<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 30, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
BARR LABORATORIES, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
NEW YORK 22-1927534
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
------------------------
2 QUAKER ROAD, PO BOX 2900
POMONA, NEW YORK 10970-0519
(914) 362-1100
(ADDRESS AND TELEPHONE NUMBER
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------------
PAUL M. BISARO
SENIOR VICE PRESIDENT AND SECRETARY
BARR LABORATORIES, INC.
2 QUAKER ROAD, PO BOX 2900
POMONA, NY 10970-0519
(914) 362-1100
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------------
COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C>
M. FINLEY MAXSON JONATHAN I. MARK
WINSTON & STRAWN CAHILL GORDON & REINDEL
35 WEST WACKER DRIVE 80 PINE STREET
CHICAGO, ILLINOIS 60601 NEW YORK, NEW YORK 10005
(312) 558-5600 (212) 701-3000
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
--------------------------
IF THE ONLY SECURITIES BEING REGISTERED ON THIS FORM ARE BEING OFFERED
PURSUANT TO DIVIDEND OR INTEREST REINVESTMENT PLANS, PLEASE CHECK THE FOLLOWING
BOX. / /
IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE TO BE OFFERED ON
A DELAYED OR CONTINUOUS BASIS PURSUANT TO RULE 415 UNDER THE SECURITIES ACT OF
1933, OTHER THAN SECURITIES OFFERED ONLY IN CONNECTION WITH DIVIDEND OR INTEREST
REINVESTMENT PLANS, CHECK THE FOLLOWING BOX. / /
IF THIS FORM IS FILED TO REGISTER ADDITIONAL SECURITIES FOR AN OFFERING
PURSUANT TO RULE 462(B) UNDER THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND
LIST THE SECURITIES ACT REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE
REGISTRATION STATEMENT FOR THE SAME OFFERING. / /
IF THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE 462(C)
UNDER THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE SECURITIES ACT
REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE REGISTRATION STATEMENT
FOR THE SAME OFFERING. / /
IF DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO RULE 434,
PLEASE CHECK THE FOLLOWING BOX. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH CLASS MAXIMUM OFFERING MAXIMUM
OF SECURITIES TO BE AMOUNT TO BE PRICE AGGREGATE OFFERING
REGISTERED REGISTERED (1) PER UNIT (2) PRICE (2)
<S> <C> <C> <C>
3,680,000
Common Stock ($.01 par value)............................ Shares $34.25 $126,040,000
<CAPTION>
TITLE OF EACH CLASS
OF SECURITIES TO BE AMOUNT OF
REGISTERED REGISTRATION FEE
<S> <C>
Common Stock ($.01 par value)............................ $37,181.80
</TABLE>
(1) Includes 480,000 shares to be issued solely to cover an over-allotment
option granted to the Underwriters. See "Underwriting."
(2) Estimated pursuant to paragraph (c) of Rule 457 under the Securities Act of
1933 solely for the purpose of calculating the amount of the registration
fee on the basis of the average of the high and low sales prices for a share
of Common Stock on the American Stock Exchange on January 27, 1998.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS
EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH
SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME
EFFECTIVE IN ACCORDANCE WITH THE PROVISIONS OF SECTION 8(A) OF THE SECURITIES
ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH
DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PRELIMINARY PROSPECTUS Subject To Completion Dated, January 30, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION BECOMES EFFECTIVE.
THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN
WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION
OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
- --------------------------------------------------------------------------------
3,200,000 Shares
[LOGO]
Common Stock
- ------------------------------------------------------------
Of the 3,200,000 shares of Common Stock, par value $0.01 per share (the "Common
Stock"), offered hereby (the "Offering"), 200,000 shares are being sold by Barr
Laboratories, Inc. ("Barr" or the "Company") and 3,000,000 shares are being sold
by certain selling stockholders (the "Selling Stockholders"). See "Selling
Stockholders." The Company will not receive any of the proceeds from the sale of
shares by the Selling Stockholders.
The Common Stock is quoted on the American Stock Exchange under the symbol
"BRL." On February , 1998, the last reported sales price for the Common Stock
on the American Stock Exchange was $ per share. Application has been
made to list the Common Stock on the New York Stock Exchange. See "Price Range
of Common Stock."
FOR A DISCUSSION OF CERTAIN RISKS OF AN INVESTMENT IN THE SHARES OF COMMON STOCK
OFFERED HEREBY, SEE "RISK FACTORS" ON PAGES 7-12.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Proceeds to
Price to Underwriting Discounts Proceeds to Selling Stockholders
Public and Commissions(1) Company(2) (2)
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
Per Share $ $ $ $
- ----------------------------------------------------------------------------------------------------------
Total(3) $ $ $ $
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) THE COMPANY AND THE SELLING STOCKHOLDERS HAVE AGREED TO INDEMNIFY THE
UNDERWRITERS AGAINST CERTAIN LIABILITIES, INCLUDING LIABILITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. SEE "UNDERWRITING."
(2) BEFORE DEDUCTING EXPENSES OF THE OFFERING PAYABLE BY THE COMPANY AND THE
SELLING STOCKHOLDERS ESTIMATED AT $ AND $ , RESPECTIVELY.
(3) THE COMPANY AND THE SELLING STOCKHOLDERS HAVE GRANTED THE UNDERWRITERS A
30-DAY OPTION TO PURCHASE UP TO 480,000 ADDITIONAL SHARES OF COMMON STOCK ON
THE SAME TERMS PER SHARE SOLELY TO COVER OVER-ALLOTMENTS, IF ANY. IF SUCH
OPTION IS EXERCISED IN FULL, THE TOTAL PRICE TO PUBLIC WILL BE $ , THE
TOTAL UNDERWRITING DISCOUNTS AND COMMISSIONS WILL BE $ , THE TOTAL
PROCEEDS TO THE COMPANY WILL BE $ AND THE TOTAL PROCEEDS TO SELLING
STOCKHOLDERS WILL BE $ . SEE "UNDERWRITING."
The Common Stock is being offered by the Underwriters as set forth under
"Underwriting" herein. It is expected that the delivery of the certificates
therefor will be made at the offices of SBC Warburg Dillon Read Inc., New York,
New York on or about , 1998. The Underwriters include:
SBC WARBURG DILLON READ INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Certain information, as
of particular dates, concerning the Company's directors and officers, their
compensation, the principal holders of securities of the Company and any
material interests of such persons in transactions with the Company is discussed
in proxy statements of the Company distributed to stockholders of the Company
and filed with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549; and at the following regional offices of the
Commission: Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and Suite 1300, Seven World Trade Center, New York, New
York 10048. Copies of such materials may be obtained from the Public Reference
Branch of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates. Certain of these materials may also be obtained
via the Commission's Website (http://www.sec.gov). In addition, such reports,
proxy statements and other information can be inspected at the American Stock
Exchange, Inc., 86 Trinity Place, New York, New York 10006.
The Company has filed with the Commission in Washington, D.C., a
Registration Statement on Form S-3 under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the securities offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement and exhibits thereto, as permitted by the rules and regulations of the
Commission. For further information pertaining to the Company and the securities
offered hereby, reference is made to the Registration Statement and the exhibits
thereto, which may be examined without charge at the public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies thereof may be obtained from the Public
Reference Branch of the Commission upon payment at prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have been filed by the Company with the
Commission are incorporated by reference in this Prospectus: (a) the Company's
Annual Report on Form 10-K for the year ended June 30, 1997, except for Item 8;
(b) the Company's Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1997; and (c) the Company's Quarterly Report on Form 10-Q for the
quarterly period ended December 31, 1997.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the Offering shall be deemed to be incorporated by reference in
this Prospectus or any Prospectus Supplement and to be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated by reference or deemed to be incorporated by reference in this
Prospectus or any Prospectus Supplement shall be deemed to be modified or
superseded for all purposes of this Prospectus or such Prospectus Supplement to
the extent that a statement contained herein, therein or in any subsequently
filed document which also is incorporated or deemed to be incorporated by
reference herein or in such Prospectus Supplement modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus or
any Prospectus Supplement.
The Company will provide without charge to each person to whom a copy of
this Prospectus has been delivered, upon the written or oral request of such
person, a copy of any and all of the documents referred to above which have been
or may be incorporated in this Prospectus by reference (other than exhibits to
such documents, unless such exhibits are specifically incorporated by reference
therein). Requests for such copies should be directed to: Paul M. Bisaro,
Secretary, Barr Laboratories, Inc., Two Quaker Road, P.O. Box 2900, Pomona, New
York 10970-0519; telephone number (914) 362-1100.
The Barr "b" and "ESP" are registered trademarks of the Company in the
United States. All other trademarks and registered trademarks used in this
Prospectus are property of their respective owners.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN THE
COMMON STOCK AND THE IMPOSITION OF A PENALTY BID, DURING AND AFTER THE OFFERING.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN
THIS PROSPECTUS OR INCORPORATED BY REFERENCE HEREIN INCLUDING INFORMATION UNDER
"RISK FACTORS." UNLESS OTHERWISE INDICATED, ALL REFERENCES IN THIS PROSPECTUS TO
THE "COMPANY" OR "BARR" REFER TO BARR LABORATORIES, INC. AND ITS CONSOLIDATED
SUBSIDIARIES. UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS
ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION. REFERENCES IN
THIS PROSPECTUS TO THE COMPANY'S FISCAL YEAR REFER TO THE TWELVE MONTH PERIOD
ENDING ON JUNE 30TH OF EACH YEAR.
THE COMPANY
Barr is an established pharmaceutical company engaged in the development,
manufacture and marketing of generic and proprietary prescription
pharmaceuticals. The Company currently markets 66 products, representing various
dosage strengths and product forms of 33 chemical entities. Of these products,
29 have been launched since the beginning of 1996. The Company sells 15 products
where its market share in terms of units dispensed is greater than 40%. The
Company's product line is concentrated primarily on six core therapeutic
categories: oncology, female healthcare, cardiovascular, anti-infective, pain
management and psychotherapeutic. Barr generated revenues of $341.5 million and
net income of $32.2 million for the twelve months ended December 31, 1997.
The Company's business strategy is to develop pharmaceutical products which
present barriers to entry that may limit competition, and therefore, offer
longer product life-cycles and/or higher potential profitability. The
characteristics of the products that the Company pursues may include: (i) the
need for specialized manufacturing capabilities; (ii) difficulty in raw material
sourcing; (iii) complex formulation or development characteristics; (iv)
regulatory or legal challenges; or (v) sales and marketing challenges. The
Company's business strategy has three core components: (i) developing and
marketing generic pharmaceuticals that have one or more barriers to entry; (ii)
challenging patents protecting certain brand pharmaceuticals where the Company
believes that such patents are either invalid, unenforceable or not infringed by
the Company's product; and (iii) developing and introducing proprietary
pharmaceuticals that will have some market exclusivity.
The Company's largest selling product is Tamoxifen, the generic version of
Nolvadex-Registered Trademark-, which is used to treat advanced breast cancer as
well as impede the recurrence of tumors following surgery. Tamoxifen accounted
for $195.7 million, or 76% of the Company's net product sales during fiscal
1997. Barr's product accounted for 76% of the total units dispensed in the
United States for the twelve months ended September 30, 1997. In 1993, as a
result of a settlement of a patent challenge against the innovator of Tamoxifen,
the Company entered into a non-exclusive supply and distribution agreement (the
"Tamoxifen Agreement"). Under the terms of the Tamoxifen Agreement, Barr
purchases Tamoxifen directly from the innovator and sells it as a generic
product. The Company is the only distributor of Tamoxifen in the United States
other than the innovator. Although the Company is a non-exclusive distributor,
the Tamoxifen Agreement provides that should an additional distributor or
distributors be selected by the innovator, Barr will be granted terms no less
favorable than those granted to any subsequent distributor. Furthermore, the
Company has a tentatively approved Abbreviated New Drug Application ("ANDA") for
the manufacture of Tamoxifen. Therefore, at the time of patent expiration in
August 2002 (or should another company's patent challenge succeed), Barr will be
permitted to begin the direct manufacture of Tamoxifen. Manufacturing Tamoxifen
would lower significantly Barr's cost of goods for this product and the Company
believes its profit margins on Tamoxifen would improve.
The Company's most significant recent product introduction is Warfarin
Sodium, which was launched by the Company in July 1997. Warfarin Sodium is the
generic equivalent of DuPont Merck's Coumadin-Registered Trademark-, an
anti-coagulant which is given to patients with heart disease and/or high risk of
stroke. Coumadin had U.S. sales of approximately $500 million for the twelve
months ended September 30, 1997. Although
3
<PAGE>
another generic competitor has received an ANDA approval for Warfarin Sodium,
Barr is currently the only company marketing a generic equivalent of Warfarin
Sodium. The Company believes that there will be limited generic competition for
this product because of a number of barriers to entry, including difficulty of
sourcing raw material, the need for specialized manufacturing facilities, and
marketing barriers created by DuPont Merck to oppose generic substitution.
In January 1997, the Company and the innovator of ciprofloxacin settled
pending patent litigation. Ciprofloxacin is the generic equivalent of Bayer's
Cipro-Registered Trademark-, which is used to treat lower respiratory, skin,
bone and joint, and urinary tract infections. Ciprofloxacin had U.S. sales of
approximately $685 million in 1996. As part of the settlement of the patent
challenge, the Company entered into a contingent, non-exclusive supply agreement
(the "Ciprofloxacin Agreement") which ends with the expiration of the patent in
December 2003. Under the Ciprofloxacin Agreement, the innovator has the option
to make payments to Barr or to provide Barr with ciprofloxacin that Barr would
market as a generic pursuant to a license from the innovator. In January 1997,
the Company received an initial cash payment of $24.6 million in connection with
the Ciprofloxacin Agreement. If the innovator chooses not to provide the product
to Barr, the annual value recognized by Barr would approximate the value of the
initial payment.
The Company currently has under development more than 40 pharmaceutical
products, representing more than 30 chemical entities. The Company has six ANDAs
and two ANDA supplements pending at the U.S. Food and Drug Administration
("FDA") for products that had U.S. industry sales of approximately $2 billion
for the twelve months ended September 30, 1997. In addition, prior to December
31, 1998, Barr anticipates filing twelve ANDAs and two ANDA supplements for
products which had U.S. industry sales of approximately $1 billion for the
twelve months ended September 30, 1997. Of these 22 products, the Company
anticipates receiving FDA approval for at least five products by the end of
calendar 1998. One of the pending ANDAs is for fluoxetine, the generic
equivalent of Eli Lilly's anti-depressant Prozac-Registered Trademark-, which is
subject to an ongoing patent challenge. Prozac had U.S. sales of approximately
$1.7 billion for the twelve months ended September 30, 1997. The Company
anticipates that a trial on the patent claims at issue will commence in the
second half of calendar 1998. The Company has two additional patent cases in
active development and of the ANDAs expected to be filed in calendar 1998 two
relate to such patent cases. In addition, the Company, in conjunction with
strategic partners, has four proprietary products in various stages of
development. A New Drug Application ("NDA") has been filed by Barr's partner on
one of these products, and the Company anticipates that its partner will receive
regulatory approval for such product before the end of calendar 1998.
The Company competes primarily in the generic pharmaceutical industry.
Generic pharmaceuticals represent an increasing proportion of medicines
dispensed in the United States. In 1996, the U.S. generic pharmaceutical
industry had total U.S. sales of approximately $9 billion. The Company believes
that the generic pharmaceutical market will grow, driven by two primary factors.
The first factor is the future commercialization of generic equivalents of drugs
with patents that (i) have already expired or (ii) will expire over the next
several years. Industry sources estimate that pharmaceuticals with 1996 U.S.
sales in excess of $6 billion are already off-patent and have no generic
competition. In addition, industry sources estimate that, through the year ended
2002, branded drugs with 1996 U.S. sales of approximately $11 billion will lose
patent protection. The Company believes a second factor driving growth will be
increasing rates at which generic pharmaceuticals are substituted for branded
drugs.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.......... 200,000 shares
Common Stock offered by the Selling
Stockholders............................... 3,000,000 shares
Total Common Stock offered........... 3,200,000 shares
Common Stock to be outstanding after the
Offering................................... 21,892,454 shares(1)
Use of proceeds to the Company............... Expansion of working capital, potential
acquisitions and general corporate purposes.
New York Stock Exchange symbol............... BRL
</TABLE>
- ------------------------
(1) As of December 31, 1997, excludes 2,109,383 shares of Common Stock reserved
for issuance upon the exercise of outstanding options granted pursuant to
the Company's 1993 Stock Incentive Plan, the 1986 Stock Option Plan and the
1993 Stock Option Plan for Non-Employee Directors at a weighted average
exercise price of $13.70 per share.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FOR THE YEARS ENDED JUNE 30, DECEMBER 31,
--------------------------------------------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1993 1994 1995 1996 1997 1996 1997
--------- ---------- ---------- ---------- ---------- ---------- ----------
STATEMENT OF OPERATIONS DATA:
Revenues:
Net product sales:
Manufactured........................ $ 58,047 $ 59,000 $ 56,170 $ 60,823 $ 61,702 $ 31,882 $ 50,421
Distributed (1)..................... -- 50,133 143,550 171,401 195,734 99,684 124,591
--------- ---------- ---------- ---------- ---------- ---------- ----------
Total net product sales........... 58,047 109,133 199,720 232,224 257,436 131,566 175,012
Proceeds from supply agreement (2).... -- -- -- -- 27,050 -- 13,583
--------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenues.......................... 58,047 109,133 199,720 232,224 284,486 131,566 188,595
Costs and expenses:
Cost of sales......................... 35,913 78,021 159,498 189,394 217,196 111,161 133,995
Research and development.............. 5,370 6,778 10,443 11,274 13,536 5,947 8,815
Selling, general & administrative..... 23,554 19,170 19,014 21,695 23,391 8,599 17,607
--------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss) from operations......... (6,790) 5,164 10,765 9,861 30,363 5,859 28,178
Interest income (expense), net.......... (2,154) (1,994) (661) 1,011 1,459 525 262
Other income (3)........................ 21,771 575 118 637 228 7 35
Net earnings (4)........................ $ 7,787 $ 2,658 $ 6,225 $ 7,016 $ 19,447 $ 3,995 $ 16,722
Per share data (5):
Net earnings per share.................. $ 0.40 $ 0.14 $ 0.31 $ 0.33 $ 0.92 $ 0.19 $ 0.78
Net earnings per share--assuming
dilution.............................. 0.40 0.13 0.30 0.32 0.87 0.18 $ 0.72
Weighted average shares................. 19,417 19,553 20,125 20,968 21,133 21,074 21,550
Weighted average shares-- assuming
dilution.............................. 19,644 19,999 20,593 21,757 22,430 22,222 23,132
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------
<S> <C> <C>
AS
ACTUAL ADJUSTED(6)
---------- -------------
BALANCE SHEET DATA:
Cash and cash equivalents.............................................................. $ 34,085 $
Working capital........................................................................ 64,004
Total assets........................................................................... 235,290
Total debt............................................................................. 34,407
Shareholders' equity................................................................... 121,086
</TABLE>
- ------------------------
(1) Amounts represent sales of Tamoxifen which the Company began distributing in
November 1993.
(2) See Note 2 to the Consolidated Financial Statements.
(3) Other income in 1993 includes a $21 million cash payment from settlement of
a patent dispute involving Tamoxifen.
(4) Reflects cumulative effect of accounting change of $0.4 million in 1994 and
extraordinary losses on the early extinguishment of debt of $0.1 million and
$0.1 million in fiscal 1995 and 1996, respectively.
(5) Amounts restated to reflect SFAS No. 128 (see Note 1(f) to the Consolidated
Financial Statements) and the 3 for 2 stock splits which occurred in March
1996 and May 1997.
(6) Adjusted to reflect the sale of 200,000 shares of Common Stock offered by
the Company hereby and the receipt of estimated net proceeds therefrom.
6
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, PROSPECTIVE
INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS IN EVALUATING THE
COMPANY AND ITS BUSINESS BEFORE PURCHASING ANY OF THE COMMON STOCK OFFERED
HEREBY. PROSPECTIVE INVESTORS ARE CAUTIONED THAT THE STATEMENTS IN THIS
PROSPECTUS THAT ARE NOT DESCRIPTIONS OF HISTORICAL FACTS MAY BE FORWARD-LOOKING
STATEMENTS THAT ARE SUBJECT TO RISKS AND UNCERTAINTIES. ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE CURRENTLY ANTICIPATED DUE TO A NUMBER OF FACTORS,
INCLUDING THOSE IDENTIFIED UNDER "RISK FACTORS" AND ELSEWHERE IN THIS
PROSPECTUS.
DEPENDENCE ON AN EXISTING PRODUCT AND RELIANCE ON THIRD PARTY MANUFACTURER
Barr distributes Tamoxifen (which is sold under the Barr label) under an
agreement with the innovator holding the product's patent. In December 1993, as
a result of a settlement of a patent challenge against the innovator of
Tamoxifen, Barr entered into the Tamoxifen Agreement. Under the terms of the
Tamoxifen Agreement, Barr purchases Tamoxifen directly from the innovator at a
discount and sells it as a generic product.
Tamoxifen accounted for approximately 76%, 74% and 72% of the Company's
total fiscal year 1997, 1996, and 1995 net product sales, respectively.
The Company has a tentatively approved ANDA to manufacture its own generic
version of Tamoxifen. Therefore, at the time of patent expiration (or should
another company's patent challenge succeed), Barr would be permitted to begin
manufacturing Tamoxifen. Within the last 18 months, a court upheld the Tamoxifen
patent in a challenge brought by another generic pharmaceutical company. The
Company is aware of other patent challenges pending against the patents covering
Tamoxifen. While the Company believes that these challenges will not be
successful, there is no assurance that the Tamoxifen patent will not be
successfully challenged before patent expiry.
Tamoxifen is currently one of the leading therapies in the treatment of
breast cancer. However, as new therapies are introduced and if they are
perceived or demonstrated to be better therapies, use of Tamoxifen could be
reduced. If such reduction was significant, it could have a material adverse
impact on the Company's business, results of operations and financial condition.
Tamoxifen is manufactured by the innovator and distributed by the Company
under the Tamoxifen Agreement. Under the Tamoxifen Agreement, the innovator is
obligated to supply the Company with sufficient quantities of Tamoxifen to meet
Barr's requirements. However, if for any reason the innovator's production is
disrupted, there is no assurance that the Company would be able to obtain its
required quantities on a timely basis to meet demand. This would have a material
adverse impact on the Company's business, results of operations and financial
condition. The Company maintains insurance designed to mitigate losses if supply
was interrupted, however, there is no assurance that such insurance would cover
the cause of the delay or that the coverage would be adequate.
UNCERTAINTIES RELATED TO MARKET ACCEPTANCE OF NEW PRODUCTS
The Company's ability to commercialize any generic product or proprietary
drug product following the receipt of regulatory approval will depend in part on
the acceptance of the product by physicians and patients. Unanticipated side
effects or unfavorable publicity concerning any of the Company's acquired, in-
licensed or developed products could have an adverse effect on the Company's
ability to obtain regulatory approvals, to achieve acceptance by prescribing
physicians, managed care providers, customers or patients, or to commercialize
such products, any of which could have a material adverse effect on the
Company's business, results of operations and financial condition.
7
<PAGE>
PRODUCT SPECIFIC REGULATORY/LEGISLATIVE ISSUES
During calendar 1997, the branded pharmaceutical industry increased its
efforts to utilize state and federal legislative and regulatory forums to delay
generic competition and limit the market erosion that occurs once monopoly
protection is lost for a branded product. In the past year, brand pharmaceutical
companies have used the Citizen Petition process (i.e., petition directly to
FDA) to request amendments to FDA standards, sought changes in United States
Pharmacopeia (an organization which publishes industry recognized compendia of
drug standards) requirements, and attached patent extension amendments to
important federal legislation. One anti-generic defense strategy involves a
state-by-state initiative to enact legislation that restricts the substitution
of generic equivalents of Narrow Therapeutic Index ("NTI") drugs. A drug is
commonly said to have an NTI when small variances in the level of the drug in
the blood can change the effectiveness of the drug. Warfarin Sodium, a product
launched by the Company in July 1997, is considered an NTI drug. See
"Business--Development and Marketing of Selected Generic Pharmaceuticals." The
Company has and will continue to expend resources including management time and
financial resources on government affairs activities. However, there can be no
assurance that the Company's efforts will be successful and that such
legislative and regulatory initiatives will not limit acceptance of Barr's
products. Such limits could adversely affect the Company's business, results of
operations and financial condition.
GOVERNMENT REGULATION; NO ASSURANCES OF REGULATORY APPROVAL
All pharmaceutical manufacturers, including the Company, are subject to
extensive regulation by the federal government, principally by the FDA, and, to
a lesser extent, by the U.S. Drug Enforcement Administration ("DEA") and state
governments. The Federal Food, Drug and Cosmetic Act, the Controlled Substances
Act and other federal statutes and regulations govern or influence the testing,
manufacturing, safety, labeling, storage, record keeping, approval, pricing,
advertising and promotion of the Company's products. Non-compliance with
applicable requirements can result in fines, recalls and seizure of products.
Under certain circumstances, the FDA also has the authority to revoke drug
approvals previously granted.
FDA
FDA approval is required before any new drug or a generic equivalent to a
previously approved drug can be marketed. The Company generally receives
approval for generic products by submitting an ANDA to the FDA. When processing
an ANDA, the FDA waives the requirement of conducting complete clinical studies,
although it may require bioavailability and/or bioequivalence studies.
"Bioavailability" indicates the rate and extent of absorption and levels of
concentration of a drug product in the blood stream needed to produce a
therapeutic effect. "Bioequivalence" compares the bioavailability of one drug
product with another, and when established, indicates that the rate of
absorption and levels of concentration of a generic drug in the body are
substantially equivalent to the previously approved drug. An ANDA may be
submitted for a drug on the basis that it is the equivalent to a previously
approved drug. There can be no assurance that approval for ANDAs can be obtained
in a timely manner, or at all.
Products resulting from the Company's proprietary drug program may require
the Company to submit an NDA to the FDA. When processing an NDA, the FDA
requires pre-clinical and clinical safety and efficacy data. Full clinical
trials, conducted in sequential phases, are used to demonstrate safety and
efficacy of the product to the FDA. The generation of required data, regulated
by the FDA, can be time-consuming and expensive without assurance that the
results will be adequate to justify ultimate approval by the FDA. There can be
no assurance that approval for NDAs can be obtained in a timely manner, or at
all.
Among the requirements for drug approval by the FDA is that the Company's
manufacturing procedures and operations conform to current Good Manufacturing
Practices ("cGMP"), as defined in the U.S. Code of Federal Regulations. The cGMP
regulations must be followed at all times during the
8
<PAGE>
manufacture of pharmaceutical products. In complying with the standards set
forth in the cGMP regulations, the Company must continue to expend time, money
and effort in the areas of production and quality control to ensure full
technical compliance.
If the FDA believes a company is not in compliance with cGMP, certain
sanctions are imposed upon that company including: (i) withholding from the
company new drug approvals as well as approvals for supplemental changes to
existing applications; (ii) preventing the company from receiving the necessary
export licenses to export its products; and (iii) classifying the company as an
"unacceptable supplier" and thereby disqualifying the company from selling
products to federal agencies. In 1992, the Company was subject to a civil action
brought by the FDA with respect to non-compliance by the Company with cGMP for
certain of its then marketed products. A final court order was issued in
November 1994 resolving the matter. The Company believes it is currently in
compliance with cGMP.
In May 1992, the Generic Drug Enforcement Act of 1992 (the "Generic Act")
was enacted. The Generic Act, a result of legislative hearings and
investigations into the generic drug approval process, allows the FDA to impose
debarment and other penalties on individuals and companies that commit certain
illegal acts relating to the generic drug approval process. In some situations,
the Generic Act requires the FDA to debar (i.e., not accept or review ANDAs for
a period of time) a company or an individual that has committed certain
violations. It also provides for temporary denial of approval of applications
during the investigation of certain violations that could lead to debarment and
also, in more limited circumstances, provides for the suspension of the
marketing of approved drugs by the affected company. Lastly, the Generic Act
allows for civil penalties and withdrawal of previously approved applications.
Neither the Company nor any of its employees have ever been subject to
debarment.
DEA
Because the Company markets some and intends to introduce or reintroduce a
wide range of controlled substances in its analgesic and psychotherapeutic
product lines, it must meet the requirements of the Controlled Substances Act
and the regulations issued thereunder and administered by the DEA. These
regulations include stringent requirements for manufacturing controls and
security to prevent diversion of or unauthorized access to the drugs in each
stage of the production and distribution process. The DEA monitors allocation of
raw materials used in the production of controlled substances based on
historical sales data.
Regulatory compliance issues or regulatory changes affecting the Company's
operations or the approval or shipment of products could have a material adverse
effect upon the Company's business, results of operations and financial
condition.
INTENSE COMPETITION WITHIN THE GENERIC PHARMACEUTICAL INDUSTRY
The generic pharmaceutical industry is highly competitive. Revenue and gross
profit derived from the sale of developed generic products tend to follow a
pattern based upon regulatory and competitive factors unique to the generic
pharmaceutical industry. Competition among both branded and generic
pharmaceuticals aimed at the markets identified by the Company will be based on,
among other things, product efficacy, safety, reliability, availability and
price. As patents for brand-name products and any related market exclusivity
expire, prices and revenues typically decline as additional generic competitors
enter the marketplace. The number of generic competitors and the intensity of
competitive pricing and other marketing activities is unpredictable and can
result in a significantly curtailed profitable generic product life-cycle.
The selling prices of the Company's products may decline as competition
increases. Currently, many of the Company's generic products compete with other
approved generic products. In addition, some third party payers, wholesalers and
chain buyers have instituted programs which further increase the downward
9
<PAGE>
pressure on prices in the generic industry. These aggressive price reduction
activities could have a material adverse effect on the Company's business,
results of operations and financial condition.
Relatively large research and development expenditures enable a company to
support many FDA applications simultaneously, thereby improving the likelihood
of being among the first to obtain approval of at least some generic drugs.
Other products now in use or under development by others may be more effective
or have fewer side effects than the Company's current or future products. In
addition, competitors may develop their products more rapidly than the Company.
Competitors may also be able to complete the regulatory process sooner, and
therefore may begin to market their products in advance of the Company's
products. There can be no assurance that developments by others will not render
any product the Company produces or may produce obsolete or otherwise
non-competitive.
DEPENDENCE UPON NEW PRODUCTS AND EFFECT OF PRODUCT LIFE CYCLES; FACTORS
AFFECTING RESULTS OF OPERATIONS
The Company's results are effected by a number of factors, including, among
others, the timing of research and development costs, the timing of
introductions of new products by the Company and its competitors, timing of
costs associated with additional patent challenges and receipt of revenues
derived from the successful resolution of patent challenges, and dependence by
the Company on a limited number of products.
The Company's future results of operations will depend to a significant
extent upon its ability to develop and market new pharmaceutical products.
