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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission file number: 005-52501
WARNER CHILCOTT PUBLIC LIMITED COMPANY
(Exact name of registrant as specified in its charter)
Ireland N/A
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
Lincoln House, Lincoln Place, Dublin 2, Ireland
(Address of principal executive offices)
353 1 662-4962
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
American Depositary Shares, representing Ordinary Shares, par value $.05 each;
Ordinary Shares, par value $.05 each; 12,366,871 Ordinary Shares outstanding at
September 30, 1999.
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WARNER CHILCOTT PUBLIC LIMITED COMPANY
Table of Contents
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PAGE NO.
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Part I - Financial Information
Item 1. Consolidated Financial Statements (unaudited)
Consolidated Balance Sheets as of September 30, 1999 and
December 31, 1998 2
Consolidated Statements of Operations for the Three and
Nine Months Ended September 30, 1999 and 1998 3
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1999 and 1998 4
Notes to the Unaudited Consolidated Financial Statements 5-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-16
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
Part II- Other Information
Item 1. Legal Proceedings 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
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Part I - Financial Information
Item 1. Financial Statements
WARNER CHILCOTT PUBLIC LIMITED COMPANY
Consolidated Balance Sheets as of September 30, 1999 and December 31, 1998
(in thousands of U.S. dollars)
(UNAUDITED)
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September 30, December 31,
1999 1998
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ASSETS
Current Assets:
Cash and cash equivalents $ 52,529 $ 43,133
Accounts receivable 10,920 18,050
Inventories 4,258 13,099
Prepaid expense and other assets 1,033 7,403
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Total current assets 68,740 81,685
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Fixed Assets:
Equipment, furniture and fixtures 1,195 1,076
Intangible assets 65,097 74,256
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Total assets $ 135,032 $ 157,017
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LIABILITIES
Current Liabilities:
Accounts payable $ 2,708 $ 8,833
Accrued liabilities 6,404 6,254
Due to Elan Corporation, plc and subsidiaries 100 7,697
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Total current liabilities 9,212 22,784
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Other Liabilities:
Working capital facility 16,019 20,393
Long-term debt 9,665 8,897
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Total liabilities 34,896 52,074
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SHAREHOLDERS' EQUITY
Ordinary Shares, par value $.05 per share; 50,000,000
shares authorized, 12,366,871 shares issued and
outstanding at September 30, 1999, and 12,366,808 shares
issued and outstanding at December 31, 1998 618 618
Deferred Shares, par value IR(pounds)1 per share; 30,000
shares authorized, 30,000 shares issued and outstanding
at September 30, 1999 and December 31, 1998 45 45
Additional paid-in capital 209,013 208,939
Accumulated deficit (108,922) (103,578)
Deferred compensation (618) (1,081)
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Total shareholders' equity 100,136 104,943
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Total liabilities and shareholders' equity $ 135,032 $ 157,017
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</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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WARNER CHILCOTT PUBLIC LIMITED COMPANY
Consolidated Statements of Operations for the Three and Nine Months Ended
September 30, 1999 and 1998
(in thousands of U.S. dollars, except per share data)
(UNAUDITED)
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Three Months Ended September 30, Nine Months Ended September 30,
1999 1998 1999 1998
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REVENUES
Branded product sales $ 9,136 $ 3,109 $ 25,393 $ 10,854
Generic product sales 2,386 6,228 12,223 24,788
Marketing alliance and other revenue 4,151 7,764 18,681 7,764
------------- -------------- ------------- --------------
Total revenues 15,673 17,101 56,297 43,406
------------- -------------- ------------- --------------
OPERATING EXPENSES
Cost of goods sold 6,340 7,987 22,078 26,187
Selling, general and administrative 11,161 10,245 34,866 28,364
Depreciation and amortization 1,417 1,405 4,249 4,213
Research and development 839 796 2,468 2,354
------------- -------------- ------------- --------------
Total operating expenses 19,757 20,433 63,661 61,118
------------- -------------- ------------- --------------
OPERATING LOSS (4,084) (3,332) (7,364) (17,712)
------------- -------------- ------------- --------------
OTHER INCOME (EXPENSE)
Interest income 557 631 1,604 2,036
Interest expense (751) (776) (2,327) (2,138)
Gain on sale of assets 2,743 - 2,743 -
------------- --------------- -------------- ---------------
Total other income (expense) 2,549 (145) 2,020 (102)
------------- --------------- -------------- ---------------
LOSS BEFORE TAXES (1,535) (3,477) (5,344) (17,814)
------------- --------------- -------------- ---------------
Income taxes - - - -
------------- -------------- ------------- --------------
NET LOSS $ (1,535) $ (3,477) $ (5,344) $ (17,814)
============= ============== ============= ==============
Net loss per ordinary share
Basic and Diluted $ (0.12) $ (0.28) $ (0.43) $ (1.44)
============= ============== ============= ==============
Weighted average ordinary shares outstanding 12,366,871 12,366,808 12,366,829 12,366 808
============= ============== ============= ==============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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WARNER CHILCOTT PUBLIC LIMITED COMPANY
Consolidated Statements of Cash Flows
(in thousands of U.S. dollars)
(UNAUDITED)
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Nine Months Ended September 30,
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (5,344) $ (17,814)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities
Depreciation and amortization 4,249 4,213
Accretion of loan discount - 862
Stock compensation expense 463 463
Gain on sale of assets (2,743) -
Changes in assets and liabilities:
Decrease (increase) in accounts receivable, prepaid expense
and other assets 13,050 (5,220)
Decrease (increase) in inventories 6,162 (721)
(Decrease) increase in accounts payable and accrued liabilities (5,975) 3,185
Decrease in due to Elan Corporation, plc and subsidiaries (7,597) -
---------- ----------
Net cash provided by (used in) operating activities 2,265 (15,032)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets 11,000 -
Purchase of fixed assets (337) (104)
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Net cash provided by (used in) investing activities 10,663 (104)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Working capital facility (repayment) proceeds, net (4,374) 5,661
Senior subordinated notes -- additional notes issued for
interest payment due April 30, 1999 768 -
Loan proceeds from Elan Corporation, plc - 58
Miscellaneous financing costs - (23)
Additional paid-in capital related to stock options 74 -
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Net cash (used in) provided by financing activities (3,532) 5,696
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Net increase (decrease) in cash and cash equivalents 9,396 (9,440)
Cash and cash equivalents, beginning of period 43,133 52,786
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Cash and cash equivalents, end of period $ 52,529 $ 43,346
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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WARNER CHILCOTT PUBLIC LIMITED COMPANY
Notes to the Unaudited Consolidated Financial Statements
September 30, 1999
NOTE 1: BASIS OF PRESENTATION
The unaudited consolidated financial statements included herein have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission for reporting on Form 10-Q. Certain information and footnote
disclosure normally included in the financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. The statements should be read in
conjunction with the accounting policies and notes to the consolidated financial
statements included in Warner Chilcott Public Limited Company's (the "Company"
or "Warner Chilcott") 1998 Annual Report on Form 10-K.
The Company is an Irish public limited company with operations in Dublin,
Ireland and Rockaway, NJ, USA. The Company's financial statements include the
financial statements for Warner Chilcott Public Limited Company and all of its
subsidiaries and are prepared in U.S. dollars in conformity with United States
generally accepted accounting principles. For the Company, comprehensive loss is
comprised solely of net loss.
In the opinion of management, the financial statements reflect all adjustments
necessary for a fair statement of the operations for the interim periods
presented.
NOTE 2: INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined
principally on the basis of first-in, first-out or standards that approximate
average cost.
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September 30, 1999 December 31, 1998
(in thousands of U.S. dollars)
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Raw materials $ 5 $ 1,897
Finishing supplies 1 3
Work in process - 932
Finished goods 4,872 11,597
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4,878 14,429
Less: Reserves for obsolescence 620 1,330
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Inventories $ 4,258 $ 13,099
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NOTE 3: CO-PROMOTION AGREEMENTS
In July 1998, the Company entered into an agreement under which Warner Chilcott
promotes certain branded pharmaceutical products on behalf of Schering-Plough.
This agreement was amended as of January 1, 1999 to change the mix of products
to be promoted by Warner Chilcott and the means of calculating royalties earned
by Warner Chilcott based upon the performance of the promoted products.
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In February 1999, the Company entered into an agreement under which Warner
Chilcott promotes certain branded pharmaceutical products on behalf of Bristol-
Myers Squibb.
Revenue earned by Warner Chilcott from these arrangements is included in the
Statement of Operations under the caption "Marketing alliance and other
revenue".
NOTE 4: ELAN AGREEMENTS
In March 1999, the Company reached a binding agreement with Elan Corporation,
plc under which Elan agreed to acquire Warner Chilcott's marketing rights to an
extended-release nifedipine product. Under terms of the agreement, as of March
31, 1999, Elan was obligated to make a non-refundable payment, which was
received, of $3.0 million to Warner Chilcott and such amount was reported as
revenue in the first quarter of 1999 under the caption "Marketing alliance and
other revenue". In June 1999, the Company executed the definitive agreement
licensing the extended-release nifedipine product to Elan and received an
additional $4.0 million that was recorded as revenue in the second quarter of
1999. Under the agreement, additional license fees would be due to Warner
Chilcott upon the completion of certain milestones including FDA approval of the
pending ANDA for the product. Warner Chilcott would also be entitled to receive
royalties based upon revenues derived from the product. During the quarter ended
September 30, 1999, the Company did not recognize any additional fees or
royalties from this agreement.
In March 1999, the Company also reached a binding agreement with Elan under
which Elan re-acquired the marketing rights to an isosorbide-5-mononitrate
product ("IS5MN-PM") that Elan had been developing for Warner Chilcott. Under
terms of the agreement, as of March 31, 1999, Elan was obligated to make a
payment to Warner Chilcott in an amount equal to Warner Chilcott's remaining
contractual obligation relating to the development of IS5MN-PM. Such amount had
been carried by Warner Chilcott as an asset in "Prepaid expense and other
assets" and as a liability in "Due to Elan Corporation, plc and subsidiaries".
In concluding this transaction and reducing both the related asset and
liability, Warner Chilcott did not recognize an income statement effect.
NOTE 5: SALE OF VECTRIN(R)
During September 1999, the Company completed the sale of its Vectrin(R) branded
minocycline HCl product line including certain inventory, samples and the
related abbreviated new drug application (ANDA), and received $11.0 million in
cash. The Company reported a pre-tax gain of $2.7 million from the sale that is
included in the Statement of Operations under the caption "Other income - Gain
on sale of assets". The Company also earned royalties and milestone revenue
under the sale agreement during the third quarter 1999 and such amounts are
included in the Statement of Operations under the caption "Marketing alliance
and other revenue".
NOTE 6: NET LOSS PER ORDINARY SHARE
Basic net loss per ordinary share has been computed by dividing net loss
available to ordinary shareholders by the weighted average number of ordinary
shares outstanding during the period. Net loss and weighted average shares
outstanding used for computing diluted loss per share were the same as that used
for computing basic loss per share for the three and nine months ended September
30, 1999 and 1998. Stock options and warrants have not been included in the
calculation since the inclusion of such shares would be antidilutive.
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NOTE 7: CONTINGENCIES
The Company is involved in various legal proceedings of a nature considered
normal to its business including patent litigation, product liability and other
matters. In the event of the adverse outcome of these proceedings, resulting
liabilities are either covered by insurance, established reserves or, in the
opinion of management, would not have a material adverse effect on the financial
condition or results of operations of the Company.
NOTE 8: UNITED STATES FEDERAL INCOME TAXES
The Company operates in Ireland and the United States and is subject to various
taxes on income in both jurisdictions. Warner Chilcott's wholly-owned United
States subsidiary, Warner Chilcott, Inc., is a United States corporation and, as
such, is subject to United States taxation. Ultimate utilization or availability
of net operating losses and certain deferred tax assets may be limited if a
significant change in ownership occurs, as defined by rules enacted with the
United States Tax Reform Act of 1986. The Company did not accrue any liability
for Federal income taxes in the three or nine months ended September 30, 1999
and 1998.
7
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This report contains forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the
Securities Act of 1933, as amended, and is subject to the safe harbors created
by those sections. These forward-looking statements are subject to significant
risks and uncertainties, including those identified in the section of this Form
10-Q entitled "Factors That May Affect Future Operating Results" and in Warner
Chilcott Public Limited Company's (the "Company" or "Warner Chilcott") 1998
Annual Report on Form 10-K filed with the Securities and Exchange Commission,
which may cause actual results to differ materially from those discussed in such
forward-looking statements. The forward-looking statements within this Form 10-Q
are identified by words such as "believes", "anticipates", "expects", "intends",
"may", "will" and other similar expressions. However, these words are not the
exclusive means of identifying such statements. In addition, any statements that
refer to expectations, projections or other characterizations of future events
or circumstances are forward-looking statements. The Company undertakes no
obligation to release publicly the results of any revisions to these forward-
looking statements that may be made to reflect events or circumstances occurring
subsequent to the filing of this Form 10-Q with the Securities and Exchange
Commission. Readers are urged to review and consider carefully the various
disclosures made by the Company in this report and in the Company's other
reports filed with the Securities and Exchange Commission that attempt to advise
interested parties of the risks and factors that may affect the Company's
business.
Set forth below is the discussion of the financial condition and results of
operations of the Company for the three and nine months ended September 30, 1999
and 1998. This discussion should be read in conjunction with the consolidated
unaudited financial statements and the related notes, appearing in Item 1.
Overview
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The Company is primarily engaged in the development, marketing, sale and
distribution of prescription pharmaceutical products in the United States. The
Company's current focus is on branded products targeted for three specialty
segments: women's health care, urology and cardiology. All of the Company's
branded products are promoted by the Company's sales force.
The Company currently markets a portfolio of branded products including:
NataFort(R), a prescription prenatal vitamin designed to improve patient
compliance by virtue of its smaller size relative to competing products;
NataChew(TM), a chewable prescription prenatal vitamin; Pyridium(R) Plus, a
urinary tract analgesic and antispasmodic agent used for irritative bladder
conditions; Doryx(R), a broad spectrum antibiotic; LoCholest(R), a lipid
regulator for the reduction of LDL cholesterol levels; Estrace(R) vaginal cream,
a hormone replacement product; Ovcon(R) 35, an oral contraceptive; K-Dur(R), a
sustained-release potassium supplement; NitroDur(R), a nitroglycerin patch for
the treatment of angina; and Lotrisone(R), a corticosteroid/antifungal cream.
NataFort(R), NataChew(TM), Pyridium(R) Plus, Doryx(R) and LoCholest(R) are
products owned by the Company. Estrace(R) vaginal cream and Ovcon(R) 35 are
products owned by Bristol-Myers Squibb and promoted by the Company under a
promotion agreement. K-Dur(R), NitroDur(R) and Lotrisone(R) are products owned
by Schering-Plough and promoted by the Company under a promotion agreement.
The Company plans to add additional products to its portfolio of branded
products through internal development, co-promotion agreements, in-licensing,
acquisition and development collaborations with other companies.
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Revenue from the sale of branded products accounted for 45.1% and 25.0% of total
revenue for the nine months ended September 30, 1999 and 1998, respectively.
