are attached asExhibit XVII.     “RM Intercompany Debt” has the meaning set forth in Section 5.2(b).     “RM Outstanding Debt” has the meaning set forth in Section 5.2(b).     “RM Plans” has the meaning set forth in Section 7.1(e).     “RM Pre-Closing Taxes” has the meaning set forth in Section 14.11(a).     “RM Proprietary Rights” has the meaning set forth in Section 8.11(b).     “RM Transferred Benefit Plan” means each RM Benefit Plan sponsored, maintained, orcontributed to by an RM Transferred Subsidiary.     “RM Transferred Foreign Pension Plan” means each RM Transferred Benefit Plan that is an“employee pension benefit plan” within the meaning of Section 3(2) of ERISA but that is not subjectto Title I or IV of ERISA pursuant to Sections 4(b)(4) and 4021(b)(7) of ERISA.     “RM Transferred Pension Plan” means each RM Transferred Benefit Plan which is an “employeepension benefit plan” within the meaning of Section 3(2) of ERISA and is subject to Title IV ofERISA.     “RM Transferred Subsidiaries” means, collectively, RM and each Subsidiary of RM listed inSchedule 2-11 hereto.
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     “RM U.S. Employees” has the meaning set forth in Section 7.1(e).     “RM 401(k) Plan” has the meaning set forth in Section 7.1(e).     “RP” means Rhône-Poulenc S.A. or any Successor Entity thereto.     “RP Adjustment Products” has the meaning set forth in Section 6.4(b).     “RP Ag” means Rhône-Poulenc Agrochimie S.A.     “RP Ag Manufacturing Supply Price Formula” means the Manufacturing Supply Price Formulaannexed as Exhibit 3 to the RP Ag Supply Agreement.     “RP Animal Health Executive” means the individual named in Schedule 2-12 and any dulyappointed successor to such individual, notified in writing by RP to Merck and Merial.     “RP Breach” has the meaning set forth in Section 14.2(b).     “RP Company” means any of RP or its Subsidiaries.     “RP Contributed Debt” has the meaning set forth in Section 5.2(b).     “RP Finance” has the meaning set forth in Section 1.3(a).     “RP Group” means RP, together with all its Subsidiaries.     “RP Member” means the Member that is a Subsidiary of RP which shall, subject to sections 17.1and 17.2, be IM.     “RP Restructuring Event” means any transaction or series of related transactions pursuant towhich (i) any of RP Ag, PMSV or RPR ceases to be a Subsidiary of RP, or
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(ii) all or substantially all of the assets of any of RP Ag, PMSV or RPR are sold orotherwise transferred to a Third Party.“RPR” means Rhône-Poulenc Rorer S.A.“SAS” means *société par actions simplifiée.*“Special Dividend” has the meaning set forth in Section 6.2(a).     “Straddle Period” means, in relation to a Person, the taxable period of that Person thatincludes the Closing Date.     “Subsidiary” means, with respect to any Person (herein referred to as the “parent”), anycorporation, partnership, company, association, trust or other business entity (a) of whichsecurities or other ownership interests representing more than 50% of the equity or more than 50% ofthe ordinary voting power or more than 50% of the general partnership or analogous interests are,at the time such determination is being made, owned, Controlled or held by the parent and/or one ormore other Subsidiaries of the parent, or (b) which is, at the time such determination is made,otherwise Controlled, by the parent and/or one or more other Subsidiaries of the parent;provided that it shall be deemed that (i) as from the Closing Date, none of the MerialVenture Companies shall be a Subsidiary of either Merck or RP; and (ii) none of the Existing OtherJVs or Qualified Future Other JVs shall be a Subsidiary of either Merck or RP.     “Successor Entity” has the meaning set forth in the definition of Change of Controlabove.     “Supply Agreements” means, collectively, the Merck Supply Agreement and the RP Ag SupplyAgreement.     “Tax” means any tax, including, without limitation, income (net or gross), corporations,capital gains, gross receipts, franchise, estimated, alternative, minimum,
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add-on minimum, sales, use, transfer, registration, value added, excise, natural resources,severance, stamp, occupation, premium, windfall profit, customs, duties, real property, personalproperty, capital stock, social security, unemployment, disability, payroll, license, employee orother withholding, or other tax, of any kind whatsoever, and including any interest, penalties oradditions to tax, levied by any Taxing Authority.     “Taxing Authority” means any governmental authority, including, but not limited to agencies ofthe European Union, the United States federal government, the government of the French Republic,the government of the United Kingdom, or the government of any other country, and any politicalsubdivision of any of the foregoing, having jurisdiction over the assessment, determination,collection, or other imposition of Tax.     “Tax Benefit” means any items of loss, deduction or credit or any other item to the extentsuch item decreases Taxes paid or payable including any interest and penalty with respectthereto or interest that would have been payable but for such item.     “Tax Matter” means any Tax matter, including any audit, examination, assessment, notice ofdeficiency or other adjustment or proposed adjustment, or administrative or judicial proceeding,the settlement of any of the foregoing, or the filing of any amended return.     “Third Party” means a person who or which is neither a Merial Venture Company nor a MerckCompany nor an RP Company.     “Third Party Claim” has the meaning set forth in Section 14.7(a).     “Transactions” means, collectively, all the transactions contemplated by this Agreementand the Ancillary Agreements.     “Transferred Subsidiaries” means, collectively, the RM Transferred Subsidiaries and theMerck Transferred Subsidiaries.
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     “U.S.” means the United States of America.     “U.S. Animal Health Employees” has the meaning set forth in Section 7.1(f).     “U.S. Person” means any company or other Person that is formed or domesticated under the lawsof any state of the United States of America.
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**ARTICLE III****MERIAL VENTURE COMPANIES**SECTION 3.1. Merial     (a) Merial as Principal Entity. Merial shall be the parent company of the MerialVenture. Any entity created by Merial or any Merial Venture Company in any country to conductMerial Venture Business operations shall be a Subsidiary of Merial.     (b) Location of Offices. The principal office of Merial shall be in London, England.SECTION 3.2. Reorganization of Subsidiaries Prior to Closing     Prior to the Closing, the following actions shall be taken:     (a) Merck shall cause each of the Merck Transferred Subsidiaries that is a U.S. Person to bereorganized as a limited liability company which is not classified as an association taxable as acorporation for U.S. federal income tax purposes.     (b) RP shall cause RM to be reorganized as a SAS, which is not classified as an associationtaxable as a corporation for U.S. federal income tax purposes. RP shall cause such reorganizedentity to be wholly owned by Merial, except for one share therein which will be owned by anewly-formed single member Delaware limited liability company which is not classified as anassociation taxable as a corporation for U.S. federal income tax purposes, which shall itself bewholly owned by Merial.     (c) RP shall cause the share ownership of all the Subsidiaries of Rhone Merieux, Inc. that arenot U.S. Persons to be transferred to Merial or to Subsidiaries of Merial that are not U.S.Persons, it being understood that RP shall not be required to cause any such transfer which wouldresult in an aggregate (for all such transfers) adverse
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tax consequence for the RP Group in excess of [*].     (d) IM shall cause Merial to elect classification as a partnership for U.S.federal income tax purposes.
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**ARTICLE IV****GOVERNANCE**     Merial is, as at the date hereof, an English private company limited by shares governed by theLaws of England and Wales and shall, as of the Closing, be governed by the Association Documents.As of the Closing, Merial will, pursuant to the Delaware Act, be domesticated in Delaware as aDelaware limited liability company governed by the LLC Agreement and, to the extent applicable,Delaware Laws. To the extent that the provisions of English Laws governing Merial and theprovisions of Delaware Laws governing Merial are not identical, the Directors and the Members shalltake such steps as are reasonably required to ensure that Merial complies with both such Laws.Merial is, in addition, otherwise subject to the relevant provisions of this Agreement.SECTION 4.1. Company Bodies of Merial     The company bodies of Merial are: • the members of Merial acting through a meeting of the Members or a unanimouswritten resolution (the “Members’ Meeting”),  • the Board of Directors, and  • the Executive Officers.SECTION 4.2. Members’ Meeting     (a) Members’ Meeting as Ultimate Authority of Merial. The Members’ Meeting shall bethe ultimate authority of Merial. Certain fundamental decisions affecting Merial shall require theapproval of the Members’ Meeting.     (b) Resolutions of the Members’ Meeting. The following actions shall require aresolution of the Members’ Meeting:
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     (i) the dissolution or winding up of, or any merger, joint venture or partnershipinvolving, or the acquisition or reorganization of, Merial;     (ii) any arrangement for the acquisition of all or substantially all of the assets orundertakings of Merial;     (iii) any modification of the Association Documents or the LLC Agreement, including,without limiting the generality of the foregoing, any increase or decrease of Merial’s authorizedshare capital or the issuance by Merial of any securities or interests, or any options, warrants orother rights to acquire such securities or interests;     (iv) the undertaking of any significant business activities outside the scope of theMerial Venture Business;     (v) the approval of the annual financial statements (including income and cash flowstatements and balance sheet) of Merial;     (vi) the payment or declaration of any dividend or distribution or the entering into ofany transaction by reference to, or which will have the effect of reducing, Merial’s DistributableProfits, except as expressly contemplated by this Agreement, and in particular by Article VI ;     (vii) any request for capital contributions by the Members;     (viii) the appointment or removal of the auditor(s) of Merial;     (ix) any matter put to the Members’ Meeting for its resolution by the Board of Directorsor either of the Members; and     (x) all other matters required by applicable Laws to be decided or approved by theMembers.
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     (c) Unanimous Vote in the Members’ Meeting. Decisions of the Members’ Meeting shallrequire the agreement of both Members.     (d) Selection of Representatives. Each of the Members shall designate, prior to orat the commencement of the Closing Meeting, either (A) one representative who shall be authorizedto cast such Member’s vote at all meetings of the Members until another individual is designated tocast such vote or (B) several representatives, each of whom shall be authorized to cast suchMember’s vote at the meetings which shall be specified in such representative’s designation, and,for each such representative, until another individual is designated to cast such vote. Each suchdesignation may specify the terms of any substitution (as in the case of absence or otherwise). Amemorandum in the form set out in the Association Documents recording such designation shall bemade in writing and delivered to the other Member, and details of the relevant designation may beread into the minutes of the meeting at the commencement of the meeting and the memorandumthereafter so delivered. The vote of a Member’s designated representative or of the substitutefor such representative, if applicable (such designated representative or substitute being the“Representative”), in the Members’ Meeting shall in all cases be deemed to be the decision of suchMember. Any appointment by or notification of either such Representative under this Article IVshall in all cases be deemed to be the appointment by or notification of the respective Member.     (e) Voting by the Members in the Members’ Meeting. Each of the Members shall at alltimes exercise or cause to be exercised all of its powers and votes as a member of Merial such thatMerial shall comply with all obligations under and implement all provisions of this Agreement, theLLC Agreement and the Association Documents, as validly amended from time to time.     (f) Members’ Meetings. Non-voting representatives of either Member may attend anyMembers’ Meetings in addition to the Representatives. A quorum shall exist in a Members’ Meetingif Representatives of both Members are present. Decisions may also be taken by the Members’Meeting by unanimous written resolution of both Members.
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     (g) New Members’ Meeting in Case of Inability to reach a Decision. If, withrespect to a specific matter, the Members are unable to reach a decision in the Members’ Meeting,then each Member has the right to request a new Members’ Meeting to discuss the same matter. Suchnew Members’ Meeting shall occur within thirty (30) days after the date of the last Members’Meeting.     (h) Deadlock, Conciliation. If at such second Members’ Meeting, the Members arestill deadlocked with respect to said matter, within seven (7) days thereafter the matter shall bereferred for resolution pursuant to the terms of Section 18.1 to the RP Animal Health Executive andthe Merck Animal Health Executive.     (i) Discussion of Agenda Prior to Members’ Meeting. At the request of eitherMember, the points of the agenda shall be discussed between representatives of the Members prior toany Members’ Meeting.     (j) Calling for a Members’ Meeting. A Members’ Meeting may be called by theBoard of Directors or by any Member. Members’ Meetings shall take place at the registered officeof Merial unless another location is agreed upon by both Members.     (k) Annual Members’ Meeting. Subject to the requirements of the Companies Act,the annual Members’ Meeting shall be held within six (6) months after the end of each Fiscal Year.It shall consider the approval of Merial’s annual financial statements, the allocation (inaccordance with the other provisions of this Agreement) of any Distributable Profits and theappointment of Merial’s auditors, when required.SECTION 4.3. Board of Directors     (a) Powers of the Board of Directors. The fundamental policies and thestrategy of Merial shall be determined by its board of directors (the “Board of Directors”). TheBoard of Directors shall have responsibility for approving the annual budget and Business Plan andshall oversee their implementation by the Executive Chairman and the other Executive Officers.Except for matters requiring the approval of
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the Members’ Meeting and subject to the Members’ Meetings’ decisions, the Board of Directors shallhave the responsibility for making all significant decisions of Merial. In particular, Merialshall not do, either directly or indirectly, any of the following with respect to the MerialVenture without the prior approval of the Board of Directors:     (i) take any action that affects the ownership or nature of the share capital ofRM or the nature of the share capital of Merial, it being understood that any change in theownership of the share capital of Merial shall be deemed for the purposes of this Section4.3(a)(i) not to affect the ownership or nature of the share capital of RM or the nature ofthe share capital of Merial (the Directors appointed by the RP Member being hereby remindedby RP that they should, prior to participating in such approval or taking any other actionaffecting the RP Member’s ownership interest in Merial, consult with tax counsel and maywish to obtain confirmation from the French *Direction Générale des Impôts*of the effect ofsuch action on the *agrément fiscal*described in Section 11.2(b) and any potential forsubstantial Taxes to be imposed on RP);     (ii) except as previously approved in writing in the annual budget, invest in,acquire or dispose of assets or businesses in any manner, or encumber assets in any manner,or incur or assume any indebtedness, enter into long term contracts, or generally undertakeany other matter of extraordinary importance or particular strategic importance, in onetransaction or a series of related transactions, in each case in excess of [*];     (iii) subject to Section 4.3(a)(1), acquire, purchase, subscribe for, dispose of ortransfer any shares, debentures, partnership interest or other interests in or securities of(or any interest therein) any Person, in one transaction or a series of relatedtransactions, in each case in excess of [*];     (iv) approve Merial’s annual financial statements prior to theirsubmission to the Members’ Meeting;
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     (v) form, sell, dissolve, liquidate or terminate any Merial Venture Company or takeany company action in connection therewith;     (vi) undertake or terminate any major research or development program;     (vii) initiate or settle any significant litigation or provide any undertaking (except inthe ordinary course of business) to a Public Authority;     (viii) appoint, remove or replace any of the Executive Officers;     (ix) enter into any agreement providing for (A) the sale or licensing out of anypotentially significant Intellectual Property; or (B) the purchase or licensing in of anyIntellectual Property involving the payment or potential payment of more than [*];     (x) change any of the accounting principles or practices to be applied in the preparationof financial statements or change Merial’s accounting reference date;     (xi) determine the remuneration and other terms and conditions of employment of any of theExecutive Officers of Merial, except as applicable to employees generally;     (xii) enter into (except for the Ancillary Agreements to be entered into as provided inthis Agreement) or terminate or amend or waive any material term or condition under any contract ortransaction between any Merial Venture Company, on the one hand, and either an RP Company or aMerck Company, on the other;     (xiii) provide any loan or advance or credit (other than customary trade credit) to, orincur any guarantee, surety, indemnity, Encumbrance or other obligation in favor of, any RP Companyor Merck Company;
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     (xiv) make aggregate (across all Merial Venture Companies) charitable contributionsin any year in excess of [*];     (xv) enter into, or terminate or amend or waive any material term or conditionunder, any employment or other contract with any Executive Officer or with any otheremployee of Merial whose annual emoluments are reasonably expected to exceed [*],create or adopt new employee benefit or general bonus plans or materially amend existingemployee benefit or bonus plans, except as required to comply with the terms of thisAgreement, or make loans or severance payments to employees except in accordance withpolicies previously approved by the Board of Directors or with the terms of this Agreement;     (xvi) approve and implement, or disapprove, any corrective, preventive or remedialplan in response to an Environmental Liability at any site where the total projected costsof such plan (including all phases of such plan responding to the Environmental Liability)at such site are expected to exceed [*];     (xvii) the issuance by any Subsidiary of Merial of any equity securities orinterests, or any options, warrants or other rights to acquire such equity securities orinterests; and     (xviii) any other matter required by applicable Laws to be decided upon or approved bythe Board of Directors.     (b) Formation and Members of the Board of Directors. At the Closing, a Board ofDirectors shall be formed for Merial which shall consist of six (6) members. Three (3) membersshall be appointed by the RP Member and three (3) members shall be appointed by the Merck Member,each for a term of office of six (6) years (each, a “Director”, and together, the “Directors”).The right of the RP Member and the Merck Member to appoint Directors shall include the right toremove and to replace Directors they have each appointed.
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     (c) Executive Officers not Directors. None of the Executive Officers shall beDirectors or shall have the right to vote at any meeting of the Board of Directors.     (d) Executive Chairman and CEO to be Observers. Unless the Board of Directorsexpressly decides otherwise with respect to a particular matter or meeting, the Executive Chairmanand, for so long as there is one, the CEO shall be observers of the Board of Directors, with theright to be notified of, to attend and to be heard at every meeting of the Board of Directors.     (e) Agenda for and Chairing of Meetings. The agenda for meetings of the Board ofDirectors shall be prepared by the secretary of Merial and shall include all matters proposed byeither Member. Each meeting of the Board of Directors shall be chaired by one Director, who shallbe named in the agenda for the meeting. The Closing Meeting shall be chaired by a Directornominated by IM. The following meeting of the Board of Directors shall be chaired by a Directornominated by Merck SH and, thereafter, each meeting shall alternatively be chaired by a Directorappointed by the RP Member and a Director appointed by the Merck Member.     (f) Quorum in Meetings of the Board of Directors, Unanimous Vote. A quorum shall existin a meeting of the Board of Directors if at least four (4) Directors, two (2) nominees of the RPMember and two (2) nominees of the Merck Member, are present or represented. Resolutions of theBoard of Directors shall only be valid if passed unanimously by all the Directors present at ameeting.     (g) New Meeting in Case of Inability to Reach a Decision. If, with respect to aspecific matter, the Board of Directors is unable to reach a decision in a meeting of the Board ofDirectors, then any Director has the right to request a new meeting to discuss the same matter.Such new meeting of the Board of Directors shall occur within thirty (30) days after the date ofthe last meeting.     (h) Deadlock, Conciliation. If, at such second meeting of the Board of Directors,unanimity cannot be reached and the Board of Directors is still deadlocked,
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within seven (7) days after such meeting the matter shall be referred for resolution pursuant tothe terms of Section 18.1 to the RP Animal Health Executive and the Merck Animal Health Executive.     (i) Meetings of the Board of Directors. The Board of Directors shall meet at leastthree (3) times per calendar year and at such other times as may be requested by any Director.Meetings shall be in person and take place at the registered office of Merial or in any othermanner by which all persons participating in the meeting may hear and speak to each other, unlessall of the Directors agree otherwise. Alternatively, decisions of the Board of Directors may betaken by unanimous written resolution of all the then-incumbent Directors.     (j) Minutes of Meetings of the Board of Directors. All meetings of the Board ofDirectors shall be recorded in minutes reflecting the place and date of the meeting, theparticipants therein, the items on the agenda, the material contents of discussions and theresolutions adopted by the Board of Directors. The minutes shall be signed by the Director chairingthe meeting pursuant to Section 4.3(e) and by at least one Director nominated by the other Member,and a copy of the minutes shall be delivered to each Director, to each Member, to the ExecutiveChairman and, for so long as there is one, to the CEO.     (k) Committees     Subject to the general oversight and authority of the full Board of Directors, the followingcommittees of the Board of Directors shall be established and maintained:     (i) an Audit Committee, which shall consist of four persons appointed by the Board ofDirectors, two of whom shall be appointed by each of the Members and which shall beresponsible for (aa) reviewing the accounts and accounting policies of Merial, (bb) meetingwith Merial’s auditor(s) to review accounting issues, (cc) discussing potentialdistributions, and (dd) for presenting the yearly financial statements of Merial to theBoard of Directors for its
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consideration, and shall have such powers as the Board of Directors may delegate to it fromtime to time;     (ii) a Compensation Committee, which shall consist of four persons two of whom shallbe appointed by each of the Members, and which shall be responsible for reviewing theexecutive and employee compensation policies of Merial and for proposing employee benefitplans and arrangements to the Board of Directors for its consideration, and shall have suchpowers as the Board of Directors may delegate to it from time to time;     (iii) a Financing Committee, which shall consist of four persons two of whom shall beappointed by each of the Members, and which shall be responsible for reviewing thefinancing policies of Merial, including generally Merial’s capital and debt structure,capital expenditures and other matters of a financial and tax nature to be discussed by theBoard of Directors, and for presenting resolutions relating to financing to the Board ofDirectors for its consideration, and shall have such powers as the Board of Directors maydelegate to it from time to time; and     (iv) an Executive Committee, of two persons, consisting of one Director appointed byeach of the Members, and which shall assist the Executive Chairman, the CEO, and the Boardof Directors in order to facilitate and expedite decision making by the Board of Directors,and shall have such powers as the Board of Directors may delegate to it from time to time.     The Board of Directors may delegate any of its powers to any other committee, temporary orpermanent, as it deems appropriate.     (1) Limitations on Directors’ Duties. Merck agrees that it shall not (and shall causeits Subsidiaries not to), in relation to any Directors appointed by the RP Member, and RP agreesthat it shall not (and shall cause its Subsidiaries not to), in relation to any Directors appointedby the Merck Member, take any action against such Director for negligence, default, breach of dutyor breach of trust on the grounds that such negligence,
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default, breach of duty or breach of trust arose by virtue of the Director acting in accordancewith the instructions of the Member appointing such Director. Merck, the Merck Member, RP and theRP Member agree that, in the event of any Director acting in accordance with the instructions, orin the interests of, the Member appointing such Director, then any resultant dispute shall beconsidered to be a dispute between the Parties to be resolved exclusively in accordance with theprovisions of Article XVIII hereof.SECTION 4.4. The Executive Chairman. CEO and other Executive Officers     (a) Day-to-Day Management of the Merial Venture. Except for matters requiring theapproval of the Members’ Meeting or of the Board of Directors, and subject to the decisions of theMembers’ Meeting and of the Board of Directors, the Executive Chairman of Merial (the “ExecutiveChairman”) shall have the responsibility and authority to manage and operate the day-to-daybusiness of Merial with the assistance of the other Executive Officers and in accordance withMerial’s current annual budget and Business Plan.     (b) Appointment of the Executive Chairman     (i) The Executive Chairman’s term of office shall have a duration of two years.     (ii) The Person designated as initial Executive Chairman (the “Initial Chairman”) inSchedule 4.4 shall be nominated by the Merck Member and shall be appointed as ExecutiveChairman of Merial as of the Closing Date. At the expiry of his term of office, the partiesintend that the Initial Chairman shall no longer be an officer or employee of the MerialVenture and at that time may return to a position within Merck. At the expiry of the InitialChairman’s term of office, a new Executive Chairman shall be appointed by the RP Member,subject to the consent of the Merck Member (which consent shall not be unreasonablywithheld). The RP Member shall communicate in writing its choice of Executive
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Chairman to the Merck Member at the latest one (1) month prior to the end of the InitialChairman’s term of office.     (iii) Subsequent Executive Chairmen shall be appointed by the Board of Directors,which shall also have the right to remove and replace the Executive Chairman.     (c) Responsibilities of the Executive Chairman. The Executive Chairman shall be thehead of the executive organization of the Merial Venture and (subject to Sections 4.2(b) and4.3(a)) shall have the full authority to represent and bind Merial. The Initial Chairman appointedpursuant to the first sentence of Section 4.4(b)(ii) shall, in particular, be responsible foroverseeing and managing the research and development and corporate staff functions and PoultryGenetics Business activities of the Merial Venture. The Executive Chairman shall also beresponsible for strategic planning, including the preparation and presentation to the Board ofDirectors of Merial’s annual budget and its rolling three (3) year business plan (the “BusinessPlan”). The Business Plan shall set forth the goals, strategies and action plans of the MerialVenture over the current Fiscal Year and the two succeeding Fiscal Years, and shall includesub-plans for investment, research and development, manufacturing, marketing and personnel. TheMembers may at any time alter the duration or scope of the Business Plan. The Executive Chairmanshall report to the Board of Directors.     (d) Appointment of other Executive Officers. Merial shall have such other executiveofficers in addition to the Executive Chairman (together with the Executive Chairman, each an“Executive Officer” and, collectively, the “Executive Officers”) as shall be determined by theBoard of Directors after receiving the recommendation of the Executive Chairman (it beingunderstood that the Board of Directors may nominate Executive Officers other than those recommendedby the Executive Chairman). The list of initial Executive Officers is set forth in Schedule 4.4.The Board of Directors shall have the power to appoint, remove and replace any of the ExecutiveOfficers.
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     (e) Appointment of the Chief Executive Officer (the “CEO”). The person designated asCEO in Schedule 4.4 shall be nominated by the RP Member and shall be appointed as CEO of Merial fora two year term of office as of the Closing Date. At the expiry of such term of office, unless theBoard of Directors expressly decides otherwise, the position of CEO shall be terminated, and allthe responsibilities of the CEO shall be combined with those of the Executive Chairman.     (f) Responsibilities of the CEO. The CEO appointed pursuant to Section 4.4(e)shall be responsible for overseeing and managing the sales, marketing and manufacturingactivities of the Merial Venture, and shall have other specific responsibilities andauthority as delegated to him from time to time by the Executive Chairman. The CEO shallreport to the Executive Chairman.