Operating results may vary significantly on an annual or quarterly basis
depending on the timing of, and the Company's ability to obtain, FDA approvals
for such products. Newly introduced generic pharmaceuticals with limited or no
off-patent competition are typically sold at higher selling prices, often
resulting in increased gross profit margins. As competition from other
manufacturers intensifies, selling prices and gross profit margins typically
decline. The Company's future operating results may also be affected by a
variety of additional factors, including the results of future successful patent
challenges, customer purchasing practices, changes in the degree of competition
affecting the Company's products and the timing of FDA approvals for and the
market acceptance of the Company's proprietary drug products.
In addition, a significant portion of the Company's revenues and gross
profit are the result of successful patent challenges undertaken by the Company
under the Drug Price Competition and Patent Term Restoration Act of 1984 (the
"Hatch-Waxman Act"). There can be no assurance the Company will successfully
complete the development of any additional products involving patent challenges,
succeed in any pending or future patent challenges or, if successful, receive
significant revenues or profit from the products covered by successfully
challenged patents.
While the Company believes the pipeline of generic drugs and proprietary
drugs it currently has under development will allow it to compete effectively,
no assurance can be given that any of the drugs in its pipeline will be
successfully developed or approved by FDA, will be among the first to market or
will achieve significant revenues and profitability.
RISK OF PRODUCT LIABILITY CLAIMS; NO ASSURANCE OF ADEQUATE INSURANCE
Manufacturing, marketing, selling and testing of pharmaceutical products
involve a risk of product liability. Even unsuccessful product liability claims
could result in the expenditure of funds in litigation and the diversion of
management time and resources and could damage the Company's reputation and
impair the marketability of the Company's products. While the Company maintains
liability insurance, there can be no assurance that a successful claim could not
be made against the Company, that the amount of indemnification payments or
insurance would be adequate to cover the costs of defending against or paying
such a claim or that damages payable by the Company would not have a material
adverse effect on the Company's business, results of operations and financial
condition and on the price of the Common Stock. Furthermore, if the Company
receives the required regulatory approvals for any of its products
10
<PAGE>
under development, there can be no assurance that additional liability insurance
coverage for a commercialized product will be available in the future on
acceptable terms, if at all.
DEPENDENCE ON SINGLE SOURCES OF RAW MATERIAL SUPPLY
The principal raw material components of the Company's products are active
and inactive pharmaceutical ingredients and certain packaging materials. Many of
these components including the raw materials used in certain key products are
currently sourced from single qualified suppliers, both foreign and domestic.
Although the Company has not experienced difficulty to date in acquiring active
raw materials, or other materials for production development, no assurance can
be given that supply interruptions will not occur in the future or that the
Company will not have to obtain substitute materials, which would require
additional product validations and regulatory submissions. Any such interruption
of supply could have a material adverse effect on the Company's ability to
manufacture its products or to obtain or maintain regulatory approval of such
products.
CONSOLIDATION OF DISTRIBUTION NETWORK; CUSTOMER CONCENTRATION
The Company's principal customers are wholesale drug distributors and major
drug store chains. These customers comprise a significant part of the
distribution network for pharmaceutical products in the United States. This
distribution network is continuing to undergo significant consolidation marked
by mergers and acquisitions among wholesale distributors and the growth of
distributors controlling a significant share of the market, and the number of
independent drug stores and small drug store chains has decreased. The Company
expects that consolidation of drug wholesalers and retailers may increase
competitive pricing pressure on generic drug manufacturers. For the fiscal year
ended June 30, 1997 and six months ended December 31, 1997, sales to the
Company's ten largest customers represented approximately 64% and 72% of the
Company's gross product sales, respectively. For the six months ended December
31, 1997, two customers accounted for 14% and 10%, respectively, of the
Company's total gross product sales. One customer accounted for 12% of the
Company's total gross product sales in fiscal 1997. The loss of any of these
customers or further pricing pressures could materially and adversely affect the
Company's business, results of operations and financial condition.
THIRD PARTY REIMBURSEMENT PRICING PRESSURES
The Company's commercial success in producing, marketing and selling generic
products will depend, in part, on the availability of adequate reimbursement
from third-party health care payers, such as government and private health
insurers and managed care organizations. Third-party payers are increasingly
challenging the pricing of medical products and services. There can be no
assurance that reimbursement will be available to enable the Company to achieve
market acceptance of its products or to maintain price levels sufficient to
realize an appropriate return on the Company's investment in product acquisition
and development. If adequate reimbursement levels are not provided, the
Company's business, financial condition and results of operations could be
materially adversely affected. The market for the Company's products may be
limited by actions of third-party payers. For example, many managed health care
organizations are now controlling the pharmaceutical products that are on their
formulary lists. The resulting competition among pharmaceutical companies to
place their products on these formulary lists has created a trend of downward
pricing pressure in the industry. There can be no assurance that the Company's
products will be included on the formulary lists of managed care organizations
or that downward pricing pressures in the industry generally will not negatively
impact the Company's business, results of operations and financial condition.
DEPENDENCE ON SCIENTIFIC AND MANAGEMENT PERSONNEL
The success of the Company is dependent on its ability to attract and retain
highly qualified scientific and management personnel. The Company faces intense
competition for personnel from other companies,
11
<PAGE>
academic institutions, government entities and other organizations. There can be
no assurance that the Company will be successful in attracting and retaining
such personnel. The loss of such personnel, or the inability to attract and
retain the additional, highly skilled employees required for the expansion of
the Company's activities, could have a material adverse effect on the Company's
business, results of operations and financial condition.
CONTROL BY EXISTING SHAREHOLDER
Upon the completion of the Offering, Dr. Bernard Sherman, a director of the
Company, will beneficially own approximately 49.1% of the outstanding Common
Stock (without giving effect to the exercise of the Underwriters' over-allotment
option). Accordingly, this shareholder may have significant influence on the
outcome of certain shareholder votes, including votes concerning the elections
of directors, the adoption or amendment of provisions in the Company's
Certificate of Incorporation, and the approval of mergers and other significant
corporate transactions.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of shares by existing stockholders could adversely affect the
prevailing market price of the Company's Common Stock. As of December 31, 1997,
substantially all of the Company's 21,692,454 shares of outstanding Common Stock
were freely tradeable in the public market, however 14,330,197 shares were held
by officers and directors of the Company and were eligible for immediate sale in
the public market subject to volume and other restrictions of Rule 144. The
Selling Stockholders have agreed to sell 3,000,000 of such shares in the
Offering (excluding any over-allotment). In addition, on December 31, 1997,
options to purchase approximately 1,598,000 shares (of which 1,342,000 are held
by officers and directors and are subject to volume and other restrictions of
Rule 144) were exercisable and eligible for immediate sale in the public market.
However, all officers and directors of the Company and the Selling Stockholders
have agreed that they will not, except under this Prospectus or without prior
written consent of SBC Warburg Dillon Read Inc., sell shares of Common Stock
beneficially owned by them (including shares issuable upon exercise of options
held by them) until 90 days after the date of this Prospectus. See
"Underwriting."
POSSIBLE STOCK PRICE VOLATILITY
The stock market has from time to time experienced significant price and
volume fluctuations that may be unrelated to the operating performance of
particular companies. In addition, the market price of the Common Stock, like
the stock prices of many publicly traded pharmaceutical and biotechnology
companies, has been and may continue to be highly volatile. The sale by the
Company's principal shareholder or members of the Company's management of shares
of Common Stock, announcements of technological innovations or new commercial
products by the Company or its competitors, developments or disputes concerning
patent or proprietary rights, publicity regarding actual or potential medical
results relating to marketed products, or to products under development by the
Company or its competitors, regulatory developments in either the United States
or foreign countries, public concern as to the safety of pharmaceutical and
biotechnology products and economic and other external factors, as well as
period-to-period fluctuations in financial results, among other factors, may
have a significant impact on the market price of the Common Stock. See "Price
Range of Common Stock."
ABSENCE OF DIVIDENDS
Since inception the Company has not paid any cash dividends. In addition,
the Company is limited by existing debt covenants as to the amount of dividends
it can pay. The Company's current policy is to retain its earnings, if any, to
finance expansion and product development. Payment of dividends in the future
will depend on the Company's earnings and financial condition and other factors
as the Company's Board of Directors may consider or deem appropriate at the
time. See "Dividend Policy."
12
<PAGE>
USE OF PROCEEDS
Of the 3,200,000 shares of Common Stock being offered hereby, the Company is
selling 200,000 shares. The net proceeds to the Company from the sale of these
shares of Common Stock are estimated to be $ million based on a public
offering price of $ per share, after deducting estimated offering
expenses and underwriting discounts payable by the Company. The Company will not
receive any proceeds from the sale of Common Stock by the Selling Stockholders.
The Company intends to use the net proceeds of the offering for general
corporate purposes, including expansion of working capital and potential
acquisitions of companies and/or selected products that are complementary to the
existing business of the Company. Although the Company currently has no
commitments with respect to additional acquisitions, the Company regularly
evaluates such opportunities. Pending such uses, the net proceeds will be
invested in government securities and other short-term investment-grade,
interest-bearing securities.
PRICE RANGE OF COMMON STOCK
The Common Stock is listed and traded on the American Stock Exchange.
Application has been made to list the Common Stock on the New York Stock
Exchange. The following table sets forth, for the quarterly periods indicated,
high and low prices of the Common Stock. Amounts reflect adjustment for the
March 1996 and May 1997 3-for-2 stock splits.
<TABLE>
<CAPTION>
LOW HIGH
--------- ---------
<S> <C> <C>
FISCAL YEAR ENDED JUNE 30, 1996:
First Quarter.................................................................................. $ 9.11 $ 10.94
Second Quarter................................................................................. 9.33 13.67
Third Quarter.................................................................................. 11.39 18.33
Fourth Quarter................................................................................. 16.42 20.83
FISCAL YEAR ENDED JUNE 30, 1997:
First Quarter.................................................................................. $ 14.75 $ 20.00
Second Quarter................................................................................. 16.83 19.33
Third Quarter.................................................................................. 16.42 28.00
Fourth Quarter................................................................................. 24.38 49.75
FISCAL YEAR ENDING JUNE 30, 1998:
First Quarter.................................................................................. $ 37.00 $ 49.00
Second Quarter................................................................................. 32.50 40.13
Third Quarter (through February , 1998)......................................................
</TABLE>
The last reported sales price for the Common Stock on the American Stock
Exchange on February , 1998 was $ per share.
DIVIDEND POLICY
Since its inception the Company has not declared or paid a cash dividend on
its Common Stock and does not intend to do so in the foreseeable future. In
addition, the Company is limited by existing debt covenants as to the amount of
dividends it can pay. The Company's current policy is to retain its earnings, if
any, to finance expansion and product development. Payment of dividends in the
future will depend on the earnings and financial condition of the Company and
such other factors as the Company's Board of Directors may consider or deem
appropriate at the time.
13
<PAGE>
CAPITALIZATION
The following table sets forth the Company's cash and capitalization as of
December 31, 1997: (i) on an actual basis; and (ii) as adjusted to reflect the
receipt and application of the estimated net proceeds, after deducting
underwriting discounts and commissions and expenses payable by the Company from
the sale of 200,000 shares of Common Stock pursuant to the Offering.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------
<S> <C> <C>
AS ADJUSTED
ACTUAL (1)
---------- --------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents............................................................ $ 34,085 $
---------- -------
---------- -------
Total debt........................................................................... $ 34,407 $
Shareholders' equity:
Preferred stock, par value $1 per share; 2,000,000 shares authorized; none
issued........................................................................... -- --
Common Stock, par value $.01 per share; 100,000,000 shares authorized; 21,810,409
shares issued; 22,010,409 shares issued as adjusted (1).......................... 218
Additional paid in capital......................................................... 48,883
Retained earnings.................................................................. 72,598
Unrealized loss on investment...................................................... (600)
Treasury stock at cost............................................................. (13)
---------- -------
Total shareholders' equity....................................................... 121,086
---------- -------
Total capitalization........................................................... $ 155,493 $
---------- -------
---------- -------
</TABLE>
- ------------------------
(1) Excludes 2,109,383 shares of Common Stock reserved for issuance upon the
exercise of outstanding options granted pursuant to the Company's 1993 Stock
Incentive Plan, the 1986 Stock Option Plan and the 1993 Stock Option Plan
for Non-Employee Directors at a weighted average exercise price of
approximately $13.70 per share.
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's Consolidated Financial Statements
and related Notes included elsewhere in this Prospectus. The statement of
operations data for the three years ended June 30, 1997, and the balance sheet
data at June 30, 1996 and 1997 are derived from the audited financial statements
of the Company included elsewhere in this Prospectus. The statement of
operations data for the two years ended June 30, 1994 and the balance sheet data
as of June 30, 1993, 1994 and 1995 are derived from the audited financial
statements of the Company which are not included in this Prospectus. The interim
information presented is unaudited; however, in the opinion of management, all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair representation of such information have been included. The statement of
operations data for the periods ended December 31, 1996 and 1997 and the balance
sheet data as of December 31, 1997 have been derived from the Company's
unaudited financial statements. The results of operations for the six months
ended December 31, 1997 are not necessarily indicative of the results of
operations to be expected for the fiscal year ending June 30, 1998.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1996 1997
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues:
Net product sales:
Manufactured................................... $ 58,047 $ 59,000 $ 56,170 $ 60,823 $ 61,702 $ 31,882 $ 50,421
Distributed (1)................................ -- 50,133 143,550 171,401 195,734 99,684 124,591
--------- --------- --------- --------- --------- --------- ---------
Total net product sales...................... 58,047 109,133 199,720 232,224 257,436 131,566 175,012
Proceeds from supply agreement (2)............... -- -- -- -- 27,050 -- 13,583
--------- --------- --------- --------- --------- --------- ---------
Total revenues..................................... 58,047 109,133 199,720 232,224 284,486 131,566 188,595
Costs and expenses:
Cost of sales.................................... 35,913 78,021 159,498 189,394 217,196 111,161 133,995
Research and development......................... 5,370 6,778 10,443 11,274 13,536 5,947 8,815
Selling, general & administrative................ 23,554 19,170 19,014 21,695 23,391 8,599 17,607
--------- --------- --------- --------- --------- --------- ---------
Earnings (loss) from operations.................. (6,790) 5,164 10,765 9,861 30,363 5,859 28,178
Interest income.................................... 345 689 1,874 2,778 2,398 1,164 697
Interest (expense)................................. (2,499) (2,683) (2,535) (1,767) (939) (639) (435)
Other income (3)................................... 21,771 575 118 637 228 7 35
--------- --------- --------- --------- --------- --------- ---------
Earnings before income taxes and extraordinary
loss............................................. 12,827 3,745 10,222 11,509 32,050 6,391 28,475
Income tax expense................................. 5,040 1,461 3,852 4,368 12,603 2,396 10,963
--------- --------- --------- --------- --------- --------- ---------
Earnings before extraordinary loss................. 7,787 2,284 6,370 7,141 19,447 3,995 17,512
Extraordinary loss on extinguishment of debt,
net of taxes..................................... -- -- (145) (125) -- -- (790)
--------- --------- --------- --------- --------- --------- ---------
Net earnings before cumulative effect of accounting
change........................................... 7,787 2,284 6,225 7,016 19,447 3,995 16,722
Cumulative effect of accounting change............. -- 374 -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net earnings (4)................................... $ 7,787 $ 2,658 $ 6,225 $ 7,016 $ 19,447 $ 3,995 $ 16,722
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Per share data (5):
Net earnings per share............................. $ 0.40 $ 0.14 $ 0.31 $ 0.33 $ 0.92 $ 0.19 $ 0.78
Net earnings per share -- assuming dilution........ $ 0.40 $ 0.13 $ 0.30 $ 0.32 $ 0.87 $ 0.18 $ 0.72
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Weighted average shares............................ 19,417 19,553 20,125 20,968 21,133 21,074 21,550
Weighted average shares -- assuming dilution....... 19,644 19,999 20,593 21,757 22,430 22,222 23,132
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, DEC. 31,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents.......................... $ 25,048 $ 36,499 $ 52,987 $ 44,893 $ 31,923 $ 34,085
Working capital.................................... 51,371 53,227 58,364 52,985 41,807 64,004
Total assets....................................... 94,283 125,907 155,953 169,220 203,802 235,290
Total debt......................................... 30,646 30,500 20,414 21,524 19,080 34,407
Shareholders' equity............................... 51,498 54,984 71,853 80,161 102,138 121,086
</TABLE>
- ------------------------
(1) Amounts represent sales of Tamoxifen, which the Company began distributing
in November 1993.
(2) See Note 2 to the Consolidated Financial Statements.
(3) Other income in 1993 includes a $21 million cash payment from the settlement
of a patent dispute involving Tamoxifen.
(4) Reflects cumulative effect of accounting change of $0.4 million in 1994 and
extraordinary losses on the early extinguishment of debt of $0.1 million and
$0.1 million in fiscal 1995 and 1996, respectively.
(5) Amounts restated to reflect SFAS No. 128 (see Note 1(f) to the Consolidated
Financial Statements) and the 3 for 2 stock splits which occurred in March
1996 and May 1997.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and the Consolidated Financial Statements
of the Company and the Notes thereto included elsewhere in this Prospectus. This
Prospectus contains forward looking statements that involve risks and
uncertainties, such as statements of the Company's objectives and expectations.
The cautionary statements made in this Prospectus should be read as being
applicable to all related forward-looking statements wherever they appear in
this Prospectus. See "Risk Factors."
OVERVIEW
The Company has engaged in the manufacture of generic drugs since it
commenced operations in 1972. Since 1994, the Company has pursued a business
strategy of developing and marketing selected generic pharmaceuticals,
challenging patents of certain branded products, and developing and introducing
proprietary pharmaceuticals that will have some market exclusivity.
The Company markets approximately 66 drug products, representing various
dosage strengths and product forms of 33 chemical entities. The Company's
product line is concentrated primarily on six core therapeutic categories:
oncology, female healthcare, cardiovascular, anti-infective, pain management and
psychotherapeutic.
The Company's future results of operations will depend to a significant
extent upon its ability to develop and market new pharmaceutical products.
Operating results may vary significantly on an annual or quarterly basis
depending on the timing of, and the Company's ability to obtain, FDA approvals
for such products. Newly introduced generic pharmaceuticals with limited or no
off-patent competition are typically sold at higher selling prices, often
resulting in increased gross profit margins. As competition from other
manufacturers intensifies, selling prices and gross profit margins typically
decline. The Company's future operating results may also be affected by a
variety of additional factors, including the results of future patent
challenges, customer purchasing practices, changes in the degree of competition
affecting the Company's products and the timing of FDA approvals for, and the
market acceptance of, the Company's generic and proprietary drug products.
The Company's dependence on a limited number of products, in particular
Tamoxifen and Warfarin Sodium, the product life cycles for such products, and
the possibility of successful resolution of patent challenges may result in
significant fluctuations in the Company's earnings. Continued growth in the
Company's revenues and profits will depend on continued market demand for its
products, as well as the successful development and marketing of new generic and
proprietary products.
RESULTS OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1997 COMPARED TO SIX MONTHS ENDED DECEMBER 31,
1996 (THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
----------------------
<S> <C> <C> <C>
1997 1996 CHANGE
---------- ---------- ---------
Revenues:
Net product sales:
Distributed.................................................................. $ 124,591 $ 99,684 $ 24,907
Manufactured................................................................. 50,421 31,882 18,539
---------- ---------- ---------
Total net product sales...................................................... 175,012 131,566 43,446
Proceeds from supply agreement............................................... 13,583 -- 13,583
---------- ---------- ---------
Total revenues................................................................. $ 188,595 $ 131,566 $ 57,029
</TABLE>
16
<PAGE>
Total revenues increased approximately 43% as a result of increased net
product sales and proceeds from the supply agreement. Proceeds from the supply
agreement are earned in accordance with a contingent, non-exclusive supply
agreement ("Ciprofloxacin Agreement") between Bayer AG and Bayer Corporation
("Bayer") and the Company, which ends with the patent expiry in December 2003.
During the term of the Ciprofloxacin Agreement, Bayer has the option of
supplying Barr and an unrelated third party with ciprofloxacin hydrochloride to
market and distribute pursuant to a license from Bayer or making quarterly cash
payments to Barr and such third party beginning in March 1998. If Bayer does not
supply Barr with product, the Company expects its 1998 earnings related to the
Supply Agreement to approximate the $24,550 initial payment received by Barr in
January 1997. If Bayer elects to provide Barr with product, the amount Barr
could earn would be dependent on market conditions.
The increase in net product sales is attributable to sales of Warfarin
Sodium, which was launched in July 1997, as well as an increased demand for
Tamoxifen.
The 25% increase in distributed product sales, which primarily represents
sales of Tamoxifen, is the result of accelerated buying by customers, during the
period, which the Company believes was the result of customers anticipating a
price increase for Barr's Tamoxifen that did not occur. Also contributing to the
increase was increased demand for the 20 mg strength of Tamoxifen, which the
Company began distributing in December 1996.
Net sales of manufactured products increased 58%, which is primarily
attributable to sales of Warfarin Sodium, which the Company launched in July
1997. Manufactured net sales include revenues from three new products in fiscal
1998 compared to four new products in fiscal 1997. These products represented
approximately 38% and 10% of total manufactured sales in fiscal 1998 and 1997,
respectively. Revenue from these products more than offset price declines and
higher discounts on certain existing manufactured products.
Cost of sales increased to $133,995 from $111,161, but decreased as a
percentage of net product sales from 84% to 77%. The decrease in cost of sales
as a percentage of net product sales is primarily attributable to the increase
in manufactured product sales. This positively impacts margins because the
profit margin the Company earns on manufactured products is generally greater
than the margins it earns on distributed products.
Selling, general and administrative expenses increased to $17,607 from
$8,599. The largest components of the increase related to legal and government
affairs activities as well as higher expenses in promotions and advertising
associated with Warfarin Sodium and other new products. The increased legal fees
resulted primarily from lower reimbursements received from patent challenge
partners; the prior year expense reflected approximately $4,400 in reimbursement
of legal fees. Government affairs expenses were higher in the current year due
to the Company's activities directed at countering DuPont Merck's continuing
efforts to restrict substitution of Warfarin Sodium.
Total research and development expenses increased to $8,815 from $5,947. The
increase is the result of increased personnel costs to support the number of
products in development; higher raw material costs including costs associated
with the Company's proprietary drug program which was not in place in the prior
year; and a strategic investment of more than $600, which was allocated to
in-process research and development, for six ANDAs and related technologies.
These increases were partially offset by reimbursements from a proprietary drug
collaborator for certain development costs.
Interest income declined by $467 primarily due to a decrease in the average
cash and cash equivalents balance.
Interest expense decreased $204 due to an increase in capitalized interest
associated with increased capital improvements over the corresponding fiscal
year. The increase in capitalized interest was partially offset by higher fees
paid on the unsecured Tamoxifen balance. See Note 1 to the Consolidated
Financial Statements.
17
<PAGE>
In the quarter ended December 31, 1997, the Company incurred an
extraordinary loss of $790 on the early extinguishment of debt. See Note 5 to
the Consolidated Financial Statements.
FISCAL 1997 COMPARED TO FISCAL 1996 (THOUSANDS OF DOLLARS)
Total revenues increased approximately 23% to $284,486 from $232,224. The
increase was equally attributable to increasing net product sales and earnings
from the contingent non-exclusive Supply Agreement that resulted from the
successful settlement of the Ciprofloxacin patent challenge in January 1997. See
Note 2 to the Consolidated Financial Statements.
Net product sales increased 11% to $257,436 from $232,224. The increase is
primarily attributable to a continued increase in demand for Tamoxifen as well
as increased sales for the balance of the Company's product line.
Net Tamoxifen sales increased 14% to $195,734 or 76% of net product sales
from $171,401 or 74% of net product sales. The growth is primarily attributable
to increases in the Company's market share and price. Tamoxifen is a patented
product manufactured for the Company by the innovator, and is distributed by the
Company under a non-exclusive license agreement with the innovator. In January
1996, the innovator introduced a 20 mg strength of this product. As permitted
under the terms of the Tamoxifen Agreement with the innovator, the Company began
distributing the 20 mg strength in December 1996. This introduction did not have
a material impact on Barr's financial statements which is consistent with the
relatively low sales of the branded version of that 20 mg product. Currently,
Tamoxifen only competes against the innovator's products, which are sold under
the brand name.
Net sales of Barr-manufactured products increased approximately 2%.
Barr-manufactured net sales include revenues from four new products in fiscal
1997 compared to two new products in fiscal 1996. These products represented 11%
and 4% of total Barr-manufactured sales in 1997 and 1996, respectively. Revenues
from these products and volume increases on the Company's existing product line
offset price declines and higher discounts on certain existing products.
Cost of sales increased to $217,196 or 84% of net product sales from
$189,394 or 82%. The increase in cost of sales as a percentage of net product
sales is primarily the result of two factors. First, an increase in Tamoxifen's
share of total Company revenues and second, an increase in sales discounts and
allowances due to increased competition. The increase in Tamoxifen's portion of
net product sales negatively impacts margins because the profit margin the
Company earns as a distributor is generally below the margin it earns as a
manufacturer. Increased sales discounts and allowances reduce the Company's net
selling price and margins, but are offered by the Company to maintain market
share in light of increased competition.
New products such as Megestrol Acetate and Danazol, which were introduced in
November 1995 and August 1996, respectively, as well as Medroxyprogesterone and
Meperidine, which were introduced in the quarter ended December 31, 1996, are
currently subject to less competition and therefore generate margins which help
to offset the declining margins on the Company's established products. The
Company continues to experience competition on sales of its other products, and
it is impossible to predict whether future price erosion will occur.
Selling, general and administrative expenses increased to $23,391 from
$21,695, yet decreased as a percentage of net product sales from 9.3% to 9.1%.
This percentage decrease was expected due to increased net product sales. The
majority of the dollar increase is attributable to increases in expenses in
preparation for the July 1997 launch of Warfarin Sodium and government affairs
expenses, offset by approximately $3,400 of reimbursed legal fees related to the
ciprofloxacin patent challenge.
Research and development expenses increased to $13,536 from $11,274. The
increase is primarily the result of increased salaries and related costs
associated with the addition of scientists and higher outside
18
<PAGE>
consulting costs necessary to support the number of products in development.
These increases were partially offset by a decrease in outside testing services.
Interest income decreased by $380 in comparison to the prior year. The
decrease is primarily the result of $485 in interest income included in the
prior year's amount in connection with interest earned on a income tax refund
from the Internal Revenue Service. The decrease was partially offset by an
increased return earned by the Company on its investments in the current fiscal
year.
Interest expense decreased $828 due to an increase in capitalized interest
associated with an increase in capital improvements as compared to the prior
year. The increase in capitalized interest was partially offset by interest on
the Company's equipment financing agreement entered in April 1996 and the fee
paid on the unsecured Tamoxifen balance.
FISCAL 1996 COMPARED TO FISCAL 1995 (THOUSANDS OF DOLLARS)
Total revenue increased approximately 16% to $232,224 from $199,720. The
increase is primarily attributable to a continued increase in demand for
Tamoxifen as well as increased sales for the balance of the Company's product
lines.
Net sales of Tamoxifen increased approximately $28,000 to $171,401 or 74% of
net product sales, compared to $143,550 or 72% of net sales in the prior year.
This 20% growth resulted from increases in the Company's market share and price.
While the Company's Tamoxifen revenues increased in fiscal 1996, the rate of
growth between fiscal 1995 and 1996 declined compared to prior years. This
decline in the rate of growth was expected given the dramatic growth achieved
immediately after the Company began distributing Tamoxifen and given the
Company's share of the current market.
Net sales of Barr-manufactured products increased by approximately 8%
primarily as a result of increases in volume. Methotrexate accounted for
approximately 10% of the Company's net product sales in 1996 as compared to 14%
in 1995. No other Barr-manufactured product accounted for 10% or more of net
sales in either year.
Cost of sales increased to $189,394 from $159,498 due to increased sales
volume. However, cost of sales as a percentage of net sales increased from 80%
to 82%. The increase in cost of sales as a percentage of net sales is primarily
attributed to the lower gross margins associated with the increased distribution
of Tamoxifen and price competition on certain of the Company's manufactured
products.
Selling, general and administrative expenses increased to $21,695 from
$19,014, yet remained consistent as a percentage of net product sales as was
expected, due to the increase in net product sales. The increase reflects
increases in personnel costs; additional advertising and promotion costs
associated with the introduction of Megestrol Acetate in late November 1995; and
a full-year of depreciation from the December 1994 implementation of a new core
computer system. Fiscal 1996 also included approximately $700 in non-recurring
charges in connection with a voluntary early retirement program and a legal
settlement. During fiscal 1996, Barr entered into multi-year agreements with
another company and a related party to share in development and litigation costs
associated with certain of its patent challenges. These agreements resulted in
the reimbursement of $1,977 in legal fees.
Research and development expenses increased to $11,274 from $10,443. This
resulted from higher outside testing and raw material costs associated with an
increase in the number of products under development when compared to the prior
year as well as increases in salaries and related costs associated with the
addition of scientists. These increases were partially offset by a decrease in
fees paid to outside laboratories to conduct biostudies. Such a decrease was
expected since the prior year's amounts included biostudy costs for conjugated
estrogens. The number, complexity and associated costs of biostudies for
conjugated estrogens were greater than those for other products under
development in fiscal 1996.
19
<PAGE>
Interest income increased 48% to $2,778 from $1,874, due to $485 in interest
income received in February 1996 in connection with an income tax refund from
the Internal Revenue Service as well as an increase in the rate of return earned
on cash and cash equivalents during the year.
Interest expense declined 30% primarily due to a reduction in long-term debt
during the year and an increase in capitalized interest associated with an
increase in capital improvements in comparison to the prior year. These
decreases were partially offset by an increase in fees paid in connection with
the Company's December 1995 agreement with the innovator of Tamoxifen to pay a
monthly fee on the unsecured Tamoxifen payable balance in return for the
elimination of the cash collateral requirement.
In fiscal 1996 and 1995, the Company incurred extraordinary losses on the
early extinguishment of debt. In 1996, the Company negotiated the prepayment of
$2,000 in principal of its $20,000 10.15% Senior Secured Notes. The Company
recorded an extraordinary loss for the related prepayment penalty and write-off
of deferred financing costs. In 1995, the Company incurred an extraordinary loss
primarily from the write-off of deferred financing costs associated with its
$10,000 10.05% Convertible Subordinated Notes which were converted to Common
Stock.
LIQUIDITY AND CAPITAL RESOURCES (THOUSANDS OF DOLLARS)
The Company's cash and cash equivalents increased to $34,085 as of December
31, 1997 from $31,923 as of June 30, 1997. During the six months ended December
31, 1997, the Company increased the cash held in its cash collateral account
from $11,239 at June 30, 1997 to $12,072. The Company expects to allocate more
of its cash to this account during the next three months to reduce the fees it
pays to the innovator of Tamoxifen. See Note 1 to the Consolidated Financial
Statements.