Marketing alliance revenue was first generated in the third quarter of 1998 and
accounted for 33.2% of total revenue for the nine months ended September 30,
1999 as compared to 17.9% for the 1998 period. Revenue associated with the sale
of non-differentiated generic products during the nine months ended September
30, 1999 accounted for 21.7% of total revenue, down from 57.1% in the 1998
period.
The foundation for the Company's future success is its sales and marketing
organization. The Company began to build its sales force in early 1997. During
1998, the Company's sales force grew from 175 professionals at year-end 1997 to
270 at the end of 1998. Through the third quarter of 1999 the Company's sales
force remained approximately the same in size as at year-end 1998. The Company's
target for its sales force is approximately 295 comprised of 255 representatives
in the Company's primary care sales force, 20 in the dermatology sales force and
20 in sales force management.
Future revenue growth will be dependent on the Company increasing the sales of
its existing portfolio of promoted products and adding new products through
acquisition, in-licensing, marketing alliances or self-development.
History
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The Company is an Irish public limited company founded in 1992 as Nale
Laboratories Limited ("Nale"). In March 1996, Nale acquired certain assets and
assumed certain liabilities (the "Acquisition") of Warner Chilcott Laboratories,
a division of the Warner-Lambert Company (the "Division"). Following the
Acquisition, Nale changed its name to Warner Chilcott Public Limited Company.
The principal purpose of the Acquisition was to provide the Company with
channels of distribution for pharmaceutical products in the United States. The
Company also gained an established reputation in the pharmaceutical industry, a
portfolio of existing products, and a functioning organization. The Company's
customer base includes all major national wholesalers and pharmacy chains. The
assets and liabilities of the Division acquired in the Acquisition are now
organized in the United States as Warner Chilcott, Inc., a wholly-owned
subsidiary of Warner Chilcott Public Limited Company.
The Company's revenues are currently generated in the United States and the U.S.
dollar is the functional currency of the Company. Accordingly, the Company's
exposure to currency fluctuation is limited. Product sourcing from vendors and
research and development agreements are normally contracted in U.S. dollars. As
a company operating in multiple jurisdictions, the Company will be subject to
taxation on its earnings in the jurisdictions in which it operates. At present,
such jurisdictions include Ireland and the United States.
Results of Operations
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Three months ended September 30, 1999 and 1998
Total revenues for the three months ended September 30, 1999 declined $1.4
million to $15.7 million as compared to $17.1 million for the year ago period.
Decreases in revenue from marketing alliances and generic sales were somewhat
offset by a significant increase in sales of branded products.
Branded product sales increased $6.0 million from the prior year and generated
sales of $9.1 million in the quarter compared to $3.1 million in the prior year.
NataFort(R), Doryx(R) and
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Vectrin(R) sales all exceeded prior year results. Pyridium(R) Plus, launched in
the first quarter of 1999, also contributed to the increase in branded product
sales over the prior year. Sales of generic products decreased as the Company
continued to reduce its activities in this low margin area to focus on its
branded product portfolio.
Marketing alliance and other revenue declined $3.6 million to $4.2 million from
$7.8 million in the prior year primarily due to a decline in revenue under the
Company's co-promotion agreement with Schering-Plough. During the 1999 quarter,
the Company promoted K-Dur(R), NitroDur(R) and Lotrisone(R). In the year ago
quarter, the Company promoted Imdur(R) and K-Dur(R). The Company was able to
earn significantly greater revenues under the Imdur(R) and K-Dur agreement as
compared with the current agreement.
Gross profit on product sales increased $3.8 million to $5.2 million in the
third quarter 1999, compared to $1.3 million in the prior year. This increase
was primarily due to a 30.5% improvement in the gross profit margin on sales
from 14.5% in the 1998 quarter to 45.0% in the third quarter 1999. The improved
gross profit margin is attributable to a more favorable product mix with higher
margin branded products accounting for a greater percentage of total product
sales. Third quarter 1999 branded product sales accounted for 79.3% of total
product sales, while branded product sales in the year ago period represented
only 33.3% of total product sales.
Selling, general and administrative expenses increased by $1.0 million to $11.2
million from $10.2 million in the prior year primarily due to additional costs
associated with the expansion of the sales force from an average strength of 184
professionals in the 1998 quarter to 268 in the third quarter 1999. Promotional
activities for the recently launched Pyridium(R) Plus also contributed to the
increase in selling costs. General and administrative costs for the third
quarter 1999 were consistent with the prior year.
Research and development costs for the quarter of $0.8 million were consistent
with the third quarter 1998 reflecting the Company's continuing focus on
development projects with near-term revenue potential and relatively low funding
requirements. These projects include the development of line extensions for both
the Company's own branded products and for the oral contraceptive Ovcon(R) 35
under a license agreement with Bristol-Myers Squibb.
Interest income declined $0.1 million to $0.5 million due to a decrease in
average funds available for investing. Total interest expense for the third
quarter 1999 was consistent with the year ago period. The interest rate and
outstanding balance of the Company's senior subordinated notes increased as
compared to third quarter 1998, however, the resulting increased interest
expense was offset by a decrease in interest costs related to the Company's
working capital credit facility as the Company had less debt outstanding under
that facility during the 1999 period.
In the third quarter 1999, the Company recognized a gain of $2.7 million on the
sale of its Vectrin(R) minocycline HCl product line including certain inventory,
samples and the related abbreviated new drug application (ANDA). Royalty and
milestone revenues earned under the sale agreement in the third quarter 1999 are
reported separately under "Marketing alliance and other revenue".
The net result of the factors outlined above was that the net loss for the
quarter decreased to $1.5 million as compared to a net loss of $3.5 million for
the third quarter 1998. The improved contribution from sales of the Company's
own branded products combined with the gain on the sale of Vectrin(R), more than
offset the lesser revenues from the Schering-Plough agreement and
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increased selling costs. The basic and diluted loss per ordinary share for the
quarter decreased to ($0.12) from ($0.28) on a similar number of shares
outstanding.
Nine months ended September 30, 1999 and 1998
Total revenue for the nine months ended September 30, 1999 advanced $12.9
million to $56.3 million as compared to $43.4 million in the prior year.
Significant increases in sales of the Company's branded products and revenues
from marketing alliances more than offset the decline in generic product sales.
Sales of branded products increased more than twofold to $25.4 million as
compared to $10.8 million in the year ago period. Branded products that
contributed to the growth included NataFort(R), Doryx(R) and Vectrin(R).
Pyridium(R) Plus was launched in the first quarter of 1999 and also contributed
to the increase in branded product sales. Sales of generic products declined
$12.6 million from the 1998 period as the Company continued to reduce its
activities in this lower margin business to focus more heavily on its branded
product portfolio.
Marketing alliance and other revenue totaled $18.7 million for the nine months
ended September 30, 1999, an increase of $10.9 million over prior year revenue
of $7.8 million. Contributing to this increase was $7.0 million of revenue
earned in the 1999 period in consideration of Warner Chilcott licensing its
marketing rights to an extended-release nifedipine product to Elan. Increased
revenue from the Schering-Plough promotion agreement also contributed to the
overall increase. However, the Company initiated its promotion of Schering-
Plough products beginning in the third quarter of 1998 and, therefore, earned
royalties from this activity for only three of the nine months ended September
30, 1998 compared with a full nine months in the 1999 period. The amount earned
by the Company in the third quarter 1999 under the Schering-Plough arrangement
was significantly less than was earned during the third quarter of 1998. Other
revenue earned in the 1999 period and not in 1998 included royalties earned from
Elan under a distribution agreement for IS5MN, and royalty/milestone revenue
related to the Company's sale of the Vectrin(R) product line in September 1999.
Gross profit on product sales increased $6.1 million to $15.5 million for the
nine months ended September 30, 1999, compared to $9.4 million in the prior
year. These favorable results are primarily due to a 14.8% improvement in the
gross profit margin on product sales from 26.5% in the 1998 period to 41.3% in
1999. The improved gross profit margin is attributable to a more favorable
product mix as 1999 branded product sales accounted for 67.5% of total product
sales as compared to 30.4% in the year ago period.
Selling, general and administrative expenses were up $6.5 million from $28.4
million in the year ago period compared with $34.9 million in 1999 due to the
Company's increased selling activities. Field selling costs increased as the
Company's sales force grew to an average strength of 265 during the 1999 period
as compared with 175 in 1998. Promotion costs also contributed to the increase,
including costs associated with the launch of Pyridium(R) Plus in the first
quarter 1999. General and administrative expenses were slightly higher in the
current period as compared to 1998 due to a modest increase in administrative
staff substantially offset by a decline in legal fees related to patent
litigation costs associated with the extended-release nifedipine product that
were no longer incurred by the Company after the first quarter 1999.
Research and development costs of $2.5 million were consistent with the prior
year period. Interest income decreased $0.4 million to $1.6 million due to a
decline in average funds available for investment. Interest expense increased
$0.2 million to $2.3 million due to the increased cost
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of the Company's senior subordinated debt offset somewhat by decreased costs
related to the Company's working capital credit facility as the Company required
less credit toward the end of the 1999 period.
During the third quarter of 1999, the Company recognized a gain of $2.7 million
on the sale of its Vectrin(R) product line including certain inventory, samples
and the related abbreviated new drug application (ANDA). Royalty and milestone
revenues earned under the sale agreement during the 1999 period are reported
separately under "Marketing alliance and other revenue".
The net loss for the nine months ended September 30, 1999 was $5.3 million
compared to $17.8 million for the prior year. The main factors contributing to
the reduced loss were the increase in marketing alliance and other revenue,
improved gross profit on product sales and gain recognized on the sale of the
Vectrin(R) product line, partially offset by the higher field selling and
product promotion costs. The basic and diluted loss per ordinary share for the
nine months ended September 30, 1999 decreased to ($0.43) per share from ($1.44)
per share on a similar number of ordinary shares outstanding.
Factors That May Affect Future Operating Results
Following is a discussion of some of the risks and historical facts which should
be considered when evaluating the current and future results of the Company.
This discussion is not intended to include all risks and historical facts that
could produce adverse results.
The Company has a history of operating losses. Operating losses have been posted
since the formation of the Company in 1992. As of September 30, 1999, the
Company's accumulated deficit was $108.9 million. The Company has invested in
the corporate infrastructure and sales organization needed to support the
marketing and product development activities that management believes necessary
for the success of the Company. However, there can be no assurance that these
efforts will be sufficient, thus future profitability is uncertain.
The future capital needs and additional funding activities of the Company are
uncertain. Warner Chilcott has experienced negative cash flows from operations
and has funded its activities to date from the issuance of equity and debt
securities. The Company has expended, and will continue to be required to
expend, substantial funds for promotional activities for products, to continue
research and development of product candidates, to in-license and acquire
additional products and to undertake sales and marketing efforts of its current
or future products. Although the Company may seek additional funding through the
public or private capital markets, there can be no assurance that any such
funding will be available to the Company.
Intense competition exists within the pharmaceutical industry. Many companies,
some with greater financial, marketing and development capabilities than the
Company, are engaged in developing, marketing and selling products that compete
with the products offered by Warner Chilcott. 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 or technology the Company produces to be obsolete or
otherwise noncompetitive.
12
<PAGE>
The clinical development, manufacture, marketing and sale of pharmaceutical
products is subject to extensive federal, state and local regulation in the
United States and similar regulation outside the United States. FDA approval is
required before most drug products can be marketed. FDA filings can be time
consuming and expensive without assurance that the results will be adequate to
justify approval. There can be substantial delays in the process, including the
need to provide additional data. There can be no assurance that approvals for
filings already made by the Company, or to be made in the future, can be
obtained in a timely manner, if at all, or that the regulatory requirements for
any such proposed products can be met. In addition, new regulations may
adversely affect the Company's operations or competitive position in the future.
The distribution network for pharmaceutical products has in recent years been
subject to increasing consolidation. As a result, a few large wholesale
distributors control a significant share of the market. In addition, the number
of independent drug stores and small chains has decreased as retail pharmacy
consolidation has occurred. Continued consolidation of either wholesale
distributors or retail pharmacies may adversely affect the Company's operations.
The Company depends on third parties for the manufacture of its current and
future products. Currently, the Company does not possess the facilities or
resources needed for these activities. The Company's strategy for development,
commercialization and manufacturing of certain of its products entails entering
into various arrangements with corporate collaborators, licensors and others. If
any of the Company's corporate collaborators were unable to satisfy their
contractual obligations to the Company, there can be no assurance that the
Company would be able to negotiate similar arrangements with other third
parties.
Many of the principal components of the Company's products are available only
from single source suppliers. There can be no assurance that the Company will
establish or, if established, maintain good relationships with such suppliers or
that such suppliers will continue to exist or be able to supply ingredients in
conformity with regulatory requirements.
The Company is engaged in the manufacture and marketing of products that may
give rise to the development of certain legal actions and proceedings. The
Company carries product liability insurance and umbrella liability insurance.
There can be no assurance that this coverage is adequate to cover potential
liability claims or that additional insurance coverage will be available in the
future if the Company manufactures and markets new products. The Company's
financial condition and results of operations could be materially adversely
affected by the unfavorable outcome of legal actions and proceedings.
Liquidity and Capital Resources
- -------------------------------
The Company ended the third quarter 1999 with $52.5 million of cash and cash
equivalents, an increase of $9.4 million over the balance at year-end 1998. The
cash flow from the net loss after adding back depreciation and amortization was
$1.1 million for the nine months ended September 30, 1999 as compared to $13.6
million in the prior year. In summary, the increase in cash and negative cash
flow from operations were funded by: (1) a significant decrease in investment in
working capital, (2) a modest increase in long term debt, and (3) the net
proceeds from the sale of Vectrin(R), offset in part by a reduction in the
amount due under the Company's working capital facility.
Accounts receivable declined $7.1 million from the year-end 1998 balance of
$18.0 million due to a reduction in the amount due the Company from Schering-
Plough, and decreased generic sales. The Schering-Plough agreement was modified
as of January 1, 1999 and revenue earned in the fourth quarter 1998 was
significantly larger than was earned in the third quarter 1999.
13
<PAGE>
Royalties from this agreement are due quarterly and paid in arrears. The
Company's shift to a brand intensive product mix had a direct effect on accounts
receivable as the Company's branded products are sold under more favorable
terms. Generic product inventory is more costly as a percentage of sales than
that of the Company's branded products and, due to the Company's product mix
shift, inventory dropped considerably from year-end 1998 as compared to
September 30, 1999. The Vectrin(R) sale also contributed to the decline in
inventory from year-end 1998 as all inventory of Vectrin(R) was transferred to
Medicis in connection with the sale transaction.
The reduction in prepaid expenses and other current assets from year-end 1998 to
September 30, 1999 was primarily the result of the Company licensing its rights
to IS5MN-PM to Elan early in 1999. Included in prepaid expenses at December 31,
1998 was $4.5 million that represented the Company's development commitment to
the IS5MN-PM project. A corresponding amount was included as a liability under
the caption "Due to Elan Corporation, plc and subsidiaries". In connection with
the licensing of the IS5MN-PM rights to Elan, the prepaid amount and the related
liability were eliminated. A decrease in sample inventory related to the
Company's promotional activities and the Vectrin(R) sale also contributed to the
drop in prepaid expense and other current assets.