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**ARTICLE V****CONTRIBUTIONS TO THE MERIAL VENTURE****CERTAIN TAX MATTERS**SECTION 5.1. Contributions of Assets and Assumption of Liabilities     (a) Merck Contribution. On the terms and subject to the conditions of thisAgreement (and subject specifically to the representations, warranties and covenants made by Merckin this Agreement) and the Merck Transfer Agreement, and subject to subsections (i), (ii) and (iii)below and to Sections 11.2(c) and 11.6, (x) Merck shall, on or prior to the Closing Date or as soonthereafter as practicable as provided in Section 5.1(a)(ii), assign, transfer, convey and deliver(by merger, sale or otherwise) to Merial or its Subsidiaries, or cause to be assigned, transferred,conveyed and delivered (by merger, sale or otherwise) to Merial or its Subsidiaries, all of theMerck Contributed Assets, and (y) Merial (or its relevant Subsidiary) shall, on the Closing Date,assume and agree to pay, perform, fulfill and discharge when due all of the Merck ContributedLiabilities.     (i) U.S. Assets and Liabilities. Merck shall, on or prior to the ClosingDate, assign, transfer, convey and deliver to Merck Transitory LLC: (A) the entirety of theassets and liabilities of Hubbard Farms, Inc., together with all of Hubbard Farms, Inc.’sdirect and indirect ownership interests in each of its Subsidiaries except as indicated inSchedule 2-8 (such transaction to be effected in accordance with Section 1.3(a)(i)(B)), (B)to the extent indicated in Schedules 10.12 and 10.13, all of the Product Registrations andtrademark registrations and trademark applications included in the Merck Contributed Assetsthat are owned by Merck or a Subsidiary of Merck that is a U.S. Person, (C) all other MerckContributed Assets not covered by (A) and (B) above that are located in or registered in theU.S., including real estate or personal property, or that are owned by Merck or a Subsidiaryof Merck that is a U.S. Person (other than the Retained Receivables and the RetainedInventory, as defined in Section 5.1(a)(ii)(C)), (D) all of the contracts included in theMerck Contributed Assets to which Merck or a Subsidiary of Merck that is a U.S. Person is aparty (the assets
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listed in (A) through (D) together being the “Merck Contributed U.S. Assets”). Merck Transitory LLCshall, on or prior to the Closing Date, assume and agree to pay, perform, fulfill and dischargewhen due all of the Merck Contributed Liabilities reasonably attributable to the Merck ContributedU.S. Assets contributed to Merck Transitory LLC or their ownership or operation. The Partiesunderstand that the contribution of the entirety of the assets and liabilities of Hubbard Farms,Inc. to Merck Transitory LLC will result in Merial being engaged in both the Animal Health Businessand the Poultry Genetics Business. Merial shall create separate divisions within the Merial Venturefor each of these businesses and shall prepare stand-alone financial statements for each division.     (ii) Non-U.S. Assets and Liabilities.     (A) Purchase of Assets and Assumption of Liabilities.     (1) Valuation. Prior to the Closing, the Principals will agreeon the aggregate fair market value of all the Merck Contributed Non-U.S. Assets(other than the cash and cash equivalent items included in such assets) net of theMerck Contributed Liabilities (other than the Merck Contributed Debt and the MerckAccrued Tax Liabilities (as defined in Section 5.1(a)(ii)(B)) reasonablyattributable to such assets that will be purchased by Merial or any of itsSubsidiaries (such value, after netting, being the “Merck Non-U.S. Net AssetsValue”). For purposes of calculating the Merck Non-U.S. Net Assets Value, [*]
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[*].     (2) Purchasing Entity. Merial or the appropriate Merial Subsidiaries agreedupon by the Principals (which generally shall be the Merial Subsidiaries located in the country inwhich each such asset is to be used) shall purchase each Merck Contributed Non-U.S. Asset from theMerck Subsidiary that owns such asset. Merial shall, and shall cause each of its Subsidiaries thathas purchased any Merck Contributed Non-U.S. Assets to, on the Closing Date, assume and agree topay, perform, fulfill and discharge when due all of the Merck Contributed Liabilities reasonablyattributable to
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such purchased Merck Contributed Non-U.S. Assets or their ownership or operation.     (3) Consideration for Purchase. The aggregate consideration for the Merck Non-U.S.Assets shall be cash in an amount equal to the Merck Cash Contribution Amount as defined in andcontributed by Merck pursuant to Section 5.1(a)(ii)(B) and/or promissory notes issued to theselling Merck Subsidiaries, in accordance with the provisions of this Section 5.1(a)(ii)(A)(3).To the extent the actual aggregate purchase price paid for all the Merck Contributed Non-U.S.Assets pursuant to clause (1) above exceeds the Merck Cash Contribution Amount (as defined inSection 5.1(a)(ii)(B)), or to the extent the Principals otherwise agree, purchases of the MerckContributed Non-U.S. Assets by Merial and the Merial Subsidiaries may be made with promissory notesissued to the selling Merck Subsidiaries.     (4) Timing of Purchase. Each of the Parties shall (and shall procure that theirrespective Subsidiaries shall) cooperate and use commercially reasonable efforts (x) to give effectto, on the Closing Date, the purchase and sale of all the Merck Contributed Non-U.S. Assets and theassumption of the Merck Contributed Liabilities reasonably attributable thereto in accordance withthis Section 5.1(a)(ii)(A), and (y) to the extent it is not possible (including by reason of nothaving obtained required approvals from appropriate Public Authorities and/or having completedworkers’ council consultations or similar processes under applicable Laws) or reasonablypracticable to purchase and sell certain Merck Contributed Non-U.S. Assets or to assume the MerckContributed Liabilities reasonably attributable thereto effective as of the Closing Date, to giveeffect to the purchase and sale of each such asset and the assumption of such Liabilities (the“Delayed Purchase Assets”)
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in accordance with this Section 5.l(a)(ii)(A) as soon as reasonably practicable followingthe Closing.     (5) Expenses of Purchase. Each of the purchase agreements givingeffect to the purchase of Merck Contributed Non-U.S. Assets (whether concurrently with orafter the Closing) shall provide that all of the costs and expenses associated with suchpurchase (other than the specified consideration for such purchase), including the costsand expenses of counsel and other advisors, and all registration, transfer or stamp dutiesand other comparable duties and Taxes, but excluding any allocation for salaries, shall bepaid by the seller (Merck or a Merck Subsidiary, as the case may be), and that to theextent any of such costs or expenses has been incurred by the purchaser or any of itsAffiliates (Merial or a Merial Subsidiary, as the case may be), the seller shall indemnifythe payor thereof for such costs or expenses.     (B) Merck Cash Contribution Amount. Merck shall, on or prior to the ClosingDate, contribute cash to Merck Transitory LLC in an amount (the “Merck Cash Contribution Amount”)equal to the amount, if any, by which the Merck Non-U.S. Net Assets Value exceeds the “MerckEstimated Available Contributed Debt”, as defined below. The “Merck Estimated AvailableContributed Debt” shall be the amount equal to [*] (the “Merck Negotiated Debt”)plus an estimate of the “Merck Closing Cash” (as defined below) less the sum of (w) anestimate of the “Merck Accrued Tax Liabilities” (as defined below), (x) an estimate of the “MerckOther Debt” (as defined below), (y) the value of the Retained Receivables (as defined in Section5.1(a)(ii)(C)) and (z) the value of the Retained Inventory (as defined in Section 5.1(a)(ii)(C)).     The “Merck Closing Cash” shall be equal to the cash and the fair market value of cashequivalent items that are included in the Merck
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Contributed Assets, but shall exclude the Merck Asset Sale Proceeds, as defined in Section 10.9(a).     The “Merck Accrued Tax Liabilities” shall be the amount equal to the net (after netting thepayables and the receivables) accrued Liabilities for Taxes (excluding deferred Taxes) to theextent they are Merck Contributed Liabilities at the Closing Date.     The “Merck Other Debt” shall be the amount of Debt at the Closing assumed or otherwise payableby Merck Transitory LLC, Merial or any Merial Subsidiary (without duplication) in favor of Merck(or another Merck Company designated by Merck) or the Debt payable to a Third Party assumed from aMerck Company or owed at the Closing by any Merck Transferred Subsidiary, other than the amount ofDebt consisting of the promissory notes (the “Purchase Promissory Notes”) issued by Merial or theappropriate Merial Subsidiaries to purchase Merck Contributed Non-U.S. Assets, the RetainedReceivables and the Retained Inventory pursuant to Sections 5.1(a)(ii)(A)(3), 5.1(a)(ii)(C)(l) or5.1(a)(ii)(C)(2), respectively.     (C) Retained Receivables and Retained Inventory.     (1) Retained Receivables. Merck may (in its sole discretion) elect toretain *(i.e.*, not contribute as part of the Merck Contributed U.S. Assets) certain of itsReceivables (the “Retained Receivables”) selected by it from among the Receivables thatare part of the Merck Contributed U.S. Assets, at face value. To the extent Merckelects to retain Retained Receivables: Merck shall deliver to RP at the Closing a list ofthe Retained Receivables, which list shall include a description in reasonable detailincluding the face amount of each such Retained Receivable. Merck shalluse commercially reasonable efforts to collect all RetainedReceivables within ninety (90) days following the Closing Date. After such
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ninety (90) day period, Merck shall furnish to Merial a list of all Retained Receivables thatremain uncollected, together with all information and supporting documentation which Merck has foreach such uncollected Retained Receivable; and Merial shall within five (5) Business Days ofreceiving such list, information and documentation, purchase all such outstanding RetainedReceivables from Merck at the face amount thereof (calculated in U.S.$ at the closing midpointexchange rates quoted by the London edition of the *Financial Times*on the Closing Date). Suchpurchase shall be made, at Merial’s option, with cash and/or with promissory notes issued to theseller.     (2) Retained Inventory. Merck may (in its sole discretion) elect to retain*(i.e.*, not contribute as part of the Merck Contributed U.S. Assets) certain of its finished goodsInventory (the “Retained Inventory”) selected by it from among the finished goods Inventory of theMerck Contributed U.S. Assets. To the extent Merck elects to retain any Retained Inventory, Merckshall deliver to RP at the Closing a list of the Retained Inventory, which list shall include adescription in reasonable detail including a breakdown of the value of such Retained Inventory.For purposes of calculation in this Section 5.1(a), the value attributed to the Retained Inventoryshall be calculated in accordance with the Merck Manufacturing Supply Price Formula. On theClosing Date, Merial shall purchase the Retained Inventory from Merck with promissory notes at afair market value price that to the extent possible excludes any intercompany (between MerckCompanies) margin already included in the book value for such Inventories as recorded in theaccounts of the selling Merck Company, except for the markup on standard cost and the adjustmentprovided for in the Merck Negotiated Supply Price. To the extent the Inventories cannot bepurchased at a fair market value price that excludes any such margin, the Parties shall
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use commercially reasonable efforts and negotiate in good faith to find and give effect toa solution (which will not include taking actions that would reduce Merck’s net incomebelow that which Merck would realize if such Inventories were sold at a price calculatedaccording to the Merck Negotiated Supply Price) that will eliminate the effect of thepurchase of such Retained Inventory at a price that includes such margin on the net incomeof RP. To the extent the price at which the Merial Venture ultimately purchases theRetained Inventory exceeds the Merck Negotiated Supply Price, such excess shall beincluded in the calculation of the Supply Price Adjustment Special Dividend, pursuant toSection 6.7.     (D) Non-Contributed Subsidiaries. The Parties hereby agree thatnone of Merck’s interests in Johnson & Johnson MSD ConsumerPharmaceuticals (formerly Centra Healthcare (U.K.)) or Blue Jay CV(Holland) shall be contributed to the Merial Venture. Merck shall defend,indemnify and hold harmless the Merial Venture and (only to the extent RPand its Subsidiaries suffer Damages separate and distinct from Damagessuffered by the Merial Venture) RP and its Subsidiaries from and againstany and all Damages incurred by the Merial Venture or RP and itsSubsidiaries arising out of, based upon or resulting from an action or claimbrought by a Third Party to the extent arising out of, based upon orresulting from the past, present or future operations of Johnson & JohnsonMSD Consumer Pharmaceuticals (formerly Centra Healthcare (U.K.)) orBlue Jay CV (Holland).     (E) Delayed Purchase Assets. Pending the purchase and sale ofa Delayed Purchase Asset and the assumption of the Merck ContributedLiabilities reasonably attributable thereto in accordance with Section5.1(a)(ii)(A) (collectively, a “Delayed Transfer”):
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     (1) Merck shall (or shall cause the relevant Merck Subsidiary to) hold all benefitsof such Delayed Purchase Assets to the extent related to the Merial Venture Business asagent for the Merial Venture and promptly pay to Merial (or a Merial Subsidiary that isthe expected purchaser of such assets as designated by Merial) without any deduction,set-off or counterclaim, any and all net sums (after netting any amounts contemplated byclause (2) below to the extent not previously paid or reimbursed by the Merial Venture)received by the Merck Company on account of the operation of such Assets; and     (2) Merial shall (or shall cause the relevant Merial Subsidiary to) (at the MerialVenture’s own cost and for its own account) pay, perform, fulfill and discharge when dueall of the Liabilities, costs, expenses and obligations suffered or incurred by Merck orany of its Subsidiaries in respect of the ownership or operation of such Delayed PurchaseAsset from the Closing Date until the Delayed Transfer of such Delayed Purchase Asset;provided, however, that Merck (or the relevant Merck Subsidiary) shall beresponsible for any Damages payable to a Third Party to the extent such Damages resultfrom Merck’s or any of its Subsidiaries’ negligence, recklessness or willful misconduct inthe operation of such Delayed Purchase Asset, which negligence, recklessness or willfulmisconduct occurred prior to the Delayed Transfer of such Delayed Purchase Asset.     No effect shall be given to clauses (i) or (ii) above if and to the extent that there is asignificant risk that such arrangements would not be in material compliance with applicable Laws ifeffect were given thereto, in which case the principles set forth in clause (y) of Section5.1(a)(ii)(A)(4) shall apply, and the Principals and Merial shall cooperate to seek an alternativesolution designed to provide the Merial Venture with the
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     material benefits (or the substantial equivalent of the benefits of) such Assets andLiabilities.     (iii) British United Turkeys, Ltd (“BUT”) (A) Merck shall, subject to thecondition specified in (B) immediately below, assign, transfer, convey and deliver to MerckTransitory LLC the entirety of the share capital of BUT; provided, however, that(B) if, as a result of implementing the “BUT Steps”, as defined below, any Merck Company would orwould be reasonably likely to recognize taxable gain in excess of [*] with respect to theBUT Steps under the terms of (aa) any amendment to Code § 355 and/or the Treasury Regulationsthereunder adopted on or after the date hereof and prior to the Closing, (bb) any proposal of anysuch legislation or Treasury Regulations made since January 1, 1997, or (cc) any official notice orpronouncement with respect thereto made since January 1, 1997, in the case of any of (aa), (bb) and(cc), indicating that such amendment would have an effective date that would make it applicable tothe BUT Steps, the Parties agree that BUT will be transferred directly to Merial by Merck Sharp &Dohme (Holdings) Limited in return for an issue of fixed-rate preference shares (the “PreferenceShares”) with a face amount of [*]. The Parties acknowledge that, in either case, BUTshall not be treated as part of the Merck Contributed Non-U.S. Assets pursuant to clause (ii)above. The Parties further agree that, if Merial issues such Preference Shares to Merck Sharp &Dohme (Holdings) Limited, Merial will issue Preference Shares with a face amount of [*] toIM in consideration for IM’s contribution to Merial hereunder of shares of RM with a fair marketvalue equal to the fair market value of the Preference Shares received. The Parties agree that,after said issue, and all other Closing Date share transactions and events, each Principal shallown, directly or indirectly, exactly the same general ownership interest and Preference Shareinterest in Merial.     For purposes of this Section 5.1(a)(iii), the “BUT Steps” shall mean all or any part of thefollowing: the distribution of the shares of BUT by its shareholder(s), followed by additionaldistribution to shareholders, followed by a
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contribution of the shares of BUT to Merck Transitory LLC, followed by the merger of MerckTransitory LLC with and into Merial. Whether any Merck Company would or would bereasonably likely to recognize taxable gain in excess of [*] with respect to the BUTSteps shall be determined in the good faith judgment of Merck, after having provided to RPall material and relevant information which is reasonably available to Merck.     If Preference Shares are issued pursuant to clause 5.1(a)(iii)(B) above, thePreference Shares shall remain outstanding in perpetuity (unless and until Merial isliquidated). The Preference Shares shall be entitled to an annual dividend per share suchthat the aggregate outstanding Preference Shares shall be entitled to an annual dividendof: [*], which shall be paid out of Distributable Profits for each Fiscal Yearremaining after payment of the Net Special Dividend, as provided in Section 6.2, and whichdividend shall be cumulative (but shall be paid in any event after payment of the NetSpecial Dividend, as provided in Section 6.2). The Preference Shares shall have theliquidation rights specified in Section 6.11. The Preference Shares shall not be entitledto any voting rights, except any voting rights which are required under applicable Laws.The Preference Shares shall not be transferable, except in connection with a Transfer of aMember’s entire Merial Venture Interest in accordance with Article XVII hereof. TheAssociation Documents shall be modified to the extent reasonably necessary or appropriateto implement this Section 5.1(a)(iii).     (b) RP Contribution. On the terms and subject to the conditions of thisAgreement (and subject specifically to the representations, warranties and covenants made by RP, IMand RM in this Agreement) and the RP Transfer Agreement, and subject to subsections (i), (ii) and(iii) below, IM shall, on or prior to the Closing Date, assign, transfer, convey and deliver toMerial or cause to be assigned, transferred, conveyed and delivered to Merial, the entirety of theshare capital of RM, together with all of RM’s direct and indirect ownership interests in each ofits Subsidiaries as set forth in Schedule 2-11 hereto. As a consequence, and without limitation,Subsidiaries of Merial
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shall thereby be obligated to pay, perform, fulfill and discharge when due all of the RMContributed Liabilities.     (i) Goubin. The Parties intend that Goubin shall be sold either (x)by the Merial Venture, in which case Merial shall (and shall procure that the other MerialVenture Companies shall) cooperate with RP and provide any information or assistancereasonably requested by RP to find a purchaser for Goubin, or (y) by RP, should RP exerciseits call option described in (B) below.     (A) Goubin Operations Pending Sale. RP hereby represents, as ofthe date hereof and as of the Closing Date, to Merck, Merck SH and Merial that,since December 31, 1996, Goubin has been operated in the ordinary course of business(including capital expenditures made in accordance with approved programs)consistent with past practice and there has not been any material change in theassets or Liabilities of Goubin (other than the payment of dividends and suchapproved programs of capital expenditures), including any material contribution ofassets by RM or ISA of any kind to Goubin, as compared with the balance sheet ofGoubin as of December 31, 1996 set forth in Schedule 5.1B-1. For purposes of thisSection 5.1(b)(i), a “material” contribution of assets means a contribution ofassets in excess of [*]. Merial covenants that, as of the Closing Date anduntil the second anniversary of the Closing Date, or the sale of Goubin if earlier,it shall not cause Goubin to take any action that is outside the ordinary course ofbusiness consistent with past practice and shall not cause Goubin to incur anyadditional Debt, except in the ordinary course of business, as compared with theDebt of Goubin as of the Closing Date, provided that Merial may, upon RP’s requestand subject to the consent of Merck (which consent shall not be unreasonablywithheld), cause an action out of the ordinary course to be taken or a materialcontribution of assets to be made if necessary to facilitate the sale of Goubin.RP shall indemnify the Merial Venture for any costs and expenses incurred by theMerial Venture in connection with, and shall defend,
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indemnify and hold harmless the Merial Venture for any Damages incurred by the Merial Venture as aresult of, any such action and/or material contribution. RP shall also defend, indemnify and holdharmless the Merial Venture for any and all Damages (but not for any capital accounting lossrecorded by the Merial Venture in selling Goubin in accordance with this Section 5.1(b)(i)) arisingout of the operation or condition of Goubin before the earlier of (x) the sale of Goubin and (y)the second anniversary of the Closing Date (except for any such Damages payable to a Third Partyother than the purchaser (or its Affiliates) of Goubin, to the extent resulting from thenegligence, recklessness or willful misconduct of the Merial Venture, including that of themanagement of Goubin).     (B) Purchaser and Timing of Goubin Sale.     (1) At any time on or prior to the second anniversary of the Closing Date, if a firm offer topurchase Goubin is received from a Third Party (which may include the employees of Goubin) at aprice that is acceptable to RP and that is greater than or equal to the Goubin Book Value at theClosing Date plus any amounts contributed by any other Merial Venture Company to Goubin pursuant toSection 5.1(b)(i) that have not been reimbursed by RP, less the sum of [*] (translatedinto FF at the closing midpoint exchange rate indicated in the London edition of the *FinancialTimes*on the Closing Date) and all the dividends paid by Goubin to any other Merial Venture Companybetween the Closing Date and the date when such offer is received, then the Merial Venture shallsell Goubin to such purchaser.     (2) At any time on or prior to the second anniversary of the Closing Date, RP shall have theoption to purchase Goubin from the Merial Venture for an amount equal to the Goubin Book Value atthe Closing Date plus any amounts contributed by any other Merial Venture Company to Goubinpursuant to Section 5.1(b)(i) that have not been reimbursed by RP,
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less the sum of [*] (translated into FF at the closing midpoint exchange rate indicatedin the London edition of the *Financial Times*on the Closing Date) and all the dividends paid byGoubin to any other Merial Venture Company between the Closing and the exercise by RP of its calloption. If such purchase results in a capital loss to the Merial Venture, RP shall not sellGoubin to a Third Party at a profit (to the RP Group) for a period of six months after the exerciseof such option. For the avoidance of doubt, the Parties understand that the ownership by RP andthe operation of the current business of Goubin in accordance with this Section 5.1(b)(i) is notwithin the scope of the Animal Health Business or the Poultry Genetics Business and is thereforenot subject to the non-competition provisions set forth in Article XV.     (3) On or within two Business Days after the second anniversary of the Closing Date, ifGoubin has not been sold to a Third Party or RP as provided in (1) or (2) above, then Merck willhave the option, which it may exercise in its own discretion (by notice to RP and Merial sent atany time prior to the end of the second Business Day after the second anniversary of the ClosingDate, which notice may be conditioned upon the transactions in (1) or (2) above occurring or notoccurring) and will be binding on both Merial and RP, to require Merial (or the Merial VentureCompany that owns Goubin) to sell Goubin to RP for an amount equal to the Goubin Book Value atClosing Date plus any amounts contributed by any other Merial Venture Company to Goubin pursuant toSection 5.1(b)(i) that have not been reimbursed by RP, less the sum of [*] (translatedinto FF at the closing midpoint exchange rate indicated in the London edition of the *FinancialTimes*on the Closing Date) and all the dividends distributed by Goubin to any other Merial VentureCompany during the two year plus two Business Day period following the Closing Date. If Merckdoes not exercise this put option, Goubin shall continue as an integral part of the Merial VentureBusiness after two years and the
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indemnification obligations of RP under this Section 5.1(b)(i) in connection with the sale ofGoubin shall terminate.     (C) Goubin Sale for RP’s Account.     (1) Special Dividend to RP. In the case of the sale of Goubin pursuant to (B) above,Merial shall credit to the RP Member in respect of the year in which the sale of Goubin occurs aSpecial Dividend equal to the cash (or the fair market cash equivalent of any non-cash proceeds)received by the Merial Venture (whether from a Third Party purchaser or from RP) for the sale ofGoubin, less any costs, expenses or Damages (including Taxes, fees and registration fees) incurredby the Merial Venture in connection with such sale.     (2) Purchase Agreement, etc. The sale of Goubin shall be by means of the sale of itsentire capital stock, the sale of all its assets subject to all its Liabilities, or anysubstantially similar transaction; provided, however, that if the Principals agreeto a partial sale of Goubin, they shall adjust the mechanism set forth in this Section 5.1(b)(i) asthey deem appropriate. Any sale of Goubin shall be without any recourse against the Merial Ventureexcept as to title matters and except as to any Damages payable to a Third Party other than thepurchaser (or its affiliates) of Goubin to the extent resulting from the negligence, recklessnessor willful misconduct of the Merial Venture, including of the management of Goubin. Subject to thefollowing sentence, all Damages, Liabilities and contingencies associated with a sale of Goubinpursuant to this Section 5.1(b)(i) above suffered or incurred by Merck, Merial and their respectiveSubsidiaries shall be for the account of RP. RP shall (and no Merial Venture Company shall), inany contract for the sale of Goubin to a Third Party purchaser, undertake to indemnify thepurchaser thereof for all breaches of representations, warranties or covenants in such contractrelated to Goubin and its sale; provided that RP shall have approved all of
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such representations, warranties and covenants prior to the contract being concluded; andfurtherprovided that Merial shall indemnify RP for any Damages owed tosuch Third Party purchaser of Goubin to the extent arising from Damages payable to a ThirdParty other than the purchaser (or its Affiliates) of Goubin to the extent resulting fromthe negligence, recklessness or willful misconduct of the Merial Venture, including of themanagement of Goubin. Except to the extent Merial has an obligation to indemnify RPpursuant to the preceding sentence, RP shall defend, indemnify and hold harmless the MerialVenture and (to the extent they suffer any Damages distinct from those suffered by theMerial Venture) Merck and its Subsidiaries for all Damages suffered or incurred by theMerial Venture or Merck and its Subsidiaries arising out of, based upon or resulting fromsuch sale.     The “Goubin Book Value” at any date shall equal the book value of Goubin on such date in theaccounts of ISA, determined according to U.S. GAAP applied consistently with the principles used tocalculate Goubin’s book value in the December 31, 1996 balance sheet of ISA. RP represents andwarrants that the insurance claim made by Goubin with respect to damages in connection with a fireat a hatchway in Plougenast ([*]) was finally resolved and paid to Goubinprior to the date of this Agreement.     (ii) Certain RM Liabilities and Receivables Excluded. Notwithstanding Sections5.1(b) and (c), RM shall, prior to the Closing, (A) assign to RP (or another RP Company designatedby RP), and RP shall assume and pay, perform and discharge when due, the payable to Sanofi of RM,which is described on Schedule 5.1B-2 (the “Sanofi Payable”), and (B) assign to RP (or another RPCompany designated by RP) the related financial receivable of RM due by RM’s unconsolidatedSubsidiary Rhône Mérieux Animal Health Company Ltd. (China) (“RM China”), which is described inSchedule 5.1B-2 (the “RM China Financial Receivable”). In addition, as from the Closing Date, RP(or another RP Company designated by RP) will be entitled to an amount equal to the differencebetween
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the Sanofi Payable and the RM China Financial Receivable as of the Closing Date ([*]), which amount will be paid by RM China to RP over time only from and to the extent of theproceeds of specific assets that are part of the current assets held by RM China as of the ClosingDate (the “RP Chinese Assets”). The RP Chinese Assets shall consist of specific trade receivables,Inventories and/or other current assets each as existing on the Closing Date in the books of RMChina. At the Closing, RM shall provide Merck with a list and description in reasonable detail(including book value) of the RP Chinese Assets. The aggregate book value of the RP Chinese Assetsshall be equal to or less than the difference between the Sanofi Payable and the RM China FinancialReceivable. The Parties acknowledge that the RP Chinese Assets are specifically allocated to thereimbursement of RP and that each time any of the RP Chinese Assets is sold for cash or collectedfor cash by RM China, the net proceeds of such asset will be used promptly upon their beingreceived to reimburse RP to the extent provided in this Section 5.1(b)(ii). The Partiesunderstand that the only obligation of RM China is to sell or collect the RP Chinese Assets in theordinary course of business, without any extraordinary sale or litigation and without recourse to,or any other obligation of, the Merial Venture. RP represents and agrees that, as indicated inSchedule 5.1B-2, at December 31, 1996, the amount outstanding under the RM China FinancialReceivable is [*]. The Parties agree that suchRM China Financial Receivable is deemed to be Debt. The Parties further agree that in the eventthe aggregate of the values of all the RP Chinese Assets as recorded in the books of RM China onthe Closing Date is less than the amount equal to the difference between (x) the Sanofi Payable and(y) the RM China Financial Receivable, the amount (the “RP Chinese Assets Value Shortfall”) bywhich the book value of all the RP Chinese Assets is less than such difference shall become a Debtobligation payable by RM to RP and such amount shall be deemed to be Debt. The Parties agree thatthe proceeds collected with respect to each RP Chinese Asset that is paid to RP pursuant to thisSection 5.1(b)(ii) shall not exceed the value of each such RP Chinese Asset as recorded in thebooks of RM China on the Closing Date.
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     (iii) Central Biologics Inc. RM represents that (x) Select Laboratories,Inc., a Subsidiary of RM (“Select”), is currently in the process of acquiring CentralBiologics Inc. (“Central Biologics”) for a purchase price of [*] (this acquisitionbeing the “Central Biologics Acquisition”); and (y) as part of the Central BiologicsAcquisition, [*]. The Parties hereby agree that both the Central BiologicsAcquisition and the Central Biologics Consulting Agreement are entered into for the accountof Merial. As a result, the Parties further agree that (aa) any Debt assumed by RM, Selector any other Subsidiary of RM to acquire Central Biologics, (bb) any cash or cashequivalents, if any, used by Select or any other Subsidiary of RM to acquire CentralBiologics shall be added to the RM Closing Cash when determining the actual contributions ofthe Parties in accordance with Sections 5.3 and 6.8, (cc) any cash or cash equivalentsincluded in Central Biologics upon completion of its acquisition by RM, Select, or anySubsidiary of RM shall be excluded from the RM Closing Cash, and (dd) any Debt included inCentral Biologics upon completion of its acquisition by RM, Select or any other Subsidiaryof RM, shall not be included in the RP Outstanding Debt.     (c) Contributed Assets Free of Debt. The Merck Contributed Assets, on the one hand,and RM and its Subsidiaries, on the other hand, shall be contributed to the Merial Venture togetherwith the assumption of or the continued obligation for the Merck Contributed Liabilities and the RMContributed Liabilities, respectively. Except as set forth in Section 5.2 or as provided for inArticle VII, however, such respective contributions shall be free of (i) any related financialindebtedness (“Debt”), including any Liability, contingent or otherwise, for borrowed money, anyobligations in respect of or evidenced by bonds, debentures, notes, letters of credit or similarinstruments and any obligations under finance lease obligations (as defined by U.S. GAAP).     (d) Currency Exchange for Asset Contributions. The respective contributions of eachGroup to the Merial Venture shall be calculated in U.S. dollars as of the Closing
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Date. The value of any contribution not denominated in U.S. dollars shall be converted into U.S.dollars at the closing midpoint exchange rate quoted by the London edition of the *Financial Times*on the Closing Date, or as otherwise agreed upon. Subject to Section 5.2(c), all other necessarycurrency conversions in respect of the value of the respective contributions *(e.g.,*to Englishpounds sterling or French francs) shall also be based on the closing mid-point exchange ratesquoted by the London edition of the *Financial Times*on the Closing Date, or as otherwise agreedupon.SECTION 5.2 Debt Contributions     (a) Merck Debt Contribution. On the terms and subject to the conditions of thisAgreement, Merial shall (or Merial shall, in accordance with the terms of this Agreement, cause oneor more Subsidiaries of Merial to), on the Closing Date, assume on behalf of and/or in favor ofMerck or a Merck Subsidiary, and shall pay, perform and discharge when due, all Liabilities relatedto the “Merck Contributed Debt”, as defined below. The “Merck Contributed Debt” shall consist of(and its aggregate amount shall be calculated by adding the amounts of): (i) the PurchasePromissory Notes, as defined in Section 5.1(a)(ii)(B), if any, (ii) the Merck Accrued TaxLiabilities, as defined in Section 5.1(a)(ii)(B), and (iii) the Merck Other Debt, as defined inSection 5.1(a)(ii)(B). The Purchase Promissory Notes shall be on substantially the same terms andconditions as the Merck Interim Financing described in Section 5.2(d) (except that the PurchasePromissory Notes shall not be subject to reborrowing to the extent repaid, *i.e.,*not a revolvingcredit).     (b) RP Debt Contribution. On the terms and subject to the conditions of thisAgreement, RM and its Subsidiaries shall, on the Closing Date, have Liability (the “RP ContributedDebt”) (i) for Debt consisting of (and its aggregate amount shall be calculated by adding theamounts of) the “RM Intercompany Debt” (as defined below), the “RM Outstanding Debt” (as definedbelow), the RM China Financial Receivable and the RP Chinese Assets Value Shortfall, if any, and(ii) for the “RM Accrued Tax Liabilities” (as defined below).