Cash provided by operating activities totaled $1,163 for the six months
ended December 31, 1997 as increases in accounts receivable were offset by net
income of $16,722, inventory declines and higher accounts payable. The increase
in accounts receivable and decrease in inventory were driven by a 33% increase
in net product sales. Accounts receivable also increased due to the continuing
accrual of revenue earned under the Ciprofloxacin Agreement entered into by the
Company as part of its settlement with Bayer AG and Bayer Corporation. Quarterly
payments due under the Ciprofloxacin Agreement are expected to begin by March
31, 1998.
During the first six months of fiscal 1998, the Company invested
approximately $13,150 in capital expenditures primarily on its Virginia
manufacturing and distribution facilities. Certain areas of the facility
including the warehouse and distribution area became operational in January
1998. As a result, the Company expects its capital spending will be lower in the
second half of fiscal 1998 than compared to the first half.
In August 1997, Barr made a strategic investment of $4,069 in Warner
Chilcott Public Limited Company ("Warner Chilcott") by acquiring 250,000
Ordinary Shares, represented by American Depository Shares ("ADSs") in an
initial public offering and received warrants to purchase an additional 250,000
shares in the form of ADSs at an exercise price per share equal to $16.25.
Beginning on the first anniversary of Warner Chilcott's initial public offering
and annually thereafter for the next three years, one fourth of the warrants
will be exercisable by Barr. If Barr does not exercise in full the portion of
the warrant exercisable during any one year, such portion of the warrant will
terminate. Exercising its warrant at the stated price represents a potential use
of cash of $1,000 per year over the next four years.
In November 1997, the Company refinanced its $14,400 10.15% Senior Secured
Notes due June 28, 2001 with $30,000 of Senior Unsecured Notes with an average
interest rate of 6.88% per year. The new Senior Unsecured Notes include a
$20,000 7.01% Note due November 18, 2007 and a $10,000 6.61% Note due November
18, 2004. The refinancing reduces the Company's principal payments by
approximately $2,200 per year over the next four years.
20
<PAGE>
In addition, the Company replaced its $10,000 Secured Revolving Credit
Facility with a $20,000 Unsecured Revolving Credit Facility (the "Revolving
Credit Facility"), and the Company opted not to renew its $18,750 equipment
leasing facility. There were no borrowings outstanding under the Revolving
Credit Facility at December 31, 1997.
The Company also continues to evaluate other growth opportunities including
additional strategic investments, acquisitions and joint ventures, which could
require significant capital resources.
The Company believes that cash flow from operations and existing borrowing
capacity under its Revolving Credit Facility will be adequate to meet its
operating needs and to take advantage of strategic opportunities as they occur.
To the extent that additional capital resources are required, such capital may
be raised by additional bank borrowings, equity offerings or other means.
OTHER MATTERS
NEW ACCOUNTING PRONOUNCEMENT
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share." This Statement
requires companies to replace the presentation of primary earnings per share
("EPS") with a presentation of basic EPS. It also requires dual presentation of
basic and diluted EPS on the face of the Statements of Earnings and a
reconciliation of the basic EPS computation to the diluted EPS computation. All
prior period EPS data has been restated to conform with the provisions of SFAS
No. 128.
YEAR 2000
Over the past several years the Company has installed new computer systems
which are Year 2000 compliant. Currently, the Company is reviewing its other
internal systems to determine the impact, if any, of the Year 2000. The Company
believes it will achieve Year 2000 compliance in advance of the year 2000, and
does not anticipate any material disruption in its operations as the result of
any failure by the Company to be in compliance. The Company is currently
developing a plan to evaluate the Year 2000 compliance status of its suppliers
and customers.
FORWARD LOOKING STATEMENTS
Except for the historical information contained herein, Management's
Discussion and Analysis of Financial Condition and Results of Operations
contains forward-looking statements that involve a number of risks and
uncertainties, the regulatory environment, fluctuations in operating results,
capital spending, Year 2000 issues and other risks detailed from time-to-time in
the Company's filings with the Commission.
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<PAGE>
BUSINESS
OVERVIEW
The Company is an established pharmaceutical company engaged in the
development, manufacture and marketing of generic and proprietary prescription
pharmaceuticals. The Company currently markets 66 products, representing various
dosage strengths and product forms of 33 chemical entities. Of these products,
29 have been launched since the beginning of 1996. The Company sells 15 products
where its market share in terms of units dispensed is greater than 40%. The
Company's product line is concentrated primarily on six core therapeutic
categories: oncology, female healthcare, cardiovascular, anti-infective, pain
management and psychotherapeutic. The Company's most significant recent product
introduction is Warfarin Sodium, which was launched by the Company in July 1997.
Warfarin Sodium is the generic equivalent of DuPont Merck's Coumadin, an
anti-coagulant with U.S. sales of approximately $500 million for the twelve
months ended September 30, 1997. The Company has entered into settlement
agreements with the innovators of two products, Tamoxifen and Ciprofloxacin.
These agreements include distribution agreements and cash payments that provide
the Company with significant revenues and profits. Barr generated revenues of
$341.5 million and net income of $32.2 million for the twelve months ended
December 31, 1997.
The Company currently has under development more than 40 pharmaceutical
products, representing more than 30 chemical entities. The Company has six ANDAs
and two ANDA supplements pending at the FDA for products that had U.S. industry
sales of approximately $2 billion for the twelve months ended September 30,
1997. In addition, prior to December 31, 1998, Barr anticipates filing twelve
ANDAs and two ANDA supplements for products which had U.S. industry sales of
approximately $1 billion for the twelve months ended September 30, 1997. Of
these 22 products, the Company anticipates receiving FDA approval for at least
five products by the end of calendar 1998. One of the pending ANDAs is for
fluoxetine, the generic equivalent of Eli Lilly's anti-depressant Prozac, which
is subject to an ongoing patent challenge. Prozac had U.S. sales of
approximately $1.7 billion for the twelve months ended September 30, 1997. The
Company anticipates that a trial on the patent claims at issue will commence in
the second half of calendar 1998. The Company has two additional patent cases in
active development and of the ANDAs expected to be filed in calendar 1998 two
relate to such patent cases. In addition, the Company, in conjunction with
strategic partners, has four proprietary products in various stages of
development. An NDA has been filed by Barr's partner on one of these products,
and the Company anticipates that its partner will receive regulatory approval
for such product before the end of calendar 1998.
INDUSTRY OVERVIEW AND MARKET DYNAMICS
GENERIC INDUSTRY
Generic pharmaceuticals are the chemical and therapeutic equivalents of
brand name drugs. When an ANDA meets FDA requirements for pharmaceutical and
therapeutic equivalence, it is approved and receives an "AB Rating." This rating
allows the generic drug to be substituted for the branded product when a
prescription is presented to the pharmacist for dispensing. Although generic
pharmaceuticals must meet the same quality standards as branded pharmaceuticals,
these equivalent medicines are sold at prices that are typically 30% to 80%
lower than the branded product.
Generic pharmaceuticals represent an increasing proportion of medicines
dispensed in the United States. In 1996, the U.S. generic pharmaceutical
industry had total U.S. sales of approximately $9 billion. The Company believes
that there has been considerable growth in the generic pharmaceutical industry
which has been driven by: (i) efforts by government (at both the state and
federal level), employers, third-party payers and consumers to control health
care costs; (ii) increased acceptance of generic medicines by physicians,
pharmacists and consumers; and (iii) the increasing number of drugs that lost
patent protection.
22
<PAGE>
The Company believes that the market for generic pharmaceuticals will
continue to grow, driven by two primary factors. The first factor is the future
commercialization of generic equivalents of drugs with patents that (i) have
already expired or (ii) will expire over the next several years. Industry
sources estimate that pharmaceuticals with 1996 U.S. sales in excess of $6
billion are already off-patent and have no generic competition. In addition,
industry sources estimate that, through the year ended 2002, branded drugs with
1996 U.S. sales of approximately $11 billion will lose patent protection. The
Company believes a second factor driving growth will be increasing rates at
which generic drugs are substituted for branded drugs. The generic substitution
rate is defined as the rate at which a generic pharmaceutical is substituted for
a branded drug when a generic alternative is available.
Generic pharmaceuticals represent a much larger percentage of total drug
prescriptions dispensed than their corresponding sales percentage. The lower
percentage of total dollar sales compared to the percentage of prescriptions
dispensed, reflects the substantial discount to branded pharmaceuticals at which
generic pharmaceuticals are sold. This discount tends to increase (and profits
tend to decrease) as the number of generic competitors rises for a given
product. Because of this pricing dynamic, companies that are among the first to
develop and market an off-patent pharmaceutical tend to garner more profits than
companies with subsequent approvals to market an equivalent product.
Furthermore, products that for various reasons are difficult to develop
generally result in fewer companies marketing those products and may offer
profitability that is higher than those where the number of competitors is
greater. However, profit potential is influenced by many factors beyond the
number of competitors on a given drug. Depending on the actions of each
competitor, price reductions can be just as significant on products with few
competitors as on products with many competitors.
A significant portion of pharmaceuticals are distributed in the United
States through wholesale drug distributors and major retail drug store chains.
During the past several years, there has been a consolidation of these
distribution channels, resulting in a smaller number of wholesale distributors
and the emergence of fewer, larger regional and nationwide retail drug store
chains. In addition to forcing generic drug manufacturers to lower their prices
and/or provide greater volume discounts, these customers have also reduced the
number of sources from which they purchase pharmaceutical products.
PROPRIETARY INDUSTRY
Branded pharmaceuticals had 1995 U.S. sales of approximately $70 billion. A
relatively small amount of products make up a majority of these sales. However,
there are many products which address smaller markets and therefore have lower
levels of sales. The marketplace economics that impact the much larger,
multi-national pharmaceutical companies may limit their ability to provide
therapies targeted at niche treatments, such as orphan drug products or
therapies where the patient population is too small to provide a sufficient
return on investment. These areas could provide an opportunity for limited
competition for products.
BUSINESS STRATEGY
The Company's objective is to utilize its capabilities to maximize return on
shareholder investment. To achieve this objective, the Company focuses it
resources on three core strategies:
DEVELOPING AND MARKETING SELECTED GENERIC PHARMACEUTICALS. The Company
principally pursues the development and marketing of generic pharmaceuticals
that have one or more barriers to entry. The characteristics of the products
that the Company pursues may include: (i) the need for specialized manufacturing
capabilities; (ii) difficulty in raw material sourcing; (iii) complex
formulation or development characteristics; (iv) regulatory or legal challenges;
or (v) sales and marketing challenges. The Company believes products with such
barriers will face limited competition and therefore provide longer product
life-cycles and/or higher profitability than commodity generic products.
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<PAGE>
CHALLENGING PATENTS PROTECTING CERTAIN BRAND PHARMACEUTICALS. The Company
pursues the development and marketing of branded pharmaceuticals protected by
patents where the Company believes that such patents are either invalid,
unenforceable or not infringed by the Company's product. This strategy is an
extension of the Company's generic strategy as issued patents, even invalid
patents, present barriers to entry to companies that do not have the
capabilities to assess and challenge the validity of such patents. The Company
believes that the successful development of pharmaceuticals that were perceived
by competitors to be patent protected may offer longer product life-cycles
and/or higher profitability.
DEVELOPING AND INTRODUCING PROPRIETARY PHARMACEUTICALS. The Company is
pursuing the development of proprietary pharmaceuticals that may have some
period of exclusivity, typically from three to seven years. The Company believes
that such products will produce higher and more consistent profitability than
the typical generic product. The Company anticipates that the majority of its
proprietary products will be developed with strategic partners and marketed by
those partners through detail product sales forces or other appropriate
channels.
The Company believes it has the research, development, regulatory,
manufacturing as well as sales and marketing capabilities to implement its three
core strategies successfully. Such capabilities include: (i) specialized
manufacturing facilities equipped to produce products with toxic raw materials;
(ii) a proprietary product development process that enables the Company to
formulate difficult products rapidly and consistently; (iii) the technology
necessary to ensure consistency, speed and quality of output of its quality
assurance/quality control laboratories; (iv) the simultaneous, rather than
sequential, grouping of technical transfer, regulatory and manufacturing tasks
to enable the Company to compress the development and regulatory review process
and launch products as soon as possible after FDA approval; (v) the regulatory
and legal expertise which allows for the efficient prosecution of patent
challenges; and (vi) the sales and marketing infrastructure to commercialize
products with unique characteristics.
DEVELOPMENT AND MARKETING OF SELECTED GENERIC PHARMACEUTICALS
Barr's product line includes approximately 66 pharmaceutical products
representing various dosage strengths and product forms of 33 chemical entities.
Barr's products are manufactured in tablet, capsule and powder form. Of these
products, four were introduced in fiscal 1996 and 11 in fiscal 1997. To date,
the Company has introduced 14 products in fiscal 1998. The Company's product
line is concentrated primarily on six core therapeutic categories: oncology,
female healthcare, cardiovascular, anti-infective, pain management and
psychotherapeutic. The Company sells 15 products where its market share in terms
of units dispensed is greater that 40%.
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<PAGE>
The following table lists Barr's currently marketed generic products.
<TABLE>
<CAPTION>
NUMBER OF
GENERIC PRODUCT NAME BRAND NAME DOSAGE FORMS
- --------------------------------- ---------------------------------- -----------------
<S> <C> <C>
ONCOLOGY
Leucovorin Wellcovorin-Registered Trademark- 2
Methotrexate Rheumatrex-Registered Trademark-/Methotrexate 1
Megestrol Acetate Megace-Registered Trademark- 2
Tamoxifen Citrate Nolvadex-Registered Trademark- 2
FEMALE HEALTHCARE
Danazol Danocrine-Registered Trademark- 1
Estradiol Estrace-Registered Trademark- 3
Estropipate Ogen-Registered Trademark- 3
Medroxyprogestrone Provera-Registered Trademark- 3
CARDIOVASCULAR
Amiloride/HCTZ Moduretic-Registered Trademark- 1
Dipyridamole Persantine-Registered Trademark- 3
Propranolol HCl & HCTZ Inderide-Registered Trademark- 2
Triamterene & HCTZ Dyazide-Registered Trademark- 1
Triamterene & HCTZ Maxzide-Registered Trademark- 1
Warfarin Sodium Coumadin-Registered Trademark- 7
ANTI-INFECTIVE
Cephalexin Keflex-Registered Trademark- 2
Cephalexin O/S Keflex-Registered Trademark- 2
Erythromycin DR Eryc-Registered Trademark- 1
Erythromycin Estolate Ilosone-Registered Trademark- 1
EES Granules EES Granules-Registered Trademark- 1
ESP-Registered Trademark- Pediazole-Registered Trademark- 1
Isoniazid none 2
Minocycline Minocin-Registered Trademark- 2
Tetracycline Sumycin-Registered Trademark- 2
PAIN MANAGEMENT
Parafon
Chlorzoxazone Forte-Registered Trademark- 1
Meperidine Demerol-Registered Trademark- 2
Oxycodone & APAP Percocet-Registered Trademark- 1
PSYCHOTHERAPEUTIC
Chlordiazepoxide Librium-Registered Trademark- 3
Diazepam Valium-Registered Trademark- 3
Hydroxyzine Pamoate Vistaril-Registered Trademark- 3
Trazodone Desyrel-Registered Trademark- 2
OTHER
Acetohexamide Dymelor-Registered Trademark- 2
Diphenhydramine Benadryl-Registered Trademark- 1
Sulfinpyrazone Anturane-Registered Trademark- 2
</TABLE>
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<PAGE>
KEY CURRENTLY MARKETED PRODUCTS
The following are descriptions of the generic pharmaceuticals currently
marketed by the Company that contribute significantly to sales and gross profit.
All sales and product data is derived from industry sources. It is noted that
market share information below concerning the number of units of a product
dispensed does not correlate to a like percentage of industry sales due to the
lower selling prices for generic products as compared to branded products.
TAMOXIFEN. Tamoxifen is the generic version of Nolvadex, which is used to
treat advanced breast cancer as well as impede the recurrence of tumors
following surgery. Total U.S. brand and generic sales for 1996 were $305
million. Statistics indicate that one in eight women will get breast cancer
during her lifetime, and each year, more than 180,000 new cases of breast cancer
are diagnosed.
Tamoxifen is Barr's largest selling product, accounting for approximately
76% of the Company's total net product sales during the fiscal year ended June
30, 1997. Barr's product accounted for 76% of the total (brand and generic)
units dispensed in the United States for the twelve months ended September 30,
1997.
In 1993, as a result of a settlement of a patent challenge against the
innovator of Tamoxifen, the Company entered into the Tamoxifen Agreement. Under
the terms of the Tamoxifen Agreement, Barr purchases Tamoxifen directly from the
innovator and sells it as a generic product. The Company is the only distributor
of Tamoxifen in the United States other than the innovator. Although the Company
is a non-exclusive distributor, the Tamoxifen Agreement provides that should an
additional distributor or distributors be selected by the innovator, Barr will
be granted terms no less favorable than those granted to any subsequent
distributor. See "Challenging Patents Protecting Certain Brand Pharmaceuticals."
The Company currently has a tentatively approved ANDA for the manufacture of
Tamoxifen. Therefore, at the time of patent expiration in August 2002 (or should
another company's patent challenge succeed), Barr will be permitted to begin the
direct manufacture of Tamoxifen. Manufacturing Tamoxifen would lower Barr's
costs of goods for this product and the Company believes it would improve profit
margins earned by the Company on Tamoxifen sales. The Company expects that upon
patent expiration, other competitors will enter the market. Should this occur,
the Company believes that while its revenues and market share could be
negatively affected, it expects that its gross margins on the sales of Tamoxifen
would exceed those it currently earns as a distributor.
WARFARIN SODIUM. Warfarin Sodium is the generic equivalent of DuPont
Merck's Coumadin, an anticoagulant which is given to patients with heart disease
and/or high risk of stroke. Warfarin Sodium was introduced by Barr in July 1997
and the Company is the only generic supplier of the product. Total U.S. sales of
Coumadin were approximately $500 million for the twelve months ended September
30, 1997. The Company's Warfarin Sodium product has been gaining market share
since its introduction in mid-1997, however, such market share data is not yet
available for a full year.
Coumadin is the 11th most prescribed drug in the United States and due to
the aging baby boomer generation and a new indication for the treatment of
atrial fibrillation (an abnormal heart rhythm), the market for Coumadin has
shown significant growth. For the twelve months ended December 31, 1997,
Coumadin was prescribed over 19.6 million times, which represents 13% growth
from the prior twelve month period.
Although another generic competitor received an ANDA approval for Warfarin
Sodium, Barr is currently the only company marketing a generic equivalent of
Coumadin. The Company believes that there will be limited generic competition
because of a number of barriers to entry. First, there are a limited number of
FDA approved raw material suppliers for the product. In addition, product
manufacture may require special handling due to the toxic nature of the raw
materials. Finally, the Company has been required to make significant investment
in educational and promotional support of the product to counter DuPont Merck's
extensive physician detailing efforts, and to support government affairs
activities to defeat
26
<PAGE>
attempts by DuPont Merck to support state legislative and regulatory measures
that would restrict generic substitution of Coumadin.
METHOTREXATE. Methotrexate is the generic version of Lederle's
Methotrexate/Rheumatrex, which is used to treat rheumatoid arthritis and
psoriasis as well as uterine tumors and various types of leukemia. Methotrexate
was introduced by Barr in 1991, and there are currently other generic
competitors in the marketplace. Total U.S. brand and generic sales of
Methotrexate were $50 million for the twelve months ended September 30, 1997.
Barr's product accounted for 48% of the total U.S. (brand and generic) units
dispensed in the twelve months ended September 30, 1997. Methotrexate is another
product for which the Company's specialized manufacturing suites for production
are utilized.
MEGESTROL ACETATE. Megestrol is the generic equivalent of Bristol-Myers'
Megace which is used for the palliative treatment of advanced breast and
endometrial cancer. Megestrol was introduced by Barr in 1995 and there are
currently other generic competitors in the marketplace. Total U.S. brand and
generic sales of Megestrol were $19 million for the twelve months ended
September 30, 1997. Barr's product accounted for 40% of the total U.S. (brand
and generic) units dispensed in the twelve months ended September 30, 1997.
Megestrol is another product for which specialized manufacturing suites for
production are utilized.
DANAZOL. Danazol is the generic equivalent of Sanofi-Winthrop's Danocrine
which is used for the treatment for endometriosis. Danazol was introduced by
Barr in 1996 and there are currently no other generic competitors. Total U.S.
brand and generic sales of Danazol were $19 million for the twelve months ended
September 30, 1997. Barr's product accounted for 41% of the total U.S. (brand
and generic) units dispensed in the twelve months ended September 30, 1997.
Danazol is an example of a product with multiple barriers to entry. Sourcing of
the raw material and the formulation of an approvable, bioequivalent product is
complex and difficult to achieve. In addition, manufacture of the product
requires specialized manufacturing suites.
OTHER REVENUE
CIPROFLOXACIN. Ciprofloxacin is the generic equivalent of Bayer's Cipro
which is used to treat lower respiratory, skin, bone and joint, and urinary
tract infections. Total U.S. sales of ciprofloxacin were approximately $685
million in 1996. In January 1995, the Company received a tentative approval of
its ANDA for ciprofloxacin tablets and commence marketing when the patents
protecting the product expire.
In January 1997, the Company and the innovator of ciprofloxacin settled
pending patent litigation. As part of the settlement of the patent challenge the
Company entered into the Ciprofloxacin Agreement, which ends with the expiration
of the patent in December 2003. Under the Ciprofloxacin Agreement, the innovator
has the option to make payments to Barr or to provide Barr with ciprofloxacin
that Barr would market as a generic pursuant to a license from the innovator. In
January 1997, the Company received an initial cash payment of $24.6 million in
connection with the Ciprofloxacin Agreement. If the innovator chooses not to
provide the product to Barr, the annual value recognized by Barr would
approximinate the value of the initial payment. Under terms of the Ciprofloxacin
Agreement, Barr will be able to enter the marketplace in advance of any generic
competitor. Barr believes this will allow it to develop a significant market
share prior to additional generic entrants.
GENERIC PRODUCT RESEARCH AND DEVELOPMENT
The Company pursues development and marketing of generic pharmaceuticals
that have barriers to entry. The characteristics of the products that the
Company pursues may include: (i) the need for specialized manufacturing
capabilities; (ii) difficulty in raw material sourcing; (iii) complex
formulation or development characteristics; or (iv) sales and marketing
challenges. The Company believes products with such barriers will face limited
competition and therefore offer longer product life-cycles and/or higher
profitability than commodity generic products.
27
<PAGE>
The Company pursues product development and marketing of generic
pharmaceuticals with both large and relatively small existing markets. The
Company believes that small sales volume drugs, (as well as large ones) can
contribute meaningfully and consistently to earnings if they present barriers to
entry that may limit competition. In addition, the Company will seek to develop
products that have been off-patent for some time where barriers to entry have
prevented successful development. By pursuing products that have been off-patent
for some time, and overcoming the barrier to entry, the Company believes that it
has greater assurance of limited generic competition, since many generic
companies typically have focused on developing versions of branded products
which are currently reaching patent expiry.
GENERIC PRODUCTS UNDER DEVELOPMENT
The Company currently has under development more than 40 pharmaceutical
products representing more than 30 chemical entities. The Company has six ANDAs
and two ANDA supplements pending at the FDA for products that had U.S. industry
sales of approximately $2 billion for the twelve months ended September 30,
1997. Prior to December 31, 1998, Barr anticipates filing twelve ANDAs and two
ANDA supplements for products which had U.S. industry sales of approximately $1
billion for the twelve months ended September 30, 1997. Of these products, Barr
anticipates FDA approval of at least four ANDAs and one ANDA supplement by the
end of 1998 which products had U.S. sales of approximately $250 million for the
twelve months ended September 30, 1997.
Of the 22 products mentioned above, ten represent markets where there are
currently no generic products available in the marketplace. Included in
currently filed ANDAs is the Company's ANDA for fluoxetine which is the subject
of an ongoing patent challenge. See "Challenging Patents Protecting Certain
Brand Pharmaceuticals." Fluoxetine is the generic version of Eli Lilly's Prozac
anti-depressant. Prozac is patent protected and total U.S. brand sales were $1.7
billion for the twelve months ended September 30, 1997.
GENERIC PRODUCT PIPELINE ($ IN MILLIONS)
<TABLE>
<CAPTION>
ANNUAL INDUSTRY SALES OF PRODUCTS (1)
--------------------------------------------
<S> <C> <C> <C>
ANDAS CURRENTLY ANDAS TO BE FILED IN
THERAPEUTIC CATEGORY PENDING AT FDA CALENDAR 1998 TOTAL
- ------------------------------------------------------------- ------------------- ----------------------- ---------
Oncology..................................................... $ 24 $ 100 $ 124
Female Healthcare............................................ 2 186 188
Cardiovascular............................................... 47 155 202
Pain Management.............................................. 182 -- 182
Anti-Infective............................................... -- 210 210
Psychotherapeutic / Anticonvulsant........................... 1,703 279 1,982
Other........................................................ 17 45 62
------ ----- ---------
Total................................................ $ 1,975 $ 975 $ 2,950
------ ----- ---------
------ ----- ---------
</TABLE>
- ------------------------
(1) Based on industry data for the twelve months ended September 30, 1997.
28
<PAGE>
CHALLENGING PATENTS PROTECTING CERTAIN BRAND PHARMACEUTICALS
The Company actively challenges the patents protecting certain branded
pharmaceutical products where it believes such patents are either invalid,
unenforceable or not infringed by the Company's products. The successful
execution of this strategy by Barr for two products, Tamoxifen and
Ciprofloxacin, has already resulted in the creation of a significant revenue and
profit stream for the Company.
PATENT CHALLENGE PROCESS
The Hatch-Waxman Act provides incentives for generic pharmaceutical
companies to challenge suspect patents on branded pharmaceutical products. The
legislation recognizes that there is a potential for the improper issuance of
patents by the United States Patent and Trade Office ("PTO") resulting from a
variety of technical, legal or scientific factors. The Hatch-Waxman legislation
places significant burdens on the challenger to ensure that such suits are not
frivolous, but also offers the opportunity for significant financial reward if
successful.
All of the steps involved in the filing of an ANDA with the FDA, including
research and development, are identical with those steps taken in development of
any generic drug. At the time of filing with the FDA for approval of its version
of the branded product, the generic company files with its ANDA a certification
asserting that the patent is invalid, unenforceable or not infringed. After
receiving notice from the FDA that its application is acceptable for filing, the
generic company sends the patent holder a notice explaining why it believes that
the patents in question are invalid, unenforceable or not infringed. Upon
receipt of the notice from the generic company, the patent holder has 45 days in
which to bring legal action against the generic company. The patent holder,
within certain parameters, has the right to bring suit in any federal district
court. The discovery, trial and appeals process can take three to four years.
If the generic company prevails, and that company was the first to file an
ANDA and a certification of invalidity or noninfringement with the FDA for the
product, that company receives 180 days of generic marketing exclusivity. That
is, the FDA may not approve another generic version of the product for any
company during the first 180 days. This period of marketing exclusivity provides
the successful patent challenger with the opportunity to build its market share
to a significant position. While enabling the company to recoup the expenses of
the lawsuit and realize stronger profit margins, this also may provide an
impediment to or limit the entrance of subsequent competitors. Once significant
market share is achieved, the first successful challenger can more effectively
defend its position against future competitors.
Each patent challenge typically requires the investment of as long as four
years, and approximately $6 million to $8 million in legal and product
development costs. The process for initiating a patent challenge begins with the
identification of a drug candidate and evaluation by qualified legal counsel of
the patents protecting that product. The Company has reviewed a number of
challenges and has pursued only those which it believes offered a high
probability of success. Once the Company receives a favorable opinion of patent
counsel that a deficiency exists, the Company must then begin the formulation
and development process. Patent challenge product candidates typically must have
several years of remaining patent protection to ensure that the legal process
can be completed prior to patent expiry.
The Company has brought four patent challenges. Two have been successfully
resolved, one is currently pending and the fourth was unsuccessful.
29
<PAGE>
PATENT CHALLENGE HISTORY
<TABLE>
<CAPTION>
PRODUCT (BRAND NAME) STATUS OUTCOME
- ---------------------------------------------- -------------- ---------------------------------------------------------
<S> <C> <C> <C>
Tamoxifen (Nolvadex).......................... Settled - Tentatively approved ANDA
- Distribution agreement until August 2002
- $21 million cash payment in fiscal 1993
Ciprofloxacin (Cipro)......................... Settled - Tentatively approved ANDA
- Contingent supply agreement/expected to
generate annual value of approximately $25
million through 2003
Fluoxetine (Prozac)........................... Pending - ANDA pending
- Outcome to be decided
Zidovudine (Retrovir-Registered Trademark-)... Unsuccessful - Tentatively approved ANDA/awaits patent expiry
</TABLE>
TAMOXIFEN. Tamoxifen is the generic version of Nolvadex, which is used to
treat advanced breast cancer as well as to delay the recurrence of breast cancer
following surgery. Total brand and generic sales for 1996 were $305 million. See
"Development and Marketing of Selected Generic Pharmaceuticals."
In 1993, as a result of a settlement of a patent challenge against the
innovator of Tamoxifen, the Company entered into the Tamoxifen Agreement. Under
the terms of the Tamoxifen Agreement, Barr purchases Tamoxifen directly from the
innovator and sells it as a generic product. The Company is the only distributor
of Tamoxifen in the U.S. other than the innovator. Although it is a
non-exclusive distributor, the Company's agreement with the innovator guarantees
that should an additional distributor or distributors be selected by the
innovator, Barr will be granted terms no less favorable than those granted to
any subsequent distributor.
The Company currently has a tentatively approved ANDA for the manufacture of
Tamoxifen. Therefore, at the time of patent expiration in August 2002 (or should
another company's patent challenge succeed), Barr will be permitted to
immediately begin the direct manufacture of Tamoxifen. Manufacturing Tamoxifen
would lower Barr's costs of goods for this product and the Company believes it
would improve profit margins earned by the Company on Tamoxifen sales. The
Company expects that upon patent expiration, other competitors will enter the
market. Should this occur, the Company believes that while its revenues and
market share could be negatively affected, it expects that its gross margins on
the sales of products would exceed those it currently earns as a distributor.
CIPROFLOXACIN. Ciprofloxacin is the generic equivalent of Bayer's Cipro
which is used to treat lower respiratory, skin, bone and joint, and urinary
tract infections. Total U.S. sales were approximately $685 million in 1996. In
January 1995, the Company received a tentative approval of its ANDA for
ciprofloxacin tablets when the patents protecting the product expire.
In January 1997, the Company and the innovator of ciprofloxacin settled
pending patent litigation regarding ciprofloxacin. As part of the settlement of
the patent challenge the Company entered into the Ciprofloxacin Agreement, which
ends with the expiration of the patent in December 2003. Under the Ciprofloxacin
Agreement, the innovator has the option to make payments to Barr or to provide
Barr with ciprofloxacin that Barr would market as a generic pursuant to a
license from the innovator. In 1997, the Company received an initial cash
payment of $24.6 million in connection with the Ciprofloxacin Agreement. If the
innovator chooses not to provide the product to Barr, the annual value
recognized by Barr would approximate the value of the initial payment. Under
terms of the Ciprofloxacin Agreement, Barr will be able to enter the marketplace
in advance of any generic competitor. Barr believes this will allow it do
develop a significant market share prior to additional generic entrants.