Accounts payable declined $6.1 million to $2.7 million at the end of the third
quarter 1999 from year-end 1998 due to the decreased investment in generic
inventory and the timing of certain generic inventory purchases. The amounts due
to Elan decreased as payment of amounts due to Elan, including the remaining
development obligation for IS5MN-PM discussed above, were processed during the
period. Accrued liabilities remained consistent with year-end 1998. These
factors resulted in a decline in current liabilities of $13.6 million from $22.8
million at year-end 1998.
As compared to year-end 1998, the Company's working capital facility debt
declined $4.4 million to $16.0 million at September 30, 1999. The Company
entered into this $30 million facility agreement on March 30, 1998 with a
syndicate of banks, led by PNC Business Credit, to fund a portion of its
investment in inventories and accounts receivable. Credit availability under the
PNC facility is based on the balances of certain inventory, accounts receivable
and other assets of Warner Chilcott, Inc., the Company's wholly-owned United
States operating subsidiary. As of September 30, 1999, an additional $6.7
million of potential borrowings was available to the Company.
The Company posted a loss for the nine months ended September 30, 1999 and
losses may continue throughout 1999 and beyond. In addition, the Company may
invest in additional working capital or make capital expenditures to support its
various business activities. Management believes the combination of the
Company's cash balances and availability under its working capital credit
facility provide Warner Chilcott with access to sufficient capital to meet its
requirements for at least the next two years. There can be no assurance,
however, that such funds will be sufficient. Beyond such period, and in the
absence of the Company generating cash from operations, the Company would need
to raise additional funds. The Company expects that it would seek additional
funding through public or private equity or debt financings or through
collaborations. To the extent the Company raises additional capital by issuing
equity securities, ownership dilution to existing shareholders will result and
future investors may be granted rights superior to those of existing
shareholders. There can be no assurance that additional funding will be
available on acceptable terms, or at all.
14
<PAGE>
Inflation
- ---------
Inflation had no material impact on Warner Chilcott's operations during the
three months ended September 30, 1999.
Year 2000
- ---------
During 1997, the Company initiated a plan to identify, assess and remediate
"Year 2000" issues. This plan consists of three phases as follows: Phase I -
identification of all internal business critical systems and applications, key
vendors, and major customers. Although completed in June 1998, Phase I includes
the ongoing assessment of new vendors and customers as they become associated
with the Company's business activities. Phase II - assessment of Year 2000
compliance for all systems and activities identified in Phase I. Phase II was
completed by December 31, 1998. Phase III - remediation and/or development of
contingency plans for non-compliant systems and activities. Although all issues
requiring remediation or contingency plans have been addressed, the Company
continues to review its systems and contingency plans through the Year 2000
transition.
Primarily the finance, administration, billing, distribution and selling
operations of the Company's U.S. operating subsidiary rely on information
technology systems. Since the Acquisition in March 1996, the Company has put
into place new systems to replace those systems previously provided by
Warner-Lambert Company to the former Division. As a result, the Company's
computer systems and applications have been recently developed. Year 2000
upgrades of network software and hardware, and financial software are complete.
All internal business critical systems and applications are also Year 2000
compliant.
The Company has sent written inquiries to its key vendors and major customers as
to their progress in identifying and addressing Year 2000 compliance issues.
Those vendors and customers who have responded have reported that they expect to
be Year 2000 compliant well before the critical date.
The Company does not expect the costs associated with Year 2000 compliance to be
material. As of September 30, 1999, the Company incurred less than $100,000 in
the above mentioned system and application upgrades. These costs were paid from
available funds. The Company does not expect to incur additional costs of
significance and has not deferred information systems projects in order to
address Year 2000 issues.
The Company's most reasonably likely worst case scenario is an interruption in
the supply of products that the Company markets. Warner Chilcott heavily relies
on five third-party vendors to manufacture its portfolio of proprietary
products. In the event that any of these vendors' operations prove not to be
Year 2000 compliant, these vendors may not be able to supply the Company with a
continuous supply of products to sell, putting the Company's business operations
seriously at risk. During 1998 and 1999, the Company has closely monitored these
vendors' efforts to obtain Year 2000 compliance. All five of these vendors have
informed the Company that they are either compliant or will be compliant before
the critical date. In order to ease the possible impact of an interruption in
product manufacture and delivery, the Company has built up a two-month inventory
in accordance with its Disaster Recovery Plan. The Company believes that this
supply would enable the Company to continue operations while the vendor worked
to resume manufacturing.
The Company's operations also rely heavily on the ongoing supply of the
Schering-Plough products which the Company promotes, as well as
Schering-Plough's continuing ability to report
15
<PAGE>
sales and, subsequently, compute royalties payable to Warner Chilcott. Schering-
Plough has informed the Company that they are Year 2000 compliant.
Warner Chilcott utilizes third-party vendors to perform additional functions
including, but not limited to, warehousing, distribution, billing services and
market research. Critical vendors have provided the Company with written
confirmation of their anticipation of Year 2000 compliance.
Based on the Company's assessment efforts to date, the Company believes that
Year 2000 issues will not be disruptive to its operations, nor have a material
adverse effect on its financial condition or results of operations. The
Company's beliefs and expectations, however, are based on certain assumptions
and expectations that ultimately may prove to be inaccurate. There can be no
assurance that the failure to ensure Year 2000 compliance by a third party would
not have a material adverse effect on the Company.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The following discussion about Warner Chilcott's exposure in market risk of
financial instruments contains forward-looking statements. Actual results may
differ materially from those described.
The Company's holdings of financial instruments are comprised of U.S. corporate
debt, foreign corporate debt, U.S. and state government debt, foreign
government/agency guaranteed debt, bank deposits and certificates of deposit,
and commercial paper. All such instruments are classified as securities
available for sale. Warner Chilcott does not invest in portfolio equity
securities or commodities or use financial derivatives for trading purposes.
Warner Chilcott's debt security portfolio represents funds held temporarily
pending use in the Company's business and operations. The Company manages these
funds accordingly. Warner Chilcott seeks reasonable assuredness of the safety of
principal and market liquidity by investing in fixed rate income securities
while at the same time seeking to achieve a favorable rate of return. Warner
Chilcott's market risk exposure consists principally of exposure to changes in
interest rates. The Company's holdings are also exposed to the risks of changes
in the credit quality of issuers. Warner Chilcott invests in the shorter-end of
the maturity spectrum, and at September 30, 1999, 100% of such holdings mature
in one year or less.
The Company has long-term senior subordinated notes outstanding. As of October
25, 1998, the discount on these notes had been fully amortized and the note
began to accrue interest at a rate of 16.8%. The Company believes that the fair
value of the senior subordinated notes approximates the carrying value. While
changes in market interest rates may affect the fair value of the senior
subordinated notes, management does not believe that the impact, if any, of
reasonably possible near term changes in the fair value of such notes is likely
to have a material impact on the Company's financial statements.
The Company also has long-term debt outstanding under its working capital credit
facility. Borrowings under the credit facility are subject to market-driven
variable lending rates. The Company has not purchased interest rate derivative
contracts to fix the interest rate on any portion of the debt outstanding under
the facility. Accordingly, management believes that the fair value of the
long-term debt outstanding under the facility approximates the carrying value
and that near-term changes in interest rates would have little, if any, impact
on the fair value of this debt.
16
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings
The Company is involved in litigation relating to claims arising out of its
operations in the normal course of business, including product liability claims.
On July 1, 1999 the U.S. Court of Appeals for the Federal Circuit, which has
jurisdiction of appeals in patent cases, affirmed a decision by the U.S.
District Court for the Northern District of Illinois in which the District Court
held invalid Abbott Laboratories' U.S. Patent on anhydrous terazosin
hydrochloride (the " `207 patent"), Abbott Laboratories v. Geneva
Pharmaceuticals, et al., Dkt. Nos. 98-1593, - 1594, - 1595. Although the Company
is not a party to that action, it was the defendant in a separate action in the
same District Court, in which Abbott alleged that the Company had infringed the
`207 patent by filing an application with the Food and Drug Administration
("F.D.A.") for approval to market anhydrous terazosin chloride. Abbott
Laboratories v. Warner Chilcott. Because that action was pending, F.D.A. was
precluded by law from approving the Company's application for thirty months.
Based on the District Court's decision in Abbott v. Geneva Pharmaceuticals the
District Court entered summary judgment in favor of the Company in Abbott v.
Warner Chilcott again holding the patent invalid. The decision by the Court of
Appeals affirming the invalidity of the patent in Abbott v. Geneva thus has the
effect of affirming the invalidity of the patent in Abbott v. Warner Chilcott as
well. Subject to any rights any of the defendants in Abbott v. Geneva may have
under the Hatch-Waxman Act to a 180-day statutory period of marketing
exclusivity, the Court of Appeals' decision ends the statutory period in which
F.D.A. was statutorily barred from approving the Company's application. Abbott's
counsel have indicated that Abbott intends to ask the Court of Appeals to
reconsider its decision and, if that application is not successful, Abbott may
seek review of the Court of Appeals' decision in the Supreme Court.
There have been no other significant developments in the proceedings described
in the Company's 1998 Annual Report on Form 10-K filed with the Securities and
Exchange Commission, and the Company has not become involved in any additional
material proceedings.
Item 5. Other Information
Pursuant to newly adopted rules of the Securities and Exchange Commission, any
Company shareholder who intends to present a proposal at the Company's Annual
General Meeting of Shareholders in 2000 without requesting that the Company
include such proposal in the Company's proxy materials should be aware that he
or she must notify the Company no later than January 25, 2000 of his or her
intention to present such proposal. Otherwise, the Company may exercise
discretionary voting with respect to such shareholder proposal pursuant to
authority conferred on the Company by proxies delivered to the Company in
connection with the meeting.
17
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits - The following exhibits are filed with this document:
Exhibit No. Description
- ----------- -----------
10.1 Asset Purchase Agreement between Warner Chilcott, Inc. and
Medicis Pharmaceutical Corporation, dated September 14, 1999 *
27 Financial Data Schedule
____________
* Confidential material has been omitted from this exhibit and filed separately
with the SEC pursuant to a request for confidential treatment.
b. Reports on Form 8-K:
No report was filed during the three months ended September 30, 1999.
18
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
WARNER CHILCOTT PUBLIC LIMITED COMPANY
(Registrant)
November 9, 1999 /s/ Paul S. Herendeen
-------------------------
Paul S. Herendeen
Executive Vice President & Chief Financial Officer
(Principal Financial Officer)
November 9, 1999 /s/ David G. Kelly
------------------
David G. Kelly
Group Vice President, Finance
(Principal Accounting Officer)
19
<PAGE>
Exhibit 10.1
ASSET PURCHASE AGREEMENT
between
WARNER CHILCOTT, INC.
and
MEDICIS PHARMACEUTICAL CORPORATION
Dated as of September 14, 1999
[REDACTED] Confidential treatment has been requested for certain portions of
this document which have been omitted and filed separately with the Secretary of
the Securities and Exchange Commission. Omitted portions are indicated by
[REDACTED].
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1 DEFINITIONS..................................................... 1
1.1 Definitions................................................... 1
-----------
ARTICLE 2 PURCHASE AND SALE OF ASSETS..................................... 4
2.1 Assets to be Purchased........................................ 4
----------------------
2.2 Assumption of Liabilities..................................... 5
-------------------------
2.3 Purchase Price................................................ 5
--------------
2.4 Contingent Payments........................................... 5
-------------------
2.5 Closing Transactions.......................................... 8
--------------------
2.6 Right of Set-off.............................................. 10
----------------
ARTICLE 3 CONDITIONS TO CLOSING........................................... 10
3.1 Conditions to Purchaser's Obligations......................... 10
-------------------------------------
3.2 Conditions to Seller's Obligations............................ 11
----------------------------------
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF SELLER........................ 12
4.1 Organization.................................................. 12
------------
4.2 Valid and Binding Agreements.................................. 13
----------------------------
4.3 No Violation, Etc............................................. 13
-----------------
4.4 Consents and Approvals; Transfer.............................. 13
--------------------------------
4.5 Compliance with Law, Etc...................................... 13
------------------------
4.6 Title; Sufficiency of Purchased Assets........................ 14
--------------------------------------
4.7 Intellectual Property......................................... 14
---------------------
4.8 Litigation.................................................... 16
----------
4.9 Broker's or Finder's Fees..................................... 16
-------------------------
4.10 Power and Authority........................................... 16
-------------------
4.11 Absence of Certain Changes.................................... 16
--------------------------
4.12 Assumed Contracts............................................. 16
-----------------
4.13 Suppliers and Customers....................................... 16
-----------------------
4.14 Inventory..................................................... 16
---------
4.15 Legal Compliance-Food and Drug Administration................. 17
---------------------------------------------
4.16 Product Liability............................................. 18
-----------------
4.17 Product Revenues.............................................. 18
----------------
4.18 Limitations................................................... 18
-----------
4.19 Sale of Products in Puerto Rico............................... 18
-------------------------------
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER................. 18
5.1 Organization.................................................. 19
------------
5.2 Valid and Binding Agreements.................................. 19
----------------------------
5.3 No Violation, Etc............................................. 19
-----------------
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
5.4 Consents and Approvals........................................ 19
----------------------
5.5 Brokers' or Finders' Fees..................................... 19
-------------------------
5.6 Funds......................................................... 19
-----
ARTICLE 6 INDEMNIFICATION................................................. 20
6.1 Indemnification by Seller..................................... 20
-------------------------
6.2 Indemnification by Purchaser................................. 20
----------------------------
6.3 Procedures for Control of Third Party Claims................. 20
--------------------------------------------
6.4 Survival of Representations and Warranties................... 21
------------------------------------------
6.5 Limits on Indemnification.................................... 21
-------------------------
6.6 Limitation of Consequential and Other Damages................ 22
---------------------------------------------
6.7 Assumption of Risk........................................... 22
------------------
ARTICLE 7 COVENANTS....................................................... 22
7.1 Conduct of Business.......................................... 22
-------------------
7.2 Regulatory Documents; Recordkeeping.......................... 23
-----------------------------------
7.3 Validation Costs............................................. 23
----------------
7.4 Assigned Trademarks.......................................... 23
-------------------
7.5 Rebates; Chargebacks; Returns; Other Payments to Third Parties..24
--------------------------------------------------------------
7.6 Third Party Consents......................................... 24
--------------------
7.7 Payments after Closing....................................... 24
----------------------
7.8 Government Consents.......................................... 24
-------------------
7.9 Transitional License......................................... 25
--------------------
7.10 Insurance.................................................... 25
---------
7.11 Access....................................................... 25
------
7.12 Further Assurances........................................... 25
------------------
7.13 Payment of Taxes............................................. 26
----------------
7.14 Noncompetition Agreement..................................... 26
------------------------
7.15 Termination of Legal Action.................................. 26
---------------------------
7.16 Permits....................................................... 27
-------
7.17 UCC-3s....................................................... 27
------
7.18 Inventory.................................................... 27
---------
7.19 No Shop...................................................... 27
-------
ARTICLE 8 TERMINATION..................................................... 28
8.1 Termination of Agreement..................................... 28
------------------------
8.2 Effect of Termination........................................ 28
---------------------
ARTICLE 9CONFIDENTIALITY.................................................. 28
9.1 Confidential Information..................................... 28
------------------------
ARTICLE 10 GENERAL MATTERS................................................ 29
10.1 Tax Matters................................................... 29
-----------
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.2 Dispute Resolution........................................... 30
------------------
10.3 Press Releases and Announcements............................. 30
--------------------------------
10.4 Agency....................................................... 30
------
10.5 Expenses..................................................... 30
--------
10.6 Amendment; Modification...................................... 31
-----------------------
10.7 Waiver....................................................... 31
------
10.8 Notices...................................................... 31
-------
10.9 Assignment................................................... 31
----------
10.10 No Strict Construction....................................... 32
----------------------
10.11 Complete Agreement........................................... 32
------------------
10.12 Governing Law................................................ 32
-------------
10.13 Counterparts................................................. 32
------------
10.14 Bulk Transfer Laws........................................... 32
------------------
10.15 Severability................................................. 32
------------
</TABLE>
iii
<PAGE>
EXHIBITS TO ASSET PURCHASE AGREEMENT
Exhibit A -- Trademark Assignment (Section 2.5(b)(i))
Exhibit B -- Regulatory Assignment (Section 2.5(b)(ii))
Exhibit C -- Bill of Sale (Section 2.5(b)(iii))
Exhibit D -- Assignment and Assumption Agreement (Section 2.5(b)(iv))
Exhibit E -- Transition Services Agreement (Section 2.5(b)(v))
Exhibit F -- Release
iv
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made as of
---------
September 14, 1999, by and between Warner Chilcott, Inc., a Delaware corporation
("Seller"), and Medicis Pharmaceutical Corporation, a Delaware corporation
------
("Purchaser").