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     The “RM Intercompany Debt” shall be RM’s estimate as of the Closing Date of the aggregateprincipal amount equal to: [*] (the “RP Negotiated Debt”) plus the estimatedamount of “RM Closing Cash” (as defined below) and minus the estimated sum of (A)the “RM Outstanding Debt”, (B) the estimated net amount (after netting the payables and thereceivables) equal to the accrued Liabilities for Taxes (excluding deferred Taxes) of RM and for RMTransferred Subsidiaries at the Closing Date (the “RM Accrued Tax Liabilities”), (C) the RM ChinaFinancial Receivable as described in Section 5.1(b)(ii), and (D) without duplication of (C), the RPChinese Assets Value Shortfall (as defined in Section 5.1(b)(ii)). The RM Intercompany Debt shallnot be subject to any covenants and shall be on substantially the same terms and conditions as theRP Interim Financing described in Section 5.2(d) (except that this Debt shall not be subject toreborrowing to the extent repaid, *i.e.,*not a revolving credit).     The “RM Outstanding Debt” shall consist of (x) the sum of the aggregate principal amountoutstanding at Closing and any accrued unpaid interest or other amounts, calculated as of theClosing Date, in respect of the Debt owed by RM or its Subsidiaries to Third Parties as reflectedon the December 31, 1996 balance sheet included in the RM Financials, and (y) without duplicationof any Debt included in (x) above, any other Debt owed by RM or its Subsidiaries at the ClosingDate less (without duplication) (aa) any Debt owed by Goubin on the Closing Date, (bb) anyDebt incurred by RM, Select or any other Subsidiary of RM to pay for the Central BiologicsAcquisition, and (cc) any Debt owed by Central Biologics on the Closing Date. RP shall obtain anyconsents or waivers required under the terms of the RM Outstanding Debt to give effect to theTransactions (so that the RM Outstanding Debt is not and does not become in default and does notgive the counterparty to any of the RM Outstanding Debt any rights of termination, amendment,acceleration, suspension, revocation or cancellation) and RP shall pay any and all costs andexpenses, including any increased interest expenses, penalties or charges, necessary to obtain suchconsents or waivers. Subject to the preceding sentence, the “RM Outstanding Debt” shall continueon its stated terms and conditions after the Closing.
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     The “RM Closing Cash” shall be equal to the cash and the fair market value of cash equivalentitems contributed by RM and its Subsidiaries to the Merial Venture, but shall exclude (aa) the RMAsset Sale Proceeds, as defined in Section 8.9(a), (bb) the cash and cash equivalents items ownedby Goubin on the Closing Date, (cc) any cash and cash equivalent items owned by Central Biologicsupon completion of its acquisition by RM, Select or any other Subsidiary of RM, and (dd) anyproceeds from the Diagnostic Disposal.     In the event Goubin is not sold pursuant to, and within the time periods specified in, Section5.1(b)(i) and remains part of the Merial Venture, the Parties shall at such time negotiate in goodfaith to find and give effect to a solution that will take account of the Debt of, and the cash andcash equivalent items that were owned by, Goubin on the Closing Date.     (c) Currency Exchange for Contributed Debt. The currency exchange rates used tocalculate the U.S. dollar value of any Merck Contributed Debt, Retained Receivables, RetainedInventory or RP Contributed Debt not denominated in U.S. dollars shall be the closing midpointexchange rates quoted by the London edition of the *Financial Times*on the Closing Date, or asotherwise agreed between the Parties.     (d) Interim Financing. Both RP and Merck shall provide, or shall arrange withoutside financial institutions to provide, the Merial Venture with a revolving working capitalfinancing facility available when needed as from the Closing Date (the “RP Interim Financing” andthe “Merck Interim Financing”, respectively), with a maximum aggregate principal amount to beoutstanding from time to time of [*] for each such facility. Should Merial requestan increase of the maximum aggregate principal amount of the RP Interim Financing and the MerckInterim Financing, RP and Merck agree to discuss in good faith the terms and conditions of any suchincrease and whether any such increase will be provided. The Parties agree that the RP InterimFinancing shall not be included in, and shall be in addition to, the RP Contributed Debt and theMerck Interim Financing shall not be included in, and shall be in addition to, the MerckContributed Debt. The RP Interim Financing and the Merck Interim Financing shall have
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substantially equivalent terms and conditions, both be available through the earlier of December15, 1997 and the date that is six (6) months after the Closing Date, at which earlier date allamounts outstanding thereunder shall be due and payable, and bear interest at the [*] in which the advances that are part of the interim financing are made [*]. Merial shall use commercially reasonable efforts to establish its own financing as soonas practicable after the Closing to be used, first, to repay the RP Contributed Debt and the MerckContributed Debt, second, to repay the RP Interim Financing and the Merck Interim Financing, withthe RP Interim Financing and the Merck Interim Financing being repaid simultaneously on the sameterms and conditions and, third, for other purpose of the Merial Venture Business. The Principalsshall meet before the Closing to determine further terms and conditions of the RP Interim Financingand the Merck Interim Financing.SECTION 5.3. Preparation and Audit of Closing Balance Sheets     (a) Preparation of Closing Balance Sheets — General. As soon as possible afterthe Closing Date, and in no event more than thirty (30) Days after the Closing Date, each of RM andMerck shall prepare and deliver to each other a consolidated balance sheet (the “RM Closing BalanceSheet” and the “Merck Closing Balance Sheet”, respectively, and, collectively, the “Closing BalanceSheets”) for RM and the Merck Contributed Business, respectively. These balance sheets shallinclude as special purpose line items (i) the RM Closing Cash and the Merck Closing Cash, (ii) theRM Intercompany Debt, the RM Outstanding Debt, the RM China Financial Receivable, the RP ChineseAssets Value Shortfall and the Merck Other Debt, and (iii) the RM Accrued Tax Liabilities and theMerck Accrued Tax Liabilities. The RM Intercompany Debt, the RM Outstanding Debt, the RM ChinaFinancial Receivable, the RP Chinese Assets Value Shortfall, the RM Accrued Tax Liabilities and theRM Closing Cash shall be used to calculate the “RM Actual Contributed Net Debt Variance” and the“Contributed Debt Adjustment Special Dividend”, both as defined in Section 6.8 below. The MerckAccrued Tax Liabilities, the Merck Other Debt and the Merck Closing Cash shall be used to calculatethe “Merck Actual Contributed Net Debt Variance” and the “Contributed Debt Adjustment SpecialDividend”, both as defined in Section 6.8 below. Merck shall also provide RP with a list
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of all Delayed Purchase Assets, which list shall include a description in reasonable detail of allsuch Delayed Purchase Assets and an estimate of the fair market value of all the Delayed PurchaseAssets on an aggregate basis.     (b) Audit of Closing Balance Sheets and Retroactive Closing Financial Statements.As soon as possible after the preparation of the Closing Balance Sheets and the Retroactive ClosingFinancial Statements, as defined in Section 6.3, Merck shall send the Merck Closing Balance Sheetand the Merck Retroactive Closing Financial Statements to its accounting firm and to RM, and RMshall send the RM Closing Balance Sheet and the RM Retroactive Closing Financial Statements to itsaccounting firm and to Merck. Each of RM’s and Merck’s accounting firms shall promptly be providedwith any relevant financial data they may reasonably request. Each of RM’s and Merck’s accountingfirms shall have a maximum of sixty (60) days to conduct an audit of the Closing Balance Sheets andthe Retroactive Closing Financial Statements of their respective client, which audit shall include,among other things, (x) an audit of the Debt and the cash and the cash equivalent items contributedby each Party to the Merial Venture, (y) at the request and expense of RP, an analysis of whetheror not all the Merck Contributed Assets are fairly reflected in all material respects in the MerckClosing Balance Sheet and, to the extent not included therein, have been specified by Merck to RPas Delayed Purchase Assets, and (z) an audit of the Retroactive Closing adjustments to ensure suchadjustments have been calculated in accordance with the provisions set forth in Section 6.3 and inExhibit XIX.     As soon as possible, and in no event more than sixty (60) days after being sent the ClosingBalance Sheets and the Retroactive Closing Financial Statements, each of RM’s and Merck’saccounting firms shall make available to the other their working papers, reports and comments onthe Closing Balance Sheets and the Retroactive Closing Financial Statements. In the event thereare any disagreements, the Parties will then have twenty (20) Business Days to agree on the changesto be made to the Closing Balance Sheets and/or the Retroactive Closing Financial Statements andresolve any disputes arising between them. In the event there is any unresolved dispute at the endof this twenty (20) Business Day period, the Parties will jointly submit such unresolved disputes
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to the Board of Directors. The Board of Directors shall then have ten (10) Business Days toresolve such disputes. In the event there are any unresolved disputes at the end of this furtherten (10) Business Day period, the Board of Directors shall have five (5) Business Days to engage a“Big Six” accounting firm to resolve any such dispute, except that (i) if the Board of Directorscannot reach agreement on the selection of such accounting firm, then such accounting firm shall beselected and appointed by the ICE (which selection and appointment shall be final and binding onthe Board of Directors and on the Principals) and (ii) the firm so selected and appointed may notbe the primary accounting firm for Merck, RP, RM or Merial. Each of the Principals shall submit tothe selected accounting firm their detailed calculations and such firm shall promptly be providedwith any relevant financial data that it may request. The selected accounting firm shall act asexpert and shall have twenty (20) Business Days to resolve all the disputes, and such resolutionshall be final and binding on the Parties and the Board of Directors. The fees and reasonableexpenses of the selected accounting firm shall be split equally between Merck and RP.SECTION 5.4. Alternative Tax Structuring and Tax Planning     (a) Changes in Law. With respect to Merial or any other Merial Venture Company, if,due to any change or proposed change in applicable Law (including, without limitation, actions ofany Public Authority) after the Closing, the continuation of the structure described in Section 1.3and Article III entails (or, in the case of a proposed change, would, if enacted, entail)materially adverse tax or other legal consequences to a Principal or its Affiliates, or asignificant risk thereof, at the request of such Principal the Parties shall use commerciallyreasonable efforts to agree on an appropriate alternative structure that will be designed, to theextent possible, to minimize such adverse consequences to the requesting Principal and itsAffiliates but have no less favorable economic, commercial and legal characteristics to the otherPrincipal and its Affiliates as the structure described elsewhere in this Agreement and theAncillary Agreements.     (b) Restructurings to Minimize Taxes.
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     (i) General. Each Party shall bear the tax consequences of its transfers tothe Merial Venture and (unless otherwise agreed in writing) the performance of its obligationsunder this Agreement and any and all Ancillary Agreements to which it is a party or by which it isbound. [*].     (ii) Alternative Contribution of Merck Contributed Non-U.S. Assets. Withoutlimiting the generality of Section 5.4(b)(ii) and notwithstanding the provisions of Sections1.3(a)(i)(B), 1.3(c), and 5.1, and subject to the conditions set forth in (t), (u), (v), (w), (x),(y) and (z) below, Merck may elect to exclude from the Non-U. S. Merck Contributed Assets to besold to the Merial Venture and/or from the Merck Contributed Liabilities reasonably attributablethereto assumed by the Merial Venture, certain of such assets and Liabilities [*], provided that (t) intangible assets included in the Merck Contributed Assets maynot be so excluded, (u) Merck identifies in reasonable detail in writing to RP on or prior to theClosing Date such assets and/or liabilities; (v) an arrangement with respect to such assets and/orliabilities is entered into among the Parties or their Affiliates and/or other adjustments are madeto the terms and conditions of the transactions contemplated by this
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Agreement so that they have, in the aggregate, no less favorable economic, commercial andlegal characteristics to RP, the Merial Venture and their respective Affiliates as thestructure described elsewhere in this Agreement; (w) RP consents in writing to thisalternative prior to its implementation (which consent shall not be unreasonably withheldor unreasonably delayed if, in RP’s reasonable opinion, all the other conditions specifiedin this clause (ii) have been satisfied); (x) [*]; (y) Merckshall be responsible for all out-of-pocket costs and fees reasonably incurred by RP or anyof its Subsidiaries in assessing the alternative structure proposed by Merck pursuant tothis clause (ii); and (z) no such alternative structure shall be proposed if suchalternative structure would result in such assets and/or Liabilities being transferred tothe Merial Venture after December 31, 1997.     (iii) Except as provided elsewhere in this Agreement or in the Ancillary Agreements,each Party and its Affiliates will, however, ultimately be responsible for its own Taxes.SECTION 5.5*.*Certain U.S. Tax Matters     (a) Designation of Tax Matters Partner. The Merck Member is hereby designatedas the “Tax Matters Partner” under Section 6231(a)(7) of the Code to manage the administrative Taxproceedings conducted at the Merial Venture level by the IRS with respect to Merial Venturematters. The Merck Member is specifically directed and authorized to take whatever steps the MerckMember, in its sole discretion, deems necessary or desirable to assure the Merck Member’sdesignation as the Tax Matters Partner, including, without limitation, filing any forms ordocuments with the IRS and taking such other action as may from time to time be required underTreasury Regulations. Expenses of administrative proceedings relating to the determination ofMerial Venture items at the Merial Venture level undertaken by the Merck Member in accordance withthis Section 5.5 will be deemed to be Merial Venture expenses.
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     (b) Tax Elections. All Tax elections required or permitted to be made under the Codeand any applicable U.S. federal, state or local Tax law with respect to the Merial Venture (or anyof its Subsidiaries) shall be made by the Tax Matters Partner, subject to the express prior writtenapproval of the RP Member, which approval shall not be unreasonably withheld, and any decision withrespect to the treatment of Merial Venture transactions on the Merial Venture’s U.S. federal, stateor local Tax Returns shall be made by the Members jointly. The RP Member hereby approves theelection to classify Merial as a partnership for U.S. Tax purposes, as well as any other electionto classify any other Merial Venture Company (other than BUT) which is an eligible entity as eithera partnership or branch, as the case may be; provided that no such election shall result inincreased Tax Liabilities or exposure for RP; and furtherprovided that no such electionshall require any restructuring of or other company action affecting any such Merial VentureCompany. The RP Member also hereby approves any action the Tax Matters Partner may deem necessaryin its sole discretion to give effect to any election approved pursuant to the preceding sentence.RP will (or cause its Subsidiaries to) provide to the Tax Matters Partner and sign all documentsnecessary to give effect to all elections to be made pursuant to this Section 5.5(b).     (c) Allocations of Income, Gain or Loss     (i) Net Income. For U.S. Tax purposes, net income with respect to anytaxable period shall be allocated as follows:     (A) First, to the Members in proportion to the excess, if any, of (i) thecumulative amount paid to each Member pursuant to Section 6.2 through the date theNet Special Dividend is calculated after the closing of such period in respect ofsuch period, over (ii) the cumulative amount previously allocated to such Member inrespect of such period pursuant to this paragraph (A) until such excess has beeneliminated;     (B) Second, to the holders of any Preference Shares (if issued pursuant toSection 5.1(a)(iii)), proportionately, in an amount equal to the
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amount, if any, of dividends paid thereon during such period (whether such dividendsrepresent payment of a current or accumulated dividend thereon); and     (C) Third, 50% to each of the Members, as set forth in Section 6.1 hereof.     (ii) Net Loss. For Tax purposes, net loss with respect to any taxable periodshall be allocated 50% to each of the Members, as set forth in Section 6.1 hereof.     (iii) Tax Adjustments. In the event that the Merial Venture’s income, gains,losses, deductions or credits are adjusted by any Taxing Authority by reason of any transactionbetween one or more Members and/or the Merial Venture, including adjustments pursuant to Section482 of the Code or similar provisions under state, local or foreign law (any such adjustment hereinbeing referred to as a “Tax Adjustment”), the allocation of any item of gross income, gain, loss,deduction or credit resulting from such Tax Adjustment (either as the result of a primary orcorrelative adjustment) and the treatment of any deemed transfers of value between or among theMerial Venture and one or more Members (including deemed contributions to and deemed distributionsfrom the Merial Venture on account of such Tax Adjustment) shall be governed by this Agreement.Allocations, including allocations of items of gross income and the treatment of deemed transfersof value between or among the Merial Venture and the Members shall be made, to the extent possible,in an appropriate manner by the Tax Matters Partner so as to avoid any Tax consequences from a TaxAdjustment to a Member who is not affected by such Tax Adjustment. In the event that any TaxAdjustment results in an increase in the Merial Venture’s gross income, such gross income shall beallocated as an item of gross income under Code Section 702(a)(7) to the Member whose income isadjusted in connection with such Tax Adjustment to the Merial Venture’s income and the MerialVenture shall be treated as making a deemed transfer of value that is treated as a distribution tosuch Member in the
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same amount. In the event that any Tax Adjustment results in an increase in an item ofMerial Venture deduction or loss, such deduction or loss shall be allocated as an item ofdeduction under Code Section 702(a)(7) to the Member whose income is adjusted in connection with such Tax Adjustment to the MerialVenture’s income and such Member shall be treated as making in the same amount a deemedtransfer of value that is treated as a contribution to the Merial Venture. In the case of adeemed transfer of value by the Merial Venture to a Member that is treated as a guaranteedpayment as a result of a Tax Adjustment that reduces an item of the Merial Venture’s loss ordeduction, the deduction attributable to such guaranteed payment shall be allocated in thesame manner the item of loss or deduction reduced by the Tax Adjustment was allocated.     (d) Capital Accounts. A separate capital account shall be established andmaintained for each Member. Maintenance of capital accounts is intended for U.S. Tax reportingpurposes only and has no application to any other provision of this Agreement or the interpretationthereof.     (i) The initial balance of each capital account shall be zero.     (ii) The capital account of each Member shall be increased by (x) any capitalcontribution by such Member when such capital contribution is made and (y) the netincome allocated to such Member pursuant to Section 5.5(c)(i).     (iii) The capital account of each Member shall be reduced by (x) the amount of anydistribution of cash or the fair market value of any property (net of any liability securedby such property that the Member is considered to assume or take subject to under Section752 of the Code) distributed to such Member when such distribution is made and (y) the netloss allocated to such Member pursuant to Section 5.5(c)(ii).     (iv) The capital account of each Member shall be adjusted to reflect anyadjustment to the value of the Merial Venture’s assets attributable to the
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application of Sections 732, 734 or 743 to the extent required pursuant to Treas. Reg. §1.704-1(b)(2)(iv)(m).     (v) Except as otherwise provided in this Agreement, whenever it is necessary todetermine the capital account of any Member, the capital account of such Member shall bedetermined after giving effect to the allocations of net profit, net loss and other itemsrealized prior or concurrent to such time (including, without limitation any net profitsand net losses attributable to adjustments to values with respect to any concurrentdistribution), and all contributions and distributions made prior or concurrent to the timeas of which such determination is to be made.     (vi) No Principal or Member shall have any obligation to Merial or any MerialVenture Company, the other Principal, the other Member or to any other Person, including,without limitation, any creditors of the Merial Venture, to restore or otherwise make goodany negative balance in any Member’s capital account.     (vii) Distributions in liquidation of the Merial Venture shall be made inaccordance with capital accounts; [*].     (e) Certain Tax Benefits. For U.S. federal Tax purposes, the Principals, theMembers and Merial agree (and Merial agrees to cause the Merial Venture Companies) to treat theprices charged to the Merial Venture for products purchased under the Merck Supply Agreement andthe RP Ag Supply Agreement as the Merial Venture’s “cost” therefor. In furtherance thereof, thePrincipals, the Members and Merial agree (and Merial agrees to cause the Merial Venture Companiesto agree) that any benefits derived under Section 936 of the Code or any successor Code sectionthereof by Merck Member or any Affiliate of Merck Member on the manufacture of any products sold tothe Merial
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Venture pursuant to the Merck Supply Agreement shall be for the benefit of Merck Member and not forthe benefit of the Merial Venture, the RP Member nor any other member of the RP Group.
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**ARTICLE VI****PROFIT AND LOSS ALLOCATIONS; DIVIDENDS**SECTION 6.1. General Profit and Loss Principles     As a general principle, the Parties have agreed that the profits and losses of the MerialVenture shall be allocated to the Members in such a way that each Member will be entitled to 50.0%of the profits and losses of the Merial Venture, subject to the specific adjustments set forth inthis Agreement and to such other adjustments as the Members’ Meeting may determine.     For accounting purposes only and for no other purpose, the Members intend that, for eachaccounting period, each Member’s share of Merial’s net income will include fifty percent (50%) ofMerial’s net income (after subtracting Net Special Dividends and dividends on Preference Shares)plus any Net Special Dividends and dividends on Preference Shares made to that Member that may beincome or expense to such Member.SECTION 6.2. Special Dividends     (a) Special Dividends Generally. The Parties have agreed to certain financialarrangements that shall be exceptions to the general principle set forth in Section 6.1 of a 50/50allocation of profits as between the Members. Certain of these financial arrangements (set forthin Sections 5.1(b)(i)(C)(i) [Goubin], 6.3 through 6.9, 7.1(b), (c) and (d), 7.1(f)(ii) and (vii),7.2(c) and (e), 7.4, 7.5(a)(i), 7.5(b)(i), 7.5(c) and 14.19 [Tax Reserves Adjustment] of thisAgreement and in Sections 3.5 and 4.4 of the Merck Employee Leasing Agreement shall give rise tospecial distributions or dividends (each, a “Special Dividend” and, together, the “SpecialDividends”) which shall be calculated and credited to one or the other of the Members in accordancewith the provisions of the relevant Sections. Each of the Special Dividends is creditable inrespect of one or more Fiscal Years. For each Fiscal Year in respect of which one or more SpecialDividends is to be credited, all the Special Dividends to be credited in respect of such year shallbe
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calculated and netted together in accordance with Section 6.2(b) and the resulting “Net SpecialDividend” shall be paid in accordance with Section 6.2(c). A numerical example of the Net SpecialDividend is provided in Exhibit XVIII hereto.     (b) Calculation of Net Special Dividend. Upon the earlier of (x) the approvalby the Board of Directors of Merial’s consolidated financial statements for any Fiscal Year, and (y)the date that is one (1) month after the completion of the preparation of such financial statementsby the management of Merial (it being understood that preparation of such financial statementsshall be completed no later than the twentieth (20th) Business Day following the end of the FiscalYear), but no later than sixty (60) days after the end of such Fiscal Year, Merial shall, and ifMerial does not, each of the Principals may, promptly (based upon such financial statements and/orany other reasonably necessary or available financial information, which shall be made available toboth Principals by Merial upon any request by either Principal), and in any case within twenty (20)Business Days of such earlier date, (such deadline being the “Special Dividend Calculation Date”)calculate each of the Special Dividends that is applicable in respect of such year. The “NetSpecial Dividend” for a particular Fiscal Year shall be the single payment payable to either the RPMember or the Merck Member that results from the netting of all such Special Dividends, which shallbe calculated by taking the difference between the sum of all the Special Dividends, if any,creditable to one of the Members in respect of such year and the sum of all those, if any,creditable to the other Member in respect of such year. The Net Special Dividend shall becalculated in U.S. dollars, using, as necessary, the exchange rate of the last day of the FiscalYear, except as otherwise provided in this Agreement. The Net Special Dividend shall be payableto the Member to which the greater dollar aggregate amount of Special Dividends in respect of suchyear is payable. Notwithstanding Article XVIII, any disagreements between the Principals as to thecalculation of any of the Special Dividends or of the Net Special Dividend shall be resolvedexclusively pursuant to Section 6.2(d), but without modifying or limiting other rights or remediesof the Parties under other provisions of this Agreement.
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     (c) Payment of the Net Special Dividend. The Net Special Dividend in respect ofany Fiscal Year shall be paid by Merial out of Distributable Profits in the form of a preferentialdividend. No other dividends or distributions to the Members shall be paid or declared by Merialuntil the entirety of any outstanding Net Special Dividend has been paid in full. If the NetSpecial Dividend to be paid in respect of any year is greater than the Distributable Profitsavailable for distribution at the time dividends are to be paid in respect of such year, then theNet Special Dividend shall be paid to the appropriate Member to the extent of the availableDistributable Profits (with the result that no other dividends shall be paid in respect of suchyear), and the unpaid balance shall be increased by an amount equal to interest calculated at arate equal to the [*] accruing from April 15 of the year nextfollowing the year in question until such time as it is paid in full. In the event a Principalwishes to receive payment of the Net Special Dividend in a currency different from the U.S. Dollar,such Principal shall so notify Merial in writing sixty (60) days in advance of the payment date ofthe Net Special Dividend, and Merial shall convert the Net Special Dividend to the desired paymentcurrency on the actual date of payment (at the then spot exchange rate). In the event of a disputebetween the Principals as to the calculation of any Special Dividend or of the Net Special Dividendin respect of any year, the Principals shall follow the procedure described in 6.2(d) and, when thedispute is resolved, the Net Special Dividend will, together with the corresponding amountcalculated as interest mentioned above, to the extent of available Distributable Profits, be paidthrough a partial Net Special Dividend payment. In the event any unpaid balance of a Net SpecialDividend payable with respect to any year remains at the time the Net Special Dividend to be paidin respect of the following year is payable, such Net Special Dividend in respect of the followingyear shall be equal to the amount resulting from netting (or adding, as appropriate) such unpaidbalance (and any accrued amount calculated as interest thereon) with the Net Special Dividendcalculated for such following year in accordance with Section 6.2(b). Any undisputed amount in thecalculation of the Net Special Dividend will be paid immediately, and any disputed amount shall besubject to the Special Dividend Calculation Dispute Resolution described in Section 6.2(d) below.