30
<PAGE>
FLUOXETINE. Fluoxetine is the generic equivalent of Eli Lilly's Prozac
antidepressant, which is patent protected and had annual sales of $1.7 billion
for the twelve months ended September 30, 1997. The Company filed its
application for fluoxetine in January 1996, and has been sued for patent
infringement by Eli Lilly, initiating the patent challenge process. The Company
estimates that the Prozac challenge will last another two to three years and
expects to go to trial during the second half of calendar 1998.
ZIDOVUDINE. Zidovudine is the generic equivalent of Glaxo Wellcome's
Retrovir, also known as AZT, a treatment for AIDS. The patent challenge that
followed Barr's filing was resolved unsuccessfully during 1996. Barr received
tentative approval of its ANDA for this product in February 1995 and anticipates
entering the market with a generic product as soon as practical at the
expiration of the patents in 2005.
At present two additional patent cases are in active development and the
Company expects to file ANDAs for those two products during calendar 1998. U.S.
industry sales of these two products were $200 million for the twelve months
ended September 30, 1997. In addition, the Company is actively evaluating
several potential additional challenges both on its own and as part of
collaborations with other companies.
DEVELOPMENT AND INTRODUCTION OF PROPRIETARY PHARMACEUTICALS
The newest component of Barr's overall business strategy is the development
of proprietary pharmaceuticals that have some period of market exclusivity,
typically from three to seven years. Under this strategy, the Company pursues
candidates in two primary categories: (i) existing chemical compounds where the
development of different forms (liquid vs. tablets or different dosages) that
offer therapeutic advantages; and (ii) new chemical entities in selected
therapeutic categories, including some that are marketed in other countries but
not currently sold in the United States.
Some of these activities will result in the filing by the Company of an NDA
with the FDA. The Company anticipates that the majority of its proprietary
products will be developed with strategic partners and marketed by those
partners through detail product sales forces or other appropriate channels.
PROPRIETARY PRODUCT DEVELOPMENT
In conjunction with strategic partners, Barr has four proprietary products
in various stages of development. An NDA has been filed by Barr's partner on one
of these products, and the Company anticipates that its partner will receive
regulatory approval for such product before the end of 1998. The three remaining
projects are in development and the Company believes that they could be filed
with the FDA at the rate of one per calendar year for the next three years
beginning and including calendar 1998.
The Company has developed its first product pursuant to a strategic
arrangement with Gynetics Inc. ("Gynetics"). Barr provided the scientific,
technical, regulatory and manufacturing expertise to develop oral contraceptive
tablets that are a component of Gynetics' emergency oral contraceptive product.
This product includes four oral contraceptive tablets (similar to those sold
under brand names and routinely used for birth control) and are indicated to
prevent a pregnancy from starting if a woman has been exposed to the risk of
pregnancy within the previous 72 hours. In an official statement, the FDA has
pointed out that emergency contraception has no effect on an existing pregnancy
and works primarily by preventing ovulation in exactly the same manner as
conventional brand name oral contraceptive pills. Barr provided the development
expertise necessary to formulate the oral contraceptive tablets and was
responsible for the chemicals, manufacturing and controls section of the NDA. In
addition, Barr will provide the bulk manufacturing of the oral contraceptive
tablets. The Company and Gynetics have agreed to a formula to split profits from
the sale of this product equally, after certain costs to each party have been
accounted for.
31
<PAGE>
SALES AND MARKETING
GENERIC PRODUCTS
The Company employs six national account managers who call directly on drug
store chains, wholesalers, distributors and repackagers in the United States and
Puerto Rico. This sales group is supplemented by four customer service
representatives who inform the Company's customers of new Company products,
order status and current pricing. Manufacturers of generic pharmaceuticals
typically require less of an investment in sales and marketing infrastructure
than brand pharmaceutical companies. This is because factors such as statutory
substitution requirements that exist in many states and the influence of
third-party payer plans reduce significantly the need for generic manufacturers
to promote the substitution of their products for brand products.
In addition, the Company's marketing group supports Barr's overall strategy
of developing and selling products with high barriers to entry by developing
marketing programs which promote and support such products. The Company has
developed this capability to support the marketing of Warfarin Sodium. The
Company expects that similar product marketing support will be needed for
products in the Company's development pipeline which also may face marketing
barriers similar to Warfarin Sodium.
WHOLESALERS. Wholesale customers, which accounted for 43% of sales in
fiscal 1997, purchase products, warehouse them, and resell the products to
chains, independent pharmacies, and other retailers of pharmaceuticals.
Wholesalers generally purchase large quantities and have high inventory
turnover.
WAREHOUSING PHARMACY CHAINS. Barr's chain drug store customers, which
accounted for 41% of sales in fiscal 1997, either maintain their own warehouse
facilities or take delivery of purchased products through national or regional
wholesalers.
DISTRIBUTORS. Distributors, which accounted for 12.5% of sales in fiscal
1997, typically have large sales forces which allow them to penetrate markets
and reach customers that Barr's sales organization would be unable to penetrate
effectively. Distributors either sell Barr-label products or contract with Barr
for the manufacture of products sold under the distributor's (private) label.
MANAGED CARE/MAIL ORDER. A fourth customer group, the managed care/mail
order group accounted for 3.5% of sales in fiscal 1997. This distribution
channel has expanded in response to changes in insurance benefits which continue
to move toward increased prescription fulfillment through mail order.
Recently, the Company's customer base has undergone significant
consolidation, particularly in the chain drug store, distributor and wholesaler
trade classes. To date, this consolidation has had little impact on the
Company's business. The Company believes that it has good relationships with its
key customers, but there can be no assurance that continued consolidation will
not impact the Company's business, or that such impact might not be significant.
PROPRIETARY PRODUCTS
The Company is seeking to establish strategic relationships that provide
access to specific health care segments or providers, including specialty
physicians principally to support its proprietary products. To date, the Company
has established two such relationships.
GYNETICS. Barr is working collaboratively with Gynetics on a line of
products, including the emergency oral contraceptive. Gynetics will assume all
marketing responsibilities for these products. The products will be marketed
directly to physicians and other healthcare professionals. The Company will
share equally in the profits expected from the products, the first of which the
Company believes will receive FDA approval by the end of 1998.
Although Gynetics is a start-up pharmaceutical company, it has management
with extensive experience in the development and marketing of branded
prescription contraceptive products. Gynetics' founder,
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<PAGE>
Rod MacKenzie, was president of Ortho Pharmaceutical Corporation and the founder
of GynoPharma Inc., a successful start-up pharmaceutical company.
WARNER CHILCOTT. In July 1997, Barr announced a strategic investment in
Warner Chilcott, a company which markets speciality pharmaceutical products and
complex generics. Barr made an initial investment of approximately $4 million
and has an option to increase its stake by another $4 million over the next four
years. This investment gives Barr access to Warner Chilcott's recognized name
and the dedicated sales force that can help promote certain of Barr's
proprietary drug products directly to physicians. Warner Chilcott has agreed to
market one of the Company's proprietary therapies currently in development. The
collaboration also offers Barr the opportunity to be the generic supplier of
certain current and future Warner Chilcott products.
MANUFACTURING AND FACILITIES
Barr has facilities and operations in Pomona and Blauvelt, New York;
Northvale, New Jersey; and Forest, Virginia. The following table presents the
facilities owned or leased by the Company and indicates the location and type of
each of these facilities.
<TABLE>
<CAPTION>
SQUARE
LOCATION FOOTAGE STATUS DESCRIPTION
- --------------------------------------------- --------- --------- ---------------------------------------------
<S> <C> <C> <C>
NEW JERSEY
Northvale.................................... 28,000 Owned Manufacturing
Northvale.................................... 40,000 Leased Packaging (closing June 1998)
Northvale.................................... 50,000 Leased Warehouse/Distribution
NEW YORK
Blauvelt..................................... 38,000 Leased Corporate Administration
Pomona 1..................................... 33,000 Owned R&D and Analytical Laboratories
Pomona 2..................................... 48,000 Owned Laboratories, Administrative Offices,
Manufacturing
VIRGINIA
Forest 1..................................... 65,000 Owned Administrative Offices, Manufacturing
Forest 2..................................... 100,000 Owned Warehouse, Packaging
</TABLE>
Over the past three fiscal years, the Company has spent approximately $57
million in capital expenditures to expand manufacturing capacity and strengthen
certain competitive advantages. Barr added special enclosed manufacturing
capacity at its Pomona, New York and Northvale, New Jersey facilities and
purchased a 65,000 square foot facility in Forest, Virginia. The Company also
constructed a 100,000 square foot warehouse/packaging site at the Forest site.
PATENTS, PROPRIETARY RIGHTS AND TRADEMARKS
The Company relies on trade secrets and other unpatented proprietary
information in its product development activities. To the extent that the
Company relies on trade secrets and unpatented know-how to maintain its
competitive technological position, there can be no assurance that others may
not independently develop the same or similar technologies. The Company seeks to
protect trade secrets and proprietary knowledge in part through confidentiality
agreements with its employees, consultants, advisors, and collaborators.
Nevertheless, these agreements may not effectively prevent disclosure of the
Company's confidential information and may not provide the Company with an
adequate remedy in the event of unauthorized disclosure of such information. If
the Company's employees, scientific consultants or collaborators develop
inventions or processes independently that may be applicable to the Company's
products under development, disputes may arise about ownership of proprietary
rights to those inventions and processes. Such inventions and processes will not
necessarily become the Company's property, but may
33
<PAGE>
remain the property of those persons or their employers. Protracted and costly
litigation could be necessary to enforce and determine the scope of the
Company's proprietary rights. Failure to obtain or maintain patent and trade
secret protection, for any reason, would have a material adverse effect on the
Company.
COMPETITION
The Company competes in varying degrees with numerous other manufacturers of
pharmaceutical products (both branded and generic). These competitors include
the generic divisions of proprietary pharmaceutical companies (either marketing
units or other generic manufacturers), large independent generic
manufacturers/distributors that seek to provide "one stop shopping" by offering
a full line of products, and generic manufacturers that have targeted select
therapeutic categories and market niches.
The selling prices of the Company's products may decline as competition
increases. Currently, many of the Company's generic products compete with other
approved generic products. In addition, some third party payors, wholesalers and
chain buyers have instituted programs which further increase the downward
pressure on prices in the generic industry. These aggressive price reduction
activities could have a material adverse effect on the Company's business,
results of operations and financial condition.
Relatively large research and development expenditures enable a company to
support many FDA applications simultaneously, thereby improving the likelihood
of being among the first to obtain approval of at least some generic drugs.
Other products now in use or under development by others may be more effective
or have fewer side effects than the Company's current or future products. The
industry is characterized by rapid technological change, and competitors may
develop their products more rapidly than the Company. Competitors may also be
able to complete the regulatory process sooner, and therefore may begin to
market their products in advance of the Company's products. There can be no
assurance that developments by others will not render any product the Company
produces or may produce obsolete or otherwise non-competitive.
GOVERNMENT REGULATION
All pharmaceutical manufacturers, including the Company, are subject to
extensive regulation by the federal government, principally by the FDA, and, to
a lesser extent, by the DEA and state governments. The Federal Food, Drug and
Cosmetic Act, the Controlled Substances Act and other federal statutes and
regulations govern or influence the testing, manufacturing, safety, labeling,
storage, record keeping, approval, pricing, advertising and promotion of the
Company's products. Non-compliance with applicable requirements can result in
fines, recalls and seizure of products. Under certain circumstances, the FDA
also has the authority to revoke drug approvals previously granted.
ANDA PROCESS
FDA approval is required before a generic equivalent to a previously
approved drug or a new dosage form of an existing drug can be marketed. The
Company usually receives approval for such products by submitting an ANDA to the
FDA. When processing an ANDA, the FDA waives the requirement of conducting
complete clinical studies, although it may requires bioavailability and/or
bioequivalence studies. "Bioavailability" indicates the rate and extent of
absorption and levels of concentration of a drug product in the blood stream
needed to produce a therapeutic effect. "Bioequivalence" compares the
bioavailability of one drug product with another, and when established,
indicates that the rate of absorption and levels of concentration of a generic
drug in the body are substantially equivalent to the previously approved drug.
An ANDA may be submitted for a drug on the basis that it is the equivalent to a
previously approved drug or, in the case of a new dosage form, is suitable for
use for the indications specified.
Among the requirements for drug approval by the FDA is that the Company's
manufacturing procedures and operations conform to cGMP, as defined in the U.S.
Code of Federal Regulations. The
34
<PAGE>
cGMP regulations must be followed at all times during the manufacture of
pharmaceutical products. In complying with the standards set forth in the cGMP
regulations, the Company must continue to expend time, money and effort in the
areas of production and quality control to ensure full technical compliance.
If the FDA believes a company is not in compliance with cGMP, certain
sanctions are imposed upon that company including (i) withholding from the
company new drug approvals as well as approvals for supplemental changes to
existing applications; (ii) preventing the company from receiving the necessary
export licenses to export its products; and (iii) classifying the company as an
"unacceptable supplier" and thereby disqualifying the company from selling
products to federal agencies. The Company believes it is currently in compliance
with cGMP.
In May of 1992, the Generic Act was enacted. The Generic Act, a result of
the legislative hearings and investigations into the generic drug approval
process, allows the FDA to impose debarment and other penalties on individuals
and companies that commit certain illegal acts relating to the generic drug
approval process. In some situations, the Generic Act requires the FDA to debar
(i.e., not accept or review ANDAs for a period of time) a company or an
individual that has committed certain violations. It also provides for temporary
denial of approval of applications during the investigation of certain
violations that could lead to debarment and also, in more limited circumstances,
provides for the suspension of the marketing of approved drugs by the affected
company. Lastly, the Generic Act allows for civil penalties and withdrawal of
previously approved applications. Neither the Company nor any of its employees
have ever been subject to debarment.
NDA PROCESS
FDA approval is required before any new drug can be marketed. An NDA is a
filing submitted to the FDA to obtain approval of a drug not eligible for an
ANDA and must contain complete pre-clinical and clinical safety and efficacy
data or a right of reference to such data. Before dosing a new drug in healthy
human subjects or patients may begin, stringent government requirements for
preclinical data must be satisfied. The pre-clinical data, typically obtained
from studies in animal species, as well as from laboratory studies, are
submitted in an Investigational New Drug ("IND") application, or its equivalent
in countries outside the United States, where clinical trials are to be
conducted. The preclinical data must provide an adequate basis for evaluating
both the safety and the scientific rationale for the initiation of clinical
trials.
Clinical trials are typically conducted in three sequential phases, although
the phases may overlap. In Phase I, which frequently begins with the initial
introduction of the compound into healthy human subjects prior to introduction
into patients, the product is tested for safety, adverse effects, dosage,
tolerance absorption, metabolism, excretion and other elements of clinical
pharmacology. Phase II typically involves studies in a small sample of the
intended patient population to assess the efficacy of the compound for a
specific indication, to determine dose tolerance and the optimal dose range as
well as to gather additional information relating to safety and potential
adverse effects. Phase III trials are undertaken to further evaluate clinical
safety and efficacy in an expanded patient population at typically dispersed
study sites, in order to determine the overall risk-benefit ratio of the
compound and to provide an adequate basis for product labeling. Each trial is
conducted in accordance with certain standards under protocols that detail the
objectives of they study, the parameters to be used to monitor safety and
efficacy criteria to be evaluated. Each protocol must be submitted to the FDA as
part of the IND. In some cases, the FDA allows a company to rely on data
developed in foreign countries and therefore not independently repeat some or
all of those studies.
Data from preclinical testing and clinical trials are submitted to the FDA
as an NDA for marketing approval and to other health authorities as a marketing
authorization application. The process of completing clinical trials for a new
drug may take several years and require the expenditure of substantial
resources. Preparing an NDA or marketing authorization application involves
considerable data collection, verification, analysis and expense, and there can
be no assurance that approval from the FDA or any other
35
<PAGE>
health authority will be granted on a timely basis, if at all. The approval
process is affected by a number of factors, primarily the risks and benefits
demonstrated in clinical trials as well as the severity of the disease and the
availability of alternative treatments. The FDA or other health authorities may
deny an NDA or marketing authorization application if the regulatory criteria
are not satisfied, or such authorities may require additional testing or
information.
Even after initial FDA or other health authority approval has been obtained,
further studies, including Phase IV post-marketing studies, may be required to
provide additional data on safety and will be required to gain approval for the
use of a product as a treatment for clinical indications other than those for
which the product was initially tested. Also, the FDA or other regulatory
authorities require post-marketing reporting to monitor the adverse effects of
the drug. Results of post-marketing programs may limit or expand the further
marketing of the products. Further, if there are any modifications to the drug,
including changes in indication, manufacturing process or labeling or a change
in the manufacturing facility, an application seeking approval of such changes
must be submitted to the FDA or other regulatory authority. Additionally, the
FDA regulates post-approval promotional labeling and advertising activities to
assure that such activities are being conducted in conformity with statutory and
regulatory requirements. Failure to adhere to such requirements can result in
regulatory actions which could have a material adverse effect on the Company's
business, results of operations and financial condition.
DEA
Because the Company markets some and intends to introduce or reintroduce a
wide range of controlled substances in its analgesic and psychotherapeutic
product lines, it must meet the requirements of the Controlled Substances Act
and the regulations issued thereunder and administered by the DEA. These
regulations include stringent requirements for manufacturing controls and
security to prevent diversion of or unauthorized access to the drugs in each
stage of the production and distribution process. The DEA monitors allocation to
the Company of raw materials used in the production of controlled substances
based on historical sales data. The Company believes it is currently in
compliance with all applicable DEA requirements.
GOVERNMENT RELATIONS ACTIVITIES
During the past year, the branded pharmaceutical industry has increased its
efforts to utilize state and federal legislative and regulatory forums to delay
generic competition, or limit the severe market erosion they can experience
which occurs once monopoly protection is lost for the branded product. To
achieve these goals, the brand pharmaceutical companies have used the Citizen
Petition process (i.e. petition directly to the FDA) to request amendments to
FDA standards, sought changes in United States Pharmacopeia (an organization
which publishes industry recognized compendia of drug standards) requirements,
and attached patent extension amendments to important federal legislation.
Another anti-generic defense strategy involves a state-by-state initiative to
enact legislation that would restrict the substitution of generic equivalents of
NTI drugs. A drug is commonly said to have an NTI when small variances in the
level of the drug in the blood can change the effectiveness of the drug. Since
January 1997, Barr has engaged the resources necessary to fight proposed NTI
legislation in a number of major states.
Because this issue is critical to Barr's continued success, the Company has
and will continue to put a major emphasis in terms of management time and
financial resources on government affairs activities.
PATENTS
The Process Patent Amendments Act of 1988 provides that the use or sale
within the United States, or importation into the United States, of a product
that was made either domestically or abroad by a process covered by a United
States patent, constitutes infringement of the process patent. After proper
notice, this legislation could subject the Company to potential patent
infringement claims if a supplier of an active
36
<PAGE>
ingredient to the Company were to infringe a United States process patent in the
manufacture of such ingredient. The Company has received no such notice.
MEDICAID
In November 1990, a law regarding reimbursement for prescribed Medicaid
drugs was passed as part of the Congressional Omnibus Budget Reconciliation Act
of 1990. This law basically required drug manufacturers to enter into a rebate
contract with the Federal Government. All generic pharmaceutical manufacturers,
whose products are covered by the Medicaid program, are required to rebate to
each state a percentage (currently 11% in the case of products manufactured by
the Company and 15% for Tamoxifen sold by the Company) of their average net
sales price for the products in question. The Company provides an accrual for
future estimated rebates in its consolidated financial statements.
EFFECT OF THE GENERAL AGREEMENT ON TARIFFS AND TRADE ("GATT")
With the signing of the GATT accord in December 1994, one of the provisions
called for harmonization of patent life throughout GATT countries. U.S. enabling
legislation had provisions which in effect offered a limited extension of the
period of monopoly protection for intellectual property including patents. While
a number of patented drugs received extended patent protection (the maximum
extension being 36 months) as a result of this enabling legislation, the patent
extensions resulting from the implementation of GATT are not expected to impact
materially any of the product candidates in Barr's current pipeline.
OTHER
The Company is also governed by federal, state and local laws of general
applicability, such as laws regulating working conditions, equal employment
opportunity, and environmental protection.
EMPLOYEES
As of December 31, 1997, the Company had 508 full-time employees. Of these,
approximately one-quarter are represented by a union which has a collective
bargaining agreement with the Company. The Company's current collective
bargaining agreement with its employees, who are represented by Local 8-149 of
the Oil, Chemical and Atomic Workers International Union expires on April 1,
2001. The Company believes that its relations with its employees are good and
has no history of work stoppages. The Company's employees are organized as
follows:
<TABLE>
<CAPTION>
DEPARTMENT NUMBER OF EMPLOYEES
- ------------------------------------------------------------------------ -----------------------
<S> <C>
Research and Development................................................ 83
Administration.......................................................... 68
Manufacturing
Union................................................................. 164
Non-Union............................................................. 75
Quality................................................................. 101
Sales & Marketing....................................................... 17
---
Total............................................................. 508
---
---
</TABLE>
37
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's directors and executive officers, all of whom are elected
annually to serve until the next annual meeting or until their successors have
been elected and qualified, are as follows.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- ----------------------------------------------------------------------
<S> <C> <C>
Bruce L. Downey, Esq............... 50 Chairman of the Board, Chief Executive Officer and President
Paul M. Bisaro, Esq................ 36 Senior Vice President, Strategic Business Development, General Counsel
and Secretary
Timothy P. Catlett................. 42 Senior Vice President, Sales and Marketing
Mary E. Petit, Pharm.D............. 48 Senior Vice President, Operations
Salah Ahmed, Ph.D.................. 44 Vice President, Product Development
Robert Bell, Ph.D.................. 41 Vice President, Proprietary Product Development
Ezzeldin A. Hamza.................. 46 Vice President, Research and Development
Catherine F. Higgins............... 45 Vice President, Human Resources
William T. McKee................... 36 Vice President, Chief Financial Officer and Treasurer
Gerald F. Price.................... 50 Vice President, Manufacturing and Engineering
Edwin A. Cohen, RPh................ 65 Vice Chairman of the Board
Robert J. Bolger................... 75 Director
Michael F. Florence................ 60 Director
Jacob (Jack) M. Kay................ 56 Director
Bernard C. Sherman, Ph.D........... 55 Director
George P. Stephan, Esq............. 64 Director
</TABLE>
BRUCE L. DOWNEY, ESQ. became the Company's President, Chief Operating
Officer and a member of the Board of Directors in January 1993 and was elected
Chairman of the Board and Chief Executive Officer in February 1994. Prior to
assuming these positions, from 1981 to 1993, Mr. Downey was a partner in the law
firm of Winston & Strawn and a predecessor firm, Bishop, Cook, Purcell and
Reynolds. Mr. Downey is also a Director of Warner Chilcott (NASDAQ).
PAUL M. BISARO, ESQ. was employed by the Company as General Counsel in July
1992. He was acting General Counsel to the Company since January 1992. Mr.
Bisaro was elected Secretary of the Company in September 1992 and elected a Vice
President in 1993. In August 1994, Mr. Bisaro was elected to the position of
Chief Financial Officer. In September 1996, Mr. Bisaro was elected to the
position of Senior Vice President-Strategic Business Development. Prior to
assuming these positions with the Company, he was associated with the law firm
of Winston & Strawn and a predecessor firm, Bishop, Cook, Purcell and Reynolds.
Prior to his association with Winston & Strawn, Mr. Bisaro was a Consultant with
Arthur Andersen & Co.
TIMOTHY P. CATLETT was employed by the Company in February 1995 as Vice
President, Sales and Marketing. In September 1997, Mr. Catlett was elected to
Senior Vice President of Sales and Marketing. Since 1978, Mr. Catlett held a
number of positions with the Lederle Laboratories division of American Cyanamid
Company. Since 1993, he served as Vice President, Cardiovascular Marketing.
38
<PAGE>
MARY E. PETIT, PHARM.D. was employed by the Company in January 1995 as Vice
President, Quality. In September 1996, Dr. Petit was elected to the position of
Senior Vice President-Operations. From June 1992 to January 1995, Dr. Petit was
Vice President, Quality Management with the Lederle Laboratories division of
American Cyanamid. Dr. Petit held positions of increasing responsibility during
her 12 year tenure with Lederle.
SALAH AHMED, PH.D. was employed by the Company as Director of Research and
Development in 1993. Dr. Ahmed was named Vice President, Product Development in
September 1996. Before joining Barr, Dr. Ahmed was a Senior Scientist with
Forest Laboratories, Inc. from 1989 to 1993. Prior to joining Forest, he was a
Teaching Fellow at St. John's University in New York. Dr. Ahmed also worked as a
pharmacist in Benghazi and Bangladesh before coming to St. John's. Dr. Ahmed has
a Ph.D. in Pharmaceutics and an M.S. in Industrial Pharmacy from St. John's, and
also studied pharmacy at the University of Dacca, Bangladesh. He has published
numerous scientific papers.
ROBERT G. BELL, PH.D. was employed by the Company in 1996 as Vice President
of Proprietary Product Development. Dr. Bell has extensive experience in the
pharmaceutical industry, and most recently served as Vice President, Product
Development and Quality with Somerset Pharmaceuticals. Prior to joining
Somerset, he worked as Vice President of Corporate Development with UDL
Laboratories, and Director of R&D with A.L. Laboratories. In addition to his
experience in the pharmaceutical industry, Dr. Bell has also held several
chemistry and pharmaceutics teaching positions. Dr. Bell has a Ph.D. in
Pharmaceutics, an M.S. in Food Science and Human Nutrition, and a B.S. in
Chemistry all from the University of Florida.
EZZELDIN A. HAMZA was employed by the Company in July 1984 as Director of
Quality Control and thereafter, from August 1987, served as Director of
Scientific Affairs. In December 1988, Mr. Hamza was elected to the position of
Vice President-Technical Affairs. In 1993, he was elected Vice President-
Research and Development.
CATHERINE F. HIGGINS was employed by the Company in January 1992 as Vice
President-Human Resources and was elected an officer in September 1992. From
June 1985 to December 1991, Ms. Higgins served as Vice President-Human Resources
for Inspiration Resources Corporation.
WILLIAM T. MCKEE was employed by the Company in January 1995 as Director of
Finance and was appointed Treasurer in March 1995. In September 1996, Mr. McKee
was elected to the position of Chief Financial Officer, and in December 1997 Mr.
McKee was elected Vice President. Prior to joining the Company, Mr. McKee served
as Vice President-Finance for Absolute Entertainment. From September 1983
through June 1993, Mr. McKee held management positions in the accounting firms
of Deloitte & Touche, LLP and Gramkow & Carnevale, CPAs. Mr. McKee is a C.P.A.
GERALD F. PRICE was employed by the Company in January 1990 as Vice
President, Manufacturing and Engineering. He was elected an officer of the
Company in January 1990. Prior to assuming these positions, he served as Group
Vice President-Operations of Del Laboratories.
EDWIN A. COHEN, RPH. founded the Company in 1970. Mr. Cohen served as
President until January 1993, Chief Executive Officer until February 1994 and
Chairman of the Board from January 1993 to February 1994. In February of 1994,
he was elected to the position of Vice Chairman of the Board and became a
consultant to the Company.
ROBERT J. BOLGER was elected a Director of the Company in February 1988. Mr.
Bolger has been President of Robert J. Bolger Associates, a marketing consulting
company since January 1988. From 1962 through 1987, he served as President of
the National Association of Chain Drug Stores, a major trade association. Mr.
Bolger is also a Director of General Computer Corporation.
MICHAEL F. FLORENCE, CA was elected a Director of the Company in February
1988. Mr. Florence has been President of Sherfam, Inc. since 1989. He is also
Vice President of Shermfin Corp., Vice President of Apotex, Inc. and Vice
President of Sherman Delaware, Inc. From January 1964 through April 1989, Mr.
39
<PAGE>
Florence was a partner in Wm. Eisenberg & Co., Canadian Chartered Accountants.
He is President and a Director of Citadel Gold Mines, Inc. (NASDAQ), and a
Director of Nutrition for Life International, Inc. (NASDAQ). Mr. Florence and
Dr. Sherman are brothers-in-law.
JACOB ("JACK") M. KAY was elected a Director of the Company in December
1994. Mr. Kay is President of Apotex, Inc., and also serves as Chairman of the
Canadian Drug Manufacturers Association. He is also a Director of York Finch
Hospital (Toronto), Cangene Corporation and Humber River Regional Hospital.
BERNARD C. SHERMAN, PH.D. was Chairman of the Board of the Company from July
1981 to January 1993. He remains a Director of the Company. Dr. Sherman is Chief
Executive Officer and Chairman of the Board of Apotex, Inc., a Canadian
manufacturer of generic and brand name drugs. He is also Chairman of the Board
of Cangene Corporation, President of Sherman Delaware, Inc., President of
Shermfin Corp., President of Apotex Holdings, Inc. and a Director of Citadel
Gold Mines, Inc. (NASDAQ). In July 1994, Dr. Sherman and Shermfin Corp.
consented to the issuance of an Order of the Commission that they cease and
desist from violations of certain provisions of the Exchange Act. This Order was
consented to without admitting or denying the findings of the Commission that
there had been a failure to file reports of beneficial ownership of the common
stock of Kinesis, Inc. ("Kinesis") with the Commission on Form 3 and Schedule
13G. Kinesis was a company formed to develop certain sports related products,
never had any operations and was dissolved in March 1994. The Company had no
relationship with Kinesis.
GEORGE P. STEPHAN, ESQ. was elected a Director of the Company in February
1988. Since 1994, Mr. Stephan has been Managing Director of Stonington, Inc.,
(financial intermediaries and consultants). From 1992 to 1994, Mr. Stephan was
counsel to Murtha, Cullina, Richter and Pinney in Hartford, Connecticut. From
January 1991 to November 1991, he served as Interim Chief Executive Officer of
Kollmorgen Corporation (NYSE), a diversified technology company. He also served
as Chairman of Kollmorgen's Board of Directors from 1991 to February 1996. Mr.
Stephan continues to serve as a Director of Kollmorgen Corporation.
40
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth the beneficial ownership of the shares of
Common Stock of the Company by the Selling Stockholders as of December 31, 1997
and as adjusted to reflect the sale of the Common Stock being offered hereby
(assuming no exercise of the Underwriters' over-allotment option).
<TABLE>
<CAPTION>
PRIOR TO OFFERING AFTER OFFERING
------------------------- -------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ------------------------------------------------------------ ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Bernard C. Sherman, Ph.D. (1)............................... 13,744,426 63.4% 10,744,426 49.1%
</TABLE>
- ------------------------
(1) Consists of 13,248,621 shares held of record by Sherman Delaware, Inc.