-----------
WHEREAS, Seller owns all rights to the ANDAs filed with the FDA with
respect to the Products;
WHEREAS, on the terms and subject to the conditions set forth in this
Agreement, Seller desires to sell to Purchaser, and Purchaser desires to
purchase from Seller, certain rights in and to the Products, including any
rights associated with Seller's pending ANDAs, and certain related assets and
Purchaser agrees to assume certain related obligations.
NOW, THEREFORE, for good and valuable consideration, the sufficiency
and receipt of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. As used in this Agreement, the following terms
-----------
listed below shall have the following meanings:
"Affiliate" of a party means any individual, corporation, partnership,
---------
limited liability company, association, trust, estate or other business entity
or organization controlled by, controlling or under common control with, such
party.
"ANDAs" means the Abbreviated New Drug Applications numbered
-----
[REDACTED] and [REDACTED] which were submitted to the FDA in order to obtain
approval to market the Products in the United States, together with all
amendments, modifications, supplements and updates thereto.
"Assigned Trademark" means the trademark Vectrin(R) U.S. Registration
------------------
No. [REDACTED], the registration thereof and the goodwill associated therewith.
"Assumed Contracts" means the Manufacturing Agreement between Seller
-----------------
and Oread, Inc., dated [REDACTED] (the "Manufacturing Agreement").
-----------------------
"Business" means the development, manufacture, distribution,
--------
packaging, testing, marketing and sale of the Products.
"Closing Date" has the meaning set forth in Section 2.5(a).
------------ --------------
<PAGE>
"Closing Documents" has the meaning set forth in Section 2.5(b).
----------------- --------------
"Confidentiality Agreement" means the Confidentiality Agreement, dated
-------------------------
as of [REDACTED], between Seller and Purchaser.
"Developing Products" means alternative forms of minocycline HCl,
-------------------
including those set forth in Section 1.1 of the Disclosure Letter.
"Disclosure Letter" means the disclosure letter delivered by the
-----------------
Seller to Purchaser concurrently with the execution and delivery of this
Agreement.
"Existing Products" means [REDACTED] and [REDACTED] minocycline HCl
-----------------
capsules under the brand name Vectrin.
"FDA" means the United States Food and Drug Administration.
---
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvement Act of
-------
1976, as amended, and the rules and regulations thereunder.
"Inventory" means all (i) inventory of the Existing Products and New
---------
Products (if any) that has been labeled and packaged for sale and conforms to
applicable Specifications including all sample and promotional inventory of
Existing Products and New Products; (ii) work in process, which includes filled
but unlabeled vials, capsules and batches not yet packaged; (iii) active
ingredients and dedicated raw materials including all bulk minocycline HCl on
hand; and (iv) packaging materials, which includes labels, inserts, cartons and
partitions.
"Know-how" means technical information and data related to the
--------
Developing Products and the Products as set forth in the ANDAs.
"knowledge," when used in the phrase "to Seller's knowledge" shall
---------
mean, and shall be limited to, the actual knowledge of any person employed by
Seller as of the date hereof and the actual and constructive knowledge of
Seller's executive officers.
"Material Adverse Effect" means a material adverse effect on the
-----------------------
Products or the Purchased Assets.
"Net Sales" means for the applicable period, the gross amount invoiced
---------
for any Royalty Product by Purchaser, its Affiliates or either of their
licensees, to unaffiliated third parties, [REDACTED]: (i) [REDACTED], (ii)
[REDACTED], (iii) [REDACTED]; and (iv) [REDACTED].
"New Product" means the [REDACTED].
-----------
<PAGE>
"Payment Claims" means any and all claims and/or amounts due to third
--------------
parties, including, wholesalers, retailers, distributors, government buyers or
group purchasing organizations (whether by agreement, government mandate or
otherwise) that result or arise from rebate payments (e.g., Medicaid rebates),
chargebacks (i.e., refunds owed to wholesalers due to a decrease in the average
wholesale price), buy-againsts (i.e., reimbursements due to government customers
when such government customer is forced to buy substitute product from another
source at a higher price), returns, credits, price adjustments or other similar
payments with respect to the Products.
"Products" means the Existing Products and the New Product.
--------
"Purchaser Indemnified Party" means Purchaser and its Affiliates,
---------------------------
directors, officers, employees, agents, consultants, advisors or other
representatives of such person including legal counsel, accountants and
financial advisors.
"Regulatory Documents" means all files regarding the ANDAs, including
--------------------
correspondence, annual reports, adverse event reports and specifications, but
only copies of such files to the extent not exclusively related to the Products
or that Seller is required by law to retain the originals.
"Release" has the meaning set forth in Section 7.15.
------- ------------
"Royalty Products" means any [REDACTED] product sold by Purchaser, its
----------------
Affiliates or either of their licensees.
"Seller Indemnified Party" means Seller and its Affiliates, directors,
------------------------
officers, employees, agents, consultants, advisors or other representatives of
such person including legal counsel, accountants and financial advisors.
"Specifications" means the manufacturing and quality specifications
--------------
for the Existing Products set forth in the ANDAs.
"Tax" means any net income, alternative or add-on minimum tax, gross
---
income, gross receipts, sales, use, ad valorem, value added, franchise, capital,
paid-up capital, profits, greenmail, license, withholding, payroll, employment,
excise, severance, stamp, occupation, premium, property, environmental or
windfall profit tax, custom, duty or other tax, governmental fee or other like
assessment or charge of any kind whatsoever, together with any interest or any
penalty, addition to tax or additional amount (whether or not disputed) imposed
by any governmental authority (domestic or foreign) responsible for the
imposition of any such tax or any amount of Tax to be collected on behalf of a
governmental authority.
"Transition Services Agreement" has the meaning set forth in Section
----------------------------- -------
2.5(b).
- ------
3
<PAGE>
"Warner Chilcott Trademarks" means the trademarks and trade names
--------------------------
"Warner Chilcott" and any other trademark, trade name, corporate or company
name, or service mark, in each case that incorporates the term "Warner
Chilcott", including any abbreviations and derivations of the term "Warner
Chilcott", and all logos, designs, trade dress and goodwill associated
therewith.
ARTICLE 2
PURCHASE AND SALE OF ASSETS
2.1 Assets to be Purchased.
----------------------
(a) Subject to the conditions specified in this Agreement, at the
Closing (as defined herein), Seller shall sell, assign and transfer to
Purchaser, and Purchaser shall buy from Seller, the following property, assets
and rights (collectively, the "Purchased Assets"):
----------------
(i) the Assigned Trademark and the goodwill associated
therewith;
(ii) all copyrights owned by Seller in the labels and inserts
used with the Products;
(iii) all Inventory owned by Seller as of the Closing Date;
(iv) the Know-how;
(v) all ANDAs;
(vi) all Regulatory Documents; and
(vii) all of Seller's rights under the Assumed Contracts.
(b) The Purchased Assets shall not include any assets other than the
assets specifically listed or described in Section 2.1(a). Notwithstanding the
--------------
definition of Purchased Assets set forth above, the following assets
(collectively, the "Excluded Assets") are expressly excluded from the purchase
---------------
and sale contemplated hereby and, as such, are not included in the Purchased
Assets and shall be retained by Seller:
(i) the Warner Chilcott Trademarks;
(ii) any refunds payable to Seller for Taxes of any nature paid
prior to the Closing Date; and
4
<PAGE>
(iii) all cash, cash equivalents, trade and account receivables
and similar items of Seller accrued prior to the Closing Date, whether or
not the same may relate in whole or in part to the Products or the
manufacturing, marketing or sale thereof by Seller.
2.2 Assumption of Liabilities. Subject to the terms of this
-------------------------
Agreement, at the Closing, Purchaser shall assume and agree to discharge and
perform, as and when due, all liabilities and obligations arising after the
Closing Date with respect to the Purchased Assets and the Products, including
performance of all obligations and payment of all costs and expenses accruing
after the Closing Date pursuant to the Assumed Contracts and Sections 7.2, 7.3,
------------------
7.7, 7.8 and 7.13 and payment of all costs and expenses for which Purchaser is
- -------- ----
responsible pursuant to Section 7.5.
-----------
2.3 Purchase Price. The purchase price for the Purchased Assets
--------------
shall be [REDACTED] in cash (the "Purchase Price").
--------------
2.4 Contingent Payments. In addition to the Purchase Price, in
-------------------
consideration of the sale of the Purchased Assets to Purchaser, Purchaser shall
pay Seller the contingent payments set forth below:
(a) [REDACTED]
(b) [REDACTED]
(c) [REDACTED]
(d) Royalties. Commencing upon the Approval date and continuing for
---------
[REDACTED] years from the Approval date, Purchaser shall pay Seller the
following royalties on Net Sales of Royalty Products:
(i) [REDACTED] of Net Sales on annual Net Sales less than
[REDACTED];
(ii) [REDACTED] of Net Sales on annual Net Sales equal to or
greater than [REDACTED] but less than [REDACTED];
(iii) [REDACTED] of Net Sales on annual Net Sales equal to or
greater than [REDACTED] but less than [REDACTED]; and
(iv) [REDACTED] of Net Sales on annual Net Sales equal to or
greater than [REDACTED].
(e) Payments; Report. Purchaser shall make payments due under Section
---------------- -------
2.4(c) within [REDACTED] days following the end of the Bonus Year such payment
- ------
was earned. Purchaser shall make all payments due under Section 2.4(d) within
--------------
[REDACTED] days following the end of each calendar quarter. All payments
pursuant to Sections 2.4(c) and (d) shall be accompanied by a report in writing
--------------- ---
showing the calendar quarter or Bonus Year, as the case may be, for which such
payment applies, [REDACTED] the total payment due.
5
<PAGE>
(f) Payment; Currency. All payments by Purchaser to Seller under this
-----------------
Agreement shall be made in United States dollars and shall be made by wire
transfer to a bank account designated in writing to Purchaser by Seller, and
except as expressly set forth above all such payments shall be non-refundable.
(g) Interest. Any late payments under this Agreement shall bear
--------
interest at a rate of [REDACTED] (as defined in The Wall Street Journal
-----------------------
published on the date closest to the date payment was due). Such interest shall
be calculated from the date payment was due until the date Purchaser sends the
payment to Seller if Seller has not received such payment within [REDACTED] days
after the date such payment was due (the "Grace Period"). Seller shall use its
------------
reasonable efforts to notify Purchaser of any payments owed to Seller that have
not been paid by the end of the Grace Period; provided, however, that Purchaser
-------- -------
acknowledges that Purchaser shall have no remedy in the event Seller fails to
provide such notice; provided further, that in the event Seller does not receive
-------- -------
a payment before the expiration of the Grace Period applicable to such payment,
and Purchaser is able to demonstrate that it made such payment in good faith
before the expiration of the Grace Period and that the failure of such payment
was through no fault of Purchaser, then Seller shall extend the Grace Period
until such time as it provides Purchaser with notice that such payment was not
received. Purchaser shall be responsible for and pay any and all costs,
including reasonable attorney's fees incurred by Seller in connection with
collecting past due amounts from Purchaser after the Grace Period.
(h) Books and Records; Audits. Purchaser shall maintain at its
-------------------------
office, accurate and complete books and records of its sales relating to the
Products consistent with customary business and accounting practices and in such
form and in such detail as to enable the amount of payments payable hereunder to
be determined. Commencing January 1, 2000, no more than once per year,
Purchaser shall permit Seller or any representative of a nationally recognized
accounting firm appointed by Seller or otherwise approved by Purchaser, at
Seller's expense, upon reasonable notice and during normal business hours, to
examine such books and records for the purposes of verifying Purchaser's reports
and accounting submitted to Seller hereunder and determining the correctness of
payments. The results of each such inspection shall be provided to Purchaser
upon completion thereof. In the event of any underpayment of any payment by at
least [REDACTED], the costs of such inspection shall be borne by Purchaser and
such underpayment shall be immediately due and payable to Seller by Purchaser
with interest specified in Section 2.4(g). In the event of any overpayment of
--------------
any payment by at least [REDACTED], such overpayment shall be immediately due
and payable to Purchaser by Seller, or subject to set-off pursuant to Section
-------
2.6. Notwithstanding anything to the contrary contained in this Section 2.4(h),
- --- --------------
neither party shall be liable for incorrect payments occurring more than
[REDACTED] years prior to such examination.
2.5 Closing Transactions.
--------------------
(a) Subject to the terms and conditions of this Agreement, the
transactions described in this Agreement shall be consummated (the "Closing") at
-------
the offices of Kirkland & Ellis,
6
<PAGE>
153 E. 53rd Street, New York, NY 10022, 10:00 a.m. (local time), on the first
business day following the date on which the conditions to the Closing set forth
in Article 3 have been satisfied or waived, or at such other place, time or date
as Seller and Purchaser may agree. The date of the Closing is referred to herein
as the "Closing Date".
------------
(b) At the Closing, the Seller shall execute and deliver to the
Purchaser the following agreements and instruments (collectively, the "Closing
-------
Documents"):
- ---------
(i) an assignment of Assigned Trademark, in substantially the
form attached hereto as Exhibit A (the "Trademark Assignment");
--------- --------------------
(ii) an assignment of the ANDAs in substantially the form
attached hereto as Exhibit B (the "Regulatory Assignment");
---------- ---------------------
(iii) a bill of sale, in substantially the form attached hereto
as Exhibit C (the "Bill of Sale") transferring ownership of the Inventory
--------- ------------
to Purchaser;
(iv) an assignment and assumption agreement, substantially in
the form attached hereto as Exhibit D (the "Assignment and Assumption
--------- -------------------------
Agreement"), pursuant to which Seller assigns to Purchaser, Seller's right,
title and interest under the Assumed Contracts and Seller assumes Seller's
obligations thereunder;
(v) a transition services agreement, substantially in the form
attached hereto as Exhibit E (the "Transition Services Agreement"),
--------- -----------------------------
pursuant to which Seller shall provide to Purchaser certain services in
connection with the Products until January 31, 2000.