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     (d) Special Dividend Calculation Dispute Resolution. In the event there is anydispute between the Principals as to the calculation of any Special Dividend or of the Net SpecialDividend in respect of any year, the Principals shall meet and negotiate in good faith to resolvesuch dispute. If the dispute has not been resolved within thirty (30) days of the Special DividendCalculation Date, then either Principal may submit such dispute to arbitration as set forth belowin this Section 6.2(d). In connection with any such dispute, a “Big Six” accounting firmacceptable to both the Principals shall be engaged to resolve the dispute, except that (i) if thePrincipals cannot reach agreement on the selection of such accounting firm, then such accountingfirm shall be selected and appointed by the ICE (which selection and appointment shall be final andbinding on the Parties), and (ii) the firm so selected and appointed may not be the primaryaccounting firm for Merck, Merial, RM or RP. Each of the Principals shall submit to the accountingfirm selected their detailed calculations and such firm shall promptly be provided with anyrelevant financial data of the Merial Venture or of either of the Principals that it may request.In making its determination, the accounting firm shall refer to the methods of calculation setforth in this Article VI and to the numerical examples for calculating each of the SpecialDividends and the Net Special Dividend set forth in Exhibit XVIII. The accounting firm shall bejointly requested to make its decision within thirty (30) days of having been selected. Thedecision of the accounting firm selected by the Principals or the ICE shall be final and binding onthe Parties on any issue relating to the calculation of any Special Dividend or of the Net SpecialDividend. The fees and reasonable expenses of the accounting firm shall be borne by the losingparty; if the dispute is not resolved solely in favor of one party, then the parties shall sharesuch fees and reasonable expenses equally. Pending such decision of the accounting firm, Merial,the Members and the Board of Directors shall continue to fulfill all their obligations underapplicable Laws and this Agreement, including attending required meetings. In the event theAnnual Member’s Meeting is held in accordance with Section 4.2(k) prior to such decision of theaccounting firm, the Members’ Meeting shall only declare dividends in respect of the relevant yearto the extent that the Distributable Profits remaining after the payment of such dividends would besufficient to pay the greater of the Net Special Dividends claimed by the Principals under thisSection 6.2(d), it being understood that in any such case the Net Special Dividend decided upon bythe accounting firm (together with an
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amount calculated as interest thereon calculated in accordance with Section 6.2(c)) shall bedeclared by the first Members’ Meeting following such decision and paid as a partial Net SpecialDividend.SECTION 6.3. Retroactive Closing Mechanism     (a) The Parties shall give effect to a closing adjustment mechanism (the “Retroactive ClosingMechanism”) pursuant to this Section 6.3 with the intention of putting the Principals, to theextent possible, in the same economic position they would have been in had the Closing occurred onthe Economic Effective Date (as defined below). For the avoidance of doubt, as between theParties, the actual commencement of the Merial Venture for accounting and Tax purposes shall be thefirst day following the Closing Date. The Retroactive Closing Mechanism shall not be applied if achange in Tax Laws occurring between the date hereof and the date of the Closing causes theapplication of the Retroactive Closing Mechanism to have an adverse Tax consequence of [*] for either Principal. “Economic Effective Date” shall be April 1, 1997. “TheRetroactive Period” shall be the period between the Economic Effective Date and the Closing Date.     (b) The Retroactive Closing Mechanism shall be implemented through a Retroactive ClosingSpecial Dividend, which shall be calculated based on the Retroactive Closing Financial Statements,as defined in, and prepared in accordance with, the instructions set forth in Exhibit XIX.Subject to the instructions set forth in Exhibit XIX, the Retroactive Closing Special Dividendshall be credited, in calculating the Net Special Dividend in respect of Fiscal Year 1997, to theMember whose pro forma cash generated (used), as calculated in accordance with the instructions setforth in Exhibit XIX, is lower than its share in the pro forma cash generated (used) by the MerialVenture during the Retroactive Period.     (c) Pre-Closing Preparation of Financial Statements. Each of Merck and RM hereby representsto the other as of the date hereof and as of the Closing Date that (i) each of the monthly actualand pro forma consolidated income statements and
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consolidated statements of cash flows that it has provided to the other in respect of theoperations of the Merck Contributed Business and of RM and its Subsidiaries, respectively, for thefirst quarter of Fiscal Year 1997 and for each calendar month since and including April 1997, and(ii) each of the quarterly actual and pro forma consolidated balance sheets that it has provided tothe other in respect of the Merck Contributed Business and of RM and its Subsidiaries,respectively, since and including the consolidated balance sheets as of March 31, 1997, wasprepared, (x) with respect to the actual consolidated income statements and consolidated statementsof cash flows referred to above, consistently with the Merck Contributed Business Financialsattached as Exhibit XVI hereto in the case of Merck, and the RM Financials attached as Exhibit XVIIhereto in the case of RM, and (y) with respect to the pro forma consolidated income statements andconsolidated statements of cash flows referred to above, consistently with the instructions setforth in Exhibit XIX; and each of Merck and RM hereby agrees to continue to provide such statementsto the other, prepared in a consistent manner, for each calendar month and as of the end of eachcalendar quarter, as the case may be, until the Closing.SECTION 6.4. Early Year Adjustment     If the actual Net Reported Sales by the Merial Venture (or by RM and Merck and theirrespective Subsidiaries during the Retroactive Period) of certain products specified below in anyof 1997, 1998 or 1999 are less than the assumed Baseline Net Reported Sales amounts for suchproducts set forth below, the Principals will give effect in each such year to an adjustmentmechanism (the “Early Year Adjustment Mechanism”) set forth in this Section 6.4. A numericalexample of the Early Year Adjustment Mechanism is provided in Exhibit XVIII hereto.     (a) Early Year Adjustment Special Dividend. The Early Year Adjustment MechanismEntitlements of each Principal, if any, calculated pursuant to this Section 6.4 in respect of eachFiscal Year 1997 through 1999 shall be offset against each other, with the difference between thembeing the “Early Year Adjustment Special Dividend” for each such Fiscal Year. In calculating theNet Special Dividend in respect of each such
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Fiscal Year, the Early Year Adjustment Special Dividend shall be credited to theMerck Member if the Merck Section 6.4 Entitlement (as defined below) is greateror to the RP Member if the RP Section 6.4 Entitlement (as defined below) isgreater.Baseline Net Reported Sales ($ millions)               1997 1998 1999RP Adjustment Products  [*]   [*]   [*] Merck Adjustment Products  [*]   [*]   [*] Gross Margin Rate (%)               1997 1998 1999RP Adjustment Products  [*]   [*]   [*] Merck Adjustment Products  [*]   [*]   [*]      (b) Merck Section 6.4 Entitlement. The amount, if any, by which (x)the sum of actual Net Reported Sales of Biological Products and Fipronil Products(together, “RP Adjustment Products”), for any of 1997, 1998 or 1999, are less than(y) the respective Baseline Net Reported Sales for RP Adjustment Products for suchyear, shall be the “RP Sales Shortfall Amount” for such year. Merck shall beentitled in respect of any such year to a dollar amount (the “Merck Section 6.4Entitlement”) equal to the product of (xx) the RP Sales Shortfall Amount, (yy) thepercentage equal to the Gross Margin Rate set forth above for RP Adjustment Productsfor such year, and (zz) [*].     (c) RP Section 6.4 Entitlement. The amount, if any, by which (x)actual Net Reported Sales of Avermectin Products (“Merck Adjustment Products”), forany of 1997, 1998 or 1999, are less than (y) the respective Baseline Net ReportedSales for Merck Adjustment Products for such year, shall be called the “Merck SalesShortfall Amount” for such year. RP shall be entitled in respect of any such year toa dollar amount (the “RP Section 6.4 Entitlement”) equal to the product of (xx) theMerck Sales Shortfall Amount, (yy) the percentage equal to the Gross Margin Rate setforth above for Merck
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Adjustment Products for such year, and (zz) [*].     (d) 1997 Partial Year. In calculating the Sales Shortfall Amounts, if any, inrespect of 1997, the relevant Baseline Net Reported Sales amounts for the full Fiscal Year shall bereduced proportionately (i.e., multiplied by a fraction the numerator of which is the actual NetReported Sales amount during the period from the Economic Effective Date to the end of 1997 and thedenominator of which is actual Net Reported Sales amount for the full calendar year 1997) andcompared to actual Net Reported Sales during the period from the Economic Effective Date to the endof 1997.     (e) Foreign Currency Fluctuation. In order to eliminate the effects of certainforeign currency fluctuations, the Net Reported Sales calculated with respect to all sales of RPAdjustment Products or Merck Adjustment Products denominated in any of the currencies listedhereafter shall be translated into U.S. dollars on the basis of the following exchange rates:English pound sterling .63, French franc 5.00, German deutschemark 1.43, Italian lira 1624, Spanishpeseta 125, Japanese yen 93, and Australian dollar 1.35. If any of such sales of RP AdjustmentProducts or Merck Adjustment Products in one of such countries are denominated in ecus or euros,the Net Reported Sales in U.S. dollars with respect to such sales shall be determined by firsttranslating the amount in ecus or euros, as the case may be, into an amount denominated in thenational currency of such country (the English pound sterling, French franc, German deutschemark,Italian lira or Spanish peseta, as the case may be) at the exchange rate in effect at the date ofsuch sale (or, if the national currency no longer exists at such time, the last such exchange ratein effect prior to the elimination of the national currency), and then translating the resultingnational currency amount into U.S. dollars at the exchange rates set forth above.     (f) Early Dissolution. The Early Year Adjustment Mechanism shall only be applied tofull calendar years (and to the partial 1997 year as contemplated in Section 6.4(d)). In theevent the Merial Venture is Dissolved prior to December 31, 1999, the Principals shall negotiate ingood faith at such time in order to adjust the payment(s)
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made in connection with such Dissolution to account for the estimated present value of theadjustments that would have been made pursuant to the Early Year Adjustment Mechanism set forth inthis Section 6.4 had such Dissolution not occurred. In the event such Dissolution occurs pursuantto the purchase by one Principal of the Merial Venture interest of the other, the adjustment shallbe made to the purchase price. In the event such Dissolution occurs pursuant to the purchase by aThird Party of all or substantially all of the Merial Venture, the adjustment shall be made to theapportionment of the purchase price between the Principals (which apportionment would otherwise be50/50, before accounting for any undistributed Special Dividends or other early Dissolutionadjustments).     (g) Change of Early Year Adjustment Mechanism Premises. If, prior to theClosing, the Principals or, after the Closing, Merial’s Board of Directors, approves a transactionor the development and marketing of a product that can be reasonably viewed as changing thepremises upon which the Baseline Net Reported Sales amounts were agreed, then Merck and RP shallnegotiate in good faith to determine appropriate and equitable modifications to the Baseline NetReported Sales amounts and until both Principals agree on such modifications, the foregoingprovisions of this Section 6.4 shall continue to apply.SECTION 6.5. Band Adjustment     If the average annual actual Net Reported Sales of RP Adjustment Products or Merck AdjustmentProducts by the Merial Venture during the four calendar-year period of 1998, 1999, 2000 and 2001 ismore than [*] the Baseline Net Reported Sales for such products set forth in this Section6.5, the Parties will give effect to a band adjustment mechanism (the “Band Adjustment Mechanism”)set forth in this Section 6.5. A numerical example of the Band Adjustment Mechanism is provided inExhibit XVIII hereto.     (a) Band Adjustment Special Dividend. The Band Adjustment MechanismEntitlements of each Principal, if any, as calculated pursuant to this Section 6.5, shall be
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offset against each other, with the difference between them being the “Band AdjustmentSpecial Dividend”. The Band Adjustment Special Dividend shall be credited to the RP Memberif the RP Section 6.5 Entitlement, as defined below, is greater than the Merck Section 6.5Entitlement, as defined below, or to the Merck Member if the Merck Section 6.5 Entitlementis greater than the RP Section 6.5 Entitlement, in calculating the Net Special Dividend inrespect of Fiscal Year 2001.     Baseline Net Reported Sales ($ millions)                       1998 1999 2000 2001 AverageRP Adjustment Products  [*]   [*]   [*]   [*]   [*] Merck Adjustment Products  [*]   [*]   [*]   [*]   [*]      (b) Merck Section 6.5 Entitlement. The amount, if any, by which (x) theaverage of the actual annual Net Reported Sales for RP Adjustment Products, during theperiod 1998-2001 inclusive, is less than (y) the average of the annual Baseline NetReported Sales for RP Adjustment Products, during such period, shall be the “Average RPSales Shortfall Amount”. If the Average RP Sales Shortfall Amount is greater than [*] (the “RP Threshold”), then Merck shall be entitled to an amount (the “Merck Section6.5 Entitlement”) [*]. The RP Threshold was calculated [*].     (c) RP Section 6.5 Entitlement. The amount, if any, by which (x) the averageof the actual annual Net Reported Sales for Merck Adjustment Products, during the period1998-2001 inclusive, is less than (y) the average of the annual Baseline Net Reported Salesfor Merck Adjustment Products during such period, shall be the “Average Merck SalesShortfall Amount”. If the Average Merck Sales Shortfall Amount is greater than [*] (the “Merck Threshold”), then RP shall be entitled to an amount (the “RP Section6.5 Entitlement”) [*]. The Merck Threshold wascalculated [*]
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[*].     (d) Foreign Currency Fluctuation. In order to eliminate effects of certain foreigncurrency fluctuations, actual Net Reported Sales (with respect to sales made in certain currenciesother than U.S. dollars) shall be calculated using the same agreed upon exchange rates as for theEarly Year Adjustment Mechanism, as set forth in Section 6.4(e) above.     (e) Early Dissolution. If the Merial Venture liquidates, sells or otherwise disposesof all or substantially all of its assets or is Dissolved prior to January 1, 2002, then the BandAdjustment Mechanism shall be applied as follows:     (i) if the Dissolution Date is prior to January 1, 1999, the Band AdjustmentMechanism shall not apply;     (ii) in the case of a Dissolution Date on or after January 1, 1999, the BandAdjustment Mechanism shall be applied as set forth in Section 6.5(a)-(d) above, except asfollows:     The Average RP Sales Shortfall Amount and the Average Merck Sales Shortfall Amountshall be calculated on an annualized basis, based on the number of full calendar quartersfrom January 1, 1998 through the Dissolution Date, rather than on the average of the fourfull calendar years of actual Net Reported Sales. The Baseline Net Reported Sales used forthe quarters comprising any partial year prior to the Dissolution Date shall equal theproduct of the Baseline Net Reported Sales for such year and a fraction, the numerator ofwhich is the Net Reported Sales for the relevant products shown (or implicit) in theApproved Budget (as defined below) for the full calendar quarters in such year prior to theDissolution Date, and the denominator of which is the Net Reported Sales for such Productsshown (or implicit) in the Approved Budget for the full year in which the Dissolutionoccurs. “Approved Budget” means the latest business plan or budget
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which covers the year in question that has been approved by Merial’s Board of Directors(or, if no such plan or budget has been so approved, then the actual Net Reported Sales forthe relevant products during the corresponding periods in the preceding calendar year shallbe used in place of the Net Reported Sales shown in the Approved Budget for purposes of thecalculation described in the preceding sentence).     (f) Change of Band Adjustment Mechanism Premises. If, prior to the Closing, thePrincipals or, after the Closing, Merial’s Board of Directors, approve a transaction or thedevelopment and marketing of a product that can be reasonably viewed as changing the premises uponwhich the Baseline Net Reported Sales amounts were agreed, then Merck and RP shall negotiate ingood faith to determine appropriate and equitable modifications to the Baseline Net Reported Salesamounts and until both Principals agree upon such modifications, the foregoing provisions of thisSection 6.5 shall continue to apply.SECTION 6.6. Special Poultry Genetics Profit Allocation     (a) Merial shall, in respect of each Fiscal Year from 1997 to 2001 inclusive, credit a SpecialDividend (the “PG Profit Special Dividend”) to the Merck Member equal to [*] of the “AdjustedPoultry Genetics Profits” for such year. The “Adjusted Poultry Genetics Profits” for each such yearshall be calculated by taking the pre-tax profits before interest expenses of the Poultry GeneticsBusiness reflected in the stand alone pro forma financial statements referred to below in thisSection 6.6(a) for the relevant Fiscal Year, [*]. The Parties acknowledge (i) that the PG Profit Special Dividend shall be calculatedand credited regardless of the proportion of the Poultry Genetics Business’ profits that Merialactually receives in the form of dividends in respect of such year, and (ii) that all dividendsactually received by Merial from its Poultry Genetics Business shall be allocated as between theMembers as otherwise provided in this Agreement. The Parties agree that the impact of anyacquisitions by Merial in the Poultry Genetics Business after
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the Closing Date, which impact shall be determined by the management of Merial at the time of suchacquisitions, shall be excluded from the calculation of the PG Profit Special Dividend. In theevent of a divestiture by Merial or any other Merial Venture Company of a part (but less than allor substantially all) of the Poultry Genetics Business contributed to the Merial Venture (otherthan Goubin) between the Economic Effective Date and December 31, 2001, the Special PoultryGenetics Profit Allocation in respect of the Fiscal Year during which such divestiture occurredshall be increased by an amount equal to [*]. Merial shall prepare stand-alone pro forma financial statements reflectingthe operations of the entirety of its Poultry Genetics Business for each Fiscal Year from 1997through 2001 inclusive, including profit and loss statements, prepared consistently with theaccounting principles and practices used to prepare the Merial financial statements (but excludingany financial or interest charges actually incurred by the Poultry Genetics Business). In preparingthese financial statements, any expenses for overheads or corporate services shall be allocated ona fair and equitable basis, based on the actual use of corporate resources. These financialstatements for the Fiscal Year 1997 shall reflect the operations of the Poultry Genetics Businessfrom the Closing Date to December 31, 1997. The PG Profit Special Dividend in respect of 1997 shallbe based on the profits of the Poultry Genetics Business during the period from the Closing Date toDecember 31, 1997. A numerical example of the Poultry Genetics Special Dividend is provided inExhibit XVIII hereto.     (b) Deemed Interest Expense. For the purposes of calculating the Adjusted PoultryGenetics Profits, [*] of Debt shall be deemed to have been initially allocated to thePoultry Genetics Business. The “Deemed Interest Expense” for each year from 1997 through 2001 shallequal [*]
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[*]. For the calculation of the 1997 Deemed Interest Expense, [*] shall be used.     (c) PG Profit Special Dividend. Subject to Section 6.6(d), the PG Profit SpecialDividend calculated in respect of each Fiscal Year from 1997 to 2001 inclusive shall be credited tothe Merck Member in calculating the Net Special Dividend pursuant to Section 6.2 in respect of suchFiscal Year.     (d) Early Disposal or Dissolution. If the Merial Venture liquidates, sells orotherwise disposes of all or substantially all of its Poultry Genetics Business or if the MerialVenture is Dissolved prior to January 1, 2002, then the Principals shall negotiate in good faith atsuch time, in order to adjust the payment(s) made in connection with such disposal or Dissolutionto account for the estimated present value of the remaining PG Profit Special Allocation (the “PGProfit Allocation Present Value”). In the event the Principals are not able to agree within 30 daysof the closing of such disposal or Dissolution on the amount of the PG Profit Allocation PresentValue, it shall be determined in accordance with the procedures set forth in Section 17.2(g)(ii).In the event of an early sale or other disposition by the Merial Venture of all or substantiallyall of its Poultry Genetics Business, Merial shall, pursuant to Section 6.2, credit the PG ProfitAllocation Present Value to the Merck Member as a Special Dividend in respect of the calendar yearduring which such sale was completed. In the event of a Dissolution of the Merial Venture pursuantto the sale by one Principal of its Merial Venture Interest to the other, the purchase price shallbe increased (in the case of a sale to RP) or decreased (in the case of a sale to Merck), asappropriate, by the PG Profit Allocation Present Value (on a dollar for dollar basis). In the eventof a Dissolution of the Merial Venture pursuant to the sale of all or substantially all of theMerial Venture to a Third Party, the apportionment of the sales proceeds to the Merck Member (whichapportionment as between the Members would otherwise be 50/50, before accounting for anyundistributed Special Dividends or other adjustments provided for in this Article VI) shall beincreased on a dollar for dollar basis equal to the PG Profit Allocation Present Value.
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SECTION 6.7. Supply Price Adjustments     (a) Merck Supply Price Adjustment. In respect of each Fiscal Year, the RP Member shallhave an entitlement (the “RP Section 6.7 Entitlement”) equal to the product of (i) [*], and (ii) (x) the sum of all amounts accrued by the Merial Ventureto the Merck Group for such Fiscal Year for the supply of products (or bulk) pursuant to the MerckSupply Agreement, and (without duplication) of all amounts paid by Merial or its Subsidiariesduring such Fiscal Year to purchase the Inventories included in the Merck Contributed Non-U.S.Assets and the Retained Inventory, if any, less (y) the sum of (AA) all amounts that wouldhave been so accrued with respect to such Fiscal Year if calculated in accordance with the MerckManufacturing Supply Price Formula and (BB) the Avermectin Products Sales Adjustment for suchFiscal Year calculated in accordance with Exhibit XXI [Avermectin Products Sales Adjustment], butonly if the amount (the “Delta”) equal to the amount determined pursuant to clause (x) aboveless the amount determined pursuant to clause (y) above, is a positive amount. The sum ofthe amounts specified in (AA) and (BB) shall be the “Merck Negotiated Supply Price”. If the Deltais a negative number, then in respect of such Fiscal Year (whether or not the Merck SupplyAgreement is then in effect), the Merck Member shall have an entitlement (the “Merck Section 6.7(a)Entitlement”) equal to the product of (i) [*], and (ii)the absolute amount of the Delta. Merck hereby represents that the formula for calculating standarddirect cost in the Merck Supply Agreement is on the same basis as the formula used to calculatestandard direct cost in the Merck Base Case and the multiple of standard direct cost in the MerckBase Case roughly approximates (on average over the five years following the Closing Date given theproduct mix included in the Merck Base Case) the multiple of standard direct cost provided for inthe Merck Manufacturing Supply Price Formula.     (b) RP Supply Price Adjustment. In respect of each Fiscal Year, the Merck Member shallhave an entitlement (the “Merck Section 6.7(b) Entitlement”) equal to the product of (i) [*], and (ii) (x) the sum of all amounts accrued by the MerialVenture to the RP Group for such Fiscal Year for the
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supply of products (or bulk) pursuant to the RP Ag Supply Agreement, less (y) the sum of allamounts that would have been so accrued if calculated at Fully Allocated Cost (as defined in theRP Ag Manufacturing Supply Price Formula). RP hereby represents that the purchase price forFipronil used in preparing the projections set forth in the RM Base Case was calculated usingFully Allocated Cost (as defined in the RP Ag Manufacturing Supply Price Formula).     (c) Supply Price Adjustment Special Dividend. The “Supply Price Adjustment SpecialDividend” shall be equal to the difference between the respective Entitlements of the Principals,if any, in respect of each relevant Fiscal Year, as calculated pursuant to Sections 6.7(a) and (b)above. The Supply Price Adjustment Special Dividend shall be credited to the RP Member if the RPSection 6.7 Entitlement is greater than the Merck Section 6.7(a) Entitlement plus the Merck Section6.7(b) Entitlement or to the Merck Member if the Merck Section 6.7(a) Entitlement plus the MerckSection 6.7(b) Entitlement is greater than the RP Section 6.7 Entitlement, in calculating the NetSpecial Dividend in respect of such year pursuant to Section 6.2. A numerical example of theSupply Price Adjustment is provided in Exhibit XVIII hereto.     (d) Alternative Upon Dissolution, Sale, Etc. In the event that, as a result of anyDissolution, any transaction contemplated by Articles XVI or XVII or otherwise, this Section 6.7 isno longer operative or no longer effectively gives effect to the economic principle that on a netbasis Merck is selling and the Merial Venture is purchasing Avermectin Products at the MerckManufacturing Supply Price Formula and Merck receives amounts calculated pursuant to the AvermectinProducts Sales Adjustment Exhibit, the Parties agree that, prior to the effectiveness of any suchevent, alternative arrangements shall be entered into by and among the Parties and/or a purchaserin order to provide the equivalent economic benefits to the Parties of the arrangementscontemplated by this Section 6.7 that, in the aggregate, have no less favorable economic, tax,commercial and legal characteristics to each of the Parties.SECTION 6.8 Contributed Debt Adjustment Special Dividend
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     (a) From the Closing Balance Sheets, the Parties shall calculate the “RM Actual ContributedNet Debt Variance”, as defined below, and the “Merck Actual Contributed Net Debt Variance”, asdefined below. The difference between the RM Actual Contributed Net Debt Variance and the MerckActual Contributed Net Debt Variance, calculated as set forth below, shall be the “Contributed DebtAdjustment Special Dividend”. In calculating the Net Special Dividend in respect of the 1997Fiscal Year pursuant to Section 6.2, the Contributed Debt Adjustment Special Dividend shall becredited to the RP Member if the Merck Actual Contributed Net Debt Variance is greater than the RMActual Contributed Net Debt Variance, and to the Merck Member if the RM Actual Contributed Net DebtVariance is greater than the Merck Actual Contributed Net Debt Variance. A numerical example ofthe Contributed Debt Adjustment Special Dividend is provided in Exhibit XVIII hereto.     (b) The “RM Actual Contributed Net Debt Variance” shall be equal to:     the RM Intercompany Debt (as defined in Section 5.2(b)),plus     the RM Outstanding Debt (as defined in Section 5.2(b)),plus     the RM Accrued Tax Liabilities (as defined in Section 5.2(b)),plus     the RM China Financial Receivable (as defined in Section 5.1(b)(ii)),plus     the RP Chinese Assets Value Shortfall (as defined in Section 5.1(b)(ii)),less     the RM Closing Cash (as defined in Section 5.2(b)),less     [*]     (c) The “Merck Actual Contributed Net Debt Variance” shall be equal to:     the Merck Non-U.S. Net Assets Value (as defined in Section 5.1(a)(ii)(A)),
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plus     the Retained Receivables (as defined in Section 5.1(a)(ii)(C)),plus     the Retained Inventories (as defined in Section 5.1(a)(ii)(C)),plus     the Merck Accrued Tax Liabilities (as defined in Section 5.1(a)(ii)(B)),plus     the Merck Other Debt (as defined in Section 5.1(a)(ii)(B)),less     the Merck Cash Contribution Amount (as defined in Section 5.1(a)(ii)(B)),less     the Merck Closing Cash (as defined in Section 5.1(a)(ii)(B)),less     [*].     (d) The Contributed Debt Adjustment Special Dividend shall equal the difference betweenthe RM Actual Contributed Net Debt Variance and the Merck Actual Contributed Net Debt Variance,which difference shall be calculated taking into account any negative amounts (for example, if oneamount is -4 (negative four) and the other is 4, the difference between them shall be 8).SECTION 6.9. Delayed Purchase Assets and Liabilities Special Dividend     The Parties shall agree on the estimated aggregate fair market value of the Delayed PurchaseAssets, such estimated value being the “Estimated Delayed Purchase Assets Value”. For purposes ofthis Section 6.9, the amount in U.S. dollars to be used in calculating any purchase price forDelayed Purchase Assets denominated in a currency other than U.S. dollars shall be calculated usingthe closing midpoint exchange rate set forth in the London edition of the *Financial Times*on thedate the payment is made.     (a) Purchases of Delayed Purchase Assets during the 1997 Fiscal Year. As soonas practicable after the end of the 1997 Fiscal Year, and in no event later than the
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twentieth (20th) Business Day following the end of such Fiscal Year, Merial shall (i) determinewhether all the Delayed Purchase Assets have been purchased during the 1997 Fiscal Year, and (ii)calculate the difference between (x) the Estimated Delayed Purchase Assets Value and (y) thepurchase price actually paid for all the Delayed Purchase Assets purchased during the 1997 FiscalYear (the “1997 Aggregate Purchase Price”), which difference shall be the “1997 Delayed PurchaseAssets Variance”.(A) If the 1997 Aggregate Purchase Price is greater than the Estimated DelayedPurchase Assets Value, the 1997 Delayed Purchase Assets Variance shall be creditedas a 1997 Delayed Purchase Assets Special Dividend to the RP Member, pursuant toSection 6.2 and in respect of the 1997 Fiscal Year.(B) If the purchase of all Delayed Purchase Assets is completed by December 31,1997 and the Estimated Delayed Purchase Assets Value is greater than the 1997Aggregate Purchase Price, the 1997 Delayed Purchase Assets Variance shall becredited as a 1997 Delayed Purchase Assets Special Dividend to the Merck Memberpursuant to Section 6.2 and in respect of the 1997 Fiscal Year.(C) If the purchase of all Delayed Purchase Assets is not completed by December 31,1997 and the 1997 Aggregate Purchase Price is lower than the Estimated DelayedPurchase Assets Value, no Delayed Purchase Assets Special Dividend shall becredited with respect to the 1997 Fiscal Year.     (b) Purchases during 1998. As soon as practicable after the end of the 1998Fiscal Year, and in no event later than the twentieth (20th) Business Day following the end of suchFiscal Year, Merial shall (i) determine whether all the remaining Delayed Purchase Assets have beenpurchased during the 1998 Fiscal Year, and (ii) calculate the difference between (x) the EstimatedDelayed Purchase Assets Value and (y) the purchase price actually paid for all the Delayed PurchaseAssets purchased during the 1997 and the
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1998 Fiscal Years (the “Global Purchase Price”), which difference shall be the “Global DelayedPurchase Assets Variance”.(A) If the purchase of all Delayed Purchase Assets is completed by December 31,1998 and the Global Purchase Price is greater than the Estimated Delayed PurchaseAssets Value, a Delayed Purchase Assets Special Dividend equal to the differencebetween the Global Delayed Purchase Assets Variance and the 1997 Delayed PurchaseAssets Special Dividend credited to the RP Member and specified in Section6.9(a)(A) shall be credited to the RP Member, pursuant to Section 6.2 and inrespect of the 1998 Fiscal Year. If the purchase of all Delayed Purchase Assets iscompleted by December 31, 1998 and the Global Purchase Price is lower than theEstimated Delayed Purchase Assets Value, a Delayed Purchase Assets Special Dividendequal to the difference between the Global Delayed Purchase Assets Variance and the1997 Delayed Purchase Assets Special Dividend credited to the Merck Member andspecified in Section 6.9(a)(B) shall be credited to the Merck Member, pursuant toSection 6.2 and in respect of the 1998 Fiscal Year.(B) If the purchase of all Delayed Purchase Assets is not completed by December 31,1998, the Parties shall meet no later then the twentieth (20th) Business Day of the1999 Fiscal Year to determine the consequences, financial and otherwise, of such afailure, and such consequences shall be taken into account to determine the 1998Delayed Purchase Assets Special Dividend.SECTION 6.10. Early Dissolution and the Merck Research Payment     No RM Funding Commitment payments (as defined in the Merck Research Agreement) shall be madeby RM SAS after the Dissolution of the Merial Venture; provided, however, that ifthe Merial Venture is Dissolved before December 31, 2003, the payment(s) made in connection withsuch Dissolution to the Merck Member shall be
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increased (or to the RP Member shall be decreased) by an amount equal to the present value offuture RM Funding Commitment payments (the “Research Payment Present Value”), which shall be deemedto be [*] for a Dissolution during the calendar year 1997, and [*]. In the event of a Dissolution of the Merial Venture pursuant to the sale by onePrincipal of its Merial Venture Interest to the other, the purchase price shall be increased ordecreased, as appropriate, by the Research Payment Present Value (on a dollar for dollar basis).In the event of a Dissolution of the Merial Venture pursuant to the sale of all or substantiallyall of the Merial Venture to a Third Party, the apportionment of the sales proceeds to the MerckMember (which apportionment as between the Members would otherwise be 50/50, before accounting forany undistributed Special Dividends or other adjustments provided for in this Article VI) shall beincreased on a dollar for dollar basis equal to the Research Payment Present Value.SECTION 6.11. Distribution Upon Liquidation     In any liquidation of the Merial Venture, the assets of the Merial Venture shall, subject toapplicable Laws, be distributed in accordance with the following priorities:(i) First, to the creditors of the Merial Venture (including to any RPCompanies or Merck Companies to whom any Debt or accounts payable may be owed bythe Merial Venture) in accordance with applicable Laws and any judgments ororders of competent Public Authorities;(ii) second, to the extent of any assets remaining, if there is any unpaidNet Special Dividend balance outstanding in respect of any prior Fiscal Year, anamount equivalent to such balance to the Member to whom such unpaid Net SpecialDividend balance is due (together with any interest accrued thereon);
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(iii) third, to the extent of any assets remaining, each of the adjustments contemplated bySection 6.4(f) [Early Year Adjustment], 6.5(e) [Band Adjustment], 6.6(d) [Poultry Genetics] and6.10 [Research Payments] shall be added or netted, as appropriate, and the resulting net adjustmentamount paid to the Member entitled thereto; and(iv) fourth, any remaining assets shall be distributed as between the Members and/or theirAffiliates that hold the Preference Shares, if any, in the following order of priority: first, tothe Members in an amount equal to the amount of any Net Special Dividend that would be calculatedfor the Member for the Fiscal Year in which the Dissolution of Merial occurs, treating such FiscalYear as ending on the date of such Dissolution (to the extent not duplicative of (iii) above);second, in respect of any accumulated but unpaid dividends on the Preference Shares, to the holdersthereof; third, in a return to the holders of the Preference Shares of capital equal to the nominalvalue of such shares, to the holders thereof; and fourth, equally as between the Members in respectof their general ownership interest in Merial.