("SDI") and 495,805 shares held of record by Glastex Investments, Inc
("Glastex") which are beneficially owned by Dr. Sherman. A total of
10,744,426 of the shares held by SDI are pledged to banks to secure a
guaranty made by SDI. The 3,000,000 shares being sold by the Selling
Stockholders consist of 495,805 shares held of record by Glastex and
2,504,195 shares held of record by SDI. Dr. Sherman is a director of the
Company. The address for SDI, Glastex and Dr. Sherman is 150 Signet Drive,
Weston, Ontario, Canada M9L1T9.
DESCRIPTION OF CAPITAL STOCK
The Company's Certificate of Incorporation authorizes the issuance of
100,000,000 shares of Common Stock, par value $.01 per share, of which
21,692,454 shares were outstanding on December 31, 1997, and 2,000,000 shares of
preferred stock, par value $1.00 per share, of which none is outstanding as of
the date of this Prospectus.
Holders of the Common Stock are entitled to one vote for each share held of
record, in person or by proxy, at all meetings of the shareholders and on all
propositions before such meetings. The Common Stock does not have cumulative
voting rights in the election of directors. Holders of the Common Stock have no
preemptive, subscription, redemption or conversion rights. All outstanding
shares of Common Stock are fully paid and nonassessable. Holders of Common Stock
are entitled to such dividends as may be declared by the Board of Directors out
of funds legally available therefor. In the event of liquidation, dissolution or
winding up of the affairs of the Company, the assets remaining after provision
for payment of creditors and after distribution in full of the preferential
amount to be distributed to the holders of shares of any preferred stock are
distributable pro rata among holders of Common Stock.
The transfer agent and registrar of the Common Stock is Continental Stock
Transfer & Trust Company, 2 Broadway, New York, New York 10004.
41
<PAGE>
UNDERWRITING
The names of the Underwriters of the shares of Common Stock offered hereby
and the aggregate number of shares of Common Stock which each has severally
agreed to purchase from the Company, subject to the terms and conditions
specified in the Underwriting Agreement, are as follows:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
SBC Warburg Dillon Read Inc......................................................
Donaldson, Lufkin & Jenrette Securities Corporation..............................
----------
Total.................................................................... 3,200,000
----------
----------
</TABLE>
The Managing Underwriters are SBC Warburg Dillon Read Inc. and Donaldson,
Lufkin & Jenrette Securities Corporation.
If any shares of Common Stock offered hereby are purchased by the
Underwriters, all such shares will be so purchased. The Underwriting Agreement
contains certain provisions whereby if any Underwriter defaults in its
obligation to purchase such shares and if the aggregate obligations of the
Underwriters so defaulting do not exceed ten percent of the shares offered
hereby, the remaining Underwriters, or some of them, must assume such
obligations.
The Underwriters propose to offer the shares of Common Stock to the public
initially at the offering price set forth on the cover page of this Prospectus,
and to certain dealers at such price less a concession not to exceed
$ per share. The Underwriters may allow, and such dealers may re-allow,
a concession not to exceed $ per share on sales to certain other
dealers. The offering of the shares of Common Stock is made for delivery when,
as and if accepted by the Underwriters and subject to prior sale and to
withdrawal, cancellation or modification of the offer without notice. The
Underwriters reserve the right to reject any order for the purchase of the
shares. After the shares are released for sale to the public, the public
offering price, the concession and the reallowance may be changed by the
Managing Underwriters.
The Company and the Selling Shareholders have granted to the Underwriters an
option for 30 days from the date of the Underwriting Agreement to purchase up to
an additional 480,000 shares of Common Stock from them at the offering price
less the underwriting discount set forth on the cover page of this Prospectus.
The Underwriters may exercise such option only to cover over-allotments made of
the shares in connection with this Offering. To the extent the Underwriters
exercise this option, each of the Underwriters will be obligated, subject to
certain conditions, to purchase the number of additional shares proportionate to
such Underwriter's initial commitment.
The Company, each of its directors and officers and the Selling Stockholders
have agreed that they will not sell, contract to sell, grant any option to sell
or otherwise dispose of, directly or indirectly, any shares of the Common Stock
or any securities convertible into or exchangeable for Common Stock, for a
period of at least 90 days after the date of this Prospectus, without the prior
written consent of SBC
42
<PAGE>
Warburg Dillon Read Inc., except, without such consent, (i) the Company may
register and the Company may issue securities pursuant to any of the Company's
stock option or other benefit or incentive plans and (ii) the Company may issue
and register the Common Stock and the Company and the Selling Stockholders may
sell the shares of Common Stock offered in the Offering.
The Managing Underwriters, on behalf of the Underwriters, may engage in
over-allotment, stabilizing transactions, syndicate cover transactions and
penalty bids in accordance with Regulation M under the Exchange Act.
Over-allotment involves syndicate sales in excess of the Offering size, which
creates a syndicate short position. Stabilizing transactions permit bids to
purchase the underlying security so long as the stabilizing bids do not exceed a
specified maximum. Syndicate covering transactions involve purchases of the
Common Stock in the open market after the distribution has been completed in
order to cover syndicate short positions. Penalty bids permit the Managing
Underwriters to reclaim a selling concession from a syndicate member when the
Common Stock originally sold by such syndicate member is purchased in a
syndicate covering transaction to cover syndicate short positions. Such
stabilizing transactions, syndicate covering transactions and penalty bids may
cause the price of the Common Stock to be higher than it would otherwise be in
the absence of such transactions. These transactions may be effected on the
American Stock Exchange or otherwise and, if commenced, may be discontinued at
any time.
The Company and the Selling Stockholders have agreed in the Underwriting
Agreement to indemnify the Underwriters against certain liabilities, including
any liabilities under the Securities Act, or to contribute to payments, the
Underwriters may be required to make in respect thereof.
The Underwriters do not intend to confirm sales to accounts over which they
exercise discretionary authority.
LEGAL MATTERS
The validity of the shares of Common Stock offered by the Company hereby and
certain legal matters will be passed upon for the Company by Winston & Strawn,
Chicago, Illinois. Certain legal matters will be passed upon for the
Underwriters by Cahill Gordon & Reindel, a partnership including a professional
corporation, New York, New York.
EXPERTS
The financial statements as of June 30, 1997 and 1996 and for each of the
three years in the period ended June 30, 1997 included in this Prospectus have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing herein and have been so included in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
43
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Barr Laboratories, Inc.
<TABLE>
<S> <C>
Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheets as of June 30, 1996 and 1997 and December 31, 1997
(unaudited)......................................................................... F-3
Consolidated Statements of Operations for the years ended June 30, 1995, 1996, 1997
and the unaudited six months ended December 31, 1996 and 1997....................... F-4
Consolidated Statements of Shareholders' Equity for the years ended June 30, 1995,
1996 and 1997....................................................................... F-5
Consolidated Statements of Cash Flows for the years ended June 30, 1995, 1996 and 1997
and the unaudited six months ended December 31, 1996 and 1997....................... F-6
Notes to the Consolidated Financial Statements........................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Barr Laboratories, Inc.
We have audited the accompanying consolidated balance sheets of Barr
Laboratories, Inc. and subsidiaries (the "Company") as of June 30, 1997 and
1996, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended June 30,
1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of Barr Laboratories, Inc. and
subsidiaries at June 30, 1997 and 1996, and the results of their operations and
their cash flows for each of the three years in the period ended June 30, 1997
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE, LLP
Parsippany, New Jersey
August 28, 1997 (January 28, 1998 as to Notes 1(f), 1(h), 5 and 8)
F-2
<PAGE>
BARR LABORATORIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30,
---------------------- DECEMBER 31,
1996 1997 1997
---------- ---------- ------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................................ $ 44,893 $ 31,923 $ 34,085
Accounts receivable (including receivables from related parties of $886
in 1996 and $1,358 in 1997) less allowances of $1,799, $1,620 and
$2002, respectively.................................................... 32,065 35,232 64,800
Inventories............................................................ 42,396 56,216 41,810
Deferred income tax.................................................... 2,771 3,160 3,471
Prepaid expenses....................................................... 648 568 860
---------- ---------- ------------
Total current assets............................................... 122,773 127,099 145,026
Property, plant and equipment, net......................................... 45,739 75,928 86,505
Other assets............................................................... 708 775 3,759
---------- ---------- ------------
Total assets....................................................... $ 169,220 $ 203,802 $ 235,290
---------- ---------- ------------
---------- ---------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................................... $ 58,537 $ 72,685 $ 66,784
Accrued liabilities...................................................... 6,332 5,117 7,164
Deferred income tax...................................................... -- 957 3,698
Current portion of long-term debt........................................ 3,815 4,139 1,964
Income taxes payable..................................................... 1,104 2,394 1,412
---------- ---------- ------------
Total current liabilities.......................................... 69,788 85,292 81,022
Long-term debt............................................................. 17,709 14,941 32,443
Other liabilities.......................................................... 238 201 207
Deferred income taxes...................................................... 1,324 1,230 532
Commitments and Contingencies (note 11)
Shareholders' Equity:
Preferred stock, $1 par value per share; authorized 2,000,000 shares;
none issued............................................................ -- -- --
Common stock, $.01 par value per share; authorized 30,000,000, 30,000,000
and 100,000,000 shares, respectively; issued 14,115,664, 21,446,053 and
21,810,409, respectively............................................... 141 214 218
Additional paid-in capital............................................... 43,526 46,061 48,883
Retained earnings........................................................ 36,507 55,876 72,598
Unrealized loss on investment............................................ -- -- (600)
---------- ---------- ------------
80,174 102,151 121,099
Treasury stock at cost; 78,637, 117,955 and 117,955 shares, respectively... (13) (13) (13)
---------- ---------- ------------
Total shareholders' equity......................................... 80,161 102,138 121,086
---------- ---------- ------------
Total liabilities and shareholders' equity......................... $ 169,220 $ 203,802 $ 235,290
---------- ---------- ------------
---------- ---------- ------------
</TABLE>
See accompanying notes to the consolidated financial statements.
F-3
<PAGE>
BARR LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
---------------------------------- ----------------------
<S> <C> <C> <C> <C> <C>
1995 1996 1997 1996 1997
---------- ---------- ---------- ---------- ----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Net product sales (including sales to related parties of
$2,585, $4,296, and $4,971, in 1995, 1996 and 1997,
respectively)........................................... $ 199,720 $ 232,224 $ 257,436 $ 131,566 $ 175,012
Proceeds from supply agreement............................ -- -- 27,050 -- 13,583
---------- ---------- ---------- ---------- ----------
Total revenues.............................................. 199,720 232,224 284,486 131,566 188,595
Costs and expenses:
Cost of sales............................................. 159,498 189,394 217,196 111,161 133,995
Selling, general and administrative....................... 19,014 21,695 23,391 8,599 17,607
Research and development.................................. 10,443 11,274 13,536 5,947 8,815
---------- ---------- ---------- ---------- ----------
Earnings from operations.................................... 10,765 9,861 30,363 5,859 28,178
Interest income............................................. 1,874 2,778 2,398 1,164 697
Interest expense............................................ (2,535) (1,767) (939) (639) (435)
Other income................................................ 118 637 228 7 35
---------- ---------- ---------- ---------- ----------
Earnings before income taxes and extraordinary loss......... 10,222 11,509 32,050 6,391 28,475
Income tax expense.......................................... 3,852 4,368 12,603 2,396 10,963
---------- ---------- ---------- ---------- ----------
Earnings before extraordinary loss.......................... 6,370 7,141 19,447 3,995 17,512
Extraordinary loss on early extinguishment of debt, net of
taxes..................................................... (145) (125) -- -- (790)
---------- ---------- ---------- ---------- ----------
Net earnings................................................ $ 6,225 $ 7,016 $ 19,447 $ 3,995 $ 16,722
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Earnings per common share:
- ------------------------------------------------------------
Earnings before extraordinary loss.......................... $ 0.32 $ 0.34 $ 0.92 $ 0.19 $ 0.82
Net earnings................................................ $ 0.31 $ 0.33 $ 0.92 $ 0.19 $ 0.78
Earnings per common share--assuming dilution:
- ------------------------------------------------------------
Earnings before extraordinary loss.......................... $ 0.31 $ 0.33 $ 0.87 $ 0.18 $ 0.76
Net earnings................................................ $ 0.30 $ 0.32 $ 0.87 $ 0.18 $ 0.72
</TABLE>
See accompanying notes to the consolidated financial statements
F-4
<PAGE>
BARR LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON COMMON STOCK
STOCK ADDITIONAL IN TREASURY TOTAL
----------------------- PAID-IN RETAINED ---------------------- SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT EQUITY
------------ --------- ----------- --------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1994.................... 8,783,737 $ 88 $ 31,591 $ 23,318 52,425 $ (13) $ 54,984
Net earnings.............................. 6,225 6,225
Issuance of common stock for exercised
stock options and employees' stock
purchase plans.......................... 40,757 -- 661 661
Issuance of common stock upon conversion
of convertible subordinated notes....... 510,358 5 9,978 9,983
------------ --------- ----------- --------- --------- --- -------------
BALANCE, JUNE 30, 1995.................... 9,334,852 93 42,230 29,543 52,425 (13) 71,853
Net earnings.............................. 7,016 7,016
Issuance of common stock for exercised
stock options and employees' stock
purchase plans.......................... 80,757 1 1,310 1,311
Stock split (3-for-2)..................... 4,700,055 47 (14) (52) 26,212 -- (19)
------------ --------- ----------- --------- --------- --- -------------
BALANCE, JUNE 30, 1996.................... 14,115,664 141 43,526 36,507 78,637 (13) 80,161
Net earnings.............................. 19,447 19,447
Issuance of common stock for exercised
stock options and employees' stock
purchase plans.......................... 220,526 2 2,549 2,551
Stock split (3-for-2)..................... 7,109,863 71 (14) (78) 39,318 -- (21)
------------ --------- ----------- --------- --------- --- -------------
BALANCE, JUNE 30, 1997.................... 21,446,053 $ 214 $ 46,061 $ 55,876 117,955 $ (13) $ 102,138
------------ --------- ----------- --------- --------- --- -------------
------------ --------- ----------- --------- --------- --- -------------
</TABLE>
See accompanying notes to the consolidated financial statements.
F-5
<PAGE>
BARR LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
SIX MONTHS ENDED,
FOR THE YEARS ENDED,
JUNE 30, DECEMBER 31,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1995 1996 1997 1996 1997
--------- --------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net earnings......................................................... $ 6,225 $ 7,016 $ 19,447 $ 3,995 $ 16,722
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization...................................... 4,429 4,920 4,989 2,443 2,565
Deferred income tax (benefit) expense.............................. (407) 777 474 (89) 1,732
Write-off of deferred financing fees associated with early
extinguishment of debt........................................... 188 31 -- -- 195
(Gain) loss on disposal of equipment............................... (113) 63 (203) -- --
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable, net......................................... (5,674) (4,758) (3,167) (1,871) (29,568)
Inventories...................................................... (6,540) (6,506) (13,820) 3,052 14,406
Prepaid expenses................................................. (35) 30 80 (251) (292)
Other assets..................................................... 198 (107) (194) (150) 233
Increase (decrease) in:
Accounts payable and accrued liabilities......................... 23,303 4,047 12,896 1,728 (3,848)
Income taxes payable............................................. 320 (145) 1,290 1,264 (982)
--------- --------- --------- --------- ---------
Net cash provided by operating activities.......................... 21,894 5,368 21,792 10,121 1,163
--------- --------- --------- --------- ---------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Purchases of property, plant and equipment........................... (6,328) (16,048) (35,087) (11,032) (13,150)
Proceeds from sale of property, plant and equipment.................. 340 184 239 -- 65
Investment in marketable securities.................................. -- -- -- -- (4,069)
--------- --------- --------- --------- ---------
Net cash used in investing activities.............................. (5,988) (15,864) (34,848) (11,032) (17,154)
--------- --------- --------- --------- ---------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Principal payments on long-term debt................................. (62) (2,043) (4,081) (22) (14,673)
Proceeds from loans.................................................. -- 3,153 1,637 1,387 30,000
Proceeds from revolving line of credit............................... -- -- -- -- 6,600
Payments on revolving line of credit................................. -- -- -- -- (6,600)
Fees associated with stock split..................................... -- (19) (21) -- --
Fees associated with conversion of debt to equity.................... (17) -- -- -- --
Proceeds from exercise of stock options and employee stock
purchases.......................................................... 661 1,311 2,551 289 2,826
--------- --------- --------- --------- ---------
Net cash provided by financing activities.......................... 582 2,402 86 1,654 18,153
--------- --------- --------- --------- ---------
(Decrease) increase in cash and cash equivalents................... 16,488 (8,094) (12,970) 743 2,162
Cash and cash equivalents, beginning of year........................... 36,499 52,987 44,893 44,893 31,923
--------- --------- --------- --------- ---------
Cash and cash equivalents, end of year................................. $ 52,987 $ 44,893 $ 31,923 $ 45,636 $ 34,085
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Supplemental cash flow data-Cash paid during the year:
Interest, net of portion capitalized................................. $ 2,541 $ 1,727 $ 930 $ 507 $ 187
Income taxes......................................................... 3,766 3,930 10,830 1,221 9,838
Supplemental disclosure of non-cash financing activity:
Issuance of 1,148,305 shares of common stock upon conversion of
$10,000 Convertible Subordinated Notes............................. $ 10,000
</TABLE>
See accompanying notes to the consolidated financial statements.
F-6
<PAGE>
BARR LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) PRINCIPLES OF CONSOLIDATION AND OTHER MATTERS
The consolidated financial statements include the accounts of Barr
Laboratories, Inc. (the "Company") and its wholly-owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Sherman Delaware, Inc., and affiliated companies owned 64.1% of the common
stock of the Company at June 30, 1997. Dr. Bernard C. Sherman is a principal
stockholder of Sherman Delaware, Inc. and a Director of Barr Laboratories, Inc.
The unaudited interim consolidated financial statements as of December 31,
1997 and for the six months ended December 31, 1996 and 1997 have been prepared
on the same basis as the audited consolidated financial statements included
herein. In the opinion of management, such unaudited interim consolidated
financial statements include all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the results for such periods.
The operating results for the six months ended December 31, 1997 are not
necessarily indicative of the operating results to be expected for the full
fiscal year or for any future period.
Certain amounts in prior years' financial statements have been reclassified
to conform with the current year presentation.
(B) CREDIT AND MARKET RISK
The Company operates in one industry segment; it manufactures, markets and
distributes a wide range of generic pharmaceutical products. The Company also
distributes a patented breast cancer agent, Tamoxifen Citrate, under an
agreement with the Innovator. The Company's manufacturing plants are located in
New Jersey, New York and Virginia and its products are sold throughout the
United States primarily to wholesale and retail distributors. In addition, the
Company manufactures and sells many products to other companies that resell
these pharmaceuticals under their own (private) label. In fiscal 1996 and 1997
McKesson Drug Company accounted for approximately 10% and 13% of net product
sales, respectively. In fiscal 1995, approximately 10% of net product sales were
generated by sales to Cardinal Health, Inc. No other customer accounted for
greater than 10% of sales in any of the last three fiscal years. The Company
performs ongoing credit evaluations of its customers' financial condition and
generally requires no collateral from its customers.
(C) INVENTORIES
Inventories are stated at the lower of cost, determined on a first-in,
first-out (FIFO) basis, or market.
(D) PROPERTY, PLANT AND EQUIPMENT
Property, Plant and Equipment is recorded at cost. Depreciation is provided
for on a straight-line basis over the estimated useful lives of the related
assets. Leasehold improvements are amortized on a straight-line basis over the
shorter of their useful lives or the terms of the respective leases.
F-7
<PAGE>
BARR LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
The estimated useful lives of the major classification of depreciable assets
are:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings.......................................................................... 45
Building Improvements.............................................................. 10
Machinery and Equipment............................................................ 3-10
Leasehold Improvements............................................................. 3-10
Automobiles and Trucks............................................................. 3-5
</TABLE>
Maintenance and repairs are charged to operations as incurred; renewals and
betterments are capitalized.
(E) RESEARCH AND DEVELOPMENT
Research and development costs, which consist principally of product
development costs, are charged to operations as incurred.
(F) EARNINGS PER SHARE
On April 11, 1997, the Company's Board of Directors declared a 3-for-2 stock
split effected in the form of a 50% stock dividend. Approximately 7.1 million
additional shares of common stock were distributed on May 7, 1997 to
shareholders of record as of April 24, 1997. On February 21, 1996, the Company's
Board of Directors declared a 3-for-2 stock split effected in the form of a 50%
stock dividend. Approximately 4.7 million additional shares of common stock were
distributed on March 25, 1996 to shareholders of record as of March 4, 1996. All
prior year share and per share amounts have been adjusted for the stock splits.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share". SFAS
No. 128 specifies the computation, presentation and disclosure requirements for
earnings per share ("EPS") and became effective for both interim and annual
periods ending after December 15, 1997. All prior period EPS data has been
restated to conform with the provisions of SFAS No. 128. The following is a
reconciliation of the numerators and denominators used to calculate Earnings per
share before extraordinary loss in the Consolidated Statements of Earnings:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1995 1996 1997 1996 1997
--------- --------- --------- --------- ---------
EARNINGS PER COMMON SHARE:
Earnings before extraordinary loss (numerator)................. $ 6,370 $ 7,141 $ 19,447 $ 3,995 $ 17,512
Weighted average shares (denominator).......................... 20,125 20,968 21,133 21,074 21,550
Earnings before extraordinary loss........................... $ 0.32 $ 0.34 $ 0.92 $ 0.19 $ 0.82
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
EARNINGS PER COMMON SHARE--ASSUMING DILUTION:
Earnings before extraordinary loss (numerator)................. $ 6,370 $ 7,141 $ 19,447 $ 3,995 $ 17,512
Weighted average shares........................................ 20,125 20,968 21,133 21,074 21,550
Effect of Dilutive Options..................................... 468 789 1,297 1,148 1,582
--------- --------- --------- --------- ---------
Weighted averages shares--assuming dilution (denominator).... 20,593 21,757 22,430 22,222 23,132
Earnings before extraordinary loss........................... $ 0.31 $ 0.33 $ 0.87 $ 0.18 $ 0.76
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
F-8
<PAGE>
BARR LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
During the fiscal year ended June 30, 1995 and the six months ended December
31, 1996 there were 204 and 291, respectively, of outstanding options which were
not included in the computation of diluted EPS because the options' exercise
prices were greater than the average market price of the common stock for the
period.
(G) CASH AND CASH EQUIVALENTS
Cash equivalents consist of short-term, highly liquid investments (primarily
market auction securities with interest rates that are re-set in intervals of 7
to 71 days) which are readily convertible into cash at par value (cost). As of
June 30, 1996 and 1997, $20,924 and $11,239, respectively, of the Company's cash
was held in a cash collateral account to secure extension of credit to it by the
Innovator of Tamoxifen Citrate in accordance with the Distribution and Supply
Agreement between the Company and the Innovator.
In December 1995, the Company and the Innovator of Tamoxifen entered into an
Alternative Collateral Agreement ("Collateral Agreement") which suspends certain
sections of the Supply and Distribution Agreement ("Distribution Agreement")
entered by both parties in March, 1993. Under the Collateral Agreement,
extensions of credit to the Company will no longer need to be secured by a
letter of credit or cash collateral. However, the Company may at its discretion
maintain a balance in the escrow account based on its short-term cash
requirements. All remaining terms of the Distribution Agreement remain in place.
In return for the elimination of the cash collateral requirement and in lieu of
issuing letters of credit, the Company has agreed to pay the Innovator monthly
interest based on the average monthly Tamoxifen payable balance, as defined in
the agreement, and maintain compliance with certain financial covenants. The
Company was in compliance with such covenants at June 30, 1997.
(H) OTHER ASSETS
DEFERRED FINANCING FEES
All costs associated with the issuance of debt are being amortized on a
straight-line basis over the life of the related debt which matures in 2001 and
2002. The unamortized amounts of $524, $492 and $435 at June 30, 1996, June 30,
1997 and December 31, 1997, respectively, are included in Other Assets in the
Consolidated Balance Sheets.
In connection with the early extinguishment of $2,000 of the 10.15% Senior
Secured Notes and the 10.05% convertible subordinated notes, the Company wrote
off $188 and $31 in deferred financing fees in 1995 and 1996, respectively. In
connection with the November 1997 early extinguishment of the remaining $14,400
of the 10.15% Senior Secured Notes, the Company wrote off $195 in deferred
financing fees in the six months ended December 31, 1997. See Note (5) Long-Term
Debt.
INVESTMENT IN WARNER CHILCOTT
On August 13, 1997 Barr made a strategic investment in Warner Chilcott
Public Limited Company ("Warner Chilcott"), a developer, marketer and
distributor of specialty pharmaceutical products. In connection with Warner
Chilcott's Initial Public Offering ("Offering"), the Company acquired 250,000
Ordinary Shares represented by 250,000 American Depository Shares ("ADSs") at a
price equal to the initial public offering price less underwriting discounts and
commissions. The initial investment totaled $4,069. In addition, the Company was
granted warrants to purchase an additional 250,000 shares in the form of ADSs.
Beginning on the first anniversary of the Offering and annually thereafter for
the next three years, one-fourth of the warrant will be exercisable by Barr. If
Barr does not exercise in full the portion of
F-9
<PAGE>
BARR LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
the warrant exercisable during any one year, such portion of the warrant will
terminate. Finally, in connection with two product agreements signed with Warner
Chilcott, the Company has the opportunity to receive an additional 425,000
shares upon receipt of certain product approvals by Barr.
At December 31, 1997, in accordance with SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities", the Company's investment in
Warner Chilcott is included in Other Assets in the Consolidated Balance Sheet
and is recorded at market value with the unrealized gain or loss recognized as a
separate component of shareholders' equity, net of income taxes.
(I) FAIR VALUE OF FINANCIAL INSTRUMENTS
CASH, ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE--The carrying amounts of
these items are a reasonable estimate of their fair value.
LONG-TERM DEBT--The fair value of debt at June 30, 1996 and 1997 is
estimated at $23 million and $20 million, respectively. Estimates were
determined by discounting the future cash flows using rates currently available
to the Company.
The fair value estimates presented herein are based on pertinent information
available to management as of June 30, 1997. Although management is not aware of
any factors that would significantly affect the estimated fair value amounts,
such amounts have not been comprehensively revalued for purposes of these
financial statements since that date, and current estimates of fair value may
differ significantly from the amounts presented herein.
(J) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and use
assumptions that affect certain reported amounts and disclosures; actual results
may differ.
(K) REVENUE RECOGNITION
The Company recognizes revenue when goods are shipped.
(L) STOCK-BASED COMPENSATION
Effective January 1, 1996, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 ("SFAS No. 123") "ACCOUNTING
FOR STOCK-BASED COMPENSATION." SFAS No. 123 requires the Company to either
record compensation expense or provide additional disclosures with respect to
stock awards and stock option grants made after December 31, 1994. The
accompanying Notes to Consolidated Financial Statements include the disclosures
required by SFAS No. 123. No compensation expense is recognized pursuant to the
Company's stock option plans under SFAS No. 123 which is consistent with prior
treatment under Accounting Principles Board Opinion No. 25 ("APB No. 25")
"ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES."
(2) PROCEEDS FROM SUPPLY AGREEMENT
In January 1997, Bayer AG and Bayer Corporation ("Bayer") and the Company
reached an agreement to settle the then pending litigation regarding Bayer's
patent protecting ciprofloxacin hydrochloride ("Settlement Agreement"). As a
result, the U.S. Federal Court for the Southern District of New York
F-10
<PAGE>
BARR LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
entered a Consent Judgment ending the litigation. In connection with the
Settlement Agreement, the Company acknowledged the validity and enforceability
of Bayer's world-wide ciprofloxacin patent, received an initial cash payment of
$24,550, and signed a contingent, non-exclusive Supply Agreement ("Supply
Agreement") which becomes effective in January, 1998 and ends at patent expiry
in December, 2003. During the term of the Supply Agreement, Bayer has the option
of supplying Barr and an unrelated third party with ciprofloxacin hydrochloride
to market and distribute pursuant to a license from Bayer or making quarterly
cash payments to Barr beginning in March, 1998. Under terms of the Supply
Agreement, Barr accrued revenue of $2,500 in June 1997.
(3) INVENTORIES
A summary of inventories is as follows:
<TABLE>
<CAPTION>
JUNE 30,
-------------------- DECEMBER 31,
1996 1997 1997
--------- --------- ------------
<S> <C> <C> <C>
Raw Materials and Supplies........................... $ 19,648 $ 21,403 $ 20,062
Work-in-Process...................................... 4,920 3,340 7,035
Finished Goods....................................... 17,828 31,473 14,713
--------- --------- ------------
$ 42,396 $ 56,216 $ 41,810
--------- --------- ------------
--------- --------- ------------
</TABLE>
Tamoxifen Citrate, purchased as a finished product, accounted for $12,590,
$23,155 and $6,447 of finished goods inventory at June 30, 1996, June 30, 1997
and December 31, 1997, respectively.
(4) PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment is as follows:
<TABLE>
<CAPTION>
JUNE 30,
--------------------
<S> <C> <C>
1996 1997
--------- ---------
Land................................................................ $ 2,338 $ 2,338
Buildings and Improvements.......................................... 21,639 23,653
Machinery and Equipment............................................. 36,528 40,209
Leasehold Improvements.............................................. 1,659 1,841
Automobiles and Trucks.............................................. 68 68
Construction in Progress............................................ 13,396 41,686
--------- ---------
75,628 109,795
Less: Accumulated Depreciation & Amortization....................... 29,889 33,867
--------- ---------
$ 45,739 $ 75,928
--------- ---------
--------- ---------
</TABLE>
For the years ended June 30, 1995, 1996 and 1997, $176, $526 and $1,801 of
interest was capitalized, respectively.
F-11
<PAGE>
BARR LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
(5) LONG-TERM DEBT
A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
JUNE 30,
-------------------- DECEMBER 31,
1996 1997 1997
--------- --------- ------------
<S> <C> <C> <C>
New Jersey Economic Development $ 371
Authority Bond (a)..................................... $ 328 $ 307
10.15% Senior Secured Notes Due 18,000
June 28, 2001 (b)...................................... 14,400 --
Senior Unsecured Notes (b)............................... -- -- 30,000
Equipment Financing (c).................................. 3,153 4,352 4,100
--------- --------- ------------
21,524 19,080 34,407
Less Current Installments of 3,815
Long-Term Debt......................................... 4,139 1,964
--------- --------- ------------
Total Long-Term Debt..................................... $ 17,709 $ 14,941 $ 32,443
--------- --------- ------------
--------- --------- ------------
</TABLE>
- ------------------------
(a) The New Jersey Economic Development Authority Bond is payable to a bank.