(vi) an opinion of Kirkland & Ellis, counsel to Seller solely
as to due incorporation, due authorization, execution, delivery and
enforceability.
(vii) a certificate of an executive officer of Seller confirming
the satisfaction of the conditions set forth in Section 3.1;
-----------
(viii) a certificate of the Secretary or an Assistant Secretary
of Seller certifying as to (A) Seller's charter documents, (B) Seller's
good standing, (C) the resolutions in which Seller's board of directors
approved this Agreement, the Closing Documents and the transactions
contemplated hereby and thereby, and (D) the incumbency of Seller's
officers who execute any documents on behalf of Seller in connection with
this Agreement;
(ix) the Release;
(x) a consent executed by Oread, Inc. consenting to the
assignment by Seller to Purchaser of the Manufacturing Agreement; and
7
<PAGE>
(xi) a release from PNC Bank, National Association and
BankAmerica Business Credit Inc. substantially in the form of Exhibit F
hereto and the related UCC-3s.
(c) At the Closing, the Purchaser shall execute and/or deliver to the
Seller:
(i) by wire transfer to a bank designated by Seller, in
immediately available funds, an amount equal to the Purchase Price;
(ii) the Trademark Assignment;
(iii) the Regulatory Assignment;
(iv) the Bill of Sale;
(v) the Assignment and Assumption Agreement;
(vi) the Transition Services Agreement
(vii) a certificate of an executive officer of Purchaser
confirming the satisfaction of the conditions set forth in Section 3.2; and
-----------
(viii) a certificate of the Secretary or an Assistant Secretary
of Purchaser certifying as to (A) Purchaser's charter documents, (B)
Purchaser's good standing, (C) the resolutions in which Purchaser's board
of directors approved this Agreement, the Closing Documents and the
transactions contemplated hereby and thereby, and (D) the incumbency of
Purchaser's officers who execute any documents on behalf of Purchaser in
connection with this Agreement.
2.6 Right of Set-off. Purchaser expressly reserves the right to
----------------
set-off any amounts due to Seller under this Agreement, including under Section
-------
2.4, by any material amounts due to Purchaser, if any, pursuant to Article 6 or
- --- ---------
Sections 7.7 and 7.13.
- ------------ ----
ARTICLE 3
CONDITIONS TO CLOSING
3.1 Conditions to Purchaser's Obligations. The obligations of the
-------------------------------------
Purchaser under this Agreement are subject to the fulfillment, prior to or on
the Closing Date, of each of the following conditions, any of which may be
waived in whole or in part by the Purchaser as provided herein, except as
otherwise provided by law:
(a) Representations and Warranties of Seller to be True; Performance
----------------------------------------------------------------
by Seller.
- ---------
8
<PAGE>
(i) The representations and warranties of the Seller contained
in this Agreement shall be true and correct in all material respects as of
the Closing Date with the same effect as though such representations and
warranties had been made or given again at and as of the Closing Date,
except for any representation or warranty expressly stated to have been
made or given as of a specified date, which, at the Closing Date, shall be
true and correct in all material respects as of the date expressly stated.
(ii) The Seller shall have performed and complied in all material
respects with all of its agreements, covenants and conditions required by
this Agreement to be performed or complied with by it prior to or at the
Closing Date.
(b) Regulatory Consents; HSR. All notices to, and declarations,
------------------------
registrations and filings with, and consents, approvals and waivers from,
and waiting periods required by, governmental and regulatory agencies
required to consummate the transactions contemplated hereby, shall have
been obtained. The waiting period required under the HSR Act, including
any extensions thereof, shall have expired and any investigations relating
to the sale hereunder that may have been opened by either the United States
Department of Justice or the United States Federal Trade Commission by
means of a request for additional information or otherwise shall have
terminated.
(c) No Proceeding or Litigation.
---------------------------
(i) No preliminary or permanent injunction or other order shall
have been issued by any court of competent jurisdiction, whether federal,
state or foreign, or by any governmental or regulatory body, whether
federal, state or foreign, nor shall any statute, rule, regulation or
executive order be promulgated or enacted by any governmental authority,
whether federal, state or foreign, which prevents the consummation of the
transactions contemplated in this Agreement.
(ii) No suit, action, proceeding or investigation before any
court, arbitrator or administrative, governmental or regulatory body,
whether federal, state or foreign, shall have been commenced and be pending
against the Seller, its Affiliates or any of their respective associates,
officers or directors seeking to prevent the sale of the Purchased Assets
or the Products or asserting that the sale of the Purchased Assets or the
Products would be illegal.
(d) No Material Adverse Change. Seller has not undergone any Material
--------------------------
Adverse Effect between the date hereof and the Closing Date.
(e) Notices. Seller shall have given all notices required to be given
-------
to any persons prior to the consummation of the transactions contemplated by
this Agreement.
9
<PAGE>
(f) Deliveries. Seller shall have delivered to Purchaser the
----------
documents required by Section 2.5, and fulfilled all of its obligations pursuant
-----------
to Section 7.14.
------------
3.2 Conditions to Seller's Obligations. The obligations of the
----------------------------------
Seller under this Agreement are subject to the fulfillment, prior to or on the
Closing Date, of each of the following conditions, any of which may be waived in
whole or in part by the Seller as provided herein, except as otherwise provided
by law:
(a) Representations and Warranties of Purchaser to be True;
-------------------------------------------------------
Performance by Purchaser.
- ------------------------
(i) The representations and warranties of the Purchaser
contained in this Agreement shall be true and correct in all material
respects as of the Closing Date with the same effect as though such
representations and warranties had been made or given again at and as of
the Closing Date, except for any representation or warranty expressly
stated to have been made or given as of a specified date, which, at the
Closing Date, shall be true and correct in all material respects as of the
date expressly stated.
(ii) The Purchaser shall have performed and complied in all
material respects with all of its agreements, covenants and conditions
required by this Agreement to be performed or complied with by it prior to
or at the Closing Date.
(b) Regulatory Consents; HSR. All notices to, and declarations,
------------------------
filings and registrations with, and consents, approvals and waivers from, and
waiting periods required by, governmental and regulatory agencies required to
consummate the transactions contemplated hereby shall have been obtained
including the expiration of any waiting period under the HSR Act. The waiting
period required under the HSR Act, including any extensions thereof, shall have
expired and any investigations relating to the sale hereunder that may have been
opened by either the United States Department of Justice or the United States
Federal Trade Commission by means of a request for additional information or
otherwise shall have terminated.
(c) No Proceeding or Litigation.
---------------------------
(i) No preliminary or permanent injunction or other order shall
have been issued by any court of competent jurisdiction, whether federal,
state or foreign, or by any governmental or regulatory body, whether
federal, state or foreign, nor shall any statute, rule, regulation or
executive order be promulgated or enacted by any governmental authority,
whether federal, state or foreign, which prevents the consummation of the
transactions contemplated in this Agreement.
(ii) No suit, action, proceeding or investigation before any
court, arbitrator or administrative, governmental or regulatory body,
whether federal, state or foreign, shall have been commenced and be pending
against the Purchaser, its Affiliates or
10
<PAGE>
any of their respective associates, officers or directors seeking to
prevent the sale of the Purchased Assets or the Products or asserting that
the sale of the Purchased Assets or the Products would be illegal.
(d) Deliveries. Purchaser shall have delivered to Seller the
----------
documents required by Section 2.5.
-----------
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER
As an inducement to Purchaser to enter into this Agreement and
consummate the transactions contemplated herein, Seller represents and warrants
to Purchaser that:
4.1 Organization. The Seller is a corporation duly organized,
------------
validly existing and in good standing under the laws of the State of its
incorporation. Seller is duly qualified or licensed as a foreign corporation in
each jurisdiction in which the nature of the Business makes such qualification
or licensing necessary, except those jurisdictions where the failure to so
qualify would not have a Material Adverse Effect.
4.2 Valid and Binding Agreements. The board of directors of Seller
----------------------------
has approved the consummation of the transactions contemplated hereby and by the
Closing Documents and no further corporate proceedings on the part of Seller are
necessary to consummate the transactions contemplated herein or therein. This
Agreement has been, and on the Closing Date each of the Closing Documents shall
be, duly and validly executed and delivered by Seller or its applicable
Affiliate, and this Agreement is, and on the Closing Date each of the Closing
Documents shall be, legal, valid and binding obligations of the Seller or its
applicable Affiliate, enforceable against Seller or its applicable Affiliate, in
accordance with their respective terms, subject to applicable bankruptcy,
insolvency and similar laws affecting creditors' rights generally and to general
principles of equity.
4.3 No Violation, Etc. Neither the execution and delivery of this
------------------
Agreement or the Closing Documents nor the consummation of the transactions
contemplated by this Agreement or the Closing Documents nor compliance by Seller
with any of the provisions hereof or thereof (a) violates or conflicts with any
provision of the certificate of incorporation or by-laws of Seller or (b)
violates, or conflicts with, or results in a breach of any provision of, or
constitutes a default (or gives rise to any right of termination, cancellation
or acceleration) under, any of the terms, conditions or provisions of any
agreement, lease, instrument, obligation, understanding or arrangement to which
Seller or Seller's properties or assets may be bound or affected by or (c)
violates any law, statute, rule or regulation to which Seller is subject.
4.4 Consents and Approvals; Transfer. Except as set forth on
--------------------------------
Section 4.4 of the Disclosure Letter, no permit, consent, approval or
authorization of, or declaration, filing or
11
<PAGE>
registration with, any governmental authority or third party is necessary in
connection with the execution and delivery by Seller of this Agreement or the
Closing Documents or the consummation by it of the transactions contemplated
hereby or thereby, except such consents as would not have a Material Adverse
Effect.
4.5 Compliance with Law, Etc. Seller has conducted its business
------------------------
and operations, to the extent they relate to the manufacture, distribution and
sale of the Products, in compliance with, and obtained all permits, licenses and
other authorizations required under, all applicable laws, rules, regulations,
orders, ordinances, judgments and decrees of all governmental authorities
(federal, state and local) (collectively "Laws") including, without limitation,
----
all requirements imposed by the FDA, except for such non-compliance which would
not have a Material Adverse Effect. Seller has not within the past 24 months
received written notice of any non-compliance with respect to, or potential
liability under, any Laws, which Laws, non-compliance or liability relates to
the Products or the Purchased Assets and which has not been satisfied or
otherwise resolved, except for such non-compliance which would not have a
Material Adverse Effect.
4.6 Title; Sufficiency of Purchased Assets. Except as set forth in
--------------------------------------
Section 4.6 of the Disclosure Letter, Seller has good and marketable title to
the Purchased Assets, free and clear of all mortgages, security interests,
liens, encumbrances and charges of any kind or nature ("Liens"), except for such
-----
Liens which would not have a Material Adverse Effect. The Purchased Assets
constitute all of the assets, properties, licenses and other arrangements that
are necessary to engage in the Business in a manner consistent with past
practice and at Seller's historic capacity; provided, however, that Purchaser
-------- -------
acknowledges that Seller has not and does not conduct any manufacturing
operations related to the Products, all manufacturing operations are conducted
by Oread, Inc.
4.7 Intellectual Property.
---------------------
(a) Section 4.7 of the Disclosure Letter sets forth an accurate and
complete list of all of the following intellectual property (the "Intellectual
------------
Property"):
- --------
(i) all patents and patent applications assigned to or filed
by Seller relating to the Business, including the country of filing, owner,
application number, filing date, patent number, date of issue, expiration
date and title;
(ii) all registered trademarks and service marks, including the
Assigned Trademark, and applications for registration of trademarks owned
by, filed by or used by Seller relating to the Business, including country
of filing, registration or application number, filing date and date of
issue;
(iii) all registered copyrights and applications for
registration of copyrights owned by, filed by or used by Seller relating to
the Business, including country of filing, owner, application number, date
of issue and expiration date;
12
<PAGE>
(iv) all material common law trademarks, service marks, trade
names, slogans, trade dress and the like owned by Seller relating to the
Business;
(v) all material license agreements pursuant to which Seller
has outstanding rights to any intellectual property of others relating to
the Business and all agreements, oral or written pursuant to which Seller
is obligated to pay royalties to third parties with respect to such
intellectual property; and
(vi) all material license agreements, oral or written, pursuant
to which Seller has granted to any person any outstanding right to any
intellectual property relating to the Business and all agreements, oral or
written, pursuant to which Seller is entitled to receive royalties from
third parties with respect to such intellectual property, including
licenses or other rights in unpatented formulations, manufacturing methods
and other know-how and proprietary information of Seller.
(b) Complete and accurate copies of all patents, trademarks,
copyrights and applications therefor referenced in clauses (i), (ii) and (iii)
of subsection (a) above and all agreements referred to in clauses (v) and (vi)
of subsection (a) above have been made available to Purchaser. The Intellectual
Property referenced in clauses (i), (ii) and (iii) has been duly registered
with, filed in or issued by the United States Patent and Trademark Office to the
extent necessary, and to the extent any ownership of such Intellectual Property
has been registered, Seller is the registered owner thereof, in each case free
and clear of all licenses or liens. Except as would not have a Material Adverse
Effect, the registered trademarks referenced in clause (ii) of subsection (a)
above are (i) valid and (ii) enforceable in their respective countries of filing
against any infringement (as finally determined by a court of competent
jurisdiction) of such trademarks.
(c) None of the Intellectual Property is subject to any outstanding
order, ruling, decree, judgment or stipulation by or of any governmental
authority, and, except as would not have a Material Adverse Effect, to Seller's
knowledge no third party is infringing upon any of the Intellectual Property, no
claim exists that any of the Intellectual Property is not valid or enforceable
by Seller.
(d) Except as would not have a Material Adverse Effect, Seller has
not taken or omitted any action which would have the effect of waiving any of
its rights under any of the Intellectual Property.
(e) Except as would not have a Material Adverse Effect, no licenses,
sublicenses, or other agreements relating to the Intellectual Property exist
which would limit or restrict the rights of Purchaser to operate the Business or
which grant to a third party any rights in any Intellectual Property relating to
the Business.
(f) Except as would not have a Material Adverse Effect, there are no
oppositions, cancellations or governmental, arbitration or other proceedings
currently pending or, to Seller's
13
<PAGE>
knowledge, threatened, that protest the rights of Seller to use and/or register
the trademarks and copyrights referenced in clauses (ii) and (iii) of subsection
(a) above.
(g) To Seller's knowledge, the conduct of the Business does not
contravene, conflict with, violate or infringe upon any patent, trademark,
service mark, copyright or other intellectual property right of a third party
and no proprietary information or trade secret has been misappropriated by
Seller from any third party. In addition, the use, licensing or sale by Seller
of any of the Intellectual Property does not contravene, conflict with, violate
or infringe upon any patent, trademark, service mark, copyright or other
intellectual property right of a third party and does not require the agreement
or consent of any third party that has not been obtained.