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**ARTICLE VII****EMPLOYEES AND EMPLOYEE BENEFIT MATTERS**SECTION 7.1. Animal Health Division — U.S.     (a) Leasing of Merck Employees. The Merck Group employees employed in the AnimalHealth Business in the U.S. as of the Closing Date listed on a schedule to be provided by Merck onthe Closing Date, which list shall include not only employees then actively employed but also thosethen on leave of absence, short-term disability, long-term disability and workers compensation (the“Merck Leased Employees”), shall be leased to Merial, or to a Merial Venture Company designated byMerial, as of the Closing Date pursuant to the terms set forth in the Merck Employee LeasingAgreement. Each Merck Leased Employee who is employed by Merck as of December 31, 1997 includingnot only employees then actively employed but also those then on leave of absence, short-termdisability, long-term disability and workers compensation shall be offered employment with Merial,or a Merial Venture Company designated by Merial, as of January 1, 1998 at a rate of base salarydetermined by Merial and shall be eligible to participate in all employee benefit plans establishedand/or maintained by Merial or such Merial Venture Company, as the case may be. Notwithstandingthe foregoing sentence, each Merck Leased Employee who has commenced, or is eligible to commence,benefits under the Merck & Co., Inc. Long-Term Disability Plan for Non-Union Employees (the “MerckLTD Plan”) prior to January 1, 1998 (a “Merck LTD Employee”) shall continue to receive medical,dental, life insurance and long-term disability benefits under the terms and conditions of theapplicable Merck benefit plans, as each may be amended from time-to-time, and such continuation ofbenefits shall be at Merck’s sole cost and expense; provided, however, that thecosts of benefits provided to a Merck Leased Employee who returns to work during the term of theLeasing Agreement or, thereafter, returns to work with the Merial Venture, shall be borne byMerial. Merck shall reimburse Merial (or the appropriate Merial Venture Company) for the cost ofproviding long-term disability benefits to each Merck Leased Employee who has commenced or iseligible to commence benefits under the Merck & Co., Inc. Short-Term Disability Plan for Non-Union
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Employees prior to the Closing Date and becomes eligible to receive, on or after January 1, 1998,benefits under the Merial long-term disability plan as a result of such pre-Closing disability,provided such disability is continuous in accordance with the terms of the Merial long-termdisability plan. Those Merck Leased Employees (including the Merck LTD Employees) who acceptemployment with Merial, or a Merial Venture Company designated by Merial, shall be referred to asthe “Merial Merck Employees.”     (b) Grandfathered Merck Retirement Benefits. All Merial Merck Employees shallbe 100% vested in the Retirement Plan for Salaried Employees of Merck & Co., Inc. (the “QualifiedPlan”) and in the Merck & Co., Inc. Supplemental Retirement Plan, as each such plan may be amendedfrom time to time, (together with the Qualified Plan, the “Merck Retirement Plans”) as of December31, 1997. Each Merial Merck Employee, the sum of whose age plus years of credited service (withinthe meaning of the Qualified Plan) as of December 31, 1997 equals at least 60 (collectively, the“Grandfathered Merck Employees”) shall receive credit for his or her years of service with theMerial Venture for purposes of determining eligibility to receive a subsidized early retirementbenefit with respect to his or her benefit accrued through December 31, 1997 under the MerckRetirement Plans. Unless required by law, benefits under the Merck Retirement Plans shall notcommence until the Grandfathered Merck Employee terminates employment with the Merial Venture. Thecompensation that each Merial Merck Employee receives from the Merial Venture during the periodfrom January 1, 1998 to December 31, 2007 will for purposes of determining his or her final averagepay under the Merck Retirement Plans be treated as if it were compensation received from Merck. Anaccounting or actuarial firm mutually agreed upon by Merck and RP shall determine the present valueof the benefits to be provided to Merial Merck Employees pursuant to this Section 7.1(b) that arein excess of the benefits they would otherwise be entitled to receive under the Merck RetirementPlans in the absence of this Section 7.1(b) (such excess amount shall be defined as the “RetirementCost”). The Retirement Cost shall be determined as of December 31, 1997 using the December 31, 1997demographics of Merial Merck Employees and shall be based upon the actuarial assumptions used byMerck for purposes of determining pension expense pursuant to Financial Accounting Standards(“FAS”) 87 for the Merck Retirement Plans for 1998. Merial shall credit to the Merck Member in
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respect of the Fiscal Year in which the Retirement Cost is calculated a Special Dividend equal tothe Retirement Cost (as increased by an amount calculated as interest at [*] from December 31, 1997 through the earlier of (x) the date on which the Net SpecialDividend in respect of such Fiscal Year is paid in full, and (y) April 15 of the Fiscal Yearimmediately following the Fiscal Year in respect of which the Special Dividend is to be paid).     (c) Grandfathered Retiree Medical and Dental Benefits. Each Grandfathered MerckEmployee whose employment with the Merial Venture terminates and who, at the time of suchtermination, (i) is at least 55 years old with at least 10 years of credited service (as definedunder the Qualified Plan and including service with the Merial Venture) or (ii) if hired by Merckprior to January 1, 1989 is at least 65 years old or meets the requirements of the foregoing clause(i), shall be eligible to receive retiree medical benefits under the terms applicable to retireesunder the Merck & Co., Inc. Medical Plan for Nonunion Employees as it may be amended from time totime (the “Merck Medical Plan”) and shall be eligible to receive retiree dental benefits under theterms applicable to retirees under the Merck & Co., Inc. Dental Plan for Nonunion Employees as itmay be amended from time to time (the “Merck Dental Plan”). An accounting or actuarial firmmutually agreed upon by Merck and RP shall determine the present value of the accumulated postretirement benefit obligation existing for eligible Grandfathered Merck Employees (other than thoseemployees who, as of December 31, 1997 (i) are at least 55 years old with at least 10 years ofcredited service (as defined under the Qualified Plan), or (ii) if hired by Merck prior to January1, 1989 are at least 65 years old or meet the requirements of the immediately foregoing clause (i))pursuant to this Section 7.1(c) (the “Health Cost”). The Health Cost shall be determined as ofDecember 31, 1997 using the December 31, 1997 demographics of eligible Grandfathered MerckEmployees and shall be based upon the actuarial assumptions used by Merck for calculating theexpense for the Merck Medical Plan and the Merck Dental Plan pursuant to FAS 106 for 1998. Merialshall credit to the Merck Member in respect of the Fiscal Year in which the Health Cost iscalculated a Special Dividend equal to the Health Cost (as increased by an amount calculated asinterest at [*] from December 31, 1997 through the earlier of (x)the date on which the Net
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Special Dividend in respect of the 1998 Fiscal Year is paid in full, and (y) April 15 of the FiscalYear immediately following the Fiscal Year in respect of which the Special Dividend is to be paid).     (d) Merck Stock Options. In addition to any stock option grants made prior tothe date of this Agreement under any Merck incentive stock plan (all such plans collectively, the“Merck Stock Option Plans”), Merck may make an additional grant under the current Merck StockOption Plan to be priced as of the Closing Date to selected employees as determined by Merck whoshall become Merck Leased Employees. Merck will provide the shares of Merck common stock obtainedupon exercise of any stock option grants which have been made by Merck under the Merck Stock OptionPlans to any Merial Merck Employee which are outstanding as of the Closing Date. Promptly afterany such exercise, Merck may invoice on an employee by employee basis and, if so invoiced, Merial(or the appropriate Merial Venture Company) will pay to Merck (within fifteen (15) days afterreceipt of such invoice), the amount (the “Spread”) equal to the product of (A) the excess of (i)the per share market price of shares of Merck common stock purchased on the exercise of the option,over (ii) the per share exercise price of the stock option (adjusted for stock splits, stockdividends, reclassification and similar events between the date the stock option was granted andthe exercise date, as considered appropriate by Merck), times (B) the number of shares issued uponsuch exercise. Merial shall credit to the RP Member in respect of any Fiscal Year in which it paysa Spread to Merck, a Special Dividend equal to the aggregate of (x) all Spreads paid in such FiscalYear by Merial to Merck plus (y) any incidental costs associated with the payment of such Spreadsand paid by the Merial Venture (i.e., any employer taxes paid). The Special Dividend (as describedin the foregoing sentence) that may be credited to the RP Member in any particular Fiscal Yearshall be increased by an amount calculated as interest at a rate equal to [*] accruing from December 31 of such Fiscal Year through the earlier of (x) the date onwhich the Net Special Dividend in respect of such Fiscal Year is paid in full, and (y) April 15 ofthe Fiscal Year immediately following the Fiscal Year in respect of which the Special Dividend isto be paid.
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     (e) RM Plans. Following the Closing and until December 31, 1997, Merial shall, orshall cause RM or its Subsidiaries to continue to, maintain the employee benefit plans that were ineffect for the employees of RM or its Subsidiaries employed in the Animal Health Business in theU.S. (“RM U.S. Employees”) immediately prior to the Closing, other than any stock option plans (the“RM Plans”). Prior to January 1, 1998, such RM Plans shall only be amended (i) as required by law,(ii) to maintain the tax qualified status of any such plan or (iii) as determined by the Board ofDirectors; provided, however, that the RM/Select 401 (k) Plan (the “RM 401 (k) Plan”) shall beamended as of July 1, 1997 to provide an employer matching contribution of [*] each $1.00deferred by a participant under the plan up to [*] of compensation.     (f) Merial Plans. Effective January 1, 1998, Merial shall, or shall cause theappropriate Merial Venture Company to, amend the RM Plans or otherwise establish such employeebenefit plans in accordance with the terms set forth herein (other than a severance plan whichshall be established as of the Closing Date) in which Merial Merck Employees and RM U.S. Employees(collectively the “U.S. Animal Health Employees”) shall participate as Merial shall deemappropriate subject to the terms and conditions set forth herein. It is the intention that suchplans shall be initially designed so that the expected aggregate cost for the plans shall not, onan annualized basis, exceed the total combined aggregate benefit plan costs of RM and itsSubsidiaries and Merck for such employees on an annualized basis prior to the Closing Date.     (i) Cash Balance Plan. Effective as of January 1, 1998, Merial shall, orshall cause the appropriate Merial Venture Company to, establish one or more cash balanceretirement plans (tax-qualified or non-tax qualified) (the “Cash Balance Plan”) in which theU.S. Animal Health Employees shall be eligible to participate upon satisfying the applicableage and service requirements established for such plan. All U.S. Animal Health Employeesshall be credited for their prior service with the Merial Venture, Merck or RM (or theirrespective Subsidiaries) for vesting and eligibility purposes with respect to the CashBalance Plan. The Cash Balance Plan and the Amended RM 401(k) Plan (as hereinafter defined)shall
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be initially designed to collectively provide retirement benefits at the median of the Watson Wyattsample of 731 companies as provided to the parties by Watson Wyatt prior to the date hereof. It isthe intention that the annual costs of employer contributions to such plans for 1998 shall notexceed the total combined aggregate costs for the U.S. Animal Health Employees under the RM 401 (k)Plan, Merck 401 (k) Plan and the Merck Retirement Plan on an annualized basis prior to the ClosingDate.     (ii) 401(k) Plan. The profit sharing contribution provided for under the RM 401(k)Plan for the 1997 plan year shall be made by Merial (or the appropriate Merial Venture Company) andshall not exceed [*] of the compensation of participants in the plan, which contribution amountshall be split between RP and Merial on a pro-rata basis, with RP bearing the contribution amount(pursuant to the Special Dividend described in the following sentence) for the portion of the planyear up to and including the Closing Date (the “RM Profit Sharing Cost”) and Merial the portion ofthe plan year after the Closing Date. Merial shall credit to the Merck Member in respect of the1998 Fiscal Year a Special Dividend equal to the RM Profit Sharing Cost [*], as increased by an amount calculated as interest at[*] from the date on which the profit sharing contribution withrespect to the 1997 plan year is made by Merial through the earlier of (x) the date on which theNet Special Dividend in respect of the 1998 Fiscal Year is paid in full, and (y) April 15, 1999.Effective January 1, 1998, the RM 401(k) Plan shall be amended to provide (A) an employer matchingcontribution of [*] for each $1.00 deferred by a participant under the plan up to [*]of compensation (or such other level of contribution as the Board of Directors shall decide), (B)investment options permitting participants to invest in Merck and RP stock (provided that the planpurchases such stock in open market transactions and not directly from Merck or RP), and (C) thatthe profit sharing portion of the plan is terminated (as so amended, the “Amended RM 401(k) Plan”).Effective January 1, 1998, all Merial Merck Employees who were participants in the Merck 401 (k)Plan shall cease to be participants in such plan
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and shall become participants in the Amended RM 401(k) Plan and the Amended RM 401(k) Plan shallcredit for eligibility and vesting purposes all service by a Merial Merck Employee for which suchservice was recognized under the Merck 401(k) Plan prior to January 1, 1998. As soon as practicableafter January 1, 1998, Merck shall cause the trustee of the Merck 401(k) Plan to transfer to thetrustee of the Amended RM 401(k) Plan assets equal to the account balances as of the valuation dateimmediately preceding the date of transfer of the Merial Merck Employees who were participants inthe Merck 401(k) Plan; provided, however, that no such transfer shall occur untilMerial demonstrates to the reasonable satisfaction of Merck and Merck demonstrates to thereasonable satisfaction of Merial that, at the time of the transfer, the Amended RM 401(k) Plan andthe Merck 401(k) Plan, respectively, satisfy the requirements for qualification under Section401(a) of the Code. The transfer referred to in the preceding sentence may be made in shares ofMerck stock (to the extent the transferred account balances are invested in the Merck UnitizedCommon Stock Fund under the Merck 401(k) Plan), promissory notes or other documents evidencingparticipant loans (to the extent the transferred account balances consist of participant loans) andcash. Upon the transfer of assets contemplated in this Section 7.1(f)(ii), the Merck 401(k) Planshall be relieved of, and the Amended RM 401(k) Plan shall assume, all liability with respect tothe payment of the transferred account balances.     (iii) Medical Plan. Effective January 1, 1998, the RM Nonunion Medical Benefits Plan(“RM Medical Plan”) shall be amended (A) to the extent necessary, to provide that Merial MerckEmployees are eligible to participate in the plan, (B) where feasible, to provide for managed carein locations where Merck provides managed care to its employees immediately prior to January 1,1998, and (C) to provide that the percentage of the cost of coverage under the plan borne by eachparticipant shall not be more than [*]. Merial shall cause the RM Medical Plan to waive any preexisting conditionexclusions or restrictions to the extent necessary to provide immediate coverage under the plan forMerial Merck Employees.
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     (iv) Dental Plan. Effective January 1, 1998, the RM/Select Laboratories, Inc. DentalPlan (the “RM Dental Plan”) shall be amended to provide that (A) Merial Merck Employees areeligible to participate in the plan, and (B) to provide that the percentage of the cost of coverageunder the plan borne by each participant shall not be more than [*]. Merial shall cause the RM Dental Plan to waiveany preexisting condition exclusions or restrictions to the extent necessary to provide immediatecoverage under the plan for Merial Merck Employees.     (v) Other Plans. Effective as of January 1, 1998, Merial shall, or shall cause theappropriate Merial Venture Company to, establish a health care reimbursement account, dependentcare reimbursement account, group life insurance, accidental death and dismemberment insurance, aSection 125 plan, and long-term and short-term disability plans that shall cover all U.S. AnimalHealth Employees the terms of which shall be determined by the Board of Directors, and such otherplans as are determined by the Board of Directors.     (vi) Severance Policies.     (A) Effective as of the Closing Date, Merial shall, or shall cause the appropriateMerial Venture Company to, establish a severance policy (the “Regular Severance Policy”)covering the RM U.S. Employees (and, effective as of January 1, 1998, all of the U.S.Animal Health Employees) that provides, in exchange for an executed release, a severancebenefit of [*] of salary (salary to be defined as base salary excluding overtime,premiums and other extraordinary payments) for each full year (for any partial year,prorated based on full calendar months) of service with the Merial Venture, RM and/or Merck(or their respective Subsidiaries) under circumstances and on terms and conditions asdetermined by the Board of Directors. For RM U.S. Employees, for the period from theClosing Date through December 31, 1997, such Regular Severance Policy shall include
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outplacement services and an additional [*] of salary for each full year of service (for anypartial year, prorated based on full calendar months) plus [*] of salary in lieu ofnotice. Benefits payable under the Regular Severance Policy are in lieu of any other severancearrangements or benefits provided to employees by RM or its Subsidiaries or the Merial Venture.     (B) Effective prior to the Closing Date, RM shall establish a special severance policy (the“Special Severance Policy”) covering the employees listed by RM on Schedules 7.1 F-1 and 7.1 F-2(collectively, the “Eligible Employees”) that provides, in exchange for an executed release by theEligible Employees and an agreement as to certain other terms and conditions, a severance benefitin the event of a termination of employment described in the following sentence of (i) for theEligible Employees listed on Schedule 7.1 F-1, [*] of salary [*] of salary foreach full year of service (partial years will not be counted) subject to a maximum of [*]of salary and for the Eligible Employees listed on Schedule 7.1 F-2, [*] of salary plus[*] of salary for each full year of service (partial years will not be counted) subject to amaximum of [*] of salary, (ii) an amount equal to the applicable premium cost to anEligible Employee of [*] of continuation of coverage under the RM Medical Plan and the RMDental Plan (the “Premium Payment”) plus an additional amount equal to the estimated tax liabilityincurred by an Eligible Employee with respect to the Premium Payment (as set forth in the letteragreement with such Eligible Employee), and (iii) outplacement services. An Eligible Employee (x)whose employment with RM or the Merial Venture is terminated prior to December 31, 1997, (1) by RMor the Merial Venture for reasons other than for misconduct or other cause, or (2) by the EligibleEmployee upon reasonable written notice to RM or the Merial Venture if the position offered to theEligible Employee by RM or the Merial Venture is not substantially comparable in base salary andjob responsibilities as the
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position held by the Eligible Employee immediately prior to such offer or (y) who is notified priorto December 31, 1997 that his employment with the Merial Venture will be terminated as of aspecified date occurring after December 31, 1997 and who remains employed through the specifieddate, in either case, shall be entitled to the severance benefits described in clauses (i) or (ii),as applicable, of the first sentence of this paragraph (B). Eligible Employees whose employment isterminated prior to December 31, 1997 for reasons other than misconduct or other cause will also beentitled to outplacement services. Benefits payable under the Special Severance Policy are in lieuof any other severance arrangements or benefits provided to employees by either RM and itSubsidiaries or the Merial Venture, including the Regular Severance Policy. An Eligible Employeewho is informed prior to December 31, 1997 that his or her employment with the Merial Venture willbe terminated as of a specified date occurring after December 31, 1997 who does not remain employedthrough such date will not be entitled to receive, and will not receive, any severance benefitsunder the Special Severance Policy or under any other plan, policy or program of RM and itsSubsidiaries or the Merial Venture including the Regular Severance Policy. The Special SeverancePolicy will expire on December 31, 1997 and as of January 1, 1998 the Eligible Employees willparticipate in the Regular Severance Policy; except those Eligible Employees who are informed priorto December 31, 1997 that their employment with the Merial Venture will be terminated on a dateafter December 31, 1997, in which case, the Special Severance Policy shall continue to apply toeach such Eligible Employee until such specified date. Merial shall (or shall cause the appropriateMerial Venture Company to) bear the costs of the Special Severance Policy.     (C) From the Closing Date through December 31, 1997, Merck Leased Employees shall participatein a severance plan (the “Merck Leased Employees Severance Plan”) to be established by Merck theterms of which are described in the Merck Employee Leasing Agreement. Effective as of
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the Closing Date, Merck shall establish a special severance policy, covering those MerckLeased Employees determined by the Board of Directors on terms (including the reimbursementof Merck by Merial for payments made under such policy) described in the Merck EmployeeLeasing Agreement.     (vii) Bonus Programs. Merial shall establish annual sales and annual incentiveprograms effective as of January 1, 1998 on terms and conditions established by the Board ofDirectors in which employees of the Merial Venture shall be eligible to participate. RM and Merckshall continue their respective sales and incentive plans for 1997 for the RM US Employees and theMerck Leased Employees, respectively; provided, however, that, to the extentfeasible, Merial shall establish the goals for the sales plans for the RM U.S. Employees and theMerck Leased Employees for the period beginning on the Closing Date and ending on December 31,1997. Merck shall pay bonuses under the applicable Merck sales and incentive plans to the MerckLeased Employees. Merial shall reimburse Merck for the cost of the payment of such bonuses on a prorata basis in accordance with the terms of the Merck Employee Leasing Agreement.     Merial shall (or shall cause the appropriate Merial Venture Company to) pay that portion ofthe bonuses earned by the RM U.S. Employees under the RM annual sales and incentive plan[s] withrespect to the 1997 bonus period up to and including the Closing Date to the RM U.S. Employees assoon as practicable after the Closing Date. RP shall bear the obligation for the bonuses paid underthe foregoing sentence pursuant to the Special Dividend described in the following sentence. Merialshall credit to the Merck Member for the 1997 Fiscal Year a Special Dividend equal to the amount ofsuch bonuses paid by Merial under the RM annual sales and incentive plan[s] multiplied by [*], as increased by an amount calculated as interest at[*] from the Closing Date through the earlier of (x) the date onwhich the Net Special Dividend in respect of the 1997 Fiscal Year is paid in full, and (y) April15, 1998. The appropriate Merial Venture Company shall
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pay that portion of the bonuses earned by the RM U.S. Employees under such annual sales andincentive plan[s] with respect to the 1997 bonus period following the Closing Date to theRM U.S. Employees in accordance with the terms and conditions of such plans and shall bearthe costs of such payments.     (viii) Service Credit. Without limiting any of the foregoing provisions ofthis Section 7.1, Merial shall, or shall cause the appropriate Merial Venture Company to,recognize for U.S. Animal Health Employees all service with Merck and RM and theirrespective affiliates and predecessors prior to such employees becoming employees of theMerial Venture for all purposes under the plans of the Merial Venture, other than pensionbenefit accrual, for which such service was recognized by Merck or RM or their respectiveSubsidiaries and Merial shall, or shall cause the appropriate Merial Venture Company, towaive for U.S. Animal Health Employees any pre-existing condition exclusions orrestrictions and, for other than the Merck LTD Employees, any actively-at-work requirementsimposed by any of the Merial plans.     (ix) Change in Transfer Date. January 1, 1998 is assumed to be the date onwhich Merck Leased Employees shall become Merial Merck Employees. If January 1, 1998 is notthe transfer date, Merck and RP shall agree on the appropriate transfer date andappropriate adjustments to be made to the terms and costs provided for in this Article VII.     (g) Transfer of Certain Rhône Mérieux, Inc. Employees. As of the Closing Date, RhôneMérieux, Inc. shall cause the employment of those RM U.S. Employees who are employed by RhôneMérieux, Inc. as of such date as sales and distribution employees (the “S&D Employees”) to betransferred to Merial (or to a Merial Venture Company designated by Merial). Effective as of theClosing Date, Merial (or the appropriate Merial Venture Company) shall become a participatingemployer in the RM Plans in which the S&D Employees participated prior to the Closing Date and theS&D Employees shall remain participants in such plans to the extent and under the terms in whichthey participated in such plans prior to the Closing Date.
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SECTION 7.2. Animal Health Division — Outside U.S.     (a) Leasing or Transfer of Merck Group Employees Outside of the U.S. Except asotherwise agreed by Merck and RM prior to the Closing, after the Closing, employees of the MerckGroup employed in the Animal Health Business outside of the U.S. may be leased to Merial, or to aMerial Venture Company designated by Merial, to the extent permitted by local law and as agreed toby Merck and RM on or prior to the Closing, and transferred to Merial, or to a Merial VentureCompany designated by Merial as soon as practicable after the Closing. The terms of any leasingagreement for each applicable country shall be substantially similar to the terms of the MerckEmployee Leasing Agreement, with the percentage of payroll for benefits for the leased employeescharged to Merial (or the appropriate Merial Venture Company) to be not less than the actual chargefor benefits to the Animal Health Division of the Merck Group for such employees in effectimmediately prior to the Closing Date. Where leasing is not permitted or where Merck and RM havenot agreed on or prior to the Closing that leasing is appropriate, employees of the Merck Groupemployed in the Animal Health Business outside the U.S. shall be transferred to Merial, or to aMerial Venture Company designated by Merial, as of the Closing Date and shall participate in plansof the Merial Venture (or such other plans as Merial shall deem appropriate) as of the ClosingDate.     (b) Compensation and Benefit Plans. The compensation and benefit programs of theMerial Venture for employees of the Animal Health Business outside of the U.S. shall be reviewed ona country by country basis and such revisions, if any, as may be necessary to ensure that suchprograms are competitive in the applicable marketplace shall be made by Merck and RM prior to theClosing Date and by the Board of Directors after the Closing Date. Any transition arrangements,including but not limited to those regarding grandfathered pension and retiree health arrangements(and cost-sharing among the parties hereto with respect to such arrangements), credit for priorservice, waiver of any pre-existing condition exclusions or restrictions, severance arrangementsand cost sharing, shall be determined on a country-by-country basis by Merck and RM prior to theClosing Date and by the Board of Directors after the Closing Date.