Such loan is secured by a first mortgage on land, building and improvements
on the facility located at 265 Livingston Street. Interest is charged at 75%
of the bank's prime rate. The prime rate was 8.25% and 8.5% at June 30, 1996
and 1997, respectively. Monthly installments are $3.6 plus interest, through
December 1999. Upon maturity in January 2000, there will be a final
installment equal to the then remaining principal balance of $220.
(b) In June 1991, the Company entered into a note purchase agreement and issued
$20,000 of Senior Secured Notes bearing interest at a rate of 10.15%,
payable semiannually. In March 1996, the Company negotiated the prepayment
of $2,000 of these Notes. The cash payment of $2,213 included a prepayment
penalty of $169 and accrued interest through March 15, 1996 of $44. The
prepayment penalty of $169 and the related write-off of approximately $31 in
previously deferred financing costs resulted in an extraordinary loss, which
net of taxes of $76, was $125 or $0.01 per share. The Company began making
annual principal payments of $3,600 in June 1997. These notes were
collateralized by a first mortgage on the Pomona, New York facility and all
machinery and equipment other than machinery and equipment in the Forest,
Virginia facility.
In November 1997, the Company refinanced the outstanding $14,400 Senior
Secured Notes with $30,000 of Senior Unsecured Notes with an average
interest rate of 6.88% per year. The cash payment of $16,055 included the
outstanding principal of $14,400, a prepayment penalty of $1,087 and accrued
interest through November 18, 1997 of $568. The prepayment penalty of $1,087
and the related write-off of approximately $195 in previously deferred
financing costs resulted in an extraordinary loss for the six months ended
December 31, 1997. This extraordinary loss from early extinguishment of
debt, net of taxes of $492, was $790 or $0.04 per share. The new Senior
Unsecured Notes of $30,000 include a $20,000, 7.01% Note due November 18,
2007 and $10,000, 6.61% Notes due November 18, 2004. Annual principal
payments under the Notes total $1,429 through November 2002, $5,429 in 2003
and 2004 and $4,000 in 2005 through 2007.
(c) In April 1996, the Company signed a Loan and Security Agreement with
BankAmerica Leasing and Capital Group which provides the Company up to
$18,750 in financing for equipment to be purchased
F-12
<PAGE>
BARR LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
through October 1997. Notes entered into under this agreement require no
principal payment for the first two quarters; bear interest quarterly at a
rate equal to the London Interbank Offer Rate (LIBOR) plus 125 basis points;
and have a term of 72 months. LIBOR was 5.625% and 5.813% at June 30, 1996
and June 30, 1997, respectively. The Agreement contains certain financial
covenants with which the Company was in compliance as of June 30, 1997. In
November 1997, the Company opted not to renew this facility.
In June 1991, the Company entered into a note purchase agreement and issued
$10,000 of convertible subordinated notes bearing interest at the rate of
10.05%, payable semiannually. In February 1995, these notes were converted into
1,148,305 shares of common stock, as adjusted for the 3-for-2 stock splits in
March 1996 and May 1997; and the Company incurred an extraordinary loss
resulting primarily from the write-off of deferred financing costs. This
extraordinary loss from early extinguishment of debt, net of taxes of $92, was
$145 or $0.01 per share for the year ended June 30, 1995.
In November 1997, the Company replaced its $10,000 Secured Revolving Credit
facility with Bank of America Illinois with a $20,000 Unsecured Revolving Credit
facility ("Revolver"). In addition, the term of the Revolver was extended one
year to July 31, 2000. Borrowings under this facility bear interest at LIBOR
plus 0.75%. In addition the Company is required to pay a commitment fee equal to
.25% of the difference between the outstanding borrowings and $20,000. There
were no borrowings outstanding under the Revolving Credit Facility at December
31, 1997.
At June 30, 1997, principal maturities of existing long-term debt for the
next five years and thereafter are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
JUNE 30,
- ---------------------------------------------------------------------------------
<S> <C>
1998............................................................................. $ 4,139
1999............................................................................. 4,139
2000............................................................................. 4,337
2001............................................................................. 4,095
2002............................................................................. 1,756
Thereafter....................................................................... 614
</TABLE>
(6) RELATED-PARTY TRANSACTIONS
The Company's related party transactions were with affiliated companies of
Dr. Bernard C. Sherman. During the years ended June 30, 1995, 1996, and 1997,
the Company purchased $435, $1,800, and $1,800, respectively, of bulk
pharmaceutical material from such companies. In addition, the Company sold
certain of its pharmaceutical products and bulk pharmaceutical materials to five
other companies owned by Dr. Bernard Sherman and was paid an aggregate of
approximately $2,585, $4,296 and 4,971, upon such sales during the years ended
June 30, 1995, 1996, and 1997, respectively. During fiscal 1996, the Company
also entered a multi-year agreement with a Company owned by Dr. Sherman to share
litigation costs in connection with one of its patent challenges. For the years
ended June 30, 1996 and 1997 the Company received $570 and $987 respectively, in
connection with such agreement which was recorded as a reduction to selling,
general and administrative expenses.
In June 1992, a shareholder action was filed against the Company and Edwin
A. Cohen, then President of the Company, and Louis J. Guerci, who was a Vice
President of the Company. In November 1994, the Company agreed to settle this
matter. Management strongly believed that the case was
F-13
<PAGE>
BARR LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
without merit, but determined that it was in the Company's best interest to
settle rather than participate in continued litigation. In December 1994, the
court approved the settlement. As of June 30, 1997, the final payment amount (on
the "claims made basis") of $1,500 has been paid, approximately one-half by the
Company and one-half by the Company's insurance company.
During the years ended June 30, 1995, 1996 and 1997, Mr. Cohen earned $250,
$213 and $250, respectively, under a consulting agreement.
(7) INCOME TAXES
A summary of the components of income tax expense is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
<S> <C> <C> <C>
1995 1996 1997
--------- --------- ---------
Federal:
Current................................................... $ 3,680 $ 3,110 $ 10,757
Deferred.................................................. (242) 617 294
--------- --------- ---------
3,438 3,727 11,051
--------- --------- ---------
State:
Current................................................... 487 405 1,372
Deferred.................................................. (165) 160 180
--------- --------- ---------
322 565 1,552
--------- --------- ---------
$ 3,760 $ 4,292 $ 12,603
--------- --------- ---------
--------- --------- ---------
</TABLE>
Income tax expense for the years ended June 30, 1995, 1996 and 1997 is
included in the financial statements as follows:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Continuing operations....................................... $ 3,852 $ 4,368 $ 12,603
Extraordinary loss on early extinguishment of debt.......... (92) (76) --
--------- --------- ---------
$ 3,760 $ 4,292 $ 12,603
--------- --------- ---------
--------- --------- ---------
</TABLE>
The provision for income taxes differs from amounts computed by applying the
statutory federal income tax rate to income before taxes due to the following:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
<S> <C> <C> <C>
1995 1996 1997
--------- --------- ---------
Federal Income Taxes at Statutory Rate...................... $ 3,475 $ 3,958 $ 11,214
State Income Taxes, Net of Federal Income Tax Effect........ 212 360 1,070
Other, Net.................................................. 73 (26) 319
--------- --------- ---------
$ 3,760 $ 4,292 $ 12,603
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-14
<PAGE>
BARR LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
The temporary differences that give rise to deferred tax assets and
liabilities as of June 30, 1996 and 1997 are as follows:
<TABLE>
<S> <C> <C>
1996 1997
--------- ---------
Deferred Tax Assets:
Receivable Reserves.................................. $ 776 $ 561
Inventory Reserves................................... 187 990
Inventory Capitalization............................. 552 706
Other Operating Reserves............................. 1,256 903
--------- ---------
Total Deferred Tax Assets.............................. 2,771 3,160
Deferred Tax Liabilities:
Plant and Equipment.................................. (1,324) (1,230)
Proceeds from Supply Agreement....................... -- (957)
--------- ---------
Total Deferred Tax Liabilities......................... (1,324) (2,187)
--------- ---------
Net Deferred Tax Asset................................. $ 1,447 $ 973
--------- ---------
--------- ---------
</TABLE>
INTERNAL REVENUE SERVICE ("IRS")
In December 1995, the Company received a "30-day" letter from the IRS
disallowing approximately $750 in research and development tax credits,
originating from the fiscal years ended June 30, 1987 through June 30, 1992, on
the grounds that research and development tax credits taken in developing
generic drugs for approval under the ANDA procedure are excluded from the
definition of the term "qualified research" by the duplication exclusion
contained in section 41(d)(4)(C) of the IRS codes, and other grounds. On May 12,
1997 the Company settled the claim with the IRS, without agreeing that the
Company's activities do not qualify for credit, for approximately $822 including
interest. A provision for an estimate of the settlement amount had been
previously included in the Company's 1996 consolidated financial statements, and
therefore the payment did not have a significant adverse effect on the Company's
1997 consolidated financial statements.
(8) SHAREHOLDERS' EQUITY
EMPLOYEE STOCK OPTION PLANS
The Company has stock option plans, which were approved by the shareholders
and which authorize the granting of options to officers and certain key
employees to purchase the Company's common stock at a price equal to the market
price on the date of grant.
During fiscal 1994, the shareholders ratified the adoption by the Board of
Directors of the 1993 Stock Incentive Plan ("the 1993 Option Plan") in order to
ensure, among other things, that the Company would continue to have an adequate
number of shares of common stock available for grants of incentive and
unqualified stock options.
The Company's other option plan was approved by the shareholders in 1986
("the 1986 Option Plan"). As of June 30, 1996, options will no longer be granted
under this Plan.
F-15
<PAGE>
BARR LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
In December 1996, the shareholders ratified an amendment to the 1993 Option
Plan which increased the number of shares of Common stock which may be granted
by 1,125,000 to a total of 2,812,500 (after giving effect to the May 1997
3-for-2 stock split).
All options granted under the 1993 Option Plan and 1986 Option Plan through
June 30, 1996 are exercisable between one and two years from the date of grant
and expire ten years after the date of grant except in cases of death or
termination of employment as defined in each Plan. Options issued during the
fiscal year ended June 30, 1997 are exercisable between 1 and 3 years from the
date of grant. Also, to date, no option has been granted under either the 1993
Option Plan or the 1986 Option Plan at a price below the current market price of
the Company's common stock on the date of grant.
A summary of the activity resulting from all plans, adjusted for the March
1996 and May 1997 3-for-2 stock splits, is as follows:
<TABLE>
<CAPTION>
NO. OF
SHARES OPTION PRICE
------------ --------------
<S> <C> <C>
Outstanding at 6/30/94......................................... 1,053,571 $ 1.94-9.00
Granted........................................................ 433,125 9.64-11.24
Canceled....................................................... (21,390) 4.00-9.64
Exercised...................................................... (40,500) 1.94-7.66
------------
Outstanding at 6/30/95......................................... 1,424,806 1.94-11.24
Granted........................................................ 573,741 10.52-10.64
Canceled....................................................... (50,062) 2.83-10.52
Exercised...................................................... (110,437) 2.44-10.83
------------
Outstanding at 6/30/96......................................... 1,838,048 1.94-11.24
Granted........................................................ 330,406 17.54-37.38
Canceled....................................................... (1,125) 10.52
Exercised...................................................... (181,938) 1.94-10.94
------------
Outstanding at 6/30/97......................................... 1,985,391 1.94-37.38
------------
------------
Exercised to date through 6/30/97.............................. 864,395
Expired under 1986 Plan........................................ 64,165
Available for Grant (4,162,500 authorized)..................... 1,248,549
Exercisable at 6/30/97......................................... 1,289,942 $ 1.94-11.24
</TABLE>
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
During fiscal year 1994, the shareholders ratified the adoption by the Board
of Directors of the 1993 Stock Option Plan for Non-Employee Directors (the
"Directors' Plan"). An aggregate of 337,500 shares of common stock were
authorized to be granted under the Directors' Plan. In December, 1996 the
shareholders ratified an amendment to the Directors Plan which increased the
number of shares of common stock which may be granted by 225,000 to a total of
562,500. This formula plan, among other things, enhances
F-16
<PAGE>
BARR LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
the Company's ability to attract and retain experienced directors. In December
1995, the number of shares which each non-employee director is optioned was
increased from 6,750 to 11,250 shares on the grant date, except in the case of
the first grant date (which was the date of the 1993 Annual Meeting) where each
eligible director was optioned 27,000 shares.
All options granted under the Directors' Plan have ten-year terms and are
exercisable at an option exercise price equal to the market price of common
stock on the date of grant. Each option is exercisable on the date of the first
annual shareholders' meeting immediately following the date of grant of the
option, provided there has been no interruption of the optionee's service on the
Board before that date. The following is a summary of activity, adjusted for the
March 1996 and May 1997 3-for-2 stock splits, for the three fiscal years ended
June 30, 1997:
<TABLE>
<CAPTION>
NO. OF
SHARES OPTION PRICE
--------- -------------
<S> <C> <C>
Outstanding at 6/30/94.............................................. 108,000 $ 9.16
Granted............................................................. 40,500 11.38
---------
Outstanding at 6/30/95.............................................. 148,500 9.16-11.38
Granted............................................................. 67,500 10.33
---------
Outstanding at 6/30/96.............................................. 216,000 9.16-11.38
Granted............................................................. 67,500 17.25
Exercised........................................................... (40,000) 9.16
---------
Outstanding at 6/30/97.............................................. 243,500 9.16-17.25
---------
---------
Available for Grant (562,500 authorized)............................ 279,000
---------
---------
Exercisable at 6/30/97.............................................. 176,000 $ 9.16-11.38
---------
---------
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN
During fiscal 1994, the shareholders ratified the adoption by the Board of
Directors of the 1993 Employee Stock Purchase Plan (the "Purchase Plan") to
offer employees an inducement to acquire an ownership interest in the Company.
After giving effect for the May, 1997 stock split the Purchase Plan permits
eligible employees to purchase, through regular payroll deductions, an aggregate
of 450,000 shares of common stock at approximately 85% of the fair market value
of such shares. Under the Plan, purchases were 51,202, 59,977 and 50,916 for the
years ended June 30, 1995, 1996 and 1997, respectively.
The Company applies APB No. 25 and related Interpretations in accounting for
its stock-based compensation plans. Accordingly, no compensation cost has been
recognized for its stock option plans and its stock purchase plan. Had
compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the
F-17
<PAGE>
BARR LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
method of SFAS No. 123, the Company's net income and earnings per share would
have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C> <C>
Net income................................................................... As reported $ 7,016 $ 19,447
Pro forma 6,637 18,120
Net earnings per share....................................................... As reported $ 0.33 $ 0.92
Pro forma 0.32 0.86
Net earnings per share--assuming dilution.................................... As reported $ 0.32 $ 0.87
Pro forma 0.31 0.81
</TABLE>
The fair value of each option grant was estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions for 1996
and 1997, respectively: dividend yield of 0% in both years; expected volatility
of 38.5% and 42.6%; weighted-average risk-free interest rates of 5.8% and 6.3%;
and expected option life of 3 years for the 1993 Option Plan and 4 years for the
Directors' Plan.
The following table summarizes information about stock options outstanding
at June 30, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------- -------------------------
<S> <C> <C> <C> <C> <C>
WEIGHTED WEIGHTED
RANGE OF NUMBER WEIGHTED AVERAGE AVERAGE NUMBER AVERAGE
EXERCISE OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE
PRICES AT 6/30/97 CONTRACTUAL LIFE PRICE AT 6/30/97 PRICE
- ------------- ----------- ---------------- ------------- ---------- -------------
$ 1.94-6.00 554,164 4.8 years $ 4.16 470,915 $ 4.08
7.55-11.38 1,276,821 7.2 years 9.77 995,027 9.56
17.25-19.29 387,406 9.3 years 18.82 -- --
22.12-37.38 10,500 9.9 years 30.84 -- --
----------- ----------
2,228,891 1,465,942
----------- ----------
----------- ----------
</TABLE>
(9) SAVINGS AND RETIREMENT PLAN
The Company has a savings and retirement plan (the "401(k) Plan") which is
intended to qualify under Section 401(k) of the Internal Revenue Code. Employees
are eligible to participate in the 401(k) Plan in the first month following the
month of hire. Prior to June 30, 1995, under the terms of the 401(k) Plan,
participating employees could contribute up to a maximum of 15% of their
earnings (9% of their earnings before taxes and up to 6% of after-tax earnings).
Beginning July 1, 1995, participating employees may contribute up to a maximum
of 12% of their earnings before or after taxes. The Company is required,
pursuant to the terms of its union contract, to contribute to each union
employee's account an amount equal to the 2% minimum contribution made by such
employee. The Company may, at its discretion, contribute a percentage of the
amount contributed by an employee to the 401(k) Plan up to a maximum of 10% of
such employee's compensation. Participants are always fully vested with respect
to their own salary and cash contributions and any profits arising therefrom.
Participants become vested with respect to 20% of the Company's contributions to
their accounts and any profits arising therefrom for each full year of
employment with the Company and thus become fully vested after five full years
of employment.
The Company's contributions to the 401(k) Plan were $1,173, $1,488 and
$1,745, for the years ended June 30, 1995, 1996, and 1997, respectively.
F-18
<PAGE>
BARR LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
(10) OTHER INCOME
A summary of other income is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
<S> <C> <C> <C>
1995 1996 1997
--------- --------- ---------
Net Gain (Loss) on Sale of Equipment................................... $ 113 $ (63) $ 203
Joint Venture Litigation (a)........................................... -- 694 --
Other.................................................................. 5 6 25
--------- --- ---------
Other Income........................................................... $ 118 $ 637 $ 228
--------- --- ---------
--------- --- ---------
</TABLE>
(a) In May 1996, the Company and an affiliated company reached an agreement with
a former partner in a joint venture and received on June 10, 1996, $694 of a
$1,000 deposit which was paid in escrow in furtherance of the possible joint
venture. The Company had previously written off the $1,000 investment in the
fourth quarter of fiscal 1992.
(11) COMMITMENTS AND CONTINGENCIES
The Company is party to various operating leases which relate to the rental
of office and plant facilities and of equipment. The Company is satisfied with
its ability to extend such leases, if necessary. Rent expense charged to
operations was $1,217, $1,126 and $1,314 in 1995, 1996 and 1997, respectively.
Future minimum rental payments, exclusive of taxes, insurance and other costs
under noncancellable long-term operating lease commitments, are as follows:
<TABLE>
<CAPTION>
MINIMUM
YEAR ENDING RENTAL
JUNE 30, PAYMENTS
- ----------------------------------------------------------------------------------- -----------
<S> <C>
1998............................................................................... $ 1,168
1999............................................................................... 806
2000............................................................................... 161
2001............................................................................... 49
Thereafter......................................................................... --
</TABLE>
PRODUCT LIABILITY
The Company maintains product liability insurance coverage in the amount of
$20,000. No significant product liability suit has ever been filed against the
Company, however, if one were filed and such a case were successful against the
Company, it could have a material adverse effect upon the business and financial
condition of the Company to the extent such judgment was not covered by
insurance or exceeded the policy limits.
SHAREHOLDER ACTION
On November 16, 1994, the Company agreed to settle a 1992 shareholder
action, filed against the Company and two former officers, which alleged the
violation of certain SEC regulations. In December 1994, the Court approved the
settlement.
F-19
<PAGE>
BARR LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
(11) COMMITMENTS AND CONTINGENCIES (CONTINUED)
Management strongly believed that the case was without merit, but determined
that it was in the Company's best interest to settle rather than participate in
continued litigation. As of June 30, 1997, the total settlement, valued at
approximately $1,500, was shared equally by the Company and its insurers. A
provision for the Company's estimated share of the cost of the action had been
previously included in the Company's 1994 consolidated financial statements.
OTHER LITIGATION
As of June 1997, the Company was involved with other lawsuits incidental to
its business, including patent infringement actions. Management of the Company,
based on the advice of legal counsel, believes that the ultimate disposition of
such other lawsuits will not have any significant adverse effect on the
Company's consolidated financial statements.
F-20
<PAGE>
BARR LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
(12) QUARTERLY DATA (UNAUDITED)
A summary of the quarterly results of operations is as follows:
<TABLE>
<CAPTION>
THREE-MONTH PERIOD ENDED
--------------------------------------------------
SEPT. 30 DEC. 31 MAR. 31 JUNE 30
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE
AMOUNTS)
FISCAL YEAR 1997:
Total revenues(1).............................................. $ 64,231 $ 67,335 $ 84,714 $ 68,206
Cost of sales.................................................. 53,476 57,685 50,959 55,076
Net earnings................................................... 1,767 2,228 14,925 527
Net earnings per common share (2).............................. $ 0.08 $ 0.11 $ 0.71 $ 0.02
Net earnings per common share -- assuming dilution (2)......... 0.08 0.10 0.66 0.02
PRICE RANGE OF COMMON STOCK (3)
High........................................................... $ 20.00 $ 19.33 $ 28.00 $ 49.75
Low............................................................ 14.75 16.83 16.42 24.38
FISCAL YEAR 1996:
Total revenues................................................. $ 54,176 $ 57,465 $ 60,088 $ 60,495
Cost of sales.................................................. 43,459 46,541 49,405 49,989
Earnings before extraordinary loss on early extinguishment of
debt......................................................... 2,201 1,989 1,269 1,682
Net earnings................................................... 2,201 1,989 1,144 1,682
Earnings per common share (2):
Earnings before extraordinary loss........................... $ 0.11 $ 0.09 $ 0.06 $ 0.08
Net earnings................................................. 0.11 0.09 0.05 0.08
Earnings per common share -- assuming dilution (2):
Earnings before extraordinary loss........................... $ 0.10 $ 0.09 $ 0.06 $ 0.08
Net earnings................................................. 0.10 0.09 0.05 0.08
PRICE RANGE OF COMMON STOCK (3)
High........................................................... $ 10.94 $ 13.67 $ 18.33 $ 20.83
Low............................................................ 9.11 9.33 11.39 16.42
</TABLE>
- ------------------------
(1) Amounts include Proceeds from Supply Agreement of $24,550 and $2,500 for the
quarters ended March 31, 1997 and June 30, 1997, respectively.
(2) The sum of the individual quarters may not equal the full year amounts due
to the effects of the market prices in the application of the treasury stock
method. During its two most recent fiscal years, the Company paid no cash
dividend.
(3) The Company's common stock is listed and traded on the American Stock
Exchange. At June 30, 1997, there were approximately 723 record shareholders
of common stock. The Company believes that a significant number of
beneficial owners hold their shares in street name.
F-21
<PAGE>
No dealer, salesperson or other person has been authorized to give any
information or to make any representation other than those contained in this
Prospectus in connection with the offer contained herein, and if given or made,
such information or representation must not be relied upon as having been
authorized by the Company, the Selling Stockholders or any Underwriter. This
Prospectus does not constitute an offer to sell, or a solicitation of an offer
to buy, shares of Common Stock in any jurisdiction to any person to whom it is
not lawful to make any such offer or solicitation in such jurisdiction or in
which the person making such offer or solicitation is not qualified to do so.
Neither the delivery of this Prospectus nor any sale made hereunder shall, under
any circumstances, create an implication that there has been no change in the
affairs of the Company since the date hereof.
TABLE OF CONTENTS
-------------------------------------------
<TABLE>
<CAPTION>
Available Information........................... 2
<S> <C>
Incorporation of Certain Documents by
Reference..................................... 2
Prospectus Summary.............................. 3
Risk Factors.................................... 7
Use of Proceeds................................. 13
Price Range of Common Stock..................... 13
Dividend Policy................................. 13
Capitalization.................................. 14
Selected Consolidated Financial Data............ 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 16
Business........................................ 22
Management...................................... 38
Selling Stockholders............................ 41
Description of Capital Stock.................... 41
Underwriting.................................... 42
Legal Matters................................... 43
Experts......................................... 43
Index to Consolidated Financial
Statements.................................... F-1
</TABLE>
PROSPECTUS , 1998
[LOGO]
3,200,000 Shares
BARR LABORATORIES, INC.
Common Stock
SBC WARBURG DILLON READ INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses in connection with the issuance and distribution of the
securities being registered, other than underwriting discounts and commissions,
are estimated to be:
<TABLE>
<S> <C>
SEC Registration Fee.............................................. $ 37,182
NASD Filing Fee................................................... 13,104
Stock Exchange Listing Fee........................................
Printing and Engraving Costs......................................
Transfer Agent and Registrar Fees.................................
Accounting Fees...................................................
Legal Fees and Expenses...........................................
Blue Sky Fees and Expenses........................................
Miscellaneous.....................................................
---------
Total......................................................... $
---------
</TABLE>
All expenses will be borne by the Company and the Selling Stockholders on a
pro rata basis determined by the number of shares sold by each, except that each
will pay all legal fees and expenses incurred by it.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 721 through 726 of the New York Business Corporation Law contain
detailed provision for indemnification of directors and officers of New York
corporations against judgments, penalties, fines, settlements and reasonable
expenses in connection with litigation. Such statutory provisions are not
exclusive of any rights to indemnification granted under the Certificate of
Incorporation of Barr, as amended (the "Certificate"), Barr's By-laws, as
amended (the "By-laws"), indemnification agreements or otherwise.
Article Eighth of the Certificate and Article X of the By-laws permit, but
do not require, Barr to indemnify directors and officers of Barr to the fullest
extent permitted by law.
Barr has purchased insurance which insures (subject to certain terms and
conditions, exclusions and deductibles) Barr against certain costs which Barr
might be required to pay by way of indemnification to its directors or officers
under the Certificate or By-laws, indemnification agreements or otherwise and
protects individual directors and officers from certain losses for which they
might not be indemnified by Barr. In addition, Barr has purchased insurance
which provides liability coverage (subject to certain terms and conditions,
exclusions and deductibles) for amounts which Barr, or the fiduciaries under
Barr's employee benefit plans, which may include directors, officers and
employees of Barr, might be required to pay as a result of a breach of fiduciary
duty.
II-1
<PAGE>
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- --------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
5.1 Opinion of Winston & Strawn
23.1 Consent of Winston & Strawn (See Exhibit 5.1)
23.2 Consent of Deloitte & Touche LLP
24.1 Powers of Attorney (Included on the signature page of this Registration Statement)
</TABLE>
ITEM 17. UNDERTAKINGS.
The Company hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, (1) each filing of the Company's
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in this Registration Statement shall be
deemed to be a new registration statement, relating to the securities offered
herein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof, (2) the information omitted from the
form of prospectus filed as part of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the registrant pursuant
to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this registration statement as of the time it was declared effective,
and (3) each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
herein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the provisions described under Item 15 above or otherwise,
the Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted against
the Company by such director, officer or controlling person in connection with
the securities being registered, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Pomona, State of New York on this 30th day of
January, 1998.
BARR LABORATORIES, INC.
By /s/ PAUL M. BISARO
-----------------------------------------
Paul M. Bisaro
SENIOR VICE PRESIDENT
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Bruce L. Downey and Paul M. Bisaro and
each of them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
or all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all said
attorneys-in-fact and agents, or any of them, or their substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
SIGNATURE TITLE DATE
- -------------------------- -------------------------- ----------------------
/s/ BRUCE L. DOWNEY
- -------------------------- Director and Principal January 30, 1998
Bruce L. Downey Executive Officer
/s/ WILLIAM T. MCKEE Principal Financial
- -------------------------- Officer and Principal January 30, 1998
William T. McKee Accounting Officer
/s/ EDWIN A. COHEN
- -------------------------- Director January 30, 1998
Edwin A. Cohen
/s/ ROBERT J. BOLGER
- -------------------------- Director January 30, 1998
Robert J. Bolger
/s/ MICHAEL F. FLORENCE
- -------------------------- Director January 30, 1998
Michael F. Florence
/s/ JACOB M. KAY
- -------------------------- Director January 30, 1998
Jacob M. Kay
/s/ BERNARD C. SHERMAN
- -------------------------- Director January 30, 1998
Bernard C. Sherman
/s/ GEORGE P. STEPHAN
- -------------------------- Director January 30, 1998
George P. Stephan
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO.
- -----------
<C> <S> <C>
1.1 Form of Underwriting Agreement................................................... Filed Electronically
5.1 Opinion of Winston & Strawn...................................................... Filed Electronically
23.1 Consent of Winston & Strawn (See Exhibit 5.1)....................................
23.2 Consent of Deloitte & Touche LLP................................................. Filed Electronically
24.1 Powers of Attorney (Included on the signature page of this Registration
Statement).......................................................................
</TABLE>
<PAGE>
Exhibit 1.1
BARR LABORATORIES, INC.
3,200,000 Shares
Common Stock
($.01 Par Value)
UNDERWRITING AGREEMENT
, 1998
<PAGE>
BARR LABORATORIES, INC.
3,200,000 Shares
Common Stock
($.01 par value)
UNDERWRITING AGREEMENT
, 1998
SBC WARBURG DILLON READ INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION,
as Managing Underwriters
c/o SBC Warburg Dillon Read Inc.
535 Madison Avenue
New York, New York 10022
Dear Sirs:
Barr Laboratories, Inc. (the "Company") proposes to issue and sell and
the persons named in Schedule B annexed hereto (the "Selling Stockholders")
propose to sell to the underwriters named in Schedule A annexed hereto (the
"Underwriters") an aggregate of 3,200,000 shares (the "Firm Shares") of Common
Stock, $.01 par value (the "Common Stock"), of the Company, of which 200,000
shares are to be issued and sold by the Company and an aggregate of 3,000,000
shares are to be sold by the Selling Stockholders in the respective amounts set
forth under the caption "Firm Shares" in Schedule B annexed hereto. In
addition, solely for the purpose of covering over-allotments, the Selling
Stockholders and the Company propose to grant to the Underwriters the option to
purchase from the Selling Stockholders or the Company, as the case may be, up to
an additional 480,000 shares of Common Stock (the "Additional Shares"). The
Selling Stockholders shall provide the Additional Shares pursuant to the
over-allotment option, however, if such Additional Shares are unavailable from
the Selling Stockholders then the Company shall provide the Additional Shares.
The Firm Shares and the Additional Shares are hereinafter collectively sometimes
referred to as the "Shares." The Shares are described in the Prospectus which
is referred to below.
<PAGE>
-2-
The Company has filed, in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations thereunder
(collectively, the "Act"), with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3, including a prospectus,
relating to the Shares, which incorporates by reference documents which the
Company has filed in accordance with the provisions of the Securities Exchange
Act of 1934, as amended, and the rules and regulations thereunder (collectively,
the "Exchange Act"). The Company has furnished to you, for use by the
Underwriters and by dealers, copies of one or more preliminary prospectuses and
the documents incorporated by reference therein (each thereof, including the
documents incorporated therein by reference, being herein called a "Preliminary
Prospectus") relating to the Shares. Except where the context otherwise
requires, the registration statement, as amended when it becomes effective,
including all documents filed as a part thereof or incorporated by reference
therein, and including any information contained in a prospectus subsequently
filed with the Commission pursuant to Rule 424(b) under the Act and deemed to be
part of the registration statement at the time of effectiveness pursuant to Rule
430A under the Act, is herein called the "Registration Statement," and the
prospectus, including all documents incorporated therein by reference, in the
form filed by the Company with the Commission pursuant to Rule 424(b) under the
Act or, if no such filing is required, the form of final prospectus included in
the Registration Statement at the time it became effective, is herein called the
"Prospectus."