(h) Other than the Warner Chilcott Trademarks, the Intellectual
Property constitutes all of the intellectual property used or required by Seller
to sell the Products.
4.8 Litigation. Except as set forth on Section 4.8 of the
----------
Disclosure Letter, there is no litigation, proceeding, investigation,
arbitration or claim pending or to Seller's knowledge, threatened which affects
in whole or in part the Products or the Purchased Assets.
4.9 Broker's or Finder's Fees. There are no claims for brokerage
-------------------------
commissions, finders fees or similar compensation in connection with the
transactions contemplated in this Agreement based upon any arrangement, actions
or agreement by or on behalf of Seller.
4.10 Power and Authority. Seller has all requisite corporate power
-------------------
and authority necessary to execute and deliver this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby,
including the execution, delivery and performance of all documents and
instruments to be delivered by Seller pursuant to the terms hereof. Seller has
all requisite corporate power and authority necessary to carry on the Business.
4.11 Absence of Certain Changes. From the date hereof until the
--------------------------
Closing Date, Seller shall conduct the Business only in the ordinary course of
business consistent with past practices and, without limiting the generality of
the foregoing, there shall not be (a) an event or occurrence that has caused or
will cause a Material Adverse Effect, (b) an amendment, termination or receipt
of notice of termination of any Assumed Contract or any Permit, or (c) sale,
lease or other disposition of any assets used in the Business, other than assets
sold, leased or otherwise disposed of in the ordinary course of business
consistent with past practices.
4.12 Assumed Contracts. The Assumed Contracts are all the written
-----------------
contracts relating to the Business, the Purchased Assets or any assumed
liabilities or by which any of the Purchased Assets are bound, pursuant to which
the obligations of any party thereto are, or are contemplated to be, in respect
of any such contract material to the Business. None of the oral contracts
related to the Business are material to the Business. All of the Assumed
Contracts are valid and binding and in full force and effect, subject to laws
affecting creditors' rights. Neither Seller nor, to Seller's knowledge, any
other Person is in default nor has any event occurred that would result in
14
<PAGE>
an event of default under any Assumed Contract. True and complete copies of all
Assumed Contracts have been provided to Purchaser.
4.13 Suppliers and Customers. Except as Seller does not reasonably
-----------------------
expect would have a Material Adverse Effect, to Seller's knowledge, (i) the
relationships of Seller with its suppliers and customers with respect to the
Business are satisfactory and (ii) no material customer or supplier with respect
to the Business has canceled or otherwise terminated, or threatened to cancel or
otherwise terminate, its relationship with Seller, or to materially decrease its
services to Seller or its usage of the services of Seller.
4.14 Inventory. Section 4.14 of the Disclosure Letter sets forth
---------
an accurate and complete list of the Inventory and the expiration dates of
Existing Products and New Products that have been labeled and packaged for sale
as of [REDACTED]. Since such date, Seller has sold and distributed the
Inventory in the ordinary course of business and consistent with past practice,
except for sales pursuant to the agreements referred to on Exhibit B to the
Transition Services Agreement.
4.15 Legal Compliance-Food and Drug Administration. Except as set
---------------------------------------------
forth on Section 4.15 of the Disclosure Letter:
(a) Except as would not have a Material Adverse Effect, with respect
to the Products for which a new or abbreviated new drug application has been
approved by the FDA, the applicant and all persons performing operations covered
by the application are in compliance with 21 U.S.C. (S)(S) 355 or 357, 21 C.F.R.
Parts 314 or 430 et. seq., respectively, and all terms and conditions of such
-- ---
application.
(b) Seller has not filed any establishment license application or
product license application for any biologic product.
(c) Except as would not have a Material Adverse Effect, Seller is in
compliance with all applicable registration and listing requirements set forth
in 21 U.S.C. (S)360 and 21 C.F.R. Part 207.
(d) Seller does not conduct any manufacturing operations relating to
the Business. All manufacturing operations relating to the Business are
conducted by third parties (each a "Third Party Manufacturer"). To Seller's
------------------------
knowledge, all manufacturing operations conducted on behalf of Seller relating
to the Business have been and are being conducted in compliance with current
good manufacturing practices set forth in 21 C.F.R. Parts 210 and 211.
(e) Except as would not have a Material Adverse Effect, Seller has
made available to Purchaser copies of any and all reports of inspection
observations, establishment inspection reports, warning letters and any other
documents received by Seller from the FDA that indicate or suggest lack of
compliance with the FDA regulatory requirements by Seller or any person
15
<PAGE>
covered by a new or abbreviated new drug application of, or otherwise performing
manufacturing operations for the benefit of, Seller.
(f) Neither Seller, nor to Seller's knowledge, any Third Party
Manufacturer, has received any notice that the FDA has commenced, or threatened
to initiate any action to withdraw its approval or request the recall of any
Product, or commenced or threatened to initiate any action to enjoin production
at any facility of Seller or any facility at which a Third Party Manufacturer
conducts manufacturing operations on behalf of Seller.
(g) Except as would not have a Material Adverse Effect, none of the
Products are adulterated or misbranded within the meaning of the FDCA, 21 U.S.C.
(S)(S) 301c et. seq. in any manner that gives rise to any liability on the part
-- ---
of Seller.
(h) To Seller's knowledge, neither Seller, nor its officers,
employees or agents, has been convicted of any crime or engaged in any conduct
for which debarment is mandated by 21 U.S.C. (S) 335a(a) or authorized by 21
U.S.C. (S) 335a(b).
(i) Except as would not have a Material Adverse Effect, neither
Seller, nor its officers, employees or agents, has made an untrue statement of a
material fact or fraudulent statement to the FDA, failed to disclose a material
fact required to be disclosed to the FDA, or committed an act, made a statement
or failed to make a statement that could reasonably be expected to provide a
basis for the FDA to invoke its policy respecting "Fraud, Untrue Statements of
Material Facts, Bribery, and Illegal Gratuities" as set forth in 56 Fed. Reg
46191 (September 10, 1991).
4.16 Product Liability. Except as set forth on Section 4.16 of the
-----------------
Disclosure Letter, Seller has not received any written notice or claim involving
any of the Products resulting from an alleged defect in design, manufacture,
materials or workmanship, or any alleged failure to warn, or from any breach of
implied warranties or representations; nor is there any basis for any such
notice or claim.
4.17 Product Revenues. Section 4.17 of the Disclosure Letter sets
----------------
forth the accurate and complete Net Sales for the Product since the inception of
the Product, including amounts invoiced for the Product.
4.18 Limitations. SELLER MAKES NO REPRESENTATION OR WARRANTY
-----------
WHATSOEVER, OTHER THAN EXPRESS REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS
AGREEMENT AND IN THE CLOSING DOCUMENTS. EXCEPT AS SET FORTH IN THIS AGREEMENT
AND IN THE CLOSING DOCUMENTS, SELLER HEREBY SPECIFICALLY DISCLAIMS WITH RESPECT
TO THE PURCHASED ASSETS: (A) ANY IMPLIED REPRESENTATIONS OR WARRANTIES AS TO
THE CONDITION, VALUE OR QUALITY OF THE PURCHASED ASSETS AND (B) ANY IMPLIED
REPRESENTATIONS AND WARRANTIES OF MERCHANTABILITY, USAGE OR FITNESS FOR ANY
PARTICULAR PURPOSE.
16
<PAGE>
4.19 Sale of Products in Puerto Rico. Seller has not directly sold
-------------------------------
any Products for delivery to or in the Commonwealth of Puerto Rico; provided
that Seller makes no representation as to whether the ultimate customer of any
Products is located in the Commonwealth of Puerto Rico.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
As an inducement for Seller to enter into this Agreement and
consummate the transactions contemplated herein, Purchaser represents and
warrants to Seller that:
5.1 Organization. The Purchaser is a corporation duly organized,
------------
validly existing and in good standing under the laws of the State of its
incorporation. Purchaser is duly qualified or licensed as a foreign corporation
in each jurisdiction in which the nature of its business makes such
qualification or licensing necessary, except those jurisdictions where the
failure to qualify would not have a material adverse effect.
5.2 Valid and Binding Agreements. The board of directors of the
----------------------------
Purchaser has approved the transactions contemplated hereby and by the Closing
Documents and has authorized the execution and delivery hereof and thereof and
no further corporate proceedings on the part of the Purchaser are necessary to
consummate the transactions contemplated herein or therein. This Agreement has
been, and on the Closing Date each of the Closing Documents shall be, duly and
validly executed and delivered by Purchaser, and this Agreement is, and on the
Closing Date each of the Closing Documents shall be, legal, valid and binding
obligations of the Purchaser enforceable against Purchaser in accordance with
their respective terms, subject to applicable bankruptcy, insolvency and similar
laws affecting creditors' rights generally and to general principles of equity.
5.3 No Violation, Etc. Neither the execution and delivery of this
-----------------
Agreement or the Closing Documents nor the consummation of the transactions
contemplated by this Agreement or the Closing Documents nor compliance by
Purchaser with any of the provisions hereof or thereof (a) violates or conflicts
with any provision of the certificate of incorporation or by-laws of Purchaser
or (b) violates, or conflicts with, or results in a breach of any provision of,
or constitutes a default (or gives rise to any right of termination,
cancellation or acceleration) under, any of the terms, conditions or provisions
of any agreement, lease, instrument, obligation, understanding or arrangement to
which Purchaser or Purchaser's properties or assets may be bound or affected by
or (c) violates any law, statute, rule or regulation to which Purchaser is
subject.
5.4 Consents and Approvals. Except for any consents needed to
----------------------
transfer all ANDAs to Purchaser and register all ANDAs in the name of Purchaser
and for the expiration of the waiting period under the HSR Act, no permit,
consent, approval or authorization of, or declaration, filing or registration
with, any governmental authority or third party is necessary in connection with
the execution and delivery by Purchaser of this Agreement or the Closing
Documents or the
17
<PAGE>
consummation by it of the transactions contemplated hereby or thereby except
such consents as would not have a Material Adverse Effect.
5.5 Brokers' or Finders' Fees. Except for Corporate Development
-------------------------
Specialists, the fees of which will be paid by Purchaser, no person is or will
become entitled to receive any brokerage or finder's fee, advisory fee or other
similar payment for the transactions contemplated by this Agreement by virtue of
having been engaged by or acted on behalf of Purchaser.
5.6 Funds. Purchaser and any of its successors or assigns has
-----
available to it sufficient funds to enable it to consummate the transactions and
to fulfill its obligations contemplated by this Agreement (including the
payments contemplated by Section 2.4) and the Closing Documents, and to conduct
-----------
the business of manufacturing, distributing and selling the Products.
ARTICLE 6
INDEMNIFICATION
6.1 Indemnification by Seller. Seller shall indemnify, defend and
-------------------------
hold harmless each Purchaser Indemnified Party from and against any and all
loss, liability, damage, action, proceeding and expense (including, without
limitation, reasonable attorneys fees and expenses) (collectively, "Losses")
------
which a Purchaser Indemnified Party suffers or sustains or to which a Purchaser
Indemnified Party becomes subject as a result of (i) the inaccuracy or breach by
Seller of any representation or warranty made by Seller in this Agreement, (ii)
the nonperformance of any covenant or the nonobservance of any agreement made or
undertaken by Seller in this Agreement or in any of the Closing Documents, or
(iii) except as set forth in Sections 6.7(b) and 7.5, all liabilities or
--------------- ---
obligations of Seller to third parties arising prior to the Closing Date (A)
under any Assumed Contract, (B) with respect to any of the Purchased Assets
including any tax liabilities relating to the Business owed by Seller that
accrued prior to the Closing Date, and (C) with respect to any Products sold,
shipped or manufactured by Seller or on its behalf or any services provided by
Seller or on its behalf in connection therewith.
6.2 Indemnification by Purchaser. Purchaser shall indemnify,
----------------------------
defend and hold harmless each Seller Indemnified Party from and against any and
all Losses which a Seller Indemnified Party suffers or sustains or to which a
Seller Indemnified Party becomes subject as a result of (i) the inaccuracy or
breach by Purchaser of any representation or warranty made by Purchaser in this
Agreement, (ii) the nonperformance of any covenant or the nonobservance of any
agreement made or undertaken by Purchaser in this Agreement or in any of the
Closing Documents, or (iii) all liabilities or obligations arising after the
Closing Date (A) under any Assumed Contract, (B) with respect to any of the
Purchased Assets and (C) with respect to any Products sold, shipped or
manufactured by Purchaser or on its behalf or any services provided by Purchaser
or on its behalf in connection therewith.
18
<PAGE>
6.3 Procedures for Control of Third Party Claims. The Purchaser
--------------------------------------------
Indemnified Party or Seller Indemnified Party making a claim for indemnification
under this Section 6 shall be, for the purposes of this Agreement, referred to
---------
as the "Indemnified Party" and the party against whom such claims are asserted
-----------------
under this Section 6 shall be, for purposes of this Agreement, referred to as
---------
the "Indemnifying Party". In order for an Indemnified Party to be entitled to
------------------
any indemnification provided for under this Agreement in respect of, arising out
of or involving a claim or demand, made by any person, firm, governmental
authority or corporation against the Indemnified Party (a "Third Party Claim")
-----------------
such Indemnified Party must notify the Indemnifying Party in writing of the
Third Party Claim within ten (10) business days after receipt by such
Indemnified Party of written notice of the Third Party Claim; provided, however,
-------- -------
that failure to give such notification shall not affect the indemnification
provided hereunder except to the extent the Indemnifying Party shall have been
actually and materially prejudiced as a result of such failure. If a Third
Party Claim is made against an Indemnified Party, the Indemnifying Party shall
be entitled to participate in the defense thereof and, upon notice to the
Indemnified Party, to assume the defense thereof; provided, that (i) the
--------
Indemnifying Party's counsel is reasonably satisfactory to the Indemnified
Party, and (ii) the Indemnifying Party shall thereafter consult with the
Indemnified Party upon the Indemnified Party's reasonable request for such
consultation from time to time with respect to such suit, action or proceeding.
If the Indemnifying Party assumes such defense, the Indemnified Party shall have
the right (but not the duty) to participate in the defense thereof and to employ
counsel, at its own expense, separate from the counsel employed by the
Indemnifying Party. The Indemnifying Party shall be liable for the fees and
expenses of counsel employed by the Indemnified Party for any period during
which the Indemnifying Party has not assumed the defense thereof, but the
Indemnifying Party shall not be liable to the Indemnified Party for any legal
expenses subsequently incurred by the Indemnified Party in connection with the
defense thereof. Whether or not the Indemnifying Party chooses to defend or
prosecute any Third Party Claim, the parties hereto shall cooperate in the
defense or prosecution thereof. Such cooperation shall include the retention
and (upon the Indemnifying Party's request) the provision to the Indemnifying
Party of records and information which are reasonably relevant to such Third
Party Claim, and making employees or any other Indemnified Party available on a
mutually convenient basis to provide additional information and explanation of
any material provided hereunder. Whether or not the Indemnifying Party shall
have assumed the defense of a Third Party Claim, neither the Indemnifying Party
nor the Indemnified Party shall admit any liability with respect to, or settle,
compromise or discharge, such Third Party Claim without the other party's prior
written consent, which shall not be unreasonably withheld, conditioned or
delayed.