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     (c) Costs of Transaction. Notwithstanding anything to the contrary in this ArticleVII, in the event that Merck or its Subsidiaries or RM or its Subsidiaries incurs liability orobligation as a result of the consummation of the transactions contemplated in this Agreement, to,or with respect to their respective employees outside of the U.S. whose employment is beingtransferred or assumed by the Merial Venture, Merial shall (i) credit to the Merck Member inrespect of the Fiscal Year in which such liability or obligation is paid by the Merck Group, aSpecial Dividend equal to the cost multiplied by [*]Merck or its Subsidiaries incurs with respect to such liability or obligation (as increased by anamount calculated as interest at [*] from the date such liabilityor obligation is paid by the Merck Group through the earlier of (x) the date on which the NetSpecial Dividend in respect of such Fiscal Year is paid in full, and (y) April 15 of the calendaryear immediately following the Fiscal Year in respect of which the Special Dividend is to be paid)and (ii) honor the obligation of RM or its Subsidiaries.     (d) Assumption of Employment Contracts. Notwithstanding anything to the contrarycontained in this Article VII, to the extent required by law, the appropriate Merial VentureCompany will assume the existing employment contracts and obligations arising out of the employmentrelationship of those employees of the Merck Group employed in the Animal Health Business outsidethe U.S. whose employment is transferred to a Merial Venture Company in connection with theconsummation of the transactions contemplated under this Agreement, unless and until otherwisenegotiated by Merial with the consent of such employees.     (e) Merck Stock Options. In addition to any stock option grants made prior to thedate of this Agreement under the Merck Stock Option Plans, Merck may make an additional grant underthe current Merck Stock Option Plan to be priced as of the Closing Date to selected employees ofthe Merck Group employed in the Animal Health Business outside of the U.S., as determined by Merck,who become employees of the Merial Venture as of the Closing Date. Merck will provide shares ofMerck common stock obtained upon exercise of any stock option grants which have been made by Merckunder the Merck Option Plans to any such employees which are outstanding as of the Closing
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Date. Promptly after such exercise, Merck may invoice on an employee by employee basis and, if soinvoiced, Merial (or the appropriate Merial Venture Company) will pay to Merck (within fifteen (15)days after receipt of such invoice), the Spread with respect to such exercise. Merial shall creditto the RP Member in respect of any Fiscal Year in which it pays a Spread to Merck, a SpecialDividend equal to the aggregate of (x) all Spreads paid in such Fiscal Year by Merial to Merck plus(y) any incidental costs associated with the payment of such Spreads and paid by the Merial Venture(i.e, any employer taxes paid). Any Special Dividend (as described in the foregoing sentence) thatmay be credited to the RP Member in respect of any Fiscal Year shall be increased by an amountcalculated as interest at a rate equal to [*] accruing from December31 of such Fiscal Year through the earlier of (x) the date on which the Net Special Dividend inrespect of that Fiscal Year is paid in full, and (y) April 15 of the Fiscal Year immediatelyfollowing the Fiscal Year in respect of which the Special Dividend is to be paid.SECTION 7.3 Animal Health Division — Worldwide     As of January 1, 1998, Merial shall establish a long-term incentive plan in which keymanagement employees of the Merial Venture employed in the Animal Health Business both inside andoutside of the U.S. and deemed appropriate by Merial shall participate. The plan shall be a[*].SECTION 7.4. Poultry Genetics Division     (a) Compensation and Benefit Plans. Following the Closing and until a dateagreed upon by Merck and RM before the Closing or by the Board of Directors after the Closing (but,to the extent feasible, not less than one year following the Closing Date), Merial shall, or shallcause the Transferred Subsidiaries engaged in the Poultry Genetics Business (the “Poultry GeneticsSubsidiaries”), to continue to, maintain the employee benefit plans (or substantially equivalentemployee benefit plans) other than stock based plans that were in effect for the employees of therespective Poultry Genetics Subsidiaries immediately prior to the Closing. Merial (or the PoultryGenetics Subsidiary maintaining
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such plan) shall bear the costs of all such employee benefit plans other than Pre-Closing BenefitLiabilities. For individuals who are employees of the Poultry Genetics Subsidiaries immediatelyprior to Closing, Merial shall, or shall cause the Poultry Genetics Subsidiaries to, (i) recognizeall service with Merck, RM and the Poultry Genetics Subsidiaries and their respective affiliatesand predecessors for all purposes under the Merial Venture plans established after the Closing foremployees of the Poultry Genetics Subsidiaries, other than pension benefit accrual, for which suchservice was recognized for such individuals by Merck, RM or the Poultry Genetics Subsidiaries and(ii) waive any pre-existing condition exclusions or restrictions and actively at work requirementsimposed by any such Merial Venture plans.     (b) Merck Stock Options. In addition to any stock option grants made prior tothe date of this Agreement under the Merck Stock Option Plans, Merck may make an additional grantunder the current Merck Stock Option Plan, to be priced as of the Closing Date, to selectedemployees of the Merck Transferred Subsidiaries as determined by Merck. Merck will provide theshares of Merck common stock obtained upon exercise of any stock option grants which have been madeby Merck under the Merck Stock Option Plans to any employee of the Merck Transferred Subsidiarieswhich are outstanding as of the Closing Date. Promptly after any such exercise, Merck may invoiceon an employee by employee basis and, if so invoiced, Merial will pay to Merck (within fifteen (15)days after receipt of such invoice), the Spread with respect to such exercise. Merial shall creditto the RP Member in respect of any Fiscal Year in which it pays a Spread to Merck, a SpecialDividend equal to the aggregate of (x) all Spreads paid in such Fiscal Year by Merial to Merck plus(y) any incidental costs associated with the payment of such Spreads and paid by the Merial Venture(i.e., any employer taxes paid). Any Special Dividend (as described in the foregoing sentence) tobe credited to the RP Member in respect of any Fiscal Year shall be increased by an amountcalculated as interest at a rate equal to [*] accruing fromDecember 31 of such Fiscal Year through the earlier of (x) the date the Net Special Dividend inrespect of such year is paid in full, and (y) April 15 of the Fiscal Year immediately following theFiscal Year in respect of which the Special Dividend is to be paid.
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SECTION 7.5. Employee and Employee Benefit Plan Related Indemnities or Special Dividends     (a) RP Indemnities and Merck Special Dividends.     (i) Merial shall credit to the Merck Member in respect of the Fiscal Year inwhich the RM Plans’ Liabilities/Assets Calculation (as defined below) is calculated, aSpecial Dividend equal to the amount, if any, by which the aggregate of the Pre-ClosingBenefit Liabilities with respect to the RM Transferred Benefit Plans exceed the aggregatefair market value of the assets of the RM Transferred Benefit Plans as of the Closing Datewhich assets shall include insurance proceeds actually recovered by the Merial Venture thatcover any such liabilities (the “RM Plans’ Liabilities/Assets Calculation”). Any suchamount to be credited as a Special Dividend pursuant to the foregoing sentence shall beincreased by an amount calculated as interest at [*] fromthe Closing Date through the earlier of (x) the date the Net Special Dividend in respect ofsuch year is paid in full, and (y) April 15 of the Fiscal Year immediately following theFiscal Year in respect of which the Special Dividend is to be paid. The calculation ofliabilities for RM Transferred Benefit Plans shall not include any liability for which RP isobligated to reimburse the Merial Venture, or that is otherwise specifically retained by RP,pursuant to Section 7.1. The RM Plans’ Liabilities/Assets Calculation shall be calculated assoon as reasonably practicable after the Closing Date. Merial shall credit to the RP Memberin respect of the Fiscal Year in which the RM Plans’ Liabilities/Assets Calculation iscalculated, a Special Dividend equal to the amount, if any, by which the aggregate fairmarket value of the assets of the RM Transferred Benefit Plans as of the Closing Date exceedPre-Closing Benefits Liabilities under the RM Plans’ Liabilities/Assets Calculation (asincreased by an amount calculated as interest at [*] fromthe Closing Date through the earlier of (x) the date the Net Special Dividend in respect ofsuch year is paid in full, and (y) April 15 of the Fiscal Year immediately following theFiscal Year in respect of which the Special Dividend is to be paid).
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     (ii) RP shall indemnify the Merial Venture against, and agrees to hold it harmless from, anyDamages (including lawsuits and Third Party claims, whether or not meritorious) incurred orsuffered by the Merial Venture following the Closing resulting from, arising out of, or relating toany violation of law, ruling or regulation occurring or existing prior to the Closing with respectto any RM Transferred Benefit Plan; provided, however, that this indemnity shallnot apply to (A) any claim for benefits under an RM Transferred Benefit Plan the liabilities forwhich were accounted for in the RM Plans’ Liabilities/Assets Calculation, or (B) RM Pre-ClosingTaxes.     (iii) RP shall indemnify the Merial Venture against, and agrees to hold it harmless from,Damages (including lawsuits and Third Party claims, whether or not meritorious) incurred orsuffered by the Merial Venture following the Closing resulting from, arising out of, or relating toany Benefit Plan established, sponsored or maintained by RP, any of its Subsidiaries or any RPERISA Affiliate (other than the RM Transferred Benefit Plans) whether arising out of any event orstate of facts occurring or existing prior to, on, or after the Closing Date; provided,however, that this indemnity shall not apply to any RM Pre-Closing Taxes; provided,further, however, that in the event that a Merial Venture Company becomes aparticipating employer in an RM Benefit Plan (other than an RM Transferred Benefit Plan) thisindemnity will not apply to Damages incurred or sustained by the Merial Venture Company as a resultof its action or failure to act in accordance with the terms and conditions of its agreement withany member of the RP Group to be such a participating employer.     (b) Merck Indemnities and RP Special Dividends.     (i) Merial shall credit to the RP Member in respect of the Fiscal Year in which the MerckPlans’ Liabilities/Assets Calculation (as defined below) is calculated, a Special Dividend equal tothe amount, if any, by which the aggregate of the Pre-Closing Benefit Liabilities with respect tothe Merck Transferred Benefit Plans exceed the aggregate fair market value of the assets of theMerck
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Transferred Benefit Plans as of the Closing Date, which assets shall include insurance proceedsactually recovered by the Merial Venture that cover any such liabilities (the “Merck Plans’Liabilities/Assets Calculation”). Any amount to be credited as a Special Dividend pursuant to theforegoing sentence shall be increased by an amount calculated as interest at [*] from the Closing Date through the earlier of (x) the date the Net Special Dividendin respect of such year is paid in full, and (y) April 15 of the Fiscal Year immediately followingthe Fiscal Year in respect of which the Special Dividend is to be paid. The calculation ofliabilities for Merck Transferred Benefit Plans shall not include any liability for which Merck isobligated to reimburse the Merial Venture, or that is otherwise specifically retained by Merck,pursuant to Section 7.1. The Merck Plans’ Liabilities/Assets Calculation shall be calculated assoon as reasonably practicable after the Closing Date. Merial shall credit to the Merck Member inrespect of the Fiscal Year in which the Merck Plans’ Liabilities/Assets Calculation is calculated,a Special Dividend equal to the amount, if any, by which the aggregate fair market value of theassets of the Merck Transferred Benefit Plans exceed Pre-Closing Benefits Liabilities under theMerck Plans’ Liabilities/Assets Calculation (as increased by an amount calculated as interest at[*] from the Closing Date through the earlier of (x) the date theNet Special Dividend in respect of such year is paid in full, and (y) April 15 of the Fiscal Yearimmediately following the Fiscal Year in respect of which the Special Dividend is to be paid).     (ii) Merck shall indemnify the Merial Venture against, and agrees to hold it harmless from,Damages (including lawsuits and Third Party claims, whether or not meritorious) incurred orsuffered by the Merial Venture following the Closing resulting from, arising out of, or relating toany violation of law, ruling or regulation occurring or existing prior to the Closing with respectto any Merck Transferred Benefit Plan; provided, however, that this indemnity shallnot apply to (A) any claim for benefits under a Merck Transferred Benefit Plan the liabilities forwhich were accounted for in the Merck Plans’ Liabilities/Assets Calculation, or (B) MerckPre-Closing Taxes.
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     (iii) Merck shall indemnify the Merial Venture against, and agrees to hold it harmlessfrom, Damages (including lawsuits and Third Party claims, whether or not meritorious)incurred or suffered by the Merial Venture following the Closing resulting from, arisingout of, or relating to any Benefit Plan established, sponsored or maintained by Merck, anyof its Subsidiaries or any Merck ERISA Affiliate (other than the Merck Transferred BenefitPlans and the Merck Stock Option Plans) whether arising out of any event or state of factsoccurring or existing prior to, on, or after the Closing Date; provided,however, that this indemnity shall not apply to any Merck Pre-Closing Taxes;provided, further, however, that in the event that a Merial VentureCompany becomes a participating employer in a Merck Benefit Plan (other than a MerckTransferred Benefit Plan) this indemnity will not apply to Damages incurred or sustained bythe Merial Venture Company as a result of its action or failure to act in accordance withthe terms and conditions of its agreement with any member of the Merck Group to be such aparticipating employer.     (c) FAS106 Reduction Merck Special Dividend. If the FAS 106 liability on anaccumulated post-retirement benefit obligation basis with respect to post retirement benefits forparticipants in the plans of Hubbard Farms Inc. or its successor which provide post-retirementbenefits (other than pension benefits), as those plans are in effect on the Closing Date, isreduced after the Closing Date as a result of amendments made to such plans effective on or beforeJanuary 1, 1999, then the Merck Member shall be credited with a special dividend (a “ReductionSpecial Dividend”) equal to the amount of such reduction. A Reduction Special Dividend shall bedetermined as of the effective date of the benefit reduction (the “Reduction Date”) using theReduction Date demographics of eligible participants under the applicable plans and based upon theactuarial assumptions used by Merck for calculating the expense for the applicable plans pursuantto FAS 106 on an accumulated post-retirement benefit obligation basis for 1997. Merial shall creditto the Merck Member in respect of the Fiscal Year in which the Reduction Special Dividend iscalculated, a Special Dividend equal to the Reduction Special Dividend (as increased by an amountcalculated as interest at [*] from the Reduction Date through theearlier of (x) the date the Net Special Dividend in respect of
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such year is paid in full, and (y) April 15 of the Fiscal Year immediately following the FiscalYear in respect of which the Special Dividend is to be paid.).     (d) Procedures Governing Indemnities. The procedures set forth in Section 14.7 shallgovern the indemnities set forth in Sections 7.5(a)(ii) and (iii) and 7.5(b)(ii) and (iii). Theprovisions set forth in Sections 7.5(a)(i), 7.5(b)(i) and 7.5(c) shall not be governed by theprocedures set forth in Section 14.7 but according to the provisions set forth in such Sections.     (e) Certain Indemnities Subject to Basket. The indemnities and other provisions setforth in Sections 7.5(a)(ii) and 7.5(b)(ii) shall be subject to the limitations set forth inSection 14.6. The indemnities set forth in Sections 7.5(a)(i) and (iii), 7.5(b)(i) and (iii) and7.5(c) shall not be subject to the limitations set forth in Section 14.6.
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**ARTICLE VIII****REPRESENTATIONS AND WARRANTIES OF IM AND RM**     IM and RM hereby represent and warrant, as of the date hereof and as of the Closing Date, toMerck and Merck SH and to Merial as follows:SECTION 8.1. Organization; Powers     IM and RM and each of RM’s Subsidiaries (a) is a corporation or company duly organized andvalidly existing and (to the extent applicable) in good standing under the laws of its jurisdictionof organization, (b) has all requisite corporate or similar power and authority to own or lease andoperate its property and assets and to carry on its business as now conducted, (c) is qualified orlicensed to do business and is in good standing in every jurisdiction where such qualification orlicensing is required, except where the failure so to qualify would not result in a MaterialAdverse Change or Effect, and (d) has the corporate or similar power and authority to execute,deliver and to perform its obligations under (as applicable) this Agreement and any and allAncillary Agreements to which it is a party or by which it is bound.SECTION 8.2. Authorization; No Breach     The execution and delivery by each of IM and RM (as applicable) of each of this Agreement andany and all Ancillary Agreements to which it is a party or by which it is bound, and theconsummation of the Transactions, (a) have been duly authorized by all necessary action and do notrequire the consent or approval of its shareholders or partners, except such consents or approvalsas have been obtained, and (b) do not (i) violate or conflict with (A) any Law or regulationapplicable to it or any of its assets or properties, or (B) its *statuts,*or (ii) violate, conflictwith, result in a breach of or constitute (alone or with notice or lapse of time or both) a defaultunder, require any consent under, or give to any Third Party any rights of termination, amendment,acceleration, suspension, revocation or cancellation of or result in any Encumbrance on
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any of the assets of IM, RM or its Subsidiaries pursuant to, any provisions of any agreements(including any notes, contracts, leases, licenses or other instruments or arrangements) by which itor any RM Subsidiary is bound, except, in the case of this clause (ii), for such violations,conflicts, breaches, defaults, required consents, rights or Encumbrances, (x) that would not in theaggregate cause a Material Adverse Change or Effect or (y) that are listed in Schedule 8.20-2.SECTION 8.3. Enforceability     This Agreement has been duly executed and delivered by each of IM and RM and constitutes, andeach Ancillary Agreement when executed and delivered by each of IM and/or RM (as applicable)constitutes or will constitute, its legal, valid and binding obligation, enforceable against it inaccordance with its terms, subject, however, to any limitations with respect to enforcement whichmay be imposed in connection with (i) bankruptcy, insolvency, reorganization, moratorium or otherlaws affecting the enforcement of creditors’ rights generally, and (ii) general principles ofequity (regardless of whether considered and applied in a proceeding at law or in equity).SECTION 8.4. Governmental Approvals     All permits, consents and approvals of, registrations with, notices to, and other actions by,all Public Authorities that are required by IM or RM or any RM Subsidiary in connection with theTransactions (collectively the “RM Approvals”) have been made or obtained and are in full force andeffect, except that, as of the date hereof (but not as of the Closing), the following RM Approvalshave not been made or obtained: (i) the approval of the merger control authorities of the EuropeanUnion, (ii) the *agrément fiscal*described in Section 11.2(b), (iii) the required approvals ofPublic Authorities listed in Schedule 8.4, and (iv) such other items which the failure to obtain,individually or in the aggregate, would not have a Material Adverse Change or Effect. None of IM orRM or any RM Subsidiary has taken or omitted to take any action which permits, or after notice orlapse of time or both would permit, any modification or termination of any of the RM Approvals.
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SECTION 8.5. Historical Financial Data     True and complete copies of RM’s audited consolidated financial statements, i.e., the balancesheet and income statement as of and for the year ended December 31, 1996 (together, the “RMFinancials”) are provided as Exhibit XVII. The RM Financials were derived from the books andrecords of RM and its Subsidiaries, and such RM Financials were prepared in accordance with U.S.GAAP consistently applied and consistent with the accounting principles of the RP Group asdescribed in note 1 to the Consolidated Financial Statements included in the RP 1996 Annual Reportfiled on Form 20-F, and present fairly RM’s and its Subsidiaries’ consolidated assets andLiabilities, income and expenses and cash flows as of the dates and for the periods indicated.SECTION 8.6. No Undisclosed Liabilities     (a) Liabilities at December 31, 1996. As at December 31, 1996, RM and its Subsidiarieshad no Liabilities of any nature, whether accrued, contingent or otherwise (including Liabilitiesas guarantor or otherwise with respect to obligations of others, Liabilities for taxes due or thenaccrued or to become due or Liabilities that have been incurred but not yet reported), that werenot adequately reflected or reserved against on the December 31, 1996 balance sheet of the RMFinancials and which individually exceeded [*] or which in the aggregate exceeded [*].     (b) RM ContributedLiabilities. Except for any such Liabilities that would notin the aggregate exceed [*], and except for the Debt incurred in connection with the CentralBiologics Acquisition, all the Liabilities of RM and its Subsidiaries that are being contributed tothe Merial Venture as a result of the Transactions either (i) are reflected on the December 31,1996 balance sheet of the RM Financials, as described in Section 8.5, (ii) arose in the ordinarycourse of business since December 31, 1996, or (iii) are or will be disclosed in Schedule 14.2A-2in accordance with Section 14.2(a).
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SECTION 8.7. Receivables     Except to the extent, if any, indicated on the December 31, 1996 balance sheet of the RMFinancials, all Receivables reflected thereon arose from the sale of Inventory or services in theordinary course of business consistent with past practice and constitute only valid, undisputedclaims of RM or its Subsidiaries not subject to valid claims of set-off or other defenses orcounterclaims other than normal cash discounts accrued in the ordinary course of businessconsistent with past practice. All Receivables reflected on the December 31, 1996 balance sheetof the RM Financials or arising since the date thereof (subject to the reserves for bad debts, ifany, reflected on the December 31, 1996 balance sheet of the RM Financials) are good, and have beencollected or are or will be collectible, without resort to extraordinary collection activity, inthe ordinary course of business and, in any case, by the later of (x) the date that is twelve (12)months from the Closing Date, or (y) if a Receivable is not by its terms due within such 12 monthperiod, the date that is three months after its due date.SECTION 8.8. Inventories     Subject to amounts reserved therefor on the December 31, 1996 balance sheet of the RMFinancials, the values at which all Inventories are carried on the December 31, 1996 balance sheetof the RM Financials reflect the historical inventory valuation policy of RM and its Subsidiariesof stating such Inventories at the lower of cost (determined on the first-in, first-out method) ormarket value. Except as set forth in Schedule 8.8-1, RM and its Subsidiaries have good andmarketable title to the Inventories free and clear of all liens or other Encumbrances. Except asset forth in Schedule 8.8-2 or reserved against in the RM Financials, the Inventories do notconsist of, in any material amount, items that are obsolete, damaged or slow-moving or of any itemsheld on consignment. Neither RM nor any of its Subsidiaries is under any obligation or Liabilitywith respect to accepting returns of items of Inventory or merchandise in the possession of itscustomers other than in the ordinary course of business consistent with past practice. Noclearance or extraordinary sale of the Inventories has been conducted since December 31, 1996.Since December 31, 1996, neither RM nor any of its Subsidiaries has acquired or
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committed to acquire or manufacture Inventory for sale which is not of a quality and quantityusable in the ordinary course of business within a reasonable period of time and consistent withpast practice, nor has RM or any of its Subsidiaries changed the price of any Inventory except for(i) reductions to reflect any reduction in the cost thereof to RM or its Subsidiaries, (ii)reductions and increases responsive to normal competitive conditions and consistent with past salespractices, or (iii) increases to reflect any increase in the cost thereof to RM or itsSubsidiaries. Other than as reflected on the December 31, 1996 balance sheet of the RMFinancials, the Inventories of RM and its Subsidiaries are in good and merchantable condition inall material respects, are suitable and usable for the purposes for which they are intended and arein a condition such that they can be sold in the ordinary course of business consistent with pastpractice.SECTION 8.9. Absence of Certain Developments     Except for the actions taken by IM, RM or RM’s Subsidiaries in connection with the creation ofthe Merial Venture as contemplated by this Agreement and the applicable Ancillary Agreements or asdisclosed in Schedule 8.9, since December 31, 1996, RM and its Subsidiaries have operated in theordinary course of business consistent with past practice, and there has not been:     (a) any sale, assignment, transfer or other disposition to any Third Party of, orimposition of any liens or other Encumbrance on, any properties, assets, Inventories or obsoleteitems of RM or any of its Subsidiaries, without any and all proceeds [*] for all such sales, assignments, transfers or other dispositions (other than sales ofInventory in the ordinary course of business consistent with past practice) remaining within RM andits Subsidiaries. IM and RM covenant and agree that all such proceeds [*] (plus all the proceeds from the Diagnostic Disposal, which the Parties hereby agreeis not subject to the [*] exclusion referred to above) shall through the Closing Date besegregated and held in a separate bank account owned by RM or an RM Subsidiary (these proceeds [*] being referred to as the “RM Assets Sale Proceeds”) andthereby contributed to the Merial Venture on the Closing Date;
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     (b) any damage, destruction or casualty loss to any assets or properties of RM or any of itsSubsidiaries, whether or not covered by insurance, which, individually or in the aggregate, has aMaterial Adverse Change or Effect;     (c) any material change in any accounting principle used by RM or any of its Subsidiaries;     (d) other than in the ordinary course of business, any transaction, commitment or agreemententered into by RM or any of its Subsidiaries, or any relinquishment by RM or any of itsSubsidiaries of any rights under any agreement or otherwise, having a value or involving aggregatepayments [*];     (e) any grant of any rights or licenses or entry into any licensing ordistributorship or agency arrangements by RM or any of its Subsidiaries which,individually or in the aggregate, has a Material Adverse Change or Effect;     (f) any loss of employees or any changes in any of RM’s or any of its Subsidiaries’ employeebenefit plans (other than those required by applicable law) which, individually or in theaggregate, has a Material Adverse Change or Effect;     (g) other than in the ordinary course of business, any disclosure of any secret orconfidential Intellectual Property (except by way of issuance of a patent or pursuant to thisAgreement or the Ancillary Agreements) or any lapse or abandonment of Intellectual Property (or anyregistration or grant thereof or any application relating thereto) to which, or under which, RM orits Subsidiaries has any right, title, interest or license;     (h) expenditures or failure to make expenditures on capital investment projects by RM orany of its Subsidiaries that were not substantially consistent with the investment plans inexistence as of December 31, 1996 relating to such projects as disclosed in writing to Merck priorto the date of this Agreement;
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     (i) any transaction, commitment or agreement entered into between RP or any of itsSubsidiaries (other than RM and its Subsidiaries), on the one hand, and RM or any of itsSubsidiaries, on the other hand; or     (j) any authorization, approval, agreement or other binding commitment to do any of theforegoing.SECTION 8.10. Title to Properties; Possession Under Leases     (a) RM and its Subsidiaries own and have good title to all of their assets and propertiesreflected as owned on the December 31, 1996 balance sheet included in the RM Financials, free andclear of any material Encumbrances, except for (i) any Encumbrances specifically disclosed in theRM Financials or set forth in Schedule 8.10A, (ii) assets and properties disposed of, or subject topurchase or sales orders, in the ordinary course of business since December 31, 1996, (iii)Encumbrances securing the rights of materialmen, carriers, landlords and like persons, all of whichare not yet due and payable, and (iv) liens for taxes not yet delinquent.     (b) (i) RM and each of its Subsidiaries has complied with all its material obligations underall material leases to which it is a party as lessee of property, (ii) all such leases are in fullforce and effect, (iii) RM or the relevant Subsidiary enjoys peaceful and undisturbed possessionunder each such lease, (iv) to the knowledge of RM, the other parties to such leases have compliedwith all their material obligations thereunder, and (v) there are no material unresolved disputesunder any of such leasehold interests.     (c) (i) All material real property, and all material buildings, improvements and fixturesthereon have been maintained in accordance with the standard practices and procedures of RM and itsSubsidiaries and are in all material respects in good condition and have no material structuraldefects, (ii) such material real property, buildings, improvements and fixtures and the use thereofconform in all material respects to all applicable building, zoning, land use and like requirementsand all material certificates and permits for the lawful use and occupancy thereof and themachinery and equipment
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thereon have been issued, and (iii) no current use of any of such property is dependent in anymaterial respect on a non-conforming use or permit or violates any Law, regulation or decision ofany Public Authority.     (d) Set forth in Schedule 8.10D is a true and complete list as of the date of thisAgreement of all real property owned by RM or any of its Subsidiaries or in respect of which RM orany of such Subsidiaries is lessee.          Subject only to Section 11.6(b) (and to consents that may be required under RM contributedcontracts other than those required to be listed in Schedule 8.20-1), and except as set forth inSchedule 8.10C, following the consummation of the Transactions, the Merial Venture will own, withgood valid and marketable title, or lease, under valid and subsisting leases, or otherwise acquirethe assets of RM and its Subsidiaries, free and clear of any Encumbrances except as referred toabove in clauses (i) through (iv) of Section 8.10(a), and without incurring any penalty or otheradverse consequence, including without limitation, any increase in rentals, royalties, or licenseor other fees imposed as a result of, or arising from, the consummation of the Transactions.SECTION 8.11. Intellectual Property     (a) To the knowledge of RM, RM and its Subsidiaries own, or are licensed to use, orotherwise have the right to use all Patents, trademarks, service marks, trade names, logos,franchises, and copyrights, and all applications for any of the foregoing, and all technology,inventions, trade secrets, Know-How, computer software and processes used in the conduct of theirrespective businesses as now conducted, including for the manufacture and sale of all RM ExistingProducts; and none of such rights shall be adversely affected by the execution, delivery orperformance of this Agreement or any Ancillary Agreement. Except as indicated in Schedule 8.11, RMis not aware of any reason that would prevent any pending applications to register materialtrademarks, or any pending material patent applications, from being granted.
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     (b) Set forth in Schedule 8.11 are true and complete lists of all Patents and registeredtrademarks and trademark applications which are owned by RM or any of its Subsidiaries or which RMor any such Subsidiaries are licensed to use or otherwise have the right to use (collectively, the“RM Proprietary Rights”). To the extent indicated in Schedule 8.11, all owned RM ProprietaryRights have been registered in, filed in or issued by the appropriate Public Authorities in eachrelevant jurisdiction, and in each case such proprietary rights are currently in effect and allmaintenance fees and renewals thereof have been duly made with respect thereto.     (c) Except as set forth in Schedule 8.11, RM is not aware (i) that any of its activities orthose of any of its Subsidiaries as currently conducted infringe upon the proprietary rights ofothers, nor has RM or any of its Subsidiaries received any notice or claim from any Third Party ofsuch infringement by RM or any of its Subsidiaries, or (ii) of any infringement by any Third Partyon, or any competing claim of right to use or own any of, the RM Proprietary Rights. RM and itsSubsidiaries have the right to use, free and clear of claims or rights of others, all customerlists and computer software used in the conduct of their respective businesses.SECTION 8.12. Product Registrations     Set forth in Schedule 8.12 are true and complete lists of the Animal Health Products andPoultry Genetics Products of RM and its Subsidiaries for which Product Registrations have beenapplied for, are valid and in full force and effect or are in the process of being timely renewed,indicating for each product the jurisdiction of each such Product Registration, application orrenewal, and whether such application has been applied for, is valid, or is in the process of beingrenewed. Such product registrations permit RM to market the products covered thereby in thejurisdiction indicated thereby, and RM is aware of nothing that would interfere with RM’s right tomarket such products in the jurisdiction indicated. Each such Product Registration shall becomethe property of the Merial Venture upon (and shall not be adversely affected by) the contributionof RM and its Subsidiaries to Merial.