The Company, the Selling Stockholders and the Underwriters agree as
follows:
1. Sale and Purchase. Upon the basis of the warranties and
representations and the other terms and conditions herein set forth, the Company
and each of the Selling Stockholders, severally and not jointly, agree to sell
to the respective Underwriters and each of the Underwriters, severally and not
jointly, agrees to purchase from the Company and each Selling Stockholder the
respective number of Firm Shares (subject to such adjustment as you may
determine to avoid fractional shares) which bears the same proportion to the
number of Firm Shares to be sold by the Company or by such Selling Stockholders,
as the case may be, as the number of Firm Shares set forth opposite the name of
such Underwriter in Schedule A annexed hereto bears to the total number of Firm
Shares to be sold by the Company and the Selling Stockholders, in each case at a
purchase price of $ per Share. The Company and each Selling Stockholder is
advised by you that the Underwriters intend
<PAGE>
-3-
(i) to make a public offering of their respective portions of the Firm Shares as
soon after the effective date of the Registration Statement as in your judgment
is advisable and (ii) initially to offer the Firm Shares upon the terms set
forth in the Prospectus. You may from time to time increase or decrease the
public offering price after the initial public offering to such extent as you
may determine.
In addition, the Selling Stockholders and the Company hereby grant to
the several Underwriters the option to purchase, and upon the basis of the
warranties and representations and the other terms and conditions herein set
forth, the Underwriters shall have the right to purchase, severally and not
jointly, from the Selling Stockholders and the Company, as the case may be,
ratably in accordance with the number of Firm Shares to be purchased by each of
them (subject to such adjustment as you shall determine to avoid fractional
shares), all or a portion of the Additional Shares as may be necessary to cover
over-allotments made in connection with the offering of the Firm Shares, at the
same purchase price per share to be paid by the Underwriters to the Selling
Stockholders and the Company for the Firm Shares. This option may be exercised
at any time (but not more than once) on or before the thirtieth day following
the date hereof, by written notice to the Selling Stockholders or the Company,
as the case may be. Such notice shall set forth the aggregate number of
Additional Shares as to which the option is being exercised, and the date and
time when the Additional Shares are to be delivered (such date and time being
herein referred to as the "additional time of purchase"); provided, however,
that the additional time of purchase shall not be earlier than the time of
purchase (as defined below) nor earlier than the second business day(1) after
the date on which the option shall have been exercised nor later than the tenth
business day after the date on which the option shall have been exercised. The
number of Additional Shares to be sold to each Underwriter shall be the number
which bears the same proportion to the aggregate number of Additional Shares
being purchased as the number of Firm Shares set forth opposite the name of such
Underwriter on Schedule A hereto bears to the total number of Firm Shares
(subject, in each case, to such adjustment as you may determine to eliminate
fractional shares).
- --------------------
(1) As used herein "business day" shall mean a day on which the New York Stock
Exchange is open for trading.
<PAGE>
-4-
Pursuant to powers of attorney, which shall be satisfactory to counsel
for the Underwriters, granted by each Selling Stockholder (the "Powers of
Attorney"), and will act as representatives of the
Selling Stockholders. The foregoing representatives (the "Representatives of
the Selling Stockholders") are authorized, on behalf of each Selling
Stockholder, to execute any documents necessary or desirable in connection with
the sale of the Shares to be sold hereunder by each Selling Stockholder, to make
delivery of the certificates of such Shares, to receive the proceeds of the sale
of such Shares, to give receipts for such proceeds, to pay therefrom the
expenses to be borne by each Selling Stockholder in connection with the sale and
public offering of the Shares, to distribute the balance of such proceeds to
each Selling Stockholder in proportion to the number of Shares sold by each
Selling Stockholder, to receive notices on behalf of each Selling Stockholder
and to take such other action as may be necessary or desirable in connection
with the transactions contemplated by this Agreement.
2. Payment and Delivery. Payment of the purchase price for the Firm
Shares shall be made to the Company and each of the Selling Stockholders by
Federal (same day) funds, against delivery of the certificates for the Firm
Shares to you through the facilities of The Depository Trust Company (the "DTC")
in the form of a global certificate or certificates registered in the name of
Cede & Co., the nominee of the DTC at the offices of Cahill Gordon & Reindel in
New York City, for the respective accounts of the Underwriters. Such payment
and delivery shall be made at 9:00 A.M., New York City time, on , 1998
(unless another time shall be agreed to by you and the Selling Stockholders or
unless postponed in accordance with the provisions of Section 10 hereof). The
time at which such payment and delivery are actually made is hereinafter
sometimes called the "time of purchase." Certificates for the Firm Shares shall
be issued in the name of Cede & Co. or in such names and in such denominations
as you shall specify on the second business day preceding the time of purchase.
For the purpose of expediting the checking of the certificates for the Firm
Shares by you, the Company and the Selling Stockholders agree to make such
certificates available to you for such purpose at least one full business day
preceding the time of purchase.
Payment of the purchase price for the Additional Shares shall be made
at the additional time of purchase in the same manner and at the same office as
the payment for the Firm Shares. Certificates for the Additional Shares shall
be issued
<PAGE>
-5-
in the name of Cede & Co. or in such names and in such denominations as you
shall specify on the second business day preceding the additional time of
purchase. For the purpose of expediting the checking of the certificates for
the Additional Shares by you, the Selling Stockholders and the Company, as the
case may be, agree to make such certificates available to you for such purpose
at least one full business day preceding the additional time of purchase.
3. Representations and Warranties of the Company. The Company
represents and warrants to each of the Underwriters that:
(a) when the Registration Statement becomes effective, the
Registration Statement and the Prospectus will fully comply in all
material respects with the provisions of the Act, and the Registration
Statement will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and the
Prospectus will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided,
however, that the Company makes no warranty or representation with
respect to any statement contained in the Registration Statement or
the Prospectus in reliance upon and in conformity with information
concerning the Underwriters and furnished in writing by or on behalf
of any Underwriter through you to the Company expressly for use in the
Registration Statement or the Prospectus; the documents incorporated
by reference in the Prospectus, at the time they were filed with the
Commission, complied in all material respects with the requirements of
the Exchange Act, and do not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(b) as of the date of this Agreement, the Company has an
authorized capitalization as set forth under the heading entitled
"Actual" in the section of the Registration Statement and the
Prospectus entitled "Capitalization" and, as of the time of
purchase and the additional time of purchase, as the case may be,
the
<PAGE>
-6-
Company shall have an authorized capitalization as set forth under the
heading entitled "As Adjusted" in the section of the Registration
Statement and the Prospectus entitled "Capitalization"; all of the
issued and outstanding shares of capital stock including Common Stock
of the Company have been duly and validly authorized and issued and
are fully paid and non-assessable; the Company has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the State of New York, with full power and authority
to own its properties and conduct its business as described in the
Registration Statement and the Prospectus, to execute and deliver this
Agreement and to issue and sell the Shares as herein contemplated;
(c) the Company and each of its subsidiaries (the
"Subsidiaries") are duly qualified or licensed by and are in good
standing in each jurisdiction in which they conduct their
respective businesses and in which the failure, individually or
in the aggregate, to be so licensed or qualified could have a
material adverse effect on the operations, business, condition,
prospects or property of the Company and its Subsidiaries, taken
as a whole (a "Material Adverse Effect"); and the Company and
each of its Subsidiaries are in compliance in all material
respects with the laws, orders, rules, regulations and directives
issued or administered by such jurisdictions;
(d) neither the Company nor any of its Subsidiaries is in
breach of, or in default under (nor has any event occurred which
with notice, lapse of time, or both would constitute a breach of,
or default under), its respective charter or by-laws or in the
performance or observance of any obligation, agreement, covenant
or condition contained in any indenture, mortgage, deed of trust,
bank loan or credit agreement or other agreement or instrument to
which the Company or any of its Subsidiaries is a party or by
which any of them is bound and which could have a Material
Adverse Effect, and the execution, delivery and performance of
this Agreement and the consummation of the transactions
contemplated hereby will not conflict with, or result in any
breach of or constitute a default under (nor constitute any event
which with notice, lapse of time, or both would constitute a
breach of, or default under), any provisions of the charter or
by-laws, of the Company or any of its Subsidiaries or under any
provision of any
<PAGE>
-7-
license, indenture, mortgage, deed of trust, bank loan or credit
agreement or other agreement or instrument to which the Company or any
of its Subsidiaries is a party or by which any of them or their
respective properties may be bound or affected, or under any federal,
state, local or foreign law, regulation or rule or any decree,
judgment or order applicable to the Company or any of its
Subsidiaries;
(e) this Agreement has been duly authorized, executed and
delivered by the Company and is a legal, valid and binding
agreement of the Company enforceable in accordance with its
terms, except as rights to indemnity and contribution hereunder
may be limited by securities laws and except as the
enforceability hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors'
rights generally and general principles of equity;
(f) the capital stock of the Company, including the Shares,
conforms in all material respects to the description thereof
contained in the Registration Statement and Prospectus and the
certificates for the Shares are in due and proper form and the
holders of the Shares will not be subject to personal liability
by reason of being such holders;
(g) no approval, authorization, consent or order of or
filing with any federal, state, local or foreign governmental or
regulatory commission, board, body, authority or agency is
required in connection with the issuance and sale of the Shares
as contemplated hereby other than registration of the Shares
under the Act and any necessary qualification under the
securities or blue sky laws of the various jurisdictions in which
the Shares are being offered by the Underwriters;
(h) no person has the right, contractual or otherwise, to
cause the Company to issue to it, or register pursuant to the
Act, any shares of capital stock of the Company upon the issue
and sale of the Shares to the Underwriters hereunder, nor does
any person have preemptive rights, rights of first refusal or
other rights to purchase any of the Shares;
(i) Deloitte & Touche LLP, whose reports on the
consolidated financial statements of the Company and its
Subsidiaries are filed with the Commission as part
<PAGE>
-8-
of the Registration Statement and Prospectus, are independent public
accountants as required by the Act;
(j) each of the Company and its Subsidiaries has all
necessary licenses, authorizations, consents and approvals and
has made all necessary filings required under any federal, state,
local or foreign law, regulation or rule, and has obtained all
necessary authorizations, consents and approvals from other
persons, in order to conduct its respective business, except
where the absence of any such license, authorization, consent
approval or filing could not have a Material Adverse Effect;
neither the Company nor any of its Subsidiaries is in violation
of, or in default under (nor has any event occurred which with
notice, lapse of time, or both would constitute a violation of or
a default under), any such license, authorization, consent or
approval or any federal, state, local or foreign law, regulation
or rule or any decree, order or judgment applicable to the
Company or any of its Subsidiaries the effect of which could have
a Material Adverse Effect;
(k) all legal or governmental proceedings, contracts or
documents of a character required to be described in the
Registration Statement or the Prospectus or to be filed as an
exhibit to the Registration Statement have been so described or
filed as required;
(l) except as described in the Registration Statement,
there are no actions, suits or proceedings pending or threatened
against the Company or any of its Subsidiaries or any of their
respective properties, at law or in equity, or before or by any
federal, state, local or foreign governmental or regulatory
commission, board, body, authority or agency which could result
in a judgment, decree or order having a Material Adverse Effect;
the Company is not a party nor subject to the provisions of any
material injunction, judgment, decree or order of any court,
regulatory body or other governmental agency or body;
(m) the audited financial statements included in the
Registration Statement and the Prospectus present fairly the
consolidated financial position of the Company and its
Subsidiaries as of the dates indicated and the consolidated
results of operations and changes in financial position of the
Company and its Subsidiaries for the periods specified; such
financial statements
<PAGE>
-9-
have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis during the periods involved;
(n) the unaudited interim financial statements included in
the Registration Statement and the Prospectus present fairly the
condensed consolidated financial position of the Company and its
Subsidiaries as of the dates indicated and the condensed
consolidated results of operations and changes in cash flows of
the Company and the Subsidiaries for the periods specified,
subject to normal year-end adjustments; such financial statements
have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis during the
periods involved;
(o) subsequent to the respective dates as of which
information is given in the Registration Statement and
Prospectus, and except as may be otherwise stated in the
Registration Statement or Prospectus, there has not been (A) any
material adverse change, financial or otherwise, in the business,
properties, prospects, regulatory environment, results of
operations or condition (financial or otherwise), present or
prospective, of the Company and its Subsidiaries taken as a
whole, (B) any transaction, which is material to the Company and
its Subsidiaries taken as a whole, contemplated or entered into
by the Company or any of its Subsidiaries or (C) any obligation,
contingent or otherwise, directly or indirectly incurred by the
Company or any of its Subsidiaries which is material to the
Company and its Subsidiaries taken as a whole;
(p) the Company has obtained the agreement of each of its
directors and officers, each of the Selling Stockholders and
certain of its other stockholders not to directly or indirectly
sell, offer, pledge, contract to sell or grant any option to
purchase or otherwise dispose of or transfer any shares of Common
Stock, or securities convertible into or exchangeable or
exercisable for Common Stock, including without limitation,
options, convertible bonds and the like for a period of 90 days
after the date of the Prospectus without the prior written
consent of SBC Warburg Dillon Read Inc.;
(q) except as disclosed in the Registration Statement and
Prospectus, the Company and its Subsidiaries own or possess the
right to use all patents,
<PAGE>
-10-
trademarks (including the Company's name, together with its logo),
trademark registrations, service marks, service mark registrations,
trade names, copyrights, licenses, inventions, trade secrets, know-how
and rights described in the Prospectus as being owned by them or any
of them or necessary for the conduct of their respective businesses,
and the Company is not aware of any claim to the contrary or any
challenge by any other person to the rights of the Company and its
Subsidiaries with respect to the foregoing. Except as described in
the Prospectus, no claim has been made against or notice given to the
Company alleging the infringement or other violation by the Company of
any patent, trademark, service mark, trade name, copyright, trade
secret, license or other intellectual property right or franchise
right of any person; and
(r) neither the Company nor any of its Subsidiaries is or,
after application of the net proceeds of the offering as
described under the caption "Use of Proceeds" in the Prospectus,
will become an entity required to register as an "investment
company" or an entity "controlled" by an entity required to
register as an "investment company" as such terms are defined in
the Investment Company Act of 1940, as amended and the rules and
regulations of the Commission thereunder (the "Investment Company
Act"). The Company intends to conduct its business in a manner
such that it will not become an entity required to register as an
"investment company" subject to regulation under the Investment
Company Act.
4. Representations and Warranties of the Selling Stockholders. Each
Selling Stockholder, severally and not jointly, represents and warrants to each
Underwriter that:
(a) such Selling Stockholder now is and at the time of
delivery of such Shares will be, the lawful owner of the number
of Shares to be sold by such Selling Stockholder pursuant to this
Agreement and has and, at the time of delivery thereof, will have
valid and marketable title to such Shares, and upon delivery of
and payment for such Shares, the Underwriters will acquire valid
and marketable title to such Shares free and clear of any claim,
lien, encumbrance, security interest, community property right,
restriction on transfer or other defect in title;
<PAGE>
-11-
(b) such Selling Stockholder has, and at the time of
delivery of such Shares will have, full legal right, power and
capacity, and any approval required by law (other than those
imposed by the Act and the securities or blue sky laws of various
jurisdictions in which the Shares are being offered by the
Underwriters), to sell, assign, transfer and deliver such Shares
in the manner provided in this Agreement;
(c) this Agreement, the Powers of Attorney and the Custody
Agreement among the Company, as custodian, and the Selling
Stockholders (the "Custody Agreement") have been duly executed
and delivered by such Selling Stockholder and each is a legal,
valid and binding agreement of such Selling Stockholder
enforceable in accordance with its respective terms in the case
of this Agreement, as rights to indemnity and contribution
hereunder may be limited by securities laws and except as the
enforceability hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors'
rights generally and general principles of equity;
(d) when the Registration Statement becomes effective and
at all times subsequent thereto through the latest of the time of
purchase, additional time of purchase or the termination of the
offering of the Shares, the Registration Statement and
Prospectus, and any supplements or amendments thereto as they
relate to such Selling Stockholder will not contain an untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were
made, not misleading;
(e) such Selling Stockholder has duly and irrevocably
authorized the Representatives of the Selling Stockholders, on
behalf of such Selling Stockholder, to execute and deliver this
Agreement and any other document necessary or desirable in
connection with the transactions contemplated hereby and to
deliver the Shares to be sold by such Selling Stockholder and
receive payment therefor pursuant hereto; and
(f) the sale of such Selling Stockholder's Shares pursuant
to this Agreement is not prompted by any information concerning
the Company which is not set forth in the Prospectus.
<PAGE>
-12-
5. Certain Covenants of the Company. The Company hereby agrees:
(a) to furnish such information as may be required and
otherwise to cooperate in qualifying the Shares for offering and
sale under the securities or blue sky laws of such jurisdictions
as you may designate and to maintain such qualifications in
effect so long as required for the distribution of the Shares,
provided that the Company shall not be required to qualify as a
foreign corporation or to consent to the service of process under
the laws of any such jurisdiction (except service of process with
respect to the offering and sale of the Shares); and to promptly
advise you of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Shares for
sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose;
(b) to make available to you in New York City, as soon as
practicable after the Registration Statement becomes effective,
and thereafter from time to time to furnish to the Underwriters,
as many copies of the Prospectus (or of the Prospectus as amended
or supplemented if the Company shall have made any amendments or
supplements thereto after the effective date of the Registration
Statement) as the Underwriters may request for the purposes
contemplated by the Act;
(c) to advise you promptly and (if requested by you) to
confirm such advice in writing, (i) when the Registration
Statement has become effective and when any post-effective
amendment thereto becomes effective and (ii) if Rule 430A under
the Act is used, when the Prospectus is filed with the Commission
pursuant to Rule 424(b) under the Act (which the Company agrees
to file in a timely manner under such rules);
(d) to advise you promptly, confirming such advice in
writing, of any request by the Commission for amendments or
supplements to the Registration Statement or Prospectus or for
additional information with respect thereto, or of notice of
institution of proceedings for, or the entry of a stop order
suspending the effectiveness of the Registration Statement and,
if the Commission should enter a stop order suspending the
effectiveness of the Registration Statement, to make every
reasonable effort to obtain the lifting or
<PAGE>
-13-
removal of such order as soon as possible; to advise you promptly of
any proposal to amend or supplement the Registration Statement or
Prospectus including by filing any document that would be incorporated
therein by reference and to file no such amendment or supplement to
which you shall object in writing;
(e) to furnish to you and, upon request, to each of the
other Underwriters for a period of five years from the date of
this Agreement (i) copies of any reports or other communications
which the Company shall send to its stockholders or shall from
time to time publish or publicly disseminate, (ii) copies of all
annual, quarterly and current reports filed with the Commission
on Forms 10-K, 10-Q and 8-K, or such other similar form as may be
designated by the Commission and (iii) such other information as
you may reasonably request regarding the Company or its
Subsidiaries;
(f) to advise the Underwriters promptly of the happening of
any event known to the Company within the time during which a
prospectus relating to the Shares is required to be delivered
under the Act which, in the judgment of the Company, would
require the making of any change in the Prospectus then being
used, or in the information incorporated therein by reference, so
that the Prospectus would not include an untrue statement of
material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under
which they are made, not misleading, and, during such time, to
prepare and furnish, at the Company's expense, to the
Underwriters promptly such amendments or supplements to such
Prospectus as may be necessary to reflect any such change and to
furnish you a copy of such proposed amendment or supplement
before filing any such amendment or supplement with the
Commission;
(g) as soon as practicable and for the time period
specified by Rule 158 under the Act, to make generally available
to its securityholders, and to deliver to you, an earnings
statement of the Company that will satisfy the provisions of
Section 11(a) of the Act and Rule 158 under the Act;
(h) to furnish to you four signed copies of the
Registration Statement, as initially filed with the Commission,
and of all amendments thereto (including
<PAGE>
-14-
all exhibits thereto and documents incorporated by reference therein)
and sufficient conformed copies of the foregoing (other than exhibits)
for distribution of a copy to each of the other Underwriters;
(i) to furnish to you as early as practicable prior to the
time of purchase and the additional time of purchase, as the case
may be, but not later than two business days prior thereto, a
copy of the latest available unaudited interim consolidated
financial statements, if any, of the Company and its Subsidiaries
which have been read by the Company's independent certified
public accountants, as stated in their letter to be furnished
pursuant to Section 8(c) of this Agreement;
(j) to apply the net proceeds from the sale of the Shares
in the manner set forth under the caption "Use of Proceeds" in
the Prospectus;
(k) to furnish to you, before filing with the Commission
subsequent to the effective date of the Registration Statement
and during the period referred to in paragraph (f) above, a copy
of any document proposed to be filed pursuant to Sections 13, 14
or 15(d) of the Exchange Act;
(l) not to issue, directly or indirectly sell, offer,
pledge, contract to sell or grant any option to purchase or
otherwise dispose of or transfer any shares of Common Stock, or
securities convertible into or exchangeable or exercisable for
Common Stock, including without limitation, options, convertible
bonds and the like or permit the registration under the Act of
any shares of Common Stock for a period of 90 days after the date
of the Prospectus, without the prior written consent of SBC
Warburg Dillon Read Inc., except for the registration of the
Shares and the sales to the Underwriters pursuant to this
Agreement and except for grants of options or issuances of Common
Stock upon the exercise of outstanding options pursuant to any of
the Company's stock option plans existing as of the date hereof;
and
(m) to use its best efforts to cause the Shares to be
listed on the New York Stock Exchange.
<PAGE>
-15-
6. Certain Covenants of the Company and the Selling Stockholders.
The Company and each of the Selling Stockholders agree with each Underwriter as
follows:
(a) the Company and the Selling Stockholders agree that,
whether or not the transactions contemplated hereby are
consummated or this Agreement is terminated, the Company and the
Selling Stockholders, in such proportions (aggregating 100%) as
the number of Shares to be sold by the Company and by each such
Selling Stockholder bears to the total number of Shares or as
they otherwise may determine among themselves, will pay all
expenses, fees and taxes (other than any transfer taxes and fees
and disbursements of counsel for the Underwriters except as set
forth under Section 7 hereof or clauses (iii) or (iv) of this
Section 6(a)) in connection with (i) the preparation and filing
of the Registration Statement, each Preliminary Prospectus, the
Prospectus, and any amendments or supplements thereto, and the
printing and furnishing of copies of each thereof to the
Underwriters and to dealers (including costs of mailing and
shipment), (ii) the issuance, sale and delivery of the Shares by
the Company and the Selling Stockholders, (iii) the word
processing and/or printing of this Agreement, any Agreement Among
Underwriters, any dealer agreements, any Statements of
Information, the Custody Agreement and the Powers of Attorney and
the reproduction and/or printing and furnishing of copies of each
thereof to the Underwriters and to dealers (including costs of
mailing and shipment), (iv) the qualification of the Shares for
offering and sale under state laws and the determination of their
eligibility for investment under state law as aforesaid
(including the legal fees and filing fees and other disbursements
of counsel to the Underwriters) and the word processing and/or
printing and furnishing of copies of any blue sky surveys or
legal investment surveys to the Underwriters and to dealers, (v)
any listing of the Shares on any securities exchange or
qualification of the Shares for quotation on the New York Stock
Exchange and any registration thereof under the Exchange Act,
(vi) the filing for review of the public offering of the Shares
by the National Association of Securities Dealers, Inc. (the
"NASD") and (vii) the performance of the Company's and the
Selling Stockholders' other obligations hereunder;
<PAGE>
-16-
(b) each Selling Stockholder will pay all underwriting
discounts and commissions, and will pay all transfer taxes and
all fees and disbursements of any counsel or accountant retained
by it, in connection with the sale of the Shares to be sold
hereunder by each Selling Stockholder; and
(c) the Company and the Selling Stockholders will not
issue, directly or indirectly sell, offer, pledge, contract to
sell or grant any option to purchase or otherwise dispose of or
transfer any shares of Common Stock, or securities convertible
into or exchangeable or exercisable for Common Stock, including
without limitation, options, convertible bonds and the like, or,
in the case of the Company, permit the registration under the Act
of any shares of Common Stock, except for the registration of the
Shares and the sales to the Underwriters pursuant to this
Agreement and except for grants of options or issuances of Common
Stock upon the exercise of outstanding options pursuant to any of
the Company's stock option plans existing as of the date hereof,
for a period of 90 days after the date of the Prospectus, without
the prior written consent of SBC Warburg Dillon Read Inc.
7. Reimbursement of Underwriters' Expenses. If the Shares are not
delivered for any reason other than the termination of this Agreement pursuant
to the second paragraph of Section 9 hereof or the default by one or more of the
Underwriters in its or their respective obligations hereunder, the Company shall
reimburse the Underwriters for all of their out-of-pocket expenses, including
the fees and disbursements of their counsel.
8. Conditions of Underwriters' Obligations. The several obligations
of the Underwriters hereunder are subject to the accuracy of the representations
and warranties on the part of the Company and the Selling Stockholders on the
date hereof and at the time of purchase (and the several obligations of the
Underwriters at the additional time of purchase are subject to the accuracy of
the representations and warranties on the part of the Company and the Selling
Stockholders on the date hereof and at the time of purchase (unless previously
waived) and at the additional time of purchase, as the case may be), the
performance by the Company and the Selling Stockholders of their obligations
hereunder and to the following conditions:
<PAGE>
-17-
(a) The Company shall furnish to you at the time of
purchase and at the additional time of purchase, as the case may
be, an opinion of Winston & Strawn, counsel for the Company,
addressed to the Underwriters, and dated the time of purchase or
the additional time of purchase, as the case may be, with
reproduced copies for each of the other Underwriters and in form
satisfactory to Cahill Gordon & Reindel, counsel for the
Underwriters, stating that:
(i) the Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of New
York, with full corporate power and authority to own its properties
and conduct its business as described in the Registration Statement
and the Prospectus, to execute and deliver this Agreement and to
issue, sell and deliver the Shares as herein contemplated;
(ii) each of the Subsidiaries has been duly incorporated and is
validly existing as a corporation in good standing under the laws of
its respective jurisdiction of incorporation with full corporate power
and authority to own its respective properties and to conduct its
respective business;
(iii) the Company and its Subsidiaries are duly qualified,
licensed and in good standing in each jurisdiction in which they
conduct their respective businesses and in which the failure,
individually or in the aggregate, to be so licensed or qualified could
have a Material Adverse Effect;
(iv) each of this Agreement and the Custody Agreement has been duly
authorized, executed and delivered by the Company;
(v) the Shares, when issued and delivered to and paid for by the
Underwriters, will be duly and validly authorized and issued and will
be fully paid and non-assessable;
(vi) the Company has an authorized capitalization as set forth in the
Registration Statement and the Prospectus; the outstanding shares of
capital stock of the Company have been duly and validly authorized and
issued, and are fully paid, nonassessable and free of statutory and
contractual preemptive rights; the Shares when issued will be free of
statutory and contractual preemptive
<PAGE>
-18-
rights; the certificates for the Shares are in due and proper form and
the holders of the Shares will not be subject to personal liability by
reason of being such holders;
(vii) the capital stock of the Company, including the Shares,
conforms in all material respects to the description thereof contained
in the Registration Statement and Prospectus;
(viii) the Registration Statement and the Prospectus (except as to
the financial statements and schedules and other financial and
statistical data contained or incorporated by reference therein, as to
which such counsel need express no opinion) comply as to form in all
material respects with the requirements of the Act;
(ix) the Registration Statement has become effective under the Act
and, to the best of such counsel's knowledge, no stop order
proceedings with respect thereto are pending or threatened under the
Act;
(x) no approval, authorization, consent or order of or filing with
any federal, state or local governmental or regulatory commission,
board, body, authority or agency is required in connection with the
issuance and sale of the Shares as contemplated hereby other than
registration of the Shares under the Act (except such counsel need
express no opinion as to any necessary qualification under the state
securities or blue sky laws of the various jurisdictions in which the
Shares are being offered by the Underwriters);
(xi) the execution, delivery and performance of this Agreement and the
Custody Agreement by the Company and the consummation by the Company
of the transactions contemplated hereby and thereby do not and will
not conflict with, or result in any breach of, or constitute a default
under (nor constitute any event which with notice, lapse of time, or
both, would constitute a breach of or default under), any provisions
of the charter or by-laws of the Company or any of its Subsidiaries or
under any provision of any license, indenture, mortgage, deed of
trust, bank
<PAGE>
-19-
loan, credit agreement or other agreement or instrument known to such
counsel to which the Company or any of its Subsidiaries is a party or
by which any of them or their respective properties may be bound or
affected, or under any law, regulation or rule or any decree, judgment
or order applicable to the Company or any of its Subsidiaries;
(xii) to the best of such counsel's knowledge, neither the Company
nor any of its Subsidiaries is in breach of, or in default under (nor
has any event occurred which with notice, lapse of time, or both would
constitute a breach of, or default under), any license, indenture,
mortgage, deed of trust, bank loan or any other agreement or
instrument to which the Company or any of its Subsidiaries is a party
or by which any of them or their respective properties may be bound or
affected or under any law, regulation or rule or any decree, judgment
or order applicable to the Company or any of its Subsidiaries;
(xiii) to the best of such counsel's knowledge, there are no
contracts, licenses, agreements, leases or documents of a character
which are required to be filed as exhibits to the Registration
Statement or to be summarized or described in the Prospectus which
have not been so filed, summarized or described;
(xiv) to the best of such counsel's knowledge, there are no
actions, suits or proceedings pending or threatened against the
Company or any of its Subsidiaries or any of their respective
properties, at law or in equity or before or by any commission, board,
body, authority or agency which are required to be described in the
Prospectus but are not so described;
(xv) the documents incorporated by reference in the Registration
Statement and Prospectus, when they were filed (or, if an amendment
with respect to any such document was filed when such amendment was
filed), complied as to form in all material respects with the Exchange
Act (except as to the financial statements and schedules and other
financial and statistical data contained or incorporated by reference
therein as to which such counsel need express no opinion);
<PAGE>
-20-
(xvi) the Shares comply with the additional
listing requirements of the New York Stock
Exchange and have been approved for such
additional listing with the New York Stock
Exchange subject only to notice of issuance at or
prior to the time of purchase; and
(xvii) the Company is not an entity required to
register as an "investment company" under the
Investment Company Act, nor is the Company a
holding company or a subsidiary of a holding
company under the Public Utility Holding Company
Act of 1935.