6.4 Survival of Representations and Warranties . No claim or
------------------------------------------
action for indemnity under Sections 6.1(i) or 6.2(i) shall be asserted or
--------------- ------
maintained by an Indemnified Party after the expiration of [REDACTED] following
the Closing Date, except for (i) a claim for indemnity made in writing by an
Indemnified Party to an Indemnifying Party prior to such expiration, which sets
forth in detail the basis for such claim or (ii) a claim by Seller pursuant to
Section 5.6, which may be asserted until the termination of all rights of
- -----------
Seller to receive royalty payments pursuant to Section 2.4(d).
--------------
19
<PAGE>
6.5 Limits on Indemnification. No claim for indemnification under
-------------------------
Section 6.1(i) and 6.2(i) may be made, and no payment in respect thereof shall
- -------------- ------
be required unless the aggregate amount of Losses against which an Indemnified
Party is entitled to be indemnified exceeds [REDACTED], in which case the
Indemnifying Party shall be liable for all Losses, including all Losses up to
and including [REDACTED]. The maximum aggregate amount of Losses that an
Indemnified Party shall be entitled to pursuant to Section 6 shall be
---------
[REDACTED]. The amount of any recovery to which an Indemnified Party may be
entitled pursuant to this Section 6 shall be net of (i.e., after deducting) all
---------
national, federal, state, provincial and local income tax benefits and insurance
proceeds inuring to such Indemnified Party as a result of the set of facts which
entitle such Indemnified Party to recover from the Indemnifying Party pursuant
to this Section 6. Notwithstanding anything contained in this Section 6.5,
--------- -----------
Seller shall be liable to Purchaser for all Losses, without regard to the
minimum or limitation contained in this Section 6.5, suffered by Purchaser in
-----------
connection with the lawsuit styled [REDACTED].
6.6 Limitation of Consequential and Other Damages. In no event
---------------------------------------------
shall Purchaser or Seller be liable for indirect, special, incidental,
consequential or punitive damages suffered by the other party or an Indemnified
Party, including, costs of procurement of substitute Product or services,
business interruption losses, loss of business relationships or lost profits;
provided, however, that nothing in this Section 6.6 shall be deemed to limit the
- -------- ------- -----------
indemnification obligations of Purchaser and Seller in this Section 6 to the
---------
extent a third party recovers any indirect, special, incidental, consequential
or punitive damages from an Indemnified Party.
6.7 Assumption of Risk. (a) Except as set forth in Section
------------------ -------
6.7(b), Purchaser assumes all risk of and liability for loss, damage or injury,
proven or unproven, to persons or property arising out of the manufacture, use,
possession, packaging, testing, labeling, distribution or sale of the Products
occurring on or after the Closing Date. After the Closing, Purchaser shall be
responsible for compliance with all regulatory matters in relation to the
Products, materials incorporated therein and the Purchased Assets (including the
labels, inserts, packaging and processes used in connection thereto) and
Purchaser shall be responsible for any and all communications with its customers
regarding the Products and all of the foregoing. Except as set forth in Section
-------
6.7(b), Seller shall bear no responsibility for the content and/or form of any
- ------
warning, instruction or labeling provided in connection with Product sold by
Purchaser on or after the Closing Date or otherwise communicated to customers.
Purchaser shall not make any claim or raise any defense against Seller nor take
any position in any litigation inconsistent with the provisions of this Section
-------
6.7.
- ---
(b) Notwithstanding the foregoing, in the event Purchaser shall be
liable to any third party for any Losses for any product liability claim
relating to any Product included as part of the Inventory transferred pursuant
to this Agreement, subject to Section 6.5, Seller shall indemnify Purchaser for
-----------
such Losses; provided that Seller shall not be required to indemnify Purchaser
--------
for any Losses under this Section 6.7(b) to the extent and only to the extent,
--------------
(i) any such Loss is attributable to Purchaser's failure to handle the Inventory
in a manner consistent with industry practice or (ii) any such Loss is otherwise
attributable to Purchaser's or its Affiliates' or either of their agents' gross
negligence or wilful misconduct.
20
<PAGE>
ARTICLE 7
COVENANTS
7.1 Conduct of Business. (a) Seller agrees that from the date
-------------------
hereof until the Closing Date, without the written consent of the Purchaser,
Seller shall not:
(i) Conduct the business exclusively related to the
manufacture, distribution and sale of the Products other than in the
ordinary course;
(ii) Make any sale, transfer or other disposition of any
material Purchased Assets other than in the ordinary course of business or
pledge or otherwise create a security interest in any of the Purchased
Assets; or
(iii) Consent to the termination of any Assumed Contract or
waive any material rights with respect thereto.
(b) Seller agrees that from the date hereof until the Closing Date,
Seller shall use all reasonable efforts to (i) preserve substantially the
relationships with its material representatives, suppliers and customers, (ii)
perform its obligations under all Assumed Contracts and Permits in all material
respects and (iii) comply with all Laws.
7.2 Regulatory Documents; Recordkeeping.
-----------------------------------
(a) Promptly following the Closing, the parties shall file with the
FDA all documents required to transfer the ANDAs from Seller to Purchaser.
Seller shall prepare and file the documents required of a former owner, and
Purchaser shall prepare and file the documents required of a new owner.
(b) Following the Closing, Purchaser shall assume all regulatory
responsibilities required under all Laws in connection with the Products, the
ANDAs and the Regulatory Documents; provided, however, that in the event that
-------- -------
the approval from the FDA to market the New Product has not been obtained prior
to the Closing Date, Seller shall automatically be appointed as the exclusive
agent of Purchaser to continue seeking approval from the FDA for the New
Product. In addition, Purchaser shall pay any user fees associated with the
Products that accrues after Closing but prior to the effective date of the
transfer of the ANDAs.
(c) Promptly following the Closing, Purchaser shall take any and all
action necessary to change, as expeditiously as possible, the National Drug Code
("NDC") number for the Products and to apply such new NDC number to the
---
Products.
21
<PAGE>
7.3 Validation Costs. Seller shall be responsible for the payment
----------------
of all validation costs and expenses relating to the approval of the manufacture
of the Products by Oread, Inc.
7.4 Assigned Trademarks. Purchaser shall be responsible, at its
-------------------
sole cost and expense, for preparing, recording and registering in the United
States Patent and Trademark Office the Trademark Assignment and all other
assignments, documents or filings that may be necessary to record the transfer
of the Assigned Trademarks to Purchaser. At the request of Purchaser, Seller
shall use its reasonable efforts to assist Purchaser in performing its
obligations under this Section 7.4.
-----------
7.5 Rebates; Chargebacks; Returns; Other Payments to Third Parties.
--------------------------------------------------------------
(a) On and after the Closing Date, Purchaser shall be solely liable
and responsible for all Payment Claims whether received by Purchaser or Seller,
with respect to Product distributed or sold before and after the Closing Date
and regardless of which batch code or NDC number is affixed to the Products;
provided, however, that until June 30, 2000, Seller shall remain solely liable
and responsible for any Payment Claim received by Purchaser, up to an aggregate
liability of [REDACTED], relating to a return of any Product that at the time of
receipt by Purchaser has expired or will expire within six (6) months
thereafter. Any amount owed to Purchaser under this Section 7.5 shall be
-----------
subject to set-off pursuant to Section 2.6.
-----------
(b) In the event that any Payment Claim is received by Seller on or
after the Closing Date, Seller may either (i) forward such Payment Claim to
Purchaser as promptly as possible after receipt, in which case Purchaser shall
immediately pay all amounts due under such Payment Claim, or (ii) pay the
amounts due under such Payment Claim. In the event that Seller elects to pay
the amounts due under such Payment Claim, Purchaser shall promptly reimburse
Seller for all amounts paid by Seller in satisfaction of the Payment Claim, upon
receipt of evidence indicating that such Payment Claim was paid and the amount
of such Payment Claim.
7.6 Third Party Consents. Prior to the Closing, Seller shall
--------------------
obtain the consent required for the assignment of the Manufacturing Agreement.
7.7 Payments after Closing. In the event that a payment is
----------------------
received by Seller from any person or entity and such payment indicates an
intent (or is accompanied by or is the subject of any other unsolicited
unambiguous indication of intent) that the payment is being made with respect to
Product sold after Closing, then Seller shall forward such payment to Purchaser
as promptly as practicable after receipt. In the event that a payment is
received by Purchaser from any person or entity and such payment indicates an
intent (or is accompanied by or is the subject of any other unsolicited,
unambiguous indication of intent) that the payment is being made with respect to
Product sold before Closing, then the Purchaser shall forward such payment to
the Seller as promptly as practicable after receipt. In the event that a
payment is received by either Purchaser or Seller from any person or entity and
such payment does not indicate any indication or intent, the payment shall be
allocated first to pay for sales of Product prior to Closing by Seller, and
after all such sales are
22
<PAGE>
fully paid and accounted for, the payment shall be applied to sales of Product
after Closing by Purchaser.
7.8 Government Consents. Each party shall use its reasonable
-------------------
efforts, and the parties shall cooperate with each other (including without
limitation by exchange of information), to obtain all waivers, permits, consents
and approvals and to effect all registrations or other filings and notices with
governmental or public bodies or authorities, including any filings required by
the HSR Act, that are in the reasonable opinion of the Seller or the Purchaser
necessary or reasonably desirable in connection with the transactions
contemplated by this Agreement.
7.9 Transitional License. Seller hereby grants to Purchaser a non-
--------------------
exclusive, non-transferable, royalty-free license until (i) Purchaser is in a
position to distribute Products without use of packaging and labeling materials
containing Warner Chilcott Trademarks, or (ii) twelve (12) months after the
Closing Date, whichever is earliest, to use the Warner Chilcott Trademarks to
the extent necessary to distribute and sell the Products using the existing
packaging and labeling materials forming part of the Inventory; provided, that
--------
Purchaser shall use its reasonable efforts to make all necessary arrangements as
soon as possible to enable Purchaser to ship Products without the use of any
packaging or labeling materials that includes the Warner Chilcott Trademarks.
When (i) the Purchaser is in a position to distribute Products without use of
packaging and labeling materials containing Warner Chilcott Trademarks or (ii)
the [REDACTED] month period has expired, whichever is earliest, Purchaser shall
not use any packaging or labeling materials that includes the Warner Chilcott
Trademarks, for any purpose and shall destroy all such materials. Except for
the express grant of rights to Purchaser under this Section 7.9, Purchaser shall
-----------
not use the Warner Chilcott Trademarks.
7.10 Insurance. Purchaser shall provide and maintain a
---------
comprehensive product liability insurance policy or policies, written by a good
and solvent insurance company satisfactory to Seller. Seller shall be named as
an additional insured. The liability insurance policy shall insure against all
liability related to the Purchased Assets and the Products (whether a party's
liability arises from its own conduct or by virtue of its participation in this
Agreement), including liability for bodily injury, property damage, wrongful
death, and any contractual indemnity obligations imposed by this Agreement. The
coverage limits of the policy or policies shall be in amounts that are
reasonable and customary in the pharmaceutical industry for companies of
comparable size and with comparable activities but in no event less than
[REDACTED] per occurrence and [REDACTED] in the aggregate. The policy shall
provide that it shall not be modified or canceled without prior notification to
Seller. Within [REDACTED] days after the Closing Date, Purchaser shall provide
a certificate of insurance to Seller which evidences the above-described
coverage.
7.11 Access. In addition to Seller's rights pursuant to Section
------ -------
2.4(h), for a period of two years after the Closing Date, upon Seller's
- ------
reasonable request, Purchaser shall permit Seller and its authorized agents to
have access during normal business hours and upon reasonable prior notice, to
inspect and copy agreements, records, books and other documents that are
included in the Purchased Assets and identified with reasonable particularity,
wherever located, solely for the
23
<PAGE>
purpose of (i) preparing tax returns and financial statements and responding to
tax audits or (ii) prosecuting or defending any claim, litigation, proceeding or
investigation which arises out of or relates to the Products or the Purchased
Assets.
7.12 Further Assurances. Each party hereto shall use all
------------------
reasonable efforts to implement the provisions of this Agreement, and for such
purpose each party, at the request of the other party, at or after the Closing,
shall, without further consideration, (except as provided in Section 7.2)
-----------
execute and deliver, or cause to be executed and delivered, to the other party
such deeds, assignments, bills of sale, consents and other instruments in
addition to those required by this Agreement, in form and substance satisfactory
to the other party, as such other party may reasonably deem necessary or
desirable to implement any provision of this Agreement.
7.13 Payment of Taxes. All recordation, transfer and documentary
----------------
taxes and fees, and any excise, sales or use taxes in connection with the
transfer of the Purchased Assets not attributable to either party, shall be
split evenly between the parties.
7.14 Noncompetition Agreement. Except as provided to the contrary
------------------------
below, Seller agrees with the Purchaser, for the Purchaser's sole and exclusive
benefit, that for a period commencing on the Closing Date until the termination
of all rights of Seller to receive royalty payments pursuant to Section 2.4(d),
--------------
neither Seller nor any of its Affiliates shall, directly or indirectly, engage
in the Business or develop, manufacture, distribute, package, test, market or
sell (i) any Developing Product or (ii) any line extensions or improvements on
any Product or Developing Product; provided, however, that the foregoing
-------- -------
covenant shall not apply with respect to (i) any Person that acquires a majority
of the stock or assets of Seller or Warner Chilcott PLC, or any Person that
acquires a majority of the stock or assets of an Affiliate of Seller, that prior
to such acquisition already shall engage in the business described in the
foregoing covenant; or (ii) the ownership or acquisition of up to five percent
by Seller or any of its Affiliates of any Person which is engaged in the
business described in the foregoing covenant; or (iii) the acquisition by Seller
or any of its Affiliates of a majority of the stock or a majority of the assets
of a Person that engages in the business described in the foregoing covenant;
provided with respect to (iii), that the portion of the business of such Person
that so competes does not exceed ten percent of the total business of such
Person.
Seller and the Purchaser agree that a breach of this Section 7.14
------------
shall cause irreparable harm to the Purchaser and its Affiliates, that
Purchaser's remedies at law for any breach or threat of breach of the provisions
of this Section 7.14 shall be inadequate, and that the Purchaser shall be
------------
entitled to an injunction or injunctions to prevent breaches of this Section
-------
7.14 and to enforce specifically the terms and provisions hereof, in addition to
- ----
any other remedy to which Purchaser may be entitled at law or in equity.
Seller acknowledges that (i) the scope of the protective restrictions
provided for in this Section are reasonable when taking into account (A) the
negotiations between the parties and (B) that Seller is the direct beneficiary
of the Purchase Price paid pursuant to this Agreement, (ii) the
24
<PAGE>
consideration being paid to Seller pursuant to this Agreement is sufficient
inducement for Seller to agree to the terms hereof, (iii) the provisions of this
Section are reasonable and necessary to protect the Business of the Purchaser
and (iv) the terms of this Section preclude Seller from competing with Purchaser
with respect to the Business, the Developing Products and any line extensions
and improvements on any Product or Developing Product.