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SECTION 8.13. Product Warranty and Product Recalls; Labels     (a) Other than as indicated in Schedule 8.13, since January 1, 1993, there have been no“recalls” or “seizures” or “market withdrawals” (as such terms, or words of similar import, areused in the regulations promulgated under the U.S. Food, Drug and Cosmetic Act or similar food anddrug laws promulgated by any Public Authority in any other jurisdiction) with respect to any RMExisting Product. The Label of each RM Existing Product sold by RM or any of its Subsidiaries inany country accurately reflects the conditions for safe and effective use of such Existing Productin accordance with the laws and regulations of such country and each such Product is sold under anappropriate Label.     (b) Other than as indicated in Schedule 8.13, since January 1, 1993 neither RM nor any of itsSubsidiaries has received any adverse experience reports indicating any material safety or efficacyproblems that would materially change the general risk/benefit assessment upon which such ExistingProduct is prescribed for its approved indications and no material change in any Label of any RMExisting Product has been required by any Public Authority or otherwise been implemented as aresult of any such report.SECTION 8.14. Absence of Third Party Joint Ventures     Except as set forth in Schedule 8.14, neither RM nor any of its Subsidiaries has an ownershipinterest in any joint venture (whether or not organized as a legal entity) or other company orbusiness (except RM and its Subsidiaries) which conducts Merial Venture Business activities and theownership of or profits from which are shared with Third Parties.SECTION 8.15. Litigation; Compliance with Laws     (a) Except as set forth in Schedule 8.15A, and except for such actions, suits orproceedings with amounts or potential amounts individually in issue of less than $100,000, thereare no actions, suits or proceedings at law or in equity or by or before
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any Public Authority pending or, to the knowledge of RM, threatened against it or any of itsSubsidiaries or in respect of this Agreement or any of the Ancillary Agreements. Schedule 8.15Asets forth a complete and correct list of all such actions, suits or proceedings that are active orhave been active since January 1, 1993 (or with respect to actual or potential EnvironmentalLiabilities, January 1, 1991), and includes for completed matters a general description of theresults thereof (including the amount of any monetary judgments and the principal terms of anyother relief assessed in connection therewith).     (b) Except for any non-compliance which would not, individually or in the aggregate, result ina Material Adverse Change or Effect, RM and its Subsidiaries at all times since January 1, 1993have been and are currently in compliance with (i) all Laws, Permits, published standards that havethe force and effect of Laws, and Environmental Laws, and (ii) all judgments, orders, writs,injunctions, decrees or rulings of Public Authorities applicable to them.     (c) In each case other than such Permits the absence of which would not, individually or inthe aggregate, result in a Material Adverse Change or Effect, RM and its Subsidiaries have alllicenses, permits, franchises, orders or approvals of any Public Authority, including underEnvironmental Laws, necessary to the conduct of their respective businesses (collectively,“Permits”); such Permits are in full force and effect; and no proceeding is pending or, to the bestknowledge of RM, threatened, to revoke or limit any such Permit. Schedule 8.15C identifies allPermits that are non-transferable or that will require the consent of any Public Authority in orderto give effect to the Transactions.SECTION 8.16. Tax Returns     RM and each of its Subsidiaries have filed or caused to be filed in a timely manner all TaxReturns required to have been filed by them (or have obtained or timely applied for an extensionwith respect to any such filing) and have paid or caused to be paid, or made adequate provision forthe payment of, all Taxes shown to be due and
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payable on such returns or on any assessments received by them, except Taxes that are beingcontested by them in good faith and except where the failure to file such returns or pay Taxeswould not in the aggregate (i) cause a Material Adverse Change or Effect, or (ii) result in theimposition of an Encumbrance on any of their assets. Neither RM nor any of its Subsidiaries isparty to or bound by (a) any agreement providing for the allocation or sharing of Taxes with anyThird Party which agreement will be in effect after the Closing, or (b) any agreement (other thanelections prescribed by generally applicable Tax Laws and regulations) with any Taxing Authoritywhich may restrict the Merial Venture’s tax planning, other than the CFM Agreement.SECTION 8.17. Environmental Matters     Except for the matters disclosed in Schedule 8.17, neither RM nor any of its Subsidiaries hassince January 1, 1991 received written notice of, or other written communication concerning, anyfailure to comply with any applicable Environmental Laws, or written notice or other writtencommunication that RM or any of its Subsidiaries is or may be a potentially responsible party orotherwise liable in connection with any site allegedly containing Hazardous Materials. None ofRM’s or its Subsidiaries’ facilities have in the past, or do at the present time, use, generate,treat, store, dispose of, process, handle or manage any Hazardous Materials or other materials inviolation of any applicable Environmental Law, and there has been no release or migration of anyHazardous Materials at, on, under, about, within, from or onto any such properties, where suchviolation, release, or migration will or is reasonably likely to result, individually or in theaggregate, in a Material Adverse Change or Effect. Except as will not individually or in theaggregate result in a Material Adverse Change or Effect, there are no past or present conditions,circumstances, facts, events, practices, incidents, actions or omissions existing or occurring atany location (including any off-site location) that will or is reasonably likely to (i) cause RM orany of its Subsidiaries or, subsequent to the Closing, any Merial Venture Company in respect of RMor any of its Subsidiaries, to incur any Environmental Liability, (ii) form the basis for anyclaim, action, suit, proceeding, hearing, investigation or inquiry against RM or any of itsSubsidiaries or, subsequent to the Closing, any Merial Venture Company in respect of RM or any ofits
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Subsidiaries, under any Environmental Law, or (iii) interfere with or prevent continuedcompliance by RM or any of its Subsidiaries or, subsequent to the Closing, any Merial VentureCompany in respect of RM or any of its Subsidiaries, with any Environmental Law.SECTION 8.18. Labor Relations; Employees: Employee Benefit Plans     (a) Schedule. Schedule 8.18A-1 contains a true and complete list of each material RMBenefit Plan. Within six (6) weeks after the date of this Agreement, RM will complete Schedule8.18A-I by providing to Merck a list of all RM Employee Agreements. Except as set forth inSchedule 8.18A-2, neither RM, any of its Subsidiaries nor any RM ERISA Affiliate has any plan orcommitment, whether legally binding or not, to establish any new RM Benefit Plan, to enter into anyRM Employee Agreement or to materially modify or to terminate any RM Benefit Plan or RM EmployeeAgreement (except to the extent required by law or to conform any such RM Benefit Plan or RMEmployee Agreement to the requirements of any applicable law, or as required by this Agreement),nor has any intention to do any of the foregoing been communicated to RM Employees.     (b) Documents. RM has provided, or has caused to be provided, or will cause to beprovided prior to the Closing to Merck (i) current, accurate and complete copies of all documentsembodying or relating to each RM Transferred Benefit Plan and each RM Employee Agreement, includingall amendments thereto, written interpretations thereof and trust or funding agreements withrespect thereto; (ii) the two (2) most recent annual actuarial valuations, if any, prepared foreach RM Transferred Benefit Plan; and (iii) the two (2) most recent annual reports (Series 5500 andall schedules thereto), if any, required under ERISA in connection with each RM Transferred BenefitPlan or related trust.     (c) Multi-Employer Plans. Except with respect to employees who are not RM Employees,neither RM nor any of the RM Transferred Subsidiaries contribute to or are
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required to contribute to, or have incurred any withdrawal liability (within the meaning of Section4201 of ERISA) to, any “multi-employer plan” within the meaning of Section 3(37) of ERISA.     (d) No Post-Employment Obligations. Except as expressly set forth onSchedule 8.18D, neither RM, any of its Subsidiaries nor any RM ERISA Affiliate(i) maintains or contributes to any RM Transferred Benefit Plan which provides, or has anyLiability to provide, life insurance, medical, severance or other employee welfare benefits to anyRM Employee upon his retirement or termination of employment, except as may be required by Section4980B of the Code; or (ii) has ever represented, promised or contracted (whether in oral or writtenform) to any RM Employee (either individually or to RM Employees as a group) that such RMEmployee(s) would be provided with life insurance, medical, severance or other employee welfarebenefits upon their retirement or termination of employment, except to the extent required bySection 4980B of the Code.     (e) Effect of Transaction. Except as set forth on Schedule 8.18E, theexecution of, and performance of the transactions contemplated in, this Agreement willnot (either alone or upon the occurrence of any additional or subsequent events)(i) constitute an event under any RM Transferred Benefit Plan, RM Employee Agreement, or relatedtrust or loan that will or may result in any payment (whether of severance pay or otherwise),acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits orobligation to fund benefits with respect to any RM Employee, or (ii) result in the triggering orimposition of any restrictions or limitations on the right of the Merial Venture Companies to amendor terminate any RM Transferred Benefit Plan. No payment or benefit which will or may be made byRM or any of its Subsidiaries with respect to the transactions contemplated herein will becharacterized as an “excess parachute payment,” within the meaning of Section 280G(b)(l) of theCode.     (f) Collective Bargaining Agreement (“CBA”). Except as set forth onSchedule 8.18F, no RM Employee is employed pursuant to a CBA or a works councilagreement to which a member of the RP Group is a party that any Merial VentureCompany will be bound by after the Closing or will otherwise be obligated to honor or
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assume in connection with this Agreement or the transactions contemplated by this Agreement, otherthan those agreements that the Merial Venture is obligated to assume under applicable law.     (g) Pension Plan Funding. Except as set forth on Schedule 8.18G-1, the presentvalue of all accrued benefits of each RM Transferred Pension Plan, determined on the basis of theactuarial assumptions used by the plan’s actuary for purposes of calculating minimum fundingcontributions for the most recently completed plan year, do not as of the date hereof and will notas of the Closing Date exceed the fair market value of the assets (which for this purpose shall notinclude any accrued but unpaid contributions) of such Transferred Benefit Plan. Except as setforth on Schedule 8.18G-2, the present value of all accrued benefits of each RM Transferred ForeignPension Plan, determined using the actuarial assumptions employed by the actuary of the plan, donot as of the date hereof and will not as of the Closing Date exceed the fair market value of theassets (which for this purpose shall not include any accrued but unpaid contributions) of such RMTransferred Foreign Pension Plan or, in the case of an unfunded RM Transferred Foreign PensionPlan, the reserves provided for in the RM Financials.     (h) Labor Relations. Except as set forth in Schedule 8.18H-1, RM and itsSubsidiaries generally enjoy good employer-employee relations with the RM Employees. Approximately4,900 full-time equivalent employees are employed by RM and the RM Transferred Subsidiaries andwill be transferred to the Merial Venture together with RM and such Subsidiaries. Schedule 8.18H-2contains the names of all current employees of the RP Group, other than RM and each RM TransferredSubsidiary, which RM expects will transfer to the Merial Venture after the Closing. Subject totheir receiving compensation and benefit offers from the Merial Venture comparable to their currentcompensation and benefit packages, RM has no reason to believe that substantially all of theemployees listed in Schedule 8.18H-2 will not accept employment offers with the Merial Venture.     (i) Employment Matters. None of RM or any of its Subsidiaries is delinquent inpayments to any of the RM Employees for any wages, salaries, commissions, bonuses
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or other direct compensation for any services performed by them to the date hereof or to theClosing Date (as applicable) or amounts required to be reimbursed to such employees. With respectto the RM Employees, each of RM and its Subsidiaries has (i) complied in all material respects withapplicable laws, rules and regulations relating to the employment of the RM Employees, includingthose-relating to wages, hours, collective bargaining, and the payment and withholding of taxes,and (ii) withheld and paid to the appropriate Public Authority, or are holding for payment not yetdue to such Public Authority, all amounts required by law, rule, regulation or agreement to bewithheld from the wages or salaries of the RM Employees. Since January 1, 1993, there has been nomaterial adverse change in the relationship of RM and its Subsidiaries with the respective RMEmployees (including any threatened union organization or renegotiation of any union or othercollective bargaining contract) nor any material strike or labor disturbance by such employees, andnone of RM or its Subsidiaries is aware of any indication that such a change, strike or labordisturbance is likely.SECTION 8.19. Insurance     Schedule 8.19-1 contains a complete and accurate list of all insurance policies in force underwhich premiums in excess of [*] per year are payable and that provide coverage in favor of RMand its Subsidiaries, or relating to real property, whether leased or owned by RM or itsSubsidiaries, specifying for each such policy the insurer, amount of coverage and type of insuranceunder each. Each such policy is in full force and effect and all premiums are currently paid oraccruals provided for and no notice of cancellation or termination has been received with respectto any such policy. Such policies are sufficient for compliance with all requirements of Law.Schedule 8.19-2 sets forth a complete list of all claims in excess of [*] made or filed by RMor any of its Subsidiaries with their insurers since January 1, 1993 and any such claims incurredbut not yet so made or filed of which RM is aware.
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SECTION 8.20. Contracts and Licenses     Schedule 8.20-1 lists all contracts or agreements by RM or its Subsidiaries having a value orinvolving payments in excess of [*] per year or otherwise material to RM or its Subsidiaries.Other than as indicated in Schedule 8.20-2, none of such contracts or agreements require theconsent of any Third Party to be assigned or transferred to the Merial Venture as contemplated bythis Agreement or the Ancillary Agreements. Schedule 8.20-3 lists all of such agreements that mayrestrict in any way, such as through non-compete or exclusivity clauses, the ability of the MerialVenture to undertake Merial Venture Business activities and lists all other agreements that includesuch a restriction, the compliance with by the Merial Venture on or after the Closing would have amaterial adverse effect on the ability of the Merial Venture to combine the Contributed MerialVenture Businesses or to conduct the activities contemplated herein.SECTION 8.21. Share Capital of RM and RM’s Subsidiaries     Schedule 8.21 (as updated in accordance with Section 3.2 hereof, as applicable) contains atrue and complete description of the authorized and outstanding capitalization (including therecord owners) of RM and of each of RM’s Subsidiaries. The indicated shares of capital stock orother ownership interests of RM and of each of RM’s Subsidiaries represent all of the respectiveissued and outstanding shares of capital stock or other ownership interests of each such company.Except as set forth in Schedule 8.21, (a) the record and beneficial ownership of RM and each suchRM Subsidiary is free and clear of any lien or other Encumbrance; (b) all of the issued andoutstanding shares of capital stock or other ownership interests of RM and each of RM’sSubsidiaries have been duly authorized and validly issued and are fully paid and nonassessable; (c)none of RM, any RM Subsidiary or any direct or indirect parent company thereof is bound by, hasgranted, issued or made or agreed to grant, issue or make any security interests, warrants,options, subscription rights or any other commitments of any character relating to the issued orunissued shares of capital stock or other ownership interests of RM or any of RM’s Subsidiaries(other than this Agreement and the Ancillary Agreements), nor is there any agreement providing for(i) any restriction on the transfer of any of the issued
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and outstanding shares of capital stock or other ownership interests (other than with respect todirectors’ qualifying and nominee shares which are as set forth in Schedule 8.21) of any of RM orany of RM’s Subsidiaries, (ii) the amendment of the charter or *statuts*(or comparableorganizational documents) of any of RM or any of RM’s Subsidiaries so as to increase the amount ofauthorized capital stock or other ownership interests of such entity, or (iii) obligating any ofsuch persons to grant, offer, or enter into any of the foregoing; (d) none of RM or any of RM’sSubsidiaries is a party to any voting trust or other agreement or understanding with respect to thevoting of the capital stock or other ownership interests of RM or any of RM’s Subsidiaries; and (e)the record owner of any such shares or other ownership interests possesses good and marketabletitle to such shares or other ownership interests.SECTION 8.22. Merial     Merial has not entered into any transactions or undertaken any obligations, except for anytransactions or obligations necessary to give effect to the Transactions as contemplated by thisAgreement and the Ancillary Agreements.SECTION 8.23. Survival of Representations and Warranties     IM and RM acknowledge that their representations and warranties are an inducement to Merck andMerck SH and to Merial to enter into this Agreement and the Ancillary Agreements. Therepresentations and warranties contained in this Article VIII shall survive (and not be affected inany respect by) any investigation by or on behalf of any Party and the Closing. Notice of anyclaim in respect of the representations and warranties in Section 8.1 [Organization; Powers], 8.2[Authorization; No Breach], 8.3 [Enforceability], and 8.10(a) [Title] and 8.11(b) [IntellectualProperty — existing Proprietary Rights], may be given at any time (subject to any statute oflimitations under applicable law); notice of any claim in respect of the representations andwarranties in Sections 8.4 [Governmental Approvals], 8.11 (a) and (c) [Intellectual Property —other], 8.12 [Product Registrations], 8.16 [Tax Returns] and 8.17 [Environmental Matters] must begiven before the fifth anniversary of the Closing Date; notice of claim in respect of all
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other representations and warranties in Article VIII must be given before the second anniversary ofthe Closing Date; it being understood that in the event notice of any claim for indemnificationunder Section 14.1 shall have been given (as contemplated by Section 14.7) within the applicablesurvival period, the representations and warranties that are the subject of such indemnificationclaim shall survive until such time as such claim is finally resolved.
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**ARTICLE IX****REPRESENTATIONS AND WARRANTIES OF RP**     RP hereby represents and warrants, as of the date hereof and as of the Closing Date, to Merckand Merck SH and to Merial as follows:SECTION 9.1. Organization; Powers     (a) RP (i) is a *société anonyme*duly organized and validly existing under the laws ofFrance, and (ii) has the corporate or similar power and authority to execute, deliver and toperform its obligations under (as applicable) this Agreement and any and all Ancillary Agreementsto which it is a party or by which it is bound.SECTION 9.2. Authorization; No Breach     The execution and delivery by RP of each of this Agreement and any and all AncillaryAgreements to which it is a party or by which it is bound, and the consummation of theTransactions, (a) have been duly authorized by all necessary corporate action and do not and willnot require the consent or approval of its shareholders or partners, except such consents orapprovals as have been obtained, and (b) do not (i) violate or conflict with (A) any law orregulation applicable to it or to any of the assets or properties of RM or RM’s Subsidiaries, or(B) its *statuts,*or (ii) violate, conflict with, result in a breach of or constitute (alone or withnotice or lapse of time or both) a default under, require any consent under, or give to any ThirdParty any rights of termination, amendment, acceleration, suspension, revocation or cancellation ofor result in any Encumbrance on any of the assets of RM or RM’s Subsidiaries pursuant to, anyprovisions of any agreements (including any notes, contracts, leases, licenses or other instrumentsor arrangements) by which it is bound, except, in the case of this clause (ii), for suchviolations, conflicts, breaches, defaults, required consents, rights or Encumbrances that would notin the aggregate cause a Material Adverse Change or Effect.
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SECTION 9.3. Enforceability     This Agreement has been duly executed and delivered by RP and constitutes, and each AncillaryAgreement when executed and delivered by RP (as applicable) constitutes or will constitute, itslegal, valid and binding obligation, enforceable against it in accordance with its terms, subject,however, to any limitations with respect to enforcement which may be imposed in connection with (i)bankruptcy, insolvency, reorganization, moratorium or other laws affecting the enforcement ofcreditors’ rights generally, and (ii) general principles of equity (regardless of whetherconsidered and applied in a proceeding at law or in equity).SECTION 9.4. Entirety of RP Animal Health Business Activities     Except for the Animal Health Business activities to be conducted by certain other RP Companiespursuant to the Ancillary Agreements and except for activities of RP Companies (other than RM andits Subsidiaries) that are listed on Schedule 9.4, the entirety of the Merial Venture Businessactivities of the RP Group is conducted by RM and its Subsidiaries.SECTION 9.5 Absence of Third Party Joint Ventures     Except as set forth in Schedule 9.5, neither RP nor any of its Subsidiaries has an ownershipinterest in any joint venture (whether or not organized as a legal entity) or other company orbusiness (except RP and its Subsidiaries) which conducts Merial Venture Business activities and theownership of or profits from which are shared with Third Parties.SECTION 9.6 Governmental Approvals     All permits, consents and approvals of, registrations with, notices to, and other actions by,all Public Authorities that are required by RP or any RP Subsidiary in connection with theTransactions (collectively the “RP Approvals”) have been made or
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obtained and are in full force and effect, except that, as of the date hereof (but not as of theClosing), the following RP Approvals have not been made or obtained: (i) the approval of the mergercontrol authorities of the European Union, (ii) the *agrément fiscal*described in Section 11.2(b),(iii) the required approvals of Public Authorities listed in Schedule 9.6, and (iv) such otheritems which the failure to obtain, individually or in the aggregate, would not have a MaterialAdverse Change or Effect. None of RP or any RP Subsidiary has taken or omitted to take any actionwhich permits, or after notice or lapse of time or both would permit, any modification ortermination of any of the RP Approvals.SECTION 9.7. Intragroup Agreements     Other than as listed on Schedules 9.7-1 and 9.7-2, there are no agreements between RM or anyof its Subsidiaries, on the one hand, and any other RP Companies, on the other hand, that willsurvive the Closing. Schedule 9.7-1 lists all such written agreements (the “RP InterCoContracts”) that will survive the Closing, and Schedule 9.7-2 lists all such existing customaryarrangements (the “RP InterCo Customary Agreements”) not evidenced by a written agreement. RP andRM hereby agree that the corporate management agreements between any RP Company (other than RM andits Subsidiaries), on the one hand, and RM or its Subsidiaries, on the other hand, pursuant towhich any RP Company (other than RM and its Subsidiaries) provides corporate management services toRM or its Subsidiaries in consideration for the payment of a management fee, shall terminate on orprior to the Closing Date, and the Merial Venture shall have no liability with respect thereto.Since January 1, 1995, there have not been any transactions, commitments or agreements, other thanon terms and conditions that are no less favorable to RM and its Subsidiaries than those that couldhave been obtained by a non-Affiliate at arm’s length, entered into by or in effect between RM orany of its Subsidiaries, on the one hand, and any other RP Company (other than RM and itsSubsidiaries), on the other hand.
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SECTION 9.8. Share Capital of IM and RM     Schedule 9.8 (as updated in accordance with Section 3.2 hereof, as applicable) contains a trueand complete description of the authorized and outstanding capitalization (including the recordowners) of IM and RM. The indicated shares of capital stock or other ownership interests of each ofIM and RM represent all of the respective issued and outstanding shares of capital stock or otherownership interests of each such company. Except as set forth in Schedule 9.8, (a) the record andbeneficial ownership of each of IM and RM is free and clear of any lien or other Encumbrance; (b)all of the issued and outstanding shares of capital stock or other ownership interests of each ofIM and RM have been duly authorized and validly issued and are fully paid and nonassessable; (c)none of IM, RM or any direct or indirect parent company thereof is bound by, has granted, issued ormade or agreed to grant, issue or make any security interests, warrants, options, subscriptionrights or any other commitments of any character relating to the issued or unissued shares ofcapital stock or other ownership interests of IM or RM (other than this Agreement and the AncillaryAgreements), nor is there any agreement providing for (i) any restriction on the transfer of any ofthe issued and outstanding shares of capital stock or other ownership interests (other than withrespect to directors’ qualifying and nominee shares which are as set forth in Schedule 9.8) ofeither of IM or RM; (ii) the amendment of the charter or *statuts*(or comparable organizationaldocuments) of either of IM or RM so as to increase the amount of authorized capital stock or otherownership interests of such entity, or (iii) obligating any of such persons to grant, offer, orenter into any of the foregoing; (d) none of RP, IM or RM is a party to any voting trust or otheragreement or understanding with respect to the voting of the capital stock or other ownershipinterests of IM or RM; and (e) the record owner of any such shares or other ownership interestspossesses good and marketable title to such shares or other ownership interests.SECTION 9.9. Other Agreements     Except as set forth in Schedule 9.9 and except for any agreements, arrangements or commitmentsbetween RM and its Subsidiaries or between such Subsidiaries, there are
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no agreements, arrangements or commitments of any character (contingent or otherwise) relating toany Acquisition Transaction pursuant to which any person is or may be entitled to receive from RMor any of its Subsidiaries any payment based on their revenues, earnings or similar items (or anyportion thereof) or on the occurrence or value of the Acquisition Transactions (or similarcircumstances), or calculated in accordance therewith. For the purposes of this Section 9.9,“Acquisition Transaction” shall mean any merger, purchase of substantial assets, purchase of sharesof capital stock or similar transactions involving RM or any Subsidiary.SECTION 9.10. Labor Relations; Employees; Employee Benefit Plans     (a) No payment or benefit which will or may be made by RP or any of its Subsidiaries to RMEmployees with respect to the transactions contemplated herein will be characterized as an “excessparachute payment”, within the meaning of Section 280G(b)(l) of the Code.     (b) The RP Group generally enjoys good employer-employee relations with the RM Employees.     (c) No member of the RP Group is delinquent in payments to any of the RM Employees for anywages, salaries, commissions, bonuses or other direct compensation for any services performed bythem to the date hereof or to the Closing Date (as applicable) or amounts required to be reimbursedto such employees. With respect to the RM Employees, each member of the RP Group has (i) compliedin all material respects with applicable laws, rules and regulations relating to the employment ofthe RM Employees, including those relating to wages, hours, collective bargaining, and the paymentand withholding of taxes, and (ii) withheld and paid to the appropriate Public Authority, or areholding for payment not yet due to such Public Authority, all amounts required by law, rule,regulation or agreement to be withheld from the wages or salaries of the RM Employees. SinceJanuary 1, 1993, there has been no material adverse change in the relationship of the RP Group withthe respective RM Employees (including any threatened union organization or renegotiation of anyunion or other collective bargaining
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contract) nor any material strike or labor disturbance by such employees, and no member of the RPGroup is aware of any indication that such a change, strike or labor disturbance is likely.SECTION 9.11. Survival of Representations and Warranties     RP acknowledges that its representations and warranties are an inducement to Merck and MerckSH and to Merial to enter into this Agreement and the Ancillary Agreements. The representations andwarranties contained in this Article IX shall survive (and not be affected in any respect by) anyinvestigation by or on behalf of any Party and the Closing. Notice of any claim in respect of therepresentations and warranties in Sections 9.1 [Organization; Powers], 9.2 [Authorization; NoBreach], 9.3 [Enforceability], 9.6 [Government Approvals] and 9.8 [Share Capital] may be given atany time (subject to any statute of limitations under applicable law); notice of any claim inrespect of all other representations and warranties in Article IX must be given before the secondanniversary of the Closing Date; it being understood that in the event notice of any claim forindemnification under Section 14.1 shall have been given (as contemplated by Section 14.7) withinthe applicable survival period, the representations and warranties that are the subject of suchindemnification claim shall survive until such time as such claim is finally resolved.