In addition, such counsel shall state that
such counsel have participated in conferences with
officers and other representatives of the Company,
representatives of the Selling Stockholders,
representatives of the independent public
accountants of the Company and representatives of
the Underwriters at which the contents of the
Registration Statement and Prospectus were
discussed and, although such counsel is not
passing upon and does not assume responsibility
for the accuracy, completeness or fairness of the
statements contained in the Registration Statement
or Prospectus (except as and to the extent stated
in subparagraphs (vi) and (vii) above), on the
basis of the foregoing (relying as to materiality
to a large extent upon the opinions of officers
and other representatives of the Company) nothing
has come to the attention of such counsel that
causes them to believe that the Registration
Statement or any amendment thereto at the time
such Registration Statement or amendment became
effective contained an untrue statement of a
material fact or omitted to state a material fact
required to be stated therein or necessary to make
the statements therein not misleading, or that the
Prospectus or any supplement thereto at the date
of such Prospectus or such supplement, and at all
times up to and including the time of purchase or
additional time of purchase, as the case may be,
contained an untrue statement of a material fact
or omitted to state a material fact required to be
stated therein or necessary to make the statements
therein, in light of the circumstances under which
they were made, not misleading (it being
understood that such counsel need express no
opinion with respect to the financial statements
and schedules and
<PAGE>
-21-
statistical data included in the Registration
Statement or Prospectus).
(b) The Selling Stockholders shall
furnish to you at the time of purchase and at
the additional time of purchase, as the case may
be, an opinion of , counsel for the Selling
Stockholders, addressed to the Underwriters, and
dated the time of purchase or the additional time
of purchase, as the case may be, with reproduced
copies for each of the other Underwriters, and in
form and substance satisfactory to Cahill Gordon &
Reindel, counsel for the Underwriters, stating
that:
(i) each of this Agreement, the Custody Agreement and
the Powers of Attorney has been duly executed and
delivered by or on behalf of each of the Selling
Stockholders;
(ii) each Selling Stockholder has full legal right and
power, and has obtained any authorization or approval
required by law (other than those imposed by the Act
and the state securities or blue sky laws of the
various jurisdictions in which the Shares are being
offered by the Underwriters), to sell, assign, transfer
and deliver the Shares to be sold by such Selling
Stockholder in the manner provided in this Agreement;
(iii) delivery of certificates for the Shares by
each Selling Stockholder pursuant hereto will pass
valid and marketable title thereto to the Underwriters,
free and clear of any claim, lien, encumbrance,
security interest, community property right,
restriction on transfer or other defect in title;
(iv) each Selling Stockholder has duly authorized the
execution and delivery of this Agreement, the Custody
Agreement and the Powers of Attorney and any other
document necessary or desirable in connection with the
transactions contemplated hereby and the delivery of
the Shares;
(v) each of the Representatives of the Selling
Stockholders has been duly authorized by each Selling
Stockholder to execute and deliver on behalf of such
Selling Stockholder this Agreement and any other
document necessary or desirable in connection with the
transactions contemplated hereby and to deliver
<PAGE>
-22-
the Shares to be sold by such Selling Stockholder; and
(vi) to the best of such counsel's knowledge, the
statements in the Prospectus under the caption
"Principal and Selling Stockholders" insofar as such
statements constitute a summary of the matters referred
to therein with respect to the Selling Stockholders,
present fairly the information called for with respect
to such matters.
(c) You shall have received from Deloitte &
Touche LLP, letters dated, respectively, the date
of this Agreement and the time of purchase and
additional time of purchase, as the case may be,
and addressed to the Underwriters (with reproduced
copies for each of the Underwriters) in the forms
heretofore approved by you.
(d) You shall have received at the time of
purchase and at the additional time of purchase,
as the case may be, the favorable opinion of
Cahill Gordon & Reindel, counsel for the
Underwriters, dated the time of purchase or the
additional time of purchase, as the case may be,
as to the matters referred to in subparagraphs
(vii), (viii) and (ix) of paragraph (a) of this
Section 8.
In addition, such counsel shall state that such counsel
have participated in conferences with officers and other
representatives of the Company, counsel for the Company,
representatives of the Selling Stockholders, representatives
of the independent public accountants of the Company and
representatives of the Underwriters at which the contents of
the Registration Statement and Prospectus and related
matters were discussed and, although such counsel is not
passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements
contained in the Registration Statement and Prospectus
(except as to matters referred to under subparagraph (vii)
of paragraph (a) of this Section 8), on the basis of the
foregoing (relying as to materiality to a large extent upon
the opinions of officers and other representatives of the
Company), no facts have come to the attention of such
counsel which lead them to believe that the Registration
Statement or any amendment thereto at the time such
Registration Statement or amendment became effective
contained an untrue statement of a material fact
<PAGE>
-23-
or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading or that the Prospectus as of its date or any
supplement thereto as of its date contained an untrue
statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under
which they were made, not misleading (it being understood
that such counsel need express no comment with respect to
the financial statements and schedules and other financial
and statistical data included in the Registration Statement
or Prospectus).
(e) You shall have received at the time of purchase
and at the additional time of purchase, as the case may be,
an opinion of , special
regulatory counsel for the Company, addressed to the
Underwriters, and dated the time of purchase or the
additional time of purchase, as the case may be, with
reproduced copies for each of the other Underwriters, and in
form and substance satisfactory to Cahill Gordon & Reindel,
counsel for the Underwriters, stating that:
(i) the descriptions in the Registration Statement and
in the Prospectus of the statutes, regulations and
legal or governmental proceedings or procedures
relating to the United States Food and Drug
Administration or the Drug Enforcement Administration
and the approval process relating to the Company's
products are accurate in all material respects and are
a fair summary of those statutes, regulations,
proceedings or procedures; and
(ii) nothing has come to the attention of such counsel
that leads such counsel to believe that descriptions of
federal laws, regulations or rules relating to the
manufacture or sale of the Company's products and the
approval process relating thereto contained in the
Registration Statement and in the Prospectus or the
documents incorporated by reference therein including,
without limitation, the portions of the Prospectus
entitled "Risk Factors -- Government Regulation; No
Assurances of Regulatory Approval" and "Business --
Government Regulation," and the portion of the Form
10-K of the Company dated June 30, 1997 entitled
"Business -- Government Regulation," contain an untrue
statement of a material
<PAGE>
-24-
fact or omit to state a material fact required to be
stated therein or necessary to make the statements
therein not misleading.
(f) No amendment or supplement to the
Registration Statement or Prospectus, including
documents deemed to be incorporated by reference
therein, shall be filed prior to the time the
Registration Statement becomes effective to which
you object in writing.
(g) The Registration Statement shall become
effective, or if Rule 430A under the Act is used,
the Prospectus shall have been filed with the
Commission pursuant to Rule 424(b) under the Act,
at or before 5:00 P.M., New York City time, on the
date of this Agreement, unless a later time (but
not later than 5:00 P.M., New York City time, on
the second full business day after the date of
this Agreement) shall be agreed to by the Company,
the Representatives of the Selling Stockholders
and you in writing or by telephone, confirmed in
writing; provided, however, that the Company, the
Representatives of the Selling Stockholders and
you and any group of Underwriters, including you,
who have agreed hereunder to purchase in the
aggregate at least 50% of the Firm Shares may from
time to time agree on a later date.
(h) Prior to the time of purchase or the
additional time of purchase, as the case may be,
(i) no stop order with respect to the
effectiveness of the Registration Statement shall
have been issued under the Act or proceedings
initiated under Section 8(d) or 8(e) of the Act;
(ii) the Registration Statement and all amendments
thereto, or modifications thereof, if any, shall
not contain an untrue statement of a material fact
or omit to state a material fact required to be
stated therein or necessary to make the statements
therein not misleading; and (iii) the Prospectus
and all amendments or supplements thereto, or
modifications thereof, if any, shall not contain
an untrue statement of a material fact or omit to
state a material fact required to be stated
therein or necessary to make the statements
therein, in the light of the circumstances under
which they are made, not misleading.
(i) Between the time of execution of this
Agreement and the time of purchase or the
additional time of purchase, as the case may be,
(i) no material adverse
<PAGE>
-25-
change, financial or otherwise (other than as referred
to in the Registration Statement and Prospectus), in
the business, condition or prospects of the Company and
its Subsidiaries taken as a whole shall occur or become
known and (ii) no transaction which could reasonably be
expected to have a Material Adverse Effect has been
entered into by the Company or any of its Subsidiaries.
(j) The Company will, at the time of
purchase or additional time of purchase, as the
case may be, deliver to you a certificate executed
by its chief executive officer and its chief
financial officer to the effect that the
representations and warranties of the Company as
set forth in this Agreement and the conditions set
forth in paragraph (h) and paragraph (i) have been
met and that they are true and correct as of each
such date.
(k) You shall have received signed letters,
dated the date of this Agreement, from each of the
Selling Stockholders and each of the directors and
officers of the Company and certain of its other
stockholders to the effect that such persons shall
not directly or indirectly sell, offer, pledge,
contract to sell or grant any option to purchase
or otherwise dispose of or transfer any shares of
Common Stock, or securities convertible into or
exchangeable or exercisable for Common Stock,
including without limitation, options, convertible
bonds and the like for a period of 90 days after
the date of the Prospectus without the prior
written consent of SBC Warburg Dillon Read Inc.
(l) The Company and the Selling Stockholders
shall have furnished to you such other documents
and certificates as to the accuracy and
completeness of any statement in the Registration
Statement and the Prospectus as of the time of
purchase and the additional time of purchase, as
the case may be, as you may reasonably request.
(m) The Company and the Selling Stockholders
shall perform such of their respective obligations
under this Agreement as are to be performed by the
terms hereof at or before the time of purchase and
at or before the additional time of purchase, as
the case may be.
<PAGE>
-26-
(n) The Shares shall have been approved for
listing on the New York Stock Exchange, subject
only to notice of issuance at or prior to the time
of purchase.
(o) The Selling Stockholders will at the
time of purchase and the additional time of
purchase, as the case may be, deliver to you a
certificate of the Representatives of the Selling
Stockholders to the effect that the
representations and the warranties of the Selling
Stockholders as set forth in this Agreement are
true and correct as of each such date.
(p) Between the time of execution of this
Agreement and the time of purchase or additional
time of purchase, as the case may be, there shall
not have occurred any downgrading, nor shall any
notice have been given of (i) any intended or
potential downgrading or (ii) any review or
possible change that does not indicate an
improvement, in the rating accorded any securities
of or guaranteed by the Company or any subsidiary
of the Company by any "nationally recognized
statistical rating organization," as that term is
defined in Rule 436(g)(2) promulgated under the
Act.
9. Effective Date of Agreement; Termination. This
Agreement shall become effective (i) if Rule 430A under the Act
is not used, when you shall have received notification of the
effectiveness of the Registration Statement, or (ii) if Rule 430A
under the Act is used, when the parties hereto have executed and
delivered this Agreement.
The obligations of the several Underwriters hereunder
shall be subject to termination in the absolute discretion of you
or any group of Underwriters (which may include you) which has
agreed to purchase in the aggregate at least 50% of the Firm
Shares, if, since the time of execution of this Agreement or the
respective dates as of which information is given in the
Registration Statement and Prospectus, (y) there has been any
material adverse change, financial or otherwise (other than as
referred to in the Registration Statement and Prospectus), in the
business, condition or prospects of the Company and its
Subsidiaries taken as a whole, which would, in your judgment or
in the judgment of such group of Underwriters, make it
impracticable to market the Shares, or (z) there shall have
occurred any downgrading, or any notice shall have been given of
(i) any intended or potential downgrading or (ii) any review or
possible change that does not indicate an improvement, in the
rating accorded any securities of or guaranteed by the Company or
any
<PAGE>
-27-
Subsidiary of the Company by any "nationally recognized
statistical rating organization," as that term is defined in Rule
436(g)(2) promulgated under the Act or, if, at any time prior to
the time of purchase or, with respect to the purchase of any
Additional Shares, the additional time of purchase, as the case
may be, trading in securities on the New York Stock Exchange
shall have been suspended or minimum prices shall have been
established on the New York Stock Exchange, or if a banking
moratorium shall have been declared either by the United States
or New York State authorities, or if the United States shall have
declared war in accordance with its constitutional processes or
there shall have occurred any material outbreak or escalation of
hostilities or other national or international calamity or crisis
of such magnitude in its effect on the financial markets of the
United States as, in your judgment or in the judgment of such
group of Underwriters, to make it impracticable to market the
Shares.
If you or any group of Underwriters elects to terminate
this Agreement as provided in this Section 9, the Company, the
Representatives of the Selling Stockholders and each other
Underwriter shall be notified promptly by letter or telegram.
If the sale to the Underwriters of the Shares, as
contemplated by this Agreement, is not carried out by the
Underwriters for any reason permitted under this Agreement or if
such sale is not carried out because the Company or the Selling
Stockholders, as the case may be, shall be unable to comply with
any of the terms of this Agreement, the Company or the Selling
Stockholders, as the case may be, shall not be under any
obligation or liability under this Agreement (except to the
extent provided in Sections 6(a), 7 and 11 hereof), and the
Underwriters shall be under no obligation or liability to the
Company and the Selling Stockholders under this Agreement (except
to the extent provided in Section 11 hereof) or to one another
hereunder.
10. Increase in Underwriters' Commitments. If any
Underwriter shall default in its obligation to take up and pay
for the Firm Shares to be purchased by it hereunder and if the
number of Firm Shares which all Underwriters so defaulting shall
have agreed but failed to take up and pay for does not exceed 10%
of the total number of Firm Shares, the non-defaulting
Underwriters shall take up and pay for (in addition to the
aggregate amount of Firm Shares they are obligated to purchase
pursuant to Section 1 hereof) the number of Firm Shares agreed to
be purchased by all such defaulting Underwriters, as hereinafter
provided. Such Shares shall be taken up
<PAGE>
-28-
and paid for by such non-defaulting Underwriter or Underwriters
in such amount or amounts as you may designate with the consent
of each Underwriter so designated or, in the event no such
designation is made, such Shares shall be taken up and paid for
by all non-defaulting Underwriters pro rata in proportion to the
aggregate number of Firm Shares set opposite the names of such
non-defaulting Underwriters in Schedule A.
Without relieving any defaulting Underwriter from its
obligations hereunder, the Company and the Selling Stockholders
agree with the non-defaulting Underwriters that they will not
sell any Firm Shares hereunder unless all of the Firm Shares are
purchased by the Underwriters (or by substituted Underwriters
selected by you with the approval of the Company or selected by
the Company with your approval).
If a new Underwriter or Underwriters are substituted by
the Underwriters or by the Company for a defaulting Underwriter
or Underwriters in accordance with the foregoing provision, the
Company or you shall have the right to postpone the time of
purchase for a period not exceeding five business days in order
that any necessary changes in the Registration Statement and
Prospectus and other documents may be effected.
The term Underwriter as used in this agreement shall
refer to and include any Underwriter substituted under this
Section 10 with like effect as if such substituted Underwriter
had originally been named in Schedule A.
11. Indemnity by the Company, the Selling Stockholders
and the Underwriters.
(a) The Company and the Selling Stockholders jointly
and severally agree to indemnify, defend and hold harmless each
Underwriter, its directors and officers, and any person who
controls any Underwriter within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act, from and against any loss,
expense, liability or claim (including the reasonable cost of
investigation) which, jointly or severally, any such Underwriter
or any such person may incur under the Act, the Exchange Act or
otherwise insofar as such loss, expense, liability or claim
arises out of or is based upon any untrue statement or alleged
untrue statement of a material fact contained in the Registration
Statement (or in the Registration Statement as amended by any
post-effective amendment thereof by the Company) or in a
Prospectus (the term Prospectus for the purpose of this
Section 11 being deemed to include any Preliminary Prospectus,
<PAGE>
-29-
the Prospectus and the Prospectus as amended or supplemented by
the Company), or arises out of or is based upon any omission or
alleged omission to state a material fact required to be stated
in either such Registration Statement or Prospectus or necessary
to make the statements made therein not misleading, except
insofar as any such loss, expense, liability or claim arises out
of or is based upon any untrue statement or alleged untrue
statement of a material fact contained in and in conformity with
information furnished in writing by any Underwriter through you
to the Company expressly for use with reference to such
Underwriter in such Registration Statement or such Prospectus or
arises out of or is based upon any omission or alleged omission
to state a material fact in connection with such information
required to be stated in either such Registration Statement or
Prospectus or necessary to make such information not misleading,
provided, however, that the indemnity agreement contained in this
subsection (a) with respect to any Preliminary Prospectus or
amended Preliminary Prospectus shall not inure to the benefit of
any Underwriter (or to the benefit of any person controlling such
Underwriter) from whom the person asserting any such loss,
expense, liability or claim purchased the Shares which are the
subject thereof if the Prospectus corrected any such alleged
untrue statement or omission and if such Underwriter failed to
send or give a copy of the Prospectus to such person at or prior
to the written confirmation of the sale of such Shares to such
person; provided, further, that no Selling Stockholder shall be
responsible, either pursuant to this indemnity or as a result of
any breach of this Agreement, for losses, expenses, liability or
claims for an amount in excess of the proceeds to be received by
such Selling Stockholder (before deducting expenses) from the
sale of Shares hereunder.
If any action is brought against an Underwriter or any
such person in respect of which indemnity may be sought against
the Company or any Selling Stockholder pursuant to the foregoing
paragraph, such Underwriter or such person shall promptly notify
the Company and the Representatives of the Selling Stockholders
in writing of the institution of such action and the Company or
such Selling Stockholder, as the case may be, shall assume the
defense of such action, including the employment of counsel
reasonably satisfactory to such indemnified party and payment of
all fees and expenses, provided, however, that the omission to so
notify the Company or the Representative of the Selling
Stockholders shall not relieve the Company or any Selling
Stockholder from any liability which they may have to any
Underwriter or any such person or otherwise.
<PAGE>
-30-
Such Underwriter or such controlling person shall have the
right to employ its or their own counsel in any such case, but
the fees and expenses of such counsel shall be at the expense of
such Underwriter or of such person unless the employment of such
counsel shall have been authorized in writing by the Company or
such Selling Stockholder in connection with the defense of such
action or the Company or such Selling Stockholder shall not have
employed counsel to have charge of the defense of such action or
such indemnified party or parties shall have reasonably concluded
that there may be defenses available to it or them which are
different from or additional to those available to the Company or
such Selling Stockholder (in which case the Company or such
Selling Stockholder shall not have the right to direct the
defense of such action on behalf of the indemnified party or
parties), in any of which events such fees and expenses shall be
borne by the Company or such Selling Stockholder, as the case may
be, and paid as incurred (it being understood, however, that the
Company or such Selling Stockholder shall not be liable for the
expenses of more than one separate counsel in any one action or
series of related actions in the same jurisdiction representing
the indemnified parties who are parties to such action). The
Company or such Selling Stockholder shall not be liable for any
settlement of any such claim or action effected without its
written consent but if settled with the written consent of the
Company or such Selling Stockholder, the Company or such Selling
Stockholder agrees to indemnify and hold harmless any Underwriter
and any such person from and against any loss or liability by
reason of such settlement. Notwithstanding the foregoing
sentence, if at any time an indemnified party shall have
requested an indemnifying party to reimburse the indemnified
party for fees and expenses of counsel as contemplated by the
second sentence of this paragraph, then the indemnifying party
agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such
settlement is entered into more than 60 business days after
receipt by such indemnifying party of the aforesaid request, (ii)
such indemnifying party shall not have reimbursed the indemnified
party in accordance with such request prior to the date of such
settlement and (iii) such indemnified party shall have given the
indemnifying party at least 30 days' prior notice of its
intention to settle. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of
which any indemnified party is or could have been a party and
indemnity could have been sought hereunder by such indemnified
party, unless such settlement includes an unconditional release
of such
<PAGE>
-31-
indemnified party from all liability on claims that are the
subject matter of such proceeding.
(b) Each Underwriter severally agrees to indemnify,
defend and hold harmless the Company, its directors and officers,
each Selling Stockholder and any person who controls the Company
or any Selling Stockholder within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act from and against any
loss, expense, liability or claim (including the reasonable cost
of investigation) which, jointly or severally, the Company, any
Selling Stockholder or any such person may incur under the Act or
otherwise, insofar as such loss, expense, liability or claim
arises out of or is based upon any untrue statement or alleged
untrue statement of a material fact contained in and in
conformity with information furnished in writing by or on behalf
of such Underwriter through you to the Company expressly for use
with reference to such Underwriter in the Registration Statement
(or in the Registration Statement as amended by any
post-effective amendment thereof by the Company) or in a
Prospectus, or arises out of or is based upon any omission or
alleged omission to state a material fact in connection with such
information required to be stated either in such Registration
Statement or Prospectus or necessary to make such information not
misleading.
If any action is brought against the Company, any
Selling Stockholder or any such person in respect of which
indemnity may be sought against any Underwriter pursuant to the
foregoing paragraph, the Company, such Selling Stockholder or
such person shall promptly notify such Underwriter in writing of
the institution of such action and such Underwriter shall assume
the defense of such action, including the employment of counsel
reasonably satisfactory to such indemnified party and payment of
all fees and expenses, provided, however, that the omission to so
notify such Underwriter shall not relieve such Underwriter, from
any liability which they may have to the Company, any Selling
Stockholder or any such person or otherwise. The Company, such
Selling Stockholder or such person shall have the right to employ
its own counsel in any such case, but the fees and expenses of
such counsel shall be at the expense of the Company, such Selling
Stockholder or such person unless the employment of such counsel
shall have been authorized in writing by such Underwriter in
connection with the defense of such action or such Underwriter
shall not have employed counsel to have charge of the defense of
such action or such indemnified party or parties shall have
reasonably concluded that there may be defenses available to it
or them which are different from or
<PAGE>
-32-
additional to those available to such Underwriter (in which case
such Underwriter shall not have the right to direct the defense
of such action on behalf of the indemnified party or parties, but
such Underwriter may employ counsel and participate in the
defense thereof but the fees and expenses of such counsel shall
be at the expense of such Underwriter), in any of which events
such fees and expenses shall be borne by such Underwriter and
paid as incurred (it being understood, however, that such
Underwriter shall not be liable for the expenses of more than one
separate counsel in any one action or series of related actions
in the same jurisdiction representing the indemnified parties who
are parties to such action). No Underwriter shall be liable for
any settlement of any such claim or action effected without the
written consent of such Underwriter but if settled with the
written consent of such Underwriter, such Underwriter agrees to
indemnify and hold harmless the Company, any Selling Stockholder
and any such person from and against any loss or liability by
reason of such settlement. Notwithstanding the foregoing
sentence, if at any time an indemnified party shall have
requested an indemnifying party to reimburse the indemnified
party for fees and expenses of counsel as contemplated by the
second sentence of this paragraph, then the indemnifying party
agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such
settlement is entered into more than 60 business days after
receipt by such indemnifying party of the aforesaid request, (ii)
such indemnifying party shall not have reimbursed the indemnified
party in accordance with such request prior to the date of such
settlement and (iii) such indemnified party shall have given the
indemnifying party at least 30 days' prior notice of its
intention to settle. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of
which any indemnified party is or could have been a party and
indemnity could have been sought hereunder by such indemnified
party, unless such settlement includes an unconditional release
of such indemnified party from all liability on claims that are
the subject matter of such proceeding.
(c) If the indemnification provided for in this
Section 11 is unavailable to an indemnified party under
subsections (a) and (b) of this Section 11 in respect of any
losses, expenses, liabilities or claims referred to therein, then
each applicable indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable
by such indemnified party as a result of such losses, expenses,
liabilities or claims (i) in such
<PAGE>
-33-
proportion as is appropriate to reflect the relative benefits
received by the Company and the Selling Stockholders on the one
hand and the Underwriters on the other hand from the offering of
the Shares or (ii) if the allocation provided by clause (i) above
is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to
in clause (i) above but also the relative fault of the Company
and the Selling Stockholders on the one hand and of the
Underwriters on the other in connection with the statements or
omissions which resulted in such losses, expenses, liabilities or
claims, as well as any other relevant equitable considerations.
The relative benefits received by the Company and the Selling
Stockholders on the one hand and the Underwriters on the other
shall be deemed to be in the same proportion as the total
proceeds from the offering (net of underwriting discounts and
commissions but before deducting expenses) received by the
Company and the Selling Stockholders bear to the total
underwriting discounts and commissions received by the
Underwriters. The relative fault of the Company and the Selling
Stockholders on the one hand and of the Underwriters on the other
shall be determined by reference to, among other things, whether
the untrue statement or alleged untrue statement of a material
fact or omission or alleged omission relates to information
supplied by the Company, by the Selling Stockholders or by the
Underwriters and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such
statement or omission. The amount paid or payable by a party as
a result of the losses, expenses, liabilities and claims referred
to above shall be deemed to include any legal or other fees or
expenses reasonably incurred by such party in connection with
investigating or defending any claim or action.
(d) The Company, the Selling Stockholders and the
Underwriters agree that it would not be just and equitable if
contribution pursuant to this Section 11 were determined by pro
rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation
that does not take account of the equitable considerations
referred to in subsection (c) above. Notwithstanding the
provisions of this Section 11, no Underwriter shall be required
to contribute any amount in excess of the amount by which the
total price at which the Shares underwritten by such Underwriter
and distributed to the public were offered to the public exceeds
the amount of any damages which such Underwriter has otherwise
been required to pay by reason of such untrue statements or
alleged untrue
<PAGE>
-34-
statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f)
of the Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute pursuant to this Section
11 are several in proportion to their respective underwriting
commitments and not joint.
(e) The indemnity and contribution agreements
contained in this Section 11 and the covenants, warranties and
representations of the Company and the Selling Stockholders
contained in this Agreement shall remain in full force and effect
regardless of any investigation made by or on behalf of any
Underwriter, its directors and officers or any person who
controls any Underwriter within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act, or by or on behalf of the
Company, its directors and officers, any Selling Stockholder or
any person who controls the Company within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, and
shall survive any termination of this Agreement or the issuance
and delivery of the Shares. The Company, each Selling
Stockholder and each Underwriter agree promptly to notify the
others of the commencement of any litigation or proceeding
against it and, in the case of the Company, against any of the
Company's officers and directors in connection with the issuance
and sale of the Shares, or in connection with the Registration
Statement or Prospectus.
12. Notices. Except as otherwise herein provided, all
statements, requests, notices and agreements shall be in writing
or by telegram and, if to the Underwriters, shall be sufficient
in all respects if delivered or sent to SBC Warburg Dillon Read
Inc., 535 Madison Avenue, New York, N.Y. 10022, Attention:
Syndicate Department, if to the Company, shall be sufficient in
all respects if delivered or sent to the Company at the offices
of the Company at 2 Quaker Road, Pomona, NY 10970-0519,
Attention: General Counsel and, if to any of the Selling
Stockholders, shall be sufficient in all respects if delivered or
sent to the Representatives of the Selling Stockholders at
Apotex, 150 Signet Drive, Weston (Toronto), Ontario M9L 1T9,
Attention: Chief Financial Officer.
13. Construction. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of
New York. The Section headings in this Agreement have been
inserted as a matter of convenience of reference and are not a
part of this Agreement.
<PAGE>
-35-
14. Parties at Interest. The Agreement herein set
forth has been and is made solely for the benefit of the
Underwriters, the Company, the Selling Stockholders and the
controlling persons, directors and officers referred to in
Section 11 hereof, and their respective successors, assigns,
executors and administrators. No other person, partnership,
association or corporation (including a purchaser, as such
purchaser, from any of the Underwriters) shall acquire or have
any right under or by virtue of this Agreement.
15. Counterparts. This Agreement may be signed by the
parties in counterparts which together shall constitute one and
the same agreement among the parties.
16. Miscellaneous. SBC Warburg Dillon Read Inc., an
indirect, wholly owned subsidiary of Swiss Bank Corporation, is
not a bank and is separate from any affiliated bank, including
any U.S. branch or agency of Swiss Bank Corporation. Because SBC
Warburg Dillon Read Inc. is a separately incorporated entity, it
is solely responsible for its own contractual obligations and
commitments, including obligations with respect to sales and
purchases of securities. Securities sold, offered or recommended
by SBC Warburg Dillon Read Inc. are not deposits, are not insured
by the Federal Deposit Insurance Corporation, are not guaranteed
by a branch or agency, and are not otherwise an obligation or
responsibility of a branch or agency.
A lending affiliate of SBC Warburg Dillon Read Inc. may
have lending relationships with issuers of securities
underwritten or privately placed by SBC Warburg Dillon Read Inc.
To the extent required under the securities laws, prospectuses
and other disclosure documents for securities underwritten or
privately placed by SBC Warburg Dillon Read Inc. will disclose
the existence of any such lending relationships and whether the
proceeds of the issue will be used to repay debts owed to
affiliates of SBC Warburg Dillon Read Inc.
<PAGE>
-36-
If the foregoing correctly sets forth the understanding
among the Company, the Selling Stockholders and the Underwriters,
please so indicate in the space provided below for the purpose,
whereupon this letter and your acceptance shall constitute a
binding agreement among the Company, the Selling Stockholders and
the Underwriters, severally.
Very truly yours,
BARR LABORATORIES, INC.
By:
-----------------------------------------
Name:
Title:
THE SELLING STOCKHOLDERS NAMED IN
SCHEDULE B ATTACHED HERETO
By:
-----------------------------------------
Attorney-in-Fact
Accepted and agreed to as of
the date first above written,
on behalf of themselves and
the other several Underwriters
named in Schedule A
SBC WARBURG DILLON READ INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: SBC WARBURG DILLON READ INC.
By:
------------------------------
Name:
Title:
By:
------------------------------
Name:
Title:
<PAGE>
SCHEDULE A
Number of
Underwriter Firm Shares
- ----------- -----------
SBC WARBURG DILLON READ INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
------------------
Total......... ------------------
------------------
<PAGE>
SCHEDULE B
Number of
Selling Stockholders Firm Shares
- -------------------- -----------
Sherman Delaware, Inc.
Glastex Investments, Inc.
----------------------
Total..................................
----------------------
----------------------
<PAGE>
Exhibit 5.1
[Letterhead of Winston & Strawn]
January 29, 1998
Barr Laboratories, Inc.
Two Quaker Road
Pomona, New York 10970
Ladies and Gentlemen:
In connection with the Registration Statement on Form S-3 under the
Securities Act of 1933, as amended (the "Registration Statement"), relating to
the offering of 3,200,000 shares, plus up to a maximum of 480,000 additional
shares if the underwriters over-allotment option is exercised, of Common Stock,
$.01 par value (the "Shares"), of Barr Laboratories, Inc., a New York
corporation (the "Company"), which are to be sold by the Company and certain
stockholders of the Company (the "Selling Stockholders"), we have examined such
corporate records and other documents, including the Registration Statement, and
have reviewed such matters of law as we have deemed relevant hereto, and, based
upon this examination and review, it is our opinion that, when issued and sold
as contemplated in the Registration Statement, the Shares offered by the Company
will be legally issued, fully paid and nonassessable and that the outstanding
Shares offered by the Selling Stockholders were legally issued and are fully
paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name whenever it appears in such
Registration Statement, including the Prospectus constituting a part thereof, as
originally filed or as subsequently amended.
Very truly yours,
/s/ Winston & Strawn
Winston & Strawn
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Barr Laboratories,
Inc. on Form S-3 of our report dated August 28, 1997 (January 28, 1998 as to
Notes 1(f), 1(h), 5 and 8), appearing in the Prospectus, which is part of this
Registration Statement. We also consent to the reference to us under the heading
"Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
January 28, 1998