7.15 Termination of [REDACTED] Action. Contemporaneous with the
--------------------------------
Closing Date, Seller shall (a) prepare and file all papers necessary and
required to withdraw from the [REDACTED], (b) enter into a release agreement
related thereto in a form that is mutually acceptable to both parties (the
"Release") and (c) prepare and file all papers and take all action necessary and
- --------
required to withdraw any complaints filed with the FDA by Seller relating to
Purchaser.
7.16 Permits.
-------
(a Cooperation and Reasonable Efforts. Seller shall use reasonable
----------------------------------
efforts, to take reasonable actions and to cooperate with Purchaser as may be
necessary to transfer to Purchaser, or assist Purchaser in obtaining, all
permits required to conduct the Business (the "Permits"). On or as soon as
-------
practicable after the Closing Date, the Seller shall file all applications
necessary to transfer the Permits. The Seller shall use reasonable efforts to
resolve objections, if any, as may be asserted by any governmental authority
with respect to the applications contemplated hereby.
(b No Assignment. Notwithstanding anything to the contrary in this
-------------
Agreement, Seller shall not transfer or assign any interest in any Permit, and
Purchaser shall not assume any liability arising thereunder or resulting
therefrom, if an assignment or transfer or an attempt to make an assignment or
transfer of such Permit without the consent of a governmental authority would
constitute a breach or violation thereof or a violation of law, or affect
adversely the rights of Purchaser or Seller thereunder, until such consent has
been obtained.
7.17 UCC-3s. Promptly following the Closing, Seller shall prepare
------
and file all documents and take all commercially reasonable actions, including
the filing of UCC-3s ("UCC-3s"), required to terminate any and all financing
------
statements relating to any of the Purchased Assets.
7.18 Inventory. Following the Closing, Seller shall prepare and
---------
deliver to Purchaser a statement which sets forth an accurate and complete list
of the Inventory and the expiration dates of Existing Products and New Products
that have been labeled and packaged for sale as of the Closing Date (the "Final
-----
Inventory Statement").
- -------------------
7.19 No Shop. Until the earlier to occur of the Closing Date or
-------
the termination of this Agreement pursuant to Article 8, Seller shall not,
---------
directly or indirectly, through any officer, director, agent, representative or
otherwise, (i) solicit, initiate or encourage submission of proposals or offers
from any person (other than Purchaser), relating to any acquisition or purchase
of the Business or the Purchased Assets, or (ii) participate in any discussions
or negotiations regarding any
25
<PAGE>
of the foregoing, or (iii) otherwise cooperate in any way with, or assist or
participate in, facilitate or encourage, any effort or attempt by any other
person to do or seek any of the foregoing. Seller shall promptly notify
Purchaser if it receives any such proposal or offer or any inquiry or contact
with respect thereto.
ARTICLE 8
TERMINATION
8.1 Termination of Agreement. This Agreement and the transactions
------------------------
contemplated hereby may be terminated at any time prior to the Closing Date:
(a By the mutual written consent of Seller and Purchaser;
(b By either Seller or Purchaser if the Closing shall not have
occurred on or before September 30, 1999, unless such date has been extended by
mutual agreement in writing or unless the parties are continuing to pursue
clearance under the HSR Act;
(c By either Seller or Purchaser if consummation of the
transactions contemplated hereby shall violate any non-appealable final order,
decree or judgment of any court or governmental body having competent
jurisdiction;
(d By Purchaser if there has been a material violation or breach by
Seller of any of the agreements, representations or warranties contained in this
Agreement that have not been cured within fifteen (15) days from the date Seller
receives notice of such violation or breach and that has not been waived in
writing, or if there has been a material failure of satisfaction of a condition
to the obligations of Purchaser that has not been waived in writing; or
(e By Seller if there has been a material violation or breach by
Purchaser of any of the agreements, representations or warranties contained in
this Agreement that has not been cured within fifteen (15) days from the date
Purchaser receives notice of such violation or breach and that has not been
waived in writing or if there has been a material failure of satisfaction of a
material condition to the obligations of Seller hereunder that has not been
waived in writing.
8.2 Effect of Termination. If this Agreement is terminated
---------------------
pursuant to Section 8.1, all further obligations of Seller and Purchaser under
-----------
this Agreement shall terminate without further liability of Seller or Purchaser.
The provisions of Sections 8.2, 9.1 and 10.3 shall survive any termination of
------------ --- ----
the Agreement pursuant to Section 8.1.
-----------
ARTICLE 9
CONFIDENTIALITY
26
<PAGE>
9.1 Confidential Information. From and after the Closing, with
------------------------
respect to all confidential information or other proprietary information
furnished, either in writing or orally, by one party or its Affiliates,
directors, officers, employees, agents or representatives to the other party or
its Affiliates, directors, officers, employees, agents or representatives
pursuant to this Agreement (collectively, "Confidential Information"), the party
------------------------
receiving such Confidential Information shall maintain the confidential and
proprietary status of such Confidential Information, keep such Confidential
Information and each part thereof within its possession or under its control,
use all its reasonable best efforts to prevent the disclosure of any
Confidential Information to any other person, and use all its reasonable best
efforts to ensure that such Confidential Information is used only for those
purposes specifically authorized by this Agreement. These mutual obligations of
confidentiality shall apply until five (5) years after termination or expiration
of this Agreement, but such obligations shall not apply to any information to
the extent that such information is:
(a) independently developed by such party as documented by prior
written records outside the scope and not in violation of this Agreement;
(b) in the public domain at the time of its receipt or thereafter
becomes part of the public domain through no fault of the recipient;
(c) received without an obligation of confidentiality from a third
party having the right to disclose such information; and
(d) released from the restrictions of this Section 9 by the express
---------
written consent of the disclosing party.
If disclosure of Confidential Information is required by court order
or governmental requirements, regulations, or investigations, the party being
required to disclose the other party's Confidential Information, prior to such
disclosure, shall notify the other party in a timely fashion to allow that party
to take the necessary steps to seek a protective order or to otherwise take the
necessary actions to maintain the confidentiality of this Confidential
Information.
Notwithstanding the provisions of this Section 9, each party may, to
---------
the extent necessary, disclose the Confidential Information of the other party
to its Affiliates, directors, officers, employees, consultants, vendors and
clinicians under written agreements of confidentiality at least as restrictive
on those set forth in this Agreement, who have a need to know such information
in connection with such party performing its obligations or exercising its
rights under this Agreement.
ARTICLE 10
GENERAL MATTERS
10.1 Tax Matters. Seller and Purchaser shall cooperate following
-----------
the Closing to comply with the requirements of Section 1060 of the Internal
Revenue Code of 1986, as amended
27
<PAGE>
(the "Code") (including, without limitation, completing form 8594), and any
----
other applicable provisions of the Code. For all such purposes the allocation of
the Purchase Price shall be set forth on a statement which shall be prepared by
Purchaser and delivered to Seller promptly following Seller's delivery of the
Final Inventory Statement. The allocations contained in Purchaser's Statement
shall be used by each party in preparing all relevant tax returns and reports.
Seller shall inform Purchaser of the amount of qualified research expenditure
attributable to the Purchased Assets for purposes of Section 41(f)(3) of the
Code, and Seller and Purchaser shall make all returns and reports of Taxes
(including Section 41 of the Code) consistently with the information provided to
Purchaser. Such cooperation shall include, without limitation, delivery of any
necessary information and access to the books and records of the other party.
Seller and Purchaser shall also remit to each other completed resale exemption
certificates and other similar certificates or instruments as are necessary to
claim available exemptions from the payment of sales or use taxes under
applicable laws.
10.2 Dispute Resolution. The parties shall initially attempt in
------------------
good faith to resolve any significant controversy, claim, or dispute arising out
of or relating to this Agreement or the breach, termination or validity thereof
(hereinafter collectively referred to as "Dispute") through at least one face-
-------
to-face negotiation between senior executives of the rank of at least Vice
President at the place of business of the party of whom the meeting is first
requested. Disputes which cannot be amicably resolved by the settlement
discussions referenced above shall be submitted to binding arbitration conducted
under the auspices of the Center for Public Resources (the "CPR") pursuant to
---
the CPR Rules for Non-Administrative Arbitration. The arbitration shall be
conducted before three (3) neutral arbitrators, one selected by each party and
the third to be selected by the other two. The arbitration shall be governed by
Delaware law as set forth in the Delaware Uniform Arbitration Act, Del. Code
Ann. tit. 10 (S)(S) 5702-5725, and judgment upon the award rendered by the
arbitrators may be entered and enforced by any court having jurisdiction
thereof. Any arbitration shall take place in Wilmington, Delaware. The
prevailing party shall be entitled to recover its reasonable costs and
attorneys' fees.
10.3 Press Releases and Announcements. No press release related to
--------------------------------
this Agreement or the transactions contemplated herein, or other announcement
related to this Agreement or the transactions contemplated herein to the
customers for, or suppliers of materials for, the Products, shall be issued
without the joint approval of the Purchaser and Seller, except as otherwise
required by law or stock exchange rule or regulations.
10.4 Agency. Except as set forth in Section 7.2(b), neither party
------ --------------
is, nor shall be deemed to be, an employee, agent, co-venturer or legal
representative of the other party for any purpose. Neither party shall be
entitled to enter into any contracts in the name of, or on behalf of the other
party, nor shall either party be entitled to pledge the credit of the other
party in any way or hold itself out as having the authority to do so.
10.5 Expenses. Except as otherwise expressly provided herein, each
--------
party to this Agreement shall pay its own expenses in connection with the
negotiation of this Agreement, the
28
<PAGE>
performance of its obligations hereunder, and the consummation of the
transactions contemplated herein.
10.6 Amendment; Modification. No amendment, modification or
-----------------------
supplement of any provision of this Agreement shall be valid or effective unless
made in writing and signed by a duly authorized officer of each party.
10.7 Waiver. No provision of this Agreement shall be waived by any
------
act, omission, course of dealing or knowledge of a party or its agents except by
an instrument in writing expressly waiving such provision and signed by a duly
authorized officer of the waiving party.
10.8 Notices. All notices to be given hereunder shall be in
-------
writing, shall be effective when received, and shall be delivered personally, by
facsimile transmission (receipt verified), mailed by registered or certified
mail (return receipt requested), postage prepaid, or sent by express courier
service, to the parties at the following addresses (or at such other address for
a party as shall be specified by like notice, also effective only upon receipt
thereof):
<TABLE>
<CAPTION>
Notices to Purchaser: with a copy to:
- -------------------- --------------
<S> <C>
Medicis Pharmaceutical Corporation Akin, Gump, Strauss, Hauer & Feld, L.L.P.
4343 East Camelback Road, Suite 250 1700 Pacific Avenue, Suite 4100
Phoenix, AZ 85018-2700 Dallas, TX 75201
Attention: Jonah Shacknai Attention: Alan M. Utay
Telephone: 602-808-8800 Telephone: 214-969-2800
Telecopy: 602-808-3874 Telecopy: 214-969-4343
Notices to the Seller: with a copy to:
- --------------------- --------------
Warner Chilcott, Inc. Kirkland & Ellis
Rockaway 80 Corporate Center 100 Citicorp Center
Enterprise Drive, Suite 280 153 East 53rd Street, 39th Floor
Rockaway, NJ 07866 New York, NY 10022-4675
Attention: Beth P. Hecht Attention: Frederick Tanne
Telephone: (973) 442-3211 Telephone: (212) 446-4831
Telecopy: (973) 442-3316 Telecopy: (212) 446-4900
</TABLE>
10.9 Assignment. This Agreement and all of the provisions hereof
----------
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns. Neither party may assign any of
its rights, liabilities or obligations hereunder without the prior written
consent of the other party and any assignment without such consent shall be
void, provided, however, that Purchaser may assign any of its rights,
liabilities or obligations hereunder to (i) any wholly-owned subsidiary of
Purchaser but only if such subsidiary has sufficient funds to enable it to
fulfill all obligations contemplated by this Agreement; and (ii) commencing
29
<PAGE>
[REDACTED] years after the Closing Date, to any third party that has sufficient
funds to enable it to fulfill all obligations contemplated by this Agreement
(and credible evidence of such assignee's sufficient funds, reasonably
satisfactory to Seller, shall be provided to Seller prior to any assignment) and
such assignment shall not have a material adverse effect on Seller.
10.10 No Strict Construction. The language used in this Agreement
----------------------
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against any
person. In this Agreement, the words "including" and "includes" shall be deemed
to be followed by the phrase "without limitation."
10.11 Complete Agreement. This Agreement (including the Disclosure
------------------
Letter attached hereto and the agreements and documents referred to herein)
contains the complete agreement between the parties and supersedes any prior
understandings, agreements or representations by or between the parties, written
or oral, which may have related to the subject matter hereof in any way. The
Confidentiality Agreement shall be deemed to have been superseded by this
Agreement as of the Closing Date.
10.12 Governing Law. The internal laws (without regard to the
-------------
conflicts of law provisions) of the State of Delaware shall govern all questions
concerning the construction, validity and interpretation of this Agreement and
the performance of the obligations imposed by this Agreement.
10.13 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original, and all of which
shall be considered one and the same instrument.
10.14 Bulk Transfer Laws. Purchaser hereby waives compliance by
------------------
Seller with the provisions of any so-called bulk transfer laws of any
jurisdiction in connection with the sale of the Purchased Assets.
10.15 Severability. If any provision of this Agreement shall be
------------
held invalid, illegal or unenforceable, the validity, legality or
unenforceability of the other provisions of this Agreement shall not be affected
thereby, and there shall be deemed substituted for the provision at issue a
valid, legal and enforceable provision as similar as possible to the provision
at issue.
* * * * *
30
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
MEDICIS PHARMACEUTICAL
CORPORATION
By: /s/Mark A. Prygocki, Sr.
--------------------------------------------
Name: Mark A. Prygocki, Sr.
-----------------------------------------
Title: Chief Financial Officer
-----------------------------------------
WARNER CHILCOTT, INC.
By: /s/Beth P. Hecht
-------------------------------------------
Name: Beth P. Hecht
-----------------------------------------
Title: Senior Vice President and General Counsel
-----------------------------------------
31
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001042459
<NAME> WARNER CHILCOTT, PLC
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 52,529
<SECURITIES> 0
<RECEIVABLES> 12,484
<ALLOWANCES> (1,564)
<INVENTORY> 4,258
<CURRENT-ASSETS> 68,740
<PP&E> 1,902
<DEPRECIATION> (707)
<TOTAL-ASSETS> 135,032
<CURRENT-LIABILITIES> 9,212
<BONDS> 0
0
0
<COMMON> 663
<OTHER-SE> 99,473
<TOTAL-LIABILITY-AND-EQUITY> 135,032
<SALES> 37,616
<TOTAL-REVENUES> 60,644
<CGS> 22,078
<TOTAL-COSTS> 56,944
<OTHER-EXPENSES> 6,717
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,327
<INCOME-PRETAX> (5,344)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,344)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,344)
<EPS-BASIC> (.43)
<EPS-DILUTED> (.43)
</TABLE>