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**ARTICLE X****REPRESENTATIONS AND WARRANTIES OF MERCK AND MERCK SH**     Merck and Merck SH hereby represent and warrant, as of the date hereof and as of the ClosingDate, to RP, IM and RM and to Merial as follows:SECTION 10.1. Organization; Powers     Each of Merck, Merck SH, each Merck Transferred Subsidiary and each other Merck Subsidiaryengaged in Merial Venture Business activities (a) is a corporation or company duly organized andvalidly existing and is (to the extent applicable) in good standing under the laws of itsjurisdiction of organization, (b) has all requisite corporate or similar power and authority to ownor lease and operate its property and assets used in the Merck JV Business and to carry on suchbusiness as now conducted, (c) is qualified or licensed to do business and in good standing inevery jurisdiction where such qualification or licensing is required, except where the failure soto qualify would not result in a Material Adverse Change or Effect, and (d) has the corporate orsimilar power and authority to execute, deliver and to perform its obligations under (asapplicable) this Agreement and any and all Ancillary Agreements to which it is a party or by whichit is bound.SECTION 10.2. Authorization; No Breach     The execution and delivery by each of Merck and Merck SH (as applicable) of each of thisAgreement and any and all Ancillary Agreements to which it is a party or by which it is bound, andthe consummation of the Transactions, (a) have been duly authorized by all necessary corporateaction and do not require the consent or approval of its shareholders or partners, except suchconsents or approvals as have been obtained, and (b) do not (i) violate or conflict with (A) anyLaw or regulation applicable to it or any of its assets or properties, including any of the MerckContributed Assets, or (B) its certificate or articles of incorporation or by-laws, or (ii)violate, conflict with, result in a breach of or constitute (alone or with notice or lapse of timeor both) a default under,
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require any consent under, or give to any Third Party any rights of termination, amendment,acceleration, suspension, revocation or cancellation of or result in any Encumbrance on any of theMerck Contributed Assets pursuant to, any provisions of any agreements (including any notes,contracts, leases, licenses or other instruments or arrangements) by which it or any other MerckCompany is bound, except, in the case of this clause (ii), for such violations, conflicts,breaches, defaults, required consents, rights or Encumbrances (x) that would not in the aggregatecause a Material Adverse Change or Effect, or (y) that are indicated as such in Schedule 10.2.SECTION 10.3. Enforceability     This Agreement has been duly executed and delivered by each of Merck and Merck SH andconstitutes, and each Ancillary Agreement when executed and delivered by each of Merck and/or MerckSH (as applicable) constitutes or will constitute, its legal, valid and binding obligation,enforceable against it in accordance with its terms, subject, however, to any limitations withrespect to enforcement which may be imposed in connection with (i) bankruptcy, insolvency,reorganization, moratorium or other laws affecting the enforcement of creditors’ rights generally,and (ii) general principles of equity (regardless of whether considered and applied in a proceedingat law or in equity).SECTION 10.4. Governmental Approvals     All permits, consents and approvals of, registrations with, notices to, and other actions by,all Public Authorities that are required by Merck or Merck SH or any Merck Subsidiary in connectionwith the Transactions (collectively the “Merck Approvals”) have been made or obtained and are infull force and effect, except that, as of the date hereof (but not as of the Closing), thefollowing Merck Approvals have not been made or obtained: (i) the approval of the merger controlauthorities of the European Union, (ii) registrations with and consents of the appropriate PublicAuthorities in each relevant country to transfer Product Registrations in respect of each MerckExisting Product and Pipeline Product (as applicable), (iii) the tax ruling described in Section11.2(b), (iv) the required approvals of Public Authorities listed in Schedule 10.4, and (v) suchother items
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which the failure to obtain, individually or in the aggregate, would not have a Material AdverseChange or Effect. None of Merck, Merck SH or any Merck Subsidiary has taken or omitted to take anyaction which permits, or after notice or lapse of time or both would permit, any modification ortermination of any of the Merck Approvals.SECTION 10.5. Historical Financial Data     True and complete copies of the consolidated financial statements, i.e., the balance sheet andincome statement, for the Merck Contributed Business as of and for the year ended December 31, 1996(together, the “Merck Contributed Business Financials”) are provided as Exhibit XVI. Except asindicated on any such financial statements, the Merck Contributed Business Financials (i) werederived from the books and records of Merck and its Subsidiaries, (ii) were prepared in accordancewith United States GAAP consistently applied, and (iii) present fairly the assets and Liabilities,income and expenses of the Merck Contributed Business, as of the dates and for the periodsindicated.SECTION 10.6. No Undisclosed Liabilities     (a) Liabilities at December 31, 1996. As at December 31, 1996, the Merck ContributedBusiness had no Liabilities of any nature, whether accrued, contingent or otherwise (including,without limitation, Liabilities as guarantor or otherwise with respect to obligations of otherLiabilities for taxes due or then accrued or to become due or Liabilities that have been incurredbut not yet reported that would be transferred to or assumed by the Merial Venture), that were notadequately reflected or reserved against on the December 31, 1996 balance sheet of the MerckContributed Business Financials and which [*].     (b) Merck Contributed Liabilities. Except for any such Liabilities that would not [*], all Merck Contributed Liabilities either (i) are reflected in theMerck Contributed Business Financials, as defined in Section 10.5, (ii)
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arose in the ordinary course of business since December 31, 1996, or (iii) are or will be disclosedin Schedule 14.2A-1 in accordance with Section 14.2(a).SECTION 10.7. Receivables     Except to the extent, if any, indicated on the December 31, 1996 balance sheet of the MerckContributed Business Financials, all Receivables reflected thereon, including Retained Receivables,if any, arose from the sale of Inventory or services in the ordinary course of business consistentwith past practice and constitute only valid, undisputed claims of Merck or its Subsidiaries notsubject to valid claims of set-off or other defenses or counterclaims other than normal cashdiscounts accrued in the ordinary course of business consistent with past practice. AllReceivables, including Retained Receivables, if any, reflected on the December 31, 1996 balancesheet of the Merck Merial Venture Business Financials or arising since the date thereof (subject tothe reserve for bad debts, if any, reflected on the December 31, 1996 balance sheet of the MerckMerial Venture Business Financials), are good and have been collected or are or will becollectible, without resort to extraordinary collection activity, in the ordinary course ofbusiness and, in any case, by the later of (x) the date that is twelve (12) months from the ClosingDate, or (y) if a Receivable is not by its terms due within such 12 month period, the date that isthree months after its due date.SECTION 10.8. Inventories     Subject to amounts reserved therefor on the December 31, 1996 balance sheet of the MerckContributed Business Financials, the values at which all Inventories are carried on the December31, 1996 balance sheet of the Merck Contributed Business Financials, including Retained Inventory,if any, reflect the valuation of such Inventories at the lower of cost or market value, where costis the supply price calculated pursuant to the Merck Manufacturing Supply Price Formula. Except asset forth in Schedule 10.8-1, Merck and its Subsidiaries have good and marketable title to theInventories, including Retained Inventory, if any, free and clear of all liens or otherEncumbrances. Except as set forth in Schedule 10.8-2 or reserved against in the Merck Financials,the Inventories, including
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Retained Inventory, if any, do not consist of, in any material amount, items that are obsolete,damaged or slow-moving or of any items held on consignment. Neither Merck nor any of itsSubsidiaries is under any obligation or Liability with respect to accepting returns of items ofInventory or merchandise in the possession of its customers, including Retained Inventory, if any,other than in the ordinary course of business consistent with past practice. No clearance orextraordinary sale of the Inventories has been conducted since December 31, 1996. Neither Mercknor any of its Subsidiaries has acquired or committed to acquire or manufacture Inventory,including Retained Inventory, if any, for sale by the Merck Contributed Business which is not of aquality and quantity usable in the ordinary course of business within a reasonable period of timeand consistent with past practice, nor has Merck or any of its Subsidiaries changed the price ofany Inventory, including Retained Inventory, if any, except for (i) reductions to reflect anyreduction in the cost thereof to Merck or its Subsidiaries, (ii) reductions and increasesresponsive to normal competitive conditions and consistent with past sales practices, or (iii)increases to reflect any increase in the cost thereof to Merck or its Subsidiaries. Other than asreflected on the December 31, 1996 balance sheet of the Merck Contributed Business Financials, theInventories, including Retained Inventory, if any, of Merck and its Subsidiaries are in good andmerchantable condition in all material respects, are suitable and usable for the purposes for whichthey are intended and are in a condition such that they can be sold in the ordinary course ofbusiness consistent with past practice.SECTION 10.9. Absence of Certain Developments     Except for the actions taken by Merck, Merck SH or any Merck Subsidiaries pursuant to thisAgreement and the applicable Ancillary Agreements or as disclosed in Schedule 10.9, since December31, 1996, the Merck Contributed Business has been operated in the ordinary course of businessconsistent with past practice, and there has not been:     (a) any sale, assignment, transfer or other disposition to any Third Partyof, or imposition of any lien or other Encumbrance on, any Merck
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Contributed Assets or any of the properties, assets, Inventories or obsolete items of the MerckTransferred Subsidiaries, without any and all proceeds [*] forall such sales, assignments, transfers or other dispositions (other than sales of Inventory in theordinary course of business consistent with past practice) being contributed to the Merial Venture.Merck covenants and agrees that all such proceeds [*] shallthrough the Closing Date be segregated and held in a separate bank account owned by Merck or aMerck Subsidiary (these proceeds [*] being referred to as the“Merck Assets Sale Proceeds”) and thereby contributed to the Merial Venture on the Closing Date;     (b) any damage, destruction or casualty loss to any Merck Contributed Assets or to any ofthe assets or properties of the Merck Transferred Subsidiaries, whether or not covered byinsurance, which, individually or in the aggregate, has a Material Adverse Change or Effect;     (c) any material change in any accounting principle relevant to the Merck ContributedBusiness used by Merck or any of its Subsidiaries;     (d) other than in the ordinary course of business, any transaction, commitment or agreementrelating to the Merck JV Business entered into by Merck or any of its Subsidiaries, or anyrelinquishment by Merck or any of its Subsidiaries of any rights relating to the Merck JV Businessunder any agreement or otherwise, having a value or involving aggregate payments [*];     (e) any grant of any rights or licenses or entry into any licensing or distributorship oragency arrangements by Merck or any of its Subsidiaries with respect to the Merck JV Businesswhich, individually or in the aggregate, has a Material Adverse Change or Effect;
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     (f) any loss of employees or any changes in any of Merck’s or any of its Subsidiaries’employee benefit plans (other than those required by applicable law) which, individually orin the aggregate, has a Material Adverse Change or Effect;     (g) other than in the ordinary course of business, any disclosure of any secret orconfidential Intellectual Property (except by way of issuance of a patent or pursuant tothis Agreement or the Ancillary Agreements) or any lapse or abandonment of IntellectualProperty (or any registration or grant thereof or any application relating thereto) relatedto the Merck JV Business to which, or under which, Merck or any Subsidiary has any right,title, interest or license;     (h) expenditures or failure to make expenditures on capital investment projectsby any Merck Transferred Subsidiaries or in respect of any Merck Contributed Assets thatwere not substantially consistent with the investment plans in existence as of December 31,1996 relating to such projects as disclosed in writing to RP prior to the date of thisAgreement;     (i) any transaction, commitment or any agreement involving the Merck JV Businessentered into between two or more Merck Companies; or     (j) any authorization, approval, agreement or other bindingcommitment to do any of the foregoing.SECTION 10.10. Merck Contributed Assets     (a) The assets to be contributed to the Merial Venture by Merck or its Subsidiaries (the“Merck Contributed Assets”) pursuant to Section 5.1(a) and to the Merck Transfer Agreement (whichinclude all the assets of the Merck Transferred Subsidiaries and, in accordance with Section5.1(a), the Merck Contributed Liabilities) include all assets, properties and rights used toconduct the entirety of the Merck JV Business activities (other than those assets, properties andrights (i) that are not primarily
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used for Merial Venture Business activities, (ii) used to conduct those activities that will beconducted by certain Merck Companies pursuant to the Ancillary Agreements, (iii) used to conductthose activities conducted by certain Merck Companies that are listed on Schedule 10.10-1A, (iv)those Patents, Patent applications, registered trademarks and trademark applications that will belicensed to the Merial Venture by Merck or its Subsidiaries pursuant to the Ancillary Agreements,(v) to the extent determined by Merck in its sole discretion, cash and cash equivalents, (vi) thoseset forth in Schedule 2-7, and (vii) those agreements listed on Schedule 10.10-1B, which Merckhereby represents do not relate to the use of any product in the Animal Health Business or thePoultry Genetics Business), in all material respects as reflected on the December 31, 1996 balancesheet of the Merck Contributed Business Financials (subject to acquisitions, sales or otherdispositions permitted pursuant to Section 12.1(a)). Within six (6) weeks of the signature ofthis Agreement, Merck will provide to RP and to RM as Schedule 10.10-2 a list of all fixed assets(including U.S. and non-U.S. assets) used to conduct the entirety of the Merck JV Businessactivities other than those excepted pursuant to clauses (i) — (vi) above.     (b) For the avoidance of doubt, the Parties acknowledge that Merck Contributed Assets do notinclude the name, trademark and/or service mark “Merck”, “Merck Sharp & Dohme”, and “MSD”, or anyname or mark containing such names and marks, the copyright in and to the work “The MerckVeterinary Manual”, and the Annual Authorizations Service Repertory License Agreement betweenCopyright Clearance Center, Inc. and Merck & Co., Inc. dated December 31, 1995.     (c) No person has any rights to use, possess or acquire or has any Encumbrance on any MerckContributed Assets, except for (i) the rights of the Merial Venture Companies pursuant to thisAgreement and the Ancillary Agreements, (ii) any rights retained by, or licensed to, any MerckCompanies in accordance with this Agreement and the Ancillary Agreements, and (iii) any priorrights granted to Third Parties set forth in Schedule 2-7. Subject only to Sections 11.2(c) and11.6(a) (and to consents that may be required under contracts that are Merck Contributed Assets,other than those listed in Schedule 10.22B), and except for such Merck Contributed Assets that
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are set forth in Schedule 2-7, following the consummation of the Transactions and the execution ofthe instruments of transfer contemplated by this Agreement and the Ancillary Agreements, the MerialVenture will own, with good, valid and marketable title, or lease, under valid and subsistingleases, or otherwise acquire the interests of Merck and its Subsidiaries in the Merck ContributedAssets, free and clear of any Encumbrances except for such Encumbrances as are described in clauses(i) through (iv) of Section 10.11(a), and without incurring any penalty or other adverseconsequence, including any increase in rentals, royalties, or license or other fees imposed as aresult of, or arising from, the consummation of the Transactions.SECTION 10.11. Title to Properties; Possession Under Leases     (a) Merck and its Subsidiaries own and have good title to all of the Merck Contributed Assetsand to all of the assets and properties reflected as owned by Merck Transferred Subsidiaries on theDecember 31, 1996 balance sheet included in the Merck Contributed Business Financials, in each casefree and clear of any material lien, claim or other Encumbrance, except for (i) the liens, claimsor other Encumbrances reflected in the Merck Merial Venture Business Financials, (ii) assets andproperties disposed of, or subject to purchase or sales orders, in the ordinary course of businesssince December 31, 1996, (iii) liens or other Encumbrances securing the rights of materialmen,carriers, landlords and like persons, all of which are not yet due and payable, and (iv) liens fortaxes not yet delinquent.     (b) (i) Merck and each of its Subsidiaries has complied with all its material obligationsunder all material leases to which it is a party as lessee and that are part of the MerckContributed Assets, (ii) all such leases are in full force and effect, (iii) Merck or the relevantSubsidiary enjoys peaceful and undisturbed possession under each such lease, (iv) to the knowledgeof Merck, the other parties to such leases have complied with all their material obligationsthereunder, and (v) there are no material unresolved disputes under any of such leaseholdinterests.
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     (c) (i) All material real property, and all material buildings, improvements and fixturesthereon that are part of the Merck Contributed Assets have been maintained in accordance with thestandard practices and procedures of Merck and its Subsidiaries and are in all material respects ingood condition and have no material structural defects, (ii) such material real property,buildings, improvements and fixtures and the use thereof conform in all material respects to allapplicable building, zoning, land use and like requirements and all material certificates andpermits for the lawful use and occupancy thereof and the machinery and equipment thereon have beenissued, and (iii) no current use of any of such property is dependent in any material respect on anon-conforming use or permit or violates any Law, regulation or decision of any Public Authority.     (d) Set forth in Schedule 10.11D is a true and complete list as of the date of signature ofthis Agreement of all real property whether owned or leased (as tenant) included in the MerckContributed Assets.SECTION 10.12. Intellectual Property     (a) To the knowledge of Merck, Merck and its Subsidiaries (i) own, or are licensed touse, or otherwise have the right to use all Patents, trademarks, service marks, trade names, logos,franchises, and copyrights, and all applications for any of the foregoing, and all technology,inventions, trade secrets, Know-How, computer software and processes used in the conduct of theMerck JV Business as now conducted, including for the manufacture and sale of all Merck ExistingProducts, and (ii) except as set forth in Schedule 10.12, have the right to transfer or license tothe Merial Venture all of such rights to be transferred or licensed thereto under this Agreementand the Ancillary Agreements; and none of such rights shall be adversely affected by the execution,delivery or performance of this Agreement or any Ancillary Agreement. Except as indicated inSchedule 10.12, Merck is not aware of any reason that would prevent any pending applications toregister material trademarks, or any pending material patent applications, from being granted.
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     (b) Set forth in Schedule 10.12 are true and complete lists of all Patents and registeredtrademarks and trademark applications in respect of Animal Health Products or Poultry GeneticsProducts which are owned by Merck or any of its Subsidiaries or which Merck or any suchSubsidiaries are licensed to use or otherwise have the right to use in respect of Animal HealthProducts or Poultry Genetics Products (other than those items referred to in Section 10.10(b)(collectively, the “Merck Proprietary Rights”). To the extent indicated in Schedule 10.12, allowned Merck Proprietary Rights have been registered in, filed in or issued by the appropriate PublicAuthorities in each relevant jurisdiction, and in each case such proprietary rights are currentlyin effect and all maintenance fees and renewals thereof have been duly made with respect thereto.     (c) Except as set forth in Schedule 10.12, Merck is not aware (i) that any of the activitiesof the Merck JV Business as currently conducted infringe upon the proprietary rights of others, norhas Merck or any of its Subsidiaries received any notice or claim from any Third Party of suchinfringement by the activities of the Merck JV Business, or (ii) of any infringement by any ThirdParty on, or any competing claim of right to use or own any of, the Merck Proprietary Rights in thefield of the Merial Venture Business. Merck and its Subsidiaries have the right to use, free andclear of claims or rights of others, all customer lists and computer software used in the conductof the Merck JV Business.SECTION 10.13. Product Registrations     Set forth in Schedule 10.13 are true and complete lists of all Product Registrations that havebeen applied for, are valid and in full force and effect or are in the process of being timelyrenewed in respect of any Animal Health Products and Poultry Genetics Products of Merck and itsSubsidiaries (collectively, the “Merck Product Registrations”), indicating for each product thejurisdiction of each such Product Registration, application or renewal, and whether suchapplication has been applied for, is valid, or is in the process of being renewed. Such productregistrations permit Merck to market the products covered thereby in the jurisdiction indicatedthereby, and Merck is aware of nothing that would interfere with Merck’s right to market suchproducts in the jurisdiction
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indicated. No such Product Registration shall be adversely affected by its contribution to theMerial Venture in accordance with the terms of this Agreement (and in particular Section 11.2(c)),the Transfer Agreement and the Ancillary Agreements.SECTION 10.14. Product Warranty and Product Recalls: Labels     (a) Since January 1, 1993, there have been no “recalls” or “seizures” or “market withdrawals”(as such terms, or words of similar import, are used in the regulations promulgated under the U.S.Food, Drug and Cosmetic Act or similar food and drug laws promulgated by any Public Authority inany other jurisdiction) with respect to any Merck Existing Product. The Label of each ExistingProduct of Merck sold by Merck or any of its Subsidiaries in any country accurately reflects theconditions for safe and effective use of such Existing Product in accordance with the laws andregulations of such country and each such Product is sold under an appropriate Label.     (b) Other than as indicated on Schedule 10.14, since January 1, 1993, neither Merck nor any ofits Subsidiaries has received any adverse experience reports indicating any material safety orefficacy problems that would materially change the general risk/benefit assessment upon which suchExisting Product is prescribed for its approved indications, and no material change in any Label ofany Merck Existing Product has been required by any Public Authority or otherwise been implementedas a result of any such report.SECTION 10.15. Absence of Third Party Joint Ventures     Except as set forth in Schedule 10.15, neither Merck nor any of its Subsidiaries has anownership interest in any joint venture (whether or not organized as a legal entity) or othercompany or business (except Merck and its Subsidiaries) which conducts Merial Venture Businessactivities and the ownership of or profits from which are shared with Third Parties.
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SECTION 10.16. Litigation; Compliance with Laws     (a) Except as set forth in Schedule 10.16, and except for such actions, suits or proceedingswith amounts or potential amounts individually in issue of less than [*], there are noactions, suits or proceedings at law or in equity or by or before any Public Authority relating toor arising from the Merck JV Business or any properties or assets part of the Merck ContributedAssets, or in respect of this Agreement or any of the Ancillary Agreements, and which is pendingor, to the knowledge of Merck, threatened against it or any of its Subsidiaries. Schedule 10.16sets forth a complete and correct list of all such actions, suits or proceedings that are active orhave been active since January 1, 1993 (or, with respect to actual or potential EnvironmentalLiabilities, January 1, 1991), and includes for completed matters a general description of theresults thereof (including the amount of any monetary judgments and the principal terms of anyother relief assessed in connection therewith).     (b) Except for any non-compliance which would not, individually or in the aggregate, result ina Material Adverse Change or Effect, Merck and its Subsidiaries at all times since January 1, 1993have been and are currently in compliance with (i) all Laws, Permits, published standards that havethe force and effect of Laws, and Environmental Laws, applicable to the Merck JV Business, and (ii)all judgments, orders, writs, injunctions, decrees or rulings of Public Authorities applicable tothe Merck JV Business.     (c) In each case other than such Permits the absence of which would not, individually or inthe aggregate, result in a Material Adverse Change or Effect, Merck and its Subsidiaries have alllicenses, permits, franchises, orders or approvals of any Public Authority, including underEnvironmental Laws, necessary to the conduct of the Merck JV Business (collectively, “Permits”);such Permits are in full force and effect; and no proceeding is pending or, to the best knowledgeof Merck, threatened, to revoke or limit any such Permit. Schedule 10.16 identifies all Permitsthat are nontransferable or that will require the consent of any Public Authority in order to giveeffect to the Transactions.
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SECTION 10.17. Tax Returns     Each of Merck SH and each Merck Transferred Subsidiary has filed or caused to be filed in atimely manner all Tax Returns required to have been filed by it (or have obtained or timely appliedfor an extension with respect to any such filing) and has paid or caused to be paid, or madeadequate provision for the payment of, all Taxes shown to be due and payable on such returns or onany assessments received by it, except Taxes that are being contested by it in good faith andexcept where the failure to file such returns or pay Taxes would not in the aggregate (i) cause aMaterial Adverse Change or Effect, or (ii) result in the imposition of a lien on any of the MerckContributed Assets. None of the Merck Transferred Subsidiaries is party to or bound by (a) anyagreement providing for the allocation or sharing of Taxes with any Third Party which agreementwill be in effect after the Closing, or (b) any agreement (other than elections prescribed bygenerally applicable Tax Laws or regulations) with any Taxing Authority which may restrict theMerial Venture’s tax planning.SECTION 10.18. Environmental Matters     With respect to the Merck JV Business, except for the matters disclosed in Schedule 10.18,neither Merck nor any of its Subsidiaries has since January 1, 1991 received written notice of, orother written communication concerning, any failure to comply with any applicable EnvironmentalLaws, or written notice or other written communication that Merck or any of its Subsidiaries is ormay be a potentially responsible party or otherwise liable in connection with any site allegedlycontaining Hazardous Materials. None of Merck’s or its Subsidiaries’ facilities used in the MerckJV Business have in the past, or do at the present time, use, generate, treat, store, dispose of,process, handle or manage any Hazardous Materials or other materials in violation of any applicableEnvironmental Law, and there has been no release or migration of any Hazardous Materials at, on,under, about, within, from or onto any such properties, where such violation, release, or migrationwill or is reasonably likely to result, individually or in the aggregate, in a Material AdverseChange or Effect. Except as will not result in a Material Adverse Change or Effect, there are nopast or present
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conditions, circumstances, facts, events, practices, incidents, actions or omissions existing oroccurring at any location (including any off-site location) that will or is reasonably likely to(i) cause Merck or any of its Subsidiaries or, subsequent to the Closing, any Merial VentureCompany, to incur any Environmental Liability in respect of the Merck JV Business, (ii) form thebasis for any claim, action, suit, proceeding, hearing, investigation or inquiry against Merck orany of its Subsidiaries or, subsequent to the Closing, any Merial Venture Company, under anyEnvironmental Law in respect of the Merck JV Business, or (iii) interfere with or prevent continuedcompliance by Merck or any of its Subsidiaries or, subsequent to the Closing, any Merial VentureCompany, with any Environmental Law in respect of the Merck JV Business.SECTION 10.19. Labor Relations; Employees; Employee Benefit Matters     (a) Schedule. With respect to the employees who are expected to be employed by aMerial Venture Company as of the Closing Date, Schedule 10.19A-1 contains a true and complete listof each material Merck Benefit Plan. Within six (6) weeks after the date of this Agreement, Merckwill complete Schedule 10.19A-1 by providing to RM a list of all Merck Employee Agreements.Except as set forth in Schedule 10.19A-2 and with respect to the employees who are expected to beemployed by a Merial Venture Company as of the Closing Date, neither Merck, any of its Subsidiariesnor any Merck ERISA Affiliate has any plan or commitment, whether legally binding or not, toestablish any new Merck Benefit Plan, to enter into any Merck Employee Agreement or to materiallymodify or to terminate any Merck Benefit Plan or Merck Employee Agreement (except to the extentrequired by law or to conform any such Merck Benefit Plan or Merck Employee Agreement to therequirements of any applicable law, or as required by this Agreement), nor has any intention to doany of the foregoing been communicated to Merck Employees.     (b) Documents. Merck has provided, or has caused to be provided, or will cause to beprovided prior to the Closing to RM (i) current, accurate and complete copies of all documentsembodying or relating to each Merck Transferred Benefit Plan and each
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Merck Employee Agreement, including all amendments thereto, written interpretations thereof andtrust or funding agreements with respect thereto; (ii) the two (2) most recent annual actuarialvaluations, if any, prepared for each Merck Transferred Benefit Plan; and (iii) the two (2) mostrecent annual reports (Series 5500 and all schedules thereto), if any, required under ERISA inconnection with each Merck Transferred Benefit Plan or related trust.     (c) Multi-Employer Plans. Except with respect to employees who are not MerckEmployees, neither Merck nor any of the Merck Transferred Subsidiaries contribute to or arerequired to contribute to, or have incurred any withdrawal liability (within the meaning of Section4201 of ERISA) to, any “multi-employer plan” within the meaning of Section 3(37) of ERISA.     (d) No Post-Employment Obligations. Except as expressly set forth on Schedule 10.19D,neither Merck, any of its Subsidiaries nor any Merck ERISA Affiliate (i) maintains or contributesto any Merck Transferred Benefit Plan which provides, or has any Liability to provide, lifeinsurance, medical, severance or other employee welfare benefits to any Merck Employee upon hisretirement or termination of employment, except as may be required by Section 4980B of the Code; or(ii) has ever represented, promised or contracted (whether in oral or written form) to any MerckEmployee (either individually or to Merck Employees as a group) that such Merck Employee(s) wouldbe provided with life insurance, medical, severance or other employee welfare benefits upon theirretirement or termination of employment, except to the extent required bySection 4980B of the Code.     (e) Effect of Transaction. Except as set forth on Schedule 10.19E, the execution of,and performance of the transactions contemplated in, this Agreement will not (either alone or uponthe occurrence of any additional or subsequent events)(i) constitute an event under any Merck Transferred Benefit Plan, Merck Employee Agreement, orrelated trust or loan that will or may result in any payment (whether of severance pay orotherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefitsor obligation to fund benefits with respect to any Merck
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Employee, or (ii) result in the triggering or imposition of any restrictions or limitations on theright of the Merial Venture Companies to amend or terminate any Merck Transferred Benefit Plan. Nopayment or benefit which will or may be made by Merck or any of its Subsidiaries to any MerckEmployee with respect to the transactions contemplated herein will be characterized as an “excessparachute payment,” within the meaning of Section 280G(b)(l) of the Code.     (f) Collective Bargaining Agreement (“CBA”). Except as set forth on Schedule 10.19F,no Merck Employee is employed pursuant to a CBA or a works council agreement to which a member ofthe Merck Group is a party that any Merial Venture Company will be bound by after the Closing orwill otherwise be obligated to honor or assume in connection with this Agreement or thetransactions contemplated by this Agreement, other than those agreements that the Merial Venture isobligated to assume under applicable law.     (g) Pension Plan Funding. Except as set forth on Schedule 10.19G-1, the present valueof all accrued benefits of each Merck Transferred Pension Plan, determined on the basis of theactuarial assumptions used by the plan’s actuary for purposes of calculating minimum fundingcontributions for the most recently completed plan year, do not as of the date hereof and will notas of the Closing Date exceed the fair market value of the assets (which for this purpose shall notinclude any accrued but unpaid contributions) of such Transferred Benefit Plan. Except as set forthon Schedule 10.19G-2, the present value of all accrued benefits of each Merck Transferred ForeignPension Plan, determined using the actuarial assumptions employed by the actuary of the plan, donot as of the date hereof and will not as of the Closing Date exceed the fair market value of theassets (which for this purpose shall not include any accrued but unpaid contributions) of suchMerck Transferred Foreign Pension Plan or, in the case of an unfunded Merck Transferred ForeignPension Plan, the reserves provided for in the December 31, 1996 balance sheet of the MerckContributed Business Financials.     (h) Labor Relations. Except as set forth in Schedule 10.19H-1, the Merck Groupgenerally enjoys good employer-employee relations with the Merck Employees.
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